SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of 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
ETHAN ALLEN INTERIORS INC.
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(Name of Registrant as Specified in its Charter)
ETHAN ALLEN INTERIORS INC.
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(Name of Person(s) Filing Proxy Statement.)
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ETHAN ALLEN INTERIORS INC.
ETHAN ALLEN DRIVE
DANBURY, CONNECTICUT 06811
September 29, 2000
Dear Shareholder:
You are cordially invited to attend the 2000 Annual Meeting of
Shareholders of Ethan Allen Interiors Inc. This meeting will be
held at the Ethan Allen International Corporate Headquarters,
Ethan Allen Drive, Danbury, Connecticut 06811 at 8:30 A.M. local
time, on Thursday, November 16, 2000.
You will find information about the meeting in the enclosed
Notice and Proxy Statement.
Your vote is very important and we hope you will be able to
attend the meeting. To ensure your representation at the meeting,
even if you anticipate attending in person, we urge you to mark,
sign, date and return the enclosed proxy card. If you attend, you
will, of course, be entitled to vote in person.
Sincerely,
[LOGO]
M. Farooq Kathwari
Chairman of the Board,
Chief Executive Officer and
President
ETHAN ALLEN INTERIORS INC.
ETHAN ALLEN DRIVE
DANBURY, CONNECTICUT 06811
NOTICE OF 2000 ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF
ETHAN ALLEN INTERIORS INC.
The annual meeting of the shareholders of Ethan Allen
Interiors Inc. will be held at the Ethan Allen International
Corporate Headquarters on Thursday, November 16, 2000 at
8:30 A.M., local time, for the purpose of considering and acting
upon the following:
1. The election of directors;
2. Ratification of the appointment of KPMG LLP as
independent auditors for the 2001 fiscal year; and
3. Such other business as may properly come before the
meeting.
The Board of Directors has fixed September 22, 2000 as the
record date for determining shareholders entitled to notice of and
to vote at the meeting. Shareholders are requested to mark, sign,
date and return the enclosed proxy card. An envelope is provided
requiring no postage for mailing in the United States. Your prompt
response will be appreciated.
Roxanne Khazarian
Secretary
September 29, 2000
Ethan Allen Interiors Inc.
Ethan Allen Drive
Danbury, Connecticut 06811
ETHAN ALLEN INTERIORS INC.
ETHAN ALLEN DRIVE
DANBURY, CONNECTICUT 06811
PROXY STATEMENT
The Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board of Directors") of Ethan Allen Interiors Inc., a
Delaware corporation ("Company"), of proxies for use at the 2000 Annual Meeting
of Shareholders of the Company to be held on November 16, 2000 and any
adjournment thereof (the "Annual Meeting"). The Proxy Statement and accompanying
form of proxy are first being mailed to shareholders on or about September 29,
2000.
VOTING SECURITIES; PROXIES; REQUIRED VOTE
VOTING SECURITIES
The Board of Directors has fixed the close of business on September 22, 2000
as the record date (the "Record Date") for the determination of shareholders
entitled to notice of, and to vote at, the Annual Meeting. As of the Record
Date, the Company had outstanding 39,389,488 shares of common stock, par value
$.01 per share (the "Common Stock"). The holders of Common Stock are entitled to
notice of and to vote at the Annual Meeting. Holders of Common Stock are
entitled to one vote per share.
PROXIES
M. Farooq Kathwari, Horace G. McDonell and Edward H. Meyer, the persons
named as proxies on the proxy card accompanying this Proxy Statement, were
selected by the Board of Directors of the Company to serve in such capacity.
Each properly executed and returned proxy will be voted in accordance with the
directions indicated thereon, or if no direction is indicated, such proxy will
be voted in accordance with the recommendations of the Board of Directors
contained in this Proxy Statement. Each shareholder giving a proxy has the power
to revoke it at any time before the shares it represents are voted. Revocation
of a proxy is effective upon receipt of the Secretary of the Company of either
(i) an instrument revoking the proxy or (ii) a duly executed proxy bearing a
later date. Additionally, a shareholder may change or revoke a previously
executed proxy by voting in person at the Annual Meeting.
REQUIRED VOTE
The Holders of at least one third of the outstanding shares of Common Stock
represented in person or by proxy will constitute a quorum at the Annual
Meeting. At the Annual Meeting, the vote of a majority in interest of the
shareholders present in person or by proxy and entitled to vote thereon is
required to elect directors and ratify the appointment of KPMG LLP as the
independent auditors of the Company's consolidated financial statements for the
fiscal year ending June 30, 2001.
The election inspectors appointed for the meeting will tabulate the votes
cast in person or by proxy at the Annual Meeting and will determine whether or
not a quorum is present. The election inspectors will treat abstentions as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum but as unvoted for purposes of determining the approval of
any matter submitted to the shareholders for a vote. If a broker indicates on
the proxy that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter.
1
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors is presently composed of six members. The Restated
Certificate of Incorporation of the Company divides the Board of Directors into
three classes, as nearly equal in size as possible, with one class of Directors
elected each year for a three-year term. The term of the Directors in one class,
which is composed of one Director, expires as of the Annual Meeting.
One Director, William W. Sprague is nominated for election at the Annual
Meeting, to a term as Director for three years. If for any reason the nominee
becomes unable or unwilling to serve at the time of the meeting, the persons
named in the enclosed proxy card will have discretionary authority to vote for a
substitute nominee. It is not anticipated that the nominee will be unavailable
for election.
The following sets forth information as to the nominee for election at the
Annual Meeting and each Director continuing in office, including his or her age,
present principal occupation, other business experience during the last five
years, directorships in other publicly held companies, membership on committees
of the Board of Directors and period of service as a Director of the Company.
NOMINEES FOR ELECTION AT THIS MEETING TO A TERM EXPIRING IN 2003
WILLIAM W. SPRAGUE, 42, was initially elected as a director of the Company
on June 30, 1989. He was previously designated as a Preferred Stock Director of
the Company until the Company redeemed its Preferred Stock. In February 1996,
Mr. Sprague founded Crest Communications Holdings, LLC, a private investment
firm focusing on the media and telecommunications industries. Prior to that, he
was a managing Director of Smith Barney Inc. from 1991, and a Vice President
since April 1989. Prior to April 1989, Mr. Sprague was a Vice President of
Kidder, Peabody & Co., Incorporated, which he joined in September 1984.
Mr. Sprague is also Chairman of the Board of Directors of ViaSource
Communications, Inc. and Raviant Networks Inc. In addition, he is a director of
several other private companies. He is a member of the Audit Committee.
DIRECTORS WHOSE PRESENT TERM WILL CONTINUE UNTIL 2001
CLINTON A. CLARK, 58, was elected as a director of the Company on June 30,
1989. He was Chairman, President and Chief Executive Officer of Long John
Silver's Restaurants, Inc. from 1990 through September 30, 1993. He is President
and sole stockholder of Ironwood Equity Inc., a private investment company,
since he founded the company in 1990. He has been the President and sole
stockholder of CAC Investments, Inc., a private investment company, since he
founded the company in January 1986. Prior to founding CAC Investments, Inc.,
Mr. Clark was President and Chief Executive Officer of The Children's Place, a
retail chain selling children's apparel, which he founded in 1968. He is a
director of Silver Diner Development Inc. Mr. Clark is also an investor and
director of several private companies. He is a member of the Audit Committee.
KRISTIN GAMBLE, 55, was elected as a director of the Company on July 28,
1992. Since 1984, she has been President of Flood, Gamble Associates, Inc.,
which is an investment counseling firm. Ms. Gamble was Senior Vice President
responsible for equity strategy and economic research with Manufacturers Hanover
Trust Company from 1981 to 1984 and prior to that held various management
positions with Manufacturers Hanover (1977-1981), Foley, Warendorf & Co., a
brokerage firm (1976-1977), Rothschild, Inc. (1971-1976) and Merrill, Lynch,
Pierce, Fenner & Smith (1968-1971). Since May 10, 1995, she has served as a
member of the Board of Trustees of Federal Realty Investment Trust. She is a
member of the Audit Committee and the Compensation Committee.
EDWARD H. MEYER, 73, was elected as a director of the Company on May 30,
1991. He is President, Chairman of the Board, and Chief Executive Officer of
Grey Worldwide. Mr. Meyer joined Grey Advertising in 1956 and in 1964 was
appointed Executive Vice President for Account Services. He was
2
elected President in 1968 and Chief Executive Officer and Chairman of Grey
Advertising in 1970. Grey Worldwide performs advertising services for Ethan
Allen. See "Certain Transactions". Mr. Meyer is a Director of a number of
outside business and financial organizations, including Harman International
Industries, Inc. and 34 mutual funds advised by Merrill Lynch Asset
Management, Inc. He is Chairman of the Compensation Committee.
DIRECTORS WHOSE PRESENT TERM WILL CONTINUE UNTIL 2002
M. FAROOQ KATHWARI, 56, was elected as a director of Ethan Allen in 1981,
was appointed President and Chief Operating Officer in 1985 and was appointed to
the additional position of Chairman and Chief Executive Officer of the Company
and Ethan Allen in September 1988. In 1973, Mr. Kathwari formed a joint venture
company called KEA International Inc. with Ethan Allen to develop home
furnishings product programs such as lighting, floor coverings, decorative
accessories and other related programs. In 1980, KEA International Inc. merged
with Ethan Allen and Mr. Kathwari joined Ethan Allen as a Vice President
responsible for merchandising and international operations. He was promoted to
Senior Vice President in 1981, to Executive Vice President in 1983, and to
President in 1985. From 1968 to 1973 he was Vice President of Rothschild, Inc.
Mr. Kathwari is a director of several non-profit organizations, including the
American Furniture Manufacturer's Association and the National Retail
Federation.
HORACE G. MCDONELL, 71, was elected as a director of the Company on May 30,
1991. He retired as Chairman and Chief Executive Officer of the Perkin-Elmer
Corporation in November 1990. Mr. McDonell served in a number of marketing and
executive positions in that company. He was elected President in 1980, Chief
Executive Officer in 1984, and Chairman in 1985. He is a past Chairman of the
American Electronics Association and a past director of Danbury Health Systems.
He is Chairman of the Audit Committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEE FOR
DIRECTOR NAMED ABOVE, WHICH IS DESIGNATED AS PROPOSAL NO. 1 ON THE ENCLOSED
PROXY CARD.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal year 2000, there were four regularly scheduled meetings of the
Board of Directors. Average attendance at the aggregate number of Board and
Committee meetings was 100% in fiscal 2000 and no director attended fewer than
100% of the aggregate number of meetings of the Board of Directors and
committees on which he or she served.
The Board of Directors has established two standing committees: the Audit
Committee and the Compensation Committee. Committee memberships of each nominee
and continuing director are set forth in their biographical information above.
AUDIT COMMITTEE
The Audit Committee recommends the appointment of a firm of independent
public accountants to audit the Company's financial statements and reviews and
approves the scope, purpose and type of audit services to be performed by the
external auditors. The Audit Committee also reviews the scope and findings of
the Company's internal auditors. In accordance with recently promulgated SEC
regulations, the Audit Committee has approved an Audit Committee Charter, as set
forth on Exhibit A, describing the activities of the Audit Committee. The Report
of the Audit Committee is set forth on Exhibit B. No member of the Audit
Committee may be an employee of the Company or of Ethan Allen Inc. The Audit
Committee held four meetings during fiscal 2000.
3
COMPENSATION COMMITTEE
The duties of the Compensation Committee are to (i) review and make
determinations with regard to the employment arrangements, and compensation for
the Chief Executive Officer, President and Chief Financial Officer or Treasurer
and (ii) consider and accept, modify or reject the Chief Executive Officer's
recommendations as to incentive compensation for executives and employees. No
member of the Compensation Committee may be an employee of the Company or of
Ethan Allen Inc. The Compensation Committee held one meeting in fiscal 2000.
DIRECTOR COMPENSATION
For fiscal year 2000, all independent directors (meaning directors who are
not executives or employees of the Company or associated with any "interested
person" as referred to in Article Fifth of the Certificate of Incorporation)
received $8,000 per annum and $2,500 per meeting of the Board of Directors. Each
Chairman of a Committee who is an independent director received an additional
$6,000 per annum. Each independent director received $1,000 for each committee
meeting of the Board of Directors held on a date on which a meeting of the Board
of Directors was not held. In addition, independent directors are eligible for
awards of options and stock appreciation rights under the Company's 1992 Stock
Option Plan. Pursuant to such plan 2,000 options were awarded in fiscal 2000 to
independent directors.
For fiscal year 2001, all independent directors will receive $8,000 per
annum and $2,500 per meeting of the Board of Directors. Each Chairman of a
Committee who is an independent director will receive an additional $6,000 per
annum. Each independent director will receive $1,000 for each committee meeting
of the Board of Directors held on a date on which a meeting of the Board of
Directors is not held. In addition, independent directors will be eligible for
awards of options and stock appreciation rights under the Company's 1992 Stock
Option Plan.
CERTAIN TRANSACTIONS
Kristin Gamble and Edward Meyer served as members of the Compensation
Committee of the Board of Directors of the Company for fiscal year 2000. Clinton
Clark, Kristin Gamble, Horace G. McDonell and William W. Sprague served as
members of the Audit Committee of the Board of Directors of the Company for
fiscal year 2000. Mr. Meyer is Chairman and President of Grey Worldwide, which
received a fee of approximately $1,074,000 for the performance of advertising
services for Ethan Allen in fiscal 2000.
The Company is party to indemnification agreements with each of the members
of the Board of Directors pursuant to which the Company has agreed to indemnify
and hold harmless each director from liabilities incurred as a result of such
director's status as a director of the Company, subject to certain limitations.
EXECUTIVE OFFICERS
Set forth below is a description of the business experience of each
executive officer, other than Mr. Kathwari, of the Company:
LENORA W. KIRKLEY, 43, serves as Vice President of Corporate Communications
and Advertising. She is responsible for the Advertising, Public Relations,
Consumer Finance, and Retail Services and Education divisions of the Company.
Ms. Kirkley joined the Company as Retail Advertising Manager in May 1988. Prior
to joining the Company, she held various account management positions with Grey
Advertising Inc., and Doyle Dane Bernbach, Inc., New York Advertising Agencies.
CRAIG W. STOUT, 50, serves as Vice President, Product Development. He is
responsible for design and development of products sold by the Company.
Mr. Stout joined Ethan Allen in 1972 and has held various marketing,
merchandising and product development positions.
4
THOMAS BROCKMAN, 46, serves as Vice President and General Manager, Case
Goods Manufacturing. He is responsible for the supervision of case goods
manufacturing. Mr. Brockman joined Ethan Allen in 1977 at the Cherry Hill
Division and has held various supervisory and management positions.
SANDRA LAMENZA, 52, serves as Vice President and General Manager, Retail
Division. She is responsible for the supervision of the Company operated retail
stores. Ms. Lamenza started in the training department of Ethan Allen in 1988
and has held various marketing positions.
SECURITY OWNERSHIP OF COMMON STOCK OF CERTAIN OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 2000, except as otherwise
noted, information with respect to beneficial ownership of the Common Stock on a
fully-diluted basis in respect of (i) each director and executive officer of the
Company named in the table below under "Executive Compensation--Summary
Compensation Table", (ii) all directors and executive officers of the Company as
a group and (iii) based on information available to the Company and a review of
statements filed with the SEC pursuant to Section 13(d) and 13(g) of the
Securities Act of 1934, as amended (the "Exchange Act"), each person or entity
that beneficially owned (directly or together with affiliates) more than 5% of
the Common Stock. The Company believes that each individual or entity named has
sole investment and voting power with respect to shares of Common Stock
indicated as beneficially owned by them, except as otherwise noted.
SHARES COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENTAGE OWNERSHIP(1)
- ------------------------------------ --------------------- -----------------------
DIRECTORS AND EXECUTIVE OFFICERS:
M. Farooq Kathwari(2)................................. 4,931,024 11.52%
Edward H. Meyer(3).................................... 71,860 *
Horace G. McDonell(4)................................. 55,000 *
Kristin Gamble(5)..................................... 39,800 *
William W. Sprague(6)................................. 27,900 *
Lenora W. Kirkley(7).................................. 27,200 *
Thomas Brockman(8).................................... 26,050 *
Craig W. Stout(9)..................................... 25,550 *
Sandra Lamenza(10).................................... 17,383 *
Clinton A. Clark(11).................................. 12,500 *
All executive officers and directors as a group
(2)(3)(4)(5)(6)(7)(8)(9)(10)(11).................... 5,419,581 12.66%
OTHER PRINCIPAL STOCKHOLDERS:
Ruane, Cunniff & Co., Inc.(12)........................ 5,424,650 13.7%
Baron Capital Group, Inc.(13)......................... 3,286,100 8.1%
American Express Company(14).......................... 2,763,777 6.8%
- ------------------------
* Indicates beneficial ownership of less than 1% of shares of Common Stock
(1) Information presented herein reflects share ownership on a fully-diluted
basis and assumes the outstanding Incentive Options and options granted
under the 1992 Stock Option Plan are exercised, whether or not currently
vested, earned or exercisable.
(2) Includes (a) 1,975,978 shares owned by Mr. Kathwari; (b) 2,475,000 shares
issuable upon exercise of stock options granted under the 1992 Stock Option
Plans; (c) 235,954 shares issued upon the exercise of stock options, but as
to which delivery of the shares has been deferred; and (d) 244,092 shares of
the Ethan Allen Retirement Plan which are also subject to proxies granted to
Mr. Kathwari.
5
Mr. Kathwari has also been granted 63,000 Stock Units thus far under the New
Employment Agreement. See "Executive Compensation--Compensation for the
Chief Executive Officer for Fiscal 2000."
(3) Includes options and warrants to purchase 32,000 shares of Common Stock.
Mr. Meyer's address is Ethan Allen Drive, Danbury, Connecticut 06811.
(4) Includes options and warrants to purchase 32,000 shares of Common Stock.
Mr. McDonell's address is Ethan Allen Drive, Danbury, Connecticut 06811.
(5) Includes options and warrants to purchase 24,500 shares of Common Stock.
Ms. Gamble's address is Ethan Allen Drive, Danbury, Connecticut 06811.
(6) Includes options and warrants to purchase 12,500 shares of Common Stock.
Mr. Sprague's address is Ethan Allen Drive, Danbury, Connecticut 06811.
(7) Includes options and warrants to purchase 26,800 shares of Common Stock.
Ms. Kirkley's address is Ethan Allen Drive, Danbury, Connecticut 06811.
(8) Includes options and warrants to purchase 26,050 shares of Common Stock.
Mr. Brockman's address is Ethan Allen Drive, Danbury, Connecticut 06811.
(9) Includes options and warrants to purchase 25,550 shares of Common Stock.
Mr. Stout's address is Ethan Allen Drive, Danbury, Connecticut 06811.
(10) Includes options and warrants to purchase 16,800 shares of Common Stock.
Ms. Lamenza's address is Ethan Allen Drive, Danbury, Connecticut 06811.
(11) Includes options and warrants to purchase 12,500 shares of Common Stock.
Mr. Clark's address is Ethan Allen Drive, Danbury, Connecticut 06811.
(12) As of July 10, 2000, Ruane, Cunniff & Co., Inc. ("RCC"), a broker/dealer
registered under Section 15 of the Exchange Act of 1934 and an investment
advisor registered under Section 203 of the Investment Advisors Act of 1940,
beneficially owned 5,424,650 shares of Common Stock. RCC has (i) sole voting
power with respect to 3,426,575 shares of Common Stock, (ii) sole
dispositive power with respect to 3,309,150 shares of Common Stock, and
(iii) shared dispositive power with respect to 2,115,500 shares of Common
Stock. The address of RCC is 767 Fifth Avenue, New York, New York 10153.
(13) As of December 31, 1999, Baron Capital Group, Inc. ("BCG") and Ronald Baron
("RB"), each a parent holding company, in accordance with
Section 13d-1(b)(ii)(G) of the Exchange Act, beneficially owned 3,286,100
shares of Common Stock. Such shares are held by their controlled entities or
the investment advisory clients thereof. BCG and RB have (i) sole voting
power with respect to 150,000 shares of Common Stock, (ii) shared voting
power with respect to 3,136,100 shares of Common Stock, (iii) sole
dispositive power with respect to 150,000 shares of Common Stock, and
(iv) shared dispositive power with respect to 3,136,100 shares of Common
Stock. The address of BCG and RB is 767 Park Avenue, New York, New York
10153.
(14) As of December 31, 1999, American Express Company ("AEC"), a parent holding
company, in accordance with Section 13d-1(b)(ii)(G) of the Exchange Act, and
American Express Financial Corporation ("AEFC"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
beneficially owned 2,763,777 shares of Common Stock. AEC and AEFC have
(i) shared voting power with respect to 18,090, and (ii) shared dispositive
power with respect to 2,763,777 shares of Common Stock. The address of AEC
and AEFC is American Express Tower, 200 Vesey Street, New York, New York,
10285.
6
PROPOSAL 2
RATIFICATION OF THE APPOINTMENT OF AUDITORS
Subject to shareholder ratification, the Board of Directors has appointed
KPMG LLP as the independent auditors of the Company for the fiscal year ending
June 30, 2001. KPMG LLP were the independent auditors for the Company for the
fiscal year ended June 30, 2000. Representatives of KPMG LLP will be present at
the Annual Meeting and will be given the opportunity to make a statement if they
so desire. They will also be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS FOR THE COMPANY FOR THE FISCAL
YEAR ENDING JUNE 30, 2001, WHICH IS DESIGNATED AS PROPOSAL NO. 2 ON THE ENCLOSED
PROXY CARD.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, as to the Chief Executive Officer and the
four most highly compensated officers other than the Chief Executive Officer,
information concerning all cash compensation paid or accrued for services
rendered in all capacities to the Company during the fiscal years ended
June 30, 2000, 1999 and 1998. For a description of the terms of employment
agreements, option and restricted stock grants for the listed officers, see
pages 8 through 14.
LONG TERM
COMPENSATION AWARDS
-------------------------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
-------------------------------- RESTRICTED OPTIONS/WARRANTS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARDS GRANTED COMPENSATION(1)
- --------------------------- -------- -------- ---------- ------------ ---------------- ---------------
M. Farooq Kathwari............ 2000 $726,823 $2,027,000 2,000 -- $ 59,080
Chairman of the Board of 1999 711,613 1,851,000 30,000 -- 1,032,980
Directors, President and 1998 700,000 1,670,000 30,000 1,500,000 1,035,890
Chief Executive Officer
Lenora W. Kirkley............. 2000 168,385 70,000 -- 2,000 1,000
Vice President, Corporate 1999 158,462 65,000 -- 4,500 1,000
Communications and 1998 147,115 55,000 -- 5,250 600
Advertising
Craig W. Stout................ 2000 156,769 70,000 -- 2,000 1,000
Vice President, Product 1999 138,462 60,000 -- 3,750 1,000
Development 1998 124,615 55,000 -- 2,250 600
Thomas Brockman............... 2000 157,693 55,000 -- 2,000 1,000
Vice President and General 1999 110,173 50,000 -- 3,750 1,000
Manager, Case Goods 1998 85,654 40,000 -- 3,750 600
Manufacturing
Sandra Lamenza................ 2000 154,346 70,000 -- 2,500 1,000
Vice President and General 1999 134,250 40,000 -- 2,250 1,000
Manager, Retail Division 1998 95,231 25,000 -- 3,000 600
- ------------------------
(1) Includes contributions by Ethan Allen of $1,000 each pursuant to Ethan
Allen's 401(k) Savings Plan for fiscal years 2000 and 1999 and $600 each for
fiscal year 1998. In addition, Mr. Kathwari's compensation includes:
(a) $48,000 from the vesting of shares of restricted stock granted on
July 1, 1997, and (b) $10,080 from dividends on Stock Units.
7
INCENTIVE STOCK OPTION GRANTS DURING FISCAL YEAR 2000
The following table sets forth information concerning grants of incentive
options to the named executive officers during the fiscal year ended June 30,
2000.
INDIVIDUAL GRANTS (1) POTENTIAL REALIZED
------------------------------------------------ VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OPTIONS STOCK PRICE
OF SHARES AWARDED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTION TERM
OPTIONS IN FISCAL PRICE PER EXPIRATION --------------------
SECURITIES AWARDED TO AWARDED YEAR SHARE DATE(2) 5% 10%
- --------------------- ---------- ---------- --------- ---------- -------- --------
M. Farooq Kathwari......................... 0 0.000% N/A N/A 0 0
Lenora W. Kirkley.......................... 2,000 0.506% 25.0000 3/31/10 27,566 67,897
Craig W. Stout............................. 2,000 0.506% 25.0000 3/31/10 27,566 67,897
Thomas Brockman............................ 2,000 0.506% 25.0000 3/31/10 27,566 67,897
Sandra Lamenza............................. 2,500 0.632% 25.0000 3/31/10 34,458 84,872
- ------------------------
(1) All stock options reported in this table were granted pursuant to the 1992
Stock Option Plan--see "Employee Stock Plans".
(2) Expires the earlier of the date indicated or 90 days after the participants'
employment with the Company is terminated for any reason.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTIONS/WARRANTS VALUE TABLE
The following table sets forth information concerning the number of
unexpired Incentive Options and 1992 Stock Options outstanding as of the end of
fiscal 2000, and the value of any unexercised in-the-money Incentive Options and
1992 Stock Options outstanding at such time (assuming a stock price of $24.00
per share at June 30, 2000), held by the named executive officers.
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED INCENTIVE OPTIONS INCENTIVE OPTIONS AND
AND 1992 STOCK OPTIONS 1992 STOCK OPTIONS
SHARES ACQUIRED VALUE AT JUNE 30, 2000 AT JUNE 30, 2000
ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
--------------- -------- ----------------------------- -------------------------
M. Farooq Kathwari
Exercisable............ 235,954 0(1) 1,846,429 $17,758,238
Unexercisable.......... -- -- 628,571 3,683,827
Lenora W. Kirkley
Exercisable............ -- -- 18,000 241,375
Unexercisable.......... -- -- 8,800 15,813
Craig W. Stout
Exercisable............ 2,485 73,826 18,813 280,000
Unexercisable.......... -- -- 6,737 7,125
Thomas Brockman
Exercisable............ -- -- 18,038 241,544
Unexercisable.......... -- -- 8,012 16,456
Sandra Lamenza
Exercisable............ -- -- 10,313 131,406
Unexercisable.......... -- -- 6,487 11,469
- ------------------------
(1) These options have been exercised but receipt of the shares and any
associated value have been deferred.
8
EMPLOYEE STOCK PLANS
The Company has issued options to purchase shares of Common Stock pursuant
to the 1992 Stock Option Plan and an Incentive Stock Option Plan and has issued
warrants to purchase shares of Common Stock to certain key members of
management. See Note 9 to "Notes to Consolidated Financial Statements" in the
Company's Annual Report as of June 30, 2000 filed on Form 10-K. The Company has
registered shares of Common Stock issuable upon exercise of such options and
warrants in the near future.
THE ETHAN ALLEN RETIREMENT SAVINGS PLAN
Ethan Allen established the Ethan Allen Profit Sharing and 401(k) Retirement
Plan (the "Plan"), now known as the Ethan Allen Retirement Savings Plan,
effective July 1, 1994 as a result of the merger of the Profit Sharing and
401(k) Plans. The Plan initially covered all employees who had completed at
least one year of service. Effective January 1, 2000, the Plan covers all
employees who have completed at least three months of service.
The 401(k) aspect of the Plan allows participants to defer up to 20% of
their compensation, subject to certain statutory limitations. The Company
contributes $1.00 for each $1.00 on the first $500 of a participant's before tax
contribution and $0.50 for each $1.00 for the next $1,000, up to a maximum of
$1,000 annually (effective January 1, 2000). During fiscal year 2000, the
Company made a contribution of $1,000 (as of December 31, 1999) to the 401(k)
aspect of the Plan for each of the above named executive officers. During fiscal
year 1999, the Company made a contribution of $1,000 (as of December 31, 1998)
to the 401(k) aspect of the Plan for each of the above named executive officers.
During fiscal year 1998, the Company made a contribution of $600 (as of
December 31, 1997) to the 401(k) aspect of the Plan for each of the above named
executive officers.
The Profit Sharing portion of the Plan is a defined contribution plan.
Contributions to the Plan can only be made by the Company and are at the
discretion of the Company. Contributions are allocated among all members in the
same ratio as their covered remuneration bears to that of all members.
The Plan is the primary vehicle for providing retirement income to Ethan
Allen employees.
Prior to July 1, 1996, members in the Profit Sharing portion of the Plan who
were under the age of 55 vested annually in 20% increments starting upon their
third year of service and continuing until the end of the seventh year of
service when they become fully vested. All Plan members age 55 and over were
100% vested regardless of their years of service. Effective July 1, 1996, all
Plan members are 100% vested in their Profit Sharing balances. Plan members
continue to be 100% vested in their 401(k) accounts.
The Plan is administered by Ethan Allen Inc. with J.P. Morgan/American
Century Services, Inc. as Investment Manager and Recordkeeper. Investments
offered include a stable asset fund, six mutual funds, three strategic
allocation funds, employer common stock and a personal choice option. The
investments are employee directed and qualify under Section 404c.
As of June 30, 2000, the estimated net present aggregate value of
contributions to the retirement programs for the above named executive officers
were: M. Farooq Kathwari $304,033, Lenora W. Kirkley $27,328, Craig W. Stout
$44,743, Thomas Brockman $49,037 and Sandra Lamenza $15,861.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors is responsible for
(i) reviewing and making determinations with regard to the employment
arrangements, and compensation for the Chief Executive Officer, President and
Chief Financial Officer or Treasurer and (ii) considering and accepting,
modifying or rejecting the Chief Executive Officer's recommendations as to
incentive compensation for executives and employees. The Compensation Committee
met one time in fiscal 2000. The Compensation Committee reviews and approves the
remuneration arrangements for the officers and directors of the Company, and
9
reviews and recommends new executive compensation or stock plans in which the
officers and/or directors are eligible to participate, including the granting of
stock options and restricted stock awards. The members of the Compensation
Committee are Mr. Edward H. Meyer and Ms. Kristin Gamble.
GENERAL POLICIES REGARDING COMPENSATION OF EXECUTIVE OFFICERS
The Compensation Committee's goals in establishing compensation levels and
administering executive compensation plans are (1) to attract and retain high
quality managerial and executive talent, (2) to reward executives for superior
performance and (3) to structure appropriate incentives for executives to
produce sustained superior performance in the future. The Company's compensation
structure consists of base salary, annual cash bonuses, stock options and
restricted stock awards. Generally, in formulating the compensation arrangements
for executives other than the Chief Executive Officer, the Compensation
Committee solicits recommendations from its Chief Executive Officer, which it
considers, modifies and/or approves.
SALARY
The Compensation Committee establishes base salaries at levels that reflect
the Compensation Committee's subjective assessment of prevailing salary levels
among the companies with which it believes the Company competes for executive
talent, as well as companies in the Company's industry generally.
BONUSES
For fiscal 2000, the Company's Compensation Committee observed a cash bonus
program (the "Bonus Program") for managerial employees of the Company. The Bonus
Program had two components: (i) an aggregate of $2,404,000 in cash to be
distributed to managerial employees other than Mr. Kathwari in amounts
recommended by Mr. Kathwari, and (ii) as to Mr. Kathwari an amount determined in
accordance with the New Employment Agreement. In light of the Company's
performance for fiscal year 2000, and in accordance with the bonus formula in
the New Employment Agreement, the Committee approved a bonus of $2,027,000 for
Mr. Kathwari.
STOCK OPTIONS AND RESTRICTED STOCK AWARDS
Stock options granted at 100% of the stock's market value on the date of
grant are currently the Company's sole long term compensation vehicle. The
Compensation Committee believes that stock options align the interest of
management with those of the Company's stockholders and provide appropriate
incentives to motivate executives to provide increased returns for stockholders.
In determining the size of individual option grants, and restricted stock
awards, the Compensation Committee considers the aggregate number of shares
available, which is in turn a function of the levels of stockholders' dilution,
the number of shares previously authorized by stockholders remaining available
for grants of options and awards and the number of individuals to whom it wishes
to award stock options and restricted stock awards. The Compensation Committee
also considers the range of potential compensation levels that may be yielded by
the options. Furthermore, the Compensation Committee considers the size of
option grants awarded by those companies with which it believes the Company
competes for executives, especially within the home furnishings industry. The
Compensation Committee reserves the discretion to consider any factors it
considers relevant, and to give all factors considered the relative weight it
considers appropriate under the circumstances then prevailing, in reaching its
determination regarding the size and timing of option grants and restricted
stock awards.
COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER FOR FISCAL 2000
As of July 1, 1994, Mr. Kathwari and the Company entered into an employment
agreement (the "Prior Employment Agreement"), which was revised and extended as
of July 1, 1997 (as revised, the "New
10
Employment Agreement"). Pursuant to the New Employment Agreement, the Company
has agreed to employ Mr. Kathwari as Chairman, Chief Executive Officer and
President of the Company and Ethan Allen for a period of five years commencing
July 1997 with two one-year extensions exercisable with the agreement of
Mr. Kathwari and the Company. Pursuant to the terms of the New Employment
Agreement, Mr. Kathwari will receive a base salary of $700,000 per year, subject
to increase annually upon the review and recommendation of the Compensation
Committee, with automatic annual cost-of-living increases.
Under the terms of the Prior Employment Agreement, Mr. Kathwari was entitled
to an annual incentive bonus based on the Company's EBITDA (as described in the
Prior Employment Agreement). For the first twelve month period of
Mr. Kathwari's Prior Employment Agreement, if the Company's EBITDA was less than
$53 million, he received no incentive bonus. If the Company's EBITDA equaled
$53 million, he was paid an incentive bonus of $135,000. If the Company's EBITDA
exceeded $53 million, his incentive bonus was increased proportionately up to an
amount equivalent to his base salary, payable when EBITDA equaled or exceeded
$90 million; however, his incentive bonus did not exceed $450,000 for the first
twelve month period. This incentive bonus and bonus ceiling arrangement were
subject to modification annually based upon the Company's EBITDA projections or
upon agreement of the Compensation Committee and Mr. Kathwari.
Pursuant to the terms of the New Employment Agreement, Mr. Kathwari will be
entitled to an annual incentive bonus based upon the Company's Operating Income
(as described in the New Employment Agreement). If the Company's Operating
Income is $40 million or less, he will receive no incentive bonus. If the
Company's Operating Income exceeds $40 million, his incentive bonus will be
equal to 2% of the amount by which Operating Income exceeds $40 million. This
Operating Income threshold will be increased after fiscal 1998 by 10% each year.
In addition, in the event the Company consummates a major acquisition, the
Company and Mr. Kathwari have agreed that they will negotiate in good faith for
an appropriate revision to this threshold in order to properly implement its
purposes.
Under the Prior Employment Agreement, Mr. Kathwari was to receive during the
term of employment ten-year stock options to acquire 60,000 shares at an
exercise price equal to the then current market price, resulting in total stock
options to Mr. Kathwari to acquire 300,000 shares of Common Stock during the
term of the Prior Employment Agreement. Generally, one-third of the stock
options was to vest each year following the grant. Pursuant to action of the
Compensation Committee on August 8, 1995, that grant was amended so that all
remaining stock options were granted as of that date at an exercise price equal
to the market price as of August 8, 1995. Pursuant to the two-for-one split of
the Company's Common Stock on September 2, 1997, and the three-for-two split of
the Company's Common Stock on May 21, 1999 (each, a "Stock Split" and
collectively, the "Stock Splits"), this option was converted to an option to
purchase 900,000 shares. The vesting provisions were amended so that one-seventh
of the total original grant vested on July 27, 1994, with an additional
one-seventh of the total original grant vesting on each successive July 27, up
to and including July 27,2000. Accordingly, six-sevenths of such stock options
have vested as of June 30, 2000.
Pursuant to the New Employment Agreement, Mr. Kathwari was granted, as of
September 19, 1997, additional ten-year stock options to purchase 1,500,000
shares (as adjusted for the May 21, 1999 Stock Split), of which the options to
purchase 750,000 shares will be exercisable at the market price for the Common
Stock on September 19,1997 (as adjusted for the May 21, 1999 Stock Split) and
the options to purchase the remaining 750,000 shares will be exercisable at a
30% premium to the market price for the Common Stock on September 19, 1997 (as
adjusted for the May 21, 1999 Stock Split). Each set of options vested at a rate
of one-third each year following the date of grant, up to and including
September 19, 2000. Accordingly, two-thirds of such stock options have vested as
of June 30, 2000. All options were granted pursuant to the Company's 1992 Stock
Option Plan.
Under the Prior Employment Agreement, Mr. Kathwari received during the term
thereof each year as of July 27, 1994, and each successive July 1, up to and
including July 1, 1998, 10,000 shares of "restricted"
11
stock, and he received on July 1, 1998, 30,000 shares (as adjusted for the Stock
Splits) of "restricted" stock, for a total of up to 150,000 shares (as adjusted
for the Stock Splits) under the Prior Employment Agreement. By action of the
Compensation Committee on August 2, 2000, the agreement pursuant to which the
restricted stock was granted was amended such that the Compensation Committee
had the discretion to deem vested 2,000 shares of "restricted" stock from the
July 1, 1997 grant.
Pursuant to the New Employment Agreement, the Company established a book
account for Mr. Kathwari, which will be credited with 21,000 Stock Units (as
adjusted for the May 21, 1999 Stock Split) as of July 1 of each year, commencing
July 1, 1997, for a total of up to 105,000 Stock Units over the term of the New
Employment Agreement, with an additional 21,000 Stock Units to be credited in
connection with each of the two one-year extensions. Following the termination
of Mr. Kathwari's employment, Mr. Kathwari will receive shares of Common Stock
equal to the number of Stock Units credited to the account. During the period in
which Stock Units are credited to the account, Mr. Kathwari will receive
dividend equivalent payments in cash equal to the dividends payable on the
shares of Common Stock represented by the Stock Units. The options and the
restricted stock will become fully vested upon the occurrence of a Change in
Control of the Company (as defined in the New Employment Agreement).
In the event Mr. Kathwari's employment with the Company is terminated by
reason of death or disability, he (or his estate) will receive his base salary
plus his bonus through the end of the year, along with any deferred
compensation, unreimbursed expenses, insurance proceeds and other payments in
accordance with Company practices. If Mr. Kathwari's employment is terminated by
the Company without "cause" or by Mr. Kathwari "for good reason", he will
receive the same his base salary through the end of the term of the agreement, a
payment equal to the lesser of $1 million or the bonus payments for two years
calculated by reference to the highest bonus previously paid to him, and he will
be entitled to settlement of the Stock Unit awards in Common Stock through the
remainder of the full term of the New Employment Agreement and stock options,
exercisable within three years after termination. If Mr. Kathwari's employment
is terminated by the Company for "cause" or voluntarily by Mr. Kathwari, he will
receive his base salary and bonus prorated through the date of termination,
along with any deferred compensation, unreimbursed expenses or any other payment
in accordance with Company practices. In connection with each of the foregoing
termination payments, Mr. Kathwari will be reimbursed for certain excise and
other taxes he is required to pay in respect of such payments. In fiscal 2000,
Mr. Kathwari received $726,823 in base salary, which represented an $15,210
increase from the prior fiscal year and was consistent with the terms of the New
Employment Agreement. Mr. Kathwari also received an annual incentive bonus in
fiscal 2000 of $2,027,000, dividend income of $10,080 from the Stock Units and
was deemed to have received $48,000 from the vesting of "restricted" stock. The
payment of the incentive bonus and dividend income, and the "deemed" vesting of
"restricted" stock, were effected in accordance with the terms of the New
Employment Agreement and the recommendation of the Compensation Committee as
described above. In fiscal 1999, Mr. Kathwari received $711,613 in base salary,
which represented an $11,613 increase from the prior fiscal year and was
consistent with the terms of the New Employment Agreement. Mr. Kathwari also
received an annual incentive bonus in fiscal 1999 of $1,851,000, dividend income
of $4,480 from the Stock Units and was deemed to have received $1,027,500 from
the vesting of "restricted" stock. The payment of the incentive bonus and
dividend income, and the "deemed" vesting of "restricted" stock, were effected
in accordance with the terms of the New Employment Agreement and the
recommendation of the Compensation Committee as described above. In fiscal 1998,
Mr. Kathwari received $700,000 in base salary, which represented a $150,000
increase from the prior fiscal year and was consistent with the terms of the New
Employment Agreement. Mr. Kathwari also received an annual incentive bonus in
fiscal 1998 of $1,670,000, dividend income of $1,540 from the Stock Units and
was deemed to have received $1,033,750 from the vesting of shares of
"restricted" stock. The incentive bonus and dividend income from the Stock Units
were paid pursuant to the terms of the New Employment Agreement and the
recommendation of the Compensation Committee as described in the paragraph
entitled "Bonuses" above.
12
The New Employment Agreement is effective through June 30, 2002, although it
may be extended for two additional one-year terms at the mutual agreement of
Mr. Kathwari and the Company. To assist in developing the terms of the New
Employment Agreement, the Compensation Committee retained an independent
compensation consultant, and met with such consultant over a period of three
months. In determining the level of compensation appropriate for Mr. Kathwari,
the Compensation Committee reviewed employment contracts of chief executive
officers in companies in the home furnishings industry of a size and complexity
comparable to the Company. In addition, the Compensation Committee and
Mr. Kathwari agreed to include a substantial incentive component in the New
Employment Agreement. As a result, the large part of Mr. Kathwari's potential
compensation is in the form of incentive stock options, restricted stock awards,
and a bonus based on the Company's performance.
TAX POLICY
Section 162(m) of the Code limits deductibility of annual compensation in
excess of $1 million paid to the Company's Chief Executive Officer and any of
the four other highest paid officers. However, compensation is exempt from this
limit if it qualifies as "performance based compensation." The Company submitted
the amendment of the Company's 1992 Stock Option Plan to stockholders, to allow
awards thereunder to qualify under the "performance-based compensation"
requirements. The Company also submitted the Incentive Performance Bonus
Provisions of the New Employment Agreement to stockholders to allow the bonus to
comply with the "performance-based compensation" requirements. Finally, the
stock unit awards under the New Employment Agreement are structured to satisfy
the requirements for deductibility.
Although the Compensation Committee will continue to consider deductibility
under Section 162(m) with respect to future compensation arrangements with
executive officers, deductibility will not be the sole factor used in
determining appropriate levels or methods of compensation. Since Company
objectives may not always be consistent with the requirements for full
deductibility, the Company may enter into compensation arrangements under which
payments are not deductible under Section 162(m).
CONCLUSION
The Compensation Committee believes that long-term stockholder value is
enhanced by corporate and individual performance achievements. Through the plans
described above, a significant portion of the Company's executive compensation
is based on corporate and individual performance, as well as competitive pay
practices. The Compensation Committee believes equity compensation, in the form
of stock options, restricted stock, and stock units is vital to the long-term
success of the Company. The Compensation Committee remains committed to this
policy, recognizing that the competitive market for talented executives and the
cyclical nature of the Company's business may result in highly variable
compensation for a particular time period.
EDWARD H. MEYER
KRISTIN GAMBLE
13
COMPARATIVE COMPANY PERFORMANCE
The following line graph compares cumulative total shareholder return for
the Company with a performance indicator of the overall stock market, the
Standard & Poor's 500 Index, and an industry index, the Peer Issuer Group Index,
assuming $100 was invested on June 30, 1995. Pulaski Furniture Corp., a company
whose stock was part of the Peer Issuer Group Index, has been excluded because
its stock is no longer listed on a U.S. stock exchange.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ETHAN ALLEN INTERIORS INC., THE S&P 500 INDEX
AND A PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
6/30/95 6/30/96 6/30/97 6/30/98 6/30/99 6/30/00
Ethan Allen Interiors Inc. 100 139 323 566 646 413
Peer Group 100 124 171 206 207 129
Standard & Poor's 500 100 126 170 221 271 291
06/30/1995 06/30/2006 06/30/1997 06/30/1998 06/30/1999 06/30/2000
---------- ---------- ---------- ---------- ---------- ----------
Ethan Allen Interiors Inc......... 100 139 323 566 646 413
Peer Group........................ 100 124 171 206 207 129
Standard & Poor's 500 Index....... 100 126 170 221 271 291
* $100 INVESTED ON 6/30/95 IN STOCK OR INDEX-INCLUDING REINVESTMENT OF DIVIDENDS
FISCAL YEAR ENDING JUNE 30.
- ------------------------
(1) Standard & Poor's 500 Index
(2) Peer Issuer Group which includes Bassett Furniture Industries, Inc.; Bush
Industries, Inc.; Chromcraft Revington, Inc.; DMI Furniture, Inc.; Flexsteel
Industries, Inc.; Furniture Brands International, Inc.; Haverty Furniture
Companies, Inc.; Heilig-Meyers Co.; La-Z Boy Inc.; LADD Furniture Inc.;
Legett & Platt, Inc.; and Pier 1 Imports Inc.
The returns of each company have been weighted according to each Company's
market capitalization.
OTHER MATTERS
PROXY SOLICITATION EXPENSE
The expense of the proxy solicitation will be paid by the Company. In
addition to the solicitation of proxies by use of the mails, solicitation also
may be made by telephone, telegraph or personal interview by
14
directors, officers and regular employees of the Company, none of whom will
receive additional compensation for any such solicitation. The Company has
engaged Morrow & Company, a professional proxy solicitation firm, to provide
customary solicitation services for a fee of $5,000 plus expenses. The Company
does not anticipate that the costs and expenses incurred in connection with this
proxy solicitation will exceed those normally expended for a proxy solicitation
for those matters to be voted on in the Annual Meeting. The Company will, upon
request, reimburse brokers, banks and similar organizations for out-of-pocket
and reasonable clerical expenses incurred in forwarding proxy material to their
principals.
STOCKHOLDER PROPOSALS
Proposals of stockholders must be received in writing by the Secretary of
the Company no later than 120 days in advance of the first anniversary of the
date of the mailing of this proxy statement in order to be considered for
inclusion in the Company's proxy statement and form of proxy relating to the
2001 Annual Meeting of Stockholders.
If a stockholder desires to submit a proposal for consideration at the 2001
Annual Meeting of Stockholders, written notice of such stockholder's intent to
make such a proposal must be given and received by the Secretary of the Company
at the principal executive offices of the Company either by personal delivery or
by United States mail not later than June 1, 2001. Each notice must describe the
proposal in sufficient detail for the proposal to be summarized on the agenda
for the Annual Meeting of Stockholders and must set forth: (i) the name and
address, as it appears on the books of the Company, of the stockholder who
intends to make the proposal; (ii) a representation that the stockholder is a
holder of record of stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at such meeting to present such
proposal; and (iii) the class and number of shares of the Company which are
beneficially owned by the stockholder. In addition the notice must set forth the
reasons for conducting such proposed business at the Annual Meeting of
Stockholders and any material interest of the stockholder in such business. The
presiding officer of the Annual Meeting of Stockholders will, if the facts
warrant, refuse to acknowledge a proposal not made in compliance with the
foregoing procedure, and any such proposal not properly brought before the
Annual Meeting of Stockholders will not be considered.
OTHER BUSINESS
The Board of Directors is not aware of any matters to be presented at the
Annual Meeting other than those enumerated in the Company's Notice enclosed
herewith. If any other matters do come before the meeting, it is intended that
the holders of the proxies will vote thereon in their discretion. Any such other
matters will require for its approval the affirmative vote of the majority in
interest of the stockholders present in person or by proxy at the Annual Meeting
where a quorum is present, or such greater vote as may be required by the
Company's Amended and Restated Certificate of Incorporation, the Company's
Amended and Restated By-laws or the General Corporation Law of the State of
Delaware.
By order of the Board of Directors,
Roxanne Khazarian
Secretary
Ethan Allen Interiors Inc.
Ethan Allen Drive
Danbury, Connecticut 06811
September 29, 2000
Each stockholder, whether or not he or she expects to be present in person at
the Annual Meeting, is requested to MARK, SIGN, DATE and RETURN THE ENCLOSED
PROXY CARD in the accompanying envelope as promptly as possible. A stockholder
may revoke his or her proxy at any time prior to voting.
15
EXHIBIT A
CHARTER OF THE AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS OF ETHAN ALLEN INTERIORS INC.
COMMITTEE CHARTER
ORGANIZATION
This charter governs the operations of the Audit Committee. The Committee
shall review and reassess the charter at least annually and obtain the approval
of the Board of Directors. The Committee shall be appointed by the Board of
Directors and shall comprise at least three directors, each of whom are
independent of management and the Company. Members of the Committee shall be
considered independent if they have no relationship that may interfere with the
exercise of their independence from management and the Company. All Committee
members shall be financially literate, or shall become financially literate
within a reasonable period of time after appointment to the Committee, and at
least one member shall have accounting or related financial management
expertise.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the Board of Directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function and the
annual independent audit of the Company's financial statements. In so doing, it
is the responsibility of the Committee to maintain free and open communication
between the Committee, independent auditors, the internal auditors and
management of the Company. In discharging its oversight role, the Committee is
empowered to investigate any matter brought to its attention with full access to
all books, records, facilities, and personnel of the Company and the power to
retain outside counsel, or other experts for this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the Audit Committee is to oversee the
Company's financial reporting process on behalf of the Board and report the
results of their activities to the Board. Management is responsible for
preparing the Company's financial statements, and the independent auditors are
responsible for auditing those financial statements. The Committee in carrying
out its responsibilities believes its policies and procedures should remain
flexible, in order to best react to changing conditions and circumstances. The
Committee should take the appropriate actions to set the overall corporate
"tone" for quality financial reporting and sound business risk practices.
The following shall be the principal recurring processes of the Audit
Committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the Committee may supplement them
as appropriate.
1. The Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the Board and the Audit Committee, as representatives of the
Company's shareholders. The Committee shall discuss with the auditors their
independence from management and the Company and the matters included in the
written disclosures required by the Independence Standards Board. At least
annually, the Committee shall review and recommend to the Board the
selecting of the Company's independent auditors, subject to shareholders'
approval.
2. The Committee shall discuss with the internal auditors and the independent
auditors the overall scope and plans for their respective audits including
the adequacy of staffing and compensation. Also, the
A-1
Committee shall discuss with management, the internal auditors, and the
independent auditors the adequacy and effectiveness of the accounting and
financial controls, including the Company's system to monitor and manage
business and financial risk. Further, the Committee shall meet separately
with the internal auditors and the independent auditors, with and without
management present, to discuss the results of their examinations.
3. The Committee shall review the interim financial statements with management
and the independent auditors prior to the filing of the Company's Quarterly
Report on Form 10-Q. Also, the Committee shall discuss the results of the
quarterly review and any other matters required to be communicated to the
Committee by the independent auditors under generally accepted auditing
standards. The chair of the Committee may represent the entire Committee for
the purposes of this review.
4. The Committee shall review with management and the independent auditors the
financial statements to be included in the Company's Annual Report on
Form 10-K (or the annual report to shareholders if distributed prior to the
filing of Form 10-K), including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of significant
judgments, and the clarity of the disclosures in the financial statements.
Also, the Committee shall discuss the results of the annual audit and any
other matters required to be communicated to the Committee by the
independent auditors under generally accepted auditing standards.
A-2
EXHIBIT B
REPORT OF THE AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS OF ETHAN ALLEN INTERIORS INC.
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the Committee
reviewed the audited financial statements in the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on conformity of those audited financial statements
with generally accepted accounting principles, their judgments as to the
quality, not just the acceptability, of the Company's accounting principles and
such other matters as are required to be discussed with the Committee under
generally accepted auditing standards. In addition, the Committee has discussed
with the independent auditors the auditors' independence from management and the
Company including the matters in the written disclosures required by the
Independence Standard Board.
The Committee discussed with the Company's internal and independent auditors
the overall scope and plans for their respective audits. The Committee met with
the internal and independent auditors, with and without management present, to
discuss the results of their examinations, their evaluations of the Company's
internal controls and the overall quality of the Company's financial reporting.
The Committee held four meetings during fiscal 2000.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended June 30, 2000 for filing with the Securities and Exchange
Commission. The Committee has also recommended, subject to Board and shareholder
approval, the selection of the Company's independent auditors.
HORACE G. McDONELL, CHAIRMAN
CLINTON A. CLARK
KRISTIN GAMBLE
WILLIAM W. SPRAGUE
B-1
PROXY ETHAN ALLEN INTERIORS INC. PROXY
ETHAN ALLEN DRIVE
DANBURY, CONNECTICUT 06811
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ETHAN ALLEN INTERIORS INC.
The undersigned hereby appoints the Chairman of the Board, President
and Chief Executive Officer, M. Farooq Kathwari and Directors, Horace G.
McDonell and Edward H. Meyer, of Ethan Allen Interiors Inc. (the "Company")
and each of them, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote as designated below, all the shares
of common stock of the Company held of record by the undersigned on
September 22, 2000 at the annual meeting of shareholders to be held
November 16, 2000 or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1-2.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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ETHAN ALLEN INTERIORS INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. / /
[ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" PROPOSALS 1-2. FOR WITHHOLD FOR AGAINST ABSTAIN
ALL ALL 2. PROPOSAL FOR RATIFICATION OF / / / / / /
1. ELECTION OF DIRECTORS -- / / / / KPMG LLP AS INDEPENDENT
NOMINEE: 01-WILLIAM W. SPRAGUE AUDITORS FOR THE 2001
FISCAL YEAR.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON YOUR SHARE
CERTIFICATES. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH
SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE YOUR FULL
TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER.
IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
_____________________________ DATED _______, 2000
SIGNATURE
_____________________________ DATED _______, 2000
SIGNATURE IF JOINTLY HELD
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TRIANGLE FOLD AND DETACH HERE TRIANGLE
YOUR VOTE IS IMPORTANT!
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY
IN THE ENCLOSED ENVELOPE.