<PAGE>
--------------------------------------------------------------------------------
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or 240.14a-12
Fonix Corporation
................................................................................
(Name of Registrant as Specified in Charter)
................................................................................
(Name of Person(s) Filing Proxy Statement If Other Than The Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
...............................................................
2) Aggregate number of securities to which transaction applies:
...............................................................
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
...............................................................
5) Total fee paid:
...............................................................
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form of Schedule and the date of its filing.
1) Amount Previously Paid:.......................................
2) Form, Schedule or Registration Statement No...................
3) Filing Party:.................................................
4) Date Filed:...................................................
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<PAGE>
Fonix Corporation
1225 Eagle Gate Tower
60 East South Temple Street
Salt Lake City, Utah 84111
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 28, 2000
To the Shareholders:
Notice is hereby given that the Annual Meeting of the Shareholders of
Fonix Corporation (the "Company") will be held at the San Jose Hilton Hotel and
Tower, 300 Almaden Boulevard, San Jose, California, 95110, on Thursday,
September 28, 2000, at 10:00 a.m., P.D.T., for the following purposes, which are
discussed in the following pages and which are made part of this Notice:
1. To elect five directors, each to serve until the next annual
meeting of shareholders and until his or her successor is
elected and shall qualify;
2. To approve the Board of Directors' selection of Arthur
Andersen LLP as the Company's independent public accountant
for the fiscal year ending December 31, 2000; and
3. To consider and act upon any other matters that properly may
come before the meeting or any adjournment thereof.
The Company's Board of Directors has fixed the close of business on
Monday, August 21 , 2000, as the record date for the determination of
shareholders having the right to notice of, and to vote at, the Annual Meeting
of Shareholders and any adjournment thereof. A list of such shareholders will be
available for examination by a shareholder for any purpose germane to the
meeting during ordinary business hours at the offices of the Company at 1225
Eagle Gate Tower, 60 East South Temple Street, Salt Lake City, Utah 84111,
during the ten business days prior to the meeting.
You are requested to date, sign and return the enclosed proxy which is
solicited by the Board of Directors of the Company and will be voted as
indicated in the accompanying proxy statement and proxy. Your vote is important.
Please sign and date the enclosed Proxy and return it promptly in the enclosed
return envelope whether or not you expect to attend the meeting. The giving of
your proxy as requested hereby will not affect your right to vote in person
should you decide to attend the Annual Meeting. The return envelope requires no
postage if mailed in the United States. If mailed elsewhere, foreign postage
must be affixed. Your proxy is revocable at any time before the meeting.
By Order of the Board of Directors,
Thomas A. Murdock, Chief Executive Officer
Salt Lake City, Utah
August 24, 2000
<PAGE>
Fonix Corporation
1225 Eagle Gate Tower
60 East South Temple Street
Salt Lake City, Utah 84111
(801) 328-8700
-----------------------------------------------------
PROXY STATEMENT
-----------------------------------------------------
ANNUAL MEETING OF SHAREHOLDERS
The enclosed proxy is solicited by the Board of Directors of Fonix Corporation
("Fonix" or the "Company") for use in voting at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held at the San Jose Hilton Hotel and
Tower, 300 Almaden Boulevard, San Jose, California 95110, on Thursday, September
28, 2000, at 10:00 a.m., P.D.T., and at any postponement or adjournment thereof,
for the purposes set forth in the attached notice. When proxies are properly
dated, executed and returned, the shares they represent will be voted at the
Annual Meeting in accordance with the instructions of the shareholder completing
the proxy. If a signed proxy is returned but no specific instructions are given,
the shares will be voted (i) FOR the nominees for directors set forth herein,
and (ii) FOR approval of Arthur Andersen LLP as the Company's independent public
accountant for the fiscal year ending December 31, 2000. A shareholder giving a
proxy has the power to revoke it at any time prior to its exercise by voting in
person at the Annual Meeting, by giving written notice to the Company's
Secretary prior to the Annual Meeting or by giving a later dated proxy.
The presence at the meeting, in person or by proxy, of shareholders holding in
the aggregate a majority of the outstanding shares of the Company's Class A
common stock entitled to vote shall constitute a quorum for the transaction of
business. The Company does not have cumulative voting for directors; a plurality
of the votes properly cast for the election of directors by the shareholders
attending the meeting, in person or by proxy, will elect directors to office. A
majority of votes properly cast upon any question presented for consideration
and shareholder action at the meeting, other than the election of directors,
shall decide the question. Abstentions and broker non-votes will count for
purposes of establishing a quorum, but will not count as votes cast for the
election of directors or any other questions and accordingly will have no
effect. Votes cast by shareholders who attend and vote in person or by proxy at
the Annual Meeting will be counted by inspectors to be appointed by the Company
(the Company anticipates that the inspectors will be employees, attorneys or
agents of the Company).
The close of business on Monday, August 21 , 2000, has been fixed as the record
date for determining the shareholders entitled to notice of, and to vote at, the
Annual Meeting. Each share shall be entitled to one vote on all matters. As of
the record date there were 166,857,333 shares of the Company's Class A common
stock outstanding and entitled to vote. For a description of the principal
holders of such stock, see "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" below.
This Proxy Statement and the enclosed Proxy are being furnished to shareholders
on or about Thursday, August 24, 2000.
-----------------------------------------------------
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Company's Bylaws provide that the number of directors shall be
determined from time to time by the shareholders or the Board of Directors, but
that there shall be no less than three. Presently the Company's Board of
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Directors consists of five members, all of whom are nominees for reelection at
the Annual Meeting. Each director elected at the Annual Meeting will hold office
until a successor is elected and qualified, or until the director resigns, is
removed or becomes disqualified. Unless marked otherwise, proxies received will
be voted FOR the election of each of the nominees named below. If any such
person is unable or unwilling to serve as a nominee for the office of director
at the date of the Annual Meeting or any postponement or adjournment thereof,
the proxies may be voted for a substitute nominee, designated by the proxy
holders or by the present Board of Directors to fill such vacancy, or for the
balance of those nominees named without nomination of a substitute, or the Board
may be reduced accordingly. The Board of Directors has no reason to believe that
any of such nominees will be unwilling or unable to serve if elected as a
director.
The following information is furnished with respect to the nominees.
Stock ownership information is shown under the heading "Security Ownership of
Certain Beneficial Owners and Management" and is based upon information
furnished by the respective individuals.
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
THOMAS A. MURDOCK, Chairman of the Board and Chief Executive Officer. Mr.
Murdock, 57, is a co-founder of the Company and has served as an executive
officer and member of the Company's Board of Directors since June 1994. Mr.
Murdock was elected Chief Executive Officer in February 1999, and became
Chairman of the Board of Directors in March 1999. Mr. Murdock also has
served as President of Studdert Companies Corp. ("SCC"), an investment,
finance, and management firm based in Salt Lake City, Utah, since 1992.
Prior to 1999, Mr. Murdock served as Assistant to the Chairman and a
director of Synergetics, Inc., a research company located in Utah that
provided research and development services in connection with the Company's
automatic voice recognition and related technologies. For much of his
career, Mr. Murdock has been a commercial banker and a senior corporate
executive with significant international emphasis and experience. Mr.
Murdock also serves as a director of K.L.S. Enviro Resources, Inc.
("KLSE"), a company with a class of securities registered under Section 12
of the Securities Exchange Act of 1934 ("1934 Act").
ROGERD. DUDLEY, Executive Vice President, Chief Financial Officer, and
Director. Mr. Dudley, 47, is a co- founder of the Company and has served as
an executive officer and member of the Company's Board of Directors since
June 1994. Mr. Dudley is also executive vice president of SCC, a position
he has held since 1993. After several years at IBM in marketing and sales,
he began his career in the investment banking and asset management
industry. He has extensive experience in real estate asset management and
in project development. He also serves as an executive officer of an entity
which manages a foreign investment fund, and is a director of KLSE.
JOHN A. OBERTEUFFER, Ph.D., Vice President Technology and Director. Dr.
Oberteuffer, 59, has been a Director of the Company since March 1997 and
Vice President Technology since January 1998. He is the founder and
president of Voice Information Associates, Inc. ("VIA"), a consulting group
providing strategic technical, market evaluation, product development and
corporate information to the automatic speech recognition industry. In
addition, VIA publishes the monthly newsletter ASRNews. Dr. Oberteuffer is
also executive director of the American Voice Input/Output Society
("AVIOS"). He was formerly vice president, personal computer systems, of
Voice Processing Corp. (now merged with Voice Control Systems, Inc.), and
was founder and CEO of Iris Graphics, which was acquired by Seitex Corp.
Dr. Oberteuffer received his bachelor's and master's degrees from Williams
College, and his Ph.D. in Physics from Northwestern University, and was a
member of the research staff at Massachusetts Institute of Technology for
five years.
WILLIAM A. MAASBERG, Jr. Chief Operating Officer and Director. Mr. Maasberg, 60,
has been chief operating officer since March 2000 and a director of the
Company since September 1999. From December 1997 through February 1999, Mr.
Maasberg was a Vice President and General Manager of the AMS Division of
Eyring Corporation ("Eyring"). AMS is Eyring's multi-media electronic work
instruction software application. He
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<PAGE>
was also a co-founder and principal in Information Enabling Technologies,
Inc. ("IET"), and LIBRA Corporation ("LIBRA"), two companies focusing on
software application, and served in several key executive positions with
both IET and LIBRA from May 1976 through November 1997. Mr. Maasberg worked
for IBM Corporation from July 1965 through May 1976 in various capacities.
He received his B.S. degree from Stanford University in Electrical
Engineering, and his M.S. degree in Electrical Engineering from the
University of Southern California.
MARK S. TANNER, Director. Mr. Tanner, 45, became a director of the Company in
November 1999. Mr. Tanner is currently the chief financial officer and
senior vice president of finance and administration for Mrs. Field's
Original Cookies, Inc. Mr. Tanner spent nine years at PepsiCo, where he was
chief financial officer for Pepsi International's operations in Asia, the
Middle East, and Africa. He was vice president of strategic planning for
Pepsi North America, as well as chief financial officer for Pepsi North
America's Pepsi East Operations. Mr. Tanner also spent ten years with
United Technologies Corporation in various capacities, including director
of corporate development. Mr. Tanner holds a B.A. degree in economics from
Stanford University and an M.B.A. from the University of California at Los
Angeles.
Messrs. Murdock, Dudley, Oberteuffer, Maasberg and Tanner are nominees for
election to the Company's Board of Directors.
SIGNIFICANT EMPLOYEES AND CONSULTANTS
In addition to the officers and directors identified above, the Company expects
the following individuals to make significant contributions to the Company's
business:.
PAUL S. CLAYSON, 43, is Vice President of Strategic Business Development and has
been employed by the Company since June 1998. Mr. Clayson's career
experience has focused on strategically assessing markets, products and
services, opening and establishing those markets and building organizations
and management structures to support their growth. His work has spanned
multiple products, services and markets. He also served as a senior officer
and partner in a private asset management business in charge of general
management, marketing, sales, planning and product development functions.
His work included the creation of mutual funds, private asset funds for
publicly traded securities, and private investment portfolios. He also
served as a senior corporate officer for the Red Chip Review, which
publishes research on small cap publicly traded companies. He received his
education from the University of Utah and the University of Michigan.
DALE LYNN SHEPHERD, 40, is vice president of engineering and has been employed
by the Company since 1997. He was employed by Synergetics from 1992 to
March, 1997. Before his employment with Synergetics, he was employed with
Mentor Graphics, Inc., where he acted as a software systems architect in
automatic semiconductor design. Before Mentor Graphics, Inc., Mr. Shepherd
worked on a contract basis with Signetics, Inc. Mr. Shepherd graduated from
Brigham Young University with a Bachelor of Science Degree in Electrical
Engineering. He also received a Masters of Business Administration from
Brigham Young University.
R. BRIAN MONCUR, 40, is director of core technologies implementation and has
been with the Company since 1997. He was previously employed by Synergetics
from 1992 to March, 1997. Before his employment with Synergetics, he was
employed by Signetics, Inc. and Mentor Graphics, Inc., where he was a
senior process engineer and software development engineer. Mr. Moncur
graduated from Brigham Young University with a Bachelor of Science degree
in chemical engineering.
JAMES MARK HAMILTON, 40, is director of engineering and has been employed by the
Company since 1997. Previously, he was employed by Synergetics from 1996 to
March, 1997. He has been a project leader in
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<PAGE>
developing the Company's System Developer's Kit ("SDK") System and has
worked on the Company's portable voice project. Before his employment with
Synergetics, he was employed by Intelligent Technologies, Inc., where he
helped form the company and designed and developed the educational software
product called IntelliBots for Macintosh and Windows. Mr. Hamilton
graduated from Brigham Young University with a Bachelor of Science in
Electrical Engineering.
DOUG JENSEN, 39, is director of embedded product development and has been with
the Company since 1997. Previously, he was employed by Novell, Inc. as
strategic engineer between Novell and Intel Corporation. He also worked for
North American Phillips. Mr. Jensen graduated from Brigham Young University
with a Bachelor of Science Degree in Electrical Engineering.
CARL HAL HANSEN, 50, is an independent consultant and is co-inventor of the
Company's automated speech recognition technologies. He is chairman and CEO
of Synergetics, Inc., IMC2, and Adiva Corporation. For approximately 14
years, he was employed by Signetics, Inc. in various capacities, including
test equipment engineer, characterization engineer, product engineer, and
electronic specialist. He was involved in the design, fabrication and
release of layout design for PC boards and interfaces. In 1991, Mr. Hansen
founded Synergetics, Inc., where he continues to have direct leadership
with respect to new product development and engineering. IMC2 currently
provides consulting in research and development to the Company in the area
of ASR. Mr. Hansen holds a degree in electronics from the Utah Trade
Technical Institute of Provo, Utah.
TONY R. MARTINEZ, Ph.D., 42, is a senior consulting scientist for the Company's
neural network development. He is an associate professor of Computer
Science at Brigham Young University and currently heads up the Neural
Network and Machine Learning Laboratory in the Brigham Young University
Ph.D./MS program. His principal research is in neural networks, machine
learning, ASOCS, connectionist systems, massively parallel algorithms and
architectures, and non-von Neuman computing methods. He is associate editor
of the Journal of Artificial Neural Networks. Dr. Martinez received his
Ph.D. in computer science from the University of California at Los Angeles
in 1986.
KENNETH P. HITE, 34, is a consultant for the Company. He is developing the
pen-voice user interface for the Windows 98 platform which involves
integrating Fonix's HWR and ASR technologies for use in pen tablet
computers. He has 14 years programming experience and has worked on a
contract assignment for Modis Inc. He attended Northeastern University and
has taken courses in management information systems.
None of the executive officers or directors of the Company is related to any
other officer or director of the Company.
BOARD OF DIRECTORS MEETINGS, COMMITTEES AND DIRECTOR COMPENSATION
The Company's board of directors took action at six duly noticed
meetings of the Board during 1999. Each director attended (in person or
telephonically) at least 75% of the meetings of the Company's board of
directors. During 1999, the Company's board of directors had the following
committees: Audit Committee, comprised of Messrs. Dudley, Maasberg (as of
September 3, 1999) and Tanner (as of November 9, 1999); and Compensation
Committee, comprised of Messrs. Murdock, Maasberg (as of September 3, 1999) and
Tanner (as of November 9, 1999). These standing committees conducted meetings in
conjunction with meetings of the full board of directors The Company has no
standing nominating committee.
Prior to April 1996, the Company's directors received no compensation
for their service. The Company historically has reimbursed its directors for
actual expenses incurred in traveling to and participating in directors'
meetings, and the Company intends to continue that policy for the foreseeable
future. On April 30, 1996, the
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<PAGE>
Company's board of directors adopted, and the Company's shareholders
subsequently approved, the Company's 1996 Directors' Stock Option Plan (the
"Directors Plan"). Under the Directors Plan, members of the Board as constituted
on the date of adoption received options to purchase 200,000 shares of the
Company's common stock for each year (or any portion thereof consisting of at
least six months) during which such persons had served on the board for each of
fiscal years 1994 and 1995 and were granted 200,000 shares for each of fiscal
years 1996 through 1999, which options vest after completion of at least six
months' service on the Board during those fiscal years. These options have terms
of 10 years and terminate six months after the resignation of an optionee.
Similar grants have been made to the Company's directors under the Company's
1998 Stock Option Plan. Thus, under the Directors Plan and the 1998 Stock Option
Plan, during 1999, the Company granted stock options to members of the Board as
follows:
Stock Options Granted to Directors During 1999
<TABLE>
<CAPTION>
Shares Date Exercise Shares Vested
Name(1) Granted Granted Price Per Share at December 31, 1999
---- ------- ------- --------------- --------------------
<S> <C> <C> <C> <C>
William A. Maasberg, Jr. 200,000 09/03/99 $0.406 200,000
Mark S. Tanner 200,000 11/09/99 $0.406 200,000
</TABLE>
Compliance With Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who beneficially own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than 10% shareholders are required by regulation
of the Securities and Exchange Commission to furnish the Company with copies of
all Section 16(a) forms which they file. Based solely on its review of the
copies of such forms furnished to the Company during the fiscal year ended
December 31, 1998, the Company is aware of the following untimely filings:
Thomas A. Murdock, Roger D. Dudley and Stephen M. Studdert (the
"Guarantors") are in the process of preparing and filing Forms 5 for 1999. The
transactions to be reported include the sales by holders of shares pledged by
the Guarantors, as described below, about which the Guarantors were not aware
until after the Form 4 reporting deadline for such transactions had expired.
The Guarantors pledged shares of Fonix Class A common stock to
guarantee payment by the Company of certain expenses. Such pledged shares were
sold in the second quarter of 1999. The sales by the pledgee will be reported on
the Forms 5 to be filed by the Guarantors.
The Guarantors also pledged shares in connection with the Company's
offering of its Series C 5% Convertible Debentures. Such pledged shares were
sold during the second and third quarters of 1999. The sales by the pledgees
will be reported on Forms 5 to be filed by the Guarantors.
All sales of such pledged shares were conducted by third party pledgees
beyond the control of the Guarantors. As of the date of this proxy, the
Guarantors have not received a complete accounting of such sales.
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<PAGE>
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
This Executive Compensation Report discusses the Company's executive
compensation policies and the basis for the compensation paid to the Named
Executive Officers, including the person serving as its chief executive officer
during the year ended December 31, 1999.
Compensation Policy. The Committee's policy with respect to executive
compensation has been designed to:
o Adequately and fairly compensate executive officers in
relation to their responsibilities, capabilities and
contributions to the Company and in a manner that is
commensurate with compensation paid by companies of
comparable size or within the Company's industry;
o Reward executive officers for the achievement of
short-term operating goals and for the enhancement of
the long-term value of the Company; and
o Align the interests of the executive officers with
those of the Company's shareholders with respect to
short-term operating goals and long-term increases in
the price of the Company's common stock.
The components of compensation paid to executive officers consist of:
(a) base salary, (b) incentive compensation in the form of annual bonus payments
and stock options awarded by the Company under the Company's Stock Incentive
Plans and (c) certain other benefits provided to the Company's executive
officers. The Company's Compensation Committee is responsible for reviewing and
approving cash compensation paid by the Company to its executive officers and
members of the Company's senior management team, including annual bonuses and
stock options awarded under the Company's Stock Incentive Plans, selecting the
individuals who will be awarded bonuses and stock options under the Stock
Incentive Plans, and for determining the timing, pricing and amount of all stock
options granted thereunder, each within the terms of the Company's Stock
Incentive Plans.
The Company's executive compensation program historically has
emphasized the use of incentive-based compensation to reward the Company's
executive officers and members of senior management for the achievement of goals
established by the board of directors. The Company uses stock options to provide
an incentive for a substantial number of its officers and employees, including
selected members of management, and to reward such officers and employees for
achieving goals that have been established for the Company. The Company believes
its incentive compensation plan rewards management when the Company and its
shareholders have benefitted from achieving the Company's goals and targeted
research and development objectives, all of which the Compensation Committee
feels will dictate, in large part, the Company's future operating results. The
Compensation Committee believes that its policy of compensating officers and
employees with incentive-based compensation fairly and adequately compensates
those individuals in relation to their responsibilities, capabilities and
contribution to the Company, and in a manner that is commensurate with
compensation paid by companies of comparable size or within the Company's
industry.
Components of Compensation. The primary components of compensation paid
by the Company to its executive officers and senior management personnel, and
the relationship of such components of compensation to the Company's
performance, are discussed below:
o Base Salary. The Compensation Committee periodically reviews and
approves the base salary paid by the Company to its executive officers
and members of the senior management team.
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Adjustments to base salaries are determined based upon a number of
factors, including the Company's performance (to the extent such
performance can fairly be attributed or related to each executive's
performance), as well as the nature of each executive's
responsibilities, capabilities and contributions. In addition, the
Compensation Committee periodically reviews the base salaries of its
senior management personnel in an attempt to ascertain whether those
salaries fairly reflect job responsibilities and prevailing market
conditions and rates of pay. The Compensation Committee believes that
base salaries for the Company's executive officers have historically
been reasonable in relation to the Company's size and performance in
comparison with the compensation paid by similarly sized companies or
companies within the Company's industry.
o Incentive Compensation. As discussed above, a substantial portion of
each executive officer's compensation package is in the form of
incentive compensation designed to reward the achievement of
short-term operating goals and long-term increases in shareholder
value. The Company's Stock Incentive Plans allow the Board of
Directors or the Compensation Committee to grant stock options to
executive officers and employees for the purchase of shares of the
Company's common stock. Under the terms of the Stock Incentive Plans,
the Board of Directors and the Compensation Committee have authority,
within the terms of the Stock Incentive Plans, to select the executive
officers and employees who will be granted stock options and to
determine the timing, pricing and number of stock options to be
awarded. The Compensation Committee believes that the stock options
granted under the Stock Incentive Plans reward executive officers only
to the extent that shareholders have benefitted from increases in the
value of the Company's common stock.
o Other Benefits. The Company maintains certain other plans and
arrangements for the benefit of its executive officers and members of
senior management. The Company believes these benefits are reasonable
in relation to the executive compensation practices of other similarly
sized companies or companies within the Company's industry.
Compensation of the Chief Executive Officer. As described elsewhere in
this proxy statement, the Company has entered into an executive employment
agreement with Mr. Murdock. The material terms of this executive employment
agreement are described above. The Compensation Committee believes that the
monthly compensation under such contract adequately and fairly compensates this
executive officer in relation to his respective responsibilities, capabilities,
contributions and dedication to the Company and secures for the Company the
benefit of his leadership, management and financial skills and capabilities.
Moreover, the Compensation Committee believes that the salary and other benefits
are reasonable in relation to the responsibilities, capabilities, contributions
and dedication of Mr. Murdock to the Company and are warranted to keep them in
line with the compensation earned by chief executive officers employed by
companies of comparable size or within the Company's industry.
Conclusion. The Compensation Committee believes that the concepts
discussed above further the shareholders' interests because a significant part
of executive compensation is based upon the Company achieving its marketing,
sales and product development goals and other specific goals set by the board of
directors. At the same time, the Compensation Committee believes that the
program encourages responsible management of the Company in the short-term. The
Compensation Committee regularly considers plan design so that the total program
is as effective as possible in furthering shareholder interests.
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<PAGE>
The Compensation Committee bases its review on the experience of its
own members, on information requested from management personnel, and on
discussions with and information compiled by various independent consultants
retained by the Company.
Respectfully submitted,
Compensation Committee:
Thomas A. Murdock
William A. Maasberg, Jr.
Mark S. Tanner
The following table sets forth information concerning the compensation paid to
all persons serving as the Company's Chief Executive Officer and the Company's
four most highly compensated executive officers other than its Chief Executive
Officer who were serving as executive officers at December 31, 1999, and whose
annual compensation exceeded $100,000 during such year (collectively the "Named
Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Securities
Other Underlying
Annual Options/
Name and Principal Position Year Salary Bonus SARs(2)
<S> <C> <C> <C> <C> <C>
Thomas A. Murdock (1) 1997 $305,385 -- 400,000/0
CEO (6/94 to 4/96 and 1998 $425,000 -- 550,000/0
1/26/99 - present) and 1999 $316,574 -- 0/0
President
Roger D. Dudley (1) 1997 $305,385 -- 400,000/0
Executive Vice President, Chief 1998 $425,000 -- 550,000/0
Financial Officer
(Effective 3/21/00) 1999 $317,764 -- 0/0
Douglas L. Rex 1998 $157,685 -- 200,000/0
Chief Financial officer 1999 $166,322 -- 0/0
(Through 3/21/00)
John A. Oberteuffer 1998 $203,941 -- 580,000/0
Vice President Technology 1999 $199,238 -- 0/0
</TABLE>
(1) The Company has executive employment agreements with Messrs. Murdock
and Dudley. The material terms of each executive employment agreement
with Messrs. Murdock and Dudley are
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<PAGE>
identical. The original term of each employment agreement was from
November 1, 1996 through December 31, 2001, but was amended, effective
January 31, 2000, to continue until December 31, 2005. Annual base
compensation for each executive under the amended agreement is
$309,400, subject to subsequent adjustments as approved by the board
of directors in future years. The amended agreement provides for
consideration of Incentive Bonuses, as deemed appropriate by the
Compensation Committee of the Company and grants each executive
options to purchase 1,400,000 shares of the Company's Class A common
stock at exercise price of $1.05 as compensation to induce the
executives to extend the amended contract term.
Each such executive officer also is entitled to customary insurance
benefits, office and support staff and the use of an automobile. In
addition, if any executive is terminated without cause during the
contract term then all salary then and thereafter due and owing under
the executive employment agreement shall, at the executive's option,
be immediately paid in a lump sum payment to the executive officer and
all stock options, warrants and other similar rights granted by the
Company and then vested or earned shall be immediately granted to the
executive officer without restriction or limitation of any kind.
Each executive employment agreement contains non-disclosure,
confidentiality, non-solicitation and non-competition clauses. Under
the terms of the non-competition clause, each executive has agreed
that for a period of one year after the termination of his employment
with the Company, the executive will not engage in any capacity in a
business which competes with or may compete with the Company.
(2) All options granted in 1999 and 1998 were granted pursuant to the
Company's 1998 Stock Option Plan. All options granted in 1997 were
granted pursuant to the Company's 1997 Stock Option Plan.
No options were granted to or exercised by the Named Executive Officers
during the fiscal year and no options held by them were in the money as of
December 31, 1999.
EMPLOYMENT CONTRACTS
The Company presently has executive employment agreements with each of
Messrs. Murdock and Dudley. The material terms of each executive employment
agreement with Messrs. Murdock and Dudley are identical. The original term of
each employment agreement was from November 1, 1996 through December 31, 2001,
but was amended, effective January 31, 2000, to continue until December 31,
2005. Annual base compensation under the amended agreement is $309,400, subject
to subsequent adjustments as approved by the board of directors in future years.
The amended agreement provides for consideration of Incentive Bonuses, as deemed
appropriate by the Compensation Committee of the Company and grants each
executive options to purchase 1,400,000 shares of the Company's Class A common
stock at exercise price of $1.05 as compensation to induce the executives to
extend the amended contract term. Messrs. Murdock and Dudley also are entitled
to customary insurance benefits, office and support staff and the use of an
automobile. In addition, if either of Messrs. Murdock or Dudley is terminated
without cause during the contract term then all salary then and thereafter due
and owing under the executive employment agreement shall, at the executive's
option, be immediately paid in a lump sum payment to the executive officer and
all stock options, warrants and other similar rights granted by the Company and
then vested or earned shall be immediately granted to the executive officer
without restriction or limitation of any kind. Each executive employment
agreement contains non-disclosure, confidentiality, non-solicitation and
non-competition clauses. Under the terms of the non-competition clause, each
executive has agreed that for a period of one year after the termination of his
employment with the Company, the executive will not engage in any capacity in a
business which competes with or may compete with the Company.
The Company also has an executive employment contract with Dr. Oberteuffer.
The term of the employment contract is from January 26, 1998, through January
31, 2001. Annual base salary is $225,000, with an annual
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performance review at which time the Company's board of directors may elect to
increase Dr. Oberteuffer's annual base salary for the next 12-month period. Dr.
Oberteuffer is entitled to participate, during the term of the employment
agreement, in all incentive, savings and retirement plans, practices, policies,
and programs available to other senior executives of the Company. Dr.
Oberteuffer is also entitled to be reimbursed for certain living accommodation,
commuting, and relocation expenses. Dr. Oberteuffer's employment agreement
contains restrictive clauses relating to confidential and proprietary business
information and trade secrets and non-competition and non-solicitation
agreements.
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<PAGE>
Stock Performance Graph
The graph below compares the yearly cumulative total returns from the Company's
common stock during the five fiscal year period ended December 31, 1999, with
the cumulative total return on the NASDAQ Market Index and the Standard
Industrial Classification (SIC) Code Index for that same period. The comparison
assumes $100 was invested on December 31, 1994, in the Company's common stock
and in the common stock of the companies in the referenced Indexes and further
assumes reinvestments of dividends.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
FONIX CORPORATION 100.00 236.97 527.61 185.13 79.38 17.77
SIC CODE INDEX 100.00 91.12 94.57 126.42 119.91 216.68
NASDAQ MARKET INDEX 100.00 129.71 161.18 197.16 278.08 490.46
</TABLE>
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 21, 2000, the number of
shares of Class A Common Stock of the Company beneficially owned by all persons
known to be holders of more than five percent (5%) of the Company's Class A
Common Stock and by the executive officers and directors of the Company
individually and as a group. Unless indicated otherwise, the address of the
stockholder is the Company's principal executive offices, 60 East South Temple
Street, Suite 1225, Salt Lake City, Utah 84111.
<TABLE>
<CAPTION>
Number of
Shares
Name and Address of 5% Beneficial Owners, Beneficially Percent of
Executive Officers and Directors Owned Class(1)
<S> <C> <C>
Thomas A. Murdock 11,920,984(2) 6.8%
Chairman of the Board and Chief
Executive Officer
Roger D. Dudley, 6,248,723(3) 3.6%
Executive Vice President,
Chief Financial Officer (Effective 3/21/00) ,
Director
John A. Oberteuffer, Ph.D., 1,310,000(4) *
Vice President, Director
600 West Cummings Park, Suite 4650
Woburn, MA 01801
Douglas L. Rex, Chief Financial Officer(5) 457,900(5) *
(Through 3/21/00)
William A. Maasberg Jr., Chief Operating Officer, 200,000(4) *
Director
Mark S. Tanner, Director 200,000(4) *
Officers and Directors as a Group (6 persons) 17,291,997 9.9%
</TABLE>
* Less than 1 percent.
(1) Percentages rounded to nearest 1/10th of one percent. Except as
indicated in the footnotes below, each of the persons listed exercises
sole voting and investment power over the shares of Common Stock listed
for each such person in the table.
(2) Includes 8,706,771 shares of Common Stock deposited in a voting trust
(the "Voting Trust") as to which Mr. Murdock is the sole trustee.
Persons who have deposited their shares of Common Stock into the Voting
Trust have dividend and liquidation rights ("Economic Rights") in
proportion to the number of shares of Common Stock they have deposited
in the Voting Trust, but have no voting rights with respect to such
shares. All voting rights associated with the shares deposited into the
Voting Trust are exercisable solely and exclusively by the Trustee of
the Voting Trust. The Voting Trust expires, unless extended according
to its terms, on the earlier
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<PAGE>
of September 30, 2002, or any of the following events: (i) the Trustee
terminates it; (ii) the participating shareholders unanimously
terminate it; or (iii) the Company is dissolved or liquidated. Although
as the sole trustee of the Voting Trust Mr. Murdock exercises the
voting rights of all of the shares deposited into the Voting Trust, and
accordingly has listed all shares in the table above, he has no
economic or pecuniary interest in any of the shares deposited into the
Voting Trust except for 2,848,415 shares as to which he directly owns
Economic Rights, and 185,793 shares the Economic Rights as to which are
owned by Studdert Companies Corp. ("SCC"), a corporation of which Mr.
Murdock is a 1/3 equity owner. Also includes 2,813 shares owned
directly by Mr. Murdock, 11,400 shares owned by a limited liability
company of which Mr. Murdock is a 1/3 equity owner and 3,200,000 shares
of Class A common stock underlying stock options owned by Mr. Murdock
and exercisable presently or within 60 days of August 21, 2000. This
calculation excludes 248,599 shares and options beneficially owned by
members of Mr. Murdock's family not residing in the same household, and
of which Mr. Murdock disclaims beneficial ownership.
(3) Includes (i) 2,848,417 shares owned by Mr. Dudley and deposited into
the Voting Trust, (ii) 185,793 shares owned by SCC as to which Mr.
Dudley shares investment power because of his management position with
and 1/3 ownership of SCC, which shares are deposited into the Voting
Trust; (iii) 2,813 shares owned directly by Mr. Dudley; (iv) 300 shares
owned by Mr. Dudley's minor children; (v) 11,400 shares owned by a
limited liability company of which Mr. Dudley is a 1/3 equity owner;
and (vi) 3,200,000 shares underlying stock options exercisable
presently or within 60 days of August 21, 2000. This calculation
excludes 17,000 shares and options beneficially owned by members of Mr.
Dudley's family not residing in the same household, and of which Mr.
Dudley disclaims beneficial ownership. Mr. Dudley became Chief
Financial Officer of the Company on March 21, 2000.
(4) Consisting of options which are presently exercisable.
(5) Includes (i) 2,400 shares owned by Mr. Rex's spouse; (ii) 500 shares
owned by an entity owned and controlled by him; and (iii) 455,000
shares underlying presently exercisable stock options. Mr. Rex is no
longer an officer of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Studdert Companies Corp. ("SCC")
SCC is a Utah corporation that provides investment and management
services. The officers, directors and owners of SCC are Stephen M. Studdert,
former chairman and CEO of the Company, and Thomas A. Murdock and Roger D.
Dudley, each of whom is currently a director and executive officer of the
Company, and a director nominee.
The Company subleases from SCC its corporate headquarters located at 60
East South Temple Street, Salt Lake City, Utah. The sublease is from month to
month pursuant to which the Company has agreed to pay the actual monthly rental
of $10,368 and all common area charges payable under the lease with SCC's
landlord.
Indemnity Agreement Related to Debenture Offering
In connection with the Company's January and March 1999 offering of its
debentures, Stephen M. Studdert, Thomas A. Murdock and Roger D. Dudley entered
into stock pledge agreements, whereby each personally guaranteed the performance
and obligations of the Company under the Debentures, and pledged 6,000,000
shares of common stock of the Company owned by them as security for their
obligations under the guaranty. The Company entered into an Indemnity Agreement
under which it agreed that, in the event of a default by the Company under the
terms of the debenture offering, if any or all of Messrs. Studdert, Murdock, or
Dudley were required to pay money or forfeit any of
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<PAGE>
their pledged shares, the Company would replace shares so forfeited and repay
the obligation and liability of each of Messrs. Studdert, Murdock, or Dudley by
paying cash in amounts equal to the out-of-pocket expenses of Messrs. Studdert,
Murdock, and Dudley. Additionally, the disinterested members of the Company's
board of directors agreed that, in consideration of the pledge, the Company
would issue to each of Messrs. Studdert, Murdock and Dudley warrants to purchase
666,666 shares of common stock at an exercise price of $1.59 per share. The
warrants have a 10- year term. Subsequently, Messrs. Studdert, Murdock and
Dudley agreed to indefinitely suspend their rights to receive these warrants.
However, subsequent to the March 1999 funding, the holders of the
debentures notified the Company and the Guarantors that the Guarantors were in
default under the terms of the pledge and that the holders intended to exercise
their rights to sell some or all of the pledged shares. The holders of the
debentures subsequently informed the Company and the Guarantors that the
6,000,000 pledged shares had been sold. Under its indemnity agreement with the
Guarantors, the Company issued 6,000,000 replacement shares to the Guarantors
for the shares sold by the holders of the debentures and to reimburse the
Guarantors for any costs incurred as a result of the holders' sales of the
Guarantors' shares. In 1999, the Company estimated and recorded expenses
amounting to $1,296,600 pursuant to the indemnity agreement
John A. Oberteuffer
In February 2000, the Company entered into an agreement to purchase
from John A. Oberteuffer, who is an executive officer and director of the
Company, all of Dr. Oberteuffer's rights and interests in certain methods and
apparatus for integrated voice and pen input for use in computer systems. As
payment for Dr. Oberteuffer's technology, the Company granted Dr. Oberteuffer
600,000 warrants to purchase the Company's Class A common stock at an exercise
price of $1.00 per share. The warrants expire February 10, 2010. Also, the
Company granted Dr. Oberteuffer the right to repurchase the technology from the
Company at fair market value if the Company subsequently determines not to
commercialize the pen/voice technologies or products.
Loans and Advances to the Company
During 1999, Messrs. Murdock, Dudley and Studdert advanced funds in the
aggregate amount of $317,159 related to sales of the Company's stock owned by
them that was pledged as collateral under certain borrowing agreements. The
balance was subsequently repaid in full. Also, Mr. Dudley advanced an additional
$68,691 to the Company for operating expenses, all of which was subsequently
repaid to him. There were no amounts owed to these individuals at December 31,
1999.
Stock Pledges for Payment of Legal Fees
The Company and Messrs. Murdock and Dudley entered into an agreement
with a New York law firm regarding payment of the Company's legal fees owed to
that firm. Under the agreement, Mr. Murdock, as trustee, entered into a stock
pledge agreement pledging 100,000 shares of the Company's common stock
beneficially owned by Messrs. Murdock and Dudley, and Messrs. Murdock and Dudley
guaranteed the full payment of the Company's legal fees to the law firm,
together with any other indebtedness of the Company to the law firm. At the time
Messrs. Murdock and Dudley agreed to guarantee the payment, the Company owed
fees in the approximate amount of $142,875 to the law firm. Subsequently, the
law firm sold the shares held as collateral to satisfy the outstanding
obligation. Messrs. Murdock and Dudley subsequently were reimbursed in cash for
the value of the shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE DIRECTOR
-----------------------------------------------------
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<PAGE>
PROPOSAL NO. 2 -- APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected the international
certified public accounting firm of Arthur Andersen LLP ("Arthur Andersen") as
the independent public accountants for the Company for the fiscal year ending
December 31, 2000. Arthur Andersen audited the Company's financial statements
for the fiscal years ended December 31, 1996, 1997, 1998 and 1999. Pritchett,
Siler & Hardy, P.C., served as the Company's independent public accountants for
the fiscal year ended December 31, 1995.
The Company engaged Pritchett, Siler & Hardy on February 9, 1995 to
provide outside accounting and auditing services for the Company related to the
1994 audit. At that time, the Pritchett, Siler & Hardy firm was named Peterson,
Siler & Stevenson. It subsequently changed its name to Pritchett, Siler & Hardy,
P.C., and that firm continued as the Company's independent accountant until
March 24, 1997.
There were no disagreements between the Company and Pritchett, Siler &
Hardy. That firm did, however, include in its Independent Auditors' Report for
the 1995 fiscal year an explanatory paragraph with respect to the Company being
in the development stage and its having suffered recurring losses which raise
substantial doubt about its ability to continue as a going concern.
The Company's decision to engage Arthur Andersen was approved by the
Company's Board of Directors. At the Annual Meeting, shareholders will be asked
to ratify the selection by the Board of Directors of Arthur Andersen as the
Company's independent public accountant for the 2000 fiscal year.
THE BOARD RECOMMENDS SHAREHOLDER APPROVAL OF THE SELECTION OF ACCOUNTANT
Representatives of Arthur Andersen are expected to attend the Annual
Meeting and will have an opportunity to make a statement if they desire to do
so, and they will be available to answer appropriate questions from
shareholders.
-----------------------------------------------------
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company does not intend to present and has not been informed that any other
person intends to present a matter for action at the Annual Meeting other than
as set forth herein and in the Notice of Annual Meeting. If any other matter
properly comes before the meeting, it is intended that the holders of proxies
will act in accordance with their best judgment.
The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company. In addition to the solicitation of proxies by mail,
certain of the officers and employees of the Company, without extra
compensation, may solicit proxies personally or by telephone, and, if deemed
necessary, third party solicitation agents may be engaged by the Company to
solicit proxies by means of telephone, facsimile or telegram, although no such
third party has been engaged by the Company as of the date hereof. The Company
will also request brokerage houses, nominees, custodians and fiduciaries to
forward soliciting materials to the beneficial owners of Common Stock held of
record and will reimburse such persons for forwarding such material. The cost of
this solicitation of proxies will be borne by the Company.
-----------------------------------------------------
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<PAGE>
ANNUAL REPORT
Copies of the Company's Annual Report on Form 10-K (including financial
statements and financial statement schedules) filed with the Securities and
Exchange Commission may be obtained without charge by writing to the Company -
Attention: Roger D. Dudley, 1225 Eagle Gate Tower, 60 East South Temple Street,
Salt Lake City, Utah 84111. A request for a copy of the Company's Annual Report
on Form 10-K must set forth a good-faith representation that the requesting
party was either a holder of record or a beneficial owner of common stock of the
Company on August 21, 2000. Exhibits to the Form 10-K, if any, will be mailed
upon similar request and payment of specified fees to cover the costs of copying
and mailing such materials.
A Copy of the Company's 1999 Annual Report to Shareholders is being
mailed with this Proxy Statement, but is not deemed a part of the proxy
soliciting material.
-----------------------------------------------------
SHAREHOLDER PROPOSALS
Any shareholder proposal intended to be considered for inclusion in the
proxy statement for presentation in connection with the 2000 Annual Meeting of
Shareholders must have been received by the Company by December 31, 1999. No
such proposals were received.
Any shareholder proposal intended to be considered for inclusion in the
proxy statement for presentation in connection with the 2001 Annual Meeting of
Shareholders must be received by the Company by December 31, 2000. The proposal
must be in accordance with the provisions of Rule 14a-8 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
The Company suggests that any such request be submitted by certified mail,
return receipt requested. The Board of Directors will review any proposal which
is received by December 31, 2000, and determine whether it is a proper proposal
to present to the 2001 Annual Meeting.
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<PAGE>
The enclosed Proxy is furnished for you to specify your choices with
respect to the matters referred to in the accompanying notice and described in
this Proxy Statement. If you wish to vote in accordance with the Board's
recommendations, merely sign, date and return the Proxy in the enclosed envelope
which requires no postage if mailed in the United States. A prompt return of
your Proxy will be appreciated.
By Order of the Board of Directors
Thomas A. Murdock, Chief Executive Officer
Salt Lake City, Utah
August 24, 2000
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<PAGE>
APPENDICES
1. FORM OF PROXY
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<PAGE>
PROXY
Fonix Corporation
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas A. Murdock and Roger D. Dudley and each
of them as Proxies, with full power of substitution, and hereby authorizes them
to represent and vote, as designated below, all shares of Common Stock of the
Company held of record by the undersigned at the Annual Meeting of Shareholders
to be held at the San Jose Hilton and Tower, 300 Almaden Boulevard, San Jose,
California, 95110, on Thursday September 28, 2000, at 10:00 a.m. E.D.T., or at
any adjournment thereof.
1. Election of Directors.
FOR WITHHOLD AS TO ALL FOR ALL EXCEPT
/ / / / / /
(INSTRUCTIONS: IF YOU MARK THE "FOR ALL EXCEPT" CATEGORY ABOVE, INDICATE THE
NOMINEE(S) AS TO WHICH YOU DESIRE TO WITHHOLD AUTHORITY BY STRIKING A LINE
THROUGH SUCH NOMINEE(S) NAME IN THE LIST BELOW:)
Thomas A. Murdock Roger D. Dudley
John A. Oberteuffer, Ph.D. William A. Maasberg, Jr.
Mark S. Tanner
2. To approve the Board of Directors' selection of Arthur Andersen LLP as
the Company's independent public accountant for the fiscal year ending
December 31, 2000.
FOR AGAINST ABSTAIN
/ / / / / /
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1 AND 2.
Please sign and date this proxy where shown below and return it promptly:
Date: , 2000
Signed:
SIGNATURE(S)
PLEASE SIGN ABOVE EXACTLY AS THE SHARES ARE ISSUED. WHEN SHARES ARE HELD BY
JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, AS EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE 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.
