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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1997
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 0-13616
INTERVOICE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 75-1927578
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
17811 WATERVIEW PARKWAY
DALLAS, TEXAS 75252
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(214) 454-8000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
-------------------
COMMON STOCK, NO PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [ ]
AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NONAFFILIATES AS OF MAY
19,1997: $180,140,027
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 19, 1997:
16,192,362
DOCUMENTS INCORPORATED BY REFERENCE
LISTED BELOW ARE DOCUMENTS PARTS OF WHICH ARE INCORPORATED HEREIN BY
REFERENCE AND THE PART OF THIS REPORT INTO WHICH THE DOCUMENT IS INCORPORATED:
(1) PROXY STATEMENT FOR THE 1997 ANNUAL MEETING OF SHAREHOLDERS - PART III.
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TABLE OF CONTENTS
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PAGE
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PART I
ITEM 1. Business.......................................................... 1
Call Automation Industry.......................................... 1
Markets........................................................... 2
Product Strategy.................................................. 3
Products and Services............................................. 4
Competition....................................................... 6
Distribution...................................................... 6
Backlog........................................................... 7
Proprietary Rights................................................ 7
Manufacturing and Facilities...................................... 8
Employees......................................................... 8
ITEM 2. Properties........................................................ 9
ITEM 3. Legal Proceedings................................................. 9
ITEM 4. Submission of Matters to a Vote of Security Holders............... 9
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters.............................................. 10
ITEM 6. Selected Financial Data.......................................... 10
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 11
ITEM 8. Financial Statements and Supplementary Data...................... 16
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................... 30
PART III
ITEM 10. Directors and Executive Officers of the Registrant.............. 31
ITEM 11. Executive Compensation.......................................... 31
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management......................................... 31
ITEM 13. Certain Relationships and Related Transactions.................. 31
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.......................................... 32
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PART I
ITEM 1. BUSINESS
InterVoice, Inc. (together with its subsidiaries, collectively referred to
as "InterVoice" or the "Company") develops, sells and services call automation
systems. The Company's historical emphasis has been on interactive voice
response ("IVR") systems, which allow individuals a self help facility using
their telephones, personal computers, credit card terminals or voices to access
and/or provide information to computer data bases utilized by businesses and
telecommunications companies. The Company's systems are sold under the trade
names "OneVoice" and "InterDial". OneVoice Systems are used by a variety of
enterprises to disseminate and receive information efficiently, allowing
multiple callers simultaneous access to computer data bases without the expense
of maintaining a customer service representative and workstation for each
telephone line. InterDial systems improve call center efficiency by
automatically dialing phone numbers and only transferring a call to a live
agent if the call is answered and the called party remains on the phone. The
Company's products include software development tools designed to support a
number of diverse product applications and to simplify system customization.
Applications currently function in a wide range of industries including banking
and financial services, cable TV, government, healthcare, help desk, higher
education, insurance, retail and wholesale distribution, telecommunications,
transportation and manufacturing and utilities.
OneVoice Systems sell at list prices ranging from approximately twenty
five thousand to millions of dollars and support from four to thousands of
voice and data channels. Scalability is a key differentiator for all OneVoice
Systems, which incorporate multiple modules of up to 96 voice and data channels
per module which, in turn, can be connected by local area networks for a single
system appearance, management control and redundancy. InterDial Systems sell
at list prices ranging from approximately fifty thousand to five hundred
thousand dollars or more and support from four to 40 agent positions on a
single module. Multiple InterDial Systems can be connected via a node adapter
to support up to a total of 128 agents. OneVoice/UNIX Systems sell at list
prices ranging from approximately thirty thousand to two hundred thousand
dollars and support from 12 to 96 ports per system. The OneVoice/Unix Systems
replace the VoicePlex Systems previously marketed by the Company.
The Company sells its products directly to end-users and through more than
130 domestic and international distributors. Since the Company's inception in
1984, the number of worldwide installations of the Company's systems has grown
to over 8,300 in 49 countries. The end-users to which the Company has sold
systems include Aetna, Bank of America, Bell Canada, British Telecom, CitiBank,
Fidelity Investments, First Chicago, First Union Corporation, GTE, J.C. Penney,
LCI International, Martin Marietta, MCI Telecommunication, Merrill Lynch,
Microsoft, National Data Corporation, National Westminster Bank U.K.,
NationsBank, Sears Roebuck and Co., Social Security Administration, Sprint, The
New England, T U Electric, USAA and Wachovia Bank. Other than Siemens AG, an
InterVoice distributor, which accounted for 10.2% of the Company's total sales
in fiscal 1997, and MCI Telecommunications, which accounted for 11.2% and 11.7%
of the Company's total sales in fiscal 1996 and fiscal 1995, no customer
represented 10 percent or more of the Company's aggregate sales during fiscal
1997, 1996 or 1995.
CALL AUTOMATION INDUSTRY
The number of telephone calls requesting information or requiring operator
services that must be handled by businesses, telecommunications service
providers and other organizations has increased dramatically in recent years.
Traditionally, consumers obtained data or services from organizations such as
banks, insurance companies, or telephone companies, by phoning a customer
service representative, agent, or operator who used a terminal linked to a
computer to process the data or service request. The major disadvantage of
this procedure is the high cost of providing a large number of individuals to
answer calls and provide service, which imposes practical limits on access
frequency and the amount of information and level of service that can be given
to each caller. Another disadvantage is that, if the volume of calls increases
or substantially varies with the time of day or other factors, the potential
for service delays and errors may increase. As a result of these high costs
and inefficiencies, organizations have increasingly turned to various methods
of automation to process such calls. With IVR systems, callers receive
accurate responses to routine service requests so customer service
representatives, agents and/or operators are free to work on other important
tasks requiring their personal expertise. The Company believes that such
systems provide more service to more customers without additional staff,
improve customer and employee retention and can result in significant cost
savings to the Company's customers. The call automation industry has
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matured to the point that, in certain system applications such as credit limit
requests, callers may prefer dealing with an IVR system rather than a human in
order to preserve privacy and confidentiality.
The Company believes that the industry can be divided into five primary system
markets:
Interactive voice response is the use of a wide variety of devices,
such as telephones, facsimile or personal computers in conjunction with
public and private telecommunication networks and/or the Internet to input
or retrieve information or request services from a computer data base.
Applications include checking account balances, credit card authorizations,
insurance claims and automating telephone calls formerly requiring operator
assistance. The Company believes the industry will also embrace
applications utilizing recently introduced multi-media and internet
capabilities (e.g. the use of voice, graphics and images). The Company's
VisualConnect product addresses internet applications while the Company's
MediaConnect product addresses multi-media applications. The Company
participates in this market with its OneVoice System which comprised more
than 90% of its system sales in fiscal 1997.
Outbound call processing involves the automatic dialing of telephone
numbers and the use of computerized voice messages and live agents to
communicate with customers and prospects. Applications include customer
notifications, delinquent bill collecting and the telemarketing of goods
and services. The Company addresses this market with its InterDial System
which comprised 7% of its system sales in fiscal 1997.
Automated call directing serves the functions typically performed by a
receptionist and involves the use of a computerized announcer which asks
callers to select an extension or department.
Voice mail enables callers to leave, exchange and retrieve electronic
voice messages 24-hours a day, seven days a week.
Audiotex is the use of a telephone to access and to listen to a wide
variety of current information, such as sports scores, weather, stock
quotes, business news, classified ads or other similar information.
The general public has become increasingly receptive to IVR systems,
having become familiar with them from early adopters in the financial services
industry. Such systems are becoming more pervasive in a wide variety of
industries and applications as indicated below:
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INDUSTRY APPLICATION
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Financial Services Banking/Credit Union
Bill Payment
401K/Employee Benefit
Health Care Benefits Coverage
Test Results
Claims Status
Cable TV Service Requests
Event Ordering
Education Enrollment
Grade Reporting
Financial Aid
Housing
Electronic Benefits Transfer Child Support
Welfare Payments
Food Stamps
Telecommunications Automated Operator Services
Service Requests
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MARKETS
The Company continues to evaluate a wide variety of potential industry
specific or "vertical" markets and has selected key markets based upon the
Company's evaluation of their potential for rapid acceptance of IVR technology.
The Company has traditionally focused on the financial services industry and,
more recently, the
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telecommunications industry. The Company also has expanded its focus to
include, among others, the human resource, healthcare and call center vertical
markets.
PRODUCT STRATEGY
The Company's products are designed to assist its customers in achieving
the following objectives:
o Increase revenues with reduced costs
o Improve customer and/or employee service
o Provide product and service differentiation
The Company believes that its OneVoice System enables the Company's
customers to handle more calls with fewer delays and errors at a lower cost
than through use of customer service representatives, agents or operators while
preserving callers' privacy and confidentiality, which is important in some
applications. InterDial allows the Company's customers to contact a large
number of people in applications such as collections and telemarketing while
improving the productivity of agents. Both the OneVoice and InterDial Systems
operate on the OneVoice Software Agent Platform which can simultaneously host
both systems, each of which, in turn, can simultaneously host multiple
applications, allowing the Company's customers to leverage their investments in
their OneVoice and InterDial systems. The OneVoice/UNIX System provides
network based voicemail applications for telecommunications companies. The
Company has adapted its OneVoice Software Agent Platform platform, called NSP
5000, to address the growing Intelligent Peripheral market within the
telecommunication industry. Intelligent Peripherals are the building blocks
for the provisioning of automated operator services, such as processing credit
card calls, and advanced telecommunications features, such as voice dialing, to
be offered in the Advanced Intelligent Networks currently being contemplated by
domestic and international wireline and wireless telecommunications network
operators.
The Company's product strategy emphasizes leveraging industry standard
computer platforms and operating systems to allow the Company to take advantage
of hardware and software technology offered by third parties. This strategy
also provides the Company's customers the option to select the computer
platform and operating system of their preference should they wish
compatibility with other computer systems. This allows the Company to focus
its development efforts on call automation technology. The Company has
developed a robust suite of call processing functions and features
characterized by the following factors:
Host Computer Platform Independence: By virtue of compliance with
industry standards, the Company's hardware and software is designed to be
independent of the host computer platform. The same hardware and software
can operate on computer platforms produced by a variety of manufacturers.
This allows the Company to deliver its products integrated with the computer
platform of its customers' choice rather than dictating the selection of a
specific computer platform. This is an important factor in vendor selection
for many of the Company's current and potential customers. This product
strategy also allows the Company to avoid the expense of maintaining
multiple versions of the Company's hardware and software.
Operating Software Independence: The Company's InterSoft run time
software is simultaneously compatible with all popular operating systems,
such as UNIX, OS/2 and Windows NT. This allows the Company to give its
customers operating system freedom of choice, an important factor in vendor
selection for many of the Company's current and potential customers. This
product strategy also allows the Company to avoid the expense of maintaining
multiple versions of the Company's run time software.
Flexible Programming: The Company offers its customers a wide variety
of software features that can be included in the OneVoice and InterDial
Systems. The Company's software is designed to support a number of diverse
product applications. The Company's recently introduced graphical user
interface (GUI) software development tool, InVision, simplifies the
generation and customization of customer applications.
System Expandability/Networking: The OneVoice System can be expanded
from four up to 96 lines per module by adding expansion cards without
software changes. Multiple modules can be interconnected via a local area
network to provide simultaneous access for thousands of callers while
maintaining control from a single workstation on the network. InterDial
Systems are expandable from 4 to 40 lines per system and multiple InterDial
Systems can be connected via a node adapter to support up to a total of 128
agents.
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Voice and Data Connectivity: Systems can be connected to most digital
and analog PBX's and/or central office switches and to a wide variety of
host computers.
The Company believes that its products are designed and manufactured to be
highly reliable and to require minimum maintenance, most of which can be
handled from its headquarters using on-line remote diagnostic and test
capabilities. The Company has contracted with an independent company with
local service offices throughout the United States to perform customer site
service. When customer repair is required, the Company electronically
dispatches service technicians. International distributors are generally
responsible for providing service for the systems they sell.
PRODUCTS AND SERVICES
One Voice Systems
OneVoice Systems are primarily focused on the IVR market and comprised
more than 90% of the Company's system sales in fiscal 1997. These systems
combine a variety of standard computer platforms and standard operating systems
together with the Company's proprietary run time software, known as InterSoft,
and Company developed and third party developed expansion boards to perform IVR
functions. Each OneVoice System module utilizes the same proprietary run time
software, which allows the Company's customers to expand their OneVoice Systems
via the addition of expansion cards or via the linkage of multiple modules
through a local area network, as capacity and other requirements grow.
OneVoice Systems can be configured using a variety of computer platforms and
operating systems depending on the customer's preferences and processing
requirements.
The Company's run time software, known as InterSoft, offers customers a
variety of features that can be included in OneVoice Systems, including:
VisualConnect ~: A feature which allows OneVoice Systems to
communicate with multi-media personal computers via the Internet. Data can
be transmitted in any combination of voice, graphic and image formats.
MediaConnect ~: A feature allowing customers to communicate with
OneVoice Systems with multi-media personal computers via telecommunications
networks. Data can be transmitted in any combination of voice, graphic and
image formats.
VoiceDial ~: A voice recognition feature, available in several
languages, allowing a telephone caller to issue oral commands to OneVoice
Systems, in both numeric and alpha format, including continuous speech.
YourVoice ~: A feature allowing customers to customize and change
recorded messages from any telephone.
VirtualVoice ~: A voice storage and playback feature allowing
OneVoice Systems to store and retrieve large quantities of verbal
information received from many telephone lines.
DataConnect ~: A feature allowing OneVoice Systems to communicate
with personal computers, data terminals and hearing impaired devices using
the same telephone lines as voice callers.
MultiFrequency Decoding ~: A feature allowing OneVoice Systems to
emulate central office signaling.
PulseDial Decoding ~: A feature which allows rotary phones to
communicate with OneVoice Systems.
Digital Interface ~: A feature which makes possible 24 channel
capacity with fully integrated T1 Direct Connectivity or 30 channel
capacity with fully integrated E1 Direct Connectivity in the European
marketplace.
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InVision is the Company's proprietary, next-generation software tool which
aids in the development and testing of custom IVR applications. InVision is
based on a graphical user interface and allows developers to visualize and hear
the interaction between users and OneVoice Systems while developing custom
applications. The Company believes its customers will expand the scope and use
of its systems by virtue of this user-friendly development tool. InterForm is
the Company's proprietary, forms based software program which also can be used
by developers to generate and maintain custom applications.
VocalCard, a proprietary voice automation board, allows OneVoice Systems
to perform many functions in software which many other suppliers must perform
using discrete hardware. Extensive use of software enables the Company to add
features or enhance OneVoice Systems without redesigning hardware.
The Company has developed the FoneTower, an expansion chassis which
enables users to insert up to 18 additional cards into a OneVoice module due to
limitations in the number of expansion slots in some computer platforms.
Capacity expansion and the provisioning of additional features and functions
often require additional voice automation cards, such as VocalCard.
The Company integrates compatible programmable add-in cards with
proprietary software to interface OneVoice Systems with enterprise systems
predicated on host computers produced by IBM, Unisys, NCR, DEC, and others,
using standard communications protocols and native terminal emulation via the
Internet; local area networks, including the IBM Token Ring, Ethernet and
Arcnet; advanced wide area networks, including ISDN-PRI and X.25; and customer
private networks.
One Voice 5000
The Company's OneVoice 5000 systems utilize a compact, modular, passive
backplane design which allows for high port density per system, a critical
factor for call center applications. The passive backplane design allows for
easy system expansion and for the upgrade of system components, such as CPU's,
as technologies advance.
Network Services Platform (NSP) 5000
Similar in design to the Company's OneVoice 5000 systems, this product is
positioned to address the Intelligent Peripheral (or service node) market
within the telecommunications industry. The Company is actively marketing NSP
5000 systems for the provisioning of automated operator services, such as
processing credit card calls, and advanced telecommunication features, such as
voice navigated voice mail, voice activated dialing and short message delivery
services.
OneVoice CallCenter
The OneVoice CallCenter is targeted for regional or branch offices of
large businesses, providing them integrated inbound and/or outbound call
automation systems without replacing their existing telecommunications
equipment. The OneVoice CallCenter adds call switching capabilities to the
OneVoice Multi Application Platform and supports both OneVoice Systems and
InterDial systems. These systems serve to combine PBX functionalities with
ISDN PRI capabilities to enable the transmission of both voice and data on a
single line to support agent query.
OneVoice/Unix
The OneVoice/UNIX historically has been marketed primarily to
telecommunications companies to provision their networks with central office
based voice mail
InterDial
The Company's InterDial System provides outbound call processing. A
typical application of an InterDial system permits the Company's customers to
improve the productivity of their telemarketing operations by automatically
dialing phone numbers and only transferring a call to an agent if the call is
answered and the called party remains on the phone. InterDial's patented
advanced call processing monitoring and automatic call pacing
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algorithms also improve productivity by transferring a caller to a
telemarketing agent immediately upon completion of the agent's previous call.
RealCare
The Company offers its customers a system maintenance program, known as
RealCare, which combines on-line remote diagnostic and test capabilities with
nationwide on-site repair performed, in part, by the Company's service
partners. RealCare enables customers to access the Company's Help Desk, to
receive on-line tests, and, if necessary, to receive software modifications.
When on-site repair is required, the Company may electronically dispatch its
service partners' service technicians while monitoring and directing repair
activities.
COMPETITION
The call automation industry is fragmented and highly competitive. Based
on industry surveys, the Company believes no company participating in this
industry has more than a 20% market share. Technological advances are critical
to industry leadership. The Company competes primarily on the basis of a broad
range of product capabilities and features, professional services (such as
system customization), and customer support services. The principal
competitors for the Company's OneVoice Systems include Lucent Technologies
(Formerly AT&T), Periphonics, Brite Voice and Edify. The principal competitors
for the Company's InterDial System include Davox, EIS and Mosaix. The
principal competitors for the Company's telecommunications products include
Boston Technology, Octel and Comverse Technology. The Company anticipates that
competition from existing competitors will continue to intensify. The Company
may also face market entry from non-traditional competitors, including
telephone switching equipment manufacturers and independent IVR service
bureaus. Some of these competitors have greater financial, technological and
marketing resources than the Company.
DISTRIBUTION
The Company markets its product through both direct and indirect sales
channels. During fiscal 1997, approximately 53% and 47% of the Company's total
sales were attributable to direct sales to end-users and to sales to
distributors, respectively. The Company provides discounts to volume end-user
purchasers and its distributors reflecting decreased costs associated with such
sales. During fiscal 1997, sales to existing customers, as a percentage of the
Company's total sales, were 65% comparable to 67% in fiscal year 1996, as
customers continued to expand their systems, and to add new and/or enhanced
applications. The Company anticipates that sales to existing customers, as a
percentage of the Company's total sales, will continue to be a significant
percent of the Company's total sales as the Company focuses additional
marketing efforts on current users of InterVoice's systems. One customer,
Siemens AG, an InterVoice distributor, accounted for 10.2% of the Company's
total sales in fiscal 1997 while MCI Telecommunications accounted for 11.2% and
11.7% of the Company's sales in fiscal 1996 and fiscal 1995.
United States Distribution
The Company sells its products directly to end-users and more than 85
distributors in the United States which allows it to leverage an indirect sales
force numbering in excess of 1,700 in addition to its domestic direct sales
force of approximately 75. During fiscal 1997, approximately 69% and 31% of
the Company's domestic sales were attributable to end-users and distributors,
respectively. The Company's end-users include, among others, Aetna, Bank of
America, Bell Canada, Fidelity Investments, First Chicago, First Union
Corporation, GTE, J. C. Penney, LCI International, Martin Marietta, MCI
Telecommunications, Merrill Lynch, Microsoft, National Data Corporation,
National Westminster Bank U.K., NationsBank, Sears Roebuck & Co., Social
Security Administration, Sprint, The New England, TU Electric, USAA, and
Wachovia. Marketing efforts by the Company include advertising, trade shows,
direct mail campaigns and telemarketing, implemented by a field sales force.
The Company enters into arrangements with distributors to broaden
distribution channels, to increase its sales penetration to specific markets
and industries and to provide customer services relating to the Company's
products on behalf of the Company. Distributors are selected based on their
access to markets, industries and customers that are candidates for the
Company's products. The Company's major distributors include Ameritech
Information Systems, EDS, Fiserv, Fujitsu, GTE, Information Technology, Inc.,
NEC West, Norstan, Rockwell International, Siemens Rolm, Sprint, Symitar
Systems, U.S. Order and Wiltel.
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International Distribution
The Company offers its products outside the United States through a
network of more than 45 distributors which allows it to leverage an indirect
sales force numbering in excess of 300 in addition to its international direct
sales force of approximately 15. International distributors include
Information Technology & Data (Turkey), IVRS Ltd. (Hong Kong), Loxbit
(Australia), OLTP Voice (Venezuela), Phonetix (Canada), Promotora Kranon
(Mexico), Siemens Rolm, Switch (Chile) and Telecom Equipment (Singapore). The
Company maintains offices in London and Frankfurt to support sales by
distributors throughout the European Community, the Middle East and Africa.
Offices in Singapore, Melbourne and Bejing support sales by distributors
throughout the Pacific Rim. The Company also maintains an office in Toronto to
support its Canadian distributors. The Company's products are currently sold
in 49 countries. Most countries lag the United States in the development of
their IVR markets. Government regulation of telecommunications equipment and
services, and the low penetration of digital switches and touch-tone
telephones, have limited sales of IVR systems in many countries. Subject to
differences in culture and business practices, the Company anticipates that the
international market for IVR systems will grow as foreign countries overcome
regulatory, technological and other barriers which limit the use of such
systems. The Company believes that international buyers are attracted to its
products for a number of reasons including: its digital technology; the ease
with which buyers can customize applications in foreign languages; OneVoice
Systems' ability to support multiple languages concurrently, to interact with
rotary telephones, and to support voice recognition when touchtone telephones
are unavailable; and the Company's efforts in obtaining the required approvals
for connectivity to the telephone networks in numerous international markets.
In previous fiscal years, the Company had many large sales to the European
audiotex market, however, such sales slowed to less than 1% of the Company's
European sales during fiscal 1997. The Company expects only minimal sales to
the European audiotex market in future years as the Company believes demand in
that market will remain flat or continue to decline. During fiscal 1997, the
Company continued its focus on building its European distribution channels by
increasing its European staffing to strengthen existing distributor
relationships and to add new distributors. The Company also continued to
expand distribution in the Pacific Rim and Latin America to increase the
Company's presence in these rapidly growing markets.
International sales in fiscal 1997, 1996 and 1995 grew 36%, 65% and 6%
respectively, and, as a percentage of total sales, were 24% in fiscal 1997, 19%
in fiscal 1996 and 14% in fiscal 1995. Sales to the Americas (excluding the
United States) constituted 47%, 61% and 33% of international sales in fiscal
1997, 1996 and 1995, respectively. Sales to Europe constituted 34%, 20% and
45% of international sales in fiscal 1997, 1996 and 1995, respectively. Sales
to the Pacific Rim constituted 19%, 19%, and 22% of international sales in
fiscal 1997, 1996 and 1995, respectively. The increase in sales to Europe as a
percent of international sales in fiscal 1997 was primarily attributable to a
large sale to a European based, global telecommunications company. The decline
in sales to Europe as a percent of international sales in fiscal 1996 was
primarily attributable to the slowing of sales to the European audiotex market,
as mentioned above. The large increase in sales to the Americas (excluding the
United States) as a percent of international sales in fiscal 1996 was primarily
attributable to several large sales to Central and South American
telecommunications companies. A discussion of the Company's export sales by
geographical area for fiscal 1997, 1996 and 1995 is found in Note G to the
Consolidated Financial Statements located in Item 8 of this report which is
incorporated herein by reference.
BACKLOG
The Company's backlog at February 28, 1997, February 29, 1996 and February
28, 1995 was approximately $11.4 million, $21.3 million and $11.7 million,
respectively. The Company expects all existing backlog to be delivered within
the next fiscal year. Due to customer demand, many of the Company's sales are
completed in the same fiscal quarter as ordered. Thus, the Company's backlog
at any particular date may not be indicative of actual sales for any future
period.
PROPRIETARY RIGHTS
The Company believes that its existing patent, copyright, license and
other proprietary rights in its products and technologies are material to the
conduct of its business. To protect these proprietary rights, the Company
relies on a combination of patent, trademark, trade secret, copyright and other
proprietary rights laws, nondisclosure safeguards and license agreements. As
of February 28, 1997, the Company owned 14 patents. In addition, the Company
has registered "InterVoice" as a trademark in the United States and in certain
foreign
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countries. The Company has also registered 21 trademarks and servicemarks in
the United States for other product and service names and has registrations
pending in the United States for various product names. The Company's software
and other products are generally licensed to customers pursuant to a
nontransferable license agreement that restricts the use of the software and
other products to the customer's internal purposes. Although the Company's
license agreements prohibit a customer from disclosing proprietary information
contained in the Company's products to any other person, it is technologically
possible for competitors of the Company to copy aspects of the Company's
products in violation of the Company's rights. Furthermore, even in cases
where patents are granted, the detection and policing of their unauthorized use
is difficult. Moreover, judicial enforcement of copyrights may be uncertain,
particularly in foreign countries. The occurrence of the unauthorized use of
the Company's proprietary information by the Company's competitors could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Item 3. Legal Proceedings."
From time to time various owners of patents and copyrighted works send the
Company letters alleging that its products do or might infringe upon the
owners' intellectual property rights, and/or suggesting that the Company should
negotiate a license or cross-license agreement with the owner. The Company's
policy is to never knowingly infringe upon any third party's intellectual
property rights. Accordingly, the Company forwards any such allegation or
licensing request to its outside legal counsel for their review and opinion.
The Company generally attempts to resolve any such matter by informing the
owner of its position concerning non-infringement or invalidity, and/or, if
appropriate, negotiating a license or cross-license agreement. Even though the
Company attempts to resolve these matters without litigation, it is always
possible that the owner of the patent or copyrighted works will institute
litigation. Owners of patent(s) and/or copyrighted work(s) have previously
instituted litigation against the Company alleging infringement of their
intellectual property rights, however, no such litigation is currently pending
against the Company. The Company has accelerated its program for applying for
and receiving patents to reflect its technological inovations. The Company
currently has a portfolio of fourteen patents, and has applied and will
continue to apply for a number of additional patents. The Company believes
that its patent portfolio could allow it to assert counterclaims for
infringement against certain owners of intellectual property rights if those
owners were to sue the Company for infringement. In certain situations, it
might be beneficial for the Company to cross license certain of its patents for
other patents which are relevant to the call automation industry.
The Company believes that software companies and technology companies,
including the Company and other companies in the Company's industry, may become
increasingly subject to infringement claims. Such claims may require the
Company to enter into costly license agreements, or result in even more costly
litigation. To the extent the Company requires a licensing arrangement, the
arrangement may not be available at all, or, if available, may be very
expensive or even prohibitively expensive. As with any legal proceeding, there
is no guarantee that the Company will prevail in any litigation instituted
against the Company asserting infringement of intellectual property rights. To
the extent the Company suffers an adverse judgment, it might have to pay
substantial damages, discontinue the use and sale of infringing products,
repurchase infringing products from the Company's customers pursuant to
indemnity obligations, expend significant resources to acquire non-infringing
alternatives, and/or obtain licenses to the intellectual property that has been
infringed upon. As with licensing arrangements, non-infringing substitute
technologies may not be available, and if available, may be very expensive, or
even prohibitively expensive, to implement. Accordingly, for all of the
foregoing reasons, a claim of infringement could ultimately have a material
adverse effect on the Company's business, financial condition and results of
operations.
MANUFACTURING AND FACILITIES
The Company's manufacturing operations consist primarily of the final
assembly and the extensive testing and quality control of materials,
components, subassemblies and systems. The Company currently uses third parties
to perform printed circuit board assembly, sheet metal fabrication and
customer-site service and repair. Although the Company generally uses standard
computer platform parts and components for its products, some components,
including certain semiconductors, and more specifically, digital signal
processors and static random access memories, are presently available only from
limited suppliers. To date, the Company has been able to obtain adequate
supplies of such components in a timely manner. However, the Company's
operating results could be adversely affected if the Company were unable to
obtain such components from such sources in the future.
EMPLOYEES
As of May 19, 1997, the Company had 697 employees.
8
<PAGE> 11
ITEM 2. PROPERTIES
The Company owns and occupies a 225,000 square foot manufacturing and
office facility in Dallas, Texas. The Company also leases approximately 5,000
square feet of office space in London and approximately 1,000 square feet of
office space in Singapore.
The Company has suitable properties and productive capacity for its
near-term requirements. The Company owns land adjacent to its Dallas facility
should additional office and/or manufacturing capacity be required.
ITEM 3. LEGAL PROCEEDINGS
Lucent Technologies ("Lucent") has suggested in correspondence to the
Company that it should consider licensing certain Lucent patents for a
substantial payment. The Company has an opinion from its outside legal counsel
that the Company does not infringe the Lucent patents by reason of
non-infringement and/or invalidity. The Company has suggested to Lucent that
Lucent should consider licensing certain patents of the Company, and that a
mutual cross-license might be in the best interests of both parties. The
parties are currently attempting to negotiate a mutually satisfactory
cross-license agreement which would resolve the matter. There is no assurance
that the Company will be able to negotiate a cross-license agreement based on
mutually satisfactory terms. Lucent has not threatened litigation against the
Company. In the event that litigation is instituted against the Company
concerning the Lucent patents, the Company intends to vigorously contest the
claims and to assert defenses of non-infringement and/or invalidity of the
patents, together with any other meritorious defenses and counterclaims,
including any counterclaim for infringement of its patents, the Company might
have. As with any legal proceeding, there is no guarantee that the Company
will prevail in any litigation asserted against the Company in connection with
the Lucent patents.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
9
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
The Company's outstanding shares of common stock are quoted in the Nasdaq
National Market under the symbol INTV. The Company has not paid any cash
dividends since its incorporation and does not anticipate paying cash dividends
in the foreseeable future. The Company is not bound by any contractual terms
that either prohibit or restrict the payment of dividends.
High and low prices for the shares as reported in the Nasdaq National
Market are shown below for the Company's fiscal quarters during fiscal 1997 and
1996.
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
- ----------- -----------
Quarter High Low Quarter High Low
- ------- ---- --- ------- ---- ---
<S> <C> <C> <C> <C> <C>
1st $ 30 1/2 $21 3/4 1st $ 16 1/2 $ 14 1/8
2nd 22 12 1/4 2nd 22 3/4 14 5/8
3rd 15 3/4 11 3/16 3rd 26 3/8 17 7/8
4th 14 7/8 10 1/2 4th 24 1/2 16 5/8
</TABLE>
There were approximately 1,000 shareholders of record and approximately
12,500 beneficial shareholders of the Company at May 19, 1997 On May 19, 1997
the closing price of the Common Stock was $11.13.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes included elsewhere herein and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" set forth below. The selected
consolidated financial data presented below for each of the years in the
five-year period ended February 28, 1997 are derived from the consolidated
financial statements of InterVoice, Inc., which financial statements have been
audited by Ernst & Young LLP, independent certified public accountants. The
consolidated financial statements as of February 28, 1997 and February 29, 1996
and, and for each of the years in the three-year period ended February 28, 1997
and the report of Ernst & Young LLP thereon, are included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 29/28
--------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $104,845,692 $ 97,103,054 $ 76,265,228 $ 60,933,903 $ 44,566,352
Income from Operations 17,548,615** 25,054,742 9,304,113*** 16,988,225 10,950,223
Net Income 12,760,481** 17,259,358 2,533,580*** 11,705,501 7,824,309
Total Assets 109,178,509 89,726,806 62,718,565 74,218,417 52,633,577
Long Term Debt -- -- -- -- --
Per Common Share
Net Income .77** 1.05 .15*** .64 .45
Cash Dividend -- -- -- -- --
Weighted average
number of common and
common equivalent
shares* 16,618,937 16,397,924 16,755,289 18,419,088 17,461,876
</TABLE>
*The number of weighted average common and common equivalent shares in fiscal
years prior to 1994 have been restated to reflect 2 for 1 stock splits in the
form of 100% stock dividends paid August 16, 1993 and October 16, 1992.
**Fiscal 1997 income from operations and net income were impacted by charges
totaling approximately $1.8 million and $1.3 million, respectively, or $0.08
per share, resulting from a non-recurring litigation settlement. Without this
charge, earnings for fiscal 1997 would have been $0.85 per share.
***Fiscal 1995 income from operations and net income were impacted by charges
totaling approximately $10.5 million, or $0.65 per share, associated with a
non-recurring charge resulting from a significant portion of the
10
<PAGE> 13
purchase price of VoicePlex Corporation having been attributed to in-process
research and development. Without this charge, earnings for fiscal 1995 would
have been $0.80 per share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-K includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical facts included in this Form 10-K, including,
without limitation, statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and under "Business
- - Product Strategy," "Business - Distribution," and "Notes to Consolidated
Financial Statements" located elsewhere herein regarding the Company's
financial position, business strategy, plans and objectives of management of
the Company for future operations, and industry conditions, are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. In addition to important factors
described elsewhere in this report, the following significant factors, among
others, sometimes have affected, and in the future could affect, the Company's
actual results and could cause such results during fiscal 1998, and beyond, to
differ materially from those expressed in any forward-looking statements made
by or on behalf of the Company:
The Company faces ever-increasing demands from its actual and prospective
customers for its products to be compatible with a variety of rapidly
proliferating computing, telephony and computer networking technologies
and standards and to provide greater functionality. Since the Company does
not have the resources to cause its products to be compatible with each
new technology or standard and to provide all requested functionality, the
ultimate success of the Company's products is dependent, to a large
degree, on the Company allocating its resources to developing and
improving products compatible with those technologies, standards and
functionalities that ultimately become widely accepted by the Company's
actual and prospective customers. The Company's success is also dependent,
to a large degree, on the Company's ability to implement arrangements with
other vendors with complementary product offerings to provide actual and
prospective customers greater functionality and to ensure that the
Company's products are compatible with the increased variety of
technologies and standards.
o Intense competition in the voice automation industry. See "Business -
Competition."
o Ability of the Company to continue to introduce new features and products
as the Company's markets evolve, as new technologies and standards become
available, and customers demand additional functionality, requiring a
continued high level of expenditures by the Company for research and
development.
o Ability of the Company to properly estimate costs under fixed price
contracts in developing application software and otherwise tailoring its
systems to customer-specific requests.
o Continued availability of suitable non-proprietary computing platforms and
system operating software that are compatible with the Company's products.
o The quantity and size of large sales (sales valued at approximately $1
million or more) during any fiscal quarter, which can cause wide
variations in the Company's sales on a quarter to quarter basis.
o The ability of the Company to retain its customer base and, in particular,
its more significant customers (such as Siemens AG, an InterVoice
distributor, which accounted for over ten percent of the Company's total
sales during fiscal 1997 and MCI Telecommunications, which accounted for
over ten percent of the Company's total sales during fiscal 1996 and 1995),
since such customers generally are not contractually obligated to place
further orders with the Company.
o Certain of the components for the Company's products are available from
limited suppliers. The Company's operating results could be adversely
affected if the Company were unable to obtain such components in the
future. See. "Business - Manufacturing."
11
<PAGE> 14
o Risks involved in the Company's international distribution and sales of
its products, including unexpected changes in regulatory requirements,
unexpected changes in exchange rates, the difficulty and expense of
maintaining foreign offices and distribution channels, tariffs and other
barriers to trade, difficulty in protecting intellectual property rights,
foreign governmental regulations that may limit or restrict the sales of
call automation systems. Additionally, changes in foreign credit markets
and currency exchange rates may result in requests by many international
customers for extended payment terms and may have an adverse impact on the
Company's cash flow and its level of accounts receivable.
o Legislative and administrative changes and, in particular, changes
affecting the telecommunications industry, such as the recently enacted
Telecommunications Act of 1996. While many industry analysts expect the
Telecommunications Act of 1996 ultimately to result in at least a
temporary surge in the procurement of telecommunications equipment and
related software and other products, there is no assurance that the
Company can estimate with sufficient accuracy those products which will
ultimately be purchased, the timing of any such purchases or the
quantities to be purchased.
o The Company's ability to hire and retain, within the Company's
compensation parameters, qualified technical talent and outside
contractors in highly competitive markets for the services of such
personnel.
o Extreme price and volume trading volatility in the U.S. stock market,
which has had a substantial effect on the market prices of securities of
many high technology companies, frequently for reasons other than the
operating performance of such companies. These broad market fluctuations
could adversely affect the market price of the Company's common stock.
o Increasing litigation with respect to the enforcement of patents,
copyrights and other intellectual property. See Item 3. "Legal
Proceedings", and "Business - Proprietary Rights."
All subsequent written and oral forward-looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements disclosed in this paragraph and otherwise
in this report.
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 128
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which the Company is required to adopt
on February 28, 1998. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact is
not expected to have a material change on primary or fully diluted earnings per
share for the three years in the period ended February 28, 1997, however,
primary earnings per share will increase by 2%, 5% and 4% for fiscal years
1997, 1996 and 1995, respectively.
12
<PAGE> 15
RESULTS OF OPERATIONS
The following table presents certain items as a percentage of sales for
the Company's last three fiscal years.
<TABLE>
<CAPTION>
Year ended February 29/28
---------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Sales 100% 100% 100%
Cost of goods sold 38.3 35.5 36.6
Gross Margin 61.7 64.5 63.4
Research and development expenses 11.1 10.0 9.6
Selling, general and administrative expenses 32.2 28.7 27.8
Purchased research and development -- -- 13.8**
Litigation settlement 1.7* -- --
Operating income 16.7* 25.8 12.2**
Other income - net .6 .5 .6
Income before taxes 17.3* 26.3 12.8**
Income taxes 5.2 8.6 9.5
Net Income 12.1%* 17.7% 3.3%**
</TABLE>
*Impacted by a non-recurring charge totaling approximately $1.8 million, ($1.3
million net of tax) resulting from litigation settlement. Without this charge,
operating income and net income for fiscal 1997 would have been 18.4% and
13.4% of sales, respectively.
**Impacted by charges totaling approximately $10.5 million associated with a
non-recurring charge resulting from a significant portion of the purchase price
of VoicePlex Corporation having been attributed to in-process research and
development. Without this charge, operating income and net income for fiscal
1995 would have been 26% and 17% of sales, respectively.
SALES
Sales are derived primarily from the shipment of voice automation systems
to both new and existing customers in two major market categories: Customer
Premise Equipment (CPE) and Telecommunications (Telco). Due to customer
demand, many of the Company's transactions are completed in the same fiscal
quarter as ordered. The size and timing of some transactions have historically
resulted in sales fluctuations from quarter to quarter. In the past, the
impact of these fluctuations has been mitigated to some extent by vertical
markets and by the geographic location of the Company's existing and
prospective customers. However, the Company has become more prone to quarterly
sales fluctuations due to its sales to the worldwide Telco market which are
generally large in dollar amount and unevenly distributed throughout the fiscal
year.
Worldwide sales in fiscal 1997, 1996 and 1995 increased from the
immediately preceding year 8%, 27% and 25%, respectively. Worldwide CPE sales
increased 15% and 41% in fiscal years 1997 and 1996 and declined 3% in fiscal
1995. Worldwide Telco sales declined 19% in fiscal 1997 and increased 5% and
170% in fiscal years 1996 and 1995. CPE sales constituted 69%, 65% and 55% of
the Company's total sales in fiscal years 1997, 1996 and 1995, respectively,
while Telco sales made up 19%, 26% and 31% of the Company's total sales during
the same time periods. Sales of system maintenance contracts expanded to over
3,200 end users and comprised 12%, 9% and 11% of the Company's total sales in
fiscal 1997, 1996 and 1995, respectively.
Domestic CPE sales in fiscal 1997, 1996 and 1995 increased 11%, 36% and
2%, respectively due to the Company's continued investment in the addition of
new distributors and in the hiring and training of new and existing sales,
service and support personnel and is expanding its marketing and advertising
programs. International CPE sales in fiscal 1997 and 1996 increased 30% and
62% for the same reasons as domestic CPE sales and declined 23% in fiscal 1995
due to a lower European demand for audiotex applications. International
13
<PAGE> 16
CPE sales constituted 24%, 21% and 18% of the Company's total CPE sales in
fiscal years 1997, 1996 and 1995, respectively.
The Company believes the decline in Telco sales during fiscal 1997 was
attributable to temporary delays by some telecommunications companies in
implementing call automation solutions while they evaluate marketing and
investment strategies in the light of new opportunities resulting from
deregulation under the Telecommunications Act of 1996 and while they also
evaluate the implications of the recent judicial stay of certain provisions of
the Act and its regulations. Telco sales increased in fiscal 1996 and 1995 as
a result of the hiring and training of new and existing sales, service and
support personnel and of the expansion of marketing programs. International
Telco sales constituted 39%, 21% and 12% of the Company's total Telco sales in
fiscal years 1997, 1996 and 1995, respectively.
Prices for the Company's products have remained stable, as measured by
price per line shipped, during fiscal 1997, 1996 and 1995 although the features
and functions per line shipped have become more robust. Accordingly, the
Company's sales increases are largely the result of increased unit shipments.
The Company's exposure to foreign currency fluctuations is minimal as less than
3% of total sales are denominated in foreign currencies.
COST OF GOODS SOLD
During fiscal 1997, the Company experienced an increase in cost of goods
sold to 38.3% of total sales from 35.5% and 36.6% in fiscal 1996 and 1995,
respectively. This was the result of the Company's continued investment in
applications engineering and customer service resources to pursue opportunities
in all of its markets despite lower than anticipated sales. The Company
believes, based on anticipated sales, that in fiscal 1998 its cost of goods
sold, as a percentage of sales, will be slightly lower than fiscal 1997.
RESEARCH AND DEVELOPMENT
Fiscal 1997, 1996 and 1995 research and development expenses were
approximately $11.7 million, $9.8 million and $7.3 million, respectively.
Fiscal 1997 expenses included porting the Company's InterSoft core software to
the UNIX and Windows NT operating systems; developing computer platform
independent voice automation hardware and software; and the development of
VisualConnect (the ability to communicate with OneVoice Systems via the
Internet), MediaConnect (the multi-media implementation of IVR), and InVision
(the Company's next generation custom application development tool).
Additionally, expenditures were made in fiscal 1997, 1996 and 1995 for the
ongoing development of the Company's OneVoice Software Agent Platform including
OneVoice Systems (the Company's IVR system), InterDial (the Company's outbound
predictive dialer system), OneLink (a digital interface for analog switches),
development of InVision, and continued development of InterForm (a custom
applications generation, or script building, user tool) and digital VocalCard
software and hardware functionality. Research and development expenses in these
years also reflect the development of computer platform independent hardware
and software, a voice mail system, speech recognition in both alpha and numeric
format (including continuous speech), voice verification, a facsimile server,
the OneVoice CallCenter, vertical industry application packages (including
applications targeted for the telecommunications industry), enhancements to the
products acquired in the VoicePlex transaction, and international homologations
(the approvals required for connectivity to the telephone network in numerous
international markets). The Company has not capitalized internal hardware or
software development expenses. The Company expects that in fiscal 1998 it will
maintain its strong commitment to research and development at a targeted
percentage of anticipated sales similar to fiscal 1997. The Company believes
that this level of commitment should enable it to stay in the forefront of
technology development in its business segment, which is essential to improving
the Company's position in the industry.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased to approximately
$33.7 million in fiscal 1997 from approximately $27.8 million in fiscal 1996
and approximately $21.2 million in fiscal 1995 as the Company continued to hire
and train new and existing sales, service and support personnel and expand its
marketing and advertising programs worldwide. The Company expects that in
fiscal 1998 it will invest in selling, general and administrative resources at
a targeted percentage of anticipated sales slightly less than fiscal 1997.
14
<PAGE> 17
OTHER INCOME
Other income is primarily interest income on cash and short term
investments. The increase in other income in fiscal 1997 versus fiscal 1996
and in fiscal 1996 versus fiscal 1995 reflected the Company's increased average
cash balances resulting from the Company's positive net cash flow
INCOME FROM OPERATIONS
In order to understand the Company's operating and net income over the
last three fiscal years, it must be noted that the Company, during fiscal 1997,
incurred a one time charge of approximately $1.8 million ($1.3 million net of
tax) in connection with the settlement of certain litigation. Additionally,
during fiscal 1995, the Company purchased VoicePlex Corporation for
approximately $8.0 million in cash and approximately 255,000 shares of the
Company's common stock. Substantially all the purchase price was allocated to
in-process research and development which resulted in a one time $10.5 million
charge to expense with no related tax benefit. Adjusting for these one time
charges, the Company generated operating income of approximately $19.3 million,
and net income of approximately $14.0 million in fiscal 1997 and operating
income of approximately $19.8 million and net income of approximately $13.1
million in fiscal 1995.
Adjusted operating income in fiscal 1997 decreased 23% versus fiscal 1996
operating income as the Company increased its investment in sales, marketing,
application engineering, and research and development resources at a greater
rate than the increase in the Company's sales in order to continue to pursue
opportunities in the CPE and Telco markets. Operating income in fiscal 1996
increased 26% versus fiscal 1995 adjusted operating income as a result of a 27%
increase in the Company's total sales, improved gross margins due to an
increased software content in the Company's systems and productivity
improvements from the Company's sales, marketing and administrative staffs.
Adjusted net income in fiscal 1997 decreased 19% versus fiscal 1996 net
income. Adjusted fiscal 1997 net income fell at a lesser rate than adjusted
fiscal 1997 operating income due to a favorable tax rate versus fiscal 1996
resulting from the recognition of the cumulative losses of a foreign
subsidiary. Net income in fiscal 1996 increased 32% versus fiscal 1995
adjusted net income. Fiscal 1996 net income grew at a slightly faster rate
than operating income due to a favorable tax rate versus fiscal 1995 as a
result of increased sales through the Company's foreign sales corporation
Any anticipated increases in operating income and net income are expected
to be at a rate generally commensurate with the percentage increase in
anticipated sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $24.2 million in cash and cash equivalents
at February 28, 1997, up from $23.6 million at February 29, 1996. This
increase is attributable to the Company's internally generated cash flow. The
Company believes that its cash reserves and internally generated cash flow will
be sufficient to meet its operating cash requirements for the foreseeable
future. The Company reviews share repurchase and acquisition opportunities
from time to time and believes it has or has access to the financial resources
necessary to pursue attractive repurchase and/or acquisition opportunities as
they arise. As of May 19, 1997, the Company has repurchased 180,664 shares of
its common stock pursuant to an authorization by its Board of Directors to
repurchase up to 1,000,000 shares. The Company believes that market conditions
made such shares of value to its shareholders.
Impact of Inflation
The Company does not expect any significant short term impact of inflation
on its financial condition. Technological advances should continue to reduce
costs in the computer and communications industries. Further, the Company
presently is not bound by long term fixed price sales contracts and has no long
term debt obligations, which should reduce the Company's exposure to
inflationary effects.
15
<PAGE> 18
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
FISCAL 1997 31-May-96 31-Aug-96 30-Nov-96 28-Feb-97
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Sales $25,559,501 $27,300,022 24,335,974 $27,650,200
Income (loss) from Operations 5,797,049 6,158,964 1,655,513* 3,937,089
Net income (loss) 3,979,261 4,271,054 1,249,990* 3,260,176
Net income (loss) per Common
Share .24 .26 .08* .20
</TABLE>
*Includes a one time charge of $1,800,000, ($1,287,000 net of taxes), or $0.08
per share, associated with the settlement of certain litigation. Without this
charge, earnings for the quarter ended November 30, 1996 would have been $0.16
per share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
FISCAL 1996 31-May-95 31-Aug-95 30-Nov-95 29-Feb-96
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 22,016,697 $ 23,683,721 $ 25,145,270 $ 26,257,366
Income from
Operations 5,989,157 6,321,086 6,612,046 6,132,453
Net Income 3,990,260 4,237,924 4,411,047 4,620,127
Net Income per Common Share .25 .26 .27 .28
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors Report of Ernst & Young LLP and the Consolidated
Financial Statements of the Company as of February 28, 1997 and February 29,
1996, and for each of the three years in the period ended February 28, 1997
follow:
16
<PAGE> 19
REPORT OF ERNST AND YOUNG LLP, INDEPENDENT AUDITORS
The Stockholders and Board of Directors of
InterVoice, Inc.
We have audited the accompanying consolidated balance sheets of InterVoice,
Inc. and subsidiaries as of February 28, 1997 and February 29, 1996, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended February 28, 1997.
Our audits also included the financial statement schedule listed in the index
at item 14(a). These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
InterVoice, Inc. and subsidiaries at February 28, 1997 and February 29, 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended February 28, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Ernst & Young LLP
Dallas, Texas
April 2, 1997,
except for
Note F, for
which the date
is April 9, 1997.
17
<PAGE> 20
InterVoice, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
February 28, February 29,
ASSETS 1997 1996
- ---------------------------------------------------------- -------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 24,162,024 $ 23,573,976
Accounts and notes receivable, net of allowance
for doubtful accounts of $250,950 in 1997 and
$746,027 in 1996 33,506,747 24,704,425
Inventory 12,107,738 12,586,640
Prepaid expenses and other assets 3,833,248 804,428
Deferred taxes 1,419,495 1,714,246
-------------- --------------
75,029,252 63,383,715
PROPERTY AND EQUIPMENT
Building 16,140,989 15,865,605
Computer equipment and software 20,663,578 10,117,852
Furniture, fixtures and other 5,322,288 4,737,625
Service equipment 1,975,825 2,025,558
-------------- --------------
44,102,680 32,746,640
Less allowance for depreciation 13,676,956 9,540,886
-------------- --------------
30,425,724 23,205,754
OTHER ASSETS
Intangible assets, net of amortization
of $1,802,708 in 1997 and
$1,893,619 in 1996 3,723,533 2,788,205
Other assets -- 349,132
-------------- --------------
$ 109,178,509 $ 89,726,806
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 12,893,725 $ 11,796,125
Customer deposits 3,403,739 2,527,514
Deferred income 4,995,231 4,075,099
Income taxes payable -- 1,053,519
-------------- --------------
21,292,695 19,452,257
DEFERRED TAXES 1,695,294 713,074
CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock, $100 par value--2,000,000
shares authorized: none issued
Common Stock, no par value, at nominal
assigned value--62,000,000 shares
authorized: 19,353,973 issued,
16,353,973 outstanding in 1997
and 18,984,206 issued, 15,984,206
outstanding in 1996 9,667 9,460
Additional paid-in capital 43,028,780 39,103,070
Unearned compensation (493,634) (436,281)
Treasury stock - at cost (24,003,245) (24,003,245)
Retained earnings 67,648,952 54,888,471
-------------- --------------
86,190,520 69,561,475
-------------- --------------
$ 109,178,509 $ 89,726,806
============== ==============
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 21
InterVoice, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended February 29/28
-------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
SALES $104,845,697 $ 97,103,054 $ 76,265,228
COST OF GOODS SOLD 40,131,308 34,468,112 27,882,870
------------ ------------ ------------
GROSS MARGIN 64,714,389 62,634,942 48,382,358
Research and development expenses 11,652,934 9,757,972 7,313,780
Selling, general and
administrative expenses 33,712,840 27,822,228 21,222,547
Purchased research and development -- -- 10,541,918
Litigation settlement 1,800,000 -- --
------------ ------------ ------------
INCOME FROM OPERATIONS 17,548,615 25,054,742 9,304,113
Other income - net 680,644 532,065 438,586
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 18,229,259 25,586,807 9,742,699
INCOME TAXES
Current 4,191,807 8,371,856 7,328,307
Deferred 1,276,971 (44,407) (119,188)
------------ ------------ ------------
INCOME TAXES 5,468,778 8,327,449 7,209,119
------------ ------------ ------------
NET INCOME $ 12,760,481 $ 17,259,358 $ 2,533,580
============ ============ ============
Net income per common and
common equivalent share $ .77 $ 1.05 $ .15
============ ============ ============
Weighted average number of common
and common equivalent shares 16,618,937 16,397,924 16,755,289
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 22
InterVoice, Inc.
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-in Unearned Treasury Retained
Shares Amount Capital Compensation Stock Earnings Total
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1994 17,760,805 $8,857 $28,047,450 -- -- $35,095,533 $ 63,151,840
Exercise of stock
options 365,690 183 1,606,960 -- -- -- 1,607,143
Acquisition of
business 255,008 127 2,980,279 -- -- -- 2,980,406
Purchase of
treasury stock (3,000,000) -- -- -- (24,003,245) -- (24,003,245)
Tax benefit from
exercise of
stock options -- -- 577,374 -- -- -- 577,374
Net Income -- -- -- -- -- 2,533,580 2,533,580
--------------------------------------------------------------------------------------------
Balance at February 28, 1995 15,381,503 9,167 33,212,063 -- (24,003,245) 37,629,113 46,847,098
--------------------------------------------------------------------------------------------
Exercise of stock
options 571,942 278 3,763,469 -- -- -- 3,763,747
Tax benefit from
exercise of
stock options -- -- 1,545,825 -- -- -- 1,545,825
Issuance of
restricted stock 30,761 15 581,713 (436,281) -- -- 145,447
Net Income -- -- -- -- -- 17,259,358 17,259,358
--------------------------------------------------------------------------------------------
Balance at February 29, 1996 15,984,206 $9,460 $39,103,070 ($436,281) ($24,003,245) $54,888,471 $ 69,561,475
Exercise of stock
options 344,083 194 2,710,623 -- -- -- 2,710,817
Tax benefit from
exercise of
stock options -- -- 562,340 -- -- -- 562,340
Issuance of
restricted stock,
net of forfeitures 25,684 13 652,747 (57,353) -- -- 595,407
Net Income -- -- -- -- -- 12,760,481 12,760,481
--------------------------------------------------------------------------------------------
Balance at February 28, 1997 16,353,973 $9,667 $43,028,780 ($493,634) ($24,003,245) $67,648,952 $ 86,190,520
============================================================================================
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 23
InterVoice, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended February 29/28
--------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 12,760,481 $ 17,259,358 $ 2,533,580
Adjustments to reconcile net income
to net cash provided by
operating activities:
Purchased research and
development -- -- 10,541,918
Depreciation and amortization 4,946,376 4,393,988 3,522,925
Compensation expense
related to restricted stock issuances 595,407 145,447 --
Benefit for deferred income taxes 1,276,971 (44,407) (119,188)
Provision for doubtful accounts 397,739 173,928 481,938
Provision for slow moving inventories 1,200,000 752,090 660,000
Disposal of equipment 89,447 11,669 37,014
Changes in operating assets and
liabilities net of effects of acquisition:
Increase in accounts receivable (9,200,060) (7,279,317) (3,396,102)
Increase in inventories (3,520,298) (3,657,122) (3,499,289)
(Increase) decrease in prepaid expenses (488,673) (288,339) 124,669
Increase in accounts payable
and accrued expenses 1,097,596 2,258,010 2,273,304
Increase (decrease) in customer deposits 876,225 1,395,750 (84,607)
Increase in deferred income 920,132 710,251 1,088,334
Increase (decrease) in income taxes payable -- (459,505) 1,027,768
------------ ------------ ------------
10,768,651 15,371,801 15,192,264
INVESTING ACTIVITIES
Acquisition of business, net of
cash acquired -- -- (9,130,574)
Purchases of property and equipment (11,483,435) (6,525,578) (9,197,365)
Increase in other assets (1,407,985) (1,020,279) (819,401)
(Increase) decrease in notes receivable -- 161,508 (151,462)
------------ ------------ ------------
(12,891,420) (7,384,349) (19,298,802)
FINANCING ACTIVITIES
Purchase of treasury stock -- -- (24,003,245)
Exercise of stock options 2,710,817 5,309,572 2,184,517
------------ ------------ ------------
2,710,817 5,309,572 (21,818,728)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 588,048 13,297,024 (25,925,266)
Cash and cash equivalents, beginning of year 23,573,976 10,276,952 36,202,218
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 24,162,024 $ 23,573,976 $ 10,276,952
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - DESCRIPTION OF BUSINESS
The Company develops, sells and services call automation systems with an
emphasis on interactive voice response allowing individuals to interact with
computer data bases using their telephones, personal computers, credit card
terminals or voice. The Company's systems are sold under the trade names
"OneVoice" and "InterDial" and are used by a variety of enterprises to
disseminate and receive information efficiently, allowing multiple callers
simultaneous access to computer data bases without the expense of maintaining a
manned workstation for each telephone line, or by automatically dialing phone
numbers and only transferring a call to an operator if the call is answered and
the called party remains on the phone. The Company's products include software
designed to simplify system customization while permitting a number of diverse
product applications. The Company sells its products directly to end-users and
through more than 130 domestic and international distributors.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of InterVoice and its subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
INVENTORIES: Inventories, primarily system components, are valued at the lower
of cost or net realizable value with cost determined on a first-in, first-out
basis. Amounts presented are net of inventory valuation allowances totaling
$166,000 and $1,350,000 at February 28, 1997 and February 29, 1996,
respectively.
PROPERTY AND EQUIPMENT: Property and Equipment is stated on the basis of cost.
Depreciation is provided by the straight-line method over each asset's
estimated useful life. Depreciation expense totaled $4,124,289, $2,834,613 and
$2,305,263 in fiscal 1997, 1996 and 1995, respectively.
INTANGIBLE ASSETS: Intangible assets, which include patent licenses, purchased
software and license fees for technologies such as text to speech and speech
recognition, are being amortized by the straight-line method based on the
Company's assessment of each asset's useful life. Useful lives range from five
to twelve years. Amortization expense for these items totaled $822,087,
$647,261 and $912,996 in fiscal 1997, 1996 and 1995, respectively.
CASH AND CASH EQUIVALENTS: Cash equivalents include investments in highly
liquid securities with a maturity of three months or less at the time of
acquisition. The carrying amount of these securities approximate fair market
value.
REVENUE RECOGNITION: The Company recognizes revenue from sales of systems and
services at the time a contract is signed, custom system specifications, where
applicable, are defined and agreed upon, and the system has been shipped or
services rendered. In the event the Company anticipates more than a normal time
period between shipment and completion of other obligations (installation and
system testing), revenue recognition is deferred until all remaining
obligations are insignificant. Revenues from system maintenance agreements are
deferred and recognized over the term of the agreement.
DEFERRED INCOME TAXES: Deferred income taxes are recognized using the liability
method and reflect the tax impact of temporary differences between the amounts
of assets and liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations.
NET INCOME PER SHARE: Net income per share is based on the average common and
common equivalent shares outstanding during each fiscal year. Common equivalent
shares assume the exercise of all dilutive stock options, including restricted
stock, using the treasury stock method. Primary and fully diluted earnings per
share are not materially different for the years presented.
STOCK-BASED COMPENSATION: The Company has elected to follow Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees"
("APB 25") in the primary financial statements and to provide supplementary
disclosures required by Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("FAS 123"). See Note F.
RECLASSIFICATIONS: Certain prior year balances have been reclassified to
conform to current year presentation.
22
<PAGE> 25
NOTE C - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accounts payable $10,094,466 $ 7,923,169
Accrued compensation 1,572,875 2,356,379
Other 1,226,384 1,516,577
----------- -----------
$12,893,725 $11,796,125
=========== ===========
</TABLE>
NOTE D - INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for slow moving inventories $ 62,956 $ 511,988
Deferred revenue 738,667 942,181
Accrued expenses 146,022 267,615
Allowance for doubtful accounts 69,782 102,777
Book over tax depreciation/amortization 453,706 --
Other 311,093 44,795
----------- ----------
Total deferred tax assets 1,782,226 1,869,356
----------- ----------
Deferred tax liabilities:
Capitalized Software 1,814,368 639,835
Tax over book depreciation -- 110,884
Prepaid assets 240,826 107,049
Other 2,831 10,416
----------- ----------
Total deferred tax liabilities 2,058,025 868,184
----------- ----------
Net deferred tax assets (liabilities) $ (275,799) $1,001,172
=========== ==========
</TABLE>
23
<PAGE> 26
Domestic and foreign income before taxes, and details of the income tax
provision are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income (loss) before taxes:
Domestic $ 18,610,597 $ 26,671,904 $ 10,969,945
Foreign (381,338) (1,085,097) (1,227,246)
------------ ------------ ------------
$ 18,229,259 $ 25,586,807 $ 9,742,699
============ ============ ============
Income tax provision (benefit):
Current:
Federal $ 4,137,807 $ 8,050,856 $ 6,349,864
Foreign -- -- 146,147
State 54,000 321,000 832,296
------------ ------------ ------------
Total current 4,191,807 8,371,856 7,328,307
Deferred:
Federal 1,156,811 (40,982) (109,996)
State 120,160 (3,425) (9,192)
------------ ------------ ------------
Total deferred 1,276,971 (44,407) (119,188)
------------ ------------ ------------
Total $ 5,468,778 $ 8,327,449 $ 7,209,119
============ ============ ============
</TABLE>
A reconciliation of the United States Federal statutory rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
$ % $ % $ %
- - - - - -
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes at statutory rates 6,380,240 35 8,955,382 35 3,409,945 35
Tax exempt interest (175,588) (1.0) -- -- (151,139) (1.6)
Purchased research & development -- -- -- -- 3,689,671 37.9
State taxes, net of federal benefit 113,204 .6 259,000 1.0 540,992 5.6
Foreign loss not benefited (659,833) (3.6) 380,576 1.5 383,777 3.9
Foreign sales corp. benefit (544,036) (3.0) (521,208) (2.0) (284,327) (2.9)
Other 354,791 1.9 (746,301) (2.9) (379,800) (3.9)
----------- ---- ----------- ---- ----------- ----
$ 5,468,778 30.0 $ 8,327,449 32.5 $ 7,209,119 74.0
=========== ==== =========== ==== =========== ====
</TABLE>
Income taxes, net of refunds, of $6,587,097, $7,240,945 and $5,818,651 were
paid in fiscal 1997, 1996 and 1995, respectively.
NOTE E - CONTINGENCIES
Lucent Technologies ("Lucent") has suggested in correspondence to the
Company that it should consider licensing certain Lucent patents for a
substantial payment. The Company has an opinion from its outside legal counsel
that the Company does not infringe the Lucent patents by reason of
non-infringement and/or invalidity. The Company has suggested to Lucent that
Lucent should consider licensing certain patents of the Company, and that a
mutual cross-license might be in the best interests of both parties. The
parties are currently attempting to negotiate a mutually satisfactory
cross-license agreement which would resolve the matter. There is no assurance
that the Company will be able to negotiate a cross-license agreement based on
mutually satisfactory terms. Lucent has not threatened litigation against the
Company. In the event that litigation is instituted against the Company
concerning the Lucent patents, the Company intends to vigorously contest the
claims and to assert defenses of non-infringement and/or invalidity of the
patents, together with any other meritorious defenses and counterclaims,
including any counterclaim for infringement of its patents, the Company might
have. As with any legal proceeding, there is no guarantee that the Company will
prevail in any litigation asserted against the Company in connection with the
Lucent patents.
24
<PAGE> 27
NOTE F - STOCKHOLDERS' EQUITY
Stock option plans are in effect under which shares of common stock may be
authorized for issuance by the Compensation Committee of the Board of Directors
as incentive stock options to key employees. Option prices per share are the
fair market value per share of stock, based on the closing per share price on
the date of grant. Generally, the options become exercisable at the rate of 33%
per year and are exercisable for six years from the date of grant.
<TABLE>
<CAPTION>
Weighted Average
Exercise Price Per Share
------------------------
<S> <C> <C> <C>
Balance at February 28, 1994 1,537,094
Granted 676,050 $7.63 to $14.50
Exercised (325,640) $1.06 to $12.63
Forfeited (64,841) $4.13 to $18.75
Balance at February 28, 1995 1,822,663
Granted 510,750 $14.75 to $22.00
Exercised (514.177) $2.06 to $18.75
Forfeited (164,912) $4.31 to $21.38
Balance at February 29, 1996 1,654,324 $13.52
Granted 603,300 $11.88 to $27.25 $21.57
Exercised (285,736) $2.06 to $19.25 $ 7.36
Forfeited (185,788) $7.63 to $26.25 $18.21
Balance at February 28, 1997 1,786,100 $16.74
</TABLE>
At February 28, 1997, a total of 792,328 employee options were exercisable at
an average price of $13.02.
On April 9, 1997, the Board of Directors approved a plan to offer to the
holders of certain outstanding stock options, excluding the five most highly
compensated executive officers, the opportunity to cancel their existing
options and receive new options for the same number of shares but with an
exercise price per share at the then current fair market value and with new
vesting requirements. As a result, approximately 620,000 options with exercise
prices ranging from $11.88 to $27.25 per share were exchanged for new options
with an exercise price of $10.00 per share.
A stock option plan is in effect under which shares of common stock may be
issued by the Board of Directors as nonqualified stock options to
non-employees. Options are issued to non-employee directors in accordance with
a formula prescribed by the plan. Option prices per share are the fair market
value per share, based on the closing per share price on the date of grant.
Each option becomes exercisable within the period specified in the optionee's
agreement and are exercisable for 10 years from the date of grant.
<TABLE>
<CAPTION>
Weighted Average
1990 Non-Employee Option Plan Shares Option Price Exercise Price Per Share
- ----------------------------- ------ ------------ ------------------------
<S> <C> <C> <C>
Balance at February 28, 1994 24,600
Granted 26,000 $8.50
Exercised (6,600) $3.00 to $6.13
Forfeited (4,000) $15.13
------
Balance at February 28, 1995 40,000
Granted 12,000 $22.13
Exercised (2,000) $3.09
-------
Balance at February 29, 1996 50,000 $12.82
Granted 26,000 $13.94 $13.94
Exercised (22,000) $8.50 $ 8.50
Forfeited (4,000) $22.13 $22.13
-------
Balance at February 28, 1997 50,000 $22.13 $15.10
=======
</TABLE>
At February 28, 1997, a total of 24,000 non-employee options were exercisable
at an average price of $14.85.
For all option plans at February 28, 1997, options for 632,133 shares of common
stock were available for future grant.
The Company has adopted an Employee Stock Purchase Plan under which an
aggregate of 200,000 shares of common stock may be issued. Options are issued
to eligible employees in accordance with a formula prescribed by the plan and
are exercised automatically at the end of a one year payroll deduction period.
Option prices are determined as 85% of the lower of the closing price per share
of the Company's common stock on the option
25
<PAGE> 28
grant date or the option exercise date. At February 28, 1997, options for
70,637 shares of common stock were outstanding under the plan.
<TABLE>
<CAPTION> Weighted Average
Employee Stock Purchase Plan Shares Exercise Price Per Share
- ---------------------------- ------ ------------------------
<S> <C> <C>
Balance at February 28, 1994 58,916
Granted 68,763
Exercised (33,436)
Forfeited (25,480)
-------
Balance at February 28, 1995 68,763
Granted 48,061
Exercised (55,765)
Forfeited (12,998)
-------
Balance at February 29, 1996 48,061 $ 17.33
Granted 70,637 $ 14.39
Exercised (36,347) $ 11.43
Forfeited (11,714) $ 20.26
-------
Balance at February 29, 1996 70,637 $ 12.23
=======
Grant price per option outstanding $10.84 to $18.06
</TABLE>
During fiscal 1996, the Company adopted a Restricted Stock Plan under which an
aggregate of 500,000 shares may be issued. Approximately 154,000 shares have
been allocated to five senior executives to be earned based on the achievement
of certain targeted share prices and the continued service of each executive for
a two year period after each target is met. The remaining shares are available
for annual grants to other key executives as a component of their annual bonuses
based on the achievement of targeted annual earnings per share objectives and
the completion of an additional two years of service after the grant. Activity
related to restricted stock during fiscal 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Senior Executive Key Executive
Plan Plan
---------------- -------------
<S> <C> <C>
Balance at February 28, 1995 -- --
Granted 30,761 --
------ ------
Balance at February 28, 1996 30,761 --
Granted 30,761 4,787
Forfeited (9,228) (636)
------ ------
Balance at February 28, 1997 52,294 4,151
====== ======
</TABLE>
The weighted average share price on the date of grant in fiscal 1997 was $21.27
for the Senior Executive Plan and $29.44 for the Key Executive Plan. Shares
forfeited in fiscal 1997 had been granted at a weighted average share price of
$21.80. At February 28, 1997, approximately 440,000 shares are reserved for
future restricted stock grants.
One Preferred Share Purchase Right is attached to each outstanding share of the
Company's common stock. If a person or group acquires beneficial ownership of
20 percent or more, or announces a tender offer that would result in beneficial
ownership of 20 percent or more of the Company's outstanding common stock, the
rights become exercisable and each right will entitle its holder to purchase
one four-hundredth of a share of Series A Preferred Stock for $75, subject to
adjustment. If the Company is acquired in a business combination transaction
while the rights are outstanding, each right will entitle its holder to
purchase, for $75, common shares of the acquiring company having a market value
of $150. In addition, if a person or group acquires beneficial ownership of 20
percent or more of the Company's outstanding common stock, each right will
entitle its holder (other than such person or members of such group) to
purchase, for $75, a number of shares of the Company's common stock having a
market value of $150. Furthermore, at any time after a person or group acquires
beneficial ownership of 20 percent or more (but less than 50 percent) of the
Company's outstanding common stock, the Board of Directors may, at its option,
exchange part or all of the rights (other than rights held by the acquiring
person or group) for shares of the Company's common stock on a one-for-one
basis. At any time prior to the acquisition of such a 20 percent position, the
Company can redeem each right for .25 cents. The Board of Directors is also
authorized to reduce the 20 percent thresholds referred to above to not less
than 10 percent. The rights expire in the year 2001.
Because the Company has elected to continue to apply the provisions of APB 25
for expense recognition purposes in the primary financial statements, Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", ("FAS 123") requires disclosure of pro forma information which
provides the effects on Net income and Income per share as if the Company had
accounted for its employee stock awards under fair value methods prescribed by
FAS 123. The fair value of the Company's employee stock awards was estimated
using a Black-Scholes option pricing model with the following weighted-average
assumptions for fiscal 1997 and 1996, respectively: risk-free interest rates of
6.39% and 6.02%; stock price volatility factors of .66 and .74; and expected
option lives of 4.06 years and 3.2 years. The Company does not have a history of
paying dividends, and none have been assumed in estimating the fair value of the
options. The weighted-average fair value per share of options granted in fiscal
1997 was 11.82.
26
<PAGE> 29
Pro Forma Required Disclosures:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Net income ..... $ 10,795,850 $ 16,242,620
Income per share $ .67 $ 1.00
</TABLE>
As required by FAS 123, only awards granted in fiscal 1996 and 1997 have been
included in determining the amount of additional compensation expense for those
years. As such, the effects of applying FAS 123 on fiscal 1997 and 1996 results
are not necessarily representative of the additional compensation expense which
will be included in future years' pro forma disclosures as more than two years
of awards will be considered.
The following table provides information related to all option plans at
February 28, 1997, excluding the impact of the exchange of options on April 9,
1997, as previously described.
<TABLE>
<CAPTION>
Options Outstanding Weighted Average
- ------------------- Weighted Average Remaining Contractual
Exercise Prices Shares Exercise Price Life In Years
- ------------------- ------ ---------------- ---------------------
<S> <C> <C> <C>
$ 2.06 - $10.84 363,474 $ 7.38 2.36
$11.63 - $15.13 536,078 $ 12.85 4.41
$17.38 - $27.25 1,007,185 $ 21.79 6.47
---------
1,906,737
=========
Options Exercisable
- -------------------
$ 2.06 - $10.84 236,652 $ 6.17 2.26
$11.63 - $15.13 330,360 $ 12.69 2.70
$17.38 - $27.25 249,316 $ 20.20 3.61
---------
816,328
=========
</TABLE>
Pursuant to an authorization by the Company's Board of Directors during fiscal
1995, in July, 1994, the Company repurchased 3,000,000 shares of its common
stock at an average price of $8.00 per share.
NOTE G - GEOGRAPHIC OPERATIONS AND MAJOR CUSTOMERS
The Company's operations involve a single industry segment: the development,
sale and service of call automation systems.
Export sales, summarized by geographic area, are as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- -------------- ---- ---- ----
<S> <C> <C> <C>
The Americas (Excluding
the United States) $11,622 $11,126 $ 6,606
Pacific Rim 4,769 3,507 2,461
Europe, The Middle East
and Africa 8,372 3,620 1,978
------- ------- -------
TOTAL $24,763 $18,253 $11,045
======= ======= =======
</TABLE>
One customer, Siemens AG, an InterVoice distributor, accounted for 10.2% of
the Company's sales during fiscal 1997. During fiscal 1996 and 1995, MCI
Telecommunications accounted for 11.2% and 11.7% of the Company's total sales,
respectively.
27
<PAGE> 30
NOTE H - CONCENTRATIONS OF CREDIT RISK
The Company sells systems directly to end-users and distributors primarily in
the banking and financial, telecommunications, human resource, heathcare and
call center vertical markets. Credit is extended based on an evaluation of a
customer's financial condition and a deposit is generally required. The Company
has made a provision for credit losses in these financial statements, which
have been less than 1% of sales in the periods reported.
NOTE I - EMPLOYEE BENEFIT PLAN
The Company sponsors an employee savings plan which qualifies under section
401(k) of the Internal Revenue Code. All full time employees who have completed
three months of service are eligible to participate in the plan. The Company
matches 50% of employee contributions up to 6% of the employee's eligible
compensation. Company contributions totaled $759,000, $524,000 and $405,000 in
fiscal 1997, 1996 and 1995, respectively.
NOTE J - ACQUISITION
The Company acquired VoicePlex Corporation on August 31, 1994. The acquisition
was accounted for by the purchase method of accounting. This purchase price of
$12,277,992 was comprised of $7,954,749 in cash, Company common stock valued at
$2,980,406 and other direct acquisition costs totaling $1,342,837. The
allocation of the purchase price among the identifiable tangible and intangible
assets was based on the fair market value of those assets using a risk adjusted
income approach.
Based on appraised value, a portion of the purchase price was allocated to
purchased research and development which had not reached technological
feasibility and had no alternative future use. This allocation resulted in a
$10,541,918 charge, net of taxes, to the Company's operations in fiscal year
1995. The remaining purchase price was allocated, based on appraisals, to
software ($746,121), net tangible assets ($470,619), deferred taxes ($351,457),
and assembled workforce ($167,877).
28
<PAGE> 31
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
INTERVOICE, INC.
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
---------- ----------- ----------------------------- ------------ ----------
Additions
-----------------------------
(1) (2)
Balance at Charged to Charged to Balance at
Beginning Cost and Other Accounts Deductions - End of
Description of Period Expenses - Describe Describe Period
----------- ---------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Year ended February 28,1997
Deducted from asset accounts:
Allowance for doubtful accounts $ 746,027 $ 397,740 $ (892,817)(A) $ 250,950
Allowance for slow moving inventories 1,350,000 1,200,000 (2,384,000)(C) 166,000
---------- ----------- ----------- ----------
Total $2,096,027 $ 1,597,740 $(3,276,817) $ 416,950
========== =========== =========== ==========
Year ended February 29,1996
Deducted from asset accounts:
Allowance for doubtful accounts $ 585,439 $ 173,930 $ (13,342)(A) $ 746,027
Allowance for slow moving inventories 1,110,267 752,090 (512,357)(B) 1,350,000
---------- ----------- ----------- ----------
Total $1,695,706 $ 926,020 $ (525,699) $2,096,027
========== =========== =========== ==========
Year ended February 28,1995
Deducted from asset accounts:
Allowance for doubtful accounts $ 192,000 $ 481,938 $ (88,499)(A) $ 585,439
Allowance for slow moving inventories 677,256 660,000 (226,989)(B) 1,110,267
---------- ----------- ----------- ----------
Total $ 869,256 $ 1,141,938 $ (315,488) $1,695,706
========== =========== =========== ==========
</TABLE>
- --------------------------------
(A) Accounts written off. Includes approximately $520,000 associated with
shut down of foreign subsidiary in fiscal 1997.
(B) Scrapped material.
(C) Includes approximately $1,700,000 reclassified to accumulated depreciation
associated with reclassification of inventory into fixed assets. Also
includes approximately $700,000 of scrapped material.
29
<PAGE> 32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
30
<PAGE> 33
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be contained in the sections
entitled "Election of Directors" and "Executive Officers" in the Company's
Definitive Proxy Statement, involving the election of directors, to be filed
pursuant to Regulation 14A with the Securities and Exchange Commission not
later than 120 days after the end of the fiscal year covered by this Form 10-K
(the "Definitive Proxy Statement") and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the section
entitled "Executive Compensation" in the Definitive Proxy Statement. Such
information, except for the information captioned "Report of the Compensation
Committee" and "Performance Graph", is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be contained in the section
entitled "Election of Directors" in the Definitive Proxy Statement. Such
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be contained in the section
captioned "Certain Transactions" in the Definitive Proxy Statement. Such
information is incorporated herein by reference.
31
<PAGE> 34
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements and financial
statement schedules of InterVoice, Inc. and subsidiaries are included
in Items 8 and 14(a), respectively.
<TABLE>
<CAPTION>
Page
----
<S> <C>
(1) Financial Statements:
Report of Independent Auditors ................................... 17
Consolidated Balance Sheets at February 28, 1997
and February 29, 1996........................................ 18
Consolidated Statements of Income for the three years
ended February 28, 1997 ..................................... 19
Consolidated Statements of Changes in Stockholders' Equity
for the three years ended February 28, 1997 ................. 20
Consolidated Statements of Cash Flows for the three
years ended February 28, 1997 ............................... 21
Notes to Financial Statements .................................... 22
(2) Financial Statement Schedule:
II Valuation and Qualifying Accounts ............................ 29
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(3) Exhibits:
The exhibits required to be filed by this Item 14 are set forth in the
Index to Exhibits accompanying this report.
(b) No reports on Form 8-K were filed by the Company during the quarter
ended February 28, 1997.
32
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTERVOICE, INC.
By: /s/ DANIEL D. HAMMOND
----------------------------------
Daniel D. Hammond
Chairman of the Board of Directors
and Chief Executive Officer
Dated: May 28, 1997
33
<PAGE> 36
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ DANIEL D. HAMMOND Chairman of the Board of May 28, 1997
-------------------------- Directors and Chief
Daniel D. Hammond Executive Officer
/s/ MICHAEL W. BARKER President and Chief May 28, 1997
-------------------------- Operating Officer
Michael W. Barker
/s/ ROB-ROY J.GRAHAM Chief Financial Officer, May 28, 1997
-------------------------- Chief Accounting Officer
Rob-Roy J. Graham and Controller
(Principal Accounting Officer)
/s/ JOSEPH J. PIETROPAOLO Director May 28, 1997
--------------------------
Joseph J. Pietropaolo
/s/ GEORGE C. PLATT Director May 28, 1997
--------------------------
George C. Platt
/s/ GRANT A. DOVE Director May 28, 1997
--------------------------
Grant A. Dove
</TABLE>
34
<PAGE> 37
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
No. Description Numbered Page
- ------- ----------- -------------
<S> <C>
3.1 -- Articles of Incorporation, as amended, of Registrant (3)
3.2 -- Second Restated Bylaws of Registrant, as amended (2)
4.1 -- Registration Rights Agreement dated August 31, 1994, among the Company,
Sohail Sattar and Steven E. Polsky and other shareholders of VoicePlex
Corporation. (8)
10.1 -- Registrant's 1984 Incentive Stock Option Plan, as amended (1)
10.2 -- Second Amended and Restated Employment Agreement dated as of June 21,
1996, effective as of March 1, 1996 by and between the Company and Danil
D. Hammond (10)
10.3 -- First Amendment to Amended and Extended Employment Agreement dated as
of June 25, 1996 and effective as of March 1, 1996 by and between the
Company and Daniel D. Hammond (10)
10.4 -- Amended and Restated Rights Agreement dated as of December 12, 1994
between the Registrant and KeyCorp Shareholders Services, Inc. (formerl
Society National Bank), as Rights Agent (5)
10.5 -- The InterVoice, Inc. 1990 Incentive Stock Option Plan, as amended (10)
10.6 -- The InterVoice, Inc. 1990 Nonqualified Stock Option Plan for
Non-Employees, as amended (4)
10.7 -- Amendment to the 1984 Incentive Stock Option Plan (2)
10.8 -- InterVoice, Inc. Employee Stock Purchase Plan (7)
10.9 -- Amended and Restated Employment Agreement dated as of June 21, 1996,
effective as of March 1, 1996 by and between the Company and Michel
W. Barker (10)
10.10 -- First Amendment to Amended and Extended Employment Agreement dated as
of June 25, 1996 and effective as of March 1, 1996 by and between the
Company and Michael W. Barker (10)
10.11 -- InterVoice, Inc. Employee Savings Plan (6)
10.12 -- Merger Agreement dated August 31, 1994 among the Company, InterVoice
Acquisition Corp., VoicePlex Corporation and certain shareholders of
VoicePlex Corporation. (8)
10.13 -- InterVoice, Inc. Restricted Stock Plan (9)
10.14 -- Separation Agreement dated as of December 5, 1996 between the Company
and Richard Herrmann (10)
</TABLE>
35
<PAGE> 38
<TABLE>
<S> <C>
11. -- Computation of Per Share Earnings (10)
23. -- Consent of Independent Auditors (10)
27. -- Financial Data Schedule (10)
</TABLE>
- -------------
(1) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-2 under the Securities Act of 1933, Registration No.
33-30847.
(2) Incorporated by reference to exhibits to the Company's 1991 Annual
Report on Form 10-K for the fiscal year ended February 28, 1991, filed
with the Securities and Exchange Commission (SEC) on May 29, 1991, as
amended by Amendment No. 1 on Form 8 to Annual Report on Form 10-K,
filed with the SEC on August 1, 1991.
(3) Incorporated by reference to exhibits to the Company's 1995 Annual
Report on form 10-K for the fiscal year ended February 28, 1995, filed
with the SEC on May 30, 1995.
(4) Incorporated by reference to exhibits to the Company's Registration
Statement on form S-8 filed on April 6, 1994, with respect to the
Company's 1990 Nonqualified Stock Option Plan for Non-Employees,
Registration Number 33-77590.
(5) Incorporated by reference to exhibits to Form 8-A/A (Amendment No 1)
filed with the SEC on December 15, 1994.
(6) Incorporated by reference to Exhibits to the Company's 1994 Annual
Report on Form 10-K for the fiscal year ended February 28, 1994, filed
with the SEC on May 31, 1994.
(7) Incorporated by reference to exhibits to Registration Statement on
Form S-8 filed with the Securities and Exchange Commission on December
1, 1993, Registration Number 33-72494.
(8) Incorporated by reference to exhibits to the Company's current report
on Form 8-K dated September 13, 1994, and the Amendment thereto or Form
8K/A dated October 27, 1994.
(9) Incorporated by reference to exhibits to the Company's 1996 Annual
Report on Form 10-K for the fiscal year ended February 29, 1996, filed
with the SEC on May 29, 1996.
(10) Filed herewith.
Exhibits furnished upon request
36
<PAGE> 1
EXHIBIT 10.2
INTERVOICE, INC.
SECOND AMENDED AND EXTENDED EMPLOYMENT AGREEMENT
This Second Amended and Extended Employment Agreement (this
"Agreement") is dated as of June 21, 1996 effective as of March 1, 1996 between
InterVoice, Inc., a Texas corporation with its principal executive offices at
17811 Waterview Parkway, Dallas, Texas 75252 (the "Company"), and Daniel D.
Hammond (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee is presently employed by the Company pursuant to
that certain Amended and Extended Employment Agreement dated February 28, 1993
(the "Old Agreement"), between the Company and the Employee; and
WHEREAS, the Employee and the Company desire to amend the terms and
conditions of the Old Agreement to, among other things, extend the term of the
Employee's employment by the Company, increase the Employee's base salary,
further define the Employee's bonus opportunity and grant additional stock
options to the Employee.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and subject to the
terms and conditions hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS.
------------
In addition to the words and terms elsewhere defined in this Agreement,
the following words and terms herein shall have the following meanings, unless
the context or use indicates a different meaning:
"Annualized Compensation Amount" means an amount equal to the
annualized salary payable and bonuses accrued or payable to the Employee
pursuant to Section 4 of this Agreement during the most recent completed fiscal
year of the Company.
"Applicable EPS Bonus Percentage" means, with respect to the applicable
fiscal year, the percentage set forth in the right hand column below as
determined with reference to the increase or decrease in the Company's earnings
per share between such fiscal year the immediately preceding fiscal year.
Page 1
<PAGE> 2
Increase or Decrease in Earnings per
------------------------------------
Share in Applicable Fiscal Year
------------------------------------
Compared to Immediately Preceding Applicable EPS
------------------------------------ ----------------
Fiscal Year Bonus Percentage
----------- ----------------
40% or more increase 125%
35% through 39% increase 100%
25% through 34% increase 75%
10% through 24% increase 50%
0% through 9% increase 25%
1% through 10% decrease 10%
11% or more decrease 0%
"Applicable Revenue Bonus Percentage" means, with respect to the
applicable fiscal year, the percentage set forth in the right hand column below
as determined with reference to the increase or decrease in the Company's total
revenues between such fiscal year and the immediately preceding fiscal year:
Increase or Decrease in Revenues in
-----------------------------------
Applicable Fiscal Year Compared to Applicable Revenue
----------------------------------- ------------------
Immediately Preceding Fiscal Year Bonus Percentage
----------------------------------- ------------------
40% or more increase 125%
35% through 39% increase 100%
25% through 34% increase 75%
10% through 24% increase 50%
0% through 9% increase 25%
Decrease in revenues 0%
"Cause" means (a) any act by the Employee that is materially adverse
to the best interests of the Company and which, if the subject of a criminal
proceeding, could result in a criminal conviction for a felony or (b) the
willful failure by the Employee to substantially perform his duties hereunder,
which duties are within the control of the Employee (other than the failure
resulting from the Employee's incapacity due to physical or mental illness),
provided, however, that the Employee shall not be deemed to be terminated for
Cause under this subsection (b) unless and until (1) after the Employee
receives written notice from the Company specifying with reasonable
particularly the actions of Employee which constitute a violation of this
subsection (b) and (2) within a period of 30 days after receipt of such notice
(and during which the violation is within the control of the Employee),
Employee fails to reasonably and prosecutively cure such violation.
"Common Stock" means the Company's common stock, no par value per share.
An "Event of Default" means the occurrence of any of the following
events prior to the Triggering Date, unless remedied or otherwise cured within
30 days after the Company's receipt
Page 2
<PAGE> 3
of written notice from the Employee of such event, (a) a breach by the Company
of any of its express or implied obligations under this Agreement, (b) without
his prior concurrence, the Employee is assigned any duties or responsibilities
that are inconsistent with his position, duties, responsibilities or status at
the commencement of the term of this Agreement, or his reporting
responsibilities or titles in effect at such time are changed, (c) the
Employee's base compensation is reduced or any other failure by the Company to
comply with Section 4, or (d) any change in any employee benefit plans or
arrangements in effect on the date hereof in which the Employee participates
(including without limitation any pension and retirement plan, savings and
profit sharing plan, stock ownership or purchase plan, stock option plan, or
life, medical or disability insurance plan), which would adversely affect the
Employee's rights or benefits thereunder, unless such change occurs pursuant to
a program applicable to all executive officers of the Company and does not
result in a proportionately greater reduction in the rights of or benefits to
the Employee as compared to any other executive officer of the Company.
"Good Reason" means the occurrence of a Triggering Event (as defined
below) and (a) a breach by the Company of any of its express or implied
obligations under this Agreement, (b) without his prior concurrence, the
Employee is assigned any duties or responsibilities that are inconsistent with
his position, duties, responsibilities or status at the commencement of the
term of this Agreement, or his reporting responsibilities or titles in effect
at such time are changed, (c) the Employee's base compensation is reduced or
any other failure by the Company to comply with Section 4, (d) any change in
any employee benefit plans or arrangements in effect on the date hereof in
which the Employee participates (including without limitation any pension and
retirement plan, savings and profit sharing plan, stock ownership or purchase
plan, stock option plan, or life, medical or disability insurance plan), which
would adversely affect the Employee's rights or benefits thereunder, unless
such change occurs pursuant to a program applicable to all executive officers
of the Company and does not result in a proportionately greater reduction in
the rights of or benefits to the Employee as compared to any other executive
officer of the Company, or (e) the shareholders of the Company shall fail to
elect the Employee as a member of the Board of Directors of the Company.
"Triggering Date" means the date of a Triggering Event.
A "Triggering Event" shall be deemed to have occurred if (a) any person or
group (as such terms are used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or
indirectly, of securities of the Company representing more than 20% of the
combined voting power of the Company's then outstanding securities, or (b) at
any annual or special meeting of shareholders of the Company one or more
directors are elected who were not nominated by management of the Company to
serve on the Board of Directors of the Company, or (c) the Company is merged or
consolidated with another corporation and as a result of such merger or
consolidation less than 51% of the outstanding voting securities of the
surviving or resulting corporation are owned in the aggregate by the former
shareholders of the Company, other than by a party to such merger or
consolidation or affiliates (within the meaning of the Exchange Act) of any
party to such merger or consolidation, as the same existed immediately prior to
such merger or consolidation, or (d) the Company sells all or substantially all
of its assets to another corporation which is not a wholly-owned subsidiary of
the Company.
Page 3
<PAGE> 4
2. EMPLOYMENT.
-----------
The Company hereby employs the Employee and the Employee hereby accepts
employment on the terms and conditions set forth herein.
3. TERM.
-----
The initial term of this Agreement shall be from March 1, 1996 until
February 28, 1999 unless sooner terminated in accordance with the provisions
herein regarding termination. Subject to earlier termination as provided
herein, the initial term of this Agreement shall be automatically extended for
one (1) year from March 1, 1999, unless either the Employee or the Company
gives written notice to the other six months or more prior to February 28,
1999.
4. COMPENSATION.
-------------
(a) Base Salary. For all services rendered by the Employee under this
Agreement, the Company shall pay the Employee a base salary of $341,640 per
year. Such salary shall be payable in equal monthly installments in accordance
with the customary payroll policies of the Company in effect at the time such
payment is made, or as otherwise mutually agreed upon; provided, however, the
Company will promptly pay the Employee in a lump sum an amount equal to the
difference between (i) the aggregate base salary that is payable to the
Employee under this Agreement for the period March 1, 1996 through June 30,
1996, inclusive, and (ii) the aggregate base salary actually paid to Employee
under the Old Agreement for the period March 1, 1996 through June 30, 1996,
inclusive. On or about the anniversary date of this Agreement each year during
the term hereof, the Compensation Committee of the Company shall review
Employee's performance for the prior year and make such adjustments in base
salary from time to time at their discretion as the Employee and the Company
may agree.
(b) Annual Bonus. Effective for the Company's fiscal year ending February
29, 1997 and continuing with respect to each subsequent fiscal year thereafter
during the term of this Agreement, the Company will pay Employee an annual
bonus equal to the sum of (a) the mathematical product of Employee's base
salary pursuant to Subsection 4(a) for such fiscal year multiplied by the
Applicable Revenue Bonus Percentage and (b) the mathematical product of the
Employee's base salary pursuant to Subsection 4(a) for such fiscal year
multiplied by the Applicable EPS Bonus Percentage. Employee's bonus pursuant to
this Subsection 4(b) shall be earned as of the end of the Company's fiscal year
and payable within five days after the Company's receipt of its audited annual
financial statements. The formula set forth herein for determining annual
bonuses shall be adjusted from time to time when and if there occur stock
splits or other changes in capital structure which result in an increase or
decrease in outstanding capital stock of more than 25%.
(c) Bonus. In addition to the Employee's annual base salary and other
benefits provided for in this Agreement, the Company may pay to the Employee on
an annual basis a discretionary bonus in an amount to be approved by the Board
of Directors of the Company; provided, however, in no event shall the bonus
payable hereunder, if any, exceed Employee's annual base salary provided for in
Section 4(a).
Page 4
<PAGE> 5
(d) Benefits. The Employee shall be entitled to participate in or
receive benefits under any employee benefit plan or arrangement made available
by the Company in the future to its executive officers and key management
personnel, subject to and on a basis consistent with the terms, conditions
and overall administration of such plan or arrangement. Nothing paid to the
Employee under any plan or arrangement presently in effect or made available in
the future shall be deemed to be in lieu of the salary and bonuses payable to
the Employee pursuant to Subsections 4(a), (b) and (c).
(e) Stock Option. In consideration of the Employee's execution of
this Agreement, the Company has granted effective June 21, 1996 an option to
purchase 180,000 shares of the Company's Common Stock to the Employee pursuant
to the Company's 1990 Incentive Stock Option Plan. The exercise price for such
option will be the closing price for the Company's Common Stock on the Nasdaq
National Market on June 21, 1996. The grant of such option is subject to the
Company's shareholders approving, at the 1996 annual meeting, the proposed
amendment to increase the number of shares of Common Stock authorized for
issuance under the 1990 Incentive Stock Option Plan.
(f) Expenses. Upon receipt of itemized vouchers, expense account
reports, and supporting documents submitted to the Company in accordance with
the Company's procedures from time to time in effect, the Company shall
reimburse Employee for all reasonable and necessary travel, entertainment, and
other reasonable and necessary business expenses incurred ordinarily and
necessarily by Employee in connection with the performance of his duties
hereunder.
(g) Vacation. Employee shall be entitled to a minimum of 6 weeks paid
vacation during each twelve month period commencing on the effective date of
this Agreement.
5. POSITION, DUTIES, EXTENT OF SERVICES AND SITUS.
-----------------------------------------------
(a) Position and Duties. Employee shall serve as the Chairman of the
Board and Chief Executive Officer of the Company, accountable only to the Board
of Directors of the Company and, subject to the authority of such board, shall
have supervision and control over, and responsibility for, the general
management and operation of the Company and shall have such other powers and
duties as may from time to time be prescribed by such board, provided that such
duties are reasonable and customary for a Chairman of the Board and Chief
Executive Officer of a public company.
(b) Extent of Services and Situs. The Employee shall devote
substantially all of his business time, attention, and energy to the business
and affairs of the Company and shall not during the term of his employment
under this Agreement engage in any other business activity which could
constitute a conflict of interest, whether or not such business activity is
pursued for gain, profit, or other pecuniary advantage. This shall not be
construed as preventing the Employee from managing his current investments or
investing his assets in such form or manner as will not require any services on
the part of the Employee in the operation and the affairs of the companies in
which such investments are made, subject to the provisions of Sections 6 and
27. The Employee shall not be required to change the principal place of his
employment to a
Page 5
<PAGE> 6
(b) Extent of Services and Situs. The Employee shall devote substantially
all of his business time, attention, and energy to the business and affairs of
the Company and shall not during the term of his employment under this
Agreement engage in any other business activity which could constitute a
conflict of interest, whether or not such business activity is pursued for
gain, profit, or other pecuniary advantage. This shall not be construed as
preventing the Employee from managing his current investments or investing his
assets in such form or manner as will not require any services on the part of
the Employee in the operation and the affairs of the companies in which such
investments are made, subject to the provisions of Sections 6 and 27. The
Employee shall not be required to change the principal place of his employment
to a location which is more than 15 miles further away from his principal
residence than such principal place of employment at the time of the execution
of this Agreement.
6. COVENANT NOT TO COMPETE.
------------------------
(a) The Employee acknowledges that (i) as a result of his position and
tenure with the Company he has received and will continue to receive
specialized and unique training and knowledge concerning the Company, its
business, its customers and the industry in which it competes, (ii) the
Company's business, in large part, depends upon its exclusive possession and
use of the Proprietary Information (as defined in Section 27), (iii) the
Company is entitled to protection against the unauthorized disclosure or use by
Employee of the Proprietary Information or the training and knowledge received
by the Employee and (iv) he has received in this Agreement good and valuable
consideration for the covenants he is making in this Section 6 and in Section
27. The Company and the Employee acknowledge and agree that the covenants
contained in this Section 6 and in Section 27 are reasonably for the protection
of the Company and are reasonably limited with respect to the activities they
prohibit, their duration, their geographical scope and their effects on the
Employee and the public. The parties acknowledge that the purpose and effect of
the covenants are to protect the Company from unfair competition by the
Employee.
(b) Except as provided in the last sentence of Section 6(b), during the
period in which the Employee renders services to the Company under this
Agreement and for eighteen (18) months thereafter, the Employee shall not,
without the written consent of the Company, own, manage, operate, control,
serve as an officer, director, employee, partner or consultant of or be
connected in any way with or have any interest in any corporation, partnership,
proprietorship or other entity which carries on business activities in
competition with the Company's activities in any state of the United States or
in any foreign country in which the Company has sold or installed its products
or systems or has definitive plans to sell or install its products at any time
prior or at the time of the date of termination of the Employee's employment;
except that the Employee may own up to 1% of the shares of any publicly-owned
corporation, provided that none of his other relationships with such
corporation violates such covenant. Notwithstanding the foregoing, the
provisions of this Section 6 shall not apply if the Employee's employment with
the Company under this Agreement is terminated (i) by the Company, unless the
Employee is terminated in accordance with Section 7 or for Cause in accordance
with Subsection 9.l(a) or 9.2(a), or (ii) at the election of the Employee prior
to the Triggering Date after the occurrence of an Event of Default which has
not been waived in writing or on or after the Triggering Date for Good Reason.
Page 6
<PAGE> 7
(c) The Company and the Employee hereby agree that in the event that the
noncompetition covenants contained herein should be held by any court or other
constituted legal authority of competent jurisdiction to be effective in any
particular area or jurisdiction only if said covenants are modified to limit
their duration, geographical area or scope, then the parties hereto will
consider Section 6 to be amended and modified with respect to that particular
area or jurisdiction so as to comply with the order of any such court or other
constituted legal authority and, as to all other jurisdictions or political
subdivisions thereof, the noncompetition covenants contained herein will remain
in full force and effect as originally written. The Company and the Employee
further agree that in the event that the noncompetition covenants contained
herein should be held by any court or other constituted legal authority of
competent jurisdiction to be void or otherwise unenforceable in any particular
area or jurisdiction notwithstanding the operation of this Section 6(c), then
the parties hereto will consider this Section 6 to be amended and modified so
as to eliminate therefrom that particular area or jurisdiction as to which such
noncompetition covenants are so held void or otherwise unenforceable, and, as
to all other areas and jurisdictions covered by the noncompetition covenants,
the terms and provisions hereof shall remain in full force and effect as
originally written.
(d) Employee recognizes and acknowledges that the Company would suffer
irreparable harm and substantial loss if Employee violated any of the terms and
provisions of this Section 6 or Section 27 and that the actual damages which
might be sustained by the Company as the result of any breach of this Section 6
or Section 27 would be difficult to ascertain. Employee agrees, at the election
of the Company and in addition to, and not in lieu of, the Company's right to
terminate Employee's employment and to seek all other remedies and damages
which the Company may have at law and/or equity for such breach, that the
Company shall be entitled to an injunction restraining Employee from breaching
any of the terms or provisions of this Section 6 or Section 27.
7. COMPENSATION IN THE EVENT OF DISABILITY.
----------------------------------------
(a) Disability. If the Employee becomes disabled during the term of this
Agreement the Company shall cause to be paid to the Employee an amount equal to
his base salary in effect at the time of disability under Subsection 4(a), for
the shorter of the duration of the disability or the remainder of the term of
this Agreement and, subject to the provisions of Sections 22 and 25, with no
liability on its part for further payments to the Employee during the duration
of the disability. Subject to Subsection 7(b) below, full compensation shall be
reinstituted upon his return to employment and resumption of his duties. For
purposes of this Subsection 7(a) the Employee shall be deemed "disabled" when
he is unable, for a period of 90 consecutive days, to perform his normal duties
of employment due to bodily injury or disease or any other physical or mental
disability.
(b) Complete Disability. The Company shall have the right to terminate the
Employee's employment under this Agreement prior to the expiration of the term
upon the "Complete Disability" of the Employee as hereinafter defined
(provided, however, that the obligations of the Company under Subsection 7(a)
shall not terminate). The term "Complete Disability" as used in this Subsection
7(b) shall mean (i) the total inability of the Employee, due to bodily injury
or disease or any other physical or mental incapacity, to perform the services
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<PAGE> 8
provided for hereunder for a period of 120 days, in the aggregate, within any
given period of 180 consecutive days during the term of this Agreement, and
(ii) where such inability will, in the opinion of a qualified physician
(reasonably acceptable to Employee), be permanent and continuous during the
remainder of his life.
8. COMPENSATION IN THE EVENT OF DEATH.
-----------------------------------
If the Employee dies during the term of his employment, the Company
shall pay to such person as the Employee shall designate in a notice filed with
the Company, or, if no such person shall be designated, to his estate as a
death benefit, his base salary in effect at the time of his death pursuant to
Subsection 4(a) in equal semi-monthly installments on the first and fifteenth
day of each month immediately succeeding his death, for a period of months
(not exceeding 12) determined by multiplying the number of complete 12-month
periods of employment of the Employee by the Company (whether pursuant to an
employment agreement or not) by two, in addition to any payments the Employee's
spouse, beneficiaries, or estate may be entitled to receive pursuant to any
pension or employee benefit plan or life insurance policy maintained by the
Company, and, except for any obligations of the Company under Sections 22 and
25, all other obligations of the Company hereunder shall cease at the time of
the Employee's death.
9. TERMINATION.
------------
9.1 Termination Prior to the Triggering Date. (a) Upon at least 30
days' prior written notice to the Employee and prior to the Triggering Date,
the Company may terminate the Employee's employment with the Company under this
Agreement only for Cause or in accordance with Section 7 and, subject to the
provisions of Sections 7, 22, and 25, with no liability on its part for further
payments to the Employee. The Company may effect a termination for Cause
pursuant to this Subsection 9.1(a) only by the affirmative vote of a majority
of the members of the Board of Directors of the Company. In voting upon such
termination for Cause, if the Employee is also a member of the Board of
Directors of the Company, then he may not vote on, and will not be considered
present for any purpose with respect to, a matter presented to the Board of
Directors of the Company pursuant to this Subsection 9.1(a).
(b) Prior to the Triggering Date, the Employee may terminate his
employment with the Company under this Agreement by giving at least 90 days'
prior written notice of his desire to terminate employment to the Board of
Directors of the Company. If the Employee's employment with the Company under
this Agreement is terminated pursuant to this Subsection 9.1(b), the Employee
will continue to accrue and receive his base salary in effect at the time
pursuant to Subsection 4(a) through the date of termination with no liability
on the part of the Company for further payments to the Employee, subject to the
provisions of Sections 22 and 25.
(c) Prior to the Triggering Date, if the Employee's employment with
the Company is terminated by the Company without Cause or if the Employee
terminates his employment with the Company following the occurrence of an Event
of Default which has not been waived in writing by the Employee, the Employee
will continue to accrue and receive his base salary in effect at the time
pursuant to Subsection 4(a) through the date of termination and will be
entitled to receive the benefits provided for under Subsection 10.1 (unless the
Employee's employment
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<PAGE> 9
is terminated in accordance with Section 7) with no liability on the part of
the Company for further payments to the Employee, subject to the provisions of
Sections 7, 22, and 25.
9.2 Termination On or After the Triggering Date. (a) Upon at least
--------------------------------------------
30 days' prior written notice to the Employee and on or after the Triggering
Date, the Company may terminate the Employee's employment with the Company
under this Agreement only for Cause or in accordance with Section 7 and,
subject to the provisions of Sections 7, 22 and 25, with no liability on its
part for further payments to the Employee. The Company may effect a
termination for Cause pursuant to this Subsection 9.2(a) only by the
affirmative vote of two-thirds of the members of the Board of Directors of the
Company. In voting upon such termination for Cause, if the Employee is also a
member of the Board of Directors of the Company, then he may not vote on, and
will not be considered present for any purpose with respect to, a matter
presented to the Board of Directors of the Company pursuant to this Subsection
9.2(a).
(b) On or after the Triggering Date, if the Employee's employment
with the Company is terminated by the Company without Cause or if the Employee
terminates his employment with the Company for Good Reason, the Employee will
continue to accrue and receive his base salary in effect at the time pursuant
to Subsection 4(a) through the date of termination and will be entitled to
receive the payments and benefits provided for under Subsections 10.2 and 10.3
(unless the Employee's employment is terminated in accordance with Section 7)
with no liability on the part of the Company for further payments to the
Employee, subject to the provisions of Sections 7, 22 and 25.
(c) On or after the Triggering Date, the Employee may, in his sole
and absolute discretion and without any prior approval by the Board of
Directors of the Company, and upon twelve months' prior written notice to the
Board of Directors of the Company, terminate his employment with the Company
under this Agreement for any reason whatsoever. If the Employee's employment
with the Company under this Agreement is terminated pursuant to this Subsection
9.2(c), the Employee will continue to accrue and receive his base salary in
effect at the time pursuant to Subsection 4(a) through the date of termination
and will be entitled to receive the benefits provided for under Subsections
10.2 and 10.3 with no liability on the part of the Company for further payments
to the Employee, subject to the provisions of Sections 22 and 25.
10. COMPENSATION AFTER CERTAIN TERMINATIONS.
----------------------------------------
10.1 Remaining Compensation. If the Employee's employment with the
-----------------------
Company is terminated (whether such termination is by the Employee or by the
Company) at any time prior to the Triggering Date for any reason other than (a)
termination by the Company for Cause in accordance with Subsection 9.1(a); (b)
termination by the Company in accordance with Section 7; (c) the Employee's
death; or (d) termination at the election of the Employee pursuant to
Subsection 9.1(b) then, within five days after the date of such termination,
(i) the Remaining Compensation (as herein defined) which would have been paid
to the Employee during the remainder of the term of this Agreement of
termination had not occurred shall become due and payable and shall be paid to
the Employee in a single lump sum in cash, and (ii) all stock options granted
to Employee pursuant to Subsection 4(e) hereof which are not then exercisable
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<PAGE> 10
shall, notwithstanding the provisions of any other agreement, become
immediately exercisable and shall remain exercisable until they are exercised
or until they otherwise would expire. For purposes of this Subsection 10.1, the
"Remaining Compensation" shall mean the annual base salary payable to the
Employee pursuant to Subsection 4(a) at the time of termination plus an amount
representing the value of all employee benefits including, without limitation,
any unearned annual bonuses described in Subsection 4(b), discretionary bonuses
and incentive compensation under plans then in effect. For these purposes, the
value of any unearned annual bonuses and all of such other employee benefits
shall be deemed to be equal to 12 months base salary payable to the Employee
pursuant to Subsection 4(a) at the time his employment is terminated.
10.2 Post Triggering Date Severance Payment. If the Employee's
---------------------------------------
employment with the Company is terminated (whether such termination is by the
Employee or by the Company) at any time on or within three years after the
Triggering Date for any reason other than (a) termination by the Company
for cause in accordance with Subsection 9.2(a) or (b) termination by the Company
in accordance with Section 7 or (c) the Employee's death or (d) termination at
the election of the Employee other than termination for Good Reason without
compliance with the retirements of Section 9.2(c) then, within five days after
the date of such termination, the Company shall pay the Employee a lump sum
amount in cash equal to 2.99 times the Annualized Compensation Amount.
10.3 Gross-Up Payment. In the event that (i) the Employee becomes
-----------------
entitled to the payments provided under Section 10.2 of this Agreement (the
"Change in Control Payments") and any of the Change in Control Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), or any successor provision, or
(ii) any payments or benefits received or to be received by the Employee
pursuant to the terms of any other plan, arrangement or agreement (the "Benefit
Payments") will be subject to the Excise Tax, the Company shall pay to the
Employee an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Employee, after deduction of any Excise Tax on the Change in
Control Payments and the Benefit Payments, and any federal, state and local
income tax and Excise Tax upon the payment provided for by this Section 10.3,
shall be equal to the Change in Control Payments and the Benefit Payments,
provided, however, that in determining the amount of the Gross-Up Payment, any
Excise Tax on the Change in control Payments and the Benefit Payments shall be
determined using a rate no higher than 20%. For purposes of determining whether
any of the Change in Control Payments or the Benefit Payments will be subject
to the Excise Tax and the amount of such Excise Tax, (i) any payments or
benefits received or to be received by the Employee in connection with a change
in control of the Company or the Employee's termination of employment (whether
pursuant to the terms of this agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in change in
control or any person affiliated with the Company or such persons) shall be
treated as "parachute payments" within the meaning of Section 280G(b) (2) of
the Code, and all "excess parachute payments" within the meaning of Section
280G(b) (1) shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel selected by the Company's independent auditors and
acceptable to the Employee such payments or benefits (in whole or in part) do
not constitute parachute payments, or such excess payments (in whole or in
part) represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b) (4) of the Code, (ii) the
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<PAGE> 11
amount of the Change in Control Payments and the Benefit Payments that shall be
treated as subject to the Excise Tax shall be equal to the lesser of (A) the
total amount of the Change in Control Payments and the Benefit Payments or (B)
the amount of excess parachute payments within the meaning of Sections
280G(b)(1) and (4) (after applying clause (i), above) and (iii) the value of any
non-cash benefits or any deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, the Employee shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes at
the highest marginal rates of taxation in the state and locality of the
Employee's residence on the date of termination, net of the maximum reduction
in federal income taxes at the highest marginal rates of taxation in the state
and locality of the income taxes which could be obtained from deduction of such
state and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of termination of the Employee's employment, the Employee shall repay to the
Company at that time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such reduction
plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time of the termination
of the Employee's employment (including by reason of any payment the existence
or amount of which cannot be determined at the time of the Gross-Up Payment),
the Company shall make an additional gross-up payment to the Employee in
respect of such excess (plus any interest payable with respect to such excess)
at the time that the amount of such excess is finally determined.
11. MITIGATION.
-----------
The Employee shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this Agreement
be reduced by any compensation earned by the Employee as the result of
employment by another employer after the date of termination of Employee's
employment with the Company, or otherwise.
12. ENTIRE AGREEMENT.
-----------------
This Agreement embodies the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof and supersedes all
prior negotiations, agreements, and understandings relating to such subject
matter, and may be modified or amended only by an instrument in writing signed
by the parties hereto.
13. LAW TO GOVERN.
--------------
This Agreement is executed and delivered in the State of Texas and
shall be governed, construed and enforced in accordance with the laws of the
State of Texas.
Page 11
<PAGE> 12
14. ASSIGNMENT.
-----------
This Agreement is personal to the parties, and neither this Agreement
nor any interest herein may be assigned (other than by will or by the laws of
descent and distribution) without the prior written consent of the parties
hereto nor be subject to alienation, anticipation, sale, pledge, encumbrance,
execution, levy, or other legal process of any kind against the Employee or any
of his beneficiaries or any other person. Notwithstanding the foregoing, the
Company shall be permitted to assign this Agreement to any corporation or other
business entity succeeding to substantially all of the business and assets of
the Company by merger, consolidation, sale of assets, or otherwise, if the
Company obtains the assumption of this Agreement by such successor. Failure by
the Company to obtain such assumption prior to the effectiveness of such
succession shall be a breach of this Agreement and shall entitle the Employee
to receive compensation from the Company under this Agreement in the same
amount and on the same terms as he would be entitled to hereunder if he had
voluntarily terminated his employment after the Triggering Date, and, for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Triggering Date.
15. BINDING AGREEMENT.
------------------
Subject to the provisions of Section 14 of this Agreement, this
Agreement shall be binding upon and shall inure to the benefit of the Company
and the Employee and their respective representatives, successors, and assigns.
16. REFERENCES AND GENDER.
----------------------
All references to "Sections" and "Subsections" contained herein are,
unless specifically indicated otherwise, references to sections and subsections
of this Agreement. Whenever herein the singular number is used, the same shall
include the plural where appropriate, and words of either gender shall include
the other gender where appropriate.
17. WAIVER.
-------
No waiver of any right under this Agreement shall be deemed effective
unless the same is set forth in writing and signed by the party giving such
waiver, and no waiver of any right shall be deemed to be a waiver of any such
right in the future.
18. NOTICES.
--------
Except as may be otherwise specifically provided in this Agreement, all
notices required or permitted hereunder shall be in writing and will be deemed
to be delivered when deposited in the United States mail, postage prepaid,
registered or certified mail, return receipt requested, addressed to the party
or parties at 17811 Waterview Parkway, Dallas, Texas 75252, or at such other
addresses as may have theretofore been specified by written notice delivered in
accordance herewith.
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<PAGE> 13
19. OTHER INSTRUMENTS.
------------------
The parties hereto covenant and agree that they will execute such other
and further instruments and documents as are or may become necessary or
convenient to effectuate and carry out the terms of this Agreement.
20. HEADINGS.
---------
The headings used in this Agreement are used for reference purposes
only and do not constitute substantive matter to be considered in construing
the terms of this Agreement.
21. INVALID PROVISION.
------------------
Any clause, sentence, provision, section, subsection or paragraph of
this Agreement held by a court of competent jurisdiction to be invalid,
illegal, or ineffective shall not impair, invalidate, or nullify the remainder
of this Agreement, but the effect thereof shall be confined to the clause,
sentence, provision, section, subsection or paragraph so held to be invalid,
illegal or ineffective.
22. RIGHTS UNDER PLANS AND PROGRAMS.
--------------------------------
Anything in this Agreement to the contrary notwithstanding, no
provision of this Agreement is intended, nor shall it be construed, to reduce
or in any way restrict any benefit to which the Employee may be entitled under
any other agreement, plan, arrangement, or program providing benefits for the
Employee.
23. MULTIPLE COPIES.
----------------
This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument. The terms of this Agreement
shall become binding upon each party from and after the time that he or it
executed a copy hereof. In like manner, from and after the time that any party
executes a consent or other document, such consent or other document shall be
binding upon such parties.
24. WITHHOLDING OF TAXES.
---------------------
The Company may withhold from any amounts payable under this Agreement
all federal, state, city, or other taxes as shall be required pursuant to any
law or government regulation or ruling.
25. LEGAL FEES AND EXPENSES.
------------------------
The Company shall pay and be responsible for all legal fees and
expenses which the Employee may incur as a result of the Company's failure to
perform under this Agreement or as a result of the Company or any successor
contesting the validity or enforceability of this Agreement.
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<PAGE> 14
26. SET OFF OR COUNTERCLAIM.
------------------------
Except with respect to any claim against or debt or other obligation
of the Employee properly recorded on the books and records of the Company prior
to the Triggering Date, there shall be no right of set off or counterclaim
against, or delay in, any payment by the Company to the Employee or his
beneficiaries provided for in this Agreement in respect of any claim against or
debt or other obligation of the Employee, whether arising hereunder or
otherwise.
27. ASSIGNMENT, PROTECTION AND CONFIDENTIALITY OF PROPRIETARY INFORMATION.
----------------------------------------------------------------------
Employee acknowledges and agrees that all items of the Company's
Proprietary Information constitute valuable, special and unique assets and
trade secrets of its business, which provide to the Company a competitive
advantage over others who do not have access thereto and access to which is
essential to the performance of Employee's duties hereunder. Employee shall
not, during the term of this Agreement or thereafter, use or disclose any
Proprietary Information that is not otherwise publicly available, in whole or
in part, for his benefit or for the benefit of any other person or party,
except for the Company. As used herein, "Proprietary Information" includes, but
is not limited to, customer lists and prices, whether current or prospective,
product designs or other product information, experimental developments and
other research and development information, testing processes, marketing
studies and research activities, and any other trade secrets concerning the
Company, its shareholders, officers, directors, employees, business prospects,
customers, transactions, finances, affairs, opportunities, operations,
properties or assets. The Employee further agrees that all inventions, devices,
compounds, processes, formulas, techniques, improvements and modifications
which he may develop, in whole or in part, during the term of his employment or
through or with the facilities, equipment or resources of the Company shall be
and remain the sole and exclusive property of the Company. The Employee agrees
to deliver to the Company at any time the Company may request, all memoranda,
notes, plans, records, reports, and other documents (including copies thereof
and all embodiments thereof whether in computerized form or any other medium)
relating to the business or affairs of the Company or its subsidiaries which he
may then possess or have under his control. Employee shall maintain in good
condition all tangible and other forms of Proprietary Information in Employee's
custody or control until his obligations under the preceding sentence are
satisfied. Employee agrees to execute all documents and take such other actions
as may be required to comply with this Section.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
INTERVOICE, INC.
By: /s/ MICHAEL W. BARKER
---------------------------
Name: Michael W. Barker
Title: Pres. COO
/s/ DAVID D. HAMMOND
------------------------------
David D. Hammond
<PAGE> 1
EXHIBIT 10.3
FIRST AMENDMENT TO AMENDED AND EXTENDED
EMPLOYMENT AGREEMENT
This Amendment amends that certain Amended and Extended Employment Agreement
(the "Agreement") dated as of June 25, 1996 effective as of March 1, 1996,
between InterVoice, Inc., a Texas corporation with its principal executive
offices at 17811 Waterview Parkway, Dallas, Texas 75252 (the "Company"), and
Daniel D. Hammond (the "Employee").
1. The first four lines of the definition for "Applicable EPS Bonus
Percentage" are amended in their entirety to read as follows:
"Applicable EPS Bonus Percentage" means, with respect to the
applicable fiscal year, the percentage set forth in the
right-hand column below as determined with reference to the
increase or decrease in the Company's earnings per share
between such fiscal year and the greater of $1.05 or the
earnings per share for the immediately preceding fiscal year:
2. The first four lines of the definition for "Applicable Revenue Bonus
Percentage" are amended in their entirety to read as follows:
"Applicable Revenue Bonus Percentage" means, with respect to
the applicable fiscal year, the percentage set forth in the
right-hand column below as determined with reference to the
increase or decrease in the Company's total revenues between
such fiscal year and the greater of $97,103,054 or the total
revenues for the immediately preceding fiscal year:
The Agreement, as amended hereby, is hereby ratified, confirmed and approved.
IN WITNESS WHEREOF, the parties have executed this Amendment as of June 25,
1996, effective for all purposes as of March 1, 1996.
InterVoice, Inc.
By: /s/ MICHAEL W. BARKER
--------------------------------------
Name: Michael W. Barker
------------------------------------
Title: President & Chief Operating Officer
-----------------------------------
/s/ DANIEL D. HAMMOND
------------------------------------------
Daniel D. Hammond
<PAGE> 1
EXHIBIT 10.5
INTERVOICE, INC.
1990 INCENTIVE STOCK OPTION PLAN
As amended and restated effective April 9, 1996
1. Purpose. This InterVoice, Inc. 1990 Incentive Stock
Option Plan (the "Plan") is intended as an incentive for, and to encourage
stock ownership by, key employees of InterVoice, Inc. (the "Company"), or any
Affiliate (as used herein, the term "Affiliate" means any parent or subsidiary
corporation of the Company within the meaning of Section 424(e) and (f) of the
Internal Revenue Code of 1986, as amended (the "Code")), so that such employees
may acquire or increase their equity interest in the success of the Company,
and to encourage them to remain in the employ of the Company or any Affiliate.
Unless otherwise specified in the option agreement, it is intended that each
option granted under this Plan will qualify as an "incentive stock option"
within the meaning of Section 422(b) of the Code.
2. Administration. The Plan shall be administered by the
Board of Directors of the Company (the "Board"). The interpretation and
construction by the Board of any provisions of the Plan or of any option
granted under it shall be final. The Board shall have the authority to appoint
a Committee to assume the duties and responsibilities of administering the
Plan. The Committee, if such be established by the Board, shall be composed of
no less than three (3) persons (who shall be members of the Board), each of
whom shall be a "disinterested person" as defined in Section 3 hereof, and such
Committee shall have the same power, authority and rights in the administration
of the Plan as the Board. No director shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
under it.
3. Eligibility. The Board shall determine from time to time
the persons who shall receive options hereunder; provided, however, options may
be granted hereunder only to persons who, at the time of the grant thereof, are
key employees of the Company or any Affiliate; provided further, that any
decision to award Options hereunder to any director/employee or officer of the
Company or the determination of the maximum number of shares of Stock (as
hereinafter defined) which may be subject to option to any director/employee or
officer shall be made by either (i) the Board, a majority of the directors of
which and a majority of the directors acting in such matter shall be
disinterested persons as defined herein or (ii) the Committee appointed by the
Board pursuant to Section 2 hereof. For purposes of this Plan, "disinterested
person" shall mean any person who is an administrator of the Plan who is not at
the time he exercises discretion in administering the Plan eligible and has not
at any time within one year prior thereto been eligible for selection as a
person to whom stock may be allocated or to whom stock may be granted pursuant
to the Plan or any other plan of the Company or any Affiliate entitling the
participants therein to acquire stock, stock options, or stock appreciation
rights of the Company or any Affiliate.
Notwithstanding any provision contained herein to the contrary, a
person shall not be eligible to receive an option hereunder if he, immediately
before such option is granted, owns (within the meaning of Sections 422 and 424
of the Code) stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Affiliate, unless
at the time the option is granted, the option price per share of Stock (as
hereinafter defined) is at least one hundred ten percent (110%) of the fair
market value of each share of Stock subject to the option and the option by its
terms is not exercisable after the expiration of five years from the date it is
granted.
4. Stock. The stock subject to the options shall be shares
of the Company's authorized but unissued or reacquired Common Stock, no par
value per share (herein sometimes called "Stock"). The aggregate number of
shares which may be issued under options granted pursuant to this Plan shall
not exceed four million five hundred fifty thousand (4,550,000) shares of
Stock. The limitations established by each of the preceding sentences shall be
subject to adjustment as provided in Section 5(h) of the Plan.
5. Terms and Conditions of Options. The stock options
granted pursuant to the Plan shall be authorized by the Board and shall be
evidenced by an agreement in such form as the Board shall approve, which
agreement shall comply with and be subject to the following terms and
conditions:
(a) Optionee's Agreement. As consideration for the
granting of an option under the Plan, each optionee must agree to
use his best efforts for the benefit of the Company during his
tenure of employment, but nothing in the Plan or agreement shall
be deemed to limit the right of the Company to terminate any
optionee's employment at any time for or without cause.
(b) Number of Shares. The option shall state the
number of shares which it covers.
(c) Option Price. The option shall state the option
price, which shall be not less than 100% of the fair market value
per share of said Stock on the date of the grant of the option
or, if applicable, the amount specified in Section 3 hereof.
1
<PAGE> 2
(d) Medium and Time of Payments. The option price shall be
payable upon the exercise of the option in cash or by check. Exercise
of an option shall not be effective until the Company has received
written notice of exercise, specifying the numbers of whole shares to be
purchased, accompanied by payment in full of the aggregate option price
of the number of shares purchased. The Company shall not in any case be
required to issue and sell a fractional share of stock.
(e) Term and Exercise of Options. Except as provided in
Section 3 and Sections 5(f), (g) and (h), the period of time within
which an option may be exercised shall be such period of time specified
in the option agreement, provided that such period shall in no event
extend past the tenth anniversary of the date the option was granted.
During the period within which an option is exercisable, it shall be
exercisable only in accordance with the terms specified in the option
agreement. Options granted hereunder shall be exercisable during the
optionee's lifetime only by him or by his guardian or legal
representative. Anything herein to the contrary notwithstanding, on the
tenth anniversary date of the date the option was granted (or on the
fifth anniversary if granted to an employee who is a greater than ten
percent (10%) shareholder as discussed in Section 3 hereof), it shall
expire and be void with respect to any shares subject thereto which have
not been theretofore purchased.
(f) Termination of Employment Except for Death or Disability.
In the event that the optionee shall cease to be employed by the Company
or an Affiliate for any reason other than his death or disability
(within the meaning of Section 105(d)(4) of the Code), an option granted
hereunder, to the extent not then exercisable in accordance with its
terms, shall terminate and be without further effect. To the extent the
option is exercisable on the date of such termination, it may be
exercised by the optionee within the thirty-day period following such
termination, subject however to the condition that no option shall be
exercisable after the expiration of ten years from the date such option
was granted or such shorter period as may be provided in the option
agreement pursuant to Section 5(e) hereof, and such option, to the
extent not exercised within said thirty-day period, shall in all events
terminate upon the expiration of said thirty-day period. Whether
authorized leave of absence or absence due to military or governmental
service shall constitute termination of employment, for the purpose of
the Plan, shall be determined by the Board, which determination shall be
final and conclusive.
(g) Death or Disability of Optionee and Transfer of Option.
If the optionee shall die or become disabled while in the employ of the
Company or an Affiliate, an option granted hereunder, to the extent not
then exercisable in accordance with its terms, shall terminate and be
without further effect. To the extent the option is exercisable on the
day of death or disability, it may be exercised at any time within six
months after the optionee's death or disability (subject to the
condition that no option shall be exercisable after the expiration of
ten years from the date such option was granted or such shorter period
as may be provided in the option agreement in accordance with Section
5(e) hereof) by the optionee if he has become disabled while in the
employ of the Company or an Affiliate, or if he shall die while in the
employ of the Company or an Affiliate, by the executors or
administrators of the optionee's estate or by any person or persons who
shall have acquired the option directly from the optionee by bequest or
inheritance, and such option, to the extent not exercised within said
six-month period, shall in all events terminate upon the expiration of
such six-month period.
(h) Adjustments. The aggregate number and class of shares of
Stock on which options may be granted hereunder, the number and class of
shares thereof covered by each outstanding option, and the price per
share thereof in each such option, shall all be proportionately adjusted
for any increase or decrease in the number of outstanding shares of
Stock of the Company resulting from a subdivision or consolidation of
shares or any other capital adjustment or the payment of a stock
dividend or any other increase or decrease in the number of such shares
effected without receipt of consideration therefor in money, services or
property.
If the Company shall be the surviving corporation in any merger
or consolidation, any option granted hereunder shall pertain to and
apply to the securities to which a holder of the number of shares of
Stock subject to the option would have been entitled. A dissolution or
liquidation of the Company shall cause every option outstanding
immediately prior to such dissolution or liquidation to terminate,
whether such option is not then exercisable according to its terms or is
then exercisable according to its terms but simply has not been
exercised by the optionee (or his successor in interest if the optionee
be deceased).
A merger or consolidation in which the Company is not the
surviving corporation shall cause every option outstanding immediately
prior to such merger or consolidation to become exercisable in full by
the optionee. The Company shall give all optionees notice in writing
thirty days prior to the effective date of such merger or consolidation
to allow the optionees an opportunity to exercise their options. Every
option shall terminate as of the effective date of such merger or
consolidation. Notwithstanding the foregoing, a merger effected solely
for the purposes of reincorporating the Company in a jurisdiction other
than that in which the Company is then incorporated shall not be subject
to the provisions of this paragraph; provided that all outstanding
options are assumed by the surviving corporation.
(i) Rights as a Shareholder. An optionee (or his successor in
interest if he be deceased) shall have no rights as a shareholder with
respect to any shares covered by his option until the date of the
issuance of a stock certificate to him for such shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or
2
<PAGE> 3
other property) or distributions or other rights for which the
record date is prior to the date such stock certificate is
issued, except as provided in Section 5(h) hereof.
(j) Modification, Extension and Renewal of Options.
Subject to the terms and conditions of and within the limitations
of the Plan, the Board may modify, extend or renew outstanding
options granted under the Plan. Notwithstanding the foregoing,
however, no modification of an option shall, without the consent
of the optionee, alter or impair any rights or obligations under
any option theretofore granted under the Plan.
(k) Investment Purpose. Each optionee receiving an
option pursuant hereto must represent that any shares purchased
pursuant to the option will be or are acquired for his own
account for investment and not with a view to, or for offer or
sale in connection with, the distribution of any such shares;
provided, however, that such representation need not be given if
(i) the shares to be subject to such option to be granted to such
optionee have been registered under the Securities Act of 1933
("Securities Act") and registered or qualified, as the case may
be, under applicable state securities laws or (ii) counsel to the
Company determines that such registration is not necessary for
purposes of compliance with applicable federal and state
securities laws. Prior to the purchase of shares of Common Stock
on exercise of an option, or any part thereof, the optionee shall
give such further representations of an investment or other
nature as reasonably required by the Company in order to comply
with applicable federal and state securities laws. Furthermore,
nothing herein or in any option granted hereunder shall require
the Company to issue any shares upon exercise of any option if
such issuance would, in the opinion of counsel for the Company,
constitute a violation of the Securities Act or any other
applicable statute or regulation then in effect. Nothing herein
shall prohibit the optionee from using any shares acquired
pursuant to any option granted hereunder as collateral or
security for any debt, loan or other obligation.
(l) Other Provisions. The option agreements authorized
under the Plan shall contain such other provisions, including,
without limitation, restrictions upon the exercise of the option,
as the Board shall deem advisable. If the option is designated
as an incentive stock option in the option agreement, such
agreement shall contain such limitations and restrictions upon
the exercise of the option to which it relates as shall be
necessary for the option to which such Agreement relates to
constitute an incentive stock option within the meaning of
section 422(b) of the Code.
(m) Assignability. No option shall be transferable by
optionee other than by will or the laws of descent and
distribution and shall be exercisable during the lifetime of the
optionee only by the optionee, or if the optionee is legally
incompetent, by the optionee's legal representative.
6. Indemnification. Each director ("Indemnified Party")
shall be indemnified by the Company against all costs and reasonable expenses,
including attorneys' fees, incurred by him in connection with any action, suit
or proceeding, or in connection with any appeal thereof, to which he may be a
party by reason of any action taken or failure to act under or in connection
with the Plan or any option granted hereunder, and against all amounts paid by
such Indemnified Party in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by such
Indemnified Party in satisfaction of a judgment in any such action, suit or
proceeding, provided that within 60 days after institution of any such action
suit or proceeding such Indemnified Party shall in writing offer the Company
the opportunity, at its own expense, to handle and defend the same; and
provided further, however, anything contained in the Plan to the contrary
notwithstanding, there shall be no indemnification of an Indemnified Party who
is adjudged by a court of competent jurisdiction to be guilty of, or liable
for, willful misconduct, gross neglect of duty, or criminal acts. The
foregoing rights of indemnification shall be in addition to such other rights
of indemnification as an Indemnified Party may have as a director of the
Company.
7. Amendment and Termination of the Plan. If not sooner
terminated, the Plan shall terminate automatically on the date that is ten (10)
years following the effective date of the Plan (as specified in Section 11
hereof). No options may be granted hereunder after the termination of the
Plan. The Board may, from time to time, with respect to any shares at the time
not subject to options, suspend or discontinue the Plan or amend it in any
respect whatsoever; provided, however, that without the approval of the holders
of a majority of the outstanding shares of voting stock of all classes of the
Company, no such amendment shall (i) change the number of shares of Stock
subject to the Plan (other than as provided in Section 5(h)), (ii) change the
designation of the class of employees eligible to receive options, or (iii)
decrease the price at which options may be granted, and provided further, that
the affirmative vote of the holders of a majority of the securities of the
Company present, or represented, and entitled to vote at a meeting duly held in
accordance with the laws of the State of Texas shall be required to approve any
amendment to the Plan which would, as determined for purposes of Rule 16b-3 of
the Securities and Exchange Commission under the Securities and Exchange Act of
1934 (or any successor provision at the time in effect), (x) materially
increase the benefits accruing to participants under the Plan, (y) materially
increase the number of shares of Stock which may be issued under the Plan, or
(z) materially modify the requirements as to eligibility for participation in
the Plan. The Board may, with respect to any shares at the time not subject to
options, terminate the Plan. No termination or amendment of the Plan shall
adversely affect the rights of an optionee under an option, except with the
consent of such optionee.
8. No Obligation to Exercise Option. The granting of an
option shall impose no obligation upon the optionee to exercise such option.
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<PAGE> 4
9. Application of Funds. The proceeds received by the
Company from the sale of shares pursuant to options will be used for general
corporate purposes.
10. Governing Law. All questions arising with respect to the
provisions of the Plan shall be determined by application of the laws of the
State of Texas except to the extent Texas law is preempted by federal statute.
11. Date Plan is Effective. The Plan shall become effective,
as of the date of its adoption by the Board, when it has been duly approved by
holders of at least a majority of the shares of common stock present or
represented and entitled to vote at a meeting of the shareholders of the
Company duly held in accordance with applicable law within twelve months after
the date of adoption of the Plan by the Board. If the Plan is not so approved,
the Plan shall terminate and any option granted hereunder shall be null and
void.
4
<PAGE> 1
EXHIBIT 10.9
INTERVOICE, INC.
AMENDED AND EXTENDED EMPLOYMENT AGREEMENT
This Amended and Extended Employment Agreement (this "Agreement") is
dated as of June 21, 1996 effective as of March 1, 1996, between InterVoice,
Inc., a Texas corporation with its principal executive offices at 17811
Waterview Parkway, Dallas, Texas 75252 (the "Company"), and Michael W. Barker
(The "Employee").
W I T N E S S E T H:
WHEREAS, the Employee is presently employed by the Company pursuant to
that certain Employment Agreement dated August 31, 1994 (the "Old Agreement"),
between the Company and the Employee; and
WHEREAS, the Employee and the Company desire to amend the terms and
conditions of the Old Agreement to, among other things, extend the term of the
Employee's employment by the Company, increase the Employee's base salary,
further define the Employee's bonus opportunity and grant additional stock
options to the Employee.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and subject to the
terms and conditions hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS.
In addition to the words and terms elsewhere defined in this Agreement,
the following words and terms as used herein shall have the following meanings,
unless the context or use indicates a different meaning:
"Annualized Compensation Amount" means an amount equal to the
annualized salary payable and bonuses accrued or payable to the Employee
pursuant to Section 4 of this Agreement during the most recent completed fiscal
year of the Company.
"Applicable EPS Bonus Percentage" means, with respect to the applicable
fiscal year, the percentage set forth in the right hand column below as
determined with reference to the increase or decrease in the Company's earnings
per share between such fiscal year and the immediately preceding fiscal year:
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<PAGE> 2
<TABLE>
<CAPTION>
Increase or Decrease in Earnings per
Share in Applicable Fiscal Year
Compared to Immediately Preceding Applicable EPS
Fiscal Year Bonus Percentage
------------------------------------- ----------------
<S> <C>
40% or more increase 100%
35% through 39% increase 80%
25% through 34% increase 60%
10% through 24% increase 40%
0% through 9% increase 20%
1% through 10% decrease 10%
11% or more decrease 0%
</TABLE>
"Applicable Revenue Bonus Percentage" means, with respect to the
applicable fiscal year, the percentage set forth in the right hand column below
as determined with reference to the increase or decrease in the Company's total
revenues between such fiscal year and the immediately preceding fiscal year:
<TABLE>
<CAPTION>
Increase or Decrease in Revenues in
Applicable Fiscal Year Compared to Applicable Revenue
Immediately Preceding Fiscal Year Bonus Percentage
----------------------------------- ------------------
<S> <C>
40% or more increase 100%
35% through 39% increase 80%
25% through 34% increase 60%
10% through 24% increase 40%
0% through 9% increase 20%
Decrease in revenues 0%
</TABLE>
"Cause" means (a) any act by the Employee that is materially adverse to
the best interests of the Company and which, if the subject of a criminal
proceeding, could result in a criminal conviction for a felony or (b) the
willful failure by the Employee to substantially perform his duties hereunder,
which duties are within the control of the Employee (other than the failure
resulting from the Employee's incapacity due to physical or mental illness),
provided, however, that the Employee shall not be deemed to be terminated for
Cause under this subsection (b) unless and until (1) after the Employee
receives written notice from the Company specifying with reasonable
particularity the actions of Employee which constitute a violation of this
subsection (b) and (2) within a period of 30 days after receipt of such notice
(and during which the violation is within the control of the Employee),
Employee fails to reasonably and prospectively cure such violation.
"Common Stock" means the Company's common stock, no par value per share.
An "Event of Default" means the occurrence of any of the following
events prior to the Triggering Date, unless remedied or otherwise cured within
30 days after the Company's receipt of written notice from the Employee of such
event, (a) a breach by the Company of any of its
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<PAGE> 3
express or implied obligations under this Agreement, (b) without his prior
concurrence, the Employee is assigned any duties or responsibilities that are
inconsistent with his position, duties, responsibilities or status at the
commencement of the term of this Agreement, or his reporting responsibilities
or titles in effect at such time are changed, (c) the Employee's base
compensation is reduced or any other failure by the Company to comply with
Section 4, or (d) any change in any employee benefit plans or arrangements in
effect on the date hereof in which the Employee participates (including without
limitation any pension and retirement plan, savings and profit sharing plan,
stock ownership or purchase plan, stock option plan, or life, medical or
disability insurance plan), which would adversely affect the Employee's rights
or benefits thereunder, unless such change occurs pursuant to a program
applicable to all executive officers of the Company and does not result in a
proportionately greater reduction in the rights of or benefits to the Employee
as compared to any other executive officer of the Company.
"Good Reason" means the occurrence of a Triggering Event (as defined
below) and (a) a breach by the Company of any of its express or implied
obligations under this Agreement (b) without his prior concurrence, the Employee
is assigned any duties or responsibilities that are inconsistent with his
position, duties, responsibilities or status at the commencement of the term
of this Agreement, or his reporting responsibilities or titles in effect at
such time are changed, (c) the Employee's base compensation is reduced or any
other failure by the Company to comply with Section 4, (d) any change in any
employee benefit plans or arrangements in effect on the date hereof in which
the Employee participates (including without limitation any pension and
retirement plan, savings and profit sharing plan, stock ownership or purchase
plan, stock option plan, or life, medical or disability insurance plan), which
would adversely affect the Employee's rights or benefits thereunder, unless such
change occurs pursuant to a program applicable to all executive officers of the
Company and does not result in a proportionately greater reduction in the rights
of or benefits to the Employee as compared to any other executive officer of the
Company, or (e) the shareholders of the Company shall fail to elect the Employee
as a member of the Board of Directors of the Company.
"Triggering Date" means the date of a Triggering Event.
A "Triggering Event" shall be deemed to have occurred if (a) any person
or group (as such terms are used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or
indirectly, of securities of the Company representing more than 20% of the
combined voting power of the Company's then outstanding securities, or (b) at
any annual or special meeting of shareholders of the Company one or more
directors are elected who were not nominated by management of the Company to
serve on the Board of Directors of the Company, or (c) the Company is merged or
consolidated with another corporation and as a result of such merger or
consolidation less than 51% of the outstanding voting securities of the
surviving or resulting corporation are owned in the aggregate by the former
shareholders of the Company, other than by a party to such merger or
consolidation or affiliates (within the meaning of the Exchange Act) of any
party to such merger or consolidation, as the same existed immediately prior to
such merger or consolidation, or (d) the Company sells all or substantially all
of its assets to another corporation which is not a wholly-owned subsidiary of
the Company.
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<PAGE> 4
2. EMPLOYMENT.
-----------
The Company hereby employs the Employee and the Employee hereby accepts
employment on the terms and conditions set forth herein.
3. TERM.
-----
The initial term of this Agreement shall be from March 1, 1996 until
February 28, 1999 unless sooner terminated in accordance with the provisions
herein regarding termination. Subject to earlier termination as provided
herein, the initial term of this Agreement shall be automatically extended for
one (1) year from March 1, 1999, unless either the Employee or the Company
gives written notice to the other six months or more prior to February 28, 1999.
4. COMPENSATION.
-------------
(a) Base Salary. For all services rendered by the Employee under
------------
this Agreement, the Company shall pay the Employee a base salary of $250,000
per year. Such salary shall be payable in equal monthly installments in
accordance with the customary payroll policies of the Company in effect at the
time such payment is made, or as otherwise mutually agreed upon; provided,
however, the Company will promptly pay the Employee in a lump sum an amount
equal to the difference between (i) the aggregate base salary that is payable
to the Employee under this Agreement for the period March 1, 1996, through June
30, 1996, inclusive, and (ii) the aggregate base salary actually paid to
Employee under the Old Agreement for the period March 1, 1996 through June 30,
1996, inclusive. On or about the anniversary date of this Agreement each year
during the term hereof, the Compensation Committee of the Company shall review
Employee's performance for the prior year and make such adjustments in base
salary from time to time at their discretion as the Employee and the Company
may agree.
(b) Annual Bonus. Effective for the Company's fiscal year ending
-------------
February 29, 1997 and continuing with respect to each subsequent fiscal year
thereafter during the term of this Agreement, the Company will pay Employee an
annual bonus equal to the sum of (a) the mathematical product of Employee's
base salary pursuant to Subsection 4(a) for such fiscal year multiplied by the
Applicable Revenue Bonus Percentage and (b) the mathematical product of the
Employee's base salary pursuant to Subsection 4(a) for such fiscal year
multiplied by the Applicable EPS Bonus Percentage. Employee's bonus pursuant to
this Subsection 4(b) shall be earned as of the end of the Company's fiscal year
and payable within five days after the Company's receipt of its audited annual
financial statements. The formula set forth herein for determining annual
bonuses shall be adjusted from time to time when and if there occur stock
splits or other changes in capital structure which result in an increase or
decrease in outstanding capital stock of more than 25%.
(c) Bonus. In addition to the Employee's annual base salary and
------
other benefits provided for in this Agreement, the Company may pay to the
Employee on an annual basis a discretionary bonus in an amount to be approved
by the Board of Directors of the Company; provided, however, in no event shall
the bonus payable hereunder, if any, exceed Employee's annual base salary
provided for in Section 4(a).
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<PAGE> 5
(d) Benefits. The Employee shall be entitled to participate in or
receive benefits under any employee benefit plan or arrangement made available
by the Company in the future to its executive officers and key management
personnel, subject to and on a basis consistent with the terms, conditions and
overall administration of such plan or arrangement. Nothing paid to the
Employee under any plan or arrangement presently in effect or made available
in the future shall be deemed to be in lieu of the salary and bonuses payable
to the Employee pursuant to Subsections 4(a), (b) and (c).
(e) Stock Option. In consideration of the Employee's execution of
this Agreement, the Company has granted effective June 21, 1996 an option to
purchase 100,000 shares of the Company's Common Stock to the Employee pursuant
to the Company's 1990 Incentive Stock Option Plan. The exercise price for such
option will be the closing price for the Company's Common Stock on the Nasdaq
National Market on June 21, 1996. The grant of such option is subject to the
Company's shareholders approving, at the 1996 annual meeting, the proposed
amendment to increase the number of shares of Common Stock authorized for
issuance under the 1990 Incentive Stock Option Plan.
(f) Expenses. Upon receipt of itemized vouchers, expense account
reports, and supporting documents submitted to the Company in accordance with
the Company's procedures from time to time in effect, the Company shall
reimburse Employee for all reasonable and necessary travel, entertainment, and
other reasonable and necessary business expenses incurred ordinarily and
necessarily by Employee in connection with the performance of his duties
hereunder.
(g) Vacation. Employee shall be entitled to a minimum of 6 weeks
paid vacation during each twelve month period commencing on the effective date
of this Agreement.
5. POSITION, DUTIES, EXTENT OF SERVICES AND SITUS.
(a) Position and Duties. Employee shall serve as the President and
Chief Operating Officer of the Company, accountable only to the Chairman of the
Board and Chief Executive Officer (the "Chairman") of the Company and, subject
to the authority of the Chairman, shall have supervision and control over, and
responsibility for, the general management and operation of the Company and
shall have such other powers and duties as may from time to time be prescribed
by the Chairman and provided that such duties are reasonable and customary for
a President and Chief Operating Officer of a public company.
(b) Extent of Services and Situs. The Employee shall devote
substantially all of his business time, attention, and energy to the business
and affairs of the Company and shall not during the term of his employment
under this Agreement engage in any other business activity which could
constitute a conflict of interest, whether or not such business activity is
pursued for gain, profit, or other pecuniary advantage. This shall not be
construed as preventing the Employee from managing his current investments or
investing his assets in such form or manner as will not require any services on
the part of the Employee in the operation and the affairs of the companies in
which such investments are made, subject to the provisions of Sections 6 and
27. The Employee shall not be required to change the principal place of his
employment to a
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<PAGE> 6
location which is more than 15 miles further away from his principal residence
than such principal place of employment at the time of the execution of this
Agreement.
6. COVENANT NOT TO COMPETE.
(a) The Employee acknowledges that (i) as a result of his position
and tenure with the Company he has received and will continue to receive
specialized and unique training and knowledge concerning the Company, its
business, its customers and the industry in which it competes, (ii) the
Company's business, in large part, depends upon its exclusive possession and
use of the Propriety Information (as defined in Section 27), (iii) the Company
is entitled to protection against the unauthorized disclosure or use by
Employee of the Proprietary Information or the training and knowledge received
by the Employee and (iv) he has received in this Agreement good and valuable
consideration for the covenants he is making in this Section 6 and in Section
27. The Company and the Employee acknowledge and agree that the covenants
contained in this Section 6 and in Section 27 are reasonably necessary for the
protection of the Company are reasonably limited with respect to the activities
they prohibit, their duration, their geographical scope and their effects on
the Employee and the public. The parties acknowledge that the purpose and
effect of the covenants are to protect the Company from unfair competition by
the Employee.
(b) Except as provided in the last sentence of this Section 6(b),
during the period in which the Employee renders services to the Company under
this Agreement and for eighteen (18) months thereafter, the Employee shall not,
without the written consent of the Company, own, manage, operate, control,
serve as an officer, director, employee, partner or consultant of or be
connected in any way with or have any interest in any corporation, partnership,
proprietorship or other entity which carries on business activities in
competition with the Company's activities in any state of the United States or
in any foreign country in which the Company has sold or installed its products
or systems or has definitive plans to sell or install its products at any time
prior to or at the time of the date of termination of the Employee's
employment; except that the Employee may own up to 1% of the shares of any
publicly-owned corporation, provided that none of his other relationships with
such corporation violates such covenant. Notwithstanding the foregoing, the
provisions of this Section 6 shall not apply if the Employee's employment with
the Company under this Agreement is terminated (i) by the Company, unless the
Employee is terminated in accordance with Section 7 or for Cause in
accordance with Subsection 9.1(a) or 9.2(a), or (ii) at the election of the
Employee prior to the Triggering Date after the occurrence of an Event of
Default which has not been waived in writing or on or after the Triggering Date
for Good Reason.
(c) The Company and the Employee hereby agree that in the event that
the noncompetition covenants contained herein should be held by any court or
other constituted legal authority of competent jurisdiction to be effective in
any particular area or jurisdiction only if said covenants are modified to
limit their duration, geographical area or scope, then the parties hereto will
consider Section 6 to be amended and modified with respect to that particular
area or jurisdiction so as to comply with the order of any such court or other
constituted legal authority and, as to all other jurisdictions or political
subdivisions thereof, the noncompetition covenants contained herein will remain
in full force and effect as originally written. The Company and the Employee
further agree that in the event that the noncompetition covenants
Page 6
<PAGE> 7
contained herein should be held by any court or other constituted legal
authority of competent jurisdiction to be void or otherwise unenforceable in
any particular area or jurisdiction notwithstanding the operation of this
Section 6(c), then the parties hereto will consider this Section 6 to be
amended and modified so as to eliminate therefrom that particular area or
jurisdiction as to which such noncompetition covenants are so held void or
otherwise unenforceable, and, as to all other areas and jurisdictions covered
by the noncompetition covenants, the terms and provisions hereof shall remain
in full force and effect as originally written.
(d) Employee recognizes and acknowledges that the Company would
suffer irreparable harm and substantial loss if Employee violated any of the
terms and provisions of this Section 6 or Section 27 and that the actual
damages which might be sustained by the Company as the result of any breach of
this Section 6 or Section 27 would be difficult to ascertain. Employee agrees,
at the election of the Company and in addition to, and not in lieu of, the
Company's right to terminate Employee's employment and to seek all other
remedies and damages which the Company may have at law and/or equity for such
breach, that the Company shall be entitled to an injunction restraining
Employee from breaching any of the terms of provisions of this Section 6 or
Section 27.
7. COMPENSATION IN THE EVENT OF DISABILITY.
(a) Disability. If the Employee becomes disabled during the term
of this Agreement the Company shall cause to be paid to the Employee an amount
equal to his base salary in effect at the time of disability under Subsection
4(a), for the shorter of the duration of the disability or the remainder of the
term of this Agreement and, subject to the provisions of Section 22 and 25,
with no liability on its part for further payments to the Employee during the
duration of the disability. Subject to Subsection 7(b) below, full
compensation shall be reinstituted upon his return to employment and resumption
of his duties. For purposes of this Subsection 7(a) the Employee shall be
deemed "disabled" when he is unable, for a period of 90 consecutive days, to
perform his normal duties of employment due to bodily injury or disease or any
other physical or mental disability.
(b) Complete Disability. The Company shall have the right to
terminate the Employee's employment under this Agreement prior to the
expiration of the term upon the "Complete Disability" of the Employee as
hereinafter defined (provided, however, that the obligations of the Company
under Subsection 7(a) shall not terminate). The term "Complete Disability" as
used in this Subsection 7(b) shall mean (i) the total inability of the
Employee, due to bodily injury or disease or any other physical or mental
incapacity, to perform the services provided for hereunder for a period of 120
days, in the aggregate, within any given period of 180 consecutive days during
the term of this Agreement, and (ii) where such inability will, in the opinion
of a qualified physician (reasonably acceptable to Employee), be permanent and
continuous during the remainder of his life.
8. COMPENSATION IN THE EVENT OF DEATH.
If the Employee dies during the term of his employment, the Company
shall pay to such person as the Employee shall designate in a notice filed with
the Company, or, if no such person
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<PAGE> 8
shall be designated, to his estate as a death benefit, his base salary in
effect at the time of his death pursuant to Subsection 4(a), in equal
semi-monthly installments on the first and fifteenth day of each month
immediately succeeding his death, for a period of months (not exceeding 12)
determined by multiplying the number of complete 12-month periods of employment
of the Employee by the Company (whether pursuant to an employment agreement or
not) by two, in addition to any payments the Employee's spouse, beneficiaries,
or estate may be entitled to receive pursuant to any pension or employee
benefit plan or life insurance policy maintained by the Company, and, except
for any obligations of the Company under Sections 22 and 25, all other
obligations of the Company hereunder shall cease at the time of the Employee's
death.
9. TERMINATION.
9.1 Termination Prior to the Triggering Date. (a) Upon at least 30
days' prior written notice to the Employee and prior to the Triggering Date,
the Company may terminate the Employee's employment with the Company under this
Agreement only for Cause or in accordance with Section 7 and, subject to the
provisions of Sections 7, 22 and 25, with no liability on its part for further
payments to the Employee. The Company may effect a termination for Cause
pursuant to this Subsection 9.1(a) only by the affirmative vote of a majority
of the members of the Board of Directors of the Company. In voting upon such
termination for Cause, if the Employee is also a member of the Board of
Directors of the Company, then he may not vote on, and will not be considered
present for any purpose with respect to, a matter presented to the Board of
Directors of the Company pursuant to this Subsection 9.1(a).
(b) Prior to the Triggering Date, the Employee may terminate his
employment with the Company under this Agreement by giving at least 90 days'
prior written notice of his desire to terminate employment to the Board of
Directors of the Company. If the Employee's employment with the Company under
this Agreement is terminated pursuant to this Subsection 9.1(b), the Employee
will continue to accrue and receive his base salary in effect at the time
pursuant to Subsection 4(a) through the date of termination with no liability
on the part of the Company for further payments to the Employee, subject to the
provisions of Sections 22 and 25.
(c) Prior to the Triggering Date, if the Employee's employment with
the Company is terminated by the Company without Cause or if the Employee
terminates his employment with the Company following the occurrence of an Event
of Default which has not been waived in writing by the Employee, the Employee
will continue to accrue and receive his base salary in effect at the time
pursuant to Subsection 4(a) through the date of termination and will be
entitled to receive the benefits provided for under Subsection 10.1 (unless
the Employee's employment is terminated in accordance with Section 7) with no
liability on the part of the Company for further payments to the Employee,
subject to the provisions of Sections 7, 22 and 25.
9.2 Termination On or After the Triggering Date. (a) Upon at least
30 days' prior written notice to the Employee and on or after the Triggering
Date, the Company may terminate the Employee's employment with the Company
under this Agreement only for Cause or in accordance with Section 7 and,
subject to the provisions of Sections 7, 22 and 25, with no liability on its
part for further payments to the Employee. The Company may effect a
termination for Cause pursuant to this Subsection 9.2(a) only by the
affirmative vote of two-
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<PAGE> 9
thirds of the members of the Board of Directors of the Company. In voting upon
such termination for Cause, if the Employee is also a member of the Board of
Directors of the Company, then he may not vote on, and will not be considered
present for any purpose with respect to, a matter presented to the Board of
Directors of the Company pursuant to this Subsection 9.2(a).
(b) On or after the Triggering Date, if the Employee's employment
with the Company is terminated by the Company without Cause or if the Employee
terminates his employment with the Company for Good Reason, the Employee will
continue to accrue and receive his base salary in effect at the time pursuant
to Subsection 4(a) through the date of termination and will be entitled to
receive the payments and benefits provided for under Subsections 10.2 and 10.3
(unless the Employee's employment is terminated in accordance with Section 7)
with no liability on the part of the Company for further payments to the
Employee, subject to the provisions of Sections 7, 22 and 25.
(c) On or after the Triggering Date, the Employee may, in his sole
and absolute discretion and without any prior approval by the Board of
Directors of the Company, and upon twelve months' prior written notice to the
Board of Directors of the Company, terminate his employment with the Company
under this Agreement for any reason whatsoever. If the Employee's employment
with the Company under this Agreement is terminated pursuant to this Subsection
9.2(c), the Employee will continue to accrue and receive his base salary in
effect at the time pursuant to Subsection 4(a) through the date of termination
and will be entitled to receive the benefits provided for under Subsections 10.2
and 10.3 with no liability on the part of the Company for further payments to
the Employee, subject to the provisions of Sections 22 and 25.
10. COMPENSATION AFTER CERTAIN TERMINATIONS.
10.1 Remaining Compensation. If the Employee's employment with the
Company is terminated (whether such termination is by the Employee or by the
Company) at any time prior to the Triggering Date for any reason other than (a)
termination by the Company for Cause in accordance with Subsection 9.1(a); (b)
termination by the Company in accordance with Section 7; (c) the Employee's
death; or (d) termination at the election of the Employee pursuant to
Subsection 9.1(b) then, within five days after the date of such termination,
(i) the Remaining Compensation (as herein defined) which would have been paid
to the Employee during the remainder of the term of this Agreement if
termination had not occurred shall become due and payable and shall be paid to
the Employee in a single lump sum in cash, and (ii) all stock options granted
to Employee pursuant to Subsection 4(e) hereof which are not then exercisable
shall, notwithstanding the provisions or any other agreement, become
immediately exercisable and shall remain exercisable until they are exercised
or until they otherwise would expire. For purposes of this Subsection 10.1,
the "Remaining Compensation" shall mean the annual base salary payable to the
employee pursuant to Subsection 4(a) at the time of termination plus an amount
representing the value of all employee benefits including, without limitation,
any unearned annual bonuses described in Subsection 4(b), discretionary bonuses
and incentive compensation under plans then in effect. For these purposes, the
value of any unearned annual bonuses and all of such other employee benefits
shall be deemed to be equal to 12 months base
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<PAGE> 10
salary payable to the Employee pursuant to Subsection 4(a) at the time his
employment is terminated.
10.2 Post Triggering Date Severance Payment. If the Employee's
employment with the Company is terminated (whether such termination is by the
Employee or by the Company) at any time on or within three years after the
Triggering Date for any reason other than (a) termination by the Company for
Cause in accordance with Subsection 9.2(a) or (b) termination by the Company in
accordance with Section 7 or (c) the Employee's death or (d) termination at the
election of the Employee other than termination for Good Reason without
compliance with the retirements of Section 9.2(c), then, within five days
after the date of such termination, the Company shall pay the Employee a lump
sum amount in cash equal to 2.99 times the Annualized Compensation Amount.
10.3 Gross-Up Payment. In the event that (i) the Employee becomes
entitled to the payments provided under Section 10.2 of this Agreement (the
"Change in Control Payments") and any of the Change in Control Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal
Revenue of 1986, as amended (the "Code"), or any successor provision, or (ii)
any payments or benefits received or to be received by the Employee pursuant to
the terms of any other plan, arrangement or agreement (the "Benefit Payments")
will be subject to the Excise Tax, the Company shall pay to the Employee an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Employee, after deduction of any Excise Tax on the Change in Control
Payments and the Benefit Payments, and any federal, state and local income tax
and Excise Tax upon the payment provided for by this Section 10.3, shall be
equal to the Change in Control Payments and the Benefit Payments, provided,
however, that in determining the amount of the Gross-Up Payment, any Excise Tax
on the Change in Control Payments and the Benefit Payments shall be determined
using a rate no higher than 20%. For purposes of determining whether any of
the Change in Control Payments or the Benefit Payments will be subject to the
Excise Tax and the amount of such Excise Tax, (i) any payments or benefits
received or to be received by the Employee in connection with a change in
control of the Company or the Employee's termination of employment (whether
pursuant to the terms of this agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in change in
control or any person affiliated with the Company or such persons) shall be
treated as "parachute payments" within the meaning of Section 280G(b) (2) of
the Code, and all "excess parachute payments" within the meaning of Section
280G(b) (1) shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel selected by the Company's independent auditors and
acceptable to the Employee such payments or benefits (in whole or in part) do
not constitute parachute payments, or such excess payments (in whole or in
part) represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b) (4) of the Code, (ii) the amount of the Change
in Control Payments and the Benefit Payments that shall be treated as subject
to the Excise Tax shall be equal to the lesser of (A) the total amount of the
Change in Control Payments and the Benefit Payments or (B) the amount of excess
parachute payments within the meaning of Sections 280G(b)(1) and (4) (after
applying clause (i), above) and (iii) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G(d)(3) and (4) of
the Code. For purposes of determining the amount of the Gross-Up Payment,
the Employee shall be deemed to pay federal income taxes at the highest
marginal rate of federal
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<PAGE> 11
income taxation in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal rates of taxation
in the state and locality of the Employee's residence on the date of
termination, net of the maximum reduction in federal income taxes which could
be obtained from deduction of such state and local taxes. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time of termination of the Employee's employment, the
Employee shall repay to the Company at that time that the amount of such
reduction in Excise Tax is finally determined the portion of the Gross-Up
Payment attributable to such reduction plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of the Employee's employment (including
by reason of any payment the existence or amount of which cannot be determined
at the time of the Gross-Up Payment), the Company shall make an additional
gross-up payment to the Employee in respect of such excess (plus any interest
payable with respect to such excess) at the time that the amount of such
excess is finally determined.
11. MITIGATION.
The Employee shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment of
otherwise, nor shall the amount of any payment provided for in this Agreement
be reduced by any compensation earned by the Employee as the result of
employment by another employer after the date of termination of Employee's
employment with the Company, or otherwise.
12. ENTIRE AGREEMENT.
This Agreement embodies the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof and supersedes all
prior negotiations, agreements, and understandings relating to such subject
matter, and may be modified or amended only by an instrument in writing signed
by the parties hereto.
13. LAW TO GOVERN.
This Agreement is executed and delivered in the State of Texas and
shall be governed, construed and enforced in accordance with the laws of the
State of Texas.
14. ASSIGNMENT.
This Agreement is personal to the parties, and neither this Agreement
nor any interest herein may be assigned (other than by will or by the laws of
descent and distribution) without the prior written consent of the parties
hereto nor be subject to alienation, anticipation, sale, pledge, encumbrance,
execution, levy, or other legal process of any kind against the Employee or any
of his beneficiaries or any other person. Notwithstanding the foregoing, the
Company shall be permitted to assign this Agreement to any corporation or other
business entity succeeding to substantially all of the business and assets of
the Company by merger, consolidation, sale of assets, or otherwise, if the
Company obtains the assumption of this Agreement by such successor. Failure by
the Company to obtain such assumption prior to the
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<PAGE> 12
effectiveness of such succession shall be a breach of this Agreement and shall
entitle the Employee to receive compensation from the Company under this
Agreement in the same amount and on the same terms as he would be entitled to
hereunder if he had voluntarily terminated his employment after the Triggering
Date, and, for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Triggering Date.
15. BINDING AGREEMENT.
Subject to the provisions of Section 14 of this Agreement, this
Agreement shall be binding upon and shall insure to the benefit of the Company
and the Employee and their respective representatives, successors, and assigns.
16. REFERENCES AND GENDER.
All references to "Sections" and "Subsections" contained herein are,
unless specifically indicated otherwise, references to sections and subsections
of this Agreement. Whenever herein the singular number is used, the same shall
include the plural where appropriate, and words of either gender shall include
the other gender where appropriate.
17. WAIVER.
No waiver of any right under this Agreement shall be deemed effective
unless the same is set forth in writing and signed by the party giving such
waiver, and no waiver of any right shall be deemed to be a waiver of any such
right in the future.
18. NOTICES.
Except as may be otherwise specifically provided in this Agreement, all
notices required or permitted hereunder shall be in writing and will be deemed
to be delivered when deposited in the United States mail, postage prepaid,
registered or certified mail, return receipt requested, addressed to the party
or parties at 17811 Waterview Parkway, Dallas, Texas, 75252, or at such other
addresses as may have therefore been specified by written notice delivered in
accordance herewith.
19. OTHER INSTRUMENTS.
The parties hereto covenant and agree that they will execute such
other and further instruments and documents as are or may become necessary or
convenient to effectuate and carry out the terms of this Agreement.
20. HEADINGS.
The headings used in this Agreement are used for reference purposes
only and do not constitute substantive matter to be considered in construing the
terms of this Agreement.
21. INVALID PROVISION.
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<PAGE> 13
Any clause, sentence, provision, section, subsection, or paragraph of
this Agreement held by a court of competent jurisdiction to be invalid,
illegal, or ineffective shall not impair, invalidate, or nullify the remainder
of this Agreement, but the effect thereof shall be confined to the clause,
sentence, provision, section, subsection, or paragraph so held to be invalid,
illegal or ineffective.
22. RIGHTS UNDER PLANS AND PROGRAMS.
Anything in this Agreement to the contrary notwithstanding, no
provision of this Agreement is intended, nor shall it be construed, to reduce
or in any way restrict any benefit to which the Employee may be entitled under
any other agreement, plan, arrangement, or program providing benefits for the
Employee.
23. MULTIPLE COPIES.
This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument. The terms of this Agreement
shall become binding upon each party from and after the time that he or it
executed a copy hereof. In like manner, from and after the time that any party
executes a consent or other document, such consent or other document shall be
binding upon such parties.
24. WITHHOLDING OF TAXES.
The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as shall be required pursuant to any
law or government regulation or ruling.
25. LEGAL FEES AND EXPENSES.
The Company shall pay and be responsible for all legal fees and
expenses which the Employee may incur as result of the Company's failure to
perform under this Agreement or as a result of the Company or any successor
contesting the validity or enforceability of this Agreement.
26. SET OFF OR COUNTERCLAIM.
Except with respect to any claim against to debt or other obligation of
the Employee properly recorded on the books and records of the Company prior to
the Triggering Date, there shall be no right of set off or counterclaim
against, or delay in, any payment by the Company to the Employee or his
beneficiaries provided for in this Agreement in respect of any claim against or
debt or other obligation of the Employee, whether arising hereunder or
otherwise.
27. ASSIGNMENT PROTECTION AND CONFIDENTIALITY OF PROPRIETARY INFORMATION.
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<PAGE> 14
Employee acknowledges and agrees that all items of the Company's
Proprietary Information constitute valuable, special and unique assets and trade
secrets of its business, which provide to the Company a competitive advantage
over others who do not have access thereto and access to which is essential to
the performance of Employee's duties hereunder. Employee shall not, during the
term of this Agreement or thereafter, use or disclose any Proprietary
Information that is not otherwise publicly available, in whole or in part, for
his benefit or for the benefit of any other person or party, except for the
Company. As used herein, "Proprietary Information" includes, but is not
limited to, customer lists and prices, whether current or prospective, product
designs or other product information, experimental developments and other
research and development information, testing process, marketing studies and
research activities, and any other trade secrets concerning the Company, its
shareholders, officers, directors, employees, business prospects, customers,
transactions, finances, affairs, opportunities, operations, properties or
assets. The Employee further agrees that all inventions, devices, compounds,
processes, formulas, techniques, improvements and modifications which he may
develop, in whole or in part, during the term of his employment or through or
with the facilities, equipment or resources of the Company shall be and remain
the sole and exclusive property of the Company. The Employee agrees to deliver
to the Company at any time the Company may request, all memoranda, notes,
plans, records, reports, and other documents (including copies thereof and all
embodiments thereof whether in computerized form or any other medium) relating
to the business or affairs of the Company or its subsidiaries which he may then
possess or have under his control. Employee shall maintain in good condition
all tangible and other forms of Proprietary Information in Employee's custody
or control until his obligations under the preceding sentence are satisfied.
Employee agrees to execute all documents and take such other actions as may be
required to comply with this Section.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
INTERVOICE, INC.
By: /s/ DANIEL D. HAMMOND
-----------------------------------------
Name: Daniel D. Hammond
-------------------------------
Title: Chairman of the Board and
-------------------------------
Chief Executive Officer
-------------------------------
/s/ MICHAEL W. BARKER
---------------------------------------------
Michael W. Barker
---------------------------------------------
Page 14
<PAGE> 1
EXHIBIT 10.10
FIRST AMENDMENT TO AMENDED AND EXTENDED
EMPLOYMENT AGREEMENT
This Amendment amends that certain Amended and Extended Employment Agreement
(the "Agreement") dated as of June 25, 1996 effective as of March 1, 1996,
between InterVoice, Inc., a Texas corporation with its principal executive
offices at 17811 Waterview Parkway, Dallas, Texas 75252 (the "Company"), and
Michael W. Barker (the "Employee").
1. The first four lines of the definition for "Applicable EPS Bonus
Percentage" are amended in their entirety to read as follows:
"Applicable EPS Bonus Percentage" means, with respect to the
applicable fiscal year, the percentage set forth in the
right-hand column below as determined with reference to the
increase or decrease in the Company's earnings per share
between such fiscal year and the greater of $1.05 or the
earnings per share for the immediately preceding fiscal year:
2. The first four lines of the definition for "Applicable Revenue Bonus
Percentage" are amended in their entirety to read as follows:
"Applicable Revenue Bonus Percentage" means, with respect to
the applicable fiscal year, the percentage set forth in the
right-hand column below as determined with reference to the
increase or decrease in the Company's total revenues between
such fiscal year and the greater of $97,103,054 or the total
revenues for the immediately preceding fiscal year:
The Agreement, as amended hereby, is hereby ratified, confirmed and approved.
IN WITNESS WHEREOF, the parties have executed this Amendment as of June 25,
1996, effective for all purposes as of March 1, 1996.
InterVoice, Inc.
By: /s/ DANIEL D. HAMMOND
-----------------------------------
Name: Daniel D. Hammond
--------------------------------
Title: Chairman of the Board &
-------------------------------
Chief Executive Officer
/s/ MICHAEL W. BARKER
---------------------------------------
Michael W. Barker
<PAGE> 1
EXHIBIT 10.14
[INTERVOICE, INC. LETTERHEAD]
January 31, 1997
Mr. Richard O. Herrmann
6535 Barkwood Lane
Dallas, Texas 75238
Dear Dick:
To take into account certain requests made by you and your attorney,
Bruce W. Bowman, this letter replaces my letter of December 5, 1996, regarding
termination of your employment with InterVoice, Inc. ("InterVoice"). The terms
set forth below constitute InterVoice's offer and, by your signature, your
acceptance, of this Separation Agreement (the "Agreement"). On behalf of
InterVoice, I want to express my appreciation for your past years of service
and contributions, and wish you success in your future endeavors.
1. Termination of Employment. Your employment with InterVoice
terminated effective with the close of business on December 5, 1996 (the
"Separation Date"). You were relieved as of that time of further duties in your
former position of Senior Vice President, Corporate Marketing, and your office
as a Vice President was concurrently vacated.
2. Salary and Benefits. In accordance with InterVoice's existing
policies or at its discretion, you have received or will receive the following
payments and benefits pursuant to your employment with InterVoice and your
participation in InterVoice's benefit plans:
(a) Payment of your regular base salary through December 5, 1996,
less all legal deductions;
(b) Payment of accrued and unused vacation leave benefits as of
December 5, 1996, if any, less all legal deductions;
(c) Two weeks' wages in lieu of notice, amounting to $6,290.06;
and
(d) Present or future payment or other entitlement, in accordance
with the terms of the applicable plan or other benefit, of any
benefits to which you have vested entitlement under the terms
of employee benefit plans established by InterVoice.
<PAGE> 2
Mr. Richard O. Herrmann
January 31, 1997
Page 2
The amounts paid in accordance with subparagraphs (a), (b), (c), and
(d) of this paragraph are gross amounts, subject to lawful deductions,
including any deductions you have previously authorized.
Your regular paid group health insurance benefits continued through
December 31, 1996. You are entitled at your option to continue your group
health insurance coverage at your own expense, in accordance with applicable
law. Please complete a COBRA election form, which will be furnished to you, and
return it to Ms. Kathy Hackney, Human Resources Department, InterVoice, Inc.,
17811 Waterview Parkway, Dallas, Texas 75252, at your earliest convenience, in
accordance with the terms of the election form, if you elect to continue such
insurance coverage.
InterVoice will settle all authorized reimbursable business expenses,
if any, based on your submission of appropriate expense reports along with the
required receipts and documenting information.
3. Special Separation Compensation. Contingent upon your
acceptance of the terms of this Agreement and in consideration of your
undertakings set forth in Paragraphs 6 (General Release), 7 (Confidentiality,
Nonprosecution, Nondisparagement, and Cooperation), 8 (Agreement Not to Seek
Reemployment), and 9 (Agreement Regarding Solicitation of Employees, Customers,
and Suppliers) of this Agreement, InterVoice offers you, in addition to the pay
and benefits you will receive pursuant to Paragraph 2, the following Special
Separation Compensation:
(a) Payment of wages in lieu of notice in the total amount of
$81,770.78, equivalent to six months' salary at your regular
rate. This amount is inclusive of the amount of wages in lieu
of notice specified in Paragraph 2(c) above, and is a gross
amount, subject to lawful deductions. Payment of the unpaid
portion of such amount will be made in lump sum within six
days after the Effective Date of this Agreement as specified
in Paragraph 15.
(b) Payment of Q4 quarterly bonus on the same basis as if you had
(i) remained employed throughout InterVoice's current fourth
fiscal quarter ending February 28, 1997, and (ii) fully met
your performance objectives. Bonus payment will be made at the
time such payments are normally provided under InterVoice's
bonus program.
(c) Payment to you of the additional lump sum of $4,500.00 in lieu
of InterVoice's provision of outplacement services.
<PAGE> 3
Mr. Richard O. Herrmann
January 31, 1997
Page 3
(d) Payment through March 31, 1997, for InterVoice's group health
insurance coverage on you and any covered dependents as in
effect on the Separation Date, to the same extent as if you
had continued as an employee. To receive this coverage, you
must make the COBRA election referred to in Paragraph 2 above,
and by your agreement hereto you authorize deduction from the
payment described in subparagraph (a) of this paragraph for
your share, if any, of the premiums.
By executing this Agreement, you acknowledge and agree that (i)
neither InterVoice nor any of the other Released Parties (as defined in
Paragraph 6 below) has any legal obligation to provide the Special Separation
Compensation to you; and (ii) your acceptance of the Special Separation
Compensation and attendant obligations as described in this Agreement is in
consideration of the promises and undertakings of InterVoice as set forth in
this Agreement.
4. Return of Property. Whether or not you accept the terms of
this Agreement, you must return to InterVoice any and all items of its
property, including without limitation company vehicles, keys, computers,
software, calculators, equipment, credit cards, forms, files, manuals,
correspondence, business records, personnel data, lists of employees, salary
and benefits information, customer lists and files, lists of suppliers and
vendors, price lists, contracts, contract information, marketing plans,
brochures, catalogs, training materials, product samples, computer tapes and
diskettes or other portable media, computer-readable files and data stored on
any hard drive or other installed device, and data processing reports, and any
and all other documents or property which you have had possession of or control
over during the course of your employment with InterVoice and which you have
not already returned. You were previously instructed to return all such
property to InterVoice by no later than the close of business on the Separation
Date, or as soon thereafter as was possible with respect to any items not then
immediately available. By your signature below, you represent that you have
complied with these requirements.
5. Use of Confidential Information. Whether or not you accept the
terms of this Agreement, you are hereby notified that (i) you are a party to an
existing agreement entitled Employee Agreement on Ideas, Inventions and
Confidential Information, your obligations under which continue in full force
and effect and undiminished in any way by this Agreement; and (ii) all of the
documents and information to which you have had access during your employment,
including but not limited to all information pertaining to any specific
business transactions in which InterVoice or any of the other Released Parties
(as defined in Paragraph 6 below) were, are, or may be involved, all
information concerning salary and benefits paid to current or former employees
of InterVoice or any of the other Released Parties, all personnel information
relating in any way to current or former employees of InterVoice or those of
any of the other Released Parties, all information pertaining in any way to
customers and suppliers of InterVoice or those
<PAGE> 4
Mr. Richard O. Herrmann
January 31, 1997
Page 4
of any of the other Released Parties, pricing information, all financial and
budgetary information, information regarding InterVoice's sales methods and
techniques, information regarding InterVoice's training methods and techniques,
all other information specified in Paragraph 4 above, and in general, the
business and operations of InterVoice or any of the other Released Parties are
considered confidential and are not to be disseminated or disclosed by you to
any other parties, except as may be required by law or judicial process. In the
event it appears that you will be compelled by law or judicial process to
disclose such confidential information, to avoid potential liability you should
notify InterVoice's Vice President Human Resources in writing immediately upon
your receipt of a subpoena or other legal process. By your signature below, you
represent that you will comply with these requirements.
6. GENERAL RELEASE. IN CONSIDERATION OF THE SPECIAL SEPARATION
COMPENSATION DESCRIBED IN PARAGRAPH 3 ABOVE, YOU AND YOUR FAMILY MEMBERS,
HEIRS, SUCCESSORS, AND ASSIGNS (COLLECTIVELY THE "RELEASING PARTIES") HEREBY
RELEASE, ACQUIT, AND FOREVER DISCHARGE ANY AND ALL CLAIMS AND DEMANDS OF
WHATEVER KIND OR CHARACTER, WHETHER VICARIOUS, DERIVATIVE, OR DIRECT, THAT YOU
OR THEY, INDIVIDUALLY, COLLECTIVELY, OR OTHERWISE, MAY HAVE OR ASSERT AGAINST:
(i) INTERVOICE; (ii) ANY PARENT COMPANY, SUBSIDIARY, OR AFFILIATED COMPANY OF
INTERVOICE; OR (iii) ANY OFFICER, DIRECTOR, STOCKHOLDER, FIDUCIARY, AGENT,
EMPLOYEE, REPRESENTATIVE, INSURER, ATTORNEY, OR ANY SUCCESSORS AND ASSIGNS OF
THE ENTITIES JUST NAMED (COLLECTIVELY THE "RELEASED PARTIES"). THIS GENERAL
RELEASE INCLUDES BUT IS NOT LIMITED TO ANY CLAIM OR DEMAND BASED ON ANY
FEDERAL, STATE, OR LOCAL STATUTORY OR COMMON LAW OR CONSTITUTIONAL PROVISION
THAT APPLIES OR IS ASSERTED TO APPLY, DIRECTLY OR INDIRECTLY, TO THE FORMATION,
CONTINUATION, OR TERMINATION OF YOUR EMPLOYMENT RELATIONSHIP WITH INTERVOICE.
THUS, YOU AND THE OTHER RELEASING PARTIES AGREE NOT TO MAKE ANY CLAIMS OR
DEMANDS AGAINST INTERVOICE OR ANY OF THE OTHER RELEASED PARTIES SUCH AS FOR
WRONGFUL DISCHARGE; UNLAWFUL EMPLOYMENT DISCRIMINATION ON THE BASIS OF AGE OR
ANY OTHER FORM OF UNLAWFUL EMPLOYMENT DISCRIMINATION; RETALIATION; BREACH OF
CONTRACT (EXPRESS OR IMPLIED); BREACH OF THE DUTY OF GOOD FAITH AND FAIR
DEALING; VIOLATION OF THE PUBLIC POLICY OF THE UNITED STATES, THE STATE OF
TEXAS, OR ANY OTHER STATE; INTENTIONAL OR NEGLIGENT INFLICTION OF EMOTIONAL
DISTRESS; TORTIOUS INTERFERENCE WITH CONTRACT; PROMISSORY ESTOPPEL; DETRIMENTAL
RELIANCE; DEFAMATION OF CHARACTER; DURESS; NEGLIGENT MISREPRESENTATION;
INTENTIONAL MISREPRESENTATION OR FRAUD; INVASION OF PRIVACY; LOSS OF
CONSORTIUM; ASSAULT; BATTERY; CONSPIRACY; BAD FAITH; NEGLIGENT HIRING,
RETENTION, OR SUPERVISION; ANY INTENTIONAL OR NEGLIGENT ACT OF PERSONAL INJURY;
ANY ALLEGED ACT OF HARASSMENT OR INTIMIDATION; OR ANY OTHER INTENTIONAL OR
NEGLIGENT TORT; OR ANY ALLEGED VIOLATION OF THE AGE DISCRIMINATION IN
EMPLOYMENT ACT OF 1967; TITLE VII OF THE CIVIL RIGHTS ACT OF 1964; THE
AMERICANS WITH DISABILITIES ACT OF 1990; THE FAMILY AND MEDICAL LEAVE ACT OF
1993; THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974; THE FAIR LABOR
STANDARDS ACT; THE FAIR CREDIT REPORTING ACT; THE TEXAS COMMISSION ON HUMAN
RIGHTS ACT; AND THE TEXAS WAGE PAYMENT STATUTE.
<PAGE> 5
Mr. Richard O. Herrmann
January 31, 1997
Page 5
THE EFFECT OF YOUR ACCEPTANCE OF THIS AGREEMENT IS TO RELEASE, ACQUIT,
AND FOREVER DISCHARGE ANY AND ALL CLAIMS AND DEMANDS OF WHATEVER KIND OR
CHARACTER THAT YOU OR ANY OF THE OTHER RELEASING PARTIES MAY NOW HAVE OR
HEREAFTER HAVE OR ASSERT AGAINST INTERVOICE OR ANY OF THE OTHER RELEASED
PARTIES FOR ANY LIABILITY, WHETHER VICARIOUS, DERIVATIVE, OR DIRECT. THIS
RELEASE INCLUDES ANY CLAIMS OR DEMANDS FOR DAMAGES (ACTUAL OR PUNITIVE), BACK
WAGES, FUTURE WAGES OR FRONT PAY, COMMISSIONS, BONUSES, SEVERANCE BENEFITS,
MEDICAL EXPENSES AND THE COSTS OF ANY COUNSELING, REINSTATEMENT OR PRIORITY
PLACEMENT, PROMOTION, ACCRUED VACATION LEAVE BENEFITS, PAST AND FUTURE MEDICAL
OR OTHER EMPLOYMENT BENEFITS (EXCEPT AS TO WHICH THERE IS EXISTING CONTRACTUAL
OR VESTED ENTITLEMENT) INCLUDING CONTRIBUTIONS TO ANY EMPLOYEE BENEFIT PLANS,
RETIREMENT BENEFITS (EXCEPT AS TO WHICH THERE IS VESTED ENTITLEMENT),
RELOCATION EXPENSES, COMPENSATORY DAMAGES, INJUNCTIVE RELIEF, LIQUIDATED
DAMAGES, PENALTIES, EQUITABLE RELIEF, ATTORNEY'S FEES, COSTS OF COURT,
DISBURSEMENTS, INTEREST, AND ANY AND ALL OTHER LOSS, EXPENSE, OR DETRIMENT OF
WHATEVER KIND OR CHARACTER, RESULTING FROM, GROWING OUT OF, CONNECTED WITH, OR
RELATED IN ANY WAY TO THE FORMATION, CONTINUATION, OR TERMINATION OF YOUR
EMPLOYMENT RELATIONSHIP WITH INTERVOICE. THIS GENERAL RELEASE APPLIES AND IS
FULLY ENFORCEABLE WITH RESPECT TO ALL RIGHTS OR CLAIMS EXISTING ON OR BEFORE
THE DATE THIS AGREEMENT IS EXECUTED BY YOU, AND DOES NOT ACT TO WAIVE ANY
RIGHTS OR CLAIMS THAT ARISE AFTER THE DATE OF EXECUTION.
7. Confidentiality, Nonprosecution, Nondisparagement, and
Cooperation.
(a) The terms of this Agreement shall be and remain confidential,
and shall not be disclosed by you to any persons other than
the Releasing Parties and your attorney and accountant or tax
return preparer if such persons have agreed to keep such
information confidential. Notwithstanding the foregoing,
either party may make any disclosures concerning the terms of
this Agreement that are required by law, including without
limitation any disclosures required under the federal
securities laws and regulations.
(b) Except as requested by InterVoice or as compelled by law or
judicial process, you will not assist, cooperate with, or
supply information of any kind to any party other than
InterVoice or its duly authorized agents or attorneys (i) in
any proceeding, investigation, or inquiry raising issues under
the Age Discrimination in Employment Act of 1967, Title VII of
the Civil Rights Act of 1964, the Americans with Disabilities
Act of 1990, the Family and Medical Leave Act of 1993, the
Employee Retirement Income Security Act of 1974, the Fair
Labor Standards Act, the Fair Credit Reporting Act, the Texas
Commission on Human Rights Act, the Texas Wage Payment
Statute, or any other federal, state, or local law involving
the formation, continuation, or termination of your employment
relationship, or the employment of other persons, by
InterVoice or any of the
<PAGE> 6
Mr. Richard O. Herrmann
January 31, 1997
Page 6
other Released Parties; or (ii) in any other litigation
against InterVoice or any of the other Released Parties.
(c) You will not make to any other parties any statement, oral or
written, which directly or indirectly impugns the quality or
integrity of InterVoice's or any of the other Released
Parties' business or employment practices, or any other
disparaging or derogatory remarks about InterVoice or any of
the other Released Parties, their officers, directors,
stockholders, managerial personnel, or other employees.
InterVoice shall instruct its officers not to make any
disparaging or derogatory remarks about you.
(d) You will not initiate any proceeding, investigation, or
inquiry with any governmental regulatory agency with respect
to InterVoice's products, facilities, employment practices, or
business operations.
(e) It shall not be a breach of the obligations set forth in this
Paragraph for you, your spouse, or your attorneys to state to
any person that any differences, if you believe any to exist,
between you and InterVoice have been settled or satisfactorily
resolved.
(f) You agree to cooperate fully and completely with InterVoice or
any of the other Released Parties, at their request, in all
pending and future litigation involving InterVoice or any of
the other Released Parties. This obligation includes your
providing testimony in court or upon deposition that is
truthful, accurate, and complete, according to information
known to you. If you appear as a witness in any pending or
future litigation at the request of InterVoice or any of the
other Released Parties, InterVoice agrees to reimburse you,
upon submission of substantiating documentation, for necessary
and reasonable expenses incurred by you as a result of your
testifying.
8. Agreement Not to Seek Reemployment. InterVoice and the other
Released Parties have no obligation to employ or to hire or rehire you, to
consider you for hire, or to deal with you in any respect at any location,
office, or place of business with regard to future employment or potential
employment. Accordingly, you hereby agree: (i) that you will not ever apply for
or otherwise seek employment by InterVoice or any of the other Released Parties
at any time in the future, at any location, office, or place of business, and
(ii) that your forbearance to seek future employment as just stated is purely
contractual and is in no way involuntary, discriminatory, or retaliatory.
<PAGE> 7
Mr. Richard O. Herrmann
January 31, 1997
Page 7
9. Agreement Regarding Solicitation of Employees, Customers, and
Suppliers. For a period of one year following the Separation Date, and
thereafter to the extent provided by law, you will not directly or indirectly,
for your own account or for the benefit of any other person or party:
(a) Solicit, induce, entice, or attempt to entice any employee,
contractor, or subcontractor of InterVoice to terminate his or
her employment or contract with InterVoice (provided this
paragraph will not be construed to prevent you from having
discussions with any such person or entity concerning
employment or contracts which are not expressly prohibited by
this paragraph, including without limitation, discussions of
employment opportunities or business opportunities, to the
extent any such person or entity initiates the discussions
concerning the opportunities, and further provided that you do
not encourage the termination of employment or a contract with
InterVoice); or
(b) Solicit, induce, entice, or attempt to entice any customer or
supplier of InterVoice, including any firms that have been
customers or suppliers of InterVoice within one year preceding
the Separation Date, to terminate its business relationship
with InterVoice (provided this paragraph will not be construed
to prevent you from having discussions with any such person or
entity concerning business relationships which are not in
direct competition with InterVoice).
Should you breach this obligation, InterVoice will be entitled to
enforce the provisions of this paragraph by seeking injunctive relief in
addition to recovering any monetary damages InterVoice may sustain as a result
of such breach, and you may be required to repay the Special Separation
Compensation provided to you by this Agreement.
10. Nonadmission of Liability or Wrongdoing. This Agreement does
not in any manner constitute an admission of liability or wrongdoing on the
part of InterVoice or any of the other Released Parties, but InterVoice and the
other Released Parties expressly deny any such liability or wrongdoing; and,
except to the extent necessary to enforce this Agreement, neither this
Agreement nor any part of it may be construed, used, or admitted into evidence
in any judicial, administrative, or arbitral proceedings as an admission of any
kind by InterVoice or any of the other Released Parties.
<PAGE> 8
Mr. Richard O. Herrmann
January 31, 1997
Page 8
11. Authority to Execute. You represent and warrant that you have
the authority to execute this Agreement on behalf of all the Releasing Parties.
You further agree to indemnify fully and hold harmless InterVoice and any of
the other Released Parties from any and all claims brought by the Releasing
Parties or derivative of your own, including the amount of any such claims
InterVoice or any of the other Released Parties are compelled to pay, and the
costs and attorney's fees incurred in defending against all such claims.
12. Governing Law and Interpretation. This Agreement and the
rights and duties of the parties under it shall be governed by and construed in
accordance with the laws of the State of Texas. If any provision of this
Agreement is held to be unenforceable, such provision shall be considered
separate, distinct, and severable from the other remaining provisions of this
Agreement, and shall not affect the validity or enforceability of such other
remaining provisions, and that, in all other respects, this Agreement shall
remain in full force and effect. If any provision of this Agreement is held to
be unenforceable as written but may be made to be enforceable by limitation
thereof, then such provision shall be enforceable to the maximum extent
permitted by applicable law. The language of all parts of this Agreement shall
in all cases be construed as a whole, according to its fair meaning, and not
strictly for or against any of the parties.
13. Breach of Agreement. Should you fail to comply with any of
your obligations as set forth in this Agreement, InterVoice will have no
obligation to pay you the Special Separation Compensation described above, and
you may be required to repay the Special Separation Compensation provided to
you by this Agreement, but all other provisions of this Agreement shall remain
in full force and effect. You may also be liable for InterVoice's damages and
its attorney's fees and expenses resulting from your breach of any provision in
this Agreement.
14. Time for Consideration of Offer, and Consultation With an
Attorney. You acknowledge that you have consulted with and been represented by
an attorney in your consideration of this Agreement, and that you have had more
than 21 days in which to consider whether you wished to accept InterVoice's
proposal.
15. Effective Date. This Agreement will become effective and
enforceable upon the expiration of seven days after your execution of it
("Effective Date"). At any time before the Effective Date of this Agreement,
you may revoke your acceptance.
16. Voluntary Agreement. You acknowledge that execution of this
Agreement is knowing and voluntary on your part, and that you have had a
reasonable time to deliberate regarding its terms.
<PAGE> 9
Mr. Richard O. Herrmann
January 31, 1997
Page 9
17. Entire Agreement. Except as specified herein with respect to
certain preexisting agreements, this Agreement contains and constitutes the
entire understanding and agreement between you and InterVoice as to its subject
matter, and may be modified only by a writing of contemporaneous or subsequent
date executed by both you and an authorized official of InterVoice.
If you are in agreement with the foregoing provisions, please execute
both copies of this letter in the space provided below and obtain your
attorney's signature reflecting his approval. Return one fully executed
original to Mr. Don Brown, Vice President Human Resources, on or before
February 7, 1997, and maintain the other executed original in your files. This
letter shall then constitute a valid and binding agreement by and between
InterVoice and you, effective as of the expiration of seven days after the date
of your execution.
Sincerely,
INTERVOICE, INC.
By: /s/ MICHAEL W. BARKER
------------------------------
Michael W. Barker
President and Chief Operating Officer
ACCEPTED AND AGREED TO:
/s/ RICHARD O. HERRMANN
- --------------------------------
Richard O. Herrmann
Date Signed: 2/6/97
-------------------
APPROVED:
- --------------------------------
Bruce W. Bowman, Jr.
Attorney for Richard O. Herrmann
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended February 29/28
---------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 16,211,360 15,670,718 16,116,392
Net effect of dilutive stock options based on the
treasury stock method using average market price 407,577 727,206 638,897
--------------- --------------- ---------------
TOTAL 16,618,937 16,397,924 16,755,289
Net Income $ 12,760,481 $ 17,259,358 $ 2,533,580
=============== =============== ===============
Per Share amount $ 0.77 $ 1.05 $ 0.15
=============== =============== ===============
FULLY DILUTED
Average shares outstanding 16,211,360 15,670,718 16,116,392
Net effect of dilutive stock options based on the
treasury stock method using the year end market
price, if higher than average market price -- 870,804 748,133
--------------- --------------- ---------------
TOTAL 16,211,360 16,541,522 16,864,525
Net Income $ 12,760,481 $ 17,259,358 $ 2,533,580
=============== =============== ===============
Per Share amount $ 0.79 $ 1.04 $ 0.15
=============== =============== ===============
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under "Item 6. Selected Financial
Data" and to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-17642, Form S-8 No. 33-45131, Form S-8 No. 33-45132, Form S-8
No. 33-62863, Form S-8 No. 33-64860, Form S-8 No. 33-72494, Form S-8 No.
33-77586, Form S-8 No. 33-77590 and Form S-3 No. 33-85898) of InterVoice, Inc.
and subsidiaries of our report dated April 2, 1997, except for Note F, for which
the date is April 9, 1997, with respect to the consolidated financial
statements and schedule of InterVoice, Inc. and subsidiaries included in the
Annual Report (Form 10-K) for the year ended February 28, 1997.
ERNST & YOUNG LLP
Dallas, Texas
May 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 24,162,024
<SECURITIES> 0
<RECEIVABLES> 33,506,747
<ALLOWANCES> 250,950
<INVENTORY> 12,107,738
<CURRENT-ASSETS> 75,029,252
<PP&E> 44,102,680
<DEPRECIATION> 13,676,956
<TOTAL-ASSETS> 109,178,509
<CURRENT-LIABILITIES> 21,292,695
<BONDS> 0
0
0
<COMMON> 9,667
<OTHER-SE> 86,180,853
<TOTAL-LIABILITY-AND-EQUITY> 109,178,509
<SALES> 104,845,697
<TOTAL-REVENUES> 104,845,697
<CGS> 40,131,308
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 397,740
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18,229,259
<INCOME-TAX> 5,468,778
<INCOME-CONTINUING> 12,760,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,760,481
<EPS-PRIMARY> .77
<EPS-DILUTED> .79
</TABLE>
