<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
VOICE CONTROL SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Kim S. Terry
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / 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:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
- ---------------
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE> 2
VOICE CONTROL SYSTEMS, INC.
14140 MIDWAY ROAD
DALLAS, TEXAS 75244
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1996
To the Stockholders of VOICE CONTROL SYSTEMS, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Voice Control
Systems, Inc. (the "Company"), a Delaware corporation, will be held at the
Dallas Parkway Hilton, 4801 LBJ Freeway, Dallas, Texas 75244 on May 6, 1996 at
10:00 a.m. Dallas Time, for the following purposes:
(1) To elect five directors to serve until the next annual meeting of
stockholders, or until their respective successors shall be duly elected and
qualified; and
(2) To consider and vote upon a proposal to increase the number of
shares of common stock reserved for issuance upon the exercise of options
granted under VCS's 1992 Stock Option Plan from 600,000 shares to 900,000
shares; and
(3) To ratify the appointment of BDO Seidman as the independent
auditor of the Company for the fiscal year ended December 31, 1996; and
(4) To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Holders of Common Stock at the close of business on March 15, 1996 are entitled
to notice of and to vote at the meeting, or any adjournment or adjournments
thereof. A complete list of such stockholders will be open to the examination
of any stockholder at the Company's principal executive offices at 14140 Midway
Road, Dallas, Texas 75244 for a period of 10 days prior to the meeting. The
meeting may be adjourned from time to time without notice other than by
announcement at the meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER OF
SHARES YOU MAY HOLD. WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING IN
PERSON, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT
PROMPTLY IN THE ENCLOSED RETURN ENVELOPE. EACH PROXY GRANTED MAY BE REVOKED BY
THE STOCKHOLDER APPOINTING SUCH PROXY AT ANY TIME BEFORE IT IS VOTED. IF YOU
RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOUR SHARES ARE REGISTERED IN
DIFFERENT NAMES OR ADDRESSES, EACH SUCH PROXY CARD SHOULD BE SIGNED AND
RETURNED TO ASSURE THAT ALL OF YOUR SHARES WILL BE VOTED.
This Notice, the accompanying Proxy Statement, and the Proxy enclosed herewith
are sent to you by order of the Board of Directors of the Company.
Kim S. Terry
Secretary
Dallas, Texas
March 29, 1996
The Company's 1995 Annual Report accompanies the Proxy Statement.
<PAGE> 3
VOICE CONTROL SYSTEMS, INC.
14140 MIDWAY ROAD
DALLAS, TEXAS 75244
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1996
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Voice Control Systems, Inc. (the "Company") of proxies to
be voted at the Annual Meeting of Stockholders of the Company to be held on
Monday, May 6, 1996 at the Dallas Parkway Hilton, 4801 LBJ Freeway, Dallas,
Texas 75244 at 10:00 a.m. Dallas time, and at any and all adjournments
thereof. Holders of record of Common Stock, $0.01 par value (the "Common
Stock") as of the close of business on March 15, 1996 are entitled to notice of
and to vote at the meeting and at any and all adjournments thereof. As of that
date, there were 7,000,123 shares of Common Stock of the Company outstanding
and entitled to vote. Each share of Common Stock is entitled to one vote on
any matter presented at the meeting. The aggregate number of votes entitled to
be cast at the meeting is 7,000,123. No cumulative voting is permitted. This
Proxy Statement, together with the related proxy card, is being mailed to
stockholders of the Company on or about March 29, 1996.
If the enclosed proxy is properly executed, duly returned, and not revoked, the
shares represented thereby will be voted in accordance with the instructions
contained therein. Unless the stockholder otherwise specifies therein, the
shares represented by the proxies will be voted:
(i) FOR the election as directors of the Company of the five
nominees named under the caption "ELECTION OF DIRECTORS"
herein; and
(ii) FOR the proposal to increase the number of shares of common
stock reserved for issuance upon the exercise of options
granted under VCS's 1992 Stock Option Plan from 600,000 shares
to 900,000 shares; and
(iii) FOR the ratification of the appointment of BDO Seidman as the
independent auditor of the Company for the fiscal year ended
December 31, 1996; and
(iv) At the discretion of the proxy holder, on any other matter
that may properly come before the meeting or any adjournments
thereof.
Each proxy granted may be revoked by the stockholder appointing such proxy at
any time before it is voted by filing with the Secretary of the Company a
written revocation or a duly executed proxy bearing a later date, or by
attending the meeting and voting in person. The mere presence at the meeting
of a person appointing a proxy does not, however, revoke the appointment.
The presence, in person or by proxy, of holders of Common Stock having a
majority of the votes entitled to be cast at the Annual Meeting of Stockholders
is necessary to constitute a quorum at the Annual Meeting of Stockholders. The
directors of the Company will be elected by plurality vote; all other actions
may be taken upon the affirmative vote of stockholders possessing a majority of
the voting power represented at the Annual Meeting, provided in each case a
quorum is present at the meeting in person or by proxy.
The Annual Report to Stockholders of the Company for the year ended December
31, 1995, including financial statements (the "Annual Report"), is being mailed
concurrently with this Proxy Statement to all stockholders of record as of
March 15, 1996. In addition to the use of the mail, proxies may be solicited
by personal interview, telephone and telegraph by directors, officers and other
employees of the Company who will not receive additional compensation for such
services. The services of Corporate Investor Communications, Inc. also have
been engaged to assist in the proxy solicitation at a fee estimated to be
$2,500. In addition, the Company has provided brokers, dealers, banks, voting
trustees and their nominees, at the Company's expense, with additional copies
of the Annual Report so that such record holders could supply such material to
beneficial owners as of March 15, 1996. The Annual Report does not constitute
any part of the proxy solicitation materials.
1
<PAGE> 4
ELECTION OF DIRECTORS
Five directors are to be elected at the Annual Meeting of Stockholders (which
number constitutes the entire Board of Directors of the Company). The term of
office for which each person who is a nominee will expire at the next Annual
Meeting of Stockholders or when his successor shall have been elected and
qualified. Unless otherwise instructed in the enclosed form of proxy, the
proxy holders intend to vote shares of stock represented thereby FOR the
election of the five nominees named below. Each of the nominees is a current
director of the Company. Each of the nominees has consented to being nominated
for a directorship and, to the best knowledge of the Board of Directors, each
nominee, if elected, intends to serve the entire term for which election is
sought. If any nominee becomes unavailable or unable to serve, the proxy
holders will cast the votes for a substitute nominee designated by the Board of
Directors. At this time, the Board of Directors of the Company has no reason
to believe that any nominee will be unwilling or unable to serve if elected.
The nominees for election to the Board of Directors of the Company, followed by
certain information regarding them, including their principal occupation and
business experience for at least the past five years, are as follows:
<TABLE>
<CAPTION>
Nominees Age Served as Director Since Positions with the Company
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Peter J. Foster 44 1994 President, CEO and Director
Melvyn J. Goodman 53 1994 Director
John Lucas-Tooth 63 1990 Director
Neal J. Robinson 51 1994 Director
John B. Torkelsen 50 1986 Chairman and Director
</TABLE>
Peter J. Foster has served as President and CEO of the Company since August 11,
1994, the effective date of the merger between VCS Industries, Inc.
("Industries") and Scott Instruments Corporation (the "Merger"). Mr. Foster
joined Industries in 1985, and served as President from 1986 through the date
of the Merger, CEO from 1989 through the date of the Merger and Chairman from
1990 through the date of the Merger. Mr. Foster received his B.E. in
Electrical Engineering from Stevens Institute of Technology.
Mr. Goodman, who has been a director of the Company since the Merger and was a
director of Industries from 1986 until the Merger, is president of Melgood
Investments, Inc. Mr. Goodman was president of Islander Sportswear, Inc. from
March 1989 until January 2, 1996; Islander Sportswear filed for a voluntary
petition under Chapter 11 of the United States Bankruptcy Code on January 2,
1996. Formerly, Mr. Goodman was chairman of ALC Communications Corporation,
the parent company of Allnet Communications Services, a national long distance
telephone company. He is licensed to practice law in the State of Illinois but
is not actively practicing. Mr. Goodman received his J.D. from DePaul
University (Chicago).
Sir John Lucas-Tooth has been a director of the Company since 1990. Since
September 1993, he has served as a director of Rupert Loewenstein Limited, a
private investment company. For over five years he has been chairman and chief
executive officer of Sixera Asia Ventures Ltd. and a supervisor of Japan
Ventures Fund and Japan Asia Ventures Fund. These three entities concentrate
in Southeast Asia investments. Since July 1993, he has been chairman of two
mutual insurance companies, MAPIC Limited and SEPIA Limited, which specialize
in indemnity insurance. Sir John Lucas-Tooth graduated from Oxford University
with a degree in Physics and a post-graduate degree in Spectroscopy.
Mr. Robinson, who has been a director of the Company since the Merger and was a
director of Industries from 1986 until the Merger, has been president of Neal
Robinson Investments, Inc., a private investment company, since 1984. Mr.
Robinson was Chief Executive Officer of Industries from 1986 through 1989, and
was Chairman of Industries from 1986 through 1990. Mr. Robinson is a partner
in the Williamsburg, Virginia law firm of Spirn, Tarley, Robinson and Tarley.
Mr. Robinson received a B.B.A. in Accounting from Spencerian College, an M.B.A.
from the University of Dallas and a J.D. from the Marshall-Wythe School of Law
of the College of William & Mary in 1992. Mr. Robinson is an attorney-at-law
(Virginia) and a Certified Public Accountant (Texas).
Mr. Torkelsen, who has been a director of the Company since 1986, is the
founder, and has been the president, of Princeton Venture Research, Inc.
("PVR"), an investment banking and consulting firm in Princeton, New Jersey,
since November 1984. Since 1985, Mr. Torkelsen has been a director of Mikros
Systems Corporation of Princeton, New Jersey, a company which develops and
manufactures specialty military microprocessors. Mr. Torkelsen has been
president of PVR Securities, Inc., a private investment banking firm located in
Princeton, New Jersey, since 1987. Mr. Torkelsen received a B.S. degree in
Chemical Engineering from Princeton University and an M.B.A. from Harvard
University.
The Company is not aware of any "family relationships" (as defined in Item 401
(d) of Regulation S-K promulgated by the Securities and Exchange Commission)
between any of the nominees and/or any of the executive officers.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE
NOMINEES FOR THE BOARD OF DIRECTORS.
2
<PAGE> 5
MEETINGS OF DIRECTORS AND COMMITTEES
The Company's Board of Directors held seven meetings during the fiscal year
ended December 31, 1995.
The Company's Board of Directors normally meet on a quarterly basis.
Non-employee Directors are paid a flat fee of $1,750 or $2,750 (for
international travelers) in lieu of actual expense reimbursement for meetings
attended in person. The Board of Directors has adopted a revised compensation
policy for non-employee Directors which will commence with the Board meeting
following the annual meeting of shareholders. Each Board member will receive
cash compensation of $5,000 per year and the right to purchase 10,000 warrants
at a price of $.01 per warrant. Each Board member will receive the right to
purchase an additional 5,000 warrants in each subsequent year of service. Each
warrant will entitle the Board member to purchase one share of Common Stock at
the then-current market price. In addition, Board members will receive $1,000
and a $1,750 expense allowance for each Board meeting attended in person. In
lieu of the $1,750 expense allowance, Board members who reside in Europe will
receive a roundtrip business class airline ticket and a $1,000 expense
allowance. Board members will receive $500 per telephonic Board meeting
attended and $500 per committee meeting attended. The Board currently has
three standing committees, the Compensation Committee, whose function is to
establish salaries and incentives for executive officers of the Company, the
Stock Option Committee, whose function is to establish option grants for
officers and key employees, and the Audit Committee, whose function is to meet
with the independent auditor of the Company. The Board of Directors has no
nominating committee at this time. The Audit Committee did not meet during
1995, however, the Audit Committee did meet with the independent auditor of the
Company in December 1994. The Compensation Committee and the Stock Option
Committee each held two meetings during the fiscal year ended December 31, 1995
and all members were present. The Audit Committee and Compensation Committee
consist of two members, John B. Torkelsen and Neal J. Robinson. The Stock
Option Committee consists of Melvyn J. Goodman and Sir John Lucas-Tooth. All
directors attended at least 75% of all meetings of the Board of Directors held
during 1995.
COMPENSATION OF DIRECTORS
During the 1995, Melvyn Goodman and John Torkelsen were each paid $7,000, Neal
Robinson was paid $5,250 and Sir John Lucas-Tooth was paid $11,000 for Board
and/or committee meetings attended in person. These amounts are intended to
cover travel expenses.
EXECUTIVE OFFICERS
The following table identifies the executive officers of the Company during
1995:
<TABLE>
<CAPTION>
NAME AGE CAPACITIES IN WHICH SERVED
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Peter J. Foster (1) 44 President, CEO and Director
Thomas B. Schalk (2) 44 Chief Technical Officer
Edmund Tagg (3) 54 Vice President of Engineering
Lawrence F. Carter (4) 56 Vice President of Sales
Kim S. Terry (5) 38 Vice President/Controller and Corporate Secretary
Everett Bruce (6) 53 Vice President of Software Development
Marietta Benignus (7) 38 Vice President Administration
</TABLE>
(1) Peter Foster joined Industries in 1985 and became President and CEO of
the Company effective August 11, 1994.
(2) Dr. Schalk joined Industries in 1983 and became Chief Technical Officer
of the Company effective August 11, 1994. Prior to joining Industries,
Dr. Schalk was employed by Texas Instruments Incorporated where he
conducted speech research. Dr. Schalk received a Bachelor of Science
with high honors in Electrical Engineering from the George Washington
University and Ph.D. in Biomedical Engineering from the Johns Hopkins
University.
(3) Mr. Tagg joined Industries in 1992 and became Vice President of
Engineering of the Company effective August 11, 1994. Mr. Tagg resigned
effective May 19, 1995. Prior to joining Industries, Mr. Tagg held
several positions with International Telecharge, Inc. Mr. Tagg served
as President and Chief Operating Officer of International Telecharge,
Inc. from 1987 to 1989, Chairman and CEO from 1989 to 1990 and as a
consultant during 1991. Mr. Tagg is a graduate of Dartmouth Royal Naval
College.
3
<PAGE> 6
(4) Mr. Carter joined Industries in 1994 and became Vice President of Sales
and Marketing of the Company effective August 11, 1994. Prior to
joining Industries Mr. Carter served as President of Neodata Services,
Inc. from 1989 to 1993. Mr. Carter received a Bachelor of Commerce from
Concordia University.
(5) Ms. Terry joined Industries in 1983 and became Vice
President/Controller and Corporate Secretary of the Company effective
August 11, 1994. Prior to joining Industries Ms. Terry worked in
public accounting in Texas and California. Ms. Terry received a Bachelor
of Business Administration degree from the University of Texas at
Austin.
(6) Mr. Bruce joined the Company as Vice President of Software Development
in June 1995. From 1994 until he joined the Company, Mr. Bruce served
as vice president of development for Data Parallel Systems, a developer
of high-performance database management systems. From 1991 to 1994, he
served as director of software for Truevision, a developer of multimedia
and digital video products. Mr. Bruce received a Bachelor of Arts
degree in Chemistry from Wesleyan University and a Master of Science
degree in Chemistry from the University of Wisconsin.
(7) Ms. Benignus joined the Company in October 1995 as Vice President of
Administration. From August 1993 until she joined the Company, Ms.
Benignus was employed by ColorTyme, Inc. where she first served as
corporate field training manager and later as controller. Prior to her
association with ColorTyme, Ms. Benignus served as vice president of
human resources for Lehndorff USA Group, a national real estate
investment firm, since 1988. Ms. Benignus earned a Bachelor of Business
in Finance from Texas Tech University and a Master of Education in
Counselor Education from the University of North Texas.
Executive officers are elected by the Board at its annual meeting and serve at
the discretion of the Board. Except as provided above, executive officers hold
office until the next annual meeting or until their successors are elected.
4
<PAGE> 7
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for the
Company's Chief Executive Officer and other executive officers earning in
excess of $100,000 ("Named Executives") during 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
---------------------------------------------------- ------------
Awards
Other Annual ------ All
Name/Principal Position Salary Bonus Compensation Options Other
Year ($) ($) ($) (# of Shares) Compensation
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1993 (1) 146,942 16,667 -- 104,484 --
Peter J. Foster 1994 (2) 149,174 44,042 -- 39,181 --
President and CEO 1995 158,223 27,500 -- 50,000 --
Lawrence F. Carter 1993 -- -- -- -- --
Vice President-Sales 1994 (3) 24,057 -- -- 65,302 --
and Marketing 1995 100,602 60,000 -- -- --
1993 (4) 96,343 15,000 -- 22,856 --
Thomas B. Schalk 1994 (5) 100,805 14,375 -- 39,181 --
Chief Technical Officer 1995 128,094 15,750 -- -- --
</TABLE>
(1) Mr. Foster was employed by Industries prior to the Merger. The figures
listed for 1993 were paid by Industries.
(2) Mr. Foster served as President and CEO of the Company from August 11,
1994, the date of the Merger, through the end of the year. 1994
figures include amounts paid by Industries prior to the Merger and
paid by the Company after the Merger.
(3) Mr. Carter joined Industries in July 1994. The amounts listed for 1994
include amounts paid by Industries prior to the Merger and paid by the
Company after the Merger.
(4) Dr. Schalk was employed by Industries prior to the Merger. The figures
listed for 1993 were paid by Industries.
(5) Dr. Schalk served as Chief Technical Officer of the Company from
August 11, 1994, the date of the Merger, through the end of the year.
1994 figures include amounts paid by Industries prior to the Merger
and paid by the Company after the Merger.
The following table sets forth certain information concerning options and
warrants granted during 1995 to Named Executives:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------------------------------
% of Total Options
Options Granted Granted to Employees Exercise or Base
Name (# of Shares) in Fiscal Year Price ($/Share) Expiration Date
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter J. Foster
President and CEO 50,000 (1) 29% $5.375 10/1/2005
Lawrence F. Carter
Vice President--Sales --- --- --- ---
and Marketing
Thomas B. Schalk --- --- --- ---
Chief Technical Officer
</TABLE>
(1) Options vest at a rate of 25% per annum beginning 10/1/96.
5
<PAGE> 8
The following table summarizes options exercised during 1995 and presents the
value of unexercised options held by Named Executives at fiscal year end:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Value of Unexercised
Number of Unexercised In-the-Money Options at
Options at Fiscal Year End Fiscal Year-End
Shares Value (# of shares) ($)
Acquired on Realized Exercisable (E)/ Exercisable (E)/
Name Exercise (#) ($) Unexercisable (U) Unexercisable (U)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter J. Foster -- -- 361,056 (E) $2,036,541 (E)
90,814 (U) $250,271 (U)
Lawrence F. Carter -- -- 16,325 (E) $59,178 (E)
48,977 (U) $177,542 (U)
Thomas B. Schalk -- -- 100,924 (E) $548,750 (E)
40,814 (U) $169,021 (U)
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Peter J. Foster
providing that Mr. Foster will serve as President and Chief Executive Officer
until June 18, 1997, which agreement shall be extended for one additional
one-year period unless either the Company or Mr. Foster notifies the other
party of an intention to terminate the agreement 30 days prior to the end of
the present term. Mr. Foster receives an annual salary of $175,500, plus an
annual bonus of $27,500 and an unaccountable discretionary expense allowance of
$27,600 annually. The agreement contains confidentiality and invention
assignment provisions. The agreement also contains non-solicitation and
non-competition provisions that extend for twenty-four months following the
termination of Mr. Foster's employment; there can be no assurance regarding the
enforceability of such provisions under Texas law. In the event that (i) Mr.
Foster's employment is terminated without cause or he resigns as a result of a
breach of the agreement by the Company, or (ii) Mr. Foster resigns under
certain circumstances following a Change in Control (as defined) of the
Company, Mr. Foster will be entitled to a lump-sum cash payment equal to 100%
or 150%, respectively, of his annual aggregate compensation and any unused
vacation time, and the period in which he can exercise stock options will be
extended for one year. The Company agreed to indemnify Mr. Foster for losses
sustained and expenses incurred as a result of the discharge of his duties, to
the full extent permitted by law.
The Company has entered into an employment agreement with Dr. Thomas B. Schalk
providing that Dr. Schalk will serve as Chief Technical Officer until June 18,
1997, which agreement shall be extended for one additional one-year period
unless either the Company or Dr. Schalk notifies the other party of an
intention to terminate the agreement 30 days prior to the end of the present
term. Dr. Schalk receives an annual salary of $145,000, plus a performance
bonus of up to $5,000 per calendar quarter based upon Dr. Schalk's exceptional
achievements during the quarter as determined by the Compensation Committee of
the Board of Directors. The agreement contains confidentiality and invention
assignment provisions. The agreement also contains solicitation and
non-competition provisions that extend for twenty-four months following the
termination of Dr. Schalk's employment; there can be no assurance regarding the
enforceability of such provisions under Texas law. In the event that (i) Dr.
Schalk's employment is terminated without cause or he resigns as a result of a
breach of the agreement by the Company, or (ii) Dr. Schalk resigns under
certain circumstances following a Change in Control (as defined) of the
Company, Dr. Schalk will be entitled to a lump-sum cash payment equal to 150%
of his annual aggregate compensation and any unused vacation time, and the
period in which he can exercise stock options will be extended for one year.
The Company agreed to indemnify Dr. Schalk for losses sustained and expenses
incurred as a result of the discharge of his duties, to the full extent
permitted by law.
6
<PAGE> 9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 15, 1996, with respect
to (i) each person known by the Company to be the beneficial owner of more than
5% of outstanding Common Stock; (ii) shares of Common Stock beneficially owned
by Named Executives and the Nominees, and (iii) each current director and by
all current directors and officers of the Company as a group (9 persons at such
date):
<TABLE>
<CAPTION>
Common Stock Ownership
------------------------------------------
Name of Beneficial Owner Number of Shares Percent of Class
<S> <C> <C>
(i) Certain Beneficial Owners
Dialogic Corporation
1515 Route 10
Parsippany, NJ 07054 1,307,372(1) 15.75%
(ii) Nominees, Current Directors and
Named Executive Officers:
John B. Torkelsen* 290,631(2) 4.13%
John Lucas Tooth* 50,625(3) .72%
Peter J. Foster* 432,432(4) 5.96%
Neal J. Robinson* 386,997(5) 5.39%
Melvyn J. Goodman* 244,920(6) 3.47%
Lawrence F. Carter 16,325(7) .23%
Thomas B. Schalk 89,446(8) 1.96%
(iii) All Current Directors and
Officers as a group (9 persons) 1,545,187(9) 20.06%
</TABLE>
* Nominees for Director
(1) Includes 1,302,364 shares of Common Stock issuable upon the conversion
of debt and accrued interest through 3/15/96.
(2) Of these shares, 8,928 are held of record by Sigler & Company.
Includes warrants for 38,125 shares issued to Mr. Torkelsen or PVR, of
which Mr. Torkelsen is the president and sole shareholder.
(3) Includes warrants for 50,625 shares of Common Stock.
(4) Includes 23,307 shares held by Mr. Foster's wife, as to which
beneficial ownership is disclaimed and 19,590 shares held in trust for
Mr. Foster's minor children. Includes 253,056 shares issuable upon
exercise of vested options.
(5) Includes 147,753 shares which may be issued upon exercise of options
and 30,000 shares issuable upon exercise of warrants.
(6) Includes 26,120 shares which may be issued upon exercise of options
and 30,000 shares issuable upon exercise of warrants.
(7) Includes 16,325 shares issuable upon exercise of vested options.
(8) Includes 78,536 shares issuable upon exercise of vested options.
(9) Includes 555,628 shares issuable upon exercise of vested options and
148,750 issuable upon exercise of warrants.
7
<PAGE> 10
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ISSUANCE OF OPTIONS AND WARRANTS
On February 1, 1994, ten year warrants to purchase Common Stock at a price of
$5.00 per share (the closing sale price of Common Stock on such date) were
granted to the following individuals: Ralph Hulbert (a former director),
12,500; Sir John Lucas-Tooth, 12,500; Marvin Preston IV (a former officer and
director), 3,750; E. Ray Cotten (a former officer and director), 46,250; Brian
L. Scott (a former officer and director), 43,750; Melanie Watson (a former
officer), 12,500; and Henry M. Carr (a former officer), 3,750. The warrants
provide the holder of the shares issued thereunder with certain "piggyback"
registration rights. In connection with the issuance of these warrants,
options (at exercise prices ranging from $7.76 to $8.00 per share) to purchase
Common Stock for E. Ray Cotten (32,500), Brian L. Scott (39,285) and Melanie
Watson (6,496) were canceled.
On May 31, 1994, simultaneously with Marvin Preston IV's resignation as Chief
Executive Officer and in recognition of his service to the Company, the Board
agreed to adjust the exercise price of warrants held by him to purchase 35,714
shares of Common Stock from a weighted average price of $11.32 per share to
$4.00 per share. Expiration dates of these warrants range from June 1995 to
July 1998 and were not changed. The warrants provide that the holder of the
shares issued thereunder has "piggyback" registration rights.
On October 7, 1994, the Company granted options to purchase Common Stock of the
Company at a price of $3.375 per share to the following officers: Larry Carter,
65,302 options, Peter Foster and Thomas B. Schalk, 39,181 options each, and Kim
Terry, 20,897 options. All options vest at a rate of 25% per annum beginning
October 7, 1995. In addition, the Company granted Melvyn J. Goodman, Sir John
Lucas-Tooth, Neal J. Robinson and John B. Torkelsen each the right to purchase
for one cent ($.01) warrants to purchase up to 30,000 shares of the Company's
Common Stock at a price of $3.375 per share. Mr. Torkelsen purchased his
warrants from the Company on February 27, 1995. Melvyn Goodman purchased his
warrants from the Company on April 10, 1995, Neal Robinson purchased his
warrants from the Company on November 30, 1995, and John Lucas-Tooth purchased
his warrants from the Company on February 5, 1996.
On July 10, 1995, the Company granted Everett Bruce options to purchase 40,000
shares of Common Stock at a price of $3.00 per share. This option vests
ratably over four years of continuous employment.
On October 4, 1995, the Company granted Peter Foster options to purchase 50,000
shares of Common Stock and Marietta Benignus options to purchase 12,000 shares
of Common Stock at a price of $5.375 per share. These options vest ratably
over four years of continuous employment.
In February 1996, Thomas B. Schalk exercised 22,361 options of the Company for
$25,682 and Kim S. Terry exercised 8,452 options of the Company for $10,613.
OTHER TRANSACTIONS
In 1992, Brian Scott exercised options to purchase 35,715 shares of Common
Stock at an exercise price of $7.00 per share, for cash and a note in the
amount of $193,302. Interest on the note was at the rate of 6% per annum. The
note was collateralized by shares of the Company's Common Stock purchased and
originally matured June 10, 1993. On February 1, 1994, the maturity date of
the note was retroactively extended until June 10, 1994. The outstanding
balance at March 31, 1994 was $170,100. In April 1994, the Company agreed to
cancel the note in exchange for the collateral on the note of 24,300 shares of
Common Stock. The Company also agreed to forgive the unpaid interest on the
note in the amount of $12,308.
In 1993, John Torkelsen and John Lucas-Tooth exercised warrants to purchase a
total of 11,385 shares of Common Stock at an exercise price of $7.00 per share.
At March 31, 1994, non interest bearing receivables of $79,695 were recorded
related to the exercise of these warrants. On June 1, 1994, these non interest
bearing receivables were converted into promissory notes with interest rates of
6% per annum and with principal and interest due on June 30, 1996.
In January 1994, the Company agreed to pay PVR the sum of $376,500 and $111,000
for investment banking service fees and expenses, respectively, incurred and
accrued prior to December 31, 1993. These amounts were paid to PVR by the
Company on June 2, 1994.
In March 1994, the Company sold, in a private placement, 225,000 shares of its
Common Stock for $5.00 per share, which resulted in cash proceeds to the
Company of $1,125,000 (of which $375,000 was paid as of March 31, 1994,
$712,500 was paid on June 2, 1994 and the balance of $37,500 is was paid in
June 1994). John Torkelsen purchased 142,500 shares for $712,500, Marvin
Preston purchased 12,000 shares for $60,000 and John Lucas-Tooth
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<PAGE> 11
purchased 7,500 shares for $37,500. The Company agreed to file a registration
statement under the Securities Act covering the resale of shares of Common
Stock issued in the private placement.
In June 1994, the Company sold, in a private placement, 30,461 shares of its
Common Stock for $4.00 per share which resulted in cash proceeds to the Company
of $121,845. Ralph Hulbert purchased 2,500 shares in the private placement.
The Company agreed to file a registration statement under the Securities Act
covering the resale of shares of Common Stock issued in the private placement.
On June 2, 1994, the Company paid PVR $230,000 in legal and other expenses
incurred in the fourth quarter of 1993 and the first quarter of 1994 previously
paid by PVR on behalf of the Company. On January 19, 1995, the Company paid
PVR $50,966 for legal fees incurred in the second and third quarter of 1994
previously paid by PVR on behalf of the Company. Mr. Torkelsen, the Company's
Chairman, is the president of PVR.
On July 12, 1994, the Company entered into a Separation Agreement with E. Ray
Cotten whereby Mr. Cotten's full-time service to the Company terminated on
August 15, 1994. During the twelve months beginning August 16, 1994, Mr.
Cotten received compensation in the amount of $134,800. He was available to
provide consulting services to the Company for up to twenty hours per month and
agreed not to engage in any business that is in direct competition with the
business of the Company during that period. Mr. Cotten also received medical,
life and disability insurance benefits for a one year period, and medical
insurance benefits will be provided for an additional two year period.
On September 20, 1994, Dialogic converted accrued but unpaid interest due on
its convertible Note in the amount of $99,286 into 108,060 shares of the
Company's Common Stock. On September 20, 1995, Dialogic converted accrued but
unpaid interest due on its convertible Note in the amount of $123,787 into
134,727 shares of the Company's Common Stock. On March 5, 1996 Dialogic
converted accrued but unpaid interest due on its convertible Note in the amount
$34,817.17 into 37,890 shares of the Company's Common Stock.
On October 7, 1994, the Company renewed and extended the convertible note
originally issued by Industries to Peter J. Foster on the same terms and
conditions, except that the maturity date was changed to August 1, 1995. On
August 1, 1995, Peter J. Foster converted his convertible note into 50,633
shares of Common Stock.
In July 1995 and November 1995, the Company extended the terms of Dr. Schalk's
and Mr. Foster's employment agreements, respectively, through June 18, 1997.
In October 1995, Neal Robinson Investments, Inc., of which Neal J. Robinson is
president and sole shareholder, exercised 63,307 options of the Company for
$170,929 and Melgood Investments, Inc., of which Melvyn J. Goodman is president
and sole shareholder, exercised 63,306 options of the Company for $170,926.
John Torkelsen exercised 1,116 warrants of the Company for $7,812, and John
Lucas-Tooth exercised 446 warrants of the Company for $3,122, on December 6,
1995, the date such warrants would have expired.
During 1994, Dialogic purchased products and services from Industries and the
Company at a cost of $2,796,974. During 1995, Dialogic purchased products and
services from the Company at a cost of $6,412,280.
In February 1996, Dialogic and Peter Foster sold 914,231 and 108,000, options
of the Company, respectively, to First Albany Corporation. First Albany
exercised all of the options and sold the shares acquired in the Company's
public offering of Common Stock. The Company received $684,004 from the
exercise of the options.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The information relating to the Company's directors and nominees for election
as directors of the Company is incorporated herein by reference from the
Company's definitive Proxy Statement (herein so called) for its 1995 Annual
Meeting of Stockholders, specifically the discussion under the heading
"Election of Directors". Certain information is included under "Executive
Officers" in Item 1 of such Proxy Statement.
Section 16(a) of the 1934 Act requires the Company's officers and directors and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership and changes in ownership on
Forms 3, 4 and 5 with the Commission and the AMEX/ECM. Officers, directors and
greater than ten percent shareholders are also required by SEC regulation to
furnish the Company with copies of all Forms 3, 4 and 5 they file.
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Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file Form 5s for specified fiscal years, the Company
believes that all its officers, directors, and greater than ten percent
shareholders complied with all filing requirements applicable to them with
respect to transactions during 1995 with the following exceptions: Form 3 for
options issued in July 1995 to Everett Bruce was filed late. Form 3 for
options issued to Marietta Benignus in October 1995 was filed late. Form 4 for
options issued to Peter Foster in October 1995 was filed late. In August 1995
Dialogic sold shares that should have been reported on a Form 4, but were not.
Dialogic reported these sales on Form 5. Form 5s for Neal Robinson, John-Lucas
Tooth and Melvyn Goodman were filed late.
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PROPOSAL 2: INCREASE AUTHORIZED SHARES FOR 1992 STOCK OPTION PLAN
THE 1992 STOCK OPTION PLAN
The Board of Directors has approved an amendment to the 1992 Plan to increase
the number of shares of Common Stock reserved for issuance upon the exercise of
options granted under the 1992 Plan from 600,000 to 900,000. At December 31,
1995, options to purchase 419,146 shares were outstanding under the 1992 Plan,
leaving 180,854 shares available for grant.
The Board believes that providing selected persons with an opportunity to
invest in the Company will give them additional incentive to increase their
efforts on behalf of the Company and will enable the Company to attract and
retain the best available employees, officers, directors, consultants and
independent contractors. An increase in the number of shares available under
the 1992 Plan is necessary to provide sufficient shares to achieve this goal.
Shareholder approval of the amendment to the 1992 Plan is being sought (i) to
satisfy Section 422 of the Code, which requires shareholder approval of
amendments of the 1992 Plan in order that options granted under the 1992 Plan
may qualify as "incentive stock options" ("ISOs") and thus be entitled to
receive special tax treatment under the Code, and (ii) to satisfy Rule 16b-3
under the 1934 Act which requires that the amendment to the 1992 Plan be
approved by the shareholders in order that certain transactions pursuant to the
1992 Plan be exempted from those provisions of Section 16(b) of the 1934 Act
which relate to "short-swing" profits.
On March 19, 1992 the Board adopted the 1992 Plan, with the approval of the
shareholders.
The purpose of the 1992 Plan is to promote the growth and profitability of the
Company by enabling it to furnish maximum incentive to those selected persons
deemed capable of improving operations and increasing profits and encouraging
such persons to commence or continue working for or with the Company, as the
case may be, and to become owners of shares of VCS Common Stock. The 1992 Plan
will terminate on March 1, 2002 but may be terminated at any time before then
by the Board. Any options outstanding at the time of termination of the 1992
Plan will remain in effect until they are exercised or expire.
The 1992 Plan is designed so that options granted under the 1992 Plan may be
designated ISOs, which receive special tax treatment under the Code, or
non-qualified stock options ("NQSOs"). However, ISOs may be granted only to
employees of the Company.
The 1992 Plan is administered by the Board or, to the extent authorized by a
resolution of the Board, the Stock Option Committee of two or more directors
(the "Committee") selected by the Board. The powers of the Board or Committee,
as the case may be, include the determination of which persons shall be granted
options under the 1992 Plan, the number of shares to be granted to the
optionee, whether each option granted is to be an ISO or a NQSO, the price and
term of the options, and all other terms and conditions of an option pursuant
to the 1992 Plan. In addition, the Board has the right to construe and
interpret ambiguities in the 1992 Plan. While it is within the discretion of
the Board or Committee, as the case may be, to determine the exercise price and
term of the options, no term of an option shall extend for more than ten years
from the date of the grant and no option may be granted at an exercise price
less than the fair market value of the stock at the time of the grant.
Furthermore, as to any employee owning more than 10% of the voting power of all
classes of stock of VCS, the exercise price must be at least 110% of the fair
market value of the stock at the time of grant and the option term may not be
more than five (5) years.
The 1992 Plan currently provides that options to purchase a maximum of 600,000
shares of Common Stock (subject to adjustments to reflect changes in the
capitalization of VCS) may be granted to employees, officers, directors,
consultants or independent contractors of the Company as selected by the Board
or Committee, as the case may be. Under the proposed amendment, the 1992 Plan
would provide that options to purchase a maximum of 900,000 shares of Common
Stock might be granted. The shares of Common Stock issuable upon the exercise
of any option shall be either shares authorized but unissued by the Company or
shares issued and reacquired by the Company. The granting of an option under
the 1992 Plan does not affect VCS's or the shareholders' existing rights to
remove such optionee from the Board or terminate the optionee's work for or
with the Company.
Payment for shares purchased pursuant to the exercise of an option must be paid
in full in cash or in whatever manner the Board authorizes. Within a
reasonable time after receipt of such payment, the Company will issue and
deliver certificates representing the purchased shares, provided federal income
tax withholding requirements are met.
No employee may be granted presently exercisable options for shares having an
aggregate fair market value greater than $100,000 in any calendar year.
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Options granted under the 1992 Plan, unless otherwise determined by the
Committee and set forth in the stock option agreement between the Company and
the optionee, shall be exercisable as to 25% thereof on and after the first
anniversary of the date of grant, as to an additional 25% thereof on and after
the second anniversary of the date of grant, as to an additional 25% thereof on
and after the third anniversary of the date of grant, and as to the remaining
unexercised balance on and after the fourth anniversary of the date of grant
and prior to expiration of the option, unless earlier terminated in accordance
with the provisions of the 1992 Plan or the stock option agreement under which
such option is granted. However, the Board may, by the provisions of the stock
option agreement between the Company and the optionee, define or limit the
number of shares purchasable under the option to or in any period or periods of
time following the date of grant.
An option may be exercised only while the optionee is an employee, officer,
director, consultant or independent contractor of VCS, except that (i) if an
optionee's work for or with the Company is terminated by reason of the death or
disability of such optionee, the option may be exercised by the optionee or his
heirs or legal representatives, as the case may be, within twelve (12) months
of such termination or within the remaining term of the option, whichever is
less, but only as to shares which were immediately purchasable by him on the
date of such termination, or (ii) if an optionee's work for or with VCS is
terminated for any reason other than his death or disability or as provided for
in Section 23 of the 1992 Plan, the option may be exercised by the optionee
within three (3) months of the date of such termination or within the remaining
term of the option, whichever is less, but only as to shares which were
immediately purchasable by him on the date of such termination. Options and/or
shares acquired pursuant to an option granted under the 1992 Plan may be
forfeitable, with or without consideration, if, in the opinion of the Board, an
optionee has taken action adverse to VCS's interests, including but not limited
to those actions set forth in Section 23 of the 1992 Plan.
Options are not assignable or transferable except by will or the laws of
descent and distribution, and are exercisable only by the optionee or by his
heirs or legal representatives.
The 1992 Plan may be amended, suspended or terminated at any time by the Board,
without shareholder approval, in such respects as the Board may deem advisable
in order that the options granted pursuant thereto may conform to any changes
in the law or in any other respect which the Board may deem to be in the best
interests of the Company; provided, however, that no amendment may be made
without shareholder approval when such approval is required by Rule 16b-3
promulgated under the 1934 Act, the requirements of NASDAQ, or any other
applicable law, rule or regulation. An amendment, suspension or termination
will not affect any previously granted option without the consent of the
optionee so affected.
Shares underlying presently exercisable, but unexercised, options will
constitute outstanding shares of Common Stock for purposes of calculating VCS's
net income per share. The market value of the 900,000 shares of Common Stock
to be subject to the 1992 Plan was approximately $11,587,500 as of March 15,
1996.
The preceding discussion is merely a summary of the 1992 Plan and is qualified
in its entirety by the text of the 1992 Plan as set forth in Exhibit A attached
hereto.
FEDERAL INCOME TAX ASPECTS
(a) ISOs
Some options to be issued under the 1992 Plan will be designated as ISOs and
are intended to qualify under Section 422 of the Code. Under the provisions of
that Section, the optionee will not be deemed to have received any income at
the time an ISO is granted or exercised. However, the excess, if any, of the
fair market value of the shares on the date of exercise over the exercise price
will be treated as a tax preference item and may subject the optionee to the
alternative minimum tax in the year of exercise.
If the optionee disposes of the shares later than two years after the date of
grant and one year after the exercise of the ISO, the gain or loss, if any
(i.e., the difference between the amount of income realized for the shares and
the exercise price), will be long-term capital gain or loss.
If the optionee disposes of the shares acquired on exercise of an ISO within
two years after the date of grant or within one year after the exercise of the
ISO, the disposition will constitute a "disqualifying disposition," and the
optionee will have income in the year of the disqualifying disposition equal to
the excess of the amount received for the shares over the exercise price. Of
that income, the portion equal to the excess of the fair market value of the
shares at the time the ISO was exercised over the exercise price will be
compensation income, and the balance, if any, will be either short-term capital
gain, if the shares are disposed of within one year after the ISO is exercised,
or long-term capital gain, if the shares are disposed of more than one year
after the ISO is exercised.
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If the optionee disposes of the shares in a disqualifying disposition at a
price that is below the fair market value of the shares at the time the ISO was
exercised and such disposition is a sale or exchange to an unrelated party, the
amount includible as compensation income to the optionee will be limited to the
excess of the amount of income realized on the sale or exchange over the
exercise price.
If an ISO is exercised through the payment of the exercise price by the
delivery of Common Stock, to the extent that the number of shares received
exceeds the number of shares surrendered, such excess shares will possibly be
considered as ISO stock with a zero basis.
VCS is not entitled to a deduction as a result of the grant or exercise of an
ISO. If the optionee has compensation income as a result of a disqualifying
disposition, the Company will have a corresponding deductible compensation
expense in an equivalent amount in the taxable year of VCS in which the
disqualifying disposition occurs.
(b) NQSOs
Some options to be issued under the 1992 Plan will be designated as NQSOs which
receive no special tax treatment, but are taxed pursuant to Section 83 of the
Code. Under the provisions of that Section, if an option is granted to an
employee in connection with the performance of services and has a "readily
ascertainable fair market value" at the time of the grant, the employee will be
deemed to have received compensation income in the year of grant in an amount
equal to the excess of the fair market value of the option at the time of grant
over the amount, if any, paid by the optionee for the option. However, a NQSO
generally has "readily ascertainable fair market value" only when the option is
actively traded on an established market and when certain stringent Code
requirements are met.
If the option does not have a readily ascertainable fair market value at the
time of the grant, the option is not included as compensation income at that
time. Rather, the optionee realizes compensation income at the time the option
is exercised. The amount of income realized is equal to the excess of the fair
market value of the shares at the time the option is exercised over the sum of
the exercise price plus the amount, if any, paid by the optionee for the
option.
If a NQSO is exercised through payment of the exercise price by the delivery of
Common Stock, to the extent that the number of shares received by the optionee
exceeds the number of shares surrendered, ordinary income will be realized by
the optionee at that time only in the amount of the fair market value of such
excess shares, and the tax basis of such excess shares will be such fair market
value.
Once a NQSO is subject to tax as compensation income, it is treated as an
investment option or investment shares and becomes subject to the investment
property rules. No gain or loss arises from the exercise of an option that was
taxed at the time of grant. When the optionee disposes of the shares acquired
pursuant to a NQSO, whether taxed at the time of grant or exercise, the
optionee will recognize capital gain or loss equal to the difference between
the amount of income realized for the shares and the optionee's basis in the
shares.
Generally, the optionee's basis in the shares will be the exercise price plus
the optionee's basis in the option. The optionee's basis in the option is
equal to the sum of the compensation income realized at the time of grant or
exercise, whichever is applicable, and the amount, if any, paid by the optionee
for the option. In the compensatory option context, optionees normally pay
nothing for the grant of the option so the basis in the option will usually be
the amount of compensation income realized at the time of grant or exercise.
Thus, the optionee's basis in the shares will usually be equal to the exercise
price of the option plus the amount of compensation income realized by the
optionee at the time of grant or exercise. The capital gain or loss will be
short-term if the shares are disposed of within one year after the option is
granted or exercised (depending on which event caused the shares to be included
as compensation income), and long-term if the shares are disposed of more than
one year after the option is granted or exercised, whichever is applicable.
If a NQSO is taxed at the time of grant and expires or lapses without being
exercised, it is treated in the same manner as the lapse of an investment
option. The lapse is deemed to be a sale or exchange of the option on the day
the option expires and the amount of income realized is zero. The optionee
recognizes a capital loss in the amount of the optionee's basis (compensation
income realized at the time of the grant plus the amount, if any, paid by the
optionee for the option) in the option at the time of the lapse. The loss is
short-term or long-term, depending on the optionee's holding period in the
option.
If a NQSO is not taxed at the time of grant and expires without being
exercised, the optionee will have no tax consequences unless the optionee paid
for the option. In such case, the optionee would recognize a loss in the
amount of the price paid by the optionee for the option.
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The Company is entitled to a deductible compensation expense in an amount
equivalent to the amount included as compensation income to the optionee. This
deduction is allowed in VCS's taxable year in which the income is included as
compensation to the optionee. The Company is only entitled to this deduction
if the Company deducts and withholds upon the amount included in an employee's
compensation.
The preceding discussion is based upon federal tax laws and regulations in
effect on the date of this Proxy Statement, which are subject to change, and
upon an interpretation of the relevant sections of the Code, their legislative
histories and the income tax regulations which interpret similar provisions of
the Code. Furthermore, the foregoing is only a general discussion of the
federal income tax aspects of the 1992 Plan and does not purport to be a
complete description of all federal income tax aspects of the 1992 Plan.
Optionees may also be subject to state and local taxes in connection with the
grant or exercise of options granted under the 1992 Plan and the sale or other
disposition of shares acquired upon exercise of the options. Each employee
receiving a grant of options should consult with his or her personal tax
advisor regarding federal, state and local tax consequences of participating in
the 1992 Plan.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
BDO Seidman, independent certified public accountants, has been selected by the
Board of Directors of the Company as auditors of the Company for its fiscal
year ended December 31, 1996. BDO Seidman also served as auditor of the
Company for its fiscal year ended December 31, 1995.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF BDO SEIDMAN AS THE INDEPENDENT AUDITOR OF THE COMPANY FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1996.
The Company believes that one or more representatives from BDO Seidman will be
present at the Annual Meeting of Stockholders with the opportunity to make
statements, if they so desire. The Company expects that these representatives
will also be available to respond to appropriate questions from the floor at
the Annual Meeting of Stockholders.
Ernst & Young served as independent accountant for the Company for the years
ended December 31, 1993 and 1992. On August 15, 1994, the Company's Board of
Directors, in connection with the change in control of the Company, selected
BDO Seidman to serve as its independent accountant with respect to the year
ending December 31, 1994. The Board of Directors failure to select Ernst &
Young as the Company's independent accountants constitutes their being
"dismissed" as such term is used in Item 304 of Regulation S-B, under the
Securities Act of 1933, as amended.
Ernst & Young's reports on the Company's financial statements for the years
ended December 31, 1993 and 1992, did not contain an adverse opinion or
disclaimer of opinion and were not qualified as to audit scope or accounting
principles. Ernst & Young's reports for 1993 and 1992, however, did disclose
the uncertainty surrounding the Company's continuation as a going concern. The
Company has not had any disagreement with Ernst & Young on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which disagreement if not resolved to the satisfaction of
Ernst & Young, would have caused Ernst & Young to make reference to the subject
matter of the disagreement in connection with its report.
STOCKHOLDER PROPOSALS
Stockholders desiring to submit proposals for inclusion in the Company's proxy
statement and form of proxy relating to its 1997 Annual Meeting of Stockholders
must advise the Secretary of the Company of such proposals in writing by
November 29, 1996.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented at the
meeting other than the matters referred to above and does not intend to bring
any other matters before the meeting. However, if other matters not now known
properly come before the meeting, the persons named in the enclosed form of
proxy will vote such proxy at their discretion and in accordance with their
best judgment on such matters.
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GENERAL
The accompanying proxy is solicited by and on behalf of the Board of Directors
of the Company, whose notice of meeting is attached to this Proxy Statement,
and the entire cost of such solicitation will be borne by the Company.
In addition to the use of the mails, proxies may be solicited by personal
interview, telephone and telegraph by directors, officers and other employees
of the Company who will not receive additional compensation for such services.
The services of Corporate Investor Communications, Inc. also have been engaged
to assist in the proxy solicitation at a fee estimated to be $2,500. The
Company will also request brokerage houses, nominees, custodians, and other
fiduciaries to forward soliciting materials to the beneficial owners of shares
held of record by them, and the Company will reimburse such persons for their
reasonable expenses in connection therewith.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB INCLUDING FINANCIAL
STATEMENTS AND SCHEDULES BUT NOT INCLUDING EXHIBITS, SHALL BE FURNISHED,
WITHOUT CHARGE, TO EACH HOLDER OF SHARES OF COMMON STOCK OF THE COMPANY
ENTITLED TO VOTE AT THE ANNUAL MEETING UPON RECEIPT OF A WRITTEN REQUEST OF
SUCH PERSON ADDRESSES TO THE ATTENTION OF KIM S. TERRY, CORPORATE SECRETARY, AT
VOICE CONTROL SYSTEMS, INC., 14140 MIDWAY ROAD, DALLAS, TEXAS 75244. COPIES
OF ANY EXHIBIT TO THE FORM 10-KSB WILL BE FURNISHED UPON THE PAYMENT OF A
REASONABLE FEE. THE FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDED IN THE 1995
ANNUAL REPORT ARE INCORPORATED HEREIN BY REFERENCE.
Certain information contained in this Proxy Statement relating to the
occupations and security holdings of directors and officers of the Company is
based upon information received from the individual directors and officers.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN THE
ENCLOSED RETURN ENVELOPE. A PROMPT RETURN OF YOUR PROXY CARD WILL BE
APPRECIATED AS IT WILL SAVE THE EXPENSE OF FURTHER MAILINGS.
By order of the Board of Directors
Kim S. Terry
Corporate Secretary
Dallas, Texas
March 29, 1996
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EXHIBIT A
VOICE CONTROL SYSTEMS, INC.
1992 STOCK OPTION PLAN
I. PURPOSE. This 1992 Stock Option Plan ("Plan") is intended to
provide incentives for selected persons and to advance the interests of Scott
Instruments Corporation, a Delaware corporation (the "Company") and its
investors and shareholders, by permitting the Company to grant options to
purchase certain of its shares of Common Stock, $.01 par value per share.
II. DEFINITIONS. The following terms shall have the meanings ascribed
to them below:
A. "Board" means the Board of Directors of the Company.
B. "Common Stock" means the Company's $.01 par value Common
Stock.
C. "Company" means Voice Control Systems, Inc., a Delaware
Corporation.
D. "Date of Approval" means the date this Plan is first approved
by the Shareholders. Such date of approval shall occur within 12 months before
or after the date this Plan is adopted by the Board.
E. "Date of Grant" means the date on which an Option is granted
under this Plan.
F. "Expiration Date" means the date by which an Option must be
exercised or all rights to exercise such Option shall expire.
G. "ISO" means incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended.
H. "NQSO" means non-qualified stock options.
I. "Option" means an option granted under this Plan.
J. "Option Agreement" means the agreement which must be entered
into between the Optionee and the Company upon the grant of an Option by the
Company to the Optionee.
K. "Optionee" means an employee, officer, director,
consultant or independent contractor of the Company to whom an option, which
has not expired, has been granted under this Plan, and any persons or entities
entitled to exercise an Option pursuant to Section 17 below.
L. "Option Price" means the price per share of Common Stock which
the Optionee must pay to the Company upon any exercise of any Option,
determined pursuant to Section 10 of the Plan.
M. "Shareholders" means the holders at any point in time of the
outstanding shares of the Company's voting stock.
III. TYPES OF OPTIONS. Options granted under this Plan may be either
ISOs or NQSOs, as designated at the time of grant.
IV. STOCK SUBJECT TO PLAN. Only Common Stock shall be subject to the
Options. The aggregate number of shares of Common Stock which may be issued
pursuant to Options shall not exceed 600,000 shares, subject to adjustment
under the terms of Section 21 below. The shares of Common Stock issuable upon
exercise of any Option shall be either shares authorized but unissued by the
Company or shares issued and reacquired by the Company. At all times during
the term of this Plan and prior to the Expiration Date of any Options, the
Company shall reserve and keep available such number of shares of its Common
Stock as shall be sufficient for the requirements of this Plan and of any
Options. If any Option shall expire, terminate or be surrendered without
having been exercised in full, the unpurchased shares subject to such Option
shall again be available for the purposes of this Plan.
V. ELIGIBILITY AND PARTICIPATION. Options may be granted only to such
employees, officers, directors, consultants and independent contractors of the
Company or any subsidiary of the Company as the Board shall select from time to
time in its sole discretion, provided that only employees of the Company who do
not own
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<PAGE> 19
stock possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary corporation shall
be eligible to receive ISOs. An Optionee may be granted more than one Option
under this Plan.
VI. LIMITATIONS. The aggregate fair market value of stock (determined
as of the time an option is granted) with respect to which options are
exercisable for the first time by an employee during any calendar year (under
this Plan or under any other ISO or NQSO plan of the Company or its
subsidiaries) shall not exceed $100,000. This paragraph shall be applied by
taking options into account in the order in which they are granted.
VII. EFFECTIVE DATE AND APPROVAL OF PLAN. No Option shall be granted
pursuant to this Plan prior to the Date of Approval and this plan shall become
effective only upon the Date of Approval. All Options under this Plan must be
granted within 10 years from the Date of Approval.
VIII. OPTION GRANT AND AGREEMENT. The Board shall determine whether each
option is to be an ISO or an NQSO, the number of shares of the Common Stock for
which the Option shall be granted, the exercise price of the Option, the
periods during which the Option may be exercised, and all other terms and
conditions of the Option pursuant to this Plan. Each Option granted under this
Plan shall be evidenced by a written Option Agreement dated as of the Date of
Grant and executed by the Company and the Optionee. Each Option Agreement
shall set forth such terms and conditions as may be determined by the Board and
as are consistent with the Plan. Unless otherwise determined by the Board, the
Company shall require no monetary consideration from an Optionee in exchange
for the grant of an Option.
IX. PERIOD FOR EXERCISE OF OPTIONS. The Option Agreement shall state
the date on which each Option, and all rights under such Option, shall become
exercisable and shall expire. All Options granted under this Plan shall vest
and shall become exercisable in accordance with Section 12 of the Plan. &The
Expiration Date shall be up to ten (10) years from the Date of Grant. Options
shall be subject to early termination as provided by this Plan and the Option
Agreements.
X. OPTION PRICE. The Option Agreement shall state the Option Price.
The Option Price shall be the fair market value of the Common Stock which shall
be equal to the quoted closing bid price of the Common Stock on the Date of
Grant. If the Common Stock did not trade on the Date of Grant the Option Price
shall be equal to the closing bid price on the. last business day prior to the
Date of Grant on which the Common Stock traded. If no quoted closing bid price
is available as to the Common Stock, the fair market value shall be determined
in good faith by the Board of Directors on the Date of Grant.
XI. NON-TRANSFERABILITY OF OPTION.
a. No option shall be transferable or assignable in any way by an
Optionee, otherwise than by will or by the laws of descent and distribution.
Each Option shall be exercisable only by the Optionee or by his heirs or legal.
representatives. No Option may be pledged or hypothecated in any way or
subjected to execution, attachment, or similar process.
b. Each Option is subject to the provisions, of this Section
regardless of any community property interest of any spouse of the Optionee in
the Option, or such spouse's successor in interest. In the event that any
spouse of the Optionee shall have acquired a community property interest in
such Option, the Optionee or his successor shall have the sole authority and
discretion to exercise the Option on behalf of the spouse of the Optionee or
such spouse's successors in interest.
XII. EXERCISE OF OPTION.
a. Each Option shall be exercisable as to 25% thereof on and
after the first anniversary of the Date of Grant, as to an additional 25%
thereof on and after the second anniversary of the Date of Grant, as to an
additional 25% thereof on and after the third anniversary of the Date of Grant
and as to any remaining unexercised balance on and after the fourth anniversary
of the Date of Grant and prior to the Expiration Date, unless earlier
terminated in accordance with the provisions of this Plan or the Option
Agreement under which such Option is granted. However, the Board may, by the
provisions of the Option Agreement, define or limit the number of shares
purchasable under the Option to or in any period or periods of time following
the first anniversary of the Date of Grant.
b. The Option shall be. exercised by the Optionee by giving
written notice to the Secretary of the Company specifying the number of shares
to be purchased and accompanied by payment of the full Option Price of the
shares in whatever manner the Board authorizes.
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<PAGE> 20
c. within a reasonable period after receipt by the secretary of
the Company of notice and payment, the Company shall issue the shares purchased
in the name of the Optionee and deliver the certificates evidencing the shares;
provided, however, that the Company shall not issue the shares unless and until
the Company effects or obtains the satisfaction of withholding tax or other
withholding liabilities, or the listing, registration, or qualifications of
any shares upon. any securities exchange or under any state or federal law, or
the consent or approval of any regulatory body, which the Company, in its
discretion, deems necessary or desirable.
XIII. INVESTMENT PURPOSE. Each Option under the Plan shall be granted on
the condition that the purchases of shares shall be for investment purposes,
and not with a view to, resale or distribution except that in the event the
stock subject to such Option is registered under the Securities Act of 1923, as
amended, or in the. event a resale of such stock without such registration
would otherwise be permissible. Such condition shall be inoperative if in the
opinion of counsel for the Company such condition is not required under the
Securities Act of 1933, is amended, or any other applicable law, regulation, or
rule of any governmental agency.
XIV. RESTRICTIVE LEGEND. A restrictive legend shall be placed on each
certificate of stock issued pursuant to the exercise of an Option if the
securities are unregistered, setting forth the unregistered nature of the
securities, and the restrictions upon repurchase or resale of such securities
as provided in this Plan, the By-Laws or Certificate if Incorporation of the
Company, the Option Agreements, or any other document or agreement pertaining
to the shares.
XV. VESTING OF SHAREHOLDER RIGHTS. No Optionee shall have any of the
rights of a Shareholder until the certificates evidencing the shares purchased
are properly delivered to the Optionee. No adjustment shall be made for any
type of dividend or distribution or right for which the record. date is prior
to the date the shares are delivered, except as provided in this Plan.
XVI. CONTINUATION OF SERVICES. The granting of an Option to an Optionee
does not alter in any way the Company's or Shareholders' existing rights to
remove such Optionee from the Board (if applicable), terminate the employment
of the Optionee (if applicable) or terminate the Company's use of the
Optionee's services in any other manner, nor does it confer upon any such
Optionee any rights or privileges, except as specifically provided in this
Plan.
XVII EARLY TERMINATION OF OPTIONS: DEATH OR DISABILITY OF OPTIONEE.
a. If an Optionee leaves the Board or the employ of the Company
or ceases to work as a consultant or independent contractor due to death or
disability with an outstanding Option, his Option privileges shall be limited
to the shares which were immediately purchasable by him on the date he left the
Board or the employ of the Company or ceased to work as a consultant or
independent contractor. Such Option privileges shall expire unless exercised
by the Optionee, or by the executor or administrator of the Optionee's estate
or the person or persons to whom the Option has been-validly transferred by the
executor or administrator pursuant to will or laws of descent and distribution,
within twelve (12) months after the date the Optionee left the Board or the
employ of the Company or ceased to work as a consultant or independent
contractor or Within the remaining term of the Option, whichever is less.
b. Any person or entity succeeding to the right to exercise an
Option pursuant to this Section 17 shall be bound by all of the Provisions of
this Plan and the relevant Option Agreement as an Optionee.
XVIII. EARLY TERMINATION OF OPTIONS: OTHER. If an Optionee leaves the
Board or the employ of the Company or ceases to work as a consultant or
independent contractor for the Company for other than (i) cause (see Section 23
of this Plan) or (ii) death or disability (see Section 17 of this Plan) with
an outstanding Option, his Option privileges shall be limited to the shares
which were immediately purchasable by him on the date he left the Board or the
employ of the Company or ceased to work as a consultant or independent
contractor for the Company. Such Option privileges shall expire unless
exercised by the Optionee within three (3) months after the date the Optionee
left the Board or the employ of the Company or ceased to work as a consultant
or independent contractor for the Company or within the remaining term of the
Option, whichever is less.
XIX. RESTRICTIONS. The shares acquired pursuant to the exercise of an
Option shall be subject to any further. restrictions as the Board may
determine.
XX. ADMINISTRATION OF PLAN AND ADDITIONAL TERMS AND CONDITIONS OF
OPTIONS.
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<PAGE> 21
a. This Plan shall be administered by the Board or, to the extent
authorized by a resolution of the Board, the Compensation Committee of the
Board. Acts approved, or reduced to writing, by a majority of the Board shall
be valid acts.
b. The Board shall have full and final authority, in its sole
discretion, subject to the provisions of this Plan, to:
(i) construe and interpret this Plan;
(ii) determine the terms and provisions of the respective
Option Agreements, which need not be identical, including, without limitation,
terms covering the payment of the Option Price and the periods and number of
shares as to and during which Options may be exercised;
(iii) delegate any of its duties to the Compensation Committee
of the Board; and
(iv) make all other determinations under this Plan which
determinations shall be conclusively binding for all purposes upon all persons
interested in this Plan.
c. All terms and conditions of any Option which are not specified
in the text of this Plan shall be stated in the Option Agreement and shall not
conflict with the provisions of this Plan nor require shareholder approval as a
modification or amendment of this Plan.
XXI. ADJUSTMENTS.
a. In the event that the issued and outstanding shares of the
Common Stock are increased, decreased, changed into, or exchanged for, a
different number or kind of shares or other securities of the Company or of
another corporation, by reason of recapitalization, reclassification, merger,
consolidation, stock split, or combination of shares, appropriate adjustment
shall be made by the Hoard in the number and kind of shares available for
purchase under outstanding Options. such adjustment in outstanding Options
shall be made with an adjustment in the Option Price and the number of shares
subject to Option, but without change in the total Option Price.
b. In the event of the dissolution of the Company, all
outstanding Options shall terminate as of a date to be fixed by the Board,
provided that not less than thirty (30) days written notice of the date so
fixed shall be given to each Optionee and each such Optionee shall have the
right during such period to exercise his Option as to all or part of the shares
subject to the Option including shares as to which such Option would not
otherwise be exercisable by reason of an insufficient lapse of time.
c. Adjustments and determinations under this paragraph 21 shall
be made by the Board and shall be final, binding and conclusive on all
interested persons.
XXII. NOTICE OF DISPOSITION OF SHARES. Each Optionee shall agree pursuant
to an Option Agreement to promptly notify the Company of any disposition, sale,
exchange, gift or transfer of legal title of the shares acquired by the
Optionee pursuant to an Option, and of any other event which, to the Optionee's
knowledge, requires the Optionee to include in his gross income any amount in
connection with the Option or any Option Shares.
XXIII. FORFEITURE OF OPTIONS AND OPTION SHARES. The Option Agreements
shall state the circumstances under which an Option and shares acquired
pursuant to such Option shall be forfeitable. At the discretion of the Board,
the Option Agreements may provide that an Optionee shall forfeit Options and/or
surrender shares acquired pursuant to an Option, with or without consideration,
automatically if, in the opinion of the Board, the Optionee has taken action
adverse to the Company's interests, including but not limited to, the
following:
a. The Optionee performs services, without the Board's consent,
for another person or entity engaged in a business which competes, indirectly
or directly, with the Company, at any time within a period of time determined
by the Board;
b. The Optionee breaches any written agreement existing between
the Company and the Optionee and fails to remedy such breach within a period of
time determined by the Board;
c. The Optionee discloses confidential information received from
the Company to unauthorized parties;
d. The Optionee engages in a business in direct or indirect
competition with the Company within a period of time determined by the Board;
or
19
<PAGE> 22
e. The Optionee takes any action causing him to be removed from
the Board for cause.
XXIV. AMENDMENT, SUSPENSION AND TERMINATION OF PLAN. The Board may at any
time suspend or terminate this Plan or may amend it from time to time in such
respects as the Board may deem advisable in order that the Options may. conform
to any changes in the law or in any. other respect which the Board may deem to
be in the best interests of the Company; provided, however, no amendment,
suspension or termination shall, without an Optionee's consent, alter or impair
any of the rights or obligations under any Option previously granted to the
Optionee under this Plan.
XXV. APPLICABLE LAW. This Plan shall be construed and interpreted in
accordance with the laws of the State of Delaware.
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<PAGE> 23
VOICE CONTROL SYSTEMS, INC.
14140 Midway Road
Dallas, Tx 75244
Proxy for the Annual Meeting of Stockholders to be held on May 6, 1996
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Peter J. Foster and Kim S. Terry, or any
one of them, to act as proxy or proxies, with full power of substitution in
each of them, in the name, place and stead of the undersigned, to vote at the
Annual Meeting of Stockholders (the "Meeting") of Voice Control Systems, Inc.,
a Delaware corporation (the "Company"), on May 6, 1996 at 10:00 a.m., or at any
adjournment or adjournments thereof, the manner designated on the reverse
side, all of the shares of common stock $.01 par value per share ("Common
Stock") of the Company that the undersigned would be entitled to vote if
personally present.
(Continued and to be signed on the other side)
FOLD AND DETACH HERE
<PAGE> 24
Please Mark [X]
your votes as
indicated in
this example
THIS PROXY, WHEN PROPERLY EXECUTED AND DATED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES UNDER PROPOSAL 1, FOR
PROPOSALS 2 AND 3 AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO ANY
OTHER MATTER THAT IS PROPERLY BROUGHT BEFORE THE ANNUAL MEETING.
1. To elect five (5) directors to serve for a term of one year and until
their successors shall have been duly elected and qualified.
VOTE FOR all WITHHOLD
nominees listed AUTHORITY
(except as marked to vote for all
to the contrary) nominees listed
[ ] [ ]
NOMINEES: Peter J. Foster, Melvyn J. Goodman, John Lucas-Tooth, Neal J.
Robinson, John B. Torkelsen.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
such nominee's name in the space provided below.)
- -------------------------------------------------------------------------------
2. For the proposal to increase the number of shares of common stock reserved
for issuance upon the exercise of options granted under VCS's 1992 Stock
Option Plan from 600,000 to 900,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To ratify the appointment of BDO Seidman as the independent accountants for
the Company and its subsidiaries for the fiscal year ending December 31,
1996.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any and all
adjournments thereof.
The undersigned hereby revokes any proxy or proxies heretofore given and
ratifies and confirms all that the proxies appointed hereby, or any of them or
their substitutes, may lawfully do or cause to be done by virtue thereof. A
majority of said proxies or their substitutes who shall be present and act at
the Meeting, or if only one is present and acts then that one shall have and may
exercise all of the powers hereby granted to such proxies. The undersigned
hereby acknowledges receipt of a copy of the Notice of Annual Meeting and Proxy
Statement both dated March 29, 1996 and a copy of the Company's Annual Report
for the fiscal year ended December 31, 1995.
Signature Signature Date
---------------------------- --------------------- ---------
NOTE: Your signature must appear the same as your name appears hereon. If
signing as attorney, executor, administrator, trustee or guardian, please
indicate the capacity in which signing. When signing as joint tenants, all
parties in joint tenancy must sign. When a proxy is given by a corporation, it
should be signed by an authorized officer and the corporate seal afforded.
.
FOLD AND DETACH HERE
