<PAGE> 1
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 Section 240.14a-11(c) or
Section 240.14a-12
VOICE CONTROL SYSTEMS, INC.
(Name of Registrant as Specified in its Charter)
Kim S. Terry
(Name of Person Filing Proxy Statement)
Payment of Filing Fee (Check appropriate box):
[X] $125 per Exchange Act Rules 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 transaction applies:
3) Per unit price of other underlying value of transaction
computed pursuant to Exchange Act rule 0-11:
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:
<PAGE> 2
VOICE CONTROL SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1997
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
Codman conference room, One Main Place, Cambridge, MA 02142 on Tuesday, May 20,
1997 at 10:00 a.m. Eastern time, for the following purposes:
(1) To elect seven directors to serve until the next annual
meeting of stockholders, or until their respective successors shall be duly
elected and qualified; and
(2) To ratify the appointment of BDO Seidman as the independent
auditor of the Company for the fiscal year ended December 31, 1997; and
(3) 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 April 15, 1997 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 offices at One Main Place, Cambridge, MA
02142 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
April 17, 1997
The Company's 1996 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 20, 1997
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
Tuesday, May 20, 1997 at Codman conference room, One Main Place, Cambridge, MA
02142 on Tuesday, May 20, 1997 at 10:00 a.m. Eastern 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 April 15, 1997 are entitled to
notice of and to vote at the meeting and at any and all adjournments thereof.
As of that date, there were 11,090,989 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 11,090,989. 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 April 28, 1997.
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 seven
nominees named under the caption "ELECTION OF DIRECTORS"
herein; and
(ii) FOR the ratification of the appointment of BDO Seidman as the
independent auditor of the Company for the fiscal year ended
December 31, 1997; and
(iii) 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, 1996, including financial statements (the "Annual Report"), is being mailed
concurrently with this Proxy Statement to all stockholders of record as of
April 15, 1997. 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 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 April 15, 1997. The Annual Report does not constitute
any part of the proxy solicitation materials.
1
<PAGE> 4
ELECTION OF DIRECTORS
Seven 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 seven 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 45 1994 President, CEO and Director
Melvyn J. Goodman 54 1994 Director
John Lucas-Tooth 64 1990 Director
Neal J. Robinson 52 1994 Director
Merrill Solomon 53 1996 Director
John B. Torkelsen 51 1986 Chairman and Director
Stanley J. Westreich 60 1996 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. Solomon has been a director of the Company since November 11, 1996. From
1982 until November 4, 1996, the date of the merger between the Company and
Voice Processing Corporation, Mr. Solomon served as chairman and chief
executive officer of Voice Processing Corporation. Mr. Solomon received a B.S.
in Electrical Engineering from George Washington University.
2
<PAGE> 5
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.
Mr. Westreich who has served as a director of the Company since November 11,
1996, has been president of Westfield Realty, Incorporated, a real estate
management and development company, since 1963 and is a general partner of
several private commercial real estate development partnerships. Mr. Westreich
is also a director of Capital One Financial Corporate, a credit card issuer.
He received a B.A. from the University of Miami, Florida and a Bachelor of Laws
from New York 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.
MEETINGS OF DIRECTORS AND COMMITTEES
The Company's Board of Directors held eleven meetings during the fiscal year
ended December 31, 1996.
The Company's Board of Directors normally meet on a quarterly basis.
Non-employee Directors are paid cash compensation of $5,000 per year. In
addition, non-employee Directors receive $1,000 plus a $1,750 expense allowance
for each Board meeting attended in person. In lieu of the $1,750 expense
allowance, Directors who reside in Europe will receive a roundtrip business
class airline ticket and a $1,000 expense allowance. Board members receive
$500 per telephonic Board meeting attended and $500 per committee meeting
attended. At the conclusion of the first year of service as a Director, each
non-employee Director is issued the right to purchase 10,000 warrants at a
price of $.01 per warrant. Each non- employee Director receives the right to
purchase an additional 5,000 warrants for each subsequent year of service.
Each warrant entitles the Director to purchase one share of Common Stock at the
then-current market price. During a portion of 1996, the Board had a
Compensation Committee and a Stock Option Committee. The responsibilities of
the Stock Option Committee were transferred to the Compensation Committee in
May 1996 and the Stock Option Committee was eliminated. The Board currently
has two standing committees, the Compensation Committee, whose function is to
establish salaries and incentives for executive officers and to review and
approve stock option grants under any approved stock option plan of the
Company, 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 held one meeting with the
independent auditor of the Company during 1996. The Compensation Committee
held four meetings and the Stock Option Committee held two meetings during the
fiscal year ended December 31, 1996 and the and all members were present. The
Stock Option Committee consisted of Melvyn J. Goodman and Sir John Lucas-Tooth.
The Audit Committee consist of two members, John B. Torkelsen and Neal J.
Robinson. The Compensation Committee consists of three members, John B.
Torkelsen, Neal J. Robinson, and Stanley Westreich. All directors attended at
least 75% of all meetings of the Board of Directors held during 1996.
COMPENSATION OF DIRECTORS
During 1996, John Lucas-Tooth was paid $25,629, Melvyn Goodman was paid
$19,250, Neal Robinson and John Torkelsen were each paid $16,500, Merrill
Solomon and Stanley Westreich were each paid $5,500 for Board and/or committee
meetings attended in person or by telephone.
3
<PAGE> 6
EXECUTIVE OFFICERS
The following table identifies the executive officers of the Company during
1996:
<TABLE>
<CAPTION>
NAME AGE CAPACITIES IN WHICH SERVED
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Peter J. Foster (1) 45 President, CEO and Director
David B. Levi (2) 64 Chief Operating Officer
Thomas B. Schalk (3) 45 Chief Technical Officer
Kim S. Terry (4) 39 Vice President Finance and
Corporate Secretary
</TABLE>
(1) Peter Foster joined Industries in 1985 and became President and CEO of
the Company effective August 11, 1994.
(2) Mr. Levi joined the Company as chief operating officer in November 1996.
From November 1995 until November 1996, Mr. Levi was president of Voice
Processing Corporation. From July 1991 to April 1995, Mr. Levi was
president of Natural Microsystems Corporation, a manufacturer of voice
processing systems.
(3) 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.
(4) Ms. Terry joined Industries in 1983 and became Vice President-Finance 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.
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.
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 $100,000 ("Named Executives") during 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
--------------------- Awards All
Other Annual ------------- Other
Name/Principal Salary Bonus Compensation Options Compensation
Position Year ($) ($) ($) (# of Shares) (1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 (2) 149,174 44,042 -- 39,181 --
Peter J. Foster 1995 158,223 27,500 -- 50,000 --
President and CEO 1996 185,223 57,500 -- 50,000 781
- -----------------------------------------------------------------------------------------------------------
1994 -- -- -- -- --
David B. Levi 1995 (3) -- -- -- -- --
Chief Operating Officer 1996 (3) 141,833 -- -- -- --
- -----------------------------------------------------------------------------------------------------------
1994 (4) 100,805 14,375 -- 39,181 --
Thomas B. Schalk 1995 128,094 15,750 -- -- --
Chief Technical Officer 1996 152,390 15,250 -- 70,000 2,375
- -----------------------------------------------------------------------------------------------------------
1994 (5) 70,128 -- -- 20,897 --
Kim S. Terry 1995 85,093 7,500 -- -- --
Vice President Finance 1996 120,716 20,000 -- 61,000 2,111
- -----------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 7
(1) Annual contributions to 401(k) plan.
(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. Levi joined Voice Processing Corporation in November 1995. The
amounts listed for 1996 include amounts paid by Voice Processing
Corporation prior to the merger and paid by the Company after the
merger.
(4) 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.
(5) Ms. Terry served as Vice President-Finance 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 1996 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 (1) Price ($/Share) Expiration Date
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter J. Foster
President and CEO 50,000 (2) 5% $6.00 7/2006
- -------------------------------------------------------------------------------------------------------------
David B. Levi 104,509 (3) $1.44 1/2006
Chief Operating Officer 50,000 (4) 14% $6.00 11/2006
- -------------------------------------------------------------------------------------------------------------
20,000 (5) $10.94 2/2006
Thomas B. Schalk 30,000 (2) $6.00 7/2006
Chief Technical Officer 20,000 (6) 7% $6.00 11/2006
- -------------------------------------------------------------------------------------------------------------
Kim S. Terry 25,000 (5) $10.94 2/2006
Vice President Finance 36,000 (2) 6% $6.00 7/2006
=============================================================================================================
</TABLE>
(1) Includes option grants in 1996 by Voice Processing Corporation prior
to the merger with the Company.
(2) Options vest at a rate of 20% per annum beginning in July 1997.
(3) Options vest 69,672 in 1996 and 34,837 in January 1997.
(4) Options vest 50% in 1997 and 50% in 1998.
(5) Options vest at a rate of 20% per annum beginning in February 1997.
(6) Options vest at a rate of 20% per annum beginning in November 1997.
5
<PAGE> 8
The following table summarizes options exercised during 1996 and presents the
value of unexercised options held by Named Executives at fiscal year end:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
==================================================================================================================
Number of Value of Unexercised
Unexercised Options In-the-Money Options at
Shares Value at Fiscal Year End Fiscal Year-End (1)
Acquired on Realized (# of shares) ($)
Name Exercise (#) ($) Exercisable (E)/ Exercisable (E)/
Unexercisable (U) Unexercisable (U)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
197,401 (E) $848,457 (E)
Peter J. Foster 108,000 $880,362 107,091 (U) $111,597 (U)
- ------------------------------------------------------------------------------------------------------------------
104,509 (E) $673,007 (E)
David B. Levi -- -- 50,000 (U) $93,750 (U)
- ------------------------------------------------------------------------------------------------------------------
83,786 (E) 233,147 (E)
Thomas B. Schalk 22,361 $182,276 85,581 (U) 181,910 (U)
- ------------------------------------------------------------------------------------------------------------------
26,876 (E) $119,512 (E)
Kim S. Terry 8,452 $67,990 66,449 (U) $114,521 (U)
==================================================================================================================
</TABLE>
(1) Based upon the closing price of the Company's Common Stock on the Nasdaq
National Market System on December 31, 1996 ($7.875), less the exercise
price, multiplied by the number of shares covered by the option; options
with exercise prices equal to or greater than $7.875 were excluded from
the calculation of the value of unexercised options.
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,
1998, 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 31, 1997, 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 executive officers of the Company as a group (10
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
Creative Technology Ltd. 1,020,324 9.20%
67 Ayer Rajah Cresent #03-18
Republic of Singapore 139950
Dialogic Corporation 1,399,715 12.62%
1515 Route 10
Parsippany, NJ 07054
Wellington Management Co., LLP 1,166,500 10.52%
75 State Street
Boston, MA 07054
(ii) Nominees, Current Directors and
Named Executive Officers:
Peter J. Foster* 446,925(1) 3.93%
Melvyn J. Goodman* 448,720(2) 4.02%
John Lucas Tooth* -- --
Neal J. Robinson* 386,997(3) 3.43%
Merrill Solomon* 386,291(4) 3.37%
John B. Torkelsen* 288,131(5) 2.59%
Stanley Westreich* 401,625(6) 3.62%
David B. Levi 104,509(7) **
Thomas B. Schalk 103,786(8) **
Kim S. Terry 47,299(9) **
(iii) All Current Directors and executive
officers as a group (10 persons) 2,614,283(10) 21.30%
</TABLE>
* Nominees for Director
** Represents less than 1%.
(1) Includes 18,307 shares held by Mr. Foster's wife, as to which
beneficial ownership is disclaimed and 20,969 shares held in trust for
Mr. Foster's minor children. Includes 286,779 shares issuable upon
exercise of vested options.
(2) Includes 26,120 shares which may be issued upon exercise of options
and 40,000 shares issuable upon exercise of warrants. Includes
188,800 shares owned by Philgood Investments, Inc., which Mr. Goodman
shares voting power. Includes 5,000 shares held by Mr. Goodman's
wife, as to which Mr. Goodman disclaims beneficial ownership.
(3) Includes 147,753 shares which may be issued upon exercise of options
and 30,000 shares issuable upon exercise of warrants.
(4) Includes 385,082 shares which may be issued upon exercise of options.
(5) Beneficial ownership includes 41,000 shares held by Mr. Torkelsen's
wife, as to which Mr. Torkelsen disclaims beneficial ownership.
Includes warrants for 35,625 shares issued to Mr. Torkelsen or PVR, of
which Mr. Torkelsen is the president and sole stockholder.
7
<PAGE> 10
(6) Includes 18,723 shares which may be issued upon exercise of options
and warrants.
(7) Includes 104,509 shares which may be issued upon exercise of vested
options.
(8) Includes 83,786 shares issuable upon exercise of vested options.
(9) Includes 26,876 shares issuable upon exercise of vested options.
(10) Includes 1,075,274 shares issuable upon exercise of vested options and
109,979 issuable upon exercise of warrants.
8
<PAGE> 11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ISSUANCE OF OPTIONS AND WARRANTS
On October 4, 1995, the Company granted Peter Foster options to purchase 50,000
shares of Common Stock at a price of $5.375 per share. These options vest
ratably over four years of continuous employment.
On December 14, 1995, Voice Processing Corporation granted Merrill Solomon
options to purchase 87,091 shares of Common Stock at an exercise price of
$1.1482 per share. The options are fully vested and were assumed by the
Company in the merger with Voice Processing Corporation.
In January 1996, Voice Processing Corporation granted Merrill Solomon options
to purchase 87,091 shares of Common Stock at an exercise price of $1.4353 per
share. The options are fully vested and were assumed by the Company in the
merger with Voice Processing Corporation.
In January 1996, Voice Processing Corporation granted David Levi options to
purchase 104,509 shares of Common Stock at an exercise price of $1.4353 per
share. The options were assumed by the Company in the merger with Voice
Processing Corporation and are fully vested as of January 1, 1997.
In February 1996, the Company granted Tom Schalk and Kim Terry options to
purchase 20,000 and 25,000, respectively, shares of Common Stock at an exercise
price of $10.9375 per share. The options vest ratably over five years of
continuous employment.
In July 1996, the Company granted Peter Foster, Tom Schalk, and Kim Terry
options to purchase 50,000, 30,000, and 36,000, respectively, shares of Common
Stock at an exercise price of $6.00 per share. The options vest ratably over
five years of continuous employment.
In May 1996, Melvyn Goodman, John Lucas Tooth, Neal Robinson, and John
Torkelsen were each granted the right to purchase warrants for $.01 per warrant
pursuant to the Director compensation package adopted in February 1996. The
warrants expire after five years and are exercisable at $5.625 per share.
In November 1996, the Company granted David Levi options to purchase 50,000
shares of Common Stock at an exercise price of $6.00 per share. The options
vest 50% after one year and 50% after the second year.
In November 1996, the Company granted Tom Schalk options to purchase 20,000
shares of Common Stock at an exercise price of $6.00 per share. The options
vest ratably over five years of continuous employment.
OTHER TRANSACTIONS
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. On February
14, 1996, John Lucas-Tooth repaid his loan plus accrued interest. In
September, 1996, the due date for John Torkelsen's loan was extended to June
30, 1997.
On September 20, 1995, Dialogic Corporation ("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 September 20,
1996, Dialogic converted accrued but unpaid interest due on its convertible
note in the amount of $86,379 into 94,013 shares of the Company's Common Stock.
On January 1, 1997, Dialogic's convertible note matured. The note plus accrued
but unpaid interest was converted into 1,300,694 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.
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<PAGE> 12
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 March 1997, the Company extended the terms of Dr. Schalk's employment
agreement through June 18, 1998.
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 1995, Dialogic purchased products and services from the Company at a
cost of $6,412,280. During 1996, Dialogic purchased products and services from
the Company at a cost of $3,430,308.
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.
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.
In March and April 1996, Voice Processing Corporation issued $500,000 in
short-term convertible notes. $300,000 in notes were issued to Stanley
Westreich and $200,000 in notes were issued to Creative Technology. The notes
were converted to 348,364 shares of Common Stock in July 1996.
In July 1996, Tom Schalk exercised 20,000 options of the Company for $24,300
and Kim Terry exercised 20,423 options of the Company for $31,274.
In July 1996, Voice Processing Corporation entered an employment agreement with
Merrill Solomon. Among its other provisions, this agreement provides that Mr.
Solomon will continue to be compensated at the rate of $120,000 per year for a
period of eighteen months following the merger of Voice Processing Corporation
into the Company. The employment agreement also requires the Company to
maintain an office for Mr. Solomon in the Washington, DC metropolitan area
during the eighteen month period. The agreement contains a non-competition
covenant that restricts him from competing with the Company during the eighteen
month period.
In November 1996, a $1,000,000 advance from Creative Technology was converted
to a prepaid royalty.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
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 NASDAQ. 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.
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 1996 with the following exceptions: Form 3s
required of Merrill Solomon and Stanley Westreich upon being elected as
directors of the Company were filed late. Creative Technology Ltd. was
required to report its ownership in excess of 5%, but Form 3 was not filed.
Form 4 for warrants sold by John Lucas- Tooth in November 96 was filed late.
10
<PAGE> 13
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, 1997. BDO Seidman also served as auditor of the
Company for its fiscal year ended December 31, 1996.
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, 1997.
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.
STOCKHOLDER PROPOSALS
Stockholders desiring to submit proposals for inclusion in the Company's proxy
statement and form of proxy relating to its 1998 Annual Meeting of Stockholders
must advise the Secretary of the Company of such proposals in writing by
December 18, 1997.
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.
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 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 1996
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
April 17, 1997
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<PAGE> 14
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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
PROPOSAL 2 AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO ANY OTHER
MATTER THAT IS PROPERLY BROUGHT BEFORE THE ANNUAL MEETING.
Please mark your votes as indicated in this example. [X]
1. To elect seven (7) 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, Merrill Solomon, John B. Tokelsen,
Stanley J. Westreich
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
such nominee's name in the space provided below.)
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2. To ratify the appointment of BDO Seidman as the independent accountants for
the Company for the fiscal year ending December 31, 1997.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. 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 April 17, 1997 and
a copy of the Company's Annual Report for the fiscal year ended December
31, 1996.
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.
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FOLD AND DETACH HERE
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<PAGE> 15
VOICE CONTROL SYSTEMS, INC.
Proxy for the Annual Meeting of Stockholders to be held on May 20, 1997
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 20, 1997 at 10:00 a.m., or at
any adjournment or adjournments thereof, in 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)
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FOLD AND DETACH HERE
