Executone Information Systems, Inc. S-3 (Unistar)
As filed with the Securities and Exchange Commission
on June 28, 1996
Registration No.33-
======================================================
SECURITIES AND EXCHANGE COMMISSION
______________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
EXECUTONE INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA
(State or other jurisdiction of
incorporation or organization)
86-0449210
(I.R.S. Employer Identification No.)
478 Wheelers Farms Road
Milford, Connecticut 06460
(203) 876-7600
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)
_____________________________
BARBARA C. ANDERSON, ESQ.
Vice President, General Counsel
and Secretary
EXECUTONE INFORMATION SYSTEMS, INC.
478 Wheelers Farms Road
Milford, Connecticut 06460
(203) 876-7600
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
_____________________________
Approximate date of commencement of proposed sale to
the public: From time to time after the effective
date of this Registration Statement.
<PAGE>
If the only securities being registered on this
form are being offered pursuant to dividend or
interest reinvestment plans, please check the
following box.
If any of the securities being registered on
this form are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection
with dividend or reinvestment plans, check the
following box. X
If this Form is filed to register additional
securities for an offering pursuant to Rule 462 (b)
under the Securities Act, please check the following
box and list the Securities Act registration statement
number of the earlier effective registration statement
for the same offering.
If this Form is a post-effective amendment filed
pursuant to Rule 462 (c) under the Securities Act,
check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering.
If delivery of the prospectus is expected to be
made pursuant to Rule 434, please check the following
box.
CALCULATION OF REGISTRATION FEE (1)
======================================================
Title of Amount to be Proposed maximum
each class of registered offering price
securities to per unit (1)
be registered
------------------------------------------------------
Common Stock,
$.01 par value
per share. 17,788,558 Shares $ 2.94
======================================================
Proposed maximum Amount of
aggregate offering registration
price (1) fee
------------------------------------------------------
Common Stock,
$.01 par value
per share. $ 52,298,360 $ 18,034
======================================================
<PAGE>
(1) Estimated solely for the purpose of computing the
registration fee. Calculated pursuant to Rule 457(c)
on the basis of $2.94 per share, which was the average
of the high and low sale prices of the Registrant's
Common Stock on June 26, 1996, as reported on the
NASDAQ National Market System.
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to
delay its effective date until the Registrant shall
file a further amendment which specifically states
that this Registration Statement shall thereafter
become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
Preliminary Prospectus dated June 28, 1996
EXECUTONE INFORMATION SYSTEMS, INC.
17,788,558 SHARES OF COMMON STOCK
This Prospectus relates to 17,788,558 shares of Common Stock,
par value $.01 per share (the "Common Stock"), of EXECUTONE
Information Systems, Inc., a Virginia corporation (the "Company")
(such shares being referred to collectively herein as the
"Securities"). All of the Securities being offered hereby are to be
offered and sold from time to time for the account of certain
shareholders of the Company, or by their respective donees,
transferees or successors in interest (such persons being
collectively referred to herein as the "Selling Shareholders").
The Company will not receive any of the proceeds from the sale of the
Securities. See "Selling Shareholders" for a discussion of the
circumstances pursuant to which the Selling Shareholders have acquired
the Securities offered hereby, and "Plan of Distribution" for a
discussion of the plan of distribution.
Shares of the Company's Common Stock are traded in the over-the-
counter market on the Nasdaq National Market under the symbol XTON.
The last sales price of the Common Stock on June 26, 1996, as
reported on the Nasdaq, was $ 2.94 per share.
_________________________
THE PURCHASE OF THESE SECURITIES INVOLVES CERTAIN
RISK FACTORS. SEE "RISK FACTORS"; PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
(THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
_________________________
INFORMATION CONTAINED HEREIN IS SUBJECT TO
COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT
RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR
TO THE TIME THAT THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
The date of this Prospectus is June 28, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith files reports and other information with the
Commission. Reports and definitive proxy or information statements
filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at its Regional Offices
located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 75 Park Place, New York, New York 10007.
Copies of such material can also be obtained at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549.
The Company has filed with the Commission a registration
statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement") with respect to the Securities
offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information as to the Company and the
securities offered by this Prospectus, reference is made to the
Registration Statement and the exhibits relating thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
(File No. 0-11551) are incorporated herein by reference and made a
part hereof: (i) the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995; (ii) the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31,1996; and (iii) the
definitive proxy material of the Company for the Annual Meeting of
Shareholders to be held July 30, 1996, as filed with the Commission on
June 10, 1996.
All documents filed by the Company with the Commission pursuant
to Section 13(a) and 13(c) of the Exchange Act and any definitive
proxy statement so filed pursuant to Section 14 of the Exchange Act
and any reports filed pursuant to Section 15(d) of the Exchange Act
after the date of this Prospectus and prior to the termination of the
offering of the Securities shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date
of filing of such documents. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which
is incorporated by reference herein modifies or supersedes such
earlier statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or supersede part of
this Prospectus.
<PAGE>
The Company will furnish, without charge, upon written or oral
request, to each person to whom a copy of this Prospectus is delivered,
including any beneficial owner, copies of any or all documents incorporated
by reference herein, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference therein). Requests
should be directed to Barbara C. Anderson, Vice President, General
Counsel and Secretary, EXECUTONE Information Systems, Inc., 478
Wheelers Farms Road, Milford, Connecticut 06460 (telephone (203) 876-7600).
THE COMPANY
EXECUTONE designs, manufactures, sells, installs, services and
supports communications systems and services for business locations with
up to 400 desktops, and is a leading supplier of specialized hospital
communications equipment. Products are sold primarily under the
EXECUTONE , INFOSTAR , IDS , LIFESAVER , and INFOSTAR/ILS brand names
through a worldwide network of direct sales and service employees and
independent distributors.
EXECUTONE is a vertically integrated voice processing and
healthcare communications company. The Company controls the major
elements of its business, ranging from product design, manufacturing and
marketing to distribution. The Company is organized into three product
divisions focusing on different products and market segments: computer
telephony, healthcare communication systems, and call center
management.
Revenues are derived from product sales to distributors, direct sales
of healthcare and call center products, and direct sales to national
accounts and federal government customers, as well as installations,
additions, changes, upgrades or relocation of previously installed systems,
maintenance contracts, and service charges to the existing base of
healthcare, call center, national account and federal government customers.
The objective of the computer telephony division, in addition to sales
of traditional telephone systems, is to offer value-added products and
services. The Company's integrated digital telephone systems emphasize
flexible software applications, such as automated attendant, data switching,
and computer telephone interface, designed to enhance the customer's
ability to communicate, obtain and manage information. The Company's
telephone systems provide the platform for its other voice processing
software applications.
<PAGE>
The healthcare communications systems division provides to its
healthcare facility customers integration of the flow of voice and data
between nurse and patient, increased flexibility and efficiency in hospital
operations, and the means to improve patient care. EXECUTONE has been
a recognized name in this market for many years with its LIFESAVER and
CARE/COM II-E nurse call systems. The Company is also creating
applications software specific to hospital and nursing homes to help resolve
many labor intensive tasks.
The healthcare communications division also markets the
INFOSTAR/ILS locator system, released in early 1994. The
INFOSTAR/ILS system can improve productivity, save time and expense for
users and eliminate overhead paging by instantly locating staff and
equipment in a facility. Each person or piece of equipment wears an
individually coded badge that transmits infrared signals to sensors placed
throughout the facility, which forward the location information to a central
processing unit. The location data can be accessed on local display
stations. The ILS system can be integrated with the Company's telephone
systems and the LIFESAVER nurse call system to provide additional
productivity improvements for hospital environments. The ILS system is
also marketed through the computer telephony division for office
environments.
The call center management division develops and sells
sophisticated telephony products that integrate a computerized digital
telephone system platform with high-volume inbound, outbound and internal
call processing systems. Such systems include automatic call distribution
systems, predictive dialing systems, scripting software to assist agents
handling calls, and interactive voice response systems. Predictive dialing
systems enable the Company's call center customers to efficiently and
cost-effectively place a large number of outgoing calls using the minimum
number of live agents. Scripting software assists agents in conducting
calls and obtaining and recording desired information. Certain of these
systems also provide data interface with host or mainframe computers. These
systems are sold to call center customers that have a need for systems to
efficiently and cost-effectively receive or place their customer or prospect
calls, distribute those calls to available live operators, obtain
information from callers, record and distribute messages from callers, and
produce management reports on call activity.
The principal office of the Company is located at 478 Wheelers
Farms Road, Milford, Connecticut 06460, and the Company's telephone
number is (203) 876-7600.
<PAGE>
RECENT DEVELOPMENTS
On May 31, 1996, the Company sold its direct sales and service
organization, including its network services division, to Clarity Telecom
Holdings, Inc., a new acquisition company led by Bain Capital, Inc. (the
"Buyer"). The purchase price was $61.5 million in cash, a $5.9 million
junior subordinated note due July 1, 2004, with interest at 7.5% per year,
and warrants to purchase 8% of the equity issued as of the closing in the
new company. The Company and the Buyer also entered into a five-year
exclusive distributor agreement pursuant to which the Buyer will sell and
service EXECUTONE and INFOSTAR telephone products to business
and commercial locations that require up to 400 telephones.
The sale includes the Company's National Service Center. The sale
does not include any of the healthcare communications division, the call
center management division, the videoconferencing division, the National
Accounts or Federal Systems marketing groups or the recently acquired
Unistar business. The sale also does not include the Pittsburgh direct
sales and service office, which the Company separately sold to one of its
existing independent distributors for approximately $1.3 million in cash and
notes in May 1996.
On April 10, 1996, the Company announced that it had given notice
of its intention to terminate its distribution agreement with GPT Video
Systems due to failures by GPT to deliver properly functioning
videoconferencing products on a timely basis. In June 1996, the Company
completed the sale of its videoconferencing division to BT Visual Images
LLC. In April 1996, the Company also sold its inmate calling business. None
of the Pittsburgh direct office, the videoconferencing division or the
inmate calling business constituted a material portion of the Company's
assets, revenues or income.
On December 19, 1995, the Company acquired 100% of the
common stock of Unistar Gaming Corp., a Delaware corporation ("Unistar").
Unistar, through its subsidiary Unistar Entertainment, Inc., has an
exclusive five-year contract to design, develop, finance, and manage the
National Indian Lottery ("NIL"). The NIL will be a national 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 to the NIL, Unistar will be paid a
fee equal to 30% of the profits of the NIL.
The Registrant acquired 100% of Unistar for 3.7 million shares of
Common Stock, 250,000 shares of Cumulative Convertible Preferred Stock,
Series A ("Series A Preferred Stock") and 100,000 shares of Cumulative
Contingently Convertible Preferred Stock, Series B ("Series B Preferred
Stock"). See "Description of Capital Stock".
The telephone operations of the NIL cannot begin until the
resolution of a pending legal proceeding. Certain states have attempted to
block the NIL by filing letters under 18 U.S.C. Section 1084 preventing
long-
<PAGE>
distance carriers from providing telephone service to the NIL based on
allegations that the NIL is not legal. In September 1995, the Coeur
d'Alene Tribe initiated legal action in the Coeur d'Alene Tribal Court to
obtain a ruling allowing the telephone lottery to proceed. On February 28,
1996, the Tribal Court held 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 notifications letters to any carrier.
Although this ruling is being appealed to the Tribal appellate court and
will probably be appealed to the U.S. Federal courts, the Company
believes the Coeur d'Alene Tribe's position will be upheld on appeal.
In July 1995, the Company reorganized its then existing other
businesses into five divisions: Computer Telephony, Healthcare
Communication Systems, Call Center Management ("CCM"),
Videoconferencing Products, and Network Services. The videoconferencing
and network services divisions were subsequently sold as described above.
The business of Executone, Inc. that was acquired in 1988 was a telephone
equipment business that focused its direct selling efforts on office sites
with fewer than 20 phones. The average system size in the customer base at
that time was in the 8-10 phone range. It was originally believed in 1988
that the MAC and service business generated by the customer base would
be increasingly profitable as the base of customers grew. Since 1988, the
Company has expanded its product line to the high-end user, with larger
customers and more sophisticated products to serve customers' total
communications needs. The strategy the Company is now pursuing is to
focus on software solutions versus the hardware orientation of the business
purchased in the 1988 acquisition. With the IDS product, a digital
platform for various communications functions which was developed after the
acquisition, the Company's product lines now provide sophisticated software
applications, including integrated voice mail, call center applications
(ACD,IVR's and predictive dialers), infrared locator systems, nurse call
systems and computer telephony interfaces that drive its telephony products.
The change in the nature and complexity of its product lines has
changed the way the Company has to market its products. Unlike many
companies in its industry that focus on one particular product to one
market, the Company provides multiple products and applications to its
particular market niche. This requires the Company to have expertise in
each particular market segment in which it competes because the Company's
competitors are primarily one-product companies or divisions who are
experts in their particular market niche. The divisionalization
consolidated the sales, marketing and product development functions under a
divisional management structure for each division, headed by a division
president. The sales force was restructured such that each sales person is
assigned to a specific division and will sell only within that division's
market segment. The specialization of the sales force included the addition
of sales representatives with the necessary product and market expertise, as
well as substantial retraining for the remaining sales representatives.
<PAGE>
RISK FACTORS
Investment in the Company involves various risks. In addition to
general investment risks, investors may wish to consider the following
factors before purchasing the Securities. Additional information with
respect to the matters discussed below, and with respect to the Company's
business and industry in general, is set forth in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, which
is incorporated herein by reference.
Competition
The telephony markets are intensely competitive. The Company
believes that its principal competitors in the under 400-desktop
telephony/voice processing market are Lucent Technologies (the former
equipment business of American Telephone and Telegraph Co.) and Nortel
(formerly known as Northern Telecom). While the Company believes that
Lucent and Nortel are dominant in this market, there is insufficient data to
make a meaningful estimate of the Company's competitive position relative
to other competitors. Competition will become even more intense with the
passage of the telecommunications deregulation legislation in February
1996, and with the anticipated entry into telephony of computer
companies, many of whom have significantly greater financial and
development resources than the Company. Because of this intense
competition, the Company may not be able to reflect fully in product prices
any increased operating costs, if such increases should occur.
Reliance on Foreign Suppliers
The Company imports certain of its products and components from
manufacturers located in Hong Kong, China, Thailand and the Dominican
Republic. While the Company believes that utilizing foreign suppliers
generally maximizes efficiency because of the expertise of such
manufacturers and suppliers and the relative cost savings over pricing
offered by domestic suppliers, there are certain risks attendant to
utilizing such foreign suppliers. Foreign countries may be prone to
political and labor unrest.
In addition, it is possible that the U.S. Government could impose
limitations on imports from certain countries in addition to those currently
in place, including importations from countries in which the Company's
foreign suppliers are located. If any such limitations cause a reduction in
shipments to the Company, or if regulations are imposed that increase
materially the cost of the Company's foreign-made products or components,
the Company could be affected adversely unless and until satisfactory
alternatives are in place.
Dividends
It is the present policy of the Company's Board of Directors to retain
earnings for use in the Company's business. The Company does not
anticipate paying any cash dividends in the foreseeable future.
<PAGE>
SELLING SHAREHOLDERS
The Securities being offered hereby by the Selling Shareholders (i)
were acquired by the Selling Shareholders in the Company's acquisition of
Unistar in December 1995, or (ii) are issuable upon exercise of options or
contingently issuable on conversion or redemption of Preferred Stock of the
Company issued in connection with the acquisition of Unistar, or (iii) are
issuable upon exercise of warrants issued to Mr. Stanley Blau, an officer
and director of the Company, in 1987, in connection with his employment by
Vodavi Technology Corporation, a predecessor of the Company.
Certain of the Selling Shareholders acquired an aggregate of
3,700,000 shares of the Securities on December 19, 1995, in exchange for
their shares of Unistar, and can acquire an additional 425,000 shares of the
Securities upon exercise of options granted by the Company in connection
with the Unistar acquisition, up to an additional 4,925,000 shares of the
Securities on conversion or redemption of the Cumulative Convertible
Preferred Stock, Series A (the "Series A Stock")and up to 8,375,000 million
shares upon conversion or redemption of the Cumulative Contingently
Convertible Preferred Stock, Series B (the "Series B Stock"). Mr. Blau can
acquire up to 300,000 shares upon exercise of his stock option.
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 the Securities issued in the acquisition
(3,700,000), or 17,000,000 shares of Common Stock, 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.
The Preferred Stock will only become convertible and redeemable
for up to 13,300,000 shares of Common Stock under the circumstances
described below under "Description of Common Stock."
The following table sets forth for each of the Selling Shareholders,
as applicable, (i) the number of shares of Common Stock, including the
Securities, beneficially owned prior to this offering (as of May 31, 1996),
including for the purposes of the table the maximum number of Securities
potentially issuable upon exercise of outstanding options and conversion or
redemption of outstanding Preferred Stock, (ii) the amounts of the
Securities offered hereby, also including all such potentially issuable
Securities, and (iii) the amounts of Common Stock to be owned upon
completion of the offering.
<PAGE>
<TABLE>
<CAPTION>
Total Total Number of
Number of Number of Shares to
Shares Securities be Owned
Owned to upon
Prior to be Offered Completion
Offering(1) Hereby of Offering(1)
<S> <C> <C> <C>
Louis K. Adler 170,118 (5) 21,258 (2) 2,500 (5)
69,915 (3)
76,445 (4)
Richard Bartlett 260,444 56,688 (2) - 0 -
203,756 (4)
Robert A. Berman 6,356 6,356 (3) - 0 -
Stanley M. Blau 753,846 300,000 (6) 453,846
Cooper Life
Sciences, Inc. 5,359,724 1,166,520 (2) - 0 -
4,193,204 (4)
Glenn Goord 29,000 25,000 (3) 4,000
Robert Korngold 23,750 23,750 (3) - 0 -
Momar Corporation 95,339 95,339 (3) - 0 -
Donald Press 12,712 12,712 (3) - 0 -
Resource Holdings
Associates 122,189 12,755 (2) - 0 -
63,559 (3)
45,875 (4)
Estate of Mel
Schnell 95,339 95,339 (3) - 0 -
Lawrence Schaen 1,250 1,250 (3) - 0 -
Clark Schubach 12,712 12,712 (3) - 0 -
Jerry M. Seslowe 310,457 56,689 (2) 37,300
12,712 (3)
203,756 (4)
John C. Shaw 260,444 56,688 (2) - 0 -
203,756 (4)
James W. Spencer 1,810,503 394,053 (2) - 0 -
1,416,450 (4)
Robert F. Starzel 6,356 6,356 (3) - 0 -
10-26 South William Street
Associates 195,343 42,516 (2) - 0 -
152,827 (4)
Watermark Investments
Limited 8,696,763 1,892,833 (2) - 0 -
6,803,930 (4)
---------- ---------- -------
Total 18,286,204 17,788,558 497,646
</TABLE>
<PAGE>
_______________
(1) Total Shares owed prior to the offering includes all shares issued
and issuable upon exercise of options or warrants and coversion or
redemption of Preferred Stock. Based upon 51,906,168 shares of Common
Stock outstanding as of May 31, 1996, plus the shares to be acquired
by the Selling Shareholder, the percentage of the outstanding shares
to be owned by each Selling Shareholder upon completion of the offering
is less than 1%.
(2) Shares were acquired in the acquisition of Unistar in exchange for
Unistar common stock owned by the Selling Shareholders.
(3) Shares are issuable upon exercise of stock options granted in
connection with the Company's acquisition of Unistar, primarily in
substitution for options to purchase Unistar common stock.
(4) Up to this number of maximum shares are contingently issuable upon
conversion or redemption of Series A Stock and, if conversion and
redemption is approved by the Company's shareholders, the Series B
stock.
(5) Includes 900 shares owned by Mr. Adler's spouse, of which he disclaims
beneficial ownership.
(6) Shares are issuable upon exercise of a warrant issued to Mr. Blau in
1987 by Vodavi Technology Corporation, a predecessor of the Company.
None of the Selling Shareholders are employees or otherwise have a
relationship with the Company except Mr. Stanley M. Blau, who has been a
director of the Company since 1983, Mr. Jerry M. Seslowe, who has been a
director of the Company since February 1, 1996, and Mr. James Spencer, who
is the former President and an employee of Unistar Entertainment, Inc.,
a subsidiary of Unistar.
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Shareholders that all or a portion
of the Securities may be disposed of hereunder from time to time in one or a
combination of the following transactions: (a) to or through brokers, acting
as principal or agent, who may themselves dispose of the Securities in
transactions (which may involve block transactions) in the over-the-counter
market or otherwise, at market prices prevailing at the time of sale or at
prices related to such prevailing market prices; or (b) directly by gift or
directly or through brokers or agents in privately negotiated transactions at
negotiated prices. Any commissions or discounts paid or allowed to brokers,
dealers or agents may be changed from time to time. The Selling Shareholders
and any brokers, dealers or agents who participate in a sale of the Securities
may be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act of 1933, as amended (the "Securities Act"), and the commissions
paid or discounts allowed to any of such brokers, dealers or agents, in
addition to any profits received on resale of the Securities, if any of such
brokers, dealers or agents should purchase any Securities as a principal,
may be deemed to be underwriting discounts or commissions under the
Securities Act. In the event of a transaction hereunder in which a broker
or dealer acts as principal, this Prospectus will be supplemented to provide
material facts with respect to such transaction. Securities offered
hereby also may be sold in transactions under Rule 144 promulgated by the
Commission under the Securities Act.
DESCRIPTION OF CAPITAL STOCK
The following is a brief description of the material terms of the Company's
capital stock. This description does not purport to be complete and is
subject in all
<PAGE>
respects to applicable Virginia law and to the provisions of the Company's
Articles of Incorporation and Bylaws, copies of which are filed as exhibits to
the Registration Statement and are incorporated by reference herein. See
"Available Information"; above.
General
The Company's authorized equity capitalization consists of 80 million shares
of Common Stock, par value $.01 per share, and one million shares of preferred
stock, par value $.01 per share. 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.
Common Stock
At May 31, 1996, there were 51,906,168 outstanding shares of Common Stock
held by approximately 2,100 holders of record.
Holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors, out of funds legally available therefor.
Dividends on any outstanding shares of preferred stock must be paid in full
before payment of any dividends on the Common Stock. Upon liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in assets available for distribution after payment of all
debts and other liabilities and subject to the prior rights of any holders of
any preferred stock then outstanding.
Holders of Common Stock are entitled to one vote per share with respect to all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election, subject to the voting rights (if any) of series of preferred stock
that may be outstanding from time to time. See "Preferred Stock". The
Company's Articles of Incorporation and Bylaws contain no restrictions on the
repurchase or redemption of the Common Stock, although certain of the Company's
loan agreements prohibit such repurchases or redemptions. All the outstanding
shares of Common Stock are fully paid, legally issued and nonassessable. The
transfer agent for the Common Stock is American Stock Transfer Company.
Preferred Stock
The Registrant has two series of Preferred Stock currently issued and
outstanding: (1) the Cumulative Convertible Preferred Stock, Series A
("Series A Preferred Stock"), of which 250,000 shares are issued and
outstanding and (2) the Cumulative Contingently Convertible Preferred Stock,
Series B ("Series B Preferred Stock"), of which 100,000 shares are issued and
outstanding.
<PAGE>
Each share of the Series A Preferred Stock has voting rights equal to one share
of Common Stock. The Series A Preferred Stock will earn dividends equal to
18.5% of the consolidated Retained Earnings of the Company's subsidiaries,
Unistar Gaming Corporation and Unistar Entertainment, Inc. (collectively,
"Unistar"), since the date of issuance of the Series A Preferred Stock, as of
the end of a fiscal period, less any dividends paid to the holders of the
Series A Preferred Stock prior to such date. All dividends on Series A
Preferred Stock are payable only (i) when and as declared by the Board of
Directors, (ii) upon conversion or redemption of the Series A Preferred Stock
or (iii) upon liquidation, and only if at the time of a proposed payment (A)
there are no outstanding loans from the Company to Unistar for start-up costs,
(B) the cumulative retained earnings of Unistar is positive, and (C) the net
income of Unistar in the preceding fiscal year exceeded $1,000,000.
The Series A Preferred Stock is convertible during the Conversion Period for up
to a maximum of 4,925,000 shares of Common Stock if Unistar meets certain
revenue and profit parameters. The Conversion Period is defined as the period
commencing on the date of issuance and ending on the later of (I) four years
after the first lottery ticket for the NIL is sold, and (ii) five years after
the date of issuance of the Series A Preferred Stock. Each share of the Series
A Preferred Stock is convertible, provided Unistar had net income for the
immediately preceding fiscal year of at least $1,000,000, into the product of
the excess of such net income over $1,000,000, multiplied by .46, divided by
250,000, up to a maximum number of shares of Common Stock per share of
Preferred Stock of 19.7. The Series A Preferred Stock is also convertible
during the Conversion Period for the maximum of 4,925,000 shares of Common
Stock (or 19.7 shares of Common Stock per share of Preferred Stock), at any
time that the sum of 100% of the cumulative net revenues of Unistar plus 25% of
the cumulative other lottery revenues of the Company exceeds $50 million. The
Series A Preferred Stock is also convertible during the Conversion Period
for the maximum number of shares of Common Stock if a controlling interest
in Unistar is sold or assigned to a third party not a wholly owned
subsidiary of the Company. The Series A Preferred Stock is redeemable for
a total of 4,925,000 shares of Common Stock at the Company's option.
Each share of the Series B Preferred Stock has voting rights equal to one share
of Common Stock. The Series B Preferred Stock will earn dividends equal to
31.5% of the consolidated Retained Earnings of Unistar since the date of
issuance of the Series B Preferred Stock, as of the end of any fiscal period,
less any dividends paid to the holders of the Series B Preferred Stock prior to
such date. All dividends on Series B Preferred Stock are payable only (I) when
and as declared by the Board of Directors, (ii) upon conversion or redemption
of the Series B Preferred Stock or (iii) upon liquidation, and only if at the
time of a proposed payment (A) there are no outstanding loans from the Company
to Unistar for start-up costs, (B) the cumulative retained earnings of Unistar
is positive, and (C) the net income of Unistar in the preceding fiscal year
exceeded $1,000,000.
<PAGE>
The Series B Preferred Stock is convertible, during the same Conversion Period
as applies to the Series A Preferred Stock, for up to a maximum of 8,375,000
shares of Common Stock if Unistar meets certain revenue and profit parameters.
Each share of the Series B Preferred Stock is convertible, provided Unistar had
net income for the immediately preceding fiscal year of at least $1,000,000,
into the product of the excess of such net income over $1,000,000, multiplied
by .79, divided by 100,000, up to a maximum number of shares of Common Stock
per share of Preferred Stock of 83.75. The Series B Preferred Stock is also
convertible during the Conversion Period for the maximum of 8,375,000 shares of
Common Stock (or 83.75 shares of Common Stock per share of Preferred Stock),
at any time that the sum of 100% of the cumulative net revenues of Unistar plus
25% of the cumulative other lottery revenues of the Company exceeds $50
million. The Series B Preferred Stock is also convertible during the Conversion
Period for the maximum number of 8,375,000 shares of Common Stock, if a
controlling interest in Unistar is sold or assigned to a third party who is not
a wholly owned subsidiary of the Company. The Series B Preferred Stock is
redeemable for a total of 8,375,000 shares of Common Stock at the Company's
option.
Shareholder approval is required before any of the Series B Preferred Stock can
be converted or redeemed. The Company has submitted the convertibility and
redemption terms of the Series B Preferred Stock to its shareholders for
approval at the 1996 Annual Meeting of Shareholders to be held July 30, 1996.
Both the Series A Preferred Stock and the Series B Preferred Stock are entitled
to a preference on any voluntary or involuntary dissolution, liquidation or
winding up, equal to the fair market value of the stock on the date of its
issuance, as determined by an investment banking firm engaged by the Company,
plus any accrued and unpaid dividends. The aggregate fair market value of all
the issued Preferred Stock at the time of its issuance was determined to be
approximately $7.3 million.
The Board of Directors is authorized to designate with respect to each series
of preferred stock the number of shares in each such series, the dividend rates
and dates of payment, voluntary and involuntary liquidation preferences,
redemption prices, whether or not dividends shall be cumulative, and if
cumulative, the date or dates from which the same shall be cumulative, the
sinking fund provisions, if any, for redemption or purchase of shares, the
rights, if any, and the terms and conditions on which shares can be converted
into or exchanged for or the rights to purchase, shares of any other class or
series, and the voting rights, if any. Any preferred shares issued will
rank prior to the Common Stock as to dividends and as to distributions in
the event of liquidation, dissolution or winding up of the Company. The
ability of the Board of Directors to issue preferred stock while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could among other things, adversely affect the voting powers of
holders of Common Stock and, under certain circumstances, may discourage an
attempt by others to gain control of the Company.
<PAGE>
Virginia Stock Corporation Act
The Virginia Stock Corporation Act contains provisions governing "Affiliated
Transactions". These provisions, with several exceptions discussed below,
require approval of material acquisition transactions between a Virginia
corporation and any holder of more than 10% of any class of its outstanding
voting shares (an "Interested Shareholder") by the holders of at least two-
thirds of the remaining voting shares. Affiliated Transactions subject to
this approval requirement include, among other things, mergers, share
exchanges, material dispositions of corporate assets not in the ordinary
course of business, any dissolution of the corporation proposed by or on
behalf of an Interested Shareholder, and any reclassification,including
reverse stock split, recapitalization or merger of the corporation with its
subsidiaries, that increases the percentage of voting shares owned
beneficially by an Interested Shareholder by more than 5%.
For three years following the time that an Interested Shareholder becomes an
owner of 10% of the outstanding voting shares, a Virginia corporation cannot
engage in an Affiliated Transaction with such Interested Shareholder without
approval of two-thirds of the voting shares other than those shares
beneficially owned by the Interested Shareholder, and majority approval of the
"Disinterested Directors". A Disinterested Director means, with respect to a
particular Interested Shareholder, a member of the corporation's Board of
Directors who was (1) a member on the date on which an Interested Shareholder
became an Interested Shareholder and (2) recommended for election by, or was
elected to fill a vacancy and received the affirmative vote of, a majority of
the Disinterested Directors then on the Board. After the expiration of the
three-year period, the statute requires approval of the Affiliated
Transactions by two-thirds of the voting shares other than those
beneficially owned by the Interested Shareholder.
The principal exceptions to the special voting requirement apply to
transactions proposed after the three-year period has expired and require
either that the transaction be approved by a majority of the corporation's
Disinterested Directors or that the transaction satisfy the fair-price
requirements of the statute. In general, the fair-price requirement
provides that in a two-step acquisition transaction, the Interested
Shareholder must pay the shareholders in the second step either the
same amount of cash or the same amount and type of consideration paid to
acquire the Virginia corporation's shares in the first step.
None of the foregoing limitations and special voting requirements applies to a
transaction with an Interested Shareholder whose acquisition of shares making
such person an Interested Shareholder was approved by a majority of the
Virginia corporation's Disinterested Directors.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the statute provides that, by affirmative vote of
a majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation can adopt an amendment to its articles of
incorporation or bylaws providing that the Affiliated Transactions provisions
shall not apply to the
<PAGE>
corporation. The Company has not opted-out of the Affiliated Transactions
provisions.
Virginia law also provides that shares acquired in a transaction that would
cause the acquiring person's voting strength to meet or exceed any of three
thresholds (one-fifth, one-third or a majority of the outstanding voting
shares, respectively) have no voting rights unless granted by a majority vote
of shares not owned by the acquiring person or any officer or employee-
director of the Virginia corporation. This provision empowers an acquiring
person to require the Virginia corporation to hold a special meeting of
shareholders to consider the matter within 50 days of its request.
LEGAL OPINION
The legality of the Securities being offered hereby will be passed upon for
the Company by Hunton & Williams, Riverfront Plaza, East Tower, 951 East Byrd
Street, Richmond, Virginia 23219. Thurston R. Moore, a member of Hunton &
Williams, is a director of the Company. At May 31, 1996, Mr. Moore
beneficially owned 108,635 shares of the Common Stock of the Company.
EXPERTS
The financial statements and schedules incorporated by reference in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving such reports.
No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference in
this Prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or the
Selling Shareholders. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
registered securities to which it relates or an offer to sell or a
solicitation of an offer to buy such securities in any jurisdiction and to
any person to whom it is unlawful to make such an offer or solicitation in
such jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the date hereof, or
that the information herein is correct as of any time subsequent to its date.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission registration fee . . . .$ 18,500
State securities laws qualification and registration fees .$ 2,000
Printing fees. . . . . . . . . . . . . . . . . . . . . . . $ 1,000
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000
Accounting fees. . . . . . . . . . . . . . . . . . . . . . $ 1,000
Miscellaneous expenses. . . . . . . . . . . . . . . . . . .$ 500
----------
Total $ 25,000
All of the above items except the registration fee are estimated. State
securities laws qualification and registration fees and expenses, selling
commissions, and fees and expenses of counsel to the Selling Shareholders
shall be borne by the Selling Shareholders. Selling commissions and expenses
of sellers' counsel will vary depending on the individual, the method of sale
and the amount sold and cannot be estimated. All other expenses shall be
borne by the Company.
Item 15. Indemnification of Directors and Officers.
Article 10 of the Virginia Stock Corporation Act and the Company's
Articles of Incorporation provide for indemnification of officers and
directors of the Company under certain circumstances. No director or officer
of the Company shall be liable to the Company or its shareholders for monetary
damages in respect of proceedings brought by or on behalf of the Company or
its shareholders, unless such person engaged in willful misconduct or a
knowing violation of the criminal law or any federal or state securities law.
The Company shall indemnify any person who is or was a party to a proceeding
as a result of serving as a director or officer of the Company against any
liability incurred in connection with such proceeding unless the person
engaged in willful misconduct or a knowing violation of criminal law.
Insurance carried by the Company provides (within limits and subject to
certain exclusions) for reimbursement of amounts which (a) the Company may be
required or permitted to pay as indemnities to the Company's directors or
officers for claims made against them, and (b) individual directors, officers
and certain employees of the Company may become legally obligated to pay as
the result of acts committed by them while acting in their corporate or
fiduciary capacities.
Item 16. Exhibits.
4.1 Articles of Incorporation, as amended, consisting of Certificate
of Merger, including Articles of Incorporation, incorporated by reference to
the registrant's Current Report on Form 8-K filed on January 3, 1996, and the
registrant's Annual Report of Form 10-K for the year ended December 31, 1995.
4.2 Bylaws, as amended, incorporated by reference to Exhibit 4.2 to
the registrant's Registration Statement on Form S-3 (File No. 33-62257) filed
on August 30, 1995.
5 Opinion of Hunton & Williams, counsel to the Company. *
23.1 Consent of Arthur Andersen LLP*
23.2 Consent of Hunton & Williams (included in Exhibit 5.1hereto).*
25 Powers of Attorney. *
* Filed herewith
Item 17. Undertakings.
(a) The Registrant hereby undertakes: (1) to file, during any period in
which offers or sales are being made, a post-effective amendment to this
Registration Statement: to include any material information with respect to
the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement; (2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof; (3) to
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 15
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities other than
the payment by the Registrant of expenses incurred or
<PAGE>
by a director, officer or controlling person of such Registrant in the
successful defense of any action, suit or proceeding is asserted by such
director, officer or controlling person in connection with the securities
being registered, such Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by
it is against public policy as expressed in the Act, and will be governed
by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Milford, State of Connecticut, as of the
28th day of June, 1996.
Executone Information Systems, Inc.
By: /s/ Alan Kessman
Alan Kessman
Chairman of the Board, President and
Chief Executive Officer
POWERS OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Alan Kessman, Michael W. Yacenda and Barbara C. Anderson, or any one or
more of them, his true and lawful attorney-in-fact, for him and in his name,
place and stead, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to cause the same to be
filed with the Securities and Exchange Commission, hereby granting to said
attorneys-in-fact full power and authority to do and perform all and every
act and thing whatsoever requisite or desirable to be done in and about the
premises as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all acts and things that said
attorneys-in-fact may do or cause to be done by virtue of these presents.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated as of the 28th day of June, 1996.
/s/ Alan Kessman
Alan Kessman Richard S. Rosenbloom
Chairman of the Board, Director
President and Chief Executive Officer
(Principal Executive Officer)
/s/ A.R. Guarascio /s/ Thurston R. Moore
Anthony R. Guarascio Thurston R. Moore
Vice-President, Finance and Director
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Stanley M. Blau
Stanley M. Blau William R. Smart
Vice-Chairman of the Board Director
<PAGE>
/s/ Jerry M. Seslowe
Jerry M. Seslowe
Director
<PAGE>
EXHIBIT INDEX
Exhibit
Number
5 Opinion of Hunton & Williams, counsel to the Company.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Hunton & Williams
25 Powers of Attorney.
Exhibit 5
HUNTON & WILLIAMS
RIVERFRONT PLAZA, EAST TOWER
951 EAST BYRD STREET
RICHMOND, VA 23219
TELEPHONE (804) 788-8200
FACSIMILE (804) 788-8218
JUNE 28, 1996
The Board of Directors
EXECUTONE Information Systems, Inc.
478 Wheelers Farms Road
Milford, Connecticut 06460
EXECUTONE Information Systems, Inc.
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to EXECUTONE Information Systems, Inc., a Virginia
corporation (the "Company"), in connection with the preparation and filing
of a registration statement on Form S-3 under the Securities Act of 1933, as
amended (the "Registration Statement"), with respect to 17,788,558 shares of
the Company's Common Stock, $.01 par value per share (the "Shares"), which
are proposed to be offered and sold from time to time on a secondary basis
by certain selling shareholders as described in the Registration Statement.
In rendering this opinion, we have relied upon, among other things, our
examination of such records of the Company and certificates of its officers
and ofpublic officials as we have deemed necessary.
Based upon the foregoing and the further qualifications stated below, we are
of the opinion that:
<PAGE>
1. The Company is duly incorporated, validly existing and in
good standing under the laws of the Commonwealth of Virginia.
2. The Shares have been duly authorized and, when issued and
sold as described in the Registration Statement, will be legally issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
statement made in reference to this firm under the caption "Legal Opinion"
in the Registration Statement.
Very truly yours,
HUNTON & WILLIAMS
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated January 26, 1996,
except with respect to the matter discussed in the footnote to the consolidated
financial statements labeled "Note N-Subsequent Events" as to which the date
is April 10, 1996, in EXECUTONE Information Systems, Inc.'s Form 10-K for the
year ended December 31, 1995, and to all references to our Firm included in
this registration statement.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
June 28, 1996
<PAGE>
