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FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE
REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15
(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
For the transition period from ____________ to ________________
Commission File Number: 0-11551
EXECUTONE INFORMATION SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
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Virginia 86-0449210
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
478 Wheelers Farms Road, Milford, Connecticut 06460
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (203)876-7600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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N/A None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
7 1/2% CONVERTIBLE SUBORDINATED DEBENTURES, DUE MARCH 15, 2011
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(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the common stock held by nonaffiliates of the
registrant (assuming for this purpose that all executive officers and directors
of the registrant are affiliates) as of March 29, 1996 was $125,909,320, based
on the last sale price for the common stock on that date.
The number of shares outstanding of the registrant's only class of common stock,
$.01 par value per share, as of March 29, 1996, was 51,865,163.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the Part of this Form
10-K indicated below:
Part II - 1995 Annual Report to Shareholders
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TABLE OF CONTENTS
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Item Page
PART I
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1. Business 1
2. Properties 15
3. Legal Proceedings 15
4. Submission of Matters to a Vote of Security Holders 16
Executive Officers of the Registrant 17
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 20
6. Selected Financial Data 20
7. Management's Discussion and Analysis of Financial Condition 20
and Results of Operations
8. Financial Statements and Supplementary Data 20
9. Changes in and Disagreements with Accountants on 20
Accounting and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant 20
11. Executive Compensation 22
12. Security Ownership of Certain Beneficial Owners and Management 28
13. Certain Relationships and Related Transactions 31
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 32
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PART I
ITEM 1. BUSINESS
General
EXECUTONE Information Systems, Inc. ("EXECUTONE" or the "Company")
designs, manufactures, sells, installs and supports voice processing systems and
healthcare communications systems. EXECUTONE also provides cost-effective
long-distance telephone service through its INFOSTAR'r'/LD+ program. Products
are sold under the EXECUTONE'r', INFOSTAR'r', IDS'tm', LIFESAVER'tm' and
INFOSTAR/ILS'tm' brand names through a worldwide network of direct sales and
service offices and independent distributors.
EXECUTONE's executive offices are located at 478 Wheelers Farms Road,
Milford, Connecticut 06460, telephone (203) 876-7600. The Common Stock of
EXECUTONE is traded on the NASDAQ National Market System under the symbol
"XTON", and its Convertible Subordinated Debentures due 2011 trade on the NASDAQ
system under the symbol "XTONG".
Recent Developments
On April 10, 1996, the Company entered into an agreement to sell the
Company's direct sales and service organization, including its network services
division, to a new acquisition company led by Bain Capital, Inc. and including
Triumph Capital Group (the "Buyer"). The purchase price will consist of $61.5
million in cash, a $5.9 million junior subordinated note due July 1, 2004, with
interest at 7.5% per year, and warrants to purchase 8% of the equity issued as
of the closing in the new company. The sale is expected to close on May 31,
1996, subject to the Buyer's financing and other conditions.
The purchase and sale agreement also provides that the Company and the
Buyer will enter into a five-year exclusive distributor agreement pursuant to
which the Buyer will sell and service EXECUTONE'r' and INFOSTAR'r' telephone
products to business and commercial locations that require up to 400 telephones.
The sale will include the Company's National Service Center. The sale
does not include the Pittsburgh direct sales and service office, which the
Company has separately agreed to sell to one of its existing independent
distributors for approximately $1.3 million in cash and notes. The sale also
does not include any of the healthcare communications division, the call center
management division, the videoconferencing division, the National Accounts or
Federal Systems marketing groups or the recently acquired Unistar business.
On April 10, 1996, the Company also announced that it had given notice
of its intention to terminate its distribution agreement with GPT Video Systems
due to failures by GPT to deliver properly functioning videoconferencing
products on a timely basis. The Company has not yet finalized its plans for its
videoconferencing division.
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On December 19, 1995, the Company acquired 100% of the common stock of
Unistar Gaming Corp., a Delaware corporation ("Unistar"). Unistar, through its
subsidiary Unistar Entertainment, Inc., has an exclusive five-year contract to
design, develop, finance, and manage the National Indian Lottery (the "NIL" or
"Lottery"). The NIL will be a national telephone lottery authorized by federal
law and by a compact between the State of Idaho and the Coeur d'Alene Indian
Tribe of Idaho ("Coeur d'Alene Tribe"). In return for providing these management
services, Unistar will be paid a fee equal to 30% of the profits of the NIL.
The Registrant acquired 100% of Unistar for 3.7 million shares of
Common Stock, 250,000 shares of Cumulative Convertible Preferred Stock, Series A
("Series A Preferred Stock") and 100,000 shares of Cumulative Contingently
Convertible Preferred Stock, Series B ("Series B Preferred Stock").
The Series A Preferred Stock has voting rights equal to one share of
Common Stock and will earn dividends equal to 18.5% of the consolidated Retained
Earnings of Unistar as of the end of a fiscal period, less any dividends paid to
the holders of the Series A Preferred Stock prior to such date. The Series B
Preferred Stock has voting rights equal to one share of Common Stock and will
earn dividends equal to 31.5% of the consolidated Retained Earnings of Unistar
as of the end of a fiscal period, less any dividends paid to the holders of the
Series B Preferred Stock prior to such date. All dividends on Preferred Stock
are payable (I) when and as declared by the Board of Directors, (ii) upon
conversion or redemption of the Series A and Series B Preferred Stock or (iii)
upon liquidation. The Series A and Series B Preferred Stock is redeemable for a
total of 13.3 million shares of Common Stock (Series A Preferred Stock for 4.925
million shares and Series B Preferred Stock for 8.375 million shares) at the
Company's option. The Series A Preferred Stock is convertible for up to 4.925
million shares of Common Stock and the Series B Preferred Stock is contingently
convertible for up to 8.375 million shares of Common Stock (a total of an
additional 13.3 million shares of Common Stock) if Unistar meets certain revenue
and profit parameters. Shareholder approval is required before any of the Series
B Preferred Stock can be converted or redeemed. The Company intends to submit
the terms of the Series B Preferred Stock to its shareholders for approval at
the 1996 Annual Meeting.
The telephone operations of the NIL cannot begin until the resolution
of a pending legal proceeding. Certain states have attempted to block the NIL by
filing 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 argue that the
Lottery is authorized by the Indian Gaming Regulatory Act ("IGRA") passed in
1988, that IGRA preempts state and federal statutes, and that the states lack
authority to issue the Section 1084 notification letters to any carrier. On
February 28, 1996, the Coeur d"Alene tribal court ruled that all requirements of
IGRA have been satisfied, that the Section 1084 letters are invalid, and that
the long distance carrier is obligated to provide telephone service for the NIL.
Although the ruling has been appealed to the tribal supreme court and will
likely be appealed ultimately to U.S. Federal District Court, the Company
believes, based upon consultation with and opinion rendered by outside legal
counsel, that the initial ruling and the Coeur d'Alene Tribe's position will
ultimately be upheld.
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In July 1995, the Company reorganized its core business into five
divisions: Computer Telephony, Healthcare Communication Systems, Call Center
Management, Videoconferencing Products, and Network Services. The business of
Executone, Inc. acquired by the Company in 1988 was a telephone equipment
business that focused its direct selling effort on office sites with fewer than
20 phones, with an emphasis on selling additional hardware to generate revenues
in the form of moves, adds and changes ("MAC") and service, mainly on a time and
material basis. The average system size in the customer base at that time was in
the 8-10 phone range. It was originally expected in 1988 that the MAC and
service revenues generated by the customer base would be increasingly profitable
as the base of customers grew. Since 1988, the Company has expanded its product
line to the high-end user, with larger customers and more sophisticated products
to serve customers' total communications needs. The strategy the Company is now
pursuing is to focus on software solutions versus the hardware orientation of
the business purchased in the 1988 acquisition. With the IDS 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 development in the nature and complexity of our product lines has
changed the way the Company has to market its products. Unlike many companies in
its industry that focus on one particular product to one market, the Company
provides multiple products and applications to its particular market niche. This
requires the Company to have expertise in each particular market segment in
which it competes because the Company's competitors are primarily one-product
companies or divisions who are experts in their particular market niche.
Therefore, the Company consolidated the sales, marketing and product development
functions for each market segment under a divisional management structure,
headed by a division president. The sales force has been restructured such that
each sales person is assigned to a specific division and will sell only within
that division's market segment. The specialization of the sales force included
the addition of sales representatives with the necessary product and market
expertise, as well as substantial retraining for the remaining sales
representatives.
Business Strategy
EXECUTONE is a vertically integrated voice processing and healthcare
communications company. The Company controls the major elements of its business,
ranging from product design, manufacturing and marketing to distribution,
installation, service and support. Revenues are derived from both from new
installations and from the Company's existing customer base through additions,
changes, upgrades or relocation of previously installed systems, maintenance
contracts, service charges and sales of network services. The Company's products
and services are marketed and sold through a worldwide network of Company direct
sales and service offices and independent distributors. The Company is organized
into five divisions focusing on different products and market segments: computer
telephony, healthcare communication systems, call
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center management, videoconferencing products, and network (voice, data and
video) services.
The objective of the computer telephony division is to offer
value-added products and services. The Company's integrated digital telephone
systems emphasize flexible software applications, such as data switching and
computer telephone interface, designed to enhance the customer's ability to
communicate, obtain and manage information. The Company's telephone systems
provide the platform for its other voice processing software applications, such
as automatic call distribution.
The healthcare communications systems division provides to its
healthcare facility customers integration of voice and data between nurse and
patient communication systems and hospital information systems, resulting in
increased flexibility and efficiency in hospital operations, and improved
patient care. EXECUTONE has been a recognized name in this market for many years
with its LIFESAVER'tm' and CARE/COM'r'II-E nurse call systems. The Company is
also creating software applications specific to hospital and nursing homes to
help resolve other labor intensive tasks.
The healthcare communications division also markets the
INFOSTAR/ILS'tm' locator system, released in early 1994. The INFOSTAR/ILS system
can improve productivity, save time and expense for users and eliminate overhead
paging by instantly locating staff and equipment in a facility. Each person or
piece of equipment wears an individually coded badge that transmits infrared
signals to sensors placed throughout the facility, which forward the location
information to a central processing unit. The location data can be accessed on
local display stations. The ILS'tm' system can be integrated with the Company's
telephone systems and the LIFESAVER'tm' nurse call system to provide additional
productivity improvements for hospital environments. The ILS system is also
marketed by the computer telephony division for office environments.
The call center management division develops and sells sophisticated
telephony products that integrate a computerized digital telephone system
platform with high-volume inbound, outbound and internal call processing
systems. Such systems include automatic call distribution systems, predictive
dialing systems, scripting software to assist agents handling calls, and
interactive voice response systems. Certain of these systems also provide data
interface with host or mainframe computers. These systems are sold to call
center customers that have a need for systems to efficiently and
cost-effectively receive or place their customer or prospect calls, distribute
those calls to available live operators, obtain information from callers, record
and distribute messages from callers, and produce management reports on call
activity.
The videoconferencing division is the exclusive distributor of products
of GPT Video Systems ("GPT") in the United States. The division also provides
videoconferencing network services such as multipoint conferencing, network
bridging and network design to its videoconferencing customers.
The network services division offers cost-effective voice, data and
video
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long-distance service, least-cost routing, network design and network support
services, enabling customers to make more efficient and cost-effective use of
their telecommunications systems. Services are sold primarily to telephony
customers in the United States.
In 1995, the Company acquired Unistar. Unistar, through its subsidiary
Unistar Entertainment, Inc., has an exclusive five-year contract with the Coeur
d'Alene Tribe of Idaho to design, develop, finance, and manage the National
Indian Lottery (the "NIL" or the "Lottery"). The NIL will be a national
telephone lottery authorized by the federal Indian Gaming Regulatory Act
("IGRA") and a compact between the State of Idaho and the Coeur d'Alene Tribe.
In return for providing these management services to the NIL, Unistar will be
paid a fee equal to 30% of the profits of the NIL. Through Unistar, the Company
will provide development and management of the network design and call center
applications for the Lottery's operations. It is anticipated that calls to
purchase lottery tickets will be made via 800 number lines and processed by
interactive voice response systems, as well as live agents located on the Coeur
d'Alene Reservation using ACD software to manage a high volume of calls. The
Lottery will require an extensive telephone network to handle the anticipated
call volume.
The telephone operations of the NIL cannot begin until resolution of a
pending legal proceeding. See "Legal Proceedings."
Computer Telephony Products
The Company offers a complete line of applications-oriented computer
telephony systems, ranging from those satisfying the basic voice communications
needs of small businesses to those capable of meeting the complex voice and data
communications demands of much larger business locations that need fully
featured telecommunications systems. The Company markets the IDS'tm' Integrated
Digital System, along with an expanding line of software applications and
features operating on that platform. The Company's largest telephone platform is
the IDS'tm'/System 648 digital system, which can accommodate up to 648
nonblocking voice ports and 648 nonblocking data ports. The Company believes its
installed telephone equipment base exceeds 3 million desktops.
In 1996, the Company introduced its TAPI telephone, designed to support
any desktop application using the TAPI standard for computer-telephone
integration, in order to speed inbound and outbound call handling and increase
productivity. The TAPI telephone can eliminate time spent searching for
telephone numbers, looking up PBX feature codes, misdialing or searching for
information to handle a call.
The Company's telephone systems are characterized by flexible software
and a hardware design that makes them readily adaptable to evolving technology
and customer requirements. The Company attributes the market acceptance of its
systems to cost-effective design and to the sophistication of its software
options. The software in each system provides such features as automatic
dialing, add-on conferencing, call forwarding, last number redialing, message
waiting, paging capability, internal diagnostic routines and other commonly used
communications features. The Company's systems also include an integrated
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automated attendant feature to answer and transfer calls quickly and efficiently
without operator intervention, and a video display terminal and management
reports that permit the monitoring of calls and improve the efficiency of
directing calls to the appropriate extensions. The Company's telephone systems
also support sophisticated applications such as voice mail and call center
products as well as the Company's locator system.
The Company also offers a voice mail system that can be integrated with
the IDS'tm' telephone systems and with telephone systems manufactured by others.
The voice message or voice mail system receives, records, stores, distributes,
transfers and replays messages from both external and internal callers and can
supplement other call center systems.
The Company develops its application-specific software options using
high-level programming languages to facilitate further enhancements and
portability. EXECUTONE's software includes remote capabilities built into
certain systems that enable the Company to customize and update selected
features continuously, which increases the value of such systems and lengthens
their useful lives. Certain of the Company's systems are capable of having
service diagnostics, updates and modifications performed on a remote basis. The
ability to provide such off-site servicing increases the efficiency of customer
support and service.
Healthcare Communication Products
The Company develops, manufactures, markets and services a line of
specialized internal communications systems that are used primarily in the
healthcare industry. These internal communications systems are
microprocessor-based patient-to-nurse communication systems, intercoms, paging
and sound equipment, and room status indicators.
The Company's LIFESAVER'tm' nurse call system is an advanced system
integrating voice and data communication between nurse and patient and providing
enhanced self-diagnostics. The LIFESAVER'tm' system is a state-of-the- art
communications network that provides routine and emergency signaling, voice
communications and data transmission. The nurse console offers menu-driven
functions and step-by-step user prompts. The system is highly flexible, offering
many programmable features that allow customization of its operations to the
hospital's needs. A single system can serve more than 300 patient beds (150
rooms) and up to eight nurse control stations, and up to eight systems can be
networked for centralized operation.
The CARE/COM'r' II-E nurse call system represents the first step in
EXECUTONE's plan to bring the benefits of a totally integrated communications
system to the healthcare market on the Company's IDS digital platform. The
CARE/COM'r' lI-E system provides patient-to-staff and staff-to-staff voice
communication on an automatic three-level call priority basis. This new system
can currently support 72 patient stations per system, with the ability to
integrate three systems together and support 216 patient stations. A three-line
LCD display Nurse Control Station allows simple call processing and system
operation. The
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system is highly flexible to meet the individually defined needs of today's
hospitals and long-term care facilities.
The LIFESAVER'tm' nurse call system integrates with the Company's
locator system.
The Healthcare Division also markets the INFOSTAR'r' /PRS patient
reporting system, an automated voice storage system that allows the efficient
transfer of patient information between nurses. Patient reports are password-
protected for confidentiality and admission, discharge and transfer information
are also supported. The system uses standard telephone instruments and provides
full voice messaging capability. The INFOSTAR'r'/PRS system reduces report time,
provides continuity at shift changes, and improves report quality.
In 1995, the Healthcare Division began marketing the Communicator
system manufactured by Dialogic Communications Corporation, in which the Company
has an equity investment. The Communicator product is a P.C.-based, automated
callout system that rapidly locates personnel to fulfill routine or emergency
staffing needs, searching multiple locations until responses are sufficient to
satisfy the staffing need. The system also provides real-time management reports
of employee eligibility, availability, and responses. Using the Communicator
system, hospitals can improve staffing efficiency, avoid miscommunication, and
enhance productivity.
Locator Systems
The Company's INFOSTAR/ILS'tm' locator system is an integrated system
using infrared transmitter badges to communicate location data to sensors
installed throughout a facility. The badges transmit regularly at
user-programmed intervals and can be worn by staff personnel or attached to
equipment. The location data is collected by the sensors and forwarded to a
central processing unit that organizes the data so it can be accessed at one or
more display stations. The display of staff and equipment location information
can be in the form of a list or in the form of a map of the facility using
icons. The display can be filtered to show only particular staff members, groups
of personnel, particular pieces of equipment or groups of equipment. The system
can be integrated with either the IDS telephone systems, allowing the activation
of features and display of information on the telephone set, or the Company's
nurse call systems, allowing the activation of features and display of
information at the nurse control station and patient stations. The
INFOSTAR/VLS'tm' version of this product allows outside callers to locate
personnel within a facility, find out who the person is with, complete the call,
or leave a voice message. The ILS and VLS systems can also be integrated to
other manufacturers' PBXs. Nortel has now made ILS available to its dealer
network for sale by its dealers in conjunction with Nortel PBXs.
Call Center Management Products
The Company's call center management products consist of the following
systems, which can be integrated with the Company's computer telephone systems
and with each other to provide large-volume inbound, outbound and
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internal call management. Computer-telephone integration ("CTI") technology
integrates the IDS'tm' call processing function with information in a customer's
computer database. Primarily used by large incoming call centers to
automatically identify incoming callers and by outbound centers to contact and
provide records of contacts, CTI limits the amount of time that an agent spends
contacting or identifying the caller, thereby providing better customer service,
reducing the number of required agents and reducing telephone line and
transmission expense.
Predictive Dialers and Scripting Products - The INFOSTAR'r'/Predictive
Dialer is an automated call system designed to boost productivity in outbound
call centers. The system integrates telephone, data collection and transaction
processing functions for those customers who require high volume contact by
telephone to transact business, such as sales, credit and collections, blood
banks and fund-raising. Working with the host computer and the IDS'tm' telephone
system platform, the dialer automatically dials telephone numbers pulled from
the host computer database and detects "live" calls. Available representatives
receive these calls and, through CTI, can view screen information about the
customer from the database immediately after the customer answers the phone. The
system predicts the availability of agents in order to reduce abandoned calls
and increase agent productivity, and reduces agent contact with busy signals, no
answers, wrong numbers and answering machines. Management reports provide
instant and historical feedback on call distribution, list management, data
input integrity and file maintenance. Scripting software allows the call center
to create a script to guide its agents through various call scenarios and prompt
the input of desired information.
Automatic Call Distribution ("ACD") - ACD systems are designed to
increase responsiveness to inbound callers and increase agent productivity. ACD
systems provide the capability to distribute or route incoming calls to
available agents based upon management's specifications, and allow the
supervisor of the call processing group to monitor call traffic on-line via a
computer terminal. The Company produces ACD software for call centers of up to
500 agents in multiple shifts (225 in any single shift), in five levels of
sophistication, the highest of which is "Custom Plus ACD." Custom Plus ACD
provides the capability to store and retrieve call data for a limited period,
print out standard call traffic reports, customize reports to the needs of a
specific application, monitor traffic with color screens and graphics, and
greatly enhance the ability to store and retrieve historical call data.
Interactive Voice Response - The Company's interactive voice response
("IVR") systems provide businesses with automated handling of routine calls.
Voice response systems allow callers to input and retrieve information into or
from computers by means of the dialpads on their telephones. The caller is
guided by voice prompts to input data by dialing numbers, which the IVR system
converts into computer keystrokes. The IVR system can also convert computer
screen information into voice prompts, allowing callers to retrieve information
from computers. The voice response product provides advanced computer access
applications and advanced facilities, such as ISDN, that interface with the
Company's IDS'tm' family of telephone systems and other advanced voice
processing applications.
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Videoconferencing Systems and Services
The Videoconferencing Division markets videoconferencing equipment in
the United States and provides video network services including video
networking, network design, multipoint conferencing, and video network bridging.
The Company provides its videoconferencing customers with a "turnkey" solution
including equipment installation, network services, maintenance and customer
support.
Network Services
The Company markets INFOSTAR'r'/LD+ long-distance telephone service to
its customers. INFOSTAR'r'/LD+ provides a complete service to the Company's
customers from the initial sale through billing and customer support. The
Company has contracted with major carriers including Sprint, Worldcom and
Teleport Communications to carry the long-distance traffic for both voice and
data on their networks. The Company has also signed agreements to provide
alternative local access in select cities throughout the U.S. This program
offers many features including six-second billing rates, accounting codes,
international service, 800 service, "T-1" access and specialized management
reporting.
The Company also provides the following network services:
Network Designer - The Company can perform a computer-generated
analysis of a customer's calling patterns in order to recommend the optimum
configuration of its network. Recommendations would include the long-distance
carriers and the number of lines needed.
Least Cost Routing ("LCR") - LCR stores current tariff tables for the
appropriate long-distance carriers employed by the customer and automatically
selects the least expensive carrier for each specific call at the moment the
call is placed.
Data Switching - Data switching provides the capability to switch data
between mainframe, minicomputers, personal computers, terminals and peripherals
through the telephone systems.
Centrex Capability and Applications - The Company's telephone systems
can be programmed to function in conjunction with and enhance the features of
Centrex services offered by the local telephone companies.
Sales and Marketing
Developing and maintaining a strong relationship with the end-user
customer is the focus of the Company's marketing strategy. The Company's
distribution network consists of (1) 70 Company-owned direct sales and service
locations in the major markets in the United States; (2) domestic independent
distributors with approximately 110 locations operating under exclusive and
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nonexclusive agreements throughout the United States and Canada; (3) a National
Accounts Division that uses the sales, installation, service and support
capabilities of EXECUTONE's distribution network to serve multiple offices and
departments of companies; (4) a Federal Systems Division that uses the
distribution network to serve offices of the U. S. Government and its agencies;
(5) vertical marketing organizations of the healthcare communications, call
center, network and videoconferencing divisions; and (6) 20 independent
distributors operating in sixteen other foreign countries.
For those distributors that have exclusive distribution rights for
specified products, retention of such rights is subject to satisfaction of
established criteria for sales and service to customers on an ongoing basis. The
divesting of or acquisition of customer bases to or from distributors in
specific geographic territories may occur in the normal course of the Company's
business.
EXECUTONE's National Accounts Division provides uniformity in pricing,
coordination, installation, billing and service for National Accounts Division
customers such as Electronic Data Systems, Airborne Express, Paychex, Inc., W.
W. Grainger, Home Quarters Warehouse, Inc., Bridgestone/Firestone, Carlson
Companies, Fidelity Investments and TCI Cable. The Division coordinates the
sales, installation, service and support functions of direct and independent
sales offices to serve the multiple offices and departments of large companies.
The Company's Federal Systems Division addresses the special
procurement and administrative requirements of the U.S. Government. Sales are
made through a combination of master contracts and competitively solicited
proposals for large or complex telecommunications requirements. Federal Systems
coordinates the installation, service and support activities of direct and
independent sales offices to provide ongoing support to federal agency offices
nationwide.
Backlog consists primarily of products that have been ordered and that
will be shipped or installed within 30 to 60 days of the order (other than call
center and healthcare orders, which have a longer lead time), or systems the
installation of which is not yet required by the customer. Backlog as of
December 31, 1995, was $ 33,091,000 compared to $29,390,000 at December 31,
1994, and the Company expects virtually all of such backlog to be filled within
the current fiscal year.
Customer Support and Service
The Company operates a National Service Center that diagnoses system
problems for many of the end-user customers of its direct sales and service
offices, coordinates field service personnel and programs certain corrections
remotely from a centralized location at its corporate headquarters. The National
Service Center helps the Company in providing consistent customer service and
support while improving the productivity of the Company's technicians. All
service calls received from customers are controlled from initial diagnosis to
ultimate disposition through an internally-developed and maintained proprietary
software package. The National Service Center maintains detailed customer
records and also markets and monitors certain products and services such as
maintenance
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contracts. It is the primary point of contact for customer needs, questions or
requests. Additionally, the National Service Center provides the Company with
statistical data and reports regarding a product's performance, which can be
used to make enhancements and improvements. This data is also available for each
of the Company's locations and each of its technicians.
EXECUTONE warrants parts and labor on its systems, typically for one
year, and provides maintenance and service after warranty expiration either on a
contract or time and materials basis. Most of the Company's products are
repaired at its 56,000-square foot repair facility located in Poway, California.
Product Development and Engineering
As of March 1, 1996, EXECUTONE employed over 100 individuals engaged in
product design and development. The Company's product development program is
designed to anticipate and respond to customer needs through development of new
products and enhancement of existing products. During 1995, the Company's
engineering efforts focused on applications-oriented software products,
including new releases of voice messaging, call center and healthcare
communications software. EXECUTONE continually strives to reduce production
costs by incorporating new technology into its design and manufacturing
operations. For the years ended December 31, 1995, 1994, and 1993,
Company-sponsored product development and engineering expenditures (including
product management and testing) amounted to approximately $14.7 million, $12.2
million, and $9.9 million, respectively.
Manufacturing
Most of EXECUTONE's telephone products are manufactured by Wong's
Electronics Company, Ltd. ("Wong's") in Hong Kong or China, by Quality
Telecommunication Products, also referred to as Compania Dominicana de Telefonos
("Codetel"), in the Dominican Republic, and by the Company directly in Poway,
California. Many of the printed circuit boards for the Company's products are
manufactured, and many products are assembled into systems and system
components, in the United States.
The Company's Manufacturing Services Agreement with Wong's currently
expires in February 1997 but is automatically extended each year for an
additional one-year term unless either party gives notice of termination three
months prior to expiration of the current term. The contract may be terminated
earlier by either party in the event of a material breach by the other party.
If the agreement between Wong's and EXECUTONE should be terminated for
any reason, or if Wong's is unable to ship or has to reduce shipments, or if
restrictions are imposed materially limiting the importation of products
produced by foreign manufacturers, the Company could be affected adversely until
satisfactory alternative sources are in place. The profitability of EXECUTONE's
operations could be affected to the extent it is unable to reflect the direct
and indirect costs of products purchased from Wong's in its pricing policies.
The prices for products purchased by EXECUTONE from its suppliers are payable in
U.S.
11
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<PAGE>
dollars.
The majority of EXECUTONE's specialized healthcare and internal
communication systems are produced in the United States at the Company's
facility in Poway, California or at domestic subcontractors. The functions of
repair, warehousing and distribution of the Company's products are performed at
the Company's facilities in Poway.
Trademarks, Patents and Copyrights
Management believes that the continued success of EXECUTONE is
dependent upon the ability to design, develop and market new products and new or
enhanced applications. The patentability of such new products or applications is
evaluated and patent applications are filed where necessary to protect unique
developments. The Company currently holds eight utility patents, expiring at
various times between 2007 and 2012, has 13 U.S. patent applications pending,
and seven patent applications pending in numerous foreign countries.
The Company has registered or applied to register its trademarks when
it believes registration to be important to its ongoing business operations. The
Company also generally claims copyright protection for software, circuit
designs, schematics and technical documentation used in connection with its
products, and relies upon trade secret, contract and copyright laws to protect
its proprietary rights in its software, designs and documentation.
Certain of EXECUTONE's products incorporate technology and software
licensed from independent third parties. Generally, these licenses require
payment of a royalty for each system sold that incorporates the licensed
technology or require that the Company purchase the product from the licensor.
Government Regulation
Many of the Company's systems are designed to be connected to the
public telecommunications network and as such are required to comply with
certain rules of the Federal Communications Commission ("FCC") pertaining to
telecommunications equipment. The Company's network services are generally
required to be tariffed and are subject to regulation by the public utility
commissions of the various states and by the FCC. The Company has not
experienced any material adverse effect on its business or operations as a
result of such regulation and compliance.
Certain uses of outbound call processing systems are regulated by
federal and state law. Among other things, the FCC has adopted rules pursuant to
the Federal Telephone Consumer Protection Act to protect residential telephone
subscribers' privacy rights to avoid receiving telephone solicitations to which
they object. Certain states have enacted similar laws limiting access to
telephone subscribers who object to receiving solicitations. Although compliance
with these laws may limit the potential use of the Company's predictive dialer
systems in some respects, the Company's systems can be programmed to operate
12
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automatically in full compliance with these laws through the use of appropriate
calling lists and calling campaign time parameters.
To the extent the Company markets its products internationally, it is
required to comply with applicable foreign law, including certification of its
products by appropriate government regulatory organizations.
Competition
The market segments in which the Company offers its products and
services are highly competitive. The under 300-desktop voice processing segment
in the United States, the primary market for the Company's telephony division,
is served by many domestic and foreign communications equipment manufacturers
and distributors, including Lucent Technologies (the former equipment business
of AT&T), Nortel (formerly named Northern Telecom), and the Regional Bell
Operating Companies (the "RBOCs"), as well as numerous specialized software
companies. The Company believes that it may be third in telephone system
shipments to the under 300-desktop voice processing market, after AT&T/Lucent
and Nortel, based on industry surveys of 1994 data. However, such information
may not be sufficient to make an exact assessment of the Company's competitive
position relative to its competitors. Similarly, the Company faces strong
competition in network services, including AT&T, MCI, Sprint, and numerous long
distance resellers. Although the Company can be competitive on price compared to
several of these companies, many of EXECUTONE's competitors have substantially
more capital, technology and marketing resources than the Company.
Competition in the Company's market segments is expected to increase
significantly with passage in February 1996 of the Telecommunications Act of
1996 (the "Act"). Under the Act, long-distance companies, cable companies and
others will be permitted to compete with local telephone companies to offer
local service. The RBOCs and other local telephone companies will be permitted
to offer long-distance services if their local market meets certain criteria to
measure the existence of local competition.
The Company believes its call center division is in a good competitive
position although to date it has not penetrated a significant portion of this
market. The Company believes it is currently the only vendor that supplies
inbound, outbound and administrative call processing integrated with a telephone
system platform.
The Company's principal competitors in healthcare communications are
Hill-Rom Company, DuKane and Rauland-Borg. The Company believes it has a strong
competitive position in nurse call and locator products.
The Company believes that it has several competitors in
videoconferencing but is not yet able to estimate its competitive position
relative to such competitors.
The Company competes by offering a full array of integrated
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<PAGE>
telecommunication products and services to its customers. The Company also
competes on the basis of the quality of its products, its customer service,
nationwide distribution and installation, and price.
Employees
As of March 1, 1996, EXECUTONE employed approximately 2,400 persons,
directly and through its subsidiaries. Approximately 5% of the employees of the
Company and its subsidiaries are represented by unions, all of which are
represented by the International Brotherhood of Electrical Workers. Management
believes that the Company's relations with its employees are good.
14
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<PAGE>
ITEM 2. PROPERTIES
EXECUTONE's principal offices are located in two leased buildings in
Milford, Connecticut. The Company has sales offices, warehouses, manufacturing
and distribution facilities throughout the United States. As of December 31,
1995, the Company utilized 73 facilities in the United States with an aggregate
of approximately 792,000 square feet for its ongoing operations.
The Company's facilities are occupied under lease agreements except for
one facility. This Company-owned building is approximately 15,000 square feet,
and is used for a direct sales and service office. The current annual rent for
the Company's facilities is approximately $9.2 million. The Company has one
facility totaling approximately 14,000 square feet of space that is no longer
used in ongoing operations and is subleased.
The Company believes its facilities are adequate and generally suitable
for its business requirements at the present time and for the immediate future.
The following is a brief description of the primary facilities of the Company.
<TABLE>
<CAPTION>
Use Location Approximate Size
<S> <C> <C>
Corporate and Direct Sales Milford, Connecticut 150,000 square feet
Headquarters; National Customer
Service Center; and Research,
Development and Engineering
Facility
Distribution, Production & Poway, California 115,000 square feet
Repair Center and Warehouse
Direct Sales and Service Major cities across U.S. 496,000 square feet
Offices, including warehouses
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
On October 16, 1995, the Coeur d 'Alene Tribe filed an action entitled
Coeur d'Alene Tribe v. AT&T Corp. in the Tribal Court, located in Plummer, Idaho
(Case No. C195-097), requesting a ruling that the NIL is legal under IGRA, that
IGRA preempts state laws on the subject of Indian gaming, and the NIL cannot be
blocked by state action, and an injunction preventing AT&T from refusing to
provide telephone service to the NIL. This action was necessary because several
network carriers have been sent Section 1084 letters under the Federal
Communications Act by states opposed to the NIL. These letters state that the
NIL is illegal under state and federal laws and prohibit the carriers from
carrying network traffic for the NIL. The telephone operations of the NIL cannot
begin until resolution of this proceeding and agreement of a network carrier to
carry the network traffic of the NIL. On February 28, 1996, the Tribal Court
ruled that all
15
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<PAGE>
requirements of IGRA have been satisfied, that the Section 1084 letters are
invalid, and that AT&T is obligated to provide telephone service for the NIL.
Although AT&T has stated that it will appeal the ruling to the tribal supreme
court and ultimately to U.S. federal court, the Company believes the initial
ruling and the Coeur d'Alene Tribe's position will be upheld. However, this
litigation, as well as other litigation which could be brought by states opposed
to the NIL, could delay commencement of operations, and it is impossible at this
time to predict when the NIL will commence operations. The Company does not
believe the outcome of this litigation will have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.
The Company currently is a named defendant in a number of lawsuits and
is a party to a number of other proceedings that have arisen in the normal
course of its business. Those lawsuits and proceedings relate primarily to the
collection of indebtedness owed to the Company, the performance of products sold
by the Company, and various contract disputes. In the opinion of the Company,
these proceedings are not expected to have a material adverse effect on the
consolidated financial position, results of operations or liquidity of the
Company and, to the extent they are not covered by insurance, reserves adequate
to satisfy such liabilities have been established.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth
quarter of the fiscal year covered by this report.
16
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<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position With Company
<S> <C> <C>
Alan Kessman 49 Chairman of the Board, President and Chief
Executive Officer
Stanley M. Blau 58 Vice Chairman of the Board
Michael W. Yacenda 44 Executive Vice President
Barbara C. Anderson 44 Vice President, General Counsel and Secretary
James E. Cooke III 47 Vice President, National Accounts
Anthony R. Guarascio 42 Vice President, Finance and Chief Financial Officer
Israel J. Hersh 42 Vice President, Software Engineering
Elizabeth Hinds 54 Vice President, Human Resources
Robert W. Hopwood 52 Vice President, Customer Care
Andrew Kontomerkos 50 Senior Vice President, Hardware Engineering and
Production
David E. Lee 49 Vice President, Business Development
John T. O'Kane 66 Vice President, MIS
Frank J. Rotatori 53 Vice President, Healthcare Sales
Shlomo Shur 46 Senior Vice President, Advanced Technology
</TABLE>
Alan Kessman has served as Chairman and Chief Executive Officer of the
Company since 1988. Prior to that, he had served as President and Chief
Executive Officer of ISOETEC Communications, Inc., a predecessor of the Company
("ISOETEC"), since 1983. From 1978 to 1983, Mr. Kessman served as President of
three operating subsidiaries of Rolm Corporation, and from 1981 to 1983, he
served as a Corporate Vice President of Rolm Corporation, responsible for sales
and service in the eastern United States.
Stanley M. Blau has served as Vice Chairman of EXECUTONE since 1988.
Prior thereto, from June 1987 to July 1988, Mr. Blau was the President and Chief
Executive Officer of Vodavi Technology Corporation, a predecessor of the Company
("Vodavi"). Mr. Blau was formerly the President and Chairman of the Board of
Consolidated Communications, Inc., a telecommunications products
17
<PAGE>
<PAGE>
supply company he founded in 1973.
Michael W. Yacenda has served as Executive Vice President of EXECUTONE
since January 1990. Prior to that time, he was Vice President, Finance and Chief
Financial Officer of the Company from July 1988 to January 1990. He served as a
Vice President of ISOETEC from 1983 to 1988. From 1974 to 1983, Mr. Yacenda was
employed by Arthur Andersen & Co., a public accounting firm. Mr. Yacenda is a
certified public accountant.
Barbara C. Anderson has been Vice President, General Counsel and
Secretary since 1990. From 1985 to 1989, she was Corporate Counsel of United
States Surgical Corporation, a manufacturer of medical devices.
James E. Cooke III has served as Vice President, National Accounts
since February 1995. Prior to that time, from 1992 until 1995, Mr. Cooke served
as Division Manager of Operations for the Company, and from 1988 through 1991,
Mr. Cooke was a District Manager for the Company. From 1985 until 1988, Mr.
Cooke was the President of an interconnect company, and from 1981 to 1985, he
was a General Manager and a Regional Manager of the Jarvis Corporation. For
eight years prior to that time, he worked at Xerox Corporation in various sales
and management positions.
Anthony R. Guarascio has been Vice President, Finance and Chief
Financial Officer since January 1994, and prior thereto was Vice President and
Corporate Controller since January 1990. From 1984 until 1990, Mr. Guarascio was
the Corporate Controller of the Company and ISOETEC.
Israel J. Hersh has been Vice President, Software Engineering since
February 1995. Mr. Hersh joined the Company as Director of Software Development
in 1984, and was promoted to Senior Director of Software Engineering in January
1994. Prior to his employment with the Company, Mr. Hersh was a manager of the
software development department for T-Bar, Inc. Mr. Hersh has a B.S. in
Electrical Engineering from Tel Aviv University and a MS in Electrical
Engineering from Bridgeport University.
Elizabeth Hinds has been Vice President, Human Resources since January
1995. Prior to joining the Company, Ms. Hinds was Vice President, Human
Resources of Chilton Company, a wholly-owned subsidiary of Capital
Cities/American Broadcasting Company, Inc. ("CC/ABC"), from February 1993 until
January 1995. Ms. Hinds was the Director of Human Resources for CC/ABC from June
1987 until February 1993.
Robert W. Hopwood has served as Vice President, Customer Care since
January 1990. From 1983 until 1990, Mr. Hopwood was the Director of Technical
Operations of the Company and ISOETEC.
Andrew Kontomerkos has been Senior Vice President, Hardware Engineering
and Production since January 1994, and prior thereto was Vice President,
Hardware Engineering since 1988. He served as a Vice President of ISOETEC since
1983. From 1982 to 1983, he was a Vice President and founder
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of SAM Communications, Inc., a telecommunications research and development
company which was one of the predecessors to ISOETEC; that corporation was
merged into ISOETEC in 1983. From 1979 to 1982, Mr. Kontomerkos was Director of
Telecommunications Systems Development of TIE/communications, Inc., a
manufacturer of telecommunications systems.
David E. Lee has been Vice President, Business Development since
February 1995. Prior thereto, from October 1990 to February 1995, Mr. Lee was
Division Manager for the Network Services Division of the Company. From 1984
until 1990, Mr. Lee held various management positions within the Company. Mr.
Lee served as Director, International Finance of GTE Corporation from 1983 to
1984 and prior thereto, he held various financial management positions within
GTE Corporation.
John T. O'Kane has served as Vice President, MIS since January 1990.
From 1988 until 1990, Mr. O'Kane was Director of MIS for the Company. Prior to
that time and since 1981, he was the Vice President of MIS for Executone, Inc.,
a predecessor of the Company.
Frank J. Rotatori has been Vice President, Healthcare Sales since
February 1995. Prior thereto he was Vice President, European Operations since
February 1994, and prior thereto was Director of Call Center Management Products
during 1992 and 1993, Vice President-Direct Sales from 1990 through 1991 and
Vice President-Customer Service of the Company from 1988 to 1990. Mr. Rotatori
joined ISOETEC in 1986 as a regional manager. From 1982 to 1986, he served as
General Manager and Eastern Regional Manager for Rolm Corporation. For 13 years
prior to that time, he worked at Xerox Corporation in various manufacturing,
accounting, sales and service management positions.
Shlomo Shur has been Senior Vice President, Advanced Technology since
January 1994, and prior thereto was Vice President, Software Engineering since
1988. He served as a Vice President of ISOETEC from 1983 to 1988. From 1982 to
1983, he was Vice President and a founder of SAM Communications, Inc., a
telecommunications research and development company which was one of the
predecessors to ISOETEC; that corporation was merged into ISOETEC in 1983. From
1978 to 1982, Mr. Shur was Manager, Software Development for TIE/communications,
Inc., a manufacturer of telecommunications systems.
19
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Incorporated by reference to "Stock Data" in the Registrant's 1995
Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to "Selected Financial Data" in the
Registrant's 1995 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Registrant's 1995 Annual
Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are incorporated by reference to the Financial
Statements in the Registrant's 1995 Annual Report to Shareholders. The Schedule
appears at pages S-1 through S-2 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The following persons are currently serving as directors and have been
nominated by the Board of Directors as candidates for re-election as directors
at the Annual Meeting of Shareholders to be held on July 30, 1996. Certain
information regarding each director is set forth below, including each
individual's principal occupation and business experience during
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at least the last five years, other directorships in other public companies, and
the year in which the individual was elected a director of the Company or one of
its predecessor companies.
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since
<S> <C> <C> <C>
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 (Attorneys), 1990
Richmond, Virginia, since 1981.
Richard S. Rosenbloom 63 David Sarnoff Professor of Business 1992
Administration, Harvard Business
School, since 1980. Mr. Rosenbloom is
a director of Arrow Electronics, Inc.
Jerry M. Seslowe 50 Managing Director of Resource Holdings 1996
Ltd., an investment and financial
consulting firm, since prior to 1991.
William R. Smart 75 Senior Vice President of Cambridge 1992
Strategic Management Group in
Cambridge, Massachusetts since 1984.
From 1984 to 1992, Chairman of the
Board, Electronic Associates, Inc.
Mr. Smart is a director of National
Data Computer Company and American
International Petroleum Company.
</TABLE>
Executive Officers
See Part 1 for information and identification of executive officers of
the
21
<PAGE>
<PAGE>
Company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities, file with the Securities
and Exchange Commission initial reports of ownership and reports of change in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than 10% shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms that they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, and written representations that no other
reports were required, during the fiscal year ended December 31, 1995, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
Director Compensation
Each non-employee director receives an annual retainer of $10,000, payable
in equal quarterly installments, 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 option
to purchase shares of the Company's Common Stock under the terms and conditions
of the Company's 1990 Directors' Stock Option Plan approved by the shareholders
on June 20, 1990. During June 1995, each outside director was granted a
five-year option for 3,000 shares at a per share exercise price of $2.50, the
closing market price on the date of grant. Each non-employee director was also
granted an additional five-year option ( for 12,300 shares at $3.15 per share in
the case of Mr. Seslowe, and 13,300 shares at $3.00 per share in the case of the
other non-employee directors) pursuant to an amendment to the Plan approved by
the Board of Directors in November 1995, subject to approval by the shareholders
of the Company at the 1996 Annual Meeting. These options were granted at a price
equal to 120% of the closing market price of the Common Stock on the date of
grant. The number of shares granted to each director under the amended Plan is
determined by reference to an annual formula designed to award each
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<PAGE>
director five-year options having a value of $10,000 based on the Black-Scholes
option valuation model and the current price of the Company's Common Stock.
As of March 31, 1996, options to purchase 39,000 shares of Common
Stock were outstanding under the 1990 terms of the Plan, and options to purchase
an additional 52,200 shares were outstanding under the amendment to the
Directors' Stock Option Plan subject to shareholder approval of the amendment at
the 1996 Annual Meeting of Shareholders. Under the Plan as amended, subject to
shareholder approval, options to purchase 140,800 shares were available for
future grant under the Directors' Stock Option Plan.
On February 1, 1996, June 23, 1992 and September 24, 1992, Jerry M.
Seslowe, Richard S. Rosenbloom and William R. Smart were each granted warrants
to purchase 25,000 shares of the Company's Common Stock at $2.63, $1.25 and
$1.16, respectively, the closing market prices on those dates. The warrants vest
ratably over a three-year period and expire on February 1, 2001, June 23, 1997
and September 24, 1997, respectively. Messrs. Seslowe, Rosenbloom and Smart
received these warrants upon being elected to serve on the Company's Board of
Directors.
Executive Compensation
Summary Compensation Table
The following table sets forth the compensation by the Company of the
Chief Executive Officer and the four most highly compensated other executive
officers of the Company for services in all capacities to the Company and its
subsidiaries during the past three fiscal years.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Other Awards
Annual of All
Name and Bonus ($) Compensa- Options/ Other(3)
Principal Position Year Salary ($) (1) tion($) (2) SARs(#) Compensation
($)
<S> <C> <C> <C> <C> <C> <C>
Alan Kessman 1995 400,000 -0- 1,100 -0- 10,328
</TABLE>
23
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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 256,00 -0- 1,100 -0- 6,353
Yacenda
Executive Vice 1994 243,154 39,600 10,000 -0- 55,597
President
1993 225,879 58,684 -0- 32,000 160,388
Stanley M. Blau 1995 197,789 -0- -0- 15,000 3,367
Vice Chairman
1994 201,738 7,713 -0- 15,000 3,276
1993 193,973 37,083 -0- 20,000 22,645
Shlomo Shur 1995 215,700 -0- -0- -0- 5,514
Senior Vice
President 1994 211,539 23,088 10,000 -0- 4,199
Advanced
Technology 1993 203,390 38,885 -0- 25,000 4,750
Andrew 1995 214,000 -0- -0- -0- 5,535
Kontomerkos
Senior Vice 1994 205,888 28,025 10,000 -0- 4,899
President
Hardware 1993 193,973 37,083 -0- 20,000 6,060
Engineering and
Production
(1) Includes special bonus awarded to certain Company employees following
successful implementation of measures to overcome the effect of a fire at
the facilities of one of the Company's major suppliers in China in December
1993. Special bonuses totalling $50,000, $30,000, $15,000 and $20,000 were
awarded to Messrs. Kessman, Yacenda, Shur and Kontomerkos, respectively.
24
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<PAGE>
(2) This category represents employee stock option credits that could have been
used after July 1, 1993 and prior to December 31, 1994 to pay the exercise
price of employee stock options held by the employee. Stock purchased with
the 1992 option credits must be held for one year. All credits shown in
this column were used to exercise stock options in 1993 or 1994. See Note
3.
(3) This category includes for 1994 stock option credits used to pay the
exercise price of employee stock options exercised during 1994 by Mr.
Yacenda in the amount of $50,549. This category includes for 1993 stock
option credits used to pay the exercise price of employee stock options
exercised during 1993 in the following amounts: Mr. Kessman $256,240; Mr.
Yacenda, $155,250, and Mr. Blau, $19,200. The credits were granted in 1988,
1992 and 1994 (see note 2 above). The column does not include 1992 or 1994
credits used in 1993 or 1994 that were reported as "Other Annual
Compensation" for 1992 or 1994. This category also includes for each
individual a matching contribution by the Company under the Company's
401(k) plan in the amount of $660 each for each year. This column also
includes premiums paid by the Company for long-term disability and life
insurance for the individuals in the following amounts in 1995: Mr.
Kessman, $9,668; Mr. Yacenda, $5,693; Mr. Shur, $4,854; Mr. Blau, $2,707;
and Mr. Kontomerkos, $4,875; in the following amounts in 1994: Mr. Kessman,
$7,424; Mr. Yacenda, $4,774; Mr. Shur, $4,196; Mr. Blau, $2,820; and Mr.
Kontomerkos, $4,849; and in the following amounts in 1993: Mr. Kessman,
$6,591; Mr. Yacenda, $4,478; Mr. Blau, $2,785; Mr. Shur, $4,090;
25
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<PAGE>
Mr. Kontomerkos, $5,400.
Employment Agreement
The Company and Mr. Kessman entered into an employment continuity
agreement in January, 1995 that provides certain benefits to Mr. Kessman in the
event of the termination of Mr. Kessman's employment following a change in
control in the Company, including a lump sum payment equal to 2.99 times his
then current base salary plus the average of any bonuses awarded to Mr. Kessman
during the two fiscal years preceding the termination of his employment. Under
the terms of the agreement, a change in control includes the acquisition of
beneficial ownership of 20% of the Company's voting securities by any person or
group. The agreement continues through the length of Mr. Kessman's employment
with the Company.
Option Grants in Last Fiscal Year
The following table sets forth the individual grants of stock options made
during the year ended December 31, 1995 to the Chief Executive Officer and the
four most highly compensated
26
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other executive officers of the Company. There were no grants of stock
appreciation rights made to any officers during 1995, and there are no
outstanding stock appreciation rights.
</TABLE>
<TABLE>
<CAPTION>
Potential Realized Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
- ------------------------------------------------------------------------------------------------ -------------------------------
% of Total
Options Exercise
Granted to or Base
Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/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 $3.13 3/23/00 12,950 28,617
Shlomo Shur 0 0 0 0 0 0
Andrew Kontomerkos 0 0 0 0 0 0
</TABLE>
The option reported in the above table expires in five years, and vests 25% per
year over four years.
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
The following table sets forth each exercise of stock options made during
the year ended December 31, 1995 by the Chief Executive Officer and the four
most highly compensated other executive officers and the fiscal year-end value
of unexercised options held by those individuals as of December 31, 1995. There
were no exercises or holdings of stock appreciation rights by any officers
during 1995, and there are no outstanding stock appreciation rights.
27
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options Options
at Fiscal at Fiscal
Year-End (#) Year-End ($) (1)
--------------- -------------------
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisabl
-------------- ------------------ --------------
<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 Interlocks and Insider Participation
The members of the Compensation Committee in 1995 were Thurston Moore,
Richard Rosenbloom, and William Smart.
No member of the Committee is a former or current officer or employee
of the Company or any subsidiary, except that Mr. Moore has acted as an
Assistant Secretary of the Company. Mr. Moore is a partner in the law firm of
Hunton & Williams, which regularly acts as counsel to the Company.
28
<PAGE>
<PAGE>
No executive officer of the Company served as a director or a member of the
Compensation Committee or of the equivalent body of any entity, any one of whose
executive officers serve on the Compensation Committee or the Board of Directors
of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Ownership of Common Stock by Directors, Officers and
Principal Shareholders
The following table sets forth the number of shares of Common Stock
beneficially owned as of March 31, 1996, by each current director of the
Company, by all current directors and officers of the Company as a group and by
each person known to the Company to be a beneficial owner of more than five
percent of the Company's outstanding Common Stock. Unless otherwise noted, the
owner has sole voting and dispositive power with respect to the securities.
<TABLE>
<CAPTION>
Percentage
Shares of Common Stock 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
</TABLE>
29
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Percentage
Shares of Common Stock of
Name of Beneficial Owner Beneficially Owned Common Stock (1)
------------------------ ----------------------- ----------------
<S> <C> <C>
Walnut Creek, CA 91789
Richard S. Rosenbloom (7) . . . . . . 50,300 *
Jerry M. Seslowe (8) . . . . . . . . 69,444 *
William R. Smart (9) . . . . . . . . 60,300 *
All Directors and Officers as a Group
(20 persons) (10) . . . . . . . . . 6,079,953 14.3
</TABLE>
* Less than 1%
(1) Based upon 51,865,163 shares of Common Stock outstanding as of March 31,
1996. In cases where the beneficial ownership of the individual or group
includes options, warrants, or convertible securities, the percentage is based
on the 51,865,163 shares actually outstanding plus the shares of Common Stock
issuable upon exercise or conversion of any such options, warrants, or
convertible securities held by the individual or group. The percentage does not
reflect or assume the exercise or conversion of any options, warrants or
convertible securities not owned by the individual or group in question.
(2) Includes 362,750 shares subject to options exercisable within 60 days of
June 3, 1996. Includes 16,250 shares subject to options not exercisable within
60 days of June 3, 1996.
(3) The Hambrecht & Quist entities share power to vote and dispose of all of
such shares.
(4) Includes 62,500 shares subject to options exercisable within 60 days of June
3, 1996. Includes 12,500 shares subject to options not exercisable within 60
days of June 3, 1996. Includes 765,503 shares as to which voting and dispositive
power is shared. Includes 187,500 shares held in a revocable trust for Mr.
Kessman's children, over which Mr. Kessman has no control and as to which shares
he disclaims any beneficial ownership. Includes 9,412 shares of Common Stock
issuable upon conversion of the Company's Debentures (of which Mr. Kessman owns
$100,000 principal amount or .5% of the principal amount outstanding).
(5) Includes 28,300 shares subject to options, all of which are exercisable
within 60 days of June 3, 1996.
(6) Includes 11,935 shares of Common Stock issuable upon
30
<PAGE>
<PAGE>
conversion of the Company's Debentures, of which entities affiliated with Mr.
Shea beneficially own less than 1% of the outstanding principal amount or
$126,812 principal amount. The Shea entities share the power to vote and dispose
of all of such shares.
(7) Mr. Rosenbloom beneficially owns 50,300 shares subject to options and
warrants, all of which are exercisable within 60 days of June 3, 1996.
(8) Mr. Seslowe beneficially owns 37,300 shares of Common Stock subject to
options and warrants, none of which are exercisable within 60 days of June 3,
1996. Includes 12,755 shares owned by Resource Holdings Associates, in which Mr.
Seslowe has a greater than 10% ownership and of which he is a managing director.
Does not include 203,756 shares of Common Stock contingently issuable upon
conversion of the Series A Preferred Stock and the Series B Preferred Stock
owned by Mr. Seslowe, or 45,874 shares of Common Stock contingently issuable
upon conversion of Preferred Stock owned by Resource Holdings, none of which
shares of Preferred Stock are or will become convertible within 60 days of June
3, 1996.
(9) Mr. Smart beneficially owns 50,300 shares subject to options and warrants,
of which 49,550 are exercisable within 60 days of June 3, 1996.
(10) Includes 976,262 shares subject to options or warrants exercisable within
60 days of June 3, 1996. Includes 196,650 shares subject to options or warrants
not exercisable within 60 days of June 3, 1996. Also includes 64,000 shares of
Common Stock issuable upon conversion of the Company's Debentures (of which the
group beneficially owns $680,000 principal amount, or 3.5% of the principal
amount outstanding). Includes 924,978 shares as to which voting and dispositive
power is shared and 289,445 shares as to which beneficial ownership is
disclaimed.
Ownership of Preferred Stock by Directors, Officers and
Principal Shareholders
The following table sets forth the number of shares of Convertible
Cumulative Preferred Stock, Series A, and Contingently Convertible Cumulative
Preferred Stock, Series B, beneficially owned as of March 31, 1996, by all
current directors and officers of the Company who beneficially own any of such
shares, and by each person known to the Company to be a beneficial owner of more
than five percent of the Company's outstanding Preferred Stock. The table also
shows
31
<PAGE>
<PAGE>
the percentage of each series beneficially owned, based upon 250,000 shares of
Series A Stock and 100,000 shares of Series B Stock outstanding as of March 31,
1996. No other director, nominee for director or officer owns any shares of the
Company's Preferred Stock. Unless otherwise noted, the owner has sole voting and
dispositive power with respect to the securities.
<TABLE>
<CAPTION>
Shares of Preferred Stock
Beneficially Owned and Percent of Class
Series A Stock
Series B Stock
Name of Beneficial Owner
<S> <C> <C>
Cooper Life Sciences 78,819 (31.53%)
31,528 (31.53%)
160 Broadway
New York, NY 10038
Jerry M. Seslowe 3,830 (1.53%)
1,532 (1.53%)
James W. Spencer 26,625 (10.65%)
10,650 (10.65%)
8446 Bronze Lane
Highlands Ranch, CO 80126
Watermark Investments 127,895 (51.16%)
Limited 51,157 (51.16%)
730 Fifth Avenue
New York, NY 10019
All Directors and Officers 3,830 (1.53%)
as a Group (20 persons) 1,532 (1.53%)
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Hunton & Williams regularly acts as counsel to the Company. Mr. Moore,
a director of the Company, is a
32
<PAGE>
<PAGE>
partner at Hunton & Williams.
In connection with the Company's acquisition of Unistar, the
Company paid or agreed to pay Resource Holdings Ltd, a former shareholder of
Unistar, accrued investment banking fees incurred by Unistar prior to the
acquisition of $105,000, and total finder's fees of $320,000 based on the value
of the transaction. Mr. Seslowe was elected a director of the Company after the
acquisition. Both Resource Holdings and Mr. Seslowe acquired Common Stock and
Preferred Stock of the Company in exchange for their shares of Unistar. Mr.
Seslowe is a managing director of and owns more than 10% of Resource Holdings.
The Company's management believes that the transactions with Resource Holdings
were on terms as favorable to the Company as could be expected from unaffiliated
third parties.
The Executive Stock Incentive Plan (the "Incentive Plan")
approved by shareholders at the 1994 Annual Meeting was implemented in October
1994 with 30 employees participating. Under the terms of the Incentive Plan
eligible employees were granted the right to purchase shares of the Company's
Common Stock at a price of $3.1875 per share. Participating employees financed
the purchases of these shares through loans by the Company's bank lenders at the
prime rate less 1/4%. The loans are fully-recourse to the participating
employees but are guaranteed by letters of credit from the Company to the
lending banks. The Company holds the purchased Common Stock as security for the
repayment of the loans. The following table contains information about
borrowings in excess of $60,000 by executive officers that were outstanding
during 1995 pursuant to the Incentive Plan that are guaranteed by the Company.
<TABLE>
<CAPTION>
Unpaid
Indebtedness
Highest Amount of at
Indebtedness Between 3/31/96
Name 1/1/95 and 3/31/96 (1) Including Accrued Interest
- ----- ---------------------- --------------------------
<S> <C> <C>
Alan Kessman $1,912,500 $2,097,195
Michael W. Yacenda $1,115,625 $1,223,364
Shlomo Shur $ 557,813 $ 611,682
Andrew Kontomerkos $ 557,813 $ 611,682
Barbara C. Anderson $ 318,750 $ 349,533
</TABLE>
33
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
James E. Cooke III $ 318,750 $ 349,533
Anthony R. $ 446,250 $ 489,345
Guarascio
Israel J. Hersh $ 95,625 $ 104,860
Robert W. Hopwood $ 318,750 $ 348,912
David E. Lee $ 318,750 $ 349,533
Frank J. Rotatori $ 191,250 $ 209,720
- ---------------------
(1) Amounts shown are exclusive of accrued interest.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
(a)(1), (a)(2) and (d). The financial
statements required by this item and incorporated herein by
reference are as follows:
Report of Independent Public Accountants
Consolidated Balance Sheets - December
31, 1995 and 1994
Consolidated Statements of Operations -
Years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Stockholders' Equity -
Three years ended December 31, 1995
Consolidated Statements of Cash Flows Years ended December
31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
The schedules to consolidated financial statements required
by this item and included in this report are as follows:
34
<PAGE>
<PAGE>
Report of Independent Public Accountants
on Schedule
Schedule II - Valuation and Qualifying
Accounts
(a)(3) and (c). The exhibits required by this item and
included in this report or incorporated herein by reference are as follows:
</TABLE>
<TABLE>
<CAPTION>
Exhibit No.
<S> <C>
2-1 Agreement and Plan of Merger by and
among EXECUTONE Information
Systems, Inc., Executone Newco, Inc.,
and Unistar Gaming Corp., dated as of
December 19, 1995. Incorporated by
reference to the Registrant's Current
Report on Form 8-K dated January 3,
1996.
2-2 Asset Purchase Agreement among V
Technology Acquisition Corporation,
EXECUTONE Information Systems,
Inc. and Vodavi, Inc. dated November
5, 1993, and Amendment dated
February 18, 1994. Incorporated by
reference to the Registrant's Annual
Report on Form 10-K for the year
ended December 31, 1993.
2-3 Asset Purchase Agreement by and
among Tone Holdings, Inc. and Tone
Acquisition Corporation, EXECUTONE
Network Services, Inc. and
EXECUTONE Information Systems,
Inc. dated as of April 9, 1996, and
Amendment No. 1 to Asset Purchase
Agreement dated as of May 31, 1996,
by and among Clarity Telecom
Holdings, Inc. (formerly known as
Tone Holdings, Inc.), Clarity Telecom,
Inc. (formerly known as Tone
Acquisition Corporation),
EXECUTONE Network Services, Inc.
and EXECUTONE Information
Systems, Inc. (Confidential portions
have been omitted and filed separately
with the Commission pursuant to a request
for confidential treatment.) Previously filed.
</TABLE>
35
<PAGE>
<PAGE>
<TABLE>
<S> <C>
3-1 Articles of Incorporation, as amended
through December 18, 1995 (restated
for electronic filing). Previously filed.
3-2 Articles of Amendment dated and filed
December 19, 1995, amending the Company's
Articles of Incorporation. Incorporated
by reference to the Registrant's
Current Report on Form 8-K dated January
3, 1996.
3-3 Bylaws, as amended. Incorporated by
reference to the Registrant's
Registration Statement on Form S-3
(File No. 33-62257) filed August 30,
1995.
4-1 Second Amended and Restated Loan
and Security Agreement dated as of
August 30, 1994 and First Amendment
thereto dated January 1, 1995,
between EXECUTONE Information
Systems, Inc., Continental Bank N.A.
and the other Lenders named therein.
Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
1994.
4-2 Loan Agreement dated as of August
30, 1994, between EXECUTONE
Information Systems, Inc., certain
employees thereof, and the Lenders
named therein. Incorporated by
reference to the Registrant's Annual
Report on Form 10-K for the year
ended December 31, 1994.
4-3 First Amendment dated January 1,
1995, Second Amendment dated
September 29, 1995, and Third
Amendment dated December 29,
1995, to the Second Amended and
Restated Loan and Security
Agreement by and among
EXECUTONE Information Systems,
Inc., the Financial Institutions Listed
on the Signature Page Thereof, and
Bank of America Illinois. Previously
filed.
</TABLE>
36
<PAGE>
<PAGE>
<TABLE>
<S> <C>
4-10 Indenture dated March 1, 1986 with
United States Trust Company of New
York relating to 7 1/2% Convertible
Subordinated Debentures of Vodavi
Technology Corporation due March
15, 2011. Incorporated by reference
to Vodavi Technology Corporation's
Registration Statement on Form S-1
(as amended) (Registration No. 33-
3827) filed on March 9, 1986 and
amended April 1, 1986.
4-11 First Supplemental Indenture dated
August 4, 1989 with United States
Trust Company of New York relating
to 7 1/2% Convertible Subordinated
Debentures due March 15, 2011.
Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
1989.
4-12 Specimen Certificate representing 7
1/2% Convertible Subordinated
Debentures. Incorporated by
reference to the Registrant's Annual
Report on Form 10-K for the year
ended December 31, 1989.
10-1 1984 Employee Stock Purchase Plan
of EXECUTONE Information Systems,
Inc. Incorporated by reference to the
Registrant's Registration Statement on
Form S-8 (File No. 33-23294) declared
effective by the Commission on
August 23, 1988.
10-2 1986 Stock Option Plan of
EXECUTONE Information Systems,
Inc. Incorporated by reference to the
Registrant's Registration Statement on
Form S-8 (File No. 33-23294) declared
effective by the Commission on
August 23, 1988.
10-3 1984 Stock Option Plan of
EXECUTONE Information Systems,
Inc. Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
</TABLE>
37
<PAGE>
<PAGE>
<TABLE>
<S> <C>
1990, as amended by Form 8 filed on
August 20, 1991.
10-4 401(k) Savings Plan of Vodavi Technology
Corporation dated December 27, 1985.
Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31, 1989.
10-5 Stock Option Bonus Credit Plan of
EXECUTONE Information Systems,
Inc. dated December 31, 1988.
Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
1989.
10-6 1990 Directors' Stock Option Plan.
Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
1990, as amended by Form 8 filed on
August 20, 1991.
10-7 1994 Executive Stock Incentive Plan.
Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
1994.
10-9 Volume Purchase Agreement dated
January 31, 1992, between U. S.
Sprint Communications Company
Limited Partnership and EXECUTONE
Information Systems, Inc.
Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
1991, as amended by Form 8 filed on
June 12, 1992.
10-10 Amendments dated as of April 1,
1995, and 1993 to Volume Purchase
Agreement dated January 31, 1992,
between U. S. Sprint Communications
Company Limited Partnership and
EXECUTONE Information Systems,
Inc. (Confidential portions have
been omitted and filed separately with
the Commission pursuant to a request
for confidential treatment.)
Filed herewith.
</TABLE>
38
<PAGE>
<PAGE>
<TABLE>
<S> <C>
10-12 Warrant to Purchase 143,181 shares
of Common Stock of the Registrant in
favor of Continental Bank N. A. (now
Bank of America Illinois) dated
December 28, 1990. Incorporated by
reference to the Registrant's Annual
Report on Form 10-K for the year
ended December 31, 1990, as
amended by Form 8 filed on August
20, 1991.
10-13 Warrant to Purchase 50,000 shares of
Common Stock of the Registrant in
favor of Continental Bank N. A. (now
Bank of America Illinois) dated
December 28, 1990. Incorporated by
reference to the Registrant's Annual
Report on Form 10-K for the year
ended December 31, 1990, as
amended by Form 8 filed on August
20, 1991.
10-16 Manufacturing Services Agreement
dated as of January 10, 1995,
between EXECUTONE Information
Systems, Inc. and Compania
Dominicana de Telefonos, C por A
(Codetel). Previously filed.
10-17 Manufacturing Services Agreement
dated February 9, 1990 between
Wong's Electronics Co., Ltd. and
EXECUTONE Information Systems,
Inc. Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
1990, as amended by Form 8 filed on
August 20, 1991.
10-19 Warrant to Purchase 25,000 Shares of
Common Stock of EXECUTONE
Information Systems, Inc. in favor of
Richard S. Rosenbloom dated June
23, 1992. Incorporated by reference
to the Registrant's Annual Report on
Form 10-K for the year ended
December 31, 1992.
10-20 Warrant to Purchase 25,000 Shares of
Common Stock of EXECUTONE
</TABLE>
39
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Information Systems, Inc. in favor of
William R. Smart dated September 24,
1992. Incorporated by reference to
the Registrant's Annual Report on
Form 10-K for the year ended
December 31, 1992.
10-21 Management Agreement for the
National Indian Lottery dated January
16,1995. Previously filed.
10-22 Distributor Agreement dated as of May
31, 1996, between EXECUTONE
Information Systems, Inc. and Clarity
Telecom, Inc. Previously filed.
11 Statement regarding computation of
per share earnings. Previously filed.
13 1995 Annual Report to Shareholders
of EXECUTONE Information Systems,
Inc. Previously filed.
21 Subsidiaries of EXECUTONE
Information Systems, Inc. Previously
filed.
23 Consent of Arthur Andersen LLP.
Previously filed.
27 Financial Data Schedule. Previously
filed.
</TABLE>
Undertakings
For the purposes of complying with the rules governing Form
S-8 under the Securities Act of 1933, the undersigned registrant hereby
undertakes as follows, which undertaking shall be incorporated by reference into
registrant's Registration Statements on the following Form S-8 filings:
S-8 Reg. No. 2-91008 filed May 9, 1984 on
1983 Employee Stock Purchase Plan
(650,000 shares)
S-8 Reg. No. 33-959 filed October 17, 1985
on 1984 Stock Option Plan (390,000 shares)
40
<PAGE>
<PAGE>
S-8 Reg. No. 33-6604 filed June 19, 1986 on
1983 Stock Option Plan (350,000 shares)
S-8 Reg. No. 33-16585 filed August 24,
1987 on 1986 and 1983 Stock Option Plans
(800,000 shares)
S-8 Reg. No. 33-23294 filed August 3, 1988
on 1986 Stock Option Plan (7,000,000
shares) and Employee Stock Purchase Plan
(500,000 shares)
S-8 Reg. No. 33-42561 filed September 4,
1991 on 1984 Employee Stock Purchase
Plan (350,000 shares) and Directors' Stock
Option Plan (100,000 shares)
S-8 Reg. No. 33-45015 filed January 2, 1992
on 1984 Employee Stock Purchase Plan
(400,000 shares)
S-8 Reg. No. 33-57519 filed January 31,
1995 on 1984 Employee Stock Purchase
Plan (1,000,000 shares).
Insofar as indemnification arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to the court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the
quarter ended December 31, 1995.
41
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
EXECUTONE Information
Systems, Inc.
By: /s/ Alan Kessman
--------------------------
Alan Kessman, Chairman, President
and Chief Executive Officer
April 12, 1996
Milford, Connecticut
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
April 12, 1996 /s/ Alan Kessman
-----------------------------
Alan Kessman
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
April 12, 1996 /s/ Stanley M. Blau
----------------------------
Stanley M. Blau
Vice Chairman of the Board of
Directors
April 12, 1996 /s/ Anthony R. Guarascio
-----------------------------
Anthony R. Guarascio
Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
April 12, 1996 /s/ Thurston R. Moore
-------------------------------
42
<PAGE>
<PAGE>
Thurston R. Moore
Director
April 12, 1996 /s/ Richard S. Rosenbloom
--------------------------
Richard S. Rosenbloom
Director
April 12, 1996 /s/ Jerry M. Seslowe
---------------------------
Jerry M. Seslowe
Director
April 12, 1996 /s/ William R. Smart
----------------------------
William R. Smart
Director
43
<PAGE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
EXECUTONE Information Systems, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in EXECUTONE Information Systems, Inc. and
subsidiaries' annual report to stockholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated January 26, 1996. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in Item 14 is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
January 26, 1996
44
<PAGE>
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Additions Deductions
--------------------------------------------- --------------
Charged Net
Balance at (Credited) (Credited) Writeoffs of Balance at
Beginning to Costs and to Other Uncollectible End of
Description of Period Expenses Accounts Accounts Period
----------- --------- -------------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,335 $ 1,872 -- ($1,492) $ 1,715
Allowance for uncollectible
notes receivable 691 (432) -- -- 259
Year ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts 1,017 1,381 -- (1,063) 1,335
Allowance for uncollectible
notes receivable 1,084 (393) -- -- 691
Year ended December 31, 1993 *
Deducted from asset accounts:
Allowance for doubtful accounts 1,046 1,285 -- (1,314) 1,017
Allowance for uncollectible
notes receivable 1,604 (440) (80) -- 1,084
</TABLE>
* Restated to reflect the disposition of the VCS Division, which was sold as
of March 1994.
S-2
<PAGE>
<PAGE>
EXECUTONE INFORMATION SYSTEMS, INC.
EXHIBITS TO 1995 ANNUAL REPORT ON FORM 10-K
<TABLE>
<CAPTION>
Exhibit No.
<S> <C>
2-1 Agreement and Plan of Merger by and
among EXECUTONE Information
Systems, Inc., Executone Newco, Inc.,
and Unistar Gaming Corp., dated as of
December 19, 1995. Incorporated by
reference to the Registrant's Current
Report on Form 8-K dated January 3,
1996.
2-2 Asset Purchase Agreement among V
Technology Acquisition Corporation,
EXECUTONE Information Systems,
Inc. and Vodavi, Inc. dated November
5, 1993, and Amendment dated
February 18, 1994. Incorporated by
reference to the Registrant's Annual
Report on Form 10-K for the year
ended December 31, 1993.
2-3 Asset Purchase Agreement by and
among Tone Holdings, Inc. and Tone
Acquisition Corporation, EXECUTONE
Network Services, Inc. and
EXECUTONE Information Systems,
Inc. dated as of April 9, 1996, and
Amendment No. 1 to Asset Purchase
Agreement dated as of May 31, 1996,
by and among Clarity Telecom
Holdings, Inc. (formerly known as
Tone Holdings, Inc.), Clarity Telecom,
Inc. (formerly known as Tone
Acquisition Corporation),
EXECUTONE Network Services, Inc.
and EXECUTONE Information
Systems, Inc. (Confidential portions
have been omitted and filed separately
with the Commission pursuant to a request
for confidential treatment.) Previously filed.
3-1 Articles of Incorporation, as amended
through December 18, 1995 (restated
for electronic filing). Preiously filed.
3-2 Articles of Amendment dated and filed
December 19, 1995, amending the Company's
Articles of Incorporation. Incorporated
by reference to the Registrant's
Current Report on Form 8-K dated January
3, 1996.
</TABLE>
45
<PAGE>
<PAGE>
<TABLE>
<S> <C>
3-3 Bylaws, as amended. Incorporated by
reference to the Registrant's
Registration Statement on Form S-3
(File No. 33-62257) filed August 30,
1995.
4-1 Second Amended and Restated Loan
and Security Agreement dated as of
August 30, 1994 and First Amendment
thereto dated January 1, 1995,
between EXECUTONE Information
Systems, Inc., Continental Bank N.A.
and the other Lenders named therein.
Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
1994.
4-2 Loan Agreement dated as of August
30, 1994, between EXECUTONE
Information Systems, Inc., certain
employees thereof, and the Lenders
named therein. Incorporated by
reference to the Registrant's Annual
Report on Form 10-K for the year
ended December 31, 1994.
4-3 First Amendment dated January 1,
1995, Second Amendment dated
September 29, 1995, and Third
Amendment dated December 29,
1995, to the Second Amended and
Restated Loan and Security
Agreement by and among
EXECUTONE Information Systems,
Inc., the Financial Institutions Listed
on the Signature Page Thereof, and
Bank of America Illinois. Previously
filed.
4-10 Indenture dated March 1, 1986 with
United States Trust Company of New
York relating to 7 1/2% Convertible
Subordinated Debentures of Vodavi
Technology Corporation due March
15, 2011. Incorporated by reference
to Vodavi Technology Corporation's
Registration Statement on Form S-1
(as amended) (Registration No. 33-
3827) filed on March 9, 1986 and
amended April 1, 1986.
</TABLE>
46
<PAGE>
<PAGE>
<TABLE>
<S> <C>
4-11 First Supplemental Indenture dated
August 4, 1989 with United States
Trust Company of New York relating
to 7 1/2% Convertible Subordinated
Debentures due March 15, 2011.
Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
1989.
4-12 Specimen Certificate representing
7 1/2% Convertible Subordinated
Debentures. Incorporated by
reference to the Registrant's Annual
Report on Form 10-K for the year
ended December 31, 1989.
10-1 1984 Employee Stock Purchase Plan
of EXECUTONE Information Systems,
Inc. Incorporated by reference to the
Registrant's Registration Statement on
Form S-8 (File No. 33-23294) declared
effective by the Commission on
August 23, 1988.
10-2 1986 Stock Option Plan of
EXECUTONE Information Systems,
Inc. Incorporated by reference to the
Registrant's Registration Statement on
Form S-8 (File No. 33-23294) declared
effective by the Commission on
August 23, 1988.
10-3 1984 Stock Option Plan of
EXECUTONE Information Systems,
Inc. Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
1990, as amended by Form 8 filed on
August 20, 1991.
10-4 401(k) Savings Plan of Vodavi Technology
Corporation dated December 27, 1985.
Incorporated by reference to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1989.
10-5 Stock Option Bonus Credit Plan of
EXECUTONE Information Systems,
Inc. dated December 31, 1988.
</TABLE>
47
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
1989.
10-6 1990 Directors' Stock Option Plan.
Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
1990, as amended by Form 8 filed on
August 20, 1991.
10-7 1994 Executive Stock Incentive Plan.
Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
1994.
10-9 Volume Purchase Agreement dated
January 31, 1992, between U. S.
Sprint Communications Company
Limited Partnership and EXECUTONE
Information Systems, Inc.
Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
1991, as amended by Form 8 filed on
June 12, 1992.
10-10 Amendments dated as of April 1,
1995, and 1993 to Volume Purchase
Agreement dated January 31, 1992,
between U. S. Sprint Communications
Company Limited Partnership and
EXECUTONE Information Systems,
Inc. (Confidential portions have been
omitted and filed separately with the
Commission pursuant to a request for
confidential treatment.) Filed herewith.
10-12 Warrant to Purchase 143,181 shares
of Common Stock of the Registrant in
favor of Continental Bank N. A. (now
Bank of America Illinois) dated
December 28, 1990. Incorporated by
reference to the Registrant's Annual
Report on Form 10-K for the year
ended December 31, 1990, as
amended by Form 8 filed on August
20, 1991.
10-13 Warrant to Purchase 50,000 shares of
Common Stock of the Registrant in
favor of Continental Bank N. A. (now
</TABLE>
48
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Bank of America Illinois) dated
December 28, 1990. Incorporated by
reference to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1990, as amended by Form 8
filed on August 20, 1991.
10-16 Manufacturing Services Agreement
dated as of January 10, 1995,
between EXECUTONE Information
Systems, Inc. and Compania
Dominicana de Telefonos, C por A
(Codetel). Previously filed.
10-17 Manufacturing Services Agreement
dated February 9, 1990 between
Wong's Electronics Co., Ltd. and
EXECUTONE Information Systems,
Inc. Incorporated by reference to the
Registrant's Annual Report on Form
10-K for the year ended December 31,
1990, as amended by Form 8 filed on
August 20, 1991.
10-19 Warrant to Purchase 25,000 Shares of
Common Stock of EXECUTONE
Information Systems, Inc. in favor of
Richard S. Rosenbloom dated June
23, 1992. Incorporated by reference
to the Registrant's Annual Report on
Form 10-K for the year ended
December 31, 1992.
10-20 Warrant to Purchase 25,000 Shares of
Common Stock of EXECUTONE
Information Systems, Inc. in favor of
William R. Smart dated September 24,
1992. Incorporated by reference to
the Registrant's Annual Report on
Form 10-K for the year ended
December 31, 1992.
10-21 Management Agreement for the
National Indian Lottery dated January
16, 1995. Previously filed.
10-22 Distributor Agreement dated as of May
31, 1996, between EXECUTONE
Information Systems, Inc. and Clarity
Telecom, Inc. Previously filed.
</TABLE>
49
<PAGE>
<PAGE>
<TABLE>
<S> <C>
11 Statement regarding computation of
per share earnings. Previously filed.
13 1995 Annual Report to Shareholders
of EXECUTONE Information Systems,
Inc. Previously filed.
21 Subsidiaries of EXECUTONE
Information Systems, Inc. Previously
filed.
23 Consent of Arthur Andersen LLP.
Previously filed.
27 Financial Data Schedule. Previously
filed.
</TABLE>
50
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as ............... 'tm'
The registered trademark symbol shall be expressed as .....'r'
The section symbol shall be expressed as ................. 'ss'
<PAGE>
<PAGE>
[EXHIBIT 10-10 CONTAINS MATERIAL THAT IS THE SUBJECT OF A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934]
SECOND AMENDMENT TO
VOLUME PURCHASE AGREEMENT
THIS SECOND AMENDMENT (the "Amendment") is made effective this 1st day of April,
1995 to the Volume Purchase Agreement entered into an January 31, 1992, and the
Amendment to the Agreement entered into on ________________, 1993 (collectively
the "Agreement") by SPRINT COMMUNICATIONS COMPANY L.P. and EXECUTONE INFORMATION
SYSTEMS, INC. ("Reseller"). Sprint and Reseller are "Parties" hereto.
In consideration of the mutual promises contained herein, the Parties amend the
Agreement as follows:
1. Subparagraph 5(a) is stricken in its entirety and a new Subparagraph 5(a) is
added to read as follows:
a) Except as otherwise provided herein, the initial term of this Agreement (the
"Initial Term") shall commence on the date first written above and terminate May
3, 1998. At the end of the Initial Term the Agreement will remain in full force
and effect until terminated by either Party upon ninety days written notice to
the other Party. The agreement entered into between Sprint and Reseller
regarding Carrier Identification Code ("CIC") and release of Sprint's name for
the purpose of providing Reseller's customers with a fulfillment piece will also
continue in effect for the duration of the Agreement.
2. Exhibit B to the Agreement is stricken in its entirety and a new Exhibit B is
added to read as follows:
EXHIBIT B
PRICING
1. PRICING FOR DOMESTIC INTERSTATE SERVICES. The following interstate Services
will be priced as set forth below. As used herein, "Peak" period pricing applies
to traffic defined as "day" usage, and "Off-Peak" pricing applies to "evening"
and
<PAGE>
<PAGE>
"night/weekend" usage, as defined in Sprint's FCC Tariff No. 2, Section
5.1.A. The following interstate flat rates will apply to traffic originating and
terminating in the 48 contiguous states only. Tariff rates will apply to traffic
originating and/or terminating in Alaska, Hawaii, Puerto Rico and the U.S.
Virgin Islands.
DIAL 1 WATS
<TABLE>
<CAPTION>
Gross Monthly Volume of Service Peak Off Peak
------------------------------- ---- --------
<S> <C> <C>
$0 to $2,499,999 [CONFIDENTIAL MATERIAL OMITTED]
$2,500,000 to $2,999,999
$3,000,000 to $3,499,999
$3,500,000 and above
FONLINE 800
Gross Monthly Volume of Service Peak Off Peak
------------------------------- ---- --------
$0 to $2,499,999 [CONFIDENTIAL MATERIAL OMITTED]
$2,500,000 to $2,999 999
$3,000,000 to $3,499:999
$3,500,000 and above
ULTRA WATS NETWORK EXTENSION
Gross Monthly Volume of Service Peak Off Peak
------------------------------- ---- --------
$0 to $2,499,999 [CONFIDENTIAL MATERIAL OMITTED]
$2,500,000 to $2,999,999
$3,000,000 to $3,499,999
$3,500,000 and above
ULTRA 800 NETWORK EXTENSION
Gross Monthly Volume of Service Peak Off Peak
------------------------------- ---- --------
$0 to $2,499,999 [CONFIDENTIAL MATERIAL OMITTED]
$2,500 000 to $2,999 999
$3,000,000 to $3,499:999
$3,500,000 and above
</TABLE>
2
<PAGE>
<PAGE>
FONCARD
<TABLE>
<CAPTION>
Gross Monthly
- -------------
Volume of Service Peak Off Peak Surchg
- ----------------- ---- -------- ------
<S> <C> <C> <C>
$0 to $2,499,999 [CONFIDENTIAL MATERIAL OMITTED]
$2,500,000 to $2,999,999
$2,000,000 to $3,499,999
$3,500,000 and above
</TABLE>
2. PRICING FOR INTRASTATE SERVICES. A monthly credit based on intrastate usage
in the following jurisdictions will be applied to the amount invoiced for
Reseller's interstate usage (the "Interstate Adjustment"). The Interstate
Adjustment will equal the difference between (a) Sprint's Tariff price for
Reseller's intrastate usage of the following Service and (b) such Sex-vice
priced at the following rates for all time periods:
<TABLE>
<CAPTION>
Ultra
Dial 1 WATS FONline 800
State WATS Net Ext 800 Net Ext
- ----- ------ ------- ------- -------
<S> <C> <C> <C> <C>
New York [CONFIDENTIAL MATERIAL OMITTED]
N.Carolina
Florida
Texas
Penn.
California
(Intrastate)
California
(IntraLATA)
Virginia
</TABLE>
The Interstate Adjustment will not exceed the amount invoiced for interstate
usage on the invoice to which the Adjustment is applied.
3. PRICING FOR INTERNATIONAL SERVICES. The following international Services will
be priced as set forth below. Billing increments are the first thirty seconds
and each six-second period thereafter.
A) ULTRAWATS NETWORK EXTENSION
<TABLE>
<CAPTION>
Country Standard Discount Economy
------- -------- -------- -------
<S> <C> <C> <C>
Argentina [CONFIDENTIAL MATERIAL OMITTED]
Australia
</TABLE>
3
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Austria
Belgium
Bermuda
Brazil
Chile
China
Costa Rica
Denmark
Finland
France
Germany
Greece
Guam
Country Standard Discount Economy
------- -------- -------- -------
Hong Kong [CONFIDENTIAL MATERIAL OMITTED]
Hungary
India
Ireland
Israel
Italy
Japan
Malaysia
Mexico
Netherlands
New Zealand
Nicaragua
Norway
Poland
Portugal
Saudi Arabia
Singapore
South Africa
South Korea
Spain
Sweden
Switzerland
Taiwan
Thailand
UAE
United Kingdom
Venezuela
</TABLE>
Dial 1 WATS
<TABLE>
<CAPTION>
Country Standard Discount Economy
------- -------- -------- -------
<S> <C> <C> <C> <C>
Argentina [CONFIDENTIAL MATERIAL OMITTED]
Australia
Austria
Belgium
Bermuda
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Brazil
Chile
China
Costa Rica
Denmark
Finland
France
Germany
Greece
Guam
Hong Kong
Hungary
India
Ireland
Country Standard Discount Economy
------- -------- -------- -------
Israel [CONFIDENTIAL MATERIAL OMITTED]
Italy
Japan
Malaysia
Mexico
Netherlands
New Zealand
Nicaragua
Norway
Poland
Portugal
Saudi Arabia
Singapore
South Africa
South Korea
Spain
Sweden
Switzerland
Taiwan
Thailand
UAE
United Kingdom
Venezuela
</TABLE>
Canadian Terminating Traffic. The following special per minute rates
will apply to Canadian terminating traffic:
<TABLE>
<CAPTION>
Service Day Evening Night
- ------- --- ------- -----
<S> <C> <C> <C>
Ultra WATS Network Extension [CONFIDENTIAL MATERIAL OMITTED]
Dial 1 WATS
</TABLE>
5
<PAGE>
<PAGE>
Canadian originating Traffic. The following special per minute rates
will apply to Canadian originating traffic:
<TABLE>
<CAPTION>
Service Day Evening Night
------- --- ------- -----
<S> <C> <C> <C>
FONline 800 [CONFIDENTIAL MATERIAL OMITTED]
Ultra 800 Network Extension
</TABLE>
4. GENERAL PRICING PROVISIONS
A. Forward Pricing. From April 1, 1995 to March 31, 1996, services will
be priced under the Agreement as though Reseller generated the greater of (a)
its actual Gross Monthly Volume of Service or (b) $[confidential material
omitted] in Gross Monthly Volume of Service.
B. Extended Pricing offer. If Reseller maintains Gross Monthly Volume of
Service in excess of $[confidential material omitted] for a period of three
consecutive months, Sprint will propose an addendum to the Agreement to include
special pricing for Gross Monthly Volume of Service over the $5,000,000 level.
C. Signing Credit. Sprint shall apply a one-time credit to Reseller's
account in the amount of $[confidential material omitted] within 60 days
following execution of this Amendment by both Parties.
D. FoNline 800 Service Charge. There will be a $[confidential material
omitted] monthly recurring service charge for each FONline 800 account.
E. Directory Listing Charge. There will be a $[confidential material
omitted] monthly recurring charge for 800 numbers (FONline 800 and Ultra 800)
that require 800 toll-free directory assistance listing.
F. COC Charge. There will be a $[confidential material omitted] per port
monthly recurring charge for Central office Connections.
G. EFC Charge. There will be a $[confidential material omitted] per port
monthly recurring Entrance Facility Charge when Reseller utilizes Sprint's
entrance facilities.
H. Daytime Traffic Requirement. Reseller must maintain a minimum of
[confidential material omitted]% daytime traffic to
6
<PAGE>
<PAGE>
receive the flat rate pricing provided in this Agreement. For every percentage
point that Reseller's daytime traffic falls below 851, the per-minute flat rates
for daytime traffic will increase by [confidential material omitted]. This
increase will apply one month in arrears to all daytime rates. Reseller's
compliance with this requirement will be measured on a quarterly basis.
I.Primary Carrier Requirement. Reseller must use Sprint as its primary
underlying carrier for interexchange telecommunications services and will routs
at least 90% of its interstate Dial I WATS and Ultra WATS Network Extension
traffic to Sprint during the term of the Agreement. Reseller will provide Sprint
with the following information in a format mutually acceptable to the Parties:
(i) quarterly summaries of Reseller's customer invoices for interstate Dial 1
WATS and Ultra WATS Network Extension services; and (ii) an annual audited
summary of such invoices prepared by Reseller's independent outside auditor.
This minimum usage requirement will cease to apply if all of the following
conditions are satisfied: (a) Reseller obtains bonafide offers from two major,
nationwide interexchange carriers to provide Dial I WATS and Ultra WATS Network
Extension service (the "offers"); and (b) the Offers to provide Dial I WATS and
Ultra WATS Network Extension service for at least one year at prices averaging
at least $0.01 per minute better than the day/evening/night/weekend prices for
such services provided under the-Agreement; and (c) Sprint fails to match the
offer within 90 days after receiving notice thereof.
J. Usage Commitment. Beginning may 1, 1996, Reseller will generate each
month usage sufficient to result in a monthly net invoiced amount ("Net Monthly
Usage") of at least $[confidential material omitted] (the "Usage Commitment").
Reseller will pay a surcharge (the "Usage Commitment Surcharge") any month that
it fails to meet the Usage Commitment. The Usage Commitment Surcharge will equal
ten percent of the difference between the actual Net Monthly Usage and the Usage
Commitment. The Usage Commitment Surcharge will be applied to Reseller's
invoice one month in arrears.
K. Usage Commitment Credit. Beginning May 1, 1996, Reseller will receive
a credit (the "Usage
7
<PAGE>
<PAGE>
Commitment Credit") for each period of six consecutive months (a "Credit
Period") that Reseller's total Net Monthly Usage equals at least $[confidential
material omitted]. The Usage Commitment Credit will equal all Usage Commitment
Surcharges applied to Reseller's account during the respective Credit Period.
The Credit Periods will be: May 1, 1996 to October 31, 1996; November 1, 1996
to April 30, 1997; May 1, 1997 to October 31, 1997; and November 1, 1997 to
April 30, 1998. The Usage Commitment Credit will be applied as soon as possible
following completion of each Credit Period.
L. No Additional Discounts. No additional discounts in
any form, Tariff or otherwise, will be applied to reduce the flat rate
prices set forth in this Exhibit B.
M. Availability of Services. Services may be purchased under the
Agreement only by reseller and its majority-owned subsidiaries on behalf of
Reseller, its majority-owned subsidiaries, and customers of Reseller to whom
Reseller sells the service. Execution hereof in no way adversely -effects any
other existing agreements between Sprint and Reseller not referenced herein,
including but not limited to, the Promotional discount Agreement as presently
and subsequently amended.
N. Administrative Fee. If Sprint is subject to a PIC dispute
("slamming") charge as a result of Reseller's actions, Reseller shall, at the
sole discretion of Sprint, pay Sprint an administrative fee (the "Administrative
Feel') equal to fifteen dollars ($15) for each ANI involved in the PIC dispute.
The Administrative Fee is assessed to partially defray Sprint's expenses
associated with the handling of PIC disputes. The Administrative Fee will be
calculated and applied in six month intervals from the commencement of the
Agreement.
0. Transaction Fees. Reseller must pay Sprint the following fees (the
"Transaction Fees"), which will be measured and applied in six month intervals
from commencement of the Agreement:
a) If ANIs on the Sprint network make up over 15% of the ANIs
Reseller submits for activation during any six month period, Reseller must pay
Sprint
8
<PAGE>
<PAGE>
a Transaction Fee of $25 for each ANI in excess of the 15% threshold; and
b) Reseller must pay Sprint a Transaction Fee of $2,500 per T-1
($1,500 per DAL) for T-1s that it submits for activation that are connected to
an existing Sprint account at the time the order is submitted.
P. Contributory and Eligible Table. The following table shows the usage
and products, both domestic and international, that contribute to the Gross
Monthly Volume of Service in the flat rate pricing tables. All usage under the
Agreement of Reseller and its majority-owned subsidiaries will be both
contributory and eligible in the following tables.
<TABLE>
<CAPTION>
Usage Contributory Eligible Neither
- ----- ------------ -------- -------
<S> <C> <C> <C>
Interstate X X -
Intrastate X X -
International X X -
Directory Assistance - - X
Operator Service - - X
Location Fees - - X
Channel Banks - - X
Line Charges - - X
Access Flow-through - - X
Nonrecurring Charges - - X
Taxes - - X
</TABLE>
<TABLE>
<CAPTION>
Products Contributory Eligible Neither
- -------- ------------ -------- -------
<S> <C> <C> <C>
Dial 1 WATS X X -
Ultra WATS X X -
FONcard
Surcharge X X -
Usage X X -
FONline 800 X X -
Ultra 800 X X -
</TABLE>
3. Intrastate special rates are stated in Peak and-Off-Peak pricing. Peak period
pricing will be applicable to traffic defined as "DAY" usage and Off-Peak
pricing will be applicable to traffic defined as "EVENING" and "NIGHT/WEEKEND"
in Sprint's FCC Tariff No. 2, Section 5.1.A.
9
<PAGE>
<PAGE>
4. Sprint will continue to waive Reseller's Sprint T-1 installation charges for
the remaining term of the Agreement as stated in a memorandum dated September
13, 1994. Sprint will continue to provide a 20% discount off of the monthly
recurring charge for T-1 access as provided in a memorandum dated September 13,
1994.
5. All other terms and conditions of the Agreement shall remain in full force
and effect.
6. The offer to amend the Agreement as provided in this Amendment will be
withdrawn if this Amendment is not executed by both Parties on or before August
31, 1995.
EXECUTED by the undersigned effective the first day of April, 1995.
EXECUTONE INFORMATION SPRINT COMMUNICATIONS
SYSTEMS, INC. COMPANY L.P.
By: ________________________ By:______________________
10
<PAGE>
<PAGE>
[EXHIBIT 10-10 CONTAINS MATERIAL THAT IS THE SUBJECT OF A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934]
AMENDMENT TO AGREEMENT
THIS AMENDMENT (the "Amendment') is made effective this _______ day of
___________, 1993 to that certain Volume Purchase Agreement dated January 31,
1992, ("the Agreement") by and between Sprint Communications Company L.P.
("Sprint"), and Executone Information Systems, Inc. ("Reseller"). Sprint and
Reseller are referred to herein collectively as "Parties," and individually as a
"Party."
In consideration for the mutual promises contained in the Agreement and this
Amendment, the Parties hereby amend the Agreement as follows:
1. Subparagraph 1(a) is hereby stricken in its entirety and a new
Subparagraph 1(a) is added to the Agreement to read as follows:
1. Definitions
a) "Eligible Services" means: (1) services listed in Gross Monthly Volume
Contributory and Eligible Table in Exhibit B which are eligible for the
discounts provided herein; and (2) international services listed in the Gross
International Monthly Volume Contributory and Eligible Table attached hereto
which are eligible for the discounts provided herein.
2. Subparagraphs 1(f), 1(g), and 1(h) are hereby added to the Agreement to
read as follows:
1. Definitions
f) "Gross Monthly Volume" means the charges for Services provided under
this Agreement priced at Tariff rates net of all credits or adjustments
provided by Tariff.
g) "Gross International Monthly Volume" means the charges for international
Services provided under this Agreement priced at Tariffed rates net of all
credits or adjustments provided by Tariff less Network WATS charges or credit.
h) "Net Invoice" means the charges for Services priced in accordance with
the discounts or special pricing provided for in this Agreement net of all
credits or adjustments provided by Tariff or under this Agreement.
3. Subparagraph 3(g) is hereby added to the Agreement to read as follows:
3. The Transaction
-1-
<PAGE>
<PAGE>
g) If Reseller provides network access for Ultra WATS and Ultra 800 Service,
then Reseller shall provide, at Reseller's expense, all access to the Sprint
Point of Presence, or to the Service Wire Center (SWC). If Reseller provides
access only to the SWC, then Reseller will be assessed both Non-Recurring
Charges (NRC) and Monthly Recurring Charges (MRC) for Central Office Connection
(COC) and Entrance Facility Cost (EFC). If Reseller elects to provide access to
Sprint's Point of Presence (POP), only NRC and MRC charges for COC will apply,
and Reseller must not use Sprint's leased SWC-to-POP entrance facilities.
4. Ultra WATS/Ultra 800 (Sprint Provided and Customer Provided Access) pricing
is added to Exhibit B to replace existing pricing and reads as follows:
Ultra Wats'r' (Sprint Provided Access)
<TABLE>
<CAPTION>
Flat Rate Price
Gross Monthly Volume Peak Off Peak
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 0 - $ [CONFIDENTIAL MATERIAL OMITTED]
$ 100,000 - $
$ 500,000 - $
$ 750,000 - $
$ 1,000,000 - $
$ 2,000,000 - $
$ 3,000,000 + $
</TABLE>
Ultra 800 (Sprint Provided Access)
<TABLE>
<CAPTION>
Flat Rate Price
Gross Monthly Volume Peak Off Peak
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0 - $ [CONFIDENTIAL MATERIAL OMITTED]
$ 100,000 - $
$ 500,000 - $
$ 750,000 - $
$ 1,000,000 - $
$ 2,000,000 - $
$ 3,000,000 + $
</TABLE>
-2-
<PAGE>
<PAGE>
Ultra Wats'r' (Customer Provided Access)
<TABLE>
<CAPTION>
Flat Rate Price
Gross Monthly Volume Peak Off Peak
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 0 - $ [CONFIDENTIAL MATERIAL OMITTED]
$ 100,000 - $
$ 500,000 - $
$ 750,000 - $
$ 1,000,000 - $
$ 2,000,000 - $
$ 3,000,000 + $
</TABLE>
Ultra 800 (Customer Provided Access)
<TABLE>
<CAPTION>
Flat Rate Price
Gross Monthly Volume Peak Off Peak
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 0 - $ [CONFIDENTIAL MATERIAL OMITTED]
$ 100,000 - $
$ 500,000 - $
$ 750,000 - $
$ 1,000,000 - $
$ 2,000,000 - $
$ 3,000,000 + $
</TABLE>
At least eighty percent (80%) of all Ultra WATS usage under this Agreement shall
terminate in a Regional Bell Operating Company ("RBOC") NPA-NXX. At least eighty
percent (80%) of all Ultra 800 usage under this Agreement shall originate in an
RBOC NPA-NXX. If either of the above conditions are not satisfied then Sprint
may, at its option, apply a $0.05 per minute surcharge to all traffic that fails
to meet either condition.
For Ultra WATS/Ultra 800 Service (Sprint Provided and Customer Provided Access)
there is no minimum daytime requirement.
5. A new Paragraph 2 is added to Exhibit to read as follows:
2. International Pricing
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<PAGE>
<PAGE>
A. General Provisions
1) The total dollar amount of the discounts provided for in this Paragraph 2
shall be applied as a credit against the amount Reseller is invoiced for
interstate usage, so long as the net amount invoiced for interstate usage
exceeds the total dollar amount of such credit.
2) Discounts shall apply to Standard, Discount and Economy international
calling periods.
3) Discounts are applied 1 month in arrears - net of Network WATS
4) Reseller will receive Network WATS as prescribed in Sprint's Tariff No.
2 for International traffic (__ discounts on Standard, Discount and Economy
calling periods).
B. Additive Discount Schedule
1) Group 1 - Australia, Guam, Hong Kong, India, Japan, New Zealand,
Singapore, Taiwan, United Kingdom.
<TABLE>
<CAPTION>
Gross International Monthly Volume
----------------------------------------------------------------
<S> <C> <C> <C> <C>
$200K $150K - 200K $75K - 150K $10K - 75K
[CONFIDENTIAL MATERIAL OMITTED]
</TABLE>
2) Group 2 - Austria, Canada, Denmark, Finland, France, Germany, Hungary,
Korea (South), Norway, Sweden, Switzerland, Venezuela.
<TABLE>
<CAPTION>
Gross International Monthly Volume
----------------------------------------------------------------
<S> <C> <C> <C> <C>
$200K $150K - 200K $75K - 150K $10K - 75K
[CONFIDENTIAL MATERIAL OMITTED]
</TABLE>
3) Group 3 - Argentina, Belgium, Bermuda, Ireland, Kuwait, Malaysia,
Saudia Arabia, South Africa, Spain, United Arab Emirates.
<TABLE>
<CAPTION>
Gross International Monthly Volume
----------------------------------------------------------------
<S> <C> <C> <C> <C>
$200K $150K - 200K $75K - 150K $10K - 75K
[CONFIDENTIAL MATERIAL OMITTED]
</TABLE>
-4-
<PAGE>
<PAGE>
4) Group 4 - Brazil, Chile, China, Costa Rica, Greece, Israel, Italy,
Mexico, Poland, Portugal, Thailand
<TABLE>
<CAPTION>
Gross International Monthly Volume
------------------------------------------------------------------
<S> <C> <C> <C> <C>
$200K $150K - 200K $75K - 150K $10K - 75K
[CONFIDENTIAL MATERIAL OMITTED]
</TABLE>
C. Gross International Monthly Volume Contributory and Eligible Table
The following table shows the type of usage- and product types that will
contribute to the Gross International Monthly Volume levels and will be eligible
for the Additive Discounts on international traffic.
CONTRIBUTORY ELIGIBLE NEITHER
TYPE OF USAGE:
Interstate - - X
Intrastate - - X
International X* X** -
Directory Assistance - - X
Operator Services - - X
Location Fees - - X
Channel Banks - - X
Line Charges - - X
Access Flow-through - - X
Nonrecurring Charges - - X
Taxes - - X
PRODUCTS:
Dial I WATS X X -
FONCARD
Surcharge X - -
Usage X X -
FONLINE 800 X - -
Ultra WATS'r' X X -
Ultra 800 X - -
* All countries
** Eligible Countries listed in Paragraph 2.B. of this Exhibit
-5-
<PAGE>
<PAGE>
6. It is understood and agreed that the Ultra WATS and Ultra 800 products
provided for in Exhibit B herein shall not be eligible for the special Customer
Appreciation Promotion provided for in that certain Sprint Customer Appreciation
Program - Letter Agreement entered into by and between Sprint and Reseller on
March 4, 1993.
7. All other terms and conditions of the Agreement and the Amendment shall
remain in full force and effect.
EXECUTED effective the date first above written.
EXECUTONE INFORMATION SPRINT COMMUNICATIONS
SYSTEMS, INC. COMPANY L.P.
By: _________________________________ By: ______________________________
Name: _______________________________ Name: Daniel L. Pearce
Title: ______________________________ Title: Vice President & Gen. Mgr.DBG
Date: _______________________________ Date: _______________________________
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<PAGE>
