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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission file number 0-15578
DAVOX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 02-0364368
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6 Technology Park Drive
Westford, Massachusetts 01886
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 952-0200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 Par Value
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
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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 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. [X]
Aggregate market value, as of February 21, 1997 of Common Stock held by
non-affiliates of the registrant: $156,077,752 based on the last reported sale
price on the National Market System as reported by Nasdaq on that date.
Number of shares of Common Stock outstanding at February 21, 1997: 7,543,954
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive Proxy Statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1996. Portions of such Proxy Statement are incorporated by reference in Part
III.
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PART I
ITEM 1 - BUSINESS
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General
Davox Corporation ("Davox" or the "Company") is principally a software
and systems integration company which develops, markets, implements, supports
and services management systems for call center operations. These call center
operations are responsible for business applications including
credit/collections, customer service, telephone sales, and fund raising. Davox
systems help calling operations integrate existing voice and data systems,
manage outbound and inbound calling applications and focus on improving the
quality of each customer contact, as well as the quantity of calls handled. This
increased productivity and efficiency, documented by Davox users, has resulted
in lower labor costs, increased revenue and/or increased transaction capacity
for the user organization, and improved service levels. Davox systems include
intelligent outbound calling, inbound call handling, inbound/outbound call
integration and call center network management.
Davox, through its direct sales force and through its distribution
channel, has provided unified call center solutions to banks, consumer finance
organizations, retailers, entertainment companies, telemarketing organizations,
telecommunications companies, and utilities. Among the Company's current
customers are: Chemical Bank, General Electric Capital Corporation (GECC),
Household Finance, NationsBank, May Companies, AT&T, NYNEX, Precision Response
Corporation, Superstar Satellite Entertainment, Gottschalks Department Stores,
USAA Federal Savings Bank, TeleTech Holding, Unitel Corporation, and WGBH
television.
Statements in this Form 10-K which are not historical facts, so-called
"forward-looking statements," are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that all forward-looking statements involve risks and uncertainties, including
those detailed in the Company's filings with the Securities and Exchange
Commission. See also "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Certain Factors That May Affect Future
Results."
The Company was incorporated in Massachusetts in 1981 and reorganized
in Delaware in 1982. The Company's principal offices are located at 6 Technology
Park Drive, Westford, Massachusetts 01886 and its telephone number is
(508) 952-0200.
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Overview
Today's businesses realize that their most important asset and source
for additional business is their customer; therefore, within most corporations,
several departments are in almost constant contact with buyers or users of their
goods or services. These departments, or call centers, place and/or receive
phone calls, supplying information to or receiving information from the
customer, or processing account information from a database. The mission of call
center management is to increase the productivity of telephone agents, improve
the efficiency of the calling operation and enhance the quality of customer
service.
To achieve the mission of the call center, businesses have invested in
different types of technology to accommodate different types of customer
contact, such as incoming and outgoing calls. However, these discrete
proprietary systems result in an environment characterized as "islands of
technology" which limit the productivity and efficiency of the call center and
degrade customer service. The majority of today's businesses are under economic
and competitive pressure to protect their investment in technology, and require
a method for integrating existing disparate technologies. By integrating these
technologies, a business can share its resources, and provide its customers a
higher quality of service.
Davox recognized the growing demand for systems that would unify these
disparate resources and calling applications. To deliver the level of
integration necessary to unite a business' customer contact applications, Davox
introduced in late 1993 the Unison(R) call center management system which
represented a new generation technology for the call center market.
The Unison(R) call center management system relies on open system,
client/server architecture to communicate with a call center's existing and
future voice and data systems, allowing call centers to share valuable system
resources and a single data source, and to manage a more efficient customer
contact operation.
The UNISON(R) Open Systems Environment
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The Unison(R) system's open systems-based architecture creates a
flexible environment that enables customers to realize the potential of their
call center investments now and in the future. A customer's PBX (Private Branch
Exchange), ACD (Automatic Call Distributor) and VRU (Voice Response Unit) are
usually made by different vendors and installed at different times and even at
different locations. Furthermore, information about a specific customer may
reside on one or more databases within a legacy system(s).
A single Unison(R)-based agent workstation can handle all voice/data
tasks associated with any call -- incoming or outgoing, regardless of point of
origin. The system can track all calls in real-time, allowing managers to
identify quickly both positive and negative trends as they develop. As a result,
adjustments can be made instantly to correct unfavorable trends and exploit
positive ones.
One characteristic of the Unison(R) system is its Rules-Based(TM)
software product which allows a call center manager to design, adjust, refine
and implement calling strategies in real-time. With this Rules-Based(TM)
management capability, the Unison(R) system's user can target
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outbound calling campaigns based on user-defined criteria such as location,
income level, or outstanding balance.
This capability also allows call centers to match specific customers
with telephone agents who have the necessary skills to handle these customer
accounts. For example, foreign language speaking agents can be automatically
assigned to handle calls to or from households where only that language is
spoken; or agents skilled in handling a specific product can be assigned to
those accounts.
Using the Unison(R) system's Rules-Based(TM) management capability, a
call center manager can set the calling "rules" for each campaign, such as:
. The order in which phone numbers will be called
. Acceptable talk time
. The time of day clients will be called
. Acceptable after call work time
. Which accounts will be called
Each campaign is monitored in real-time, notifying the call center's
supervisors immediately if performance deviates from the prescribed norm,
enabling the supervisor to take immediate corrective action. The Rules-Based(TM)
management capability provides Unison(R) system users with real-time information
to adapt their system "on the fly" to changing priorities within the call
center. Our customers have told us that this Rules-Based(TM) capability also
helps Unison(R) users maintain compliance with FTC/FCC regulations.
UNISON(R) Functional Overview
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The Unison(R) family of call center management systems combines open
system, client/server, and relational database technology with sophisticated
applications. The Unison(R) system's open architecture performs equally well in
the following call center environments:
. Outbound
. Outbound/Inbound blended
. Inbound
UNISON(R) Technology for a New Generation of Call Centers
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The Smart Management Center(R) (SMC(R)) is the central management engine which
implements the Unison(R) system's Rules-Based(TM) management strategies and a
broad range of software-driven features that allow the intelligent, strategic
integration of all call center resources. The SMC(R) (a UNIX(TM) RISC-based
management system built on the Sun Microsystems, Inc. SPARC(TM) architecture)
manages, monitors, processes, reports, communicates, integrates and controls a
broad range of telephony and data-oriented call center tasks -- all in real-time
and using a friendly, point-and-click graphical user interface (GUI). The SMC(R)
utilizes Sybase Incorporated relational database management software which
supports the Rules-Based(TM) management capability and is integral to call
center improvements in the areas of quality of contact, productivity,
effectiveness and resource management.
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The Company's ONEStation(TM) software product provides universal agent audio
connectivity to an existing PBX/ACD. In conjunction with installed data
resources, ONEStation(TM) functionality allows agents to access available voice
and data resources from any single existing workstation anywhere in the
company's data network.
The Company's Smart Access(TM) software product provides a flexible management
network allowing users to:
. Access, monitor, and control multiple calling sites in real-time
. Distribute information and outbound call campaigns to any center on
the network
Call Management Features Automate, Streamline Outbound Operations
The Unison(R) system's sophisticated dial and pacing technology,
campaign flow, dynamic campaign generation and filter capabilities streamline
outbound call operations by automating unproductive or time-consuming processes.
Supervisors control the parameters which affect the actual call placement,
freeing agents to focus on engaging in productive conversations with customers.
Layered upon this powerful dialing engine is Davox's broad array of real-time
campaign management/measurement capabilities.
Intelligent Integration Options For Call Blending
Because Davox understands that a single call blending solution may not
be appropriate for every call center, the Company offers both a Computer
Telephony Integration (CTI) and a non-CTI Unison(R) system option.
The Company's Smart ACD(TM) software product provides non-CTI inbound/outbound
notification. Smart ACD(TM) software:
. Interfaces with a call center's existing ACD and PBX
. Monitors all designated ACD queues and displays inbound traffic
information in real-time
. Automatically and intelligently instructs agents to handle ACD
queues and outbound calling lists as necessary to maximize
productivity while maintaining the proper service levels
The Company's SCALE(TM) (Seamless Call and Agent Load Equalization) software is
available for call centers that wish to utilize CTI for their call handling.
With SCALE(TM) functionality, all designated agents function as both inbound and
outbound agents, and the movement of those agents from inbound to outbound calls
is automatic; no separate login procedures are required. The standard Unison(R)
system campaign management capabilities are available to SCALE(TM) users. In
addition, Unison(R) agent management and real-time voice and data reporting
features are available for inbound as well as outbound agents.
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Software That Delivers Value Throughout A Call Center
. Unison Strategist(TM) Applications Software lets supervisors specify
and modify comprehensive calling strategies.
. Unison Tactician(TM) Applications Software makes it easy for
supervisors to monitor agent productivity during individual
campaigns and shift resources quickly when needed.
. Unison Precision Dial(TM) Applications Software streamlines call
center operations by allowing the supervisor to control the
parameters which affect the actual call placement, freeing agents
to focus on engaging in productive conversations with customers.
The Unison(R) system price begins at approximately $90,000. Specific and
variable customer requirements, such as the number of agent positions, extent of
inbound integration and multi-site connectivity determine actual Unison(R)
system prices.
Markets and Applications
Davox markets its unified call center solutions to corporations that
rely heavily on the telephone to conduct business with their customers. These
corporations have typically made large investments in building inbound and/or
outbound calling operations. The function of these operations is to place and
receive customer calls. In many cases, these calling operations are responsible
for specific business applications such as collections, customer service, fund
raising or telephone sales.
In 1991, new trends emerged in the marketplace. Customers began
augmenting outbound calling applications with inbound call handling
applications, allowing them to share system and labor resources, reduce overhead
and improve the quality of their customer contacts and overall customer service.
The Company believes that Unison(R) systems can significantly increase
productivity in many applications where repetitive tasks can be automated.
Additionally, Davox believes that its products are well suited to meet evolving
CTI standards due to their multi-protocol capabilities, integrated voice
functions, and flexible software design.
Significant Customers
In 1996, the Company's largest single customer was GE Capital
Corporation, accounting for 4% of total revenue. In 1995, AT&T was the largest
single customer, accounting for 12% of total revenue, and in 1994 Chemical Bank
was the Company's largest single customer, accounting for 9% of the Company's
total revenue. Total revenue from the Company's top three customers amounted to
12% of total revenue in 1996, 20% of total revenue in 1995, and 19% of total
revenue in 1994. The Company believes that its dependence on any one end user
customer is not likely to increase significantly as the Company continues to
penetrate the broader call center market and expand its alternate distribution
channels.
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Marketing and Sales
Davox takes a solutions-oriented approach to marketing its Unison(R)
systems. The integration and management capabilities of the systems are
presented as tools to help customers meet their business goals and objectives
for customer service. This approach has two major benefits:
. First, as Davox's relationship with a client grows, the Company is
able to increase sales by developing additional call center
capabilities for the client
. Second, Davox can identify additional applications in other areas of
the customer's business
Additionally, by focusing on common applications and identifying
industries with similar organizational or functional structures, Davox can
address new markets with relatively small incremental development costs and a
short training period for its sales force.
The Company's sales force follows a disciplined selling program that
focuses on selling business solutions, rather than stressing the features of
individual products. Having identified departments in which Unison(R) systems
may provide significant productivity increases, Davox sales representatives and
technical consultants (system/application specialists) work with the customer to
analyze the business and production objectives for the calling operation. This
consultative, "team" approach is best suited to establish a long-term
relationship with the client.
The Company continues to expand market penetration through its Business
Partners Program. This program represents a third party distribution channel
through referral joint marketing and reseller relationships. Examples of third
party partners include telecommunication system manufacturers, software vendors,
and systems integrators. The Company plans to continue to expand its Business
Partners Program, with particular emphasis on customer contact software vendors
and telecommunication system providers.
In North America, the Company markets its products primarily through a
direct sales force with contributions from the Business Partners Program. Direct
sales personnel are supported by a team of marketing professionals based at the
Company's headquarters.
Davox manages international activities for three global regions --
Europe, Latin America and the Pacific Rim. The Company's products are offered in
these regions primarily through a series of mostly nonexclusive distribution
agreements. In 1995, Davox established a European headquarters in the United
Kingdom which provides marketing, technical support, and service to its European
distributors. Also in 1995, Davox signed a distributor agreement with LaKe
Corporation of Australia to distribute the Company's products in a select number
of countries throughout the Pacific region.
In 1996, Davox signed a distribution agreement with Marubeni Electronics
Co. Ltd, a major Japanese importer, developer, and integrator of technology
systems, and a subsidiary of one of the world's largest trading companies.
Marubeni distributes Davox's Unison(R) call center management system in Japan.
Also in 1996, Davox expanded its South American
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distribution network through distribution agreements with GMA Consulting S.A.
(Buenos Aires, Argentina) and TANDAM Chile S.A. (Santiago, Chile) to distribute
its products in the Argentinean, Chilean, and Peruvian markets.
Davox broadened its ability to reach its designated market through
several new business relationships. PTT Telecom, the preeminent distributor of
call center technology in the Netherlands, and Davox announced a distribution
agreement under which PTT Telecom will be the exclusive distributor of Davox's
Unison(R) call center management system product line in the Netherlands. Under
terms of the agreement, PTT Telecom will market and support the Unison(R) family
of products to its extensive customer base as part of its overall call center
solution.
In December 1995, Davox and GeoTel Communications Corporation signed a
joint marketing agreement designed to combine their complementary products to
create "virtual call centers." In November 1996, Davox and Intervoice, Inc.
signed a product development and license agreement designed to produce an
integrated call center solution.
In connection with sales outside the United States, Davox products are
subject to regulation by foreign governments, which requires the Company to
follow certification procedures for some countries. Failure to obtain necessary
local country approvals or certifications will restrict Davox's ability to sell
into some countries. International product revenue was $7.6 million, $4.5
million, and $3.3 million in 1996, 1995, and 1994, respectively.
Support and Service
Davox's Customer Service Organization provides maintenance and systems
integration services that include not only call center system installation and
training, but also:
. Call center network planning, design, and implementation services
. Professional services that include call center consulting, custom
application design, and development services
Davox customer support comprises:
. Support teams responsible for on-going account management and
customer satisfaction of the installed base
. On-site hardware and software support
. A Worldwide Support Center located in the corporate offices in
Westford, Massachusetts that provides centralized access to hardware
and software support as required on a worldwide basis to end-users
and distributors
. Software services that enhance or modify current systems
. Professional services that deliver consulting and customized project
services as required
. Training for customers' and distributors' personnel, delivered both
in Davox's Westford, MA training facility and at customer sites
Under the terms of an agreement with Grumman Systems Support
Corporation (GSSC), a wholly-owned subsidiary of Northrop Grumman Corp., GSSC
delivers hardware support
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services for the Unison(R) system and older CAS(R) and SMC(R) product lines
within the continental United States and Canada while Davox continues to deliver
software support services. In addition, GSSC provides network design and systems
integration services allowing Davox to focus its expertise on customizing
advanced calling centers for its clients.
Customer service revenue accounted for $16,465,000, or 30.7% of the
Company's total revenue in 1996, an increase of $2,291,000 from $14,174,000, or
37.7% of the Company's total revenue in 1995, and an increase of $3,387,000 from
$13,078,000, or 43.5% of the Company's revenue in 1994. Customer service revenue
as a percentage of total revenue decreased in 1996 as compared to 1995 due
largely to a 59% increase in product revenue in 1996.
Research, Development and Engineering
The Company employs an open system, client/server, relational database
approach in developing its unified call center solutions. The platform selected
for this approach is the SPARC(TM) Station from SUN Microsystems Inc. The
Company's development efforts are focused on enhancing and expanding the
functionality of these systems. Davox currently anticipates that areas of
potential product development may include integration links to additional call
center telephony components and the development of additional telephone
management and reporting capabilities.
The Company's continued success depends on, among other factors,
maintaining close working relationships with its customers and resellers, and
anticipating and responding to their evolving applications needs. The Company is
committed to the development of new products, the improvement of existing
products and the continuing evaluation of new technologies.
During 1996, 1995, and 1994, the Company's research, development and
engineering costs were approximately $5,861,000, $4,020,000, and $3,540,000,
respectively, representing approximately 10.9%, 10.7%, and 11.8%, respectively
of total revenue during these periods. In the future, the Company expects to
incur approximately the same level of research, development and engineering
expenditures as a percentage of total revenue as it did during 1996. In
addition, the Company did not capitalize any of its software development costs
in 1996 or 1995, while it capitalized approximately $310,000 of its software
development costs during 1994.
Operations
While the majority of the Company's hardware needs are met by readily
available off-the-shelf technology, a small portion remains proprietary. These
proprietary hardware components are manufactured by third party contractors, and
the Company believes there are many qualified vendors for these services. The
Company's production process consists primarily of final test, quality
assurance, and systems integration which occurs at its Westford facility. The
Company purchases certain equipment for Unison(R) through an industry remarketer
agreement with SUN Microsystems, Inc.
The Company attempts to maintain multiple sources of supply for key items
and believes it has adequate sources of supply for its expected needs. While any
of these sources could be replaced if necessary, the Company might face
significant delays in establishing replacement
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sources or in modifying its products to incorporate replacement components or
software code. There can be no assurance that the Company will not suffer delays
resulting from non-performance by its vendors or cost increases due to a variety
of factors, including component shortages or changes in laws or tariffs
applicable to items imported by the Company.
Competition
Davox systems compete against various outbound, inbound, and blend
calling systems. Companies such as Mosaix Inc. (formerly Digital Systems
International, Inc.), Melita International Corporation and EIS International,
Inc. offer predictive dialers, but with varying levels of functionality in terms
of system management, integration and workstation support.
Certain of the Company's potential competitors may be larger companies
which have greater financial, technical and marketing resources. It is possible
that competitors could produce products that perform the same or similar
functions as those performed by the Company's products.
The Company believes that the principal factors affecting competition are
ease of use and range of functionality, reliability, performance, price and
customer service, and that the Company competes favorably as to these factors.
Reliance on Intellectual Property
The Company relies on a combination of patent, copyright, contract and
trade secret laws to establish and protect its proprietary rights in its
technology. Software products are furnished under software license agreements
which grant customers licenses to use, rather than to own, the products. The
license agreements contain provisions protecting the Company's ownership of the
underlying technology. Upon commencement of employment, employees execute an
agreement under which inventions developed during the course of employment will,
at the election of the Company, be assigned to the Company, and which further
prohibits disclosure of confidential Company information. Despite the
precautions undertaken by the Company, it may be possible to copy or otherwise
obtain and use the Company's products or technology without authorization. In
addition, effective protection of intellectual property rights may be limited or
unavailable in certain foreign countries.
The Company owns and licenses a number of patents relating to predictive
dialing, real-time telecommunication management and user interfaces. Davox is
very active in pursuing patents in its key technology and applications areas.
The Company does not rely on the licensed patents as its sole competitive
advantage.
Employees
As of December 31, 1996, the Company had 232 full-time employees, of whom
20 were engaged in operations, 149 in sales, marketing and customer support, 39
in research, development and engineering and 24 in general and administrative
functions. The Company's ability to attract and retain qualified personnel is
essential to its continued success. None of the Company's employees is
represented by a collective bargaining agreement, nor has the Company ever
experienced any work stoppage. The Company believes that its employee relations
are good.
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ITEM 2-PROPERTIES
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During January 1994, the Company moved its administrative offices and its
operations and development facilities to a 60,000 square foot, two story
building in Westford, Massachusetts. The facility is occupied under a lease
which expires in September 1997. The Company incurred approximately $480,000 for
various expenditures related to this move, of which $191,000 represents property
under a capital lease. In addition, the Company leases facilities for district
and regional sales and service offices in eight states. The current aggregate
annual rental payments for all of the Company's facilities are approximately
$446,000.
ITEM 3-LEGAL PROCEEDINGS
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The Company is from time to time subject to claims arising in the
ordinary course of business. While the outcome of the claims cannot be predicted
with certainty, management does not expect these matters to have a material
adverse effect on the results of operations and financial condition of the
Company.
ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1996.
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ITEM 4A-EXECUTIVE OFFICERS OF THE REGISTRANT
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The executive officers of the Company, the age of each, and the period
during which each has served in his present office are as follows:
Mr. Alphonse M. Lucchese (61) has served as Chairman, President and Chief
Executive Officer since July 1994. Mr. Lucchese joined Davox following seven
years as President and Chief Executive Officer at Iris Graphics, a manufacturer
of high quality color printers. Prior to joining Iris, Mr. Lucchese had served
as Vice President of Sales at Xyvision, Inc., a manufacturer of computer-
integrated publishing systems sold to Fortune 500 companies, commercial printers
and typesetters, and government agencies. Mr. Lucchese was Vice President of
Sales for Davox Corporation from 1983 until 1984. Earlier, he had spent six
years at Raytheon Data Systems, where he attained the position of Vice President
and General Manager of Northeastern Operations. Following service in the U.S.
Army during the mid-1950s, Mr. Lucchese began his professional career at IBM as
a systems engineer, later moving into the position of marketing representative.
Mr. John J. Connolly (40) has served as Vice President, Finance and Chief
Financial Officer since August 1, 1994, and was elected Treasurer in January
1997. Mr. Connolly joined Davox from Iris Graphics where he had been Vice
President of Finance since 1989. Prior to joining Iris, Mr. Connolly held
finance and accounting positions of increasing responsibilities at
Instrumentation Laboratory, a manufacturer of medical equipment.
Mr. James F. Mitchell (50) is a founder of the Company and has served as Senior
Vice President and Chief Technical Officer since 1983. From September 1993 to
August 1994, Mr. Mitchell managed the domestic sales operations. From 1981 to
1983, he was Vice President, Engineering of the Company. Prior to joining Davox
in 1981, Mr. Mitchell served as Manager of Systems Development at Applicon,
Inc., a producer of CAD/CAM products.
Mr. Douglas W. Smith (54) has served as Vice President, Sales and Marketing
since September 1, 1994. Mr. Smith is responsible for the Company's direct and
reseller sales in both the United States and Canada, as well as product and
industry marketing, sales support and marketing communications. Mr. Smith joined
Davox in 1994, following seven years at Iris Graphics where he contributed to
that company's extraordinary growth. Prior to joining Iris, Mr. Smith worked for
nearly 20 years in sales, managerial, and executive-level capacities for General
Electric Information Systems, Honeywell Information Systems, Raytheon Data
Systems, and Phoenix Data Systems.
Mr. Mark Donovan (42) has served as Vice President, Operations since August
1994. Since joining Davox in 1983, Mr. Donovan has held management positions of
increasing responsibility, including Vice President, Customer Service. He has
also held various materials and manufacturing management positions within the
Company. Prior to joining Davox, Mr. Donovan held various management positions
with Applicon, Inc. and Raytheon Corporation.
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EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
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Mr. John E. Cambray (41) has served as Vice President, Product Development since
August 1993. Mr. Cambray has been with Davox since early 1982 and has held
various software development and engineering management positions during this
time. Prior to joining Davox, Mr. Cambray held various design and management
positions with FASFAX Corporation and Sanders Associates.
Mr. Douglas P. Langenberg (51) has served as Vice President, Customer Services
since May 1996. Mr. Langenberg joined Davox following four years at Stratus
Computer, Inc., where he held the position of Vice President, Customer Services.
Prior to joining Stratus, Mr. Langenberg held executive-level positions with
Apollo Computer, Inc. and Digital Equipment Corporation, as well as founding and
serving as principal in a service-oriented consulting firm.
Richard P. Santos (60) has served as Vice President of International Operations
since May 1996. In this position, Mr. Santos is responsible for Davox's
international sales and support activities. His duties also include management
and development of Davox's distribution channels into its key international
markets, including Europe, Latin America, Asia/Pacific Rim, Middle East, and
Africa. Mr. Santos brings to Davox nearly 35 years of domestic and international
experience in management, sales, marketing, and business development. Prior to
joining Davox, he held senior level business development and management
positions with several leading high-technology companies, including President
and Chief Executive Officer of Monet, Inc., President of Pako Corporation, and
co-founder and Senior Vice President of Iris Graphics. In 1994, Pako Corporation
filed for bankruptcy.
Officers are elected by and serve at the discretion of the Board of Directors.
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PART II
ITEM 5-MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
Davox's Common Stock has been traded on the Nasdaq stock market under the symbol
"DAVX" since its initial public offering on April 28, 1987. Prior to that date
there was no public market for Davox's Common Stock. The following table sets
forth the range of high and low sale prices per share of Common Stock on the
National Market System for each quarter of the years ended December 31, 1996 and
1995 as reported by the National Association of Securities Dealers Automated
Quotation System (NASDAQ).
Fiscal 1996 High Low
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First Quarter 18-3/8 11-1/4
Second Quarter 32-1/2 17-1/4
Third Quarter 39-1/4 23-3/4
Fourth Quarter 45-1/4 30-3/4
Fiscal 1995 High Low
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First Quarter 8 5-3/8
Second Quarter 9-1/8 6-7/8
Third Quarter 13-1/4 8-7/8
Fourth Quarter 12-7/8 10
As of February 21, 1997, there were approximately 305 holders of record of the
Company's Common Stock and approximately 1,600 beneficial shareholders of the
Company's Common Stock.
The Company has never paid cash dividends on its Common Stock and has no present
intentions to pay cash dividends in the future. The Company intends to retain
any future earnings to finance the growth of the Company.
The Company has not sold any equity securities during the period covered by this
report that were not registered under the Securities Act of 1933, as amended.
14
<PAGE>
ITEM 6 SELECTED FINANCIAL DATA
- ----------------------------------
The following table sets forth certain consolidated financial data with respect
to the Company for each of the five years in the period ended December 31, 1996:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Total revenue....................... $53,642 $37,556 $30,047 $33,756 $30,636
Cost of revenue..................... 21,577 16,451 16,234 17,488 18,208
------- ------- ------- ------- -------
Gross profit........................ 32,065 21,105 13,813 16,268 12,428
Research, development and
engineering expenses............ 5,861 4,020 3,540 3,391 3,389
Selling, general and
administrative expenses......... 17,213 12,166 12,681 12,472 12,485
Restructuring costs ................ - - - - - - 3,379 - - - - - -
------- ------- ------- ------- -------
Income (loss) from operations...... 8,991 4,919 (5,787) 405 (3,446)
Interest income (expense), net..... 1,137 421 37 20 (35)
------- ------- ------- ------- -------
Income (loss) before provision
for income taxes............... 10,128 5,340 (5,750) 425 (3,481)
Provision for income taxes........ 1,013 534 - - - 40 - - -
------- ------- ------- ------- -------
Net income (loss)....................... $9,115 $4,806 ($5,750) $385 ($3,481)
======= ======= ======= ======= =======
Net income (loss) per common and
common equivalent share.............. $1.11 $0.62 ($1.01) $0.07 ($0.66)
======= ======= ======= ======= =======
Weighted average number of common
and common equivalent shares
outstanding.......................... 8,190 7,711 5,689 5,776 5,256
======= ======= ======= ======= =======
<CAPTION>
December 31,
---------------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheets Data:
Working capital..................... $18,710 $8,589 $1,807 $3,627 $2,572
Total assets........................ 39,729 20,825 14,777 17,681 16,049
Long-term debt...................... - - - 45 138 96 50
Stockholders' equity................ 22,835 10,912 5,492 8,881 8,340
</TABLE>
15
<PAGE>
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- --------------------------------------------------------------------
AND RESULTS OF OPERATIONS
- -------------------------
All statements contained herein that are not historical facts, including but not
limited to, statements regarding anticipated future capital requirements, the
Company's future development plans, the Company's ability to obtain debt, equity
or other financing, and the Company's ability to generate cash from operations,
are based on current expectations. These statements are forward looking in
nature and involve a number of risks and uncertainties, as more fully described
under "Factors Affecting Future Performance." Actual results may differ
materially.
The following table sets forth, for the periods indicated, the percentage of
revenue represented by items as shown in the Company's Consolidated Statements
of Operations. This table should be read in conjunction with the Selected
Financial Data, Consolidated Financial Statements and Notes to Consolidated
Financial Statements contained elsewhere herein.
<TABLE>
<CAPTION>
Percentage of Total Revenue For The
Years Ended December 31,
- -----------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Product revenue 69.3% 62.3% 56.5%
Service revenue 30.7 37.7 43.5
- ------------------------------------------------------------------------------
Total revenue 100.0 100.0 100.0
Cost of revenue 40.2 43.8 54.0
- ------------------------------------------------------------------------------
Gross profit 59.8 56.2 46.0
Research, development
and engineering expenses 10.9 10.7 11.8
Selling, general and
administrative expenses 32.1 32.4 42.2
Restructuring costs ---- ---- 11.2
- ------------------------------------------------------------------------------
Income (loss) from
operations 16.8 13.1 (19.2)
Interest income, net 2.1 1.1 0.1
- ------------------------------------------------------------------------------
Income (loss) before provision
for income taxes 18.9 14.2 (19.1)
Provision for income taxes 1.9 1.4 ----
- ------------------------------------------------------------------------------
Net income (loss) 17.0% 12.8% (19.1%)
- ------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Total revenue was approximately $53,642,000, $37,556,000, and $30,047,000
for the fiscal years ended December 31, 1996, 1995 and 1994, respectively. Total
revenue increased 42.8% for the year ended December 31, 1996 compared to the
same period in 1995 and increased 25.0% in fiscal year 1995 compared to fiscal
year 1994. Total cost of revenues as a percentage of total revenue was 40.2% in
fiscal year 1996, 43.8% in fiscal year 1995, and 54.0% in fiscal year 1994.
Product revenue was approximately $37,178,000, $23,382,000, and
$16,969,000 in fiscal years 1996, 1995 and 1994, respectively. Product revenue
increased by 59.0% from 1995 to 1996 and increased 37.8% from 1994 to 1995. The
increase in 1996 was due to continued increasing demand for the Unison(R) call
center management system, especially the telemarketing and collections outbound
capabilities. The increase in 1995 was mainly attributable to strong demand for
the Company's core collections call center products, sales of the new
telemarketing product, and expansion into international markets.
Cost of product revenue as a percentage of product revenue was 29.3%,
30.6%, and 39.6% in fiscal years 1996, 1995 and 1994, respectively. The
continued improvements in product margin in 1996 represent the increased volume
of product shipments relative to fixed costs, and a higher margin product mix.
In 1995, the increase in product margin was mainly attributable to the favorable
impact of increased volume as well as reduced costs related to inventory
provisions and amortization of software development costs.
Service revenue was approximately $16,465,000, $14,174,000, and
$13,078,000 in fiscal years 1996, 1995 and 1994, respectively. Service revenue
increased 16.2% from 1995 to 1996, and 8.4% from 1994 to 1995. The increases in
1996 and 1995 were due to increased installation revenue related to the
increased volume of product shipments, and an increase in maintenance revenue
related to the growth in the installed base of the Company's customers.
Cost of service revenue as a percentage of service revenue was 64.9%,
65.6%, and 72.8% in 1996, 1995 and 1994, respectively. The decrease in 1996 was
primarily attributable to the higher service revenue relative to fixed costs.
The decrease in 1995 was primarily related to the increase in revenue, while
also being favorably impacted by slightly reduced third-party maintenance costs.
Revenue from the Company's largest single customer in each of 1996, 1995,
and 1994 was 4%, 12%, and 9% of total revenue, respectively. Revenue from the
Company's three largest customers amounted to 12% of total revenue in 1996, 20%
of total revenue in 1995, and 19% of total revenue in 1994. The Company intends
to broaden its base of existing and new customers by penetrating new markets,
expanding its direct international sales force, and using alternate channels of
distribution, thereby decreasing its dependence on its largest customers.
17
<PAGE>
Research, development and engineering expenses were approximately
$5,861,000, $4,020,000, and $3,540,000, representing 10.9%, 10.7%, and 11.8% of
total revenue during 1996, 1995 and 1994, respectively. The increase in 1996 was
primarily attributable to higher payroll and related expenses in 1996 resulting
from personnel increases. In addition, due to a change in the Company's
development cycle, no software development costs were capitalized in 1996 or
1995, while the Company capitalized approximately $310,000 of software
development costs during 1994. The increase in expenses from 1994 to 1995 was
primarily due to the absence of capitalized software development costs in 1995.
Selling, general and administrative (SG&A) expenses were approximately
$17,213,000, $12,165,000, and $12,681,000, representing 32.1%, 32.4%, and 42.2%
of total revenue during 1996, 1995, and 1994, respectively. The increase in 1996
was primarily attributable to increased payroll and related expenses resulting
from personnel increases, and direct and indirect selling expenses related to
the increased revenue. The decrease as a percentage of revenue in 1996 and 1995
was mostly attributable to the significant increase in revenues.
Interest income, derived primarily from money market instruments and
investments in commercial paper, increased 159.9% from 1995 to 1996, and 559.2%
from 1994 to 1995. These increases were due to the significantly higher average
cash and investment balances from year to year, as well as the increased
interest percentages received as a result of the Company's new investment policy
of investing in commercial paper and government securities. Interest expense
decreased 50.8% from 1995 to 1996, and 35.5% from 1994 to 1995. These decreases
reflect an overall decrease in outstanding debt attributable to capital lease
obligations.
Restructuring
In the second quarter of 1994, in response to lower revenue, the Company
implemented a restructuring program. The restructuring was intended to refocus
the strategic direction of the Company to exploit the full potential of the
Unison(R) product line and maintain the Company's operating expenses in line
with the revised revenue plan. As a result of this program, the Company hired a
new Chief Executive Officer and a new Chief Financial Officer. This
restructuring resulted in a 21% reduction in the Company's work force worldwide.
The Company offered or was contractually committed to severance packages
of up to fifteen months' salary. Additionally, the Company accelerated the
phaseout of certain older product lines, necessitating the write-down of certain
assets. In total, the restructuring cost was approximately $3,379,000, of which
all costs have been paid as of December 31, 1996. The restructuring charge
reflects approximately $1,487,000 of severance related costs and $1,892,000
related to the phase out of certain older product lines.
Liquidity and Capital Resources
As of December 31, 1996, the Company's principal sources of liquidity
were its cash and cash equivalent balances of approximately $21,333,000, as well
as its marketable securities of approximately $9,780,000. As of the end of
fiscal 1995, the Company's cash and cash equivalent balances were approximately
$12,936,000. The increase in cash is a result of the favorable operating
results, an increase in customer deposits, and proceeds from exercises of stock
options. In addition, the Company has an agreement for a working capital line of
credit
18
<PAGE>
with a bank for up to $2,000,000 based on eligible receivables, as defined.
There were no outstanding balances as of December 31, 1996 or 1995 under this
line of credit.
Working capital as of December 31, 1996 was approximately $18,710,000
as compared to $8,589,000 as of December 31, 1995 and $1,807,000 as of December
31, 1994. Total assets as of December 31, 1996 were approximately $39,729,000
compared to $20,825,000 as of December 31, 1995 and $14,777,000 as of December
31, 1994. The increase from 1995 to 1996 was primarily attributable to the cash
generated by operations and an increase in customer deposits. The increase from
1994 to 1995 was primarily attributable to the cash generated by operations.
Management believes, based on the current operating plan, that the
Company's existing cash and cash equivalents, marketable securities, cash
generated from operations, and amounts available under its working capital line
of credit will be sufficient to meet the Company's cash requirements for the
foreseeable future.
Impact of Inflation
The Company believes that inflation did not have a material effect on the
results of operations in 1996.
Certain Factors That May Affect Future Results
From time to time, information provided by the Company, statements made
by its employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-K) may contain statements which are
not historical facts, so-called "forward-looking statements," which involve
risks and uncertainties. In particular, statements in "Item 1. Business"
relating to expansion of the Business Partners Program, and in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" relating to the Company's intent to broaden its customer base and
decrease reliance on its largest customers and the sufficiency of working
capital, may be forward-looking statements. The Company's actual future results
may differ significantly from those stated in any forward-looking statements.
Factors that may cause such differences include, but are not limited to, the
factors discussed below. Each of these factors, and others, are discussed from
time to time in the Company's filings with the Securities and Exchange
Commission.
The Company's future results may be subject to substantial risks and
uncertainties. The Company purchases certain equipment for its products from
third party suppliers and licenses certain components of its software code from
a number of third party vendors. While the Company believes that third party
equipment and software vendors could be replaced if necessary, the Company might
face significant delays in establishing replacement sources or in modifying its
products to incorporate replacement components or software code. There can be no
assurance that the Company will not suffer delays resulting from non-performance
by its vendors or cost increases due to a variety of factors, including
component shortages or changes in laws or tariffs applicable to items imported
by the Company. Also, the Company relies on certain intellectual property
protections to preserve its intellectual property rights. Any invalidation of
the Company's intellectual property rights or lengthy and expensive defense of
those rights could have a material adverse affect on the financial position and
results of
19
<PAGE>
operations of the Company. The development of new products, the improvement of
existing products and the continuing evaluation of new technologies is critical
to the Company's success. Successful product development and introduction
depends upon a number of factors, including anticipating and responding to the
evolving applications needs of customers and resellers, timely completion and
introduction of new products, and market acceptance of the Company's products.
The telecommunications industry is extremely competitive. Certain current and
potential competitors of the Company are more established, benefit from greater
market recognition and have substantially greater financial, development and
marketing resources than the Company.
The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially adversely affect revenue and
profitability, including the timing of customer orders; the Company's ability to
introduce new products on a timely basis; introduction of products and
technologies by the Company's competitors; and market acceptance of the
Company's and its competitors' products. As a result of the foregoing and other
factors, the Company may experience material fluctuations in future operating
results on a quarterly or annual basis which could materially and adversely
affect its business, financial condition, results of operations and stock price.
20
<PAGE>
ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------------------
Index to Consolidated Financial Statements
- ------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants 22
Consolidated Balance Sheets as of December 31,
1996 and 1995 23
Consolidated Statements of Operations for the Years
Ended December 31, 1996, 1995, and 1994 24
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1996, 1995
and 1994 25
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994 26
Notes to Consolidated Financial Statements 27
Report of Independent Public Accountants on Financial
Statement Schedule 42
Financial Statement Schedule 43
</TABLE>
21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Davox Corporation:
We have audited the accompanying consolidated balance sheets of Davox
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 financial statements referred to above present
fairly, in all material respects, the financial position of Davox Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 21, 1997
22
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21,333,300 $ 12,935,907
Marketable securities 9,780,273 -----
Accounts receivable, net of reserves of
approximately $699,000 and $665,000
in 1996 and 1995, respectively 3,184,814 4,459,597
Inventories 1,204,058 1,009,029
Prepaid expenses and other current assets 101,802 52,357
------------- ------------
Total current assets 35,604,247 18,456,890
Property and equipment, net 4,050,850 1,865,398
Other assets, net 74,207 502,274
------------- ------------
$ 39,729,304 $ 20,824,562
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 40,067 $ 92,896
Accounts payable 4,771,123 2,927,172
Accrued expenses 6,174,935 3,926,054
Customer deposits 3,413,726 1,292,627
Deferred revenue 2,494,390 1,629,081
------------- ------------
Total current liabilities 16,894,241 9,867,830
------------- ------------
Long-term debt, net of current maturities --- 44,891
------------- ------------
Commitments and Contingencies (Note 7)
Stockholders' equity:
Common stock, $.10 par value -
Authorized - 10,000,000 shares
Issued - 7,387,798 and 6,845,789
shares in 1996 and 1995, respectively 738,780 684,579
Capital in excess of par value 45,263,568 42,509,154
Accumulated deficit (23,143,139) (32,257,746)
------------- ------------
22,859,209 10,935,987
Less - Treasury Stock, 2,807 shares at cost (24,146) (24,146)
------------- ------------
Total stockholders' equity 22,835,063 10,911,841
------------- ------------
$ 39,729,304 $ 20,824,562
============= ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Product revenue $37,177,601 $23,382,089 $16,969,126
Service revenue 16,464,791 14,173,982 13,077,995
----------- ----------- ------------
Total revenue 53,642,392 37,556,071 30,047,121
----------- ----------- ------------
Cost of product revenue 10,883,420 7,155,766 6,715,886
Cost of service revenue 10,693,687 9,295,707 9,518,484
----------- ----------- ------------
Total cost of revenue 21,577,107 16,451,473 16,234,370
----------- ----------- ------------
Gross profit 32,065,285 21,104,598 13,812,751
----------- ----------- ------------
Operating Expenses:
Research, development and engineering expenses 5,861,108 4,020,350 3,539,858
Selling, general and administrative expenses 17,212,916 12,165,447 12,680,787
Restructuring costs ---- ---- 3,379,031
----------- ----------- ------------
Total operating expenses 23,074,024 16,185,797 19,599,676
----------- ----------- ------------
Income (loss) from operations 8,991,261 4,918,801 (5,786,925)
Interest income 1,146,006 440,909 66,882
Interest expense 9,480 19,287 29,913
----------- ----------- ------------
Income (loss) before provision
for income taxes 10,127,787 5,340,423 (5,749,956)
Provision for income taxes 1,013,180 534,176 ----
----------- ----------- ------------
Net income (loss) $9,114,607 $4,806,247 ($5,749,956)
=========== =========== ============
Net income (loss) per common and
common equivalent share $1.11 $0.62 ($1.01)
=========== =========== ============
Weighted average number of common and
common equivalent shares outstanding 8,190,163 7,710,553 5,688,730
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Capital in Total
Common Stock Excess of Accumulated Treasury Stock Stockholders'
Shares Par Value Par Value Deficit Shares Amount Equity
--------- -------- ----------- ------------- ------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 5,332,530 $533,253 $39,685,656 $(31,314,037) (2,807) $(24,146) $8,880,726
Proceeds from exercise of stock
options 175,167 17,517 325,333 - - - - - - - - - - - 342,850
Proceeds from employee stock
purchase plan 5,932 593 17,684 - - - - - - - - - - - 18,277
Proceeds from private placement 1,066,666 106,667 1,893,332 - - - - - - - - - - - 1,999,999
Net loss - - - - - - - - - - - - (5,749,956) - - - - - - - (5,749,956)
--------- -------- ----------- ------------- ------- -------- -------------
BALANCE, December 31, 1994 6,580,295 658,030 41,922,005 (37,063,993) (2,807) 24,146 5,491,896
Proceeds from exercise of stock
options, including related tax benefit 256,758 25,676 551,927 - - - - - - - - - - - 577,603
Proceeds from employee stock
purchase plan 8,736 873 35,222 - - - - - - - - - - - 36,095
Net income - - - - - - - - - - - - 4,806,247 - - - - - - - 4,806,247
--------- -------- ----------- ------------- ------- -------- -------------
BALANCE, December 31, 1995 6,845,789 684,579 42,509,154 (32,257,746) (2,807) 24,146 10,911,841
Proceeds from exercise of stock
options, including related tax benefit 532,023 53,202 2,664,494 - - - - - - - - - - - 2,717,696
Proceeds from employee stock
purchase plan 9,986 999 89,920 - - - - - - - - - - - 90,919
Net income - - - - - - - - - - - - 9,114,607 - - - - - - - 9,114,607
--------- -------- ----------- ------------- ------- -------- -------------
BALANCE, December 31, 1996 7,387,798 $738,780 $45,263,568 $(23,143,139) (2,807) $(24,146) $22,835,063
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
25
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $9,114,607 $4,806,247 ($5,749,956)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities -
Depreciation and amortization 2,373,168 2,643,814 3,138,413
Provision for losses on accounts receivable 98,000 248,561 338,289
Changes in current assets and liabilities -
Accounts receivable 1,176,783 (8,439) 2,473,593
Inventories (195,029) (241,235) 1,233,663
Prepaid expenses and other current assets (49,445) 156,663 (109,296)
Accounts payable 1,843,951 396,516 (836,149)
Accrued expenses 3,136,927 179,619 702,235
Customer deposits 2,121,099 462,332 719,730
Deferred revenue 865,309 (229,160) (154,026)
------------ ------------ -----------
Net cash provided by operating activities 20,485,370 8,414,918 1,756,496
------------ ------------ -----------
Cash flows from investing activities:
Purchases of property and equipment (4,133,851) (1,230,140) (1,067,223)
(Increase) decrease in other assets 3,298 41,458 (43,332)
Purchases of marketable securities (10,865,105) ---- ----
Sales of marketable securities 1,084,832 ---- ----
Capitalized software development costs ---- ---- (309,961)
------------ ------------ -----------
Net cash used in investing activities (13,910,826) (1,188,682) (1,420,516)
------------ ------------ -----------
Cash flows from financing activities:
Principal payments for long-term debt (97,720) (108,460) (137,575)
Proceeds from private placement ---- ---- 1,999,999
Proceeds from exercise of stock options 1,829,650 504,256 342,850
Proceeds from exercise of employee stock purchase plan 90,919 36,095 18,277
------------ ------------ -----------
Net cash provided by financing activities 1,822,849 431,891 2,223,551
------------ ------------ -----------
Net increase in cash and cash equivalents 8,397,393 7,658,127 2,559,531
Cash and cash equivalents, beginning of year 12,935,907 5,277,780 2,718,249
------------ ------------ -----------
Cash and cash equivalents, end of year $21,333,300 $12,935,907 $5,277,780
============ ============ ===========
Supplemental disclosures of cash flow information:
Cash paid for-
Interest $ 9,480 $ 19,287 $ 29,913
============ ============ ===========
Income taxes $ 429,000 $ 184,655 $ 20,826
============ ============ ===========
Supplemental disclosure of non-cash investing and financing activities:
Equipment acquired under capital lease obligation $ ---- $ ---- $ 190,812
============ ============ ===========
Recognition of tax benefit relating to disqualifying
dispositions and exercise of non-qualified stock options $ 888,046 $ 73,347 $ ----
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
26
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) Operations and Significant Accounting Policies
Davox Corporation (the Company) is a software and systems integration
company that develops, markets, supports and services management systems for
call center operations. These systems are marketed directly, through joint
marketing relationships, and distribution agreements. The Company provides its
systems to banks, consumer finance organizations, retailers, entertainment
companies, telemarketing organizations and utilities.
These consolidated financial statements reflect the application of
certain significant accounting policies as described below and elsewhere in the
accompanying consolidated financial statements.
(a) Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(b) Revenue Recognition
The Company recognizes revenue in accordance with the provisions of
Statement of Position No. 91-1 (SOP 91-1), Software Revenue Recognition. The
Company generates software revenue from licensing the rights to use its software
products. The Company also generates service revenues from the sale of product
maintenance contracts and consulting services.
Revenue from software license fees are recognized upon delivery, net of
estimated returns, provided there are no significant postdelivery obligations,
and payment is due within one year and is probable of collection. If acceptance
is required, software license revenue is recognized upon customer acceptance.
Fees for consulting services are recognized upon customer acceptances or over
the period in which services are provided if customer acceptance is not
required, and the revenue is fixed and determinable. Maintenance revenue is
deferred at the time of software license revenue recognition and is recognized
ratably over the term of the support period, which is typically one year.
27
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(1) Operations and Significant Accounting Policies (Continued)
(c) Warranty Costs
The Company warrants its products for 90 days and provides for estimated
warranty costs upon shipment of such products. Warranty costs have not been and
are not anticipated to be significant.
(d) Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(e) Postretirement Benefits
The Company has no obligations for postretirement or general
postemployment benefits.
(f) Cash, Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with original
maturities of three months or less at the time of acquisition to be cash
equivalents.
The Company accounts for investments in accordance with Statement of
Financial Accounting Standard (SFAS) No. 115, Accounting for Certain Investments
in Debt and Equity Securities. Under SFAS No. 115, securities that the Company
has the positive intent and ability to hold to maturity are reported at
amortized cost and are classified as held-to-maturity. At December 31, 1996,
held-to-maturity securities consisted of investments in high grade commercial
paper instruments. All of these investments are classified as current as they
mature within one year.
At December 31, 1996 marketable securities consisted of the following:
<TABLE>
<CAPTION>
Total Market Value Total Amortized Cost
---------------------- -------------------------
<S> <C> <C>
Commercial paper obligations................ $9,780,060 $9,780,273
</TABLE>
28
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(1) Operations and Significant Accounting Policies (Continued)
(g) Inventories
Inventories are stated at the lower of first-in, first out (FIFO) cost or
market and consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1996 1995
---- ----
<S> <C> <C>
Raw materials and subassemblies.................... $ 82,684 $ 52,032
Work-in-process.................................... 854,768 641,430
Finished goods..................................... 266,606 315,567
----------- -----------
$ 1,204,058 $ 1,009,029
=========== ===========
</TABLE>
Subassemblies, work-in-process and finished goods inventories include
material and sub-contract labor. Internal labor and overhead are not
significant.
(h) Property and Equipment
The Company provides for depreciation and amortization of property and
equipment using the straight-line and declining-balance methods by charges to
operations in amounts to allocate the cost of the property and equipment over
their estimated useful lives. The cost of property and equipment and their
useful lives are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
Estimated
Asset Classification Useful Life 1996 1995
- -------------------- ----------- ---------- ----------
<S> <C> <C> <C>
Equipment and software ............ 2-3 Years $6,174,516 $3,564,708
Equipment under capital lease ..... Life of Lease 530,117 530,117
Rental and demonstration
equipment .................. 3 Years 426,731 411,604
Service equipment ................. 1-5 Years 2,179,939 2,158,185
Leasehold improvements ............ Life of Lease 184,466 95,155
---------- ----------
9,495,769 6,759,769
Less-Accumulated depreciation
and amortization ........... 5,444,919 4,894,371
---------- ----------
$4,050,850 $1,865,398
========== ==========
</TABLE>
29
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(1) Operations and Significant Accounting Policies (Continued)
(i) Research and Development and Software Development Costs
Research and development expenses other than software development costs
are charged to operations as incurred. In compliance with SFAS No. 86,
Accounting for the Costs of Computer Software To Be Sold, Leased, or Otherwise
Marketed, the Company capitalized certain computer software development costs. A
change occurred in the Company's development cycle such that the period between
the attainment of technological feasibility and the first commercial shipment of
a software enhancement has shortened and the level of capitalizable costs
incurred are no longer material. Accordingly, the Company expensed all software
development costs incurred during the years ended December 31, 1996 and 1995.
Approximately $380,000, $579,000, and $685,000 of capitalized software
development costs were amortized to expense during the years ended December 31,
1996, 1995 and 1994, respectively.
(j) Net Income (Loss) per Common and Common Equivalent Share
Net income (loss) per common and common equivalent share has been
computed using the weighted average number of common and common equivalent
shares outstanding during each period. Common stock and common stock issuable
pursuant to stock options and warrants have been reflected as outstanding using
the treasury stock method. Common equivalent shares (stock options and warrants)
have not been considered in the calculation of net loss per share for the year
ended December 31, 1994, as their effect would be antidilutive. Fully diluted
net income per common and common equivalent share has not been separately
presented as the amounts are not materially different from primary net income
per share.
(k) Other Assets
During March 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of, which is effective for fiscal years
beginning after December 15, 1995. The adoption of this standard did not have a
material effect on the Company's financial position or results of operations.
30
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) Line of Credit
The Company has a working capital line of credit (line of credit) with a
bank that expires in June 1997, if not renewed, pursuant to which the Company
may borrow up to the lesser of $2,000,000 or a percentage of accounts
receivable, as defined. Borrowings under the line of credit will bear interest
at the bank's prime rate (8.25% at December 31, 1996). There were no borrowings
under the line of credit during 1996.
(3) Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
------ ------
<S> <C> <C>
Commissions and bonuses .................. $1,095,246 $ 913,574
Employee benefits ........................ 969,317 964,717
State sales tax .......................... 535,888 302,888
Other .................................... 3,574,484 1,744,875
---------- ----------
$6,174,935 $3,926,054
========== ==========
</TABLE>
(4) Long-term debt
Long-term debt consists of a capital lease obligation at an interest rate
of 10.0%, collateralized by certain equipment. The total obligation under this
lease was $40,067 and $137,787, with current maturities of $40,067 and $92,896
and long term debt of $0 and $44,891 as of December 31, 1996 and 1995,
respectively.
(5) 401(k) Plan
The Company maintains The Davox Corporation 401(k) Retirement Plan (the
Plan), which is a deferred contribution plan that covers all full-time employees
over 21 years of age who have completed at least six months of service with the
Company. The participants may make pretax deferred contributions to the plan of
up to 15% of the annual compensation, as defined. Contributions by the Company
are discretionary and are determined by the Board of Directors. The Company made
discretionary contributions of approximately $161,000 in 1996. There were no
Company contributions to the Plan in 1995 or 1994.
31
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(6) Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is determined based on the difference
between the financial statement and tax basis of assets and liabilities, as
measured by the enacted tax rates assumed to be in effect when these differences
are expected to reverse. The income tax provision for the years ended December
31, 1996 and 1995 consists of federal alternative minimum and state income taxes
payable.
The components of the provision for income taxes consist of the following:
<TABLE>
<CAPTION>
Fiscal Years Ended December 31,
----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal.................. $ 202,636 $ 106,835 $ --
State.................... 810,544 427,341 --
---------- ---------- ----------
Total current......... $1,013,180 $ 534,176 $ --
========== ========== ==========
Deferred:
Federal.................. $ -- $ -- $ --
State.................... -- -- --
---------- ---------- ----------
Total deferred........ $ -- $ -- $ --
---------- ---------- ----------
Provision for Income Taxes........ $1,013,180 $ 534,176 $ --
========== ========== ==========
</TABLE>
The provision for income taxes that is currently payable for the year
ended December 31, 1996 does not reflect $888,000 of tax benefits included in
additional paid in capital related to disqualifying dispositions and the
exercise of non-qualified stock options.
32
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(6) Income Taxes (Continued)
The approximate income tax effect of each type of temporary difference
comprising the deferred tax asset is approximately as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net operating loss carryforwards............... $ 8,153,000 $ 8,862,000
Depreciation................................... 571,000 604,000
Inventory reserves............................. 561,000 651,000
Federal tax credit carryforwards............... 577,000 577,000
Other temporary differences.................... 1,940,000 926,000
-------------- --------------
11,802,000 11,620,000
Valuation allowance............................ (11,802,000) (11,620,000)
-------------- --------------
$ -- $ --
============== ==============
</TABLE>
Due to the uncertainty surrounding the timing of realization of the
benefits of its favorable tax attributes in future tax returns, the Company
placed a full valuation allowance against its net deferred tax asset. However,
approximately $4,125,000 of the valuation allowance relates to the excess tax
benefit of disqualifying dispositions and the exercise of non-qualified stock
options. If the valuation allowance is reduced in future periods, this benefit
will be recorded in additional paid in capital at that time.
At December 31, 1996, the Company has available net operating loss
carryforwards and tax credit carryforwards of approximately $20,383,000 and
$577,000, respectively, expiring through 2009. These carryforwards may be used
to offset future income taxes payable, if any, and are subject to review by the
Internal Revenue Service.
The Internal Revenue Code provides that net operating loss carryforwards
available to be used in any given year may be limited in the event of certain
circumstances, including significant changes in ownership, as defined.
33
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(6) Income Taxes (Continued)
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate............................... 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit.... 6.3 6.3 6.3
Permanent items.......................................... (1.3) (2.6) --
Utilization of net operating loss carryforwards.......... (29.0) (27.7) --
Net operating loss generated............................. -- -- (40.3)
-------- -------- --------
Effective tax rate....................................... 10.0% 10.0% ---%
===== ===== ====
</TABLE>
(7) Commitments and Contingencies
(a) Operating Lease Commitments
The Company leases its facilities and sales offices under operating
leases that expire at various dates through October 2001. The Company's lease
for its corporate headquarters expires in September 1997. Pursuant to the lease
agreements, the Company is responsible for maintenance costs and real estate
taxes. Total rental expense for all operating leases for the years ended
December 31, 1996, 1995 and 1994 amounted to approximately $507,000, $551,000,
and $684,000, respectively.
Future minimum lease payments by year, in the aggregate under operating
leases are approximately as follows at December 31, 1996:
<TABLE>
<CAPTION>
Years Ending December 31, Amount
----------------------------- ----------
<S> <C>
1997................................ $ 446,000
1998................................ 222,000
1999................................ 165,000
2000................................ 123,000
2001................................ 89,000
----------
$1,045,000
==========
</TABLE>
34
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(7) Commitments and Contingencies (Continued)
(b) Capital Lease Commitments
The Company leases certain equipment that has been reported as equipment
under capital lease and as lease obligations in the accompanying consolidated
financial statements. The cost and accumulated amortization of this equipment
were approximately $191,000 and $152,000, respectively, at December 31, 1996 and
approximately $354,000 and $230,000, respectively, at December 31, 1995.
Future minimum lease payments under capital leases are as follows at
December 31, 1996:
<TABLE>
<CAPTION>
Year Ending December 31, Amount
------------------------ ------
<S> <C>
1997............................................... $ 41,584
Less - Amount representing interest................ ( 1,517)
---------
Less - Current portion $(40,067)
---------
$ ----
=========
</TABLE>
(c) Employment and Severance Agreements
The Company has entered into employment and severance agreements with
certain officers and employees whereby the Company may be required to pay the
officers and employees a total of approximately $1,152,000 upon termination of
employment by the Company under certain circumstances, as defined.
(8) Litigation
The Company is presently engaged in various legal actions and its
ultimate liability, if any, cannot be determined at the present time. However,
management has consulted with legal counsel, and management believes that any
such liability will not have a material adverse effect on the Company's
financial position or its results of operations.
35
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(9) Stockholders' Equity
(a) 1986 Stock Plan
The Company's 1986 Stock Plan (the "1986 Plan"), administered by the
Board of Directors authorizes the issuance of a maximum of 1,114,286 shares of
common stock for the exercise of options in connection with awards or direct
purchases of stock. In August 1994, the Shareholders approved an amendment to
increase the number of shares authorized for issuance under the 1986 Plan to
2,114,286. In April 1996, the Shareholders approved an amendment to increase the
number of shares authorized for issuance under the 1986 Plan to 2,464,286.
Options granted under the 1986 Plan may be either nonstatutory stock options or
options intended to constitute "incentive stock options" under the Internal
Revenue Code. Stock options may be granted to employees, officers,
employee-directors or consultants of the Company and are exercisable in such
installments as the Board of Directors may specify. The options granted
currently vest over a four-year period and expire ten years from the date of
grant. The 1986 Plan terminated pursuant to its terms in September 1996.
(b) 1996 Stock Plan
The Company's 1996 Stock Plan (the "1996 Plan") administered by the Board
of Directors authorizes the issuance of a maximum of 600,000 shares of common
stock for the exercise of options in connection with awards or direct purchases
of stock. Options granted under the 1996 Plan may be either nonstatutory stock
options or options intended to constitute "incentive stock options" under the
Internal Revenue Code. Stock options may be granted to employees, officers,
employee-directors or consultants of the Company and are exercisable in such
installments as the Board of Directors may specify. The shares currently vest to
the individual over a four-year period. There were 526,650 shares available for
future grants under the 1996 Plan at December 31, 1996.
(c) Stock Options to Directors
The Company's 1988 Non-employee Director Stock Option Plan (the "1988
Plan"), as amended, is administered by the Board of Directors and authorizes the
issuance of a maximum of 400,000 shares of common stock for the exercise of
options. The 1988 Plan provided for the automatic grant of options for 40,000
shares for each non-employee director in office at the time of the amendment and
provides for additional grants of options for 10,000 shares per non-employee
director on each biennial anniversary of amendment approval. The 1988 Plan also
36
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(9) Stockholders' Equity (Continued)
(c) Stock Options to Directors (Continued)
provides for the automatic grant of options for 40,000 shares to each newly
elected non-employee director and additional grants of 10,000 options per
biennial anniversary of election to the Board of Directors. Options granted
under the 1988 Plan vest 25% per year beginning one year from the date of grant
and expire five years from the date of grant. There are 227,500 shares available
for future grants under the 1988 Plan.
The following is a summary of the stock option activity for all plans for
the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Number of Exercise
Options Price Range
------- -----------
<S> <C> <C>
Outstanding, December 31, 1993 943,936 $1.75 - $5.50
Granted .................................. 1,475,662 2.25 - 5.25
Exercised ................................ (162,180) 1.75 - 4.50
Canceled ................................. (553,576) 1.75 - 5.50
---------- ----------------
Outstanding, December 31, 1994 1,703,842 1.75 - 5.50
Granted .................................. 112,875 6.75 - 12.25
Exercised ................................ (204,640) 1.75 - 7.13
Canceled ................................. (44,519) 1.75 - 12.25
---------- ----------------
Outstanding, December 31, 1995 1,567,558 1.75 - 12.25
Granted .................................. 287,550 12.13 - 39.50
Exercised ................................ (532,023) 1.75 - 24.25
Canceled ................................. (50,789) 1.75 - 12.25
---------- ----------------
Outstanding, December 31, 1996 1,272,296 $2.00 - $39.50
========== ================
Exercisable, December 31, 1996 429,949 $2.00 - $28.63
========== ================
</TABLE>
(d) Employee Stock Purchase Plan
The Company has adopted an Employee Stock Purchase Plan (the "Purchase
Plan") under which a maximum of 100,000 shares of Common Stock may be purchased
by eligible employees. Substantially all full-time employees of the Company are
eligible to participate in the Purchase Plan.
37
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(9) Stockholders' Equity (Continued)
(d) Employee Stock Purchase Plan (Continued)
The Purchase Plan provides for two "purchase periods" within each of the
Company's fiscal years, the first commencing on January 1 of each calendar year
and continuing through June 30 of such calendar year, and the second commencing
on July 1 of each year and continuing through December 31 of such calendar year.
Eligible employees may elect to become participants in the Purchase Plan for a
purchase period by completing a stock purchase agreement prior to the first day
of the purchase period for which the election is made. Shares are purchased
through accumulation of payroll deductions (of not less than 0.5% nor more than
10% of compensation, as defined) for the number of whole shares, determined by
dividing the balance in the employee's account on the last day of the purchase
period by the purchase price per share for the stock determined under the
Purchase Plan. The purchase price for the shares will be the lower of 85% of the
fair market value of the Common Stock at the beginning of the purchase period or
85% of such value at the end of the purchase period (rounded to the nearest
quarter). During 1996 and 1995, 9,986 and 8,736 shares, respectively, were
purchased under the Purchase Plan.
(e) Accounting for Stock-Based Compensation
The Company accounts for its stock-based compensation under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. In
October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which is effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 establishes a fair-value-based
method of accounting for stock-based compensation plans. The Company has adopted
the disclosure-only alternative under SFAS No. 123, which requires the
disclosure of the pro forma effects on earnings and earnings per share as if
SFAS No. 123 had been adopted, as well as certain other information.
The Company has computed the pro forma disclosures required under SFAS
No. 123 for all stock options granted (including the employee stock purchase
plan) as of December 31, 1996 using the Black-Scholes option pricing model
prescribed by SFAS No. 123.
38
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(9) Stockholders' Equity (Continued)
(e) Accounting for Stock-Based Compensation (Continued)
The assumptions used and the weighted average information for the years
ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Risk-free interest rates................................ 5.36% - 6.64% 5.86% - 7.76%
Expected dividend yield................................. ----- -----
Expected lives.......................................... 5.5 years 5.5 years
Expected volatility..................................... 71% 71%
Weighted average grant-date fair value of
options granted during the period.................... $19.20 $5.94
Weighted-average exercise price......................... $ 9.31 $3.58
Weighted-average remaining contractual life
of options outstanding.............................. 7.45 years 7.63 years
Weighted average exercise price of 429,949 and
546,147 options exercisable at December 31,
1996 and 1995, respectively.......................... $ 3.76 $3.08
</TABLE>
The effect of applying SFAS No. 123 would be as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Pro forma net income.................................... $ 8,290,265 $ 4,703,345
=========== ===========
Pro forma net income per share.......................... $ 0.99 $ 0.61
=========== ===========
</TABLE>
39
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(10) Significant Customers
Revenue from the Company's largest single customers were 4%, 12%, and 9%
of total revenue in 1996, 1995 and 1994, respectively. Revenue from the
Company's three largest customers amounted to 12%, 20% and 19% of total revenue
in 1996, 1995 and 1994, respectively.
(11) Export Sales
Export product sales, primarily to Canada, Europe, Mexico, Australia and
Japan, accounted for 14%, 12%, and 11% of total revenue in 1996, 1995 and 1994,
respectively. All of the Company's sales for the years ended December 31, 1996,
1995 and 1994 were originated from its headquarters located in the United
States.
(12) Restructuring Costs
In the second quarter of 1994, the Company restructured by downsizing in
all areas of its operations. This downsizing resulted in a 21% reduction in the
Company's work force worldwide. As a result, the Company recorded restructuring
costs as follows:
Write-downs of fixed assets, goodwill, inventory and
other assets abandoned as a result of the restructuring $1,629,866
Severance and related benefits for 40 terminated employees 1,486,665
Abandoned facilities costs 262,500
----------
$3,379,031
==========
As of December 31, 1994, the restructuring had been completed, and there were no
additional restructuring charges recorded in 1995 or 1996. All costs have been
paid as of December 31, 1996. None of the previously accrued expenses were
reversed to the Consolidated Statements of Operations.
40
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(13) Quarterly Results of Operations (Unaudited)
The following table presents a condensed summary of quarterly results of
operations for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenue $11,410,267 $12,665,349 $14,079,224 $15,487,552
Gross profit 6,731,619 7,527,051 8,450,649 9,355,966
Net income 1,758,299 2,047,861 2,477,050 2,831,397
Net income
per share $0.22 $0.25 $ 0.30 $0.34
<CAPTION>
Year Ended December 31, 1996
----------------------------
<S> <C> <C> <C> <C>
Total revenue $8,541,101 $9,016,084 $9,568,619 $10,430,267
Gross profit 4,614,439 5,018,460 5,452,528 6,019,171
Net income 912,561 1,080,901 1,289,085 1,523,700
Net income
per share $0.12 $0.14 $ 0.16 $0.19
</TABLE>
41
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To Davox Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of Davox Corporation and
subsidiaries included in this Form 10-K, and have issued our report thereon
dated January 21, 1997. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in the index is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and regulations and is not part of the basic financial statements. This schedule
has been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 21, 1997
42
<PAGE>
DAVOX CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Deductions Balance at
Beginning Costs and from End of
of Year Expenses Reserves Year
------- -------- -------- ----
<S> <C> <C> <C> <C>
Accounts receivable
Reserves:
December 31, 1996 $665,030 $98,000 $64,118 $698,912
December 31, 1995 637,672 242,185 214,827 665,030
December 31, 1994 686,847 338,289 387,464 637,672
</TABLE>
43
<PAGE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ----------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
Not Applicable.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Directors
The information concerning directors of the Company required under this item
is incorporated herein by reference to the Company's definitive proxy statement
pursuant to Regulation 14A, to be filed with the Commission not later than 120
days after the close of the Company's 1996 fiscal year ended December 31, 1996
under the heading "Election of Directors."
Executive Officers
See Item 4A.
ITEM 11 EXECUTIVE COMPENSATION
- --------------------------------
The information required under this item is incorporated herein by reference
to the Company's definitive proxy statement pursuant to Regulation 14A, to be
filed with the Commission not later than 120 days after the close of the
Company's 1996 fiscal year ended December 31, 1996, under the heading
"Compensation and Other Information Concerning Directors and Officers."
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required under this item is incorporated herein by reference
to the Company's definitive proxy statement pursuant to Regulation 14A, to be
filed with the Commission not later than 120 days after the close of the
Company's 1996 fiscal year ended December 31, 1996, under the headings
"Principal Holders of Voting Securities" and "Election of Directors."
ITEM 13 CERTAIN RELATIONSHIPS AND TRANSACTIONS
- ------------------------------------------------
The information required under this item is incorporated herein by reference
to the Company's definitive proxy statement pursuant to Regulation 14A, to be
filed with the Commission within 120 days after the close of the Company's 1996
fiscal year ended December 31, 1996, under the headings "Principal Holders of
Voting Securities" and "Election of Directors."
44
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) Financial Statements and Financial Statement Schedules
1. Financial Statements.
The following financial information is incorporated in Item 8 above.
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Operations for the years ended December 31,
1996, 1995, and 1994.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedule.
The following financial information is incorporated in Item 8 above.
Report of Independent Public Accountants on Schedule II - Valuation and
Qualifying Accounts.
All other schedules are not submitted because they are not applicable,
not required or because the information is included in the Financial
Statements or Notes to Financial Statements.
(b) Reports on Form 8-K
The Company did not file any Current Report on Form 8-K during the
fourth quarter of the fiscal year ended December 31, 1996.
(c) List of Exhibits.
Exhibit
Number Description of Exhibit
------ ----------------------
3.01(6) Restated Certificate of Incorporation of the
Registrant, as amended.
45
<PAGE>
(c). List of Exhibits (continued)
3.02(2) By-laws of the Registrant, as amended.
4.01(6) Description of Capital Stock contained in
the Registrant's Restated Certificate of
Incorporation, as amended, filed as Exhibit
3.01.
10.01(10) 1986 Stock Plan, as amended, of the
Registrant.
10.02(8) Form of Incentive Stock Option Agreement
under the Registrant's 1986 Stock Plan.
10.03(2) Form of Non-Qualified Stock Option Agreement
under the Registrant's 1986 Stock Plan.
10.04(2) Incorporation Agreement of the Registrant
dated June 1982.
10.05(4) Manufacturing Agreement dated as of February
20, 1987, between the Registrant and Wong's
Electronics Company, Ltd.
10.06(2) Form of Nondisclosure Agreement.
10.07(3) Stock Purchase Agreement among the
Registrant, The Dispatch Printing Company
and TBS International, Inc. dated as of
September 15, 1987.
10.08(7) Amended and Restated 1988 Non-Employee
Director Stock Option Plan of the
Registrant.
10.09(4) Form of Option Agreement under the
Registrant's 1988 Non-Employee Director
Stock Option Plan.
10.10(5) Asset Purchase Agreement dated August 9,
1988 between the Registrant, DAVOX/VCT
Corporation and Voice Computer Technologies
Corporation.
10.11(1) Merger Agreement dated December 15, 1988
between the Registrant, DAVOX/VCT
Corporation and TBS International, Inc.
10.12(8) International Distribution Agreement between
the Registrant and Datapoint Corporation
dated January 8, 1993.
46
<PAGE>
(c). List of Exhibits (continued)
10.13(1) Employee Deferred Compensation Savings Plan
of the Registrant.
10.14(7) 1991 Employee Stock Purchase Plan.
10.15(8) Third party maintenance agreement dated
August 3, 1992 between the Registrant and
Grumman Systems Support Corporation.
10.16(9) Sublease Agreement dated October 22, 1993
between the Registrant and Digital Equipment
Corporation.
10.17(10) Common Stock Purchase Agreement dated
September 23, 1994 between the Registrant
and the purchasers named therein.
10.18(10) Letter agreement dated December 30, 1994
between the Registrant and Fleet Bank of
Massachusetts, N.A.
10.19 (11) Third party service provider agreement
between the Registrant and Grumman Systems
Support Corporation.
10.20 1996 Stock Plan of the Registrant.
10.21 Form of Incentive Stock Option Agreement
under the Registrant's 1996 Stock Plan.
10.22 Form of Non-Qualified Stock Option Agreement
under the Registrants's 1996 Stock Plan.
22. Subsidiaries of the Registrant.
24. Consent of Arthur Andersen LLP.
27. Financial Data Schedule.
(1) Previously filed as an exhibit to Form 10-K for the fiscal year ended
December 31, 1988.
(2) Previously filed as an exhibit to Registration Statement No. 33-12689
filed on March 17, 1987.
(3) Previously filed as an exhibit to Form 8-K filed on September 29, 1987.
47
<PAGE>
(c). List of Exhibits (continued)
(4) Previously filed as an exhibit to Form 10-K for the fiscal year ended
December 31, 1987.
(5) Previously filed as an exhibit to Form 8-K filed on September 15, 1988.
(6) Previously filed as an exhibit to Form 10-K for the fiscal year ended
December 31, 1990.
(7) Previously filed as an exhibit to Form 10-K for the fiscal year ended
December 31, 1991.
(8) Previously filed as an exhibit to Form 10-K for the fiscal year ended
December 31, 1992.
(9) Previously filed as an exhibit to Form 10-K for the fiscal year ended
December 31, 1993.
(10) Previously filed as an exhibit to Form 10-K for the fiscal year ended
December 31, 1994.
(11) Previously filed as an exhibit to Form 10-K for the fiscal year ended
December 31, 1995.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, in the Town of Westford,
Commonwealth of Massachusetts, on the 21st day of February 1997.
Davox Corporation
By: /s/ Alphonse M. Lucchese
------------------------------
Alphonse M. Lucchese
President, Chief Executive
Officer and Chairman
POWER OF ATTORNEY
Each person whose signature appears below this Annual Report on Form 10-K hereby
constitutes and appoints Alphonse M. Lucchese and Timothy C. Maguire and each of
them, with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead in any and all capacities
(until revoked in writing) to sign all amendments (including post-effective
amendments) to this Annual Report on Form 10-K of Davox Corporation, and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary fully to all
intents and purposes as he might or could do in person thereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his or her substitute, may lawfully do or cause to be done by virtue hereof.
49
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Alphonse M. Lucchese President, Chief
- ------------------------ Executive Officer and
Alphonse M. Lucchese Chairman (Principal
Executive Officer) February 21, 1997
/s/ John J. Connolly Vice President of
- -------------------- Finance and Chief
John J. Connolly Financial Officer
(Principal Financial
Officer) February 21, 1997
/s/ Michael D. Kaufman Director February 21, 1997
- ----------------------
Michael D. Kaufman
/s/ R. Scott Asen Director February 21, 1997
- -----------------
R. Scott Asen
/s/ Walter J. Levison Director February 21, 1997
- ---------------------
Walter J. Levison
</TABLE>
50
<PAGE>
DAVOX CORPORATION
1996 STOCK PLAN
---------------
1. Purpose. The purpose of the Davox Corporation 1996 Stock Plan (the
-------
"Plan") is to encourage key employees of Davox Corporation (the "Company") and
of any present or future parent or subsidiary of the Company (collectively,
"Related Corporations") and other individuals who render services to the Company
or a Related Corporation, by providing opportunities to participate in the
ownership of the Company and its future growth through (a) the grant of options
which qualify as "incentive stock options" ("ISOs") under Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code"); (b) the grant of options
which do not qualify as ISOs ("Non-Qualified Options"); (c) awards of stock in
the Company ("Awards"); and (d) opportunities to make direct purchases of stock
in the Company ("Purchases"). Both ISOs and Non-Qualified Options are referred
to hereafter individually as an "Option" and collectively as "Options."
Options, Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights." As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation,"
respectively, as those terms are defined in Section 424 of the Code.
2. Administration of the Plan.
---------------------------
A. Board or Committee Administration. The Plan shall be administered by
---------------------------------
the Board of Directors of the Company (the "Board") or, subject to Paragraph
2D (relating to compliance with Section 162(m) of the Code), by a committee
appointed by the Board (the "Committee"). Hereinafter, all references in this
Plan to the "Committee" shall mean the Board if no Committee has been
appointed. Subject to ratification of the grant or authorization of each
Stock Right by the Board (if so required by applicable state law), and
subject to the terms of the Plan, the Committee shall have the authority to
(i) determine to whom (from among the class of employees eligible under
paragraph 3 to receive ISOs) ISOs shall be granted, and to whom (from among
the class of individuals and entities eligible under paragraph 3 to receive
Non-Qualified Options and Awards and to make Purchases) Non-Qualified
Options, Awards and authorizations to make Purchases may be granted; (ii)
determine the time or times at which Options or Awards shall be granted or
Purchases made; (iii) determine the purchase price of shares subject to each
Option or Purchase, which prices shall not be less than the minimum price
specified in paragraph 6; (iv) determine whether each Option granted shall be
an ISO or a Non-Qualified Option; (v) determine (subject to paragraph 7) the
time or times when each Option shall become exercisable and the duration of
the exercise period; (vi) extend the period during which outstanding Options
may be exercised; (vii) determine whether restrictions such as repurchase
options are to be imposed on shares subject to Options, Awards and Purchases
and the nature of such restrictions, if any, and (viii) interpret the Plan
and prescribe and rescind rules and regulations relating to it. If the
Committee determines to issue a Non-Qualified Option, it shall take whatever
actions it deems necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO.
The interpretation and construction by the Committee of any provisions of the
Plan or of any Stock Right granted under it shall be final unless otherwise
determined by the Board.
<PAGE>
-2-
The Committee may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem advisable. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Stock Right granted under it.
B. Committee Actions. The Committee may select one of its members
-----------------
as its chairman, and shall hold meetings at such time and places as it may
determine. A majority of the Committee shall constitute a quorum and acts of
a majority of the members of the Committee at a meeting at which a quorum is
present, or acts reduced to or approved in writing by all the members of the
Committee (if consistent with applicable state law), shall be the valid acts
of the Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and
thereafter directly administer the Plan.
C. Grant of Stock Rights to Board Members. Stock Rights may be
--------------------------------------
granted to members of the Board. All grants of Stock Rights to members of
the Board shall in all respects be made in accordance with the provisions of
this Plan applicable to other eligible persons. Members of the Board who
either (i) are eligible to receive grants of Stock Rights pursuant to the
Plan or (ii) have been granted Stock Rights may vote on any matters affecting
the administration of the Plan or the grant of any Stock Rights pursuant to
the Plan, except that no such member shall act upon the granting to himself
or herself of Stock Rights, but any such member may be counted in determining
the existence of a quorum at any meeting of the Board during which action is
taken with respect to the granting to such member of Stock Rights.
D. Performance-Based Compensation. The Board, in its discretion,
------------------------------
may take such action as may be necessary to ensure that Stock Rights granted
under the Plan qualify as "qualified performance-based compensation" within
the meaning of Section 162(m) of the Code and applicable regulations
promulgated thereunder ("Performance-Based Compensation"). Such action may
include, in the Board's discretion, some or all of the following (i) if the
Board determines that Stock Rights granted under the Plan generally shall
constitute Performance-Based Compensation, the Plan shall be administered,
to the extent required for such Stock Rights to constitute Performance-Based
Compensation, by a Committee consisting solely of two or more "outside
directors" (as defined in applicable regulations promulgated under Section
162(m) of the Code), (ii) if any Non-Qualified Options with an exercise price
less than the fair market value per share of Common Stock are granted under
the Plan and the Board determines that such Options should constitute
Performance-Based Compensation, such options shall be made exercisable only
upon the attainment of a pre-established, objective performance goal
established by the Committee, and such grant shall be submitted for, and
shall be contingent upon shareholder approval and (iii) Stock Rights granted
under the Plan may be subject to such other terms and conditions as are
necessary for compensation recognized in connection with the exercise or
disposition of such Stock Right or the disposition of Common Stock acquired
pursuant to such Stock Right, to constitute Performance-Based Compensation.
<PAGE>
-3-
3. Eligible Employees and Others. ISOs may be granted only to employees
-----------------------------
of the Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or
any Related Corporation. The Committee may take into consideration a
recipient's individual circumstances in determining whether to grant a Stock
Right. The granting of any Stock Right to any individual or entity shall
neither entitle that individual or entity to, nor disqualify such individual
or entity from, participation in any other grant of Stock Rights.
4. Stock. The stock subject to Stock Rights shall be authorized but
-----
unissued shares of Common Stock of the Company, par value $.10 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the
Plan is equal to the "Plan Share Limit" as defined below. If any Option
granted under the Plan shall expire or terminate for any reason without
having been exercised in full or shall cease for any reason to be exercisable
in whole or in part or shall be repurchased by the Company, the unpurchased
shares of Common Stock subject to such Option shall again be available for
grants of Stock Rights under the Plan.
For purposes of this Plan the "Plan Share Limit" shall be 600,000 shares,
such total to include the number of shares that are available for grant,
award or purchase under the Company's 1986 Stock Plan (the "Old Plan") at the
time of expiration of the Old Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 500,000 shares of Common
Stock during any fiscal year of the Company. If any Option granted under the
Plan shall expire or terminate for any reason without having been exercised
in full or shall cease for any reason to be exercisable in whole or in part
or shall be repurchased by the Company, the shares subject to such Option
shall be included in the determination of the aggregate number of shares of
Common Stock deemed to have been granted to such employee under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the Plan
------------------------
at any time on or after July 25, 1996 and prior to July 25, 2006. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve
the grant.
6. Minimum Option Price; ISO Limitations.
-------------------------------------
A. Price for Non-Qualified Options, Awards and Purchases. Subject
-----------------------------------------------------
to Paragraph 2D (relating to compliance with Section 162(m) of the Code), the
exercise price per share specified in the agreement relating to each Non-
Qualified Option granted, and the purchase price per share of stock granted
in any Award or authorized as a Purchase, under the Plan may be less than the
fair market value of the Common Stock of the Company on the date of grant,
provided that, in no event shall such exercise price or such purchase price
be less than the minimum legal consideration required therefor under the laws
of any
<PAGE>
-4-
jurisdiction in which the Company or its successors in interest may be
organized. The Committee may, in its discretion, subject any Stock Right
granted under the Plan to any terms or conditions necessary for compensation
recognized in connection with the exercise of such Stock Right or the
disposition of Common Stock acquired pursuant to such Stock Right, to
constitute qualified performance-based compensation under Section 162(m) of
the Code and applicable regulations promulgated thereunder.
B. Price for ISOs. The exercise price per share specified in the
--------------
agreement relating to each ISO granted under the Plan shall not be less than
the fair market value per share of Common Stock on the date of such grant.
In the case of an ISO to be granted to an employee owning stock possessing
more than ten percent (10%) of the total combined voting power of all classes
of stock of the Company or any Related Corporation, the price per share
specified in the agreement relating to such ISO shall not be less than one
hundred ten percent (110%) of the fair market value per share of Common Stock
on the date of grant. For purposes of determining stock ownership under this
paragraph, the rules of Section 424(d) of the Code shall apply. The date of
grant for purposes of this subparagraph shall mean the date that the Company
or a Related Corporation completes the corporate action constituting an offer
of stock for sale to an individual.
C. $100,000 Annual Limitation on ISO Vesting. Each eligible employee
-----------------------------------------
may be granted Options treated as ISOs only to the extent that, in the
aggregate under this Plan and all incentive stock option plans of the Company
and any Related Corporation, ISOs do not become exercisable for the first
time by such employee during any calendar year with respect to stock having a
fair market value (determined at the time the ISOs were granted) in excess of
$100,000. The Company intends to designate any Options granted in excess of
such limitation as Non-Qualified Options and the Company shall issue separate
certificates to the optionee with respect to Options that are Non-Qualified
Options and Options that are ISOs.
D. Determination of Fair Market Value. If, at the time an Option
----------------------------------
is granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the date of grant or, if the
prices or quotes discussed in this sentence are unavailable for such date,
the last business day for which such prices or quotes are available prior to
the date of grant and shall mean (i) the average (on that date) of the high
and low prices of the Common Stock on the principal national securities
exchange on which the Common Stock is traded, if the Common Stock is then
traded on a national securities exchange; or (ii) the last reported sale
price (on that date) of the Common Stock on the Nasdaq National Market, if
the Common Stock is not then traded on a national securities exchange; or
(iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Common Stock is not reported on the Nasdaq National Market. If the
Common Stock is not publicly traded at the time an Option is granted under
the Plan, "fair market value" shall mean the fair value of the Common Stock
as determined by the Committee after taking into consideration all factors
which it deems appropriate, including, without limitation, recent sale and
offer prices of the Common Stock in private transactions negotiated at arm's
length.
<PAGE>
-5-
7. Option Duration. Subject to earlier termination as provided in
---------------
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i)
ten years from the date of grant in the case of Options generally and (ii)
five years from the date of grant in the case of ISOs granted to an employee
owning stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Related
Corporation, as determined under paragraph 6(B). Subject to earlier
termination as provided in paragraphs 9 and 10, the term of each ISO shall be
the term set forth in the original instrument granting such ISO, except with
respect to any part of such ISO that is converted into a Non-Qualified Option
pursuant to paragraph 16.
8. Exercise of Option. Subject to the provisions of Paragraphs 9 through
------------------
12, each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The Option shall either be fully exercisable on the
-------
date of grant or shall become exercisable thereafter in such installments
as the Committee may specify.
B. Full Vesting of Installments. Once an installment becomes
----------------------------
exercisable it shall remain exercisable until expiration or termination
of the Option, unless otherwise specified by the Committee.
C. Partial Exercise. Each Option or installment may be exercised
----------------
at any time or from time to time, in whole or in part, for up to the
total number of shares with respect to which it is then exercisable.
D. Acceleration of Vesting. The Committee shall have the right to
-----------------------
accelerate the date that any installment of any Option becomes
exercisable; provided that the Committee shall not, without the consent
of an optionee, accelerate the permitted exercise date of any installment
of any Option granted to any employee as an ISO (and not previously
converted into a Non-Qualified Option pursuant to paragraph 16) if such
acceleration would violate the annual vesting limitation contained in
Section 422(d) of the Code, as described in paragraph 6(C).
9. Termination of Employment. Unless otherwise specified in the agreement
-------------------------
relating to such ISO, if an ISO optionee ceases to be employed by the Company
and all Related Corporations other than by reason of death or disability as
defined in paragraph 10, no further installments of his or her ISOs shall become
exercisable, and his or her ISOs shall terminate on the earlier of (a) three
months after the date of termination of his or her employment, or (b) their
specified expiration dates, except to the extent that such ISOs (or unexercised
installments thereof) have been converted into Non-Qualified Options pursuant to
paragraph 16. For purposes of this paragraph 9, employment shall be considered
as continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment is guaranteed by statute or
by contract. A bona fide leave of absence with the written approval of the
Committee shall not be considered an interruption of employment under this
paragraph 9, provided that such written approval contractually obligates the
Company or any Related Corporation to continue the employment of the optionee
after the approved period of absence. ISOs granted under the Plan
<PAGE>
-6-
shall not be affected by any change of employment within or among the Company
and Related Corporations, so long as the optionee continues to be an employee of
the Company or any Related Corporation. Nothing in the Plan shall be deemed to
give any grantee of any Stock Right the right to be retained in employment or
other service by the Company or any Related Corporation for any period of time.
10. Death; Disability.
-----------------
A. Death. If an ISO optionee ceases to be employed by the Company
-----
and all Related Corporations by reason of his or her death, any ISO owned by
such optionee may be exercised, to the extent otherwise exercisable on the
date of death, by the estate, personal representative or beneficiary who has
acquired the ISO by will or by the laws of descent and distribution, until
the earlier of (i) the specified expiration date of the ISO or (ii) 180 days
from the date of the optionee's death.
B. Disability. If an ISO optionee ceases to be employed by the
----------
Company and all Related Corporations by reason of his or her disability, such
optionee shall have the right to exercise any ISO held by him or her on the
date of termination of employment, for the number of shares for which he or
she could have exercised it on that date, until the earlier of (i) the
specified expiration date of the ISO or (ii) 180 days from the date of the
termination of the optionee's employment. For the purposes of the Plan, the
term "disability" shall mean "permanent and total disability" as defined in
Section 22(e)(3) of the Code or any successor statute.
11. Assignability. No Stock Right shall be assignable or transferable by the
-------------
grantee except by will, by the laws of descent and distribution or, in the case
of Non-Qualified Options only, pursuant to a valid domestic relations order.
Except as set forth in the previous sentence, during the lifetime of a grantee
each Stock Right shall be exercisable only by such grantee.
12. Terms and Conditions of Options. Options shall be evidenced by
-------------------------------
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any Non-
Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events, an
-----------
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
<PAGE>
-7-
A. Stock Dividends and Stock Splits. If the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
B. Consolidations or Mergers. If the Company is to be consolidated
-------------------------
with or acquired by another entity in a merger or other reorganization in which
the holders of the outstanding voting stock of the Company immediately preceding
the consummation of such event, shall, immediately following such event, hold,
as a group, less than a majority of the voting securities of the surviving or
successor entity, or in the event of a sale of all or substantially all of the
Company's assets or otherwise (each, an "Acquisition"), the Committee or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either (i)
make appropriate provision for the continuation of such Options by substituting
on an equitable basis for the shares then subject to such Options either (a) the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition, (b) shares of stock of the surviving or
successor corporation or (c) such other securities as the Successor Board deems
appropriate, the fair market value of which shall not materially exceed the fair
market value of the shares of Common Stock subject to such Options immediately
preceding the Acquisition; or (ii) upon written notice to the optionees, provide
that all Options must be exercised, to the extent then exercisable or to be
exercisable as a result of the Acquisition, within a specified number of days of
the date of such notice, at the end of which period the Options shall terminate;
or (iii) terminate all Options in exchange for a cash payment equal to the
excess of the fair market value of the shares subject to such Options (to the
extent then exercisable or to be exercisable as a result of the Acquisition)
over the exercise price thereof.
C. Recapitalization or Reorganization. In the event of a recapitalization or
----------------------------------
reorganization of the Company (other than a transaction described in
subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock,
an optionee upon exercising an Option shall be entitled to receive for the
purchase price paid upon such exercise the securities he or she would have
received if he or she had exercised such Option prior to such recapitalization
or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
--------------------
made pursuant to subparagraphs A, B or C with respect to ISOs shall be made only
after the Committee, after consulting with counsel for the Company, determines
whether such adjustments would constitute a "modification" of such ISOs (as that
term is defined in Section 424 of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Committee determines that such
adjustments made with respect to ISOs would constitute a modification of such
ISOs or would cause adverse tax consequences to the holders, it may refrain from
making such adjustments.
<PAGE>
-8-
E. Dissolution or Liquidation. In the event of the proposed dissolution
--------------------------
or liquidation of the Company, each Option will terminate immediately prior
to the consummation of such proposed action or at such other time and subject
to such other conditions as shall be determined by the Committee.
F. Issuances of Securities. Except as expressly provided herein, no
-----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the Company.
G. Fractional Shares. No fractional shares shall be issued under the
-----------------
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
H. Adjustments. Upon the happening of any of the events described in
-----------
subparagraphs A, B or C above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Stock Rights which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments
to be made under this paragraph 13 and, subject to paragraph 2, its
determination shall be conclusive.
14. Means of Exercising Options. An Option (or any part or installment
---------------------------
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify
the number of shares as to which such Option is being exercised, accompanied by
full payment of the purchase price therefor either (a) in United States dollars
in cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
<PAGE>
-9-
15. Term and Amendment of Plan. This Plan was adopted by the Board on July
--------------------------
25, 1996, subject, with respect to the validation of ISOs granted under the
Plan, to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the
approval of stockholders is not obtained prior to July 25, 1997, any grants of
ISOs under the Plan made prior to that date shall be Non-Qualified Options. The
Plan shall expire at the end of the day on July 24, 2006 (except as to Options
outstanding on that date). Subject to the provisions of paragraph 5 above,
Options may be granted under the Plan prior to the date of stockholder approval
of the Plan. The Board may terminate or amend the Plan in any respect at any
time, except that, without the approval of the stockholders obtained within 12
months before or after the Board adopts a resolution authorizing any of the
following actions: (a) the total number of shares that may be issued under the
Plan may not be increased (except by adjustment pursuant to paragraph 13); (b)
the provisions of paragraph 3 regarding eligibility for grants of ISOs may not
be modified; (c) the provisions of paragraph 6(B) regarding the exercise price
at which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to paragraph 13); and (d) the expiration date of the Plan
may not be extended. Except as otherwise provided in this paragraph 15, in no
event may action of the Board or stockholders alter or impair the rights of a
grantee, without such grantee's consent, under any Stock Right previously
granted to such grantee.
16. Modifications of ISOs; Conversion of ISOs into Non-Qualified Options.
--------------------------------------------------------------------
Subject to Paragraph 13D, without the prior written consent of the holder of an
ISO, the Committee shall not alter the terms of such ISO (including the means of
exercising such ISO) if such alteration would constitute a modification (within
the meaning of Section 424(h)(3) of the Code). The Committee, at the written
request or with the written consent of any optionee, may in its discretion take
such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but shall not be limited to, extending the exercise period
or reducing the exercise price of the appropriate installments of such ISOs. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. Upon the taking of such action, the
Company shall issue separate certificates to the optionee with respect to
Options that are Non-Qualified Options and Options that are ISOs.
17. Application Of Funds. The proceeds received by the Company from the sale
--------------------
of shares pursuant to Options granted and Purchases authorized under the Plan
shall be used for general corporate purposes.
18. Notice to Company of Disqualifying Disposition. By accepting an ISO
----------------------------------------------
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such
<PAGE>
-10-
optionee makes a Disqualifying Disposition (as described in Sections 421, 422
and 424 of the Code and regulations thereunder) of any stock acquired pursuant
to the exercise of ISOs granted under the Plan. A Disqualifying Disposition is
generally any disposition occurring on or before the later of (a) the date two
years following the date the ISO was granted or (b) the date one year following
the date the ISO was exercised.
19. Withholding of Additional Income Taxes. Upon the exercise of a Non-
--------------------------------------
Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold taxes in respect of amounts that constitute
compensation includible in gross income. The Committee in its discretion may
condition (i) the exercise of an Option, (ii) the grant of an Award, (iii) the
making of a Purchase of Common Stock for less than its fair market value, or
(iv) the vesting or transferability of restricted stock or securities acquired
by exercising an Option, on the grantee's making satisfactory arrangement for
such withholding. Such arrangement may include payment by the grantee in cash
or by check of the amount of the withholding taxes or, at the discretion of the
Committee, by the grantee's delivery of previously held shares of Common Stock
or the withholding from the shares of Common Stock otherwise deliverable upon
exercise of a Option shares having an aggregate fair market value equal to the
amount of such withholding taxes.
20. Governmental Regulation. The Company's obligation to sell and deliver
-----------------------
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by grantees of Options in connection with
the Plan.
21. Governing Law. The validity and construction of the Plan and the
-------------
instruments evidencing Options shall be governed by the laws of the State of
Delaware, or the laws of any jurisdiction in which the Company or its successors
in interest may be organized.
<PAGE>
Exhibit 10.21
DAVOX CORPORATION
Incentive Stock Option Agreement
--------------------------------
================================================================================
Davox Corporation, a Delaware corporation (the "Company"), hereby grants this
((Date)) day of ((Month)), ((Year)), to ((Name)) (the "Employee"), an option to
purchase a maximum of (Shares) shares of its Common Stock, $.10 par value, at
the price of ((Price)) per share, on the following terms and conditions:
1. Grant Under 1996 Stock Plan. This option is granted pursuant to and
---------------------------
is governed by the Company's 1996 Stock Plan (the "Plan") and, unless
the context otherwise requires, terms used herein shall have the same
meaning as in the Plan. Determinations made in connection with this
option pursuant to the Plan shall be governed by the Plan as it exists
on this date. The Corporation has approved the Davox Corporation 1996
Stock Option Plan, as it may be amended from time to time, (the Plan).
It is the intent of this agreement that such stock options are granted
unconditionally, to be Incentive Stock Options under the Plan, if the
Plan is approved by the Stockholders of the Company, but that such
options should nonetheless remain in full force and effect and shall
be deemed to be non-qualified stock options under the Plan in the
event that the Plan is not approved by the Stockholders of the
Company.
2. Grant as Incentive Stock Option; Other Options. Subject to the
----------------------------------------------
provisions of Section 1, this option is intended to qualify as an
"incentive stock option" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"). This option is in addition to
any other options heretofore or hereafter granted to the Employee by
the Company, but a duplicate original of this instrument shall not
effect the grant of another option.
3. Extent of Option if Employment Continues. If the Employee has
----------------------------------------
continued to be employed by the Company on the following dates, the
Employee may exercise this option in cumulative installations as
follows:
. Six months from the Commencement Date - one-eighth of the shares
. One year but less than 18 months from - an additional one-eight
the Commencement Date of the shares
. Eighteen months but less than two years - an additional one-eight
from the Commencement Date of the shares
<PAGE>
. Two years but less than thirty months - an additional one eighth
from the Commencement Date of the shares
. Thirty months but less than three years - an additional one eighth
from the Commencement Date of the shares
. Three years but less than forty-two - an additional one eighth
months from the Commencement Date of the shares
. Forty-two months but less than four - an additional one eighth
years from the Commencement Date of the shares
. Four years from the Commencement Date - an additional one eighth
of the shares
For the purposes hereof, the Commencement Date shall be ((Effective_Date))
Notwithstanding the vesting schedule set forth in this Article 3 and subject to
the provisions of paragraph 8 (D) of the Plan, in the event the Employee
continues to be employed by the Company on the effective date (the "Effective
Date") of:
(a) a change in control of the Company, pursuant to a sale, merger,
consolidation, reorganization, combination, recapitalization or
similar transaction, or pursuant to a transaction or series of
transactions in which the holders of the then outstanding equity
securities of the Company, after such transactions, shall hold less
than 50% of the surviving entity; or
(b) a sale by the Company of all or substantially all of its assets,
then the option shall be immediately and automatically accelerated with respect
to the total number of shares of Common Stock subject to the option which have
not previously vested pursuant to the terms of this Article 3.
The accelerated vesting provisions set forth above shall automatically be
deferred to subsequent calendar years, as required, in the event and to the
extent such provisions shall be in violation of paragraph 8 (D) of the Plan.
The foregoing rights are cumulative and, while the Employee continues to be
employed by the Company, may be exercised up to and including the date which is
ten years from the date this option is granted. All of the foregoing rights are
subject to Articles 4 and 5, as appropriate, if the Employee ceases to be
employed by the Company or dies while in the employ of the Company.
-2-
<PAGE>
4. Retirement; Termination of Employment. If the Employee retires from
-------------------------------------
employment with the Company, no further installments of this option
shall become exercisable and this option shall terminate after the
passage of 90 days from the date employment ceases, but in no event
later than the scheduled expiration date. In such a case, the
Employee's only rights hereunder shall be those which are properly
exercised before the termination of this option. If the Employee
ceases to be employed by the Company, other than by reason of
retirement or death, no further installments of this option shall
become exercisable and this option shall terminate after the passage
of thirty (30) days from the date employment ceases, but in no event
later than the scheduled expiration date. In such a case, the
Employee's only rights hereunder shall be those which are properly
exercised before the termination of this option.
5. Death. If the Employee dies while in the employ of the Company, this
-----
option may be exercised, to the extent of the number of shares with
respect to which the Employee could have exercised it on the date of
his death, by his estate, personal representative or beneficiary to
whom this option has been assigned pursuant to Article 10, at any time
within 180 days after the date of death, but not later than the
scheduled expiration date.
At the expiration of such 180-day period or the scheduled expiration
date, whichever is the earlier, this option shall terminate and the
only rights hereunder shall be those as to which the option was
properly exercised before such termination.
6. Partial Exercise. Exercise of this option up to the extent above
----------------
stated may be made in part at any time and from time to time within
the above limits, except that this option may not be exercised for a
fraction of a share unless such exercise is with respect to the final
installment of stock subject to this option and a fractional share (or
cash in lieu thereof) must be issued to permit the Employee to
exercise completely such final installment.
7. Payment of Price. The option price is payable in United States
----------------
dollars and may be paid in cash or by check in the amount equal to the
option price.
8. Agreement to Purchase for Investment. By acceptance of this option,
------------------------------------
the Employee agrees that a purchase of shares under this option will
not be made with a view to their distribution, as that term is used in
the Securities Act of 1933, as amended, unless in the opinion of
counsel to the Company such distribution is in compliance with or
exempt from the registration and prospectus requirements of that Act,
and the Employee agrees to sign a certificate to such effect at the
time of exercising this option and agrees that the certificate for the
shares so purchased may be inscribed with a legend to ensure
compliance with that Act.
-3-
<PAGE>
9. Method of Exercising Option. Subject to the terms and conditions of
---------------------------
this Agreement, this option may be exercised by written notice to the
Company, at the principal executive office of the Company, or to such
transfer agent as the Company shall designate. Such notice shall state
the election to exercise this option and the number of shares in
respect of which it is being exercised and shall be signed by the
person or persons so exercising this option. Such notice shall be
accompanied by payment of the full purchase price of such shares, and
the Company shall deliver a certificate or certificates representing
such shares as soon as practicable after the notice shall be received.
The certificate or certificates for the shares as to which this option
shall have been so exercised shall be registered in the name of the
person or persons so exercising this option (or, if this option shall
be exercised by the Employee and if the Employee shall so request in
the notice exercising this option, shall be registered in the name of
the Employee and another person jointly, with right of survivorship)
and shall be delivered as provided above to or upon the written order
of the person or persons exercising this option. In the event this
option shall be exercised, pursuant to Article 5 hereof, by any person
or persons other than the Employee, such notice shall be accompanied
by appropriate proof of the right of such person or persons to
exercise this option. All shares that shall be purchased upon the
exercise of this option as provided herein shall be fully paid and
non-assessable.
10. Option Not Transferable. This option is not transferable or
-----------------------
assignable except by will or by the laws of descent and distribution.
During the Employee's lifetime only the Employee can exercise this
option.
11. No Obligation to Exercise Option. The grant and acceptance of this
--------------------------------
option imposes no obligation on the Employee to exercise it.
12. No Obligation to Continue Employment. The Company and any Related
------------------------------------
Corporations are not by the Plan or this option obligated to continue
the Employee in employment.
13. No Rights as Stockholder until Exercise. The Employee shall have no
---------------------------------------
rights as a stockholder with respect to shares subject to this
Agreement until a stock certificate therefor has been issued to the
Employee and is fully paid for. Except as is expressly provided in the
Plan with respect to certain changes in the capitalization of the
Company, no adjustment shall be made for dividends or similar rights
for which the record date is prior to the date such stock certificate
is issued.
14. Capital Changes and Business Successions. It is the purpose of this
----------------------------------------
option to encourage the Employee to work for the best interests of the
Company and its stockholders. Since, for example, that might require
the issuance of a stock dividend or a merger with another corporation,
the purpose of this option would not be served if such a stock
dividend, merger or similar occurrence would cause
-4-
<PAGE>
the Employee's rights hereunder to be diluted or terminated and thus
be contrary to the Employee's interest. The Plan contains extensive
provisions designed to preserve options at full value in a number of
contingencies. Therefore, provisions in the Plan for adjustment with
respect to stock subject to options and the related provisions with
respect to successors to the business of the Company are hereby made
applicable hereunder and are incorporated herein by reference. In
particular, without affecting the generality of the foregoing, it is
understood that for the purposes of Articles 3 through 5 hereof, both
inclusive, employment by the Company includes employment by a Related
Corporation as defined in the Plan.
15. Early Disposition. The Employee agrees to notify the Company of any
-----------------
disposition of any shares of Common Stock acquired on the exercise of
this option within the two-year period beginning on the date of grant
or within one year after the date of the transfer of such shares to
the Employee. The Employee also agrees to provide the Company with any
information which it shall request concerning any such disposition.
Employees who receive incentive stock options will be disqualified
under Section 422A of the Code from receiving the favorable income tax
treatment otherwise available with respect to the exercise of such an
option if they dispose of the stock received on exercise of the option
within either of the one or two-year periods described in the
preceding sentence.
16. Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the internal laws of Delaware.
IN WITNESS WHEREOF the Company and the Employee have caused this instrument to
be executed, and the Employee whose signature appears below acknowledges receipt
of a copy of the Plan and acceptance of an original copy of this Agreement.
By: __________________________________________________
DAVOX Corporation
__________________________________________________
Employee
-5-
<PAGE>
Exhibit 10.22
DAVOX CORPORATION
Non-Qualified Incentive Stock Option Agreement
----------------------------------------------
================================================================================
Davox Corporation, a Delaware corporation (the "Company"), hereby grants this
Date day of Month, Year, to Name (the "Employee"), an option to purchase a
maximum of Shares shares of its Common Stock, $.10 par value, at the price of
Price per share, on the following terms and conditions:
1. Grant Under 1996 Stock Plan. This option is granted pursuant to and
---------------------------
is governed by the Company's 1996 Stock Plan (the "Plan") and, unless
the context otherwise requires, terms used herein shall have the same
meaning as in the Plan. Determinations made in connection with this
option pursuant to the Plan shall be governed by the Plan as it
exists on this date. The Corporation has approved the Davox
Corporation 1996 Stock Option Plan, as it may be amended from time to
time, (the Plan).
2. Grant as Non-Qualified Stock Option; Other Options. This options
--------------------------------------------------
shall be treated for federal income tax purposes as a Non-Qualified
Option (rather than an incentive stock option). This option is in
addition to any other options heretofore or hereafter granted to the
Employee by the Company, but a duplicate original of this instrument
shall not effect the grant of another option.
3. Extent of Option if Employment Continues. If the Employee has
----------------------------------------
continued to be employed by the Company on the following dates, the
Employee may exercise this option in cumulative installations as
follows:
<TABLE>
<S> <C>
. Six months from the Commencement Date - one-eighth of the shares
. One year but less than 18 months from - an additional one-eighth of
the Commencement Date the shares
. Eighteen months but less than two years - an additional one-eighth of
from the Commencement Date the shares
</TABLE>
<PAGE>
<TABLE>
<S> <C>
. Two years but less than thirty months - an additional one-eighth of
from the Commencement Date the shares
. Thirty months but less than three years - an additional one-eighth of
from the Commencement Date the shares
. Three years but less than forty-two months - an additional one-eighth of
from the Commencement Date the shares
. Forty-two months but less than four years - an additional one-eighth of
from the Commencement Date the shares
. Four years from the Commencement Date - an additional one-eighth of
the shares
</TABLE>
For the purposes hereof, the Commencement Date shall be Effective_Date
Notwithstanding the vesting schedule set forth in this Article 3 and subject to
the provisions of paragraph 8 (D) of the Plan, in the event the Employee
continues to be employed by the Company on the effective date (the "Effective
Date") of:
(a) a change in control of the Company, pursuant to a sale, merger,
consolidation, reorganization, combination, recapitalization or
similar transaction, or pursuant to a transaction or series of
transactions in which the holders of the then outstanding equity
securities of the Company, after such transactions, shall hold less
than 50% of the surviving entity; or
(b) a sale by the Company of all or substantially all of its assets,
then the option shall be immediately and automatically accelerated with respect
to the total number of shares of Common Stock subject to the option which have
not previously vested pursuant to the terms of this Article 3.
The accelerated vesting provisions set forth above shall automatically be
deferred to subsequent calendar years, as required, in the event and to the
extent such provisions shall be in violation of paragraph 8 (D) of the Plan.
The foregoing rights are cumulative and, while the Employee continues to be
employed by the Company, may be exercised up to and including the date which is
ten years from the date this option is granted. All of the foregoing rights are
subject to Articles 4 and 5, as appropriate, if the Employee ceases to be
employed by the Company or dies while in the employ of the Company.
-2-
<PAGE>
4. Retirement; Termination of Employment. If the Employee retires
--------------------------------------
from employment with the Company, no further installments of this
option shall become exercisable and this option shall terminate after
the passage of 90 days from the date employment ceases, but in no
event later than the scheduled expiration date. In such a case, the
Employee's only rights hereunder shall be those which are properly
exercised before the termination of this option. If the Employee
ceases to be employed by the Company, other than by reason of
retirement or death, no further installments of this option shall
become exercisable and this option shall terminate after the passage
of thirty (30) days from the date employment ceases, but in no event
later than the scheduled expiration date. In such a case, the
Employee's only rights hereunder shall be those which are properly
exercised before the termination of this option.
5. Death. If the Employee dies while in the employ of the Company, this
-----
option may be exercised, to the extent of the number of shares with
respect to which the Employee could have exercised it on the date of
his death, by his estate, personal representative or beneficiary to
whom this option has been assigned pursuant to Article 10, at any
time within 180 days after the date of death, but not later than the
scheduled expiration date.
At the expiration of such 180-day period or the scheduled expiration
date, whichever is the earlier, this option shall terminate and the
only rights hereunder shall be those as to which the option was
properly exercised before such termination.
6. Partial Exercise. Exercise of this option up to the extent above
----------------
stated may be made in part at any time and from time to time within
the above limits, except that this option may not be exercised for a
fraction of a share unless such exercise is with respect to the final
installment of stock subject to this option and a fractional share
(or cash in lieu thereof) must be issued to permit the Employee to
exercise completely such final installment.
7. Payment of Price. The option price is payable in United States
----------------
dollars and may be paid in cash or by check in the amount equal to
the option price.
8. Agreement to Purchase for Investment. By acceptance of this option,
------------------------------------
the Employee agrees that a purchase of shares under this option will
not be made with a view to their distribution, as that term is used
in the Securities Act of 1933, as amended, unless in the opinion of
counsel to the Company such distribution is in compliance with or
exempt from the registration and prospectus requirements of that Act,
and the Employee agrees to sign a certificate to such effect at the
time of exercising this option and agrees that the certificate for
the shares so purchased may be inscribed with a legend to ensure
compliance with that Act.
-3-
<PAGE>
9. Method of Exercising Option. Subject to the terms and conditions of
---------------------------
this Agreement, this option may be exercised by written notice to the
Company, at the principal executive office of the Company, or to such
transfer agent as the Company shall designate. Such notice shall
state the election to exercise this option and the number of shares
in respect of which it is being exercised and shall be signed by the
person or persons so exercising this option. Such notice shall be
accompanied by payment of the full purchase price of such shares, and
the Company shall deliver a certificate or certificates representing
such shares as soon as practicable after the notice shall be
received. The certificate or certificates for the shares as to which
this option shall have been so exercised shall be registered in the
name of the person or persons so exercising this option (or, if this
option shall be exercised by the Employee and if the Employee shall
so request in the notice exercising this option, shall be registered
in the name of the Employee and another person jointly, with right of
survivorship) and shall be delivered as provided above to or upon the
written order of the person or persons exercising this option. In the
event this option shall be exercised, pursuant to Article 5 hereof,
by any person or persons other than the Employee, such notice shall
be accompanied by appropriate proof of the right of such person or
persons to exercise this option. All shares that shall be purchased
upon the exercise of this option as provided herein shall be fully
paid and non-assessable.
10. Option Not Transferable. This option is not transferable or
-----------------------
assignable except by will or by the laws of descent and distribution.
During the Employee's lifetime only the Employee can exercise this
option.
11. No Obligation to Exercise Option. The grant and acceptance of this
--------------------------------
option imposes no obligation on the Employee to exercise it.
12. No Obligation to Continue Employment. The Company and any Related
------------------------------------
Corporations are not by the Plan or this option obligated to continue
the Employee in employment.
13. No Rights as Stockholder until Exercise. The Employee shall have no
---------------------------------------
rights as a stockholder with respect to shares subject to this
Agreement until a stock certificate therefor has been issued to the
Employee and is fully paid for. Except as is expressly provided in
the Plan with respect to certain changes in the capitalization of the
Company, no adjustment shall be made for dividends or similar rights
for which the record date is prior to the date such stock certificate
is issued.
14. Capital Changes and Business Successions. It is the purpose of this
----------------------------------------
option to encourage the Employee to work for the best interests of
the Company and its stockholders. Since, for example, that might
require the issuance of a stock dividend or a merger with another
corporation, the purpose of this option would not be served if such a
stock dividend, merger or similar occurrence would cause
-4-
<PAGE>
the Employee's rights hereunder to be diluted or terminated and thus
be contrary to the Employee's interest. The Plan contains extensive
provisions designed to preserve options at full value in a number of
contingencies. Therefore, provisions in the Plan for adjustment with
respect to stock subject to options and the related provisions with
respect to successors to the business of the Company are hereby made
applicable hereunder and are incorporated herein by reference. In
particular, without affecting the generality of the foregoing, it is
understood that for the purposes of Articles 3 through 5 hereof, both
inclusive, employment by the Company includes employment by a Related
Corporation as defined in the Plan.
15. Early Disposition. The Employee agrees to notify the Company of
------------------
any disposition of any shares of Common Stock acquired on the
exercise of this option within the two-year period beginning on the
date of grant or within one year after the date of the transfer of
such shares to the Employee. The Employee also agrees to provide the
Company with any information which it shall request concerning any
such disposition. Employees who receive incentive stock options will
be disqualified under Section 422A of the Code from receiving the
favorable income tax treatment otherwise available with respect to
the exercise of such an option if they dispose of the stock received
on exercise of the option within either of the one or two-year
periods described in the preceding sentence.
16. Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the internal laws of Delaware.
IN WITNESS WHEREOF the Company and the Employee have caused this instrument to
be executed, and the Employee whose signature appears below acknowledges receipt
of a copy of the Plan and acceptance of an original copy of this Agreement.
By:
---------------------------------------------------
DAVOX Corporation
--------------------------------------------------
Employee
-5-
<PAGE>
Exhibit 10.23
-------------
DAVOX CORPORATION
EXECUTIVE COMPENSATION PLAN
The compensation arrangements between Davox Corporation (the "Company") and
each of its executive officers are based on the Company's Executive Compensation
Plan (the "Plan"), the terms of which are not set forth in a formal document but
are described herein.
The Company's executive compensation program is administered by the three
member Compensation Committee of the Board of Directors (the "Compensation
Committee"). The three members of the Compensation Committee are non-employee
Directors. Pursuant to the authority delegated by the Board of Directors, the
Compensation Committee establishes each year the compensation of the Chief
Executive Officer, and together with the Chief Executive Officer, establishes
the compensation of the other executive officers of the Company pursuant to the
Plan.
The Plan is designed to reward executive officers whose performance yields
improvement in corporate operating results, market share and shareholder value.
The ultimate goal of the Plan is to align the interests of management with those
of the stockholders. Compensation under the Plan is comprised of cash
compensation in the form of annual base salary, incentive compensation in the
form of performance-based cash bonuses, and long-term incentive compensation in
the form of stock options.
In setting cash compensation levels for executive officers, the
Compensation Committee takes into account such factors as: (i) the Company's
past financial performance and future expectations, (ii) the general and
industry-specific business environment, and (iii) corporate and individual
performance goals. The base salaries are established at levels comparable to
the amounts paid to senior executives with comparable qualifications, experience
and responsibilities at other companies located in the northeastern United
States of similar size and engaged in a similar business to that of the Company.
Incentive compensation in the form of performance-based bonuses for the
Company's executive officers is based upon management's success in meeting the
Company's financial and strategic goals as well as meeting individual
performance goals. Target levels of revenue and net income are set annually,
and bonuses are allocated to the executive officers contingent upon the
achievement of the target levels. In addition, based on the Company's exceeding
both target revenues and target net income, additional bonuses are awarded to
executive officers in the same proportion as bonuses are allocated under the
Plan.
Incentive compensation in the form of stock options is designed to provide
long term incentives to executive officers, to encourage the executive officers
to remain with the Company and to enable optionees to develop and maintain a
significant, long-term stock ownership position in the Company's Common Stock.
The Compensation Committee grants stock options to the Company's executive
officers in consideration of the strategic goals and direction of the Company.
<PAGE>
EXHIBIT 22.
DAVOX CORPORATION
List of Subsidiaries
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
Davox Securities Corporation Massachusetts
Davox (Europe) Limited United Kingdom
Davox Corporation Hong Kong Limited Hong Kong
Davox Sales Corporation Barbados
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports in this Form 10-K, into the Company's previously filed Registration
Statements on Form S-8 (file Nos. 33-89582, 333-07003 and 333-16209). It should
be noted that we have not audited any financial statements of the company
subsequent to December 31, 1996 or performed any audit procedures subsequent to
the date of our report.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 21,333,300
<SECURITIES> 9,780,273
<RECEIVABLES> 3,883,814
<ALLOWANCES> 699,000
<INVENTORY> 1,204,058
<CURRENT-ASSETS> 35,604,247
<PP&E> 4,050,850
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,729,304
<CURRENT-LIABILITIES> 16,894,241
<BONDS> 0
0
0
<COMMON> 738,780
<OTHER-SE> 22,120,429
<TOTAL-LIABILITY-AND-EQUITY> 39,729,304
<SALES> 37,177,601
<TOTAL-REVENUES> 53,642,392
<CGS> 10,883,420
<TOTAL-COSTS> 21,577,107
<OTHER-EXPENSES> 5,861,108
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,136,526
<INCOME-PRETAX> 10,127,787
<INCOME-TAX> 1,013,180
<INCOME-CONTINUING> 9,114,607
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,114,607
<EPS-PRIMARY> $1.11
<EPS-DILUTED> $1.11
</TABLE>
