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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1998
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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, 1998
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:
(972) 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 26, 1998: $181,164,727
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 26, 1998:
13,869,070
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 1998 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............................................................................... 2
Markets................................................................................................ 3
Product Strategy....................................................................................... 4
Products and Services.................................................................................. 5
Competition............................................................................................ 7
Distribution........................................................................................... 7
Backlog................................................................................................ 9
Proprietary Rights..................................................................................... 9
Manufacturing and Facilities........................................................................... 10
Employees.............................................................................................. 10
ITEM 2. Properties............................................................................................. 10
ITEM 3. Legal Proceedings...................................................................................... 10
ITEM 4. Submission of Matters to a Vote of Security Holders.................................................... 10
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.................................. 11
ITEM 6. Selected Financial Data................................................................................ 11
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 12
ITEM 8. Financial Statements and Supplementary Data............................................................ 19
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................... 34
PART III
ITEM 10. Directors and Executive Officers of the Registrant..................................................... 35
ITEM 11. Executive Compensation................................................................................. 35
ITEM 12. Security Ownership of Certain Beneficial Owners and Management......................................... 35
ITEM 13. Certain Relationships and Related Transactions......................................................... 35
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................................... 36
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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. More recently, the Company has focused on
systems for telecommunications network operators which provide a variety of
automated services such as processing collect and credit card calls, and
advanced calling features such as prepaid calling cards, voice and text
messaging, one numbering personal numbering plans and voice dialing.
The Company's systems are sold under the trade names "OneVoice",
"InterDial" and "InControl". 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. OneVoice and
InterDial 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. InControl
systems provide enhanced services for telecommunications networks by automating
calls which utilize alternate billing methods, and provide new, revenue
generating calling features and services. The Company's products include
software development tools designed to support a number of diverse product
applications and to simplify system customization.
OneVoice systems sell at list prices ranging from approximately twenty
five thousand to millions of dollars and support from two to thousands of voice
and data channels. Scalability is a distinguishing factor for all OneVoice
systems, which can incorporate either multiple modules of up to 96 voice and
data channels per module or the Company's NSP 5000 platform which can provide up
to 1400 voice and data channels in a single system. The Company's OneVoice
modules and/or NSP5000 platforms can be connected by local or wide 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. InControl systems sell at list prices
ranging from approximately two hundred fifty thousand to millions of dollars and
support from 96 to thousands of ports per system. InControl systems share the
scalability attributes of the Company's OneVoice systems as multiple NSP 5000
platforms can be connected by a local or wide area network to provide single
system appearance, management control and redundancy.
In the customer premise equipment market, the Company sells its
products directly and through more than 130 domestic and international
distributors. The Company generally sells its products directly to
telecommunications end-users. Since the Company's inception in 1984, the number
of worldwide installations of the Company's systems has grown to over 9,700 in
50 countries. The customer premise equipment end-users to which the Company has
sold systems include Aetna, Bank of America, CitiBank, Fidelity Investments,
First Chicago, First Union Corporation, J.C. Penney, Martin Marietta, Merrill
Lynch, Microsoft, National Data Corporation, National Westminster Bank U.K.,
NationsBank, Sears Roebuck and Co., Social Security Administration, The New
England, TU Electric, USAA and Wachovia Bank. The Company's telecommunications
end-users include Avantel (Mexico), Bell Canada, British Telecom, CANTV
(Venezuela), Codatel (Dominican Republic), CTC (Chile), CTI (Argentina), Guatel
(Guatemala), GTE, LCI International, MCI Telecommunications, Movilnet
(Venezuela), NPT (People's Republic of China), Telcel (Venezuela), Telecom Asia
(Thailand), Sprint and Unicom (Peoples Republic of China). No customer accounted
for 10% of the Company's sales during fiscal 1998. Other than Siemens AG, one of
the Company's resellers, which accounted for 10.2% of the Company's total sales
in fiscal 1997, and MCI Telecommunications, which accounted for 11.2% of the
Company's total sales in fiscal 1996, no customer represented 10% or more of the
Company's aggregate sales during fiscal 1997 or 1996.
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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 call automation systems, callers receive accurate
responses to routine service requests allowing customer service representatives
to work on other important tasks requiring their personal expertise. In certain
system applications, such as credit limit requests, callers may prefer dealing
with a call automation system rather than an individual in order to preserve
privacy and confidentiality. The Company believes that such systems provide
better service to more customers without additional staff, improve customer and
employee retention, and can result in significant cost savings to the Company's
customers. Telecommunications network operators utilize such systems at a
significant cost savings to automate calls which formerly required operator
assistance. These systems also make possible high margin, revenue generating,
advanced telecommunication services and calling features.
The Internet has evolved to become a voice and data communications
network similar to public switched networks. The Company's products permit
customers to interface their call automation systems to the Internet, a natural
extension of the Company's product strategy. The Company's products, in
conjunction with the Internet, make it possible for users of multimedia personal
computers to access information and data in any combination of voice, graphic
and image formats.
The Company believes that the call automation industry can be divided into
six basic system markets:
Interactive information 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's VisualConnect
product makes possible multi-media applications utilizing the Internet.
The Company participates in this market with its OneVoice systems which
accounted for approximately 65% of its system sales in fiscal 1998.
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
notification, delinquent bill collecting and the telemarketing of goods
and services. The Company addresses this market with its InterDial system
which accounted for approximately 10% of its system sales in fiscal 1998.
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. The Company's products are
capable of performing as automated call directing systems, but the
Company's fiscal 1998 sales into this market were not significant.
Enterprise-based voice mail enables callers to leave, exchange and
retrieve electronic voice and text messages 24-hours a day, seven days a
week. The Company's products are capable of performing as voice mail
systems, but the Company's fiscal 1998 sales into this market were not
significant.
Network-based Enhanced Calling Services allows telecommunications
network operators to automate calls formerly requiring operator assistance
and to provide revenue generating, advanced calling features such as
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voice and text messaging, prepaid and postpaid calling cards, one number
personal numbering plans and voice dialing. The Company participates in
this market with its InControl systems which accounted for approximately
25% of system sales in fiscal 1998.
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
Company's products are capable of performing as audiotex systems, but the
Company's fiscal 1998 sales into this market were not significant.
The call automation industry has begun to experience a demand for systems
that can simultaneously address customer needs in two or more of these basic
markets. Larger customer premise equipment end-users, for example, are beginning
to consolidate their customer service and tele-marketing functions into
multi-purpose call centers which handle both in-bound and out-bound calls. This
consolidation has created a need for the Company's multi-purpose call automation
products which support individuals who may simultaneously serve as customer
service and telemarketing representatives. 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 general public has become increasingly receptive to call
automation, 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/Commercial Brokerage
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 Subsidies
Telecommunications Automated Operator Services
Advanced Calling Features
Messaging
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 call automation
technology. The Company has traditionally focused on the financial services
market. More recently, the Company has diversified its focus to include the
telecommunications, human resource, healthcare and call center vertical markets.
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PRODUCT STRATEGY
The Company's products are designed to assist its customers in
achieving the following objectives:
o Increase net revenues by reducing costs
o Improve customer and/or employee service
o Provide product and service differentiation
The Company believes that its OneVoice and InControl systems enable 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. 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 their agents.
As mentioned earlier, 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. This
allows the Company's customers to leverage and cost effectively expand their
investments in their OneVoice and InterDial systems. The Company also has
adapted its OneVoice Software Agent Platform to host its InControl system to
address the growing telecommunications market. The InControl system provides
network based automated operator services and advanced, revenue generating
applications for telecommunications companies.
The Company focuses its development efforts on call automation
technology. Industry standard computer platforms and operating systems are
leveraged to allow the Company to take advantage of third party hardware and
software technology advances. This strategy offers customers the option to
select the computer platform and operating system of their preference should
they wish compatability with other enterprise systems.
The Company has developed a variety of call processing functions and
features characterized by the following factors:
Host Computer Platform Independence: The Company's hardware and
software is designed to be independent of the host computer platform
through compliance with industry standards. The same hardware and software
can operate on computer platforms produced by a variety of manufacturers.
The Company delivers its systems integrated with the computer platform of
its customers' choice instead of dictating a specific computer platform.
This is an important factor in vendor selection for many of the Company's
current and potential customers and 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, which is utilized by the Company's OneVoice, InterDial and
InControl Systems, is simultaneously compatible with the Windows NT,
UNIX and OS/2 operating systems. This operating software independence
allows the Company to give its customers freedom to choose an operating
system, an important factor in vendor selection for many of the Company's
current and potential customers. This operating software independence
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, InterDial and
InControl systems. The Company's software is designed to support a number
of diverse product applications. The Company's recently introduced a
graphical user interface (GUI) software development tool, InVision, which
simplifies the generation and customization of customer applications.
System Expandability/Networking: The Company's basic OneVoice system
can be expanded from two up to 96 lines per module. OneVoice and InControl
systems which utilize the NSP 5000 platform can be expanded from 24 to
1400 lines per system by adding expansion cards without software changes.
Systems can be interconnected via a local or wide area network to provide
simultaneous access for thousands of callers while maintaining control
from a single, networked workstation. 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, central office switches and to a wide variety of host
computers and enterprise systems.
The Company's products are designed and manufactured to be highly
reliable and to require minimum maintenance, most of which can be handled from
the Company's headquarters using on-line remote diagnostic and test
capabilities. The Company utilizes an independent service company with local
offices throughout the United States to perform domestic customer site service.
The Company electronically dispatches service technicians when customer
maintenance or repair is required. International distributors are generally
responsible for providing service for the systems they sell.
PRODUCTS AND SERVICES
OneVoice Systems
OneVoice systems are primarily focused on the customer premise
equipment market which comprised more than 65% of the Company's sales in fiscal
1998. These systems combine a variety of standard computer platforms and
standard operating systems together with the Company's proprietary run time
software, InterSoft, and Company developed and third party developed expansion
boards to perform call automation functions. Each OneVoice system utilizes the
same proprietary run time software, allowing the Company's customers to expand
their OneVoice systems via the addition of expansion cards or via the linkage of
multiple modules or systems through a local or wide 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 integrates compatible programmable add-in cards with
InterSoft runtime software to interface OneVoice and InterDial (see below)
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.
InterDial Systems
The Company's InterDial system is similar in design to the OneVoice
system and utilizes much of the same hardware and software. InterDial systems
provide outbound call processing and accounted for 10% of the Company's sales in
fiscal 1998. 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
algorithms also improve productivity by transferring a caller to a telemarketing
agent immediately upon completion of the agent's previous call.
InControl Systems
The InControl system is similar in design to the OneVoice system and
utilizes much of the same hardware and software. InControl systems
provide telecommunications network operators with automated operator services
(such as processing prepaid and credit card calls) and revenue generating
advanced telecommunication features (such as voice mail, short voice and text
message delivery, "one number" services and voice activated dialing). These
systems accounted for 25% of the Company's total sales in fiscal 1998.
InControl systems are comprised of the Company' Enhanced Service
Platform (ESP) suite of telecommunications applications running on the Company's
NSP 5000 Platform (see below). The ESP suite of applications is unique to the
industry as each application is driven from a customer data base common to the
entire suite. This allows the Company's customers to provide multiple services
to their end-users without the extensive data base maintenance required by stand
alone, single application, single data base competitive offerings. Initial
deployment of services and features as well as system expansions are
accomplished cost-effectively as a result of the NSP 5000 platform's scalability
attributes. InControl systems incorporate standards based signaling protocols,
such as signaling system seven (SS7), and can be linked together via local or
wide area networks to provide application control from a single workstation.
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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 support
both the OneVoice system and the InterDial systems. These systems combine PBX
functionalities with ISDN PRI capabilities to enable the transmission of both
voice and data on a single line to support agent query.
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 independent service providers.
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 independent service
providers' service technicians while monitoring and directing repair activities.
InterSoft
The Company's InterSoft run time software 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.
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.
InVision
InVision is the Company's proprietary, next-generation software tool
which aids in the development and testing of custom call automation
applications. InVision is based on a graphical user interface and allows
developers to visualize and hear the interaction between users and OneVoice or
InControl systems while developing custom applications. This user-friendly
development tool allows the Company's customers to expand the scope and use of
its systems. InterForm is the Company's proprietary, forms based software
program which also can be used by developers to generate and maintain custom
applications.
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Network Services Platform (NSP) 5000
The NSP 5000 platform is a Company proprietary design which utilizes a
stardards-based compact, modular passive backplane allowing high port density
per system, a critical factor for call center and telecommunications
applications. The passive backplane design allows for easy system expansion and
for the upgrade of standards-based system components, such as CPU's, as third
party technologies advance. The NSP 5000 can utilize any one of the following
operating systems: Unix, Windows NT or O/S2.
VocalCard
VocalCard, a standards based call 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.
FoneTower
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.
COMPETITION
The call automation industry is fragmented and highly competitive.
Based on industry surveys, no company participating in this industry has more
than a 10% market share. Technological advances are critical to industry
leadership and 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 Systems 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 Lucent
Technologies (including the former Octel), Comverse Technology (including the
former Boston Technology), Brite Voice Systems, Glenayre Technologies and
Periphonics. 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 call automation service bureaus. Some of these
competitors have greater financial, technological and marketing resources than
the Company.
DISTRIBUTION
The Company markets its products through both direct and indirect sales
channels. During fiscal 1998, approximately 51% and 49% of the Company's total
sales were attributable to direct sales to end-users and to sales to
distributors, respectively, compared to 53% and 47%, respectively, in fiscal
1997. The Company provides discounts to volume end-user purchasers and its
distributors reflecting decreased costs associated with such sales. During
fiscal 1998, sales to existing customers, as a percentage of the Company's total
sales, were 65%, the same as in fiscal year 1997, as the Company's 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 its total
sales as it focuses additional marketing efforts on its installed base. No
company accounted for 10% of total sales in fiscal 1998. One of the Company's
resellers, Siemens AG, accounted for 10.2% of the Company's total sales in
fiscal 1997 while MCI Telecommunications accounted for 11.2% of the Company's
sales in fiscal 1996.
United States Distribution
The Company sells its products directly to end-users and more than 85
distributors in the United States. This distributor network allows the Company
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 1998,
approximately 52% and 48% 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
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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 certain customer services relating to the Company's
products on the Company' behalf. Distributors are selected based on their access
to markets, industries and customers that are candidates for the Company's
products. The Company's major domestic distributors include Ameritech
Information Systems, EDS, Fiserv, Fujitsu, GTE, Information Technology, Inc.,
NEC West, Norstan, Rockwell International, Siemens Business Communications,
Sprint, Symitar Systems, U.S. Order and Wiltel.
International Distribution
The Company's products are currently sold in 50 countries. 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 AG (Germany
and Western Europe) and Switch (Chile). A subsidiary of the Company maintains
offices in London, Frankfurt and Munich to support sales by distributors
throughout the European Community, the Middle East and Africa. Company offices
in Singapore and Sydney support sales by distributors throughout the Pacific
Rim. The Company also maintains an office in Toronto to support its Canadian
distributors.
Most countries lag the United States in the development of their
customer premise equipment call automation markets. Government regulation of
telecommunications equipment and services, and the low penetration of digital
switches and touch-tone telephones, have limited sales of call automation
systems in many countries. Subject to differences in culture and business
practices, the Company anticipates that the international market for customer
premise equipment for call automation systems will grow as foreign countries
overcome regulatory, technological and other barriers which limit the use of
such systems. Recently, the Company has seen an accelerated demand for its
telecommunications products as a result of increased competition among
international network operators. 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; the Company's 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.
International sales decreased 14% in fiscal 1998 and increased 36% and
65% in fiscal 1997 and 1996, respectively and as a percentage of total sales,
were 21% in fiscal 1998, 24% in fiscal 1997 and 19% in fiscal 1996. Sales to the
Americas (excluding the United States) constituted 54%, 47% and 61% of
international sales in fiscal 1998, 1997 and 1996, respectively. Sales to Europe
constituted 25%, 34% and 20% of international sales in fiscal 1998, 1997 and
1996, respectively. Sales to the Pacific Rim constituted 21%, 19% and 19% of
international sales in fiscal 1998, 1997 and 1996, respectively. The decrease in
sales to Europe, as a percentage of international sales, in fiscal 1998 and the
increase in such sales in fiscal 1997 were primarily attributable to a large
sale to a European based, global telecommunications company during fiscal 1997.
This large sale also is primarily responsible for the decrease in international
sales during fiscal 1998. 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. A discussion of the Company's export
sales by geographical area for fiscal 1998, 1997 and 1996 is found in Note K to
the Consolidated Financial Statements located in Item 8 of this report.
8
<PAGE> 11
BACKLOG
The Company's backlog at February 28, 1998, February 28, 1997 and
February 29, 1996 was approximately $17 million, $11.4 million and $21.3
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, 1998, the Company owned 22 patents. In addition, the Company has
registered "InterVoice" as a trademark in the United States and in certain
foreign countries. The Company has also registered 24 trademarks and
servicemarks in the United States for other product and service names and has
registrations pending in the United States for various product and service
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 the unauthorized
use of the patented technology 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,
although 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 innovations. The Company currently has a portfolio of
22 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.
9
<PAGE> 12
MANUFACTURING AND FACILITIES
The Company's manufacturing operations consist primarily of the final
assembly, integration and extensive testing and quality control of
subassemblies, host computers platforms, operating software and the Company's
run time software. 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 26, 1998, the Company had 662 employees.
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,
1,000, 3,000, and 4,000 square feet of office space in London, Singapore,
Jacksonville (Florida), and Chicago, respectively.
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
have discussed the possibility of negotiations for a mutually satisfactory
cross-license agreement which would resolve the matter. There is no assurance
that the Company will 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 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.
10
<PAGE> 13
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 1998 and
1997.
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
----------- -----------
Quarter High Low Quarter High Low
------- ---- --- ------- ---- ---
<S> <C> <C> <C> <C> <C>
1st $ 12 7/16 $ 8 1/2 1st $ 30 1/2 $ 21 3/4
2nd 10 5/8 8 5/8 2nd 22 12 1/4
3rd 10 1/2 9 3rd 15 3/4 11 3/16
4th 10 1/2 7 4th 14 7/8 10 1/2
</TABLE>
There were approximately 1,000 shareholders of record and approximately
12,500 beneficial shareholders of the Company at May 26, 1998 On May 26, 1998
the closing price of the Common Stock was $13.06.
As partial consideration for the Company's purchase of the Enhanced
Services Platform product line from Integrated Telephone Products, Inc. ("ITP"),
the Company issued 60,465 shares of its common stock to ITP in a private
placement exempt from registration requirements of the Securities Act of 1933
pursuant to Section 4(2) promulgated thereunder.
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 in conjunction 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, 1998 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, 1998 and
1997, and for each of the years in the three-year period ended February 28, 1998
and the report of Ernst & Young LLP thereon, are included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 29/28
--------------------------------
1998* 1997** 1996 1995*** 1994
----- ------ ---- ------- ----
<S> <C> <C> <C> <C> <C>
Net Sales $ 102,307,713* $ 104,845,692 $ 97,103,054 $ 76,265,228 $ 60,933,903
Income (Loss) from Operations (8,427,179)* 17,548,615** 25,054,742 9,304,113*** 16,988,225
Net Income (5,139,846)* 12,760,481** 17,259,358 2,533,580*** 11,705,501
Total Assets 84,893,475 109,239,759 89,726,806 62,718,565 74,218,417
Long Term Debt -- -- -- -- --
Net Income (Loss) per share:
Basic (.33)* .79 1.10 .16 .68
Diluted (.33)* .77 1.05 .15 .64
Shares used in per share
calculations:
Basic 15,516,336 16,154,836 15,670,718 16,124,637 17,207,154
Diluted 15,516,336 16,591,160 16,399,433 16,759,656 18,416,290
</TABLE>
*Fiscal 1998 net sales, loss from operations and net loss were impacted by
adoption of the American Institute of Certified Public Accountants' Statement of
Position 97-2 (SOP 97-2), tightening of certain of the Company's credit
practices, non-recurring expense items and a non-recurring charge resulting from
a portion of the price paid by the Company to Integrated Telephony Products,
Inc. for its ESP product line having been attributed to in-process research and
development. Without these items, net sales in fiscal 1998 would have been
$107.8 million. Income from Operations would have been $2.6 million, and net
income would have been $2.4 million, or $0.15 per share.
**Fiscal 1997 income from operations and net income were impacted by charges
totaling approximately $1.8 million
11
<PAGE> 14
and $1.3 million, respectively, or $0.08 per share, resulting from a
non-recurring litigation settlement. Without this charge, net income for fiscal
1997 would have been $0.85 per share.
***Fiscal 1995 income from operations and net income were impacted by a
non-recurring charge totaling approximately $10.5 million, or $0.65 per share,
associated with a significant portion of the 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 1999, and beyond, to
differ materially from those expressed in any forward-looking statements made by
or on behalf of the Company:
o The Company faces intense competition based on product capabilities and
experiences 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. 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 Continued availability of suitable non-proprietary computing platforms and
system operating software that are compatible with the Company's products.
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.
o Increasing litigation with respect to the enforcement of patents,
copyrights and other intellectual property.
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), since
such customers generally are not contractually obligated to place further
orders with the Company.
o Legislative and administrative changes and, in particular, changes
affecting the telecommunications industry, such as the 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.
12
<PAGE> 15
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,
and 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 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 and earnings on a quarter to quarter
basis.
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 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 Mergers and acquisitions between companies in the telecommunications and
financial industries which could result in fewer companies purchasing the
Company's products for telecommunications and financial applications, and/
or delay such purchases by companies that are in the process of reviewing
their strategic alternatives in light of a merger or acquisition.
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which the Company adopted for its
fiscal fourth quarter and fiscal year ended February 28, 1998. The Company
changed the method used to compute earnings per share and restated all prior
periods. Under the new requirements for calculating basic earnings per share,
the dilutive effect of stock options is excluded. Diluted earnings per share
includes the impact of stock options and restricted stock arrangements.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 130, "Reporting Comprehensive Income" (SFAS 130) and
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (SFAS 131), both effective for years
beginning after December 15, 1997. SFAS 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of
financial statements and is not expected to have a significant impact on the
Company. SFAS 131 establishes standards for the manner in which public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. The Company is still evaluating
the impact that SFAS 131 will have on its future financial reporting.
13
<PAGE> 16
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
-------------------------
1998* 1997 1996
----- ---- ----
<S> <C> <C> <C>
Sales 100% 100% 100%
Cost of goods sold 47.8 38.3 35.5
Gross Margin 52.2 61.7 64.5
Research and development expenses 12.4 11.1 10.0
Selling, general and administrative expenses 40.8 32.2 28.7
Non-recurring expenses 7.3 1.7** --
Operating income (8.2) 16.7** 25.8
Other income - net .8 .6 .5
Income (loss) before taxes (7.5) 17.3** 26.3
Income taxes (benefit) (2.4) 5.2 8.6
Net Income (loss) (5.0)% 12.1%** 17.7%
</TABLE>
*See discussion of fiscal 1998 in Item 6, Selected Financial Data. Had it not
been impacted by the adoption of SOP 97-2, tightened credit practices,
non-recurring expense items and a charge for in-process research and
development, cost of goods sold, gross margin, research and development
expenses, selling, general and administrative expenses, operating income and net
income as a percentage of sales would have been 45.3%, 54.7%, 11.8%, 38.7%, 2.3%
and 2.2%, respectively.
**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.
SALES
Sales are derived primarily from the shipment of call 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.
Effective December 1, 1997 the Company elected to make an early
adoption of the American Institute of Public Accountants' Statement of Position
97-2 (SOP 97-2). Prior to the adoption of SOP 97-2, the Company's policy
provided for the recognition of revenue upon shipment, provided that the
Company's remaining obligations relating to system installation and testing were
not significant. With SOP 97-2, contract accounting was adopted for systems that
require Company customization and installation. Revenue for contracts for large
systems, generally greater than $500,000 in sales value, is recognized on the
percentage of completion method. Revenue for smaller systems is recognized on
the completed contract method, i.e., when all the Company's obligations have
been met. The requirements of SOP 97-2 only apply to sales which require
customization and/or installation by the Company, and such sales have
historically accounted for approximately 30% of the Company's aggregate annual
sales. As contemplated in disclosures made in the Company's Form 10-Q in each of
the first three quarters of the Company's fiscal 1998, adoption of SOP 97-2
delayed by 60 to 90 days the Company's recognition of approximately $3 million
in revenue in the fourth quarter of fiscal 1998. The adoption of SOP 97-2 will
result in the Company not recognizing revenue in the fiscal quarter that certain
systems are shipped. However, adoption of SOP 97-2 will also result in the
14
<PAGE> 17
Company recognizing revenue during a fiscal quarter from systems shipped in
previous fiscal periods. Accordingly, the Company cannot predict whether the
adoption of SOP 97-2 will result in a decrease or an increase in aggregate
revenues for any future fiscal quarter.
From time to time, the Company has agreed to amend customer purchase
orders to extend normal payment terms in exchange for accelerating delivery and
installation of systems, particularly systems not requiring customization. The
Company tightened this practice in its fourth quarter of fiscal 1998 to improve
cash flow. This decision resulted in an approximate $2.5 million decrease to
revenues during the quarter and fiscal year.
Worldwide sales in fiscal 1998 declined 2% from the immediately
preceding year, and increased 8% and 27% in fiscal 1997 and 1996, respectively.
Worldwide CPE sales decreased 1% in fiscal 1998 and increased 15% and 41% in
fiscal years 1997 and 1996, respectively. Worldwide Telco sales declined 15% and
19% in fiscal 1998 and 1997, respectively, and increased 5% in fiscal year 1996.
CPE sales constituted 70%, 69% and 65% of the Company's total sales in fiscal
years 1998, 1997 and 1996, respectively, while Telco sales made up 17%, 19% and
26% of the Company's total sales during the same time periods. Sales of system
maintenance contracts expanded to over 4,000 end users and comprised 13%, 12%
and 9% of the Company's total sales in fiscal 1998, 1997 and 1996, respectively.
Domestic CPE sales in both fiscal 1998 and 1997 increased 11% and 36%
in fiscal 1996 due to the Company's continued investment in the expansion of its
distribution channels and marketing and advertisement programs and in the hiring
and training of new and existing sales, service and support personnel.
International CPE sales in fiscal 1998 decreased 37%, and increased 30% and 62%
in fiscal 1997 and 1996, respectively. Decreased international sales in fiscal
1998 resulted from a poor Pacific Rim economic environment and a concentration
of the Company's sales efforts in Latin America on telecommunications
opportunities. International sales increased in fiscal 1997 and 1996 for the
same reasons as the increase in domestic CPE sales. International CPE sales
constituted 10%, 24% and 21% of the Company's total CPE sales in fiscal years
1998, 1997 and 1996, respectively.
The Company believes the decline in worldwide Telco sales during fiscal
1998 and 1997 was attributable to a soft domestic telecommunications market. The
Company believes the market softness was attributable, in part, particularly
during fiscal 1997, to temporary delays by some telecommunications companies in
implementing call automation solutions while they evaluated marketing and
investment strategies in light of new opportunities resulting from deregulation
under the Telecommunications Act of 1996 and judicial proceedings relating to
certain provisions of the Act. Telco sales increased in fiscal 1996 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 62%, 39% and 21% of the Company's total Telco sales in fiscal years
1998, 1997 and 1996, respectively.
Prices for the Company's products have remained stable, as measured by
price per line shipped, during fiscal 1998, 1997 and 1996 although the features
and functions per line shipped have become more robust. 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 1998, the Company experienced an increase in cost of
goods sold to 47.8% of total sales from 38.3% and 35.5% in fiscal 1997 and 1996,
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 1999 cost of goods sold, as
a percentage of sales, will be slightly lower than in fiscal 1998.
RESEARCH AND DEVELOPMENT
Fiscal 1998, 1997 and 1996 research and development expenses were
approximately $12.7 million, $11.7 million and $9.8 million, respectively.
Fiscal 1998 expenses included porting the Company's InterSoft run time software
to the UNIX and Windows NT operating systems; developing computer platform
independent voice automation hardware and software; the development of the NSP
5000 platform; the development of the InControl product line and InVision and
the integration of the ESP product line purchased from Integrated Telephony
Products,
15
<PAGE> 18
Inc. into the Company's InControl product offering. Additionally, expenditures
were made in fiscal 1998, 1997 and 1996 for the ongoing development of the
Company's OneVoice Software Agent Platform including OneVoice systems (the
Company's call automation 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 fiscal 1997 and
1998 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
telecommunications products obtained when the Company acquired VoicePlex
Corporation, 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 1999 it will maintain its strong commitment
to research and development at a targeted percentage of anticipated sales
slightly lower than in fiscal 1998. 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
$41.8 million in fiscal 1998 from $33.7 million in fiscal 1997 and approximately
$27.8 million in fiscal 1996 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 has undertaken measures to control
expenses, particularly selling, general and administrative expenses (see
discussion below in "Income (loss) from Operations"). Accordingly, the Company
expects, based on anticipated sales, that in fiscal 1999 selling, general and
administrative expenses, as a percentage of sales, will be slightly less than in
fiscal 1998.
OTHER INCOME
Other income is primarily interest income on cash and short term
investments. The increase in other income in fiscal 1998 versus fiscal 1997 and
in fiscal 1997 versus fiscal 1996 reflected the Company's increased average cash
balances.
INCOME (LOSS) FROM OPERATIONS
The Company incurred an operating loss and a net loss during fiscal
1998 of $8.4 million and $5.1 million, respectively. The Company generated
operating income of $17.5 million and net income of $12.8 million in fiscal year
1997. During fiscal 1996, the Company generated operating income of $25.1
million and net income of $17.3 million.
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 1998,
incurred non-recurring charges of approximately $7.4 million including the
following: $1.0 million associated with certain personnel matters, including the
resignation of the Company's former President and Chief Operating Officer; $1.0
million to provide for potential inventory obsolescence in the light of a
migration of the Company's customers to its NSP 5000 platform; $3.0 million to
write off certain intangible assets as a result of the Company's re-examination
of its product development and infrastructure requirements and $0.6 million to
write off certain accounts receivable deemed uncollectible. Additionally, the
Company wrote off as in-process research and development approximately $1.8
million of the purchase price paid to Integrated Telephony Products, Inc. for
its ESP product line. Also impacting operating income in fiscal 1998 was the
Company's adoption of the American Institute of Certified Public Accountants'
Statement of Position 97-2 (SOP 97-2) and a tightening of the Company's credit
practices to improve cash flow.
See Item 7 - "Sales".
The Company incurred a one time charge of approximately $1.8 million in
connection with the settlement of certain litigation during fiscal 1997.
16
<PAGE> 19
Adjusting for the one time charges and other items discussed above, the
Company would have generated operating income of approximately $2.6 million and
approximately $19.3 million in fiscal 1998 and 1997, respectively, and net
income of approximately $2.3 million and $14.0 million in fiscal 1998 and 1997,
respectively. Adjusted operating income in fiscal 1998 and fiscal 1997 decreased
87% and 23%, respectively, versus the previous fiscal year as the Company
increased its investment in sales, marketing, application engineering, and
research and development resources without a corresponding increase in the
Company's sales. These investments were made to continue to pursue opportunities
in the CPE and Telco markets. Adjusted net income for fiscal 1998 and fiscal
1997 decreased 84% and 19%, respectively, versus the previous fiscal year for
the same reasons as operating income decreased.
The Company has undertaken measures to control expenses, particularly
selling, general and administrative expenses. These expense control measures
have begun to reduce the Company's expenses and should begin to improve the
ratio of expenses to sales in future fiscal periods, based on the Company's
anticipated sales and assuming that expense levels are not unduly influenced by
unusually high one time expenses related to litigation matters, any potential
mergers or acquisitions, any major research and development efforts which are
not currently contemplated but which become necessary in light of market or
strategic requirements, or any other future contingencies which are not
currently contemplated by the Company. Any anticipated increases in operating
income and net income during fiscal 1999 are expected to be at a rate slightly
higher than the percentage increase in anticipated sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $4.2 million in cash and cash equivalents
at February 28, 1998, down from $24.2 million at February 28, 1997. While the
Company generated positive net cash from operations of approximately $14.4
million during fiscal 1998, investment activities (consisting of the acquisition
and purchase of fixed assets and third party software) and financing activities
(consisting primarily of the repurchase of shares of the Company's common stock)
together used approximately $43.4 million. Investment activities totaling
approximately $17.7 million during 1998 included purchasing the ESP product line
from Integrated Telephony Products, Inc., purchasing computing hardware and
software to update the Company's enterprise systems and to provide the
information systems infrastructure needed to support the Company's worldwide
growth. Expenditures were also made to acquire third party developed software to
be integrated into the Company's InterSoft software to allow the Company to
offer its customers greater functionality and to ensure the Company's products
comply with an increasing variety of hardware and software technologies and
standards. Financing activities during fiscal 1998 included the repurchase of
2,700,800 shares of the Company's common stock, at a cost of approximately $26.2
million pursuant to authorizations by its Board of Directors during fiscal 1997
and 1998 to repurchase up to an aggregate of 4,000,000 shares. The Company
believes that market conditions made such share repurchases of value to its
shareholders. As a result of these investment and financing activities, the
Company borrowed $9.0 million against its $15 million credit line from
NationsBank and experienced a reduction of its cash reserves of approximately
$20.0 million during fiscal 1998. Subsequent to the end of fiscal 1998, the
Company repurchased an additional 10,000 shares of the Company's stock at a cost
of $117,900. The Company reviews share repurchase and acquisition opportunities
from time to time and believes it has access to the financial resources
necessary to pursue attractive opportunities as they arise.
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 also believes it has access to other financial
resources to pursue any investment opportunities or financing requirements that
might arise in the foreseeable future. The Company is currently negotiating an
extension of its $15 million credit facility with NationsBank which is scheduled
to expire on June 30, 1998. As with any negotiation, there is no assurance that
the Company and NationsBank will agree to an extension of the credit facility,
however, the Company believes it has access to other potential sources for
credit facility financing if the facility with NationsBank is not renewed.
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.
17
<PAGE> 20
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
FISCAL 1998 31-May-97 31-Aug-97 30-Nov-97 28-Feb-98
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 24,742,283 $ 29,276,334 $ 25,545,358 $ 22,743,738*
Income (loss) from Operations 228,189 3,000,497 282,661 (11,938,526)*
Net Income (loss) 270,862 2,216,181 256,258 (7,883,147)*
Net Income (loss) per share-basic .02 .14 .02 (.55)*
Net Income (loss) per share-diluted .02 .14 .02 (.55)*
</TABLE>
*Includes the impact of the adoption of SOP 97-2, tightened credit practices,
non-recurring expense items, and a charge for in-process research and
development (see discussion of fiscal 1998 in Item G, Selected Financial Data).
Without these items, sales for the quarter ended February 28, 1998 would have
been approximately $28.2 million and earnings would have been approximately
$0.16 per diluted share.
<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 from Operations 5,797,049 6,158,964 1,655,513* 3,937,089
Net income 3,979,261 4,271,054 1,249,990* 3,260,176
Net income per share-basic .25 .27 .08* .20
Net income per share-diluted .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 diluted share.
YEAR 2000 COMPLIANCE
Many installed computer systems used by numerous companies to run a
variety of applications are not capable of processing date sensitive information
that falls beyond the twentieth century. Unless these computer systems are
replaced or upgraded prior to the year 2000 to process such date sensitive
information, the systems may experience severe operating difficulties or system
failures. Beginning in fiscal 1996, the Company initiated a program to replace
and upgrade its information systems to accommodate the Company's growth, improve
productivity and remediate any century compliance problems. This program should
be substantially completed before the year 2000. Additionally, the Company has
created a year 2000 project team to review its information systems and assess
and resolve any century compliance issues that are found. The team also is
attempting to ensure that any replacements and upgrades to the Company's
information systems are century compliant. As a result of the program to replace
and upgrade its information systems, and the efforts of the year 2000 project
team, the Company believes that its information systems will be century
compliant prior to the year 2000. However, there is no assurance that the
Company will identify and resolve any and all century compliance problems with
its information systems in timely manner, that the expenses associated with such
remedial efforts will not be significant, or that such problems will not have a
material adverse effect on the Company's business, operating results and
financial condition.
Based on a thorough review and testing of its software products and other
products, the Company believes that its current products are century compliant.
The Company's assessment of its current products is partially dependent upon the
accuracy of representations concerning century compliance made by its suppliers,
such as Microsoft and IBM. Many of the Company's customers are, however, using
earlier versions of the Company's software products and other products that may
not be century compliant. The Company has instituted programs to actively warn
these customers of the risks associated with using software and other products
which may not be century compliant, and to actively encourage such customers to
migrate to the Company's current products. In addition, the Company's products
are generally integrated with a customer's enterprise system, which involves
software products developed by other vendors. A customer may mistakenly believe
that century compliance problems with its enterprise system are attributable to
products provided by the Company. The Company may in the future be subject to
claims based on century compliance issues related to a customer's enterprise
system or other products provided by third parties, custom modifications to the
Company's products made by third parties, or issues arising from the integration
of the Company's products with other products. The Company has not been a party
to any proceeding involving its
18
<PAGE> 21
products or services in connection with century compliance issues, however,
there is no assurance that the Company will not in the future be required to
defend its products or services in such proceedings against claims of century
compliance issues, and any resulting liability of the Company for damages could
have a material adverse effect on the Company's business, operating results and
financial condition.
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, 1998 and for each of the
three years in the period ended February 28, 1998 follow:
19
<PAGE> 22
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
InterVoice, Inc.
We have audited the accompanying consolidated balance sheets of InterVoice, Inc.
and subsidiaries as of February 28, 1998 and 1997 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended February 28, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended February 28, 1998, 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.
As described in Note B, effective for transactions entered into after December
1, 1997, the Company adopted the American Institute of Certified Public
Accountants' Statement of Position 97-2 "Software Revenue Recognition."
Ernst & Young LLP
Dallas, Texas
April 7, 1998
20
<PAGE> 23
InterVoice, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
February 28, February 28,
ASSETS 1998 1997
- ---------------------------------------------------- ------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,190,940 $ 24,162,024
Accounts and notes receivable, net of allowance
for doubtful accounts of $368,004 in 1998 and
$250,950 in 1997 26,040,332 33,506,747
Inventory 9,343,338 11,315,385
Prepaid expenses and other current assets 4,490,813 3,894,498
Deferred income taxes 2,325,745 1,419,495
------------- -------------
46,391,168 74,298,149
PROPERTY AND EQUIPMENT
Building 16,249,914 16,140,989
Computer equipment 24,496,337 15,801,171
Furniture, fixtures and other 3,756,164 5,322,288
Service equipment 4,582,221 2,768,178
------------- -------------
49,084,636 40,032,626
Less allowance for depreciation 16,736,766 13,676,956
------------- -------------
32,347,870 26,355,670
OTHER ASSETS
Intangible assets, net of amortization
of $1,679,113 in 1998 and
$1,802,708 in 1997 6,154,437 8,585,940
------------- -------------
$ 84,893,475 $ 109,239,759
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 10,491,914 $ 12,954,975
Customer deposits 2,625,498 3,403,739
Deferred income 5,500,743 4,995,231
Short term borrowings 9,000,000 --
------------- -------------
27,618,155 21,353,945
DEFERRED INCOME TAXES 644,802 1,695,294
COMMITMENTS AND 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: 19,503,291 issued,
13,802,491 outstanding in 1998
and 19,353,973 issued, 16,353,973
outstanding in 1997 9,726 9,667
Additional capital 44,314,685 43,028,780
Unearned compensation -- (493,634)
Treasury stock - at cost (50,202,999) (24,003,245)
Retained earnings 62,509,106 67,648,952
------------- -------------
56,630,518 86,190,520
------------- -------------
$ 84,893,475 $ 109,239,759
============= =============
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 24
InterVoice, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended February 29/28
--------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
SALES $ 102,307,713 $ 104,845,697 $ 97,103,054
COST OF GOODS SOLD 48,854,519 40,131,308 34,468,112
------------- ------------- -------------
GROSS MARGIN 53,453,194 64,714,389 62,634,942
Research and development expenses 12,688,638 11,652,934 9,757,972
Selling, general and
administrative expenses 41,774,242 33,712,840 27,822,228
Non recurring expense 7,417,493 1,800,000 --
------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS (8,427,179) 17,548,615 25,054,742
Other income - net 783,643 680,644 532,065
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) (7,643,536) 18,229,259 25,586,807
INCOME TAXES (BENEFIT)
Current (546,949) 4,191,807 8,371,856
Deferred (1,956,741) 1,276,971 (44,407)
------------- ------------- -------------
INCOME TAXES BENEFIT (2,503,690) 5,468,778 8,327,449
------------- ------------- -------------
NET INCOME (LOSS) $ (5,139,846) $ 12,760,481 $ 17,259,358
============= ============= =============
Net income (loss) per share - basic $ (0.33) $ 0.79 $ 1.10
============= ============= =============
Net income (loss) per share - diluted $ (0.33) $ 0.77 $ 1.05
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 25
InterVoice, Inc.
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
------------------------- Additional Unearned Treasury Retained
Shares Amount Capital Compensation Stock Earnings Total
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 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
Exercise of stock
options 97,622 33 752,805 -- -- -- 752,838
Tax benefit from
exercise of
stock options -- -- 246,653 -- -- -- 246,653
Issuance of restricted
stock, net of forfeitures (8,769) (4) (213,523) 493,634 -- -- 280,107
Issuance of stock to
purchase software 60,465 30 499,970 -- -- -- 500,000
Purchase of treasury
stock, net (2,700,800) -- -- -- (26,199,754) -- (26,199,754)
Net loss -- -- -- -- -- (5,139,846) (5,139,846)
-----------------------------------------------------------------------------------------------
Balance at February 28, 1998 13,802,491 $ 9,726 $ 44,314,685 $ -- $(50,202,999) $ 62,509,106 $ 56,630,518
===============================================================================================
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 26
InterVoice, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended February 28/29
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (5,139,846) $ 12,760,481 $ 17,259,358
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Purchased research and
development 1,750,000 -- --
Depreciation and amortization 9,710,597 4,946,376 4,393,988
Compensation expense 493,634 595,407 145,447
Deferred income taxes (benefit) (1,956,741) 1,276,971 (44,407)
Provision for doubtful accounts 291,491 397,739 173,928
Provision for slow moving inventories 1,935,067 1,200,000 752,090
Disposal of equipment 595,760 89,447 11,669
Write off of intangible assets 2,802,423 -- --
Changes in operating assets and
liabilities:
Accounts receivable 7,174,924 (9,200,060) (7,279,317)
Inventories 36,980 (671,365) (3,657,122)
Prepaid expenses and other assets (420,265) (3,520,298) (288,339)
Accounts payable
and accrued expenses (2,622,499) 1,097,596 2,258,010
Customer deposits (778,241) 876,225 1,395,750
Deferred income 505,512 920,132 710,251
Income taxes payable -- -- (459,505)
------------ ------------ ------------
14,378,796 10,768,651 15,371,801
INVESTING ACTIVITIES
Purchases of property and equipment (9,239,831) (8,545,318) (4,601,288)
Increase in other assets (8,449,606) (4,346,102) (2,944,569)
(Increase) decrease in notes receivable -- -- 161,508
------------ ------------ ------------
(17,689,437) (12,891,420) (7,384,349)
FINANCING ACTIVITIES
Short term borrowings 9,000,000 -- --
Purchase of treasury stock (26,199,754) -- --
Exercise of stock options 539,311 2,710,817 5,309,572
------------ ------------ ------------
(16,660,443) 2,710,817 5,309,572
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19,971,084) 588,048 13,297,024
Cash and cash equivalents, beginning of year 24,162,024 23,573,976 10,276,952
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,190,940 $ 24,162,024 $ 23,573,976
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - DESCRIPTION OF BUSINESS
The Company develops, sells and services call automation systems with a
traditional emphasis on allowing individuals to interact with computer databases
using their telephones, personal computers, credit card terminals or voice. The
Company's "OneVoice" and "InterDial" systems are used by a variety of
enterprises to disseminate and receive information efficiently, allowing
multiple callers simultaneous access to computer databases 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 agent if the call is
answered and the called party remains on the phone. More recently, the Company
has focused on its "InControl" systems which provide call automation and
enhanced calling features to telecommunications operators. All of the Company's
systems 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.
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 approximates fair market value.
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
$1,360,000 and $166,000 at February 28, 1998 and 1997, 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. The range of useful lives by major category are: buildings: 5 to 40
years; computer equipment: 3 to 5 years; furniture, fixtures and other: 5 years;
and service equipment: 3 years. Depreciation expense totaled $6,305,410,
$4,124,289 and $2,834,613 in fiscal 1998, 1997 and 1996, 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 $2,199,314,
$822,087 and $647,261 in fiscal 1998, 1997 and 1996, respectively. The increase
in amortization expense in fiscal 1998 versus prior fiscal years is associated
with completion of the implementation and commencement of amortization of the
Company's new enterprise systems.
REVENUE RECOGNITION: The Company recognizes revenue for sales of systems which
do not require customization by the Company at the time of shipment. Subsequent
to December 1, 1997, revenue for systems which require customization by the
Company are recognized by the contract method of accounting using percentage of
completion for larger, more complex systems (generally over a $500,000 sales
price) and the completed contract method for smaller systems. Prior to December
1, 1997, the Company recognized revenue on systems requiring customization at
the date of shipment or at the point after shipment when the remaining
obligations of the Company became insignificant. This change in accounting was
required by the American Institute of CPA's Statement of Position 97-2 which was
adopted by the Company as of December 1, 1997 and is required to be applied
prospectively for transactions entered into after that date.
25
<PAGE> 28
The Company recognizes revenue from services at the time the service is
performed or over the period of the contract for maintenance/support.
EARNINGS PER SHARE: Effective with the fiscal year ended February 28, 1998, the
Company adopted Statement of Financial Accounting Standards No. 128 (SFAS No.
128). SFAS 128 replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of stock options.
Diluted earnings per share is similar to the previously reported fully diluted
earnings per share. Earnings per share for all periods have been restated to
conform to the SFAS 128 requirements.
RECLASSIFICATIONS: Certain prior year balances have been reclassified to conform
to current year presentation.
NOTE C - INTANGIBLE ASSETS
The Company purchased the Enhanced Services Platform (ESP) product line and
certain other assets from Integrated Telephony Products, Inc. on February 26,
1998 in a transaction accounted for as a purchase. This purchase price of
$5,188,071 was comprised of $4,612,500 in cash, Company common stock valued at
$500,000 and other direct acquisition costs totaling $75,571. 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 $1,155,000 charge, net of taxes, to the Company's operations in
fiscal year 1998. The remaining purchase price was allocated, based on
appraisals, to software ($3,113,643), net tangible assets ($324,428), and
deferred tax assets ($595,000).
The Company reviewed its portfolio of intangible assets during fiscal
1998 and wrote off certain items as a result of re-examining its human resource
allocation, product development plans and infrastructure requirements.
Previously capitalized third party product development costs totaling
approximately $1.4 million were written off in line with the Company's strategy
to narrow its product development focus. Previously capitalized third party
development costs of approximately $1.6 million associated with inefficient,
stand alone system configuration software were written off as the Company's new
enterprise systems have enabled it to develop and integrate system configuration
capabilities which, previously, were addressed by the stand alone system.
NOTE D - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at February 28:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Accounts payable $ 7,766,531 $ 10,094,466
Accrued compensation 1,575,534 1,572,875
Other 1,149,849 1,287,634
--------------- ---------------
$ 10,491,914 12,954,975
=============== ===============
</TABLE>
NOTE E - REVOLVING CREDIT AGREEMENT
The Company has an unsecured revolving credit agreement with NationsBank in the
amount of $15,000,000 which expires June 30, 1998. All borrowings under the
agreement accrue interest at the bank's prime rate. At February 28, 1998, the
Company had borrowed $9,000,000 under the agreement at an average annual
interest rate of 8.5%.
26
<PAGE> 29
NOTE F - 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. Significant components of the Company's deferred tax
assets and liabilities are as follows at February 28:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for slow moving inventories $ 240,066 $ 62,956
Deferred revenue 1,155,371 738,667
Accrued expenses 213,809 133,410
Allowance for doubtful accounts 139,566 69,782
Book over tax depreciation/amortization 2,227,807 406,846
Charitable contributions carryforword 955,800 --
Valuation allowance (955,800) --
Sales returns reserve 493,025 295,815
Other 83,908 74,750
----------- -----------
Total deferred tax assets 4,553,552 1,782,226
----------- -----------
Deferred tax liabilities:
Capitalized Software 2,683,412 1,814,368
Prepaid assets 186,366 240,826
Other 2,831 2,831
----------- -----------
Total deferred tax liabilities 2,872,609 2,058,025
----------- -----------
Net deferred tax assets (liabilities) $ 1,680,943 $ (275,799)
=========== ===========
</TABLE>
A valuation allowance has been established against the Company's charitable
contribution carryforward due to statutory limitations that make its future
realization uncertain.
Domestic and foreign income before taxes, and details of the income tax
provision are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income (loss) before taxes:
Domestic $ (7,640,210) $ 18,610,597 $ 26,671,904
Foreign (3,326) (381,338) (1,085,097)
------------ ------------ ------------
$ (7,643,536) $ 18,229,259 $ 25,586,807
============ ============ ============
Income tax provision (benefit):
Current:
Federal $ (496,864) $ 4,137,807 $ 8,050,856
State (50,085) 54,000 321,000
------------ ------------ ------------
Total current (546,949) 4,191,807 8,371,856
Deferred:
Federal (1,805,826) 1,156,811 (40,982)
State (150,915) 120,160 (3,425)
------------ ------------ ------------
Total deferred (1,956,741) 1,276,971 (44,407)
------------ ------------ ------------
Total $ (2,503,690) $ 5,468,778 $ 8,327,449
============ ============ ============
</TABLE>
A reconciliation of the United States Federal statutory rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
$ % $ % $ %
- - - - - -
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes at statutory rates (2,598,802) (34) 6,380,240 35 8,955,382 35
Research and development tax credit (282,628) (3.7) 244,000 1.3 (388,000) (1.5)
Tax exempt interest (100,727) (1.3) (175,588) (1.0) -- --
State taxes, net of federal benefit (275,492) (3.6) 35,100 .2 259,000 1.0
Foreign loss not benefited -- -- 132,684 .7 380,576 1.5
Foreign sales corp. (benefit)/expense 24,107 .3 (544,036) (3.0) (521,208) (2.0)
Write-off foreign subsidiary
stock/debt -- -- (792,517) (4.2) -- --
Charitable Contributions in excess of
statutory limitation 550,147 7.2 -- -- -- --
Other 179,705 2.3 188,895 1.0 (358,301) (1.5)
----------- ------- ----------- ------ ----------- ------
(2,503,690) (32.8) 5,468,778 30.0 $ 8,327,449 32.5
=========== ======= =========== ====== =========== ======
</TABLE>
27
<PAGE> 30
Income taxes, net of refunds, of $2,175,000, $6,587,097 and $7,240,945 were
paid in fiscal 1998, 1997 and 1996, respectively.
NOTE G- 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. The Company has granted options at various dates with terms
under which the options become exercisable at the rate of 20%, 25% or 33% per
year. Options becoming exercisable at 33% per year are exercisable for six or
ten years after the date of grant. Options becoming exercisable at 20% or 25%
per year are exercisable for ten years after the date of grant.
<TABLE>
<CAPTION>
OPTION PRICE WEIGHTED AVERAGE EXERCISE
SHARES PER SHARE PRICE PER SHARE
------ ------------ --------------------------
<S> <C> <C> <C>
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
Granted 603,300 $11.88 to $27.25 $21.57
Exercised (285,736) $2.06 to $19.25 $18.21
Forfeited (185,788) $7.63 to $26.25 $16.74
-----------
Balance at February 28, 1997 1,786,100
Granted 1,055,745 $7.50 to $11.38 $9.96
Exercised (49,195) $3.28 to $8.50 $7.03
Forfeited (1,092,006) $2.06 to $27.25 $18.40
-----------
Balance at February 28, 1998 1,700,644
===========
</TABLE>
A total of 589,518 and 702,328 employee options were exercisable at average
prices of $11.96 and $13.02 at February 28, 1998 and 1997, respectively.
A stock option plan is in effect under which nonqualified stock options 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, 1995 40,000
Granted 12,000 $22.13
Exercised (2,000) $3.09
Forfeited (4,000) $22.125
--------
Balance at February 29, 1996 46,000
Granted 26,000 $13.94 $13.94
Exercised (22,000) $8.50 $ 8.50
--------
Balance at February 28, 1997 50,000
Granted 30,000 $9.75 $9.75
--------
Balance at February 28, 1998 80,000
========
</TABLE>
28
<PAGE> 31
A total of 50,000 and 24,000 non-employee options were exercisable at average
prices of $14.38 and $14.85 at February 28, 1998 and 1997, respectively.
For all option plans at February 28, 1998, options for 638,394 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 grant date or the option exercise date.
<TABLE>
<CAPTION>
Employee Stock Purchase Plan
- ---------------------------- Weighted Average
Shares Exercise Price per share
------ ------------------------
<S> <C> <C>
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 28, 1997 70,637 $12.23
Granted 82,212 $10.40
Exercised (48,427) $9.63
Forfeited (22,210) $15.20
--------
Balance at February 28, 1998 82,212 $8.84
========
Grant price per option outstanding $9.93 to $11.25
</TABLE>
During fiscal 1996, the Company adopted a Restricted Stock Plan under which an
aggregate of 500,000 shares may be issued. 92,285 shares have been allocated to
three 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 bases on
the achievement of targeted annual earnings per share objectives and the
completion of an additional two years of service after the grant. Restrictions
have lapsed for all shares granted in fiscal 1996. Activity related to
restricted stock during fiscal 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Senior Executive Plan Key Executive 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
Forfeited (7,690) (1,079)
--------
Balance at February 28, 1998 44,604 3,072
======== ========
</TABLE>
The weighted average share price on the date of grant in fiscal and 1997 was
$21.27 for the Senior Executive Plan and $29.44 for the Key Executive Plan.
Shares forfeited in fiscal 1998 and 1997 had been granted at a weighted average
share price of $22.34 and $21.80, respectively. At February 28, 1998,
approximately 452,000 shares are reserved for future restricted stock grants.
Subsequent to February 28, 1998, the Company adopted a stock option plan under
which an aggregate of 500,000 shares of common stock may be issued. Under the
plan, the Board of Directors may issue non-qualified stock options to Company
employees and non-employees Directors. 280,000 stock options were issued
pursuant to the plan on March 26, 1998.
29
<PAGE> 32
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, 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
Net 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 1998,
1997 and 1996, respectively: risk-free interest rates of 6.48%, 6.39% and 6.02%;
stock price volatility factors of .49, .66 and .74; and expected option lives of
4.3 years, 4.1 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
1998 and 1997 was 3.95 and 11.82, respectively.
Required Pro Forma Disclosures:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $(8,726,923) 10,795,850 $16,242,620
Income (loss) per share basic $(0.56) $0.67 $1.04
Income (loss) per share diluted $(0.56) $0.67 $1.00
</TABLE>
As required by FAS 123, only awards granted after fiscal 1995 have been included
in determining the amount of additional compensation expense for those years. As
such the effects of applying FAS 123 on fiscal 1998, 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 three, two or
one years of awards, respectively, will be considered.
Options Outstanding at February 28, 1998:
<TABLE>
<CAPTION>
Weighted Average Weighted average
Exercise Prices Shares exercise price remaining contractual life in years
--------------- ------ -------------- -----------------------------------
<S> <C> <C> <C>
$3.13 - $10.00 1,236,662 $9.33 7.32
$11.00 - $15.13 348,344 $12.68 3.17
$18.75 - $40.00 277,850 $21.33 4.11
-----------
1,862,856
===========
</TABLE>
Options Exercisable at February 28, 1998:
<TABLE>
<CAPTION>
Weighted average Weighted average
Exercise Prices Shares exercise price remaining contractual life in years
--------------- ------ -------------- -----------------------------------
<S> <C> <C> <C>
$3.31 - $10.00 297,653 $7.33 1.48
$11.63 - $15.13 299,544 $12.68 2.27
$18.75 - $22.13 124,533 $21.20 4.00
---------
721,730
=========
</TABLE>
30
<PAGE> 33
NOTE H -TREASURY STOCK
Pursuant to authorizations by the Company's Board of Directors during fiscal
1997 and 1998, the Company repurchased 2,700,800 shares of its common stock at
an average price of $9.70 per share during fiscal 1998.
NOTE I - NON-RECURRING EXPENSES
During fiscal 1998, the Company incurred non-recurring expenses of approximately
$7.4 million including the following: $1.0 million associated with certain
personnel matters, including the resignation of the Company's former President
and Chief Operating Officer, $1.0 million related to inventory obsolescence,
$3.0 million related to intangible assets, and $0.6 million related to accounts
receivable. Additionally, the Company wrote off as in-process research and
development approximately $1.8 million of the purchase price paid to Integrated
Telephony Products, Inc. for its ESP product line.
The Company incurred a one time charge of approximately $1.8 million in
connection with the settlement of certain litigation during fiscal 1997.
NOTE J - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29
-------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net income (loss) $(5,139,846) $12,760,481 $17,259,358
=========== =========== ===========
Denominator:
Denominator for basic earnings per share
weighted average shares outstanding 15,516,336 16,154,836 15,670,718
Effect of dilutive securities:
Employee stock options -- 403,509 720,413
Non-vested restricted stock -- 32,816 8,302
----------- ----------- -----------
Dilutive potential common shares -- 436,325 728,715
----------- ----------- -----------
Denominator for diluted earnings per share 15,516,336 16,591,160 16,399,433
=========== =========== ===========
Net income (loss) per common shares - basic $ (0.33) $ 0.79 $ 1.10
=========== =========== ===========
Net income (loss) per common share - diluted $ (0.33) $ 0.77 1.05
=========== =========== ===========
</TABLE>
Options to purchase 1,862,856 shares of common stock at an average exercise
price of $14.19 per share were outstanding at February 28, 1998 but were not
included in the computation of diluted earnings per share as the effect would
have been anti-dilutive due to the net loss for the year ended February 28,
1998. Options to purchase 1,145,069 and 460,500 shares of common stock at
average exercise prices of $21.79 and $21.46, respectively, were outstanding
during fiscal 1997 and fiscal 1996, respectively, but were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market price of the common shares and, therefore,
the effect would have been anti-dilutive.
NOTE K - 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) 1998 1997 1996
- -------------- ---- ---- ----
<S> <C> <C> <C>
The Americas (Excluding
the United States) $11,489 $11,622 $11,126
Pacific Rim 4,372 4,769 3,507
Europe, The Middle East
and Africa 5,419 8,372 3,620
------- ------- -------
TOTAL $21,280 $24,763 $18,253
======= ======= =======
</TABLE>
No customer accounted for 10% or more of the Company's sales during fiscal 1998.
One customer, Siemens AG, one of the Company's resellers, accounted for 10.2% of
the Company's sales during fiscal 1997. During fiscal 1996, MCI
Telecommunications accounted for 11.2% of the Company's total sales.
31
<PAGE> 34
NOTE L - CONCENTRATIONS OF CREDIT RISK
The Company sells systems directly to end-users and distributors primarily in
the banking and financial, telecommunications, human resource, healthcare 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 M - 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 $854,000, $759,000, and $524,000 in
fiscal 1998, 1997 and 1996, respectively.
NOTE N - 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 have
discussed the possibility of negotiations for 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 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.
32
<PAGE> 35
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>
Year ended February 28,1998 Deducted from asset accounts:
Allowance for doubtful accounts $ 250,950 $ 291,491 $ (174,437)(A) $ 368,004
Allowance for slow moving inventories 166,000 1,935,067 (741,067)(B) 1,360,000
----------- ----------- ----------- -----------
Total $ 416,950 $ 2,226,558 $ (915,504) $ 1,728,004
=========== =========== =========== ===========
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
=========== =========== =========== ===========
</TABLE>
- -----------------------------
(A) Accounts written off.
(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.
33
<PAGE> 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
34
<PAGE> 37
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
entitled "Certain Transactions" in the Definitive Proxy Statement. Such
information is incorporated herein by reference.
35
<PAGE> 38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements and financial
statement schedule 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................................................................ 20
Consolidated Balance Sheets at February 28, 1998 and February 28, 1997........................ 21
Consolidated Statements of Operations for the three years ended
February 28, 1998........................................................................ 22
Consolidated Statements of Changes in Stockholders' Equity
for the three years ended February 28, 1998.............................................. 23
Consolidated Statements of Cash Flows for the three years ended
February 28, 1998........................................................................ 24
Notes to Consolidated Financial Statements.................................................... 25
(2) Financial Statement Schedules
II Valuation and Qualifying Accounts.......................................................... 33
</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, 1998.
36
<PAGE> 39
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, 1998
37
<PAGE> 40
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, 1998
- -------------------------------- Directors and Chief
Daniel D. Hammond Executive Officer
/s/ ROB-ROY J.GRAHAM Chief Financial Officer, May 28, 1998
- -------------------------------- Chief Accounting Officer
Rob-Roy J. Graham and Controller
(Principal Accounting Officer)
/s/ JOSEPH J. PIETROPAOLO Director May 28, 1998
- --------------------------------
Joseph J. Pietropaolo
/s/ GEORGE C. PLATT Director May 28, 1998
- --------------------------------
George C. Platt
/s/ GRANT A. DOVE Director May 28, 1998
- --------------------------------
Grant A. Dove
</TABLE>
38
<PAGE> 41
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
<S> <C> <C>
3.1 o Articles of Incorporation, as amended, of Registrant (7)
3.2 o 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 o Registrant's 1984 Incentive Stock Option Plan, as amended (1)
10.2 o Second Amended and Restated Employment Agreement dated as of
June 21, 1996, effective as of March 1, 1996 by and between the
Company and Daniel D. Hammond (10)
10.3 o 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 o Amended and Restated Rights Agreement dated as of December 12,
1994 between the Registrant and KeyCorp Shareholders Services,
Inc. (formerly Society National Bank), as Rights Agent (5)
10.5 o The InterVoice, Inc. 1990 Incentive Stock Option Plan, as
amended (10)
10.6 o The InterVoice, Inc. 1990 Nonqualified Stock Option Plan for
Non-Employees, as amended (4)
10.7 o Amendment to the 1984 Incentive Stock Option Plan (2)
10.8 o InterVoice, Inc. Employee Stock Purchase Plan (7)
10.9 o Second Amended and Restated Employment Agreement dated as of
June 21, 1996, effective as of March 1, 1996 by and between the
Company and Michael W. Barker (10)
10.10 o 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 o InterVoice, Inc. Employee Savings Plan (6)
10.12 o Merger Agreement dated August 31, 1994 among the Company,
InterVoice Acquisition Corp., VoicePlex Corporation and certain
shareholders of VoicePlex Corporation. (8)
10.13 o InterVoice, Inc. Restricted Stock Plan (9)
10.14 o Separation Agreement dated as of December 5, 1996 between the
Company and Richard Herrmann (10)
10.15 o Letter concerning resignation of Michael W. Barker (11)
10.16 o Consulting Services Agreement and General Release with Michael
W. Barker dated February 24, 1998. (12)
10.17 o Assets Purchase Agreement executed as of December 16, 1997 (and
first and second Amendments thereto) among InterVoice
Acquisition Subsidiary, Inc., ABC Telecom, Inc. (formerly known
as Integrated Telephone, Products, Inc.) and David Lifshitz (12)
10.18 o Loan Agreement dated as of November 3, 1997 by and between
NationsBank of Texas, N.A., a national banking association
("Bank") and InterVoice, Inc.; together with a Renewal,
Extension and Modification Agreement dated as of April 30, 1998, (12)
10.19 o Employment Agreement dated as of October 8, 1997 by and between
the Company and Eric L. Pratt (12)
</TABLE>
<PAGE> 42
<TABLE>
<S> <C>
23. o Consent of Independent Auditors (12) .
27.1 - 27.8 o Restated Financial Data Schedules (12)
27.9 o Financial Data Schedule (12)
</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 1994
Quarterly Report on form 10-Q for the quarter ended May 31, 1993,
filed with the SEC on July 1, 1993.
(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) Incorporated by reference to exhibits to the Company's 1997 Annual
Report on Form 10-K for the fiscal year ended February 28, 1997,
filed with the SEC on May 29, 1997.
(11) Incorporated by reference to exhibits to the Company's Form 10-Q for
the fiscal quarter ended November 30, 1997, filed with the SEC on
January 14, 1998.
(12) Filed herewith.
<PAGE> 1
EXHIBIT 10.16
[INTERVOICE LETTERHEAD]
February 24, 1998
Mr. Michael W. Barker
1500 Eastwick
Plano, TX 75093
Re: Consulting Services Agreement and General Release
Dear Mike:
This letter constitutes an agreement ("Consulting Agreement and Release")
between InterVoice, Inc. (the "Company") and you regarding the consulting
services that you will perform for the Company as set forth herein, and in
further consideration of the payments to be made by the Company as set forth
below, your general release. This Consulting Agreement and Release takes into
account certain requests made by you and your attorney, John W. Hamilton, and
replaces the proposed Consulting Agreement and Release dated January 27, 1998.
More specifically, the Company and you do hereby agree as follows:
1. CONSULTING SERVICES. The consulting services you will provide will
consist of such business consultations, marketing analyses, business
introductions, litigation assistance, advice, and other services as the
Company may reasonably request and as shall be consistent with your
previous position as the President and a director of the Company. All of
the consulting services will be provided at times that are mutually
convenient for the Company and you, and the Company expressly recognizes
(and will take into account) that you may be working full time for
another employer. The consulting services hereunder will be provided
during the period of March 1, 1998, through May 31, 1998.
2. PAYMENT. In consideration for such consulting services and your
general release, the Company will pay you the total amount of $77,000.00,
such amount payable in equal installments at the end of each month of the
term hereof, i.e., in the sum of $25,666.67 on March 30, 1998, April 30,
1998, and May 31, 1998. In the event the Company terminates your
consulting services prior to May 31, 1998, any unpaid portion of the
$77,000.00 fee for such services will become immediately due and payable.
If the Company claims or alleges any breach of the terms or conditions of
this Consulting Agreement and Release or of the 1997 Letter Agreement by
you, it shall continue to make all payments set forth in this Section 2
as and when due notwithstanding such claims or allegations. The Company
hereby waives any right of setoff against such payments.
3. RELATIONSHIP TO OTHER AGREEMENTS. This Consulting Agreement and
Release, together with the letter agreement between the Company and you
dated December 17, 1997 (the "1997 Letter Agreement") reflects the
entire agreement and understanding between the Company and you with
respect to your resignation and the termination of your employment under
the Amended and Extended Employment Agreement effective as of March 1,
1996, between the Company and you (the "Employment Agreement"); and no
other amounts or obligations of any
<PAGE> 2
Mr. Michael W. Barker
February 24, 1998
Page -2-
nature whatsoever are due or owing to you by the Company in connection
with your resignation and the termination of your employment under the
Employment Agreement or otherwise except as set forth in the 1997 Letter
Agreement and this Consulting Agreement. Except as modified hereby, the
1997 Letter Agreement remains in full force and effect. Your
post-employment obligations under the Employment Agreement (including
without limitation your obligations under Section 27) shall remain in
full force and effect in accordance with the terms thereof; provided,
however, the Company hereby releases you from any obligations under the
noncompetition provisions set forth in Section 6 of the Employment
Agreement.
4. GENERAL RELEASE. IN CONSIDERATION OF THE PAYMENT DESCRIBED IN
PARAGRAPH 2 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)
THE COMPANY; AND (ii) ANY OFFICER, DIRECTOR, SHAREHOLDER, FIDUCIARY,
AGENT, EMPLOYEE, REPRESENTATIVE, INSURER, ATTORNEY, OR ANY SUCCESSORS AND
ASSIGNS OF THE ENTITIES OR PERSONS JUST NAMED (COLLECTIVELY THE "RELEASED
PARTIES"); PROVIDED, HOWEVER, THAT NOTHING CONTAINED HEREIN SHALL BE
DEEMED OR CONSTRUED TO BE A RELEASE OF ANY CLAIM FOR PERFORMANCE OF ANY
UNFULFILLED, FUTURE OBLIGATION OF THE COMPANY CONTAINED EITHER IN THIS
CONSULTING AGREEMENT AND RELEASE OR IN THE 1997 LETTER AGREEMENT, OR A
RELEASE OF ANY RIGHT TO INDEMNIFICATION FROM OR BY THE COMPANY PURSUANT
TO THE PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION OR ITS
BYLAWS, OR CONTAINED IN ANY AGREEMENT BETWEEN THE COMPANY AND YOU WITH
RESPECT TO ANY CLAIM AGAINST YOU BY ANY THIRD PARTY. 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 THE COMPANY, EXCEPT WITH RESPECT TO VESTED RIGHTS THAT YOU MAY HAVE
UNDER ANY EMPLOYEE BENEFIT OR INCENTIVE PLAN OF THE COMPANY IN WHICH YOU
WERE A PARTICIPANT. THUS, YOU AND THE OTHER RELEASING PARTIES AGREE NOT
TO MAKE ANY CLAIMS OR DEMANDS AGAINST THE COMPANY OR ANY OF THE OTHER
RELEASED PARTIES SUCH AS FOR WRONGFUL DISCHARGE OR UNLAWFUL EMPLOYMENT
DISCRIMINATION ON THE BASIS OF AGE (UNDER THE AGE DISCRIMINATION IN
EMPLOYMENT ACT OF 1967 OR ANY SIMILAR STATE LAW) OR ANY OTHER FORM OF
UNLAWFUL EMPLOYMENT DISCRIMINATION, OR FOR ANY PERSONAL INJURY OR DAMAGE
ALLEGEDLY ARISING FROM SUCH ALLEGED WRONGFUL OR UNLAWFUL ACTIONS, WHETHER
BASED ON RIGHTS CLAIMED UNDER STATUTE, IN CONTRACT, OR AT COMMON LAW.
THE EFFECT 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 THE COMPANY OR ANY OF THE OTHER RELEASED PARTIES
FOR ANY LIABILITY RESULTING FROM, GROWING OUT OF, CONNECTED WITH, OR
RELATED IN ANY WAY TO THE FORMATION, CONTINUATION, OR TERMINATION OF YOUR
EMPLOYMENT AND DIRECTOR
<PAGE> 3
Mr. Michael W. Barker
February 24, 1998
Page -3-
RELATIONSHIP WITH THE COMPANY (EXCEPT AS TO WHICH THERE IS EXISTING
VESTED ENTITLEMENT). THIS GENERAL RELEASE DOES NOT APPLY TO ANY RIGHTS OR
CLAIMS THAT MAY ARISE AFTER THE DATE THIS AGREEMENT IS EXECUTED.
5. EFFECTIVE DATE. This Consulting Agreement and Release 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, you may revoke your acceptance.
6. TIME FOR CONSIDERATION, AND CONSULTATION WITH ATTORNEY. The
Company's offer set forth in this Consulting Agreement and Release will
expire at 5:00 p.m. on February 24, 1998, a period of more than 21 days
after you were first provided with the terms of the proposed Consulting
Agreement and Release for your consideration. You acknowledge that you
have consulted with and been represented by an attorney in your
consideration of this Consulting Agreement and Release, and that you have
had more than 21 days in which to consider the Company's proposal. You
have the right to consult with and be advised by an attorney of your
choosing before executing this Consulting Agreement and Release, and you
have until the expiration of 21 days from the date on which you receive
this document in which to consider whether you wish to accept the
Company's proposal.
7. KNOWING AND VOLUNTARY AGREEMENT. You acknowledge that you fully
understand the meaning and effect of your action in executing this
Consulting Agreement and Release; and that your agreement to the terms
and execution of this instrument are knowing and voluntary.
8. MISCELLANEOUS AGREEMENTS.
(a) PERSONAL COMPUTERS AND PRINTERS. The Company is giving you the two
personal computers and the printer described in Exhibit A hereto.
(b) RECOMMENDATIONS. The Company will (i) provide you with mutually
agreed favorable recommendations from Daniel D. Hammond, Chairman of
the Board and Chief Executive Officer, and Rob-Roy J. Graham, Chief
Financial Officer and (ii) cause the members of its Board of
Directors not to make any disparaging and derogatory comments
(whether written or verbal) about you, and upon inquiry to any
member about you, to give favorable responses or recommendations in
line with the recommendation letters to be provided in accordance
with this subparagraph (b).
(c) PUBLIC FILING. You acknowledge and agree that the Company will file
this Consulting Agreement and Release with the Securities and
Exchange Commission and otherwise as required by law.
<PAGE> 4
Mr. Michael W. Barker
February 24, 1998
Page -4-
(d) ATTORNEY'S FEES AND EXPENSES. The Company will pay your attorney's
fees and expenses up to a maximum of $2,000.00 in the aggregate.
If this Consulting Agreement and Release correctly sets forth the
understanding between the Company and you, please so indicate by signing below
in the space provided and by obtaining your attorney's signature reflecting his
approval as to form.
Sincerely yours,
INTERVOICE, INC.
By: /s/ ROB-ROY J. GRAHAM
------------------------------
Rob-Roy J. Graham
Chief Financial Officer
ACCEPTED AND AGREED TO:
/s/ MICHAEL W. BARKER
- ------------------------------
Michael W. Barker
APPROVED AS TO FORM:
/s/ JOHN W. HAMILTON
- ------------------------------
John W. Hamilton
<PAGE> 1
EXHIBIT 10.17
ASSETS PURCHASE AGREEMENT
This Assets Purchase Agreement (this "Agreement"), executed as of the 16th day
of December, 1997 by and among InterVoice Acquisition Subsidiary, Inc., a
Nevada corporation ("Purchaser") that is a wholly owned subsidiary of
InterVoice, Inc., a Texas corporation ("InterVoice"); Integrated Telephony
Products, Inc., a Nevada corporation ("Seller"); and David Lifshitz (the
"Principal Shareholder");
WITNESSETH:
WHEREAS, Purchaser desires to purchase, and Seller and the Principal
Shareholder desire for Seller to sell, certain assets of Seller in accordance
with the terms set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Purchaser, Seller and the Principal Shareholder do hereby agree as follows:
I. AGREEMENT OF SALE AND PURCHASE
1.1 SALE AND PURCHASE. At the closing at Purchaser's offices in Dallas, Texas
at 9:30 a.m., local time, on January 16, 1998 or at such other place, time and
date as Purchaser, Seller and the Principal Shareholder may otherwise mutually
agree (the "Closing"), and subject to the terms of this Agreement, Purchaser
will purchase from Seller, and Seller will sell to Purchaser, all of the
Purchased Assets (as defined in Section 1.2 hereof) in consideration of (i)
Purchaser's payment to Seller of an aggregate cash consideration of $4 million
(the "Cash Consideration"), (ii) services pursuant to and in accordance with the
Service Agreement (as defined in Section 1.5), and (iii) the Common Stock (as
defined in Section 1.4). The Cash Consideration will be reduced by the Initial
Payment (as defined in Section 1.3 hereof). Upon execution of this Agreement,
Purchaser will prepay $500,000 of the Cash Consideration (the "Prepayment");
and at Closing, subject to satisfaction of the closing conditions set forth in
Section 4.2 (except to the extent any such conditions are waived by Purchaser
in accordance with Section 4.2) will pay $1.5 million of the Cash Consideration
to Seller by wire transfer in immediately available funds (based on wire
instructions provided by Seller) and deposit the remaining $1 million of the
Cash Consideration, together with the Common Stock, into escrow in accordance
with the provisions of Section 5.3. In the event that the Closing does not
occur, and the Purchased Assets are not acquired by Purchaser, because any of
the conditions of Sections 4.1 or 4.2 have not been fulfilled or waived, Seller
shall repay to Purchaser the Prepayment within five (5) days of the scheduled
Closing date, subject to the provisions of Sections 4.1(f) and 4.2(h).
1.2 PURCHASED ASSETS. The assets to be purchased by Purchaser from Seller
(collectively, the "Purchased Assets") are the Software (as defined in Section
1.3), the other Intellectual Property (as defined in Section 3.12) and the
Premises Lease
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<PAGE> 2
Agreements (as defined in Section 3.8). Purchaser is not assuming any
liabilities or obligations of Seller (other than any liability and obligations
under the Premises Lease Agreements and Service Agreement), and is not
acquiring any agreements or assets other than Purchased Assets.
1.3 SOFTWARE LICENSE. Contemporaneous with the execution of this Agreement,
Purchaser will initiate the payment of $1 million (the "Initial Payment"),
together with the Prepayment, by wire transfer in immediately available funds,
and complete the payment within thirty six (36) hours of execution of this
Agreement, based on wiring instructions provided by Seller. The Initial Payment
will both (i) be credited against the Cash Consideration otherwise payable at
Closing and (ii) constitute payment in full by Purchaser to Seller for a
nonexclusive, fully paid, perpetual and worldwide license in the form attached
hereto as Exhibit 1.3 (the "License") with respect to the "Software" as defined
therein. For purposes of the purchase of the Purchased Assets pursuant to this
Agreement, and for purposes of all references to the term Software in all
provisions of this Agreement, the term "Software" has the meaning ascribed to it
in Schedule 1.3, which meaning is the same as the meaning ascribed to the term
in the License except the Software purchased pursuant to this Agreement also
includes: (i) all copyrights, trade secrets and inventions included in, or
practiced in connection with, the Software (the License only includes a
non-exclusive license to practice such copyrights, inventions and trade secrets
subject to the terms of the License); and (ii) all marketing and sales promotion
documentation of Seller in any way relating to the Software. If the Closing does
not occur, the License will remain fully valid and enforceable in accordance
with its terms; provided, however, if the Closing does occur, the Cash
Consideration otherwise payable at the Closing will be reduced by the amount of
the Initial Payment. After the Closing occurs, Purchaser will own the Software.
The License includes the services specified therein.
1.4 COMMON STOCK. At the Closing Purchaser will cause InterVoice to issue
shares of InterVoice's common stock, no par value per share ("Common Stock"),
with an aggregate Fair Market Value of $500,000, for the account of Seller. The
shares of Common Stock will not be registered under any state or federal
securities laws. For purposes of this Section 1.4, "Fair Market Value" is based
upon the average closing price per share of InterVoice's Common Stock as
reported on the NASDAQ National Market, for the period of twenty-one
consecutive market trading days commencing on the date ten market trading days
prior to the date of execution of this Agreement, and continuing through the
date which is ten consecutive market trading days after the date of execution
of this Agreement.
1.5 SERVICE AGREEMENT. Purchaser will provide the warranty service and support
(the "Service Agreement") specifically required under the service and support
warranties specifically referenced in the six customer agreements (the "Six
Agreements") referenced in Schedule 1.5, for the remaining term of such
warranties as set forth in Schedule 1.5. Purchaser is only assuming the
warranty obligations specifically referred to in Schedule 1.5. Seller is not
assigning the Six Agreements to Purchaser and Purchaser is not assuming any
other obligations or liabilities under such Six Agreements.
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<PAGE> 3
1.6 INSTRUMENTS OF CONVEYANCE. At the Closing (and from time to time thereafter
as may be reasonably requested by Purchaser) Seller and the Principal
Shareholder will execute such bills of sale, assignments and other instruments
of conveyance as may be reasonably necessary to transfer the Purchased Assets
to Purchaser.
II. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to, and agrees with, Seller and the Principal
Shareholder that:
2.1 CORPORATE ORGANIZATION. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada and has all
requisite corporate power and authority to own, lease and operate its property
and to carry on its business as now being conducted. No actions or proceedings
to dissolve Purchaser are pending or threatened.
2.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Purchaser has full corporate power
and authority to execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby. The execution, delivery and performance
by Purchaser of this Agreement have been duly authorized by all necessary
corporate action of Purchaser. This Agreement has been duly executed and
delivered by Purchaser and constitutes a valid and legally binding obligation
of Purchaser enforceable against it in accordance with its terms.
2.3 NONCONTRAVENTION. The execution, delivery and performance by Purchaser of
this Agreement and the consummation by it of the transactions contemplated
hereby do not and will not conflict with or result in a violation of any
provision of its articles of incorporation or bylaws.
2.4 BROKERAGE FEES. Neither InterVoice, Purchaser nor any of their respective
affiliates has retained any financial advisor, broker, agent or finder or paid
or agreed to pay any financial advisor, broker, agent or finder on account of
this Agreement or any transaction contemplated hereby.
2.5 INTERVOICE SHARES AND DISCLOSURE.
(a) When delivered at closing as contemplated by this Agreement, the Common
Stock will be duly and validly authorized and issued, fully paid and
nonassessable, free from all stamp-taxes, liens, and charges and will have been
issued in compliance with applicable federal and state securities laws.
(b) Purchaser hereby makes the representation below in this Section 2.5(b) with
respect to each of the following:
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<PAGE> 4
(1) Annual report of InterVoice to its shareholders for its fiscal year
ended February 28, 1997;
(2) Annual report of InterVoice on Form 10-K as filed with the
Securities and Exchange Commission (the "SEC") for InterVoice's
fiscal year ended February 28, 1997 (the "Form 10-K");
(3) Proxy Statement of InterVoice relating to its most recent annual
meeting of shareholders;
(4) Quarterly reports of InterVoice on Form 10-Q as filed with the SEC
for each of the first two fiscal quarters of InterVoice of the
current fiscal year (the "Forms 10-Q"), and all other reports have
been filed with the SEC after the filing of the report referred to
in (2) above and prior to the execution hereof.
Each of such documents, at the time it was prepared, and all of such documents
taken together, did not and do not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. All of the financial statements obtained in the foregoing documents
were prepared from the books and records of InterVoice. The audited financial
statements contained in the Form 10-K (the "Audited Financial Statements") were
prepared in accordance with generally accepted accounting principles, and
fairly and accurately reflect the financial position and condition of
InterVoice as at the dates and for the periods indicated. The unaudited
financial statements contained in the Forms 10-Q were prepared in a manner not
inconsistent with the basis of presentation used in the Audited Financial
Statements, and fairly present the financial position and condition of
InterVoice as at and for the periods indicated, subject to normal year end
adjustments, and InterVoice has no reason to believe that any of such
adjustments will be material.
III. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to, and agrees with, Purchaser as set
forth in this Article III.
3.1 CORPORATE ORGANIZATION. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada and has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. No actions or
proceedings to dissolve Seller are pending or threatened. Principal
Shareholder and Wolfgang Kern own, respectively, 20,000 shares and 3,255 shares
of the twenty-five thousand (25,000) shares of common stock of Seller which are
authorized for issuance by Seller; such common stock constitutes all of the
authorized capital stock of Seller; there are no more than ten shareholders of
Seller; and there are no options, rights or other securities convertible into,
or exchangeable for, any capital stock of Seller. Principal Shareholder is the
only director of Seller, and was duly elected and continues to serve as a
director of Seller. Prior to Closing, CallFlow Technologies Corporation, a
Nevada corporation ("CFTC"), will be merged with and into Seller (the
"Merger"), and Seller will be the surviving corporation of the Merger.
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<PAGE> 5
Immediately prior to the Merger, CFTC will be a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada and
will have all requisite corporate power and authority to own, lease and operate
its property. Immediately prior to the Merger, Seller and CFTC will have full
corporate power and authority to execute and deliver and perform the Merger and
all agreements, documents and actions related thereto and to consummate the
transactions contemplated thereby. The execution, delivery and performance by
Seller and CFTC of the Merger and all documents and action related thereto will
have been duly authorized by all necessary corporate action of Seller and CFTC,
respectively, prior to the Merger. Prior to Closing, Seller and CFTC will enter
into all agreements necessary to consummate the Merger, and all such agreements
shall be duly executed and delivered by each of Seller and CFTC, and such
agreements will constitute valid and legally binding obligations of CFTC and
Seller enforceable against each of them in accordance with their terms, and the
Merger will be validly consummated. Any and all Purchased Assets owned, in the
control of and/or attributed to CFTC, in whole or in part, prior to the Merger
will be wholly owned by Seller, without Encumbrances (as defined in Section
3.6), upon consummation of the Merger. Seller represents and warrants that
unless otherwise specifically discussed in this Agreement and the schedules and
exhibits hereto, none of the disclosures, representations and covenants in this
Agreement will change in connection with or as a result of the Merger.
3.2 QUALIFICATION. Seller is duly qualified or licensed to do business as a
foreign corporation and is in good standing in the State of Colorado, which is
the only jurisdiction in which it owns, leases, or operates the Purchased
Assets or in which such qualification or licensing is required for the conduct
of its business.
3.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Seller has full corporate power and
authority to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance by
Seller of this Agreement, and the consummation by it of the transactions
contemplated hereby, have been duly authorized by all necessary corporate
action of Seller. This Agreement has been duly executed and delivered by Seller
and the Principal Shareholder and constitutes a valid and legally binding
obligation of Seller and Principal Shareholder enforceable against them in
accordance with its terms.
3.4 NONCONTRAVENTION. The execution, delivery, and performance by Seller of
this Agreement and the consummation by it of the transactions contemplated
hereby do not and will not (i) conflict with or result in a violation of any
provision of the articles of incorporation or bylaws of Seller, (ii) conflict
with or result in a violation of any provision of, or constitute (with or
without the giving of notice or the passage of time or both) a default under,
or give rise (with or without the giving of notice or the passage of time or
both) to any right of termination, cancellation, or acceleration under, or
require any consent, approval, authorization, or waiver of, or notice to, any
party to, any bond, debenture, note, mortgage, indenture, lease, contract,
agreement, or other instrument or obligation to which Seller is a party or by
which Seller, its business, or any of the Purchased Assets may be bound or any
permit held by Seller or its business, (iii) result in
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<PAGE> 6
the creation or imposition of any Encumbrance upon any of the Purchased Assets,
or (iv) violate any applicable law binding upon Seller, its business, or any of
the Purchased Assets, except, in the case of clause (ii) above, for (A) such
consents, approvals, authorizations, and waivers that have been obtained and
are unconditional and in full force and effect and such notices that have been
duly given and (B) such consents, approvals, authorizations, waivers, and
notices that are disclosed on Schedule 3.4.
3.5 GOVERNMENTAL APPROVALS. No consent, approval, order, or authorization of,
or declaration, filing, or registration with, any governmental entity is
required to be obtained or made by Seller in connection with the execution,
delivery, or performance by Seller of this Agreement or the consummation by it
of the transactions contemplated hereby.
3.6 TITLE TO, AND CONDITION OF, THE PURCHASED ASSETS. Seller is the owner of,
and has good and marketable title to, all the Purchased Assets free and clear
of all mortgages, liens, security interests, restrictions, claims and
encumbrances of any nature whatsoever (collectively, "Encumbrances"), except
as set forth on Schedule 3.6 and as set forth in the Premises Lease Agreements.
Seller does not own any real estate. Upon Seller's transfer of the Purchased
Assets to Purchaser pursuant to this Agreement, Purchaser will have good and
marketable title to all the Purchased Assets free and clear of any
Encumbrances, except as set forth in the Premises Lease Agreements.
3.7 TAX MATTERS. Seller is in the process of conducting a comprehensive review
of tax liabilities to applicable taxing authorities which will be completed
prior to the date of Closing, accordingly, to the knowledge of Seller without
investigation, as of the date of execution of this Agreement Seller has (i)
duly filed all federal, state, local, and foreign tax returns required to be
filed by or with respect to it with the Internal Revenue Service ("IRS") or
other applicable taxing authority, (ii) paid, or adequately reserved against in
its financial statements (including the Unaudited Balance Sheet, as defined in
Section 3.10 hereof), all material taxes due, or claimed by any taxing
authority to be due, from or with respect to it, except taxes that are being
contested in good faith by appropriate legal proceedings and for which adequate
reserves have been set aside, and (iii) made all deposits required with respect
to taxes, in each such case to the extent that the failure to do so would
result in the imposition of any Encumbrance on the Purchased Assets except as
set forth on Schedule 3.7. As of the date of Closing, Seller will have (i) duly
filed all federal, state, local and foreign tax returns required to be filed by
or with respect to it with the IRS or other applicable taxing authority, (ii)
paid, or adequately reserved against in its financial statements (including the
Unaudited Balance Sheet) (as defined in Section 3.10 hereof), all material
taxes due, or claimed by any taxing authority to be due, from or with respect
to it, except taxes that are being contested in good faith by appropriate legal
proceedings and for which adequate reserves have been set aside as disclosed in
the applicable financial statements delivered to Purchaser pursuant to Section
3.10, and (iii) made all deposits required with respect to taxes, in each such
case to the extent that the failure to do so would result in the imposition of
any Encumbrance on the Purchased Assets. There has been no issue raised or
adjustment proposed (and none is pending) by the IRS or any other taxing
authority in connection with any tax returns relating to the Purchased Assets
or the operation of Seller's business. No waiver or extension of any
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<PAGE> 7
statute of limitations as to any federal, state, local, or foreign tax matter
relating to the Purchased Assets or the operation of the Seller's business has
been given by or requested from Seller.
3.8 LEASED PROPERTY. Set forth on Schedule 3.8 is a list and summary
description of the material terms of all leases under which Seller is the
lessee of real or personal property used or held for use in connection with the
operation of its respective business. The two lease agreements for the premises
at 10691 East Bethany Drive reflected on Schedule 3.8 are defined as the
"Premises Lease Agreements". Seller has good and valid leasehold interests in
all such properties held by it under lease, except for the Premises Lease
Agreement covering Suite 600, and Seller will have a good and valid leasehold
interest in such Premises Lease Agreement covering Suite 600 on or before the
date of Closing. Seller is not in breach of or in default under, nor has any
event occurred which (with or without the giving of notice or the passage of
time or both) would constitute a default by Seller under, any of such leases,
and Seller has not received any notice from, or given any notice to, any lessor
indicating that it or such lessor is in breach of or in default under any of
such leases. To the best knowledge of Seller, none of the lessors under any of
such leases is in breach thereof or in default thereunder.
3.9 COMPLIANCE WITH LAWS. Seller has complied in all material respects with all
applicable statutes, laws, rules and regulations relating to the ownership or
operation of the Purchased Assets or the operation of its business (including
without limitation applicable laws relating to securities, properties, business
products, manufacturing processes, advertising and sales practices, employment
practices, terms and conditions of employment, wages and hours, safety,
occupational safety, health, environmental protection, product safety, and
civil rights), and Seller has not received any written notice, which has not
been dismissed or otherwise disposed of, that Seller has not so complied.
Seller is not charged or, to its best knowledge, threatened with, or, to the
best knowledge of Seller, under investigation with respect to, any violation of
any applicable law, statute, rule or regulation relating to any aspect of the
ownership or operation of the Purchased Assets or the operation of its
business.
3.10 FINANCIAL STATEMENTS. At least four (4) days prior to the Closing date,
Seller will deliver to Purchaser accurate and complete copies of an unaudited
balance sheet of the Seller as of the most recent date practicable, but no
earlier than November 30, 1997 (the "Unaudited Balance Sheet"), prepared by the
Seller's certified public accountant. The Unaudited Balance Sheet will (i)
represent actual bona fide transactions, (ii) be prepared from the books and
records of Seller in conformity with generally accepted accounting principles
consistently applied and (iii) will accurately, completely, and fairly present
in all material respects the financial position of the business of Seller as of
the date thereof. As of the Closing, the Unaudited Balance Sheet will reflect
that Seller's cash, cash equivalents and accounts receivable are, in the
aggregate (together with the Initial Payment, the Prepayment and $1.5 million
of the Cash Consideration), at least two hundred percent (200%) of the
aggregate of Seller's short term and long term debt and liabilities as
reflected in the Unaudited Balance Sheet (the "Financial Ratio").
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3.11 AGREEMENTS.
(a) Listed on Schedule 3.11(a) are all of the following agreements, including
any and all modifications or amendments thereto, to which Seller is a party or
by which Seller is otherwise bound (written or oral, formal or informal)
(collectively, the "Agreements"): (i) all executory purchase, sales, license,
lease, service, distribution and similar agreements and purchase orders
involving customers, distributors or suppliers (for purposes of resale and/or
relicense) of Seller; (ii) all loan agreements, guarantees and promissory notes
(other than trade payables incurred in the ordinary course of business); (iii)
all other agreements related to the Purchased Assets; (iv) escrow agreements;
and (v) any and all other agreements which do involve, or might reasonably be
expected to involve, obligations or liabilities of Seller in excess of $ 10,000.
(b) Seller will: (i) within one week of execution of this Agreement, deliver to
Purchaser accurate and complete copies of the written Agreements and written
summaries of the oral Agreements listed on Schedule 3.11(a), and (ii) will,
within two weeks of execution of this Agreement, deliver to Purchaser, a list
of, and accurate and complete copies of, all nonexecutory purchase, sales,
license, lease, service, distribution and similar agreements and purchase
orders involving customers, distributors or suppliers (for purposes of resale
and/or relicense) of Seller, and such list will become Schedule 3.11(b) to
this Agreement and such agreements will be included in the definition of
Agreements in Section 3.11(a). No breach or default exists with respect to any
of such Agreements, and no event has occurred which, after the giving of notice
or the passage of time or otherwise, will result in any such breach or default,
except as set forth on Schedule 3.11(a).
(c) Seller has not received notice of any plan or intention of any other party
to any Agreement to exercise any right of offset with respect to, or any right
to cancel or terminate, any Agreement, and Seller does not know of any fact or
circumstance that would justify the exercise by any such other party of such a
right other than the automatic termination of such Agreement in accordance with
its terms, except as set forth in Schedule 3.11(a).
(d) Seller will fully perform in a timely manner all obligations it is required
to perform under any of the Agreements, other than, on and after the Closing
date, the Premises Lease Agreements and warranty service and support
specifically covered by the Service Agreement.
3.12 INTELLECTUAL PROPERTY. (a) Set forth on Schedule 3.12 is a list of all
trademarks, service marks, trade names, service names, brand names, web-site
names and addresses, and similar rights, and all registrations, applications,
licenses, and rights with respect to any of the foregoing (collectively, and
together with the Software, and any and all trade secrets, copyrights and
inventions of Seller related to the Software, are, the "Intellectual Property")
relating to or used or held for use in connection with the operation of
Seller's businesses. Schedule 3.12 specifies, as applicable: (i) the nature of
such Intellectual Property; (ii) the owner of such Intellectual Property; (iii)
the jurisdictions by or in which
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such Intellectual Property has been issued or registered or in which an
application for such issuance or registration has been filed, including the
respective registration or application numbers; and (iv) all licenses,
sublicenses, and other agreements to which Seller is a party and pursuant to
which Seller or any other person is authorized to use such Intellectual
Property, including the identity of all parties thereto, a description of the
nature and subject matter thereof, the applicable royalty, and the term
thereof. No patent applications have been filed by Seller or Principal
Shareholder at any time, and no patent has been issued in the name of Seller or
Principal Shareholder.
(b) Seller has good and marketable title to, or is validly licensed to use, all
Intellectual Property used in connection with the business of Seller (including
information with respect to any trademark, service mark or other registrations
and any licenses, sublicenses or other agreements relating to such Intellectual
Property). Without limiting the foregoing, Seller owns and has good and
marketable title to the Software free and clear of all Encumbrances. Each item
of Intellectual Property is in full force and effect, Seller is in compliance
with all its obligations with respect thereto and no event has occurred which
permits, or upon the giving of notice or the passage of time or both would
permit, the revocation or termination of any Intellectual Property. There are
no proceedings pending or, to the best knowledge of Seller and the Principal
Shareholder, threatened against Seller or any direct or indirect customers of
Seller, asserting that their respective use of any such Intellectual Property
or any product sold, licensed or otherwise conveyed by Seller infringes or
infringed upon the rights of any other person or seeking the revocation,
termination or concurrent use of any such Intellectual Property, and there is
no basis for any such proceeding. To the best knowledge of Seller and the
Principal Shareholder, none of the Intellectual Property is being infringed
upon by any other person. None of such Intellectual Property is subject to any
outstanding judgment, order, writ, injunction or decree of any governmental
entity or to any agreement, arrangement or understanding, written or oral,
restricting the scope or use thereof. At the Closing, Purchaser will receive
good and marketable title to all such Intellectual Property free and clear of
any Encumbrances. Seller has only provided copies of the Software to its
customers in connection with the sale of voice and/or call automation systems
and only in executable code (not source code) and only pursuant to
non-exclusive licenses which reserve all ownership rights to Seller. The
representations and warranties set forth in Article 7 of the License are
specifically incorporated into this Agreement and such representations and
warranties will remain valid before and after the date of Closing.
3.13 LIABILITIES. Seller has no liabilities or obligations (whether accrued,
absolute, contingent, unliquidated, or otherwise, whether or not known to
Seller, and whether due or to become due) including, without limitation, any
liabilities or obligations with respect to any unpaid taxes, except the
liabilities specifically set forth on Schedule 3.13 (the "Unassumed
Liabilities"). Except as set forth on Schedule 3,13, all Unassumed Liabilities
have arisen in the ordinary course of Seller's businesses and none of Seller's
respective obligations thereunder are past due or subject to acceleration,
demand for payment or payment of a penalty. Notwithstanding this or any other
provision of this Agreement, any and all liabilities that arise under the
Premises Lease Agreements (to the extent the Premises Lease Agreements are
acquired by Purchaser) and Service Agreement
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on and after the date of Closing (which liabilities are not based on any breach
of representation by Seller hereunder prior to the date of Closing), are not
"Unassumed Liabilities".
3.14 LEGAL PROCEEDINGS. There are no lawsuits or other legal proceedings
pending or threatened against or involving Seller or any of its properties
except as set forth on Schedule 3.14. The plaintiffs in the lawsuits on
Schedule 3.14 have made the settlement demands reflected in Schedule 3.14.
Seller has provided, or within one week of execution of this Agreement will
provide, Purchaser with copies of all complaints, responses and other pleadings
filed in court in such lawsuits. No judgment, order, writ, injunction or decree
of any governmental entity has been issued or entered against Seller which
continues to be in effect with respect to or affecting the Purchased Assets
and/or the operation of Seller's business. There are no proceedings pending or,
to the best knowledge of Seller, threatened seeking to restrain, prohibit, or
obtain damages or other relief in connection with this Agreement or the
transactions contemplated hereby or Seller's business.
3.15 EMPLOYEES. Set forth on Schedule 3.15 is a list of the name and dates of
employment by Seller of each employee of Seller as of December 12, 1997,
together with a description of the position of each such employee and the total
amounts of current annual salary, bonuses, and other compensation paid or
payable by Seller to each such employee for the current calendar year and the
immediately preceding calendar year. The bonuses and base salary for calendar
year 1997 for the employees have been aggregated for purposes of Schedule 3.15.
Seller will provide Purchaser, within seven days of execution of this
Agreement, with separate amounts of bonuses and base salary paid or payable for
calendar year 1997. Seller's employees as of the date of execution of this
Agreement include employees who, based on reasonable commercial standards, are
capable of maintaining and supporting the Software (including providing bug
fixes), providing the "Integration Services" (as such term is defined in the
License), and enhancing and upgrading the Software.
3.16 CONFIDENTIALITY, ASSIGNMENT AND SOFTWARE DEVELOPMENT. Set forth on
Schedule 3.16 is a list of all: (i) confidentiality agreements, and (ii)
assignment agreements with current employees of Seller. The Software has been
designed and developed solely by employees of Seller during the course of their
employment with Seller.
3.17 BOOKS AND RECORDS. All the books and records of Seller relating to the
Purchased Assets or Seller's business, including all personnel files, employee
data, and other materials relating to employees of Seller, are substantially
complete and correct, have been maintained in accordance with good business
practice and all applicable laws, and, in the case of the books of account,
accurately reflect the accounts of the Company. Such books and records
accurately and fairly reflect, in reasonable detail, all material transactions,
revenues, expenses, assets, and liabilities of Seller with respect to its
business.
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3.18 SOLVENCY. Seller is not insolvent, nor will Seller be rendered insolvent
by the occurrence of the transactions contemplated by this Agreement. In
addition, immediately after giving effect to the consummation of the
transactions contemplated by this Agreement, (i) Seller will be able to pay its
debts as they become due, (ii) Seller will not have unreasonably small capital
and (iii) taking into account pending and threatened litigation, final
judgments against Seller in actions for money damages are not reasonably
anticipated to be rendered at a time when, or in amounts such that, Seller will
be unable to satisfy any such judgments promptly in accordance with their terms
(taking into account the maximum probable amount of such judgments in any such
actions and the earliest reasonable time at which such judgments might be
rendered). The cash available to Seller, after taking into account all other
anticipated uses of the cash of Seller, will be sufficient to pay all such
judgments promptly in accordance with their terms. As used in this Section, (x)
"insolvent" means that the sum of the present fair salable value of the
Seller's assets does not and will not exceed its debts and other probable
liabilities, and (y) the term "debts" includes any legal liability, whether
matured or unmatured, liquidated or unliquidated, absolute, fixed, or
contingent, disputed or undisputed, secured or unsecured.
3.19 ERISA. Except as set forth on Schedule 3.19, Seller and its affiliates
have never made or ever been required to make contributions to any program or
arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan," or a "multiemployer plan," as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). Seller and all the affiliates of Seller have
paid and discharged promptly when due all liabilities and obligations arising
under ERISA or the Internal Revenue Code of a character which if unpaid or
unperformed might result in the imposition of a lien against any of the
Purchased Assets. For purposes of this Section only, an "affiliate" of any
person means any other person which, together with such person, would be
treated as a single employer under Section 414 of the Internal Revenue Code.
3.20 PERMITS. Set forth on Schedule 3.20 is a list of all licenses, permits,
franchises, consents, approvals, variances, exemptions, and other
authorizations of or from governmental entities ("Permits") held by Seller
which relate to Seller's businesses. Such Permits constitute all the permits
necessary or required for the ownership and operation of the Purchased Assets
and the conduct of Seller's businesses. Each of such Permits is in full force
and effect, Seller is in compliance with all its obligations with respect
thereto, and, to the best knowledge of Seller, no event has occurred which
permits, or with or without the giving of notice or the passage of time or both
would permit, the revocation or termination of any thereof. No notice has been
issued by any governmental entity and no proceeding is pending or, to the best
knowledge of Seller, threatened with respect to any alleged failure by Seller
to have any Permit.
3.21 ENVIRONMENTAL MATTERS. (a) Any property owned or leased by Seller (the
"Property") is not in violation of, or subject to any pending or, to the best
knowledge of Seller, threatened proceeding under, any applicable statute, law,
rule or regulation or any judgment, order, writ, injunction or decree of any
governmental entity pertaining to health, safety, the environment, Hazardous
Substances (as herein defined) or Solid Waste
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(as herein defined) (collectively, the "Applicable Environmental Laws"),
including without limitation the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986 (as amended, "CERCLA"), and the Resource
Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act
of 1980, the Solid Waste Disposal Act Amendments of 1980, and the Hazardous and
Solid Waste Amendments of 1984 (as amended, "RCRA"). No asbestos, material
containing asbestos that is or may become friable, or material containing
asbestos deemed hazardous by applicable laws, has been installed in any
Property by Seller or any contractor retained by Seller or, to the best
knowledge of Seller, by any owner, lessee or contractor prior to Seller's
occupancy of the Property.
(b) To the best knowledge of Seller, the representations and warranties set
forth in this Section 3.21 would continue to be true and correct following
disclosure to the applicable governmental entities of all relevant facts,
conditions and circumstances, if any, pertaining to the Property.
(c) Seller has not obtained and is not required to obtain any permits to
construct, occupy, operate or use any buildings, improvements, fixtures,
equipment or other tangible property forming a part of the Purchased Assets by
reason of any Applicable Environmental Laws.
(d) The terms "Hazardous Substance" and "Release" shall have the meanings
specified in CERCLA, and the terms "Solid Waste" and "Disposal" (or "Disposed")
shall have the meanings specified in RCRA; provided that to the extent the laws
of the jurisdiction in which the Property is located establish a meaning for
the "Hazardous Substance", "Release", "Solid Waste", or "Disposal" (or
"Disposed") which is broader than that specified in either CERCLA or RCRA, such
broader meaning shall apply.
3.22 BROKERAGE FEES. Neither Seller nor the Principal Shareholder nor any of
their respective affiliates has retained any financial advisor, broker, agent
or finder or paid or agreed to pay any financial advisor, broker, agent or
finder on account of this Agreement or any transaction contemplated hereby.
3.23 THE SIX AGREEMENTS. The information set forth on Schedule 1.5 is true and
correct and all equipment, software, services and other products acquired under
the Six Agreements, have been fully delivered, rendered and accepted to and by
the applicable customers, except for the warranty services and support
expressly covered by the Service Agreement on and after Closing.
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IV. CONDITIONS PRECEDENT TO CLOSING
4.1 CONDITIONS TO OBLIGATIONS OF SELLER AND THE PRINCIPAL SHAREHOLDER. The
respective obligations of Seller and the Principal Shareholder to consummate
the transactions contemplated by this Agreement (other than with respect to the
License and refund of the Initial Payment and Prepayment as set forth in
Sections 1.1 and 1.3 hereof) shall be subject to the fulfillment on or prior to
Closing of each of the following conditions, which conditions can be waived, in
whole or in part, only in a written document signed by Seller and Principal
Shareholder:
(a) REPRESENTATIONS AND WARRANTIES TRUE. All the representations and
warranties of Purchaser set forth in this Agreement shall be true
and correct in all material respects as of the date made and as of
the Closing.
(b) AGREEMENTS PERFORMED. Purchaser shall have performed all agreements
required by this Agreement to be performed by it on or prior to the
Closing.
(c) CERTIFICATE. Seller and the Principal Shareholder shall have received a
certificate executed by an executive officer of Purchaser, dated as
of the Closing, certifying that the conditions set forth in
Sections 4.1(a) and (b) hereof have been fulfilled.
(d) CONSULTING AGREEMENT. Purchaser shall have caused InterVoice to execute a
one (1) year consulting agreement with Principal Shareholder in
form and substance mutually satisfactory to the parties to this
Agreement (the "Lifshitz Agreement"). Pursuant to the Lifshitz
Agreement, Purchaser will pay Principal Shareholder $120,000
through twelve (12) equal monthly installments. Principal
Shareholder will provide any and all services reasonably requested
by InterVoice during the term of the Lifshitz Agreement that in any
way relate to the Purchased Assets. The Lifshitz Agreement will
include: (i) normal and customary confidentiality provisions; (ii)
a representation by Principal Shareholder not to solicit for
employment or employ, directly or indirectly, on behalf of himself,
any company or other person for a period of five years from the
Closing Date, any Former Employee (as defined in Section 7.5(a)),
and/or any employee of Seller as of the date this Agreement is
executed to whom Purchaser or InterVoice makes an offer of
employment (with compensation equal to or in excess of the
compensation paid to such employee by Seller for the calendar year
ended December 31, 1997) prior to the date of Closing, and (iii)
the non-compete provision set forth on Schedule 4.1(d) hereto.
The representations set forth in the prior sentence will
automatically terminate if the Lifshitz Agreement is terminated
based on a default by Purchaser, which is not substantially cured
within 30 days of the date that written notice of such default is
received by Purchaser. Purchaser will promptly pay any and all
reasonable, authorized expenses incurred by Principal
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Shareholder in connection with services rendered pursuant to the
Consulting Agreement.
(e) FINDERS FEE AGREEMENT. Purchaser shall have caused InterVoice to execute
a finders fee agreement in form and substance mutually satisfactory
to Seller and Purchaser, pursuant to which Seller will receive a
finders fee for any specific sales opportunity identified to
Purchaser or InterVoice on or before the Closing Date, provided the
sales opportunity results in a sale to Purchaser or to InterVoice
within one-hundred eighty (180) days after the Closing. The
finder's fee will equal five percent (5%) of the aggregate purchase
price of the software licenses, equipment and services sold by
Purchaser or InterVoice (less any applicable taxes, freight,
duties, tariffs or similar charges) as a result of the specific
identified opportunities.
(f) BOARD AND SHAREHOLDER APPROVAL. The transactions contemplated in order to
close this Agreement and consummate the transaction contemplated
hereunder shall have been approved by the Boards of Directors and
shareholders of Seller. If the Closing does not occur solely
because the Board of Directors and/or shareholders of Seller do not
approve the transactions contemplated by this Agreement and the
Closing, then Seller shall refund to Purchaser $250,000 of the $1
million paid for the License, and such refund shall not in any way
affect the License or Purchaser's rights with respect to the
License, which License will remain fully enforceable, paid up and
royalty free.
(g) ESCROW AGREEMENT. Purchaser, Seller and an escrow agent will enter into a
mutually acceptable Escrow Agreement for the Escrowed Funds in
accordance with Section 5.3.
4.2. CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of Purchaser to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment on or prior to the Closing of each of the following conditions,
which conditions can be waived, in whole or in part, only in a written document
signed by Purchaser:
(a) REPRESENTATIONS AND WARRANTIES TRUE. All the representations and
warranties of Seller set forth in this Agreement shall be true and
correct in all material respects as of the date made and as of the
Closing.
(b) AGREEMENTS PERFORMED. Seller and Principal Shareholder shall have
performed all agreements required by this Agreement to be performed
by it or him on or prior to the Closing.
(c) CERTIFICATE. Purchaser shall have received a certificate executed by an
executive officer of Seller, dated as of the Closing, certifying
that the conditions set forth in Sections 4.2(a) and (b) hereof
have been fulfilled.
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(d) CONSULTING AND EMPLOYMENT AGREEMENTS. Purchaser shall have received the
Lifshitz Agreement and the employment agreements between InterVoice
and those employees of Seller listed on Schedule 4.2(d) hereto
(which employment agreements shall be offered to such employees on
terms reasonably satisfactory to InterVoice and Purchaser, and will
provide for compensation which is equal to or greater than
compensation that was paid by Seller to the applicable employee for
the calendar year ending December 31, 1997).
(e) RELEASE OF LIEN. The lien in favor of Athena International, LLC on
Seller's accounts receivable, machinery, equipment and any other
assets shall: (i) have been released and Seller and the Principal
Shareholder shall have provided Purchaser with satisfactory
evidence of such release; or (ii) be subject to an opinion of
Seller's counsel, as set forth in Section 4.2(g), that such lien is
not an Encumbrance on the Purchased Assets.
(f) UNASSUMED LIABILITIES AND LAWSUITS. Seller shall provide Purchaser with
reasonable evidence that all Unassumed Liabilities which are due
and payable on or before the date of Closing, including without
limitation any and all amounts due to any taxing authority in any
jurisdiction, have been fully paid and discharged.
(g) OPINION OF SELLER'S COUNSEL. Purchaser shall have received an opinion of
Solomon Pearl Blum & Quinn LLP, legal counsel to Seller and the
Principal Shareholder, with respect to the matters set forth on
Schedule 4.2(g).
(h) BOARD APPROVAL. The transactions contemplated by this Agreement shall
have been approved by the respective Boards of Directors of
InterVoice and Purchaser. If the Closing does not occur solely
because the Board of Directors of InterVoice and Purchaser do not
approve the transactions contemplated by this Agreement and the
Closing, then Purchaser will pay Seller $250,000 and such payment
shall be made by Seller retaining $250,000 of the Prepayment, and
refunding to Purchaser the remaining $250,000.
(i) CONSENTS AND APPROVALS. All consents and approvals required pursuant to
this Agreement, and to consummate the transactions contemplated by
this Agreement, have been received. If Purchaser waives any consent
or approval required with respect to any Premises Lease Agreement,
such Premises Lease Agreement will be excluded from the Purchased
Assets.
(j) ESCROW AGREEMENT. Purchaser, Seller and an escrow agent will enter into a
mutually acceptable Escrow Agreement for the Escrowed Funds in
accordance with Section 5.3.
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(k) INVESTMENT LETTER. Seller will sign and deliver an investment letter
substantially in the form of the letter attached hereto as Schedule
4.2(k).
V. INDEMNIFICATION
5.1 INDEMNIFICATION BY PURCHASER. Purchaser will indemnify and hold harmless
Seller and the Principal Shareholder (the "Purchaser Indemnity") from and
against all losses, claims and liabilities of any nature whatsoever (including
reasonable attorneys' fees and expenses) (collectively, the "Seller Claims")
resulting from (i) the breach by Purchaser of any provision of this Agreement
(including without limitation the representations and warranties set forth in
Article II hereof); and/or (ii) from the use by Purchaser of the Purchased
Assets after the date of Closing, to the extent and only to the extent, that
such losses, claims and/or liabilities are not based on any breach of this
Agreement, including without limitation any breach of representations,
warranties or covenants under this Agreement, by Seller or the Principal
Shareholder. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, PURCHASER'S
AGGREGATE LIABILITY UNDER, AND/OR ARISING IN CONNECTION WITH, THIS AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED HEREUNDER, FOR ANY AND ALL CLAIMS AND LOSSES,
INCLUDING WITHOUT LIMITATION ANY AND ALL CLAIMS WITH RESPECT TO THE PURCHASER
INDEMNITY, AND ANY AND ALL OTHER CLAIMS FOR ACTUAL, CONSEQUENTIAL, INCIDENTAL
OR PUNITIVE DAMAGES, WILL IN NO EVENT EXCEED $4.5 MILLION.
5.2 INDEMNIFICATION BY SELLER; SHAREHOLDER GUARANTY. Seller indemnifies and
holds harmless Purchaser and InterVoice (the "Seller Indemnity") from and
against all losses, claims and liabilities of any nature whatsoever (including
reasonable attorneys' fees and expenses) (collectively, the "Purchaser Claims")
resulting from (i) the breach by Seller of any provision of this Agreement
(including without limitation the representations and warranties set forth in
Article III hereof); and/or (ii) the conduct of Seller's business prior to the
Closing. The Principal Shareholder irrevocably, absolutely and unconditionally
guarantees to Purchaser the prompt, complete, and full payment when due, and no
matter how the same shall become due, of the Seller Indemnity, including all
obligations thereunder (the "Shareholder Guaranty"). The Shareholder Guaranty
is primary and not secondary and is a guaranty of Seller's performance of the
Seller Indemnity and not merely a guaranty of collection of any amounts due
thereunder, and Purchaser is not required to pursue or exhaust its remedies
against Seller with respect to the Seller Indemnity before enforcing
Purchaser's rights and remedies with respect to the Shareholder Guaranty.
NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS AGREEMENT, THE AGGREGATE LIABILITY
OF BOTH SELLER AND THE PRINCIPAL SHAREHOLDER UNDER, AND/OR ARISING IN
CONNECTION WITH, THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREUNDER,
FOR ANY AND ALL CLAIMS AND LOSSES, INCLUDING WITHOUT LIMITATION ANY AND ALL
CLAIMS WITH RESPECT TO THE SELLER INDEMNITY, THE SHAREHOLDER GUARANTY
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AND ANY AND ALL OTHER CLAIMS FOR ACTUAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE
DAMAGES, WILL IN NO EVENT EXCEED $4.5 MILLION.
5.3 ESCROW AGREEMENT. In order to secure the obligations of Seller and the
Principal Shareholder under this Agreement, Purchaser shall deposit $1 million
of the Cash Consideration and the Common Stock (collectively, the "Escrowed
Funds") into escrow for a maximum of one (1) year from the Closing date
(subject to the last sentence of this Section 5.3) pursuant to the terms of an
escrow agreement (the "Escrow Agreement"), which will be executed as a Closing
condition to this Agreement. If and when Seller presents Purchaser with
evidence reasonably satisfactory to Purchaser at any time within one year of
the Closing date, that two of the three lawsuits set forth on Schedule 3.14
have been fully terminated, and that all claims that have been made or could
have been made in connection with such proceedings have been dismissed with
prejudice by a court of competent jurisdiction, the Common Stock will be
released from the escrow. Notwithstanding any other provision of this Section
5.3, $1 million of the Cash Consideration will remain Escrowed Funds and will
not be released from the escrow after the first annual anniversary of the
Closing, until if and when Seller has presented Purchaser with evidence
reasonably satisfactory to Purchaser that all three lawsuits set forth on
Schedule 3.14 have been fully terminated, and that all claims that have been
made or could have been made in connection with such proceedings have been
dismissed with prejudice by a court of competent jurisdiction.
5.4 BASKET. No Seller Indemnity shall be required to be made by Seller pursuant
to this Article V with respect to any Purchaser Claims with respect to which
Purchaser provides Seller written notice during the one-year period commencing
on the Closing and ending on the first anniversary thereof except to the extent
the aggregate amount of all Purchaser Claims exceeds $100,000. No Seller
Indemnity shall be required to be made by Seller pursuant to this Article V
with respect to any Purchaser Claims with respect to which Purchaser provides
Seller written notice during the four-year period commencing on the first
anniversary of the Closing and ending on the fifth anniversary thereof except
to the extent the aggregate amount of all Purchaser Claims since the Closing
exceeds $200,000.
5.5 SURVIVAL. The respective representations and warranties of Purchaser and
Seller set forth in this Agreement or in any certificate, instrument or
document delivered pursuant hereto shall survive the Closing for three years;
provided, however, the representations and warranties of Seller set forth in
Sections 3.7 Tax Matters and 3.12 Intellectual Property shall survive the
Closing for five years (such three or five year period being herein called the
"Survival Date"). Neither Purchaser nor Seller shall have any indemnification
obligations under this Article V unless prior to the applicable Survival Date
such party shall have received notice from the other party hereto of the Seller
Claims or Purchaser Claims, as applicable, with respect to which
indemnification is sought.
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VI. CERTAIN COVENANTS
6.1 PAYMENT OF OBLIGATIONS. As soon as reasonably possible (and, in any event,
prior to such becoming past due, delinquent or a contractual breach), Seller
will (i) pay or otherwise satisfy all Unassumed Liabilities; (ii) perform all
obligations of Seller under the Agreements; and (iii) provide Purchaser with
evidence reasonably satisfactory to it of such payment, satisfaction and
performance that occurs prior to Closing.
6.2 CHANGE OF CORPORATE NAMES AND TERMINATION. Upon Closing, Seller will
immediately terminate the employment of all employees of Seller to whom
Purchaser or InterVoice has made an offer of employment (with compensation
equal to or in excess of the compensation paid to such employee by Seller for
the calendar year ended December 31, 1997). Within ten days after the Closing
Seller will change its corporate name or names so as not to include "Integrated
Telephony Products, Inc." or any derivative thereof or "CallFlow Technologies
Corporation" or any derivative thereof.
VII. MISCELLANEOUS PROVISIONS
7.1 TAX ALLOCATIONS. Purchaser and Seller will allocate the Cash Consideration
among the various Purchased Assets for purposes of Form 8594 and any other
filings with the IRS in accordance with a tax allocation schedule to be
mutually agreed to between Seller and Purchaser at the Closing.
7.2 SALES TAX. Seller will pay any sales, use or similar tax in connection with
Purchaser's purchase of the Purchased Assets and the transactions contemplated
by this Agreement.
7.3 GOVERNING LAW. This Agreement will be governed by, and construed in
accordance with, the laws of the State of Texas.
7.4 NOTICES. Any notice or other communication required or permitted by this
Agreement shall be in writing and shall be deemed sufficient if delivered
personally, or if transmitted by first class registered or certified mail,
postage prepaid with return receipt requested, or if sent by prepaid overnight
delivery service, or if sent by cable, telegram, telefax or telex, to the
parties at the following addresses (or at such other addresses as shall be
specified by the parties by like notice):
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<PAGE> 19
If to Purchaser:
InterVoice Acquisition Subsidiary, Inc.
17811 Waterview Parkway
Dallas, Texas 75252
Attention: Rob-Roy J. Graham
Chief Financial Officer and Controller
With a copy to:
InterVoice, Inc.
17811 Waterview Parkway
Dallas, Texas 75252
Attention: Dean C. Howell
Vice President and Corporate Counsel
If to Seller and the Principal Shareholder:
Mr. David Lifshitz
Integrated Telephony Products, Inc.
10691 East Bethany Drive, Suite 900
Aurora, Colorado 80014
With a copy to:
Solomon Pearl Blum & Quinn LLP
Mile High Center
1700 Broadway, #1820
Denver, Colorado 80290
Attention: Clifford R. Pearl, Esq.
7.5 COOPERATION.
(a) Prior to Closing. Between the date of this Agreement and the Closing,
Seller will (i) conduct the business of Seller in the ordinary course of
business and in accordance with past practice, (ii) obtain Purchaser's prior
written approval before selling or disposing of any material assets or entering
into any contract, (iii) discuss with Purchaser any sales opportunity that
arises prior to the date of Closing, such that the parties may mutually agree
upon how the sales opportunity should be pursued, and (iv) use their best
efforts to retain, and assist Purchaser in its efforts to employ on and after
Closing on behalf of itself and InterVoice, such employees of Seller as
Purchaser may designate. Seller and Principal Shareholder on the one hand, and
Purchaser on the other hand, acknowledge and agree to cooperate with, and
provide reasonable assistance to, the other party or parties in the fulfillment
of their conditions and obligations under this Agreement, including without
limitation, Purchaser's due diligence review in connection with warranties and
representations made by Seller and the transactions contemplated by this
Agreement. Purchaser will cooperate with Seller in connection with its due
diligence
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<PAGE> 20
review in order to avoid harming Seller's relationships with its employees,
customers, creditors and suppliers. This Section 7.5 will not be construed to
in any way indicate that, Seller and Principal Shareholder on the one hand, and
Purchaser on the other hand, is in any way responsible for the representations,
warranties, covenants, conditions or other obligations of the other party or
parties. Seller will provide Purchaser with the names and titles of all former
employees of Seller who were at any time employed by Seller during the twelve
month period preceding the date of execution of this Agreement (the "Former
Employees"). Seller will provide Purchaser with reasonable assistance to
determine the relevant technical skills and capabilities of such Former
Employees and to assist Purchaser to contact such Former Employees.
(b) Pre-Closing Sales. Seller and Purchaser will cooperate to mutually
agree upon what to do with any sale by Seller which is completed between the
date of execution of this Agreement and the date of Closing pursuant to a
signed and enforceable sales and/or license agreement ("Pre-Closing Sales"). It
is the intention of the parties to cooperate in good faith to close each
Pre-Closing Sale and for Purchaser to take an assignment of the Pre-Closing
Sale subject to: (i) the parties mutually agreeing upon the terms and
conditions of the Pre-Closing Sale (including, without limitation, price,
payment, delivery, currency and credit terms); and (ii) Seller and Purchaser
splitting the profits associated with the Pre-Closing Sale. For purposes of
this Section 7.5(b), the profit for the Pre-Closing Sale will equal the
purchase price for all services, equipment and software licenses purchased,
minus any freight, taxes, duties, tariffs and the cost to Seller of third party
equipment and software licenses resold by Seller (and paid for by Seller in
full prior to Closing) as part of the Pre-Closing Sale.
(c) Announcements. Seller and Purchaser shall, and Purchaser shall cause
InterVoice to, cooperate in good faith in the preparation and public
announcement of all press releases and other announcements concerning the
license and/or acquisitions contemplated by this Agreement. Seller, Purchaser
and InterVoice shall each use their best efforts to accurately describe the
license and/or acquisitions contemplated under this Agreement.
7.6 ENTIRE AGREEMENT; NO ASSIGNMENT. This Agreement, together with the
Non-Disclosure Agreement between Purchaser and Seller, constitutes the entire
agreement among Purchaser, Seller and the Principal Shareholder with respect to
the subject matter hereof. This Agreement will be binding upon, and will inure
to the benefit of, Purchaser and Seller and their respective successors and
permitted assigns and the Principal Shareholder and his heirs, legal
representatives and permitted assigns. No party may assign this Agreement
without the prior written consent of the other parties hereto; provided,
however, Purchaser may assign this Agreement or any rights hereunder to
InterVoice.
7.7 SEVERABILITY. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in
all other respects this Agreement shall remain in full force and effect;
provided, however, if any such provision may be made
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<PAGE> 21
enforceable by limitation thereof, such provision shall be deemed to be so
limited and shall be enforceable to the maximum extent permitted by applicable
law.
7.8 ARBITRATION. If after the Closing with respect to Seller and the
Principal Shareholder, on the one hand (collectively, the "Selling Parties"),
or Purchaser, on the other hand, there exists any claim, controversy, dispute
or other matter in question arising out of or relating to this Agreement (the
"Disputed Matter"), the Selling Parties and Purchaser shall meet in Dallas,
Texas, at a mutually agreed date and time within 30 days after the Selling
Parties' or Purchaser's receipt of notice from the other party or parties
requesting such meeting to resolve the Disputed Matter. If as a result of such
meeting or any mutually agreed subsequent meeting held within 30 days
thereafter the Selling Parties and Purchaser are unable to agree on an
appropriate resolution of the Disputed Matter, then such matter shall be
determined by binding arbitration to be conducted before three arbitrators in
Dallas, Texas in accordance with the Texas Rules of Evidence and, unless
inconsistent, the Commercial Arbitration Rules of the American Arbitration
Association as then in effect. Selling Parties and Purchaser shall each appoint
one arbitrator within 30 days of receipt from the other party or parties of
written notice requesting arbitration, and such two arbitrators will appoint a
third arbitrator within 30 days after the second such arbitrator has been
appointed. In the event that either the Selling Parties or Purchaser shall fail
to appoint an arbitrator within the 30-day period, the arbitrator appointed by
the other party or parties shall serve as sole arbitrator in determining the
Disputed Matter. In the event the two arbitrators appointed by the parties are
unable to agree on a third arbitrator within the required 30-day period, then
either such arbitrator may petition any judge on the United States District
Court for the Northern District of Texas (acting in his or her individual and
not judicial capacity) to appoint such third arbitrator. Any arbitration
decision shall be final and conclusive upon the Selling Parties and Purchaser.
A judgment on the award entered by the arbitrators may be entered in any court
of appropriate jurisdiction, or application may be made to any such court for
judicial acceptance of the award and an order of enforcement, as the case may
be. The expenses of such arbitration, including the fees of the arbitrators,
shall be divided equally between the Selling Parties, on the one hand, and
Purchaser, on the other hand, unless otherwise specified in the award. Each
party shall pay the fees and expenses of its own witnesses and legal counsel.
7.9 INTERVOICE. InterVoice is a party to this Agreement solely for the purpose
of acknowledging and agreeing to the provisions and obligations of Section 1.4,
and the representations and warranties set forth in Sections 2.4 and 2.5.
7.10 COUNTERPARTS. This Agreement may be executed by the parties hereto in one
or more counterparts, each of which shall be deemed an original, and all of
which shall constitute one and the same agreement.
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<PAGE> 22
IN WITNESS WHEREOF, Purchaser, Seller and the Principal Shareholder have
executed this Agreement as of the date first above written.
INTERVOICE ACQUISITION SUBSIDIARY, INC.
By: /s/ MICHAEL W. BARKER
------------------------------------
Michael W. Barker, President
"Purchaser"
INTEGRATED TELEPHONY
PRODUCTS, INC.
By: /s/ DAVID LIFSHITZ
------------------------------------
David Lifshitz, President
"Seller"
/s/ DAVID LIFSHITZ
---------------------------------------
David Lifshitz
"Principal Shareholder"
IN WITNESS WHEREOF, InterVoice has executed this Agreement as of the date first
above written solely for the purposes set forth in Section 7.9.
INTERVOICE, INC.
By: /s/ MICHAEL W. BARKER
------------------------------------
Michael W. Barker, President
"InterVoice"
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<PAGE> 23
(Exhibits and Schedules to Assets Purchase Agreement and First
Amendment available upon request.)
<PAGE> 24
FIRST AMENDMENT TO ASSETS PURCHASE AGREEMENT
This First Amendment to Assets Purchase Agreement, executed as of
February 26, 1998, amends that certain Assets Purchase Agreement executed as of
December 16, 1997 (the "Agreement"), by and among InterVoice Acquisition
Subsidiary, Inc., a Nevada corporation ("Purchaser"), that is a wholly owned
subsidiary of InterVoice, Inc., a Texas corporation ("InterVoice"); Integrated
Telephony Products, Inc., a Nevada Corporation ("Seller"); and David Lifshitz
(the "Principal Shareholder"). All terms used in this Amendment but not defined
in this Amendment, and which are defined in the Agreement, shall have the
meanings ascribed to such terms in the Agreement.
1. SALE AND PURCHASE. The first three sentences of Section 1.1 of the
Agreement (entitled "Sale and Purchase") are amended in their entirety to read
as follows: "At the closing at Purchaser's offices in Dallas, Texas at 9:30
a.m., local time, on February 26, 1998 or at such other place, time and date as
Purchaser, Seller and the Principal Shareholder may otherwise mutually agree
(the "Closing"), and subject to the terms of this Agreement, Purchaser will
purchase from Seller, and Seller will sell to Purchaser, all of the Purchased
Assets (as defined in Section 1.2 hereof) in consideration of (i) Purchaser's
payment to Seller of an aggregate of cash consideration of $4,612,500.00 (the
"Cash Consideration"), (ii) services pursuant to and in accordance with the
Service Agreement (as defined in Section 1.5), and (iii) the Common Stock (as
defined in Section 1.4). The Cash Consideration will be reduced by the Initial
Payment (as defined in Section 1.3 hereof). Upon execution of this Agreement,
Purchaser will prepay $500,000 of the Cash Consideration (the "Prepayment"). At
Closing, subject to satisfaction of the closing conditions set forth in Section
4.2 (except to the extent any such conditions are waived by Purchaser in
accordance with Section 4.2), Purchaser will:(x) pay $687,500 of the Cash
Consideration to Seller by wire transfer in immediately available funds (based
on wire instructions provided by Seller); (y) pay $1,225,000 of the Cash
Consideration by wire transfer in immediately available funds to World Access
Communications Corp. ("World Access") pursuant to and in accordance with that
certain Settlement Agreement and Mutual Release effective as of February 20,
1998 (the "Settlement Agreement") among Seller, Lifshitz, InterVoice, Joel
Esquenazi and World Access; and (z) deposit the remaining $1.2 million of the
Cash Consideration, together with the Common Stock, into escrow in accordance
with the provisions of Section 5.3."
2. ESCROW AGREEMENT. Section 5.3 of the Agreement (entitled "Escrow
Agreement") is amended in its entirety to read as follows: "In order to secure
the obligations of Seller and the Principal Shareholder under this Agreement,
Purchaser shall deposit $1.2 million of the Cash Consideration and the Common
Stock (collectively, the "Escrowed Funds") into escrow for a maximum of one (1)
year from the Closing date (subject to the last two sentences of this Section
5.3) pursuant to the terms of an escrow agreement (the "Escrow Agreement"),
which will be executed as a Closing condition to this Agreement. If and when
Seller presents Purchaser with evidence reasonably satisfactory to Purchaser at
any time that all Unassumed Liabilities for sales taxes and use taxes to any
taxing authority in any jurisdiction, together with all taxes discussed in
Section 7.2 of this Agreement, have been paid, $200,000 of the Cash
Consideration will be released from the escrow. If and when Seller presents
Purchaser with evidence reasonably satisfactory to Purchaser at any time within
one year of the Closing date, that two of the three lawsuits (excluding the two
settled lawsuits with World Access) set forth on Schedule 3.14 have been fully
terminated, and that all claims that have been made or could have been made in
connection with such proceedings have been dismissed with prejudice by a court
of competent jurisdiction (and any settlement fully paid) or fully adjudicated
and any final judgment against Seller satisfied, the Common Stock will be
released from the escrow. Notwithstanding any other provision of this Section
5.3, $1 million of the Cash Consideration will remain Escrowed Funds and will
not be
Page 1 of 4 pages
<PAGE> 25
released from the escrow after the first annual anniversary of the Closing,
until if and when Seller has presented Purchaser with evidence reasonably
satisfactory to Purchaser that: (i) all three lawsuits (excluding the two
settled lawsuits with World Access) set forth on Schedule 3.14 have been
fully terminated, and that all claims that have been made or could have been
made in connection with such proceedings have been dismissed with prejudice by
a court of competent jurisdiction (and any settlement fully paid) or fully
adjudicated and any final judgment against Seller satisfied; and (ii) any and
all liens in favor of Athena International, LLC ("Athena") and/or its
successors and/or assigns pursuant to, or evidenced by, a settlement with
Athena (the "Athena Settlement") have been fully and finally released and
terminated, and appropriated filings have been made evidencing such releases
and terminations. Notwithstanding any other provision of this section 5.3,
$200,000 of the Cash Consideration will remain Escrowed Funds and will not be
released from the escrow after the first annual anniversary of the Closing
until if and when Seller has presented Purchaser with evidence reasonably
satisfactory to Purchaser that all Unassumed Liabilities for sales taxes and
use taxes to any taxing authority in any jurisdiction, together with all taxes
discussed in Section 7.2 of this Agreement, have been paid."
3. SCHEDULE 3.11(b), LITIGATION STATUS AND UNAUDITED BALANCE SHEETS. Schedule
3.11(b) to the Agreement is attached to this Amendment and incorporated by this
reference into the Agreement. The Unaudited Balance Sheet is attached to this
Amendment. The second sentence of Section 3.10 of the Agreement (entitled
"Financial Statements") is amended in its entirety to read as follows: "The
Unaudited Balance Sheet (i) represents actual bona fide transaction, (ii) has
been prepared from the books and records of Seller in conformity with generally
accepted accounting principles consistently applied and (iii) accurately,
completely, and fairly presents in all material respects the financial position
of the business of Seller as of the date of thereof, except that the asset
category entitled "Accounts Receivable" is overstated by the sum of $60,500."
Solely for the purpose of calculating the Financial Ratio pursuant to Section
3.10 of the Agreement, the Prepayment will not be considered a liability of
Seller.
4. TAX ALLOCATIONS. Section 7.1 of the Agreement (entitled "Tax
Allocations") is amended in its entirety to read as follows: "Purchaser and
Seller will allocate the value of the Cash Consideration, the Common Stock and
the Service Agreement among the various Purchased Assets for purposes of Form
8594 and any other filings with the IRS in accordance with a tax allocation
schedule to be mutually agreed to between Seller and Purchaser within thirty
(30) days after the Closing Date."
5. PURCHASE OF FIXTURES, EQUIPMENT AND INVENTORY. (a) The assets to be
purchased by Purchaser from Seller include all fixtures, lamps, furniture,
exhibit booths, appliances, computers (both hardware and associated software),
printers, copier machines, testing tools, telephones and any related switching
apparatus, other tools and equipment, file cabinets, customer files and
inventory, used in the business of Seller as of February 3, 1998, including
without limitation the items described on Exhibit 5.0 attached hereto but
excluding the items specifically described thereon as excluded (collectively,
the "Tangible Assets"). The term "Purchased Assets" is amended by this
Amendment to mean the Software, the other Intellectual Property, the Premises
Lease Agreements and the Tangible Assets. All representations and covenants by
Seller in the Agreement applicable to the Purchased Assets, apply to the
Tangible Assets. Seller represents that it does not require any consents of any
kind, including without limitation any consents in connection with the Athena
Settlement, to convey the Tangible Assets to Purchaser pursuant to this
Agreement. Between the date of execution of this Amendment and the date of
Closing, Seller will (1) not sell or otherwise dispose of any Tangible Assets
except from its inventory and (2) only sell from its inventory in the normal
course of business and at Seller's normal standard prices. Seller will also
notify Purchaser in advance and in writing of any sale from its inventory of
items with a collective sales price of more than $5,000,000, setting forth the
price and
Page 2 of 4 pages
<PAGE> 26
circumstances of such sale. Seller represents that as of the date of Closing
the Tangible Assets are all located in the offices covered by the Premises
Lease Agreements, except as otherwise disclosed on Exhibit 5.0 to this
Amendment. The Tangible Assets will automatically be delivered to Purchaser at
the locations set forth in this Amendment as of the date of Closing, without
any further action of any kind.
(b) The last Sentence of Section 3.6 of the Agreement (entitled "Title to, and
Condition of, the Purchased Assets") is amended in its entirety to read as
follows: "Upon Seller's transfer of the Purchased Assets to Purchaser pursuant
to this Agreement, Purchaser will have good and marketable title to all the
Purchased Assets free and clear of any Encumbrances, except as set forth on
Schedule 3.6 and as set forth in the Premises Lease Agreements."
6. CLOSING CONDITIONS. In the last line of Section 4.2(e) change "the
Purchased Assets" to "any of the Purchased Assets, other than the Tangible
Assets". Add the following additional closing condition, as Section 4.2(l):
"SETTLEMENT AGREEMENT AND DELIVERY OF TANGIBLE ASSETS. World Access shall have
made all deliveries to InterVoice, Inc. required pursuant to Section 2(a) of
the Settlement Agreement prior to the date of Closing. Seller shall provide
Purchaser with reasonable evidence that all Tangible Assets are in the
locations specified in this Agreement as of the date of Closing."
7. PRE-CLOSING SALES. Seller represents and warrants to Purchaser that,
pursuant to Section 7.5(b) of the Agreement, no Pre-Closing Sales have
occurred; and no new product warranty obligations have been incurred by Seller
since the date of execution of the Agreement.
8. SCHEDULES. Schedules 1.5, 3.6, 3.7, 3.11(a), 3.11(b), 3.12 and 3.14 to
the Agreement, are hereby amended by the attached First Amendments to Schedules
1.5, 3.6, 3.7, 3.11(a), 3.11(b), 3.12 and 3.14, and all of such First
Amendments to Schedules are hereby incorporated into this Amendment.
9. ACKNOWLEDGMENTS. Any and all ownership interests of any kind in any
assets, including without limitation any interests in any and all of the
Purchased Assets, conveyed to Seller by World Access pursuant to the Settlement
Agreement, are automatically conveyed by Seller to Purchaser pursuant to the
Agreement as of the date of Closing, without any further action of any kind. The
initial Payment and the Prepayment were paid to Seller prior to the date of this
Amendment. No Seller Indemnity shall be required to be made by Seller pursuant
to Article V of the Agreement with respect to any Purchaser Claims arising out
of or relating to the subject matter of the agreement dated September 30, 1997
between World Access and Seller and/or the transactions, arrangements or
understandings referred to therein (including without limitation prior
transactions directly or indirectly involving Vendor Capital Corporation and
sales and/or licenses to World Access prior to the September 30, 1997
agreement), and/or the lawsuits, correspondence and discussions referred to in
the Settlement Agreement, including without limitation any Purchaser Claims
resulting from the breach by Seller of the representations and warranties set
forth in Article III of the Agreement resulting from the existence of such
transactions, arrangements or understandings. The preceding sentence shall not
be construed as a release of liability for, or as a limit to the Seller
Indemnity for, Seller's representations and obligations pursuant to or under the
Settlement Agreement.
10. RATIFICATION. The Agreement, as amended by this Amendment, is hereby
ratified and approved in all respects.
11. COUNTERPARTS. This Amendment may be executed by the parties hereto in one
or more counterparts, each of which shall be deemed an original, and all of
which shall constitute one and the same amendment.
Page 3 of 4 pages
<PAGE> 27
12. ASSISTANCE IN LITIGATION. The Purchaser and/or InterVoice shall, upon
reasonable notice, make available such information (excluding any Software
source code) to the Seller and/or Principal Shareholder (subject to any
reasonable protective measures to safeguard Purchaser's confidential and/or
proprietary information) as may reasonably be required by the Seller and/or
Principal Shareholder in connection with any litigation in which the Seller
and/or Principal Shareholder is, or may become, a party. Purchaser will also
make available at Purchaser's offices in Dallas, Texas for reasonable use and/or
inspection, by Seller and/or Principal Shareholder (or their designated
representatives) in such offices, Software (including source code for the
Software), computers and/or other equipment for operation with the Software, in
connection with any litigation referred to in the preceding sentence. The
reasonable use and inspection of Software, computers and equipment discussed in
the preceding sentence is expressly limited to no more than forty hours in the
aggregate, for all such lawsuits, and shall be conducted at hours mutually
agreed to by Purchaser and Seller and/or Principal Shareholder, which hours may
be limited by Purchaser to weekends and hours outside of Purchaser's and
InterVoice's normal hours of operation. The Seller and/or Principal Shareholder
shall reimburse the Purchaser and/or InterVoice for all reasonable out-of-pocket
expenses incurred by Purchaser and/or InterVoice in rendering such assistance.
13. INTELLECTUAL PROPERTY. The second-to-last sentence of Section 3.12(b) of
the Agreement (entitled "Intellectual Property") is amended in its entirety to
read as follows: "Seller has only provided copies of the Software to its
customers in connection with the sale of voice and/or call automation systems
and only in executable code (not source code) and only pursuant to
non-exclusive licenses which reserve all ownership rights to Seller except as
set forth in Schedule 3.12.
IN WITNESS WHEREOF, Purchaser, Seller, and Principal Shareholder have executed
this Amendment as of the date first above written.
INTERVOICE ACQUISITION SUBSIDIARY, INC.
By: /s/ DANIEL D. HAMMOND
------------------------------------
Daniel D. Hammond, Chairman of the Board
and Chief Executive Officer
"Purchaser"
INTEGRATED TELEPHONY PRODUCTS, INC.
By: /s/ DAVID LIFSHITZ
------------------------------------
David Lifshitz, President
"Seller"
/s/ DAVID LIFSHITZ
---------------------------------------
David Lifshitz
"Principal Shareholder"
Page 4 of 4 pages
<PAGE> 28
SECOND AMENDMENT
TO ASSETS PURCHASE AGREEMENT
This Second Amendment to Assets Purchase Agreement, executed as of May 22,
1998 (the "Amendment"), amends that certain Assets Purchase Agreement executed
as of December 16, 1997 (as heretofore amended, the "Agreement"), by and among
InterVoice Acquisition Subsidiary, Inc., a Nevada corporation ("Purchaser"),
that is a wholly owned subsidiary of InterVoice, Inc., a Texas corporation: ABC
Telecom, Inc. formerly known as Integrated Telephony Products, Inc., a Nevada
corporation ("Seller"); and David Lifshitz (the "Principal Shareholder"). All
terms used in this Amendment, but not defined in this Amendment and which are
defined in the Agreement, shall have the meanings ascribed to such terms in the
Agreement. The Agreement, as modified by this Amendment, is hereby ratified and
confirmed in all respects.
1. Tax Matters. Seller, Principal Shareholder, and Purchaser acknowledge and
agree that if any taxing authority in any jurisdiction asserts that any
taxes, interest, penalties and/or other amounts relating thereto are owed
by Seller (collectively, an "Alleged Tax Delinquency"), and as a result of
such assertion, voids or sets aside or attempts to void or set aside the
acquisition of any of the Purchased Assets by Purchaser, and /or imposes or
threatens to impose and Encumbrance on any of the Purchased Assets (any of
such events or actions, a "Payment Trigger"), Seller and Principal
Shareholder hereby authorize Purchaser to pay any or all such Alleged Tax
Delinquencies asserted by any and all applicable taxing authorities for and
on behalf of Seller. Within ten (10) business days of receipt by Seller of
reasonable evidence of the occurrence of a Payment Trigger and payment of
an Alleged Tax Delinquency by Purchaser in response thereto, Seller shall
reimburse Purchaser the full amount of such Alleged Tax Delinquency.
Notwithstanding any provision of the Agreement, Seller, Principal
Shareholder and Purchaser acknowledge and agree that any claim by Purchaser
for reimbursement of a payment for and Alleged Tax Delinquency made in
response to the occurrence of a Payment Trigger is a "Purchaser Claim" for
purposes of the Agreement, and is, therefore, subject to the Seller
Indemnity, provided, however, any and all such Purchaser Claims will not be
subject to Section 5.4 of the Agreement. Accordingly, in all instances, if
reimbursement of an Alleged Tax Delinquency is due and payable to Purchaser
as provided herein, Seller will have to reimburse Purchaser the full amount
of a payment of an Alleged Tax Delinquency without regard to the aggregate
amount of all Purchaser Claims since the date of Closing. The provisions
of this paragraph shall not be construed in any way to obligate Purchaser
to pay any taxes for or on behalf of Seller. Seller agrees to promptly
notify Purchaser in writing of any Payment Trigger and/or any Alleged Tax
Delinquency asserted by any taxing authority, and to promptly provide
Purchaser with all correspondence, documents and other evidence of any
such Payment Trigger and/or Alleged Tax Delinquency in the possession of
Seller or Principal Shareholder. Seller and Principal Shareholder
represent and warrant to Purchaser that, as of the date of execution of
this Amendment, they have no knowledge of any Payment Trigger and/or any
Alleged Tax Delinquency asserted by any taxing authority. Purchaser
represents and warrants to Seller and the Principal Shareholder that
neither it nor anyone acting on its behalf shall initiate any contact with
any taxing authority in any jurisdiction with respect to any tax matters
relating to Seller unless such contact is made in response to an event or
action which can reasonably be construed as a Payment Trigger.
Page 1 of 3
<PAGE> 29
2. Escrow Agreement. Within one business day of the execution and delivery of
this Amendment by both parties, Purchaser will instruct the Escrow Agent
to release from the Escrowed Funds $200,000 of Cash Consideration as
contemplated by the second sentence of Section 5.3 of the Agreement (which
sentence is hereby deleted by virtue of this Amendment) concerning payment
of taxes. In all instances where receipt by Purchaser of reasonable
evidence of any fact or event is a condition to the release of any Escrowed
Funds as contemplated by Section 5.3 of the Agreement, Purchaser shall
instruct the Escrow Agent to release such Escrowed Funds within fifteen
(15) business days of Purchaser's receipt of such evidence, or pursue the
dispute resolution procedure set forth in Section 7.8, if Purchaser has
reasonable grounds for believing that Seller has not provided reasonable
evidence. Purchaser acknowledges and agrees that the condition to the
release from the Escrowed Funds of $200,000 of the Cash Consideration as
contemplated by both the second sentence and the last sentence of Section
5.3 of the Agreement (which sentences are hereby deleted by virtue of this
Amendment) concerning payment of taxes has been satisfied in full.
3. Escrow Agreement. The second sentence and last sentence of Section 5.3 to
the Agreement are deleted in their entirety. In the first sentence of
Section 5.3 change "(subject to the last two sentences of this Section
5.3)" to "(subject to the provisions of this Section 5.3)". At the end of
the second sentence after "the Common Stock will be released from escrow"
add "even if there are any pending Disputed Matters which have been
submitted by Purchaser to Selling Parties prior to such date". Add the
following provision at the end of Section 5.3 of the Agreement:
"On the date (the "Scheduled Release Date") which is the last to occur
of the date Seller has presented Purchaser with evidence reasonably
satisfactory to Purchaser that the conditions set forth in clauses (i)
and (ii) in the immediately preceding sentence have been satisfied, or
the date of the first annual anniversary of the Closing, the Cash
Consideration remaining in escrow shall be released from escrow unless
prior to such Scheduled Release Date Purchaser has delivered to
Selling Parties written notice of a Disputed Matter in accordance with
the provisions of Section 7.8 of this Agreement. If such a written
notice of a Disputed Matter is delivered to Selling Parties in
accordance with Section 7.8 of this Agreement prior to the Scheduled
Release Date, the entire amount of Cash Consideration remaining in
escrow will not be released from escrow after the Scheduled Release
Date until if and when the Disputed Matter is either waived in writing
by Purchaser at its discretion, or finally, and completely resolved in
accordance with Section 7.8 by arbitration decision, and any award
entered by the arbitrators has been fully satisfied. The parties
acknowledge and agree that if any amount of the Cash Consideration
remains in escrow after the Scheduled Release Date as a result of any
Disputed Matter(s) submitted by Purchaser, the amount of such Cash
Consideration in escrow shall be reduced to an amount which is equal
to the Estimated Monetary Value of any Award(s) (as defined below) and
all Cash Consideration in excess of the Estimated Monetary Value of
any Award(s) will be released from escrow. Any claim by the Selling
Parties that the amount of Cash Consideration in escrow should be
reduced in accordance with the preceding sentence which is disputed by
Purchaser, will be treated as a Disputed Matter and resolved in
accordance with the provisions of Section 7.8 of
Page 2 of 3
<PAGE> 30
this Agreement. For purposes of this Section 5.3, "Estimated Monetary
Value of any Award(s)" means the reasonable estimated monetary value
of any award(s) Purchaser would receive if Purchaser received
arbitration award(s) in its favor with respect to (all) the Disputed
Matter(s) submitted by Purchaser and pending as of the Scheduled
Release Date, less any and all amounts of such estimated awards
Selling Parties would not be obligated to pay Purchaser, due to the
limitations set forth in Section 5.4 of this Agreement, even if
Purchaser received arbitration decision(s) in its favor with respect
to (all) the Disputed Matter(s)."
4. Counterparts. This Agreement may be executed by the parties in one or more
counterparts, each of which shall be deemed an original, and all of which
shall constitute one and the same Agreement.
IN WITNESS WHEREOF, Purchaser, Seller, and Principal Shareholder have
executed this Amendment as of the date first above written.
INTERVOICE ACQUISITION
SUBSIDIARY, INC.
By: /s/ ROB-ROY J. GRAHAM
------------------------------------------
Rob-Roy J. Graham, Chief Financial Officer
"Purchaser"
ABC TELECOM, INC.
By: /s/ DAVID LIFSHITZ
------------------------------------------
David Lifshitz, President
"Seller"
/s/ DAVID LIFSHITZ
--------------------------------------------
David Lifshitz
"Principal Shareholder"
Page 3 of 3
<PAGE> 1
EXHIBIT 10.18
NATIONS BANK OF TEXAS, N.A.
LOAN AGREEMENT
This Loan Agreement (the "Agreement") dated as of November 3, 1997, by
and between NationsBank of Texas, N.A. a national banking association
("Bank") and the Borrower described below.
In consideration of the Loan or Loans described below and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, Bank and Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other
terms defined herein, the following terms shall have the meaning set forth with
respect thereto:
A. BORROWER: Intervoice, Inc., a Texas Corporation.
B. BORROWER'S ADDRESS:
17811 Waterview Parkway
Dallas, TX 75252
C. LOAN: Any loan described in Section 2 hereof and any
subsequent loan which states that it is subject to this Loan Agreement.
D. LOAN DOCUMENTS. Loan Documents means this Loan
Agreement and any and all promissory notes executed by Borrower in favor of
Bank and all other documents, instruments, guarantees, certificates and
agreements executed and/or delivered by Borrower, any guarantor or third party
in connection with any Loan.
E. PERSON. Person means an individual, a corporation, a
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
F. ACCOUNTING TERMS. All accounting terms not
specifically defined or specified herein shall have the meanings generally
attributed to such terms under generally accepted accounting principles
("GAAP"), as in effect from time to time, constantly applied, with respect to
the financial statements referenced in Section 3.H. hereof.
2. LOANS.
A. LOAN. Bank hereby agrees subject to the terms and
conditions of this Agreement to make one or more loans to Borrower in the
aggregate principal face amount of Fifteen Million and No/Dollars
($15,000.000.00). The obligation to repay the loans is evidenced by that
<PAGE> 2
certain promissory note, dated November 3, 1997, made by Borrower and payable
to the order of Bank in the maximum principal amount of $15,000,000.00 (the
promissory note together with any and all renewals, extensions or
rearrangements thereof being hereafter collectively referred to as the "Note")
having a maturity date, repayment terms and interest rate as set forth in the
Note.
i. REVOLVING CREDIT FEATURE. The Loan provides
for a revolving line of credit (the "Line") under which Borrower may from time
to time, borrow, repay and re-borrow funds. Borrower is not liable for any fee
for Bank's commitment to make the Line available or in connection with that
portion of the Line which remains available during the term of this Agreement.
ii. LETTER OF CREDIT SUBFEATURE. As a subfeature
under the Line, Bank may from time to time up to and including maturity, issue
letters of credit for the account of Borrower (each, a "Letter of Credit" and
collectively, "Letters of Credit"); provided, however, that the form and
substance of each Letter of Credit shall be subject to approval by Bank in its
sole discretion; and provided further that the aggregate undrawn amount of all
outstanding Letters of Credit plus the aggregate amount of all loans made under
the Note shall not at any time exceed $15,000,000.00. Each Letter of Credit
shall be issued for a term of not more than six (6) months, as designated by
Borrower, provided, however, that no Letter of Credit shall have an expiration
date subsequent to the maturity of the Promissory Note. The undrawn amount of
all Letters of Credit plus any and all amounts paid by Bank in connection with
drawings under any Letter of Credit for which the Bank has not been reimbursed
shall be reserved under the Line and shall not be available for advances
thereunder. Each draft paid by Bank under a Letter of Credit shall be deemed an
advance under the Line and shall be repaid in accordance with the terms of the
Line; provided however, that if the Line is not available for any reason
whatsoever, at the time any draft is paid by Bank, or if advances are not
available under the Line in such amount due to any limitation of borrowing set
forth herein, then the full amount of such drafts shall be immediately due and
payable, together with interest thereon, from the date such amount is paid by
Bank to the date such amount is fully repaid by Borrower, at that rate of
interest applicable to advances under the Line. In such event, Borrower agrees
that Bank, at Bank's sole discretion may debit Borrower's deposit account with
Bank for the amount of such draft.
B. REQUESTS FOR LOANS AND LETTERS OF CREDIT. Bank's
obligation to fund any proposed loan or issue any proposed Letter of Credit
hereunder is conditioned upon (i) Borrower's providing Bank, prior to 10:00
a.m., Dallas, Texas time, on the date of any such proposed loan or Letter of
Credit, a Request for Advance (herein so called) specifying its intention to
borrow or reborrow such loan or to have such Letter of Credit issued hereunder,
and (ii) upon satisfaction by Borrower of the terms and conditions set forth in
this Agreement and the Request for Advance which shall be in the form set forth
on Exhibit A attached hereto and incorporated herein by reference.
C. GENERAL PROVISIONS AS TO PAYMENTS ON LOANS;
APPLICATION OF PAYMENTS OF LOANS. Borrower shall make each payment of principal
and interest on the Note and all fees payable hereunder or under any other Loan
Document not later than 12:00 noon (Dallas time) on the
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<PAGE> 3
date when due, in Federal or other funds immediately available in Dallas,
Texas, to Bank at Bank's address for payments set forth above. All payments on
the Note shall be applied against accrued but unpaid interest and then against
the principal portion of the Note in the inverse order of maturity; provided,
however, that, unless otherwise designated by Borrower or required by law,
prepayments and involuntary payments received by Bank and applied to principal
hereunder shall be applied first to the Prime Rate Portions (as defined in the
Note)(or that portion of LIBOR Rate Portions (as defined in the Note) not
subject to a prepayment penalty) and then to reduce LIBOR Rate Portions.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
A. GOOD STANDING. Borrower is a Texas corporation, duly
organized, validly existing and in good standing under the laws of Texas and
has the power and authority to own its property and to carry on its business in
each jurisdiction in which Borrower does business.
B. AUTHORITY AND COMPLIANCE. Borrower has full power and
authority to execute and deliver the Loan Documents and to incur and perform
the obligations provided for therein, all of which have been duly authorized by
all proper and necessary action of the appropriate governing body of Borrower.
No consent or approval of any public authority or other third party is required
as a condition to the validity of any Loan Document, and Borrower is in
compliance with all laws and regulatory requirements to which it is subject.
C. BINDING AGREEMENT. This Agreement and the other Loan
Documents executed by Borrower constitute valid and legally binding obligations
of Borrower, enforceable in accordance with their terms.
D. LITIGATION. There is no proceeding involving Borrower
pending or, to the knowledge of Borrower, threatened before any court or
governmental authority, agency or arbitration authority, except as disclosed
which could have a material adverse effect on the consolidated financial
statements of Borrower to Bank in writing and acknowledged by Bank prior to the
date of this Agreement.
E. NO CONFLICTING AGREEMENTS. There is no charter,
bylaw, stock provision, partnership agreement or other document pertaining to
the organization, power or authority of Borrower and no provision of any
existing agreement, mortgage, indenture or contract binding on Borrower or
affecting its property, which would conflict with or in any way prevent the
execution, delivery or carrying out of the terms of this Agreement and the
other Loan Documents.
F. OWNERSHIP OF ASSETS. Borrower has good title to any
collateral at any time pledged, and such collateral is free and clear of liens,
except those granted to Bank and as disclosed to Bank in writing prior to the
date of this Agreement.
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<PAGE> 4
G. TAXES. All taxes and assessments due and payable by
Borrower have been paid or are being contested in good faith by appropriate
proceedings and the Borrower has filed all tax returns which it is required to
file.
H. FINANCIAL STATEMENTS. The financial statements of
Borrower heretofore delivered to Bank have been prepared in accordance with
GAAP applied on a consistent basis throughout the period involved and fairly
present Borrower's financial condition as of the date or dates thereof, and
there has been no material adverse change in Borrower's financial condition or
operations since August 31, 1997. All factual information furnished by Borrower
to Bank in connection with this Agreement and the other Loan Documents is and
will be accurate and complete on the date as of which such information is
delivered to Bank and is not and will not be incomplete by the omission of any
material fact necessary to make such information not misleading.
I. PLACE OF BUSINESS. Borrower's chief executive office
is located at
17811 Waterview Parkway
Dallas, TX 75252
J. ENVIRONMENTAL. The conduct of Borrowees business
operations and the condition of Borrower's property does not and will not
violate any federal laws, rules or ordinances for environmental protection,
regulations of the Environmental Protection Agency, any applicable local or
state law, rule, regulation or rule of common law or any judicial
interpretation thereof relating primarily to the environment or Hazardous
Materials.
K. CONTINUATION OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made under this Agreement shall be deemed to be
made at and as of the date hereof and at and as of the date of any advance
under any loan under the Note.
4. AFFIRMATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will, unless Bank
consents otherwise in writing (and without limiting any requirement of any
other Loan Document):
A. FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain
a system of accounting satisfactory to Bank and in accordance with GAAP applied
on a consistent basis throughout the period involved, permit Bank's officers or
authorized representatives to visit and inspect Borrower's books of account and
other records at such reasonable times and as often as Bank may desire, and pay
the reasonable fees and disbursements of any accountants or other agents of
Bank selected by Bank for the foregoing purposes. Unless written notice of
another location is given to Bank, Borrower's books and records will be located
at Bormwer's chief executive office set forth above. All financial statements
called for below shall be prepared in form and content acceptable to Bank and
by independent certified public accountants acceptable to Bank.
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<PAGE> 5
In addition, Borrower will:
i. Furnish to Bank audited financial statements of
Borrower for each fiscal year of Borrower, within 120 days after the close of
each such fiscal year.
ii. Furnish to Bank quarterly financial statements
(including a balance sheet and profit and loss statement) of Borrower for each
quarter of each fiscal year of Borrower, within fifty-two (52) days after the
close of each such period.
iii. Commencing on the date of this Agreement and
continuing thereafter until the Note is paid in full, furnish to Bank a
compliance certificate for (and executed by an authorized representative of)
Borrower concurrently with and dated as of the date of delivery of each of the
financial statements as required in paragraphs i and ii above, containing a
certification from an officer of Borrower that to the best of such officer's
knowledge and belief the financial statements of even date are true and correct
and that the Borrower is not in default under the terms of this Agreement.
iv. Furnish to Bank promptly such additional information,
reports and statements respecting the business operations and financial
condition of Borrower from time to time, as Bank may reasonably request.
Bank and its agents will maintain the confidentiality of any
non-public information relating to Borrower which has been identified in
writing as confidential on the information itself or otherwise (the
"Confidential Information") and, except as provided below, will exercise the
same degree of care that Bank exercises with respect to its own proprietary
information to prevent the unauthorized disclosure of the Confidential
Information to third parties. Confidential Information shall not include
information that either: (a) is in the public domain or in the knowledge or
possession of Bank when disclosed to Bank, or becomes part of the public domain
after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank
by a third party, provided that Bank does not have actual knowledge that such
third party is prohibited from disclosing such information. The terms of this
section shall not apply to disclosure of Confidential Information by Bank and
its agents that is in their good faith opinion, compelled by laws, regulations,
rules, orders or legal process or proceedings or as disclosed to: (i) any
party, including a prospective participant or assignee, who has signed a
confidentiality agreement containing terms substantially similar to those
contained herein; (ii) legal counsel, examiners, auditors and directors of Bank
and examiners, auditors and investigators having regulatory authority over
Bank; or (iii) any party in connection with the exercise of remedies by Bank
after the occurrence of an Event of Default.
B. INSURANCE. Maintain insurance with responsible
insurance companies on such of its properties, in such amounts and against such
risks as is customarily maintained by similar businesses operating in the same
vicinity, specifically to include fire and extended coverage insurance covering
all assets, business interruption insurance, workers compensation insurance and
liability insurance, all to be with such companies and in such amounts as are
satisfactory to Bank
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<PAGE> 6
and providing for at least thirty (30) days prior notice to Bank of any
cancellation thereof. Borrower shall provide to Bank satisfactory evidence of
such insurance prior to the funding of any loan under the Note, and thirty (30)
days prior to each policy renewal.
C. EXISTENCE AND COMPLIANCE. Maintain its existence,
good standing and qualification to do business, where required and comply with
all laws, regulations and governmental requirements including, without
limitation, environmental laws applicable to it or to any of its property,
business operations and transactions.
D. ADVERSE CONDITIONS OR EVENTS. Promptly advise Bank in
writing of (i) any condition, event or act which comes to its attention that
would or might materially adversely affect Borrower's financial condition or
operations or Bank's rights under the Loan Documents, (ii) any litigation filed
by or against Borrower that could have a material adverse effect on Borrower's
consolidated financial condition, (iii) any event that has occurred that would
constitute an event of default under any Loan Documents and (iv) any uninsured
or partially uninsured loss through fire, theft, liability or property damage
in excess of an aggregate of $500,000.00.
E. TAXES AND OTHER OBLIGATIONS. Pay all of its taxes,
assessments and other obligations, including, but not limited to taxes, costs
or other expenses arising out of this transaction, as the same become due and
payable, except to the extent the same an being contested in good faith by
appropriate proceedings in a diligent manner.
F. MAINTENANCE. Maintain all of its tangible property in
good condition and repair and make all necessary replacements thereof, and
preserve and maintain all licenses, trademarks, privileges, permits,
franchises, certificates and the like necessary for the operation of its
business.
G. ENVIRONMENTAL. Immediately advise Bank in writing of
(i) any and all enforcement, cleanup, remedial, removal, or other governmental
or regulatory actions instituted, completed or threatened pursuant to any
applicable federal, state, or local laws, ordinances or regulations relating to
any Hazardous Materials (as defined below) affecting Borrower's business
operations; and (ii) all claims made or threatened by any third party against
Borrower relating to damages, contribution, cost recovery, compensation, loss
or injury resulting from any Hazardous Materials. Borrower shall immediately
notify Bank of any remedial action taken by Borrower with respect to Borrower's
business operations. Borrower will not use or permit any other party to use any
Hazardous Materials at any of Borrower's places of business or at any other
property owned by Borrower except such materials as are incidental to
Borrower's normal course of business, maintenance and repairs and which are
handled in compliance with all applicable environmental laws. Borrower agrees
to permit Bank, its agents, contractors and employees to enter and inspect any
of Borrower's places of business or any other property of Borrower at any
reasonable times upon three (3) days prior notice for the purposes of
conducting an environmental investigation and audit (including taking physical
samples) to insure that Borrower is complying with this covenant and Borrower
shall provide Bank, its agents, contractors, employees and representatives with
access to
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<PAGE> 7
and copies of any and all data and documents relating to or dealing with any
Hazardous Materials used, generated, manufactured, stored or disposed of by
Borrower's business operations within five (5) days of the request therefore.
"Hazardous Material" shall have the meaning ascribed to the term "hazardous
substance" under the Superfund Amendments and Reauthorization Act of 1986.
5. NEGATIVE COVENANTS. Until full Payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will not, without
the prior written consent of Bank (and without limiting any requirement of any
other Loan Documents):
A. TRANSFER OF ASSETS OR CONTROL. Enter into any merger
or consolidation unless permitted pursuant to the provisions of Section 5.F.,
or sell, lease, assign or otherwise dispose of or transfer any of its material
assets or properties or any material interest therein, except, (I) in the
normal course of business (including sales, leases, assignments and transfers
of assets or properties to subsidiaries of Borrower in the normal course of its
business); and (II) equipment which is worthless, obsolete or not necessary for
the operation of its business, or which is replaced by equipment of equal
suitability. Additionally, Borrower will not transfer more than ten percent
(10%) of total assets as designated in the Annual Report on Form 10-K for the
year ended February 28, 1997 to any subsidiary through the term of this
agreement.
B. LIENS. Grant, suffer or permit any contractual or
noncontractual lien on or security interest in its accounts receivable and
inventory, except for statutory liens for taxes, statutory contractual
mechanic's and materialsman's liens incurred in the ordinary course of
business, and other similar statutory and contractual liens incurred in the
ordinary course of business and accept in favor of Bank, or fails to promptly
pay when due all lawful claims, whether for labor, materials or otherwise.
C. EXTENSIONS OF CREDIT. Make any loan or advance to any
individual, partnership, corporation or other entity, except for: (I) the
purchase of obligations of Bank or U.S. government obligations; (II) loans,
advances and investments to or in any subsidiary or Borrower; (III) normal and
prudent extensions, or credit to customers buying goods and services in the
ordinary course of business; or (IV) other loans or advances not to exceed
$4,000,000 in the aggregate at any time outstanding.
D. CHARACTER OF BUSINESS. Change the general character
of business as conducted at the date hereof, or engage in any type of business
not reasonably related to its business as presently conducted.
E. DEBT. Borrower shall not incur any Debt (as defined
below), except for (I) the loans and Letters of Credit evidenced by the Note;
(II) debt evidenced by one or more promissory notes, provided, that (a) such
debt shall in no case exceed $30,000,000.00, (b) such debt shall be secured by
existing real property assets of the Borrower (and any improvements thereon),
and (c) such debt shall be without recourse to Borrower; (III) trade payables,
royalty payments, purchases under capitalized leases and purchase money
indebtedness incurred in the
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<PAGE> 8
ordinary course of business; and (IV) Debt in respect of (a) taxes,
assessments, governmental charges or levies and claims for labor, materials and
supplies, (b) judgments, awards or settlements, which are in the aggregate less
than $3,000,000, or which have been in force for less than the applicable
appeal period so long as execution is not levied thereunder or in respect of
which Borrower shall at the time in good faith be prosecuting an appeal or
proceedings for review and in respect of which a stay of execution shall have
been obtained pending such appeal or review, and (c) endorsements made in
connection with the deposits of items for credit or collection in the ordinary
course of business. "Debt" of any Person, means as of any date, without
duplication, (I) all indebtedness, obligations and liabilities of such Person
for borrowed money, (II) all indebtedness, obligations and liabilities of such
Person evidenced by bonds, debentures, notes or other similar instruments,
whether recourse or non-recourse and whether secured or unsecured, (III) all
other indebtedness (including capitalized lease obligations, but excluding
operating leases) of such Person on which interest charges are customarily paid
or accrued, (IV) all obligations for indebtedness in respect of guarantees of
another Person's Debt by such Person, (V) the unfunded or unreimbursed portion
of all letters of credit not issued by Bank for the account of such Person, and
(VI) all indebtedness, obligations and liabilities of, such Person as a general
partner or joint venturer of a partnership or joint venture.
F. ACQUISITIONS. Neither Borrower nor any Subsidiary (as
defined below) of Borrower shall, without prior approval of Bank, consolidate
or merge with or acquire any other Person; provided, however, that (I) Borrower
or any Subsidiary of Borrower may consolidate with or merge into any other
Subsidiary of Borrower, and (II) Borrower or any Subsidiary of Borrower can make
Acquisitions (as defined below) unless the aggregate amount of Total
Acquisition Prices (as defined below) for all Acquisitions by Borrower or any
Subsidiary of Borrower after date hereof is in excess of $15,000,000.
"Subsidiary" shall mean any entity for which Borrower owns fifty percent (50%)
or more of the equity interests (whether stock, partnership interests,
membership interests or any other ownership interests) in such entity.
"Acquisition" means any transaction pursuant to which Borrower or any of its
Subsidiaries, (I) whether by means of a capital contribution or purchase or
other acquisition of stock or other securities or other equity participation or
interest, (a) acquires 50% or more of the equity interest in any Person
pursuant to a solicitation by Borrower or such Subsidiary of tenders of equity
securities of such Person, or through one or more negotiated block, market,
private or other transactions, or a combination of any of the foregoing, or (b)
makes any corporation a Subsidiary of Borrower or such Subsidiary, or causes
any corporation, other than a Subsidiary of Borrower or such Subsidiary, to be
merged into Borrower or such Subsidiary (or agrees to be merged into any other
corporation other than a wholly-owned Subsidiary (excluding directors'
qualifying shares) of Borrower or such Subsidiary), or (II) purchases all or
substantially all of the business or assets of any Person or of any operating
division of any Person. "Total Acquisition Price" means, in connection with any
Acquisition, the sum of all cash to be paid at closing or in installments plus
the value of any stock given by Borrower in connection with such Acquisition
which value is determined in accordance with GAAP plus any other amounts paid
or to be paid by Borrower or any Subsidiary of Borrower as part of the purchase
price in connection with such Acquisition plus any Debt (other than trade
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<PAGE> 9
payables incurred in the ordinary course of business) assumed by Borrower in
connection with such Acquisition; provided, that such Total Acquisition Price
shall not include incentive payments based on the favorable performance of the
acquired entity or assets after the sale.
G. STOCK REPURCHASES. Borrower shall not, until the Note
has been paid in full and the obligation of Bank to fund any loan thereunder
has terminated, make any payments in respect of redemptions or repurchases of
Borrower's stock in excess of 2,000,000 shares of such stock in the aggregate.
H. VIOLATE OTHER COVENANTS. Violate or fail to comply
with any covenants or agreements regarding other debt which will or would with
the passage of time or upon demand cause the maturity or any other indebtedness
to be accelerated.
I. NEGATIVE PLEDGE. Borrower shall not create, incur,
permit or suffer to exist any lien upon any of its accounts receivable or
inventory, now owned or hereafter acquired unless otherwise permitted herein.
J. NEGATIVE PLEDGE AGREEMENTS. Borrower shall not, and
shall not permit any of its Subsidiaries to, enter into any agreement
(excluding this Agreement or any other Loan Documents) prohibiting the creation
or assumption of any Lien upon any of its accounts receivable or inventory,
whether now owned or hereinafter acquired.
6. Events of Default. The term "Event of Default" as used in this
Agreement, shall mean any one of the following:
(a) The failure of Borrower to pay when due any principal
of or interest on the Note, or any fees, charges or any other amounts payable
to Lender hereunder or under any of the Note or other Loan Documents;
(b) The failure, refusal or neglect of Borrower to
observe, perform or comply with any covenant or agreement contained in Sections
4.A.ii. and 4.A.iii. of this Agreement, and the continuation of such failure
for a period of five (5) days after Bank has given Borrower written notice
thereof,
(c) The failure, refusal or neglect of Borrower to
observe, perform or comply with any covenant or agreement contained in this
Agreement, or any of the other Loan Documents, and the continuation of such
failure for a period of thirty (30) days after Bank has given Borrower written
notice thereof;
(d) Any representation, warranty, certification or
statement made by Borrower (either for itself or for any other Person) in this
Agreement or by Borrower or any other Person on behalf of Borrower in any
certificate, financial statement or other document delivered pursuant to this
Agreement or any other Loan Document shall prove to have been untrue in any
material respect
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<PAGE> 10
when made or deemed to have been made, and, (provided, that Borrower did not
know nor should have known in the ordinary course that such representation,
warranty, certification or statement was materially incorrect) the continuation
of the state of facts causing such representation, warranty, certification or
statement to be materially incorrect for a period of thirty (30) days after
Bank has given Borrower written notice thereof;
(e) The filing or commencement by Borrower of a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect, or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or Borrower shall consent to any such relief
or to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due, or shall take any corporate action to authorize
any of the foregoing;
(f) The filing or commencement of an involuntary case or
other proceeding against Borrower seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of sixty (60) days; or an
order for relief shall be entered against Borrower under the federal bankruptcy
laws as now or hereafter in effect;
(g) The liquidation or dissolution of Borrower; or
(h) A material adverse change occurs in the consolidated
financial condition of Borrower, and the continuation of such material adverse
change for a period of thirty (30) days after Bank has given Borrower written
notice thereof.
7. REMEDIES UPON DEFAULT. If an event of default shall occur,
Bank shall have all rights, powers and remedies available under each of the
Loan Documents as well as all rights and remedies available at law or in
equity.
8. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to the other party at the following
address:
BORROWER:
Intervoice, Inc.
17811 Waterview Parkway
Dallas, TX 75252
Attn: Chief Financial Officer
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<PAGE> 11
BANK:
NationsBank of Texas, N.A.
Attn: Commercial Lending
901 Main Street, 7th Floor
P.O. BOX 831000
Dallas, TX 75283-1000
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows:
A. If sent by mail, upon the earlier of the date of
receipt or five (5) days after deposit in the U.S. Mail, first class postage
prepaid;
B. If sent by any other means, upon delivery.
Additionally, Bank acknowledges that any notice required to be delivered by
Borrower under Section 4.D. shall be satisfied by delivery of the quarterly
financial statements submitted to Bank in accordance with Section 4.A.ii.,
provided, that the event creating such notice requirement is expressly set
forth in such financial statements.
9. COSTS, EXPENSES AND ATTORNEY'S FEES. Borrower agrees to pay
all out-of-pocket expenses of Bank in connection with the enforcement and the
collection of the Note. Borrower also agrees to pay all reasonable attorney's
fees and all expenses incurred in recording the documents secured by the Loan.
10. MISCELLANEOUS. Borrower and Bank further covenant and agree
as follows, without limiting any requirement of any other Loan Document:
A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right
granted to Bank under any Loan Document, or allowed it by law or equity shall
be cumulative of each other and may be exercised in addition to any and all
other rights of Bank, and no delay in exercising any right shall operate as a
waiver thereof, nor shall any single or partial exercise by Bank of any right
preclude any other or future exercise thereof or the exercise of any other
right. Borrower expressly waives any presentment, demand, protest or other
notice of any kind, including but not limited to notice of intent to accelerate
and notice of acceleration, except as set forth in Section 6. No notice to or
demand on Borrower in any case shall, of itself, entitle Borrower to any other
or future notice or demand in similar or other circumstances.
B. APPLICABLE LAW. This Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted in
accordance with the laws of Texas and applicable United States federal law.
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<PAGE> 12
C. AMENDMENT. No modification, consent, amendment or
waiver of any provision of this Loan Agreement, nor consent to any departure by
Borrower therefrom, shall be effective unless the same shall be in writing and
signed by an officer of Bank, and then shall be effective only in the specified
instance and for the purpose for which given. This Loan Agreement is binding
upon Borrower, its successors and assigns, and inures to the benefit of Bank,
its successors and assigns; however, no assignment or other transfer of
Borrower's rights or obligations hereunder shall be made or be effective
without Bank's prior written consent, nor shall it relieve Borrower of any
obligations hereunder. There is no third party beneficiary of this Loan
Agreement.
D. DOCUMENTS. All documents, certificates and other
items required under this Loan Agreement to be executed and/or delivered to
Bank shall be in form and content satisfactory to Bank and its counsel.
E. PARTIAL INVALIDITY. The unenforceability or
invalidity of any provision of this Loan Agreement shall not affect the
enforceability or validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances.
F. INDEMNIFICATION. Borrower agrees to indemnify Bank
and hold Bank harmless from and against any and all liabilities, losses,
damages, costs and expenses of any kind (including, without limitation, all
fees and disbursements of counsel for Bank in connection with any
investigative, administrative or judicial proceeding, whether or not Bank shall
be designated a party thereto) which may be incurred by Bank, relating to or
arising out of this Loan Agreement or any actual or proposed use of proceeds of
the loan or loans under the Note; PROVIDED THAT BANK SHALL NOT HAVE THE RIGHT
TO BE INDEMNIFIED HEREUNDER FOR ITS OWN AFFIRMATIVE ACTS, GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT, IT BEING THE INTENTION HEREBY THAT BANK SHALL BE
INDEMNIFIED FOR THE CONSEQUENCES OF ITS NEGLIGENCE (WHETHER SOLE, CONTRIBUTORY,
COMPARATIVE OR OTHERWISE).
G. SURVIVABILITY. All covenants, agreements,
representations and warranties made herein or in the Loan Documents shall
survive the making of the Loan and shall continue in full force and effect so
long as the Loan is outstanding or the obligation of the Bank to make any
advances under the Line shall not have expired.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS, INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS
OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT,
SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL
ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF
PRACTICE AND
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<PAGE> 13
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY
PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS
AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN
THE CITY OF THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS
INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT
AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING
THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION
PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS
ARBITRATION PROVISION; OR (II) BE A WAIVER BY THE BANK OF THE PROTECTION
AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW;
OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES
SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR
PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR
ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF
POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE SUCH SELF
HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION
FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER
OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
12. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
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<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed under seal by their duly authorized representatives as of the date
first above written.
BANK: BORROWER:
By: /s/ BRIAN SCHNEIDER By: /S/ ROB-ROY GRAHAM
----------------------------- -----------------------------
Name: Brian Schneider Name: Rob-Roy Graham
Title: Senior Vice President Title: Chief Financial Officer
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<PAGE> 15
EXHIBIT A
REQUEST FOR ADVANCE
This Request for Advance is being delivered by INTERVOICE, INC., a
Texas corporation ("Borrower"), as borrower under that certain Loan Agreement
(the "Loan Agreement"), dated as of October __, 1997, executed by Borrower and
NationsBank of Texas, N.A., a national banking association ("Bank"). Unless
defined herein or indicated otherwise, each capitalized term used herein shall
have the meaning given to such term in the Loan Agreement.
1. Borrower hereby requests a loan in an amount equal to
$____________. Borrower represents and warrants to Bank that the aggregate
loans plus any Letter of Credit requested herein will not cause the aggregate
amount of loans outstanding plus the aggregate undrawn amount of all
outstanding Letters of Credit to exceed the amount which Borrower is entitled
to borrow pursuant to Section 2 (or any other provisions) of the Loan
Agreement.
2. Borrower requests that of the loan requested hereby, $_________
bear interest based at the Applicable Prime Rate and $__________ bear interest
based at the Applicable Adjusted LIBOR Rate. With respect to the LIBOR Rate
Portion, the Interest Period shall be ______ days, with the Effective Date being
____________________.
3. Borrower hereby certifies, represents and warrants to Lenders
that:
(a) This Request for Advance has been duly authorized by
all necessary action on the part of Borrower.
(b) The representations and warranties contained in the Loan
Agreement and the other Loan Documents remain true and correct on and
as of the date hereof (except to the extent any representation or
warranty is made as of a particular date) with the same force and
effect as though made on the date hereof.
(c) No Default or Event of Default has occurred and is
continuing, and the making of the loan or issuing of the Letter of
Credit requested hereby shall not constitute a Default or Event of
Default.
(d) Borrower has performed and complied with all agreements
and conditions in the Loan Agreement and the other Loan Documents
required to be performed or complied with by Borrower on or prior to
the date hereof.
(e) The proceeds of the loan or Letter of Credit herein
requested will not be used in violation of any provision of the Loan
Agreement or any other Loan Document.
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<PAGE> 16
4. Borrower acknowledges and agrees that the making of the loan
or the issuance of the Letter of Credit requested hereby shall not constitute a
waiver of any condition precedent to the obligation of Bank to make further
loans under the Note or arrange for the issuance of additional Letters of
Credit.
EXECUTED as of , 19 .
------------------ ---
INTERVOICE, INC., a Texas corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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<PAGE> 17
PROMISSORY NOTE
$15,000,000.00 Dallas, Texas November 3, 1997
FOR VALUE RECEIVED, INTERVOICE, INC., a Texas corporation ("Maker"),
hereby promises to pay to the order of NATIONSBANK OF TEXAS, N.A., a national
banking association ("Lender"), at the offices of Lender at 901 Main Street,
7th Floor, Dallas, Texas 75202, the principal sum of Fifteen Million and No/100
Dollars ($15,000,000.00) (or the unpaid balance of all principal advanced
against this Note, if that amount is less), on or before April 30, 1998 (the
"Maturity Date"), together with interest on the unpaid principal balance of
this Note from day to day outstanding, as hereinafter provided and as provided
in the Loan Agreement (as defined below). This Note is revolving and Borrower
may, from time to time, borrow, repay and re-borrow. Subject to the provisions
of this Note, including, without limitation, Section 2(h) hereof, Maker shall
be entitled to prepay this Note in full or in part at any time without penalty.
This Note has been executed and delivered pursuant to the terms of
that certain Loan Agreement (as the same may be modified, amended,
supplemented, extended or restated from time to time, the "Loan Agreement")
dated as of November 3, 1997, executed by and between Maker and Lender and is
the promissory note defined therein as the "Note", the terms and provisions of
the Loan Agreement related to this Note being incorporated herein by reference
for all purposes. Each capitalized term not expressly defined herein shall have
the meaning given to such term under the Loan Agreement. The terms of the Loan
Agreement shall govern in the case of any inconsistency between such terms and
the terms hereof.
Any holder shall be entitled to all benefits and remedies and security
set forth in the Loan Agreement and all the other Loan Documents.
1. Definitions. As used herein the following terms shall have the
respective meanings set forth below:
(a) "Adjusted LIBOR Rate" shall mean on the applicable Effective
Date (defined below), with respect to a LIBOR Rate Portion, a rate per annum
equal to the sum of (A) the quotient of (i) the LIBOR Rate on the applicable
Effective Date, divided by (ii) the remainder of 1.00 minus the LIBOR Reserve
Requirement on the applicable Effective Date, plus (B) the FDIC Percentage in
effect on the applicable Effective Date.
(b) "Applicable Adjusted LIBOR Rate" shall mean the sum of the
Adjusted LIBOR Rate, plus one and one-quarter of one percent (1.25%).
PROMISSORY NOTE (NationsBank) Page 1
<PAGE> 18
(c) "Applicable Prime Rate" shall mean the Prime Rate.
(d) "Applicable Rate" shall mean the rate of interest applicable
to the Loan or portions thereof pursuant to the provisions of Section 2.
(e) "Business Day" shall mean a day of the year on which Lender is
open for business, and a day on which all major departments of banks in Dallas,
Texas are open for business.
(f) "FDIC Percentage" shall mean, on any day, the net assessment
rate (expressed as a percentage rounded to the next highest .01 of 1%) which is
in effect on such day (under the regulations of the Federal Deposit Insurance
Corporation or any successor) for determining the assessments paid by Lender to
the Federal Deposit Insurance Corporation (or any successor) for insuring time
deposits made in dollars at Lender's principal offices in Dallas, Texas. Each
determination of said percentage made by Lender shall, in the absence of
manifest error, be binding and conclusive.
(g) "Interest Adjustment Date" shall mean the earlier of either
the last day of an Interest Period or the Termination Date.
(h) "Interest Period" shall mean, with respect to a LIBOR Rate
Portion, a period selected by Maker of 30, 60, 90 or 180 days, commencing on
the Effective Date of any LIBOR Rate Portion; provided that, unless the Loan is
renewed and extended prior to the maturity date of this Note, each Interest
Period ending on a date later than the Termination Date shall be deemed to end
on the Termination Date.
(i) "LIBOR Rate" shall mean, with respect to a LIBOR Rate Portion
for the Interest Period applicable thereto, the rate per annum (rounded upward
to the next higher of 1/100 of 1.0%) appearing on Telerate page 3750 (or any
successor page) as the London interbank offered rate for deposits in U.S.
Dollars at approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such Interest
Period. If for any reason such rate is not available, the term "LIBOR Rate"
shall mean, for any LIBOR Rate Portion for any Interest Period therefor, the
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Reuters Screen LIBO Page as the London interbank offered rate for
deposits in U.S. Dollars at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period; provided, however, if more than one rate is specified on
Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of
all such rates.
PROMISSORY NOTE (NationsBank) Page 2
<PAGE> 19
(j) "LIBOR Rate Portion" shall mean that portion or those portions
of the Loan which bear interest computed with reference to the LIBOR Rate.
(k) "LIBOR Reserve Requirement" shall mean, on any day, that
percentage (expressed as a decimal fraction) which is in effect on such date,
as provided by the Federal Reserve System for determining the maximum reserve
requirements generally applicable to financial institutions regulated by the
Federal Reserve Board comparable in size and type to Lender (including, without
limitation, basic supplemental, marginal and emergency reserves) under
Regulation D with respect to "Eurocurrency liabilities" as currently defined in
Regulation D, or under any similar or successor regulation with respect to
Eurocurrency liabilities or Eurocurrency funding (or other category of
liabilities which includes deposits by reference to which the interest rate on
a LIBOR Rate Portion is determined or any category of extensions of credit
which includes loans by a non-United States office of Lender to United States
residents). Each determination by Lender of the LIBOR Reserve Requirement,
shall, in the absence of manifest error, be conclusive and binding.
(l) "Loan" shall mean the principal indebtedness evidenced by this
Note outstanding from time to time.
(m) "Loan Documents" shall have the meaning set forth in the Loan
Agreement.
(n) "Maximum Rate" as used in this Note means the maximum
nonusurious rate of interest per annum permitted by whichever of applicable
United States federal law or Texas law permits the higher interest rate,
including to the extent permitted by applicable law, any amendments thereof
hereafter or any new law hereafter coming into effect to the extent a higher
Maximum Rate is permitted thereby. To the extent, if any, that Chapter 1D
("Chapter 1D") of Article 5069 of Title 79, Texas Revised Civil Statutes,
1925, as amended establishes the Maximum Rate, the Maximum Rate shall be the
"weekly ceiling" (as defined in Chapter 1D) in effect from time to time. The
Maximum Rate shall be applied by taking into account all amounts characterized
by applicable law as interest on the debt evidenced by this Note, so that the
aggregate of all interest does not exceed the maximum nonusurious amount
permitted by applicable law.
(o) "Past Due Rate" as used in this Note means, on any day,a rate
per annum equal to the Prime Rate plus two percent (2.0%) per annum computed
using the 1/360 method described below.
(p) "Prime Rate" shall mean for each Prime Rate Portion the rate
per annum most recently established by Lender as its "prime rate". The Prime
Rate is set by Lender as a general reference rate of interest, taking into
account such factors as Lender may deem appropriate, it being understood that
it is not necessarily
PROMISSORY NOTE (NationsBank) Page 3
<PAGE> 20
the lowest or best rate actually charged to any customer or a favored rate,
that it may not correspond to any future increases or decreases of interest
rates charged by other lenders, or market rates in general, and Lender may make
various commercial or other loans at rates of interest having no relationship
to such rate.
(q) "Prime Rate Portion" shall mean that portion of the Loan which
will bear interest computed with reference to the Prime Rate.
(r) "Regulatory Change" shall mean any change in applicable law or
regulation, or in the interpretation thereof by any governmental authority
charged with the administration thereof.
(s) "Termination Date" shall mean the final maturity date of this
Note on which all outstanding principal and accrued interest hereunder is due
and payable (as such maturity date may be renewed or extended, or accelerated
under the terms of this Note or otherwise).
Without notice to Maker or anyone else, the Prime Rate and the Maximum
Rate shall each automatically fluctuate upward and downward as and in the
amount by which the Lender's prime rate and such maximum nonusurious rate of
interest permitted by applicable law, respectively, fluctuate, subject always
to limitations contained in this Note.
2. Payments.
(a) Principal of this Note shall be due and payable in full on the
Maturity Date, together with all accrued and unpaid interest hereon.
(b) Interest on the Loan shall accrue at a rate per annum equal to
the lesser of (i) at Maker's option, the Applicable Prime Rate, or the
Applicable Adjusted LIBOR Rate, subject, however, to the provisions of this
Section 2, or (ii) the Maximum Rate; provided, however, if at any time the
Applicable Rate exceeds the Maximum Rate, resulting in the charging of interest
hereunder to be limited to the Maximum Rate, then any subsequent reduction in
the Applicable Rate shall not reduce the rate of interest below the Maximum
Rate until the total amount of interest accrued on the indebtedness evidenced
hereby equals the amount of interest which would have accrued on such
indebtedness if the Applicable Rate had at all times been in effect. Interest
on this Note shall be calculated at a daily rate equal to 1/360 of the annual
percentage rate which this Note bears, subject to the provisions hereof
limiting interest to the maximum permitted by applicable law.
(c) Upon at least three (3) business days prior written notice
from Maker to Lender ("Minimum Notice Period"), Maker may,
PROMISSORY NOTE (NationsBank) Page 4
<PAGE> 21
on any Interest Adjustment Date (other than the Termination Date), convert
amounts of not less than $100,000.00 (or more) of any LIBOR Rate Portion into a
Prime Rate Portion with interest accruing thereon, with reference to the
Applicable Prime Rate, as provided in paragraph (b) above in this Section 2.
(d) Upon satisfaction of the Minimum Notice Period, and subject to
the conditions provided in this Note, Maker may, on any date prior to the
Termination Date, convert amounts of not less than $100,000.00 (or more) of any
Prime Rate Portion into a LIBOR Rate Portion with interest accruing thereon
with reference to the Applicable Adjusted LIBOR Rate as provided in paragraph
(b) above in this Section 2, for the Interest Period selected in such notice.
(e) To the extent Maker has not made an effective election under
and in accordance with subparagraphs (c) or (d) above in this Section 2, the
Applicable Rate shall be the rate specified pursuant to the provisions
contained herein for a Prime Rate Portion.
(f) Each notice of LIBOR Rate Portion election by Maker must
satisfy the Minimum Notice Period and shall include the following: (i) Maker's
election of the Applicable Adjusted LIBOR Rate; (ii) Maker's choice of an
Interest Period during which the Applicable Adjusted LIBOR Rate will apply;
(iii) Maker's election of the "Effective Date" (herein so called) on which the
LIBOR Rate Portion shall begin; and (iv) the amount of outstanding loan
principal which shall not be less than $100,000.00 (or more) to which the
Applicable Adjusted LIBOR Rate shall apply.
(g) Maker's election to convert to the Applicable Adjusted LIBOR
Rate is subject to the following conditions: (i) the Interest Period shall be
limited to a period commencing on the Effective Date and ending on a date 30,
60, 90 or 180 days later elected by Maker in its notice to Lender; (ii) Maker's
written notice of an election shall be received by Lender in time to satisfy
the Minimum Notice Period; (iii) the last day of the Interest Period will not
be subsequent in time to the Termination Date; (iv) in the case of a
continuation of an Interest Period, the Interest Period applicable after such
continuation shall commence on the last day of the preceding Interest Period;
(v) no LIBOR Rate election shall be made if Lender determines by reason of
circumstances affecting the interbank Eurodollar market that either adequate or
reasonable means do not exist for ascertaining the Adjusted LIBOR Rate for any
Interest Period, or it becomes impracticable for Lender to obtain funds by
purchasing U.S. dollars in the interbank Eurodollar market, or if Lender
determines that the Adjusted LIBOR Rate will not adequately or fairly reflect
the costs to Lender of maintaining the applicable LIBOR Rate Portion at such
rate, or if as a result of any Regulatory Change it shall become unlawful or
impossible for Lender to maintain any such LIBOR Rate Portion; (vi) there shall
PROMISSORY NOTE (NationsBank) Page 5
<PAGE> 22
never be more than seven (7) LIBOR Rate Portions, in the aggregate, in effect
at any one time hereunder; and (vii) no LIBOR Rate election may be made after
the occurrence and during the continuance of a default (defined below).
(h) Maker shall indemnify Lender against any loss or expense which
Lender may, as a consequence of Maker's failure to make a payment on the date
such payment is due hereunder or the payment, prepayment or conversion of any
LIBOR Rate Portion hereunder on a day other than an Interest Adjustment Date,
sustain or incur in liquidating or employing deposits from third parties
acquired to effect, fund or maintain any such LIBOR Rate Portion or any part
thereof. Such loss or expense shall include, without limitation, (i) the
interest which, but for such failure, payment, prepayment or conversion, Lender
would have earned in respect of such LIBOR Rate Portion so paid, for the
remainder of the Interest Period applicable to such LIBOR Rate Portion,
reduced, if Lender is able to redeposit such principal amount so paid for the
balance of such Interest Period, by the interest earned by Lender as a result
of so redepositing such principal amount, plus (ii) any expenses or penalty
incurred by Lender on redepositing such principal amount. In the event any such
loss or expense is incurred by Lender, Lender shall furnish Maker with a
certificate detailing the basis upon which such loss or expense is computed.
Any such certificate shall establish the amount of such expense or loss for
purposes of this paragraph, in the absence of manifest error in calculation;
provided, however, that upon the discovery of any error, appropriate
adjustments shall be made between Lender and Maker.
(i) Maker shall also indemnify Lender against and reimburse Lender
for increased costs to Lender (except taxes based on Lender's income), as a
result of any Regulatory Change, in the maintaining of any LIBOR Rate Portion.
Lender shall give Maker written notice of such costs within ninety (90) days of
its implementation and/or compliance with any such Regulatory Change, and such
costs shall be reimbursed to Lender prior to the earlier of (i) the Termination
Date or (ii) one hundred twenty (120) days following written notice thereof
from Lender to Maker. All payments made pursuant to this paragraph shall be
made free and clear, without reduction for, or account of, any present or
future taxes or other levies of any nature, excluding net income and franchise
taxes.
(j) Interest hereon shall be due and payable quarterly as it
accrues, on or before the first day of each calendar quarter commencing January
1, 1998, and continuing on the first day of each successive calendar quarter
thereafter until the entire principal balance is paid in full.
(k) After default, or maturity, past due principal, and past-due
interest to the extent permitted by law, shall bear
PROMISSORY NOTE (NationsBank) Page 6
<PAGE> 23
interest at the Maximum Rate or, if no Maximum Rate is established by
applicable law, then at the Past Due Rate.
3. Default. The occurrence of an Event of Default, under and as
defined in the Loan Agreement, shall constitute, respectively, a Default or an
Event of Default under this Note.
4. Remedies.
(a) All Remedies Available. Upon the occurrence and during the
continuation of an Event of Default, the holder hereof shall have the right to
declare the entire unpaid principal balance of, and all accrued unpaid interest
on, this Note at once due and payable (and upon such declaration, the same
shall be at once due and payable), to foreclose any and all liens and security
interests securing payment hereof, to offset against this Note any sum or sums
owed by it to Maker, and to exercise any of its other rights, powers and
remedies under this Note, under the Loan Agreement or any other Loan Document,
or at law or in equity.
(b) No Waiver. Neither the failure by the holder hereof to
exercise, nor delay by the holder hereof in exercising, the right to accelerate
the maturity of this Note or any other right, power or remedy upon any Default
or Event of Default shall be construed as a waiver of such Default or Event of
Default or as a waiver of the right to exercise any such right, power or remedy
at any time. No single or partial exercise by the holder hereof of any right,
power or remedy shall exhaust the same or shall preclude any other or further
exercise thereof, and every such right, power or remedy may be exercised at any
time and from time to time. All rights and remedies provided for in this Note
and in any other Loan Document are cumulative of each other and of any and all
other rights and remedies existing at law or in equity, and the holder hereof
shall, in addition to the rights and remedies provided herein or in any other
Loan Document, be entitled to avail itself of all such other rights and
remedies as may now or hereafter exist at law or in equity for the collection
of the indebtedness owing hereunder, and the resort to any right or remedy
provided for hereunder or under any such other Loan Document or provided for by
law or in equity shall not prevent the concurrent or subsequent employment of
any other appropriate rights or remedies. Without limiting the generality of
the foregoing provisions, the acceptance by the holder hereof from time to time
of any payment under this Note which is past due or which is less than the
payment in full of all amounts due and payable at the time of such payment,
shall not (i) constitute a waiver of or impair or extinguish the rights of the
holder hereof to accelerate the maturity of this Note or to exercise any other
right, power or remedy at the time or at any subsequent time, or nullify any
prior exercise of any such right, power or remedy, or (ii) constitute a waiver
of the requirement of punctual payment and performance, or a novation in any
respect.
PROMISSORY NOTE (NationsBank) Page 7
<PAGE> 24
5. Usury Savings Provisions.
(a) General Limitation. Notwithstanding anything herein or in any
other Loan Documents, expressed or implied, to the contrary, in no event shall
any interest rate charged hereunder or under any of the other Loan Documents,
or any interest contracted for, collected or received by Lender or any holder
hereof, exceed the Maximum Lawful Rate.
(b) Intent of Parties. It is expressly stipulated and agreed to be
the intent of Maker and Lender at all times to comply with applicable law
governing the maximum rate or amount of interest payable on or in connection
with this Note. If the applicable law is ever judicially interpreted so as to
render usurious any amount called for under this Note or under any of the other
Loan Documents or contracted for, charged, taken, reserved or received with
respect to this Note, or if acceleration of the maturity of this Note, any
prepayment by Maker, or any other circumstance whatsoever, results in Lender
having been paid any interest in excess of that permitted by applicable law,
then it is the express intent of Maker and Lender that all excess amounts
theretofore collected by Lender be credited on the principal balance of this
Note (or, if this Note has been or would thereby be paid in full, refunded to
Maker), and the provisions of this Note and the other applicable Loan Documents
immediately be deemed reformed and the amounts thereafter collectible hereunder
and thereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder and thereunder.
The right to accelerate the maturity of this Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Lender does not intend to collect any unearned interest in
the event of acceleration. All sums paid or agreed to be paid to Lender for the
use, forbearance or detention of the indebtedness evidenced hereby or by any
other Loan Document shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the rate or amount of interest on
account of such indebtedness does not exceed the Maximum Lawful Rate. The term
"applicable law" as used herein shall mean the laws of the State of Texas, or
any applicable United States federal law to the extent that it permits Lender
to contract for, charge, take, reserve or receive a greater amount of interest
than under Texas law. The provisions of this paragraph shall control all
agreements between Maker and Lender.
PROMISSORY NOTE (NationsBank) Page 8
<PAGE> 25
6. General Provisions.
(a) Business Days. Whenever any payment shall be due under this
Note on a day which is not a Business Day, the date on which such payment is
due shall be extended to the next succeeding Business Day, and such extension
of time shall be included in the computation of the amount of interest then
payable.
(b) Manner of Payment. The manner in which payments are to be made
on this Note shall be governed by the provisions hereof and the Loan Agreement.
(c) Application of Payments. All payments made on this Note shall
be applied in accordance with the Loan Agreement. Nothing herein shall limit or
impair any rights of any holder hereof to apply as provided in the Loan
Documents any past due payments, any proceeds from the disposition of any
collateral by foreclosure or other collections after default.
(d) Costs of Collection. If any holder of this Note retains an
attorney in connection with any default or at maturity or to collect, enforce
or defend this Note or any other Loan Document in any lawsuit or in any
probate, reorganization, bankruptcy or other proceeding, or if Maker sues any
holder of this Note in connection with this Note or any other Loan Document and
does not prevail, then Maker agrees to pay to each such holder, in addition to
principal and interest, all costs and expenses incurred by such holder in
trying to collect this Note or in any such suit or proceeding, including
reasonable attorneys' fees as and to the extent provided in the Loan Agreement.
(e) Waivers and Acknowledgments. Maker and all sureties,
endorsers, guarantors and any other party now or hereafter liable for the
payment of this Note in whole or in part, hereby severally (i) waive demand,
presentment for payment, notice of dishonor and of nonpayment, protest, notice
of protest, notice of intent to accelerate, notice of acceleration and all
other notice (except only for any notice that is specifically required by the
terms of the Loan Agreement or any other Loan Document), filing of suit and
diligence in collecting this Note or enforcing any of the security herefor;
(ii) agree to any substitution, subordination, exchange or release of any such
security or the release of any party primarily or secondarily liable hereon;
(iii) agree that the holder hereof shall not be required first to institute
suit or exhaust its remedies against Maker or others liable or to become liable
hereon or to enforce its rights against them or any security herefor; (iv)
consent to any extension or postponement of time of payment of this Note for
any period or periods of time and to any partial payments, before or after
maturity, and to any other indulgences with respect hereto, without notice
thereof to any of them; and (v) submit (and waive all rights to object) to
personal jurisdiction in the
PROMISSORY NOTE (NationsBank) Page 9
<PAGE> 26
State of Texas, and venue in Dallas County, Texas, for the enforcement of any
and all obligations under the Loan Documents.
(f) Amendments in Writing. This Note may not be changed, amended
or modified except in a writing expressly intended for such purpose and
executed by the party against whom enforcement of the change, amendment or
modification is sought.
(g) Purpose of Proceeds. The proceeds of this Note will be used
solely for business purposes and not for personal, family, household or
agricultural purposes.
(h) Notices. Any notice required or which any party desires to
give under this Note shall be given and effective as provided in the Loan
Agreement.
(i) Assignments/Participations. Maker acknowledges and agrees that
the holder of this Note may, at any time and from time to time, assign all or a
portion of its interest under the Note or transfer to any Person a
participation interest under the Note, subject to and in accordance with the
terms and conditions of the Loan Agreement.
(j) Successors and Assigns. All of the covenants, stipulations,
promises and agreements contained in this Note by or on behalf of Maker shall
bind its successors and assigns and shall be for the benefit of Lender and any
holder hereof, and their successors and assigns, as and to the extent provided
in the Loan Agreement.
(k) GOVERNING LAW. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY TEXAS LAW, EXCEPT TO THE EXTENT THAT THE LAWS OF UNITED
STATES FEDERAL LAW APPLIES PURSUANT TO THE LOAN AGREEMENT OR OTHERWISE.
(l) Time of the Essence. Time shall be of the essence in this Note
with respect to all of Maker's obligations hereunder.
(m) INTEGRATION. THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
PROMISSORY NOTE (NationsBank) Page 10
<PAGE> 27
IN WITNESS WHEREOF, Maker has duly executed this Note as of the date
first above written.
MAKER:
INTERVOICE, INC., a Texas corporation
By: /s/ ROB-ROY J. GRAHAM
------------------------------------
Name: Rob-Roy J. Graham
----------------------------------
Title: Chief Financial Officer
---------------------------------
PROMISSORY NOTE (NationsBank) Page 11
<PAGE> 28
RENEWAL, EXTENSION AND MODIFICATION AGREEMENT
THIS RENEWAL, EXTENSION AND MODIFICATION AGREEMENT (this "Agreement") is
entered into as of, although not necessarily executed on, the 30th day of
April, 1998, by and between INTERVOICE, INC., a Texas corporation ("Borrower"),
and NATIONSBANK OF TEXAS, N.A., a national banking association ("Lender").
Unless otherwise defined herein or unless the context indicates otherwise, any
word herein beginning with a capitalized letter shall have the meaning ascribed
to such word in that certain Loan Agreement (as amended from time to time, the
"Loan Agreement") dated as of November 3, 1997, between Borrower and Lender.
WITNESSETH:
WHEREAS, as set forth in the Loan Agreement, Lender previously extended
credit to Borrower in the maximum amount of $15,000,000.00 (the "Loan") as
evidenced by that certain Promissory Note (the "Note"), dated November 3, 1997,
in the original face amount of $15,000,000.00, executed by Borrower, payable to
the order of Lender; and
WHEREAS, the Maturity Date of the Loan is April 30, 1998, and Borrower
has requested that Lender renew, extend and modify the Loan to extend the
maturity date to June 30, 1998; and
WHEREAS, subject to the terms and conditions contained herein, Lender has
agreed to such request by Borrower.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, That for and in
consideration of the terms and conditions contained herein and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties hereto, Lender and Borrower hereby agree as
follows:
1. Extension of Maturity Date. Subject to satisfaction of the
conditions contained in this Agreement, the Maturity Date of the Loan shall be,
and hereby is, renewed, modified and extended to June 30, 1998, and in this
regard, the Note and all of the other Loan Documents are hereby renewed and
modified (but not extinguished) by extending the maturity date thereof to June
30, 1998.
2. Conditions Precedent to this Agreement. As conditions precedent to
this Agreement and the modifications to the Loan pursuant hereto, all of the
following shall have been satisfied:
(a) Borrower shall have executed and delivered to Lender this Agreement;
and
MODIFICATION AND EXTENSION AGREEMENT (INTERVOICE) Page 1
<PAGE> 29
(b) Borrower shall have delivered to Lender all resolutions,
certificates or documents as Lender may request relating to (i) the existence
of Borrower, and (ii) the corporate authority for the execution and validity of
this Agreement, together with all other documents, instruments and agreements
and any other matters relevant hereto or thereto, all in form and content
satisfactory to Lender.
3. Definition of Loan Documents. The definition of "Loan Documents",
as defined in the Loan Agreement and as used in the Loan Agreement, the other
Loan Documents and herein, shall be, and hereby is, modified to include this
Agreement and any and all documents executed in connection herewith.
4. Event of Default. The Loan shall be, and hereby is, modified such
that the failure of Borrower to comply timely with any provision of this
Agreement or any document executed in connection herewith shall be an Event of
Default.
5. Reaffirmation of Debt. Borrower hereby agrees and acknowledges that
it is well and truly indebted to Lender pursuant to the terms of the Note and
the other Loan Documents, as modified hereby. Borrower hereby promises to pay
to Lender, or order, the Note in accordance with the terms thereof (as modified
by this Agreement), and hereby agrees to observe, comply with and perform all
of the obligations, terms and conditions under or in connection with the Loan
Agreement, the Note and any and all of the other Loan Documents, all as
modified by this Agreement.
6. Ratification. Except as otherwise expressly modified by this
Agreement, all terms and provisions of the Loan Agreement, the Note and the
other Loan Documents shall remain unchanged and hereby are ratified and
confirmed and shall be and shall remain in full force and effect, enforceable
in accordance with their terms.
7. No Defenses. Borrower, by its execution of this Agreement, hereby
declares that it has no set-offs, counterclaims, defenses or other causes of
action against Lender arising out of the Loan, the modification of the Loan,
any documents mentioned herein or otherwise; and, to the extent any such
setoffs, counterclaims, defenses or other causes of action may exist, whether
known or unknown, such items are hereby waived by Borrower.
8. Payment of Expenses. Borrower agrees to provide to Lender, upon
demand, the reasonable attorneys' fees and expenses of Lender's counsel, filing
and recording fees and other reasonable expenses incurred by Lender in
connection with this Agreement.
9. Further Assurances. Borrower shall execute such other documents and
take such other actions as may be necessary or as may be required, in the
opinion of counsel to Lender, to effect the transactions contemplated hereby.
MODIFICATION AND EXTENSION AGREEMENT (INTERVOICE) Page 2
<PAGE> 30
10. Binding Agreement. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties' respective heirs, representatives,
successors and assigns.
11. Enforceability. In the event the enforceability or validity of any
portion of this Agreement, the Loan Agreement, the Note or any of the other
Loan Documents is challenged or questioned, such provision shall be construed
in accordance with, and shall be governed by, whichever applicable federal or
Texas law would uphold or would enforce such challenged or questioned
provision.
12. Counterparts. This Agreement may be executed in several
counterparts, all of which are identical, each of which shall be deemed an
original, and all of which counterparts together shall constitute one and the
same instrument.
13. Choice of Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS,
EXCEPT TO THE EXTENT FEDERAL LAWS PREEMPT THE LAWS OF THE STATE OF TEXAS.
14. Entire Agreement. This Agreement, the Loan Agreement and the Note,
together with the other Loan Documents, contain the entire agreements between
the parties relating to the subject matter hereof and thereof and all prior
agreements relative thereto which are not contained herein or therein are
terminated. This Agreement, the Loan Agreement, the Note and the other Loan
Documents may be amended, revised, waived, discharged, released or terminated
only by a written instrument or instruments, executed by the party against
which enforcement of the amendment, revision, waiver, discharge, release or
termination is asserted. Any alleged amendment, revision, waiver, discharge,
release or termination which is not so documented shall not be effective as to
any party.
THIS AGREEMENT AND THE OTHER WRITTEN INSTRUMENTS, AGREEMENTS AND DOCUMENTS
EXECUTED IN CONNECTION WITH THIS AGREEMENT, AND THE LOAN AGREEMENT, THE NOTE
AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
MODIFICATION AND EXTENSION AGREEMENT (INTERVOICE) Page 3
<PAGE> 31
IN WITNESS WHEREOF, this Agreement is executed as of, although not
necessarily on, April 30, 1998.
LENDER:
NATIONSBANK OF TEXAS, N.A., a
national banking association
By: /s/ MATT BRYANT
------------------------------
Name: Matt Bryant
----------------------------
Its: Assistant Vice President
-----------------------------
BORROWER:
INTERVOICE, INC., a Texas
corporation
By: /s/ ROB R.J. GRAHAM
------------------------------
Name: Rob-Roy J. Graham
----------------------------
Its: CFO
-----------------------------
MODIFICATION AND EXTENSION AGREEMENT (INTERVOICE) Page 4
<PAGE> 1
EXHIBIT 10.19
INTERVOICE, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of October 8, 1997,
between InterVoice, Inc., a Texas corporation with its principal executive
offices at 17811 Waterview Parkway Dallas, Texas 75252 (the "Company"), and
Eric L. Pratt (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee and the Company desire to enter into this Agreement
to provide for certain terms and conditions of Employee's employment by the
Company.
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:
"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 Employees (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,
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 express or implied
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<PAGE> 2
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 (c) the Employee's base compensation is reduced or
any other failure by the Company to comply with Section 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 term of this Agreement shall be from October 8, 1997 until October 8,
1999 unless sooner terminated in accordance with the provisions herein
regarding termination.
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 $125,000 per
year. Such salary shall be payable in equal month installments in accordance
with the customary payroll policies of the Company in effect at the time such
payment is made. 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 may 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
28, 1998 and continuing with respect to each subsequent fiscal year thereafter
during the term of this Agreement, the Company will pay Employee incentive
compensation based on the Employee's then current Sales Incentive Plan for the
fiscal year, as provided to the Employee by the Company. The Employee's Sales
Incentive Plan for the Company's fiscal year ending February 28, 1998 is
attached as Schedule A, and is incorporated into this Agreement by this
reference.
(c) 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 similarly situated 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) and (b). In addition, the Company
currently has a director and officer insurance policy which provides insurance
for the Company's directors and officers in accordance with its terms.
(d) Stock Option. In consideration of the Employee's execution of this
Agreement, the Company will recommend that the Compensation Committee of its
Board of Directors grant
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<PAGE> 3
an option to purchase 30,000 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 the date of grant, and the option
will become exercisable in four equal amounts on the first four annual
anniversaries of the date of grant.
(e) 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.
(f) Vacation. Employee shall be entitled to a minimum of three (3) 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 Vice President of
Telco Sales and report directly to the Senior Vice President, Sales and,
subject to such authority, shall have supervision and control over, and
responsibility for, the general management and operation of the
Telecommunication Sales Department and shall have such other powers and duties
as may from time to time be prescribed by such authority, provided that such
duties are reasonable and customary for a Vice President of Telco Sales. it is
currently contemplated that Employee's reporting relationship (but not his title
of responsibilities) will change such that Employee will report directly to the
President of the Company commencing on or about December 30, 1997.
(b) Extent of Services. 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.
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
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<PAGE> 4
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
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 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 the call
automation and/or voice automation industry or industries in any state of the
United States or 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 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
provision 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(a), or (ii) at the election of the Employee after the
occurrence of an Event of Default which has not been waived in writing.
(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 noncompetiton 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.
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<PAGE> 5
(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 Section 22, 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 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
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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 Section 22, all other obligations of the Company hereunder shall cease at
the time of the Employee's death.
9. TERMINATION.
(a) Upon at least 30 days' prior written notice to the Employee, 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 and 22, 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 (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 (it is not currently contemplated that Employee will
be elected to the Board of Directors), 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 (a).
(b) 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 (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 Section 22.
(c) 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 Section 10 (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 and
22.
10. COMPENSATION AFTER CERTAIN TERMINATIONS.
If the Employee's employment with the Company is terminated (whether such
termination is by the Employee or by the Company) at any time during the term
of this Agreement for any reason other than (a) termination by the Company for
Cause in accordance with Subsection 9 (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 (b) then, within five days
after the date of such termination, (i) the Remaining Base 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
Page 6
<PAGE> 7
in a single lump sum in cash, and (ii) all stock options granted to Employee
pursuant to Subsection 4(d) hereof which are not then exercisable 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 Section 10, the "Remaining Base
Compensation" shall mean the annual base salary payable to the Employee
pursuant to Subsection 4(a) at the time of termination. In addition, if
Employee's employment is terminated prior to receiving the full amount of his
"Guaranteed Incentive Compensation" (as such term is defined in Schedule A),
the remaining unpaid amount of the Guaranteed Incentive Compensation shall also
be included in the Remaining Base Compensation.
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.
14. ASSIGNMENT.
This Agreement is personal to the parties, and neither this Agreement nor
any interest herein my 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 his
employment had been terminated without Cause,
Page 7
<PAGE> 8
and, for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the date of termination.
15. BINDING AGREEMENT.
Subject to the provisions of Section 14 of this Agreement, this Agreement
shall be binding 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.
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.
Page 8
<PAGE> 9
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. ENFORCEABILITY.
Each party to this Agreement acknowledges and represents that such party
has all requisite rights, power and authority to enter into this Agreement, and
that this Agreement, the terms and conditions of this Agreement, and the
transactions and obligations contemplated by this Agreement, will not result in
a breach of any agreement the party has with any third party.
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, 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.
Page 9
<PAGE> 10
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: President COO
---------------------------
/s/ ERIC L. PRATT
--------------------------------
ERIC L. PRATT
Page 10
<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.
33-61089, 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, Form S-3 No. 33-85898 and Form S-8
No. 333-28009) of InterVoice, Inc. and subsidiaries of our report dated April 7,
1998, 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, 1998.
ERNST & YOUNG LLP
Dallas, Texas
May 27, 1998
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