SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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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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2) Form, Schedule or Registration No.
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3) Filing party:
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4) Date filed:
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<PAGE>
VODAVI TECHNOLOGY, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
June 29, 1998
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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, June
29, 1998, 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,
1998.
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 May 21, 1998
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,
Gregory K. Roeper
Secretary
Scottsdale, Arizona
May 29, 1998
<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, June 29, 1998 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 May
29, 1998, to all stockholders entitled to vote at the Meeting.
Voting Securities and Voting Rights
Stockholders of record at the close of business on May 21, 1998 (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, 1998.
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, 1998.
<PAGE>
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 1997 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, 1997, as amended by Form
10-K/A, 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 five 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
---- --- --------
William J. Hinz........ 52 Chairman of the Board
Glenn R. Fitchet....... 51 President, Chief Executive Officer, and Director
Gilbert H. Engels...... 69 Director
Stephen A McConnell.... 45 Director
Nam K. Woo............. 48 Director
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.
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 Pilgrim America Capital 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.
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
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Company and various stockholders. See "Security Ownership of Principal
Stockholders, Directors, and Officers - Stockholders' Agreement."
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 Executive Committee, an Audit Committee, a
Compensation Committee, and a Senior Stock Option Committee. The Executive
Committee evaluates various business opportunities and advises the Board of
Directors with respect to strategic planning, product development, and
management issues. 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. Mr. Hinz serves as
the Chairman of the Executive Committee and Messrs. Engels and McConnell serve
as the other members of the Executive Committee. Messrs. McConnell and Engels
served as the members of the Audit Committee of the Board of Directors during
1997, with Mr. McConnell serving as Chair of the Audit Committee. Messrs.
McConnell and Engels served as the members of the Compensation Committee and the
Senior Stock Option Committee of the Board of Directors during 1997, 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 eight meetings
during the fiscal year ended December 31, 1997. The Executive Committee held
eight formal meetings, Compensation Committee held two formal meetings, and the
Audit Committee held four formal meetings during the year ended December 31,
1997. No director other than Ki-Song Cho, a former member of the Board of
Directors, 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 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. 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. Effective upon Mr. Hinz' election as the Company's
Chairman of the Board in October 1997, Mr. Hinz' compensation was increased to
$6,000 per month. Mr. Hinz receives no additional compensation for meetings
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 "Executive Compensation - Stock Option Plan."
4
<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, 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, 1996 121,492 $35,000 25,000 988
Administration, and Operations; 1995 135,000 -- -- 880
Chief Financial 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>
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(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 $47,500 paid by the Company to Mr. Burgess.
(3) Mr. Sherman served as the Company's Chairman of the Board from April
1994 to October 1997. Mr. Sherman is not standing for re-election as a
director at the Meeting.
(4) Mr. Burgess served as an executive officer of the Company from April
1994 to September 1997.
(5) Mr. Steinmetz served as an executive officer of the Company from April
1994 to February 1998.
5
<PAGE>
Options Grants
The following table sets forth certain information with respect to
stock options granted to the Named Officers during the fiscal year ended
December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Individual Grants Realizable
------------------------------------------------------- Value at Assumed
Percentage Annual Rates
Number of of Total of Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise Option Term(2)
Options Employees in Price Expiration ----------------
Name Granted (#) Fiscal Year ($/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 $4.00 per share to Mark D. Fife,
the Company's Executive Vice President - Sales, Marketing, and Support.
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<PAGE>
Option Holdings
The following table provides information on the value of each Named
Officer's unexercised options as of December 31, 1997.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised In-the-
Unexercised Options at Fiscal Money Options at Fiscal
Name Year-End (#) Year-End ($)(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 "Executive Compensation - Option Grants." Mr. Sherman is not standing
for re-election as a director at the Meeting.
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 "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
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<PAGE>
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.
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.
8
<PAGE>
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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company, Vodavi Communications Systems, Inc. ("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 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 "Security Ownership of Principal
Stockholders, Directors, and Officers - 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.
In August 1996, Novatel Wireless, Inc. ("Novatel"), of which Steven A.
Sherman, a director of the Company, 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.
9
<PAGE>
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 1997. 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,
1997, 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.
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 no bonuses to the Company's executive officers
during 1997.
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
100,000, 50,000, and 50,000 shares of Common Stock to Glenn R. Fitchet, Gregory
K. Roeper, and Larry L. Steinmetz, respectively, during the year ended December
31, 1997.
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.
10
<PAGE>
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. The Committee believes that Mr. Fitchet's 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.
William J. Hinz
Gilbert H. Engels
Stephen A McConnell
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, 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." 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.
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.
11
<PAGE>
PERFORMANCE GRAPH
The following line graph compares cumulative total stockholder returns
for (i) the Company's Common Stock; (ii) the Standard & Poor's Small Cap 600
Index (the "Index"); and (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 "Peer
Group"). The graph covers the period from October 6, 1995 through December 31,
1997. The graph assumes an investment of $100 in each of the Company's Common
Stock and the 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 calculation of cumulative stockholder return on the
Peer Group and the Index include reinvestment of dividends, but 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.
CUMULATIVE TOTAL RETURN
-----------------------------------
10/06/95 12/95 12/96 12/97
-------- ----- ----- -----
VODAVI TECHNOLOGY, INC 100.00 91.23 50.00 63.16
PEER GROUP 100.00 106.06 105.95 209.78
S & P SMALLCAP 600 100.00 100.46 121.87 153.05
12
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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 May 21, 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)
- --------------------------- ------------ ----------
Directors and Executive Officers:
<S> <C> <C>
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 May 21, 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 May 21, 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 May 21, 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.
(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
13
<PAGE>
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. Mr. Sherman is not standing for re-election as a
director at the Meeting.
(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 "Security Ownership of
Principal Stockholders, Directors, and Officers - 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.
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, 1998 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 1999 must be
received by the Company no later than January 29, 1999 in order to be included
in the proxy statement and form of proxy relating to such meeting.
14
<PAGE>
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: May 29, 1998
15
<PAGE>
VODAVI TECHNOLOGY, INC.
1998 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 May 29,
1998, and hereby appoints William J. Hinz 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
1998 Annual Meeting of Stockholders of the Company, to be held on Monday, June
29, 1998, 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> <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.
William J. Hinz, Glenn R. Fitchet, Gilbert H. Engels, Stephen A. McConnell, Nam K. Woo
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.
</TABLE>
(Continued, and to be signed and dated, on the reverse side.)
<PAGE>
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.
<TABLE>
<S> <C>
Dated _____________, 1998 _______________________________________________________
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 in 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>
