SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997 Commission File Number 0-26912
----------------- -------
VODAVI TECHNOLOGY, INC
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 86-0789350
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or Identification No.)
organization)
8300 EAST RAINTREE DRIVE
SCOTTSDALE, ARIZONA 85260
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(602) 443-6000
--------------------------------------------------
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Issuer's revenue for its most recent fiscal year: $47,674,751
At March 23, 1998, there were outstanding 4,342,238 shares of the registrant's
Common Stock, $.001 par value. The aggregate market value of Common Stock held
by nonaffiliates of the registrant (2,740,208 shares) based on the closing price
of the Common Stock as reported on the Nasdaq National Market on March 23, 1998,
was $10,618,306. For purposes of this computation, all officers, directors and
10% beneficial owners of the registrant are deemed to be affiliates. Such
determination should not be deemed an admission that such officers, directors or
10% beneficial owners are, in fact, affiliates of the registrant.
Documents incorporated by reference: None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
The following table sets forth certain information regarding the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William J. Hinz........................ 52 Chairman of the Board
Glenn R. Fitchet....................... 50 President, Chief Executive Officer, and Director
Gregory K. Roeper...................... 37 Executive Vice President - Finance, Administration, and
Operations; Chief Financial Officer; Secretary; and Treasurer
Mark D. Fife........................... 30 Executive Vice President - Sales, Marketing, and Support
Gilbert H. Engels...................... 69 Director
Stephen A McConnell.................... 45 Director
Steven A. Sherman...................... 52 Director
Nam K. Woo............................. 48 Director
</TABLE>
William J. Hinz has served as Chairman of the Board of the Company
since October 1997 and as a director of the Company since April 1997. Mr. Hinz
has served as President and Chief Executive Officer of Stolper-Fabralloy Company
("Stolper-Fabralloy"), a precision aerospace engine component manufacturer,
since October 1997 and as a director of Stolper-Fabralloy since March 1996. Mr.
Hinz served as Executive Vice President - Operations of Stolper-Fabralloy from
March 1996 to October 1997. 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 executive management positions with Allied
Signal Aerospace Company from 1968 to 1991.
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.
Gregory K. Roeper has served as the Company's Executive Vice President
- - Finance, Administration, and Operations, since December 1997; as Secretary of
the Company since October 1997; and as Chief Financial Officer and Treasurer of
the Company since November 1994. Mr. Roeper served as the Company's Vice
President - Finance from November 1994 until December 1997. From 1982 to 1994,
Mr. Roeper was employed by Arthur Andersen LLP, most recently as a Senior
Manager. Mr. Roeper is a Certified Public Accountant in the state of Arizona.
Mark D. Fife has served as a Vice President of the Company since
February 1998 and as Executive Vice President - Sales, Marketing, and Support
since March 1998. From February 1997 to June 1997, Mr. Fife served as President,
Chief Executive Officer, and a director of Evergreen Internet, Inc., a provider
of turnkey Internet electronic commerce applications for businesses. From
February 1991 to January 1997, Mr. Fife served in various executive capacities
with Insight Enterprise, Inc., most recently as Senior Vice President -
Strategic Alliances.
1
<PAGE>
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. Mr.
McConnell served as Chairman of the Board of Mallco Lumber & Building Materials
from 1991 to 1997. Mr. McConnell also 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 Express America Holdings Corp., Capital Title
Group, Inc., and Unitech Industries, Inc., all of which are publicly held
companies. In addition, Mr. McConnell currently serves as a director of several
privately held companies.
Steven A. Sherman has served as a director of the Company since March
1994. Mr. Sherman served as the Company's Chairman of the Board from March 1994
to October 1997. 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
Sherman Restaurants, Inc., which he founded during 1997, and Sherman Capital
Group, L.L.C., a merchant banking organization which he founded in 1988.
Nam K. Woo has served as a director of the Company since March 1998.
Mr. Woo also served as a director of the Company from February 1995 to April
1997. Mr. Woo currently is President of North American Operations for LG
Electronics U.S.A., Inc., an affiliate of LG Electronics Inc. ("LGE"). Mr. Woo
also currently serves as a director of LG Electronics U.S.A., Inc., LG
Electronics Canada, Inc., and LG Electronics Alabama, Inc. Mr. Woo also served
as a director of LGE until March 1998. Mr. Woo joined LGE in July 1974 and has
served in a number of capacities with LGE, including president of European
Operations from January 1991 to December 1994. LGE designated Mr. Woo 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 Item 12, "Security Ownership of Certain Beneficial
Owners and Management - Stockholders' Agreement."
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, 1997, 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.
2
<PAGE>
ITEM 11. 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, 1997, and for the Company's other executive officers who
received cash compensation in excess of $100,000 during fiscal 1997 (the "Named
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Awards
------
Annual Compensation Securities
------------------- Underlying All Other
Name and Principal Position Year Salary($) Bonus ($) Options(#)(1) Compensation($)(2)
--------------------------- ---- --------- --------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Glenn R. Fitchet, President and 1997 $163,934 -- 100,000 $5,750
Chief Executive Officer 1996 157,476 -- -- 5,000
1995 176,000 -- -- 6,563
Steven A. Sherman, 1997 $114,224 -- 75,000 $750
Chairman of the Board(3) 1996 135,000 -- -- --
1995 150,000 -- -- --
Kent R. Burgess, Senior Vice 1997 $101,458 -- -- $48,250
President - Operations and 1996 121,492 -- 15,000 --
Secretary; President of 1995 135,000 -- -- --
Enhanced Systems, Inc.(4)
Gregory K. Roeper, Vice 1997 $121,224 -- 50,000 $1,750
President - Finance, Administration, 1996 121,492 $35,000 25,000 988
and Operations; Chief Financial 1995 135,000 -- -- 880
Officer; Secretary; and Treasurer
Larry L. Steinmetz, Executive 1997 $124,449 $20,600 50,000 $750
Vice President - Sales and 1996 80,995 56,434 -- --
Marketing (5) 1995 82,510 51,146 -- --
</TABLE>
- -----------------
(1) 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.
(2) Amounts for 1997 represent (i) 401(k) plan matching contributions in
the amount of $750 for each of the Named Officers accrued by the
Company in 1997 and paid during 1998; (ii) payments related to life
insurance policies of $5,000 and $1,000 paid by the Company on behalf
of Messrs. Fitchet and Roeper, respectively; and (iii) relocation
expenses in the amount of $47,500 paid by the Company to Mr. Burgess.
(3) Mr. Sherman served as the Company's Chairman of the Board from April
1994 to October 1997.
(4) Mr. Burgess served as an executive officer of the Company from April
1994 to September 1997.
(5) Mr. Steinmetz served as an executive officer of the Company from April
1994 to February 1998.
3
<PAGE>
Options Grants
The following table sets forth certain information with respect to
stock options granted to the Named Officers during the fiscal year ended
December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Individual Grants Realizable
-------------------------------------------------------- Value at Assumed
Percentage Annual Rates
Number of of Total of Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise Option Term(2)
Options Employees in Price Expiration -------------------
Name Granted (#) Fiscal Year ($/Sh)(1) Date 5% 10%
---- ------------ ----------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Glenn R. Fitchet.................... 100,000 27.7% $4.00 2/27/2007 $251,558 $637,497
Steven A. Sherman(3)................ 75,000 20.8% $5.50 12/5/2007 $259,419 $657,419
Kent R. Burgess(4).................. -- -- -- -- -- --
Gregory K. Roeper................... 50,000 13.9% $4.25 6/23/2007 $133,640 $338,670
Larry L. Steinmetz(5)............... 50,000 13.9% $4.00 2/27/2007 $125,779 $318,748
</TABLE>
- ---------------------
(1) The options were granted at the fair value of the shares on the date of
grant. Except as otherwise indicated, 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.
(3) Such options will vest on May 30, 1998 and will become exercisable on
October 20, 1998.
(4) Mr. Burgess served as an executive officer of the Company from April
1994 to September 1997.
(5) Mr. Steinmetz served as an executive officer of the Company from April
1994 to February 1998. Such options were cancelled in connection with
Mr. Steinmetz' departure from the Company.
Recent Grants of Stock Options
On February 2, 1998, the Company granted options to acquire 100,000
shares of Common Stock at an exercise price of $4.00 per share to Mark D. Fife,
the Company's Executive Vice President - Sales, Marketing, and Support.
4
<PAGE>
Option Holdings
The following table provides information on the value of each Named
Officer's unexercised options as of December 31, 1997.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised In-the-
Unexercised Options at Fiscal Money Options at Fiscal
Name Year-End (#) Year-End ($)(1)
---- --------------------------------- ---------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Glenn R. Fitchet....................... 0 100,000 $0 $50,000
Steven A. Sherman...................... 0 75,000 $0 $0
Kent R. Burgess(2)..................... 0 0 -- --
Gregory K. Roeper...................... 25,000 75,000 $9,375 $15,625
Larry L. Steinmetz(3).................. 33,750 61,250 $16,875 $30,625
</TABLE>
- ------------------
(1) Calculated based on the Nasdaq National Market closing price of the
Company's Common Stock of $4.50 per share on December 31, 1997, less
the exercise price of such options. The exercise prices of certain
options held by the Named Officers are greater than $4.50 per share.
(2) Mr. Burgess served as an executive officer of the Company from April
1994 to September 1997. All options previously granted to Mr. Burgess
expired in accordance with their terms prior to December 31, 1997.
(3) Mr. Steinmetz served as an executive officer of the Company from April
1994 to February 1998. Such options were cancelled upon the termination
of Mr. Steinmetz' employment with the Company.
Employment and Consulting Agreements
On December 5, 1997, the Company entered into a consulting agreement
(the "Consulting Agreement") with Steven A. Sherman, a director of the Company,
pursuant to which Mr. Sherman will render such advice and recommendations to the
Company as may be requested by the Chairman of the Board of Directors. The
Company will pay Mr. Sherman a consulting fee of $10,000 per month during the
term of the Consulting Agreement, which expires on May 30, 1998. In addition,
pursuant to the Consulting Agreement, the Company granted to Mr. Sherman options
to acquire 75,000 shares of Common Stock at an exercise price of $5.50 per
share. See Item 11, "Executive Compensation - Option Grants."
The Company has no written employment or consulting 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 Item 11,
"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 1997, the Company expensed matching contributions
pursuant to the 401(k) Plan to all executive officers as a group in the amount
of $3,750.
5
<PAGE>
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 772,800 shares of the Company's Common Stock under the Plan as of April
30, 1998.
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.
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 retainer fee of $10,000, plus a $500 fee for each meeting attended in
person and reimbursement for expenses incurred in attending meetings of the
Board. In 1997, the Board of Directors formed an Executive Committee to evaluate
various business opportunities and to
6
<PAGE>
advise the Board of Directors with respect to strategic planning, product
development, and management issues. Mr. Hinz serves as the Chairman of the
Executive Committee and Messrs. Engels and McConnell serve as the other members
of the Executive Committee. During 1997, Messrs. Hinz, Engels, and McConnell
received a fee of $1,000, $500, and $500, respectively, for each meeting of the
Executive Committee that they attended. 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 Item 11, "Executive
Compensation - Stock Option Plan."
Compensation Committee Interlocks and Insider Participation
Performance evaluation and compensation decisions relating to 1997 were
made by the Compensation Committee of the Board of Directors, which consisted of
Messrs. Engels, McConnell, Nam K. Woo (from January 1997 to April 1997), and
Ki-Song Cho (from April 1997 to March 1998). In connection with the acquisition
of the Company's business operations in April 1994, the Company, Vodavi
Communications Systems, Inc. ("VCS"), LGE, Steven A. Sherman, Glenn R. Fitchet,
and certain other stockholders of the Company entered into a stockholders'
agreement (the "Stockholders' Agreement"). See Item 12, "Security Ownership of
Certain Beneficial Owners and Management - Stockholders' Agreement." Each of
Messrs. Woo and Cho served as LGE's designee as a director of the Company
pursuant to LGE's rights under the Stockholders' Agreement. Under the terms of
its agreements with LGE and LGST, the Company purchased a total of approximately
$18.8 million of key telephone systems and commercial grade telephones from LGE
and LGST during 1997.
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 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.
7
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of April 30, 1998 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:
William J. Hinz.......................................... 5,000(4) *
Glenn R. Fitchet......................................... 275,000(5) 6.3%
Gregory K. Roeper........................................ 64,000(6) 1.5%
Mark D. Fife (7)......................................... 0 *
Gilbert H. Engels........................................ 35,000(8) *
Stephen A McConnell...................................... 18,700(9) *
Steven A. Sherman........................................ 485,580(10) 11.2%
Nam K. Woo............................................... 5,000(11) *
All directors and officers as a
group (eight persons).................................. 888,280 20.0%
Non-Management 5% Stockholder:
LG Electronics Inc....................................... 812,500 18.7%
</TABLE>
- --------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Addresses of 5% stockholders: The address of Glenn R. Fitchet is 8300 East
Raintree Drive, Scottsdale, Arizona 85260; the address of Steven A. Sherman
is 4757 E. Greenway Road, Suite 103-187, Phoenix, Arizona 85032; and the
address of LG Electronics, Inc. is LG Twin Tower, West Tower 20F, #20,
Yoido-dong, Youngdungpo-gu, Seoul 150-721, Korea.
(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 30,
1998, 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 30, 1998. 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 30, 1998 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 5,000 shares of Common Stock issuable upon exercise of vested
options.
(5) Represents 250,000 shares of Common Stock and 25,000 shares issuable upon
exercise of vested options.
(6) Represents 19,750 shares of Common Stock and 43,750 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, Administration, and Operations; Chief Financial Officer;
Secretary; and Treasurer.
(7) Mr. Fife serves as the Company's Executive Vice President - Sales,
Marketing, and Support.
(8) Represents 25,000 shares of Common Stock and 10,000 shares issuable upon
exercise of vested options.
(9) Represents 8,700 shares of Common Stock and 10,000 shares issuable upon
exercise of vested options.
8
<PAGE>
(10) Represents 253,250 shares of Common Stock held by Mr. Sherman; 8,000 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 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.
(11) Represents 5,000 shares of Common Stock issuable upon exercise of vested
options. Mr. Woo currently serves as a director and officer of LGE. LGE
designated Mr. Woo to serve as a director of the Company pursuant to its
rights under the Stockholders' Agreement. See Item 12, "Security Ownership
of Certain Beneficial Owners and Management - Stockholders' Agreement." Mr.
Woo 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company, VCS, LGE, Steven A. Sherman, and Glenn R. Fitchet are
parties to 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 Mr. Sherman's shares of the Company's Common Stock 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 Item 12, "Security
Ownership of Certain Beneficial Owners and Management - Stockholders'
Agreement."
The Company purchases certain of its key telephone systems and
commercial grade telephones from LGE. The Company purchased approximately $8.2
million of key telephone systems from LGE during 1997. 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 $10.6 million of
telephone systems and commercial grade telephones from LGST during 1997.
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. During 1997, the Company and Novatel
terminated joint development of wireless telephone systems and the Company
entered into an alliance with a third party to market a wireless telephone
system developed by the third party. Payments by the Company to Novatel during
the term of the agreement totaled approximately $205,000. The Company and
NovAtel currently are negotiating a refund of a portion of that amount to the
Company.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VODAVI TECHNOLOGY, INC.
Date April 29, 1998 By:/s/ Glenn R. Fitchet
--------------------
Glenn R. Fitchet
President, Chief Executive Officer, and Director
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William J. Hinz Chairman of the Board April 29, 1998
- --------------------------------
William J. Hinz
/s/ Glenn R. Fitchet President, Chief Executive Officer, April 29, 1998
- -------------------------------- and Director
Glenn R. Fitchet
/s/ Gregory K. Roeper April 29, 1998
- -------------------------------- Vice President - Finance,
Gregory K. Roeper Administration, and Operations;
Chief Financial Officer; Secretary;
and Treasurer (Principal Financial
and Accounting Officer)
/s/ Nam K. Woo Director April 29, 1998
- --------------------------------
Nam K. Woo
/s/ Steven A. Sherman Director April 29, 1998
- --------------------------------
Steven A. Sherman
/s/ Gilbert H. Engels Director April 29, 1998
- --------------------------------
Gilbert H. Engels
/s/ Stephen A. McConnell Director April 29, 1998
- --------------------------------
Stephen A McConnell
</TABLE>
11
