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 / /
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14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Active Voice Corporation
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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/X/ No fee required
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ACTIVE VOICE CORPORATION
2901 THIRD AVENUE, SUITE 500
SEATTLE, WASHINGTON 98121
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
TO THE HOLDERS OF COMMON STOCK
OF ACTIVE VOICE CORPORATION:
The Annual Meeting of Shareholders of Active Voice Corporation, a
Washington corporation (the "Company"), will be held on August 19, 1998, at
2:00 p.m. PDT, at the Seattle Art Museum, 100 University Street, Seattle,
Washington, for the following purposes as more fully described in the
accompanying Proxy Statement:
1. To elect five directors to serve until the 1999 Annual Meeting of
Shareholders or until their earlier retirement, resignation or
removal;
2. To consider and approve an amendment to the Company's 1996 Stock
Option Plan to reserve an additional 170,000 shares of Common Stock
for issuance thereunder;
3. To consider and approve the Company's 1997 Director Stock Option Plan;
4. To ratify the appointment of Ernst & Young LLP as independent auditors
for the Company's fiscal year ending March 31, 1999; and
5. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only holders of record of the Company's Common Stock at the close of
business on July 2, 1998, will be entitled to vote at the meeting. A list of
shareholders as of that date will be available at the meeting and for ten days
prior to the meeting at the Company's headquarters, 2901 Third Avenue, Suite
500, Seattle, Washington 98121.
By order of the Board of Directors
/s/ Jose S. David
JOSE S. DAVID,
Chief Financial Officer, Treasurer and
Secretary
Seattle, Washington
July 16, 1998
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YOUR VOTE IS IMPORTANT!
Please mark, sign and date the enclosed proxy card and
mail it promptly in the enclosed return envelope.
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ACTIVE VOICE CORPORATION
2901 THIRD AVENUE, SUITE 500
SEATTLE, WASHINGTON 98121
PROXY STATEMENT
ANNUAL MEETING AND PROXY SOLICITATION INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Active Voice Corporation, a Washington
corporation (the "Company"), for use at the Annual Meeting of Shareholders on
August 19, 1998, and at any adjournments thereof. This Proxy Statement, a proxy
card and the Annual Report of the Company, including financial statements for
its fiscal year ended March 31, 1998, are being sent to all shareholders of
record as of the close of business on July 2, 1998, for delivery beginning on or
about July 16, 1998. Although the Annual Report and this Proxy Statement are
being mailed together, the Annual Report is not part of the Proxy Statement.
At the close of business on July 2, 1998, there were 4,678,859 shares of
Common Stock of the Company outstanding. Only holders of record of the shares
outstanding at such time will be entitled to vote at the meeting. The presence
at the meeting of at least a majority of such shares, either in person or by
proxy, is required for a quorum. Proxies are solicited to give all shareholders
who are entitled to vote on the matters that come before the meeting the
opportunity to do so, whether or not they choose to attend the meeting in
person.
If you are a shareholder of record, you may vote by using the proxy card
enclosed with this Proxy Statement. When your proxy card is returned properly
signed, the shares represented will be voted according to your directions. You
can specify how you want your shares voted on each proposal by marking the
appropriate boxes on the proxy card. The proposals are identified by number and
a general subject title on the proxy card. Please review the voting instructions
on the proxy card and read the text of the proposals and the position of the
Board of Directors in the Proxy Statement prior to marking your vote. If your
proxy card is signed and returned without specifying a vote or an abstention on
any proposal, it will be voted according to the recommendations of the Board of
Directors on that proposal. That recommendation is shown for each proposal on
the proxy card. For the reasons stated in more detail later in the Proxy
Statement, the Board of Directors recommends a vote FOR each of the five
individuals nominated to serve as a director; FOR approval of the amendment to
the Company's 1996 Stock Option Plan; FOR approval of the Company's 1997
Director Stock Option Plan; and FOR the ratification of the appointment of Ernst
& Young LLP as independent auditors. If you hold shares of Common Stock through
a brokerage firm or other intermediary, you must provide instructions on voting
to your nominee holder.
The Board of Directors knows of no other matters which are to be presented
at the meeting. However, if any other matters are properly presented for action,
the proxies named on the proxy card will be authorized by your proxy to vote on
them in their discretion to the extent permitted by applicable law.
On each matter properly brought before the meeting, shareholders will be
entitled to one vote for each share of Common Stock held. Under Washington law
and the Company's Articles of Incorporation and Bylaws, if a quorum exists at
the meeting: (a) the five nominees for director who receive the greatest number
of votes cast in the election of directors will be elected; and (b) for each of
the proposals to approve the amendment to the Company's 1996 Stock Option Plan,
to approve the Company's 1997
1
Director Stock Option Plan, and to ratify the appointment of auditors, the
proposal will be approved if the number of votes cast in favor of the proposal
exceeds the number of votes cast against it.
Shareholders may abstain from voting for one or more of the nominees for
director and may abstain from voting on the proposal to approve the amendment to
the Company's 1996 Stock Option Plan, the proposal to approve the Company's 1997
Director Stock Option Plan or the proposal to ratify the appointment of
auditors. Abstention from voting for a nominee for director may make it less
likely that the nominee will be one of the five nominees for director who
receive the greatest number of votes cast. Abstention from voting on any of the
other three proposals will have no effect, since approval of these proposals is
based solely on the number of votes actually cast.
Brokerage firms and other intermediaries holding shares of Common Stock in
street name for customers are generally required to vote such shares in the
manner directed by their customers. In the absence of timely directions,
brokerage firms and other intermediaries generally will have discretion to vote
their customers' shares in the election of directors, on the proposal to approve
the amendment to the Company's 1996 Stock Option Plan, on the proposal to
approve the Company's 1997 Director Stock Option Plan and on the proposal to
ratify the appointment of auditors. If a brokerage firm or other intermediary
votes its customers' shares on some but not all proposals, the effect of the
non-vote will vary depending on the proposal. A non-vote for a nominee for
director will make it less likely that the nominee will be one of the five
nominees for director who receive the greatest number of votes cast. A non-vote
on any of the other three proposals will have no effect, since approval of these
proposals is based solely on the number of votes actually cast.
If you execute a proxy, you may revoke it by taking one of the following
three actions: (a) by giving written notice of the revocation to the Secretary
of the Company at its principal executive offices; (b) by executing a proxy with
a later date and delivering it to the Secretary of the Company at its principal
executive offices; or (c) by personally attending and voting at the meeting.
The Company will bear the expense of preparing, printing and distributing
proxy materials to its shareholders. In addition to solicitations by mail, a
number of regular employees of the Company may solicit proxies on behalf of the
Board of Directors in person or by telephone. The Company has also retained
William F. Doring & Co. on behalf of the Board of Directors to assist in the
solicitation of proxies by mail, telephone, telegraph and personal interview.
The Company will pay a fee of approximately $5,000 for these services. The
Company will also reimburse brokerage firms and other intermediaries for their
expenses in forwarding proxy materials to beneficial owners of the Company's
Common Stock.
BOARD OF DIRECTORS
The business of the Company is managed under the direction of a Board of
Directors consisting of five directors. The following individuals are currently
serving as directors: Tom A. Alberg, Douglas P. Beighle, Robert C. Greco, Harold
H. Kawaguchi and Robert L. Richmond. The Board of Directors has responsibility
for establishing broad corporate policies and for the overall performance of the
Company. It is not, however, involved in operating details on a day-to-day
basis. The Board is kept advised of the Company's business through regular
reports and discussions with the Company's executive officers.
2
MEETINGS OF THE BOARD
The Board meets on a regularly scheduled basis during the year to review
significant developments affecting the Company and to act on matters requiring
Board approval. It also holds special meetings when an important matter requires
Board action between regularly scheduled meetings. The full Board of Directors
met seven times during the Company's fiscal year ended March 31, 1998. No
incumbent member attended fewer than 75% of the total number of meetings of the
Board of Directors and of any Board committees of which he was a member during
that fiscal year, except for Mr. Beighle who joined the Board on September 30,
1997 and attended two of three meetings held after he became a director.
COMPENSATION OF DIRECTORS
Each director who is not also an employee of the Company receives a fee of
$2,500 per fiscal quarter, provided that the director attends at least 75% of
the total number of meetings of the Board of Directors and of any Board
committees of which he is a member during the year (attendance must be in person
for at least 50% of the meetings). Each of Messrs. Alberg and Kawaguchi received
a director's fee of $2,500 for each quarter of the fiscal year ended March 31,
1998, Mr. Beighle received a fee of $2,500 for each of the third and fourth
quarters of the fiscal year, and Mr. Greco received a fee of $2,500 for the
fourth quarter of the fiscal year. Mr. Greco also received a fee of $2,000 for
serving on the board of directors of the Company's subsidiary, Pronexus Inc.
In the fiscal year ended March 31, 1998 the Company established a Director
Stock Option Plan (the "Director Plan"), under which a grant of a stock option
covering 5,000 shares of Common Stock is automatically made to each outside
director on the date of each annual meeting of shareholders, commencing with the
annual meeting in 1998. The exercise price under each option is the fair market
value of the Company's Common Stock on the date of grant. Each option has a
10-year term and vests one year after it is granted. An option generally
terminates if the director receiving it does not remain on the Board of
Directors for at least 10 months following the date of grant and is further
conditioned upon adequate attendance at meetings of the Board of Directors and
its committees.
During the fiscal year ended March 31, 1998, Messrs. Alberg and Kawaguchi
were granted options covering 2,500 shares of Common Stock at an exercise price
of $14.00 under a prior option plan for outside directors, as well as a special
one-time grant under the new Director Plan covering 2,500 shares of Common Stock
at an exercise price of $14.6875 per share. The terms of each of these options
were substantially similar to those of the annual options described in the
preceding paragraph.
On joining the Board of Directors Mr. Beighle was granted an option to
acquire 15,000 shares of Common Stock at an exercise price of $14.50 per share.
The option has a 10-year term, with 5,000 shares vesting on each of the first,
second and third anniversaries of grant. The option generally will not vest as
scheduled if Mr. Beighle ceases to serve on the Board of Directors more than two
months prior to a scheduled vesting date or if he fails to meet certain
conditions relating to adequate attendance at meetings of the Board of Directors
and its committees.
When Mr. Greco retired as Chief Technology Officer in December 1997, his
employee options terminated in accordance with the terms of the employee stock
option plan. To incent him to remain on the Board, he was granted an option for
5,000 shares at an exercise price of $11.625. The option has a 10-year term,
with 1,666 shares vesting on each of the first and second anniversaries of
grant, and 1,668 shares vesting on the third anniversary of grant.
3
COMMITTEES OF THE BOARD
Committees of the Board consist of an Audit Committee and a Compensation
Committee. The Audit Committee, currently composed of Messrs. Alberg and
Kawaguchi, reviews the Company's internal accounting procedures and consults
with and reviews the services provided by the Company's independent auditors.
The Audit Committee met once during the fiscal year ended March 31, 1998. The
Compensation Committee, also currently composed of Messrs. Alberg and Kawaguchi,
reviews and recommends to the Board the compensation and benefits to be provided
to the Company's officers and reviews general policy matters relating to
employee compensation and benefits. The Compensation Committee met once during
the fiscal year ended March 31, 1998. The Compensation Committee also acted by
written consent seven times during the fiscal year. The Company does not have a
Nominating Committee.
NOMINEES FOR DIRECTOR
The following individuals, each of whom currently serves as a director of
the Company, have been nominated for re-election at the meeting:
TOM A. ALBERG has been a director of the Company since 1994. Mr. Alberg has
been a principal in the firm of Madrona Investment Group, L.L.C., a merchant
banking firm, since January 1996. From April 1991 to October 1995 he was the
President and a director of LIN Broadcasting Corporation and from July 1990 to
October 1995 he was Executive Vice President of McCaw Cellular Communications,
Inc. Both companies were providers of cellular voice and data services. Prior to
1990, Mr. Alberg was a partner at the Seattle law firm of Perkins Coie, where he
also served as Chairman of the firm's Executive Committee. Mr. Alberg is also a
director of Visio Corp., Mosaix Corporation, Teledesic Corporation, Amazon.com,
Emeritus Corp., and Advanced Digital Information Corporation. Age 58.
DOUGLAS P. BEIGHLE became a director of the Company on September 30, 1997.
Mr. Beighle retired from The Boeing Company, an aerospace manufacturer, on May
1, 1997, where he had served as a Senior Vice President from 1986 until he
retired. He continues to serve as a consultant to Boeing. Mr. Beighle also
served as a Vice President of Boeing from 1980 until 1986. Prior to joining
Boeing in 1980, Mr. Beighle was a partner at the Seattle law firm of Perkins
Coie. Mr. Beighle is also a director of Puget Sound Energy Company, Simpson
Investment Co. and Washington Mutual Inc. Age 66.
ROBERT C. GRECO, a co-founder of the Company, has been a director of the
Company since its inception in 1983. Mr. Greco retired as the Company's Chief
Technology Officer in December 1997, in which capacity he had served since
December 1996. Previously he served as Vice President of Product Development of
the Company from 1983 until December 1996. From 1977 to 1983, Mr. Greco worked
as an independent software consultant for such firms as The Boeing Company,
Scandinavian Airlines System (Denmark) and General Electric Company. Mr. Greco
holds a Bachelor of Arts, Mathematics, from the City University of New York, and
a Masters of Science, General Systems Science, from the State University of New
York. Mr. Greco was a director of the Washington Software Association from 1992
to 1994. Age 43.
HAROLD H. KAWAGUCHI has been a director of the Company since 1986. Since
1992, Mr. Kawaguchi has been a director and consultant to Stratos Product
Development Group, Inc., a contract developer of products for the computer and
other technology industries. Since 1988, Mr. Kawaguchi has also been a director
and principal in Manifesto Corp., a lighting products manufacturer. From 1986 to
1988, he was a partner in Trinus, L.P., a seed capital fund for start-up
businesses. From 1965 to 1985, he was employed
4
by Physio-Control, Inc., a defibrillator manufacturer, as Senior Vice President
in charge of product design, information systems, corporate communications and
human resources. Age 60.
ROBERT L. RICHMOND, the other co-founder of the Company, has been Chief
Executive Officer and Chairman of the Board of Directors of the Company since
its inception in 1983. From 1971 to 1980, Mr. Richmond was a consultant, and
from 1980 to 1983 he was a project manager for Intermetrics Incorporated, a
public software company, performing software validation for NASA and The Boeing
Company, and creating new products for the airline industry. Mr. Richmond holds
a Bachelor of Computer Science and Engineering from the Massachusetts Institute
of Technology. Age 47.
VOTING SECURITIES AND PRINCIPAL HOLDERS
OWNERSHIP INFORMATION
The following table sets forth, as of June 15, 1998, certain information
regarding beneficial ownership of the Company's Common Stock (a) by each person
known to the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, (b) by each director and nominee for director, (c) by
the Chief Executive Officer and the five other executive officers of the Company
whose total annual salary and bonus, for the fiscal year ended March 31, 1998,
exceeded $100,000, and (d) by all of the Company's executive officers and
directors as a group. Unless otherwise noted, the named beneficial owner has
sole voting and investment power.
NUMBER OF SHARES PERCENT OF
OF COMMON STOCK COMMON STOCK
NAME AND ADDRESS BENEFICIALLY OWNED OUTSTANDING
Robert L. Richmond (1)(2) 606,554 12.9%
Robert C. Greco (1)(3) 508,806 10.9%
Tom A. Alberg (4) 15,534 *
Douglas P. Beighle 10,000 *
Harold H. Kawaguchi (5) 101,912 2.2%
Douglass S. Anderson (6) 2,565 *
Kevin L. Chestnut (7) 9,376 *
Frank J. Costa (8) 16,666 *
Jose S. David (9) 22,249 *
Edward F. Masters (10) 5,736 *
All directors and executive
officers as a group (10 persons) (11) 1,299,398 27.3%
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* Less than 1%.
(1) The business address of Messrs. Richmond and Greco is c/o Active Voice
Corporation, 2901 Third Avenue, Suite 500, Seattle, Washington 98121.
5
(2) Includes 27,500 shares subject to options exercisable within 60 days of
June 15, 1998. Also includes 34,890 shares held by two private
foundations of which Mr. Richmond serves as a director. Mr. Richmond
disclaims beneficial ownership of the shares held by these foundations.
(3) Includes 200,000 shares held by a family limited partnership of which Mr.
Greco is the general partner.
(4) Includes 9,034 shares subject to options exercisable within 60 days of June
15, 1998.
(5) Includes 10,000 shares subject to options exercisable within 60 days of
June 15, 1998.
(6) Includes 1,000 shares subject to options exercisable within 60 days of June
15, 1998.
(7) Includes 7,670 shares subject to options exercisable within 60 days of June
15, 1998.
(8) Consists of 16,666 shares subject to options exercisable within 60 days of
June 15, 1998.
(9) Includes 13,249 shares subject to options exercisable within 60 days of
June 15, 1998.
(10) Consists of 5,736 shares subject to options exercisable within 60 days of
June 15, 1998.
(11) Includes 90,855 shares subject to options exercisable within 60 days of
June 15, 1998.
6
COMPENSATION AND BENEFITS
EXECUTIVE OFFICER COMPENSATION
COMPENSATION SUMMARY. The following table sets forth information regarding
compensation earned during the Company's fiscal year ended March 31, 1998, and
during the two preceding fiscal years, by the Chief Executive Officer and the
five other executive officers whose total annual salary and bonus for the fiscal
year ended March 31, 1998 exceeded $100,000 (the "named executive officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
UNDERLYING
NAME AND FISCAL STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS (1)($) OPTIONS(#) COMPENSATION(2)($)
- ------------------ ------ ---------- ------------ ---------- ------------------
Robert L. Richmond 1998 $144,099 $ 0 0 $20,356
Chief Executive Officer and 1997 122,750 55,000 0 24,083
Chairman of the Board 1996 105,783 58,412 35,000 27,156
Frank J. Costa (3) 1998 150,000 0 25,000 1,692
Chief Operating Officer and 1997 37,300 20,000 50,000 0
President 1996 - - - -
Jose S. David 1998 101,856 0 0 4,607
Chief Financial Officer, 1997 85,600 41,000 10,000 6,809
Treasurer and Secretary 1996 80,000 24,000 4,000 12,095
Douglass S. Anderson 1998 101,246 42,379 0 5,166
Vice President -- Sales 1997 93,790 66,551 12,000 9,658
1996 82,620 83,872 35,000 18,193
Kevin L. Chestnut 1998 94,048 25,000 0 5,124
Chief Technology Officer and 1997 68,500 7,000 12,500 3,917
Vice President -- Advanced 1996 60,000 0 4,000 8,775
Products & Technologies
Edward F. Masters 1998 107,150 25,000 0 2,605
Vice President -- Development 1997 77,510 15,000 12,500 4,118
1996 70,354 0 4,000 7,848
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(1) Amounts shown in this column for Mr. Anderson include both commission and
bonus income.
(2) Amounts shown for fiscal 1998 represent the named executive officers'
proportionate share of Company-wide profit sharing distributions for the
1997 fiscal year (contributed in May 1998), except for $1,425 for each of
Messrs. Richmond, David and Anderson, and $1,325 for Mr. Chestnut, which
represent matching contributions under the Company's 401(k) Plan, and
$14,690 for Mr. Richmond which represents the dollar value of life
insurance benefits as determined under the SEC's methodology for valuing
such benefits.
(3) Mr. Costa joined the Company as President and Chief Operating Officer in
December 1996.
7
OPTION GRANTS. The following table shows information concerning stock
options granted to the named executive officers during the Company's fiscal year
ended March 31, 1998.
OPTION GRANTS IN FISCAL YEAR 1998
INDIVIDUAL GRANTS
--------------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS GRANTED EXERCISE PRICE APPRECIATION FOR
OPTIONS TO EMPLOYEES PRICE EXPIRATION OPTION TERM (1)
NAME GRANTED(#) IN FISCAL YEAR ($ PER SHARE) DATE 5% 10%
- ---- ---------- -------------- ------------- --------- -------------------
Robert L. Richmond -- -- -- -- -- --
Frank J. Costa 25,000(2) 8.0% $14.13 9/1/07 222,078 562,790
Jose S. David -- -- -- -- -- --
Douglass S. Anderson -- -- -- - -- --
Kevin L. Chestnut -- -- -- -- -- --
Edward F. Masters -- -- -- -- -- --
- --------------
(1) Based upon the market price on the date of grant and assumed appreciation
over the term of the option at the respective annual rates of stock
appreciation shown. These amounts are not intended to forecast possible
future appreciation, if any, in the market price of the Company's Common
Stock.
(2) Nonqualified stock option vesting for 8,333 shares on each of September 2,
1998 and 1999 and 8,334 shares on September 2, 2000.
8
OPTION EXERCISES. The following table shows information concerning stock
options exercised by the named executive officers during the Company's fiscal
year ended March 31, 1998, including the aggregate value of any gains realized
on such exercise. The table also shows information regarding the number and
value of unexercised in-the-money options held by the named executive officers
at the end of that fiscal year.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND FISCAL YEAR-END OPTION
VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
NAME ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END(#) AT FISCAL YEAR-END(2)($)
- ---- EXERCISE(#) REALIZED (1)($) ----------------------------- ------------------------
----------- --------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
Robert L. Richmond 15,181 $71,730 38,500 6,500 $ 0 $ 0
Frank J. Costa 0 0 16,666 58,334 22,916 45,834
Jose S. David 0 0 18,249 8,668 36,457 11,419
Douglass S. Anderson 0 0 21,000 27,000 16,425 0
Kevin L. Chestnut 0 0 6,870 9,300 17,775 23,213
Edward F. Masters 0 0 5,736 9,300 11,850 23,213
- -----------------
(1) Represents the aggregate fair market value on the respective dates of
exercise of the shares of Common Stock received on exercise of the
options, less the aggregate exercise price of the options.
(2) Represents the aggregate fair market value on March 31, 1998, of the shares
of Common Stock subject to outstanding options, less the aggregate
exercise price of the options.
EXECUTIVE CONTRACTS
Each of Messrs. Richmond, Anderson, Chestnut, Costa, David and Masters has
executed an agreement containing confidentiality restrictions, as well as
certain provisions regarding noncompetition during his term of employment with
the Company and for six months following termination. The Company provides each
of its executive officers with an annual incentive plan under which they receive
a specified salary plus additional cash and stock-based incentives depending on
attainment of various performance goals.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
administration of compensation programs for the executive officers of the
Company. The Committee is composed
9
exclusively of directors who are neither employees nor former employees of the
Company nor eligible to participate in any of the Company's executive
compensation programs.
Under the Company's executive compensation programs, there are generally
three components to an executive's compensation: base salary, an annual or
bi-annual incentive payment, and long-term incentives in the form of stock
options. The range of base salaries for a particular executive is targeted to a
specific percentile level of the base salary levels at companies of comparable
size in similar industries, with the percentile set based on an assessment of
the Company's overall performance, in terms of earnings and revenue growth, and
the executive's contribution to that performance. Incentive payments are based
on individual incentive plans, where payments are tied to specific performance
goals. Bonus payments under the incentive plans are generally computed as a
percentage of the executive's salary, with the actual percentages being a
function of the extent to which the goals were achieved. Finally, the Company
provides long-term incentives to executives through the grant of stock options.
The options generally have an exercise price equal to the estimated fair market
value of the Company's stock at the time of grant, with the number of options
awarded based on the executive's position as well as the level of the
executive's existing stock holdings. Since fair market value stock options can
only produce value to executives if the price of the Company's stock increases,
these option grants provide a direct link between executive compensation and the
Company's performance.
Mr. Richmond's salary and bonus for the fiscal years ended March 31, 1998
and 1999 are weighted more towards the fiscal year ended March 31, 1999 to
conserve cash and profit in a year with anticipated heavy research and
development spending. Mr. Richmond's total possible compensation for fiscal
1998 was targeted at less than 50% of that paid in 1997 to comparable executives
in similar sized companies. Mr. Richmond's total possible compensation for
fiscal 1999 is targeted to equal the compensation paid in 1997 to comparable
executives at comparable companies, with about half allocated to base salary and
half allocated to incentive compensation to be awarded for achievement of
revenue and earnings goals.
Mr. Richmond's actual compensation in the fiscal year ended March 31, 1998
included no bonus since the revenue and earnings goals upon which it depended
were not achieved.
Pursuant to the Omnibus Budget Reconciliation Act of 1993 (the "Act"), the
deductibility for federal income tax purposes of compensation in excess of $1
million paid or accrued with respect to any of the Company's five highest paid
executives may be limited. The Company believes that compensation accrued with
respect to options granted under its stock option plans (other than options with
an exercise price less than the fair market value of the Company's Common Stock
at the time of grant), will continue to be deductible, and with regard to base
salaries and the Company's annual incentive programs, the Company does not
expect that, for the foreseeable future, the aggregate level of compensation
payable to executive officers will exceed the $1 million limit.
The Compensation Committee currently consists of Messrs. Alberg and
Kawaguchi.
COMPENSATION COMMITTEE
Tom A. Alberg
Harold H. Kawaguchi
10
COMPARATIVE PERFORMANCE GRAPH
Set forth below is a graph comparing the cumulative total return to
shareholders on the Company's Common Stock with the cumulative total return of
the NASDAQ Composite Index and the NASDAQ Telecommunications Index for the
period beginning on December 14, 1993, the date of the Company's initial public
offering, and ended on March 31, 1998.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG ACTIVE VOICE CORPORATION COMMON STOCK,
THE NASDAQ COMPOSITE INDEX AND
THE NASDAQ TELECOMMUNICATIONS INDEX
[GRAPH]
----------------------------------------------------------
12/14/93 3/31/94 3/31/95 3/29/96 3/31/97 3/31/98
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Active Voice Corporation $100 $147 $185 $ 87 $ 68 $ 88
NASDAQ Composite Index $100 $ 98 $108 $145 $161 $242
NASDAQ Telecommunications Index $100 $ 88 $ 90 $121 $112 $216
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The total return on the Company's Common Stock and each index assumes the
value of each investment was $100 on December 14, 1993, and that all dividends
were reinvested. Return information is historical and not necessarily indicative
of future performance.
11
PROPOSAL 1 -- ELECTION OF DIRECTORS
Five directors are to be elected at the annual meeting, to serve until the
1998 Annual Meeting of Shareholders or until their earlier retirement,
resignation or removal. Tom A. Alberg, Douglas P. Beighle, Robert C. Greco,
Harold H. Kawaguchi and Robert L. Richmond, all of whom are currently directors
of the Company, have been nominated by the Board of Directors for election. The
accompanying proxy will be voted for these nominees, except where authority to
so vote is withheld. Should any nominee be unable to serve, the proxy will be
voted for such person as is designated by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES NAMED IN
PROPOSAL 1.
PROPOSALS 2 AND 3 - APPROVAL OF AN AMENDMENT TO THE 1996 STOCK
OPTION PLAN AND OF THE 1997 DIRECTOR STOCK OPTION PLAN
At the annual meeting, the shareholders of the Company will be asked to
approve an amendment to the Company's 1996 Stock Option Plan (the "1996 Plan")
and approve the 1997 Director Stock Option Plan (the "Director Plan" and
collectively, the "Plans") as described below. A copy of the Plans as proposed
to be amended are on file with the Securities and Exchange Commission (the
"SEC") and may be obtained by written request to the Company's Secretary at the
address on the first page of this proxy statement.
SUMMARY OF THE PLANS
IN GENERAL
The purpose of the Plans is to provide a method by which selected
individuals rendering services to the Company, whether as directors,
employees or consultants, may be offered an opportunity to invest in capital
stock of the Company, thereby increasing their personal interest in the
Company's growth and success and fostering loyalty. The Plans are also
intended to aid in attracting persons of exceptional ability to become
directors, officers and employees of the Company and have become critical in
the competitive labor market in the software industry. The Board believes
that, unless the Plans are amended, the number of shares available for
issuance will be insufficient to achieve the purposes of the Plans.
In August 1997 the shareholders approved the 1996 Plan. A total of
230,000 shares of Common Stock have been reserved for issuance upon exercise
of options granted under the 1996 Plan. The proposed amendment to the 1996
Plan would increase the number of shares of Common Stock available for
purchase upon exercise of options granted thereunder by 170,000 shares and
limit the maximum number of shares with respect to which options may be
granted in any calendar year to any one individual to 150,000 shares. In
addition, a total of 60,000 shares is reserved for issuance under the
Director Plan. The Board of Directors has adopted the Plans, subject to
shareholder approval. In January 1998 the Board also adopted an employee
stock option plan, with a total of 600,000 shares of Common Stock reserved
for issuance upon the exercise of options under the employee plan. Executive
officers and members of the Board of Directors are not eligible for grants of
options under the employee plan.
12
1996 PLAN
The 1996 Plan is administered by the Compensation Committee of the Board of
Directors. To be eligible to receive an option under the 1996 Plan, a person
must be an employee of the Company (including an officer or director who is also
an employee) or a consultant rendering services to the Company in the capacity
of an independent contractor. However, no member of the Compensation Committee,
while serving as such, will be eligible to receive an option.
Generally, the Compensation Committee designates the specific eligible
persons to whom options are to be granted under the 1996 Plan and the number of
shares, the exercise price and all other terms and conditions (which need not be
identical) of all options to be granted. Two types of options may be granted:
nonqualified stock options and options meeting the requirements of incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). An employee of the Company may be granted either an incentive
stock option or a nonqualified stock option. An independent contractor who is
not an employee of the Company may only be granted a nonqualified stock option.
The exercise price for the shares of Common Stock covered by an option will
be determined by the Compensation Committee at the time the option is granted.
The exercise price per share for an incentive stock option must be at least 100%
of the fair market value of the Common Stock on the date the option is granted,
except that, in the case of an incentive stock option granted to a shareholder
owning more than 10% of the combined voting power of all classes of outstanding
stock of the Company, the exercise price for the option must be at least 110% of
the fair market value of the Common Stock on the date of grant. The exercise
price per share for a nonqualified stock option under the 1996 Plan may be more
than, less than or equal to the fair market value of the Common Stock on the
date of grant. With respect to both types of options, the exercise price of any
shares purchased can be paid in cash or in any other manner that the
Compensation Committee may authorize at the time of grant of the option.
Each option granted under the 1996 Plan will become exercisable pursuant to
a vesting schedule, and will remain exercisable for a term, specified by the
Compensation Committee at the time of grant. The term specified by the
Compensation Committee may not be more than ten years after the date of grant
(five years in the case of an incentive stock option that is granted to an
employee who owns more than 10% of the combined voting power of all classes of
outstanding stock of the Company).
If an optionee who is an employee of the Company ceases to be an employee
for any reason other than death or disability (as defined in the 1996 Plan),
then all options held by the optionee generally will terminate. In the event of
the death or disability of the optionee, options held by the optionee generally
will become exercisable in full for all shares of Common Stock covered by the
option and will remain exercisable for a period of six months following such
death or disability (but the option will not be exercisable following its
scheduled expiration date). If any option granted under the 1996 Plan terminates
for any reason without having been exercised in full, the shares of Common Stock
subject to the option for which it has not been exercised will again be
available for purposes of the 1996 Plan.
The Board of Directors or the Compensation Committee may from time to time
amend the 1996 Plan in such respects as it shall deem advisable. The 1996 Plan
will terminate on October 17, 2006, following which no additional options may be
granted. Termination of the 1996 Plan will not alter or impair any rights or
obligations under any option previously granted under the 1996 Plan.
13
DIRECTOR PLAN
The Director Plan is administered by the Board of Directors of the Company.
To be eligible to receive an option under the Director Plan, a person must be a
member of the Board of Directors on the date of grant of the option, and must
not be an employee of the Company or any one of its affiliates or have been such
an employee during a specified period of time (an "Eligible Director").
Under the Director Plan, all options granted will be nonqualified stock
options and will not meet the requirements of incentive stock options under
Section 422 of the Code. Each grant of an option will occur automatically
according to the Director Plan without further action of the Board of Directors
other than its determination of the fair market value on the grant date and the
provisions to be included in the option agreement.
Effective October 1, 1997, each individual who had been an Eligible
Director for at least six months received an option to acquire 2,500 shares of
Common Stock. When an Eligible Director first takes office, the director will
receive an option to acquire either 15,000 shares of Common Stock, if six months
or less have elapsed since the last annual meeting of shareholders of the
Company, or 10,000 shares of Common Stock, if more than six months have elapsed
since the annual meeting date. In addition, starting in 1998, on the annual
meeting date each Eligible Director will receive an option to acquire 5,000
shares of Common Stock or the largest whole number of shares of Common Stock as
can then be granted without exceeding the available shares under the Director
Plan. The exercise price for the shares of Common Stock covered by an option
will be the fair market value of the Common Stock at the time the option is
granted.
Each option granted under the Director Plan will become exercisable,
subject to certain conditions, pursuant to a vesting schedule set forth in the
Director Plan, and unless earlier terminated under certain provisions of the
Director Plan, will remain exercisable for ten years after its grant date or one
year after the date of death of the Eligible Director, whichever occurs first.
Options granted under the Plan generally will not be transferable by an optionee
other than by will or by the laws of descent and distribution and will be
exercisable during the optionee's lifetime only by the optionee. Following the
death of an optionee prior to full exercise of an option, the option may be
exercised by the person or persons to whom the optionee's option rights pass by
will or by the applicable laws of descent and distribution. If any option
granted under the Director Plan terminates for any reason without having been
exercised in full, the shares of Common Stock subject to the option for which it
has not been exercised will again be available for purposes of the Director
Plan.
The Board of Directors of the Company has the right to amend the Director
Plan under certain circumstances. The Director Plan may also be terminated at
any time by the Board of Directors of the Company, but termination will not
affect any outstanding options under the Director Plan.
The number of shares subject to the Plans, as well as the number of shares
subject to options outstanding under the Plans and the respective exercise
prices under those options, are subject to adjustment upon the occurrence of a
material change in the capital structure of the Company. In addition, the
outstanding options may be adjusted or terminated upon the occurrence of other
events, including, for example, a merger or other reorganization whereby the
Company is not the surviving corporation or a sale of all or substantially all
of the Company's assets. Certain payments may be made to the optionees if their
options are terminated upon the occurrence of such an event.
14
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE PLANS
With respect to incentive stock options, the tax consequences to an
optionee will vary depending on whether certain holding period requirements are
met. In addition, an option will cease to be an incentive stock option, and
thereafter be taxed as a nonqualified stock option, if the optionee exercises
the option more than three months following termination of employment for any
reason other than death or disability or more than one year following
termination of employment on account of disability.
If an optionee acquiring stock pursuant to an incentive stock option does
not dispose of the stock until at least one year after the transfer of the stock
to the optionee and at least two years from the date of grant of the option,
then, subject to the alternative minimum tax rules discussed below, there will
be no tax consequences to the optionee or the Company when the incentive stock
option is granted or when it is exercised. When the stock is ultimately sold,
gain or loss will be determined, based on the difference between the net
proceeds of the sale and the aggregate exercise price paid for the stock, and
the optionee will be required to report such gain or loss as long-term capital
gain or loss on his or her federal income tax return for the year in which the
sale occurs.
If stock acquired upon exercise of an incentive stock option is sold by the
optionee and, at the time of the sale, the holding period requirements described
in the preceding paragraph have not been met, the federal income tax
consequences to the optionee will be as follows:
(a) The optionee will be required to report, on his or her
federal income tax return for the year in which the sale occurs,
additional compensation income equal to the difference between the
fair market value of the stock at the time of exercise of the option
and the exercise price at which the stock was acquired (the Company
will generally be entitled to a compensation deduction in an
equivalent amount.)
(b) For purposes of determining gain or loss upon sale of the
stock, an amount equal to this compensation income will be added to
the exercise price at which the stock was acquired, and the total will
be the optionee's adjusted cost of the stock. Gain or loss will be
determined, based upon the difference between the optionee's adjusted
cost of the stock and the net proceeds of the sale, and the optionee
will be required to report such gain or loss as long-term or
short-term (depending on how long the optionee held the stock) capital
gain or loss on his or her federal income tax return for the year in
which the sale occurs.
When an optionee exercises an incentive stock option, the difference
between the fair market value of the stock on the date of exercise and the
exercise price paid results in an adjustment in computing alternative minimum
taxable income for purposes of Sections 55 ET SEQ. of the Code, which may
trigger alternative minimum tax consequences for optionees. Any alternative
minimum tax that is payable may ultimately be credited against future taxes
owed.
With respect to nonqualified stock options, there are generally no tax
consequences to the optionee or the Company when the option is granted. Upon
exercise of the option, the optionee will be required to report, on his or her
federal income tax return for the year in which the exercise occurs, additional
compensation or self-employment income equal to the difference between the fair
market value of the stock at the time of exercise of the option and the exercise
price at which the stock was acquired (the Company will generally be entitled to
a deduction in an equivalent amount). When the stock is ultimately sold, the
transaction will be taxed in the manner described in subparagraph (b) above for
incentive stock options.
15
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE 1996 STOCK OPTION PLAN AND A VOTE "FOR" APPROVAL OF THE 1997 DIRECTOR STOCK
OPTION PLAN.
PROPOSAL 4 -- APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Ernst & Young LLP as
independent auditors for the Company's fiscal year ending March 31, 1999. This
firm has audited the accounts of the Company since 1988. The firm performed
audit services in connection with the examination of the consolidated financial
statements of the Company for its fiscal year ended March 31, 1998. In addition,
the firm has rendered other services, including the review of financial
statements and related information in various registration statements and
filings with the SEC and limited review of financial statements and related
information contained in quarterly reports provided to shareholders and the SEC.
If this proposal does not receive the affirmative approval of a majority of
the votes cast on the proposal, the Board of Directors will reconsider the
appointment. Representatives of Ernst & Young LLP are expected to be present at
the annual meeting, will have the opportunity to make a statement if they desire
to do so, and will be available to respond to appropriate questions from
shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the Company's officers and directors, and persons
who own more than ten percent of a registered class of the Company's equity
securities, file reports of ownership and changes of ownership with the SEC.
Officers, directors and greater than ten percent shareholders are required by
SEC regulation to furnish the Company with copies of all such reports they file.
Based solely on its review of the copies of such reports received by the
Company, and on written representations by the Company's officers and directors
regarding their compliance with the applicable reporting requirements under
Section 16(a) of the Exchange Act, the Company believes that, with respect to
its fiscal year ended March 31, 1998, all of the Company's officers and
directors, and all of the persons known to the Company to own more than ten
percent of its Common Stock, complied with all such reporting requirements,
except that Mr. Kawaguchi exercised an option in October 1995 in a transaction
that was reported on Form 4, but not on a timely basis.
16
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
An eligible shareholder who desires to have a qualified proposal considered
for inclusion in the proxy statement prepared in connection with the Company's
1999 Annual Meeting of Shareholders must deliver a copy of the proposal to the
Secretary of the Company, at the Company's principal executive offices, no later
than March 15, 1999, and satisfy certain other requirements set forth in Rule
14a-8 under the Exchange Act. A shareholder must have been a record or
beneficial owner of at least one percent of the Company's outstanding Common
Stock, or shares of Common Stock having a market value of at least $2,000, for a
period of at least one year prior to submitting the proposal, and the
shareholder must continue to hold the shares through the date on which the
meeting is held.
The Company's Bylaws contain provisions governing nomination of directors
by shareholders and certain other matters that a shareholder proposes to bring
before the annual meeting. In addition to compliance with the other provisions
of the Bylaws, a shareholder who desires to nominate a director or introduce any
other proposal must deliver written notice to the Secretary of the Company at
least 70 days prior to the date scheduled for the annual meeting. (In order for
the proposal to be included in the proxy statement for the meeting, the
shareholder must also satisfy the requirements referred to in the preceding
paragraph). A copy of the pertinent provisions of the Bylaws is available upon
request to Jose S. David, Secretary, Active Voice Corporation, 2901 Third
Avenue, Suite 500, Seattle, Washington 98121.
IT IS IMPORTANT THAT PROXIES ARE RETURNED PROMPTLY AND THAT YOUR SHARES ARE
REPRESENTED. SHAREHOLDERS ARE URGED TO MARK, SIGN AND DATE THE ENCLOSED PROXY
CARD AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
ACTIVE VOICE CORPORATION
July 16, 1998
Seattle, Washington
17
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PROXY
ACTIVE VOICE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having received the Notice of Annual Meeting of Shareholders
of Active Voice Corporation (the "Company"), and the related Proxy Statement
dated July 16, 1998, hereby appoints Robert L. Richmond and Jose S. David,
and each of them, proxies for the undersigned, with full power of
substitution, and authorizes them to attend the Annual Meeting of
Shareholders of the Company on August 19, 1998, and any adjournments thereof,
and to vote thereat all shares of Common Stock of the Company that the
undersigned would be entitled to vote if personally present, such proxies
being instructed to vote as specified on the reverse side, or, to the extent
not specified, to vote FOR the election as directors of all nominees named on
the reverse side and FOR Proposals 2, 3 and 4, and to vote in their
discretion, to the extent permitted by applicable law, on any other matters
presented at the meeting or any adjournments thereof. The Board of Directors
recommends a vote FOR all of the nominees named below and FOR Proposals 2, 3
and 4.
PLEASE SIGN AND DATE THIS PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE.
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TRIANGLE FOLD AND DETACH HERE TRIANGLE
PLEASE mark your votes as indicated in this example /X/
PROPOSAL 1: ELECTION OF DIRECTORS:
FOR / / WITHHOLD AUTHORITY to vote for all nominees named below / /
Tom A. Alberg, Douglas P. Beighle, Robert C. Greco, Harold H. Kawaguchi and
Robert L. Richmond
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list above).
PROPOSAL 2: APPROVAL OF THE AMENDMENT TO THE 1996 STOCK OPTION PLAN
FOR / / AGAINST / / ABSTAIN / /
PROPOSAL 3: APPROVAL OF THE 1997 DIRECTOR STOCK OPTION PLAN
FOR / / AGAINST / / ABSTAIN / /
PROPOSAL 4: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
FOR / / AGAINST / / ABSTAIN / /
This proxy, when properly executed, will be voted in the manner specified by
the undersigned. Except as otherwise specified, this proxy will be voted FOR
the election as directors of all nominees named above, FOR approval of the
amendment to the Company's 1996 Stock Option Plan, FOR approval of the
Company's 1997 Director Stock Option Plan and FOR ratification of the
appointment of Ernst & Young LLP as the Company's independent auditors.
Signature(s) Dated: , 1998
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Please sign name exactly as it appears hereon. If shares are held by joint
tenants, both should sign. When signing as an attorney, executor, administrator,
trustee, or guardian, please give full title as such.
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TRIANGLE FOLD AND DETACH HERE TRIANGLE
ANNUAL MEETING OF SHAREHOLDERS
ACTIVE VOICE CORPORATION
WEDNESDAY, AUGUST 19, 1998
2:00 - 4:00 P.M.
SEATTLE ART MUSEUM
100 UNIVERSITY STREET
SEATTLE, WA