EXECUTONE DEFINITIVE PROXY SCHEDULE 14(a) INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement
( ) Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Rule 14a-11(C) or Rule 14a-12
EXECUTONE INFORMATION SYSTEMS, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required.
( ) Fee computed on table below per Exchange
Act Rules 14a-6(i)(1) and O-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and state
how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
[EXECUTONE LOGO]
EXECUTONE Information Systems, Inc.
478 Wheelers Farms Road
Milford, Connecticut 06460
PROXY STATEMENT
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
July 29, 1997
To the Shareholders of
EXECUTONE Information Systems, Inc.:
Notice is hereby given that the Annual Meeting of
Shareholders of EXECUTONE Information Systems, Inc. (the
"Company"), will be held at the Holiday Inn Select, 700
Main Street, Stamford, Connecticut, 06901 on July 29, 1997,
at 3:00 p.m., for the following purposes:
(1) To elect six directors of the Company to serve for the
coming year;
(2) To approve amendments to the 1986 Employee Stock Option
Plan; and
(3) To transact such other business as may properly come before
the Meeting and any continuation or adjournment thereof.
Only shareholders of record at the close of business on May
23, 1997, are entitled to notice of and to vote at the
Meeting or any continuation or adjournment thereof.
Barbara C. Anderson
Vice President, General Counsel
and Secretary
Milford, Connecticut
May 27, 1997
Whether or not you plan to attend the Meeting, please
complete, date and sign the enclosed proxy, which is
solicited by the Board of Directors of the Company, and
return it in the self-addressed envelope provided for this
purpose. The proxy may be revoked at any time before it is
exercised, by written notice to such effect received by the
Company, by submitting a subsequently dated proxy or by
attending the Meeting and voting in person.
<PAGE>
[EXECUTONE Logo]
EXECUTONE Information Systems, Inc.
478 Wheelers Farms Road
Milford, Connecticut 06460
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
The Board of Directors of EXECUTONE Information
Systems, Inc., a Virginia corporation (the "Company" or
"EXECUTONE"), is furnishing this Proxy Statement to all
shareholders of record and solicits their proxies for the
Annual Meeting of Shareholders (the "Meeting") to be held on
July 29, 1997, at the Holiday Inn Select, 700 Main Street,
Stamford, Connecticut, 06901 at 3:00 p.m. This Proxy
Statement and the enclosed form of proxy are being mailed to
shareholders commencing on or about May 27, 1997.
At the Meeting, shareholders will be asked:
1. To elect six directors of the Company to serve for
the coming year;
2. To approve amendments to the 1986 Employee Stock
Option Plan; and
3. To transact such other business as may properly come
before the Meeting and any continuation or adjournment
thereof.
All proxies duly executed and received will be voted
on all matters presented at the Meeting in accordance with
the instructions contained in such proxies. In the absence
of specific instructions, proxies received will be voted in
favor of (i) the election of the named nominees to the
Company's Board of Directors, and (ii) the amendments to the
1986 Employee Stock Option Plan. Management does not know
of any other matters that will be brought before the
Meeting. In the event that any other matter should come
before the Meeting or any nominee is not available for
election, the persons designated in the enclosed proxy will
have discretionary authority to vote all proxies not marked
to the contrary with respect to such matters in accordance
with their best judgment. Proxies may be revoked at any
time prior to the exercise thereof by written notice to such
effect addressed to and received by the Company at its
corporate offices at the address given above, Attention:
Corporate Secretary, by delivery of a subsequently dated
proxy or by a vote cast in person at the Meeting.
As of May 23, 1997, the record date for the Meeting
(the "Record Date"), there were outstanding a total of
49,471,481 shares of Common Stock, 250,000 shares of
Cumulative Convertible Preferred Stock, Series A (the
"Series A Stock"), and 100,000 shares of Cumulative
Contingently Convertible Preferred Stock, Series B (the
"Series B Stock" and, collectively with the Series A Stock,
the "Preferred Stock"). The Common Stock, the Series A
Stock and the Series B Stock are the only classes of
securities of the Company entitled to vote at the Meeting
and each outstanding share of each class has one vote. A
majority of the total number of shares of Common Stock and
Preferred Stock outstanding and entitled to vote as of May
23, 1997, or 24,910,741 shares, must be present at the
Meeting in person or by proxy in order to constitute a
quorum for the transaction of business. Only holders of
record of Common Stock and Preferred Stock as of the close
of business on the Record Date will be entitled to vote at
the Meeting.
A list of shareholders entitled to vote at the Meeting
will be available for examination by any shareholder at the
Company's offices, 478 Wheelers Farms Road, Milford,
Connecticut 06460, for a period of ten days prior to the
Meeting and also will be available at the Meeting.
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Each director to be elected at the Meeting will serve
for a term of one year or until his successor shall be
elected and qualified. The Bylaws give the Board of
Directors the flexibility to designate the size of the Board
within a range of five to nine members and appoint new
directors should suitable candidates come to its attention
before the next annual meeting of shareholders.
Consequently, the Board of Directors has the ability to
respond to changing requirements and to take timely
advantage of the availability of especially well-qualified
candidates. Any such appointees to the Board of Directors
cannot serve past the next annual meeting without
shareholder approval.
The following persons have been nominated by the Board
of Directors as candidates for election as directors, and
proxies not marked to the contrary will be voted in favor of
their election. Each of the nominees except for Mr. Louis
Adler is currently serving as a director of the Company.
The election of each nominee for director requires the
affirmative vote of the holders of a plurality of the shares
of Common Stock and Preferred Stock, voting as a single
group, cast in the election of directors. Votes that are
withheld and shares held in street name ("Broker Shares")
that are not voted in the election of directors will not be
included in determining the number of votes cast. Certain
information regarding each nominee and each director
continuing in office is set forth below, including each
individual's principal occupation and business experience
during at least the last five years, and the year in which
the individual was elected a director of the Company or one
of its predecessor companies.
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since
<S> <C> <C> <C>
Alan Kessman 50 President, Chief Executive Officer, and 1983
Chairman of the Company since 1988; formerly
President, Chief Executive Officer and Chairman
of the Board of ISOETEC Communications, Inc.,
one of the Company's predecessor corporations,
since 1983. From 1981 to 1983, Mr. Kessman
served as a Corporate Vice President of Rolm
Corporation.
Louis K. Adler 61 President and Director, Bancshares, Inc., -
Houston, Texas, since 1973; former director of
Unistar Gaming Corporation, prior to its
acquisition by the Company; and private investor.
Mr. Adler is also a director of Hospitality
Worldwide Services, Inc.
Stanley M. Blau 59 President, The Blau Group Ltd., an investment 1983
firm; formerly Vice Chairman of the Company
from 1988 until 1996; President and Chief Executive
Officer of Vodavi Technology Corporation, one of
the Company's predecessor corporations, from
1987 until July 1988.
Thurston R. Moore 50 Partner, Hunton & Williams (Attorneys), 1990
Richmond, Virginia, since 1981.
Richard S. Rosenbloom 64 David Sarnoff Professor of Business 1992
Administration, Harvard Business School,
since 1980. Mr. Rosenbloom is a director
of Arrow Electronics, Inc.
Jerry M. Seslowe 51 Managing Director of Resource Holdings 1996
Ltd., an investment and financial consulting
firm, since 1983.
</TABLE>
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
2
<PAGE>
Option Plan (the "Plan") approved by
the shareholders on June 20, 1990 and
amended, with the approval of the
shareholders, on July 30, 1996.
As of March 31, 1997, 30,000 shares had been issued
upon exercise of options granted under the original terms of
the Plan, options to purchase 24,000 shares of Common Stock
were outstanding under the original terms of the Plan, and
options to purchase an additional 77,600 shares were
outstanding under the 1996 amendment to the Plan. The
number of shares for which options may be granted each year
are determined by reference to the Black-Scholes option
pricing model to provide an option equal in value to $10,000
based upon the market price of the Common Stock at the date
of grant. An aggregate of up to 250,000 shares are issuable
under the Plan. Each non-employee director received options
to purchase 12,900 shares in 1996.
On February 1, 1996 and June 23, 1992, Jerry M.
Seslowe and Richard S. Rosenbloom were each granted warrants
to purchase 25,000 shares of the Company's Common Stock at
$2.63 and $1.25 per share, respectively, the closing market
prices on those dates. The warrants vest ratably over a
three-year period and expire on February 1, 2001 and June
23, 1997, respectively. Messrs. Seslowe and Rosenbloom
received these warrants upon being elected to serve on the
Company's Board of Directors.
Board and Committee Activities
During 1996, the Board of Directors met on eight
occasions. All directors attended more than 75% of the
total number of meetings of the Board and of all committees
of which they were members during 1996. The Board has two
standing committees, an Audit Committee and a Compensation
Committee.
The function of the Audit Committee is to recommend
the selection of auditors and to review the audit report and
the adequacy of internal controls. The Audit Committee met
on two occasions during 1996. The members of the Audit
Committee until July 30, 1996, were Messrs. Rosenbloom and
Smart. The members of the Audit Committee commencing July
30, 1996, are Messrs. Blau and Moore.
The Compensation Committee recommends to the full
Board the compensation arrangements, stock option grants and
other benefits for executive management of the Company as
well as the incentive plans to be adopted by the Company.
The Compensation Committee met once during 1996. The
members of the Compensation Committee until July 30, 1996,
were Messrs. Moore, Rosenbloom and Smart. The members of
the Compensation Committee commencing July 30, 1996, are
Messrs. Rosenbloom and Seslowe.
3
<PAGE>
OWNERSHIP OF EQUITY SECURITIES
The following table lists any person (including any
"group" as that term is used in Section 13(d)(3) of the
Exchange Act) who, to the knowledge of the Company, was the
beneficial owner as of March 31, 1997, of more than 5% of
the outstanding voting shares of the Company. Unless
otherwise noted, the owner has sole voting and dispositive
power with respect to the securities.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class(1)
<S> <C> <C> <C>
Common Stock Entities Associated with 4,557,989 (2) 9.22
Hambrecht & Quist Group
One Bush Street
San Francisco, CA 94104
Entities Associated with 3,245,078 (3) 6.58
Edmund H. Shea, Jr.
655 Brea Canyon Road
Walnut Creek, CA 91789
Series A Stock Cooper Life Sciences 78,819 31.53
160 Broadway
New York, NY 10038
James W. Spencer 26,265 10.65
3042 Spring Hill Road
Smyrna, GA 30080
Watertone L.L.C. 127,895 51.16
730 Fifth Avenue
New York, NY 10019
Series B Stock Cooper Life Sciences 31,528 31.53
160 Broadway
New York, NY 10038
James W. Spencer 10,650 10.65
3042 Spring Hill Road
Smyna, GA 30080
Watertone L.L.C. 51,157 51.16
730 Fifth Avenue
New York, NY 10019
</TABLE>
(1) With respect to the Common Stock, percentages shown are
based upon 49,471,481 shares of Common Stock actually
outstanding as of March 31, 1997. In cases where the
beneficial ownership of the individual or group includes
options, warrants or convertible securities, the percentage
is based on 49,471,481 shares actually outstanding, plus the
number of shares 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) The Hambrecht & Quist entities share power to vote and
dispose of all such shares.
(3) Includes 14,004 shares of Common Stock issuable upon
conversion of the Company's Debentures, of which entities
associated with Mr. Shea own $148,800 in principal amount,
representing less than 1% of the outstanding principal
amount. The Shea entities share the power to vote and
dispose of all such shares.
4
<PAGE>
The following table sets forth as of March 31, 1997,
the beneficial ownership of the Company's voting shares by
all current directors and nominees of the Company, the Chief
Executive Officer, and the four next most highly compensated
executive officers and all directors and executive officers
of the Company as a group. Unless otherwise indicated, each
person listed below has sole voting and investment power
over all shares beneficially owned by him or her.
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class (1)
<S> <C> <C> <C>
Common Stock Louis K. Adler 99,423 (2) *
Stanley M. Blau 705,429 (3) 1.42
Anthony Guarascio 264,060 (4) *
Alan Kessman 1,741,336 (5) 3.52
Andrew Kontomerkos 471,732 (6) *
Thurston R. Moore 121,535 (7) *
Richard S. Rosenbloom 63,200 (8) *
Jerry M. Seslowe 259,474 (9) *
Shlomo Shur 752,055 (10) 1.52
Michael W. Yacenda 1,005,190 (11) 2.03
All Directors and Officers 6,382,855 (12) 12.65
as a Group (17 persons)
Series A Stock Louis K. Adler 1,436 *
Stanley M. Blau -0-
Anthony Guarascio -0-
Alan Kessman -0-
Andrew Kontomerkos -0-
Thurston R. Moore -0-
Richard S. Rosenbloom -0-
Jerry M. Seslowe 4,692 (13) 1.88
Shlomo Shur -0-
Michael W. Yacenda -0-
All Directors and Officers 6,128 2.45
as a Group (17 persons)
Series B Stock Louis K. Adler 575 *
Stanley M. Blau -0-
Anthony Guarascio -0-
Alan Kessman -0-
Andrew Kontomerkos -0-
Thurston R. Moore -0-
Richard S. Rosenbloom -0-
Jerry M. Seslowe 1,877 (14) 1.88
Shlomo Shur -0-
Michael W. Yacenda -0-
All Directors and Officers 2,452 2.45
as a Group (17 persons)
</TABLE>
(1) With respect to the Common Stock, percentages shown
are based upon 49,471,481 shares of Common Stock actually
outstanding as of March 31, 1997. In cases where the
beneficial ownership of the individual or group includes
options, warrants or convertible securities, the percentage is
5
<PAGE>
based on 49,471,481 shares actually outstanding, plus the
number of shares 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 69,915 shares subject to options exercisable
within 60 days of June 1, 1997. Does not include 76,445
shares of Common Stock contingently issuable upon conversion
of the Preferred Stock owned by Mr. Adler.
(3) Includes 300,000 shares subject to options exercisable
within 60 days of June 1, 1997.
(4) Includes 40,000 shares subject to options exercisable
within 60 days of June 1, 1997 and 9,412 shares issuable
upon conversion of the Company's Debentures, of which Mr.
Guarascio beneficially owns $100,000 in principal amount or
less than 1% of the outstanding principal amount.
(5) Includes 35,000 shares subject to options exercisable
within 60 days of June 1, 1997.
(6) Includes 35,000 shares subject to options exercisable
within 60 days of June 1, 1997.
(7) Includes 38,200 shares subject to options exercisable
within 60 days of June 1, 1997.
(8) Includes 38,200 shares subject to options and 25,000
shares subject to warrants exercisable within 60 days of
June 1, 1997.
(9) Includes 37,912 shares subject to options and 25,000
shares subject to warrants, 46,245 of which are exercisable
within 60 days of June 1, 1997. Also includes 12,755 shares
of Common Stock owned and 63,559 shares of Common Stock
subject to exercisable options held by Resource Holdings
Associates, of which Mr. Seslowe is a managing director and
in which he holds a greater than 10% ownership interest.
Does not include 203,756 shares of Common Stock contingently
issuable upon conversion of the Preferred Stock owned by Mr.
Seslowe or the 45,875 shares of Common Stock contingently
issuable upon conversion of the Preferred Stock owned by
Resource Holdings Associates.
(10) Includes 45,000 shares subject to options exercisable
within 60 days of June 1, 1997.
(11) Includes 58,000 shares subject to options exercisable
within 60 days of June 1, 1997 and 3,576 shares issuable
upon conversion of the Company's Debentures, of which Mr.
Yacenda beneficially owns $38,000 in principal amount or
less than 1% of the outstanding principal amount.
(12) Includes 903,742 shares subject to options, and 50,000
shares subject to warrants, of which 661,286 and 33,334,
respectively, are exercisable within 60 days of June 1,
1997, and 45,176 shares issuable upon conversion of the
Company's Debentures.
(13) Includes 862 shares held by Resource Holdings.
(14) Includes 345 shares held by Resource Holdings.
6
<PAGE>
Executive Compensation
Summary Compensation Table
The following table sets forth the compensation by the
Company of the Chief Executive Officer and the four most
highly compensated other executive officers of the Company
for services in all capacities to the Company and its
subsidiaries during the past three fiscal years.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Awards of
Other Annual Options/ All Other
Name and Principal Salary Bonus Compensation SARs Compensation
Position Year ($) ($)(1) ($)(2] (#) ($)(3)
<S> <C> <C> <C> <C> <C> <C>
Alan Kessman 1996 400,000 63,000 -0- -0- 9,536
Chairman of the 1995 400,000 -0- -0- -0- 10,328
Board, President 1994 391,000 100,000 8,506 -0- 8,084
and Chief Executive
Officer
Michael W. Yacenda 1996 256,000 49,900 -0- -0- 5,935
Executive Vice 1995 256,000 -0- -0- -0- 6,353
President 1994 243,154 39,600 10,000 -0- 56,484
Shlomo Shur 1996 215,700 12,393 -0- -0- 5,192
Senior Vice 1995 215,700 -0- -0- -0- 5,514
President, Advanced 1994 211,539 23,088 10,000 -0- 4,856
Technology
Andrew Kontomerkos 1996 214,000 12,350 -0- -0- 5,703
Senior Vice 1995 214,000 -0- -0- -0- 5,535
President, Hardware 1994 205,888 38,025 10,000 -0- 5,509
Engineering
and Production
Anthony Guarascio 1996 160,000 42,000 -0- -0- 2,993
Vice President, 1995 160,000 -0- -0- 2,919
Finance and Chief 1994 155,000 14,000 -0- 23,002
Financial Officer
</TABLE>
(1) Includes special bonuses awarded in 1994 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 totaling $50,000, $30,000, $15,000,
$20,000 and $8,000 were awarded to Messrs. Kessman, Yacenda,
Shur, Kontomerkos, and Guarascio, respectively.
(2) This category represents employee stock option credits
that could have been used after July 1, 1993 and prior to
December 31, 1994 to pay the exercise price of employee
stock options held by the employee. All credits shown in
this column were used to exercise stock options in 1994.
See Note 3.
(3) This category includes for 1994 stock option credits
used to pay the exercise price of employee stock options
exercised during 1994 by Mr. Yacenda in the amount of
$50,549 and by Mr. Guarascio in the amount of $20,383. The
credits were granted in 1988, 1992 and 1994 (see Note 2
above). The column does not include 1992 or 1994 credits
used in 1994 that were reported as "Other Annual
Compensation" for 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 1996: Mr. Kessman,
$8,876; Mr. Yacenda, $5,275; Mr. Shur, $4,532; Mr.
Kontomerkos, $5,043; and Mr. Guarascio, $2,333; in the
following amounts in 1995: Mr. Kessman, $9,668; Mr. Yacenda,
$5,693; Mr. Shur, $4,854; Mr. Kontomerkos, $4,875; and Mr.
Guarascio, $2,259; and in the following amounts in 1994: Mr.
Kessman, $7,424; Mr. Yacenda, $4,774; Mr. Shur, $4,196; Mr.
Kontomerkos, $4,849; and Mr. Guarascio, $1,959.
Employment Agreement
The Company and Mr. Kessman entered into an employment
continuity agreement in January 1995 that provides certain
benefits to Mr. Kessman in the event of the termination of
Mr. Kessman's
7
<PAGE>
employment without cause or following a change
in control in the Company, including a lump sum payment
equal to 2.99 times his then current base salary plus the
average of any bonuses awarded to Mr. Kessman during the two
fiscal years preceding the termination of his employment.
Under the terms of the agreement, a change in control
includes the acquisition of beneficial ownership of 20% of
the Company's voting securities by any person or group. The
agreement continues through the length of Mr. Kessman's
employment with the Company.
Option Grants in Last Fiscal Year
There were no grants of options made to any officers during
1996.
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
The following table sets forth each exercise of stock
options made during the year ended December 31, 1996 by the
Chief Executive Officer and the four most highly compensated
other executive officers and the fiscal year-end value of
unexercised options held by those individuals as of December
31, 1996. There were no exercises or holdings of stock
appreciation rights by any officers during 1996, and there
are no outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Value of Unexercised In-
Number of Unexercised the Money Options at
Share Options at Fiscal Year- Fiscal Year-End($)(1)
Acquired on Value End(#) Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Alan Kessman 65,688 108,472 22,500/12,500 15,938/4,688
Michael W. 35,000 83,125 50,000/8,000 38,250/3,000
Yacenda
Shlomo Shur 35,000 89,688 38,750/6,250 29,531/2,344
Andrew 24,000 61,500 30,000/5,000 22,500/1,875
Kontomerkos
Anthony 19,000 48,688 33,750/6,250 23,906/2,344
Guarascio
</TABLE>
(1) Based upon the last sale price on December 31, 1996 of
$2.375 per share of Common Stock.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
It is the responsibility of the Compensation Committee of
the Board of Directors to administer the Company's incentive
plans, review the performance of management and approve the
compensation of the Chief Executive Officer and other
executive officers of the Company.
The Compensation Committee believes that the Company's
success depends on the coordinated efforts of individual
employees working as a team toward defined common goals.
The objectives of the Company's compensation program are to
align executive compensation with business objectives, to
reward individual and team performance furthering the
business objectives, and to attract, retain and reward
employees who will contribute to the long-term success of
the Company with competitive salary and incentive plans.
Specifically, executive compensation decisions are based on
the following factors:
1. The total direct compensation package for the Company's
executives is made up of three elements: base salary, a
short-term incentive program in the form of a performance-
based bonus, and a long-term incentive program in the form
of stock options and other inducements to own the Company's
stock.
2. The Committee believes that the total compensation of
all executives should have a large incentive element that is
dependent upon overall Company performance measured against
objectives established at the beginning of the fiscal year.
Bonus and stock opportunities represent a significant
portion of the total compensation package, in an attempt
to further the Company's goal of linking compensation more
closely to the Company's performance. The percentage of
direct
8
<PAGE>
compensation that is dependent upon the Company's
attainment of its objectives also generally increases as the
responsibility of the officer in question for the overall
corporate performance increases.
3. Total compensation levels, i.e., base salary, bonus
potential, and number of stock options, are established by
individual levels of responsibility and regular reference to
competitive compensation levels for executives performing
similar functions and having equivalent levels of
responsibility. However, whether actual bonuses are paid to
each executive depends upon the achievement of Company
profitability goals. In the case of certain executives who
have direct responsibility for individual business units, a
portion of the incentive compensation for such executives
may consist of bonuses tied to the performance against
predetermined targets of the individual business units for
which they are responsible.
4. In 1995 and 1996, the Compensation Committee did not
perform a general survey of executive compensation. The
Committee determined that the operating results of the
Company did not support any base salary increases for
officers and no changes were made to the compensation of any
officers named in the Summary Compensation Table. In 1994
and in previous years, the Compensation Committee has
reviewed various executive compensation data developed by
the Company's Human Resources Department with an independent
consultant from base salary and bonus compensation
information reported in a nationally recognized independent
compensation survey (the "Survey") for a group of companies
in the Company's industry or similar industries and of
comparable size and complexity. The Committee compared the
base salary and bonus levels of the Survey group to the
existing salary and bonus compensation of the Company's
management.
5. The Committee views the 50th percentile of the Survey
data as average compensation for comparable positions and
believes it is the minimum level necessary for the Company
to be competitive in attracting and retaining qualified
executives in its industry and geographic locations.
Therefore, the base salaries for the Chief Executive Officer
and the four other highest paid executive officers were
established in 1994 at approximately the 50th percentile for
comparable positions in the Survey companies.
6. Merit increases in base salary for executives other
than Mr. Kessman have been reviewed on an individual basis
by Mr. Kessman and increases are dependent upon a favorable
evaluation by Mr. Kessman of individual executive
performance relative to individual goals, the functioning of
the executive's team within the corporate structure, success
in furthering the corporate strategy and goals, and
individual management skills. Based upon his evaluation,
Mr. Kessman recommends base salary increases to the
Committee for its approval.
7. In addition to base salary and merit increases, the
Compensation Committee considers incentive bonuses for its
executive officers, including the Chief Executive Officer,
both prospectively based upon the attainment of specific
performance goals, and retrospectively based upon the
Committee's discretionary judgment as to the performance
during the year of the Company and its executive officers or
other considerations deemed appropriate at the time. Bonus
potential for 1996 was the same as for 1995 and 1994 for all
officers named in the Summary Compensation Table. To
establish 1996 bonus potential for executive officers,
including the Chief Executive Officer, the Compensation
Committee reviewed recommendations by the Chief Executive
Officer based on data provided by the Survey. The Committee
provided that each officer would be eligible for a bonus
equal to a percentage of his or her salary consistent with
the Survey data if certain pre-established 1996 pretax
income targets or goals were achieved by the Company. The
bonus incentive was structured so that if the Company fully
achieved or exceeded its predetermined 1996 goals, total
cash compensation of the executive (salary and bonus) would
increase to approximately the 75th percentile of the Survey
salary data. Partial achievement of the pretax income goals
(above 75% attainment) would result in partial bonus
payments. In 1996 the pretax income from operations,
excluding the gain on sale of certain businesses, for the
entire year was below the 75% threshold though pretax
operating income for the second six months of the year was
on plan as adjusted for the operations remaining after the
sale of the direct selling organization in May 1996.
Therefore, the Compensation Committee approved payment of
the quarterly portion of the bonus plan for the last two
quarters of 1996 which amounted to about 2.5% of salary for
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each of the executives. Additionally, the Committee
approved additional special bonuses for certain executives
based on their successful completion of the sale of the
direct selling organization and the successful
implementation of the changes after the sale and the
operating performance of the Company in the last six months
of the year. Mr. Kessman received a $10,000 bonus in
accordance with the existing plan for the last two quarters
of 1996 (2.5% of base salary), plus a $25,000 bonus for the
successful completion of the sale of the direct selling
organization and an additional special bonus of $28,000 for
the Company's performance after the sale of the direct
organization.
The Committee reserves the right to make discretionary bonus
awards in appropriate circumstances where an executive might
merit a bonus based on other considerations.
8. All executives, including the Chief Executive Officer,
are eligible for annual stock option grants under the
employee stock option plans applicable to employees
generally, as approved by the Compensation Committee. The
number of options granted to any individual depends on
individual performance, salary level and competitive data.
In addition, in determining the number of stock options
granted to each senior executive, the Compensation Committee
reviews the unvested options of each executive to determine
the future benefits potentially available to the executive.
The number of options granted will depend in part on the
total number of unvested options deemed necessary to create
a long-term incentive on the part of the executive to remain
with the Company in order to realize future benefits.
No options were granted in 1996 to Mr. Kessman or the four
highest paid other executive officers.
In conclusion, the Compensation Committee believes that the
base salary, bonus and stock options of the Company's Chief
Executive Officer and other executives are appropriate in
light of competitive pay practices and the Company's
performance against short and long-term performance goals.
RICHARD ROSENBLOOM
JERRY SESLOWE
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Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee until July
30, 1996, were Thurston Moore, Richard Rosenbloom and
William Smart. The members of the Compensation Committee
commencing July 30, 1996, were Richard Rosenbloom and Jerry
Seslowe.
No member of the Committee is a former or current
officer or employee of the Company or any subsidiary, except
that Mr. Moore has acted as an Assistant Secretary of the
Company. Mr. Moore is a partner in the law firm of Hunton &
Williams, which regularly acts as counsel to the Company.
No executive officer of the Company served as a
director or a member of the Compensation Committee or of the
equivalent body of any entity, any one of whose executive
officers serve on the Compensation Committee or the Board of
Directors of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
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, 1996, all Section
16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were
complied with, except that Mr. Israel Hersh, a Vice
President of the Company, failed to file a timely Report on
Form 4 to report an open market sale of Common Stock.
PERFORMANCE GRAPH
The graph below compares, for the last five fiscal years,
the yearly percentage change in cumulative total returns
(assuming reinvestment of dividends and interest) of (i) the
Company's Common Stock, (ii) the Company's Debentures, (iii)
the NASDAQ Stock Market and (iv) a peer group index
constructed by the Company (the "Peer Group").
The Peer Group consists of the following companies:
Aspect Telecommunications Corp. Inter-Tel, Inc.
Boston Technology, Inc. InterVoice, Inc.
Brite Voice Systems, Inc. Microlog Corporation
Centigram Communications Corp. Mitel Corporation
Comdial Corporation Norstan, Inc.
Davox Corporation Octel Communications
Digital Sound Corporation Corp.
Mosaix (formerly Digital Syntellect, Inc.
Systems International, Inc. Teknekron Communications
Electronic Information Systems, Inc. Systems, Inc.(TCSI)
TIE/Communications, Inc., was formerly included among the
Peer Group companies. It has been eliminated because it is
now privately held.
The Peer Group includes companies who compete with the
Company in the general voice communications equipment area
as well as those active in several more specialized areas,
such as ACD (automatic call distribution), voice mail,
interactive voice response systems, and predictive dialing
systems, as well as additional general voice communications
companies. The Company believes that the mix of the
companies in the Peer Group accurately reflects the mix of
businesses in which the Company is currently engaged and
will be engaged in the foreseeable future.
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The Peer Group is not identical to the Survey group used to
evaluate compensation of executives described in the
Compensation Committee Report. The Peer Group above does
not provide sufficient compensation data for the Committee's
purposes, and the Survey group includes non-public entities
for whom stock price data for the performance graph is
unavailable.
Although Lucent Technologies, Inc. and Nortel are the Company's
principal competitors in supplying voice communications
equipment, software and services to the under-300-desktop
market, the business in which the Company is primarily
engaged, both of those companies are much larger than the
Company and derive most of their revenues from other lines
of business and so have not been included in the Peer Group.
The returns of each Peer Group issuer have been weighted in
the graph below to reflect that issuer's stock market
capitalization at the beginning of each calendar year.
Comparison of Five-Year Cumulative Return
Among EXECUTONE, including the Common
Stock ("XTON") and the Debentures ("XTONG"),
the NASDAQ (US) Index and the Company's
Peer Group
[PERFORMANCE GRAPH]
Weighted Average
Cumulative Total Returns 12/91 12/92 12/93 12/94 12/95 12/96
Executone Information
Systems, Inc.(XTON) $100 $223 $354 $400 $285 $292
NASDAQ STOCK MARKET(US) $100 $116 $134 $131 $185 $227
PEER GROUP $100 $134 $236 $213 $305 $382
Executone Debenture(XTONG) $100 $181 $249 $248 $288 $321
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
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The Executive Stock Incentive Plan (the "Executive Plan")
approved by shareholders at the 1994 Annual Meeting was
implemented in October 1994 with 30 employees participating.
Under the terms of the Executive Plan, eligible employees
were granted the right to purchase shares of the Company's
Common Stock at a price of $3.1875 per share. Participating
employees financed the purchases of these shares through
loans by the Company's bank lender 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 bank. The Company holds the
purchased Common Stock as security for its guarantees of the
repayment of the loans. The following table contains
information about borrowings in excess of $60,000 by
executive officers that were outstanding during 1996
pursuant to the Executive Plan and that are guaranteed by
the Company. No director, nominee, or beneficial owner of
more than 5% of any class of voting securities is eligible
for participation in the Executive Plan.
<TABLE>
<CAPTION>
Highest Amount of
Indebtedness Between Unpaid Indebtedness
1/1/96 and 3/31/97, at 3/31/97 Including
Name Including Accrued Interest Accrued Interest
<S> <C> <C>
Alan Kessman $2,227,051 $2,227,051
Michael W. Yacenda 1,312,691 1,312,691
Shlomo Shur 649,557 649,557
Andrew Kontomerkos 649,557 649,557
Barbara C. Anderson 353,287 317,067
James E. Cooke III 371,175 371,175
Anthony R. Guarascio 519,645 519,645
Israel J. Hersh 111,353 111,353
Robert W. Hopwood 374,434 374,434
Vic Northrup 262,104 262,104
Frank J. Rotatori 222,705 222,705
_____________________
</TABLE>
PROPOSAL NO. 2
AMENDMENT OF 1986 EMPLOYEE STOCK OPTION PLAN
Description of Proposed Amendments
The Board of Directors of the Company, on the recommendation
of the Compensation Committee, has unanimously approved two
amendments (the "Amendments") to the Company's 1986 Employee
Stock Option Plan (the "Plan") to conform the Plan to the
requirements of Section 162(m) of the Code, subject to
approval by the shareholders at the Meeting. Specifically,
the Amendments provide that: (i) no person may be granted
options under the Plan in any calendar year covering more
than 300,000 shares of Common Stock; and (ii) in the event
that the outstanding Common Stock is changed by reason of
reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares,
stock dividends or the like, an appropriate adjustment shall
be made in the per individual limitation on the number of
shares for which options may be granted in any calendar
year.
Reasons for Proposed Amendments
The purpose of the Plan is to advance the interests of the
Company by enabling employees to acquire an equity interest
in the Company. Management of the Company believes that the
availability of stock options for grant to employees aids in
attracting, motivating and retaining high-caliber employees.
The Amendments are intended to assure that the Company will
be entitled to claim a federal income tax deduction on
account of the exercise of non-qualified options granted
under the Plan.
Vote Required
Adoption of the Amendments requires the affirmative vote of
the holders of a majority of the shares of Common Stock and
Preferred Stock present or represented by proxy at the
Meeting and
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voting as a single voting group. Abstentions
and Broker Shares represented at the Meeting that are not
voted on the matter will have the same effect as a negative
vote.
Summary of the Plan
Administration. The Plan is administered by a committee
(the "Committee") consisting of at least three persons
chosen by the Board of Directors who are "disinterested"
persons as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934. The Committee interprets
the Plan and prescribes rules, regulations and forms
relating to the Plan's administration. The Compensation
Committee of the Board of Directors is currently the
Committee for the Plan.
Shares Subject to the Plan. A total of 9,500,000 shares of
Common Stock, par value $.01 per share, is reserved for
issuance upon exercise of non-qualified stock options and
incentive stock options ("ISOs") granted under the Plan,
including a total of 6,379,293 already issued and a total of
984,794 that are currently issuable under options
outstanding under the Plan as of March 31, 1997. The Plan
provides for appropriate adjustment in the event of stock
dividends, stock splits, recapitalizations and other changes
in capital structure.
Eligibility. All full-time employees (including officers)
of the Company or any subsidiary (the "Participants") are
eligible to be granted options under the Plan.
Nontransferability. Options granted under the Plan are not
transferable other than by will or the laws of descent and
distribution, and such options are exercisable during a
holder's lifetime only by such Participant.
Termination of Employment or Death. If the employment of a
Participant in the Plan is terminated voluntarily by the
employee or if such termination is for cause, all options
held by such person will expire immediately. If such
employment terminates other than voluntarily or for cause,
options then outstanding may be exercised within 30 days of
termination of employment or, in the case of disability or
death, within 30 days of the date of disability or death.
Amendment and Termination. The Board of Directors may at
any time terminate the Plan, or from time to time make such
modifications or amendments to the Plan as it may deem
advisable. However, the Board of Directors may not, without
approval by the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock entitled
to vote, increase the aggregate number of shares as to which
options may be granted, or change the corporations or class
of corporations whose employees are eligible to receive
options under the Plan, or make any other change that would
materially increase the benefits of the Plan to the
participants.
New Plan Benefits. Neither the number of individuals who
will be selected to participate in the Plan or the type or
size of option grants that will be approved can be
determined by the Company. During 1996, options to purchase
an aggregate of 240,875 shares were granted, at prices ranging
from $2.25 to $3.00 per share and an average price of $2.52
per share.
Federal Income Tax Consequences
The Company has been advised by counsel regarding the
federal income tax consequences of the Plan. No income is
recognized by a Participant at the time an option is
granted. If the option is an ISO, no income will be
recognized upon the Participant's exercise of the option.
Income is recognized by a Participant when he disposes of
shares acquired under an ISO. The exercise of a
nonqualified stock option generally is a taxable event that
requires the Participant to recognize, as ordinary income,
the difference between the shares' fair market value and the
option price.
The employer (either the Company or a subsidiary) will be
entitled to claim a federal income tax deduction on account
of the exercise of a nonqualified option. The amount of the
deduction is equal to the ordinary income recognized by the
Participant. The employer will not be entitled to a federal
income tax deduction on account of the grant or the exercise
of an ISO, but may claim the deduction on account of certain
dispositions of Common Stock acquired by the exercise of an
ISO.
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSAL NO. 2.
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SHAREHOLDER PROPOSALS - 1998 ANNUAL MEETING
Shareholders are entitled to present proposals for action at
the 1998 Annual Meeting of Shareholders if they comply with
the applicable requirements of the Company's Bylaws then in
effect and with the requirements of the proxy rules as
promulgated by the Securities and Exchange Commission. Any
proposals intended to be presented at the 1998 Annual
Meeting of Shareholders must be received at the Company's
offices on or before January 31, 1998 in order to be
considered for inclusion in the Company's Proxy Statement
and form of proxy relating to such Meeting.
OTHER MATTERS
The Board of Directors has designated Arthur Andersen LLP,
independent accountants, as auditors for the Company for the
fiscal year ending December 31, 1997 subject to shareholder
approval. Arthur Andersen LLP will be present at the
Annual Meeting with an opportunity to make a statement and
will be available to respond to appropriate questions
relating to the audit of the Company's 1996 financial
statements.
Management knows of no other business which will be
presented to the Meeting. If other matters properly come
before the Meeting, the persons named as proxies will vote
on them in accordance with their best judgment.
The cost of this solicitation of proxies will be borne by
the Company. In addition to the use of the mail, some of
the officers and regular employees of the Company may
solicit proxies by telephone and telegraph, and may also
verify the accuracy of marked proxies by contacting record
and beneficial owners of Common Stock and Preferred Stock,
and the Company will request brokerage houses, banks and
other custodians, nominees and fiduciaries to forward
soliciting material to the beneficial owners of Common Stock
and Preferred Stock held of record by such persons. The
Company will reimburse such persons for expenses incurred in
forwarding such soliciting material. It is contemplated
that additional solicitation of proxies will be made in the
same manner under the engagement and direction of Morrow &
Company, at an anticipated cost to the Company of $5,000,
plus reimbursement of out-of-pocket expenses.
By Order of the Board of Directors
Barbara C. Anderson
Vice President, General Counsel
and Secretary
May 27, 1997
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PROXY
EXECUTONE INFORMATION SYSTEMS, INC.
478 WHEELERS FARMS ROAD, MILFORD, CONNECTICUT 06460
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Alan Kessman, Michael W.
Yacenda and Barbara C. Anderson, or any of them, with full
power of substitution in each, Proxies, to vote all the
shares of Common Stock and Preferred Stock of EXECUTONE
Information Systems, Inc. held of record by the undersigned
at the close of business on May 23, 1997, at the Annual
Meeting of Shareholders (the "Meeting") to be held on July
29, 1997, at 3:00 p.m., or any continuation or adjournment
thereof.
1. Election of Directors
FOR WITHHOLD
( ) ( )
FOR, except vote withheld from the following nominees:
ALAN KESSMAN LOUIS K. ADLER STANLEY M. BLAU THURSTON
R. MOORE RICHARD S. ROSENBLOOM JERRY M. SESLOWE
2. Proposal to approve amendments to the 1986
Employee Stock Option Plan.
FOR ( ) AGAINST ( ) ABSTAIN ( )
3. In their discretion, the Proxies are authorized to
vote upon such other business as may properly come
before the Meeting.
FOR ( ) AGAINST ( ) ABSTAIN ( )
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
THE PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1 AND 2.
Signature: Date:
Signature if held jointly: Date:
Note: Please sign exactly as the name appears hereon. When
shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee
or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the
President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
<PAGE>
