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SCHEDULE 14(a) INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
EXECUTONE INFORMATION SYSTEMS, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
( ) $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
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( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
(X) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $125.00
2) Form, Schedule, or Registration Statement No.: Preliminary Proxy
Statement
3) Filing Party: Executone Information Systems, Inc.
4) Date Filed: May 22, 1996
PROXY STATEMENT
EXECUTONE Information Systems, Inc.
478 Wheelers Farms Road
Milford, Connecticut 06460
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
July 30, 1996
To the Shareholders of
EXECUTONE Information Systems, Inc.:
Notice is hereby given that the Annual Meeting of Shareholders of EXECUTONE
Information Systems, Inc. (the "Company") will be held at the Ramada Plaza, 700
Main Street, Stamford, Connecticut, 06901 on July 30,
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1996, at 3:00 P.M., for the following purposes:
(1) To elect five directors of the Company for the coming year;
(2) To approve the issuance of up to 8,375,000 shares of Common Stock upon
conversion or redemption of the Cumulative Contingently Convertible
Preferred Stock, Series B;
(3) To approve proposed amendments to the Company's 1990 Directors Stock
Option Plan;
(4) To approve proposed amendments to the Company's 1994 Executive Stock
Incentive Plan; and
(5) To transact such other business as may properly come before the meeting
and any continuation or adjournment thereof.
Only shareholders of record at the close of business June 3, 1996 are
entitled to notice of and to vote at the meeting or any continuation or
adjournment thereof.
Barbara C. Anderson
Vice President, General Counsel
and Secretary
Milford, Connecticut
June 3, 1996
Whether or not you plan to attend the meeting, please complete, date and
sign the enclosed proxy, which is solicited by the Board of Directors of the
Company, and return it in the self-addressed envelope provided for this purpose.
The proxy may be revoked at any time before it is exercised, by written notice
to such effect received by the Company, by submitting a subsequently dated proxy
or by attending the meeting and voting in person.
EXECUTONE Information Systems, Inc.
478 Wheelers Farms Road
Milford, Connecticut 06460
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
The Board of Directors of EXECUTONE Information Systems, Inc., a Virginia
corporation (the "Company" or "EXECUTONE"), is furnishing this Proxy Statement
to all shareholders of record and solicits their proxies for the Annual Meeting
of Shareholders to be held on July 30, 1996. This Proxy Statement and the
enclosed form of proxy are being mailed to shareholders commencing on or about
June 3, 1996.
All proxies duly executed and received will be voted on all matters
presented at the meeting in accordance with the instructions contained in such
proxies. In the absence of specific instructions, proxies received will be voted
in favor of the election of the
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named nominees to the Company's Board of Directors, in favor of the proposal to
approve the issuance of Common Stock upon conversion or redemption of the
Preferred Stock, and in favor of the proposals to amend the 1990 Directors Stock
Option Plan and the 1994 Executive Stock Incentive Plan. Management does not
know of any other matters that will be brought before the meeting. In the event
that any other matter should come before the meeting or any nominee is not
available for election, the persons designated in the enclosed proxy will have
discretionary authority to vote all proxies not marked to the contrary with
respect to such matters in accordance with their best judgment. Proxies may be
revoked at any time prior to the exercise thereof by written notice to such
effect addressed to and received by the Company at its corporate offices at the
address given above, Attention: Corporate Secretary, by delivery of a
subsequently dated proxy or by a vote cast in person at the meeting.
As of June 3, 1996, the record date for the meeting, there were outstanding a
total of 51,939,570 shares of Common Stock of the Company, $.01 par value per
share (the "Common Stock"), 250,000 shares of Cumulative Convertible Preferred
Stock, Series A (the "Series A Stock") , and 100,000 shares of Cumulative
Contingently Convertible Preferred Stock, Series B (the "Series B Stock"). The
Common Stock, the Series A Stock and the Series B Stock are the only classes of
securities of the Company entitled to vote at the meeting, and each outstanding
share has one vote. A majority of the total number of shares of Common Stock,
Series A Stock and Series B Stock outstanding and entitled to vote as of June 3,
1996, or 26,144,786 shares, must be present at the meeting in person or by proxy
in order to constitute a quorum for the transaction of business. Only holders of
record of Common Stock, Series A Stock or Series B Stock as of the close of
business on June 3, 1996 will be entitled to vote.
A list of shareholders entitled to vote at the meeting will be available for
examination by any shareholder at the Company's offices, 478 Wheelers Farms
Road, Milford, Connecticut 06460, for a period of ten days prior to the meeting
and also will be available at the meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Each director to be elected at the meeting will serve for a term of one year
or until his successor shall be elected and qualified. The Bylaws give the Board
of Directors the flexibility to designate the size of the Board within a range
of five to nine members and appoint new directors should suitable candidates
come to its attention before the next annual meeting of shareholders.
Consequently, the Board of Directors has the ability to respond to changing
requirements and to take timely advantage of the availability of especially
well-qualified candidates. Any such appointees to the Board of Directors cannot
serve past the next annual meeting without shareholder approval.
The following persons have been nominated by the Board of Directors as
candidates for election as directors, and proxies not marked to the contrary
will be voted in favor of their election. The election of each nominee for
director requires the affirmative vote of the holders of a plurality of the
shares of Common Stock and Preferred Stock cast in the election of directors.
Votes that are withheld and shares held in street name ("Broker Shares") that
are not voted in the election of directors will
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not be included in determining the number of votes cast. Certain information
regarding each nominee and each director continuing in office is set forth
below, including each individual's principal occupation and business experience
during at least the last five years, and the year in which the individual was
elected a director of the Company or one of its predecessor companies. Mr.
William R. Smart, a member of the Board of Directors since 1992, is retiring and
will not stand for re-election. Mr. Jerry M. Seslowe was elected to the Board of
Directors in February 1996.
Director
Name Age Principal Occupation Since
Alan Kessman 49 President, Chief Executive Officer and 1983
Chairman of the Board of the Company
since 1988; formerly President, Chief
Executive Officer and Chairman of the
Board of ISOETEC Communications, Inc.
("ISOETEC"), one of the Company's
predecessor corporations, since 1983.
From 1981 to 1983, Mr. Kessman served
as a Corporate Vice President of Rolm
Corporation.
Stanley M. Blau 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 Busin1 1992
Administration, Harvard Business School,
since 1980. Mr. Rosenbloom is a director
of Arrow Electronics, Inc.
Jerry M. Seslowe 50 Managing Director of Resource Holdings 1996
Ltd., an investment and financial
consulting firm, since 1983.
Director Compensation
Each non-employee director receives an annual retainer of $10,000, payable in
equal quarterly installments, plus a fee of $1,250 for each Board meeting
attended. 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
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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 for 13,300 shares at $3.00 per share in
the case of Mr. Moore and Mr. Rosenbloom) 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. In accordance with the
terms of the Plan as amended, 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, 18,000 shares had been issued upon exercise of
options granted under the original terms of the Plan, options to purchase 39,000
shares of Common Stock were outstanding under the original terms of the Plan,
and options to purchase an additional 52,200 shares were outstanding under the
1996 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 will be available for future grant under the Directors' Stock Option
Plan.
On February 1, 1996 and June 23, 1992, Jerry M. Seslowe and Richard S.
Rosenbloom were each granted warrants to purchase 25,000 shares of the Company's
Common Stock at $2.63 and $1.25 per share, respectively, the closing market
prices on those dates. The warrants vest ratably over a three-year period and
expire on February 1, 2001 and June 23, 1997, respectively. Messrs. Seslowe and
Rosenbloom received these warrants upon being elected to serve on the Company's
Board of Directors.
Board and Committee Activities
During 1995, the Board of Directors met on ten occasions. All directors
attended more than 75% of the total number of meetings of the Board and of all
committees of which they were members during 1995. The Board has two standing
committees, an Audit Committee and a Compensation Committee.
The function of the Audit Committee is to recommend the selection of auditors
and to review the audit report and the adequacy of internal controls. The Audit
Committee met on one occasion during 1995. The members of the Audit Committee
during 1995 were Messrs. Rosenbloom and Smart.
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The Compensation Committee recommends to the full Board the compensation
arrangements, stock option grants and other benefits for executive management of
the Company as well as the incentive plans to be adopted by the Company. The
Compensation Committee met four times during 1995. The members of the
Compensation Committee during 1995 were Messrs. Moore, Rosenbloom, and Smart.
PROPOSAL NO. 2
TO APPROVE THE ISSUANCE OF UP TO 8,375,000 SHARES OF
COMMON STOCK UPON CONVERSION OF THE CUMULATIVE
CONTINGENTLY CONVERTIBLE PREFERRED STOCK, SERIES B
Reasons for the Proposal
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 contract to design,
develop, finance, and manage the National Indian Lottery (the "NIL" or
"Lottery") for five years commencing with the sale of the first NIL lottery
ticket. 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 Company acquired 100% of Unistar in exchange for 3.7 million shares of
Common Stock, 250,000 shares of newly issued Cumulative Convertible Preferred
Stock, Series A ("Series A Stock") and 100,000 shares of newly issued Cumulative
Contingently Convertible Preferred Stock, Series B ("Series B Stock").
Each share of the Series A Stock and the Series B Stock has voting rights
equal to one share of Common Stock. The Series A Stock 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 Stock
prior to such date. The Series B Stock 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 Stock prior to such date. All
accrued and unpaid 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 Stock or (iii) upon liquidation of the Company.
The Series A Stock is redeemable for 4.925 million shares of Common Stock
and, subject to the shareholder approval solicited hereby, the Series B Stock is
redeemable for 8.375 million shares in each case at the Company's option at any
time that the current market price of the Common Stock is $2.00 per share or
more.
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The Series A Stock, par value $.01 per share, is convertible for up to 4.925
million shares of Common Stock and the Series B Stock is contingently
convertible for up to 8.375 million shares of Common Stock, par value $.01 per
share (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 Stock can be
converted or redeemed because the total number of shares of Common Stock
potentially issuable upon redemption or conversion of all the Preferred Stock
(13,300,000) plus Common Shares issued in the acquisition (3,700,000),
or 17,000,000 shares, exceeded 20% of the outstanding shares of Common Stock
prior to the acquisition. Under the rules of the National Association of
Securities Dealers (NASD) market on which the Company's shares are traded,
issuance or potential issuance of this amount of shares requires shareholder
approval. The Company is therefore submitting the convertibility feature of
the Series B Stock to its shareholders for approval at the 1996 Annual Meeting.
No additional authorization of shareholders is required for issuance of
Common Stock or Preferred Stock or the issuance of Common Stock upon redemption
or conversion of Series A Stock.
If the convertibility and redemption features of the Series B Stock are
approved by the shareholders, and all the Series B Stock becomes convertible or
is redeemed for the maximum number of Common Shares, such 8,375,000 shares would
represent 14% of the shares of Common Stock outstanding as of the record date
plus such additional Series B Shares. The total of the shares of Common Stock
previously issued in the acquisition and the shares of Common Stock issuable
upon conversion or redemption of all shares of Preferred Stock under the
maximum conversion ratios, represents 26% of the outstanding Common Stock as of
the record date including such additional shares.
If the convertibility and redemption features of the Series B Stock are not
approved by the shareholders at the annual meeting, they may be resubmitted at
future meetings of shareholders for reconsideration. At any time that the
convertibility and redemption features of the Series B Stock remain unapproved
by the shareholders, the Series B Stock will not become convertible into or
redeemable for Common Stock as described herein, but will remain outstanding and
continue to accrue dividends as described above. The Series A Stock can become
convertible and redeemable as described herein notwithstanding the lack of
shareholder approval of the Series B Stock convertibility and redemption
provisions.
The 8,375,000 shares of Common Stock sought to be authorized for issuance
upon redemption or conversion of the Series B Stock are additional shares of the
class of Common Stock, par value $.01 per share, of which the Company is
authorized to issue under its Articles of Incorporation a total of 80,000,000
shares. Neither the holders of the Common Stock nor of any preferred stock, now
or hereafter authorized, will be entitled to any preemptive or other
subscription rights.
Conversion Rights of Preferred Stock
The Series A Stock and the Series B Stock are each convertible only under
the following circumstances: (i) Unistar and all of its subsidiaries (the
"Unistar Group") have Net Income (as defined) for the immediately proceding
fiscal year (ending December 31) equal to or exceeding $1 million; or (ii) the
sum of 100% of the cumulative net revenues (net of returns and rebates and
without regard to taxes) of the Unistar Group, and 25% of "Lottery Revenues" of
the other divisions and subdidiaries of the Company (e.g. from equipment sales
or other services used primarily in or directly related to management of gaming
activities) exceeds $50 million; or (iii) the sale, transfer or assignment of a
controlling interest in or substantially all of the business or assets of
Unistar or Unistar Entertainment to a third party (not a wholly owned subsidiary
of the Company). None of these circumstances has yet occurred or is
currently anticipated to occur within the next year.
In addition to the foregoing conditions, conversion of the Series B Stock
may only occur during the "Conversion Period" beginning on December 19, 1995 and
ending on the later of five years from such date, or the last day of the
four-year period beginning on the date the first lottery ticket for
participation in the NIL is sold by Unistar. In the case of a conversion, the
right to which is triggered by an event described in (ii) or (iii) above, the
maximum number of shares of Common Stock are issuable upon conversion, i.e.
4,925,000 shares of Common Stock in respect of the Series A Stock, or 19.7
shares for each Series B share, and 8,375,000 shares of Common Stock in respect
of the Series B Stock or 83.75 shares of Common Stock for each share of Series B
Stock.
In the case of a conversion based upon Net Income as described
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in (i) above, the number of shares of Common Stock issuable upon conversion of
each share of Series A Stock is the quotient determined by the following
formula: the excess of the Net Income for the preceeding fiscal year over $1
million, multiplied by .46 and divided by 250,000; provided that the maximum
shares of Common Stock issuable is 19.7 shares for each share of Series A Stock.
In the case of a conversion of the Series B Stock based upon Net Income as
described above, the number of Common Stock shares issuable upon conversion of
one Series B share is the quotient of the Net Income for the immediately
preceding fiscal year over $1 million, multiplied by .79 and divided by 100,000,
up to a maximum of 83.75 Shares of Common Stock for each Series B Stock.
The Company's management believes that the Company's significant investment
in Unistar, which initially created 8% dilution to the Company's shareholders
based on the 3.7 million shares of Common Stock issued in the acquisition, is
justified based upon the potential returns. The Company believes there is a
national market for the NIL based upon research into the experience of other
lotteries and the growth of the overall lottery market. There is no assurance
that there will be market acceptance of a telephone lottery, however, and
resolution of the legal proceeding described below and other legal issues raised
by various states may require expenditure by the Company of from $2 million to
$3 million of cash. Additional costs to become operational may be between $5 and
$10 million.
It was the Company's objective in structuring the terms of the Preferred
Stock, particularly the convertibility feature, to make significant amounts of
additional Common Stock issuable only upon the substantial success of the NIL.
Management believes that the structure of the convertibility feature of the
Preferred Stock furthers this objective and protects the existing Common Stock
holders from additional dilution since existing shareholders will also benefit
proportionately from any success of the NIL that triggers convertibility of the
Preferred Stock.
The NIL to be developed and managed by Unistar cannot begin telephone
operations until the resolution of a pending legal proceeding. Certain states
have attempted to block the NIL by filing letters under 18 U.S.C. Section 1084
preventing long-distance carriers from providing telephone service to the NIL,
based on allegations that the NIL is not legal. The Coeur d'Alene Tribe has
initiated legal action to obtain a ruling that the Lottery is authorized by the
Indian Gaming Regulatory Act ("IGRA") passed in 1988 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 cannot refuse to provide telephone service for the NIL
based upon such letters. An order and injunction have subsequently been issued
confirming this opinion. 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.
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If shares of Preferred Stock are called for redemption, conversion rights
with respect to such shares will expire at the close of business on the fifth
business day prior to the redemption date, unless the Company defaults in making
the payment due upon redemption. In order to exercise the conversion privilege,
the holder of a share of Preferred Stock shall surrender the certificate
representing such share at the office of any transfer agent for the Common Stock
and shall give written notice to the Company at said office that such holder
elects to convert the same, specifying the name or names and denominations in
which such holder wishes the certificate or certificates for the Common Stock to
be issued (which notice may be in the form of a notice of election to convert to
be printed on the reverse of the certificates representing shares of Preferred
Stock). The Company is not required to issue fractional shares upon
redemption or conversion of Preferred Stock and, in lieu thereof, will pay a
cash adjustment based upon the market price (as defined) of the Common Stock on
the last trading day prior to the date of conversion.
The number of shares of Common Stock issuable upon the conversion of shares
of Preferred Stock is subject to adjustment under certain circumstances,
including (a) the distribution of additional shares of Common Stock to all
holders of Common Stock, (b) the subdivision of shares of Common Stock, (c) a
combination of shares of Common Stock into a smaller number of shares of Common
Stock, (d) the issuance of any securities in a reclassification of the Common
Stock, (e) the issuance of rights, options or warrants to the holders of Common
Stock entitling them to subscribe for or purchase Common Stock at less than the
then current market price of the shares of Common Stock, and (f) the
distribution to all holders of Common Stock of any shares of the Company's
capital stock (other than Common Stock) or evidences of its indebtedness, assets
(other than certain cash dividends or dividends payable in Common Stock) or
certain rights, options or warrants (and the subsequent redemption or exchange
thereof). Any and all adjustments to the number of shares of Common Stock
issuable upon conversion of shares of Preferred Stock by reason of any of the
foregoing will not be made until they result in a cumulative change in the
conversion price of at least three percent.
Holders of Common Stock are not entitled to preemptive rights, and to the
extent that any additional shares of Common Stock may be issued on other than a
pro rata basis to current stockholders, including pursuant to conversion or
redemption of the Preferred Stock, the additional shares could potentially have
a dilutive effect on earnings per share and on the equity ownership and voting
power of the present holders of Common Stock. The Series B Stock is redeemable
and convertible only under circumstances in which the Company was receiving
substantial revenue, income or other
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proceeds from Unistar in consideration for any additional shares of Common Stock
issued, thereby reducing or eliminating the economic effect to each shareholder
of such dilution.
Vote Required
Approval of the proposed convertibility feature and possible issuance of
Common Stock requires the affirmative vote of the holders of a majority of the
shares of Common Stock and Preferred Stock represented and voting at the
meeting. Abstentions and Broker Shares that are not voted on the matter will
have the same effect as a negative vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL NO. 2
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PROPOSAL NO. 3
PROPOSED AMENDMENT TO EXECUTONE'S 1990
DIRECTORS STOCK OPTION PLAN
Description of Proposed Amendments
The Board of Directors of the Company, on the recommendation of the
Compensation Committee, has unanimously approved amendments to the Company's
1990 Directors Stock Option Plan (the "Director Plan"). The first amendment will
increase the aggregate number of shares issuable pursuant to the Plan from
100,000 shares to an aggregate of 250,000 shares. The second amendment changes
the number of shares covered by options granted to each director annually from
3,000, to a number determined by reference to the Black-Scholes option pricing
model to provide an option equal in value to $10,000 based upon the current
market price of the Common Stock at the date of grant. The third amendment
provides that the option price shall be 120% of the current market value of the
Common Stock at the date of grant. Finally, the Director Plan is amended to
provide that the initial option granted to a newly elected or appointed director
will become fully exercisable, or vested, after one year from the date of grant
rather than in installments over a four-year period.
See "Proposal No. 1, Election of Directors," for information on options
granted under the Director Plan as amended. The Director Plan as amended is set
forth as Exhibit A hereto.
Reasons for Proposed Director Plan Amendments
The purpose of the proposed amendments is to retain and attract highly
qualified directors. By increasing the total number of option shares that may be
issued and tying the number of shares that may be issued under Director Plan
options to a level of compensation to be provided rather than a predetermined
number, the proposed amendments increase the value of such options to existing
and potential directors. However, by providing for such options to be priced at
120% of the market price at the date of grant, the Directors Plan as amended
will encourage long term investment in the Common Stock and ensure that the
Common Stock price will have to increase significantly before a director can
realize a gain on his option shares. Finally, the amendment to the vesting
provisions recognizes that a newly elected or appointed director should be fully
vested in the initial Director Plan option after one full year of service,
especially in light of the higher exercise price required by the amendments. The
Company is of the opinion that the value of director compensation should be
increased to make the Company competitive in attracting and retaining qualified
directors and that the amendments further that objective.
The purpose of the Director Plan is to advance the interests of the Company
by enabling current and future members of the Board of Directors to acquire an
equity interest in the Company. Management of the Company believes that the
availability of stock options for grant to directors aids in attracting,
motivating and retaining high-caliber directors. The Director Plan is not
intended to qualify as an employee stock option plan under Sections
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421 and 423 of the Internal Revenue Code (the "Code"), as amended and options
granted pursuant thereto are "non-statutory options" and will not qualify for
any special tax benefits to the optionees. The Board believes these provisions
further the intent of the Director Plan to encourage director stock ownership
and provide a valuable compensation benefit to directors in order to retain and
attract highly qualified persons as directors of the Company.
Summary of the Plan
Administration. The Director Plan is administered by a committee (the
"Committee") consisting of at least three persons chosen by the Board of
Directors who are "disinterested" persons as defined in Rule 16b-3 promulgated
under the Securities Exchange Act of 1934. The Committee interprets the Director
Plan and prescribes rules, regulations and forms relating to the Director Plan's
administration. The Compensation Committee of the Board of Directors is
currently the Committee for the Director Plan.
Shares Subject to the Plan. After giving effect to the proposed amendments,
a total of 250,000 shares of Common Stock, par value $.01 per share, will be
reserved for issuance upon exercise of stock options granted under the Director
Plan, including a total of 18,000 already issued under the original terms of
the Director Plan, a total of 39,000 that are currently issuable under options
outstanding under the original terms of the Director Plan, and 52,200 that are
issuable, subject to shareholder approval, under options granted under the
revised terms of the Director Plan. After giving effect to the amendments,
approximately 140,800 shares will be available for issuance upon exercise of
options that may be granted in the future. The Director Plan provides for
appropriate adjustment in the event of stock dividends, stock splits,
recapitalizations and other changes in capital structure.
Eligibility. All members of the Board of Directors of the Company
automatically participate in the Director Plan.
Nontransferability. Options granted under the Director Plan are not
transferable other than by will or the laws of descent and distribution, and
such options are exercisable during a participant's lifetime only by such
participant.
Termination of Employment or Death. If the service as a director of a
participant in the Director Plan is terminated by the death of the participant,
all options held by such person will expire seven (7) months after the
optionee's death. If such Board membership terminates other than by death,
options then outstanding may be exercised within seven (7) months of termination
of Board membership.
Amendment and Termination. The Board of Directors may at any time terminate
the Director Plan, or from time to time make such modifications or amendments to
the Director Plan as it may deem advisable. However, the Board of Directors may
not, without approval by the affirmative vote of the
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holders of a majority of the outstanding shares present or represented and
entitled to vote, amend the Director Plan to materially increase the benefits of
the Plan to the participants.
Vote Required
Adoption of the proposed amendment to the 1990 Directors Stock Option Plan
requires the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock and Preferred Stock present or represented by properly
executed and delivered proxies at the meeting. Abstentions and Broker Shares
voted as to any matter at the meeting will be included in determining the number
of votes present or represented at the meeting and therefore abstentions or
broker non-votes on Proposal No. 3 will have the same effect as a negative vote.
Broker shares that are not voted on any matter at the meeting will not be
included in determining the number of shares present or represented at the
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL NO. 3
PROPOSAL NO. 4
AMENDMENT OF 1994 EXECUTIVE STOCK INCENTIVE PLAN
Description of Proposed Amendments
The Board of Directors of the Company, on the recommendation of the
Compensation Committee, has unanimously approved amendments to the Company's
1994 Executive Stock Incentive Plan (the "Executive Plan") to delete provisions
of the Executive Plan that permitted the Company to repurchase shares acquired
by executives under the Plan under certain circumstances. The amendments would
allow any executive participant to retain ownership of any and all shares
acquired under the Executive Plan provided the executive pays the full amount of
the purchase price and all accrued interest on the purchase price in full.
Reason for Proposed Amendments
The purpose of the Executive Plan is to advance the interests of the Company by
assisting key employees to acquire an equity interest in the Company. Under the
Executive Plan as originally adopted and as approved by the shareholders in
1994, shares purchased by an employee participant who resigned or whose
employment otherwise terminated were subject to the Company's right to
repurchase some or all of shares at the original purchase price paid by the
employee plus accrued interest. This meant that the employee could be deprived
of realizing a gain on such shares if the market price of the shares had
increased since they were purchased, even though the employee was fully
obligated to pay the purchase price for such
14
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<PAGE>
shares, and also created potential taxable income and tax liability for the
employee with no actual income from which to satisfy such tax liability. The
proposed amendments delete this right of the Company and permit the departing
executive participant to retain the benefits of participation in the Executive
Plan provided the full purchase price plus interest is paid by the executive,
and eliminate the tax problem. The proposed amendments do not alter in any way
the executive participant's obligations to pay in full for all shares purchased
under the Plan. The Board believes these provisions further the intent of the
Plan to encourage executive stock ownership and provide a valuable employee
benefit.
Summary of the Executive Plan
The Executive Plan was approved by the Compensation Committee and adopted by
the Board of Directors of the Company on April 21, 1994 and approved by the
Company's shareholders at the 1994 annual meeting. The Board of Directors
amended the Executive Plan on March 14, 1996, subject to the approval of the
Company's shareholders. The amendments eliminate the Company's right to require
a participant to sell to the Company shares of Common Stock acquired under the
Executive Plan.
The principal features of the Executive Plan, as amended, are summarized
below. A copy of the Executive Plan amendments is attached hereto as Exhibit B
and the following summary is qualified in its entirety by reference to the
text of the Executive Plan.
Purposes of the Executive Plan. The primary purpose of the Executive Plan is
to encourage a higher level of Common Stock ownership by key executives of the
Company and through such ownership to cause the personal financial interests of
the executives to more closely parallel those of the Company's shareholders
generally. A secondary purpose is to provide the executives with an element of
incentive compensation tied to appreciation in the value of the Company's Common
Stock and thereby to attract and retain the best available executive talent
without undue growth in fixed compensation such as salary.
Administration. The Executive Plan is administered by a committee of at
least three members of the Board of Directors who are not eligible for
participation in the Executive Stock Plan and are "disinterested" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, which committee
is currently the Compensation Committee of the Board. The Committee has full
authority to determine all questions of eligibility and participation levels
under the Executive Plan, to adopt, amend or rescind rules relating to
administration of the Plan, and to interpret the provisions of the Executive
Plan in its sole discretion. All decisions of the Committee are final and
binding. The Committee has authority to waive provisions of the Executive Plan
and agreements entered into under the Plan, in its discretion, in circumstances
it deems to be in the best interests of the Company and its shareholders.
15
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<PAGE>
Common Stock Subject to the Executive Plan. The maximum number of shares of
Common Stock that may be purchased by executives under the Executive Plan is
3,000,000 shares. The Company intends to provide shares for sale under the
Executive Plan solely through repurchases of previously issued Common Stock,
either in open market purchases or private transactions. Therefore, the
Executive Plan should not result in any net increase in the amount of Common
Stock outstanding, but will increase the percentage of ownership by the
Company's management and will restrict trading of the shares owned by management
subject to the Executive Plan for up to five years, as more fully described
below. Shares are sold by the Company at their fair market value at the time of
sale under the Executive Plan.
Eligibility and Participation. Shares may be sold under the Executive Plan
only to officers and to other key executives. Participants are selected by the
Committee from the class of eligible employees.
It is currently anticipated that participation will not exceed 30
individuals. There are currently 27 participants. The Committee determines the
level of participation to be offered to each participant, based on the level of
responsibility of the executive and on the level of Common Stock ownership
deemed by the Committee to be recommended for an individual in the participant's
position.
The primary purpose of the Executive Plan is to increase Common Stock
ownership by senior management. In this regard, the Committee has adopted
guidelines as to recommended stock ownership by senior executives. These
guidelines state that each eligible executive should own or acquire Common
Stock having a market value equal to an amount from one to four times his or her
annual salary, depending on the executive's position.
Terms of Stock Purchases. Participants who are selected by the Committee pay
the fair market value of the shares on the date of purchase, by delivery to the
Company or the Company's bank of a five-year full- recourse promissory note
accruing interest at the same rate as is paid from time to time by the Company
on its bank borrowings. The shares purchased are pledged to the Company to
secure repayment of the note, and the certificates are held by the Company until
released pursuant to the terms of the Executive Plan, as described below. Upon
payment of the purchase price, the participant has all rights of a shareholder
of the Company.
The Company may arrange for a bank or other financial institution to loan
the purchase price for the shares to the executive; in such event, the Company
guarantees the loans rather than be the direct lender, and holds the shares as
security for the obligation of the executive. The Company arranged for and has
such bank arrangements in place for all participants in the Executive Plan to
date, and has not directly lent any participant the purchase price for the
shares.
The participant's promissory note is payable five years from the date of
purchase, but must be prepaid if the shares are to be sold as permitted
16
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<PAGE>
under certain circumstances under the Plan, as described more fully below. An
amount equal to 15% of the interest accrued on the note is payable by the
participant each year; the balance of the accrued interest is added to and
payable upon payment of the principal of the note or, in the case of a bank
loan, is advanced by the Company and is repayable by the participant upon
payment of the note. In addition, each participant is required to reduce the
principal of the note by 25% of the amount of any annual bonus payments based on
corporate performance that the Company pays to the participant while the note is
outstanding,
Permitted Sales of Purchased Shares. Generally, the shares purchased under
the Executive Plan may not be sold for five years or until the fair market value
of the Common Stock equals or exceeds the long-term target price of $10.00 per
share for at least twenty consecutive trading days. In the event of the death or
disability of the participant before the end of the five-year period, the
participant's estate or the participant may sell the shares upon repayment of
the principal and all unpaid accrued interest of the note, or retain ownership
of the shares. In addition, if the participant's employment terminates following
a change in control, as defined in the Executive Plan, the shares may be sold by
the participant upon payment of the principal and all accrued interest.
The Executive Plan provided the Company the option, but not the obligation,
to repurchase any or all of the Executive Plan shares for the amount of the
participant's note plus an amount equal to all interest paid by the participant
if the participant's employment ended by resignation or if the participant was
terminated by the Company. However, if the participant's employment was
terminated for reasons other than cause, a number of shares equal to 10% of the
shares originally purchased for each full year of employment since the purchases
were exempt from the Company's repurchase option.
The Company has been advised that its repurchase option may have unintended
adverse federal income tax consequences for participants. Participants may incur
ordinary income tax liability on account of their purchase of the Executive
Stock Plan shares, notwithstanding the fact that the participants committed to
pay a price equal to the full fair market value for the Common Stock. The
Company has also determined that the repurchase option does not promote a
significant Company interest. For these reasons, the Board of Directors amended
the Executive Plan to eliminate the Company's repurchase option and the
shareholders are asked to approve that amendment.
The Executive Plan permits limited sales of purchased shares each year
subject to the following conditions. A number of shares may be sold each year
that will provide net proceeds (after provision for commissions, taxes, and
accrued interest that will be due on the next interest payment date) sufficient
to pay down a specified percentage of the note plus a prorata portion of the
accrued interest. The amounts of principal that may be so amortized are 10%
after the first year, 15% after the second year, 20% after the third year and
25% after the fourth year. The purpose of the limited sale provision is to
provide for gradual repayment of the loan amount by the
17
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<PAGE>
participant and thereby reduce the Company's financial exposure.
Tax Consequences of the Executive Plan
The federal income tax consequences of the Executive Plan, under the Code,
as amended and as currently in effect, are as follows:
A participant who purchases shares under the Executive Plan will not
recognize any income for federal tax purposes at the time of purchase.
The interest actually paid on the participant's note may be deductible by
the participant for federal income tax purposes subject to certain investment
interest limitations. The interest accrued but deferred and added to the
participant's note will not constitute income to the participant nor entitle the
Company to a federal income tax deduction for compensation expense, unless such
interest is forgiven which may create income depending on the participant's
individual tax situation. All interest accrued on amounts by the Company,
whether paid currently or deferred, will constitute income to the Company in the
year accrued.
There will be no federal income tax consequences to either the participant
or the Company upon the lapsing of the restrictions on resale of the purchased
stock. Upon sale of the purchased stock by the participant, the participant will
recognize income or loss depending upon the relation of the sale price of the
stock to the participant's tax basis in the stock. The participant's gain or
loss will be long-term capital gain or loss if the stock has been held for one
year or more, or will be a short-term capital gain or loss if held for less than
one year.
The foregoing applies only to U.S. federal income tax. Each participant in
the Executive Plan should seek professional tax advice on the anticipated
federal and state tax consequences in light of the participant's personal tax
situation.
The Executive Plan is not a stock bonus, pension or profit-sharing plan and
is not subject to or qualifiable under Section 401(a) of the Code or any of the
provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
The Company is unable to determine the benefits that will be provided under
the Executive Plan if the shareholders approve the amendments described above
since it is impossible to define all the circumstances under which any
participant's participation in the Executive Plan might cease and the stock
price at the time participation ceases. The benefits provided under the Plan
during the most recent fiscal year are reflected in the following table. All
shares were purchased on October 3, 1994 at a price of $3.1875 per share, the
closing market price on that date.
18
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<PAGE>
<TABLE>
<CAPTION>
Name of Individual Number of Total Deferred Interest
or Group Shares Purchase as of December 31,
Purchased Price 1995
<S> <C> <C> <C>
Alan Kessman 600,000 $1,912,500.00 $145,595.04
Michael W. Yacenda 350,000 $1,137,500.00 $ 84,930.44
Stanley M. Blau -0- -0- -0-
Shlomo Shur 175,000 $ 568,750.00 $ 42,465.22
Andrew 175,000 $ 568,750.00 $ 42,465.22
Kontomerkos
All officers as a 2,105,000 $6,709,687.50 $510,175.02
group (13 persons)
All employees as a 2,885,000 $9,195,937.50 $671,758.03
group (29 persons)
</TABLE>
Vote Required
Approval of the Executive Plan amendments requires the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock and
Preferred Stock present or represented by properly executed and delivered
proxies at the meeting. Abstentions and broker shares voted as to any matter at
the meeting will be included in determining the number of votes present or
represented at the meeting, and therefore abstentions or broker non-votes on
Proposal No.4 will have the same effect as a negative vote. Broker shares that
are not voted on any matter at the meeting will not be included in determining
the number of shares present or represented at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL NO. 4
OWNERSHIP OF EQUITY SECURITIES
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.
19
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
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
* 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).
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<PAGE>
(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 126,326 shares of Common Stock subject to
options and warrants, none of which are exercisable within 60 days of June 3,
1996. Includes 76,314 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. No other
director, nominee for director or officer of the Company owns any shares of the
Company's 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. Unless otherwise
noted, the owner has sole voting and dispositive power
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with respect to the securities.
Shares of Preferred Stock Beneficially Owned (and Percent of Class)
</TABLE>
<TABLE>
<CAPTION>
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
All Directors and Officers 3,830(1.53%) 1,532(1.53%)
as a Group (20 persons)
</TABLE>
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.
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<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Other
Name and Annual Awards of All
Other Salary ($) Bonus ($) Compensa- Options/ Compensation
Principal Position Year (1) tion ($)(2) SARs(#) ($) (3)
<S> <C> <C> <C> <C> <C> <C>
Alan Kessman 1995 400,000 -0- -0- -0- 10,328
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- -0- -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
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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. All credits shown in this column
were used to exercise stock options in 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, $5,400.
Employment Agreement
The Company and Mr. Kessman entered into an employment continuity agreement
in January, 1995 that provides certain benefits to Mr. Kessman in the event of
the termination of Mr. Kessman's employment following a change in control in the
Company, including a lump sum payment equal to 2.99 times his then current base
salary plus the average of any bonuses awarded to Mr. Kessman during the two
fiscal years preceding the termination of his employment. Under the terms of the
agreement, a change in control includes the acquisition of beneficial ownership
of 20% of the Company's voting securities by any person or group. The agreement
continues through the length of Mr. Kessman's employment with the Company.
24
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Option Grants in Last Fiscal Year
The following table sets forth the individual grants of stock options made
during the year ended December 31, 1995 to the Chief Executive Officer and the
four most highly compensated other executive officers of the Company. There were
no grants of stock appreciation rights made to any officers during 1995, and
there are no outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Potential Realized Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
- -------------------------------------------------------------------------------------- --------------------------
% of Total
Options Exercise
Granted to or Base
Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/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.
25
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<PAGE>
<TABLE>
<CAPTION>
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 296,425 578,660 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 REPORT
ON EXECUTIVE COMPENSATION
It is the responsibility of the Compensation Committee of the Board of
Directors to administer the Company's incentive plans, review the performance of
management and approve the compensation of the Chief Executive Officer and other
executive officers of the Company.
The Compensation Committee believes that the Company's success depends on
the coordinated efforts of individual employees working as a team toward defined
common goals. The objectives of the Company's compensation program are to align
executive compensation with business objectives, to reward individual and team
performance furthering the business objectives, and to attract, retain and
reward employees who will contribute to the long-term success of the Company
with competitive salary and incentive plans.
Specifically, executive compensation decisions are based on the following
factors:
1. The total direct compensation package for the Company's executives is
made up of three elements: base salary, a short-term incentive program in the
form of a performance-based bonus, and a
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<PAGE>
long-term incentive program in the form of stock options and other inducements
to own the Company's stock.
2. The Committee believes that the total compensation of all executives
should have a large incentive element that is dependent upon overall Company
performance measured against objectives established at the beginning of the
fiscal year. Bonus and stock opportunities represent a significant portion of
the total compensation package, in an attempt to further the Company's goal of
linking compensation more closely to the Company's performance. The percentage
of direct compensation that is dependent upon the Company's attainment of its
objectives also generally increases as the responsibility of the officer in
question for the overall corporate performance increases.
3. Total compensation levels, i.e., base salary, bonus potential, and number
of stock options, are established by individual levels of responsibility and
regular reference to competitive compensation levels for executives performing
similar functions and having equivalent levels of responsibility. However,
whether actual bonuses are paid to each executive depends upon the achievement
of Company profitability goals. In the case of certain executives who have
direct responsibility for individual business units, a portion of the incentive
compensation for such executives may consist of bonuses tied to the performance
against predetermined targets of the individual business units for which they
are responsible.
4. In 1995, the Compensation Committee did not perform a general survey of
executive compensation. The Committee determined that the operating results of
the Company did not support any salary increases for officers and no changes
were made to the compensation of any officers named in the Summary Compensation
Table. (Compensation for 1995 shown in the Table is greater than that shown for
1994 because 1994 increases are reflected in only six months of 1994 compared to
twelve months of 1995.) In 1994 and in previous years, the Compensation
Committee has reviewed various executive compensation data developed by the
Company's Human Resources Department with an independent consultant from salary
and bonus compensation information reported in a nationally recognized
independent compensation survey (the "Survey") for a group of companies in the
Company's industry or similar industries and of comparable size and complexity.
The Committee compared the salary and bonus levels of the Survey group to the
existing salary and bonus compensation of the Company's management.
5. The Committee views the 50th percentile of the Survey data as average
compensation for comparable positions and believes it is the minimum level
necessary for the Company to be competitive in attracting and retaining
qualified executives in its industry and geographic locations. Therefore, the
salaries for the Chief Executive Officer and the four other highest paid
executive officers were established in 1994 at approximately the 50th percentile
for comparable positions in the Survey companies.
6. Merit increases in base salary for executives other than Mr. Kessman have
been reviewed on an individual basis by Mr. Kessman and increases are dependent
upon a favorable evaluation by Mr.
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Kessman of individual executive performance relative to individual goals, the
functioning of the executive's team within the corporate structure, success in
furthering the corporate strategy and goals, and individual management skills.
Based upon his evaluation, Mr. Kessman recommends salary increases to the
Committee for its approval.
7. In addition to base salary and merit increases, the Compensation
Committee considers incentive bonuses for its executive officers, including the
Chief Executive Officer, both prospectively based upon the attainment of
specific performance goals, and retrospectively based upon the Committee's
discretionary judgment as to the performance during the year of the Company and
its executive officers or other considerations deemed appropriate at the time.
Bonus potential for 1995 was the same as for 1994 for all officers named in the
Summary Compensation Table. To establish 1994 bonus potential for executive
officers, including the Chief Executive Officer, the Compensation Committee
reviewed recommendations by the Chief Executive Officer based on data provided
by the Survey and analyzed by the independent consultant for comparable
positions. The Committee provided that each officer would be eligible for a
bonus equal to a percentage of his or her salary consistent with the Survey data
if certain pre-established 1995 pretax income targets or goals were achieved by
the Company. The bonus incentive was structured so that if the Company fully
achieved or exceeded its predetermined 1995 goals, total cash compensation of
the executive (salary and bonus) would increase to approximately the 75th
percentile of the Survey salary data. Partial achievement of the pretax income
goals (above 50% attainment) would result in partial bonus payments. In 1995 the
pretax income performance was below the 50% threshold and hence no pretax bonus
incentive was paid.
The Committee reserves the right to make discretionary bonus awards in
appropriate circumstances where an executive might merit a bonus based on other
considerations.
8. All executives, including the Chief Executive Officer, are eligible for
annual stock option grants under the employee stock option plans applicable to
employees generally, as approved by the Compensation Committee. The number of
options granted to any individual depends on individual performance, salary
level and competitive data. In addition, in determining the number of stock
options granted to each senior executive, the Compensation Committee reviews the
unvested options of each executive to determine the future benefits potentially
available to the executive. The number of options granted will depend in part on
the total number of unvested options deemed necessary to create a long term
incentive on the part of the executive to remain with the Company in order to
realize future benefits.
No options were granted in 1995 to Mr. Kessman or the four highest paid
other executive officers, except Mr. Blau, who was granted an option for 15,000
shares due to his ineligibility for the 1994 Executive Stock Incentive Plan.
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In conclusion, the Compensation Committee believes that the base salary,
bonus and stock options of the Company's Chief Executive Officer and other
executives are appropriate in light of competitive pay practices and the
Company's performance against short and long-term performance goals.
THURSTON MOORE
RICHARD ROSENBLOOM
WILLIAM SMART
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee in 1994 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.
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.
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PERFORMANCE GRAPH
The graph below compares, for the last five fiscal years, the yearly
percentage change in cumulative total returns (assuming reinvestment of
dividends and interest) of (i) the Company's Common Stock, (ii) the Company's
Debentures, (iii) the NASDAQ Stock Market and (iv) a peer group index
constructed by the Company (the "Peer Group").
The Peer Group consists of the following companies:
Aspect Telecommunications Inter-Tel, Inc.
Boston Technology, Inc. InterVoice, Inc.
Brite Voice Systems Inc. Microlog Corporation
Centigram Communications Corp. Mitel Corporation
Comdial Corporation Norstan, Inc.
Davox Corporation Octel Communications Corp.(1)
Digital Sound Corporation Syntellect, Inc.
Digital Systems International, Inc. Teknekron Communications
Systems, Inc.(TCSI)
Electronic Information Systems, Inc. TIE/Communications, Inc.
The Peer Group includes companies who compete with the Company in the
general voice communications equipment area as well as those active in several
more specialized areas, such as ACD (automatic call distribution), voice mail,
interactive voice response systems, and predictive dialing systems, as well as
additional general voice communications companies. The Company believes that the
mix of the companies in the Peer Group accurately reflects the mix of businesses
in which the Company is currently engaged and will be engaged in the foreseeable
future.
The Peer Group is not identical to the Survey group used to evaluate
compensation of executives described in the Compensation Committee Report. The
Peer Group above does not provide sufficient compensation data for the
Committee's purposes, and the Survey group includes non-public entities for whom
stock price data for the performance graph is unavailable.
Although AT&T and Northern Telcom are the Company's principal competitors in
supplying voice communications equipment, software and services to the
under-300-desktop market, the business in which the Company is primarily
engaged, both of those companies are much larger than the Company and derive
most of their revenues from other lines of business and so have not been
included in the Peer Group. The returns of each Peer Group issuer have been
weighted in the graph below to reflect that issuer's stock market capitalization
at the beginning of each calendar year.
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Comparison of Five-Year Cumulative Return
Among EXECUTONE, including the Common
Stock ("XTON") and the Debentures ("XTONG"),
the NASDAQ (US) Index and the Company's
Peer Group
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Cumulative Total Return
----------------------------------------
12/90 12/91 12/92 12/93 12/94 12/95
<S> <C> <C> <C> <C> <C> <C> <C>
Executone Information Sys XTON 100 144 322 511 578 411
Executone 7 1/2% Sub Debenture XTONG 100 330 596 822 819 952
PEER GROUP PPEER1 100 140 173 304 274 393
NASDAQ STOCK MARKET--US INAS 100 161 187 214 210 297
</TABLE>
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 "Executive Plan") approved by
shareholders at the 1994 Annual Meeting was implemented in October 1994 with 30
employees participating. Under the terms of the Executive 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 Executive Plan that are guaranteed by the Company.
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<TABLE>
<CAPTION>
Unpaid
Highest Amount of Indebtedness at
Indebtedness Between 3/31/96 Including
Name 1/1/95 and 3/31/96 (1) 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
James E. Cooke III $ 318,750 $ 349,533
Anthony R. Guarascio $ 446,250 $ 489,345
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.
SHAREHOLDER PROPOSALS - 1997 ANNUAL MEETING
Shareholders are entitled to present proposals for action at the 1997 Annual
Meeting of Shareholders if they comply with the applicable requirements of the
Company's Bylaws then in effect and with the requirements of the proxy rules as
promulgated by the Securities and Exchange Commission. Any proposals intended to
be presented at the 1996 Annual Meeting of Shareholders must be received at the
Company's offices on or before March 5, 1997 in order to be considered for
inclusion in the Company's Proxy Statement and form of proxy relating to such
meeting.
OTHER MATTERS
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The Board of Directors has designated Arthur Andersen LLP, independent
accountants, as auditors for the Company for the fiscal year ending December 31,
1995. Representatives of Arthur Andersen LLP, will be present at the annual
meeting with an opportunity to make a statement and will be available to respond
to appropriate questions relating to the 1995 audit of the Company's financial
statements.
Management knows of no other business which will be presented to the
meeting. If other matters properly come before the meeting, the persons named as
proxies will vote on them in accordance with their best judgment.
The cost of this solicitation of proxies will be borne by the Company. In
addition to the use of the mail, some of the officers and regular employees of
the Company may solicit proxies by telephone and telegraph, and may also verify
the accuracy of marked proxies by contacting record and beneficial owners of
Common Stock, and the Company will request brokerage houses, banks and other
custodians, nominees and fiduciaries to forward soliciting material to the
beneficial owners of Common Stock held of record by such persons. The Company
will reimburse such persons for expenses incurred in forwarding such soliciting
material. It is contemplated that additional solicitation of proxies will be
made in the same manner under the engagement and direction of Morrow & Company,
at an anticipated cost to the Company of $5,000, plus reimbursement of
out-of-pocket expenses.
By Order of the Board of Directors
Barbara C. Anderson
Vice President, General Counsel
and Secretary
June 3, 1996
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EXHIBIT A
EXECUTONE Information Systems, Inc.
1990 DIRECTORS STOCK OPTION PLAN
(As Amended)
1. Purposes of the Plan. The purposes of this Directors' Stock Option Plan
are to attract and retain the best available personnel for service as Directors
of the Company, to provide additional incentive to the Outside Directors of the
Company to serve as Directors and to encourage their continued service on the
Board.
All options granted hereunder shall be "nonstatutory stock options."
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean EXECUTONE Information Systems, Inc., a Virginia
corporation.
(e) "Continuous Status as a Director" shall mean the absence of any
interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Option" shall mean a stock option granted pursuant to the Plan.
(j) "Optioned Stock" shall mean the Common Stock subject to an Option.
(k) "Optionee" shall mean an Outside Director who receives an Option.
(l) "Outside Director" shall mean a Director who is not an Employee.
(m) "Parent" shall mean a "parent corporation", whether now or hereafter
existing, as defined in Section 424 (a) of the Code.
(n) "Plan" shall mean this 1990 Director's Stock Option Plan.
(o) "Share" shall mean a share of Common Stock, as adjusted in accordance
with Section 11 of the Plan.
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(p) "Subsidiary" shall mean a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 425(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of the
Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 250,000 Shares of Common Stock. The Shares may be authorized,
or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan. If Shares which were acquired under exercise of an Option
are subsequently repurchased by the Company, such Shares shall not in any event
be returned to the Plan and shall not become available for future grant under
the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the Plan shall be
administered by the Board.
(b) Procedures for Grants. All grants of Options hereunder shall be
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
(i) No person shall have any discretion to select which Outside Directors
shall be granted Options or to determine the number of Shares to be covered by
Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an Option upon
the effective date of this Plan or such later date on which such person became
a Director, whether through election by the Shareholders of the Company or
appointment by the Board of Directors to fill a vacancy.
(iii) Each Outside Director shall automatically receive, upon his
reelection each year, an additional Option.
(iv) The number of Shares to be subject to any Option granted pursuant to
the Plan shall be an amount necessary to make such Option equal in value to
$10,000 for each Outside Director, and shall be determined using the
Black-Scholes Option valuation model. For this purpose the Company's "Sigma"
shall be the mean (rounded to the nearest 5%) of the "Sigma's" of the
following six companies as of the date of grant: Pitney Bowes, AT&T, Aspect,
Harris, Nortel and Octel Communications; and the per Share value shall be the
fair market value per Share on the date of grant. The number of Shares
resulting from this calculation shall be rounded to the nearest hundred.
(v) The terms of an Option granted hereunder shall be as follows:
(A) the term of the Option shall be five (5) years; provided, however,
if the Outside Director ceases to serve as a Director, the Option may be
exercised for seven (7) months as provided in Section 9(b) and (c) below.
(B) the Option shall be exercisable only while the
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Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof.
(C) the exercise price per Share shall be 120% of the fair market value
per Share on the date of grant of the Option.
(D) any Option granted pursuant to subsection 4(b)(ii) or (iv) above
shall become exercisable in full immediately upon grant, except that any
Option granted to an Outside Director upon his initial election or
appointment to the Board of Directors shall become exercisable in full one
year after the date of grant.
(c) Powers of the Board. Subject to the provisions and restrictions of the
Plan, the Board shall have the authority, in its discretion: (i) to determine,
upon review of relevant information and in accordance with Section 8(b) of the
Plan, the fair market value of the Common Stock; (ii) to determine the exercise
price per Share of Options to be granted, which exercise price shall be
determined in accordance with Section 8(a) of the Plan; (iii) to interpret the
Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the
Plan; (v) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted
hereunder; and (vi) to make all other determinations deemed necessary or
available for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holder of any Options granted under the Plan.
(e) Suspension or Termination of Option. If the Chief Executive Officer of
the Company or his designee reasonably believes that an Optionee has committed
an act of misconduct, the Chief Executive Officer may suspend the Optionee's
right to exercise any Option pending a determination of the Board of Directors
(excluding the Outside Director accused of such misconduct). If the Board of
Directors (excluding the Outside Director accused of such misconduct) determines
an Optionee has committed an act of embezzlement, fraud, dishonesty, nonpayment
of an obligation owed to the Company, breach of fiduciary duty or deliberate
disregard of the Company rules resulting in loss, damage or injury to the
Company, or if an Optionee makes an unauthorized disclosure of any Company trade
secret or confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his estate shall be entitled to
exercise any Option whatsoever. In making such determination, the Board of
Directors (excluding the Outside Director accused of such misconduct) shall act
fairly and shall give the Optionee an opportunity to appear and present evidence
on Optionee's behalf at a hearing before a committee of the Board.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof.
The Plan shall not confer upon any Optionee any rights with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his directorship at any time.
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<PAGE>
6. Term of Plan. The Plan shall become effective upon the earlier of (i) its
adoption by the Board or (ii) its approval by the Shareholders of the Company as
described in Section 17 of the Plan. It shall continue in effect for a term of
ten (10) years unless sooner terminated under Section 13 of the Plan.
7. Term of Option. The term of each Option shall be five (5) years from the
date of grant thereof; provided, however, if the Outside Director ceases to
serve as a Director, the Option may be exercised for seven (7) months as
provided in Section 9(b) and (c) below.
8. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be 100% of the fair market value per
Share on the date of the grant of the Option.
(b) Fair Market Value. The fair market value shall be determined by the
Board in its discretion; provided, however, that where there is a public market
for the Common Stock, the fair market value per Share shall be the closing bid
price of the Common Stock in the over-the-counter market on the date of grant,
as reported in The Wall Street Journal (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers Automated Quotation
("NASDAQ") System) or, in the event the Common Stock is traded on the NASDAQ
National Market System or listed on a stock exchange, the fair market value per
Share shall be the closing price on such system or exchange on the date of grant
of the Option, as reported in the Wall Street Journal.
(c) Form of Consideration. The consideration to be paid for the Shares to be
issued upon exercise of an Option shall consist entirely of cash, check, other
Shares of Common Stock having a fair market value on the date of surrender equal
to the aggregate exercise price of the Shares as to which said Option shall be
exercised, which, if acquired from the Company, shall have been held for at
least six months, or any combination of such methods of payment.
9. Exercise of Option.
(a) Procedure for Exercising Rights as a Shareholder. Any Option granted
hereunder shall be exercisable at such times as are set forth in Section 4(b)
hereof; provided, however, that no Options shall be exercisable until
Shareholder approval of the Plan in accordance with Section 17 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Options by the persons entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the Stock Certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a Shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share
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certificate for the number of Shares so acquired shall be issued to the Optionee
as soon as practicable after exercise of the Option. No adjustment will be made
for a divided or other right for which the record date is prior to the date the
Stock Certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number
of Shares which thereafter may be available, both for the purpose of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Status as a Director. If an Outside Director ceases to
serve as a Director, for any reason other than death, he may, but only within
seven (7) months after the date he ceases to be a Director of the Company,
exercise his Option to the extent that he was entitled to exercise it at the
date of such termination. To the extent that he was not entitled to exercise an
Option at the date of such termination, or if he does not exercise such Option
(which he was entitled to exercise) within the time specified herein, the Option
shall terminate.
(c) Death of Optionee. Notwithstanding the provisions of Section 9(b) above,
in the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his death a
Director of the Company and who shall have been in Continuous Status as a
Director since the date of grant of the Option, the Option may be exercised,
at any time within seven (7) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise
that would have accrued had the Optionee continued living and remained in
Continuous Status as a Director for six (6) months after the date of death or
(ii) within thirty (30) days after the termination of Continuous Status as
a Director, the Option may be exercised, at any time within seven (7) months
following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only
to the extent of the right to exercise that has been accrued at the date of
termination.
10. Nontransferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger. Subject to any
required action by the Shareholders of the Company, the number of Shares of
Common Stock covered by such outstanding Option, and the number of Shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per Share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued Shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
recapitalization or reclassification of the Common Stock, or any other increase
or decrease in the number of issued Shares of Common Stock affected without
receipt of consideration by the Company, such adjustment
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shall be made by the Board, whose determination in that respect shall be final,
binding and conclusive; provided, however, that conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration." Except as expressly provided herein, no issuance by
the Company of Shares of stock of any class or securities convertible into
Shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of Shares of Common Stock
subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, the
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of the date fixed by the Board and give such Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, the Option shall be
assumed or, an equivalent Option (with the same number and kind of shares of
stock or the same amount of property, cash or securities as he would have been
entitled to receive upon the happening of any such corporate event as if he had
been, immediately prior to such event, the holder of the number of shares
covered by his Option) shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation. In the event that such
successor corporation refuses to assume the Option or to substitute an
equivalent Option, the Board shall, in lieu of such assumption or substitution,
provide that the Optionee shall have the right to exercise the Option as to all
of the Optioned Stock, including Shares as to which the Option would not
otherwise be exercisable. If the Board makes an Option fully exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Board shall notify the Optionee that the Option shall be fully exercisable for a
period of fifteen (15) days from the date of such notice, and the Option will
terminate upon the expiration of such period.
12. Time of Granting Options. The date of grant of an Option shall, for all
purposes, be the date determined in accordance with Section 4(b) hereof. Notice
of the determination shall be given to each Outside Director to whom an Option
is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the Plan
from time to time in such respects as the Board may deem advisable; provided
that, any revisions or amendments requiring approval of the Shareholders of the
Company under the Code or Rule 16b-3 promulgated under the Securities Act of
1933 shall be approved by such Shareholders in the manner described in Section
17 of the Plan.
(b) Stockholder Approval. Stockholder approval of any amendment requiring
stockholder approval under Section 13(a) of the Plan shall be solicited as
described in Section 17(b) of the Plan.
(c) Effect of Amendment or Termination. Except as provided in Section 11,
any such amendment or termination of the Plan shall not affect Options already
granted, and such Options shall remain in full force and effect as if this Plan
had not been amended or terminated, unless mutually agreed
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otherwise between the Optionee and the Board, which agreement must be in writing
and signed by the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1993, as
amended, the Exchange Act, the rules and regulations promulgated thereunder,
state securities laws, and the requirements of any stock exchange upon which the
Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for an investment and without
any present intention to sell or distribute such Shares, if, in the Option of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company's counsel to be necessary
to the lawful issuance and sale of any Shares hereunder, shall relieve the
Company of any liability in respect of the failure to issue or sell such Shares
as to which such requisite authority shall not have been obtained.
15. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
16. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. Shareholder Approval.
(a) Adoption of the Plan shall be subject to approval by the Shareholders of
the Company within one year of Board approval of the Plan. If such Shareholder
approval is obtained by written consent, it may be obtained by the written
consent of the holders of a majority of the outstanding shares of the Company.
If such Shareholder approval is obtained at a duly held Shareholder's meeting,
it may be obtained by the affirmative vote of the holders of a majority of the
outstanding shares of the Company present or represented and entitled to vote
thereon.
(b) Any required approval of the Shareholders of the Company shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
18. Information to Optionees. The Company shall provide each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports to Shareholders, proxy statements and other
information provided to all Shareholders of the Company.
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EXHIBIT B
EXECUTONE Information Systems, Inc.
Amendments To The
EXECUTONE Information Systems, Inc.
1994 Executive Stock Incentive Plan
RESOLVED, That subject to the approval of the Company's shareholders, the
EXECUTONE Information Systems, Inc. 1994 Executive Stock Incentive Plan is
hereby amended as follows:
FIRST: The comma after the word "Participant" and the phrase "with
respect to any Purchased Shares not repurchased by the Company pursuant
to the Plan" are deleted in Subsection 6(b)(ii)(E).
SECOND: Subsection 7(b) is amended to read as follows:
Upon termination of employment of a Participant for any reason other than
the Participant's death, the Participant may retain ownership of such
Shares subject to the Note and Pledge Agreement, or may sell or otherwise
dispose of any of the Purchased Shares, upon payment of the Loan Amount
associated with such Purchased Shares, including all Interest Deferrals
and other Accrued Interest included therein.
THIRD: Subsection 7(c), (d) and (e) are deleted.
FOURTH: The phrase "not sold pursuant to this subsection," is deleted
from Subsection 7(f) and Subsection 7(f) is designated Subsection 7(c).
RESOLVED FINALLY, That the appropriate officers of the Company are hereby
authorized and directed to take such actions and to execute such documents as
may be necessary or desirable to submit the foregoing amendments to the
shareholders for their approval and, upon such approval, to implement the
foregoing resolutions, all without the necessity of further action by this
Board.
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EXECUTONE INFORMATION SYSTEMS, INC. PROXY
478 WHEELERS FARMS ROAD, MILFORD, CONNECTICUT 06460
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Alan Kessman, Michael W. Yacenda and Barbara
C. Anderson, or any of them, with full power of substitution in each, Proxies,
to vote all the shares of Common Stock of EXECUTONE Information Systems, Inc.
held of record by the undersigned at the close of business on June 3, 1996, at
the Annual Meeting of Shareholders (the "Meeting") to be held on July 30, 1996,
at 3:00 p.m., or any continuation or adjournment thereof.
1. Election of Directors
FOR all nominees listed below WITHHOLD AUTHORITY for
all nominees
(except as marked to contrary below) listed below ( )
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike such nominee's name from the list below.)
ALAN KESSMAN STANLEY M. BLAU THURSTON R. MOORE RICHARD S. ROSENBLOOM
JERRY M. SESLOWE
2. Proposal to approve the issuance of Common Stock upon redemption or
conversion of the Cumulative Contingently Convertible Preferred Stock,
Series B
FOR ( ) AGAINST ( ) ABSTAIN ( )
3. To approve proposed amendments to the Company's 1990 Directors Stock Option
Plan
FOR ( ) AGAINST ( ) ABSTAIN ( )
4. To approve proposed amendments to the Company's 1994 Executive Stock
Incentive Plan
FOR ( ) AGAINST ( ) ABSTAIN ( )
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting.
FOR ( ) AGAINST ( ) ABSTAIN ( )
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
THE PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 and 4.
Dated:
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Signature if held jointly:
When shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by the
President or other authorized officer.
If a partnership, please sign in
partnership name by authorized person.
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