SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
Vodavi Technology, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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:
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to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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<PAGE>
VODAVI TECHNOLOGY, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 19, 1997
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The Annual Meeting of Stockholders of Vodavi Technology, Inc., a
Delaware corporation (the "Company"), will be held at 9:00 a.m. on Monday, May
19, 1997, at the Company's corporate headquarters at 8300 East Raintree Road,
Scottsdale, Arizona 85260, for the following purposes:
1. To elect directors to serve until the next annual meeting of
stockholders and until their successors are elected and qualified.
2. To ratify the appointment of Arthur Andersen LLP as the
independent auditors of the Company for the fiscal year ending December 31,
1997.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the
Proxy Statement accompanying this Notice.
Only stockholders of record at the close of business on April 11,
1997 are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in
person. To assure your representation at the meeting, however, you are urged to
mark, sign, date, and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder of record
attending the meeting may vote in person even if he or she previously has
returned a proxy.
Sincerely,
Kent R. Burgess
Secretary
Scottsdale, Arizona
April 18, 1997
<PAGE>
VODAVI TECHNOLOGY, INC.
8300 East Raintree Drive
Scottsdale, Arizona 85260
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PROXY STATEMENT
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VOTING AND OTHER MATTERS
General
The enclosed proxy is solicited on behalf of Vodavi Technology, Inc., a
Delaware corporation (the "Company"), by the Company's board of directors (the
"Board of Directors") for use at the Annual Meeting of Stockholders to be held
on Monday, May 19, 1997 at 9:00 a.m. (the "Meeting"), or at any adjournment
thereof, for the purposes set forth in this Proxy Statement and in the
accompanying Notice of Annual Meeting of Stockholders. The Meeting will be held
at the Company's corporate headquarters at 8300 East Raintree Road, Scottsdale,
Arizona 85260.
These proxy solicitation materials were first mailed on or about April
18, 1997, to all stockholders entitled to vote at the Meeting.
Voting Securities and Voting Rights
Stockholders of record at the close of business on April 11, 1997 (the
"Record Date") are entitled to notice of and to vote at the Meeting. On the
Record Date, there were issued and outstanding 4,342,238 shares of the Company's
Common Stock, $0.001 par value per share (the "Common Stock").
The presence, in person or by proxy, of the holders of a majority of
the total number of shares of Common Stock outstanding constitutes a quorum for
the transaction of business at the Meeting. Each stockholder voting at the
Meeting, either in person or by proxy, may cast one vote per share of Common
Stock held on all matters to be voted on at the Meeting. Assuming that a quorum
is present, the affirmative vote of a majority of the shares of Common Stock of
the Company present in person or represented by proxy at the Meeting and
entitled to vote is required (i) for the election of directors, and (ii) for the
ratification of the appointment of Arthur Andersen LLP as the independent
auditors of the Company for the year ending December 31, 1997.
Votes cast by proxy or in person at the Meeting will be tabulated by
the election inspectors appointed for the Meeting and will determine whether 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 stockholders for a vote. If a broker indicates on the proxy
that it does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
Voting of Proxies
When a proxy is properly executed and returned, the shares it
represents will be voted at the Meeting as directed. If no specification is
indicated, the shares will be voted (i) "for" the election of the nominees set
forth in this Proxy Statement and (ii) "for" the ratification of the appointment
of Arthur Andersen LLP as the independent auditors of the Company for the year
ending December 31, 1997.
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Revocability of Proxies
Any person giving a proxy may revoke the proxy at any time before its
use by delivering to the Company written notice of revocation or a duly executed
proxy bearing a later date or by attending the Meeting and voting in person.
Solicitation
The cost of this solicitation will be borne by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for expenses incurred in forwarding
solicitation materials to such beneficial owners. Proxies also may be solicited
by certain of the Company's directors and officers, personally or by telephone
or telegram, without additional compensation.
Annual Report and Other Matters
The 1996 Annual Report to Stockholders, which was mailed to
stockholders with or preceding this Proxy Statement, contains financial and
other information about the activities of the Company, but is not incorporated
into this Proxy Statement and is not to be considered a part of these proxy
soliciting materials. The information contained in the "Compensation Committee
Report on Executive Compensation" and "Performance Graph" below shall not be
deemed "filed" with the Securities and Exchange Commission (the "SEC") or
subject to Regulations 14A or 14C or to the liabilities of Section 18 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company will provide upon written request, without charge to each
stockholder of record as of the Record Date, a copy of the Company's annual
report on Form 10-K for the year ended December 31, 1996 as filed with the SEC.
Any exhibits listed in the Form 10-K report also will be furnished upon request
at the actual expense incurred by the Company in furnishing such exhibits. Any
such requests should be directed to the Company's Secretary at the Company's
executive offices set forth in this Proxy Statement.
ELECTION OF DIRECTORS
Nominees
The Company's bylaws provide that the number of directors shall be
fixed from time to time by resolution of the Board of Directors or stockholders.
All directors are elected at each annual meeting of the Company's stockholders
until the next annual meeting of stockholders and until their successors are
elected and qualified.
A board of six directors is to be elected at the Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for each of the nominees named below. All of the nominees currently are
directors of the Company. In the event that any such nominee is unable or
declines to serve as a director at the time of the Meeting, the proxies will be
voted for any nominee designated by the current Board of Directors to fill the
vacancy. It is not expected that any nominee will be unable or will decline to
serve as a director. The term of office of each person elected as a director
will continue until the next annual meeting of stockholders or until a successor
has been elected and qualified.
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The following table sets forth certain information regarding the
nominees for directors of the Company:
Name Age Position
---- --- --------
Steven A. Sherman..................... 51 Chairman of the Board
Glenn R. Fitchet...................... 49 President, Chief Executive
Officer, and Director
Gilbert H. Engels..................... 68 Director
Stephen A McConnell................... 44 Director
Ki-Song Cho........................... 47 Director
William J. Hinz....................... 51 Director
Steven A. Sherman has served as Chairman of the Board of the Company
since March 1994. Mr. Sherman was a founder and served as the Chairman of the
Board of Vodavi Technology Corporation, a predecessor of the Company, from 1983
until July 1988 and served as a director of Executone Information Systems, Inc.
("Executone") from July 1988 until January 1990. Mr. Sherman has served as
Chairman of the Board and Chief Executive Officer of Novatel Wireless, Inc.
since August 1996. Mr. Sherman also has served as a director of Main Street and
Main Incorporated ("Main Street"), the world's largest franchisee of TGI
Friday's restaurants, since June 1990 and served as Chairman of the Board of
Main Street from June 1990 to August 1996 and as the Chief Executive Officer of
Main Street from June 1990 until January 1996. Mr. Sherman is a principal of the
Sherman Capital Group, L.L.C., a merchant banking organization which he founded
in July 1988.
Glenn R. Fitchet has served as President and a director of the Company
since April 1994 and as Chief Executive Officer of the Company since May 1996.
Mr. Fitchet was Vice President and General Manager of the Vodavi Division of
Executone from January 1990 until April 1994. Mr. Fitchet served as Vice
President - Marketing and Manufacturing of Executone from July 1988 until
January 1990 and as Vice President of Vodavi Technology Corporation from
September 1984 to July 1988. Mr. Fitchet also served as Vice President - Sales
and Marketing for Valcom, Inc. from December 1981 to August 1984 and as National
Sales Manager for Siemens Information Systems from July 1976 until December
1981.
Gilbert H. Engels has served as a director of the Company since January
1996. Mr. Engels currently is involved in commercial real estate development
activities. From 1991 to 1993, Mr. Engels served as President of the Government
and Institutional Systems Division of WilTel Communications Systems, Inc. Mr.
Engels served as a Senior Vice President of TIE Communications, Inc., from 1971
to 1992, and served as President and Chief Executive Officer of TIE
International, a division of TIE Communications, Inc., from 1971 to 1991 and as
President and Chief Executive Officer of TIE Canada from 1990 to 1992. Mr.
Engels was involved in sales and marketing activities in the telecommunications
industry from 1957 to 1993.
Stephen A McConnell has served as a director of the Company since
January 1996. Mr. McConnell currently serves as the principal of Solano
Ventures, an investment fund devoted to small- to mid-sized companies. In
addition, Mr. McConnell has served as Chairman of the Board of Mallco Lumber &
Building Materials since 1991. Mr. McConnell served as President of Belt Perry
Associates, Inc. from 1991 to 1995 and as President and Chief Executive Officer
of N-W Group, Inc., a publicly held company, from 1985 to 1991. Mr. McConnell
currently serves as a director of Consolidated Carma Corporation and Express
America Holdings Corp., both of which are publicly held companies. In addition,
Mr. McConnell currently serves as a director of several privately held
companies.
Ki-Song Cho has served as a director of the Company since April 1997.
Mr. Cho currently is President of North American Operations for LG Electronics
U.S.A., Inc., an affiliate of LG Electronics Inc. ("LGE"), which is a
significant stockholder of the Company. Mr. Cho also currently serves as a
director of LGE, LG Electronics U.S.A., Inc., LG Electronics Canada, Inc., LG
Electronics Mexico, Inc., LG Electronics Alabama, Inc., and Zenith Electronics,
Inc., an affiliate of LGE. Mr. Cho joined LGE in October 1977 and has served in
a number
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of capacities with LGE. LGE designated Mr. Cho to serve as a director of the
Company and its subsidiary, Vodavi Communications Systems, Inc., pursuant to its
rights under a stockholders' agreement among the Company and various
stockholders. See "Security Ownership of Principal Stockholders, Directors, and
Officers - Stockholders' Agreement."
William J. Hinz has served as a director of the Company since April
1997. Mr. Hinz has served as Executive Vice President of Operations and a
director of Stolper-Fabralloy Company, a precision aerospace engine component
manufacturer, since March 1996. Mr. Hinz was Vice President of Global Repair and
Overhaul Operations for AlliedSignal Aerospace Company from June 1994 until
March 1996. During this period, Mr. Hinz also was responsible for aerospace
aftermarket merger and acquisition activity. Mr. Hinz served as President of
European Operations for AlliedSignal Aerospace Company from December 1991 until
June 1994 and served in various other manufacturing management positions with
AlliedSignal Aerospace Company from 1968 to 1991.
Meetings and Committees of the Board of Directors
The Company's bylaws authorize the Board of Directors to appoint among
its members one or more committees composed of one or more directors. The Board
of Directors has appointed an Audit Committee, a Compensation Committee, and a
Senior Stock Option Committee. The Audit Committee reviews the annual financial
statements, the significant accounting issues, and the scope of the audit with
the Company's independent auditors and is available to discuss with the auditors
any other audit-related matters that may arise during the year. The Compensation
Committee reviews and acts on matters relating to compensation levels and
benefit plans for key executives of the Company. The Senior Stock Option
Committee administers the Company's Amended and Restated 1994 Stock Option Plan
with respect to the Company's executive officers, employee directors, and all
persons who own 10% or more of the Company's issued and outstanding Common
Stock. Messrs. McConnell, Engels, and Nam K. Woo, a former director of the
Company, served as the members of the Audit Committee of the Board of Directors
during 1996, with Mr. McConnell serving as Chair of the Audit Committee. Messrs.
McConnell, Engels, and Woo served as the members of the Compensation Committee
and the Senior Stock Option Committee of the Board of Directors during 1996,
with Mr. Engels serving as Chair of the Compensation Committee and the Senior
Stock Option Committee.
The Board of Directors of the Company held a total of four meetings
during the fiscal year ended December 31, 1996. The Company's Compensation
Committee held two formal meetings, and the Company's Audit Committee held five
formal meetings during the year ended December 31, 1996. No director attended
fewer than 75% of the aggregate of (i) the total number of meetings of the Board
of Directors, and (ii) the total number of meetings held by all committees of
the Board on which such director was a member.
Director Compensation and Other Information
Employees of the Company do not receive compensation for serving as
members of the Company's Board of Directors. Each independent director receives
an annual fee of $5,000, plus reimbursement for expenses incurred in attending
meetings of the Board. Non-employees who serve as directors of the Company also
receive automatic grants of stock options under the Company's Amended and
Restated 1994 Stock Option Plan. See "Executive Compensation - Stock Option
Plan."
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<PAGE>
EXECUTIVE COMPENSATION
Summary of Cash and Other Compensation
The following table sets forth certain information with respect to the
compensation received by the Company's Chief Executive Officer for the fiscal
year ended December 31, 1996, and for the Company's other executive officers who
received cash compensation in excess of $100,000 during fiscal 1996 (the "Named
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Awards
------------
Annual Compensation Securities
-------------------------------- Underlying All Other
Name and Principal Position Year Salary ($)(1) Bonus ($) Options(#)(2) Compensation($)(3)
--------------------------- ---- ------------- --------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Glenn R. Fitchet, President and 1996 $157,476 -- -- $5,000
Chief Executive Officer 1995 176,000 -- -- 6,563
1994 131,250 -- -- 19,747
Steven A. Sherman, 1996 $135,000 -- -- --
Chairman of the Board 1995 150,000 -- -- --
1994 112,500 -- -- --
Kent R. Burgess, Senior Vice 1996 $121,492 -- 15,000 --
President - Operations and 1995 135,000 -- -- --
Secretary; President of 1994 42,816 -- 25,000 --
Enhanced Systems, Inc.
Gregory K. Roeper, Vice 1996 $121,492 $35,000 25,000 $988
President - Finance, Chief 1995 135,000 -- -- 880
Financial Officer, and 1994 12,981(4) -- 25,000 --
Treasurer
Larry L. Steinmetz, President 1996 $80,995 $56,434 -- --
of Vodavi Communications 1995 82,510 51,146 -- --
Systems, Inc. 1994 50,866 25,395 45,000 --
</TABLE>
- -----------------
(1) Except as otherwise indicated, amounts for 1994 represent amounts
accrued or paid beginning April 1, 1994, the effective date of the
acquisition of the Vodavi Division.
(2) The exercise price of all stock options granted were equal to the fair
market value of the Company's Common Stock on the date of grant.
(3) Amounts for 1996 represent payments related to life insurance policies.
(4) Represents amounts accrued or paid beginning in November 1994, the date
of Mr. Roeper's employment with the Company.
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<PAGE>
Options Grants
The following table sets forth certain information with respect to
stock options granted to the Named Officers during the fiscal year ended
December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Individual Grants Realizable
------------------------------------------------------- Value at Assumed
Percentage Annual Rates
Number of of Total of Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise Option Term(2)
Options Employees in Price Expiration -----------------
Name Granted (#) Fiscal Year ($/Sh)(1) Date 5% 10%
---- ------------ ----------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Glenn R. Fitchet ................... -- -- -- -- -- --
Steven A. Sherman................... -- -- -- -- -- --
Kent R. Burgess .................... 15,000 5.6% $6.00 2/26/2006 $55,600 $143,437
Gregory K. Roeper................... 25,000 9.3% $6.00 2/26/2006 $94,334 $239,061
Larry L. Steinmetz ................. -- -- -- -- -- --
</TABLE>
- ---------------------
(1) The options were granted at the fair value of the shares on the date of
grant. The options vest and become exercisable in four equal annual
installments beginning on the first anniversary of the date of grant,
and have a ten-year term.
(2) Potential gains are net of the exercise price, but before taxes
associated with the exercise. Amounts represent hypothetical gains that
could be achieved for the respective options if exercised at the end of
the option term. The assumed 5% and 10% rates of stock price
appreciation are provided in accordance with the rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future price of the Company's Common
Stock. Actual gains, if any, on stock option exercises will depend upon
the future market prices of the Company's Common Stock.
Recent Grants of Stock Options
On February 27, 1997, the Company granted options to acquire 100,000
and 50,000 shares of Common Stock to Glenn R. Fitchet, the Company's President
and Chief Executive Officer, and Larry L. Steinmetz, the President of the
Company's wholly owned subsidiary Vodavi Communications Systems, Inc. ("VCS"),
respectively.
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<PAGE>
Option Holdings
The following table provides information on the value of each Named
Officer's unexercised options as of December 31, 1996.
YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised In-the-
Unexercised Options at Fiscal Money Options at Fiscal
Year-End (#) Year-End ($)(1)
--------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Glenn R. Fitchet....................... --- --- --- ---
Steven A. Sherman...................... --- --- --- ---
Kent R. Burgess........................ 16,250 23,750 $0 $0
Gregory K. Roeper...................... 18,750 31,250 $0 $0
Larry L. Steinmetz..................... 22,500 22,500 $0 $0
</TABLE>
- ------------------
(1) The exercise prices of all options held by the Named Officers were
greater than the closing price of the Company's Common Stock on the
Nasdaq National Market on December 31, 1996, which was $3.56 per share.
Employment Agreements
The Company has entered into an employment agreement with Kent R.
Burgess under which Mr. Burgess serves as President of the Company's wholly
owned subsidiary, Enhanced Systems, Inc. ("Enhanced"), at a base salary of
$121,500 per year. The employment agreement also provides that Mr. Burgess will
be eligible to receive an annual bonus based upon specified performance criteria
and up to a specified dollar amount, each to be determined by Mr. Burgess and
approved by the Company's Board of Directors in advance of the beginning of each
year during the term of the agreement. The initial term of the agreement
continues through March 31, 1999, at which time the agreement will automatically
renew for successive one-year terms unless and until terminated by either party
giving written notice to the other not less than 60 days prior to the end of the
then-current term.
The Company has no written employment contracts with any of its other
officers, directors, or employees. The Company, however, maintains agreements
with each of its officers and employees that prohibit such persons from
disclosing confidential information obtained while employed with the Company.
The Company offers its employees medical, life, and disability insurance
benefits. The executive officers and other key personnel of the Company
(including directors who also are employees of the Company) are eligible to
receive stock options under the Company's Stock Option Plan. See "Executive
Compensation - Stock Option Plan."
401(k) Profit Sharing Plan
In April 1994, the Company adopted a profit sharing plan pursuant to
Section 401(k) (the "401(k) Plan") of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"). Pursuant to the 401(k) Plan, all eligible
employees may make elective contributions through payroll deductions. In
addition, the 401(k) Plan provides that the Company may make matching and
discretionary contributions in such amounts as may be determined by the Board of
Directors. During fiscal 1996, the Company expensed discretionary contributions
pursuant to the 401(k) Plan to all executive officers as a group in the amount
of $3,000.
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Stock Option Plan
The Vodavi Technology, Inc. Stock Option Plan was adopted by the
Company's Board of Directors in December 1994 and was approved by the
stockholders of the Company in July 1995. The Board of Directors amended and
restated the Stock Option Plan in February 1996, and the stockholders approved
the amended and restated plan (the "Plan") on May 24, 1996. The Plan provides
for (i) the granting of incentive stock options or nonqualified options to
acquire Common Stock of the Company ("Options"); (ii) the granting of stock
appreciation rights ("SARs"); (iii) the direct granting of the Company's Common
Stock ("Stock Awards"); and (iv) the granting of other cash awards ("Cash
Awards") (SARS, Stock Awards, and Cash Awards are collectively referred to
herein as "Awards") to key employees of the Company or its subsidiaries and to
consultants or independent contractors who provide valuable services to the
Company or its subsidiaries ("Eligible Persons") under a Discretionary Program.
The Plan also provides for automatic grants of stock options to non-employee
directors of the Company under an Automatic Program. The Plan is intended to
comply with Rule 16b-3 as promulgated under the Exchange Act with respect to
persons subject to Section 16 of the Exchange Act. The Company believes that the
Plan is important in attracting and retaining executives and other key employees
and constitutes a significant part of the compensation program for Eligible
Persons and non-employee directors, providing them with an opportunity to
acquire a proprietary interest in the Company and giving them an additional
incentive to use their best efforts for the long-term success of the Company.
The Plan will remain in force until December 29, 2004.
A maximum of 850,000 shares of Common Stock of the Company may be
issued under the Plan. If any Option or SAR terminates or expires without having
been exercised in full, stock not issued under such Option or SAR will again be
available for the purposes of the Plan. There were outstanding Options to
acquire 498,500 shares of the Company's Common Stock under the Plan as of
December 31, 1996. On February 27, 1997, the Company granted Options to acquire
100,000 and 50,000 shares of Common Stock to Glenn R. Fitchet, the Company's
President and Chief Executive Officer, and Larry L. Steinmetz, the President of
VCS, respectively.
Options that are incentive stock options may only be granted to key
personnel of the Company (or its subsidiaries) who are also employees of the
Company (or its subsidiaries). To the extent that granted Options are incentive
stock options, the terms and conditions of those Options, including exercise
price and expiration date, must be consistent with the qualification
requirements set forth in the Internal Revenue Code. The maximum number of
shares with respect to which Options or Awards may be granted to any one
employee (including officers) during the term of the Plan may not exceed 50% of
the shares of Common Stock authorized for issuance under the Plan.
Under the Automatic Program, each non-employee director serving on the
Board of Directors on the date the amendments to and restatement of the Plan
were approved by the Company's stockholders received an automatic grant of
Options ("Automatic Options") to acquire 5,000 shares of Common Stock on that
date (an "Initial Grant"). Each subsequent newly elected non-employee member of
the Board of Directors will receive an Initial Grant of Automatic Options to
acquire 5,000 shares of Common Stock on the date of his or her first appointment
or election to the Board of Directors. In addition, Automatic Options to acquire
5,000 shares of Common Stock will be automatically granted to each non-employee
director at the meeting of the Board of Directors held immediately after each
annual meeting of stockholders (an "Annual Grant"). A non-employee member of the
Board of Directors will not be eligible to receive the Annual Grant if that
option grant date is within 90 days of such non-employee member receiving his or
her Initial Grant.
To exercise an Option, the option holder will be required to deliver to
the Company full payment of the exercise price for the shares as to which the
Option is being exercised. Generally, Options may be exercised by delivery of
cash, bank cashier's check, or shares of Common Stock of the Company.
Limitation of Director's Liability and Indemnification
The Company's Amended Certificate of Incorporation (the "Amended
Certificate") provides that no director of the Company will be personally liable
to the Company or its stockholders for monetary damages for breach of
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fiduciary duty as a director, except to the extent such exemption or limitation
of liability is not permitted under the Delaware General Corporation law (the
"Delaware GCL"). Under the Delaware GCL, a director may be held liable (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock purchases, or (iv) for any transaction from which the
director derived an improper personal benefit. The effect of this provision in
the Amended Certificate is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages from a director for breach of the fiduciary duty of
care as a director (including breaches resulting from negligent or grossly
negligent behavior) except in the situations described in clauses (i) through
(iv) above. In addition, the Amended Certificate provides that any repeal or
modification of this provision by the Company's stockholders will not adversely
affect any right or protection of a director of the Company existing at the time
of such repeal or modification with respect to acts or omissions occurring prior
to such repeal or modification. These provisions do not limit or eliminate the
rights of the Company or any stockholder to seek non-monetary relief such as an
injunction or recision in the event of a breach of a directors' duty of care.
The Company's Amended Certificate requires the Company to indemnify its
directors, officers, and certain other representatives of the Company against
expenses and certain other liabilities arising out of their conduct on behalf of
the Company to the maximum extent permitted by the Delaware GCL. Indemnification
is not available with respect to proceedings or claims initiated or brought
voluntarily by an officer, director, or other representative of the Company
against the Company unless such proceeding or claim is approved by the Board of
Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company, VCS, LGE, Steven A. Sherman, and Glenn R. Fitchet are
parties to a stockholders' agreement (the "Stockholders' Agreement"). Under the
terms of the Stockholders' Agreement, LGE has the right to purchase from the
Company additional shares of the Company's Common Stock in order to maintain its
percentage of ownership of the Company; certain of the shares of the Company's
Common Stock issued to Mr. Sherman are held in escrow; and LGE has the right to
designate a certain number of persons to serve as directors of both the Company
and VCS. See "Security Ownership of Principal Stockholders, Directors, and
Officers - Stockholders' Agreement."
Under an agreement with LGE, the Company purchases certain of its key
telephone systems and commercial grade telephones from LGE. The Company
purchased approximately $5.8 million of key telephone systems from LGE during
1996. Under an agreement with LG Srithai, Inc. ("LGST"), a joint venture between
LGE and a Thailand-based entity, the Company purchases certain of its telephone
systems and commercial grade telephones from LGST. The Company purchased
approximately $12.1 million of telephone systems and commercial grade telephones
from LGST during 1996.
In September 1995, the Company issued 325,679 shares of Common Stock
and approximately $1.5 million to Michael Mittel, and 162,839 shares of Common
Stock and approximately $733,000 to each of Fereydoun Taslimi and his wife, in
exchange for their respective shares of common stock of Enhanced. As a result,
Mr. Mittel and Mr. Taslimi each beneficially own approximately 7.5% of the
Company's outstanding Common Stock. In addition, Mr. Mittel and Mr. Taslimi were
the President and Vice President, respectively, of Enhanced until September
1996. The Company leases approximately 16,200 square feet of space in Norcross,
Georgia, where the operations of Enhanced are located, from F&M Properties, a
partnership owned by Messrs. Mittel and Taslimi. Rental payments under the lease
were approximately $194,500 during the first year, with annual increases of
approximately $8,000. The lease expires in August 2002. The Company believes
that the terms of the lease are no less favorable to the Company than terms that
could be obtained from an unaffiliated third party for comparable office space.
9
<PAGE>
In August 1996, Novatel Wireless, Inc. ("Novatel"), of which Steven A.
Sherman is the Chairman of the Board, President, and a significant shareholder,
acquired certain assets from NovAtel Communications, Ltd., a Canadian company.
The acquired assets included an agreement with the Company to jointly develop
certain wireless telephone systems (the "Wireless Agreement"). The Wireless
Agreement requires the Company to purchase from Novatel, on a purchase order
basis, minimum quantities of wireless base units and handsets. The Wireless
Agreement establishes the minimum purchase obligations for the first year of the
agreement and gives Novatel the right to change the Company's exclusive
distribution right to a non-exclusive right in the event that the Company and
Novatel are unable to agree upon the Company's minimum purchase obligations for
subsequent years.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overview and Philosophy
The Company's Board of Directors has appointed a Compensation Committee
(the "Committee") consisting entirely of non-management directors, which made
decisions on compensation of the Company's executives during 1996. The
Compensation Committee makes every effort to ensure that the compensation plan
is consistent with the Company's values and is aligned with the Company's
business strategy and goals.
The Company's compensation program for executive officers consists
primarily of base salary, bonus, and long-term incentives in the form of stock
options. Executives also participate in various other benefit plans, including
medical and retirement plans, which generally are available to all employees of
the Company.
The Company's philosophy is to pay base salaries to executives at
levels that enable the Company to attract, motivate, and retain highly qualified
executives. The bonus program is designed to reward individuals for performance
based on the Company's financial results as well as the achievement of personal
and corporate objectives that contribute to the long-term success of the Company
in building stockholder value. Stock option grants are intended to result in
minimal or no rewards if stock price does not appreciate, but may provide
substantial rewards to executives as stockholders benefit from stock price
appreciation.
The Company follows a subjective and flexible approach rather than an
objective or formula approach to compensation. Various factors (as discussed
herein) receive consideration without any particular weighting or emphasis on
any one factor. In establishing compensation for the year ended December 31,
1996, the Committee took into account, among other things, the financial results
of the Company, compensation paid in prior years, and compensation of executive
officers employed by companies of similar size in similar industries.
Base Salary and Annual Incentives
Base salaries for executive positions are established relative to the
Company's financial performance and comparable positions in similarly sized
companies. From time to time, the Company may use competitive surveys and
outside consultants to help determine the relative competitive pay levels. The
Company targets base pay at the level required to attract and retain highly
qualified executives. In determining salaries, the Committee also will take into
account individual experience and performance, salary levels relative to other
positions with the Company, and specific needs particular to the Company. The
Committee's evaluating of the above factors is subjective and the Committee does
not assign a particular weight to any one factor. As a result of the Company's
operating results during 1995 and projected results for 1996, the Company's
executive officers proposed a 10% reduction of their base salaries paid in 1995.
The Committee approved the salary reduction for 1996.
Annual incentive awards are based on the Company's financial
performance and the efforts of its executives. Performance is measured based on
profitability and revenue and the successful achievement of functional and
personal goals. The Company paid bonuses to Gregory K. Roeper, the Company's
Vice President -
10
<PAGE>
Finance, Chief Financial Officer, and Treasurer, and to Larry L. Steinmetz, the
President of VCS, during fiscal 1996. Mr. Roeper's bonus was based primarily on
his performance with respect to the Company's successful completion of its
initial public offering in October 1995. Mr. Steinmetz' bonus was determined as
a percentage of sales of VCS during 1996.
Stock Option Grants
The Company strongly believes in tying executive rewards directly to
the long-term success of the Company and increases in stockholder value through
grants of executive stock options. Stock option grants also will enable
executives to develop and maintain a significant stock ownership position in the
Company's Common Stock. The amount of options granted takes into account options
previously granted to an individual. The Company granted options to acquire
15,000 and 25,000 shares of Common Stock to Kent R. Burgess and Gregory K.
Roeper, respectively, during the year ended December 31, 1996.
Other Benefits
Executive officers are eligible to participate in benefit programs
designed for all full-time employees of the Company. These programs include
medical insurance, a qualified retirement program allowed under Section 401(k)
of the Internal Revenue Code, and life insurance coverage.
Compensation of the Chief Executive Officer
The Committee evaluates the various factors described above in
evaluating the base salary and other compensation of Glenn R. Fitchet, the
Company's President and Chief Executive Officer. The Committee's evaluation of
Mr. Fitchet's base salary is subjective, with no particular weight assigned to
any one factor. As with the Company's other executive officers, as a result of
the Company's operating results in 1995 and projected results for 1996, Mr.
Fitchet proposed, and the Committee approved, a 10% reduction of Mr. Fitchet's
base salary from his 1995 base salary. The Committee believes that this base
salary is competitive with the base salary paid to chief executive officers of
comparable companies.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code currently limits the
deductibility for federal income tax purposes of compensation paid to the
Company's Chief Executive Officer and four other most highly compensated
executive officers. The Company may deduct certain types of compensation paid to
any of these individuals only to the extent that such compensation during any
fiscal year does not exceed $1.0 million. Qualifying performance-based
compensation is not subject to the deduction limits if certain requirements are
met. The Company does not believe that its compensation arrangements with any of
its executive officers will exceed the limits on deductibility during its
current fiscal year. The Company also intends to structure the performance-based
portion of the compensation of its executive officers in a manner that complies
with Section 162(m).
This report has been furnished by the members of the Compensation
Committee of the Board of Directors of Vodavi Technology, Inc.
Gilbert H. Engels
Stephen A McConnell
11
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Performance evaluation and compensation decisions relating to 1996 were
made by the Compensation Committee of the Board of Directors, which consisted of
Messrs. Engels, McConnell, and Nam K. Woo, a former member of the Board of
Directors. In connection with the acquisition of the Company's business
operations in April 1994, the Company VCS, LGE, Steven A. Sherman, Glenn R.
Fitchet and certain other stockholders of the Company entered into the
Stockholders' Agreement. See "Security Ownership of Principal Stockholders,
Directors, and Officers - Stockholders' Agreement." In 1994, LGE designated Nam
K. Woo to serve as a director of the Company pursuant to its rights under the
Stockholders' Agreement. Under the terms of its agreements with LGE and LGST,
the Company purchased a total of approximately $17.9 million of key telephone
systems and commercial grade telephones from LGE and LGST during 1996.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
officers, and persons who own more than 10 percent 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 (the "SEC"). Officers,
directors, and greater than 10 percent stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely upon the Company's review of the copies of such forms
received by it during the fiscal year ended December 31, 1996, and written
representations that no other reports were required, the Company believes that
each person who, at any time during such fiscal year, was a director, officer,
or beneficial owner of more than 10 percent of the Company's Common Stock
complied with all Section 16(a) filing requirements during such fiscal year.
12
<PAGE>
PERFORMANCE GRAPH
The following line graph compares cumulative total stockholder returns,
assuming reinvestment of dividends, for (i) the Company's Common Stock; (ii) the
Standard & Poor's Small Cap 600 Index (the "Index"); (iii) a peer group
consisting of the following four companies in the business telephone systems
industry: Comdial Corp., Mitel Corp., Inter-Tel Corp., and Executone Information
Systems, Inc. (the "New Peer Group"); and (iv) the peer group used by the
Company for 1995 (the "Old Peer Group"), which consisted of the four companies
that make up the New Peer Group plus Norstan, Inc. ("Norstan"). The Company did
not include Norstan in the New Peer Group for 1996 because Norstan's business is
not directly competitive with the Company's business.
The graph assumes an investment of $100 in each of the Company's Common
Stock, the Peer Group, and the Old Peer Group on October 6, 1995, the date on
which the Company's Common Stock became registered under Section 12 of the
Exchange Act as a result of the Company's initial public offering, and an
investment in the Index of $100 on September 30, 1995. The graph covers the
period from October 6, 1995 through December 31, 1996.
The calculation of cumulative stockholder return on the Company's
Common Stock does not include reinvestment of dividends because the Company did
not pay dividends during the measurement period. The performance shown is not
necessarily indicative of future performance.
[GRAPH}
10/06/95 12/95 3/96 6/96 9/96 12/96
-------- ----- ---- ---- ---- -----
VODAVI TECHNOLOGY, INC. 100 91 98 114 79 50
NEW PEER GROUP 100 106 113 122 115 106
OLD PEER GROUP 100 106 104 186 175 165
S & P SMALLCAP 600 100 100 106 112 115 122
13
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SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS,
DIRECTORS, AND OFFICERS
Principal Stockholders
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of April 11, 1997 by (i)
each director of the Company, (ii) each executive officer of the Company, (iii)
all directors and executive officers of the Company as a group, and (iv) each
person known by the Company to be the beneficial owner of more than 5% of the
Company's Common Stock.
<TABLE>
<CAPTION>
Shares Beneficially Owned
-------------------------
Name of Beneficial Owner(1) Number(2)(3) Percent(3)
- --------------------------- ------------ ----------
<S> <C> <C>
Directors and Executive Officers:
Steven A. Sherman........................................ 481,580(4) 11.1%
Glenn R. Fitchet......................................... 250,000 5.6%
Kent R. Burgess.......................................... 17,500(5) *
Gregory K. Roeper........................................ 38,500(6) *
Larry L. Steinmetz....................................... 33,750(7) *
Gilbert H. Engels........................................ 30,000(8) *
Stephen A McConnell...................................... 11,700(8) *
William J. Hinz.......................................... 5,000 *
Ki-Song Cho (9).......................................... 0 *
All directors and officers as a
group (nine persons)................................... 868,030 19.7%
Non-Management 5% Stockholders:
LG Electronics Inc....................................... 812,500 18.7%
Michael Mittel........................................... 325,679 7.5%
Fereydoun Taslimi........................................ 325,678 7.5%
</TABLE>
- ------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Addresses of 5% stockholders: The address of Mr. Sherman and Sherman
Capital Group, L.L.C. is 4757 E. Greenway Road, Suite 103-187, Phoenix,
Arizona 85032; the address of Glenn R. Fitchet is 8300 East Raintree Drive,
Scottsdale, Arizona 85260; the address of LG Electronics, Inc. is LG Twin
Tower, West Tower 20F, #20, Yoido-dong, Youngdungpo-gu, Seoul 150-721,
Korea; the address of Michael Mittel is 6135 River Cliff Drive, Atlanta,
Georgia 30328; and the address of Fereydoun Taslimi is 3350 Spalding Drive,
Dunwoody, Georgia 30350.
(2) Includes, when applicable, shares owned of record by such person's minor
children and spouse and by other related individuals and entities over
whose shares of Common Stock such person has sole or shared voting control
or power of disposition. Also includes shares of Common Stock that the
identified person had the right to acquire within 60 days of April 11,
1997, by the exercise of stock options.
(3) The percentages shown include the shares of Common Stock that each named
stockholder has the right to acquire within 60 days of April 11, 1997. In
calculating percentage ownership, all shares of Common Stock that the named
stockholder has the right to acquire upon exercise of stock options within
60 days of April 11, 1997 are deemed to be outstanding for the purpose of
computing the percentage of Common Stock owned by such stockholder, but are
not deemed to be outstanding for the purpose of computing the percentage of
Common Stock owned by any other stockholder. Percentages may be rounded.
(4) Represents 253,250 shares of Common Stock held by Mr. Sherman; 4,000 shares
held by Mr. Sherman as custodian for certain of his minor children; 86,830
shares held by Sherman Capital Group, L.L.C., of which Mr. Sherman is the
managing member; and 137,500 shares held by Sherman Capital Partners,
L.L.C., of
14
<PAGE>
which Mr. Sherman is a managing member. Mr. Sherman disclaims beneficial
ownership of all shares held by Sherman Capital Group, L.L.C. and Sherman
Capital Partners, L.L.C. except to the extent that his individual interest
in such shares arises from his interest in each such entity.
(5) Represents 1,250 shares of Common Stock and 16,250 shares issuable upon
exercise of vested stock options. Mr. Burgess serves as the Company's
Senior Vice President - Operations and Secretary and as President of the
Company's wholly owned subsidiary, Enhanced Systems, Inc.
(6) Represents 19,750 shares of Common Stock and 18,750 shares issuable upon
exercise of vested stock options held by Mr. Roeper and 500 shares of
Common Stock beneficially owned by Mr. Roeper's spouse as custodian for
their minor child. Mr. Roeper serves as the Company's Vice President -
Finance, Chief Financial Officer, and Treasurer.
(7) Represents 11,250 shares of Common Stock and 22,500 shares issuable upon
exercise of vested stock options. Mr. Steinmetz serves as President of the
Company's wholly owned subsidiary, Vodavi Communications Systems, Inc.
(8) The number of shares beneficially owned by each such person includes 5,000
shares issuable upon exercise of options that will vest within 60 days of
April 11, 1997.
(9) Mr. Cho currently serves as a director and officer of LGE. LGE designated
Mr. Cho to serve as a director of the Company pursuant to its rights under
the Stockholders' Agreement. See "Security Ownership of Principal
Stockholders, Directors, and Officers - Stockholders' Agreement." Mr. Cho
disclaims beneficial ownership of any shares of the Company's Common Stock
beneficially owned by LGE.
Stockholders' Agreement
In connection with the acquisition of the Vodavi Division in April
1994, the Company, VCS, LGE, Steven A. Sherman, and Glenn R. Fitchet entered
into the Stockholders' Agreement. The Stockholders' Agreement provides that, if
at any time during the term of the Stockholders' Agreement the Company issues
shares of Common Stock in a public offering or a private placement in an
aggregate amount of 1% or more of the Company's issued and outstanding Common
Stock, LGE has the right to purchase a sufficient number of shares being issued
as may be required to enable it to maintain the percentage of ownership of
Common Stock that it holds immediately prior to such sale or issuance. The
purchase price to LGE for such shares will be the public offering price per
share in the case of a public offering or the price per share paid by purchasers
in any private placement.
Also pursuant to the terms of the Stockholders' Agreement, Mr. Sherman
and Mr. Fitchet have agreed to vote their shares of Common Stock to elect as
directors of the Company that number of persons designated by LGE that comprises
a percentage of the Board of Directors equal to LGE's then percentage of
ownership of the Company's Common Stock. In addition, as long as LGE owns 8% or
more of the outstanding Common Stock of the Company, those persons have agreed
to vote their shares in favor of election of at least one designee of LGE as a
director of the Company. All designees of LGE to the Board of Directors must be
executive officers or directors of LGE, directors of any affiliate of LGE, or
other persons reasonably acceptable to the Company and the other parties to the
Stockholders' Agreement. Unless LGE consents in writing, no LGE designee may be
removed as a director of the Company, except for cause. The Stockholders'
Agreement also requires the Company to employ one of the LGE designees in a
position and at such salary as is mutually agreed upon by the Company and LGE.
The Stockholders' Agreement also establishes the Board of Directors of VCS at
four directors, of which two must be designees of LGE, and provides that unless
LGE consents in writing, no LGE designee to the Board of Directors of VCS may be
removed, except for cause.
15
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Arthur Andersen LLP, independent
public accountants, to audit the consolidated financial statements of the
Company for the fiscal year ending December 31, 1997 and recommends that
stockholders vote in favor of the ratification of such appointment. In the event
of a negative vote on such ratification, the Board of Directors will reconsider
its selection. The Board of Directors anticipates that representatives of Arthur
Andersen LLP will be present at the Meeting, will have the opportunity to make a
statement if they desire, and will be available to respond to appropriate
questions.
DEADLINE FOR RECEIPT OF STOCKHOLDERS PROPOSALS
Stockholder proposals that are intended to be presented at the annual
meeting of stockholders of the Company to be held during calendar 1998 must be
received by the Company no later than January 19, 1998 in order to be included
in the proxy statement and form of proxy relating to such meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Meeting.
If any other matters properly come before the Meeting, it is the intention of
the persons named in the enclosed proxy card to vote the shares they represent
as the Board of Directors may recommend.
Dated: April 18, 1996
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<PAGE>
VODAVI TECHNOLOGY, INC.
1997 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of VODAVI TECHNOLOGY, INC., a Delaware
corporation (the "Company"), hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement of the Company, each dated April 18,
1997, and hereby appoints Steven A. Sherman and Glenn R. Fitchet, and each of
them, proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
1997 Annual Meeting of Stockholders of the Company, to be held on Monday, May
19, 1997, at 9:00 a.m., local time, at the Company's corporate headquarters at
8300 Raintree Road, Scottsdale, Arizona 85260, and at any adjournment or
adjournments thereof, and to vote all shares of the Company's Common Stock which
the undersigned would be entitled to vote if then and there personally present,
on the matters set forth below:
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS: [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to vote
below (except as indicated) for all nominees listed below.
If you wish to withhold authority to vote for any individual nominee, strike a line through that nominee's name in the list below:
Steven A. Sherman, Glenn R. Fitchet, Stephen A McConnell, Gilbert H. Engels, Ki-Song Cho, William J. Hinz
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
And upon such matters which may properly come before the meeting or any adjournment or adjournments thereof.
(Continued, and to be signed and dated, on the reverse side.)
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS;
FOR THE RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY; AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
A majority of such proxies or substitutes as shall be present and shall act at said meeting or any adjournment or adjournments
thereof (or if only one shall be present and act, then that one) shall have and may exercise all of the powers of said proxies
hereunder.
Dated ______________, 1997 _________________________________________________________
Signature
_________________________________________________________
Signature
(This Proxy should be dated, signed by the stockholder(s)
exactly as his or her name appears hereon, and returned
promptly in the enclosed envelope. Persons signing a
fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both
stockholders should sign.)
Sign, Date, and Return the Proxy Card Promptly Using the Enclosed Envelope. Votes must be indicated (x) in Black or Blue ink. |X|
</TABLE>
