-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FdlPUlU1dHtWLiF5EADxYCeSe1oEugjXN791P63ni9fXgamyFK/gYsxdhiFCAzzE c9B/4mFEhyHIOMURjAOOcw== 0000950153-01-500190.txt : 20010409 0000950153-01-500190.hdr.sgml : 20010409 ACCESSION NUMBER: 0000950153-01-500190 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNTELLECT INC CENTRAL INDEX KEY: 0000758830 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 860486871 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-18323 FILM NUMBER: 1588767 BUSINESS ADDRESS: STREET 1: 16610 N. BLACK CANYON HIGHWAY STREET 2: SUITE 100 CITY: PHOENIX STATE: AZ ZIP: 85053 BUSINESS PHONE: 602-789-2800 MAIL ADDRESS: STREET 1: 16610 N. BLACK CANYON HIGHWAY STREET 2: SUITE 100 CITY: PHOENIX STATE: AZ ZIP: 85053 10-K 1 p64736e10-k.txt 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to _________ Commission file number: 0-18323 SYNTELLECT(R) INC. (Exact name of Registrant as specified in its charter) DELAWARE 86-0486871 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 16610 North Black Canyon Highway Suite 100, Phoenix, AZ 85053 (Address of principal executive offices) (Zip Code)
(602) 789-2800 (Registrant's telephone number, including area code) Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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. [ ] The aggregate market value of common stock held by non-affiliates of the Registrant, computed by reference to the closing price at which the Common Stock was sold as of March 20, 2001, was $23,649,031. (APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of the latest practicable date: 11,204,546 shares of Common Stock outstanding as of March 20, 2001. DOCUMENTS INCORPORATED BY REFERENCE Materials from the Registrant's Proxy Statement relating to its 2001 Annual Meeting of Stockholders (the "Proxy Statement") have been incorporated by reference into Part III, Items 10, 11, 12 and 13. 2 TABLE OF CONTENTS
PAGE ---- PART I ITEM 1. BUSINESS............................................................................... 1 General Historical Development of the Company Industry and Market Background Products Sales and Marketing Product Development Manufacturing and Suppliers Backlog Proprietary Rights and Intellectual Property Employees Executive Officers of the Registrant ITEM 2. PROPERTIES............................................................................. 11 ITEM 3. LEGAL PROCEEDINGS...................................................................... 11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................... 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................................................................... 11 ITEM 6. SELECTED FINANCIAL DATA................................................................ 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................................................. 13 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................. 17 Interest Rate Risk Foreign Currency Exchange Rate Risk Additional Cautionary Factors That May Affect Future Results ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................ 22 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................................... 41 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................................... 41 ITEM 11. EXECUTIVE COMPENSATION................................................................. 41 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................................................. 41 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................... 41 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K............................................................................... 41
3 PART I ITEM 1 -- BUSINESS GENERAL Syntellect Inc. (together with its subsidiaries, collectively, the "Company," which may also be referred to as the "Registrant," "we," "us," or "our") develops, markets and implements voice, Internet and call processing software and services to large and mid-sized commercial, industrial and government entities through a worldwide direct and indirect distribution network. Through our flagship product, Vista, a client-server, open, standards-based, NT-Java software platform, we offer customizable software applications including Interactive Voice Response ("IVR"), Automatic Speech Recognition ("ASR"), Vocalpoint Interactive Web Response(R) ("IWR"), and Computer Telephony Integration ("CTI"). With the foundation of these products and capabilities, collectively known as Vista Interactive Media Response ("IMR"), we create enterprise-wide voice portals. These voice portals harness the power of the Internet as well as of wired and wireless telephones, using natural language voice commands, for unassisted, self-service access to applications, information, and transactions between an enterprise and its customers, employees, suppliers, partners and investors. We also own and operate an interactive transaction-based Hosted Services center for our customers who prefer to outsource their voice processing or web transaction-based applications completely or in conjunction with their premises-based installation. Our Hosted Services include, for example, cable and satellite pay-per-view orders, employee benefits enrollment, and utility outage applications. This combination of hosted and on-premises voice portals, built upon a single software platform, gives us a unique market position. We also provide a single source for system implementation and on-going system lifecycle support through our professional services organization including consulting services in the areas of speech recognition, speech application design, analysis and development, as well as installation, integration, and after-sale support. As of February 28, 2001, we employed a total of 294 individuals. In addition to our primary office facilities in Phoenix, we maintain five sales and support offices in the United States and one each in London, Amsterdam and Stockholm. HISTORICAL DEVELOPMENT OF THE COMPANY We were founded in 1984, and became an early pioneer in the Interactive Voice Response industry. By 1995 we had become the fourth largest provider of IVR technologies in North America and the largest IVR provider in Europe. Virtually all of our growth during this period was attributable to our proprietary IVR systems (known as Infobot(R) and Premier). In the early 1990's, the IVR industry experienced a major shift in product demand as the market began to move from proprietary hardware and software applications to advanced, open architecture products. These products increased functionality with a wider range of options for self-service including telephones using speech recognition, personal computers linked to the Internet, faxes, pagers and mobile phones. In 1993, we introduced our first open architecture product, the VocalPoint(R) IVR, and announced the phase-out of our older proprietary systems. On March 14, 1996, we acquired Pinnacle Investment Associates Inc. ("Pinnacle") in a transaction accounted for as a pooling of interests transaction. Pinnacle subsequently merged into its wholly-owned subsidiary, Telecorp Systems, Inc. ("Telecorp"). Telecorp developed and distributed inbound and outbound call center systems worldwide, primarily in the cable television, newspaper and healthcare industries. Telecorp also operated a transaction-based hosted application center designed primarily to process pay-per-view orders for the cable television industry. Subsequent to the merger, we assumed all of Telecorp's systems functions in Syntellect Inc. and consolidated all hosted application center functions into Syntellect Interactive Services, Inc. ("SIS"), Telecorp's wholly-owned subsidiary. Telecorp was dissolved as of December 27, 2000, and SIS became Syntellect Inc.'s wholly-owned subsidiary. In 1998, we introduced our VocalPoint Interactive Services Transaction Architecture ("Vista"). Vista combines call center technologies with a distributed client-server architecture, powerful open standards components, a web-based management system and a graphical application development tool. This combination provides customers with flexibility, scalability, efficiency, redundancy, and excellent processing performance. With the 1 4 introduction of Vista, we implemented our strategy of moving from a hardware-based company to a software-based company. We sold our predictive dialer product line to Nobel Systems Corporation in 1999. In 1999 and 2000, we significantly enhanced our Vista product line by adding new functionality to the core product and integrating advanced, natural language speech recognition and text-to-speech capabilities. We continue to expand the Java application framework contained in Vista as well as its application development and management tools. Additionally, we continue to enhance Vista for our international markets with new telephony protocols and languages. INDUSTRY AND MARKET BACKGROUND IVR VALUE PROPOSITION STRONG AND GROWING The Interactive Voice Response market continued to grow during 2000 at a compounded annual growth rate of approximately 13%, according to the Gartner Group, an industry analyst. Also, according to the Gartner Group, the average cost of an IVR-completed call is $.45, compared to $7.60 for a call handled by a call center agent. IVR systems first gained market acceptance through customer reaction to reduced hold times, cost savings resulting from automating low value-added customer interactions, and freeing contact center agents to concentrate on high value-added customer interactions. Much of the value of IVRs comes from our enabling the Computer Telephony Integration of our customer's systems and back-offices. Information about a caller or customer can be retrieved from a company's PBX or automatic call distributor ("ACD") or from a caller personally entering account information. In either case, the information is instantly available on an agent's screen. According to Datamonitor, another industry analyst, CTI-enabled IVR systems decrease the length of a call by 18%, on average, further enhancing cost savings and service improvements. Datamonitor research has also shown that when IVR platforms are available, customers also use Internet technology more frequently to access back-end information and existing databases. Our Interactive Web Response technology also enhances contact center customer management by linking the speed and convenience of Internet access to call center agents. Datamonitor estimates the size of the IVR market at $761 million for the year ended 1999 and expects this market to grow to $1.3 billion by the end of 2004, representing an 11.1% compounded annual growth rate. Datamonitor also expects market growth to be highest outside of North America with rates of growth approaching 15% per annum. Our major markets in Europe, one of the markets where growth rates are expected to be highest, include the United Kingdom, France, the Netherlands, Germany, Italy and Spain. SPEECH RECOGNITION WILL ENABLE IVR GROWTH AND MARKET EXPANSION Touchtone telephone, Automatic Speech Recognition ("ASR") and Text-to-Speech ("TTS") applications are replacing touchtone input and pre-recorded speech output for IVR applications. Speech recognition is more popular with customers than is touchtone, and ASR allows more sophisticated interactions to be automated, thereby creating more potential applications. Speech recognition is emerging as a critical technology for new IVR development. Industry experts expect speech recognition to revolutionize the way individuals interact with machines whether from home, in the car, on the street or at the office. The Internet can now be accessed by personal computers, mobile telephones, interactive television, and traditional telephones. We believe that voice access to the World Wide Web can potentially add two billion new points of access, in addition to the more than 250 million personal computers which can access the Internet today. We also anticipate that voice access will be particularly important in regions with lower personal computer penetration such as Asia, the Middle East and Africa, Eastern Europe and Latin America. We further believe that new classes of portable, wireless devices (Personal Digital Assistants ("PDA") and handhelds) with multiple input and output methods will play a major role and become standard Internet terminals. Datamonitor expects telephony-based speech recognition revenue to grow rapidly at a projected compounded annual rate of 57.9% from $133 million in 1999 to $1.9 billion by the end of 2004. We expect improved speech recognition 2 5 technology will drive this growth with enhanced comprehension of natural language and increased reliability. These improvements will lower costs through shortened calls, increase customer acceptance of automation and self-service, and stimulate demand for information access around the clock, independent of location or device. SPEECH RECOGNITION CREATES A NEW CLASS OF VOICE PORTAL PRODUCTS AND SERVICES Other developments in the industry, including voice portals and voice-enabled websites, may offer even greater promise. A voice portal uses advanced speech recognition technology to access information available on websites or in other databases. Although Interactive Voice Response platforms and voice portals use the same underlying technology, they are distinguished by usage rather than technology. IVR platforms are associated with database applications and consist of a closed coupling between a few database servers with hierarchical menus that may use speech recognition, but more frequently touchtone input, for access. Voice portals generally rely on speech recognition, use wide-ranging flat menus, and focus on Internet-based information access and protocols. Voice portals also support a broad range of applications in addition to simple database information access. These voice portals include broad-based Internet information, messaging access and collaborative applications such as calendars. The distinction is blurred when IVR platforms add VoiceXML, an emerging standard which enables voice applications to communicate in a vendor-independent way, or add other gateway functionality, and access information and applications across the Internet. In that case, the system becomes a hybrid IVR/voice portal. In this context, we believe that we are uniquely positioned to aggressively pursue the voice portal products and services markets. A voice portal used in an enterprise setting is referred to as an Enterprise Voice Portal ("EVP"). An EVP permits convenient increased access to company-wide information for customers, suppliers, partners and employees, increasing operating effectiveness for each. EVP companies will need to design their voice portals so that all methods of enterprise access flow through a single server strategy. The primary benefit for such companies will likely come as the applications and web servers supporting graphical access are also able to support access devices such as the telephone. Not only will security and reliability be central to the success of any EVP strategy, but the EVP's ability to integrate with existing applications and call centers will prove to be the most important component, especially if access to call center agents is available. The most probable EVP applications will be speech-enabled telephone access to company applications such as sales force, customer relationship management, and logistics and supply chain management, according to a report by Dain Rauscher Wessels, a securities firm. Also according to that report, the ability to voice-enable an e-commerce website to make it voice accessible may stimulate a new class of Business to Business and Business to Consumer transactions. The market for EVP platforms is predicted to materialize in 2002. COMPETITION IS STRONG AND INCREASING The voice processing industry is highly competitive, and we believe competition will continue to intensify in the future. The industry is characterized by rapid technological advances; frequent introductions of new products, options and features; constant improvement in the performance of IVR products; and downward pressure on prices. We believe the principal competitive factors which affect the voice processing industry are price, functionality, service and industry reputation. In this regard, we also believe our years of experience in the IVR industry provide an excellent foundation with which to meet competition. Our capabilities and operating assets include our installed base of customers, proven product functionality, existing distribution networks, contact center brand, and skill at designing and implementing speech-enabled IVR applications which compete effectively in the voice technology and contact center marketplace, as well as our ongoing professional services to customers. Our principal competitors for IVR and web products include Periphonics Corporation (a division of Nortel Networks Corporation); Avaya Inc. (a spin-off of Lucent Technologies Inc.); InterVoice-Brite, Inc.; Edify Corporation, and IBM Corporation. Many of these and other competitors have more extensive engineering, manufacturing, and marketing capabilities than we do, in addition to their substantially greater financial, technological and personnel resources. We also expect new entities to enter our markets to compete with us. 3 6 PRODUCTS Our products are divided into three business segments: Licenses and Hardware, Services and Hosted Services. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Operating Business Segments," for another description of these business segments. LICENSES AND HARDWARE In 1998, the Company introduced its third generation software platform, Vista, which uses a Windows NT operating system and Java programming language for customer application development. Vista comprises a broad suite of communications features designed for automating customer transactions. It provides a multitude of applications on one platform including, for example, Interactive Voice Response, Interactive Web Response, Computer Telephony Integration, fax on demand, and advanced speech recognition. With this software platform, transactions can be processed from callers using almost any communication device including wired and wireless telephones, web browsers, fax machines, pagers and PDAs. Vista is built on an open, scalable, standards-based framework forming an integrated foundation for various customer transactions. It allows our customers to deliver powerful new capabilities to their contact centers using their existing telecommunications and information technology infrastructure. Vista supports inbound and outbound telephone (whether touchtone, voice, or fax), hosted, and web transactions. It also interfaces with other technologies, supports a range of reporting options, and incorporates a standard set of application development, administration and management tools. Vista also accommodates an extensive range of object-orientated applications for specific business needs related to multimedia contact centers. We can configure Vista for virtually every company, from small, single-premises contact centers to multi-site global enterprise networks. Because of Vista's open, standards-based design, our customers receive the information technology ("IT") flexibility necessary to adapt quickly to changing business and technological requirements. While this flexibility is important to virtually any company, it is particularly important to those without dedicated in-house developers who must rely on local and regional systems integrators or independent applications developers for their IT support. The standards used in the Vista framework include: Windows NT operating system, Java application development language, Intel Dialogic voice boards, Sybase relational database, and Intel-based computer hardware. The Vista components themselves are sold as software-centric products. We provide the base software along with connections to a customer's PBX or ACD host environment. We have also established partnerships with third party suppliers who provide high quality, cost effective, industry standard platform components for Vista customers. Vista's components include Interactive Voice Response ("IVR"), Interactive Web Response ("IWR"), Advanced Speech Recognition, Proactive Outbound Notification, a Speech Enabled Directory ("SPEED"), Fax Server, Computer Telephony Integration ("CTI"), and Vista Tools. Vista IVR automates customer self-service inquiries and is sometimes considered the "voice" of an automated customer contact center. As part of the Vista software architecture, Vista IVR is designed to be highly scalable and to be integrated into existing telecommunication and data processing environments. The same software and hardware components are utilized for all system or networked configurations, facilitating modular growth. Vista is also designed to be particularly effective in environments supporting multiple applications. Vista IWR allows companies to take advantage of the Internet with self-service options designed exclusively for the World Wide Web. Just as IVR allows a customer to conduct self-service transactions by telephone, IWR makes the same options available to customers through the Internet. Rather than providing voice prompts, IWR presents visual instructions on the customer's computer screen. The Vista IWR component incorporates all the features a customer needs to perform transaction processing on the Internet including scalability, performance, security, access to enterprise data, and an ability to integrate with other Vista features. Our Advanced Speech Recognition and speaker authentication components provide the recognition accuracy, scalability, and robustness required to make successful natural language and large vocabulary speech applications 4 7 available. We have partnered with Nuance Communications to create those applications by utilizing Nuance's SpeechObjects along with Vista's Java application framework. Our Vista Proactive Outbound Notification component is used to create, configure, and manage completely automated outbound calling campaigns and generate operational progress reports. Proactive Outbound Notification applications can range from simple campaigns that deliver straightforward messages to more complex, self-service applications that involve questions to and answers from respondents. In January 2000, we announced SPEED. SPEED automates call routing tasks by allowing callers to speak the name of a specific individual or department they wish to reach rather than speaking to an operator or entering an extension number through the touchtone keypad. SPEED relies on advanced speech recognition algorithms to recognize a spoken name as well as advanced voice-processing capabilities to transfer the call appropriately. When multiple employees have the same name, SPEED prompts the caller for additional information, such as the individual's department, and then makes the appropriate routing decision. SPEED can be configured as a stand-alone product residing on the Vista platform, or it can be configured as part of a Vista IVR application. The Vista Fax Server component receives fax requests from IVR and IWR applications. Customers are able to use our Fax Server to obtain a facsimile of the information they want using a Vista system. Data from a host screen or database that callers access during a transaction can be programmed to also merge with forms, graphics, or logos stored on the IVR system before being faxed to the caller. Callers can then efficiently retrieve pre-defined documents such as product brochures, catalog information, or stock reports. Our Vista Computer Telephony Integration ("CTI") component optimizes contact center agents' productivity by allowing them to handle telephone calls more intelligently and efficiently. For example, by using CTI technology, customer data collected by the IVR at the initiation of a customer contact session can be delivered to an agent's workstation at the same time as the telephone connection is transferred to that agent's telephone. The simultaneous transfer of a caller's voice and account data results in increased agent productivity, greater effectiveness in resolving customer inquiries, and efficiencies in providing what consumers perceive to be personalized, integrated support. The Vista Tools component includes both our VistaView(TM) and VistaGen(R) Application Generator. VistaView allows users to monitor their Vista servers and applications. Using VistaView, system administrators can examine all aspects of their functioning system, whether the data resides on a single platform or at numerous locations. VistaView can also act as a single point of access for both consolidated and itemized system information. It also supports all Vista system components. VistaGen Application Generator is an object-oriented application development tool for Vista, which simplifies the customer's process of building simple IVR applications into a sophisticated application that integrates natural language speech recognition, IWR and CTI technologies. We believe the market is poised for a renaissance of IVR spurred by the need for Enterprise Voice Portals. In preparation, we introduced a new level of functionality we call IMR, Interactive Media Response. IMR consists of current and evolving interactive, data access, and communication technologies that provide the functionalities necessary to support rapidly evolving Enterprise Voice Portal requirements. Our Vista platform offers a number of IMR elements today and plans are in place to enhance its functionality over the next 18 months through two additional phases of development. The Vista software platform incorporates the following four key components to our new IMR functionality and to the successful deployment of an Enterprise Voice Portal: 1. Separate the request medium from the response medium. The Vista platform allows callers to choose how they want to receive the information they have requested. For example, the system may prompt a caller requesting an account statement to request that it be delivered by fax or email. Being able to independently structure the front-end (request) media from the back-end (response) media is critical to the flexibility required to meet users' demands. 5 8 2. Use Java, the software language of the Internet. As the volume of Internet data continues to grow exponentially year after year, it becomes imperative to write applications, integrate third-party components, call third-party services, and absorb third-party software objects using the software language of the World Wide Web, Java. By using Java, we eliminate the need to write artificial bridges from proprietary IVR environments to open third-party applications and data sources. 3. Enable customers to access existing data, application, and transaction services from anywhere. Even though web-hosted data is exploding in size, existing non-web systems still hold a large percentage of corporate data. Nevertheless, corporate servers, databases, and non-web-enabled applications all contain data that companies may want to access through voice commands. The Vista IMR platform is designed to make that access possible. 4. Connect instantly to a live agent during a telephone call or Web interaction. The experience of early e-commerce sites established the absolute necessity of live agent access during a telephone call or web interaction. Moving a caller from unassisted interactions to a live agent is complex. Our IMR is capable of connecting the telephone user to a live agent who has been informed of the caller's identity, what the caller has done or was attempting to do, and who has the appropriate application screen open to provide help immediately. We believe IMR is beneficial to more than the call center. It also serves as a powerful tool for supporting other users such as business prospects, employees, suppliers, partners and investors. Our IMR platform is designed to help our customers be responsive to their customers and does this by providing access to the information and services they want, when and how they want it, whether the platform is located on the customer's premises or at our Hosted Services centers. Our IMR platform was designed to permit flexible transfer of work loads between applications located on a customer's premises and those located at our Hosted Service center or at other locations. For example, our IMR platform permits the caller's contact to begin on our customer's premises (whether via telephone or Internet), flow seamlessly to our hosted facility for a particular purpose, move to a third-party data source for additional processing, and return to the originating customer's premises for completion. Not only does this flexibility improve the caller's experience in contacting our customer, it permits our customer to marshal its resources in the most cost-effective way. We expect that new opportunities for the flexibility of the IMR platform will surface as powerful new products are introduced to the market, such as Hewlett Packard's network product called eSpeak. SERVICES We support our customers with consulting and education services, help line warranty and maintenance, regular adjustments in their system data bases such as for moves, adds and changes, scripting and voice file production, and database maintenance services. We focus particularly on developing improved consulting services in the areas of design analysis, specification development, project management, application development, installation and integration as each is related to speech recognition. Our services are generally sold as part of the initial sale of a system. In some cases, however, they are added after installation. Creating a robust, yet user-friendly, speech recognition application requires experience in software design, telephony, networking, client-server systems, databases, linguistics, human factors, and speech recognition technology. We have years of experience in designing voice user interfaces from dialog design to grammar development and the intricacies of data base access. We have assembled and continue to expand a dedicated speech recognition implementation team to address this significant opportunity. The individuals comprising that team have been specifically trained and have experience from many successful speech recognition implementations of varying degrees of complexity. We believe our speech recognition expertise, built on our IVR history, is a critical skill necessary to bring effective speech-enabled IVR, voice portal and voice-enabled websites to market. We also believe our skill is highly valued in the market and provides us with a competitive advantage. 6 9 We provide warranties on our products for periods ranging from three to six months commencing with the installation of each system. After the initial warranty period ends, our hardware and software maintenance services are available on both a contract basis and on an on-demand, time and materials, basis. Domestically and internationally, hardware and software maintenance and support provided to customers are performed on-site by us or under contractual arrangements with independent third party service providers. HOSTED SERVICES Our wholly-owned subsidiary, Syntellect Interactive Services, Inc. ("SIS"), operates our Hosted Services transaction center in Roswell and Atlanta, Georgia. Our Hosted Services center has IVR, database, and web server capacity to handle over 5,000 telephone and Internet transactions simultaneously. It offers contract-based telephony and Internet automated transaction services and is designed with full system redundancy and fault-tolerant power protection for 24-hours a day, 7-days a week operation. We believe we are the only provider of speech-enabled technology that offers our customers both on-premises capability and outsourced Hosted Services using a consistent, internally-developed software platform. Companies focusing on their core business, rather than on managing their infrastructures, capitalize on hosted service offerings. Hosted Services offers benefits such as reduced time to market, limited capital expenditure, and less exposure to technology obsolescence. Hosted Services is also ideal for enterprises having limited IT or inadequate in-house expertise to handle complex applications. We utilize our own Vista platform for speech recognition and voice portal applications in our Hosted Services transaction center. This allows our customers to select the option best suited to their needs and provides them with the ability to seamlessly move an application between their premises and our Hosted Services facility. Many customers begin by using our Hosted Services and migrate to bringing their own capability in-house, while continuing to use our capacity to support them in overtime settings. Others use our services in overflow situations. A hosted service environment is ideal for processing overflow inbound call traffic from our customer's on-premises facilities during peak call volumes. It is also ideal for high volume automated outbound message delivery campaigns, as an alternative to an on-premises IVR or voice portal for smaller enterprises, for internal campaigns, customer service surveys and speaker verification applications, and for accessing special features such as credit card processing, on-line demographic services, or utilizing fax-on-demand or fax broadcast campaigns. We have supplied Hosted Services to the cable industry for more than eight years. New ordering technologies for pay-per-view in the cable and satellite industries, however, have resulted in a decline in the overall utilization of 800 number services for ordering, which, in turn, has resulted in a decline in our pay-preview revenues. In response to this decline, we have focused our sales and marketing efforts on new applications in vertical markets such as in the utility industry and on direct-to-consumer marketing, financial services, and Internet-based applications. As a result, our non-cable revenues exceeded our cable revenues for the first time in the fourth quarter of 2000. We offer the following four IVR Hosted Services products: 1. DIALEXPRESS(TM) - - high volume outbound calling technology used for promotional messaging and other proactive customer contacts; 2. LEAD CAPTURE - - automated, telephone-delivered, custom questionnaire initiated and completed by sales prospects to capture critical sales leads; 3. SPEECH ENABLED DIRECTORY ("SPEED") - - voice-enabled, company-wide call routing and directory functionality that empowers callers to self-direct their calls by speaking the name of the person, the functional area or the department they wish to reach; and 4. SITE LOCATOR - - a locate-by-phone service that helps potential customers find the nearest location or distributor for their desired product or service. This product is an extremely cost-effective tool for building store traffic, determining market segmentation, and measuring marketing media effectiveness. 7 10 Each of these products is typically billed on a per minute and per transaction basis. We also offer a full range of professional services including project management, application development, and ongoing customer service which allows customers to specify fully-customized applications. In addition, we offer CyberStats(TM), an online reporting tool for our Hosted Services customers. CyberStats provides real-time reports on transaction details through our Hosted Services center. Users can access CyberStats on the Internet and elect to have reports delivered to them via their PC, email or fax. On September 15, 1999, we sold our predictive dialer product line to Nobel Systems Corporation. That sale contributed other income of $509,000, as reported on our financial statements. See Item 8, "Financial Statements and Supplementary Data," for more details regarding that sale. SALES AND MARKETING General. We have sold over 6,000 systems to customers in 55 countries. We -------- provide technological solutions to companies in a variety of industries, including banking, insurance, financial services, media, public utilities, healthcare, service providers, transportation, telecommunications, retailing, government agencies, oil and gas, manufacturing, education and newspaper publishing. Our customer base includes some of the largest domestic banking firms, some of the largest insurance companies and numerous Fortune 500 companies. Our products are sold through a direct sales force, domestic and international distributors, and value added resellers. We believe we will continue to rely on direct distribution because of the increasing complexity of our applications which is largely due to the requirements of speech recognition technology. We will continue to do this at least until industry open standards are agreed upon and speech recognition development tools are improved. Even though direct distribution may be mandated by the complexity of applications, customers prefer to purchase contact center technologies as part of a total system. Automated call handling technologies, however, appear to be sold increasingly as one element of a contact center portfolio by system integrators, telecommunications companies and switch vendors. As a result, we believe we must develop strong distribution partnerships in many markets to ensure that our products are represented in the markets where they can be sold. Consequently, we are actively adding and soliciting distribution partners in a number of important regions. We currently maintain five sales offices in the United States as well as one in each of London, Amsterdam and Stockholm. Domestic Sales. The percentage of our total revenue represented by domestic --------------- sales, including maintenance fees, for the last three fiscal years is as follows: 69% in 2000, 81% in 1999, and 78% in 1998. During those years, no single distributor or customer accounted for more than 10% of our total revenues. Our direct sales force closed more than 94% of our domestic sales (excluding maintenance, patents, and Hosted Services) in 2000. International Sales. The percentage of our total revenues represented by -------------------- international sales, including maintenance fees, for the last three fiscal years is as follows: 31% in 2000, 19% in 1999, and 22% in 1998. See Note 12 of the "Notes to Consolidated Financial Statements" for additional information regarding international operations. All of our product lines and services are sold worldwide and are offered in 15 different languages. We maintain a direct sales force in London to market our systems in various countries around the world and have opened offices in Amsterdam and Stockholm. Sales in the United Kingdom are denominated in pounds sterling and are subject to foreign currency adjustments. Sales in all other foreign countries are denominated in United States dollars. We attempt to conduct business in international markets in compliance with each country's applicable laws and regulations, including safety and telecommunication laws, import duties and quotas. We have not experienced any difficulty in obtaining export licenses for foreign sales from the United States Department of Commerce. Marketing Organization and Vertical Market Focus. Our marketing ------------------------------------------------- organization is charged with (i) enhancing our corporate image; (ii) increasing demand for our voice processing products; (iii) creating market differentiation; and (iv) identifying future development opportunities for market-driven features. The marketing organization conducts market and competitive research; participates in industry trade shows and conferences; creates marketing communications materials, advertising and public relations campaigns; and maintains relationships with key industry analysts and media contacts. Our strategic marketing plan is focused on the following four vertical 8 11 markets: financial services, media (cable and satellite television and newspaper), utilities, and healthcare. Sales to these markets represented approximately 73% of our total revenues for 2000; 79% for 1999; and 84% for 1998. We market our products to industry leaders within these vertical markets as management believes industry leaders have the greatest need for self-service and transaction processing technologies, are most likely to require system expansion and additional services, and serve as an important source of customer referrals. PRODUCT DEVELOPMENT Our product development consists of system and software specification, software design and coding, and third party software integration. Employees of, and contractors managed by, our research and development department perform all product development. We continually strive to identify and develop new products and new features for existing products to expand our market. Furthermore, we perform rigorous testing prior to releasing new products and features. Nevertheless, products as complex as those we produce often contain undetected errors, or "bugs," when first released. These "bugs" are often discovered only after the product has been used by many different customers and in varying applications. Our product development organization consisted of the following numbers of individuals for the years indicated: 33 in 2000, 41 in 1999, and 55 in 1998. We spent $3.2 million for research and development in 2000, $4.4 million in 1999, and $5.6 million in 1998. MANUFACTURING AND SUPPLIERS Our manufacturing operation consists of limited in-house configuration, product assembly, product testing and quality and revision control of our products. We may obtain hardware components from third parties for our products, including telephony interface and voice recognition boards. We do not believe we are dependent on a single source to supply the components we use in our products. We are also currently able to obtain key components in a timely manner from a variety of sources. BACKLOG Our year end 2000 backlog was approximately $9.9 million and $9.3 million for year end 1999. We believe that all orders in backlog at December 31, 2000 are firm and will be delivered within the next fiscal year. Because the possibility exists for customers to make changes to their original orders, to alter or significantly delay delivery schedules or to cancel their orders, the backlog total as of any particular date may not be indicative of actual revenues for any future period. PROPRIETARY RIGHTS AND INTELLECTUAL PROPERTY We establish and protect our proprietary rights in our products and technologies through a combination of registered copyrights, trademarks, service marks, trade secret and patent protection. We also enter into confidentiality agreements with our employees, distributors and customers, and seek to limit access to the distribution of our software, documentation and other proprietary information. We currently hold 65 registered trademarks in 15 countries and a total of 14 pending trademark and patent registrations as well as seven copyrights. We believe, however, that technological innovation, expertise, and market responsiveness can be as important to us as those legal protections. VocalPoint is a registered trademark, the rights to which we sold in the third quarter of 2000. As part of the agreement for that sale, we maintain the unrestricted right to full use of the trademark until such time as the product enters "end-of life" and service commitments have expired. Syntellect, Infobot, VocalPoint, VocalPoint Interactive Web Response, Cyberstats, VistaGen, VistaView, DialExpress and Home Ticket are our current or pending trademarks. All other products mentioned in this Annual Report to the Securities and Exchange Commission (this "Annual Report") are trademarks or pending trademarks of their respective owners. 9 12 Our Vista product line uses a licensed third party software, which provides a portion of the architectural foundation for the product. We have secured a permanent, perpetual, world-wide, non-exclusive, non-revocable license to this software which allows us to use, copy, modify, distribute, and license the source code in connection with our Vista product. EMPLOYEES As of December 31, 2000, we employed a total of 286 individuals, 280 on a full-time basis and 6 on a part-time basis. Of those employees, 53 are in sales, 19 in marketing, 61 in customer support, 57 in application services, 33 in product development, 30 in Hosted Services and 33 in administration. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is information with respect to our officers, including such information as their names, ages, positions and offices held with us as of March 20, 2001. Anthony V. Carollo, Jr., 59, became our Chairman and Chief Executive Officer ("CEO") on November 4, 1999 after serving as Chairman and interim CEO since May 14, 1999. He has served as a director since August 1998. Mr. Carollo was the President of Xantel Corporation from April 1998 to November 1999. Previously, Mr. Carollo was the President and Chief Operating Officer of Fujitsu Business Communication Systems and a former Vice President and General Manager of ROLM Corporation. He has also held numerous financial positions, both at ROLM, Arcata Communications and Arthur Andersen & Company. Mr. Carollo currently also serves as a director of Marshall & Ilsley Trust Company of Arizona and Spectralink Corporation. Mr. Carollo holds a BS degree from the University of Santa Clara and an MBA degree from UCLA. Timothy P. Vatuone, 51, became our Vice President and Chief Financial Officer on February 14, 2000. Before working with us, he served as Vice President and Chief Financial Officer of Vivid Semiconductor, Inc., a venture backed, LCD panel technology start-up, where he raised over $70 million in equity, lease and bank financing. Previously, Mr. Vatuone was Vice President and Chief Financial Officer of Capetronic International Holdings, Ltd., an Asian-based manufacturer of computer CRT displays. He has also held numerous other financial management positions in technology companies such as Hewlett-Packard, Convergent Technologies and Roche. Mr. Vatuone received a BS degree in economics and an MBA degree from the University of Santa Clara. Charles F. Sonneborn, 40, became our Vice President and Controller on February 13, 2001. Previously, Mr. Sonneborn was our Controller, Financial Operations from June 13, 2000. Prior to joining us, he was the Controller for Xantel Corporation, a computer telephone software developer. Previously, he was General Manager and Chief Financial Officer for Prochem, a Phoenix based manufacturer of cleaning equipment and chemicals. He has held other financial and operational management positions in privately held direct marketing and manufacturing companies such as The Eastwood Company and Group Dekko Companies. Mr. Sonneborn received a BS degree in accounting from Indiana University and an MBA degree from Indiana Wesleyan University. W. Scott Coleman, 45, currently serves as our Chief Technology Officer and Vice President of Operations. Previously, Mr. Coleman has served in various capacities since 1993 as our President of Call Center Systems, Senior Vice President and General Manager of Call Center Systems, and Vice President of Product Development. He has been involved in the voice processing industry since 1982, serving as Vice President of American Telesystems Corporation, where he was responsible for product strategy, business development and product development activities. Mr. Coleman holds a BS degree in electrical engineering from Mississippi State University and an MS degree in electrical engineering from the Georgia Institute of Technology. Carol E. Reid, 49 became our Vice President of Marketing on June 12, 2000 and also serves as interim Vice President of Sales. Prior to joining us, she was the Chief Executive Officer and the Vice President of Sales and Marketing for Xantel Corporation, a computer telephone software developer. Earlier, she served as Global Account Manager for Calico Commerce, Region Manager for Chordiant, and Eastern Region Sales Manager for Aspect Telecommunications where she built their initial sales teams from Boston to Washington D.C. 10 13 Peter K. Trompetter, 46, became Vice President of Global Development on May 15, 2000. Before joining us, he worked for software companies such as NAS, KPN, Sequent and TechForce in various international senior management positions and began his senior management career in 1976 at N.C.M. N.V. in the Netherlands. Mr. Trompetter is multi-lingual and is responsible for implementing a strategy of global product and account development including product related marketing alliances and after-sales customer support. ITEM 2 -- PROPERTIES Our corporate headquarters is located in a 37,301 square foot facility in Phoenix, Arizona. Our lease for this facility commenced in July 2000 and continues through October 2005. The facility houses our core business and includes space for customer support, research and development, sales, marketing, production, training and administrative functions. We also lease a 38,904 square foot facility in Roswell, Georgia and a 1,619 square foot facility in Atlanta, Georgia. These facilities house our Hosted Services, including our Home Ticket pay-per-view service and other applications offered through our subsidiary, SIS. As of December 31, 2000, in addition to the sales office in Roswell, Georgia, we leased four other sales and support offices in the United States and one in London. As of that date, the aggregate monthly rental payment for our office facilities was approximately $119,000. We leased two additional offices, one in Amsterdam and one in Stockholm, in January 2001. ITEM 3 -- LEGAL PROCEEDINGS From time to time we are involved in legal proceedings of a character incident to our normal business operations. We are not currently a party to any material pending legal proceedings. ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of our stockholders, through the solicitation of proxies or otherwise, during the fourth quarter of 2000. PART II ITEM 5 -- MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock has been traded in the over-the-counter market and quoted through The Nasdaq Stock Market ("NASDAQ") since March 29, 1990, under the symbol "SYNL". The following table sets forth the high and low sale prices of the common stock for the two most recent fiscal years as reported on NASDAQ.
YEAR ENDED 2000 HIGH LOW --------------- --------- -------- 1st Quarter.... $ 7 1/16 $2 15/16 2nd Quarter.... 6 11/16 3 3rd Quarter.... 9 3/16 5 11/16 4th Quarter.... 8 3/16 3 1/4
YEAR ENDED 1999 HIGH LOW --------------- --------- -------- 1st Quarter.... $ 3 5/8 $ 1 1/8 2nd Quarter.... 1 27/32 1 1/8 3rd Quarter.... 2 5/8 1 4th Quarter.... 3 3/8 1 5/16
11 14 On March 20, 2001, the closing sale price for our common stock was $2.44 per share. On that date there were 184 holders of record of our common stock. This figure does not reflect beneficial ownership of shares held in nominee names. We have never declared or paid a cash dividend on our common stock. We presently intend to retain earnings for use in our business and do not anticipate paying cash dividends on outstanding shares in the foreseeable future. ITEM 6 -- SELECTED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report. The selected consolidated financial data presented below under the captions "Statement of Operations Data" and "Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended December 31, 2000, are derived from our consolidated financial statements, which financial statements have been audited by KPMG LLP, independent certified public accountants. The consolidated financial statements as of December 31, 2000 and 1999, and for each of the years in the three-year period ended December 31, 2000, and the report thereon, are included elsewhere in this Annual Report. STATEMENT OF OPERATIONS DATA (in thousands, except per share amounts)
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Net revenues ........................... $ 48,032 $ 47,831 $ 47,953 $ 48,182 $ 55,305 Cost of revenues ....................... 19,737 24,712 22,658 25,678 27,783 -------- -------- -------- -------- -------- Gross margin ................. 28,295 23,119 25,295 22,504 27,522 Operating expenses: Selling, marketing and administrative 21,007 18,854 20,386 19,463 21,383 Product development ................. 3,230 4,448 5,573 5,874 5,943 Depreciation and amortization ....... 1,817 2,489 2,538 3,908 3,229 Fixed asset write-down .............. -- -- -- 1,303 -- -------- -------- -------- -------- -------- Total operating expenses ..... 26,054 25,791 28,497 30,548 30,555 -------- -------- -------- -------- -------- Operating income (loss) ................ 2,241 (2,672) (3,202) (8,044) (3,033) Gain on sale of patent portfolio ....... -- -- -- 7,860 -- Other income, net ...................... 256 806 584 304 253 -------- -------- -------- -------- -------- Income (loss) before income taxes ...... 2,497 (1,866) (2,618) 120 (2,780) Income tax expense (benefit) ........... 255 -- -- (21) -- -------- -------- -------- -------- -------- Net income (loss) ...................... $ 2,242 $ (1,866) $ (2,618) $ 141 $ (2,780) ======== ======== ======== ======== ======== Earnings (loss) per share - diluted .... $ .18 $ (.14) $ (.19) $ .01 $ (.21) -------- -------- -------- -------- -------- Shares used in per share calculation ... 12,699 13,034 13,441 13,788 13,256 ======== ======== ======== ======== ========
BALANCE SHEET DATA (in thousands)
AS OF DECEMBER 31, --------------------------------------------------------------- 2000 1999 1998 1997 1996 ------- ------- ------- ------- ------- Working capital .................... $ 6,416 $ 9,867 $14,797 $13,488 $13,677 Total assets ....................... 27,101 26,224 32,133 34,808 34,808 Long-term debt, less current portion 316 293 445 530 229 Shareholders' equity ............... 11,177 14,390 19,813 22,186 22,021
12 15 ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 NET REVENUES Net revenues for 2000 were $48.0 million compared to $47.8 million reported for 1999. These annual revenues were derived from our three operating business segments of Licenses and Hardware, Services and Hosted Services which represented 43%, 45% and 12% of net revenues, respectively, for 2000, and 36%, 48% and 16% of net revenues, respectively, for 1999. Our core product is Vista, an open standards-based Interactive Communications Management ("ICM") software platform for enterprise customer call centers. Vista combines several call center technologies with a distributed client-server architecture, open standard components, web-based management system and a graphical application development tool. We believe Vista provides customers with flexibility, scalability and efficiency, high degrees of redundancy, and superior processing performance. Vista Interactive Voice Response ("IVR"), Vista Computer Telephony Integration ("CTI"), Interactive Web Response ("IWR") and voice recognition are currently available. Non-core or legacy products include VocalPoint, an IVR platform; and VocalPoint Interactive Services, providing CTI functionality, IWR, and Premier and Premier 030 proprietary IVR systems. In late 1998, we began the transition of becoming a software-based company from a hardware/software-based company. In 2000, we began to change the reporting of business segments to Licenses and Hardware, Services, and Hosted Services from the previous structure of Systems, Hosted Services (SIS), and Patents. System sales and Maintenance and other services as reported in the 1999 and 1998 Annual Reports have been restated as Licenses and Hardware and Services for the 2000 Annual Report. Licenses and Hardware revenues for 2000 were $20.9 million, an increase of $3.8 million, or 22%, compared to the $17.1 million for 1999. The increase in 2000 was due to the strength of the Vista product line which has shown increased sales in every quarter since revenues commenced in the third quarter of 1998. In 2000, the Vista product line accounted for 84% of Licenses and Hardware sales. VocalPoint systems sales declined 41% in 2000 as the Vista product line more than replaced the declining sales. Services revenues for 2000 were $21.4 million compared to $23.0 million for 1999, a decrease of $1.6 million, or 7%. The components of Services revenues consist of patent infringement lawsuits, $1.6 million decrease; maintenance revenues, $0.9 million decrease but showed an upward trend in the second half of 2000 due to the increased number of installations in late 1999 and early 2000; application services, $0.8 million increase; project management, $0.6 million increase; installation, $0.7 million decrease; and other services, $0.2 million increase. Hosted Services revenues for 2000 were $5.7 million compared to $7.7 million for 1999. This is a decrease of $2.0 million, or 26%. The primary reason for the decline was due to Home Ticket, a pay-per-view service for cable television providers which is offered through our SIS subsidiary. The cable TV industry has been deploying new order entry technologies for consumer purchases of pay-per-view events which do not utilize toll free 800 numbers. This has resulted in a downward trend in transaction processing fees; a trend which is expected to continue. To offset the decline in pay-per-view services, Hosted Services has offered other outsourced electronic capabilities including DialExpress (message delivery), Lead Capture, Speech Enabled Directory, Site Locators, broadcast faxing, call center processing, and audiotext. Domestic and International Sales for 2000 were $33.2 million, or 69%, and $14.8 million, or 31%, of total revenues, respectively, compared to $38.9 million, or 81%, and $8.9 million, or 19% of total revenues, respectively, for 1999. 13 16 GROSS MARGIN The gross margin percentage for the year ended December 31, 2000 was 59% of net revenues, as compared with 48% for the year ended December 31, 1999. Gross margins on License and Hardware revenues in 2000 were $15.4 million compared to $10.9 million in 1999, representing a 41% increase in margins. Margin percentages were 74% and 64% of sales for 2000 and 1999, respectively. This increase is primarily due to our ongoing transition from a hardware/software-based company to a software-based company. Additionally, gross margin was positively affected by decreases in the inventory reserve of $0.7 million and $1.4 million in the years 2000 and 1999, respectively, due to a higher than expected usage of inventory from discontinued product lines. Gross margins on Services revenues in 2000 were $11.2 million, or 52%, compared to $9.6 million, or 42% in 1999, an increase of $1.6 million primarily due to the reduction in third party contractor expense. Gross margins on Hosted Services decreased by $0.9 million from $2.6 million, or 34%, to $1.7 million, or 30%, in 2000 as compared to 1999 primarily caused by the relatively fixed nature of Hosted Services costs. We include those costs directly associated with the generation of revenue in its computation of gross margin, including direct labor, application development, travel, maintenance, customer support, supplies and hardware. Gross margins will fluctuate on a year-to-year basis due to changes in competitive pressures, sales volume, product mix, variations in the ratio of domestic versus international sales, or changes in the mix of direct and indirect sales activity. Accordingly, the gross margins reported for 2000 are not necessarily indicative of the results to be expected for future periods. OPERATING EXPENSES Operating expenses for 2000 were $26.1 million, an increase of $0.3 million, or 1%, from the $25.8 million reported for 1999. Selling, marketing, and administrative expenses (including depreciation and amortization) increased $1.5 million, or 7%, primarily due to an increase in the number of employees in domestic sales and administration, employee incentives, desktop software, and occupancy costs related to the move of our headquarters to a new facility. In 2000, research and development costs decreased $1.2 million, or 27%. The spending decreases are primarily the result of our transition from a hardware/software-based company to a software-based company. However, we anticipate that research and development spending will increase in future years. Operating expenses decreased due to reductions of the accounts receivable reserves by $0.6 million and $0.1 million in the years 2000 and 1999, respectively. The change in 2000 was primarily due to an increased effort and control of collections and a decrease in aged accounts receivables. NET INCOME (LOSS) We reported a net income of $2.2 million, or $.18 per diluted share, for 2000, compared to a net loss of $1.9 million, or $(.14) per share for 1999, representing a $4.1 million increase over the prior year. YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 NET REVENUES Net revenues for 1999 remained constant at $47.8 million as compared to $48.0 million reported for 1998. Net revenues consisted of Licenses and Hardware, Services and Hosted Services, which represented 36%, 48% and 16% of net revenues, respectively, for 1999, and 41%, 40% and 19% of net revenues, respectively, for 1998. Licenses and Hardware revenues for 1999 were $17.1 million, a decrease of $2.5 million, or 13%, as compared to $19.6 million for 1998. This decrease was primarily due to the decline in hardware sales as we transitioned to a software-based company. Services revenues for 1999 were $23.0 million, an increase of $3.6 million, or 19%, as compared to $19.4 million for 1998. The increase in revenues was primarily due to an enhanced product offering with the Vista product creating the need for more application development, project management and consulting services. This increase was offset by a decline of $2.2 million in maintenance revenue which was consistent with our expectations as we had earlier advised customers that certain products were not Year 2000 compliant and would not be made so, causing some maintenance contracts not to be renewed. 14 17 Hosted Services revenues were $7.7 million for 1999, a decrease of $1.2 million, or 13%, from the $8.9 million reported in 1998. The primary reason for the decline was due to our Home Ticket service. The cable TV industry has been deploying new order entry technologies for consumer purchases of pay-per-view events which do not utilize toll free 800 numbers. This change resulted in a downward trend in transaction processing fees; a trend that was is expected to continue. To offset the decline in pay-per-view services, Hosted Services has offered other outsourced electronic capabilities including DialExpress, Lead Capture, Speech Enabled Directory, Site Locators as well as benefits enrollment, broadcast faxing, call center processing, and audiotext. Domestic and International Sales for 1999 were $38.9 million, or 81%, and $8.9 million, or 19%, of total revenues, respectively, compared to $37.5 million, or 78%, and $10.5 million, or 22% of total revenues, respectively, for 1998. GROSS MARGIN The gross margin percentage for the year ended December 31, 1999 was 48% of net revenues, as compared with 53% for the year ended December 31, 1998. The gross margin on Licenses and Hardware remained flat at $10.9 million, yet the gross margin percentage increased to 64% for 1999 compared to 59% for 1998. The increase in 1999 was due to the decline in hardware sales which has a lower gross margin percentage. Gross margin was positively affected by decreases in the inventory reserve of $1.4 million and $1.1 million in the years 1999 and 1998, respectively, due to a higher than expected usage of inventory from discontinued product lines. The gross margin on Services for 1999 was $9.6 million as compared to $10.5 million in 1998, or 42% and 51%, respectively. This decline was primarily due to the increase in third party contractor expense in 1999 as we transitioned to a software-based company. Gross margin on Hosted Services decreased by $1.3 million from $3.9 million, or 44%, to $2.6 million, or 34%, in 1999 as compared to 1998 primarily caused by the relatively fixed nature of Hosted Services costs. OPERATING EXPENSES Operating expenses for 1999 were $25.8 million, a decrease of $2.7 million, or 9%, from the $28.5 million reported for 1998. Selling, marketing, and administrative expenses (including depreciation and amortization) decreased $1.5 million, or 7%, primarily due to the consolidation of the corporate structure and general cost reductions which started during the second quarter of 1999. Research and development costs decreased $1.1 million, or 20%. 1998 was impacted by the development of the Vista product which was released in May of 1998. Operating expenses decreased due to reductions of the accounts receivable reserves of $0.1 million and $0.3 million in the years 1999 and 1998, respectively. The 1999 decrease was primarily due to a lower reserve coverage needed for aged account receivables at December 31, 1999 as compared to December 31, 1998. NET INCOME (LOSS) We reported a net loss of $1.9 million, or $(.14) per share, for 1999, compared to a net loss of $2.6 million, or $(.19) per share for 1998. LIQUIDITY AND CAPITAL RESOURCES We had working capital of $6.4 million at December 31, 2000, compared to $9.9 million at December 31, 1999, and the current ratio was 1.4:1 and 1.9:1 on such dates, respectively. Cash, cash equivalents, short-term investments and marketable securities available-for-sale at the end of 2000 was $7.3 million as compared to $6.2 million at December 31, 1999. Cash provided by operating activities during 2000 was $6.8 million. Deferred revenue increased by $3.5 million due to fourth quarter payments and orders that are expected to be recognized in 2001. Cash provided from investing during 2000 was $0.3 million due to proceeds of $0.3 million received from the sale of property and equipment from our previous headquarters location, the purchase of $1.0 million in property and equipment, and $1.0 million in maturities of marketable securities. 15 18 Cash used in financing activities during 2000 was $5.8 million primarily due to the $6.5 million purchase of treasury stock and $1.1 million in proceeds from the issuance of common stock. We use a letter of credit, secured by a $75,000 certificate of deposit, to secure the lease on our Chicago facility. Accordingly, the disposal of the certificate of deposit is restricted by the letter of credit agreement. On October 11, 2000, we entered into a $4 million revolving line of credit agreement with a financial institution. The purpose for this line of credit is to fund general operations with all of our assets as collateral. The loan agreement contains various restrictions on us, including limitations on the incurrence of additional debt, and restrictions on our ability to repurchase our stock, make acquisitions, or consolidate or merge into any other entity. In addition, the loan agreement contains certain financial covenants, including a minimum interest coverage ratio, a minimum liquidity ratio, and a maximum funded senior debt to EBITDA ratio. We violated certain restricted covenants pertaining to the line of credit agreement. However, the financial institution waived these violations. At December 31, 2000, we had no outstanding borrowings under this line of credit. We expect that our current cash and cash equivalents combined with future cash flows from operating activities and the line of credit will be sufficient to support our operations during 2001. On November 13, 1998, the Board of Directors approved a stock buyback plan to purchase up to 1.5 million shares of our common stock over the following two years. We completed the buyback plan during the third quarter of 1999. On November 5, 1999, we announced a new buyback plan pursuant to which we were authorized to acquire up to 1 million shares over a one-year period. On August 8, 2000 the Board of Directors revised this plan by approving the buyback of an additional 500,000 shares and extending the buyback period to August 8, 2001. On November 10, 2000, the Board of Directors authorized an additional 500,000 share buyback with no time limitation. As of March 20, 2001, we have repurchased a total of 3,135,000 shares under these plans since November 13, 1998 and are authorized to repurchase 365,000 additional shares. OPERATING BUSINESS SEGMENTS An operating business segment is defined as a component of an enterprise that engages in business activities which may earn revenues and incur expenses, whose results are regularly reviewed by a chief operating decision maker, and for which discrete financial information is available. We have three operating business segments which are organized around differences in products and services: Licenses and Hardware, Services, and Hosted Services. See Note 12 of the "Notes to Consolidated Financial Statements" for additional information regarding our business segments. Licenses and Hardware is our operating business segment that includes our contact center software platform called Vista. Vista is an all-in-one solution for interactive voice response, interactive web response, computer telephony interaction, fax on demand, automatic speech recognition, and other applications. Services is our operating business segment that includes customer support in the areas of consulting services, project management, application development, installation, education services, and maintenance. We generally sell these services as part of the initial sale or in some cases as post implementation add-ons. This segment also includes patent litigation against third parties. Hosted Services is our operating business segment which provides products and services including Home Ticket Pay-Per-View, DialExpress, Lead Capture, Speech Enabled Directory, Site Locator, Cyberstats, and a variety of out-sourced electronic capabilities such as benefits enrollment and broadcast faxing which we offer through our subsidiary, SIS. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138 require that all derivative instruments be recorded on the balance sheet at their respective fair values. We have adopted the provisions of both SFAS No. 133 and No. 138 16 19 as of January 1, 2001, and believe that such adoption will not have a material effect on our consolidated financial statements. ITEM 7A. -- QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK INTEREST RATE RISK Our exposure to market risk for changes in interest rates relates to our cash investment portfolio. Our general policy is to limit the risk of principal loss and to ensure the safety of invested funds by limiting market and interest rate risk. We place our investments in instruments with high credit quality issuers. We classify all liquid investments with a maturity date of three months or less as cash equivalents. We classify investments with a maturity date between three and twelve months as either short-term investments or marketable securities. The average interest rate on short-term investments is 4.65%. We do not expect any material loss with respect to our cash investment portfolio since marketable securities have generally been held until maturity and unrealized gains and losses are negligible. Our only long-term liabilities are capital lease obligations at a fixed rate. Therefore, we do not believe there is any material exposure to market risk changes in interest rates as it relates to our current or long-term liabilities. FOREIGN CURRENCY EXCHANGE RATE RISK We invoice all international customers in U.S. dollars except for the customers of our United Kingdom ("U.K.") subsidiary, which are invoiced in pounds sterling. Our U.K. subsidiary's financials including balance sheet, revenue, and operating expenses are recorded in pounds sterling. Therefore, our exposure to foreign currency exchange rate risk occurs when we translate the financial results of that subsidiary to U.S. dollars in consolidation. At this time, we do not use instruments to hedge our foreign exchange exposure in the U.K. because the effects of foreign exchange rate fluctuations are not material for us. ADDITIONAL CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS Our disclosure and analysis in this Annual Report contain some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify such statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate," "likely," "expect," "intend," "believe," and other words and phrases of similar meaning in connection with any discussion of future operating or financial performance. In particular, these forward-looking statements include, for example, statements relating to future actions, prospective products, future performance, results of current and anticipated products, sales efforts, and operating expenses. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. We reasonably believe that any or all of our forward-looking statements in this Annual Report and in any other public statements we make are true at the time they are made. However, such statements may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed, and actual future results may vary materially. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to review any and all further disclosures we make on related subjects in our 10-Q and 8-K filings with the SEC and in other materials we publicly release. Also note that below is a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business. These are just some factors that we think could cause our actual results to differ materially from expected and historical results. Other factors besides those discussed below and throughout this Annual Report could also adversely affect us. This discussion is provided as permitted by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 17 20 Our markets are characterized by rapid technological changes which may cause us - -------------------------------------------------------------------------------- to incur significant development costs and prevent us from attracting new - -------------------------------------------------------------------------------- customers. - -------------------------------------------------------------------------------- The market for our products is characterized by rapid technological change, frequent new product introductions and enhancements, uncertain product life cycles and changing end-user customer demands. The introduction of products embodying new technologies and the emergence of new industry standards could render existing products and services obsolete or unmarketable and cause us to incur significant costs to develop new or enhanced products to meet the competition of such new technologies or industry standards. If we are unable to develop new products and services or if we are unable to develop such products fast enough to meet this competition, we could be prevented from attracting new customers and from retaining the installed base of customers we currently have. Such events could have a material adverse effect on our business, financial or market performance. Our future business prospects depend in part on our ability to maintain and - -------------------------------------------------------------------------------- improve our current products and services and develop new ones. - -------------------------------------------------------------------------------- We believe that our future business prospects depend in large part on our ability to maintain and improve our current products and services and to develop new products and services on a timely basis. Our products will have to achieve market acceptance, maintain technological competitiveness and meet an expanding range of end-user customer requirements. As a result of the complexities inherent in our products, major new products and product enhancements require long development and testing periods. We may not be successful in developing and marketing, on a timely and cost effective basis, product enhancements or new products that respond to technological change, evolving industry standards or end-user customer requirements. We may also experience difficulties that could delay or prevent a successful development, introduction or marketing of product enhancements, and our new products and product enhancements may not achieve market acceptance. Significant delays in the general availability of new releases of our products or significant problems in the installation or implementation of new releases of our products could have a material adverse effect on our business, financial or market performance. In addition, we cannot assure you that any new product or feature we introduce will receive market acceptance. Future announcements we make of new products may cause customers to defer purchases of our existing products, which could also adversely affect our business, financial or market performance. If the technology we license from others for embedding in our products does not - -------------------------------------------------------------------------------- continue to be available, we could be forced to modify our products or eliminate - -------------------------------------------------------------------------------- product functions. - -------------------------------------------------------------------------------- We license technology from others which we embed in some of our products. If one or more of these licenses terminates or cannot be renewed on satisfactory terms, we could be forced to modify the affected products to use alternative technology or we may be required to eliminate the affected product function, either of which alternatives could have a material adverse effect on us. In addition, should the licensors of our embedded technology cease operations or should their technology contain defects or be subject to adverse intellectual property claims, we could be adversely and materially affected. We obtain hardware components from third parties - -------------------------------------------------------------------------------- We obtain hardware components from third parties for our products, including, without limitation, telephony interface and voice recognition boards. We do not believe that we are dependent on a single source to supply the components we use in our product. We are currently able to obtain key components in a timely manner from a variety of sources. However, if we are unable to secure alternate suppliers of key components or alternate assembly sources in a timely manner when we needed them, our results of operations could be affected adversely. We depend on key personnel and on our ability to recruit additional skilled - -------------------------------------------------------------------------------- personnel, in a very competitive recruiting environment, to conduct and grow our - -------------------------------------------------------------------------------- business effectively. - -------------------------------------------------------------------------------- Our future success also depends upon our ability to attract, train, assimilate and retain qualified personnel. Competition for individuals with skills in the computer telephony software industry is intense, particularly for those with relevant technical and/or sales experience. We cannot assure you that we will be able to retain our key employees or that we can attract, train, assimilate or retain other qualified personnel in the future in the numbers we 18 21 will require. Our inability to attract and retain qualified personnel in the future could have material adverse effects on our business, financial or market performance. We have never had a work stoppage and none of our employees are represented by labor unions. However, a limited number of sales representatives are responsible for a substantial portion of our direct sales. The loss of these representatives could adversely affect our future operating results. We face competitive pressures which may have a materially adverse effect on us. - ------------------------------------------------------------------------------- The market for our computer telephony software products is highly competitive and, because there are relatively low barriers to entry in certain parts of this market, we expect competition to increase in the future. In addition, because our industry is relatively new and evolving and characterized by rapid technological change, it is difficult for us to predict whether, when and by whom new competing technologies or new competitors may be introduced into our markets. Currently, our competition comes from several different market segments, including computer telephony platform developers, computer telephony applications software developers and telecommunications equipment vendors. We cannot assure you that we will be able to compete effectively against current and future competitors. In addition, increased competition or other competitive pressures may result in price reductions, reduced margins or loss of market share, any of which could have material adverse effects on our business, financial condition or results of operations. Many of our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing, customer service and other resources, greater name recognition and a larger installed base of customers than we do. As a result, these competitors may be able to respond to new or emerging technologies and changes in customer requirements faster and more effectively than we can, or to devote greater resources to the development, promotion and sale of products than we can. Current and potential competitors have established, and may in the future establish, cooperative relationships among themselves or with third parties, including mergers or acquisitions, to increase the ability of their products to address the needs of our current or prospective end-user customers. Some of these competitors also currently have a larger market share than we do and, were they to increase their market share through such cooperative relationships, mergers or acquisitions or through product development, promotion and sale, such developments could have material adverse effects on our business, financial or market performance. Because of the competitive, rapidly changing nature of the computer telephony - -------------------------------------------------------------------------------- software industry, we must continually identify the most effective means for - -------------------------------------------------------------------------------- selling and marketing our products. - -------------------------------------------------------------------------------- The computer telephony software industry is very competitive and rapidly changing. Information technology purchasers can be reluctant to believe that new technology is ready for mass implementation. As a result, we must continually identify markets for our products and services and apply the most effective means for addressing those markets, both internationally and domestically. We are required to have a thorough understanding of the industry's direction and an appreciation for the end-user's demands for functionality. We are also required to effectively balance both direct and indirect sales channels and to train our sales force to find new customers and further develop our installed customer base while keeping thoroughly familiar with our products and product mix. If we are unable to generate increasing revenues through focused attention on these sales and marketing elements, we could cause material adverse effects on our business, financial or market performance. We may not be able to protect our proprietary rights adequately, which could - -------------------------------------------------------------------------------- allow third parties to copy or otherwise obtain and use our technology without - -------------------------------------------------------------------------------- authorization. - -------------------------------------------------------------------------------- We consider our computer telephony software products to be proprietary. In an effort to protect our proprietary rights, we rely primarily on a combination of patent, copyright, trademark and trade secret laws, as well as licensing and other agreements with others including our end-user customers, consultants, suppliers, and resellers and on employee and third-party non-disclosure agreements. These laws and agreements provide only limited protection of our proprietary rights, and the protection they provide varies and may not provide us with adequate protection in all circumstances. We have filed a patent application directed to several inventions embodied in our 19 22 computer telephony software products. We also hold 65 registered trademarks in 15 countries and 13 pending registrations. We also hold seven registered copyrights. Because our means of protecting our proprietary rights may not be adequate, it may be possible for a third party to copy or otherwise obtain and use our technology without authorization. A third party could also develop similar technology independently. Also, even though we hold patents and other proprietary rights in our products, the development and sale of our products could violate the proprietary rights of others, including the patent rights of others. Should this be or become the case, we could be required to redesign our products to avoid violating such proprietary rights, or we could be forced to acquire or license those proprietary rights. Any of such alternatives could materially increase the cost of our products and, consequently, their attractiveness to our customers. In addition, the laws of some countries in which we sell our products do not protect our software and intellectual property rights to the same extent as the laws of the United States. Unauthorized copying, use or reverse engineering of our products or the redesign of our products to avoid proprietary rights held by others or the cost of obtaining necessary technology rights could all materially adversely affect our business, financial or market performance. Comparisons of our period-to-period operating results are not necessarily - ------------------------------------------------------------------------------- meaningful. - ------------------------------------------------------------------------------- We believe that period-to-period comparisons of our operating results are not necessarily meaningful, and you should not rely on them as an indication of our future performance. In addition, our operating results in a future quarter or quarters may fall below expectations of securities analysts or investors and, as a result, the price of our common stock may fluctuate. Because we cannot predict when our potential end-user customers will place orders and finalize contracts, we cannot accurately forecast our revenues and operating results for future quarters. We recognize revenues upon satisfaction of the requirements of AICPA Statement of Position 97-2, which generally occurs in the same quarter that the order is received. As a result, our quarterly revenues and operating results depend primarily on the size, quantity and timing of orders received for our products during each quarter. If a large number of orders or several large orders do not occur or are deferred or delayed, our revenues in a quarter could be substantially reduced. Our customers could change their minds about our products, and backlog totals as - ------------------------------------------------------------------------------- of a certain date may not be indicative of actual revenues. - ------------------------------------------------------------------------------- We can give no assurance that our existing customers will continue their current buying patterns or that changes within their industries will not adversely affect our ability to retain or attract new customers. In addition, although we believe that all orders in our backlog at December 31, 2000 are firm and will be delivered within the fiscal year, customers can make changes in their orders, or they may alter or significantly delay their delivery schedules or they may even cancel their orders. Therefore, our total backlog as of any particular date may not be indicative of actual revenues for any future period. If our end-user customers do not perceive our products to be effective or high - ------------------------------------------------------------------------------- quality, our brand and name recognition will suffer. - ------------------------------------------------------------------------------- We believe that establishing and maintaining brand and name recognition is critical for attracting, retaining and expanding end-user customers in our target markets. We also believe that the importance of reputation and name recognition will increase as competition in our market increases. Promotion and enhancement of our name will depend on the effectiveness of our marketing and advertising efforts and on our success in providing high-quality products and related services and on the performance of our resellers, none of which can be assured. If our end-user customers do not perceive our product or related services or those of our resellers to be effective or of high quality, our brand and name recognition would suffer which could have a material adverse effect on our business, financial or market performance. Our products could have defects for which we are potentially liable and which - ------------------------------------------------------------------------------- could result in loss of revenue, increased costs or loss of credibility or such - ------------------------------------------------------------------------------- defects could delay acceptance of our products in the market. - ------------------------------------------------------------------------------- Our products, including components supplied by others, may contain errors or defects, especially when first introduced or when new versions are released. Despite internal product testing, errors in our new products or 20 23 releases could be found after commencement of commercial shipments. This could result in additional development costs, diversion of technical and other resources from our other development efforts, or the loss of credibility with current or future end-user customers. This could also result in a loss of revenue or a delay in market acceptance of our products, which, in turn, could have a material adverse effect upon our business, financial, or market performance. Our license agreements with our end-user customers typically contain provisions designed to limit our exposure to potential product liability and some contract claims. However, not all of these agreements contain these types of provisions but even when they do, these provisions vary as to their terms and may not be effective under the laws of some jurisdictions. A product liability, warranty, or other claim brought against us could have a material effect on our business, financial, or market performance. We may need to license third-party technologies and may be unable to do so on - ----------------------------------------------------------------------------- acceptable or any terms. - ----------------------------------------------------------------------------- To the extent we need to license third-party technologies, we may be unable to do so on commercially reasonable terms or at all. In addition, we may fail to successfully integrate licensed technology into our products or services. Third-party licenses may expose us to increased risks, including risks associated with the integration of new technology, the diversion of resources from the development of our own proprietary technology, and our inability to generate revenue from new technology sufficient to offset associated acquisition, development and maintenance costs. Our inability to obtain any of such licenses could delay our product and service development until equivalent technology can be identified, licensed and integrated. This, in turn, could adversely affect our business, financial and market performance. Pay-per-view revenues have declined and our other outsourced electronic - ---------------------------------------------------------------------------- capabilities may not supplant those lost revenues - ---------------------------------------------------------------------------- The cable TV industry has been introducing new ordering technologies for consumer purchases of pay-per-view events which do not utilize toll free 800 numbers. Consequently, we are experiencing a downward trend in transaction processing fees; a trend which we expect to continue. To offset this decline in pay-per-view services, Hosted Services is offering other, outsourced electronic capabilities including DialExpress, Lead Capture, Speech Enabled Directory, and Site Locators as well as benefits enrollment, broadcast faxing, call center processing, and audiotext. We cannot give any assurance, however, as to when, if ever, our efforts will completely supplant these declining pay-per-view revenues. Our stock price has been and could continue to be volatile. - ---------------------------------------------------------------------------- Our stock price has been and could continue to be volatile due to a number of factors including, without limitation: a. actual or anticipated fluctuations in our operating results; b. announcements by us, our competitors or our end-user customers; c. changes in financial estimates of securities analysts or investors regarding us, our industry, our competitors or our end-user customers; d. technological innovations or the introduction of new products by us or others; e. the operating and stock price performance of other comparable companies or of our competitors or end-user customers; f. revenue or earnings in any quarter fail to meet expectations of the investment community; g. the volume of our shares typically traded in any trading session; h. our purchases in the market of our own shares; 21 24 i. purchases and sales by our officers, directors, employees and affiliates; and j. general market or economic conditions. ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Independent Auditors' Report of KPMG LLP and the Consolidated Financial Statements of Syntellect Inc. and subsidiaries as of December 31, 2000 and 1999, and for each of the years in the three-year period ended December 31, 2000, follow: 22 25 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Syntellect Inc.: We have audited the accompanying consolidated balance sheets of Syntellect Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations and comprehensive income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Syntellect Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /S/ KPMG LLP Phoenix, Arizona February 7, 2001 23 26 SYNTELLECT INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2000 1999 -------- -------- ASSETS Current assets: Cash and cash equivalents ............................................................. $ 7,334 $ 6,184 Short-term investments ($75 restricted at December 31, 2000 and $100 restricted at December 31, 1999) ................................................................ 75 100 Marketable securities ($1,001 restricted at December 31, 1999) ........................ -- 1,001 Trade receivables, net of allowance for doubtful accounts of $225 and $784 at December 31, 2000 and 1999, respectively ............................................ 12,423 9,999 Other receivables ..................................................................... 9 1,406 Note receivable ....................................................................... 57 -- Inventories ........................................................................... 1,415 2,041 Prepaid expenses ...................................................................... 711 677 -------- -------- Total current assets ........................................................... 22,024 21,408 -------- -------- Property and equipment, net .............................................................. 3,814 4,787 Note receivable, non-current portion ..................................................... 270 -- Other assets ............................................................................. 993 29 -------- -------- Total assets .............................................................. $ 27,101 $ 26,224 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ...................................................................... $ 2,934 $ 1,873 Accrued liabilities ................................................................... 3,186 3,268 Customer deposits ..................................................................... 2,916 3,238 Deferred revenue ...................................................................... 6,421 2,914 Capital lease obligations ............................................................. 151 248 -------- -------- Total current liabilities ...................................................... 15,608 11,541 -------- -------- Capital lease obligations, less current portion .......................................... 316 293 -------- -------- Total liabilities .............................................................. 15,924 11,834 -------- -------- Shareholders' equity: Preferred stock, $.01 par value. Authorized 2,500,000 shares; no shares issued or outstanding ......................................................................... -- -- Common stock, $.01 par value. Authorized 25,000,000 shares; issued 14,505,298 and 13,899,487, respectively ............................................................ 145 139 Additional paid-in capital ............................................................ 62,311 61,177 Accumulated deficit ................................................................... (39,696) (41,938) Accumulated other comprehensive loss .................................................. (169) (32) -------- -------- 22,591 19,346 Treasury stock, at cost, 3,332,432 and 1,885,732 shares, respectively .................... (11,414) (4,956) -------- -------- Total shareholders' equity ..................................................... 11,177 14,390 -------- -------- Commitments and contingencies (Notes 7 and 8) Total liabilities and shareholders' equity ............................................... $ 27,101 $ 26,224 ======== ========
See accompanying notes to consolidated financial statements. 24 27 SYNTELLECT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2000 1999 1998 -------- -------- -------- Net revenues: Licenses and hardware ............................. $ 20,906 $ 17,092 $ 18,395 Services .......................................... 21,412 23,007 20,633 Hosted services ................................... 5,714 7,732 8,925 -------- -------- -------- Total net revenues ......................... 48,032 47,831 47,953 -------- -------- -------- Cost of revenues: Licenses and hardware ............................. 5,509 6,188 7,506 Services .......................................... 10,226 13,441 10,127 Hosted services ................................... 4,002 5,083 5,025 -------- -------- -------- Total cost of revenues ..................... 19,737 24,712 22,658 -------- -------- -------- Gross margin ......................................... 28,295 23,119 25,295 -------- -------- -------- Operating expenses: Selling, marketing and administrative ............. 22,824 21,343 22,924 Research and development .......................... 3,230 4,448 5,573 -------- -------- -------- Total operating expenses ................... 26,054 25,791 28,497 -------- -------- -------- Operating income (loss) .................... 2,241 (2,672) (3,202) -------- -------- -------- Other income (expense), net: Interest income, net .............................. 278 264 629 Gain on sale of Dialer product line ............... -- 509 -- Other income (expense), net ....................... (22) 33 (45) -------- -------- -------- Total other income, net .................... 256 806 584 -------- -------- -------- Income (loss) before income taxes .......... 2,497 (1,866) (2,618) Income tax expense ................................... 255 -- -- -------- -------- -------- Net income (loss) .......................... $ 2,242 $ (1,866) $ (2,618) ======== ======== ======== Earnings (loss) per common share -- basic ............ $ 0.19 $ (.14) $ (.19) ======== ======== ======== Earnings (loss) per common share -- diluted .......... $ 0.18 $ (.14) $ (.19) ======== ======== ======== Weighted average shares -- basic ..................... 11,742 13,034 13,441 ======== ======== ======== Weighted average shares -- diluted ................... 12,699 13,034 13,441 ======== ======== ======== Other comprehensive income (loss), net of tax: Foreign currency translation adjustment .......... (137) (5) 16 Unrealized gain (loss) on marketable securities .. -- (6) 12 -------- -------- -------- Other comprehensive income (loss) .................... (137) (11) 28 -------- -------- -------- Comprehensive income (loss) .......................... $ 2,105 $ (1,877) $ (2,590) ======== ======== ========
See accompanying notes to consolidated financial statements. 25 28 SYNTELLECT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK ADDITIONAL $.01 PAR PAID-IN DEFERRED ACCUMULATED SHARES VALUE CAPITAL COMPENSATION DEFICIT --------------------- ---------- ------------ ----------- Balance at January 1, 1998 ........................... 13,576,761 $136 $60,727 $(33) $(37,454) Issuance of common stock upon exercise of stock options ...... 31,193 -- 33 -- -- Issuance of common stock under employee stock purchase plan .. 91,141 1 157 -- -- Amortization of deferred compensation related to stock options -- -- -- 33 -- Net loss ..................................................... -- -- -- -- (2,618) Foreign currency translation adjustment ...................... -- -- -- -- -- Net unrealized holding gain on marketable securities ......... -- -- -- -- -- Purchase of 3,500 shares of treasury stock ................... -- -- -- -- -- ---------- ---- ------- ---- -------- Balance at December 31, 1998 ......................... 13,699,095 $137 $60,917 $ -- $(40,072) Issuance of common stock upon exercise of stock options ...... 97,825 1 158 -- -- Issuance of common stock under employee stock purchase plan ..................................................... 102,567 1 102 -- -- Net loss ..................................................... -- -- -- -- (1,866) Foreign currency translation adjustment ...................... -- -- -- -- -- Net unrealized holding loss on marketable securities ......... -- -- -- -- -- Purchase of 1,706,500 shares of treasury stock ............... -- -- -- -- -- ---------- ---- ------- ---- -------- Balance at December 31, 1999 ......................... 13,899,487 $139 $61,177 $ -- $(41,938) Issuance of common stock upon exercise of stock options ...... 494,942 5 820 -- -- Issuance of common stock under employee stock purchase plan ..................................................... 110,869 1 314 -- -- Net income ................................................... -- -- -- -- 2,242 Foreign currency translation adjustment ...................... -- -- -- -- -- Purchase of 1,425,000 shares of treasury stock ............... -- -- -- -- -- ---------- ---- ------- ---- -------- Balance at December 31, 2000 ......................... 14,505,298 $145 $62,311 $ -- $(39,696) ========== ==== ======= ==== ========
ACCUMULATED TOTAL COMPREHENSIVE TREASURY SHAREHOLDERS' INCOME (LOSS) STOCK EQUITY ------------- ---------- ------------- Balance at January 1, 1998 ........................... $ (49) $ (1,141) $ 22,186 Issuance of common stock upon exercise of stock options ...... -- -- 33 Issuance of common stock under employee stock purchase plan .. -- -- 158 Amortization of deferred compensation related to stock options -- -- 33 Net loss ..................................................... -- -- (2,618) Foreign currency translation adjustment ...................... 16 -- 16 Net unrealized holding gain on marketable securities ......... 12 -- 12 Purchase of 3,500 shares of treasury stock ................... -- (7) (7) ---------- ---------- ---------- Balance at December 31, 1998 ......................... $ (21) $ (1,148) $ 19,813 Issuance of common stock upon exercise of stock options ...... -- -- 159 Issuance of common stock under employee stock purchase plan ..................................................... -- -- 103 Net loss ..................................................... -- -- (1,866) Foreign currency translation adjustment ...................... (5) -- (5) Net unrealized holding loss on marketable securities ......... (6) -- (6) Purchase of 1,706,500 shares of treasury stock ............... -- (3,808) (3,808) ---------- ---------- ---------- Balance at December 31, 1999 ......................... $ (32) $ (4,956) $ 14,390 Issuance of common stock upon exercise of stock options ...... -- -- 825 Issuance of common stock under employee stock purchase plan ..................................................... -- -- 315 Net income ................................................... -- -- 2,242 Foreign currency translation adjustment ...................... (137) (137) Purchase of 1,425,000 shares of treasury stock ............... -- (6,458) (6,458) ---------- ---------- ---------- Balance at December 31, 2000 ......................... $ (169) $ (11,414) $ 11,177 ========== ========== ==========
See accompanying notes to consolidated financial statements. 26 29 SYNTELLECT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS)
2000 1999 1998 -------- -------- -------- Cash flows from operating activities: Net income (loss) ................................................ $ 2,242 $ (1,866) $ (2,618) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Loss on sale of property, plant, and equipment .............. 49 -- -- Depreciation and amortization ............................... 1,817 2,489 2,538 Provision for doubtful accounts ............................. 318 1,806 597 Stock option compensation expense ........................... -- -- 33 Increase in accounts receivable ............................. (1,847) (2,009) (905) (Increase) decrease in inventories .......................... 626 932 (380) Increase (decrease) in accounts payable ..................... 1,061 (687) 400 Decrease in accrued liabilities ............................. (82) (10) (2,193) Increase (decrease) in deferred revenue ..................... 3,507 197 (480) Change in other assets and liabilities ...................... (916) 447 1,772 -------- -------- -------- Net cash provided by (used in) operating activities ......... 6,775 1,299 (1,236) -------- -------- -------- Cash flows from investing activities: Purchase of marketable securities ................................ -- (14,190) (23,289) Maturities of marketable securities .............................. 1,026 21,381 23,236 Purchase of property and equipment ............................... (1,015) (1,713) (1,988) Proceeds from notes receivable ................................... -- -- 4,217 Proceeds from sale of property and equipment ..................... 254 -- -- -------- -------- -------- Net cash provided by investing activities ................... 265 5,478 2,176 -------- -------- -------- Cash flows from financing activities: Proceeds from sale of common stock ............................... 1,140 262 191 Purchase of treasury stock ....................................... (6,458) (3,808) (7) Payments on capital lease obligations ............................ (435) (278) (194) -------- -------- -------- Net cash used in financing activities ....................... (5,753) (3,824) (10) Effect of exchange rates on cash .................................... (137) (5) 16 -------- -------- -------- Net increase in cash and cash equivalents ........................... 1,150 2,948 946 Cash and cash equivalents at beginning of year ...................... 6,184 3,236 2,290 -------- -------- -------- Cash and cash equivalents at end of year ............................ $ 7,334 $ 6,184 $ 3,236 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest ...................................... $ 57 $ 47 $ 68 ======== ======== ======== Cash paid for income taxes .................................. $ 20 $ 29 $ 2 ======== ======== ======== NON-CASH INVESTING AND FINANCING ACTIVITIES: Property and equipment acquired under capital leases: $ 362 $ 134 $ 166
See accompanying notes to consolidated financial statements. 27 30 SYNTELLECT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 (1) Summary of Significant Accounting Policies Nature of Business and Principles of Consolidation Syntellect Inc. and its wholly-owned subsidiaries ("Syntellect" or the "Company") develops, markets, and integrates voice and information processing software and application software worldwide. The Company offers an inbound voice processing product line, a worldwide distribution network, and a vertical market focus in the financial services, media, telecommunications and healthcare industries. Syntellect also provides interactive transaction-based Hosted Services for those customers who prefer to outsource their voice processing applications, including cable and satellite pay-per-view orders, dial express, site locator, call redirect, and lead capture. The consolidated financial statements include the accounts of Syntellect Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Revenue Recognition Syntellect recognizes revenue from sales of Licenses and Hardware, and Services in accordance with Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions," and Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." Revenues from Hosted Services are recognized in accordance with SAB No. 101. These statements require that revenue be recognized when each of the following four conditions has been met: 1) persuasive evidence of an arrangement exists, 2) delivery has occurred or services have been rendered, 3) the seller's price to the buyer is fixed or determinable, and 4) collectibility is reasonably assured. Cash Equivalents Cash equivalents consist of money market accounts and overnight deposits with original maturities of three months or less. Short-term Investments Short-term investments are comprised of certificate of deposits with maturity dates between three and twelve months. These certificate of deposits are restricted as of December 31, 2000 and 1999. Marketable Securities Marketable securities are classified as available-for-sale. These securities are stated at estimated fair value based on market quotes with any net unrealized holding gain or loss included in the consolidated financial statements as a component of shareholders' equity until realized. 28 31 SYNTELLECT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 Inventories Inventories are stated at the lower of cost or market. Cost is primarily determined using the weighted average method. Property and Equipment Property and equipment are stated at cost. Equipment held under capital leases is stated at the lower of the present value of minimum lease payments or fair value at the inception of the lease. Property and equipment are depreciated using the straight-line method over estimated useful lives ranging from three to seven years. Equipment held under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. The Company accounts for impairment of long-lived assets under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Warranty Expense Syntellect generally provides customers with product warranties for periods ranging from one month to six months after shipment. The Company has provided a reserve for estimated warranty expense at time of sale. Product Development Development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. After technological feasibility is established, any additional costs would be capitalized in accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." Because Syntellect believes its current process for developing software is essentially completed concurrent with the establishment of technological feasibility, no costs have been capitalized to date. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 29 32 SYNTELLECT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 Stock Based Compensation In accordance with the provisions of Accounting Principals Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," the Company measures stock based compensation expense as the excess of the market price at the grant date over the amount the employee must pay for the stock. The Company's policy is to grant stock options at fair market value at the date of grant; accordingly, no compensation expense is recognized. As permitted, the Company has elected to adopt the pro forma disclosure provisions of SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS No. 123"). In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation (an interpretation of APB 25)." This interpretation clarifies the application of APB. No. 25 by clarifying the definition of an employee, the determination of non-compensatory plans and the effect of modifications to stock options. This interpretation was effective July 1, 2000 and did not have a material effect on the Company's consolidated financial statements. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138 require that all derivative instruments be recorded on the balance sheet at their respective fair values. The Company has adopted the provision of both SFAS No. 133 and No. 138 as of January 1, 2001, and believes that such adoption will not have a material effect on the Company's consolidated financial statements Reclassifications Certain 1998 and 1999 balances have been reclassified to conform to 2000 presentation. (2) Disposition of Syntellect Network Systems Inc. Subsidiary In April 1996, the Company sold its Syntellect Network Systems Inc. subsidiary ("SNS") under a stock purchase agreement with an unrelated third party. Under the agreement, the Company sold all of the issued and outstanding shares of SNS common stock for $720,000. The Company received $30,000 of the sales price in cash at closing with the remaining $690,000 to be received in 23 monthly installments of $30,000, without interest, beginning May 1996. The Company recognized the gain on this transaction on a cash collected basis. In 1998, the third party filed bankruptcy and the Company was unable to collect and recognize the balance of $180,000 in deferred gain on sale. (3) Marketable Securities The Company has classified all marketable securities as available-for-sale at December 31, 1999. The amortized cost, gross unrealized holding gains and losses and fair value of the available-for-sale securities by major security type are as follows: 30 33 SYNTELLECT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS) GROSS GROSS UNREALIZED UNREALIZED AMORTIZED HOLDING HOLDING FAIR COST GAINS LOSSES VALUE As of December 31, 1999 Mortgage-backed securities: restricted $1,001 $ -- $ -- $ 1,001 ====== ======== ========= =======
All marketable securities held at December 31, 1999 have contractual maturities of one year or less. (4) Inventories Inventories consist of the following:
(IN THOUSANDS) DECEMBER 31, 2000 1999 ------- ------- Finished goods ............................. $ 507 $ 705 Purchased components ....................... 460 611 Repair, warranty and maintenance inventories 621 1,600 ------- ------- 1,588 2,916 Less reserve for obsolescence .............. (173) (875) ------- ------- $ 1,415 $ 2,041 ======= =======
The Company contracts with several third parties to perform on-site hardware maintenance for customers in certain geographic areas. Inventory held by the Company for the third party maintenance program is included in repair, warranty and maintenance inventory. (5) Property and Equipment Property and equipment consist of the following:
(IN THOUSANDS) DECEMBER 31, 2000 1999 -------- -------- Furniture, fixtures and computer equipment ... $ 6,184 $ 6,141 Hosted Services equipment .................... 6,430 6,246 Leasehold improvements ....................... 475 528 -------- -------- 13,089 12,915 Less accumulated depreciation and amortization (9,275) (8,128) -------- -------- $ 3,814 $ 4,787 ======== ========
During 2000 and 1999, the Company wrote off certain fully depreciated property and equipment. 31 34 SYNTELLECT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (6) Accrued Liabilities Accrued liabilities consist of the following:
(IN THOUSANDS) DECEMBER 31, 2000 1999 ------ ------ Accrued compensation and benefits $1,914 $2,299 Accrued legal and accounting .... 154 226 Accrued royalties ............... 120 138 Other accrued liabilities ....... 998 605 ------ ------ $3,186 $3,268 ====== ======
(7) Credit Facilities and Lease Commitments Credit facilities: On October 11, 2000, the Company entered into a $4 million revolving line of credit agreement with a financial institution. The purpose for this line of credit is to fund general operations. At December 31, 2000, the Company violated certain restricted covenants pertaining to the line of credit agreement. However, the financial institution waived these violations. At December 31, 2000, the Company had no outstanding borrowings under the line of credit. The Company also uses a letter of credit, secured by a $75,000 certificate of deposit, to secure the lease on its Chicago facility. Capital leases consist of the following:
(IN THOUSANDS) DECEMBER 31, 2000 1999 ---- ---- Capital lease obligations with interest ranging from 9% to 10%, collateralized by equipment .................................... $ 467 $ 541 Less current portion ................................................... (151) (248) ----- ----- $ 316 $ 293 ===== =====
Equipment held under capital lease is included in property and equipment as follows:
(IN THOUSANDS) DECEMBER 31, 2000 1999 ------- ------- Furniture, fixtures and computer equipment $ 664 $ 1,203 Less accumulated amortization ............ (183) (716) ======= ======= $ 481 $ 487 ======= =======
The Company leases office facilities and various equipment under non-cancelable operating leases that expire at various dates through 2005. In March 2000, the Company entered into a five year lease for a new 37,301 square foot office facility in Phoenix. The lease commenced in July 2000 at an initial monthly rate of $63,500. Rental expense under operating leases was $1.2 million in 2000, $1.6 million in 1999, and $1.8 million in 1998. Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) and the present value of future minimum capital lease payments at December 31, 2000 are as follows: 32 35 SYNTELLECT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS) YEAR CAPITAL LEASES OPERATING LEASES ---- -------------- ---------------- 2001................................. $ 188 $1,228 2002................................. 134 1,258 2003................................. 93 1,152 2004................................. 93 1,152 2005................................. 54 1,152 ------- -------- Total minimum lease payments......... $ 562 $ 5,942 ------- ======== Less amounts representing interest... (95) -------- Net minimum lease payments........... $ 467 =======
(8) Litigation Syntellect is involved in various legal proceedings and claims arising in the ordinary course of business. The Company is not currently a party to any material pending legal proceedings. (9) Shareholders' Equity Stock Option Plans Syntellect maintains various stock option plans for employees, consultants and non-employee directors as follows: Syntellect adopted a stock option plan in 1984 that provides for the issuance of up to 1,590,000 shares of common stock to employees under incentive and non-statutory stock option grants. The plan was amended in July 1994 to include Syntellect's consultants and advisors as eligible participants. Incentive stock options may be granted at a price not less than the fair market value of the common stock at the date of grant. Non-statutory stock options may be granted with an exercise price not less than 50% of the fair market value of the common stock at the date of grant. The options generally become exercisable over a 50 month period commencing at the date of grant and expire in ten years. The plan was amended on February 17, 1998 to accelerate the vesting of outstanding options in the event of a change in control and to delete certain other language. As of December 31, 1995, all options under this plan have been granted. Syntellect adopted a long-term incentive plan effective February 1, 1995, which has been amended through June 1, 2000. The plan originally provided for the issuance of up to 750,000 shares of common stock to employees, consultants and advisors under incentive stock options, non-qualified stock options, stock appreciation rights, performance shares, restricted stock, dividend equivalents and other stock-based awards. On May 20, 1997, the number of shares authorized for issuance under the plan increased from 750,000 to 1,500,000, and on June 1, 2000 increased to 2,100,000. Incentive stock options may be granted with an exercise price to be determined by the Board of Directors, that is not less than the fair market value of the common stock at the date of grant and their terms may not exceed ten years from the date of grant. Options generally become exercisable over a 50 month period commencing at the date of grant and expire in ten years. The plan terminates in February 2005. Syntellect adopted a non-employee director stock plan in 1995 that provides for the issuance of up to 50,000 shares of common stock to eligible participants under non-qualified stock option grants. On May 21, 1998, the number of shares authorized for issuance under the plan increased from 50,000 to 150,000. Under the plan, non-employee directors are granted a one-time option to purchase 10,000 shares upon election or appointment to the Board of Directors and an annual option to purchase a specified number of additional shares. On June 1, 2000, the 33 36 SYNTELLECT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 number of additional shares specified for the annual option grant was increased from 2,000 shares per year to 5,000 shares. Options may be granted with an exercise price not less than the fair market value on the date of grant and expire six years from the date of grant. The one time grant to purchase 10,000 shares vests as follows: 24% one year after the date of grant with the remainder vesting at the rate of 2% per month over the following 38 months. The annual option grants to purchase 5,000 shares vest in full one year after the date of grant. The plan has no scheduled termination date. At December 31, 2000, 902,147 options with a weighted average exercise price of $2.45 were exercisable under the above plans at prices ranging from $0.87 to $7.00. A summary of the combined stock option activity for all plans during the three-year period ended December 31, 2000 is as follows:
OPTIONS ------------------------------------------------ WEIGHTED AVERAGE EXERCISE PRICE AVAILABLE OUTSTANDING PER FOR GRANT OPTIONS OPTION ---------- ----------- ---------------- Balance, December 31, 1997.............. 708,547 1,745,584 $ 2.92 Increase in reserved shares........ 100,000 -- -- Granted............................ (729,300) 729,300 1.77 Canceled........................... 405,219 (405,219) 3.48 Exercised.......................... -- (31,193) 1.73 Plan shares expired................ (36,788) -- -- ------- --------- Balance, December 31, 1998.............. 447,678 2,038,472 $ 2.42 Granted............................ (740,500) 740,500 1.95 Canceled........................... 656,733 (656,733) 3.01 Exercised.......................... - - (97,825) 1.63 Plan shares expired................ (4,420) -- -- ------- --------- Balance, December 31, 1999.............. 359,491 2,024,414 $ 2.09 Increase in reserved shares........ 600,000 -- -- Granted............................ (804,400) 804,400 4.95 Canceled........................... 221,475 (221,475) 2.99 Exercised.......................... -- (494,942) 1.67 Plan shares expired................ (92,986) -- -- ------- --------- Balance, December 31, 2000.............. 283,580 2,112,397 $ 3.19 ======= =========
2000 1999 1998 ---- ---- ---- Options exercisable at year-end (in thousands) .................. 902 1,135 1,156 Weighted average fair value of options granted during the year... 3.74 $ 1.21 $ 1.23
The following table summarizes information about stock options outstanding at December 31, 2000:
Weighted Average Remaining Weighted Weighted Range of Exercise Options Contractual Life Average Options Average Prices Outstanding in Years Exercise Price Exercisable Exercise Price - ------------------ ----------- ----------------- -------------- ----------- -------------- $ 0.87 -- $ 1.94 941,137 7.1 $ 1.46 531,337 $ 1.26 $ 2.25 -- $ 3.75 263,760 6.3 $ 2.90 194,288 $ 3.01 $ 4.38 -- $ 5.13 558,700 8.9 $ 4.69 88,389 $ 4.57 $ 5.25 -- $ 7.00 348,800 8.1 $ 5.64 88,133 $ 6.26 --------- --- ------ ------- ------ $ 0.87 -- $ 7.00 2,112,397 7.6 $ 3.19 902,147 $ 2.45 ========= === ====== ======= ======
34 37 SYNTELLECT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 Syntellect has adopted the disclosure-only provisions of SFAS No. 123. Had compensation cost for Syntellect's stock option grants and stock purchase plan discussed below been determined based on the fair value at the grant date, as prescribed by the provisions of SFAS No. 123, the Company's net income (loss) and net income (loss) per common share would have been:
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2000 1999 1998 --------- --------- --------- Net income (loss) -- as reported .......................................... $ 2,242 $ (1,866) $ (2,618) Net income (loss) -- pro forma ............................................ $ 970 $ (2,092) $ (3,143) Net income (loss) per common share -- basic as reported ................... $ 0.19 $ (0.14) $ (0.19) Net income (loss) per common share -- pro forma ........................... $ 0.08 $ (0.16) $ (0.23)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: Expected dividend yield.................................. 0% 0% 0% Expected stock price volatility.......................... 95% 87% 87% Risk-free interest rate.................................. 6.17% 5.98% 5.7% Expected life of options................................. 5 years 5 years 2.35 years
Employee Stock Purchase Plan Syntellect has an employee stock purchase plan that provides for the purchase of up to 800,000 shares of common stock. The number of shares was increased by 400,000 as approved by the shareholders on May 21, 1998. Under the plan, eligible participants may purchase common stock semi-annually at the lower of 85% of the fair market value on either the first day or last day of the offering period, whichever is lower. During 2000, 52,087 and 58,782 shares were purchased at $2.55 and $3.08 per share, respectively. During 1999, 57,101 and 45,466 shares were purchased at $0.96 and $1.06 per share, respectively. During 1998, 49,825 and 41,316 shares were purchased at $1.59 and $1.91 per share, respectively. At December 31, 2000, 123,360 shares of common stock were available for issuance under the plan. Amounts that would be expensed under SFAS No. 123 are included in pro forma net income (loss) above. (10) Employee Benefit Plans Effective January 1, 1997, Syntellect adopted a 401(k) plan covering all eligible employees of the Company. Under the plan, participants may contribute up to 15% of their total compensation, subject to certain limitations. For the years ended December 31, 1999 and 1998, the Company provided matching contributions equal to one third of employee contributions up to a maximum of 7% of the employee's total compensation. In November 1999, the Board of Directors moved to amend the plan so as to qualify it as a 401(k) Safe Harbor Plan, effective January 1, 2000. Per the amendment, the Company matched each employee's elective deferral up to 4% of compensation, subject to Internal Revenue Service limitations, for the year 2000 and will continue to do so. All such qualified matchings are immediately 100% vested. Syntellect made matching contributions to the 401(k) plan of $451,000 in 2000, $260,000 in 1999, and $249,000 in 1998. The matching contribution is subject to annual review and adjustment by the Board of Directors. Additional discretionary contributions may also be made to the plan in amounts determined by the Board of Directors. 35 38 SYNTELLECT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (11) Income Taxes The provision for income taxes includes income taxes currently payable (receivable) and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future and any increase or decrease in the valuation allowance for deferred income tax assets. Income (loss) before income tax expense for the years ended December 31, 2000, 1999 and 1998 consists of the following:
(IN THOUSANDS) 2000 1999 1998 ------- ------- ------- U.S. operations ........ $ 1,270 $(2,938) $(3,603) International operations 972 1,072 985 ------- ------- ------- $ 2,242 $(1,866) $(2,618) ======= ======= =======
The components of income tax expense are as follows:
(IN THOUSANDS) 2000 1999 1998 ------ -------- -------- Federal................ $ 69 $ -- $ -- Foreign................ 186 -- -- State.................. -- -- -- ------ -------- -------- $ 255 $ -- $ -- ====== ======== ======== Current................. $255 -- -- Deferred................ -- -- -- ------ -------- -------- $ 255 $ -- $ -- ====== ======== ========
Income tax expense differed from the amounts computed by applying the statutory U.S. federal income tax rate of 34% to income (loss) before income taxes as a result of the following:
(IN THOUSANDS) 2000 1999 1998 ------- ------- ------- Computed "expected" income tax expense (benefit) ............................ $ 849 $ (634) $ (890) Increase (decrease) in income tax expense resulting from: State income tax benefit net of federal income tax effect .............. -- -- (146) Increase (decrease) in valuation allowance ............................. (675) 916 1,349 Utilization of foreign net operating losses not previously recognized .. -- (364) (306) Other, net ............................................................. 81 82 (7) ------- ------- ------- Total income tax expense .......................................... $ 255 $ -- $ -- ======= ======= =======
The income tax effects of temporary differences that give rise to the Company's deferred income tax assets are as follows: 36 39 SYNTELLECT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS) 2000 1999 -------- -------- Deferred income tax assets: Net operating loss and tax credit carry-forwards ........ $ 13,863 $ 13,402 Warranty and inventory allowances ....................... 104 1,086 Accrued expenses ........................................ 810 747 Allowance for doubtful accounts ......................... 82 321 Property and equipment due to differences in depreciation 28 -- -------- -------- Gross deferred income tax assets ........................ 14,887 15,556 -------- -------- Less valuation allowance ................................ (14,887) (15,556) -------- -------- Net deferred income tax asset ........................... $ -- $ -- ======== ========
The decrease and increase in the valuation allowance for the net deferred income tax asset for the years ended December 31, 2000 and 1999 were $ 669,000 and $916,000 respectively. Under SFAS No. 109, deferred income tax assets and liabilities are recognized for differences between the financial statement carrying amounts and the tax bases of assets and liabilities which will result in future deductible or taxable amounts and for net operating loss and tax credit carry-forwards. A valuation allowance is then established to reduce the deferred income tax assets to the level at which it is "more likely than not" that the income tax benefits will be realized. Realization of income tax benefits of deductible temporary differences and operating loss and tax credit carry-forwards depends on having sufficient taxable income within the carry-back and carry-forward periods. Sources of taxable income that may allow for realization of income tax benefits include (1) taxable income in the current year or prior years that is available through carry-back, (2) future taxable income that will result from the reversal of existing taxable temporary differences, and (3) future taxable income generated by future operations. As of December 31, 2000 the Company had net operating loss, investment tax credit, alternative minimum tax credit and research and development tax credit carry-forwards of approximately $31.2 million, $15,000, $152,000, and $1.2 million, respectively, which expire at various dates through the year 2019. (12) Business Segments, Geographic Data and Major Customers Syntellect develops, markets, and integrates voice and information processing systems and application software worldwide. The Company offers a diversified product line which includes inbound voice processing, a worldwide distribution network, and a vertical market focus on the financial services, media, telecommunications and healthcare industries. The Company also provides Hosted Services for those customers who prefer to outsource their voice processing applications. In addition to its primary office facility in Phoenix, the Company also maintains five sales offices in the United States and one in London. Effective for financial statements for fiscal periods beginning after December 15, 1997, Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," requires that an enterprise disclose certain information about operating business segments. The Company evaluates its business and allocates resources based on revenues and income (loss) by segment. An operating business segment is defined as a component of an enterprise that engages in business activities which may earn revenues and incur expenses, whose results are regularly reviewed by a chief operating decision maker, and for which discrete financial information is available. The Company has three operating business segments in 2000, 1999 and 1998 which are organized around differences in products and services: Licenses and Hardware; Services; and Hosted Services. 37 40 SYNTELLECT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS) LICENSES & HOSTED YEAR ENDED DECEMBER 31, 2000 HARDWARE SERVICES SERVICES TOTAL - ---------------------------- -------- -------- -------- ----- Revenues from customers $ 20,906 $ 21,412 $ 5,714 $ 48,032 Depreciation and amortization 811 406 600 1,817 Segment income (loss) before income taxes 2,343 742 (588) 2,497 Expenditures for segment assets 557 274 184 1,015 AS OF DECEMBER 31, 2000 Segment assets $ 13,566 $ 10,316 $ 3,219 $ 27,101 Capital lease obligation 312 155 -- 467 YEAR ENDED DECEMBER 31, 1999 Revenues from customers $ 17,092 $ 23,007 $ 7,732 $ 47,831 Depreciation and amortization 1,311 656 522 2,489 Segment loss before income taxes (1,540) (42) (284) (1,866) Expenditures for segment assets 561 276 876 1,713 AS OF DECEMBER 31, 1999 Segment assets $ 11,956 $ 10,542 $ 3,726 $ 26,224 Capital lease obligation 362 179 -- 541 YEAR ENDED DECEMBER 31, 1998 Revenues from customers $ 18,395 $ 20,633 $ 8,925 $ 47,953 Depreciation and amortization 1,268 625 645 2,538 Segment income (loss) before income taxes (3,829) 311 900 (2,618) Expenditures for segment assets 719 354 915 1,988 AS OF DECEMBER 31, 1998 Segment assets $ 16,208 $ 12,094 $ 3,831 $ 32,133 Capital lease obligation 459 226 -- 685
Net revenues, by geographic area, for the three-year period ended December 31, 2000 are as follows:
(IN THOUSANDS) Geographic Area 2000 1999 1998 --------------- ------- ------- ------- United States $33,257 $38,885 $37,471 United Kingdom 13,901 8,335 8,448 Other 874 611 2,034 ------- ------- ------- $48,032 $47,831 $47,953 ======= ======= =======
No single customer accounted for more than 10% of the Company's revenues in 2000, 1999 or 1998. 38 41 SYNTELLECT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 Long lived assets, by geographic area, for the two-year period ended December 31, 2000 are as follows:
(IN THOUSANDS) Geographic Area 2000 1999 --------------- ------ ------ United States $3,692 $4,579 United Kingdom 122 208 ------ ------ $3,814 $4,787 ====== ======
The Company conducted business with a major media company who was also a significant shareholder of the Company during the year ended 1998. Revenues from this customer in 1998 were $1.4 million, $0.8 million in 1999, and $0.1 million in 2000. (13) Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," requires that Syntellect disclose estimated fair values for its financial instruments. The carrying amount of cash and cash equivalents approximates fair value because their maturity is generally less than three months. The carrying amount of short-term investments approximates fair value due to the liquidity of the investments and their maturities which are less than or equal to twelve months. The fair value of marketable securities classified as available-for-sale is based on quoted market prices at the reporting date for those or similar investments. The carrying amount of accounts receivable, accounts payable and accrued liabilities approximates fair value as they are expected to be collected or paid within 90 days of year-end. (14) Supplemental Financial Information A summary of additions and deductions related to the allowances for accounts receivable and inventories for the years ended December 31, 2000, 1999 and 1998 follows:
(IN THOUSANDS) CHARGED BALANCE AT TO COSTS BALANCE BEGINNING AND AT END OF YEAR EXPENSES DEDUCTIONS OF YEAR ---------- -------- ---------- ------- Allowance for doubtful accounts: 2000 $ 784 $ 318 $ (877) $ 225 1999 $ 932 $ 1,806 $(1,954) $ 784 1998 $ 1,199 $ 597 $ (864) $ 932
39 42 SYNTELLECT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 (15) Quarterly Results of Operations (Unaudited)
Year ended December 31, 2000 (in thousands) First Quarter Second Quarter Third Quarter Fourth Quarter - ------------------------------------------------------------------------------------------------------------- Net revenues $12,718 $ 12,061 $ 11,695 $ 11,558 Gross profit 6,867 7,490 7,065 6,873 Operating income (loss) 1,210 833 394 (196) Net income (loss) 1,197 1,001 476 (432) Basic net income (loss) per share .10 .08 .04 (.04) Diluted net income (loss) per share .09 .08 .04 (.04)
Year ended December 31, 1999 First Quarter Second Quarter Third Quarter Fourth Quarter - ------------------------------------------------------------------------------------------------------------- Net revenues $ 11,248 $ 11,012 $ 14,057 $ 11,514 Gross profit 5,098 4,507 7,639 5,875 Operating income (loss) (1,669) (2,838) 1,586 249 Net income (loss) (1,589) (2,739) 2,133 329 Basic net income (loss) per share (.12) (.20) .16 .03 Diluted net income (loss) per share (.12) (.20) .16 .03
Net revenues for the quarter ended September 30, 2000 as originally filed on Form 10-Q were $12,424 and are hereby restated to $11,695. This is to reflect accounting standards guidelines governing revenue recognition from the sale of licensing of software that require $654 to be recognized in the fourth quarter of 2000 and $75 in 2001 or when earned. 40 43 ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding our continuing directors and nominees is set forth under the caption "Information Concerning Directors and Nominees" in our Proxy Statement for our 2001 Annual Meeting of Stockholders (the "2001 Proxy Statement") which we are incorporating by reference into this Annual Report. We have set forth information concerning our executive officers in Part I of this Annual Report and information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in our 2001 Proxy Statement. With the exception of the foregoing information and other information specifically incorporated by reference into this Annual Report, we are not filing the 2001 Proxy Statement as a part of this Annual Report. ITEM 11 -- EXECUTIVE COMPENSATION We are incorporating by reference in this Annual Report the information available under the caption "Executive Compensation" in our 2001 Proxy Statement. We are not incorporating by reference, however, the information found under caption "Board Compensation Committee Report on Executive Compensation" and "Stock Price Performance Graph" in our 2001 Proxy Statement. ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT We are incorporating by reference in this Annual Report the information regarding security ownership of certain of our beneficial owners and management furnished under the caption "Security Ownership of Certain Beneficial Owners and Management" in our 2001 Proxy Statement. ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS - INDEX TO CONSOLIDATED FINANCIAL STATEMENTS The following Consolidated Financial Statements of Syntellect Inc. and subsidiaries, related notes, and independent auditors report are filed as part of this Annual Report: 41 44
PAGE NUMBERS IN OUR 2000 ANNUAL REPORT Independent Auditors' Report -- KPMG LLP 23 Consolidated Balance Sheets -- December 31, 2000 and 1999 24 Consolidated Statements of Operations and Comprehensive Income -- Years ended December 31, 2000, 1999 and 1998 25 Consolidated Statements of Shareholders' Equity -- Years ended December 31, 2000, 1999 and 1998 26 Consolidated Statements of Cash Flows -- Years ended December 31, 2000, 1999 and 1998 27 Notes to Consolidated Financial Statements 28
(a) 2. FINANCIAL STATEMENT SCHEDULES All schedules have been omitted because the information required to be set forth therein is not applicable or is included in the Consolidated Financial Statements or notes thereto. (a) 3. EXHIBITS
EXHIBIT PAGE NUMBERS IN OUR 2000 ANNUAL REPORT OR NO. DESCRIPTION METHOD OF FILING ------- ----------- ------------------------------------------ (2)(i) Agreement and Plan of Reorganization as of Incorporated by reference to Exhibit No. 2 to December 6, 1995, between Syntellect Inc., Syntellect's Registration Statement on Syntellect Acquisition Co., and Pinnacle Form S-4 dated February 9, 1996 (the "S-4") Investment Associates Inc. (2)(ii) Form of Affiliate Agreement between Syntellect Incorporated by reference to Exhibit No. 10.10 Inc. and affiliates of Pinnacle Investment to Syntellect's S-4 Associates Inc. (3)(i)(a) Restated Certificate of Incorporation of Incorporated by reference to Exhibit No. 3-A Registrant, filed with the Delaware Secretary of to Syntellect's Registration Statement on State on April 2, 1990 Form S-1 dated February 23, 1995 (the "S-1") (3)(i)(b) Certificate of Amendment to Restated Certificate Incorporated by reference to Exhibit of Incorporation of Registrant, filed with the No. 3.1(b) to Syntellect's S-4 Delaware Secretary of State on May 18, 1993 (3)(i)(c) Certificate of Amendment to Restated Certificate Incorporated by reference to Exhibit 3.1(c) to of Incorporation of Registrant filed with the Syntellect's 1995 Form 10-K Delaware Secretary of State on March 14, 1996 (3)(ii) Amended and Restated Bylaws of Registrant as of Filed Herewith February 13, 2001 (4) Specimen Certificate representing Common Stock Incorporated by reference to Exhibit No. 4 to Amendment No. 1 of Syntellect's S-1 (10)(i) Syntellect Inc. Restated Stock Option Plan (as Filed Herewith amended through February 17, 1998) (10)(ii) Syntellect Inc. 1990 Employee Stock Purchase Plan Filed Herewith (as amended through May 21, 1998) (10)(iii) Syntellect Inc. Long-term Incentive Plan (as Filed Herewith amended through June 1, 2000) (10)(iv) Syntellect Inc. Executive 401(K) Plan Filed Herewith
42 45 (10)(v) Syntellect Inc. Nonemployee Director Stock Plan (as Filed Herewith amended through June 1, 2000) (10)(vi) Lease Agreement dated March 6, 2000 between Denali Filed Herewith National Trust, Inc. and Syntellect Inc. for an office facility in Phoenix, Arizona (10)(vii) Form of Indemnification Agreement between Incorporated by reference to Exhibit No. 10-L Syntellect and its directors and officers to Syntellect's S-1 (10)(viii) Form of Registration Rights Agreement Incorporated by reference to Exhibit 10.13 to Syntellect's S-4 (11) Statement Regarding Computation of Net Income (Loss) Filed Herewith Per Share (21) Subsidiaries of Registrant Filed Herewith (23) Consents of Experts Filed Herewith
(b) REPORTS ON FORM 8-K. No Report on Form 8-K was filed during 2000. 43 46 Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Syntellect has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. SYNTELLECT INC. By: /S/ TIMOTHY P. VATUONE ------------------------------------ Timothy P. Vatuone Vice President, Chief Financial Officer, Secretary and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons in the capacities of the dates indicated.
NAME AND SIGNATURE TITLE DATE: ------------------ ----- ----- /S/ Anthony V. Carollo Chairman of the Board, Chief March 29, 2001 - ----------------------------- Executive Officer, President, and ANTHONY V. CAROLLO Director (Principal Executive Officer) /S/ Timothy P. Vatuone Vice President, Chief Financial March 29, 2001 - ----------------------------- Officer, Secretary and Treasurer TIMOTHY P. VATUONE (Principal Financial Officer) /S/ Charles F. Sonneborn III Vice President and Controller March 29, 2001 - ----------------------------- (Principal Accounting Officer) CHARLES F. SONNEBORN III /S/ William P. Conlin Director March 29, 2001 - ----------------------------- WILLIAM P. CONLIN /S/ Michael R. Bruce Director March 29, 2001 - ----------------------------- MICHAEL R. BRUCE /S/ Michael D. Kaufman Director March 29, 2001 - ----------------------------- MICHAEL D. KAUFMAN
44 47 INDEX TO EXHIBITS
EXHIBIT PAGE NUMBERS IN OUR 2000 ANNUAL REPORT OR NO. DESCRIPTION METHOD OF FILING ------- ----------- ------------------------------------------ (2)(i) Agreement and Plan of Reorganization as of Incorporated by reference to Exhibit No. 2 to December 6, 1995, between Syntellect Inc., Syntellect's Registration Statement on Syntellect Acquisition Co., and Pinnacle Form S-4 dated February 9, 1996 (the "S-4") Investment Associates Inc. (2)(ii) Form of Affiliate Agreement between Syntellect Incorporated by reference to Exhibit No.10.10 Inc. and affiliates of Pinnacle Investment to Syntellect's S-4 Associates Inc. (3)(i)(a) Restated Certificate of Incorporation of Incorporated by reference to Exhibit No. 3-A Registrant, filed with the Delaware Secretary of to Syntellect's Registration Statement on State on April 2, 1990 Form S-1 dated February 23, 1995 (the "S-1") (3)(i)(b) Certificate of Amendment to Restated Certificate Incorporated by reference to Exhibit of Incorporation of Registrant, filed with the No. 3.1(b) to Syntellect's S-4 Delaware Secretary of State on May 18, 1993 (3)(i)(c) Certificate of Amendment to Restated Certificate Incorporated by reference to Exhibit 3.1(c) to of Incorporation of Registrant filed with the Syntellect's 1995 Form 10-K Delaware Secretary of State on March 14, 1996 (3)(ii) Amended and Restated Bylaws of Registrant as of Filed Herewith February 13, 2001 (4) Specimen Certificate representing Common Stock Incorporated by reference to Exhibit No. 4 to Amendment No. 1 of Syntellect's S-1 (10)(i) Syntellect Inc. Restated Stock Option Plan (as Filed Herewith amended through February 17, 1998) (10)(ii) Syntellect Inc. 1990 Employee Stock Purchase Plan Filed Herewith (as amended through May 21, 1998) (10)(iii) Syntellect Inc. Long-term Incentive Plan (as Filed Herewith amended through June 1, 2000) (10)(iv) Syntellect Inc. Executive 401(K) Plan Filed Herewith (10)(v) Syntellect Inc. Nonemployee Director Stock Plan (as Filed Herewith amended through June 1, 2000) (10)(vi) Lease Agreement dated March 6, 2000 between Denali Filed Herewith National Trust, Inc. and Syntellect Inc. for an office facility in Phoenix, Arizona (10)(vii) Form of Indemnification Agreement between Incorporated by reference to Exhibit No. 10-L Syntellect and its directors and officers to Syntellect's S-1 (10)(viii) Form of Registration Rights Agreement Incorporated by reference to Exhibit 10.13 to Syntellect's S-4 (11) Statement Regarding Computation of Net Income (Loss) Filed Herewith Per Share (21) Subsidiaries of Registrant Filed Herewith (23) Consents of Experts Filed Herewith
EX-3.II 2 p64736ex3-ii.txt EX-3.II 1 EXHIBIT (3)(ii) BY-LAWS OF SYNTELLECT INC. AS AMENDED AND RESTATED THROUGH FEBRUARY 13, 2001 45 2 AMENDED AND RESTATED BY-LAWS OF SYNTELLECT INC. ARTICLE 1. OFFICES Section 1.01 REGISTERED OFFICE. The corporation shall maintain an office within the State of Delaware, which shall be the office of its registered agent. Section 1.02 OTHER OFFICES. The corporation may have other offices either within or without the State of Delaware at such place or places as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE 11. MEETINGS OF STOCKHOLDERS Section 2.01 ANNUAL MEETINGS. Annual meetings of stockholders for the election of directors and for such other business as may properly come before the meeting, shall be held at such place, either within or without the State of Delaware, and at such time and date as the Board of Directors, by resolution, shall determine and as set forth in the notice of the meeting. At each annual meeting, the stockholders entitled to vote shall elect a Board of Directors and may transact such other corporate business as may properly come before the meeting. Section 2.02 OTHER MEETINGS. Meetings of stockholders for any purpose other than the election of directors may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting. Section 2.03 VOTING. Except as otherwise provided in the Certificate of Incorporation, each stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation and in accordance with the provisions of these By-laws shall be entitled to one vote, in person or by proxy, for each share of common capital stock held by such stockholder. No proxy shall be voted after three years from its date unless such proxy provides for a longer period. Upon demand of any stockholder or director, the vote for directors and the vote upon any question before the meeting shall be by ballot. In the absence of such demand, voting may be by voice vote. All elections for directors shall be decided by plurality vote of the shares present at the meeting in person or by proxy and entitled to vote on the election of directors, meaning that those nominees with the highest number of votes shall be elected. All other matters shall be decided by majority vote of the shares present at the meeting in person or by proxy and entitled to vote on such matters, unless otherwise required by the Certificate of Incorporation or the laws of the State of Delaware. A complete list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order, with the address of each, and the number of shares held by each, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.04 QUORUM. Except as otherwise required by law, by the Certificate of Incorporation or by these By-laws, the presence, in person or by proxy, of stockholders holding a majority of the stock of the corporation entitled to vote shall constitute a quorum at all meetings of the stockholders. In case a quorum shall not be present at any meeting, a majority in interest of the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the 46 3 meeting, until a quorum shall be present. At any such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed; but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof. Section 2.05 SPECIAL MEETINGS. Special meetings of the stockholders of the Corporation, for any purpose or purposes, unless otherwise prescribed herein or by statute, may be called by the Chairman of the Board and shall be called by the Secretary at the written request, or by resolution adopted by the affirmative vote, of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. Stockholders of the Corporation shall not be entitled to request a special meeting of the stockholders. Section 2.06 NOTICE OF MEETINGS. Written notice, stating the place, date and time of the meeting, and the general nature of the business to be considered, shall be given to each stockholder entitled to vote thereat at his address as it appears on the records of the corporation, not less than ten or more than sixty days before the date of the meeting. Section 2.07 CIRCUMSTANCES UNDER WHICH NOMINATION OF DIRECTORS BY STOCKHOLDERS IS PERMITTED. Any stockholder entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if written notice of such stockholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the corporation not later than (i) with respect to an election to be held at an annual meeting of stockholders, 90 days in advance of such meeting and (ii) with respect to any election to be held at a special meeting of stockholders for the election of directors, the close of business on the seventh. day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting (including the number of shares of stock of the corporation owned beneficially or of record by such stockholder and the nominee or nominees) and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder including whether either the stockholder or the person or persons to be nominated is an "affiliate" or "associate" of an "interested stockholder" as such terms are defined in the Securities Exchange Act of 1934, and the identity of such interested stockholder; (d) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the written consent of each nominee to serve as a director of the corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Section 2.08 STOCKHOLDER PROPOSALS. At any annual or special meeting of stockholders, proposals by stockholders shall be considered only if advance notice thereof has been timely given as provided herein and such proposals are otherwise proper for consideration under applicable law and the Certificate of Incorporation and By-laws of the Corporation. Notice of any proposal to be presented by any stockholder at any meeting of stockholders shall be delivered, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation at its principal executive office (i) with respect to an annual meeting of stockholders, not less than 90 days nor more than 120 days prior to the date of such meeting, and (ii) with respect to a special meeting of stockholders, not later than the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Any stockholder who gives notice of any such proposal shall deliver therewith the text of the proposal to be presented and a brief written statement of the reasons why such stockholder favors the proposal and setting forth such stockholder's name and address, the number and class of all shares of each class of stock of the Corporation beneficially owned by such stockholder and any material interest of such stockholder in the proposal (other than as a stockholder). As used herein, shares "beneficially owned" shall mean all shares as to which such person, together with such person's affiliates and associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934), may be deemed to beneficially own pursuant to Rules 13d-3 and 47 4 13d-5 under the Securities Exchange Act of 1934, as well as all shares as to which such person, together with such person's affiliates and associates, has the right to become the beneficial owner of pursuant to any agreement or understanding, or upon the exercise of warrants, options or rights to convert or exchange (whether such rights are exercisable immediately or only after the passage of time or the occurrence of conditions). The person presiding at the meeting, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall determine whether such notice has been duly given and shall direct that proposals not be considered if such notice has not been given. ARTICLE III. DIRECTORS Section 3.01 NUMBER. The number of directors of this Corporation shall be a minimum of three (3) and a maximum of twelve (12) persons. The Board of Directors shall have sole authority to determine the number of directors, within the limits set forth herein, and may increase or decrease the exact number of directors from time to time by resolution duly adopted by such Board. No decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Section 3.02 CLASSIFICATION OF BOARD. The Board of Directors shall be divided into three classes, in respect to term of office, each class to contain as nearly as possible one third (1/3) of the whole number of the Board. The term of office of the first class shall expire at the next succeeding annual meeting, of the second class one year thereafter, and the third class two years thereafter, and at each annual election, directors shall be chosen for a full term to succeed those whose terms expire. Section 3.03 RESIGNATIONS. Any director, member of a committee or other officer may resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective. Section 3.04 VACANCIES. Vacancies on the Board and newly created directorships resulting from any increase in the authorized number of directors, may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at any time, the corporation has no directors in office, then any officer or stockholder, or an executor, administrator, trustee or guardian of a stockholder, may call a special meeting of stockholders for the purpose of filling vacancies in the Board of Directors. Section 3.05 POWERS. The Board of Directors shall exercise all of the powers of the corporation except such as are by law, or by the Certificate of Incorporation of the corporation or by these By-laws conferred upon or reserved to the stockholders. Section 3.06 MEETINGS. Regular meetings of the directors may be held without notice at such place and times as shall be determined from time to time by resolution of the directors. Special meetings of the board may be called by the Chairman of the Board or the President or by the Secretary upon receipt of a written request from two directors. Notice of such special meeting shall be given at least two days in advance of the meeting to each director, and shall be held at such place or places as shall be stated in the notice of the meeting. Members of the Board of Directors or any committee designated by such Board may participate in a meeting of the Board or Committee by means of telephone conference or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation pursuant to this section shall constitute presence at such meeting. Section 3.07 QUORUM. A majority of the directors shall constitute a quorum for the transaction of business. If at any meeting of the board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no other notice thereof need be given other than by announcement at the meeting which shall be so adjourned. Section 3.08 COMPENSATION. Directors shall not receive any stated salary for their services as directors or as members of committees, but by resolution of the board a fixed fee and expenses of attendance may be 48 5 allowed for attendance at each meeting. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent or otherwise, and receiving compensation therefor. Section 3.09 ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the board, or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the board or committee. Section 3.10 EXECUTIVE COMMITTEE. The Board may establish an Executive Committee consisting of no less than three (3) members. The Chairman of the Board or the President shall be a member of the Executive Committee. In addition, the Board of Directors shall elect from its members the remaining members of the Executive Committee. The Executive Committee shall have and may exercise in the intervals between the meetings of the Board of Directors, all the powers of the whole Board of Directors in its management of the affairs and business of the Corporation, except the power or authority to: (a) amend the Certificate of Incorporation; (b) adopt any agreement of merger or consolidation; (c) recommend to stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets; (d) recommend to stockholders a dissolution of the Corporation or a revocation of a dissolution; (e) amend the By-laws; (f) appoint or remove a member of any committee established by the Board of Directors, fill vacancies on the Board of Directors, remove an officer elected by the Board of Directors, or raise or lower any officer's salary; or (g) declare dividends or authorize the issuance of stock. Meetings of the Executive Committee may be called at any time by the Chairman of the Board or President, as appropriate, and shall be held at the general office of the Corporation or at such other place, within or without the State of Delaware, as the Chairman of the Board or President, as appropriate, may designate, on not less than one (1) day's notice to each member of the Executive Committee, given either personally by telephone, by mail, by telegram or by telex. Section 3.11 OTHER COMMITTEES. The Board of Directors may, by resolution or resolutions adopted by the affirmative vote of a majority of the whole Board of Directors, designate one or more other committees, each committee to consist of two or more directors, which to the extent provided in said resolution or resolutions shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolutions adopted by the Board of Directors. Section 3.12 COMMITTEES IN GENERAL. Except as otherwise provided in these By-laws, each committee shall adopt its own rules governing the time, place and method of holding its meetings and the conduct of its proceedings and shall meet as provided by such rules or by resolution of the Board of Directors. Unless otherwise provided by these By-laws or any such rules or resolutions, notice of the time and place of each meeting of a committee shall be given to each member of such committee as provided in Section 3.06 of these By-laws with respect to notices of special meetings of the Board of Directors. Each committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. Any member of any committee, other 49 6 than a member thereof serving ex-officio, may be removed from such committee either with or without cause, at any time, by resolution adopted by the affirmative vote of a majority of the whole Board of Directors at any meeting thereof. Any vacancy in any committee shall be filled by the Board of Directors in the manner prescribed by these By-laws for the original appointment of the members of such committee. ARTICLE IV. OFFICERS Section 4.01 OFFICERS. The officers of the corporation shall be a Chairman of the Board of Directors, a Chief Executive Officer, a President, a Treasurer, and a Secretary, all of whom shall be elected by the Board of Directors and who shall hold office until their successors are elected and qualified. In addition, the Board of Directors may elect one or more Vice Presidents and such Assistant Secretaries and Assistant Treasurers as they may deem proper. None of the officers of the corporation need be directors. The officers shall be elected at the first meeting of the Board of Directors after each annual meeting. Two or more offices may be held by the same person. Section 4.02 OTHER OFFICERS AND AGENTS. The Board of Directors may appoint such other officers and agents as it may deem advisable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 4.03 CHAIRMAN OF THE BOARD. The Chairman of the Board shall report to the Board of Directors and shall have such powers and duties as are delegated to him by the Board. In addition, he shall preside at meetings of the stockholders and of the Board of Directors. Section 4.04 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall report to the Board of Directors, shall have the general powers and duties of supervision, direction and management of the affairs and business of the Corporation usually vested in the chief executive officer of a corporation and shall have other powers and perform such other duties as are delegated to him by the Board of Directors. He shall have supervision, control and direction of all other officers of the Corporation subordinate to him. Section 4.05 PRESIDENT. The President shall report to the Board of Directors, shall be the chief operating officer of the Corporation, shall have the general powers and duties of supervision and management usually vested in the office of the President and chief operating officer of a corporation and shall have such other powers and duties as are delegated to him by the Board of Directors. Section 4.06 VICE PRESIDENT. Each Vice President shall have such powers and shall perform such duties as shall be assigned to him by the directors. Section 4.07 TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the corporation. He shall deposit all moneys and other valuables in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors, or the President or Chairman, taking proper vouchers for such disbursements. He shall render to the President and Board of Directors at the regular meetings of the Board of Directors, or whenever they may request it, an account of all his transactions as Treasurer and of the financial condition of the corporation. If required by the Board of Directors, he shall give the corporation a bond for the faithful discharge of his duties in such amount and with such surety as the board shall prescribe. Section 4.08 SECRETARY. The Secretary shall give, or cause to be given, notice of all meetings of stockholders and directors, and all other notices required by law or by these By-laws, and in case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the President, or by the directors, or stockholders, upon whose requisition the meeting is called as provided in these By-laws. He shall record all the proceedings of the meetings of the corporation and of the directors in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him by the directors or the President. He shall 50 7 have the custody of the seal of the corporation and shall affix the same to all instruments requiring it, when authorized by the directors or the President, and attest the same. Section 4.09 ASSISTANT TREASURERS & ASSISTANT SECRETARIES. Assistant Treasurers and Assistant Secretaries, if any, shall be elected and shall have such powers and shall perform such duties as shall be assigned to them, respectively, by the directors. ARTICLE V. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 5.01 GENERAL. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal administrative, or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contenders or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 5.02 DERIVATIVE ACTIONS. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 5.03 INDEMNIFICATION IN CERTAIN CASES. To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 5.01 and 5.02, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 5.04 PROCEDURE. Any indemnification under Sections 5.01 and 5.02 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in such Sections 5.01 and 5.02. Such determination shall be made (a) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (b) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (c) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (d) by the stockholders. Section 5.05 ADVANCES FOR EXPENSES. Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or 51 8 proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall be ultimately determined that he is not entitled to the indemnified by the corporation as authorized in this Article V. Section 5.06 RIGHTS NOT EXCLUSIVE. The indemnification and advancement of expenses provided by or granted pursuant to, the other Sections of this Article V shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any law, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 5.07 INSURANCE. The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article V. Section 5.08 DEFINITION OF CORPORATION. For the purposes of this Article V, references to "the corporation" include all constituent corporations absorbed in consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article V with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity. Section 5.09 OTHER DEFINITIONS. For purposes of this Article V, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article V. Section 5.10 CONTINUATION OF RIGHTS. The indemnification and advancement of expenses provided by, or granted pursuant to this Article V shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. ARTICLE VI. MISCELLANEOUS Section 6.01 CERTIFICATES OF STOCK. A certificate of stock, signed by the Chairman or Vice-Chairman of the Board of Directors, if they be elected, President or Vice- president, and the Treasurer or an Assistant Treasurer, or Secretary or an Assistant Secretary, shall be issued to each stockholder certifying the number of shares owned by him in the corporation. When such certificates are countersigned (1) by a transfer agent other than the corporation or its employee, or (2) by a registrar other than the corporation or its employee, the signatures of such officers may be facsimiles. Section 6.02 LOST CERTIFICATES. A new certificate of stock may be issued in the place of any certificate theretofore issued by the corporation, alleged to have been lost or destroyed, and the directors may, in their discretion, require the owner of the lost or destroyed certificate, or his legal representatives, to give the corporation a bond, in such sum as they may direct, not exceeding double the value of the stock, to indemnify the corporation against any claim that may be made against it on account of the alleged loss of any such certificate, or the issuance of any such new certificate. 52 9 Section 6.03 TRANSFER OF SHARES. The shares of stock of the corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificates shall be surrendered to the corporation by the delivery thereof to the person in charge of the stock and transfer books and ledgers, or to such other person as the directors may designate, by whom they shall be canceled and new certificates shall thereupon be issued. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer. Section 6.04 STOCKHOLDERS RECORD DATE. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjournment meeting. Section 6.05 DIVIDENDS. Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the capital stock of the corporation as and when they deem expedient. Before declaring any dividend there may be set apart out of any funds of the corporation available for dividends, such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the directors shall deem conducive to the interests of the corporation. Section 6.06 SEAL. A corporate seal shall not be requisite to the validity of any instrument executed by or on behalf of the corporation. If a corporate seal is nevertheless used, it shall bear the name of the corporation and the words "Delaware - 1984". A corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced. Section 6.07 FISCAL YEAR. The fiscal year of the corporation shall be determined by resolution of the Board of Directors. Section 6.08 CHECKS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation, and in such manner as shall be determined from time to time by resolution of the Board of Directors. Section 6.09 NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by these By-laws to be given, personal notice is not meant unless expressly so stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in the United States mail, postage paid, addressed to the person entitled thereto at his address as it appears on the records of the corporation and such notice shall be deemed to have been given on the day of such mailing. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by Statute. Whenever any notice whatever is required to be given under the provisions of any law, or under the provisions of the Certificate of Incorporation of the corporation or these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VII. AMENDMENTS These By-laws may be altered or repealed and By-laws may be made at any annual meeting of the stockholders or at any special meeting thereof if notice of the proposed alteration or repeal or Bylaw or By-laws to 53 10 be made be contained in the notice of such special meeting, by the affirmative vote of a majority of the stock issued and outstanding and entitled to vote thereat, or by the affirmative vote of a majority of the Board of Directors, at any regular meeting of the Board of Directors, or at any special meeting of the Board of Directors, if notice of the proposed alteration or repeal, or Bylaw or By-laws to be made, be contained in the notice of such special meeting. The foregoing is a true and correct copy of the Amended and Restated By-laws of Syntellect Inc. as duly adopted by the Board of Directors at a meeting duly convened on February 13, 2001. /s/ Timothy P. Vatuone ----------------------------------- Timothy P. Vatuone, Secretary 54 EX-10.I 3 p64736ex10-i.txt EX-10.I 1 EXHIBIT (10)(i) SYNTELLECT INC. RESTATED STOCK OPTION PLAN (AS AMENDED THROUGH FEBRUARY 17, 1998) 1. Purposes Of The Plan. The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of responsibility within the Company, to provide additional incentive to Employees of the Company, and to promote the success of the Company's business through the grant of options to purchase shares of the Company's Common Stock. Options granted hereunder may be either Incentive Stock or Nonstatutory Stock Options, at the discretion of the Board. The type of options granted shall be reflected in the terms of written Stock Option agreements. 2. Definitions. As used herein, the following definitions shall apply: (a) "Board" shall mean the Board of Directors of the Company or the Committee, if one has been appointed. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. (c) "Common Stock" shall mean the common stock of the Company described in the Company's Certificate of Incorporation, as amended. (d) "Company" shall mean SYNTELLECT INC., a Delaware corporation, and shall include any parent or subsidiary corporation of the Company as defined in Sections 425(e) and (f), respectively, of the Code. (e) "Committee" shall mean the Committee appointed by the Board in accordance with paragraph (a) of Section 4 of the Plan, if one is appointed. (f) "Employee" shall mean any person, including officers, directors, consultants and advisors, employed by the Company. The payment of a director's fee, by the Company shall not be sufficient to constitute "employment" by the Company. (g) "Exchange Act" shall mean the Securities and Exchange Act of 1934 as amended. (h) "Fair Market Value" shall mean, with respect to the date a given Option is granted or exercised, the value of the Common Stock determined by the Board in such 55 2 manner as it may deem equitable for Plan purposes but, in the case of an Incentive Stock Option, no less than is required by applicable laws or regulations; provided, however, that where there is a public market for the Common Stock, the Fair Market Value per Share shall be the mean of the bid and asked prices of the Common Stock on the date of grant, as reported in The Wall Street Journal (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation System) or, in the event the Common Stock is listed on the New York Stock Exchange, the American Stock Exchange or the NASDAQ/National Market System, the Fair Market Value per Share shall be the closing price on such exchange on the date of grant of the Option, as reported in The Wall Street Journal. (i) "Incentive Stock Option" shall mean an Option which is intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (j) "Option" shall mean a stock option granted under the Plan. (k) "Optioned Stock" shall mean the Common Stock subject to an Option. (l) "Optionee" shall mean an Employee of the Company who has been granted one or more Options. (m) "Nonstatutory Stock Option" shall mean an Option which is not an Incentive Stock Option. (n) "Parent" shall mean a "parent corporation," whether now or hereafter existing, as defined in Section 425(e) of the Code. (o) "Plan" shall mean this Stock Option Plan. (p) "Share" shall mean a share of the Common Stock, as adjusted in accordance with Section 11 of the Plan. (q) "Stock Option Agreement" shall mean the written agreement between the Company and the Option relating to the grant of an Option. (r) "Subsidiary" shall mean a "subsidiary corporation," whether now or hereafter existing, as defined in Section 425(f) of the Code. (s) "Tax date" shall mean the date an Optionee is required to pay the Company an amount with respect to tax withholding obligations in connection with the exercise of an option. 3. Common Stock Subject To The Plan. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of shares which may be optioned and sold under the Plan is One Million Five Hundred Ninety Thousand (1,590,000) Shares of Common Stock. The 56 3 Shares may be authorized, but unissued, or previously issued Shares acquired by the Company and held in treasury. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares covered by such Option shall, unless the Plan shall have been terminated, be available for future grants of Options. 4. Administration Of The Plan. (a) Procedure. (i) The Plan shall be administered by the Board or a Committee appointed the Board to administer the Plan at any time or from time to time. If the Company has a class of equity securities registered under Section 12 of the Exchange Act, the Plan shall be administered by the Board or a Committee of the Board in accordance with Rule 16(b)-3 under the Exchange Act. (ii) Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause), appoint new members in substitution therefor, and fill vacancies however caused; provided, however, that at no time may any person serve on the Committee if the Company has a class of equity securities registered under Section 12 of the Exchange Act and that person's membership would cause the Committee not to satisfy the "disinterested administration" requirements of Rule 16b-3. (b) Powers Of The Board. Subject to the provisions of the Plan, the Board shall have the authority, in its discretion: (i) to grant Incentive Stock Options and Nonstatutory Stock Options; (ii) to determine, upon review of relevant information and in accordance with Section 2 of the Plan, the Fair Market Value of the Common Stock; (iii) to determine the exercise price per Share of Options to be granted, which exercise price shall be determined in accordance with Section 8(a) of the Plan; (iv) to determine the Employees to whom, and the time or times at which, Options shall be granted and the number of Shares to be represented by each Option; (v) to interpret the Plan; (vi) to prescribe, amend and rescind rules and regulations relating to the Plan; (vii) to determine the terms and provisions of each Option granted (which need not be identical) and, with the consent of the Optionee thereof, modify or amend each Option; (viii) to accelerate or defer (with the consent of the Optionee) the exercise date of any Option; (ix) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Board; (x) to accept or reject the election made by an Optionee pursuant to Section 17 of the Plan; and (xi) to make all other determinations deemed necessary or advisable for the administration of the Plan. 57 4 (c) Effect Of Board's Decision. All decisions, determinations and interpretations of the Board shall be final and binding on all Optionees and any other holders of any Options granted under the Plan. 5. Eligibility. (a) Consistent with the Plan's purposes, Options may be granted only to Employees of the Company as determined by the Board. An Employee who has been granted an Option may, if he is otherwise eligible, be granted an additional Option or Options; provided, however, no Employee may be granted Options to purchase more than 795,000 Shares under the Plan. Incentive Stock Options may be granted only to those Employees who meet the requirements applicable under Section 422 of the Code. (b) With respect to Incentive Stock Options granted on or before December 31, 1986, the aggregate Fair Market Value (determined as of the time the Incentive Stock Option is granted) of all stock of the Company for which such Employee may be granted Incentive Stock Options under this Plan or any plan maintained by the Company shall not exceed, in any calendar year, $100,000 plus any unused limit carryover for that year, as defined in Section 422A(c)(4) of the Code. With respect to Incentive Stock Options granted after December 31, 1986, the aggregate Fair Market Value (determined at the time the Incentive Stock Option is granted) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by the employee during any calendar year (under all employee benefit plans of the Company) shall not exceed One Hundred Thousand Dollars ($100,000). 6. Stockholder Approval And Effective Dates. The Plan became effective upon approval of the Board. No Option may be granted under the Plan after September 1, 2004; provided, however, that the Plan and all outstanding Options shall remain in effect until such Options have expired or until such Options are canceled. 7. Term of Option. Unless otherwise provided in the Stock Option Agreement, the term of each Option shall be six (6) years from the date of grant thereof. In no case shall the term of any Option exceed ten (10) years from the date of grant thereof. Notwithstanding the above, in the case of an Incentive Stock Option granted to an Employee who, at the time the Incentive Stock Option is granted, owns ten percent (10%) or more of the Common Stock as such amount is calculated under Section 422(b)(6) of the Code ("Ten Percent Stockholder"), the term of the Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter time as may be provided in the Stock Option Agreement. 8. Exercise Price And Payment. (a) Exercise Price. The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Board, but in the case of an Incentive Stock Option shall be no less than one hundred percent (100 %) of the Fair Market Value per share on the date of grant, an in the case of a Nonstatutory Stock Option shall be no less than fifty percent (50%) of the Fair Market Value per share on the 58 5 date of grant. Notwithstanding the foregoing, in the case of an Incentive Stock Option granted to an Employee who, at the time of the grant of such Incentive Stock Option, is a Ten Percent Stockholder, the per Share exercise price shall be no less than one hundred ten percent (110 %) of the Fair Market Value per Share on the date of grant. (b) Payment. The price of an exercised Option and any taxes attributable to the delivery of Common Stock under the Plan, or portion thereof, shall be paid: (i) In United States dollars in cash or by check, bank draft or money order payable to the order of the Company; (ii) At the discretion of the Board, through the delivery of shares of Common Stock with an aggregate Fair Market Value equal to the option price and withholding taxes, if any; (iii) At the election of the Optionee pursuant to Section 17 and with the consent of the Board pursuant to Section 4(b)(x), by the Company's retention of such number of shares of Common Stock subject to the exercised Option which have an aggregate Fair Market Value on the exercise date equal to the Company's aggregate federal, state, local and foreign tax withholding and FICA and FUTA obligations with respect to income generated by the exercise of the Option by Optionee; (iv) By a combination of (i), (ii) and (iii) above; or (v) In the manner provided in subsection (c) below. The Board shall determine acceptable methods for tendering Common Stock as payment upon exercise of an Option and may impose such limitations and prohibitions on the use of Common Stock to exercise an Option as it deems appropriate. (c) Financial Assistance To Optionees. The Board may assist Optionees in paying the exercise price of Options granted under this Plan in the following manner: (i) The extension of a loan to the Optionee by the Company; (ii) Payment by the Optionee of the exercise price in installments; or (iii) A guaranty by the Company of a loan obtained by the Optionee from a third party. The terms of any loans, installment payments or guarantees, including the interest rate and terms of repayment, and collateral requirements, if any, shall be determined by the Board, in its sole discretion. Subject to applicable margin requirements, any loans, installment payments or guarantees authorized by the Board pursuant to the Plan may be 59 6 granted without security, but the maximum credit available shall not exceed the exercise price for the Shares for which the Option is to be exercised, plus any federal and state income tax liability incurred in connection with the exercise of the Option. 9. Exercise Of Option. (a) Procedure For Exercise: Rights As A Stockholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Board, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. Unless otherwise determined by the Board at the time of grant, an Option may be exercised in whole or in part. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. With respect to Incentive Stock Options granted on or before December 31, 1986, no Optionee may exercise an Incentive Stock Option while there is outstanding any Incentive Stock Option which was granted to such Optionee before such other options was granted. For purposes hereof, any Incentive Stock Option shall be treated as outstanding until such Incentive Stock Option is exercised in full or expired by reason of lapse of time and notwithstanding the cancellation of any Incentive Stock Option prior to the original expiration date thereof. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination Of Status As An Employee. Unless otherwise provided in the Stock Option Agreement (which may reduce but not increase the time period described below), if an Employee's employment by the Company is terminated, except if such termination occurs due to death or disability, then the Employee may, but only within ninety (90) days after the date he ceases to be an Employee of the Company, exercise his Option to the extent that he was entitled to exercise it at the date of such termination. To the extent that he was not entitled to exercise the Option at the date of such termination, 60 7 or if he does not exercise such Option (which he was entitled to exercise) within the time specified herein, the Option shall terminate. (c) Disability. Unless otherwise provided in the Stock Option Agreement (which may reduce but not increase the time period described below), notwithstanding the provisions of Section 9(b) above, in the event an Employee is unable to continue his employment with the Company as a result of his permanent and total disability (as defined in Section 22(e)(3) of the Code), he may, but only within twelve (12) months from the date of termination, exercise his Option to the extent he was entitled to exercise it at the date of such termination. To the extent that he was not entitled to exercise the Option at the date of termination, or if he does not exercise such Option (which he was entitled to exercise) within the time specified herein, the Option shall terminate. (d) Death. Unless otherwise provided in the Stock Option Agreement (which may reduce but not increase the time period described below), if an Employee dies during the term of the Option and is at the time of his death an Employee of the Company who shall have been in Continuous Status as an Employee since the date of grant of the Option, the Option may be exercised at any time within twelve (12) months following the date of death (or such other period of time as is determined by the Board) by the Employee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that an Employee was entitled to exercise the Option on the date of death. To the extent that decedent was not entitled to exercise the Option on the date of death, or if the Employee's estate, or person who acquired the right to exercise the Option by bequest or inheritance, does not exercise such Option (which he was entitled to exercise) within the time specified herein, the Option shall terminate. (e) Change of Control. A Change of Control shall cause every Option outstanding hereunder to become fully exercisable and allow each Optionee the right to exercise an Option prior to the occurrence of the event otherwise terminating the Option; Provided, however that in the event (A) the Company's Board of Directors approves a transaction to be accounted for as a "pooling-of-interests: and (B) the Company's independent accountants have advised the Company in writing that the amendment to this Paragraph 6 approved by the Board of Directors on February 17, 1998 precludes such accounting, then, without any further action, such amendment to Paragraph 6 shall be null and void, and Paragraph 6 shall remain in effect as existing prior to such amendment. For purposes of this Paragraph 6 (c), "Change of Control" means and includes each of the following: (i) there shall be consummated any consolidation or merger of the Company in which the Company is not the continuing or surviving entity, or pursuant to which Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of beneficial interest of common stock or other voting securities of the surviving entity immediately after the merger; 61 8 (ii) the stock holders of the Company shall approve any plan or proposal for liquidation or dissolution of the Company; (iii) any person (as such term is used in Section 13 (d) and 14 (d)(2) of the Exchange Act), other than any employee benefit plan of the Company or any subsidiary of the Company or any entity holding shares of capital stock of the Company for or pursuant to the terms of any such employee benefit plan in its role as an agent or trustee for such plan, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 25% or more of the Company's outstanding Common Stock; or (iv) during any period of two consecutive years, individuals who were directors of the Company at the beginning of such period shall fail to constitute a majority thereof, unless the election, or the nomination for election by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 10. Non-Transferability Of Options. An Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution, or pursuant to a "qualified domestic relations order" under the Code and ERISA, and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. Adjustments Upon Changes In Capitalization Or Merger. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. 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 of Common Stock subject to an Option. In the event of the proposed dissolution or liquidation of the Company, the Option will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of As sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Board and give each Optionee 62 9 the right to exercise his Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation. If the Board makes an Option fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the Optionee that the Option shall be fully exercisable for a period of sixty (60) days froth the date of such notice (but not later than the expiration of the term of the Option under the Option Agreement), and the Option will terminate upon the expiration of such period. 12. Time Of Granting Options. The due of grant of an Option shall, for all purposes, be the date on which the Board makes the determination granting such Option. Notice of the determination shall be given to each Employee to whom an Option is so granted within a reasonable time after the date of such grant. 13. Amendment and Termination Of The Plan. (a) Amendment And Termination. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable; provided, however, that the following revisions or amendments shall require approval of the Stockholders of the Company, to the extent required by law, rule or regulation: (i) Any material increase in the number of Shares subject to the Plan, other than in connection with an adjustment under Section 11 of the Plan; (ii) Any material change in the designation of the Employees eligible to be granted Options; or (iii) Any material increase in the benefits accruing to participants under the Plan. (b) Effect Of Amendment Or Termination. Any such amendment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 14. Conditions Upon Issuance Of Shares. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. 63 10 As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. In the case of an Incentive Stock Option, any Optionee who disposes of Shares of Common Stock acquired upon the exercise of an Option by sale or exchange (a) either within two (2) years after the date of the grant of the Option under which the Common Stock was acquired or (b) within one (1) year after the acquisition of such Shares of Common Stock shall notify the Company of such disposition and of the amount realized upon such disposition. 15. Reservation Of Shares. The Company will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 16. Option Agreement. Options shall be evidenced by Stock Option Agreements in such form as the Board shall approve. 17. Withholding Taxes. Subject to Section 4(b)(x) of the Plan and prior to the Tax Date, the Optionee may make an irrevocable election to have the Company withhold from those Shares that would otherwise be received upon the exercise of any Option, a number of Shares having a Fair Market Value equal to the minimum amount necessary to satisfy the Company's federal, state, local and foreign tax withholding obligations and FICA and FUTA obligations with respect to the exercise of such Option by the Optionee. An Optionee who is also an officer of the Company must make the above described election: (a) at lease six months after the date of grant of the Option (except in the event of death of disability); and (b) either: (i) six months prior to the Tax Date, or (ii) prior to the Tax Date and during the period beginning on the third business day following the date the Company releases its quarterly or annual statement of sales and earnings and ending on the twelfth business day following such date. 64 11 18. Miscellaneous Provisions. (a) Plan Expense. Any expenses of administering this Plan shall be borne by the Company. (b) Use Of Exercise Proceeds. The payment received from Optionees from the exercise of Options shall be used for the general corporate purposes of the Company. (c) Construction Of Plan. The place of administration of the Plan shall be in the State of Arizona, and the validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined in accordance with the laws of the State of Arizona without regard to conflict of law principles and, where applicable, in accordance with the Code. (d) Taxes. The Company shall be entitled if necessary or desirable to pay or withhold the amount of any tax attributable to the delivery of Common Stock under the Plan from other amounts payable to the Employee after giving the person entitled to receive such Common Stock notice as far in advance as practical, and the Company may defer making delivery of such Common Stock if any such tax may be pending unless and until indemnified to its satisfaction. (e) Indemnification. In addition to such other rights of indemnification as they may have as members of the Board, the members of the Board shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be party by reason of any action taken or failure to act under or in connection with the Plan or any Option, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except a judgment based upon a finding of bad faith; provided that upon the institution of any such action, suit or proceeding a Board member shall, in writing, give the Company notice thereof and an opportunity, at its own expense, to handle and defend the same before such Board member undertakes to handle and defend it on her or his own behalf. (f) Gender. For purposes of this Plan, words used in the masculine gender shall include the feminine and neuter, and the singular shall include the plural and vice versa, as appropriate. (g) No Employment Agreement. The Plan shall not confer upon any Optionee any right with respect to continuation of employment with the Company, nor shall it interfere in any way with his rights or the Company's rights to terminate his employment at any time. 65 EX-10.II 4 p64736ex10-ii.txt EX-10.II 1 EXHIBIT (10)(ii) SYNTELLECT, INC. 1990 EMPLOYEE STOCK PURCHASE PLAN (AS AMENDED THROUGH FEBRUARY 28, 1998) The following constitute the provisions of the 1990 Stock Purchase Plan of Syntellect Inc. 1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. a. "Board" shall mean the Board of Directors of the Company. b. "Code" shall mean the Internal Revenue Code of 1986, as amended. c. "Common Stock" shall mean the Common Stock of the Company. d. "Company" shall mean Syntellect, Inc., a Delaware corporation. e. "Compensation" shall mean all base straight time gross earnings including payments for overtime, shift premium, incentive compensation, incentive payments, bonuses, commissions or other compensation. f. "Designated Subsidiaries" shall mean the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. g. "Employee" shall mean any individual who is an employee of the Company for purposes of tax withholding under the Code whose customary employment with the Company or any Designated Subsidiary is at least twenty (20) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated on the 91st day of such leave. 66 2 h. "Enrollment Date" shall mean the first day of each Offering Period. i. "Exercise Date" shall mean the last day of each Offering Period. j. "Offering Period" shall mean an initial period commencing on the date the Company's registration statement respecting its public offering is declared effective by the Securities and Exchange Commission and ending on December 31, 1990, and subsequent six month exercise periods thereafter commencing on July 1, 1990 during which options granted pursuant to the Plan may be exercised. k. "Plan" shall mean this Employee Stock Purchase Plan. l. "Subsidiary" shall mean a corporation, domestic or foreign, of which not less than 50 of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. m. "Trading Day" shall mean a day on which national stock exchanges and the National Association of Securities Dealers Automated Quotation (NASDAQ) System are open for trading. 3. Eligibility. a. Any Employee as defined in paragraph 2 shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan. b. Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 425(d) of the Code) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) which permits his rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. Offering Periods. The Plan shall be implemented by consecutive Offering Periods after the initial Offering Period with a new Offering Period commencing on the first Trading Day of July and January of each year, or on such other date as the Board shall determine, and continuing thereafter until terminated in accordance with paragraph 19 or 22 hereof. The Board shall have the power to change the duration of Offering Periods with respect to future offerings without shareholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Offering Period to be affected. 67 3 5. Participation. a. An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company's payroll office at such time as is specified by the Company and is prior to the applicable Enrollment Date (unless a later time for filing the subscription agreement is set by the Board for all eligible Employees with respect to a given Offering Period). Once properly made, an eligible Employee's election to participate shall be automatically renewed for each subsequent offering period, subject to any termination or withdrawal as provided in paragraph 10. b. Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in paragraph 10. 6. Payroll Deductions. a. At the time a participant files his subscription agreement, he shall elect to have payroll deductions made on each payday during the Offering Period in an amount not exceeding ten percent (10%) of the Compensation which he receives on each payday during the Offering Period, and the aggregate of such payroll deductions during the Offering Period shall not exceed ten percent (10%) of the participant's Compensation during said Offering Period. b. All payroll deductions made for a participant shall be credited to his account under the Plan and will be withheld in whole percentages only. A participant may not make any additional payments into such account. c. A participant may discontinue his participation in the Plan as provided in paragraph 10, or may decrease (but not increase) the rate of his payroll deductions during the offering period by completing or filing with the Company a new authorization for payroll deduction. The change in rate shall be effective fifteen (15) days following the Company's receipt of the new authorization. d. Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and paragraph 3(b) herein, a participant's payroll deductions may be decreased to 0% at such time during any Offering Period which is scheduled to end during the current calendar year (the "Current Offering Period") that the aggregate of all payroll deductions which were previously used to purchase stock under the Plan in a prior Offering Period which ended during that calendar year plus all payroll deductions accumulated with respect to the Current Offering Period equal $21,250. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Offering Period which is scheduled to 68 4 end in the following calendar year, unless terminated by the participant as provided in paragraph 10. e. At the time the option is exercised, in whole or in part, or at the time some or all of the Company's Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the Company may, but will not be obligated to, withhold from the participant's Compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee. 7. Grant of Option. a. On the Enrollment Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on the Exercise Date for such Offering Period (at the per share option price) up to a number of shares of the Company's Common Stock determined by dividing such Employee's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the lower of (i) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Enrollment Date or (ii) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Exercise Date; provided that in no event shall an Employee be permitted to purchase during each Offering Period more than a number of shares determined by dividing $12,500 by the fair market value of a share of the Company's Common Stock on the Enrollment Date, and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8, unless the participant has withdrawn pursuant to Section 10, and shall expire on the last day of the Offering Period. Fair market value of a share of the Company's Common Stock shall be determined as provided in Section 7(b) herein. b. The option price per share of the shares offered in a given Offering Period shall be the lower of: (i) 85% of the fair market value of a share of the Common Stock of the Company on the Enrollment Date; or (ii) 85% of the fair market value of a share of the Common Stock of the Company on the Exercise Date. The fair market value of the Company's Common Stock shall be the closing bid price of the Common Stock for such date, as reported by the NASDAQ National Market System, or, in the event the Common Stock is listed on a stock exchange, the fair market value per share shall be the closing price on such exchange on such date, as reported in the Wall Street Journal. In the event the Enrollment Date or the Exercise Date occurs on a weekend or legal holiday, the fair market value shall be based on the closing bid price on the next trading day. 69 5 8. Exercise of Option. Unless a participant withdraws from the Plan as provided in paragraph 10 below, his option for the purchase of shares will be exercised automatically on the Exercise Date, and the maximum number of full shares subject to option shall be purchased for such participant at the applicable option price with the accumulated payroll deductions in his account. No fractional shares will be purchased. During a participant's lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her. 9. Delivery. As promptly as practicable after the Exercise Date of each Offering Period, the Company shall arrange the delivery to each participant, as appropriate, a certificate representing the shares purchased upon exercise of his option. Any cash remaining to the credit of a participant's account under the Plan after a purchase by him of shares at the termination of each Offering Period, or which is insufficient to purchase a full share of Common Stock of the Company, shall be returned to said participant. 10. Withdrawal; Termination of Employment. a. A participant may withdraw all but not less than all the payroll deductions credited to his account and not yet used to exercise his option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. All of the participant's payroll deductions credited to his account will be paid to such participant promptly after receipt of notice of withdrawal and such participant's option for the Offering Period will be automatically terminated, and no further payroll deductions for the purchase of shares will be made during the Offering Period. If a participant withdraws from an Offering Period, payroll deductions will not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement. b. Upon a participant's ceasing to be an Employee for any reason or upon termination of a participant's employment relationship (as described in Section 2(g)), the payroll deductions credited to such participant's account during the Offering Period but not yet used to exercise the option will be returned to such participant or, in the case of his death, to the person or persons entitled thereto under paragraph 14, and such participant's option will be automatically terminated. c. In the event an Employee fails to remain an Employee of the Company for at least twenty (20) hours per week during an Offering Period in which the Employee is a participant, he will be deemed to have elected to withdraw from the Plan and the payroll deductions credited to his account will be returned to such participant and such participant's option terminated. d. A participant's withdrawal from an Offering Period will not have any effect upon his eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws. 70 6 11. Interest. No interest shall accrue on the payroll deductions of a participant in the Plan. 12. Stock. a. The maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 800,000 shares, subject to adjustment upon changes in capitalization of the Company as provided in paragraph 18. If on a given Exercise Date the number of shares with respect to which options are to be exercised exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. b. The participant will have no interest or voting right in shares covered by his option until such option has been exercised. c. Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his spouse. d. The Common Stock to be sold to participants under the Plan may, at the election of the Company, be either treasury stock or stock originally issued for such purpose. 13. Administration. The Plan shall be administered by the Board of the Company or a committee appointed by the Board; provided, however, the administration of the Plan shall be consistent with Rule 16b-3 ("Rule 16b-3 ") under the Securities Exchange Act of 1934. The administration, interpretation or application of the Plan by the Board or a committee appointed by the Board shall be final, conclusive and binding upon all participants. 14. Designation of Beneficiary. a. A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. b. Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may 71 7 deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 15. Transferability. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, a "qualified domestic relations order" under the Code and the Employee Retirement Income Security Act ("ERISA"), or as provided in paragraph 14 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with paragraph 10. 16. Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 17. Reports. Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees at least annually, which statements will set forth the amounts of payroll deductions, the per share purchase price, the number of shares purchased and the remaining cash balance, if any. 18. Adjustments Upon Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the price per share of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall effect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. In the event of the proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each option under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, to 72 8 shorten the Offering Period then in progress by setting a new Exercise Date (the "New Exercise Date"). If the Board shortens the Offering Period then in progress in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify each participant in writing, at least (30) days prior to the New Exercise Date, that the Exercise Date for his option has been changed to the New Exercise Date and that his option will be exercised automatically on the New Exercise Date, unless prior to such date he has withdrawn from the Offering Period as provided in paragraph 10. For purposes of this paragraph, an option granted under the Plan shall be deemed to be assumed if, following the sale of assets or merger, the option confers the right to purchase, for each share of option stock subject to the option immediately prior to the sale of assets or merger, the consideration (whether stock, cash or other securities or property) received in the sale of assets or merger by holders of Common Stock for each share of Common Stock held on the effective date of the transaction (and if such holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if such consideration received in the sale of assets of merger was not solely common stock of the successor corporation or its parent (as defined in Section 425(e) of the Code), the Board may, with the consent of the successor corporation and the participant, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Common Stock and the sale of assets or merger. The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation. 19. Amendment or Termination. a. The Board may at any time and for any reason terminate the Plan. The Board may also amend the Plan from time to time in such respects as the Board may deem advisable. Except as provided in paragraph 18, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board of Directors on any Exercise Date if the Board determines that the termination of the Plan is in the best interests of the Company and its shareholders. Except as provided in paragraph 8, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent required by applicable law, the Company shall obtain shareholder approval. b. Without shareholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to 73 9 adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. c. Notwithstanding the foregoing, the Board or a committee appointed by the Board may not amend the Plan formula for determining the amount, price or timing of options to purchase shares of the Company's Common Stock granted under the Plan more than once every six months, other than to comport with changes in the Code and ERISA. 20. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 22. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company. It shall continue in effect for a term of twenty (20) years unless sooner terminated under paragraph 19. 23. Gender. For purposes of this Plan, words used in the masculine gender shall include the female and neuter, and the singular shall include the plural and vice versa, as appropriate. 74 EX-10.III 5 p64736ex10-iii.txt EX-10.III 1 EXHIBIT (10)(iii) SYNTELLECT INC. LONG-TERM INCENTIVE PLAN (as amended through June 1, 2000) ARTICLE 1 PURPOSE 1.1. GENERAL. The purpose of the Syntellect Inc. Long-Term Incentive Plan (the "Plan") is to promote the success, and enhance the value, of Syntellect Inc. (the "Company") by linking the personal interests of its employees, consultants and advisors to those of Company shareholders and by providing its employees, consultants and advisors with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of employees, consultants and advisors upon whose judgment, interest, and special effort the successful conduct of the Company's operation is largely dependent. Accordingly, the Plan permits the grant of incentive awards from time to time to selected employees, consultants and advisors of the Company and any Subsidiary. ARTICLE 2 EFFECTIVE DATE 2.1. EFFECTIVE DATE. The Plan became effective on February 1, 1995 (the "Effective Date), the date the Plan was approved by the Board. The Plan was approved by the shareholders of the Company on May 23, 1995. ARTICLE 3 DEFINITIONS AND CONSTRUCTION 3.1. DEFINITIONS. When a word or phrase appears in this Plan with the initial letter capitalized, and the word or phrase does not commence a sentence, the word or phrase shall generally be given the meaning ascribed to it in this Section or in Sections 1.1 or 2.1 unless a clearly different meaning is required by the context. The following words and phrases shall have the following meanings: (a) "Award" means any Option, Stock Appreciation Right, Restricted Stock Award, Performance Share Award, Dividend Equivalent Award, or Other Stock-Based Award, or any other right or interest relating to Stock or cash, granted to a Participant under the Plan. (b) "Award Agreement" means any written agreement, contract, or other instrument or document evidencing an Award. (c) "Board" means the Board of Directors of the Company or a Committee thereof formed under Section 4, as the case may be. (d) "Cause" means (except as otherwise provided in an Option Agreement) if the Board, in its reasonable and good faith discretion, determines that the employee, consultant or advisor (i) has developed or pursued interests substantially adverse to the Company, (ii) materially breached any employment, engagement or confidentiality agreement or otherwise failed to satisfactorily discharge his or her duties, (iii) has not devoted all or substantially all of his or her business time, effort and attention to the affairs of the Company (or such lesser amount as has been agreed to in writing by the Company), (iv) is convicted of a felony involving moral turpitude, or (v) has engaged in activities or omissions that are detrimental to the well-being of the Company. (e) "Change of Control" means and includes each of the following (except as otherwise provided in an Option Agreement): (1) there shall be consummated any consolidation or merger of the Company in which the Company is not the continuing or surviving entity, or pursuant to which Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Stock immediately prior to the merger have the same proportionate 75 2 ownership of beneficial interest of common stock or other voting securities of the surviving entity immediately after the merger; (2) there shall be consummated any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of assets or earning power aggregating more than 40% of the assets or earning power of the Company and its subsidiaries (taken as a whole); (3) the shareholders of the Company shall approve any plan or proposal for liquidation or dissolution of the Company; (4) any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act), other than any employee benefit plan of the Company or any subsidiary of the Company or any entity holding shares of capital stock of the Company for or pursuant to the terms of any such employee benefit plan in its role as an agent or trustee for such plan, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 20% or more of the Company's outstanding Stock; or (5) during any period of two consecutive years, individuals who at the beginning of such period shall fail to constitute a majority thereof, unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. (f) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (g) "Committee" means the committee of the Board described in Article 4. (h) "Disability" shall mean any illness or other physical or mental condition of a Participant which renders the Participant incapable of performing his customary and usual duties for the Company, or any medically determinable illness or other physical or mental condition resulting from a bodily injury, disease or mental disorder which in the judgment of the Committee is permanent and continuous in nature. The Committee may require such medical or other evidence as it deems necessary to judge the nature and permanency of the Participant's condition. (i) "Dividend Equivalent" means a right granted to a Participant under Article 11. (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (k) "Fair Market Value" means with respect to Stock or any other property, the fair market value of such Stock or other property as determined by the Board in its discretion, under one of the following methods: (i) the average of the closing bid and asked prices for the Stock as reported on any national securities exchange on which the Stock is then listed (which shall include the NASDAQ National Market System) for that date or, if no prices are so reported for that date, such prices on the next preceding date for which closing bid and asked prices were reported; or (ii) the price as determined by such methods or procedures as may be established from time to time by the Board. (l) "Incentive Stock Option" means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto. (m) "Non-Qualified Stock Option" means an Option that is not intended to be an Incentive Stock Option. (n) "Option" means a right granted to a Participant under Article 7 of the Plan to purchase Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option. 76 3 (o) "Other Stock-Based Award" means a right, granted to a Participant under Article 12 that relates to or is valued by reference to Stock or other Awards relating to Stock. (p) "Participant" means a person who, as an employee of or consultant or advisor to the Company or any Subsidiary, has been granted an Award under the Plan. A "Participant" shall not include any Director of the Company or any Subsidiary who is not also an employee of or consultant to the Company or any Subsidiary. (q) "Performance Share" means a right granted to a Participant under Article 9, to receive cash, Stock, or other Awards, the payment of which is contingent upon achieving certain performance goals established by the Committee. (r) "Plan" means the Syntellect Inc. Long-Term Incentive Plan, as amended from time to time. (s) "Restricted Stock Award" means Stock granted to a Participant under Article 10 that is subject to certain restrictions and to risk of forfeiture. (t) "Stock" means the common stock of the Company and such other securities of the Company that may be substituted for Stock pursuant to Article 13. (u) "Stock Appreciation Right" or "SAR" means a right granted to a Participant under Article 8 to receive a payment equal to the difference between the Fair Market Value of a share of Stock as of the date of exercise of the SAR over the grant price of the SAR, all as determined pursuant to Article 8. (v) "Subsidiary" means any corporation, domestic or foreign, of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company. ARTICLE 4 ADMINISTRATION 4.1. BOARD/COMMITTEE. The Plan shall be administered by the Board of Directors or, to the extent required to comply with Rule 16b-3 promulgated under the Exchange Act, a Committee that is appointed by, and serves at the discretion of, the Board. Any Committee shall consist of at least two individuals who are members of the Board and are "disinterested persons," as such term is defined in Rule 16b-3 promulgated under Section 16 of the Exchange Act or any successor provision, except as may be otherwise permitted under Section 16 of the Exchange Act and the regulations and rules promulgated thereunder. For purposes of this Plan, the "Board" shall mean the Board of Directors or the Committee, as the case may be. 4.2. ACTION BY THE BOARD. A majority of the Board shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present and acts approved in writing by a majority of the Board in lieu of a meeting shall be deemed the acts of the Board. Each member of the Board is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Subsidiary, the Company's independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan. 4.3. AUTHORITY OF BOARD. The Board has the exclusive power, authority and discretion to: (a) Designate Participants; (b) Determine the type or types of Awards to be granted to each Participant; (c) Determine the number of Awards to be granted and the number of shares of Stock to which an Award will relate; 77 4 (d) Determine the terms and conditions of any Award granted under the Plan including but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, based in each case on such considerations as the Board in its sole discretion determines; (e) Determine whether, to what extent, and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered; (f) Prescribe the form of each Award Agreement, which need not be identical for each Participant; (g) Decide all other matters that must be determined in connection with an Award; (h) Establish, adopt or revise any rules and regulations as it may deem necessary or advisable to administer the Plan; and (i) Make all other decisions and determinations that may be required under the Plan or as the Board deems necessary or advisable to administer the Plan. 4.4. DECISIONS BINDING. The Board's interpretation of the Plan, any Awards granted under the Plan, any Award Agreement and all decisions and determinations by the Board with respect to the Plan are final, binding, and conclusive on all parties. ARTICLE 5 SHARES SUBJECT TO THE PLAN 5.1. NUMBER OF SHARES. Subject to adjustment provided in Section 15.1, the aggregate number of shares of Stock reserved and available for Awards or which may be used to provide a basis of measurement for or to determine the value of an Award (such as with a Stock Appreciation Right or Performance Share Award) shall be 2,100,000. 5.2. LAPSED AWARDS. To the extent that an Award terminates, expires or lapses for any reason, any shares of Stock subject to the Award will again be available for the grant of an Award under the Plan and shares subject to SARs or other Awards settled in cash will be available for the grant of an Award under the Plan, in each case to the full extent available pursuant to the rules and interpretations of the Securities and Exchange Commission under Section 16 of the Exchange Act, if applicable. 5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market. 5.4. LIMITATIONS ON AWARDS TO ANY SINGLE PARTICIPANT. There is no limitation that restricts the number of shares of stock which are subject to Awards issued to any single Participant. ARTICLE 6 ELIGIBILITY 6.1. GENERAL. Awards may be granted only to individuals who are employees (including employees who also are directors or officers) of the Company or a Subsidiary or to consultants or advisors thereto, as determined by the Board. ARTICLE 7 STOCK OPTIONS 7.1. GENERAL. The Board is authorized to grant Options to Participants on the following terms and conditions: 78 5 (a) EXERCISE PRICE. The exercise price per share of Stock under an Option shall be determined by the Board. (b) TIME AND CONDITIONS OF EXERCISE. The Board shall determine the time or times at which an Option may be exercised in whole or in part. The Board also shall determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised. (c) PAYMENT. The Board shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation, cash, shares of Stock, or other property (including net issuance or other "cashless exercise" arrangements), and the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants. Without limiting the power and discretion conferred on the Board pursuant to the preceding sentence, the Board may, in the exercise of its discretion, but need not, allow a Participant to pay the Option price by directing the Company to withhold from the shares of Stock that would otherwise be issued upon exercise of the Option that number of shares having a Fair Market Value on the exercise date equal to the Option price, all as determined pursuant to rules and procedures established by the Board. (d) EVIDENCE OF GRANT. All Options shall be evidenced by a written Award Agreement between the Company and the Participant. The Award Agreement shall include such provisions as may be specified by the Board. 7.2. INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options granted under the Plan must comply with the following additional rules: (a) EXERCISE PRICE. The exercise price per share of Stock shall be set by the Board, provided that the exercise price for any Incentive Stock Option may not be less than the Fair Market Value as of the date of the grant. (b) EXERCISE. In no event, may any Incentive Stock Option be exercisable for more than ten years from the date of its grant. (c) LAPSE OF OPTION. An Incentive Stock Option shall lapse under the following circumstances: (1) The Incentive Stock Option shall lapse ten (10) years after it is granted, unless an earlier time is set in the Award Agreement. (2) The Incentive Stock Option shall lapse upon termination of employment for Cause or for any other reason, other than the Participant's death or Disability, unless the Committee determines in its discretion to extend the exercise period for no more than ninety (90) days after the Participant's termination of employment. (3) In the case of the Participant's termination of employment due to Disability or death, the Incentive Stock Option shall lapse upon termination of employment, unless the Committee determines in its discretion to extend the exercise period of the Incentive Stock Option for no more than twelve (12) months after the date the Participant terminates employment. Upon the Participant's death, any vested and otherwise exercisable Incentive Stock Options may be exercised by the Participant's legal representative or representatives, by the person or persons entitled to do so under the Participant's last will and testament, or, if the Participant shall fail to make testamentary disposition of such Incentive Stock Option or shall die intestate, by the person or persons entitled to receive said Incentive Stock Option under the applicable laws of descent and distribution. 79 6 (d) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair Market Value (determined as of the time an Award is made) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed One Hundred Thousand Dollars ($100,000.00). (e) TEN PERCENT OWNERS. An Incentive Stock Option shall be granted to any individual who, at the date of grant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of Stock of the Company only if, at time such Option is granted, the Option price is at least one hundred ten percent (110%) of the Fair Market Value of the Stock and such Option by its terms is not exercisable after the expiration of five (5) years from the date the Option is granted. (f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of an Incentive Stock Option may be made pursuant to this Plan after the tenth anniversary of the Effective Date. (g) RIGHT TO EXERCISE. During a Participant's lifetime, an Incentive Stock Option may be exercised only by the Participant. (h) EMPLOYEES ONLY. Incentive Stock Options may be granted only to Participants who are employees of the Company or any Subsidiary. ARTICLE 8 STOCK APPRECIATION RIGHTS 8.1. GRANT OF SARs. The Board is authorized to grant SARs to Participants on the following terms and conditions: (a) RIGHT TO PAYMENT. Upon the exercise of a Stock Appreciation Right, the Participant to whom it is granted has the right to receive the excess, if any, of: (1) The Fair Market Value of one share of Stock on the date of exercise; over (2) The grant price of the Stock Appreciation Right as determined by the Board, which shall not be less than the Fair Market Value of one share of Stock on the date of grant in the case of any SAR related to any Incentive Stock Option. (b) OTHER TERMS. All awards of Stock Appreciation Rights shall be evidenced by an Award Agreement. The terms, methods of exercise, methods of settlement, form of consideration payable in settlement, and any other terms and conditions of any Stock Appreciation Right shall be determined by the Board at the time of the grant of the Award and shall be reflected in the Award Agreement. ARTICLE 9 PERFORMANCE SHARES 9.1. GRANT OF PERFORMANCE SHARES. The Board is authorized to grant Performance Shares to Participants on such terms and conditions as may be selected by the Board. The Board shall have the complete discretion to determine the number of Performance Shares granted to each Participant. All Awards of Performance Shares shall be evidenced by an Award Agreement. 9.2. RIGHT TO PAYMENT. A grant of Performance Shares gives the Participant rights, valued as determined by the Board, and payable to, or exercisable by, the Participant to whom the Performance Shares are granted, in whole or in part, as the Board shall establish at grant or thereafter. The Board shall set performance goals and other terms or conditions to payment of the Performance Shares in its discretion which, depending on the extent to which they are met, will determine the number and value of Performance Shares that will be paid to the Participant, provided that the time period during which the performance goals must be met shall, in all cases, exceed six months. 80 7 9.3. OTHER TERMS. Performance Shares may be payable in cash, Stock, or other property, and have such other terms and conditions as determined by the Board and reflected in the Award Agreement. ARTICLE 10 RESTRICTED STOCK AWARDS 10.1. GRANT OF RESTRICTED STOCK. The Board is authorized to make Awards of Restricted Stock to Participants in such amounts and subject to such terms and conditions as may be selected by the Board. All Awards of Restricted Stock shall be evidenced by a Restricted Stock Award Agreement. 10.2. ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Board may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, or otherwise, as the Board determines at the time of the grant of the Award or thereafter. 10.3. FORFEITURE. Except as otherwise determined by the Board at the time of the grant of the Award or thereafter, upon termination of employment during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited and reacquired by the Company, provided, however, that the Board may provide in any Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and the Board may in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock. 10.4. CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under the Plan may be evidenced in such manner as the Board shall determine. If certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company shall retain physical possession of the certificate until such time as all applicable restrictions lapse. ARTICLE 11 DIVIDEND EQUIVALENTS 11.1. GRANT OF DIVIDEND EQUIVALENTS. The Board is authorized to grant Dividend Equivalents to Participants subject to such terms and conditions as may be selected by the Board. Dividend Equivalents shall entitle the Participant to receive payments equal to dividends with respect to all or a portion of the number of shares of Stock subject to an Option Award or SAR Award, as determined by the Board. The Board may provide that Dividend Equivalents be paid or distributed when accrued or be deemed to have been reinvested in additional shares of Stock, or otherwise reinvested. ARTICLE 12 OTHER STOCK-BASED AWARDS 12.1. GRANT OF OTHER STOCK-BASED AWARDS. The Board is authorized, subject to limitations under applicable law, to grant to Participants such other Awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of Stock, as deemed by the Board to be consistent with the purposes of the Plan, including without limitation shares of Stock awarded purely as a "bonus" and not subject to any restrictions or conditions, convertible or exchangeable debt securities, other rights convertible or exchangeable into shares of Stock, and Awards valued by reference to book value of shares of Stock or the value of securities of or the performance of specified Subsidiaries. The Board shall determine the terms and conditions of such Awards. ARTICLE 13 PROVISIONS APPLICABLE TO AWARDS 13.1. STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted under the Plan may, in the discretion of the Board, be granted either alone or in addition to, in tandem with, or in substitution for, any other Award granted under the Plan. If an Award is granted in substitution for another Award, the Board may require the surrender of such other Award in consideration of the grant of the new Award. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards. 81 8 13.2. EXCHANGE PROVISIONS. The Board may at any time offer to exchange or buy out any previously granted Award for a payment in cash, Stock, or another Award (subject to Section 13.1), based on the terms and conditions the Board determines and communicates to the Participant at the time the offer is made. 13.3. TERM OF AWARD. The term of each Award shall be for the period as determined by the Board, provided that in no event shall the term of any Incentive Stock Option or a Stock Appreciation Right granted in tandem with the Incentive Stock Option exceed a period of ten years from the date of its grant. 13.4. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and any applicable law or Award Agreement, payments or transfers to be made by the Company or a Subsidiary on the grant or exercise of an Award may be made in such forms as the Board determines at or after the time of grant, including without limitation, cash, Stock, other Awards, or other property, or any combination, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case determined in accordance with rules adopted by, and at the discretion of, the Board. The Board may also authorize payment in the exercise of an Option by net issuance or other cashless exercise methods. 13.5. LIMITS ON TRANSFER. No right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or a Subsidiary. Except as otherwise provided below, no Award shall be assignable or transferable by a Participant other than by will or the laws of descent and distribution or, with the consent of the Board in its sole discretion and except in the case of an Incentive Stock Option, pursuant to a court order that would otherwise satisfy the requirements to be a domestic relations order as defined in Section 414(p)(1)(B) of the Code, if the order satisfies Section 414(p)(1)(A) of the Code notwithstanding that such an order relates to the transfer of a stock option rather than an interest in an employee benefit plan. In the Award Agreement for any Award other than an Award that includes an Incentive Stock Option, the Board may allow a Participant to assign or otherwise transfer all or a portion of the rights represented by the Award to specified individuals or classes of individuals, or to a trust benefiting such individuals or classes of individuals, subject to such restrictions, limitations, or conditions as the Board deems to be appropriate. 13.6. BENEFICIARIES. Notwithstanding Section 13.5, a Participant may, in the manner determined by the Board, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant's death. A beneficiary, legal guardian, legal representative, or other person claiming any rights under the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Board. If the Participant is married and resides in a jurisdiction in which community property laws apply, a designation of a person other than the Participant's spouse as his beneficiary with respect to more than 50 percent of the Participant's interest in the Award shall not be effective without the written consent of the Participant's spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto under the Participant's will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Board. 13.7. STOCK CERTIFICATES. All Stock certificates delivered under the Plan are subject to any stop-transfer orders and, other restrictions as the Board deems necessary or advisable to comply with federal or state securities laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Board may place legends on any Stock certificate to reference restrictions applicable to the Stock. 13.8 TENDER OFFERS. In the event of a public tender for all or any portion of the Stock, or in the event that a proposal to merge, consolidate, or otherwise combine with another company is submitted for shareholder approval, the Board may in its sole discretion declare previously granted Options to be immediately exercisable. To the extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Section 7.2(d), the excess Options shall be deemed to be Non-Qualified Stock Options. 82 9 13.9. CHANGE OF CONTROL. A Change of Control shall cause every Option outstanding hereunder to become fully exercisable and allow each Participant the right to exercise an Option prior to the occurrence of the event otherwise terminating the Option; provided, however, that in the event (i) the Company's Board of Directors approves a transaction to be accounted for as a "pooling-of-interests" and (ii) the Company's independent accountants have advised the Company in writing that the amendment to this Section 13.9 approved by the Board of Directors on February 17, 1998, precludes such accounting, then, without any further action, such amendment to Section 13.9 shall be null and void, and Section 13.9 shall remain in effect as existing prior to such amendment. ARTICLE 14 CHANGES IN CAPITAL STRUCTURE 14.1. GENERAL. In the event a stock dividend is declared upon the Stock, the shares of Stock then subject to each Award (and the number of shares subject thereto) shall be increased proportionately without any change in the aggregate purchase price therefor. In the event the Stock shall be changed into or exchanged for a different number or class of shares of Stock or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, there shall be substituted for each such share of Stock then subject to each Award (and for each share of Stock then subject thereto) the number and class of shares of Stock into which each outstanding share of Stock shall be so exchanged, all without any change in the aggregate purchase price for the shares then subject to each Award. ARTICLE 15 AMENDMENT, MODIFICATION AND TERMINATION 15.1. AMENDMENT, MODIFICATION AND TERMINATION. With the approval of the Board, at any time and from time to time, the Board may terminate, amend or modify the Plan. However, without approval of the shareholders of the Company or other conditions (as may be required by the Code, by the insider trading rules of Section 16 of the Exchange Act, by any national securities exchange or system on which the Stock is listed or reported, or by a regulatory body having jurisdiction), no such termination, amendment, or modification may: (a) Materially increase the total number of shares of Stock that may be issued under the Plan, except as provided in Section 14.1; (b) Materially modify the eligibility requirements for participation in the Plan; or (c) Materially increase the benefits accruing to Participants under the Plan. 15.2. AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant. ARTICLE 16 GENERAL PROVISIONS 16.1. NO RIGHTS TO AWARDS. No Participant or employee or consultant shall have any claim to be granted any Award under the Plan, and neither the Company nor the Board is obligated to treat Participants and employees or consultants uniformly. 16.2. NO STOCKHOLDERS RIGHTS. No Award gives the Participant any of the rights of a stockholder of the Company unless and until shares of Stock are in fact issued to such person in connection with such Award. 16.3. WITHHOLDING. The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy United States Federal, state, and local taxes (including the Participant's FICA obligation and any withholding obligation imposed by any country other than the United States in which the Participant resides) required by law to be withheld with respect to any taxable event arising as a result of this Plan. With respect to withholding required upon any taxable event under the Plan, Participants may elect, subject to the Board's approval, to satisfy the withholding requirement, 83 10 in whole or in part, by having the Company or any Subsidiary withhold shares of Stock having a Fair Market Value on the date of withholding equal to the amount to be withheld for tax purposes in accordance with such procedures as the Board establishes. The Board may, at the time any Award is granted, require that any and all applicable tax withholding requirements be satisfied by the withholding of shares of Stock as set forth above. 16.4. NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Subsidiary. 16.5. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Subsidiary. 16.6. INDEMNIFICATION. To the extent allowable under applicable law, each member of the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act under the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Articles of Incorporation or By-Laws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. 16.7. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary. 16.8. EXPENSES. The expenses of administering the Plan shall be borne by the Company and its Subsidiaries. 16.9. TITLES AND HEADINGS. The titles and headings of the Sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. 16.10. FRACTIONAL SHARES. No fractional shares of stock shall be issued and the Board shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up. 16.11. SECURITIES LAW COMPLIANCE. With respect to any person who is, on the relevant date, obligated to file reports under Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Board fails to so comply, it shall be void to the extent permitted by law and voidable as deemed advisable by the Board, and such provision or action shall be deemed to be modified so as to comply with Rule 16b-3. 16.12. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register under the Securities Act of 1933, as amended, any of the shares of Stock paid under the Plan. If the shares paid under the Plan may in certain circumstances be exempt from registration under such act, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption. 84 11 16.13. GOVERNING LAW. The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Arizona. 85 EX-10.IV 6 p64736ex10-iv.txt EX-10.IV 1 EXHIBIT (10)(iv) SYNTELLECT, INC. EXECUTIVE 401(K) PLAN 1. PURPOSE The purpose of this Plan is to allow a select group of executives of Syntellect, Inc. to defer receipt of Compensation to which the executives would otherwise be entitled. 2. DEFINITIONS Whenever referred to in this Plan, the following items shall have the meanings set forth below: 2.1. "Compensation" shall have the same meaning as it has under the Salary Deferral Plan, without regard to any election made under this Plan. 2.2. "Salary Deferral Plan" means the Syntellect, Inc. Salary Deferral Plan, as amended from time to time. 2.3. "Employee" means an employee of Employer who has satisfied the eligibility requirements of Section 3, below. 2.4. "Employer" means Syntellect, Inc. and any subsidiary that, with the consent of the Board of Director of Syntellect, adopts this Plan. 2.5. "Committee" means the Committee as provided in the Salary Deferral Plan. 2.6. "Termination of Employment" means any voluntary or involuntary termination of employment, including retirement or death of the Employee, but does not include a transfer from Syntellect to an affiliated company, from an affiliated company to Syntellect or between affiliated companies. 2.7. "Deferral Date" means December of the year preceding the year Compensation is deferred into the Employee's Deferred Compensation Account. 2.8. "Payment Date" means the date selected by the Employee under Section 4.5. 2.9. "Plan Year" means the calendar year. 3. ELIGIBILITY 3.1. An Employee of Syntellect is eligible to participate in this Plan if the Employee's position is Vice President or higher rank as of the Deferral Date, reports directly to the President of Syntellect, Inc. or holds the position of President, and if the Committee so designates him/her for participation. 3.2. If an Employee's position changes during the course of the current Plan Year so that he/she is no longer a Vice President or higher rank, he/she will cease to be eligible for this Plan and any additional deferrals will cease. 3.3. If an Employee attains the position of Vice President or higher rank after the Deferral Date, he/she will not be eligible for participation in this Plan during the current Plan Year. 86 2 4. ELECTION TO DEFER 4.1. An Employee may elect to defer receipt of Compensation by completing the Deferral Election Form prescribed by the Committee, specifying a percentage or fixed dollar amount of weekly or other Compensation to be deferred during the following Plan Year. Deferrals will commence on whichever of the following dates the Employee elects at the time of executing the Deferral Election Form: 4.1.1. The first day of the calendar year for which the election is made, or 4.1.2. The first day of the payroll period following the period during which the Employee's elective deferrals under the Salary Deferral Plan reach the amount specified in Section 402(g) of the Internal Revenue Code. 4.2. The election must be made no later than the Deferral Date. 4.3. An election to defer shall be effective on the date the Employee delivers a completed Deferral Election Form to the Committee; provided, however, that if an Employee subsequently delivers a properly completed Deferral Election Form to the Committee before the Deferral Date, the latest dated Deferral Election Form shall take effect. Once the Deferral Date has passed, the elections made on the Deferral Election Form shall be irrevocable. 4.4. A separate election to defer must be made for each Plan Year. 4.5. The Employee shall elect, when completing the Deferral Election Form, to defer receipt of Compensation until one of the following Payment Dates: 4.5.1. Age 65, 4.5.2. Termination of Employment, 4.5.3. April 1 of any subsequent year(s) provided such date is at least one year from the Deferral Date, 4.5.4. The earlier of Section 4.5.1 or Section 4.5.2, or 4.5.5. The earlier of Section 4.5.2 or Section 4.5.3. 4.6. The Employee shall elect, when completing the Deferral Election Form, to receive his or her deferred Compensation in a lump sum or in unequal or substantially equal annual installments. The maximum number of installments shall be five (5). 5. DEFERRED COMPENSATION AMOUNTS 5.1. Compensation deferred pursuant to Section 4 shall be credited to an account in the name of the Employee (the "Deferred Compensation Account") established for this purpose on the Employer's books. Compensation deferred shall be credited as of the end of the month in which it otherwise would have been paid. 5.2. The balance credited to each Deferred Compensation Account when invested shall be credited weekly, or otherwise as consistent with credits under the investment funds established for this Plan, with a return on investment (or charged with an investment loss). The measure of the investment return shall be equal to the proportionate gain or loss of: 87 3 5.2.1. The investment funds established under the Syntellect, Inc. Executive 401(k) Plan Account established with M&I Trust of Arizona (the "Account") or if there are no funds under the Account, 5.2.2. The investment funds established under the Salary Deferral Plan or if there is no such plan, 5.2.3. Such objective measure as the Committee in its discretion determines. The Employer intends that the Account will be invested as determined by the Committee in its discretion. Such investments may be in seven funds comparable to those established under the Salary Deferral Plan (or such number of funds as are existing from time to time with respect to the Salary Deferral Plan), and in such event for purposes of this Section 5.2, the amounts credited to an Employee's Deferred Compensation Account shall be allocated on the Employer's books among the funds in such percentages as elected by the Employee. The Employee may transfer his/her account balances and/or change where his/her future contributions will be invested among the investment funds up to four (4) times per year on a form satisfactory to the Committee. The Committee, however, retains the final authority in its sole discretion to direct the allocation of the Employee's deferral. The Employee's election may be given at such times as the Committee establishes. 6. EMPLOYER MATCHING CONTRIBUTIONS 6.1. At the end of each month, the Employee's Deferred Compensation Account shall be credited with an Employer Matching Contribution equal to the Compensation that the Employee has deferred for such month, times the applicable Matching Percentage in the following schedule.
Employee's Deferral Matching Percentage ------------------- ------------------- 2% of Compensation 2.0% of Compensation 3% 2.5% 4% 3.0% 5% and up 3.5%
For purposes of the above schedule, the "Employee's Deferral" shall be based on the Employee's elective deferrals under this Plan only. 6.2. An Employee's Matching Contribution Account shall be credited with an investment return in the same manner as Deferred Compensation Accounts under Section 5.2 and, to the extent vested, shall be paid out pursuant to Section 7. 6.3. Employer Matching Contributions shall be vested 33 1/3% per year on December 31 of the first year following the calendar year in which the Participant was first eligible to participate in the Plan, and 33 1/3% additional vesting per year following. For example, if a Participant was first eligible to participate in 2000, their Employer Matching Contributions will be vested 33 1/3% on December 31, 2001; 66 2/3% vested on December 31, 2002, and 100% vested on December 31, 2003. Employer Matching Contribution shall also be 100% vested on the day the Employee attains age 65, dies or becomes totally and permanently disabled while employed by Syntellect, Inc. or an affiliate. Any amounts that are not vested will be forfeited upon Termination of Employment and shall not be restored upon subsequent reemployment with the Employer or an affiliate. In the event of any forfeiture of Employer Matching Contributions, such forfeited amounts shall be used to reduce future Employer Matching Contributions or as otherwise directed by the Committee. 88 4 7. PAYMENT OF DEFERRED COMPENSATION ACCOUNTS 7.1. Amounts credited to an Employee's Deferred Compensation Account and the vested portion of the Employer's Matching Contributions shall be distributed as specified on the Employee's Deferral Election form or upon the earlier occurrence of a terminating event specified below. Any such payment shall be subject to the terms and conditions of this Section 7. 7.2. If an Employee has elected to receive his or her Deferred Compensation Account in installments, the first installment of the vested portion of his or her account shall be distributed within 60 days of the April 1 coinciding with or next following the Payment Date; provided, however, that if the Payment Date occurs within ninety days of April 1, the Committee shall instead make the payment within 60 days of the Payment Date. Subsequent installment payments shall be made within 60 days of each subsequent April 1, regardless of the date on which the first installment is paid. The "Payment Date" for all subsequent installments shall be April 1. 7.3. Notwithstanding the Employee's Deferral Election Form, in the case of Termination of Employment before the Employee attains age 65, the Committee may in its discretion accelerate the time and manner in which the amounts credited to an Employee's Deferred Compensation Account will be distributed. If the Committee decides in its discretion to distribute such Deferred Compensation Account balance amounts in installments, the Committee shall determine the regularity of the installment payments and the length of the installment period, provided, however, that the installment period shall not exceed three years. 7.4. The unpaid balance of all Deferred Compensation Accounts payable in installments, whether by the Employee's election or by the Committee's exercise of its discretion under Section 7.3 above, shall continue to be credited with an investment return as described in Section 5.2 above. 7.5. If an Employee dies before all of the amounts credited to his or her Deferred Compensation Account have been distributed, such unpaid portion shall be paid to the beneficiary designated on the Employee's Beneficiary Designation Form. If no such beneficiary has been designated, such unpaid balance shall be paid to the Employee's designated beneficiary under Syntellect's group life insurance program, if any, and if none is designated (or if the designation fails) then to the Employee's spouse and if there is no spouse, to the Employee's estate. Payments made under this Section will be made in the same form and at the same time(s) as such payments would have been made if the Employee were still living on the date each payment is made; provided, however, that in the event the deceased Employee's Deferral Election Form calls for a lump sum payment in the future or for payment in installments, the Committee may, in its sole discretion, distribute the balance credited to the Employee's Deferred Compensation Account to the Employee's beneficiary in a lump sum as soon as practicable after the Employee's death. 7.6. In the event of an "unforeseeable emergency," a Participant may apply to the Committee for a distribution of part or all of his or her Account prior to the date that it would otherwise be distributed under this Section 7. If the Committee approves such an application, it will make such distribution as a lump sum cash payment. 7.6.1. An "unforeseeable emergency" means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in Section 152(a) of the Code) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. 89 5 7.6.2. The circumstances that will constitute an unforeseeable emergency will depend on the facts of each case, but, in no event will the Committee approve any distribution to the extent that the hardship is or may be relieved through reimbursement or Compensation by insurance or otherwise, or by liquidation of the Participant's assets, to the extent that the liquidation of such assets would not itself cause severe financial hardship. 7.6.3. Examples of foreseeable circumstances which result in normally budgetable expenditures and are not considered to be unforeseeable emergencies include, but are not limited to, the need to send a Participant's child to college or the desire to purchase a home or automobile. 7.6.4. Any amount approved for distribution under this Section 7.6 will be limited to that amount necessary to meet the emergency. The employee shall submit a written request to the Committee and shall certify as to the financial need. The Committee shall have sole discretion to determine whether to make a hardship distribution from an Employee's Deferred Compensation Account and to determine the amount of such distribution, if any. The Committee's decision shall be final and binding on all interested parties. This Section 7.6 supersedes the irrevocability provisions of Section 4.3 but only to the extent of the hardship distribution. 7.7. If the Employee is employed by Syntellect or an affiliate on any Payment Date, the unvested portion of his or her Deferred Compensation Account relative to a particular payment shall not be payable until it becomes vested. Once an amount becomes vested it shall be paid to the Employee in accordance with his election. However, if the date(s) specified in the Employee's election is past, the remaining portion of his or her account relative to any prior payments which has now become vested, shall be paid within 60 days of the next subsequent April 1. 8. PLAN ADMINISTRATION 8.1. This Plan shall be adopted by or pursuant to the authorization of the Board of Directors of Employer and shall be administered by the Committee. 8.2. This Plan may be amended in any way or may be terminated in whole or in part, at any time, in the discretion of the Committee. No amendment or termination of the Plan shall adversely affect the amount in any Deferred Compensation Account prior to or as of the effective date of such amendment or termination. 8.3. The Committee shall have the sole authority, in its discretion, to adopt, amend and rescind such rules and regulations as it deems advisable in the administration of the Plan, to construe and interpret the Plan, the rules and regulations, and Deferral Election Forms, and to make all other determinations deemed necessary or advisable for the administration of the Plan. All decisions, determinations, and interpretations of the Committee shall be binding on all persons. The Committee may delegate its responsibilities as it sees fit. 9. NO FUNDING OBLIGATION 9.1. It is the intent of the Committee to establish the Syntellect, Inc. Executive 401(k) Plan Account with M&I Trust of Arizona for purposes of investing the Employee's Deferred Compensation Account in the investment funds as established under the Salary Deferral Plan or with investment funds which closely approximate the objectives of the funds established under the Salary Deferral Plan. 9.2. While it is the Committee's intent to establish an account in accordance with Section 9.1, the Employer is under no obligation to transfer amounts credited to the Employee's Deferred Compensation Account to any account, trust or escrow account, and the Employer is under no 90 6 obligation to secure any amount credited to an Employee's Deferred Compensation Account by any specific assets of any Employer, or any assets in which any Employer has an interest. This Plan shall not be construed to require the Employer to fund any of the benefits provided hereunder nor to establish a trust for such purpose. The Employer may make such arrangements as it desires to provide for the payment of benefits. Neither the Employee nor his or her estate shall have any rights against the Employer with respect to any portion of the Deferred Compensation Account except as a general unsecured creditor. No Employee has an interest in his or her Deferred Compensation Account until the Employee actually receives the deferred payment. Neither the Employee nor his or her estate shall have any legal or equitable rights against any member of the Committee or the Syntellect Board of Directors. 10. NON-ALIENATION OF BENEFITS No benefit under this Plan may be sold, assigned, transferred, conveyed, hypothecated, encumbered, anticipated, or otherwise disposed of, and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by an Employee, be in any manner subject to the debts, contracts, liabilities, engagements, or torts of such Employee. 11. LIMITATION OF RIGHTS Nothing in this Plan shall be construed to limit in any way the right of the Employer to terminate an Employee's employment at any time for any reason whatsoever with or without cause; nor shall it be evidence of any agreement or understanding, express or implied, that the Employer (i) will employ an Employee in any particular position, (ii) will ensure participation in any incentive program(s), or (iii) will grant any awards from such program(s). 12. APPLICABLE LAW This Plan shall be construed and its provision enforced and administered in accordance with the law of the State of Arizona except as otherwise provided in the Employee Retirement Income Security Act of 1974, as amended. 91 EX-10.V 7 p64736ex10-v.txt EX-10.V 1 EXHIBIT (10)(v) SYNTELLECT INC. NONEMPLOYEE DIRECTOR STOCK PLAN (AS AMENDED THROUGH JUNE 1, 2000) ARTICLE I ESTABLISHMENT, PURPOSE, AND DURATION 1.1. Establishment of the Plan. Syntellect Inc. a Delaware corporation, hereby establishes the Syntellect Inc. Nonemployee Director Stock Plan (the "Plan") for the benefit of its Nonemployee Directors. The Plan sets forth the terms of one-time and annual grants of Nonqualified Stock Options to Nonemployee Directors. All such grants are subject to the terms and provisions set forth in this Plan. 1.2. Purpose of the Plan. The purpose of the Plan is to encourage ownership in the Company by Nonemployee Directors, to strengthen the ability of the Company to attract and retain the services of experienced and knowledgeable individuals as Nonemployee Directors of the Company, and to provide Nonemployee Directors with a further incentive to work for the best interests of the Company and its shareholders. 1.3. Effective Date. The Plan is effective as of the date approved by the Company's shareholders (the "Effective Date"). The Plan will be deemed to be approved by the shareholders if it receives the affirmative vote of the holders of a majority of the shares of stock of the Company present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable provisions of the Delaware General Corporation Law and the Company's By-Laws and Certificate of Incorporation. Any Awards granted under the Plan prior to shareholder approval are effective when made, but no Award may be exercised or settled before shareholder approval. If the shareholders fail to approve the Plan, any Award previously made shall be automatically cancelled without any further act. 1.4. Duration of the Plan. The Plan shall remain in effect until such time as the Plan is terminated by the Board of Directors pursuant to Article 7 or Section 8.4. ARTICLE 2 DEFINITIONS AND CONSTRUCTION 2.1. Definitions. For purposes of the Plan, the following terms will have the meanings set forth below: (a) "Award" means a grant of Nonqualified Stock Options under the Plan. (b) "Board" or "Board of Directors" means the Board of Directors of the Company, and includes any committee of the Board of Directors designated by the Board to administer this Plan. (c) "Change of Control" means and includes each of the following: (1) there shall be consummated any consolidation or merger of the Company in which the Company is not the continuing or surviving entity, or pursuant to which Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Stock immediately prior to the merger have the same proportionate ownership of beneficial interest of common stock or other voting securities of the surviving entity immediately after the merger; (2) there shall be consummated any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of assets or earning power aggregating more than 40% of the assets or earning power of the Company and its subsidiaries (taken as a whole); (3) the shareholders of the Company shall approve any plan or proposal for liquidation or dissolution of the Company; 92 2 (4) any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act), other than any employee benefit plan of the Company or any subsidiary of the Company or any entity holding shares of capital stock of the Company for or pursuant to the terms of any such employee benefit plan in its role as an agent or trustee for such plan, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 20% or more of the Company's outstanding Stock; or (5) during any period of two consecutive years, individuals who at the beginning of such period shall fail to constitute a majority thereof, unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. (d) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (e) "Committee" means the committee appointed by the Board to administer the Plan. (f) "Company" means Syntellect Inc., a Delaware corporation, or any successor as provided in Section 8.3. (g) "Disability" means a permanent and total disability, within the meaning of Section 22(e)(3) of the Code. To the extent permitted pursuant to Section 16 of the Exchange Act, Disability shall be determined by the Board in good faith, upon receipt of sufficient competent medical advice from one or more individuals, selected by the Board, who are qualified to give professional medical advice. (h) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor provision. (i) "Fair Market Value" means the closing price for Shares on the relevant date, or (if there were no sales on such date) the closing price on the immediately preceding date on which such sales occurred, as reported in The Wall Street Journal or a similar publication selected by the Committee. (j) "Grant Date" means, for Options issued under Section 6.1, the third business day after the date the Nonemployee Director is elected or appointed to the Board of Directors, and for Options issued under Section 6.2, June 1, 1995 and each anniversary of that date through and including June 1, 1998. (k) "Nonemployee Director" means any individual who is a member of the Board of Directors of the Company, but who is not otherwise an employee of the Company. (l) "Nonqualified Stock Option" or "NQSO" means an option to purchase Shares, granted under Article 6, that is not intended to be an incentive stock option qualifying under Section 422 of the Code. (m) "Option" means a Nonqualified Stock Option granted under the Plan. (n) "Participant" means a Nonemployee Director of the Company who has been granted an Award under the Plan. (o) "Shares" means the shares of the Company's common stock described in the Company's Certificate of Incorporation. 2.2. Gender and Number. Except as indicated by the context, any masculine term also shall include the feminine, the plural shall include the singular, and the singular shall include the plural. 2.3. Severability of Provisions. With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors 93 3 under the Exchange Act. To the extent any provision of the Plan or action by the Board fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board, and the remaining provisions of the Plan or actions by Board shall be construed and enforced as if the invalid provision or action had not been included or undertaken. 2.4. Incorporation by Reference. In the event this Plan does not include a provision required by Rule 16b-3 to be stated herein, such provision (other than one relating to eligibility requirements or the price and amount of Awards) shall be deemed automatically to be incorporated by reference herein, insofar as Participants subject to Section 16 of the Exchange Act are concerned. ARTICLE 3 ADMINISTRATION 3.1. The Committee. The Plan will be administered by the Committee, subject to the restrictions set forth in the Plan. 3.2. Administration by the Committee. The Committee has the full power, discretion, and authority to interpret and administer the Plan in a manner that is consistent with the Plan's provisions. However, the Committee does not have the power to (i) determine Plan eligibility, or to determine the number, the price, the vesting period, or the timing of Awards to be made under the Plan to any Participant or (ii) take any action that would result in the Awards not being treated as "formula awards" within the meaning of Rule 16b3(c)(ii) or any successor provision, promulgated pursuant to the Exchange Act. 3.3. Decisions Binding. The Committee's determinations and decisions under the Plan, and all related orders or resolutions of the Board shall be final, conclusive, and binding on all persons, including the Company, its stockholders, employees, Participants, and their estates and beneficiaries. ARTICLE 4 SHARES SUBJECT TO THE PLAN 4.1. Number of Shares. The total number of Shares available for grant under the Plan may not exceed 50,000, subject to adjustment as provided in Section 4.3. The Shares issued pursuant to the exercise of Options granted under the Plan may be authorized and unissued Shares or Shares reacquired by the Company, as determined by the Committee. 4.2. Lapsed Awards. If any Option granted under the Plan terminates, expires, or lapses for any reason, any Shares subject to purchase pursuant to such Option again will be available for grant under the Plan. 4.3. Adjustments in Authorized Shares. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split-up, Share combination, or other change in the corporate structure of the Company affecting the Shares, the number and/or type of Shares subject to any outstanding Award, and the Option exercise price per Share under any outstanding Option will be automatically adjusted so that the proportionate interests of the Participants will be maintained as before the occurrence of such event. ARTICLE 5 ELIGIBILITY AND PARTICIPATION 5.1. Eligibility. Eligibility to participate in the Plan is limited to Nonemployee Directors. 5.2. Actual Participation. All eligible Nonemployee Directors will receive a grant of Options pursuant to Article 6. 94 4 ARTICLE 6 GRANT OF OPTIONS 6.1. One-Time Grant of Options. An Option to purchase 10,000 Shares shall be granted to each Nonemployee Director on the third business day after the date the Nonemployee Director is first elected or appointed to the Board of Directors. The specific terms of the Options are subject to the provisions of this Article 6 and the Option Agreement executed pursuant to Section 6.3. 6.2. Annual Grant of Options. Each individual who is a Nonemployee Director on the relevant Grant Date will be granted an Option to purchase 2,000 Shares, subject to the limitations on the number of Shares that may be awarded under the Plan. The specific terms of the Options are subject to the provisions of this Article 6 and the Option Agreement executed pursuant to Section 6.3. 6.3. Option Agreement. The grant of Options will be evidenced by an Option Agreement that will not include any terms or conditions that are inconsistent with the terms and conditions of this Plan. 6.4. Option Exercise Price Per Share. The Option exercise price per Share under any Option granted pursuant to this Article 6 shall be the Fair Market Value of such Share on the Grant Date (the "Exercise Price"). 6.5. Duration of Options. Each Option granted to a Participant under this Article 6 shall expire on the sixth (6th) anniversary date of the Grant Date, unless the Option is earlier terminated, forfeited, or surrendered pursuant to a provision of this Plan. 6.6. Vesting of Options Subject to Exercise. Subject to Section 1.3, the Options granted to the Participants under this Article 6 shall vest and become subject to exercise in accordance with the following schedule: No part of (i) an Option granted under Section 6.1, or (ii) each annual Option granted under Section 6.2 may be exercised until the first anniversary of the Grant Date of such Option, at which time 24% of the Shares subject to the Option shall vest and may be acquired upon exercise. Thereafter, an additional 2% of the Shares subject to the Option shall vest per month may be acquired upon exercise until the Option is fully vested. 6.7. Exercise of Disposition of Options. Participants shall be entitled to exercise any Option that has vested at any time within the period beginning with the Grant Date and ending six (6) years after the Grant Date; provided, however, that the disposition by a Participant of any Shares acquired pursuant to the exercise of an Option shall occur only after the end of the six (6) month period beginning on the date that Company's shareholders approve the Plan. 6.8. Payment. Options are exercised by delivering a written notice of exercise to the Secretary of the Company, setting forth the number of Options to be exercised and accompanied by a payment equivalent to the product of the number of Options exercised multiplied by the Exercise Price (the "Total Exercise Price"). The Total Exercise Price is payable: (a) in cash or its equivalent; (b) by tendering previously acquired Shares having a Fair Market Value at the time of exercise equal to the Total Exercise Price; (c) by a combination of (a) and (b). As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant's name, Share certificates in an appropriate amount based upon the number of Shares purchased pursuant to the exercise of the Options. 6.9. Restrictions on Share Transferability. To the extent necessary to ensure that Options granted under this Article 6 comply with applicable law, the Board shall impose restrictions on the transferability of any Shares acquired pursuant to the exercise of an Option under this Article 6, including, without limitation, restrictions 95 5 under applicable Federal securities laws, under the requirements of any Stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares. 6.10. Termination of Services on Board of Directors Due to Death or Disability. If a Participant's service on the Board is terminated by reason of death or Disability, any outstanding Options held by the Participant that are not fully vested are immediately forfeited and returned to the Company. Any outstanding options held by the Participant that are fully vested will remain fully vested and subject to exercise. To the extent an Option is fully vested and exercisable as of the date of death or Disability, it will remain exercisable for one year after the date of death or Disability by the Participant or such person or persons as shall have been named as the Participant's legal representative or beneficiary, or by such persons as shall have acquired the Participant's Options by will or by the laws of descent and distribution. Any Option that is fully vested but not exercised during this one-year period after death or Disability will be immediately forfeited to the Company. 6.11. Termination of Service on Board of Directors for Other Reasons. If the Participant's service on the Board is terminated for any reason other than for death or Disability, any outstanding Options held by the Participant that are not fully vested as of the date of termination are immediately forfeited to the Company. To the extent an Option is fully vested and exercisable as of such date, it will remain exercisable for ninety (90) days after the date the Participant's service on the Board terminates. Any Option that is fully vested but not exercised during this ninety (90) day period after termination of service will be immediately forfeited to the Company. 6.12. Limitations on the Transferability of Options. No Option granted under this Article 6 may be sold, transferred, pledged, assigned, or otherwise alienated, other than by will, the laws of descent and distribution, or under any other circumstances allowed by the Committee that would not violate the transferability restrictions contained in Rule 16b-3(a)(2) or any successor provision. 6.13. Change of Control. A Change of Control shall cause every Option outstanding hereunder to become fully exercisable and allow each Participant the right to exercise an Option prior to the occurrence of the event otherwise terminating the Option. ARTICLE 7 AMENDMENT, MODIFICATION, AND TERMINATION 7.1. Amendment, Modification, and Termination. Subject to the terms set forth in this Section 7.1, the Committee may terminate, amend, or modify the Plan at any time; provided, however, that shareholder approval is required for any Plan amendment that would materially increase the benefits to Participants or the number of securities that may be issued, or materially modify the eligibility requirements in the Plan. Further, Plan provisions relating to the amount, price, and timing of securities to be awarded under the Plan may not be amended more than once every six (6) months, other than to comport with changes in the Code, the Employee Retirement Income Security Act, or the rules thereunder. 7.2. Awards Previously Granted. Unless required by law, no termination, amendment, or modification of the Plan shall in any manner adversely affect any Award previously granted under the Plan, without the written consent of the Participant holding the Award. ARTICLE 8 MISCELLANEOUS 8.1. Indemnification. Each individual who is or shall have been a member of the Board or the Committee shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under this Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to assume and defend the same before he or she undertakes to defend it on his or her own behalf. 96 6 The foregoing right if indemnification shall not be exclusive of any other rights of indemnification to which such individuals may be entitled under the Company's Certificate of Incorporation or By-Laws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. 8.2. Beneficiary Designation. Each Participant under the Plan may name any beneficiary or beneficiaries to whom any benefit under the Plan is to be paid in the event of his or her death. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his or her lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. 8.3. Successors. All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. 8.4. Requirements of Law. The granting of Awards under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. Notwithstanding any other provision of the Plan, the Committee may, in its sole discretion, terminate, amend, or modify the Plan in any way necessary to comply with the applicable requirements of Rule 16b-3 promulgated by the Securities and Exchange Commission as interpreted pursuant to no-action letters and interpretive releases. 8.5. Governing Law. To the extent not preempted by Federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Arizona. 97 EX-10.VI 8 p64736ex10-vi.txt EX-10.VI 1 EXHIBIT (10)(vi) OFFICE LEASE AGREEMENT SYNTELLECT, INC. BELL ROAD & I-17 16610 N. BLACK CANYON HWY. SUITE #100 TABLE OF CONTENTS
PAGE ---- ARTICLE 1. SUMMARY AND DEFINITION OF CERTAIN LEASE PROVISIONS AND EXHIBITS 1 ARTICLE 2. PREMISES/RIGHT TO USE COMMON AREAS............................. 1 ARTICLE 3. TERM........................................................... 2 ARTICLE 4. MINIMUM MONTHLY RENT........................................... 2 ARTICLE 5. ADDITIONAL RENT/EXPENSE STOP................................... 2 ARTICLE 6. PARKING........................................................ 2 ARTICLE 7. RENT TAX AND PERSONAL PROPERTY TAXES........................... 3 ARTICLE 8. PAYMENT OF RENT/LATE CHARGES................................... 3 ARTICLE 9. SECURITY DEPOSIT............................................... 3 ARTICLE 10. CONSTRUCTION OF THE PREMISES................................... 3 ARTICLE 11. ALTERATIONS .................................................. 3 ARTICLE 12. PERSONAL PROPERTY/SURRENDER OF PREMISES........................ 3 ARTICLE 13. LIENS.......................................................... 3 ARTICLE 14. USE OF PREMISES/RULES AND REGULATIONS.......................... 3 ARTICLE 15. RIGHTS RESERVED BY LANDLORD.................................... 4 ARTICLE 16. QUIET ENJOYMENT................................................ 4 ARTICLE 17. MAINTENANCE AND REPAIR......................................... 4 ARTICLE 18. UTILITIES AND JANITORIAL SERVICES.............................. 4 ARTICLE 19. ENTRY AND INSPECTION........................................... 4 ARTICLE 20. ACCEPTANCE OF THE PREMISES/LIABILITY INSURANCE................. 4 ARTICLE 21. CASUALTY INSURANCE............................................. 5 ARTICLE 22. DAMAGE AND DESTRUCTION OF PREMISES............................. 5 ARTICLE 23. EMINENT DOMAIN................................................. 5 ARTICLE 24. ASSIGNMENT AND SUBLETTING...................................... 5 ARTICLE 25. SALE OF PREMISES BY LANDLORD................................... 5 ARTICLE 26. SUBORDINATION/ATTORNMENT/MODIFICATION/ASSIGNMENT............... 5 ARTICLE 27. LANDLORD'S DEFAULT AND RIGHT TO CURE........................... 6 ARTICLE 28. ESTOPPEL CERTIFICATES.......................................... 6 ARTICLE 29. TENANT'S DEFAULT AND LANDLORD'S REMEDIES....................... 6 ARTICLE 30. TENANT'S RECOURSE.............................................. 6 ARTICLE 31. HOLDING OVER................................................... 6 ARTICLE 32. GENERAL PROVISIONS............................................. 6 ARTICLE 33. NOTICES........................................................ 7 ARTICLE 34. BROKER'S COMMISSIONS........................................... 7 ARTICLE 35. INDEMNIFICATION/WAIVER OF SUBROGATION ......................... 7 ARTICLE 36. ADDENDUM....................................................... ADDENDUM-1
EXHIBITS: (A) PREMISES (2 PAGES) (B) RULES AND REGULATIONS (C) PARKING RULES AND REGULATIONS Landlord: _____ Tenant: _____ 98 2 OFFICE LEASE AGREEMENT THIS OFFICE LEASE AGREEMENT, dated March 6, 2000 is made and entered into by DENALI NATIONAL TRUST, INC. an Alaska Corporation, (the "Landlord") and SYNTELLECT, Inc. a Delaware Corporation (the "Tenant"). In consideration of the mutual promises and representations set forth in this Lease, Landlord and Tenant agree as follows: ARTICLE 1. SUMMARY AND DEFINITION OF CERTAIN LEASE PROVISIONS AND EXHIBITS 1.1 The following terms and provisions of this Lease, as modified by other terms and provisions hereof, are included in this Section 1.1 for summary and definitional purposes only. If there is any conflict or inconsistency between any term or provision in this Section 1.1 and any other term or provision of this Lease, the other term or provision of this Lease shall control: (a) Landlord: Denali National Trust, Inc., an Alaska Corporation. (b) Address of Landlord for Notices: Denali National Trust, Inc. 8383 E. Evans Rd. Scottsdale, Arizona 85260 Attn: Scott Hugie (c) Tenant: SYNTELLECT, Inc. (d) Address of Tenant for Notices: SYNTELLECT, Inc. (Include Main/Hdq. Address) 16610 N. Black Canyon Hwy, Suite 100 Phoenix, Arizona 85023 (e) Lease Term: July 15, 2000 through October 31, 2005 as further defined in Article 3 and subject to the conditions outlined in Paragraphs 1 & 2 of the Addendum to Office Lease Agreement attached herein. (f) Building: The office building located at 16610 N. Black Canyon Hwy., Phoenix, Arizona 85023. (g) Premises: Suite 100 on the first floor of the Building, as shown on Exhibit A, consisting of approximately 37,301 Rentable Square Feet. (h) Minimum Monthly Rent: $62,168.33 plus applicable sales tax for each full calendar month during months 3-39 of the Lease Term, and $65,867.35 plus applicable sales tax for each full calendar month during months 40-63 of the Lease Term and commencing on or about July 15, 2000 through October 31, 2005 Tenant shall not pay the Minimum Monthly Rent for the first three months of the Lease, but shall pay its electrical charges. This is a "Modified-Gross Lease in which the Tenant is responsible for paying its own electrical charges in addition to the Minimum Monthly Rent. (i) Tenant's Base Share: (see Article 5). (j) Expense Stop: $4.85 per square foot. (k) Security Deposit: A Security Deposit of $63,500.00 is required at the time the Lease is signed by Tenant. (l) Parking: Thirty-seven (37) covered reserved spaces included at no extra charge. Parking is provided on a 5:1,000 square foot basis. 99 3 1.2 The following exhibits (the "Exhibits") and addenda are attached hereto and incorporated herein by this reference: Exhibit A Premises (2 Pages) Exhibit B Building Rules and Regulations Exhibit C Parking Rules and Regulations Addendum to Office Lease Agreement (the "Addendum"), dated of even date herewith. The Office Lease Agreement, the Addendum, and the Exhibits are collectively referred to herein as the "Lease." ARTICLE 2. PREMISES/RIGHT TO USE COMMON AREAS 2.1 Landlord leases to Tenant and Tenant leases from Landlord the Premises, for and subject to the terms and provisions set forth in this Lease. This Lease is subject to all liens, encumbrances, parking and access easements, restrictions, covenants, and all other matters of record, the Rules and Regulations described in Article 14 and the Parking Rules and Regulations described in Article 6. Tenant and Tenant's agents, contractors, customers, directors, employees, invitees, officers, and patrons (collectively, the "Tenant's Permittees") have a non-exclusive privilege and license, during the Lease Term, to use the non-restricted Common Areas in common with all other authorized users thereof. Landlord: _____ Tenant: _____ 100 4 2.2 For purposes of this Lease, the following terms have the definitions set forth below: (a) "Automobile Parking Areas" means all areas designated for automobile parking upon the Land. Automobile Parking Areas are Common Areas, but certain parking areas are restricted. (See Parking Rules & Regulations). (b) "Common Areas" means those areas within the Building and Land not leased to any tenant and which are intended by Landlord to be available for the use, benefit, and enjoyment of all occupants of the Building. (c) "Interior Common Facilities" means lobbies, corridors, hallways, elevator foyers, restrooms, mail rooms, mechanical and electrical rooms, janitor closets, and other similar facilities used by tenants or for the benefit of tenants on a non-exclusive basis. Access to certain Interior Common Facilities is restricted. (d) "Land" means the parcel of land containing the Building; (e) "Load Factor" means the quotient of the Rentable Square Footage of the Building divided by the aggregate Usable Square Footage of all premises and occupiable space in the Building, and is subject to change from time to time. (f) "Rentable Square Footage" means (1) with respect to the Building, the sum of the total area of all floors in the Building (including Interior Common Facilities but excluding stairs, elevator shafts, vertical shafts, parking areas and exterior balconies), computed by measuring to the exterior surface of permanent outside walls; and (2) with respect to the Premises, the Usable Square Footage of the Premises multiplied by the Load Factor. (g) "Usable Square Footage" means the area of the Premises (or other space occupiable by tenants as the case may be) computed by measuring to the exterior surface of permanent outside walls, to the midpoint of corridor and demising walls and to the Tenant side of permanent interior walls and Interior Common Facilities walls (other than corridor walls). ARTICLE 3. TERM The term of this Lease shall be sixty-three (63) months, plus the remainder of any partial calendar month in which the Lease Term commences, commencing on July 15, 2000, the Commencement Date, and expiring October 31, 2005. ARTICLE 4. MINIMUM MONTHLY RENT Tenant shall pay to Landlord, without deduction, setoff, prior notice, or demand, the Minimum Monthly Rent, payable in advance on the first day of each calendar month during the Lease Term. If the Lease Term commences on a date other than the first day of a calendar month, the Minimum Monthly Rent for that month shall be prorated on a per diem basis and be paid to Landlord on or before the Commencement Date. ARTICLE 5. ADDITIONAL RENT/EXPENSE STOP Tenant shall pay as additional rent each year the amount, if any, by which the Tenant's Share of Operating Costs during each Operating Year of the Lease Term exceeds the Base Share. For purposes of this lease, "Base Share" means an amount equal to the product of the Rentable Square Footage of the Premises multiplied by the Expense Stop. If the Lease Term begins or ends anytime other than the first or last day of an Operating Year, Operating Costs and the Tenant's Share thereof shall be prorated. Prior to the end of each Operating Year, Landlord shall provide Tenant with a written statement of Landlord's estimate of Operating Costs and Tenant's Estimated Share for the next succeeding Operating Year. If the Estimated Share exceeds the Tenant's Base Share, Tenant shall pay Landlord, concurrently with each payment of the Minimum Monthly Rent for the next Operating Year, an amount equal to one-twelfth (1/12) of the amount by which the Estimated Share exceeds the Base Share. Landlord may, at any time, revise the Estimated Share and adjust the required monthly payment accordingly. Within ninety (90) days after the end of each Operating Year, Landlord shall provide Tenant with a statement showing Tenant's Share of the actual Operating Costs for the preceding Operating Year (the Actual Share). If the Actual Share exceeds the Estimated Share paid by Tenant during that Operating Year, Tenant shall pay the excess at the time the next 101 5 succeeding payment of Minimum Monthly Rent is payable (or within ten (10) days if the lease term has expired or been terminated. If the Actual Share is less than the Estimated Share paid by Tenant, Landlord shall apply such excess to payments next falling due under this Article (or refund the same to Tenant or credit amounts due from Tenant if the Lease Term has expired or been terminated). In the event the Building is not fully occupied during any Operating Year, an adjustment shall be made by Landlord in calculating the Operating Costs for such Operating Year so that the Operating Costs shall be adjusted to the amount that would have been incurred had the Building been fully occupied during such Operating Year. For purposes of this Lease (a) "Operating Costs" means and includes all costs of management, maintenance, and operation of the Project, including but not limited to the costs of cleaning, repairs, utilities (except electricity), air conditioning, heating, plumbing, elevator, parking, landscaping, insurance, property taxes and special assessments, and all other costs which can properly be considered operating expenses but excluding costs of property additions, alterations for tenants, leasing commissions, advertising, depreciation, interest, income taxes and administrative costs not specifically incurred in the management, maintenance and operation of the Project; and (b) "Operating Year" means a year beginning January 1 and ending December 31. Tenants with leases expiring or terminating prior to the end of the Operating Year shall be responsible for their portion of Operating Costs above Tenant's Base Share based on Landlord's estimate of Operating Costs. Tenant shall not be responsible for increases in "Controllable Costs" in excess of five per-cent (5.00%) per year. ARTICLE 6. PARKING Nothing contained herein shall be deemed to create liability upon Landlord for any damage to motor vehicles of Tenant's Permittees, or from loss of property from within such motor vehicles while parked in the Automobile Parking Areas. Landlord has the right to establish and to enforce against all users of the Automobile Parking Areas, reasonable rules and regulations (the "Parking Rules and Regulations). Landlord shall assign and identify Reserved Parking Spaces. Landlord will not police nor be responsible for any vehicle parked in Tenant's reserved parking space. Landlord: _____ Tenant: _____ 102 6 ARTICLE 7. RENT TAX AND PERSONAL PROPERTY TAXES Tenant shall pay to Landlord, in addition to, and simultaneously with, any other amounts payable to Landlord under this Lease, a sum equal to the aggregate of any municipal, county, state, or federal excise, sales, use, or transaction privilege taxes now or hereafter legally levied or imposed against, or on account of, any amounts payable under this Lease by Tenant or the receipt thereof by Landlord. Tenant shall pay, prior to delinquency, all taxes levied upon fixtures, furnishings, equipment, and personal property placed on the Premises by Tenant. ARTICLE 8. PAYMENT OF RENT/LATE CHARGES Tenant shall pay the rent and all other charges specified in this Lease to Landlord at the address set forth on Section 1.1(b) of this Lease, or to another person and at another address as Landlord from time to time designates in writing. Minimum Monthly Rent, additional rent, or other charges payable by Tenant to Landlord under the terms of this Lease not received within ten (10) days after the due date (the "Delinquency Date") thereof shall automatically (and without notice) incur a late charge of five percent (5%) of the delinquent amount. ARTICLE 9. SECURITY DEPOSIT Tenant shall, upon execution of this Lease, deposit with Landlord the Security Deposit, as security for the performance of terms and provisions of this Lease by Tenant, which shall be returned to Tenant at the termination of the Lease if it has discharged its obligations to Landlord in full. The Security Deposit shall not be used to pay the last month's lease payment. ARTICLE 10. CONSTRUCTION OF THE PREMISES Landlord shall construct Tenant's Leasehold Improvements, in accordance with plans and specifications prepared by Landlord's architect. Prior to the Commencement Date, any work performed by Tenant or any fixtures or personal property moved onto the Premises shall be at Tenant's own risk and neither Landlord nor Landlord's agents or contractors shall be responsible to Tenant for damage or destruction of Tenant's property, including damage or destruction occasioned by Landlord's own negligence. ARTICLE 11. ALTERATIONS After completion of Landlord's construction obligations under Article 10, Tenant shall not make or cause to be made any further additions to, or alterations of, the Premises or any part thereof without the prior written consent of Landlord. ARTICLE 12. PERSONAL PROPERTY/SURRENDER OF PREMISES All personal property located in the Premises shall remain the property of Tenant and may be removed by Tenant not later than the Expiration Date or the earlier termination of the Lease Term. Tenant shall promptly repair, at its own expense, any damage resulting from such removal. All cabinetry, built-in appliances, wall coverings, floor coverings, window coverings, electrical fixtures, plumbing fixtures, conduits, lighting, and other special fixtures that may be placed upon, installed in, or attached to the Premises by Tenant shall, at the termination of this Lease be the property of Landlord. At the Expiration Date or upon the earlier termination of the Lease Term, Tenant shall surrender the Premises in good condition, reasonable wear and tear excepted, and shall deliver all keys to Landlord. ARTICLE 13. LIENS Tenant shall keep the Premises, Building, and the Land free from any liens arising out of work performed, material furnished, or obligations incurred due to the actions of Tenant or Tenant's Permittees or the failure of Tenant to comply with any law. In the event any such lien does attach against the Premises, Building, or Land, and Tenant does not discharge the lien or post bond (which under law would prevent foreclosure or execution under the lien) within ten (10) days after demand by Landlord, such event shall be a default by Tenant under this Lease and, in addition to Landlord's other rights and remedies, Landlord may take any action necessary to discharge the lien. 103 7 ARTICLE 14. USE OF PREMISES/RULES AND REGULATIONS 14.1 Without the prior approval of Landlord, Tenant shall not use the Premises for any use other than for general business office purposes and Tenant agrees that it will use the Premises in such manner as to not interfere with or infringe on the rights of other tenants in the Building. Tenant agrees to comply with all applicable laws, ordinances and regulations in connection with its use of the Premises, agrees to keep the Premises in a clean and sanitary condition, and agrees not to perform any act in the Building which would increase any insurance premiums related to the Building or would cause the cancellation of any insurance policies related to the Building. 14.2 Tenant shall not use, generate, manufacture, store, or dispose of, in, under, or about the Premises, the Building, the Land, or the Project or transport to or from the Premises, the Building, the Land, or the Project, any Hazardous Materials. For purposes of this Lease, "Hazardous Materials" includes, but is not limited to: (i) flammable, explosive, or radioactive materials, hazardous wastes, toxic substances, or related materials; (ii) all substances defined as "hazardous substances," "hazardous materials," "toxic substances," or "hazardous chemical substances or mixtures" in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq., as amended by Superfund Amendments and Re-authorization Act of 1986; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1901, et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601, et seq.; (iii) those substances listed in the United States Department of Transportation Table (49 CFR 172.10 and amendments thereto) or by the Environmental Protection Agency (or any successor agent) as hazardous substances (40 CFR Part 302 and amendments thereto); (iv) any material, waste, or substance which is (A) petroleum, (B) asbestos, (C) polychlorinated biphenyl's, (D) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. S 1251 et seq. (33 U.S.C. Section 1321) or listed pursuant to the Clean Water Act (33 U.S.C. Section 1317); (E) flammable explosives; or (F) radioactive materials; and (v) all substances defined as "hazardous wastes" in Arizona Revised Statutes Section 36-3501 (16). Landlord: _____ Tenant: _____ 104 8 ARTICLE 15. RIGHTS RESERVED BY LANDLORD In addition to all other rights, Landlord has the following rights, exercisable without notice to Tenant and without effecting an eviction, constructive or actual, and without giving right to any claim for set off or abatement of rent: (a) to decorate and to make repairs, alterations, additions, changes, or improvements in and about the Building during Building Hours (b) to approve the weight, size, and location of heavy objects in and about the Premises and the Building, and to require all such items to be moved into and out of the Building and Premises in such manner as Landlord shall direct in writing; (c) to prohibit the placing of vending machines in or about the Premises without the prior written consent of Landlord; (d) to take all such reasonable measures for the security of the Building and its occupants; (e) to relocate the Premises to another location of substantially equivalent size and location in the Building provided such relocation does not increase the Minimum Monthly Rent or other costs payable by Tenant under this Lease. If Landlord elects to move Tenant, the suite into which Tenant is re-located shall have substantially similar Leasehold Improvements as were in the original Premises and Landlord will pay Tenant's reasonable costs of moving to the new location, including incidental costs such as reprinting stationery and new Signage, but Landlord will have no other liability to Tenant with respect to relocation and (f) to temporarily block off parking spaces for maintenance or construction purposes. ARTICLE 16. QUIET ENJOYMENT Landlord agrees that, provided a default by Tenant has not occurred, Landlord will do nothing that will prevent Tenant from quietly enjoying and occupying the Premises during the Lease Term. Tenant agrees this Lease is subordinate to the Rules and Regulations described in Article 14, and the Parking Rules and Regulations described in Article 6. ARTICLE 17. MAINTENANCE AND REPAIR Landlord shall maintain the Premises and Building in good condition and repair, reasonable wear and tear excepted. Tenant waives all rights to make repairs at the expense of Landlord. If Landlord would be required to perform any maintenance or make any repairs because of: (a) modifications to the roof, walls, foundation, and floor of the Building from that set forth in Landlord's plans and specifications which are required by Tenant's design for improvements, alterations and additions; (b) installation of Tenant's improvements, fixtures, or equipment; (c) a negligent or wrongful act of Tenant or Tenant's Permittees; or, (d) Tenant's failure to perform any of Tenant's obligations under this Lease, Landlord may perform the maintenance or repairs and Tenant shall pay Landlord the cost thereof. Tenant agrees to: (a) Pay Landlord's cost of maintenance and repair, including additional janitorial costs of any Non-Building Standard Improvements and Non-Building Standard materials and finishes and (b) Repair or replace all ceiling and wall finishes (including painting) and floor or window coverings which require repair or replacement during the Lease Term, at Tenant's sole cost. Notwithstanding anything in this Lease to the contrary, to the extent the terms and provisions of Article 22 conflict with, or are inconsistent with, the terms and provisions of this Article 17, the terms and provisions of Article 22 shall control. Tenant shall take all reasonable precautions to insure that the Premises are not subjected to excessive wear and tear, i.e. chair pads should be utilized by Tenant to protect carpeting. Tenant shall be responsible for touch-up painting in the Premises throughout the Lease term. ARTICLE 18. UTILITIES AND JANITORIAL SERVICES Landlord agrees to furnish to the Premises during normal Building Hours as defined in Article 1.1 (m), (the "Building Hours"), and subject to the Rules and Regulations, electricity suitable for the intended use of the Premises (for which Tenant shall apply and maintain its own account and pay in addition to the Minimum Monthly Rent), heat and air conditioning required in Landlord's judgment for normal use and occupation of the Premises, and janitorial services for the Premises and Common Areas. Landlord further agrees to furnish hot and cold water to those areas provided for general use of all tenants in the Building. If Tenant shall require water, heating, cooling, or air which will result in excess consumption of such utilities or services, Tenant shall first obtain the written consent of Landlord to the use thereof. If, in Landlord's reasonable discretion, Tenant consumes any utilities or services in excess of the normal consumption of such utilities and services for general office use, Tenant agrees to pay Landlord for the cost of such excess consumption of utilities or services upon receipt of a statement of such costs from Landlord at the same time as payment of the Minimum Monthly Rent is made. 105 9 Landlord shall not be liable for damages nor shall rent or other charges abate in the event of any failure or interruption of any utility or service supplied to the Premises or Building by a regulated utility or municipality, or any failure of a Building system supplying any such service to the Premises (provided Landlord uses diligent efforts to repair or restore the same) and no such failure or interruption shall entitle Tenant to abate rent or terminate this Lease. ARTICLE 19. ENTRY AND INSPECTION Landlord shall have the right to enter into the Premises at reasonable times for the purpose of inspecting the Premises and reserves the right, during the last three months of the term of the Lease, to show the Premises at reasonable times to prospective tenants. Landlord shall be permitted to take any action under this Article without causing any abatement of rent or liability to Tenant for any loss of occupation or quiet enjoyment of the Premises, nor shall such action by Landlord be deemed an actual or constructive eviction. ARTICLE 20. ACCEPTANCE OF THE PREMISES/LIABILITY INSURANCE 20.1 All personal property and fixtures belonging to Tenant shall be placed and remain on the Premises at Tenant's sole risk. Upon taking possession of the Premises and thereafter during the Lease Term, the Tenant shall, at Tenant's sole cost and expense, maintain insurance coverage with limits not less than the following: (a) Worker's Compensation Insurance, minimum limit as defined by applicable laws; (b) Employer's Liability Insurance, minimum limit $1,000,000; (c) Commercial General Liability Insurance, Bodily Injury/Property, Damage Insurance (including the following coverages: Landlord: _____ Tenant: _____ 106 10 Premises/Operations, Independent Contractors, Broad Form Contractual in support of the indemnification obligations of Tenant under this Lease, and Bodily and Personal Injury Liability), minimum combined single limit $1,000,000; (d) Automobile Liability Insurance, minimum limit $1,000,000. All such policies shall include a waiver of subrogation in favor of Landlord and shall name Landlord and such other party or parties as Landlord may require as additional insureds. Tenant's insurance shall be primary, with any insurance maintained by Landlord to be considered excess. Tenant's insurance shall be maintained with an insurance company qualified to do business in the State of Arizona and having a current A.M. Best manual rating of at least A-X or better. Before entry into the Premises and before expiration of any policy, evidence of these coverage's represented by Certificates of Insurance issued by the insurance carrier must be furnished to Landlord. Certificates of Insurance should specify the additional insured status, the waiver of subrogation, and that such insurance is primary, and any insurance by Landlord is excess. The Certificate of Insurance shall state that Landlord will be notified in writing thirty (30) days before cancellation, material change, or renewal of insurance. 20.2 During the entire Lease Term, Landlord agrees to maintain public liability insurance in such forms and amounts as Landlord shall determine. ARTICLE 21. CASUALTY INSURANCE 21.1 Tenant shall maintain fire and extended coverage insurance (full replacement value) with a business interruption and extra expense endorsements, on personal property and trade fixtures owned or used by Tenant. 21.2 Landlord shall maintain fire and full extended coverage insurance ("all risk") including necessary endorsements throughout the Lease Term on the Building (excluding Tenant's trade fixtures and personal property). At Landlord's option, the policy of insurance may include a business interruption insurance endorsement for loss of rents. The cost of the insurance obtained under this Section 21.2 shall be an Operating Cost under Article 5 of this Lease. ARTICLE 22. DAMAGE AND DESTRUCTION OF PREMISES In the event of fire or other casualty damage to the Premises during the Lease Term which requires repairs to the Premises, Landlord shall commence to make said repairs within sixty (60) days after written notice by Tenant of the necessity therefor and diligently proceed therewith to completion. The Minimum Monthly Rent shall be proportionately reduced while such repairs are being made, based upon the extent to which the making of such repairs shall interfere with the business carried on by Tenant in the Premises. Landlord shall have no obligation to repair, restore, or replace Tenant's trade fixtures or personal property and Tenant shall be solely responsible therefor. Notwithstanding the above, if (a) during the last year of the Lease Term the Premises or the Building is damaged as a result of fire or any other insured casualty, or (b) the Premises are damaged to the extent of twenty-five percent (25%) or more of the replacement value of the Premises, or (c) the Premises or the Building is damaged or destroyed as a result of a casualty not insured against, or (d) the Building shall be damaged or destroyed by fire or other cause to the extent of twenty percent (20%) or more of the Building's replacement value, then Landlord shall have the right, to be exercised by notice in writing to Tenant given within ninety (90) days after said occurrence, to terminate this Lease. Tenant waives any statutory or other right Tenant may have to cancel this Lease as a result of such destruction and no such destruction shall annul or void this Lease. The provisions of this Article shall supersede the obligations of Landlord to make repairs under Article 17 of the Lease. Notwithstanding the provisions of this Article 22, if the Premises or any other portion of the Building are damaged by fire or other casualty resulting from the negligent act or omission or willful misconduct of Tenant or Tenant's Permittees, Minimum Monthly Rent shall not be reduced during the repair of the damage, and Tenant shall be liable to Landlord for the cost and expense of the repair and restoration of the Premises or the Building caused thereby to the extent that cost and expense is not covered by insurance proceeds. ARTICLE 23. EMINENT DOMAIN In the event any portion of the Premises is taken from Tenant under eminent domain proceedings, Tenant shall have no right, title or interest in any award made for such taking, except for any separate award for fixtures and improvements installed by Tenant. 107 11 ARTICLE 24. ASSIGNMENT AND SUBLETTING Tenant agrees not to assign this Lease, and shall not sublet the Premises without Landlord's prior written consent. Any assignment or subletting hereunder shall not release or discharge Tenant of or from any liability under this Lease, and Tenant shall continue to be fully liable thereunder. Consent by Landlord to one assignment, subletting, occupation, or use by another person shall not be deemed to be consent to any subsequent assignment, subletting, occupation, or use by another person. If Tenant is a corporation, an unincorporated association or a partnership, unless listed on a national stock exchange, the transfer, assignment or hypothecation of any stock or interest in such corporation, association or partnership in the aggregate in excess of fifty percent (50%) shall be deemed an assignment of this Lease. Tenant agrees to immediately notify Landlord of any change in its ownership. ARTICLE 25. SALE OF PREMISES BY LANDLORD In the event of any sale of the Building or the property upon which the Building is located or any assignment of this Lease by Landlord (or a successor in title), if the assignee or purchaser assumes the obligations of Landlord herein in writing, Landlord (or such successor) shall automatically be entirely freed and relieved of all liability under any and all of Landlord's covenants and obligations contained in this Lease or arising out of any act, occurrence, or omission occurring after such sale or assignment; and the assignee or purchaser shall be deemed, without any further agreement between the parties, to have assumed and agreed to carry out any and all of the covenants and obligations of Landlord under this Lease, and shall be substituted as Landlord for all purposes from and after the sale or assignment. ARTICLE 26. SUBORDINATION/ATTORNMENT/MODIFICATION/ASSIGNMENT Tenant's interest under this Lease is subordinate to all terms of and all liens and interests arising under any ground lease, deed of trust, or mortgage now or hereafter placed on the Landlord's interest in the Premises, the Building, or the Land. Tenant consents to an assignment of Landlord: _____ Tenant: _____ 108 12 Landlord's interest in this Lease to Landlord's lender as required under such financing. If the Premises or the Building is sold as a result of a default under the mortgage, or pursuant to a transfer in lieu of foreclosure, Tenant shall, at the mortgagee's, purchaser's or ground lessor's sole election, attorn to the mortgagee or purchaser. This Article is self-operative. However, Tenant agrees to execute and deliver, if Landlord, any deed of trust holder, mortgagee, or purchaser should so request, such further instruments necessary to subordinate this Lease to a lien of any mortgage or deed of trust, to acknowledge the consent to assignment and to affirm the ATTORNMENT provisions set forth herein. ARTICLE 27. LANDLORD'S DEFAULT AND RIGHT TO CURE In the event of default hereunder by Landlord, Tenant agrees, before exercising any right or remedy available to it, to give Landlord written notice of the claimed default. For the thirty (30) days following such notice (or such longer period of time as may be reasonably required to cure a matter which, due to its nature, cannot reasonably be remedied within thirty (30) days), Landlord shall have the right to cure the default involved. ARTICLE 28. ESTOPPEL CERTIFICATES Tenant agrees at any time and from time to time upon request by Landlord, to execute, acknowledge, and deliver to Landlord, within ten (10) calendar days after demand by Landlord, a statement in writing certifying (a) that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating such modifications), (b) the dates to which the Minimum Monthly Rent and other rent and charges have been paid in advance, if any, (c) Tenant's acceptance and possession of the Premises, (d) the commencement of the Lease Term, (e) the rent provided under the Lease, (f) that Landlord is not in default under this Lease (or if Tenant claims such default, the nature thereof), (g) that Tenant claims no offsets against the rent, and (h) such other information as may be requested with respect to the provisions of this Lease or the tenancy created by this Lease. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, and (iii) that not more than one month's rent has been paid in advance. ARTICLE 29. TENANT'S DEFAULT AND LANDLORD'S REMEDIES In the event Tenant fails to keep and perform any of the terms or conditions of this Lease, including the Rules and Regulations and the Parking Rules and Regulations (but excluding the payment of rental), and such failure continues for thirty (30) days after written notice of default from Landlord or in the event Tenant fails to pay any rental due hereunder, time being of the essence, Landlord may resort to any and all legal remedies or combination of remedies which Landlord may desire to assert including but not limited to one or more of the following: (1) lock the doors to the Premises and exclude Tenant therefrom, (2) retain or take possession of any property on the Premises pursuant to Landlord's lien, (3) enter the Premises and remove all persons and property therefrom, (4) declare the Lease canceled and terminated, (5) sue for the rent due and to become due under the Lease, and for any damages sustained by Landlord and (6) continue the Lease in effect and relet the Premises on such terms and conditions as Landlord may deem advisable with Tenant remaining liable for the monthly rent plus the reasonable cost of obtaining possession of the Premises and of reletting the Premises, and of any repairs and alterations necessary to prepare the Premises for reletting, less the rentals received from such reletting, if any. No action of Landlord shall be construed as an election to terminate the Lease unless written notice of such intention be given to Tenant. Tenant agrees to pay as additional rental all attorneys' fees and other costs and expenses incurred by Landlord is enforcing any of Tenant's obligations under this Lease. 109 13 ARTICLE 30. TENANT'S RECOURSE Anything in this Lease to the contrary notwithstanding, Tenant agrees to look solely to the estate and property of Landlord in the Land and the Building, subject to prior rights of any ground lessor, mortgagee, or deed of trust of the Land and Building or any part thereof, for the collection of any judgment requiring the payment of money by Landlord in the event of any default by Landlord under this Lease. Tenant agrees that it is prohibited from using any other procedures for the satisfaction of Tenants' remedies. Neither Landlord nor any of its respective officers, directors, employees, heirs, successors, or assigns, shall have any personal liability of any kind or nature, directly or indirectly, under or in connection with this Lease. ARTICLE 31. HOLDING OVER Subject to prior written consent by Landlord, if Tenant holds over after the Expiration Date, or any extension thereof, Tenant shall be a tenant at sufferance, the Minimum Monthly Rent shall be increased to 125% of the then current lease rate at the Building or the Tenant's lease rate at the time the Lease expired, whichever is higher, plus any amounts due under Article 5, which shall be payable in advance on the first day of such holdover period and on the first day of each month thereafter. Tenant will be considered to be on a month-to-month basis during any holdover period. ARTICLE 32. GENERAL PROVISIONS 32.1 This Lease is construed in accordance with the laws of the State of Arizona. 32.2 If Tenant is composed of more than one person or entity, then the obligations of such entities or parties are joint and several. 32.3 If any term, condition, covenant, or provision of this Lease is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms, conditions, covenants, and provisions hereof shall remain in full force and effect and shall in no way be affected, impaired, or invalidated. 32.4 The various headings and numbers herein and the grouping of the provisions of this Lease into separate articles and sections are for the purpose of convenience only and are not be considered a part hereof. Landlord: _____ Tenant: _____ 110 14 32.5 Subject to the provisions of the Lease, time is of the essence of this Lease. 32.6 In the event either party initiates legal proceedings or retains an attorney to enforce any right or obligation under this Lease or to obtain relief for the breach of any covenant hereof, the party ultimately prevailing in such proceedings or the non-defaulting party shall be entitled to recover all costs and reasonable attorneys' fees. 32.7 This Lease, and any Exhibit or Addendum attached hereto, set forth all the terms, conditions, covenants, provisions, promises, agreements, and undertakings, either oral or written, between the Landlord and Tenant. No subsequent alteration, amendment, change, or addition to this Lease is binding upon Landlord or Tenant unless reduced to writing and signed by both parties. 32.8 Subject to Article 24, the covenants herein contained shall apply to and bind the heirs, successors, executors, personal representatives, legal representatives, administrators, and assigns of all the parties hereto. 32.9 No term, condition, covenant, or provision of this Lease shall be waived except by written waiver of Landlord, and the forbearance or indulgence by Landlord in any regard whatsoever shall not constitute a waiver of the term, condition, covenant, or provision to be performed by Tenant to which the same shall apply, and until complete performance by Tenant of such term, condition, covenant, or provision, Landlord shall be entitled to invoke any remedy available under this Lease or by law despite such forbearance or indulgence. The waiver by Landlord of any breach or term, condition, covenant, or provision hereof shall apply to and be limited to the specific instance involved and shall not be deemed to apply to any other instance or to any subsequent breach of the same or any other term, condition, covenant, or provision hereof. Acceptance of rent by Landlord during a period in which Tenant is in default in any respect other than payment of rent shall not be deemed a waiver of the other default. Any payment made in arrears shall be credited to the oldest amount outstanding and no contrary application will waive this right. 32.10 The use of a singular term in this Lease shall include the plural and the use of the masculine, feminine, or neuter genders shall include all others. 32.11 Landlord's submission of a copy of this Lease form to any person, including Tenant, shall not be deemed to be an offer to lease or the creation of a lease unless and until this Lease has been fully signed and delivered by Landlord. 32.12 Every term, condition, covenant, and provision of this Lease, having been negotiated in detail and at arm's length by both parties, shall be construed simply according to its fair meaning and not strictly for or against Landlord or Tenant. 32.13 If the time for the performance of any obligation under this Lease expires on a Saturday, Sunday, or legal holiday, the time for performance shall be extended to the next succeeding day which is not a Saturday, Sunday, or legal holiday. 32.14 If requested by Landlord, Tenant shall execute written documentation with signatures acknowledged by a notary public, to evidence when and if Landlord or Tenant has met certain obligations under this Lease. ARTICLE 33. NOTICES Wherever in this Lease it is required or permitted that notice or demand be given or served by either party to or on the other, such notice or demand shall be in writing and shall be given or served and shall not be deemed to have been duly given or served unless (a) in writing; (b) either (1) delivered personally, (2) deposited with the United States Postal Service, as registered or certified mail, return receipt requested, bearing adequate postage, or (3) sent by overnight express courier (including, without limitation, Federal Express, DHL Worldwide Express, Airborne Express, United States Postal Service Express Mail) with a request that the addressee sign a receipt evidencing delivery; and (c) addressed to the party at its address in Section 1.1. Either party may change such address by written notice to the other. Service of any notice or demand shall be deemed completed forty-eight (48) hours after deposit thereof, if deposited with the United States Postal Service, or upon receipt if delivered by overnight courier or in person. 111 15 ARTICLE 34. BROKER'S COMMISSIONS Tenant represents and warrants that there are no claims for brokerage commissions or finder's fees in connection with this Lease (excepting commissions or fees approved or authorized in writing by Landlord). ARTICLE 35. INDEMNIFICATION/WAIVER OF SUBROGATION 35.1 Tenant shall indemnify, defend, and hold Landlord and any lender of Landlord harmless against all Claims (as defined below) and costs incurred by Landlord arising from: (a) any act or omission of Tenant or Tenant's Permittees which results in personal injury, loss of life, or property damage sustained in and about the Premises, the Building, or the Land; (b) attachment or discharge of a lien upon the Premises, the Building, or the Land; (c) Tenant's and Tenant's Permittees' use, generation, storage, release, threatened release, discharge, disposal, or presence of Hazardous Materials on, under, or about the Premises, the Building, or the Land; (d) any default of Tenant under this Lease; and (e) any claims for brokerage commissions or finder's fees in connection with this Lease (excepting commissions or fees authorized in writing by Landlord). As used in this Lease, "Claims" means any claim, suit, proceeding, action, cause of action, responsibility, demand, judgment and execution, and attorneys' fees and costs related thereto or arising therefrom. 35.2 Tenant hereby releases, discharges, and waives any right of recovery from Landlord and Landlord's agents, directors, officers, and employees, and Landlord hereby releases, discharges, and waives any right of recovery from Tenant and Tenant's Permittees, from all Claims, liabilities, losses, damages, expenses, or attorneys' fees and costs incurred arising from or caused by any peril required to be covered by insurance obtained by Landlord or Tenant under this Lease, or covered by insurance in connection with (a) property on the Premises, the Building, or the Land; (b) activities conducted on the Premises, the Building, or the Land; and (c) obligations to Landlord: _____ Tenant: _____ 112 16 indemnify under this Lease, regardless of the cause of the damage or loss. Landlord and Tenant shall give their respective insurance carriers notice of these waivers and shall secure an endorsement from each carrier to the effect that the waivers given in this Article 35 shall not adversely affect or impair the policies of insurance or prejudice the right of the named insured on the policy to recover thereunder. These waivers apply only to the extent such Claims, liabilities, losses, damages, expenses, or attorneys' fees are covered by insurance required pursuant to this Lease. 35.3 Notwithstanding anything in this Lease to the contrary, Landlord shall not be responsible or liable to Tenant for any Claims for loss or damage caused by the acts or omissions of any persons occupying any space elsewhere in the Building. IN WITNESS WHEREOF, the parties have duly executed this Lease as of the day and year first above written. LANDLORD TENANT DENALI NATIONAL TRUST, INC. SYNTELLECT, Inc. 3/28/00 3-21-00 ----------------------------- ----------------------------------- By: James Lentine By: ------------------------------- Its: Vice President Its: ------------------------------ -------------------- ------------------------- Date Date Landlord: _____ Tenant: _____ 113 17 ADDENDUM TO OFFICE LEASE AGREEMENT ARTICLE 36. ADDENDUM This Addendum is attached to and incorporated by reference in that certain Office Lease Agreement, dated March 6, 2000 by Denali National Trust, Inc., an Alaska corporation (the "Landlord"), and SYNTELLECT, Inc. a Delaware CORPORATION (the "Tenant"). The Office Lease Agreement, the exhibits thereto, and this Addendum shall constitute one agreement (the "Lease"). In the event of any conflict or inconsistency between the terms, conditions, covenants, and provisions of the Office Lease Agreement or its exhibits, and the terms, conditions, covenants, and provisions of this Addendum, the terms, conditions, covenants, and provisions of this Addendum control. 1. Landlord shall provide the Premises in turnkey condition per the attached space plan (Exhibit "A"). 2. Tenant acknowledges the Building is under construction at the time this lease is executed. Based on the current construction schedule and the status of the project, Landlord expects to complete the build-out of the Premises one-hundred (100) days ("Build-out days") after the building permit for the Premises is obtained. Landlord shall apply for the building permit upon approval of the space plan and execution of the Lease by both Landlord and Tenant. 3. Tenant shall have ten (10) days ("Tenant days") during the above referenced "Build-out days" in which to complete its cabling and installation and furniture assembling. The "Tenant days" shall be co-ordinated with and subject to the Landlord's approval so as to minimize interference with each other's personnel. If the "Tenant days" exceed their allocated ten (10) days, then Landlord's "Build-out days" may increase commensurately for every day that the "Tenant days" exceed ten (10) days. If the Premises are not substantially complete enough that Tenant can reasonably take occupancy of them on or before the scheduled Commencement Date, Landlord shall not be deemed to be in default under the Lease, however, rent and other charges hereunder shall not commence until Tenant can reasonably take possession of the Premises, i.e. Landlord's work is substantially complete except for minor "Punch List" items. 4. If not in default of any of the terms and conditions of the Lease, Tenant is granted a right of first refusal for the adjacent spaces in the Building. If Landlord receives a bona fide offer (the "Offer to Lease") to lease space on either side of the Premises, Landlord shall notify Tenant in writing of this Offer to Lease. Tenant shall have four (4) business days in which to notify Landlord in writing that it is willing to lease the space under the same terms or conditions as contained in the Offer to Lease, or such other terms and conditions mutually acceptable to Landlord and Tenant 5. Landlord shall pay $30,000 toward Tenant's cabling requirements upon completion of the cabling work and Tenant's occupancy of the Premises. If Tenant wishes to upgrade its carpet from Landlord's 30oz. cut-pile "Building Standard" carpet, Landlord shall provide a credit in the amount of $10.50 per square yard. 6. If Tenant is not currently in default of the terms and conditions of the Lease, and so long as Tenant has not been in default more than two (2) times during the initial term of the Lease, Tenant shall have the option to renew the Lease for an additional three (3) years, at the then current market rate for the Building, with twelve (12) months prior written notice from the expiration date. LANDLORD TENANT DENALI NATIONAL TRUST, INC. SYNTELLECT, Inc. /s/ James Lentine /s/ Keith Pekkala - ----------------------------- ----------------------------------- By: James Lentine By: Keith A. Pekkala Its: Vice President Its: Vice President & Controller 3-28-00 3/28/00 - ----------------------------- ----------------------------------- Date Date Landlord: _____ Tenant: _______ 114 18 EXHIBIT "B" RULES AND REGULATIONS 1. Tenant will refer all contractors, contractor's representatives and installation technicians rendering any service to Tenant, to Landlord for Landlord's supervision, approval and control before performance of any contractual service. This provision shall apply to all work performed in the Building including installations of telephones, telegraph equipment, electrical devices and attachments, and installations of any nature affecting doors, walls, woodwork, trim, windows, ceilings, equipment or any other physical portion of Building. 2. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by any Tenant nor shall any changes be made in existing locks or the mechanism thereof without consulting the Landlord. 3. Movement in or out of the Building of furniture or office equipment, or dispatch or receipt by Tenant of any merchandise or materials which require use of stairways, elevators or movement through Building entrance or lobby shall be restricted to hours designated by Landlord. All such movement shall be under supervision of Landlord and in the manner agreed between Tenant and Landlord by pre-arrangement before performance. Such pre-arrangement initiated by Tenant will include determination by Landlord and subject to its decision and control, as to the concerns which may prohibit any article, equipment or any other item from being brought into the Building. Tenant is to assume all risk as to damage to articles moved and injury to persons or public engaged or not engaged in such movement, including equipment, property, and personnel or Landlord if damaged or injured as a result of acts in connection with carrying out this service for Tenant' from time of entering property to completion of work; and Landlord shall not be liable for acts of any person engaged in, or any damage or loss to any of said property or persons resulting from, any act in connection with such service performed for Tenant. Any hand trucks, carryalls or similar appliances used for the delivery or receipt of merchandise or equipment shall be equipped with rubber tires, side guards and such other safeguards as the Building shall reasonably require. 4. No signs, advertisements or notices shall be painted or affixed on or to any windows or doors, or other parts of the Building, except of such color, size and style and in such places, as shall be first approved in writing by Landlord. No nails, hooks or screws shall be driven or inserted in any part of the Building, except by the Building maintenance personnel, nor shall any part be defaced by Tenant. Building standard suite entrance signs to premises shall be placed thereon by a contractor designated by Landlord at Landlord's expense. 5. Tenant shall not place, install or operate on the Premises or in part of the Building, any engine, refrigerating (other than a home-type kitchen refrigerator), heating or air conditioning apparatus, stove or machinery, or conduct mechanical operations or cook thereon (other than in a home-type microwave oven) or therein, or place in or about the Premises any explosives, gasoline, kerosene, oil, acids, caustics or any other inflammable, explosives, hazardous or odorous material without the prior written consent of Landlord. No portion of the Premises shall at any time be used for cooking, sleeping or lodging quarters. No Tenant shall cause or permit any unusual or objectionable odors to be produced upon or permeate from the leased Premises. 6. Landlord will not be responsible for lost or stolen personal property, equipment, money or jewelry from the Building, the Premises, or any other area on or about the Property, regardless of whether such loss occurs when these areas were locked against entry or not. 7. No birds or animals shall be brought into or kept in or about the Building. 8. Employees of Landlord shall not receive or carry messages for or to Tenant or other person, nor contract with or render free or paid services to Tenant or Tenant's agents, employees, or invitees. 9. Landlord will not permit entrance to Tenant's offices by use of pass keys controlled by Landlord to any person at any time without written permission by Tenant, except employees, contractors, or service personnel directly supervised by Landlord. 10. The entries, passages, doors, elevators and elevator doors (if provided), hallways or stairways shall not be blocked or obstructed; no rubbish, litter, trash, or material of any nature shall be placed, emptied or thrown into these areas, and such areas shall not be used at any time except for ingress or egress by Tenant, Tenant's agents, employees or invitees to or from the Premises. 11. Plumbing fixtures and appliances shall be used only for purposes for which constructed, and no sweepings, rubbish, rags or other unsuitable material shall be thrown or placed therein. Damage resulting to any such fixtures or appliances from misuse by Tenant, its employees, agents, visitors or licensees shall be paid by Tenant, and Landlord shall not in any case be responsible therefor. 12. The Landlord desires to maintain the highest standards of environmental comfort and convenience for all Tenants. It will be appreciated if any undesirable conditions or lack of courtesy or attention are reported directly to the management. Tenant shall give immediate notice to the Building Manager in case of accidents in the Premises 115 19 or in the common areas or of defects therein or in any fixtures or equipment, or of any known emergency in the Building. 13. No Tenant shall make, or permit to be made, any unseemly or disturbing noises, interfere with occupants of this or neighboring buildings or premises, or those having business with them, whether by the use of any device, musical instrument, radio, unmusical noise, whistling, singing, or in any other way interfering with others' quiet enjoyment of the building. 14. Landlord shall have the right to make such other and further reasonable rules and regulations as in the judgment of Landlord may from time to time be needful for the safety, appearance, care and cleanliness of the Building and for the preservation of good order therein. Landlord shall not be responsible to Tenant for any violations of rules and regulations by other Tenants. 15. All Tenants shall adhere to and obey all such parking control measures as may be placed into effect by the Landlord through the use of signs, identifying decals or other instructions. No bicycles or other vehicles of any kind shall be brought into or kept on the Premises except in designated areas specified for parking of such vehicles. 16. No safes or other objects, larger or heavier than the Building is limited to carry, shall be brought into or installed on the Premises. The Landlord shall have the power to prescribe the weight and position of such safes or other objects which shall, if considered necessary by the Landlord, be required to be supported by such additional materials placed on the floor as the Landlord may direct, and at the expense of the Tenant. 17. Landlord shall have no obligation to repair, restretch, or replace carpeting, but will spot-clean and sweep carpeting as part of any janitorial services required to be furnished by Landlord under the Lease. 18. Names to be replaced on or removed from directories should be furnished to the manager in writing on Tenant's letterhead. All directory strips will be at the expense of the Tenant. Landlord will determine size and uniformity of strips. 19. All Tenants shall see that doors of their premises are closed and securely locked before leaving the Building and must observe strict care not to leave such doors open and exposed to the weather or other elements. Tenant shall exercise extraordinary care and caution that all Landlord: _____ Tenant: _____ 116 20 water faucets or water apparatus are entirely shut off before the Tenant or the Tenant's employees leave the Building, and that all electricity, gas and air conditioning shall likewise be carefully shut off, so as to prevent waste or damage, where controlled by Tenant. 20. Janitorial services shall be provided five days per week in and about the Premises, and in no case shall such services be provided for Saturdays, Sundays and holidays (legal). Tenants shall not cause unnecessary labor by reason of carelessness or indifference in the preservation of good order and cleanliness. The work of the janitor or cleaning personnel shall not be hindered by Tenant after 5:30 p.m., and such work may be done at any time when the offices are vacant. The windows, doors and fixtures may be cleaned at any time without interruption of purpose for which the Premises are let. Tenant shall provide adequate waste and rubbish receptacles, cabinets, bookcases, map cases, etc. necessary to prevent unreasonable hardship to Landlord in discharging its obligation regarding cleaning service. Boxes should be broken down to fit into containers. 21. Canvassing, soliciting and peddling in the Building are prohibited. All Tenants shall cooperate to prevent the same. 22. All nail holes are to be patched and repaired in Tenant's suite by Tenant upon vacating Premises. 23. All holiday decorations and other temporary or special decorations must be flame-retardant. No live Christmas trees or candles are to be used throughout the Building. No decorations should be hung on the exterior windows or on exterior suite doors. 24. There shall be no smoking permitted in the Building. Landlord: _____ Tenant: _____ 117 21 EXHIBIT "C" PARKING RULES AND REGULATIONS The parking rules & regulations are designed to assure our tenants and visitors safe use and enjoyment of the facilities. Please remove or hide any personal items of value from plain sight to avoid temptation leading to vandalism of vehicles. Please exercise added caution when using parking lot at night. Please keep vehicle locked at all times. Please report violations of these rules to the Property Manager immediately. Please report any lights out or other possibly dangerous situations to the Property Manager as soon as possible. Types of Parking Surface - Covered All surface-covered spaces are reserved and assigned to tenants. These spaces are available for lease only. Additional Reserved Parking spaces will be leased on a 90-day prepaid basis. (Contact Property Manager for information). Visitor Parking Visitor parking is for clients and visitors to the building. Tenants and employees should not use these spaces. Handicap Parking Only vehicles displaying handicap plates or official handicap placards may park in the spaces designated as handicap parking. Surface - Uncovered All surface uncovered parking spaces, not marked handicap or reserved, are available for use by tenants and employees. Hours For Parking Restrictions - - Damage caused by vehicles is the responsibility of vehicle owner. - - Landlord is not responsible for theft or damage to any vehicle. - - Landlord is not responsible for water damage from leaks in the canopy. - - Landlord is not responsible for damage due to height limitations of the canopy. - - Vehicles not to exceed 5 miles per hour speed limit in the parking areas. - - Vehicles that leak excessive fluids will be required to protect parking surface. - - Mechanical repairs to vehicles are not permitted on property. - - Large or oversize vehicles such as motor homes, boats or trailers are not permitted. - - No parking in fire lanes, loading zones or any other areas not designated as a parking space. - - Landlord, at Landlord's sole discretion, may add or modify the parking rules. Violations of rules & regulations may result in towing from the Property. Towing from the Property can only be ordered by Landlord or Property Manager. Charges for towing are to be paid by vehicle owner. Landlord: _____ Tenant: _____ 118 EX-11 9 p64736ex11.txt EX-11 1 EXHIBIT (11) SYNTELLECT INC. COMPUTATION OF NET INCOME (LOSS) PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, ------------------------ 2000 1999 1998 -------- -------- -------- Numerator: Numerator for basic and diluted income (loss) per share -- net income (loss) $ 2,242 $ (1,866) $ (2,618) ======== ======== ======== Denominator: Denominator for basic income (loss) per share -- weighted average number of common shares outstanding during the period 11,742 13,034 13,441 Incremental common shares attributable to exercise of outstanding common stock options 957 -------- -------- -------- Denominator for diluted income (loss) per share 12,699 13,034 13,441 ======== ======== ======== Basic net income (loss) per share $ 0.19 $ (0.14) $ (0.19) ======== ======== ======== Diluted net income (loss) per share $ 0.18 $ (0.14) $ (0.19) ======== ======== ========
The computation of diluted loss per share for 1999 and 1998 excluded the effect of incremental common shares numbering 565,400 and 317,933, respectively, attributable to the exercise of common stock options because their effect would be anti-dilutive. 119 EX-21 10 p64736ex21.txt EX-21 1 EXHIBIT (21) SYNTELLECT INC. SUBSIDIARIES OF REGISTRANT Syntellect Canada Inc., an Ontario corporation Syntellect Europe Limited, a corporation formed under the laws of the United Kingdom Syntellect Deutschland GmbH Syntellect Technology Corp. Syntellect Interactive Services, Inc. 120 EX-23 11 p64736ex23.txt EX-23 1 EXHIBIT (23) [KPMG LETTERHEAD] INDEPENDENT AUDITORS' CONSENT The Board of Directors Syntellect Inc.: We consent to incorporation by reference in the registration statements (Nos. 333-58029, 333-58027, 333-44587, 333-2368, 333-2302, 33-96472, 33-96464, 33-63642, 33-48638, 33-35976, 33-48637, 33-35973, 33-42704, 33-35974 and 333-48870) filed on Form S-8 of Syntellect Inc. of our report dated February 7, 2001, relating to the consolidated balance sheets of Syntellect Inc. and subsidiaries as of December 31, 1999 and 2000, and the related consolidated statements of operations and comprehensive income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000, which report appears in Form 10-K of Syntellect Inc. /s/ KPMG LLP Phoenix, Arizona March 30, 2001 -----END PRIVACY-ENHANCED MESSAGE-----