SCHEDULE 14A INFORMATION
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Ethan Allen Interiors Inc.
(Name of Registrant as Specified in Its Charter)
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ETHAN ALLEN INTERIORS INC.
ETHAN ALLEN DRIVE
DANBURY, CONNECTICUT 06811
September 27, 1996
Dear Shareholder:
You are cordially invited to attend the 1996 Annual Meeting of Shareholders
of Ethan Allen Interiors Inc. This meeting will be held at Ethan Allen's World
Headquarters at Ethan Allen Drive, Danbury, Connecticut at 9:30 A.M. local time,
on Monday, November 4, 1996.
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,
/s/ Farooq Kathwari
M. FAROOQ KATHWARI
Chairman of the Board,
Chief Executive Officer and
President
ETHAN ALLEN INTERIORS INC.
ETHAN ALLEN DRIVE
DANBURY, CONNECTICUT 06811
------------------------
NOTICE OF 1996 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 office of the Corporation at the Ethan Allen World Headquarters at
Ethan Allen Drive, Danbury, Connecticut 06811 on Monday, November 4, 1996 at
9:30 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 Peat Marwick LLP as
independent auditors for the 1997 fiscal year;
3. Approval of an Amendment to the 1992 Stock Option Plan to increase by
600,000 the authorized shares reserved for use in connection with the Stock
Option Plan;
4. Such other business as may properly come before the meeting.
The Board of Directors has fixed September 20, 1996 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 27, 1996
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 1996 Annual Meeting
of Shareholders of the Company to be held on November 4, 1996 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 27,
1996.
VOTING SECURITIES; PROXIES; REQUIRED VOTE
VOTING SECURITIES
The Board of Directors has fixed the close of business on September 20, 1996
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 14,373,455 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, ratify the appointment of KPMG Peat Marwick LLP as
the independent auditors of the Company's consolidated financial statements for
the fiscal year ending June 30, 1997, and amend the 1992 Stock Option Plan.
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
1
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.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors is presently composed of seven 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 terms of the Directors in one
class, which is composed of three of the Directors, expire as of the Annual
Meeting.
Three Directors, Steven A. Galef, M. Farooq Kathwari and Horace G. McDonell,
are nominated for election at the Annual Meeting to terms as Directors for three
years. If for any reason the nominees become 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 nominees 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 1999
STEVEN A. GALEF, 56, was elected as a director of Ethan Allen on April 25,
1995. He has been associated with the New York City law firm of Wormser, Kiely,
Galef & Jacobs since 1965 and was made a partner in 1973. Wormser, Kiely, Galef
& Jacobs provides certain legal services for Ethan Allen. See "Certain
Transactions." He has been a director of Costa Cruise Lines N.V. since 1980 and
of Costa International B.V. since 1984. Mr. Galef has served as Vice-President
and Secretary of SCI Real Estate Inc. since 1984. Mr. Galef is also President
and director of S.A.R.L. de Gestion Pierre Cardin and President and Director of
Maxim's New York Restaurant Inc. In addition, he is an officer and director of
the Seafood Barge in Southhold, New York and he has served as Chairman of the
Board of the Westchester County Medical Society. He is a member of the
Compensation Committee.
M. FAROOQ KATHWARI, 52, 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 currently a director of the American Furniture Manufacturers
Association.
HORACE G. MCDONELL, 67, 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 presently serves as a director of Hubbell Inc. He is Chairman of the Audit
Committee.
2
DIRECTORS WHOSE PRESENT TERM WILL CONTINUE UNTIL 1998
CLINTON A. CLARK, 54, 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 childrens' apparel, which he founded in 1968. He is a
director of Silver Diner Development Inc., and Kerkendall, Krouse and Clark,
Inc. He is a member of the Audit Committee.
KRISTIN GAMBLE, 50, 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, 69, 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 Advertising Inc. Mr. Meyer joined Grey in 1956 and in 1964 was appointed
Executive Vice President for Account Services. He was elected President in 1968
and Chief Executive Officer and Chairman of Grey in 1970. Grey performs
advertising services for Ethan Allen. See "Certain Transactions". Mr. Meyer is a
Director of a number of outside business and financial organizations, including
The May Department Stores Company, Bowne & Co., Inc., Harman International
Industries, Inc. and 35 mutual funds advised by Merrill Lynch Asset Management,
Inc. He is chairman of the Compensation Committee.
DIRECTORS WHOSE PRESENT TERM WILL CONTINUE UNTIL 1997
WILLIAM W. SPRAGUE, 38, 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 International 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 a Director of CS Wireless Systems, Inc. and several other private
businesses. He is a member of the Audit Committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES
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 1996, there were four regularly scheduled meetings of the
Board of Directors. Average attendance at the aggregate number of Board and
Committee meetings was 96% in 1996 and no director attended fewer than 75% of
the aggregate number of meetings of the Board of Directors and committees on
which he or she served.
3
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, as well as
reviews and approves the scope, purpose and type of audit services to be
performed by the external auditors. The Audit Committee reviews internal
auditing and internal controls. No member of the Audit Committee may be an
employee of the Company or of Ethan Allen Inc. The Audit Committee held five
meetings during fiscal 1996.
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 1996.
DIRECTOR COMPENSATION
For Fiscal Year 1996, 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 and pursuant to such plan were awarded options in fiscal 1996 to
purchase 1,500 shares of Common Stock.
For fiscal year 1997, 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 1996. 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 1996. Mr. Meyer is Chairman and President of Grey Advertising, which
received approximately $540,000 in fees for the performance of advertising
services for Ethan Allen in fiscal 1996. Mr. Galef is a partner in Wormser,
Kiely, Galef & Jacobs which billed Ethan Allen in an amount of approximately
$1,773.50 for legal services performed in fiscal 1996.
Each of the directors of the Company have entered into indemnification
agreements with the Company in such a capacity.
4
EXECUTIVE OFFICERS
Set forth below is a description of the business experience of each
executive officer, other than Mr. Kathwari of the Company:
BARBARA MCGILL, 49, was appointed Vice President-Retail Division in 1994 and
made Vice President, General Manager of the Retail Division in June, 1996. In
this capacity she has been responsible for the overall supervision of the Ethan
Allen - owned retail stores. Ms. McGill joined Ethan Allen in 1978, left Ethan
Allen in 1988 to become Vice President of the Retail Division of Yield House, a
furniture retailer, and subsequently rejoined Ethan Allen as Vice President in
May 1989.
EDWARD P. SCHADE, 54, serves as Vice President and Treasurer. Mr. Schade
joined the Company in November 1989 and is responsible for treasury and investor
relations activities. Prior to joining the Company, he was Vice President and
Controller of Alexander & Alexander Services Inc., an insurance brokerage and
risk management company which he joined in March 1989. Prior to March 1989, he
was Vice President-Finance of Reichhold Chemicals, Inc., an intermediate
chemical company, and had previously been Corporate Controller of that company,
which he joined in May 1985.
THOMAS SWANSTON, 63, joined the Company as Vice President-Business
Development in July 1993. Mr. Swanston, who has over 30 years of experience in
the home furnishings industry, is responsible for Ethan Allen's dealer
relationships, store development and international marketing. Mr. Swanston
operated his own managerial consulting firm prior to joining Ethan Allen and has
held various management positions with home furnishings manufacturing companies
including Ethan Allen, where he previously served as Vice President of Marketing
from 1970 to 1975.
SECURITY OWNERSHIP OF COMMON STOCK OF CERTAIN OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 1996, information with
respect to beneficial ownership of the Common Stock on a fully-diluted basis in
respect of (i) each person who is the beneficial owner of more than 5% of any
class of the Company's voting securities, (ii) each director and executive
officer of the Company, and (iii) all officers and directors of the Company as a
group. Information presented reflects their share ownership on a fully-diluted
basis and assumes the outstanding Earn-In Warrants, Management Warrants,
Incentive Options and options granted under the 1992 Stock Option Plan are
exercised, whether or not currently vested, earned or exercisable.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)(2) OF CLASS
------------------- -------------------------- --------
M. Farooq Kathwari............................ 1,727,359(3) 11.41%
General Electric Capital Corporation.......... 1,146,905 7.58%
Fidelity Management & Research Company........ 1,014,000 6.70%
Chase Manhattan Bank.......................... 857,095 5.66%
Clinton A. Clark (4).......................... 20,943 *
Steven A. Galef............................... 2,500
Kristin Gamble................................ 9,100 *
Roxanne Khazarian............................. 4,000 *
Lenora W. Kirkley............................. 9,000 *
Horace G. McDonell............................ 12,500 *
Barbara McGill (5)............................ 24,076 *
Edward H. Meyer............................... 16,620 *
Edward P. Schade (5).......................... 16,416 *
William W. Sprague (5)........................ 7,333 *
Thomas R. Swanston (5)........................ 5,500 *
All officers and directors as a group......... 1,744,208 11.52%
(Footnotes on following page)
5
(Footnotes for preceding page)
- ------------
* Less than one percent
(1) For purposes of the columns, a person or group of persons is deemed to have
"beneficial ownership" of any shares as of a given date that such person
owned or has the right to acquire shares, irrespective of any conditions to
such right.
(2) Includes shares of Common Stock which may be acquired through the exercise
of Incentive Options, 1992 Options, Earned Warrants, Earned-In Warrants and
Management Warrants. The persons who have such options and warrants and the
number of shares which may be so acquired are as follows: Mr. Kathwari,
448,539; Mr. Clark, 20,943; Mr. Galef, 1,500; Ms. Gamble, 6,500; Ms.
Khazarian, 4,000; Ms. Kirkley, 9,000; Mr. McDonell, 6,500; Ms. McGill,
23,396; Mr. Meyer, 16,620; Mr. Schade, 9,382; Mr. Sprague, 4,000; Mr.
Swanston, 5,500; and all officers and directors as a group, 826,317.
(3) Includes (a) 639,617 shares owned by Mr. Kathwari (b) (i) 24,179 shares
issued to managers, (ii) 87,343 shares issuable upon exercise of the
Management Warrants issued to managers and (iii) 161,758 shares issuable
upon exercise of Incentive Options issued to managers, (c) 30,367 shares
issued to dealers and others subject to proxies granted to Mr. Kathwari
pursuant to the Dealer Letter Agreements; (d) 206,881 shares of the Ethan
Allen Retirement Plan which are also subject to proxies granted to Mr.
Kathwari; (e) 70,489 shares issuable upon exercise of Earn-In Warrants
transferred to the Ethan Allen Retirement Program, Mr. Kathwari, dealers and
Managers; and (h) 506,725 shares issuable upon exercise of stock options
granted under the Incentive Option and the 1992 Stock Option Plans, all of
which are subject to proxies granted pursuant to the Management Letter
Agreements.
(4) 20,943 of shares held by Mr. Clark are subject to the control of Mr.
Kathwari.
(5) Shares subject to the control of Mr. Kathwari. See Footnote 3.
PROPOSAL 2
RATIFICATION OF THE APPOINTMENT OF AUDITORS
Subject to shareholder ratification, the Board of Directors has appointed
KPMG Peat Marwick LLP as the independent auditors of the Company for the fiscal
year ending June 30, 1997. KPMG were the independent auditors for the Company
for the fiscal year ended June 30, 1996. Representatives of KPMG 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 PEAT MARWICK LLP AS INDEPENDENT AUDITORS FOR THE COMPANY FOR
THE FISCAL YEAR ENDING JUNE 30, 1997, WHICH IS DESIGNATED AS PROPOSAL NO.2 ON
THE ENCLOSED PROXY CARD.
6
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,
1996, 1995 and 1994. For a description of the terms of employment agreements,
option and restricted stock grants for the listed officers, see pages 9 through
12.
LONG TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION ---------------------------------------
NAME AND PRINCIPAL --------------- RESTRICTED SECURITIES UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS STOCK AWARDS OPTIONS/WARRANTS GRANTED COMPENSATION(1)
- ----------------------- ---- -------- -------- ------------ ------------------------ ---------------
M. Farooq Kathwari..... 1996 $475,000 $500,000 10,000 240,000 $17,793
Chairman of the Board 1995 450,000 248,811 10,000 60,000 4,920
of Directors, 1994 400,000 450,000 25,000 9,818
President and Chief
Executive Officer
Barbara McGill......... 1996 157,885 40,000 1,500 4,202
Vice President and 1995 145,800 38,000 1,500 2,019
General Manager, 1994 120,000 40,000 2,000 881
Retail Division
Thomas Swanston........ 1996 140,000 35,000 1,500 2,379
Vice President and 1995 140,000 27,000 -- 1,605
General Manager 1994 118,000 30,000 4,000 200
Business Development
Lenora W. Kirkley...... 1996 122,885 35,000 1,500 3,215
Vice President, 1995 111,850 30,000 1,000 1,902
Corporate 1994 99,900 30,000 2,500 199
Communications and
Advertising
Roxanne Khazarian...... 1996 125,000 30,000 -- 2,000 1,841
General Counsel and 1995 114,038 20,000 2,000 --
Secretary 1994 19,038 -- --
- ------------
(1) Includes contributions by Ethan Allen of $200 each pursuant to Ethan Allen's
401(k) Savings Plan plus amounts accruing to each individual as a
participant in the Company's Retirement Program.
(2) Ms. Khazarian joined the Company in April, 1994.
INCENTIVE STOCK OPTION GRANTS DURING FISCAL YEAR 1996
The following table sets forth information concerning grants of incentive
options to the named executive officers during the fiscal year ended June 30,
1996.
POTENTIAL
REALIZED
VALUE
AT ASSUMED
ANNUAL
RATES OF
INDIVIDUAL GRANTS (1) STOCK
----------------------------------- PRICE
% OF TOTAL APPRECIATION
NUMBER OPTIONS FOR
OF SHARES AWARDED TO EXERCISE OPTION
UNDERLYING EMPLOYEES OR BASE TERM
SECURITIES OPTIONS IN FISCAL PRICE PER EXPIRATION ----------
AWARDED TO AWARDED YEAR SHARE DATE(2) 5% 10%
- --------------------------------- ---------- ---------- --------- ---------- ---------- ----------
M. Farooq Kathwari............... 240,000 83.7% $ 19.00 8/08/05 $2,514,057 $6,192,241
Barbara McGill................... 1,500 0.5% 19.00 8/08/05(2) 15,713 38,702
Thomas Swanston.................. 1,500 0.5% 19.00 8/08/05(2) 15,713 38,702
Lenora W. Kirkley................ 1,500 0.5% 19.00 8/08/05(2) 15,713 38,702
Roxanne Khazarian................ 2,000 0.7% 19.00 8/08/05(2) 20,950 51,602
(Footnotes on following page)
7
(Footnotes for preceding page)
- ------------
(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 August 8, 2005 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 Management Warrants outstanding as of the end of
fiscal 1996, and the value of any unexercised in-the-money Incentive Options,
1992 Options, Earn-In Warrants and Management Warrants outstanding at such time
(assuming a stock price of $24.75 per share at June 28, 1996), held by the named
executive officers. In connection with an initial public offering and
recapitalization in 1993 ("Recapitalization"). General Electric Capital
Corporation and Smith Barney Inc. held 133,333 Exchange Note Warrants, subject
to certain stock performance criteria. Such criteria were met as of May 6, 1994
and the 133,333 Exchange Note Warrants ("Earned Warrants") were transferred to
the Company, which in turn allocated such warrants to Ethan Allen's managers and
employees, subject to a three-year service vesting requirement.
NUMBER OF
SECURITIES UNDERLYING VALUE OF
UNEXERCISED INCENTIVE UNEXERCISED IN-THE MONEY
OPTIONS INCENTIVE OPTIONS, MANAGEMENT
MANAGEMENT WARRANTS, EARN-IN WARRANTS, EARN-IN WARRANTS
SHARES ACQUIRED VALUE WARRANTS AT JUNE 30, 1996 AND 1992 STOCK OPTIONS
ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
--------------- -------- ---------------------------- -----------------------------
M. Farooq Kathwari
Exercisable........ 65,648 $731,930 144,611 $ 1,858,330
Unexercisable...... -- -- 303,929 1,720,300
Barbara McGill
Exercisable........ -- -- 19,772 259,824
Unexercisable...... -- -- 3,625 20,156
Thomas Swanston
Exercisable........ -- -- 2,000 11,250
Unexercisable...... -- -- 3,500 19,875
Lenora W. Kirkley
Exercisable........ 3,718 74,667 4,833 35,844
Unexercisable...... -- -- 4,167 25,094
Roxanne Khazarian
Exercisable........ -- -- 500 2,625
Unexercisable...... -- -- 3,500 19,375
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 11 to "Notes to Consolidated Financial Statements." The
Company has registered shares of Common Stock issuable upon exercise of such
options and warrants in the near future.
8
RETIREMENT AND 401(K) SAVINGS PLAN
Ethan Allen has established the Ethan Allen Profit Sharing and 401(k)
Employee Savings Plan (the "Retirement Plan"). The Retirement Plan was
established effective July 1, 1994 as a result of the merger of separate Ethan
Allen Profit Sharing and 401(k) Plans. The Retirement Plan covers all employees
who have completed at least one year of service. The 401(k) aspect of the
Retirement Plan allows participants to defer up to 15% of their compensation,
subject to certain statutory limitations. The Company contributes $0.50 for each
$1.00 of a participant's before tax contribution, up to a maximum of $400
annually. Ethan Allen offers several different investment options to the
participants in the 401(k) aspect of the Retirement Plan. During fiscal year
1996 the Company made a contribution of $200 to the 401(k) aspect of the
Retirement Plan for each of the above named executive officers.
The profit-sharing portion of the Retirement Plan is a defined contribution
plan for all full-time employees. Employees who have completed one year of
service are eligible to participate in the profit-sharing portion of the
Retirement 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 Retirement Plan is the vehicle for providing retirement income to
Ethan Allen employees.
Prior to November 1, 1988, employees must have had fifteen years of service
or be 55 years of age or older to be fully vested under the Retirement Plan.
Vesting for participants under 55 years of age began at the end of the fifth
year of service in the amount of 25% of the balance accrued. Thereafter,
employees vested at 5% per year for the next five years and at 10% per year for
the following five years. As of November 1, 1988, a new schedule was adopted by
Ethan Allen wherein employees under the age of 55 vest annually in 20%
increments starting upon their completing 1,000 hours of service during the
third year of service and continuing until the end of the seventh year of
service when they become fully vested. This change was made retroactive.
The Retirement Plan is administered by Ethan Allen Inc. with Twentieth
Century as Investment Managers and Recordkeeper. Investments offered include
fixed income securities, common stock (including employer common stock) and are
employee directed.
As of June 30, 1996, the estimated net present aggregate value of
contributions to the retirement programs for the above named executive officers
were: M. Farooq Kathwari $167,515; Barbara McGill $16,145, Thomas Swanston
$3,620, Lenora W. Kirkley $7,762, and Roxanne Khazarian $1,014.
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
1996. The Compensation Committee reviews and approves the remuneration
arrangements for the officers and directors of the Company, and 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, Ms. Kristin Gamble and Mr. Steven A. Galef.
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
9
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 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 1996, 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 $1,181,500 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 reflecting the
achievement of budgeted EBITDA, with the concurrence of the Compensation
Committee, but in no event to exceed a total equivalent to base salary unless a
different amount is agreed upon by the Committee. In light of the Company's
performance for fiscal year 1996, the Committee recommended and agreed to a
bonus of $500,000.
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 stockholder's 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 1996
As of July 1, 1994, Mr. Kathwari and the Company entered into an employment
agreement (the "Employment Agreement"). Pursuant to the 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 1994. Mr. Kathwari will receive a base salary of $450,000 per
year, subject to increase annually upon the review and recommendation of the
Compensation Committee, with automatic annual cost-of-living increases.
10
Under the Employment Agreement, Mr. Kathwari will also be entitled to an
annual incentive bonus based on the Company's EBITDA (as defined in the
employment agreement). For the first twelve month period of Mr. Kathwari's
employment arrangement, if the Company's EBITDA is less than $53 million, he
will receive no incentive bonus. If the Company's EBITDA equals $53 million, he
will be paid an incentive bonus of $135,000. If the Company's EBITDA exceeds $53
million, his incentive bonus will increase proportionately up to an amount
equivalent to his base salary, payable when EBITDA equals or exceeds $90
million; however, his incentive bonus will not exceed $450,000 for the first 12
month period. This incentive bonus and bonus ceiling arrangement will be subject
to modification annually based upon the Company's EBITDA projections or upon
agreement of the Compensation Committee and Mr. Kathwari.
Under the Employment Agreement, Mr. Kathwari was to receive during the term
thereof as of July 27, 1994, and each successive July 1 thereafter 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
full five year term of the Employment Agreement. Generally, one-third of each
stock option was to vest each year following the grant. Pursuant to action of
the Compensation Committee on August 8, 1995, that grant has been 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. Generally, one seventh of
the total grant of 300,000 options shall vest as of July 27, 1994 and each of
the next six years. These options will be granted pursuant to the Company's 1992
Stock Option Plan. Mr. Kathwari will also receive during the term of his
Employment Agreement 10,000 shares of "restricted" Common Stock each year as of
July 1, up to 50,000 shares in total during the full five year term of the
Employment Agreement. These shares of "restricted" stock are subject to being
earned in accordance with a formula that measures the Company's total return to
stockholders as compared to the total return to stockholders of companies
included in The Standard & Poors 500 index.
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
through the end of his term of employment 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 payments set forth in the
immediately preceding sentence, except that the amount of the bonus payment will
be the bonus payments for two years up to $1 million calculated by reference to
the highest bonus previously paid to him, and he will be entitled to the
"restricted" Common Stock through the remainder of the full five year term of
the Employment Agreement and stock options equal to the greater of the vested
options or 150,000 options, exercisable within three years of 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 1996, Mr. Kathwari received $475,000 in base
salary, which represented a $25,000 increase from the prior fiscal year and was
consistent with the terms of the Employment Agreement. Mr. Kathwari also
received an annual incentive bonus in fiscal 1996 of $500,000. The incentive
bonus was paid pursuant to the terms of the Employment Agreement and the
recommendation of the Compensation Committee as described in the paragraph
entitled "Bonuses" above. In fiscal 1995, Mr. Kathwari received $450,000 in base
salary, which represented a $50,000 increase from the prior fiscal year and was
the increase required under the terms of the Employment Agreement. Mr. Kathwari
also received an annual incentive bonus in fiscal 1995 of $248,811. The
incentive bonus was paid pursuant to the terms of the Employment Agreement and
calculated based on the formula set out in the paragraph entitled "Bonuses"
above.
11
Mr. Kathwari also received stock options to acquire 240,000 shares of Common
Stock in fiscal 1996 and 60,000 shares of Common Stock in fiscal 1995.
The employment agreement is effective through June 30, 1999. To assist in
developing the terms of the 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 his 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.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation in excess of $1
million paid to a company's Chief Executive Officer and four other most highly
compensated executive officers. Qualifying performance-based compensation is not
subject to the deduction limit if certain requirements are met. For 1993, 1994
and 1995 the Compensation Committee does not contemplate that there will be
nondeductible compensation for the five Company positions in question. The
Compensation Committee plans to review this matter for 1996 and take such action
as is necessary to comply with statute and avoid nondeductible compensation
payments.
EDWARD H. MEYER
KRISTIN GAMBLE
STEVEN A. GALEF
12
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 March 16, 1993.
COMPARISON OF CUMULATIVE TOTAL RETURN
$180
160
140
[GRAPH]
120
100
80
60
3/16/93 12/31/93 6/30/94 12/31/94 6/30/95 12/31/95 6/30/96
- ----[ ]---- Ethan Allen Interiors
----[ ]---- Peer Issuer Group
--[ ]-- Standard & Poor's 500 Index
Ethan Allen Peer Group S&P 500
3-16-93 100 100 100
12-31-93 173.61 112.02 109.04
6-30-94 113.03 89.02 105.29
12-31-94 134.72 80.51 111.49
6-30-95 98.61 82.90 132.33
12-31-95 113.19 87.91 148.63
6-30-96 137.50 103.03 164.24
ASSUMES $100 INVESTED ON MARCH 16, 1993 IN COMPANY COMMON STOCK, STANDARD &
POOR'S 500 INDEX (1), AND PEER ISSUER GROUP INDEX (2), ASSUMES REINVESTMENT OF
DIVIDENDS.
- ------------
(1) Standard & Poor's 500 Index.
(2) Peer Issuer Group which index includes Ameriwood Industries Corp., Bassett
Furniture Industries, Inc., Bush Industries, Chormcraft Revington, Inc., DMI
Furniture, Inc., Flexsteel Industries, Inc., Furniture Brands International,
Haverty Furniture Companies, Inc., Heilig-Meyers Co., La-Z-Boy Chair Co., LADD
Furniture Inc., Leggett & Platt Inc., Pier 1 Imports Inc. and Pulaski Furniture
Corp.
The returns of each company have been weighted according each company's market
capitalization.
13
PROPOSAL 3
AMENDMENT TO THE 1992 STOCK OPTION PLAN
The Company's Board of Directors has recommended, and at the meeting the
stockholders will be asked to approve, an amendment to the Company's 1992 Stock
Option Plan (the "Stock Option Plan") to increase by 600,000 the number of
authorized shares reserved for use in connection with the Stock Option Plan.
Approval of this action requires the affirmative vote of a majority of the
shares of Common Stock issued and outstanding and entitled to vote on the
election of directors.
Section 5 of Stock Option Plan provides that shares of common stock, .01 par
value, of the Company ("Common Stock") shall be available for awards under the
Plan. To the extent provided by resolution of the Company's Board of Directors,
such shares may be uncertificated. Subject to certain specified adjustments, the
aggregate number of shares of Common stock currently available for awards under
the Stock Option Plan shall be equal to 580,199. To date the number of options
for shares of Common Stock awarded equals 509,925. An increase in the number of
shares available for issuance under the Stock Option Plan is necessary therefore
as almost all of the shares originally authorized for issuance have already been
issued or are subject to outstanding options.
The purpose of this amendment to the Stock Option Plan is to promote the
interests of the Company and its stockholders by increasing the proprietary and
vested interest of employees in the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE STOCK OPTION PLAN, WHICH IS DESIGNATED AS PROPOSAL NO. 3 ON THE ENCLOSED
PROXY CARD.
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 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 $3,500 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
1997 Annual Meeting of Stockholders.
If a stockholder desires to submit a proposal for consideration at the 1997
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 July 10, 1997. Each notice must describe
the proposal in sufficient detail for the proposal to be summarized on the
agenda for the Annual Meeting of
14
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 27, 1996
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
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1-3
For Withheld For All (Except Nominee(s) written below)
1. Election of Directors
Nominees: Steven A. Galef For Against Abstain
M. Farooq Kathwani / / / / / /
Horace G. McDonell For Against Abstain
/ / / / / /
2. Proposal for ratification of KPMG Peat For Against Abstain
Marwick as Independent Auditors for the / / / / / /
1997 fiscal year. For Against Abstain
/ / / / / /
3. Proposal to approve amendment to the For Against Abstain
1992 Stock Option Plan to increase by / / / / / /
600,000 the authorized shares reserved For Against Abstain
for use in connection with the Stock / / / / / /
Option Plan
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___________, 1996
Signature
_____________________________________________ Dated___________, 1996
Signature if Jointly Held
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
PROXY
ETHAN ALLEN INTERIORS INC.
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 20, 1996 at the annual
meeting of shareholders to be held November 4, 1996 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 PROPOSAL 1-3.
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.)