-----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, EfyBE53+7wRMwdPHT9jkZKESkYk7iau+p8vFSI62n7vWPFZWeay0RyxiexaikJ2z uumI+BvG0lPYb02zM+5Sbw== 0000950134-97-004309.txt : 19970530 0000950134-97-004309.hdr.sgml : 19970530 ACCESSION NUMBER: 0000950134-97-004309 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970529 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERVOICE INC CENTRAL INDEX KEY: 0000764244 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 751927578 STATE OF INCORPORATION: TX FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13616 FILM NUMBER: 97616234 BUSINESS ADDRESS: STREET 1: 17811 WATERVIEW PKWY CITY: DALLAS STATE: TX ZIP: 75255 BUSINESS PHONE: 2146693988 10-K 1 FORM 10-K FOR YEAR ENDED FEBRUARY 28, 1997 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1997 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ----- ---- -------------- COMMISSION FILE NUMBER: 0-13616 INTERVOICE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 75-1927578 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER) 17811 WATERVIEW PARKWAY DALLAS, TEXAS 75252 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 454-8000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: TITLE OF EACH CLASS ------------------- COMMON STOCK, NO PAR VALUE PREFERRED SHARE PURCHASE RIGHTS INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ] AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NONAFFILIATES AS OF MAY 19,1997: $180,140,027 NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 19, 1997: 16,192,362 DOCUMENTS INCORPORATED BY REFERENCE LISTED BELOW ARE DOCUMENTS PARTS OF WHICH ARE INCORPORATED HEREIN BY REFERENCE AND THE PART OF THIS REPORT INTO WHICH THE DOCUMENT IS INCORPORATED: (1) PROXY STATEMENT FOR THE 1997 ANNUAL MEETING OF SHAREHOLDERS - PART III. =============================================================================== 2 TABLE OF CONTENTS
PAGE ---- PART I ITEM 1. Business.......................................................... 1 Call Automation Industry.......................................... 1 Markets........................................................... 2 Product Strategy.................................................. 3 Products and Services............................................. 4 Competition....................................................... 6 Distribution...................................................... 6 Backlog........................................................... 7 Proprietary Rights................................................ 7 Manufacturing and Facilities...................................... 8 Employees......................................................... 8 ITEM 2. Properties........................................................ 9 ITEM 3. Legal Proceedings................................................. 9 ITEM 4. Submission of Matters to a Vote of Security Holders............... 9 PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................................. 10 ITEM 6. Selected Financial Data.......................................... 10 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 11 ITEM 8. Financial Statements and Supplementary Data...................... 16 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................... 30 PART III ITEM 10. Directors and Executive Officers of the Registrant.............. 31 ITEM 11. Executive Compensation.......................................... 31 ITEM 12. Security Ownership of Certain Beneficial Owners and Management......................................... 31 ITEM 13. Certain Relationships and Related Transactions.................. 31 PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................................... 32
i 3 PART I ITEM 1. BUSINESS InterVoice, Inc. (together with its subsidiaries, collectively referred to as "InterVoice" or the "Company") develops, sells and services call automation systems. The Company's historical emphasis has been on interactive voice response ("IVR") systems, which allow individuals a self help facility using their telephones, personal computers, credit card terminals or voices to access and/or provide information to computer data bases utilized by businesses and telecommunications companies. The Company's systems are sold under the trade names "OneVoice" and "InterDial". OneVoice Systems are used by a variety of enterprises to disseminate and receive information efficiently, allowing multiple callers simultaneous access to computer data bases without the expense of maintaining a customer service representative and workstation for each telephone line. InterDial systems improve call center efficiency by automatically dialing phone numbers and only transferring a call to a live agent if the call is answered and the called party remains on the phone. The Company's products include software development tools designed to support a number of diverse product applications and to simplify system customization. Applications currently function in a wide range of industries including banking and financial services, cable TV, government, healthcare, help desk, higher education, insurance, retail and wholesale distribution, telecommunications, transportation and manufacturing and utilities. OneVoice Systems sell at list prices ranging from approximately twenty five thousand to millions of dollars and support from four to thousands of voice and data channels. Scalability is a key differentiator for all OneVoice Systems, which incorporate multiple modules of up to 96 voice and data channels per module which, in turn, can be connected by local area networks for a single system appearance, management control and redundancy. InterDial Systems sell at list prices ranging from approximately fifty thousand to five hundred thousand dollars or more and support from four to 40 agent positions on a single module. Multiple InterDial Systems can be connected via a node adapter to support up to a total of 128 agents. OneVoice/UNIX Systems sell at list prices ranging from approximately thirty thousand to two hundred thousand dollars and support from 12 to 96 ports per system. The OneVoice/Unix Systems replace the VoicePlex Systems previously marketed by the Company. The Company sells its products directly to end-users and through more than 130 domestic and international distributors. Since the Company's inception in 1984, the number of worldwide installations of the Company's systems has grown to over 8,300 in 49 countries. The end-users to which the Company has sold systems include Aetna, Bank of America, Bell Canada, British Telecom, CitiBank, Fidelity Investments, First Chicago, First Union Corporation, GTE, J.C. Penney, LCI International, Martin Marietta, MCI Telecommunication, Merrill Lynch, Microsoft, National Data Corporation, National Westminster Bank U.K., NationsBank, Sears Roebuck and Co., Social Security Administration, Sprint, The New England, T U Electric, USAA and Wachovia Bank. Other than Siemens AG, an InterVoice distributor, which accounted for 10.2% of the Company's total sales in fiscal 1997, and MCI Telecommunications, which accounted for 11.2% and 11.7% of the Company's total sales in fiscal 1996 and fiscal 1995, no customer represented 10 percent or more of the Company's aggregate sales during fiscal 1997, 1996 or 1995. CALL AUTOMATION INDUSTRY The number of telephone calls requesting information or requiring operator services that must be handled by businesses, telecommunications service providers and other organizations has increased dramatically in recent years. Traditionally, consumers obtained data or services from organizations such as banks, insurance companies, or telephone companies, by phoning a customer service representative, agent, or operator who used a terminal linked to a computer to process the data or service request. The major disadvantage of this procedure is the high cost of providing a large number of individuals to answer calls and provide service, which imposes practical limits on access frequency and the amount of information and level of service that can be given to each caller. Another disadvantage is that, if the volume of calls increases or substantially varies with the time of day or other factors, the potential for service delays and errors may increase. As a result of these high costs and inefficiencies, organizations have increasingly turned to various methods of automation to process such calls. With IVR systems, callers receive accurate responses to routine service requests so customer service representatives, agents and/or operators are free to work on other important tasks requiring their personal expertise. The Company believes that such systems provide more service to more customers without additional staff, improve customer and employee retention and can result in significant cost savings to the Company's customers. The call automation industry has 1 4 matured to the point that, in certain system applications such as credit limit requests, callers may prefer dealing with an IVR system rather than a human in order to preserve privacy and confidentiality. The Company believes that the industry can be divided into five primary system markets: Interactive voice response is the use of a wide variety of devices, such as telephones, facsimile or personal computers in conjunction with public and private telecommunication networks and/or the Internet to input or retrieve information or request services from a computer data base. Applications include checking account balances, credit card authorizations, insurance claims and automating telephone calls formerly requiring operator assistance. The Company believes the industry will also embrace applications utilizing recently introduced multi-media and internet capabilities (e.g. the use of voice, graphics and images). The Company's VisualConnect product addresses internet applications while the Company's MediaConnect product addresses multi-media applications. The Company participates in this market with its OneVoice System which comprised more than 90% of its system sales in fiscal 1997. Outbound call processing involves the automatic dialing of telephone numbers and the use of computerized voice messages and live agents to communicate with customers and prospects. Applications include customer notifications, delinquent bill collecting and the telemarketing of goods and services. The Company addresses this market with its InterDial System which comprised 7% of its system sales in fiscal 1997. Automated call directing serves the functions typically performed by a receptionist and involves the use of a computerized announcer which asks callers to select an extension or department. Voice mail enables callers to leave, exchange and retrieve electronic voice messages 24-hours a day, seven days a week. Audiotex is the use of a telephone to access and to listen to a wide variety of current information, such as sports scores, weather, stock quotes, business news, classified ads or other similar information. The general public has become increasingly receptive to IVR systems, having become familiar with them from early adopters in the financial services industry. Such systems are becoming more pervasive in a wide variety of industries and applications as indicated below:
INDUSTRY APPLICATION -------- ----------- Financial Services Banking/Credit Union Bill Payment 401K/Employee Benefit Health Care Benefits Coverage Test Results Claims Status Cable TV Service Requests Event Ordering Education Enrollment Grade Reporting Financial Aid Housing Electronic Benefits Transfer Child Support Welfare Payments Food Stamps Telecommunications Automated Operator Services Service Requests
MARKETS The Company continues to evaluate a wide variety of potential industry specific or "vertical" markets and has selected key markets based upon the Company's evaluation of their potential for rapid acceptance of IVR technology. The Company has traditionally focused on the financial services industry and, more recently, the 2 5 telecommunications industry. The Company also has expanded its focus to include, among others, the human resource, healthcare and call center vertical markets. PRODUCT STRATEGY The Company's products are designed to assist its customers in achieving the following objectives: o Increase revenues with reduced costs o Improve customer and/or employee service o Provide product and service differentiation The Company believes that its OneVoice System enables the Company's customers to handle more calls with fewer delays and errors at a lower cost than through use of customer service representatives, agents or operators while preserving callers' privacy and confidentiality, which is important in some applications. InterDial allows the Company's customers to contact a large number of people in applications such as collections and telemarketing while improving the productivity of agents. Both the OneVoice and InterDial Systems operate on the OneVoice Software Agent Platform which can simultaneously host both systems, each of which, in turn, can simultaneously host multiple applications, allowing the Company's customers to leverage their investments in their OneVoice and InterDial systems. The OneVoice/UNIX System provides network based voicemail applications for telecommunications companies. The Company has adapted its OneVoice Software Agent Platform platform, called NSP 5000, to address the growing Intelligent Peripheral market within the telecommunication industry. Intelligent Peripherals are the building blocks for the provisioning of automated operator services, such as processing credit card calls, and advanced telecommunications features, such as voice dialing, to be offered in the Advanced Intelligent Networks currently being contemplated by domestic and international wireline and wireless telecommunications network operators. The Company's product strategy emphasizes leveraging industry standard computer platforms and operating systems to allow the Company to take advantage of hardware and software technology offered by third parties. This strategy also provides the Company's customers the option to select the computer platform and operating system of their preference should they wish compatibility with other computer systems. This allows the Company to focus its development efforts on call automation technology. The Company has developed a robust suite of call processing functions and features characterized by the following factors: Host Computer Platform Independence: By virtue of compliance with industry standards, the Company's hardware and software is designed to be independent of the host computer platform. The same hardware and software can operate on computer platforms produced by a variety of manufacturers. This allows the Company to deliver its products integrated with the computer platform of its customers' choice rather than dictating the selection of a specific computer platform. This is an important factor in vendor selection for many of the Company's current and potential customers. This product strategy also allows the Company to avoid the expense of maintaining multiple versions of the Company's hardware and software. Operating Software Independence: The Company's InterSoft run time software is simultaneously compatible with all popular operating systems, such as UNIX, OS/2 and Windows NT. This allows the Company to give its customers operating system freedom of choice, an important factor in vendor selection for many of the Company's current and potential customers. This product strategy also allows the Company to avoid the expense of maintaining multiple versions of the Company's run time software. Flexible Programming: The Company offers its customers a wide variety of software features that can be included in the OneVoice and InterDial Systems. The Company's software is designed to support a number of diverse product applications. The Company's recently introduced graphical user interface (GUI) software development tool, InVision, simplifies the generation and customization of customer applications. System Expandability/Networking: The OneVoice System can be expanded from four up to 96 lines per module by adding expansion cards without software changes. Multiple modules can be interconnected via a local area network to provide simultaneous access for thousands of callers while maintaining control from a single workstation on the network. InterDial Systems are expandable from 4 to 40 lines per system and multiple InterDial Systems can be connected via a node adapter to support up to a total of 128 agents. 3 6 Voice and Data Connectivity: Systems can be connected to most digital and analog PBX's and/or central office switches and to a wide variety of host computers. The Company believes that its products are designed and manufactured to be highly reliable and to require minimum maintenance, most of which can be handled from its headquarters using on-line remote diagnostic and test capabilities. The Company has contracted with an independent company with local service offices throughout the United States to perform customer site service. When customer repair is required, the Company electronically dispatches service technicians. International distributors are generally responsible for providing service for the systems they sell. PRODUCTS AND SERVICES One Voice Systems OneVoice Systems are primarily focused on the IVR market and comprised more than 90% of the Company's system sales in fiscal 1997. These systems combine a variety of standard computer platforms and standard operating systems together with the Company's proprietary run time software, known as InterSoft, and Company developed and third party developed expansion boards to perform IVR functions. Each OneVoice System module utilizes the same proprietary run time software, which allows the Company's customers to expand their OneVoice Systems via the addition of expansion cards or via the linkage of multiple modules through a local area network, as capacity and other requirements grow. OneVoice Systems can be configured using a variety of computer platforms and operating systems depending on the customer's preferences and processing requirements. The Company's run time software, known as InterSoft, offers customers a variety of features that can be included in OneVoice Systems, including: VisualConnect ~: A feature which allows OneVoice Systems to communicate with multi-media personal computers via the Internet. Data can be transmitted in any combination of voice, graphic and image formats. MediaConnect ~: A feature allowing customers to communicate with OneVoice Systems with multi-media personal computers via telecommunications networks. Data can be transmitted in any combination of voice, graphic and image formats. VoiceDial ~: A voice recognition feature, available in several languages, allowing a telephone caller to issue oral commands to OneVoice Systems, in both numeric and alpha format, including continuous speech. YourVoice ~: A feature allowing customers to customize and change recorded messages from any telephone. VirtualVoice ~: A voice storage and playback feature allowing OneVoice Systems to store and retrieve large quantities of verbal information received from many telephone lines. DataConnect ~: A feature allowing OneVoice Systems to communicate with personal computers, data terminals and hearing impaired devices using the same telephone lines as voice callers. MultiFrequency Decoding ~: A feature allowing OneVoice Systems to emulate central office signaling. PulseDial Decoding ~: A feature which allows rotary phones to communicate with OneVoice Systems. Digital Interface ~: A feature which makes possible 24 channel capacity with fully integrated T1 Direct Connectivity or 30 channel capacity with fully integrated E1 Direct Connectivity in the European marketplace. 4 7 InVision is the Company's proprietary, next-generation software tool which aids in the development and testing of custom IVR applications. InVision is based on a graphical user interface and allows developers to visualize and hear the interaction between users and OneVoice Systems while developing custom applications. The Company believes its customers will expand the scope and use of its systems by virtue of this user-friendly development tool. InterForm is the Company's proprietary, forms based software program which also can be used by developers to generate and maintain custom applications. VocalCard, a proprietary voice automation board, allows OneVoice Systems to perform many functions in software which many other suppliers must perform using discrete hardware. Extensive use of software enables the Company to add features or enhance OneVoice Systems without redesigning hardware. The Company has developed the FoneTower, an expansion chassis which enables users to insert up to 18 additional cards into a OneVoice module due to limitations in the number of expansion slots in some computer platforms. Capacity expansion and the provisioning of additional features and functions often require additional voice automation cards, such as VocalCard. The Company integrates compatible programmable add-in cards with proprietary software to interface OneVoice Systems with enterprise systems predicated on host computers produced by IBM, Unisys, NCR, DEC, and others, using standard communications protocols and native terminal emulation via the Internet; local area networks, including the IBM Token Ring, Ethernet and Arcnet; advanced wide area networks, including ISDN-PRI and X.25; and customer private networks. One Voice 5000 The Company's OneVoice 5000 systems utilize a compact, modular, passive backplane design which allows for high port density per system, a critical factor for call center applications. The passive backplane design allows for easy system expansion and for the upgrade of system components, such as CPU's, as technologies advance. Network Services Platform (NSP) 5000 Similar in design to the Company's OneVoice 5000 systems, this product is positioned to address the Intelligent Peripheral (or service node) market within the telecommunications industry. The Company is actively marketing NSP 5000 systems for the provisioning of automated operator services, such as processing credit card calls, and advanced telecommunication features, such as voice navigated voice mail, voice activated dialing and short message delivery services. OneVoice CallCenter The OneVoice CallCenter is targeted for regional or branch offices of large businesses, providing them integrated inbound and/or outbound call automation systems without replacing their existing telecommunications equipment. The OneVoice CallCenter adds call switching capabilities to the OneVoice Multi Application Platform and supports both OneVoice Systems and InterDial systems. These systems serve to combine PBX functionalities with ISDN PRI capabilities to enable the transmission of both voice and data on a single line to support agent query. OneVoice/Unix The OneVoice/UNIX historically has been marketed primarily to telecommunications companies to provision their networks with central office based voice mail InterDial The Company's InterDial System provides outbound call processing. A typical application of an InterDial system permits the Company's customers to improve the productivity of their telemarketing operations by automatically dialing phone numbers and only transferring a call to an agent if the call is answered and the called party remains on the phone. InterDial's patented advanced call processing monitoring and automatic call pacing 5 8 algorithms also improve productivity by transferring a caller to a telemarketing agent immediately upon completion of the agent's previous call. RealCare The Company offers its customers a system maintenance program, known as RealCare, which combines on-line remote diagnostic and test capabilities with nationwide on-site repair performed, in part, by the Company's service partners. RealCare enables customers to access the Company's Help Desk, to receive on-line tests, and, if necessary, to receive software modifications. When on-site repair is required, the Company may electronically dispatch its service partners' service technicians while monitoring and directing repair activities. COMPETITION The call automation industry is fragmented and highly competitive. Based on industry surveys, the Company believes no company participating in this industry has more than a 20% market share. Technological advances are critical to industry leadership. The Company competes primarily on the basis of a broad range of product capabilities and features, professional services (such as system customization), and customer support services. The principal competitors for the Company's OneVoice Systems include Lucent Technologies (Formerly AT&T), Periphonics, Brite Voice and Edify. The principal competitors for the Company's InterDial System include Davox, EIS and Mosaix. The principal competitors for the Company's telecommunications products include Boston Technology, Octel and Comverse Technology. The Company anticipates that competition from existing competitors will continue to intensify. The Company may also face market entry from non-traditional competitors, including telephone switching equipment manufacturers and independent IVR service bureaus. Some of these competitors have greater financial, technological and marketing resources than the Company. DISTRIBUTION The Company markets its product through both direct and indirect sales channels. During fiscal 1997, approximately 53% and 47% of the Company's total sales were attributable to direct sales to end-users and to sales to distributors, respectively. The Company provides discounts to volume end-user purchasers and its distributors reflecting decreased costs associated with such sales. During fiscal 1997, sales to existing customers, as a percentage of the Company's total sales, were 65% comparable to 67% in fiscal year 1996, as customers continued to expand their systems, and to add new and/or enhanced applications. The Company anticipates that sales to existing customers, as a percentage of the Company's total sales, will continue to be a significant percent of the Company's total sales as the Company focuses additional marketing efforts on current users of InterVoice's systems. One customer, Siemens AG, an InterVoice distributor, accounted for 10.2% of the Company's total sales in fiscal 1997 while MCI Telecommunications accounted for 11.2% and 11.7% of the Company's sales in fiscal 1996 and fiscal 1995. United States Distribution The Company sells its products directly to end-users and more than 85 distributors in the United States which allows it to leverage an indirect sales force numbering in excess of 1,700 in addition to its domestic direct sales force of approximately 75. During fiscal 1997, approximately 69% and 31% of the Company's domestic sales were attributable to end-users and distributors, respectively. The Company's end-users include, among others, Aetna, Bank of America, Bell Canada, Fidelity Investments, First Chicago, First Union Corporation, GTE, J. C. Penney, LCI International, Martin Marietta, MCI Telecommunications, Merrill Lynch, Microsoft, National Data Corporation, National Westminster Bank U.K., NationsBank, Sears Roebuck & Co., Social Security Administration, Sprint, The New England, TU Electric, USAA, and Wachovia. Marketing efforts by the Company include advertising, trade shows, direct mail campaigns and telemarketing, implemented by a field sales force. The Company enters into arrangements with distributors to broaden distribution channels, to increase its sales penetration to specific markets and industries and to provide customer services relating to the Company's products on behalf of the Company. Distributors are selected based on their access to markets, industries and customers that are candidates for the Company's products. The Company's major distributors include Ameritech Information Systems, EDS, Fiserv, Fujitsu, GTE, Information Technology, Inc., NEC West, Norstan, Rockwell International, Siemens Rolm, Sprint, Symitar Systems, U.S. Order and Wiltel. 6 9 International Distribution The Company offers its products outside the United States through a network of more than 45 distributors which allows it to leverage an indirect sales force numbering in excess of 300 in addition to its international direct sales force of approximately 15. International distributors include Information Technology & Data (Turkey), IVRS Ltd. (Hong Kong), Loxbit (Australia), OLTP Voice (Venezuela), Phonetix (Canada), Promotora Kranon (Mexico), Siemens Rolm, Switch (Chile) and Telecom Equipment (Singapore). The Company maintains offices in London and Frankfurt to support sales by distributors throughout the European Community, the Middle East and Africa. Offices in Singapore, Melbourne and Bejing support sales by distributors throughout the Pacific Rim. The Company also maintains an office in Toronto to support its Canadian distributors. The Company's products are currently sold in 49 countries. Most countries lag the United States in the development of their IVR markets. Government regulation of telecommunications equipment and services, and the low penetration of digital switches and touch-tone telephones, have limited sales of IVR systems in many countries. Subject to differences in culture and business practices, the Company anticipates that the international market for IVR systems will grow as foreign countries overcome regulatory, technological and other barriers which limit the use of such systems. The Company believes that international buyers are attracted to its products for a number of reasons including: its digital technology; the ease with which buyers can customize applications in foreign languages; OneVoice Systems' ability to support multiple languages concurrently, to interact with rotary telephones, and to support voice recognition when touchtone telephones are unavailable; and the Company's efforts in obtaining the required approvals for connectivity to the telephone networks in numerous international markets. In previous fiscal years, the Company had many large sales to the European audiotex market, however, such sales slowed to less than 1% of the Company's European sales during fiscal 1997. The Company expects only minimal sales to the European audiotex market in future years as the Company believes demand in that market will remain flat or continue to decline. During fiscal 1997, the Company continued its focus on building its European distribution channels by increasing its European staffing to strengthen existing distributor relationships and to add new distributors. The Company also continued to expand distribution in the Pacific Rim and Latin America to increase the Company's presence in these rapidly growing markets. International sales in fiscal 1997, 1996 and 1995 grew 36%, 65% and 6% respectively, and, as a percentage of total sales, were 24% in fiscal 1997, 19% in fiscal 1996 and 14% in fiscal 1995. Sales to the Americas (excluding the United States) constituted 47%, 61% and 33% of international sales in fiscal 1997, 1996 and 1995, respectively. Sales to Europe constituted 34%, 20% and 45% of international sales in fiscal 1997, 1996 and 1995, respectively. Sales to the Pacific Rim constituted 19%, 19%, and 22% of international sales in fiscal 1997, 1996 and 1995, respectively. The increase in sales to Europe as a percent of international sales in fiscal 1997 was primarily attributable to a large sale to a European based, global telecommunications company. The decline in sales to Europe as a percent of international sales in fiscal 1996 was primarily attributable to the slowing of sales to the European audiotex market, as mentioned above. The large increase in sales to the Americas (excluding the United States) as a percent of international sales in fiscal 1996 was primarily attributable to several large sales to Central and South American telecommunications companies. A discussion of the Company's export sales by geographical area for fiscal 1997, 1996 and 1995 is found in Note G to the Consolidated Financial Statements located in Item 8 of this report which is incorporated herein by reference. BACKLOG The Company's backlog at February 28, 1997, February 29, 1996 and February 28, 1995 was approximately $11.4 million, $21.3 million and $11.7 million, respectively. The Company expects all existing backlog to be delivered within the next fiscal year. Due to customer demand, many of the Company's sales are completed in the same fiscal quarter as ordered. Thus, the Company's backlog at any particular date may not be indicative of actual sales for any future period. PROPRIETARY RIGHTS The Company believes that its existing patent, copyright, license and other proprietary rights in its products and technologies are material to the conduct of its business. To protect these proprietary rights, the Company relies on a combination of patent, trademark, trade secret, copyright and other proprietary rights laws, nondisclosure safeguards and license agreements. As of February 28, 1997, the Company owned 14 patents. In addition, the Company has registered "InterVoice" as a trademark in the United States and in certain foreign 7 10 countries. The Company has also registered 21 trademarks and servicemarks in the United States for other product and service names and has registrations pending in the United States for various product names. The Company's software and other products are generally licensed to customers pursuant to a nontransferable license agreement that restricts the use of the software and other products to the customer's internal purposes. Although the Company's license agreements prohibit a customer from disclosing proprietary information contained in the Company's products to any other person, it is technologically possible for competitors of the Company to copy aspects of the Company's products in violation of the Company's rights. Furthermore, even in cases where patents are granted, the detection and policing of their unauthorized use is difficult. Moreover, judicial enforcement of copyrights may be uncertain, particularly in foreign countries. The occurrence of the unauthorized use of the Company's proprietary information by the Company's competitors could have a material adverse effect on the Company's business, operating results and financial condition. See "Item 3. Legal Proceedings." From time to time various owners of patents and copyrighted works send the Company letters alleging that its products do or might infringe upon the owners' intellectual property rights, and/or suggesting that the Company should negotiate a license or cross-license agreement with the owner. The Company's policy is to never knowingly infringe upon any third party's intellectual property rights. Accordingly, the Company forwards any such allegation or licensing request to its outside legal counsel for their review and opinion. The Company generally attempts to resolve any such matter by informing the owner of its position concerning non-infringement or invalidity, and/or, if appropriate, negotiating a license or cross-license agreement. Even though the Company attempts to resolve these matters without litigation, it is always possible that the owner of the patent or copyrighted works will institute litigation. Owners of patent(s) and/or copyrighted work(s) have previously instituted litigation against the Company alleging infringement of their intellectual property rights, however, no such litigation is currently pending against the Company. The Company has accelerated its program for applying for and receiving patents to reflect its technological inovations. The Company currently has a portfolio of fourteen patents, and has applied and will continue to apply for a number of additional patents. The Company believes that its patent portfolio could allow it to assert counterclaims for infringement against certain owners of intellectual property rights if those owners were to sue the Company for infringement. In certain situations, it might be beneficial for the Company to cross license certain of its patents for other patents which are relevant to the call automation industry. The Company believes that software companies and technology companies, including the Company and other companies in the Company's industry, may become increasingly subject to infringement claims. Such claims may require the Company to enter into costly license agreements, or result in even more costly litigation. To the extent the Company requires a licensing arrangement, the arrangement may not be available at all, or, if available, may be very expensive or even prohibitively expensive. As with any legal proceeding, there is no guarantee that the Company will prevail in any litigation instituted against the Company asserting infringement of intellectual property rights. To the extent the Company suffers an adverse judgment, it might have to pay substantial damages, discontinue the use and sale of infringing products, repurchase infringing products from the Company's customers pursuant to indemnity obligations, expend significant resources to acquire non-infringing alternatives, and/or obtain licenses to the intellectual property that has been infringed upon. As with licensing arrangements, non-infringing substitute technologies may not be available, and if available, may be very expensive, or even prohibitively expensive, to implement. Accordingly, for all of the foregoing reasons, a claim of infringement could ultimately have a material adverse effect on the Company's business, financial condition and results of operations. MANUFACTURING AND FACILITIES The Company's manufacturing operations consist primarily of the final assembly and the extensive testing and quality control of materials, components, subassemblies and systems. The Company currently uses third parties to perform printed circuit board assembly, sheet metal fabrication and customer-site service and repair. Although the Company generally uses standard computer platform parts and components for its products, some components, including certain semiconductors, and more specifically, digital signal processors and static random access memories, are presently available only from limited suppliers. To date, the Company has been able to obtain adequate supplies of such components in a timely manner. However, the Company's operating results could be adversely affected if the Company were unable to obtain such components from such sources in the future. EMPLOYEES As of May 19, 1997, the Company had 697 employees. 8 11 ITEM 2. PROPERTIES The Company owns and occupies a 225,000 square foot manufacturing and office facility in Dallas, Texas. The Company also leases approximately 5,000 square feet of office space in London and approximately 1,000 square feet of office space in Singapore. The Company has suitable properties and productive capacity for its near-term requirements. The Company owns land adjacent to its Dallas facility should additional office and/or manufacturing capacity be required. ITEM 3. LEGAL PROCEEDINGS Lucent Technologies ("Lucent") has suggested in correspondence to the Company that it should consider licensing certain Lucent patents for a substantial payment. The Company has an opinion from its outside legal counsel that the Company does not infringe the Lucent patents by reason of non-infringement and/or invalidity. The Company has suggested to Lucent that Lucent should consider licensing certain patents of the Company, and that a mutual cross-license might be in the best interests of both parties. The parties are currently attempting to negotiate a mutually satisfactory cross-license agreement which would resolve the matter. There is no assurance that the Company will be able to negotiate a cross-license agreement based on mutually satisfactory terms. Lucent has not threatened litigation against the Company. In the event that litigation is instituted against the Company concerning the Lucent patents, the Company intends to vigorously contest the claims and to assert defenses of non-infringement and/or invalidity of the patents, together with any other meritorious defenses and counterclaims, including any counterclaim for infringement of its patents, the Company might have. As with any legal proceeding, there is no guarantee that the Company will prevail in any litigation asserted against the Company in connection with the Lucent patents. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 9 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS COMMON STOCK The Company's outstanding shares of common stock are quoted in the Nasdaq National Market under the symbol INTV. The Company has not paid any cash dividends since its incorporation and does not anticipate paying cash dividends in the foreseeable future. The Company is not bound by any contractual terms that either prohibit or restrict the payment of dividends. High and low prices for the shares as reported in the Nasdaq National Market are shown below for the Company's fiscal quarters during fiscal 1997 and 1996.
Fiscal 1997 Fiscal 1996 - ----------- ----------- Quarter High Low Quarter High Low - ------- ---- --- ------- ---- --- 1st $ 30 1/2 $21 3/4 1st $ 16 1/2 $ 14 1/8 2nd 22 12 1/4 2nd 22 3/4 14 5/8 3rd 15 3/4 11 3/16 3rd 26 3/8 17 7/8 4th 14 7/8 10 1/2 4th 24 1/2 16 5/8
There were approximately 1,000 shareholders of record and approximately 12,500 beneficial shareholders of the Company at May 19, 1997 On May 19, 1997 the closing price of the Common Stock was $11.13. ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the Company's consolidated financial statements and related notes included elsewhere herein and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth below. The selected consolidated financial data presented below for each of the years in the five-year period ended February 28, 1997 are derived from the consolidated financial statements of InterVoice, Inc., which financial statements have been audited by Ernst & Young LLP, independent certified public accountants. The consolidated financial statements as of February 28, 1997 and February 29, 1996 and, and for each of the years in the three-year period ended February 28, 1997 and the report of Ernst & Young LLP thereon, are included elsewhere herein.
FISCAL YEAR ENDED FEBRUARY 29/28 -------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Net Sales $104,845,692 $ 97,103,054 $ 76,265,228 $ 60,933,903 $ 44,566,352 Income from Operations 17,548,615** 25,054,742 9,304,113*** 16,988,225 10,950,223 Net Income 12,760,481** 17,259,358 2,533,580*** 11,705,501 7,824,309 Total Assets 109,178,509 89,726,806 62,718,565 74,218,417 52,633,577 Long Term Debt -- -- -- -- -- Per Common Share Net Income .77** 1.05 .15*** .64 .45 Cash Dividend -- -- -- -- -- Weighted average number of common and common equivalent shares* 16,618,937 16,397,924 16,755,289 18,419,088 17,461,876
*The number of weighted average common and common equivalent shares in fiscal years prior to 1994 have been restated to reflect 2 for 1 stock splits in the form of 100% stock dividends paid August 16, 1993 and October 16, 1992. **Fiscal 1997 income from operations and net income were impacted by charges totaling approximately $1.8 million and $1.3 million, respectively, or $0.08 per share, resulting from a non-recurring litigation settlement. Without this charge, earnings for fiscal 1997 would have been $0.85 per share. ***Fiscal 1995 income from operations and net income were impacted by charges totaling approximately $10.5 million, or $0.65 per share, associated with a non-recurring charge resulting from a significant portion of the 10 13 purchase price of VoicePlex Corporation having been attributed to in-process research and development. Without this charge, earnings for fiscal 1995 would have been $0.80 per share. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS This report on Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this Form 10-K, including, without limitation, statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and under "Business - - Product Strategy," "Business - Distribution," and "Notes to Consolidated Financial Statements" located elsewhere herein regarding the Company's financial position, business strategy, plans and objectives of management of the Company for future operations, and industry conditions, are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. In addition to important factors described elsewhere in this report, the following significant factors, among others, sometimes have affected, and in the future could affect, the Company's actual results and could cause such results during fiscal 1998, and beyond, to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company: The Company faces ever-increasing demands from its actual and prospective customers for its products to be compatible with a variety of rapidly proliferating computing, telephony and computer networking technologies and standards and to provide greater functionality. Since the Company does not have the resources to cause its products to be compatible with each new technology or standard and to provide all requested functionality, the ultimate success of the Company's products is dependent, to a large degree, on the Company allocating its resources to developing and improving products compatible with those technologies, standards and functionalities that ultimately become widely accepted by the Company's actual and prospective customers. The Company's success is also dependent, to a large degree, on the Company's ability to implement arrangements with other vendors with complementary product offerings to provide actual and prospective customers greater functionality and to ensure that the Company's products are compatible with the increased variety of technologies and standards. o Intense competition in the voice automation industry. See "Business - Competition." o Ability of the Company to continue to introduce new features and products as the Company's markets evolve, as new technologies and standards become available, and customers demand additional functionality, requiring a continued high level of expenditures by the Company for research and development. o Ability of the Company to properly estimate costs under fixed price contracts in developing application software and otherwise tailoring its systems to customer-specific requests. o Continued availability of suitable non-proprietary computing platforms and system operating software that are compatible with the Company's products. o The quantity and size of large sales (sales valued at approximately $1 million or more) during any fiscal quarter, which can cause wide variations in the Company's sales on a quarter to quarter basis. o The ability of the Company to retain its customer base and, in particular, its more significant customers (such as Siemens AG, an InterVoice distributor, which accounted for over ten percent of the Company's total sales during fiscal 1997 and MCI Telecommunications, which accounted for over ten percent of the Company's total sales during fiscal 1996 and 1995), since such customers generally are not contractually obligated to place further orders with the Company. o Certain of the components for the Company's products are available from limited suppliers. The Company's operating results could be adversely affected if the Company were unable to obtain such components in the future. See. "Business - Manufacturing." 11 14 o Risks involved in the Company's international distribution and sales of its products, including unexpected changes in regulatory requirements, unexpected changes in exchange rates, the difficulty and expense of maintaining foreign offices and distribution channels, tariffs and other barriers to trade, difficulty in protecting intellectual property rights, foreign governmental regulations that may limit or restrict the sales of call automation systems. Additionally, changes in foreign credit markets and currency exchange rates may result in requests by many international customers for extended payment terms and may have an adverse impact on the Company's cash flow and its level of accounts receivable. o Legislative and administrative changes and, in particular, changes affecting the telecommunications industry, such as the recently enacted Telecommunications Act of 1996. While many industry analysts expect the Telecommunications Act of 1996 ultimately to result in at least a temporary surge in the procurement of telecommunications equipment and related software and other products, there is no assurance that the Company can estimate with sufficient accuracy those products which will ultimately be purchased, the timing of any such purchases or the quantities to be purchased. o The Company's ability to hire and retain, within the Company's compensation parameters, qualified technical talent and outside contractors in highly competitive markets for the services of such personnel. o Extreme price and volume trading volatility in the U.S. stock market, which has had a substantial effect on the market prices of securities of many high technology companies, frequently for reasons other than the operating performance of such companies. These broad market fluctuations could adversely affect the market price of the Company's common stock. o Increasing litigation with respect to the enforcement of patents, copyrights and other intellectual property. See Item 3. "Legal Proceedings", and "Business - Proprietary Rights." All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements disclosed in this paragraph and otherwise in this report. FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 128 In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share", which the Company is required to adopt on February 28, 1998. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact is not expected to have a material change on primary or fully diluted earnings per share for the three years in the period ended February 28, 1997, however, primary earnings per share will increase by 2%, 5% and 4% for fiscal years 1997, 1996 and 1995, respectively. 12 15 RESULTS OF OPERATIONS The following table presents certain items as a percentage of sales for the Company's last three fiscal years.
Year ended February 29/28 --------------------------------- 1997 1996 1995 -------- -------- -------- Sales 100% 100% 100% Cost of goods sold 38.3 35.5 36.6 Gross Margin 61.7 64.5 63.4 Research and development expenses 11.1 10.0 9.6 Selling, general and administrative expenses 32.2 28.7 27.8 Purchased research and development -- -- 13.8** Litigation settlement 1.7* -- -- Operating income 16.7* 25.8 12.2** Other income - net .6 .5 .6 Income before taxes 17.3* 26.3 12.8** Income taxes 5.2 8.6 9.5 Net Income 12.1%* 17.7% 3.3%**
*Impacted by a non-recurring charge totaling approximately $1.8 million, ($1.3 million net of tax) resulting from litigation settlement. Without this charge, operating income and net income for fiscal 1997 would have been 18.4% and 13.4% of sales, respectively. **Impacted by charges totaling approximately $10.5 million associated with a non-recurring charge resulting from a significant portion of the purchase price of VoicePlex Corporation having been attributed to in-process research and development. Without this charge, operating income and net income for fiscal 1995 would have been 26% and 17% of sales, respectively. SALES Sales are derived primarily from the shipment of voice automation systems to both new and existing customers in two major market categories: Customer Premise Equipment (CPE) and Telecommunications (Telco). Due to customer demand, many of the Company's transactions are completed in the same fiscal quarter as ordered. The size and timing of some transactions have historically resulted in sales fluctuations from quarter to quarter. In the past, the impact of these fluctuations has been mitigated to some extent by vertical markets and by the geographic location of the Company's existing and prospective customers. However, the Company has become more prone to quarterly sales fluctuations due to its sales to the worldwide Telco market which are generally large in dollar amount and unevenly distributed throughout the fiscal year. Worldwide sales in fiscal 1997, 1996 and 1995 increased from the immediately preceding year 8%, 27% and 25%, respectively. Worldwide CPE sales increased 15% and 41% in fiscal years 1997 and 1996 and declined 3% in fiscal 1995. Worldwide Telco sales declined 19% in fiscal 1997 and increased 5% and 170% in fiscal years 1996 and 1995. CPE sales constituted 69%, 65% and 55% of the Company's total sales in fiscal years 1997, 1996 and 1995, respectively, while Telco sales made up 19%, 26% and 31% of the Company's total sales during the same time periods. Sales of system maintenance contracts expanded to over 3,200 end users and comprised 12%, 9% and 11% of the Company's total sales in fiscal 1997, 1996 and 1995, respectively. Domestic CPE sales in fiscal 1997, 1996 and 1995 increased 11%, 36% and 2%, respectively due to the Company's continued investment in the addition of new distributors and in the hiring and training of new and existing sales, service and support personnel and is expanding its marketing and advertising programs. International CPE sales in fiscal 1997 and 1996 increased 30% and 62% for the same reasons as domestic CPE sales and declined 23% in fiscal 1995 due to a lower European demand for audiotex applications. International 13 16 CPE sales constituted 24%, 21% and 18% of the Company's total CPE sales in fiscal years 1997, 1996 and 1995, respectively. The Company believes the decline in Telco sales during fiscal 1997 was attributable to temporary delays by some telecommunications companies in implementing call automation solutions while they evaluate marketing and investment strategies in the light of new opportunities resulting from deregulation under the Telecommunications Act of 1996 and while they also evaluate the implications of the recent judicial stay of certain provisions of the Act and its regulations. Telco sales increased in fiscal 1996 and 1995 as a result of the hiring and training of new and existing sales, service and support personnel and of the expansion of marketing programs. International Telco sales constituted 39%, 21% and 12% of the Company's total Telco sales in fiscal years 1997, 1996 and 1995, respectively. Prices for the Company's products have remained stable, as measured by price per line shipped, during fiscal 1997, 1996 and 1995 although the features and functions per line shipped have become more robust. Accordingly, the Company's sales increases are largely the result of increased unit shipments. The Company's exposure to foreign currency fluctuations is minimal as less than 3% of total sales are denominated in foreign currencies. COST OF GOODS SOLD During fiscal 1997, the Company experienced an increase in cost of goods sold to 38.3% of total sales from 35.5% and 36.6% in fiscal 1996 and 1995, respectively. This was the result of the Company's continued investment in applications engineering and customer service resources to pursue opportunities in all of its markets despite lower than anticipated sales. The Company believes, based on anticipated sales, that in fiscal 1998 its cost of goods sold, as a percentage of sales, will be slightly lower than fiscal 1997. RESEARCH AND DEVELOPMENT Fiscal 1997, 1996 and 1995 research and development expenses were approximately $11.7 million, $9.8 million and $7.3 million, respectively. Fiscal 1997 expenses included porting the Company's InterSoft core software to the UNIX and Windows NT operating systems; developing computer platform independent voice automation hardware and software; and the development of VisualConnect (the ability to communicate with OneVoice Systems via the Internet), MediaConnect (the multi-media implementation of IVR), and InVision (the Company's next generation custom application development tool). Additionally, expenditures were made in fiscal 1997, 1996 and 1995 for the ongoing development of the Company's OneVoice Software Agent Platform including OneVoice Systems (the Company's IVR system), InterDial (the Company's outbound predictive dialer system), OneLink (a digital interface for analog switches), development of InVision, and continued development of InterForm (a custom applications generation, or script building, user tool) and digital VocalCard software and hardware functionality. Research and development expenses in these years also reflect the development of computer platform independent hardware and software, a voice mail system, speech recognition in both alpha and numeric format (including continuous speech), voice verification, a facsimile server, the OneVoice CallCenter, vertical industry application packages (including applications targeted for the telecommunications industry), enhancements to the products acquired in the VoicePlex transaction, and international homologations (the approvals required for connectivity to the telephone network in numerous international markets). The Company has not capitalized internal hardware or software development expenses. The Company expects that in fiscal 1998 it will maintain its strong commitment to research and development at a targeted percentage of anticipated sales similar to fiscal 1997. The Company believes that this level of commitment should enable it to stay in the forefront of technology development in its business segment, which is essential to improving the Company's position in the industry. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses increased to approximately $33.7 million in fiscal 1997 from approximately $27.8 million in fiscal 1996 and approximately $21.2 million in fiscal 1995 as the Company continued to hire and train new and existing sales, service and support personnel and expand its marketing and advertising programs worldwide. The Company expects that in fiscal 1998 it will invest in selling, general and administrative resources at a targeted percentage of anticipated sales slightly less than fiscal 1997. 14 17 OTHER INCOME Other income is primarily interest income on cash and short term investments. The increase in other income in fiscal 1997 versus fiscal 1996 and in fiscal 1996 versus fiscal 1995 reflected the Company's increased average cash balances resulting from the Company's positive net cash flow INCOME FROM OPERATIONS In order to understand the Company's operating and net income over the last three fiscal years, it must be noted that the Company, during fiscal 1997, incurred a one time charge of approximately $1.8 million ($1.3 million net of tax) in connection with the settlement of certain litigation. Additionally, during fiscal 1995, the Company purchased VoicePlex Corporation for approximately $8.0 million in cash and approximately 255,000 shares of the Company's common stock. Substantially all the purchase price was allocated to in-process research and development which resulted in a one time $10.5 million charge to expense with no related tax benefit. Adjusting for these one time charges, the Company generated operating income of approximately $19.3 million, and net income of approximately $14.0 million in fiscal 1997 and operating income of approximately $19.8 million and net income of approximately $13.1 million in fiscal 1995. Adjusted operating income in fiscal 1997 decreased 23% versus fiscal 1996 operating income as the Company increased its investment in sales, marketing, application engineering, and research and development resources at a greater rate than the increase in the Company's sales in order to continue to pursue opportunities in the CPE and Telco markets. Operating income in fiscal 1996 increased 26% versus fiscal 1995 adjusted operating income as a result of a 27% increase in the Company's total sales, improved gross margins due to an increased software content in the Company's systems and productivity improvements from the Company's sales, marketing and administrative staffs. Adjusted net income in fiscal 1997 decreased 19% versus fiscal 1996 net income. Adjusted fiscal 1997 net income fell at a lesser rate than adjusted fiscal 1997 operating income due to a favorable tax rate versus fiscal 1996 resulting from the recognition of the cumulative losses of a foreign subsidiary. Net income in fiscal 1996 increased 32% versus fiscal 1995 adjusted net income. Fiscal 1996 net income grew at a slightly faster rate than operating income due to a favorable tax rate versus fiscal 1995 as a result of increased sales through the Company's foreign sales corporation Any anticipated increases in operating income and net income are expected to be at a rate generally commensurate with the percentage increase in anticipated sales. LIQUIDITY AND CAPITAL RESOURCES The Company had approximately $24.2 million in cash and cash equivalents at February 28, 1997, up from $23.6 million at February 29, 1996. This increase is attributable to the Company's internally generated cash flow. The Company believes that its cash reserves and internally generated cash flow will be sufficient to meet its operating cash requirements for the foreseeable future. The Company reviews share repurchase and acquisition opportunities from time to time and believes it has or has access to the financial resources necessary to pursue attractive repurchase and/or acquisition opportunities as they arise. As of May 19, 1997, the Company has repurchased 180,664 shares of its common stock pursuant to an authorization by its Board of Directors to repurchase up to 1,000,000 shares. The Company believes that market conditions made such shares of value to its shareholders. Impact of Inflation The Company does not expect any significant short term impact of inflation on its financial condition. Technological advances should continue to reduce costs in the computer and communications industries. Further, the Company presently is not bound by long term fixed price sales contracts and has no long term debt obligations, which should reduce the Company's exposure to inflationary effects. 15 18 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED ------------------ FISCAL 1997 31-May-96 31-Aug-96 30-Nov-96 28-Feb-97 --------- ---------- --------- --------- Sales $25,559,501 $27,300,022 24,335,974 $27,650,200 Income (loss) from Operations 5,797,049 6,158,964 1,655,513* 3,937,089 Net income (loss) 3,979,261 4,271,054 1,249,990* 3,260,176 Net income (loss) per Common Share .24 .26 .08* .20
*Includes a one time charge of $1,800,000, ($1,287,000 net of taxes), or $0.08 per share, associated with the settlement of certain litigation. Without this charge, earnings for the quarter ended November 30, 1996 would have been $0.16 per share.
THREE MONTHS ENDED ------------------ FISCAL 1996 31-May-95 31-Aug-95 30-Nov-95 29-Feb-96 --------- --------- --------- --------- Sales $ 22,016,697 $ 23,683,721 $ 25,145,270 $ 26,257,366 Income from Operations 5,989,157 6,321,086 6,612,046 6,132,453 Net Income 3,990,260 4,237,924 4,411,047 4,620,127 Net Income per Common Share .25 .26 .27 .28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Independent Auditors Report of Ernst & Young LLP and the Consolidated Financial Statements of the Company as of February 28, 1997 and February 29, 1996, and for each of the three years in the period ended February 28, 1997 follow: 16 19 REPORT OF ERNST AND YOUNG LLP, INDEPENDENT AUDITORS The Stockholders and Board of Directors of InterVoice, Inc. We have audited the accompanying consolidated balance sheets of InterVoice, Inc. and subsidiaries as of February 28, 1997 and February 29, 1996, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended February 28, 1997. Our audits also included the financial statement schedule listed in the index at item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of InterVoice, Inc. and subsidiaries at February 28, 1997 and February 29, 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 28, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP Dallas, Texas April 2, 1997, except for Note F, for which the date is April 9, 1997. 17 20 InterVoice, Inc. Consolidated Balance Sheets
February 28, February 29, ASSETS 1997 1996 - ---------------------------------------------------------- -------------- -------------- CURRENT ASSETS Cash and cash equivalents $ 24,162,024 $ 23,573,976 Accounts and notes receivable, net of allowance for doubtful accounts of $250,950 in 1997 and $746,027 in 1996 33,506,747 24,704,425 Inventory 12,107,738 12,586,640 Prepaid expenses and other assets 3,833,248 804,428 Deferred taxes 1,419,495 1,714,246 -------------- -------------- 75,029,252 63,383,715 PROPERTY AND EQUIPMENT Building 16,140,989 15,865,605 Computer equipment and software 20,663,578 10,117,852 Furniture, fixtures and other 5,322,288 4,737,625 Service equipment 1,975,825 2,025,558 -------------- -------------- 44,102,680 32,746,640 Less allowance for depreciation 13,676,956 9,540,886 -------------- -------------- 30,425,724 23,205,754 OTHER ASSETS Intangible assets, net of amortization of $1,802,708 in 1997 and $1,893,619 in 1996 3,723,533 2,788,205 Other assets -- 349,132 -------------- -------------- $ 109,178,509 $ 89,726,806 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Accounts payable and accrued expenses $ 12,893,725 $ 11,796,125 Customer deposits 3,403,739 2,527,514 Deferred income 4,995,231 4,075,099 Income taxes payable -- 1,053,519 -------------- -------------- 21,292,695 19,452,257 DEFERRED TAXES 1,695,294 713,074 CONTINGENCIES STOCKHOLDERS' EQUITY Preferred Stock, $100 par value--2,000,000 shares authorized: none issued Common Stock, no par value, at nominal assigned value--62,000,000 shares authorized: 19,353,973 issued, 16,353,973 outstanding in 1997 and 18,984,206 issued, 15,984,206 outstanding in 1996 9,667 9,460 Additional paid-in capital 43,028,780 39,103,070 Unearned compensation (493,634) (436,281) Treasury stock - at cost (24,003,245) (24,003,245) Retained earnings 67,648,952 54,888,471 -------------- -------------- 86,190,520 69,561,475 -------------- -------------- $ 109,178,509 $ 89,726,806 ============== ==============
See notes to consolidated financial statements. 18 21 InterVoice, Inc. Consolidated Statements of Income
Year Ended February 29/28 ------------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ SALES $104,845,697 $ 97,103,054 $ 76,265,228 COST OF GOODS SOLD 40,131,308 34,468,112 27,882,870 ------------ ------------ ------------ GROSS MARGIN 64,714,389 62,634,942 48,382,358 Research and development expenses 11,652,934 9,757,972 7,313,780 Selling, general and administrative expenses 33,712,840 27,822,228 21,222,547 Purchased research and development -- -- 10,541,918 Litigation settlement 1,800,000 -- -- ------------ ------------ ------------ INCOME FROM OPERATIONS 17,548,615 25,054,742 9,304,113 Other income - net 680,644 532,065 438,586 ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 18,229,259 25,586,807 9,742,699 INCOME TAXES Current 4,191,807 8,371,856 7,328,307 Deferred 1,276,971 (44,407) (119,188) ------------ ------------ ------------ INCOME TAXES 5,468,778 8,327,449 7,209,119 ------------ ------------ ------------ NET INCOME $ 12,760,481 $ 17,259,358 $ 2,533,580 ============ ============ ============ Net income per common and common equivalent share $ .77 $ 1.05 $ .15 ============ ============ ============ Weighted average number of common and common equivalent shares 16,618,937 16,397,924 16,755,289 ============ ============ ============
See notes to consolidated financial statements. 19 22 InterVoice, Inc. Consolidated Statements of Changes in Stockholders' Equity
Common Stock Additional ---------------------- Paid-in Unearned Treasury Retained Shares Amount Capital Compensation Stock Earnings Total -------------------------------------------------------------------------------------------- Balance at February 28, 1994 17,760,805 $8,857 $28,047,450 -- -- $35,095,533 $ 63,151,840 Exercise of stock options 365,690 183 1,606,960 -- -- -- 1,607,143 Acquisition of business 255,008 127 2,980,279 -- -- -- 2,980,406 Purchase of treasury stock (3,000,000) -- -- -- (24,003,245) -- (24,003,245) Tax benefit from exercise of stock options -- -- 577,374 -- -- -- 577,374 Net Income -- -- -- -- -- 2,533,580 2,533,580 -------------------------------------------------------------------------------------------- Balance at February 28, 1995 15,381,503 9,167 33,212,063 -- (24,003,245) 37,629,113 46,847,098 -------------------------------------------------------------------------------------------- Exercise of stock options 571,942 278 3,763,469 -- -- -- 3,763,747 Tax benefit from exercise of stock options -- -- 1,545,825 -- -- -- 1,545,825 Issuance of restricted stock 30,761 15 581,713 (436,281) -- -- 145,447 Net Income -- -- -- -- -- 17,259,358 17,259,358 -------------------------------------------------------------------------------------------- Balance at February 29, 1996 15,984,206 $9,460 $39,103,070 ($436,281) ($24,003,245) $54,888,471 $ 69,561,475 Exercise of stock options 344,083 194 2,710,623 -- -- -- 2,710,817 Tax benefit from exercise of stock options -- -- 562,340 -- -- -- 562,340 Issuance of restricted stock, net of forfeitures 25,684 13 652,747 (57,353) -- -- 595,407 Net Income -- -- -- -- -- 12,760,481 12,760,481 -------------------------------------------------------------------------------------------- Balance at February 28, 1997 16,353,973 $9,667 $43,028,780 ($493,634) ($24,003,245) $67,648,952 $ 86,190,520 ============================================================================================
See notes to consolidated financial statements. 20 23 InterVoice, Inc. Consolidated Statements of Cash Flows
Year Ended February 29/28 -------------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ OPERATING ACTIVITIES Net Income $ 12,760,481 $ 17,259,358 $ 2,533,580 Adjustments to reconcile net income to net cash provided by operating activities: Purchased research and development -- -- 10,541,918 Depreciation and amortization 4,946,376 4,393,988 3,522,925 Compensation expense related to restricted stock issuances 595,407 145,447 -- Benefit for deferred income taxes 1,276,971 (44,407) (119,188) Provision for doubtful accounts 397,739 173,928 481,938 Provision for slow moving inventories 1,200,000 752,090 660,000 Disposal of equipment 89,447 11,669 37,014 Changes in operating assets and liabilities net of effects of acquisition: Increase in accounts receivable (9,200,060) (7,279,317) (3,396,102) Increase in inventories (3,520,298) (3,657,122) (3,499,289) (Increase) decrease in prepaid expenses (488,673) (288,339) 124,669 Increase in accounts payable and accrued expenses 1,097,596 2,258,010 2,273,304 Increase (decrease) in customer deposits 876,225 1,395,750 (84,607) Increase in deferred income 920,132 710,251 1,088,334 Increase (decrease) in income taxes payable -- (459,505) 1,027,768 ------------ ------------ ------------ 10,768,651 15,371,801 15,192,264 INVESTING ACTIVITIES Acquisition of business, net of cash acquired -- -- (9,130,574) Purchases of property and equipment (11,483,435) (6,525,578) (9,197,365) Increase in other assets (1,407,985) (1,020,279) (819,401) (Increase) decrease in notes receivable -- 161,508 (151,462) ------------ ------------ ------------ (12,891,420) (7,384,349) (19,298,802) FINANCING ACTIVITIES Purchase of treasury stock -- -- (24,003,245) Exercise of stock options 2,710,817 5,309,572 2,184,517 ------------ ------------ ------------ 2,710,817 5,309,572 (21,818,728) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 588,048 13,297,024 (25,925,266) Cash and cash equivalents, beginning of year 23,573,976 10,276,952 36,202,218 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 24,162,024 $ 23,573,976 $ 10,276,952 ============ ============ ============
See notes to consolidated financial statements. 21 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - DESCRIPTION OF BUSINESS The Company develops, sells and services call automation systems with an emphasis on interactive voice response allowing individuals to interact with computer data bases using their telephones, personal computers, credit card terminals or voice. The Company's systems are sold under the trade names "OneVoice" and "InterDial" and are used by a variety of enterprises to disseminate and receive information efficiently, allowing multiple callers simultaneous access to computer data bases without the expense of maintaining a manned workstation for each telephone line, or by automatically dialing phone numbers and only transferring a call to an operator if the call is answered and the called party remains on the phone. The Company's products include software designed to simplify system customization while permitting a number of diverse product applications. The Company sells its products directly to end-users and through more than 130 domestic and international distributors. NOTE B - SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of InterVoice and its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. INVENTORIES: Inventories, primarily system components, are valued at the lower of cost or net realizable value with cost determined on a first-in, first-out basis. Amounts presented are net of inventory valuation allowances totaling $166,000 and $1,350,000 at February 28, 1997 and February 29, 1996, respectively. PROPERTY AND EQUIPMENT: Property and Equipment is stated on the basis of cost. Depreciation is provided by the straight-line method over each asset's estimated useful life. Depreciation expense totaled $4,124,289, $2,834,613 and $2,305,263 in fiscal 1997, 1996 and 1995, respectively. INTANGIBLE ASSETS: Intangible assets, which include patent licenses, purchased software and license fees for technologies such as text to speech and speech recognition, are being amortized by the straight-line method based on the Company's assessment of each asset's useful life. Useful lives range from five to twelve years. Amortization expense for these items totaled $822,087, $647,261 and $912,996 in fiscal 1997, 1996 and 1995, respectively. CASH AND CASH EQUIVALENTS: Cash equivalents include investments in highly liquid securities with a maturity of three months or less at the time of acquisition. The carrying amount of these securities approximate fair market value. REVENUE RECOGNITION: The Company recognizes revenue from sales of systems and services at the time a contract is signed, custom system specifications, where applicable, are defined and agreed upon, and the system has been shipped or services rendered. In the event the Company anticipates more than a normal time period between shipment and completion of other obligations (installation and system testing), revenue recognition is deferred until all remaining obligations are insignificant. Revenues from system maintenance agreements are deferred and recognized over the term of the agreement. DEFERRED INCOME TAXES: Deferred income taxes are recognized using the liability method and reflect the tax impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. NET INCOME PER SHARE: Net income per share is based on the average common and common equivalent shares outstanding during each fiscal year. Common equivalent shares assume the exercise of all dilutive stock options, including restricted stock, using the treasury stock method. Primary and fully diluted earnings per share are not materially different for the years presented. STOCK-BASED COMPENSATION: The Company has elected to follow Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25") in the primary financial statements and to provide supplementary disclosures required by Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("FAS 123"). See Note F. RECLASSIFICATIONS: Certain prior year balances have been reclassified to conform to current year presentation. 22 25 NOTE C - ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following:
1997 1996 ---- ---- Accounts payable $10,094,466 $ 7,923,169 Accrued compensation 1,572,875 2,356,379 Other 1,226,384 1,516,577 ----------- ----------- $12,893,725 $11,796,125 =========== ===========
NOTE D - INCOME TAXES Significant components of the Company's deferred tax assets and liabilities are as follows:
1997 1996 ---- ---- Deferred tax assets: Allowance for slow moving inventories $ 62,956 $ 511,988 Deferred revenue 738,667 942,181 Accrued expenses 146,022 267,615 Allowance for doubtful accounts 69,782 102,777 Book over tax depreciation/amortization 453,706 -- Other 311,093 44,795 ----------- ---------- Total deferred tax assets 1,782,226 1,869,356 ----------- ---------- Deferred tax liabilities: Capitalized Software 1,814,368 639,835 Tax over book depreciation -- 110,884 Prepaid assets 240,826 107,049 Other 2,831 10,416 ----------- ---------- Total deferred tax liabilities 2,058,025 868,184 ----------- ---------- Net deferred tax assets (liabilities) $ (275,799) $1,001,172 =========== ==========
23 26 Domestic and foreign income before taxes, and details of the income tax provision are as follows:
1997 1996 1995 ---- ---- ---- Income (loss) before taxes: Domestic $ 18,610,597 $ 26,671,904 $ 10,969,945 Foreign (381,338) (1,085,097) (1,227,246) ------------ ------------ ------------ $ 18,229,259 $ 25,586,807 $ 9,742,699 ============ ============ ============ Income tax provision (benefit): Current: Federal $ 4,137,807 $ 8,050,856 $ 6,349,864 Foreign -- -- 146,147 State 54,000 321,000 832,296 ------------ ------------ ------------ Total current 4,191,807 8,371,856 7,328,307 Deferred: Federal 1,156,811 (40,982) (109,996) State 120,160 (3,425) (9,192) ------------ ------------ ------------ Total deferred 1,276,971 (44,407) (119,188) ------------ ------------ ------------ Total $ 5,468,778 $ 8,327,449 $ 7,209,119 ============ ============ ============
A reconciliation of the United States Federal statutory rate to the Company's effective tax rate is as follows:
1997 1996 1995 ---- ---- ---- $ % $ % $ % - - - - - - Federal income taxes at statutory rates 6,380,240 35 8,955,382 35 3,409,945 35 Tax exempt interest (175,588) (1.0) -- -- (151,139) (1.6) Purchased research & development -- -- -- -- 3,689,671 37.9 State taxes, net of federal benefit 113,204 .6 259,000 1.0 540,992 5.6 Foreign loss not benefited (659,833) (3.6) 380,576 1.5 383,777 3.9 Foreign sales corp. benefit (544,036) (3.0) (521,208) (2.0) (284,327) (2.9) Other 354,791 1.9 (746,301) (2.9) (379,800) (3.9) ----------- ---- ----------- ---- ----------- ---- $ 5,468,778 30.0 $ 8,327,449 32.5 $ 7,209,119 74.0 =========== ==== =========== ==== =========== ====
Income taxes, net of refunds, of $6,587,097, $7,240,945 and $5,818,651 were paid in fiscal 1997, 1996 and 1995, respectively. NOTE E - CONTINGENCIES Lucent Technologies ("Lucent") has suggested in correspondence to the Company that it should consider licensing certain Lucent patents for a substantial payment. The Company has an opinion from its outside legal counsel that the Company does not infringe the Lucent patents by reason of non-infringement and/or invalidity. The Company has suggested to Lucent that Lucent should consider licensing certain patents of the Company, and that a mutual cross-license might be in the best interests of both parties. The parties are currently attempting to negotiate a mutually satisfactory cross-license agreement which would resolve the matter. There is no assurance that the Company will be able to negotiate a cross-license agreement based on mutually satisfactory terms. Lucent has not threatened litigation against the Company. In the event that litigation is instituted against the Company concerning the Lucent patents, the Company intends to vigorously contest the claims and to assert defenses of non-infringement and/or invalidity of the patents, together with any other meritorious defenses and counterclaims, including any counterclaim for infringement of its patents, the Company might have. As with any legal proceeding, there is no guarantee that the Company will prevail in any litigation asserted against the Company in connection with the Lucent patents. 24 27 NOTE F - STOCKHOLDERS' EQUITY Stock option plans are in effect under which shares of common stock may be authorized for issuance by the Compensation Committee of the Board of Directors as incentive stock options to key employees. Option prices per share are the fair market value per share of stock, based on the closing per share price on the date of grant. Generally, the options become exercisable at the rate of 33% per year and are exercisable for six years from the date of grant.
Weighted Average Exercise Price Per Share ------------------------ Balance at February 28, 1994 1,537,094 Granted 676,050 $7.63 to $14.50 Exercised (325,640) $1.06 to $12.63 Forfeited (64,841) $4.13 to $18.75 Balance at February 28, 1995 1,822,663 Granted 510,750 $14.75 to $22.00 Exercised (514.177) $2.06 to $18.75 Forfeited (164,912) $4.31 to $21.38 Balance at February 29, 1996 1,654,324 $13.52 Granted 603,300 $11.88 to $27.25 $21.57 Exercised (285,736) $2.06 to $19.25 $ 7.36 Forfeited (185,788) $7.63 to $26.25 $18.21 Balance at February 28, 1997 1,786,100 $16.74
At February 28, 1997, a total of 792,328 employee options were exercisable at an average price of $13.02. On April 9, 1997, the Board of Directors approved a plan to offer to the holders of certain outstanding stock options, excluding the five most highly compensated executive officers, the opportunity to cancel their existing options and receive new options for the same number of shares but with an exercise price per share at the then current fair market value and with new vesting requirements. As a result, approximately 620,000 options with exercise prices ranging from $11.88 to $27.25 per share were exchanged for new options with an exercise price of $10.00 per share. A stock option plan is in effect under which shares of common stock may be issued by the Board of Directors as nonqualified stock options to non-employees. Options are issued to non-employee directors in accordance with a formula prescribed by the plan. Option prices per share are the fair market value per share, based on the closing per share price on the date of grant. Each option becomes exercisable within the period specified in the optionee's agreement and are exercisable for 10 years from the date of grant.
Weighted Average 1990 Non-Employee Option Plan Shares Option Price Exercise Price Per Share - ----------------------------- ------ ------------ ------------------------ Balance at February 28, 1994 24,600 Granted 26,000 $8.50 Exercised (6,600) $3.00 to $6.13 Forfeited (4,000) $15.13 ------ Balance at February 28, 1995 40,000 Granted 12,000 $22.13 Exercised (2,000) $3.09 ------- Balance at February 29, 1996 50,000 $12.82 Granted 26,000 $13.94 $13.94 Exercised (22,000) $8.50 $ 8.50 Forfeited (4,000) $22.13 $22.13 ------- Balance at February 28, 1997 50,000 $22.13 $15.10 =======
At February 28, 1997, a total of 24,000 non-employee options were exercisable at an average price of $14.85. For all option plans at February 28, 1997, options for 632,133 shares of common stock were available for future grant. The Company has adopted an Employee Stock Purchase Plan under which an aggregate of 200,000 shares of common stock may be issued. Options are issued to eligible employees in accordance with a formula prescribed by the plan and are exercised automatically at the end of a one year payroll deduction period. Option prices are determined as 85% of the lower of the closing price per share of the Company's common stock on the option 25 28 grant date or the option exercise date. At February 28, 1997, options for 70,637 shares of common stock were outstanding under the plan.
Weighted Average Employee Stock Purchase Plan Shares Exercise Price Per Share - ---------------------------- ------ ------------------------ Balance at February 28, 1994 58,916 Granted 68,763 Exercised (33,436) Forfeited (25,480) ------- Balance at February 28, 1995 68,763 Granted 48,061 Exercised (55,765) Forfeited (12,998) ------- Balance at February 29, 1996 48,061 $ 17.33 Granted 70,637 $ 14.39 Exercised (36,347) $ 11.43 Forfeited (11,714) $ 20.26 ------- Balance at February 29, 1996 70,637 $ 12.23 ======= Grant price per option outstanding $10.84 to $18.06
During fiscal 1996, the Company adopted a Restricted Stock Plan under which an aggregate of 500,000 shares may be issued. Approximately 154,000 shares have been allocated to five senior executives to be earned based on the achievement of certain targeted share prices and the continued service of each executive for a two year period after each target is met. The remaining shares are available for annual grants to other key executives as a component of their annual bonuses based on the achievement of targeted annual earnings per share objectives and the completion of an additional two years of service after the grant. Activity related to restricted stock during fiscal 1997 and 1996 is as follows:
Senior Executive Key Executive Plan Plan ---------------- ------------- Balance at February 28, 1995 -- -- Granted 30,761 -- ------ ------ Balance at February 28, 1996 30,761 -- Granted 30,761 4,787 Forfeited (9,228) (636) ------ ------ Balance at February 28, 1997 52,294 4,151 ====== ======
The weighted average share price on the date of grant in fiscal 1997 was $21.27 for the Senior Executive Plan and $29.44 for the Key Executive Plan. Shares forfeited in fiscal 1997 had been granted at a weighted average share price of $21.80. At February 28, 1997, approximately 440,000 shares are reserved for future restricted stock grants. One Preferred Share Purchase Right is attached to each outstanding share of the Company's common stock. If a person or group acquires beneficial ownership of 20 percent or more, or announces a tender offer that would result in beneficial ownership of 20 percent or more of the Company's outstanding common stock, the rights become exercisable and each right will entitle its holder to purchase one four-hundredth of a share of Series A Preferred Stock for $75, subject to adjustment. If the Company is acquired in a business combination transaction while the rights are outstanding, each right will entitle its holder to purchase, for $75, common shares of the acquiring company having a market value of $150. In addition, if a person or group acquires beneficial ownership of 20 percent or more of the Company's outstanding common stock, each right will entitle its holder (other than such person or members of such group) to purchase, for $75, a number of shares of the Company's common stock having a market value of $150. Furthermore, at any time after a person or group acquires beneficial ownership of 20 percent or more (but less than 50 percent) of the Company's outstanding common stock, the Board of Directors may, at its option, exchange part or all of the rights (other than rights held by the acquiring person or group) for shares of the Company's common stock on a one-for-one basis. At any time prior to the acquisition of such a 20 percent position, the Company can redeem each right for .25 cents. The Board of Directors is also authorized to reduce the 20 percent thresholds referred to above to not less than 10 percent. The rights expire in the year 2001. Because the Company has elected to continue to apply the provisions of APB 25 for expense recognition purposes in the primary financial statements, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", ("FAS 123") requires disclosure of pro forma information which provides the effects on Net income and Income per share as if the Company had accounted for its employee stock awards under fair value methods prescribed by FAS 123. The fair value of the Company's employee stock awards was estimated using a Black-Scholes option pricing model with the following weighted-average assumptions for fiscal 1997 and 1996, respectively: risk-free interest rates of 6.39% and 6.02%; stock price volatility factors of .66 and .74; and expected option lives of 4.06 years and 3.2 years. The Company does not have a history of paying dividends, and none have been assumed in estimating the fair value of the options. The weighted-average fair value per share of options granted in fiscal 1997 was 11.82. 26 29 Pro Forma Required Disclosures:
1997 1996 --------- --------- Net income ..... $ 10,795,850 $ 16,242,620 Income per share $ .67 $ 1.00
As required by FAS 123, only awards granted in fiscal 1996 and 1997 have been included in determining the amount of additional compensation expense for those years. As such, the effects of applying FAS 123 on fiscal 1997 and 1996 results are not necessarily representative of the additional compensation expense which will be included in future years' pro forma disclosures as more than two years of awards will be considered. The following table provides information related to all option plans at February 28, 1997, excluding the impact of the exchange of options on April 9, 1997, as previously described.
Options Outstanding Weighted Average - ------------------- Weighted Average Remaining Contractual Exercise Prices Shares Exercise Price Life In Years - ------------------- ------ ---------------- --------------------- $ 2.06 - $10.84 363,474 $ 7.38 2.36 $11.63 - $15.13 536,078 $ 12.85 4.41 $17.38 - $27.25 1,007,185 $ 21.79 6.47 --------- 1,906,737 ========= Options Exercisable - ------------------- $ 2.06 - $10.84 236,652 $ 6.17 2.26 $11.63 - $15.13 330,360 $ 12.69 2.70 $17.38 - $27.25 249,316 $ 20.20 3.61 --------- 816,328 =========
Pursuant to an authorization by the Company's Board of Directors during fiscal 1995, in July, 1994, the Company repurchased 3,000,000 shares of its common stock at an average price of $8.00 per share. NOTE G - GEOGRAPHIC OPERATIONS AND MAJOR CUSTOMERS The Company's operations involve a single industry segment: the development, sale and service of call automation systems. Export sales, summarized by geographic area, are as follows:
(In Thousands) 1997 1996 1995 - -------------- ---- ---- ---- The Americas (Excluding the United States) $11,622 $11,126 $ 6,606 Pacific Rim 4,769 3,507 2,461 Europe, The Middle East and Africa 8,372 3,620 1,978 ------- ------- ------- TOTAL $24,763 $18,253 $11,045 ======= ======= =======
One customer, Siemens AG, an InterVoice distributor, accounted for 10.2% of the Company's sales during fiscal 1997. During fiscal 1996 and 1995, MCI Telecommunications accounted for 11.2% and 11.7% of the Company's total sales, respectively. 27 30 NOTE H - CONCENTRATIONS OF CREDIT RISK The Company sells systems directly to end-users and distributors primarily in the banking and financial, telecommunications, human resource, heathcare and call center vertical markets. Credit is extended based on an evaluation of a customer's financial condition and a deposit is generally required. The Company has made a provision for credit losses in these financial statements, which have been less than 1% of sales in the periods reported. NOTE I - EMPLOYEE BENEFIT PLAN The Company sponsors an employee savings plan which qualifies under section 401(k) of the Internal Revenue Code. All full time employees who have completed three months of service are eligible to participate in the plan. The Company matches 50% of employee contributions up to 6% of the employee's eligible compensation. Company contributions totaled $759,000, $524,000 and $405,000 in fiscal 1997, 1996 and 1995, respectively. NOTE J - ACQUISITION The Company acquired VoicePlex Corporation on August 31, 1994. The acquisition was accounted for by the purchase method of accounting. This purchase price of $12,277,992 was comprised of $7,954,749 in cash, Company common stock valued at $2,980,406 and other direct acquisition costs totaling $1,342,837. The allocation of the purchase price among the identifiable tangible and intangible assets was based on the fair market value of those assets using a risk adjusted income approach. Based on appraised value, a portion of the purchase price was allocated to purchased research and development which had not reached technological feasibility and had no alternative future use. This allocation resulted in a $10,541,918 charge, net of taxes, to the Company's operations in fiscal year 1995. The remaining purchase price was allocated, based on appraisals, to software ($746,121), net tangible assets ($470,619), deferred taxes ($351,457), and assembled workforce ($167,877). 28 31 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS INTERVOICE, INC.
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ---------- ----------- ----------------------------- ------------ ---------- Additions ----------------------------- (1) (2) Balance at Charged to Charged to Balance at Beginning Cost and Other Accounts Deductions - End of Description of Period Expenses - Describe Describe Period ----------- ---------- ----------- -------------- ------------ ---------- Year ended February 28,1997 Deducted from asset accounts: Allowance for doubtful accounts $ 746,027 $ 397,740 $ (892,817)(A) $ 250,950 Allowance for slow moving inventories 1,350,000 1,200,000 (2,384,000)(C) 166,000 ---------- ----------- ----------- ---------- Total $2,096,027 $ 1,597,740 $(3,276,817) $ 416,950 ========== =========== =========== ========== Year ended February 29,1996 Deducted from asset accounts: Allowance for doubtful accounts $ 585,439 $ 173,930 $ (13,342)(A) $ 746,027 Allowance for slow moving inventories 1,110,267 752,090 (512,357)(B) 1,350,000 ---------- ----------- ----------- ---------- Total $1,695,706 $ 926,020 $ (525,699) $2,096,027 ========== =========== =========== ========== Year ended February 28,1995 Deducted from asset accounts: Allowance for doubtful accounts $ 192,000 $ 481,938 $ (88,499)(A) $ 585,439 Allowance for slow moving inventories 677,256 660,000 (226,989)(B) 1,110,267 ---------- ----------- ----------- ---------- Total $ 869,256 $ 1,141,938 $ (315,488) $1,695,706 ========== =========== =========== ==========
- -------------------------------- (A) Accounts written off. Includes approximately $520,000 associated with shut down of foreign subsidiary in fiscal 1997. (B) Scrapped material. (C) Includes approximately $1,700,000 reclassified to accumulated depreciation associated with reclassification of inventory into fixed assets. Also includes approximately $700,000 of scrapped material. 29 32 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 30 33 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item will be contained in the sections entitled "Election of Directors" and "Executive Officers" in the Company's Definitive Proxy Statement, involving the election of directors, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K (the "Definitive Proxy Statement") and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be contained in the section entitled "Executive Compensation" in the Definitive Proxy Statement. Such information, except for the information captioned "Report of the Compensation Committee" and "Performance Graph", is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item will be contained in the section entitled "Election of Directors" in the Definitive Proxy Statement. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item will be contained in the section captioned "Certain Transactions" in the Definitive Proxy Statement. Such information is incorporated herein by reference. 31 34 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following consolidated financial statements and financial statement schedules of InterVoice, Inc. and subsidiaries are included in Items 8 and 14(a), respectively.
Page ---- (1) Financial Statements: Report of Independent Auditors ................................... 17 Consolidated Balance Sheets at February 28, 1997 and February 29, 1996........................................ 18 Consolidated Statements of Income for the three years ended February 28, 1997 ..................................... 19 Consolidated Statements of Changes in Stockholders' Equity for the three years ended February 28, 1997 ................. 20 Consolidated Statements of Cash Flows for the three years ended February 28, 1997 ............................... 21 Notes to Financial Statements .................................... 22 (2) Financial Statement Schedule: II Valuation and Qualifying Accounts ............................ 29
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (3) Exhibits: The exhibits required to be filed by this Item 14 are set forth in the Index to Exhibits accompanying this report. (b) No reports on Form 8-K were filed by the Company during the quarter ended February 28, 1997. 32 35 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERVOICE, INC. By: /s/ DANIEL D. HAMMOND ---------------------------------- Daniel D. Hammond Chairman of the Board of Directors and Chief Executive Officer Dated: May 28, 1997 33 36 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ DANIEL D. HAMMOND Chairman of the Board of May 28, 1997 -------------------------- Directors and Chief Daniel D. Hammond Executive Officer /s/ MICHAEL W. BARKER President and Chief May 28, 1997 -------------------------- Operating Officer Michael W. Barker /s/ ROB-ROY J.GRAHAM Chief Financial Officer, May 28, 1997 -------------------------- Chief Accounting Officer Rob-Roy J. Graham and Controller (Principal Accounting Officer) /s/ JOSEPH J. PIETROPAOLO Director May 28, 1997 -------------------------- Joseph J. Pietropaolo /s/ GEORGE C. PLATT Director May 28, 1997 -------------------------- George C. Platt /s/ GRANT A. DOVE Director May 28, 1997 -------------------------- Grant A. Dove
34 37 INDEX TO EXHIBITS
Exhibit Sequentially No. Description Numbered Page - ------- ----------- ------------- 3.1 -- Articles of Incorporation, as amended, of Registrant (3) 3.2 -- Second Restated Bylaws of Registrant, as amended (2) 4.1 -- Registration Rights Agreement dated August 31, 1994, among the Company, Sohail Sattar and Steven E. Polsky and other shareholders of VoicePlex Corporation. (8) 10.1 -- Registrant's 1984 Incentive Stock Option Plan, as amended (1) 10.2 -- Second Amended and Restated Employment Agreement dated as of June 21, 1996, effective as of March 1, 1996 by and between the Company and Danil D. Hammond (10) 10.3 -- First Amendment to Amended and Extended Employment Agreement dated as of June 25, 1996 and effective as of March 1, 1996 by and between the Company and Daniel D. Hammond (10) 10.4 -- Amended and Restated Rights Agreement dated as of December 12, 1994 between the Registrant and KeyCorp Shareholders Services, Inc. (formerl Society National Bank), as Rights Agent (5) 10.5 -- The InterVoice, Inc. 1990 Incentive Stock Option Plan, as amended (10) 10.6 -- The InterVoice, Inc. 1990 Nonqualified Stock Option Plan for Non-Employees, as amended (4) 10.7 -- Amendment to the 1984 Incentive Stock Option Plan (2) 10.8 -- InterVoice, Inc. Employee Stock Purchase Plan (7) 10.9 -- Amended and Restated Employment Agreement dated as of June 21, 1996, effective as of March 1, 1996 by and between the Company and Michel W. Barker (10) 10.10 -- First Amendment to Amended and Extended Employment Agreement dated as of June 25, 1996 and effective as of March 1, 1996 by and between the Company and Michael W. Barker (10) 10.11 -- InterVoice, Inc. Employee Savings Plan (6) 10.12 -- Merger Agreement dated August 31, 1994 among the Company, InterVoice Acquisition Corp., VoicePlex Corporation and certain shareholders of VoicePlex Corporation. (8) 10.13 -- InterVoice, Inc. Restricted Stock Plan (9) 10.14 -- Separation Agreement dated as of December 5, 1996 between the Company and Richard Herrmann (10)
35 38 11. -- Computation of Per Share Earnings (10) 23. -- Consent of Independent Auditors (10) 27. -- Financial Data Schedule (10)
- ------------- (1) Incorporated by reference to exhibits to the Company's Registration Statement on Form S-2 under the Securities Act of 1933, Registration No. 33-30847. (2) Incorporated by reference to exhibits to the Company's 1991 Annual Report on Form 10-K for the fiscal year ended February 28, 1991, filed with the Securities and Exchange Commission (SEC) on May 29, 1991, as amended by Amendment No. 1 on Form 8 to Annual Report on Form 10-K, filed with the SEC on August 1, 1991. (3) Incorporated by reference to exhibits to the Company's 1995 Annual Report on form 10-K for the fiscal year ended February 28, 1995, filed with the SEC on May 30, 1995. (4) Incorporated by reference to exhibits to the Company's Registration Statement on form S-8 filed on April 6, 1994, with respect to the Company's 1990 Nonqualified Stock Option Plan for Non-Employees, Registration Number 33-77590. (5) Incorporated by reference to exhibits to Form 8-A/A (Amendment No 1) filed with the SEC on December 15, 1994. (6) Incorporated by reference to Exhibits to the Company's 1994 Annual Report on Form 10-K for the fiscal year ended February 28, 1994, filed with the SEC on May 31, 1994. (7) Incorporated by reference to exhibits to Registration Statement on Form S-8 filed with the Securities and Exchange Commission on December 1, 1993, Registration Number 33-72494. (8) Incorporated by reference to exhibits to the Company's current report on Form 8-K dated September 13, 1994, and the Amendment thereto or Form 8K/A dated October 27, 1994. (9) Incorporated by reference to exhibits to the Company's 1996 Annual Report on Form 10-K for the fiscal year ended February 29, 1996, filed with the SEC on May 29, 1996. (10) Filed herewith. Exhibits furnished upon request 36 EX-10.2 2 2ND AMENDED & RESTATED EMPLOYMENT AGREEMENT 1 EXHIBIT 10.2 INTERVOICE, INC. SECOND AMENDED AND EXTENDED EMPLOYMENT AGREEMENT This Second Amended and Extended Employment Agreement (this "Agreement") is dated as of June 21, 1996 effective as of March 1, 1996 between InterVoice, Inc., a Texas corporation with its principal executive offices at 17811 Waterview Parkway, Dallas, Texas 75252 (the "Company"), and Daniel D. Hammond (the "Employee"). W I T N E S S E T H: WHEREAS, the Employee is presently employed by the Company pursuant to that certain Amended and Extended Employment Agreement dated February 28, 1993 (the "Old Agreement"), between the Company and the Employee; and WHEREAS, the Employee and the Company desire to amend the terms and conditions of the Old Agreement to, among other things, extend the term of the Employee's employment by the Company, increase the Employee's base salary, further define the Employee's bonus opportunity and grant additional stock options to the Employee. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and conditions hereinafter set forth, the parties hereto agree as follows: 1. DEFINITIONS. ------------ In addition to the words and terms elsewhere defined in this Agreement, the following words and terms herein shall have the following meanings, unless the context or use indicates a different meaning: "Annualized Compensation Amount" means an amount equal to the annualized salary payable and bonuses accrued or payable to the Employee pursuant to Section 4 of this Agreement during the most recent completed fiscal year of the Company. "Applicable EPS Bonus Percentage" means, with respect to the applicable fiscal year, the percentage set forth in the right hand column below as determined with reference to the increase or decrease in the Company's earnings per share between such fiscal year the immediately preceding fiscal year. Page 1 2 Increase or Decrease in Earnings per ------------------------------------ Share in Applicable Fiscal Year ------------------------------------ Compared to Immediately Preceding Applicable EPS ------------------------------------ ---------------- Fiscal Year Bonus Percentage ----------- ---------------- 40% or more increase 125% 35% through 39% increase 100% 25% through 34% increase 75% 10% through 24% increase 50% 0% through 9% increase 25% 1% through 10% decrease 10% 11% or more decrease 0% "Applicable Revenue Bonus Percentage" means, with respect to the applicable fiscal year, the percentage set forth in the right hand column below as determined with reference to the increase or decrease in the Company's total revenues between such fiscal year and the immediately preceding fiscal year: Increase or Decrease in Revenues in ----------------------------------- Applicable Fiscal Year Compared to Applicable Revenue ----------------------------------- ------------------ Immediately Preceding Fiscal Year Bonus Percentage ----------------------------------- ------------------ 40% or more increase 125% 35% through 39% increase 100% 25% through 34% increase 75% 10% through 24% increase 50% 0% through 9% increase 25% Decrease in revenues 0% "Cause" means (a) any act by the Employee that is materially adverse to the best interests of the Company and which, if the subject of a criminal proceeding, could result in a criminal conviction for a felony or (b) the willful failure by the Employee to substantially perform his duties hereunder, which duties are within the control of the Employee (other than the failure resulting from the Employee's incapacity due to physical or mental illness), provided, however, that the Employee shall not be deemed to be terminated for Cause under this subsection (b) unless and until (1) after the Employee receives written notice from the Company specifying with reasonable particularly the actions of Employee which constitute a violation of this subsection (b) and (2) within a period of 30 days after receipt of such notice (and during which the violation is within the control of the Employee), Employee fails to reasonably and prosecutively cure such violation. "Common Stock" means the Company's common stock, no par value per share. An "Event of Default" means the occurrence of any of the following events prior to the Triggering Date, unless remedied or otherwise cured within 30 days after the Company's receipt Page 2 3 of written notice from the Employee of such event, (a) a breach by the Company of any of its express or implied obligations under this Agreement, (b) without his prior concurrence, the Employee is assigned any duties or responsibilities that are inconsistent with his position, duties, responsibilities or status at the commencement of the term of this Agreement, or his reporting responsibilities or titles in effect at such time are changed, (c) the Employee's base compensation is reduced or any other failure by the Company to comply with Section 4, or (d) any change in any employee benefit plans or arrangements in effect on the date hereof in which the Employee participates (including without limitation any pension and retirement plan, savings and profit sharing plan, stock ownership or purchase plan, stock option plan, or life, medical or disability insurance plan), which would adversely affect the Employee's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Company and does not result in a proportionately greater reduction in the rights of or benefits to the Employee as compared to any other executive officer of the Company. "Good Reason" means the occurrence of a Triggering Event (as defined below) and (a) a breach by the Company of any of its express or implied obligations under this Agreement, (b) without his prior concurrence, the Employee is assigned any duties or responsibilities that are inconsistent with his position, duties, responsibilities or status at the commencement of the term of this Agreement, or his reporting responsibilities or titles in effect at such time are changed, (c) the Employee's base compensation is reduced or any other failure by the Company to comply with Section 4, (d) any change in any employee benefit plans or arrangements in effect on the date hereof in which the Employee participates (including without limitation any pension and retirement plan, savings and profit sharing plan, stock ownership or purchase plan, stock option plan, or life, medical or disability insurance plan), which would adversely affect the Employee's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Company and does not result in a proportionately greater reduction in the rights of or benefits to the Employee as compared to any other executive officer of the Company, or (e) the shareholders of the Company shall fail to elect the Employee as a member of the Board of Directors of the Company. "Triggering Date" means the date of a Triggering Event. A "Triggering Event" shall be deemed to have occurred if (a) any person or group (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of securities of the Company representing more than 20% of the combined voting power of the Company's then outstanding securities, or (b) at any annual or special meeting of shareholders of the Company one or more directors are elected who were not nominated by management of the Company to serve on the Board of Directors of the Company, or (c) the Company is merged or consolidated with another corporation and as a result of such merger or consolidation less than 51% of the outstanding voting securities of the surviving or resulting corporation are owned in the aggregate by the former shareholders of the Company, other than by a party to such merger or consolidation or affiliates (within the meaning of the Exchange Act) of any party to such merger or consolidation, as the same existed immediately prior to such merger or consolidation, or (d) the Company sells all or substantially all of its assets to another corporation which is not a wholly-owned subsidiary of the Company. Page 3 4 2. EMPLOYMENT. ----------- The Company hereby employs the Employee and the Employee hereby accepts employment on the terms and conditions set forth herein. 3. TERM. ----- The initial term of this Agreement shall be from March 1, 1996 until February 28, 1999 unless sooner terminated in accordance with the provisions herein regarding termination. Subject to earlier termination as provided herein, the initial term of this Agreement shall be automatically extended for one (1) year from March 1, 1999, unless either the Employee or the Company gives written notice to the other six months or more prior to February 28, 1999. 4. COMPENSATION. ------------- (a) Base Salary. For all services rendered by the Employee under this Agreement, the Company shall pay the Employee a base salary of $341,640 per year. Such salary shall be payable in equal monthly installments in accordance with the customary payroll policies of the Company in effect at the time such payment is made, or as otherwise mutually agreed upon; provided, however, the Company will promptly pay the Employee in a lump sum an amount equal to the difference between (i) the aggregate base salary that is payable to the Employee under this Agreement for the period March 1, 1996 through June 30, 1996, inclusive, and (ii) the aggregate base salary actually paid to Employee under the Old Agreement for the period March 1, 1996 through June 30, 1996, inclusive. On or about the anniversary date of this Agreement each year during the term hereof, the Compensation Committee of the Company shall review Employee's performance for the prior year and make such adjustments in base salary from time to time at their discretion as the Employee and the Company may agree. (b) Annual Bonus. Effective for the Company's fiscal year ending February 29, 1997 and continuing with respect to each subsequent fiscal year thereafter during the term of this Agreement, the Company will pay Employee an annual bonus equal to the sum of (a) the mathematical product of Employee's base salary pursuant to Subsection 4(a) for such fiscal year multiplied by the Applicable Revenue Bonus Percentage and (b) the mathematical product of the Employee's base salary pursuant to Subsection 4(a) for such fiscal year multiplied by the Applicable EPS Bonus Percentage. Employee's bonus pursuant to this Subsection 4(b) shall be earned as of the end of the Company's fiscal year and payable within five days after the Company's receipt of its audited annual financial statements. The formula set forth herein for determining annual bonuses shall be adjusted from time to time when and if there occur stock splits or other changes in capital structure which result in an increase or decrease in outstanding capital stock of more than 25%. (c) Bonus. In addition to the Employee's annual base salary and other benefits provided for in this Agreement, the Company may pay to the Employee on an annual basis a discretionary bonus in an amount to be approved by the Board of Directors of the Company; provided, however, in no event shall the bonus payable hereunder, if any, exceed Employee's annual base salary provided for in Section 4(a). Page 4 5 (d) Benefits. The Employee shall be entitled to participate in or receive benefits under any employee benefit plan or arrangement made available by the Company in the future to its executive officers and key management personnel, subject to and on a basis consistent with the terms, conditions and overall administration of such plan or arrangement. Nothing paid to the Employee under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary and bonuses payable to the Employee pursuant to Subsections 4(a), (b) and (c). (e) Stock Option. In consideration of the Employee's execution of this Agreement, the Company has granted effective June 21, 1996 an option to purchase 180,000 shares of the Company's Common Stock to the Employee pursuant to the Company's 1990 Incentive Stock Option Plan. The exercise price for such option will be the closing price for the Company's Common Stock on the Nasdaq National Market on June 21, 1996. The grant of such option is subject to the Company's shareholders approving, at the 1996 annual meeting, the proposed amendment to increase the number of shares of Common Stock authorized for issuance under the 1990 Incentive Stock Option Plan. (f) Expenses. Upon receipt of itemized vouchers, expense account reports, and supporting documents submitted to the Company in accordance with the Company's procedures from time to time in effect, the Company shall reimburse Employee for all reasonable and necessary travel, entertainment, and other reasonable and necessary business expenses incurred ordinarily and necessarily by Employee in connection with the performance of his duties hereunder. (g) Vacation. Employee shall be entitled to a minimum of 6 weeks paid vacation during each twelve month period commencing on the effective date of this Agreement. 5. POSITION, DUTIES, EXTENT OF SERVICES AND SITUS. ----------------------------------------------- (a) Position and Duties. Employee shall serve as the Chairman of the Board and Chief Executive Officer of the Company, accountable only to the Board of Directors of the Company and, subject to the authority of such board, shall have supervision and control over, and responsibility for, the general management and operation of the Company and shall have such other powers and duties as may from time to time be prescribed by such board, provided that such duties are reasonable and customary for a Chairman of the Board and Chief Executive Officer of a public company. (b) Extent of Services and Situs. The Employee shall devote substantially all of his business time, attention, and energy to the business and affairs of the Company and shall not during the term of his employment under this Agreement engage in any other business activity which could constitute a conflict of interest, whether or not such business activity is pursued for gain, profit, or other pecuniary advantage. This shall not be construed as preventing the Employee from managing his current investments or investing his assets in such form or manner as will not require any services on the part of the Employee in the operation and the affairs of the companies in which such investments are made, subject to the provisions of Sections 6 and 27. The Employee shall not be required to change the principal place of his employment to a Page 5 6 (b) Extent of Services and Situs. The Employee shall devote substantially all of his business time, attention, and energy to the business and affairs of the Company and shall not during the term of his employment under this Agreement engage in any other business activity which could constitute a conflict of interest, whether or not such business activity is pursued for gain, profit, or other pecuniary advantage. This shall not be construed as preventing the Employee from managing his current investments or investing his assets in such form or manner as will not require any services on the part of the Employee in the operation and the affairs of the companies in which such investments are made, subject to the provisions of Sections 6 and 27. The Employee shall not be required to change the principal place of his employment to a location which is more than 15 miles further away from his principal residence than such principal place of employment at the time of the execution of this Agreement. 6. COVENANT NOT TO COMPETE. ------------------------ (a) The Employee acknowledges that (i) as a result of his position and tenure with the Company he has received and will continue to receive specialized and unique training and knowledge concerning the Company, its business, its customers and the industry in which it competes, (ii) the Company's business, in large part, depends upon its exclusive possession and use of the Proprietary Information (as defined in Section 27), (iii) the Company is entitled to protection against the unauthorized disclosure or use by Employee of the Proprietary Information or the training and knowledge received by the Employee and (iv) he has received in this Agreement good and valuable consideration for the covenants he is making in this Section 6 and in Section 27. The Company and the Employee acknowledge and agree that the covenants contained in this Section 6 and in Section 27 are reasonably for the protection of the Company and are reasonably limited with respect to the activities they prohibit, their duration, their geographical scope and their effects on the Employee and the public. The parties acknowledge that the purpose and effect of the covenants are to protect the Company from unfair competition by the Employee. (b) Except as provided in the last sentence of Section 6(b), during the period in which the Employee renders services to the Company under this Agreement and for eighteen (18) months thereafter, the Employee shall not, without the written consent of the Company, own, manage, operate, control, serve as an officer, director, employee, partner or consultant of or be connected in any way with or have any interest in any corporation, partnership, proprietorship or other entity which carries on business activities in competition with the Company's activities in any state of the United States or in any foreign country in which the Company has sold or installed its products or systems or has definitive plans to sell or install its products at any time prior or at the time of the date of termination of the Employee's employment; except that the Employee may own up to 1% of the shares of any publicly-owned corporation, provided that none of his other relationships with such corporation violates such covenant. Notwithstanding the foregoing, the provisions of this Section 6 shall not apply if the Employee's employment with the Company under this Agreement is terminated (i) by the Company, unless the Employee is terminated in accordance with Section 7 or for Cause in accordance with Subsection 9.l(a) or 9.2(a), or (ii) at the election of the Employee prior to the Triggering Date after the occurrence of an Event of Default which has not been waived in writing or on or after the Triggering Date for Good Reason. Page 6 7 (c) The Company and the Employee hereby agree that in the event that the noncompetition covenants contained herein should be held by any court or other constituted legal authority of competent jurisdiction to be effective in any particular area or jurisdiction only if said covenants are modified to limit their duration, geographical area or scope, then the parties hereto will consider Section 6 to be amended and modified with respect to that particular area or jurisdiction so as to comply with the order of any such court or other constituted legal authority and, as to all other jurisdictions or political subdivisions thereof, the noncompetition covenants contained herein will remain in full force and effect as originally written. The Company and the Employee further agree that in the event that the noncompetition covenants contained herein should be held by any court or other constituted legal authority of competent jurisdiction to be void or otherwise unenforceable in any particular area or jurisdiction notwithstanding the operation of this Section 6(c), then the parties hereto will consider this Section 6 to be amended and modified so as to eliminate therefrom that particular area or jurisdiction as to which such noncompetition covenants are so held void or otherwise unenforceable, and, as to all other areas and jurisdictions covered by the noncompetition covenants, the terms and provisions hereof shall remain in full force and effect as originally written. (d) Employee recognizes and acknowledges that the Company would suffer irreparable harm and substantial loss if Employee violated any of the terms and provisions of this Section 6 or Section 27 and that the actual damages which might be sustained by the Company as the result of any breach of this Section 6 or Section 27 would be difficult to ascertain. Employee agrees, at the election of the Company and in addition to, and not in lieu of, the Company's right to terminate Employee's employment and to seek all other remedies and damages which the Company may have at law and/or equity for such breach, that the Company shall be entitled to an injunction restraining Employee from breaching any of the terms or provisions of this Section 6 or Section 27. 7. COMPENSATION IN THE EVENT OF DISABILITY. ---------------------------------------- (a) Disability. If the Employee becomes disabled during the term of this Agreement the Company shall cause to be paid to the Employee an amount equal to his base salary in effect at the time of disability under Subsection 4(a), for the shorter of the duration of the disability or the remainder of the term of this Agreement and, subject to the provisions of Sections 22 and 25, with no liability on its part for further payments to the Employee during the duration of the disability. Subject to Subsection 7(b) below, full compensation shall be reinstituted upon his return to employment and resumption of his duties. For purposes of this Subsection 7(a) the Employee shall be deemed "disabled" when he is unable, for a period of 90 consecutive days, to perform his normal duties of employment due to bodily injury or disease or any other physical or mental disability. (b) Complete Disability. The Company shall have the right to terminate the Employee's employment under this Agreement prior to the expiration of the term upon the "Complete Disability" of the Employee as hereinafter defined (provided, however, that the obligations of the Company under Subsection 7(a) shall not terminate). The term "Complete Disability" as used in this Subsection 7(b) shall mean (i) the total inability of the Employee, due to bodily injury or disease or any other physical or mental incapacity, to perform the services Page 7 8 provided for hereunder for a period of 120 days, in the aggregate, within any given period of 180 consecutive days during the term of this Agreement, and (ii) where such inability will, in the opinion of a qualified physician (reasonably acceptable to Employee), be permanent and continuous during the remainder of his life. 8. COMPENSATION IN THE EVENT OF DEATH. ----------------------------------- If the Employee dies during the term of his employment, the Company shall pay to such person as the Employee shall designate in a notice filed with the Company, or, if no such person shall be designated, to his estate as a death benefit, his base salary in effect at the time of his death pursuant to Subsection 4(a) in equal semi-monthly installments on the first and fifteenth day of each month immediately succeeding his death, for a period of months (not exceeding 12) determined by multiplying the number of complete 12-month periods of employment of the Employee by the Company (whether pursuant to an employment agreement or not) by two, in addition to any payments the Employee's spouse, beneficiaries, or estate may be entitled to receive pursuant to any pension or employee benefit plan or life insurance policy maintained by the Company, and, except for any obligations of the Company under Sections 22 and 25, all other obligations of the Company hereunder shall cease at the time of the Employee's death. 9. TERMINATION. ------------ 9.1 Termination Prior to the Triggering Date. (a) Upon at least 30 days' prior written notice to the Employee and prior to the Triggering Date, the Company may terminate the Employee's employment with the Company under this Agreement only for Cause or in accordance with Section 7 and, subject to the provisions of Sections 7, 22, and 25, with no liability on its part for further payments to the Employee. The Company may effect a termination for Cause pursuant to this Subsection 9.1(a) only by the affirmative vote of a majority of the members of the Board of Directors of the Company. In voting upon such termination for Cause, if the Employee is also a member of the Board of Directors of the Company, then he may not vote on, and will not be considered present for any purpose with respect to, a matter presented to the Board of Directors of the Company pursuant to this Subsection 9.1(a). (b) Prior to the Triggering Date, the Employee may terminate his employment with the Company under this Agreement by giving at least 90 days' prior written notice of his desire to terminate employment to the Board of Directors of the Company. If the Employee's employment with the Company under this Agreement is terminated pursuant to this Subsection 9.1(b), the Employee will continue to accrue and receive his base salary in effect at the time pursuant to Subsection 4(a) through the date of termination with no liability on the part of the Company for further payments to the Employee, subject to the provisions of Sections 22 and 25. (c) Prior to the Triggering Date, if the Employee's employment with the Company is terminated by the Company without Cause or if the Employee terminates his employment with the Company following the occurrence of an Event of Default which has not been waived in writing by the Employee, the Employee will continue to accrue and receive his base salary in effect at the time pursuant to Subsection 4(a) through the date of termination and will be entitled to receive the benefits provided for under Subsection 10.1 (unless the Employee's employment Page 8 9 is terminated in accordance with Section 7) with no liability on the part of the Company for further payments to the Employee, subject to the provisions of Sections 7, 22, and 25. 9.2 Termination On or After the Triggering Date. (a) Upon at least -------------------------------------------- 30 days' prior written notice to the Employee and on or after the Triggering Date, the Company may terminate the Employee's employment with the Company under this Agreement only for Cause or in accordance with Section 7 and, subject to the provisions of Sections 7, 22 and 25, with no liability on its part for further payments to the Employee. The Company may effect a termination for Cause pursuant to this Subsection 9.2(a) only by the affirmative vote of two-thirds of the members of the Board of Directors of the Company. In voting upon such termination for Cause, if the Employee is also a member of the Board of Directors of the Company, then he may not vote on, and will not be considered present for any purpose with respect to, a matter presented to the Board of Directors of the Company pursuant to this Subsection 9.2(a). (b) On or after the Triggering Date, if the Employee's employment with the Company is terminated by the Company without Cause or if the Employee terminates his employment with the Company for Good Reason, the Employee will continue to accrue and receive his base salary in effect at the time pursuant to Subsection 4(a) through the date of termination and will be entitled to receive the payments and benefits provided for under Subsections 10.2 and 10.3 (unless the Employee's employment is terminated in accordance with Section 7) with no liability on the part of the Company for further payments to the Employee, subject to the provisions of Sections 7, 22 and 25. (c) On or after the Triggering Date, the Employee may, in his sole and absolute discretion and without any prior approval by the Board of Directors of the Company, and upon twelve months' prior written notice to the Board of Directors of the Company, terminate his employment with the Company under this Agreement for any reason whatsoever. If the Employee's employment with the Company under this Agreement is terminated pursuant to this Subsection 9.2(c), the Employee will continue to accrue and receive his base salary in effect at the time pursuant to Subsection 4(a) through the date of termination and will be entitled to receive the benefits provided for under Subsections 10.2 and 10.3 with no liability on the part of the Company for further payments to the Employee, subject to the provisions of Sections 22 and 25. 10. COMPENSATION AFTER CERTAIN TERMINATIONS. ---------------------------------------- 10.1 Remaining Compensation. If the Employee's employment with the ----------------------- Company is terminated (whether such termination is by the Employee or by the Company) at any time prior to the Triggering Date for any reason other than (a) termination by the Company for Cause in accordance with Subsection 9.1(a); (b) termination by the Company in accordance with Section 7; (c) the Employee's death; or (d) termination at the election of the Employee pursuant to Subsection 9.1(b) then, within five days after the date of such termination, (i) the Remaining Compensation (as herein defined) which would have been paid to the Employee during the remainder of the term of this Agreement of termination had not occurred shall become due and payable and shall be paid to the Employee in a single lump sum in cash, and (ii) all stock options granted to Employee pursuant to Subsection 4(e) hereof which are not then exercisable Page 9 10 shall, notwithstanding the provisions of any other agreement, become immediately exercisable and shall remain exercisable until they are exercised or until they otherwise would expire. For purposes of this Subsection 10.1, the "Remaining Compensation" shall mean the annual base salary payable to the Employee pursuant to Subsection 4(a) at the time of termination plus an amount representing the value of all employee benefits including, without limitation, any unearned annual bonuses described in Subsection 4(b), discretionary bonuses and incentive compensation under plans then in effect. For these purposes, the value of any unearned annual bonuses and all of such other employee benefits shall be deemed to be equal to 12 months base salary payable to the Employee pursuant to Subsection 4(a) at the time his employment is terminated. 10.2 Post Triggering Date Severance Payment. If the Employee's --------------------------------------- employment with the Company is terminated (whether such termination is by the Employee or by the Company) at any time on or within three years after the Triggering Date for any reason other than (a) termination by the Company for cause in accordance with Subsection 9.2(a) or (b) termination by the Company in accordance with Section 7 or (c) the Employee's death or (d) termination at the election of the Employee other than termination for Good Reason without compliance with the retirements of Section 9.2(c) then, within five days after the date of such termination, the Company shall pay the Employee a lump sum amount in cash equal to 2.99 times the Annualized Compensation Amount. 10.3 Gross-Up Payment. In the event that (i) the Employee becomes ----------------- entitled to the payments provided under Section 10.2 of this Agreement (the "Change in Control Payments") and any of the Change in Control Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor provision, or (ii) any payments or benefits received or to be received by the Employee pursuant to the terms of any other plan, arrangement or agreement (the "Benefit Payments") will be subject to the Excise Tax, the Company shall pay to the Employee an additional amount (the "Gross-Up Payment") such that the net amount retained by the Employee, after deduction of any Excise Tax on the Change in Control Payments and the Benefit Payments, and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 10.3, shall be equal to the Change in Control Payments and the Benefit Payments, provided, however, that in determining the amount of the Gross-Up Payment, any Excise Tax on the Change in control Payments and the Benefit Payments shall be determined using a rate no higher than 20%. For purposes of determining whether any of the Change in Control Payments or the Benefit Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any payments or benefits received or to be received by the Employee in connection with a change in control of the Company or the Employee's termination of employment (whether pursuant to the terms of this agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in change in control or any person affiliated with the Company or such persons) shall be treated as "parachute payments" within the meaning of Section 280G(b) (2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b) (1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and acceptable to the Employee such payments or benefits (in whole or in part) do not constitute parachute payments, or such excess payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b) (4) of the Code, (ii) the Page 10 11 amount of the Change in Control Payments and the Benefit Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Change in Control Payments and the Benefit Payments or (B) the amount of excess parachute payments within the meaning of Sections 280G(b)(1) and (4) (after applying clause (i), above) and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of the Employee's residence on the date of termination, net of the maximum reduction in federal income taxes at the highest marginal rates of taxation in the state and locality of the income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Employee's employment, the Employee shall repay to the Company at that time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Employee's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment to the Employee in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. 11. MITIGATION. ----------- The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer after the date of termination of Employee's employment with the Company, or otherwise. 12. ENTIRE AGREEMENT. ----------------- This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior negotiations, agreements, and understandings relating to such subject matter, and may be modified or amended only by an instrument in writing signed by the parties hereto. 13. LAW TO GOVERN. -------------- This Agreement is executed and delivered in the State of Texas and shall be governed, construed and enforced in accordance with the laws of the State of Texas. Page 11 12 14. ASSIGNMENT. ----------- This Agreement is personal to the parties, and neither this Agreement nor any interest herein may be assigned (other than by will or by the laws of descent and distribution) without the prior written consent of the parties hereto nor be subject to alienation, anticipation, sale, pledge, encumbrance, execution, levy, or other legal process of any kind against the Employee or any of his beneficiaries or any other person. Notwithstanding the foregoing, the Company shall be permitted to assign this Agreement to any corporation or other business entity succeeding to substantially all of the business and assets of the Company by merger, consolidation, sale of assets, or otherwise, if the Company obtains the assumption of this Agreement by such successor. Failure by the Company to obtain such assumption prior to the effectiveness of such succession shall be a breach of this Agreement and shall entitle the Employee to receive compensation from the Company under this Agreement in the same amount and on the same terms as he would be entitled to hereunder if he had voluntarily terminated his employment after the Triggering Date, and, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Triggering Date. 15. BINDING AGREEMENT. ------------------ Subject to the provisions of Section 14 of this Agreement, this Agreement shall be binding upon and shall inure to the benefit of the Company and the Employee and their respective representatives, successors, and assigns. 16. REFERENCES AND GENDER. ---------------------- All references to "Sections" and "Subsections" contained herein are, unless specifically indicated otherwise, references to sections and subsections of this Agreement. Whenever herein the singular number is used, the same shall include the plural where appropriate, and words of either gender shall include the other gender where appropriate. 17. WAIVER. ------- No waiver of any right under this Agreement shall be deemed effective unless the same is set forth in writing and signed by the party giving such waiver, and no waiver of any right shall be deemed to be a waiver of any such right in the future. 18. NOTICES. -------- Except as may be otherwise specifically provided in this Agreement, all notices required or permitted hereunder shall be in writing and will be deemed to be delivered when deposited in the United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed to the party or parties at 17811 Waterview Parkway, Dallas, Texas 75252, or at such other addresses as may have theretofore been specified by written notice delivered in accordance herewith. Page 12 13 19. OTHER INSTRUMENTS. ------------------ The parties hereto covenant and agree that they will execute such other and further instruments and documents as are or may become necessary or convenient to effectuate and carry out the terms of this Agreement. 20. HEADINGS. --------- The headings used in this Agreement are used for reference purposes only and do not constitute substantive matter to be considered in construing the terms of this Agreement. 21. INVALID PROVISION. ------------------ Any clause, sentence, provision, section, subsection or paragraph of this Agreement held by a court of competent jurisdiction to be invalid, illegal, or ineffective shall not impair, invalidate, or nullify the remainder of this Agreement, but the effect thereof shall be confined to the clause, sentence, provision, section, subsection or paragraph so held to be invalid, illegal or ineffective. 22. RIGHTS UNDER PLANS AND PROGRAMS. -------------------------------- Anything in this Agreement to the contrary notwithstanding, no provision of this Agreement is intended, nor shall it be construed, to reduce or in any way restrict any benefit to which the Employee may be entitled under any other agreement, plan, arrangement, or program providing benefits for the Employee. 23. MULTIPLE COPIES. ---------------- This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original and all of which shall together constitute one and the same instrument. The terms of this Agreement shall become binding upon each party from and after the time that he or it executed a copy hereof. In like manner, from and after the time that any party executes a consent or other document, such consent or other document shall be binding upon such parties. 24. WITHHOLDING OF TAXES. --------------------- The Company may withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as shall be required pursuant to any law or government regulation or ruling. 25. LEGAL FEES AND EXPENSES. ------------------------ The Company shall pay and be responsible for all legal fees and expenses which the Employee may incur as a result of the Company's failure to perform under this Agreement or as a result of the Company or any successor contesting the validity or enforceability of this Agreement. Page 13 14 26. SET OFF OR COUNTERCLAIM. ------------------------ Except with respect to any claim against or debt or other obligation of the Employee properly recorded on the books and records of the Company prior to the Triggering Date, there shall be no right of set off or counterclaim against, or delay in, any payment by the Company to the Employee or his beneficiaries provided for in this Agreement in respect of any claim against or debt or other obligation of the Employee, whether arising hereunder or otherwise. 27. ASSIGNMENT, PROTECTION AND CONFIDENTIALITY OF PROPRIETARY INFORMATION. ---------------------------------------------------------------------- Employee acknowledges and agrees that all items of the Company's Proprietary Information constitute valuable, special and unique assets and trade secrets of its business, which provide to the Company a competitive advantage over others who do not have access thereto and access to which is essential to the performance of Employee's duties hereunder. Employee shall not, during the term of this Agreement or thereafter, use or disclose any Proprietary Information that is not otherwise publicly available, in whole or in part, for his benefit or for the benefit of any other person or party, except for the Company. As used herein, "Proprietary Information" includes, but is not limited to, customer lists and prices, whether current or prospective, product designs or other product information, experimental developments and other research and development information, testing processes, marketing studies and research activities, and any other trade secrets concerning the Company, its shareholders, officers, directors, employees, business prospects, customers, transactions, finances, affairs, opportunities, operations, properties or assets. The Employee further agrees that all inventions, devices, compounds, processes, formulas, techniques, improvements and modifications which he may develop, in whole or in part, during the term of his employment or through or with the facilities, equipment or resources of the Company shall be and remain the sole and exclusive property of the Company. The Employee agrees to deliver to the Company at any time the Company may request, all memoranda, notes, plans, records, reports, and other documents (including copies thereof and all embodiments thereof whether in computerized form or any other medium) relating to the business or affairs of the Company or its subsidiaries which he may then possess or have under his control. Employee shall maintain in good condition all tangible and other forms of Proprietary Information in Employee's custody or control until his obligations under the preceding sentence are satisfied. Employee agrees to execute all documents and take such other actions as may be required to comply with this Section. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. INTERVOICE, INC. By: /s/ MICHAEL W. BARKER --------------------------- Name: Michael W. Barker Title: Pres. COO /s/ DAVID D. HAMMOND ------------------------------ David D. Hammond EX-10.3 3 1ST AMENDMENT TO AMENDED & EXTENDED EMP. AGRMT. 1 EXHIBIT 10.3 FIRST AMENDMENT TO AMENDED AND EXTENDED EMPLOYMENT AGREEMENT This Amendment amends that certain Amended and Extended Employment Agreement (the "Agreement") dated as of June 25, 1996 effective as of March 1, 1996, between InterVoice, Inc., a Texas corporation with its principal executive offices at 17811 Waterview Parkway, Dallas, Texas 75252 (the "Company"), and Daniel D. Hammond (the "Employee"). 1. The first four lines of the definition for "Applicable EPS Bonus Percentage" are amended in their entirety to read as follows: "Applicable EPS Bonus Percentage" means, with respect to the applicable fiscal year, the percentage set forth in the right-hand column below as determined with reference to the increase or decrease in the Company's earnings per share between such fiscal year and the greater of $1.05 or the earnings per share for the immediately preceding fiscal year: 2. The first four lines of the definition for "Applicable Revenue Bonus Percentage" are amended in their entirety to read as follows: "Applicable Revenue Bonus Percentage" means, with respect to the applicable fiscal year, the percentage set forth in the right-hand column below as determined with reference to the increase or decrease in the Company's total revenues between such fiscal year and the greater of $97,103,054 or the total revenues for the immediately preceding fiscal year: The Agreement, as amended hereby, is hereby ratified, confirmed and approved. IN WITNESS WHEREOF, the parties have executed this Amendment as of June 25, 1996, effective for all purposes as of March 1, 1996. InterVoice, Inc. By: /s/ MICHAEL W. BARKER -------------------------------------- Name: Michael W. Barker ------------------------------------ Title: President & Chief Operating Officer ----------------------------------- /s/ DANIEL D. HAMMOND ------------------------------------------ Daniel D. Hammond EX-10.5 4 1990 INCENTIVE STOCK OPTION PLAN 1 EXHIBIT 10.5 INTERVOICE, INC. 1990 INCENTIVE STOCK OPTION PLAN As amended and restated effective April 9, 1996 1. Purpose. This InterVoice, Inc. 1990 Incentive Stock Option Plan (the "Plan") is intended as an incentive for, and to encourage stock ownership by, key employees of InterVoice, Inc. (the "Company"), or any Affiliate (as used herein, the term "Affiliate" means any parent or subsidiary corporation of the Company within the meaning of Section 424(e) and (f) of the Internal Revenue Code of 1986, as amended (the "Code")), so that such employees may acquire or increase their equity interest in the success of the Company, and to encourage them to remain in the employ of the Company or any Affiliate. Unless otherwise specified in the option agreement, it is intended that each option granted under this Plan will qualify as an "incentive stock option" within the meaning of Section 422(b) of the Code. 2. Administration. The Plan shall be administered by the Board of Directors of the Company (the "Board"). The interpretation and construction by the Board of any provisions of the Plan or of any option granted under it shall be final. The Board shall have the authority to appoint a Committee to assume the duties and responsibilities of administering the Plan. The Committee, if such be established by the Board, shall be composed of no less than three (3) persons (who shall be members of the Board), each of whom shall be a "disinterested person" as defined in Section 3 hereof, and such Committee shall have the same power, authority and rights in the administration of the Plan as the Board. No director shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it. 3. Eligibility. The Board shall determine from time to time the persons who shall receive options hereunder; provided, however, options may be granted hereunder only to persons who, at the time of the grant thereof, are key employees of the Company or any Affiliate; provided further, that any decision to award Options hereunder to any director/employee or officer of the Company or the determination of the maximum number of shares of Stock (as hereinafter defined) which may be subject to option to any director/employee or officer shall be made by either (i) the Board, a majority of the directors of which and a majority of the directors acting in such matter shall be disinterested persons as defined herein or (ii) the Committee appointed by the Board pursuant to Section 2 hereof. For purposes of this Plan, "disinterested person" shall mean any person who is an administrator of the Plan who is not at the time he exercises discretion in administering the Plan eligible and has not at any time within one year prior thereto been eligible for selection as a person to whom stock may be allocated or to whom stock may be granted pursuant to the Plan or any other plan of the Company or any Affiliate entitling the participants therein to acquire stock, stock options, or stock appreciation rights of the Company or any Affiliate. Notwithstanding any provision contained herein to the contrary, a person shall not be eligible to receive an option hereunder if he, immediately before such option is granted, owns (within the meaning of Sections 422 and 424 of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Affiliate, unless at the time the option is granted, the option price per share of Stock (as hereinafter defined) is at least one hundred ten percent (110%) of the fair market value of each share of Stock subject to the option and the option by its terms is not exercisable after the expiration of five years from the date it is granted. 4. Stock. The stock subject to the options shall be shares of the Company's authorized but unissued or reacquired Common Stock, no par value per share (herein sometimes called "Stock"). The aggregate number of shares which may be issued under options granted pursuant to this Plan shall not exceed four million five hundred fifty thousand (4,550,000) shares of Stock. The limitations established by each of the preceding sentences shall be subject to adjustment as provided in Section 5(h) of the Plan. 5. Terms and Conditions of Options. The stock options granted pursuant to the Plan shall be authorized by the Board and shall be evidenced by an agreement in such form as the Board shall approve, which agreement shall comply with and be subject to the following terms and conditions: (a) Optionee's Agreement. As consideration for the granting of an option under the Plan, each optionee must agree to use his best efforts for the benefit of the Company during his tenure of employment, but nothing in the Plan or agreement shall be deemed to limit the right of the Company to terminate any optionee's employment at any time for or without cause. (b) Number of Shares. The option shall state the number of shares which it covers. (c) Option Price. The option shall state the option price, which shall be not less than 100% of the fair market value per share of said Stock on the date of the grant of the option or, if applicable, the amount specified in Section 3 hereof. 1 2 (d) Medium and Time of Payments. The option price shall be payable upon the exercise of the option in cash or by check. Exercise of an option shall not be effective until the Company has received written notice of exercise, specifying the numbers of whole shares to be purchased, accompanied by payment in full of the aggregate option price of the number of shares purchased. The Company shall not in any case be required to issue and sell a fractional share of stock. (e) Term and Exercise of Options. Except as provided in Section 3 and Sections 5(f), (g) and (h), the period of time within which an option may be exercised shall be such period of time specified in the option agreement, provided that such period shall in no event extend past the tenth anniversary of the date the option was granted. During the period within which an option is exercisable, it shall be exercisable only in accordance with the terms specified in the option agreement. Options granted hereunder shall be exercisable during the optionee's lifetime only by him or by his guardian or legal representative. Anything herein to the contrary notwithstanding, on the tenth anniversary date of the date the option was granted (or on the fifth anniversary if granted to an employee who is a greater than ten percent (10%) shareholder as discussed in Section 3 hereof), it shall expire and be void with respect to any shares subject thereto which have not been theretofore purchased. (f) Termination of Employment Except for Death or Disability. In the event that the optionee shall cease to be employed by the Company or an Affiliate for any reason other than his death or disability (within the meaning of Section 105(d)(4) of the Code), an option granted hereunder, to the extent not then exercisable in accordance with its terms, shall terminate and be without further effect. To the extent the option is exercisable on the date of such termination, it may be exercised by the optionee within the thirty-day period following such termination, subject however to the condition that no option shall be exercisable after the expiration of ten years from the date such option was granted or such shorter period as may be provided in the option agreement pursuant to Section 5(e) hereof, and such option, to the extent not exercised within said thirty-day period, shall in all events terminate upon the expiration of said thirty-day period. Whether authorized leave of absence or absence due to military or governmental service shall constitute termination of employment, for the purpose of the Plan, shall be determined by the Board, which determination shall be final and conclusive. (g) Death or Disability of Optionee and Transfer of Option. If the optionee shall die or become disabled while in the employ of the Company or an Affiliate, an option granted hereunder, to the extent not then exercisable in accordance with its terms, shall terminate and be without further effect. To the extent the option is exercisable on the day of death or disability, it may be exercised at any time within six months after the optionee's death or disability (subject to the condition that no option shall be exercisable after the expiration of ten years from the date such option was granted or such shorter period as may be provided in the option agreement in accordance with Section 5(e) hereof) by the optionee if he has become disabled while in the employ of the Company or an Affiliate, or if he shall die while in the employ of the Company or an Affiliate, by the executors or administrators of the optionee's estate or by any person or persons who shall have acquired the option directly from the optionee by bequest or inheritance, and such option, to the extent not exercised within said six-month period, shall in all events terminate upon the expiration of such six-month period. (h) Adjustments. The aggregate number and class of shares of Stock on which options may be granted hereunder, the number and class of shares thereof covered by each outstanding option, and the price per share thereof in each such option, shall all be proportionately adjusted for any increase or decrease in the number of outstanding shares of Stock of the Company resulting from a subdivision or consolidation of shares or any other capital adjustment or the payment of a stock dividend or any other increase or decrease in the number of such shares effected without receipt of consideration therefor in money, services or property. If the Company shall be the surviving corporation in any merger or consolidation, any option granted hereunder shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to the option would have been entitled. A dissolution or liquidation of the Company shall cause every option outstanding immediately prior to such dissolution or liquidation to terminate, whether such option is not then exercisable according to its terms or is then exercisable according to its terms but simply has not been exercised by the optionee (or his successor in interest if the optionee be deceased). A merger or consolidation in which the Company is not the surviving corporation shall cause every option outstanding immediately prior to such merger or consolidation to become exercisable in full by the optionee. The Company shall give all optionees notice in writing thirty days prior to the effective date of such merger or consolidation to allow the optionees an opportunity to exercise their options. Every option shall terminate as of the effective date of such merger or consolidation. Notwithstanding the foregoing, a merger effected solely for the purposes of reincorporating the Company in a jurisdiction other than that in which the Company is then incorporated shall not be subject to the provisions of this paragraph; provided that all outstanding options are assumed by the surviving corporation. (i) Rights as a Shareholder. An optionee (or his successor in interest if he be deceased) shall have no rights as a shareholder with respect to any shares covered by his option until the date of the issuance of a stock certificate to him for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or 2 3 other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 5(h) hereof. (j) Modification, Extension and Renewal of Options. Subject to the terms and conditions of and within the limitations of the Plan, the Board may modify, extend or renew outstanding options granted under the Plan. Notwithstanding the foregoing, however, no modification of an option shall, without the consent of the optionee, alter or impair any rights or obligations under any option theretofore granted under the Plan. (k) Investment Purpose. Each optionee receiving an option pursuant hereto must represent that any shares purchased pursuant to the option will be or are acquired for his own account for investment and not with a view to, or for offer or sale in connection with, the distribution of any such shares; provided, however, that such representation need not be given if (i) the shares to be subject to such option to be granted to such optionee have been registered under the Securities Act of 1933 ("Securities Act") and registered or qualified, as the case may be, under applicable state securities laws or (ii) counsel to the Company determines that such registration is not necessary for purposes of compliance with applicable federal and state securities laws. Prior to the purchase of shares of Common Stock on exercise of an option, or any part thereof, the optionee shall give such further representations of an investment or other nature as reasonably required by the Company in order to comply with applicable federal and state securities laws. Furthermore, nothing herein or in any option granted hereunder shall require the Company to issue any shares upon exercise of any option if such issuance would, in the opinion of counsel for the Company, constitute a violation of the Securities Act or any other applicable statute or regulation then in effect. Nothing herein shall prohibit the optionee from using any shares acquired pursuant to any option granted hereunder as collateral or security for any debt, loan or other obligation. (l) Other Provisions. The option agreements authorized under the Plan shall contain such other provisions, including, without limitation, restrictions upon the exercise of the option, as the Board shall deem advisable. If the option is designated as an incentive stock option in the option agreement, such agreement shall contain such limitations and restrictions upon the exercise of the option to which it relates as shall be necessary for the option to which such Agreement relates to constitute an incentive stock option within the meaning of section 422(b) of the Code. (m) Assignability. No option shall be transferable by optionee other than by will or the laws of descent and distribution and shall be exercisable during the lifetime of the optionee only by the optionee, or if the optionee is legally incompetent, by the optionee's legal representative. 6. Indemnification. Each director ("Indemnified Party") shall be indemnified by the Company against all costs and reasonable expenses, including attorneys' fees, incurred by him in connection with any action, suit or proceeding, or in connection with any appeal thereof, to which he may be a party by reason of any action taken or failure to act under or in connection with the Plan or any option granted hereunder, and against all amounts paid by such Indemnified Party in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by such Indemnified Party in satisfaction of a judgment in any such action, suit or proceeding, provided that within 60 days after institution of any such action suit or proceeding such Indemnified Party shall in writing offer the Company the opportunity, at its own expense, to handle and defend the same; and provided further, however, anything contained in the Plan to the contrary notwithstanding, there shall be no indemnification of an Indemnified Party who is adjudged by a court of competent jurisdiction to be guilty of, or liable for, willful misconduct, gross neglect of duty, or criminal acts. The foregoing rights of indemnification shall be in addition to such other rights of indemnification as an Indemnified Party may have as a director of the Company. 7. Amendment and Termination of the Plan. If not sooner terminated, the Plan shall terminate automatically on the date that is ten (10) years following the effective date of the Plan (as specified in Section 11 hereof). No options may be granted hereunder after the termination of the Plan. The Board may, from time to time, with respect to any shares at the time not subject to options, suspend or discontinue the Plan or amend it in any respect whatsoever; provided, however, that without the approval of the holders of a majority of the outstanding shares of voting stock of all classes of the Company, no such amendment shall (i) change the number of shares of Stock subject to the Plan (other than as provided in Section 5(h)), (ii) change the designation of the class of employees eligible to receive options, or (iii) decrease the price at which options may be granted, and provided further, that the affirmative vote of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting duly held in accordance with the laws of the State of Texas shall be required to approve any amendment to the Plan which would, as determined for purposes of Rule 16b-3 of the Securities and Exchange Commission under the Securities and Exchange Act of 1934 (or any successor provision at the time in effect), (x) materially increase the benefits accruing to participants under the Plan, (y) materially increase the number of shares of Stock which may be issued under the Plan, or (z) materially modify the requirements as to eligibility for participation in the Plan. The Board may, with respect to any shares at the time not subject to options, terminate the Plan. No termination or amendment of the Plan shall adversely affect the rights of an optionee under an option, except with the consent of such optionee. 8. No Obligation to Exercise Option. The granting of an option shall impose no obligation upon the optionee to exercise such option. 3 4 9. Application of Funds. The proceeds received by the Company from the sale of shares pursuant to options will be used for general corporate purposes. 10. Governing Law. All questions arising with respect to the provisions of the Plan shall be determined by application of the laws of the State of Texas except to the extent Texas law is preempted by federal statute. 11. Date Plan is Effective. The Plan shall become effective, as of the date of its adoption by the Board, when it has been duly approved by holders of at least a majority of the shares of common stock present or represented and entitled to vote at a meeting of the shareholders of the Company duly held in accordance with applicable law within twelve months after the date of adoption of the Plan by the Board. If the Plan is not so approved, the Plan shall terminate and any option granted hereunder shall be null and void. 4 EX-10.9 5 2ND AMENDED & RESTATED EMPLOYMENT AGREEMENT 1 EXHIBIT 10.9 INTERVOICE, INC. AMENDED AND EXTENDED EMPLOYMENT AGREEMENT This Amended and Extended Employment Agreement (this "Agreement") is dated as of June 21, 1996 effective as of March 1, 1996, between InterVoice, Inc., a Texas corporation with its principal executive offices at 17811 Waterview Parkway, Dallas, Texas 75252 (the "Company"), and Michael W. Barker (The "Employee"). W I T N E S S E T H: WHEREAS, the Employee is presently employed by the Company pursuant to that certain Employment Agreement dated August 31, 1994 (the "Old Agreement"), between the Company and the Employee; and WHEREAS, the Employee and the Company desire to amend the terms and conditions of the Old Agreement to, among other things, extend the term of the Employee's employment by the Company, increase the Employee's base salary, further define the Employee's bonus opportunity and grant additional stock options to the Employee. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and conditions hereinafter set forth, the parties hereto agree as follows: 1. DEFINITIONS. In addition to the words and terms elsewhere defined in this Agreement, the following words and terms as used herein shall have the following meanings, unless the context or use indicates a different meaning: "Annualized Compensation Amount" means an amount equal to the annualized salary payable and bonuses accrued or payable to the Employee pursuant to Section 4 of this Agreement during the most recent completed fiscal year of the Company. "Applicable EPS Bonus Percentage" means, with respect to the applicable fiscal year, the percentage set forth in the right hand column below as determined with reference to the increase or decrease in the Company's earnings per share between such fiscal year and the immediately preceding fiscal year: Page 1 2
Increase or Decrease in Earnings per Share in Applicable Fiscal Year Compared to Immediately Preceding Applicable EPS Fiscal Year Bonus Percentage ------------------------------------- ---------------- 40% or more increase 100% 35% through 39% increase 80% 25% through 34% increase 60% 10% through 24% increase 40% 0% through 9% increase 20% 1% through 10% decrease 10% 11% or more decrease 0%
"Applicable Revenue Bonus Percentage" means, with respect to the applicable fiscal year, the percentage set forth in the right hand column below as determined with reference to the increase or decrease in the Company's total revenues between such fiscal year and the immediately preceding fiscal year:
Increase or Decrease in Revenues in Applicable Fiscal Year Compared to Applicable Revenue Immediately Preceding Fiscal Year Bonus Percentage ----------------------------------- ------------------ 40% or more increase 100% 35% through 39% increase 80% 25% through 34% increase 60% 10% through 24% increase 40% 0% through 9% increase 20% Decrease in revenues 0%
"Cause" means (a) any act by the Employee that is materially adverse to the best interests of the Company and which, if the subject of a criminal proceeding, could result in a criminal conviction for a felony or (b) the willful failure by the Employee to substantially perform his duties hereunder, which duties are within the control of the Employee (other than the failure resulting from the Employee's incapacity due to physical or mental illness), provided, however, that the Employee shall not be deemed to be terminated for Cause under this subsection (b) unless and until (1) after the Employee receives written notice from the Company specifying with reasonable particularity the actions of Employee which constitute a violation of this subsection (b) and (2) within a period of 30 days after receipt of such notice (and during which the violation is within the control of the Employee), Employee fails to reasonably and prospectively cure such violation. "Common Stock" means the Company's common stock, no par value per share. An "Event of Default" means the occurrence of any of the following events prior to the Triggering Date, unless remedied or otherwise cured within 30 days after the Company's receipt of written notice from the Employee of such event, (a) a breach by the Company of any of its Page 2 3 express or implied obligations under this Agreement, (b) without his prior concurrence, the Employee is assigned any duties or responsibilities that are inconsistent with his position, duties, responsibilities or status at the commencement of the term of this Agreement, or his reporting responsibilities or titles in effect at such time are changed, (c) the Employee's base compensation is reduced or any other failure by the Company to comply with Section 4, or (d) any change in any employee benefit plans or arrangements in effect on the date hereof in which the Employee participates (including without limitation any pension and retirement plan, savings and profit sharing plan, stock ownership or purchase plan, stock option plan, or life, medical or disability insurance plan), which would adversely affect the Employee's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Company and does not result in a proportionately greater reduction in the rights of or benefits to the Employee as compared to any other executive officer of the Company. "Good Reason" means the occurrence of a Triggering Event (as defined below) and (a) a breach by the Company of any of its express or implied obligations under this Agreement (b) without his prior concurrence, the Employee is assigned any duties or responsibilities that are inconsistent with his position, duties, responsibilities or status at the commencement of the term of this Agreement, or his reporting responsibilities or titles in effect at such time are changed, (c) the Employee's base compensation is reduced or any other failure by the Company to comply with Section 4, (d) any change in any employee benefit plans or arrangements in effect on the date hereof in which the Employee participates (including without limitation any pension and retirement plan, savings and profit sharing plan, stock ownership or purchase plan, stock option plan, or life, medical or disability insurance plan), which would adversely affect the Employee's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Company and does not result in a proportionately greater reduction in the rights of or benefits to the Employee as compared to any other executive officer of the Company, or (e) the shareholders of the Company shall fail to elect the Employee as a member of the Board of Directors of the Company. "Triggering Date" means the date of a Triggering Event. A "Triggering Event" shall be deemed to have occurred if (a) any person or group (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of securities of the Company representing more than 20% of the combined voting power of the Company's then outstanding securities, or (b) at any annual or special meeting of shareholders of the Company one or more directors are elected who were not nominated by management of the Company to serve on the Board of Directors of the Company, or (c) the Company is merged or consolidated with another corporation and as a result of such merger or consolidation less than 51% of the outstanding voting securities of the surviving or resulting corporation are owned in the aggregate by the former shareholders of the Company, other than by a party to such merger or consolidation or affiliates (within the meaning of the Exchange Act) of any party to such merger or consolidation, as the same existed immediately prior to such merger or consolidation, or (d) the Company sells all or substantially all of its assets to another corporation which is not a wholly-owned subsidiary of the Company. Page 3 4 2. EMPLOYMENT. ----------- The Company hereby employs the Employee and the Employee hereby accepts employment on the terms and conditions set forth herein. 3. TERM. ----- The initial term of this Agreement shall be from March 1, 1996 until February 28, 1999 unless sooner terminated in accordance with the provisions herein regarding termination. Subject to earlier termination as provided herein, the initial term of this Agreement shall be automatically extended for one (1) year from March 1, 1999, unless either the Employee or the Company gives written notice to the other six months or more prior to February 28, 1999. 4. COMPENSATION. ------------- (a) Base Salary. For all services rendered by the Employee under ------------ this Agreement, the Company shall pay the Employee a base salary of $250,000 per year. Such salary shall be payable in equal monthly installments in accordance with the customary payroll policies of the Company in effect at the time such payment is made, or as otherwise mutually agreed upon; provided, however, the Company will promptly pay the Employee in a lump sum an amount equal to the difference between (i) the aggregate base salary that is payable to the Employee under this Agreement for the period March 1, 1996, through June 30, 1996, inclusive, and (ii) the aggregate base salary actually paid to Employee under the Old Agreement for the period March 1, 1996 through June 30, 1996, inclusive. On or about the anniversary date of this Agreement each year during the term hereof, the Compensation Committee of the Company shall review Employee's performance for the prior year and make such adjustments in base salary from time to time at their discretion as the Employee and the Company may agree. (b) Annual Bonus. Effective for the Company's fiscal year ending ------------- February 29, 1997 and continuing with respect to each subsequent fiscal year thereafter during the term of this Agreement, the Company will pay Employee an annual bonus equal to the sum of (a) the mathematical product of Employee's base salary pursuant to Subsection 4(a) for such fiscal year multiplied by the Applicable Revenue Bonus Percentage and (b) the mathematical product of the Employee's base salary pursuant to Subsection 4(a) for such fiscal year multiplied by the Applicable EPS Bonus Percentage. Employee's bonus pursuant to this Subsection 4(b) shall be earned as of the end of the Company's fiscal year and payable within five days after the Company's receipt of its audited annual financial statements. The formula set forth herein for determining annual bonuses shall be adjusted from time to time when and if there occur stock splits or other changes in capital structure which result in an increase or decrease in outstanding capital stock of more than 25%. (c) Bonus. In addition to the Employee's annual base salary and ------ other benefits provided for in this Agreement, the Company may pay to the Employee on an annual basis a discretionary bonus in an amount to be approved by the Board of Directors of the Company; provided, however, in no event shall the bonus payable hereunder, if any, exceed Employee's annual base salary provided for in Section 4(a). Page 4 5 (d) Benefits. The Employee shall be entitled to participate in or receive benefits under any employee benefit plan or arrangement made available by the Company in the future to its executive officers and key management personnel, subject to and on a basis consistent with the terms, conditions and overall administration of such plan or arrangement. Nothing paid to the Employee under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary and bonuses payable to the Employee pursuant to Subsections 4(a), (b) and (c). (e) Stock Option. In consideration of the Employee's execution of this Agreement, the Company has granted effective June 21, 1996 an option to purchase 100,000 shares of the Company's Common Stock to the Employee pursuant to the Company's 1990 Incentive Stock Option Plan. The exercise price for such option will be the closing price for the Company's Common Stock on the Nasdaq National Market on June 21, 1996. The grant of such option is subject to the Company's shareholders approving, at the 1996 annual meeting, the proposed amendment to increase the number of shares of Common Stock authorized for issuance under the 1990 Incentive Stock Option Plan. (f) Expenses. Upon receipt of itemized vouchers, expense account reports, and supporting documents submitted to the Company in accordance with the Company's procedures from time to time in effect, the Company shall reimburse Employee for all reasonable and necessary travel, entertainment, and other reasonable and necessary business expenses incurred ordinarily and necessarily by Employee in connection with the performance of his duties hereunder. (g) Vacation. Employee shall be entitled to a minimum of 6 weeks paid vacation during each twelve month period commencing on the effective date of this Agreement. 5. POSITION, DUTIES, EXTENT OF SERVICES AND SITUS. (a) Position and Duties. Employee shall serve as the President and Chief Operating Officer of the Company, accountable only to the Chairman of the Board and Chief Executive Officer (the "Chairman") of the Company and, subject to the authority of the Chairman, shall have supervision and control over, and responsibility for, the general management and operation of the Company and shall have such other powers and duties as may from time to time be prescribed by the Chairman and provided that such duties are reasonable and customary for a President and Chief Operating Officer of a public company. (b) Extent of Services and Situs. The Employee shall devote substantially all of his business time, attention, and energy to the business and affairs of the Company and shall not during the term of his employment under this Agreement engage in any other business activity which could constitute a conflict of interest, whether or not such business activity is pursued for gain, profit, or other pecuniary advantage. This shall not be construed as preventing the Employee from managing his current investments or investing his assets in such form or manner as will not require any services on the part of the Employee in the operation and the affairs of the companies in which such investments are made, subject to the provisions of Sections 6 and 27. The Employee shall not be required to change the principal place of his employment to a Page 5 6 location which is more than 15 miles further away from his principal residence than such principal place of employment at the time of the execution of this Agreement. 6. COVENANT NOT TO COMPETE. (a) The Employee acknowledges that (i) as a result of his position and tenure with the Company he has received and will continue to receive specialized and unique training and knowledge concerning the Company, its business, its customers and the industry in which it competes, (ii) the Company's business, in large part, depends upon its exclusive possession and use of the Propriety Information (as defined in Section 27), (iii) the Company is entitled to protection against the unauthorized disclosure or use by Employee of the Proprietary Information or the training and knowledge received by the Employee and (iv) he has received in this Agreement good and valuable consideration for the covenants he is making in this Section 6 and in Section 27. The Company and the Employee acknowledge and agree that the covenants contained in this Section 6 and in Section 27 are reasonably necessary for the protection of the Company are reasonably limited with respect to the activities they prohibit, their duration, their geographical scope and their effects on the Employee and the public. The parties acknowledge that the purpose and effect of the covenants are to protect the Company from unfair competition by the Employee. (b) Except as provided in the last sentence of this Section 6(b), during the period in which the Employee renders services to the Company under this Agreement and for eighteen (18) months thereafter, the Employee shall not, without the written consent of the Company, own, manage, operate, control, serve as an officer, director, employee, partner or consultant of or be connected in any way with or have any interest in any corporation, partnership, proprietorship or other entity which carries on business activities in competition with the Company's activities in any state of the United States or in any foreign country in which the Company has sold or installed its products or systems or has definitive plans to sell or install its products at any time prior to or at the time of the date of termination of the Employee's employment; except that the Employee may own up to 1% of the shares of any publicly-owned corporation, provided that none of his other relationships with such corporation violates such covenant. Notwithstanding the foregoing, the provisions of this Section 6 shall not apply if the Employee's employment with the Company under this Agreement is terminated (i) by the Company, unless the Employee is terminated in accordance with Section 7 or for Cause in accordance with Subsection 9.1(a) or 9.2(a), or (ii) at the election of the Employee prior to the Triggering Date after the occurrence of an Event of Default which has not been waived in writing or on or after the Triggering Date for Good Reason. (c) The Company and the Employee hereby agree that in the event that the noncompetition covenants contained herein should be held by any court or other constituted legal authority of competent jurisdiction to be effective in any particular area or jurisdiction only if said covenants are modified to limit their duration, geographical area or scope, then the parties hereto will consider Section 6 to be amended and modified with respect to that particular area or jurisdiction so as to comply with the order of any such court or other constituted legal authority and, as to all other jurisdictions or political subdivisions thereof, the noncompetition covenants contained herein will remain in full force and effect as originally written. The Company and the Employee further agree that in the event that the noncompetition covenants Page 6 7 contained herein should be held by any court or other constituted legal authority of competent jurisdiction to be void or otherwise unenforceable in any particular area or jurisdiction notwithstanding the operation of this Section 6(c), then the parties hereto will consider this Section 6 to be amended and modified so as to eliminate therefrom that particular area or jurisdiction as to which such noncompetition covenants are so held void or otherwise unenforceable, and, as to all other areas and jurisdictions covered by the noncompetition covenants, the terms and provisions hereof shall remain in full force and effect as originally written. (d) Employee recognizes and acknowledges that the Company would suffer irreparable harm and substantial loss if Employee violated any of the terms and provisions of this Section 6 or Section 27 and that the actual damages which might be sustained by the Company as the result of any breach of this Section 6 or Section 27 would be difficult to ascertain. Employee agrees, at the election of the Company and in addition to, and not in lieu of, the Company's right to terminate Employee's employment and to seek all other remedies and damages which the Company may have at law and/or equity for such breach, that the Company shall be entitled to an injunction restraining Employee from breaching any of the terms of provisions of this Section 6 or Section 27. 7. COMPENSATION IN THE EVENT OF DISABILITY. (a) Disability. If the Employee becomes disabled during the term of this Agreement the Company shall cause to be paid to the Employee an amount equal to his base salary in effect at the time of disability under Subsection 4(a), for the shorter of the duration of the disability or the remainder of the term of this Agreement and, subject to the provisions of Section 22 and 25, with no liability on its part for further payments to the Employee during the duration of the disability. Subject to Subsection 7(b) below, full compensation shall be reinstituted upon his return to employment and resumption of his duties. For purposes of this Subsection 7(a) the Employee shall be deemed "disabled" when he is unable, for a period of 90 consecutive days, to perform his normal duties of employment due to bodily injury or disease or any other physical or mental disability. (b) Complete Disability. The Company shall have the right to terminate the Employee's employment under this Agreement prior to the expiration of the term upon the "Complete Disability" of the Employee as hereinafter defined (provided, however, that the obligations of the Company under Subsection 7(a) shall not terminate). The term "Complete Disability" as used in this Subsection 7(b) shall mean (i) the total inability of the Employee, due to bodily injury or disease or any other physical or mental incapacity, to perform the services provided for hereunder for a period of 120 days, in the aggregate, within any given period of 180 consecutive days during the term of this Agreement, and (ii) where such inability will, in the opinion of a qualified physician (reasonably acceptable to Employee), be permanent and continuous during the remainder of his life. 8. COMPENSATION IN THE EVENT OF DEATH. If the Employee dies during the term of his employment, the Company shall pay to such person as the Employee shall designate in a notice filed with the Company, or, if no such person Page 7 8 shall be designated, to his estate as a death benefit, his base salary in effect at the time of his death pursuant to Subsection 4(a), in equal semi-monthly installments on the first and fifteenth day of each month immediately succeeding his death, for a period of months (not exceeding 12) determined by multiplying the number of complete 12-month periods of employment of the Employee by the Company (whether pursuant to an employment agreement or not) by two, in addition to any payments the Employee's spouse, beneficiaries, or estate may be entitled to receive pursuant to any pension or employee benefit plan or life insurance policy maintained by the Company, and, except for any obligations of the Company under Sections 22 and 25, all other obligations of the Company hereunder shall cease at the time of the Employee's death. 9. TERMINATION. 9.1 Termination Prior to the Triggering Date. (a) Upon at least 30 days' prior written notice to the Employee and prior to the Triggering Date, the Company may terminate the Employee's employment with the Company under this Agreement only for Cause or in accordance with Section 7 and, subject to the provisions of Sections 7, 22 and 25, with no liability on its part for further payments to the Employee. The Company may effect a termination for Cause pursuant to this Subsection 9.1(a) only by the affirmative vote of a majority of the members of the Board of Directors of the Company. In voting upon such termination for Cause, if the Employee is also a member of the Board of Directors of the Company, then he may not vote on, and will not be considered present for any purpose with respect to, a matter presented to the Board of Directors of the Company pursuant to this Subsection 9.1(a). (b) Prior to the Triggering Date, the Employee may terminate his employment with the Company under this Agreement by giving at least 90 days' prior written notice of his desire to terminate employment to the Board of Directors of the Company. If the Employee's employment with the Company under this Agreement is terminated pursuant to this Subsection 9.1(b), the Employee will continue to accrue and receive his base salary in effect at the time pursuant to Subsection 4(a) through the date of termination with no liability on the part of the Company for further payments to the Employee, subject to the provisions of Sections 22 and 25. (c) Prior to the Triggering Date, if the Employee's employment with the Company is terminated by the Company without Cause or if the Employee terminates his employment with the Company following the occurrence of an Event of Default which has not been waived in writing by the Employee, the Employee will continue to accrue and receive his base salary in effect at the time pursuant to Subsection 4(a) through the date of termination and will be entitled to receive the benefits provided for under Subsection 10.1 (unless the Employee's employment is terminated in accordance with Section 7) with no liability on the part of the Company for further payments to the Employee, subject to the provisions of Sections 7, 22 and 25. 9.2 Termination On or After the Triggering Date. (a) Upon at least 30 days' prior written notice to the Employee and on or after the Triggering Date, the Company may terminate the Employee's employment with the Company under this Agreement only for Cause or in accordance with Section 7 and, subject to the provisions of Sections 7, 22 and 25, with no liability on its part for further payments to the Employee. The Company may effect a termination for Cause pursuant to this Subsection 9.2(a) only by the affirmative vote of two- Page 8 9 thirds of the members of the Board of Directors of the Company. In voting upon such termination for Cause, if the Employee is also a member of the Board of Directors of the Company, then he may not vote on, and will not be considered present for any purpose with respect to, a matter presented to the Board of Directors of the Company pursuant to this Subsection 9.2(a). (b) On or after the Triggering Date, if the Employee's employment with the Company is terminated by the Company without Cause or if the Employee terminates his employment with the Company for Good Reason, the Employee will continue to accrue and receive his base salary in effect at the time pursuant to Subsection 4(a) through the date of termination and will be entitled to receive the payments and benefits provided for under Subsections 10.2 and 10.3 (unless the Employee's employment is terminated in accordance with Section 7) with no liability on the part of the Company for further payments to the Employee, subject to the provisions of Sections 7, 22 and 25. (c) On or after the Triggering Date, the Employee may, in his sole and absolute discretion and without any prior approval by the Board of Directors of the Company, and upon twelve months' prior written notice to the Board of Directors of the Company, terminate his employment with the Company under this Agreement for any reason whatsoever. If the Employee's employment with the Company under this Agreement is terminated pursuant to this Subsection 9.2(c), the Employee will continue to accrue and receive his base salary in effect at the time pursuant to Subsection 4(a) through the date of termination and will be entitled to receive the benefits provided for under Subsections 10.2 and 10.3 with no liability on the part of the Company for further payments to the Employee, subject to the provisions of Sections 22 and 25. 10. COMPENSATION AFTER CERTAIN TERMINATIONS. 10.1 Remaining Compensation. If the Employee's employment with the Company is terminated (whether such termination is by the Employee or by the Company) at any time prior to the Triggering Date for any reason other than (a) termination by the Company for Cause in accordance with Subsection 9.1(a); (b) termination by the Company in accordance with Section 7; (c) the Employee's death; or (d) termination at the election of the Employee pursuant to Subsection 9.1(b) then, within five days after the date of such termination, (i) the Remaining Compensation (as herein defined) which would have been paid to the Employee during the remainder of the term of this Agreement if termination had not occurred shall become due and payable and shall be paid to the Employee in a single lump sum in cash, and (ii) all stock options granted to Employee pursuant to Subsection 4(e) hereof which are not then exercisable shall, notwithstanding the provisions or any other agreement, become immediately exercisable and shall remain exercisable until they are exercised or until they otherwise would expire. For purposes of this Subsection 10.1, the "Remaining Compensation" shall mean the annual base salary payable to the employee pursuant to Subsection 4(a) at the time of termination plus an amount representing the value of all employee benefits including, without limitation, any unearned annual bonuses described in Subsection 4(b), discretionary bonuses and incentive compensation under plans then in effect. For these purposes, the value of any unearned annual bonuses and all of such other employee benefits shall be deemed to be equal to 12 months base Page 9 10 salary payable to the Employee pursuant to Subsection 4(a) at the time his employment is terminated. 10.2 Post Triggering Date Severance Payment. If the Employee's employment with the Company is terminated (whether such termination is by the Employee or by the Company) at any time on or within three years after the Triggering Date for any reason other than (a) termination by the Company for Cause in accordance with Subsection 9.2(a) or (b) termination by the Company in accordance with Section 7 or (c) the Employee's death or (d) termination at the election of the Employee other than termination for Good Reason without compliance with the retirements of Section 9.2(c), then, within five days after the date of such termination, the Company shall pay the Employee a lump sum amount in cash equal to 2.99 times the Annualized Compensation Amount. 10.3 Gross-Up Payment. In the event that (i) the Employee becomes entitled to the payments provided under Section 10.2 of this Agreement (the "Change in Control Payments") and any of the Change in Control Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue of 1986, as amended (the "Code"), or any successor provision, or (ii) any payments or benefits received or to be received by the Employee pursuant to the terms of any other plan, arrangement or agreement (the "Benefit Payments") will be subject to the Excise Tax, the Company shall pay to the Employee an additional amount (the "Gross-Up Payment") such that the net amount retained by the Employee, after deduction of any Excise Tax on the Change in Control Payments and the Benefit Payments, and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 10.3, shall be equal to the Change in Control Payments and the Benefit Payments, provided, however, that in determining the amount of the Gross-Up Payment, any Excise Tax on the Change in Control Payments and the Benefit Payments shall be determined using a rate no higher than 20%. For purposes of determining whether any of the Change in Control Payments or the Benefit Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any payments or benefits received or to be received by the Employee in connection with a change in control of the Company or the Employee's termination of employment (whether pursuant to the terms of this agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in change in control or any person affiliated with the Company or such persons) shall be treated as "parachute payments" within the meaning of Section 280G(b) (2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b) (1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and acceptable to the Employee such payments or benefits (in whole or in part) do not constitute parachute payments, or such excess payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b) (4) of the Code, (ii) the amount of the Change in Control Payments and the Benefit Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Change in Control Payments and the Benefit Payments or (B) the amount of excess parachute payments within the meaning of Sections 280G(b)(1) and (4) (after applying clause (i), above) and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal Page 10 11 income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of the Employee's residence on the date of termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Employee's employment, the Employee shall repay to the Company at that time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Employee's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment to the Employee in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. 11. MITIGATION. The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment of otherwise, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer after the date of termination of Employee's employment with the Company, or otherwise. 12. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior negotiations, agreements, and understandings relating to such subject matter, and may be modified or amended only by an instrument in writing signed by the parties hereto. 13. LAW TO GOVERN. This Agreement is executed and delivered in the State of Texas and shall be governed, construed and enforced in accordance with the laws of the State of Texas. 14. ASSIGNMENT. This Agreement is personal to the parties, and neither this Agreement nor any interest herein may be assigned (other than by will or by the laws of descent and distribution) without the prior written consent of the parties hereto nor be subject to alienation, anticipation, sale, pledge, encumbrance, execution, levy, or other legal process of any kind against the Employee or any of his beneficiaries or any other person. Notwithstanding the foregoing, the Company shall be permitted to assign this Agreement to any corporation or other business entity succeeding to substantially all of the business and assets of the Company by merger, consolidation, sale of assets, or otherwise, if the Company obtains the assumption of this Agreement by such successor. Failure by the Company to obtain such assumption prior to the Page 11 12 effectiveness of such succession shall be a breach of this Agreement and shall entitle the Employee to receive compensation from the Company under this Agreement in the same amount and on the same terms as he would be entitled to hereunder if he had voluntarily terminated his employment after the Triggering Date, and, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Triggering Date. 15. BINDING AGREEMENT. Subject to the provisions of Section 14 of this Agreement, this Agreement shall be binding upon and shall insure to the benefit of the Company and the Employee and their respective representatives, successors, and assigns. 16. REFERENCES AND GENDER. All references to "Sections" and "Subsections" contained herein are, unless specifically indicated otherwise, references to sections and subsections of this Agreement. Whenever herein the singular number is used, the same shall include the plural where appropriate, and words of either gender shall include the other gender where appropriate. 17. WAIVER. No waiver of any right under this Agreement shall be deemed effective unless the same is set forth in writing and signed by the party giving such waiver, and no waiver of any right shall be deemed to be a waiver of any such right in the future. 18. NOTICES. Except as may be otherwise specifically provided in this Agreement, all notices required or permitted hereunder shall be in writing and will be deemed to be delivered when deposited in the United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed to the party or parties at 17811 Waterview Parkway, Dallas, Texas, 75252, or at such other addresses as may have therefore been specified by written notice delivered in accordance herewith. 19. OTHER INSTRUMENTS. The parties hereto covenant and agree that they will execute such other and further instruments and documents as are or may become necessary or convenient to effectuate and carry out the terms of this Agreement. 20. HEADINGS. The headings used in this Agreement are used for reference purposes only and do not constitute substantive matter to be considered in construing the terms of this Agreement. 21. INVALID PROVISION. Page 12 13 Any clause, sentence, provision, section, subsection, or paragraph of this Agreement held by a court of competent jurisdiction to be invalid, illegal, or ineffective shall not impair, invalidate, or nullify the remainder of this Agreement, but the effect thereof shall be confined to the clause, sentence, provision, section, subsection, or paragraph so held to be invalid, illegal or ineffective. 22. RIGHTS UNDER PLANS AND PROGRAMS. Anything in this Agreement to the contrary notwithstanding, no provision of this Agreement is intended, nor shall it be construed, to reduce or in any way restrict any benefit to which the Employee may be entitled under any other agreement, plan, arrangement, or program providing benefits for the Employee. 23. MULTIPLE COPIES. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original and all of which shall together constitute one and the same instrument. The terms of this Agreement shall become binding upon each party from and after the time that he or it executed a copy hereof. In like manner, from and after the time that any party executes a consent or other document, such consent or other document shall be binding upon such parties. 24. WITHHOLDING OF TAXES. The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling. 25. LEGAL FEES AND EXPENSES. The Company shall pay and be responsible for all legal fees and expenses which the Employee may incur as result of the Company's failure to perform under this Agreement or as a result of the Company or any successor contesting the validity or enforceability of this Agreement. 26. SET OFF OR COUNTERCLAIM. Except with respect to any claim against to debt or other obligation of the Employee properly recorded on the books and records of the Company prior to the Triggering Date, there shall be no right of set off or counterclaim against, or delay in, any payment by the Company to the Employee or his beneficiaries provided for in this Agreement in respect of any claim against or debt or other obligation of the Employee, whether arising hereunder or otherwise. 27. ASSIGNMENT PROTECTION AND CONFIDENTIALITY OF PROPRIETARY INFORMATION. Page 13 14 Employee acknowledges and agrees that all items of the Company's Proprietary Information constitute valuable, special and unique assets and trade secrets of its business, which provide to the Company a competitive advantage over others who do not have access thereto and access to which is essential to the performance of Employee's duties hereunder. Employee shall not, during the term of this Agreement or thereafter, use or disclose any Proprietary Information that is not otherwise publicly available, in whole or in part, for his benefit or for the benefit of any other person or party, except for the Company. As used herein, "Proprietary Information" includes, but is not limited to, customer lists and prices, whether current or prospective, product designs or other product information, experimental developments and other research and development information, testing process, marketing studies and research activities, and any other trade secrets concerning the Company, its shareholders, officers, directors, employees, business prospects, customers, transactions, finances, affairs, opportunities, operations, properties or assets. The Employee further agrees that all inventions, devices, compounds, processes, formulas, techniques, improvements and modifications which he may develop, in whole or in part, during the term of his employment or through or with the facilities, equipment or resources of the Company shall be and remain the sole and exclusive property of the Company. The Employee agrees to deliver to the Company at any time the Company may request, all memoranda, notes, plans, records, reports, and other documents (including copies thereof and all embodiments thereof whether in computerized form or any other medium) relating to the business or affairs of the Company or its subsidiaries which he may then possess or have under his control. Employee shall maintain in good condition all tangible and other forms of Proprietary Information in Employee's custody or control until his obligations under the preceding sentence are satisfied. Employee agrees to execute all documents and take such other actions as may be required to comply with this Section. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. INTERVOICE, INC. By: /s/ DANIEL D. HAMMOND ----------------------------------------- Name: Daniel D. Hammond ------------------------------- Title: Chairman of the Board and ------------------------------- Chief Executive Officer ------------------------------- /s/ MICHAEL W. BARKER --------------------------------------------- Michael W. Barker --------------------------------------------- Page 14 EX-10.10 6 1ST AMENDMENT TO AMENDED & EXTENDED EMP. AGRMT. 1 EXHIBIT 10.10 FIRST AMENDMENT TO AMENDED AND EXTENDED EMPLOYMENT AGREEMENT This Amendment amends that certain Amended and Extended Employment Agreement (the "Agreement") dated as of June 25, 1996 effective as of March 1, 1996, between InterVoice, Inc., a Texas corporation with its principal executive offices at 17811 Waterview Parkway, Dallas, Texas 75252 (the "Company"), and Michael W. Barker (the "Employee"). 1. The first four lines of the definition for "Applicable EPS Bonus Percentage" are amended in their entirety to read as follows: "Applicable EPS Bonus Percentage" means, with respect to the applicable fiscal year, the percentage set forth in the right-hand column below as determined with reference to the increase or decrease in the Company's earnings per share between such fiscal year and the greater of $1.05 or the earnings per share for the immediately preceding fiscal year: 2. The first four lines of the definition for "Applicable Revenue Bonus Percentage" are amended in their entirety to read as follows: "Applicable Revenue Bonus Percentage" means, with respect to the applicable fiscal year, the percentage set forth in the right-hand column below as determined with reference to the increase or decrease in the Company's total revenues between such fiscal year and the greater of $97,103,054 or the total revenues for the immediately preceding fiscal year: The Agreement, as amended hereby, is hereby ratified, confirmed and approved. IN WITNESS WHEREOF, the parties have executed this Amendment as of June 25, 1996, effective for all purposes as of March 1, 1996. InterVoice, Inc. By: /s/ DANIEL D. HAMMOND ----------------------------------- Name: Daniel D. Hammond -------------------------------- Title: Chairman of the Board & ------------------------------- Chief Executive Officer /s/ MICHAEL W. BARKER --------------------------------------- Michael W. Barker EX-10.14 7 SEPARATION AGREEMENT WITH RICHARD HERRMANN 1 EXHIBIT 10.14 [INTERVOICE, INC. LETTERHEAD] January 31, 1997 Mr. Richard O. Herrmann 6535 Barkwood Lane Dallas, Texas 75238 Dear Dick: To take into account certain requests made by you and your attorney, Bruce W. Bowman, this letter replaces my letter of December 5, 1996, regarding termination of your employment with InterVoice, Inc. ("InterVoice"). The terms set forth below constitute InterVoice's offer and, by your signature, your acceptance, of this Separation Agreement (the "Agreement"). On behalf of InterVoice, I want to express my appreciation for your past years of service and contributions, and wish you success in your future endeavors. 1. Termination of Employment. Your employment with InterVoice terminated effective with the close of business on December 5, 1996 (the "Separation Date"). You were relieved as of that time of further duties in your former position of Senior Vice President, Corporate Marketing, and your office as a Vice President was concurrently vacated. 2. Salary and Benefits. In accordance with InterVoice's existing policies or at its discretion, you have received or will receive the following payments and benefits pursuant to your employment with InterVoice and your participation in InterVoice's benefit plans: (a) Payment of your regular base salary through December 5, 1996, less all legal deductions; (b) Payment of accrued and unused vacation leave benefits as of December 5, 1996, if any, less all legal deductions; (c) Two weeks' wages in lieu of notice, amounting to $6,290.06; and (d) Present or future payment or other entitlement, in accordance with the terms of the applicable plan or other benefit, of any benefits to which you have vested entitlement under the terms of employee benefit plans established by InterVoice. 2 Mr. Richard O. Herrmann January 31, 1997 Page 2 The amounts paid in accordance with subparagraphs (a), (b), (c), and (d) of this paragraph are gross amounts, subject to lawful deductions, including any deductions you have previously authorized. Your regular paid group health insurance benefits continued through December 31, 1996. You are entitled at your option to continue your group health insurance coverage at your own expense, in accordance with applicable law. Please complete a COBRA election form, which will be furnished to you, and return it to Ms. Kathy Hackney, Human Resources Department, InterVoice, Inc., 17811 Waterview Parkway, Dallas, Texas 75252, at your earliest convenience, in accordance with the terms of the election form, if you elect to continue such insurance coverage. InterVoice will settle all authorized reimbursable business expenses, if any, based on your submission of appropriate expense reports along with the required receipts and documenting information. 3. Special Separation Compensation. Contingent upon your acceptance of the terms of this Agreement and in consideration of your undertakings set forth in Paragraphs 6 (General Release), 7 (Confidentiality, Nonprosecution, Nondisparagement, and Cooperation), 8 (Agreement Not to Seek Reemployment), and 9 (Agreement Regarding Solicitation of Employees, Customers, and Suppliers) of this Agreement, InterVoice offers you, in addition to the pay and benefits you will receive pursuant to Paragraph 2, the following Special Separation Compensation: (a) Payment of wages in lieu of notice in the total amount of $81,770.78, equivalent to six months' salary at your regular rate. This amount is inclusive of the amount of wages in lieu of notice specified in Paragraph 2(c) above, and is a gross amount, subject to lawful deductions. Payment of the unpaid portion of such amount will be made in lump sum within six days after the Effective Date of this Agreement as specified in Paragraph 15. (b) Payment of Q4 quarterly bonus on the same basis as if you had (i) remained employed throughout InterVoice's current fourth fiscal quarter ending February 28, 1997, and (ii) fully met your performance objectives. Bonus payment will be made at the time such payments are normally provided under InterVoice's bonus program. (c) Payment to you of the additional lump sum of $4,500.00 in lieu of InterVoice's provision of outplacement services. 3 Mr. Richard O. Herrmann January 31, 1997 Page 3 (d) Payment through March 31, 1997, for InterVoice's group health insurance coverage on you and any covered dependents as in effect on the Separation Date, to the same extent as if you had continued as an employee. To receive this coverage, you must make the COBRA election referred to in Paragraph 2 above, and by your agreement hereto you authorize deduction from the payment described in subparagraph (a) of this paragraph for your share, if any, of the premiums. By executing this Agreement, you acknowledge and agree that (i) neither InterVoice nor any of the other Released Parties (as defined in Paragraph 6 below) has any legal obligation to provide the Special Separation Compensation to you; and (ii) your acceptance of the Special Separation Compensation and attendant obligations as described in this Agreement is in consideration of the promises and undertakings of InterVoice as set forth in this Agreement. 4. Return of Property. Whether or not you accept the terms of this Agreement, you must return to InterVoice any and all items of its property, including without limitation company vehicles, keys, computers, software, calculators, equipment, credit cards, forms, files, manuals, correspondence, business records, personnel data, lists of employees, salary and benefits information, customer lists and files, lists of suppliers and vendors, price lists, contracts, contract information, marketing plans, brochures, catalogs, training materials, product samples, computer tapes and diskettes or other portable media, computer-readable files and data stored on any hard drive or other installed device, and data processing reports, and any and all other documents or property which you have had possession of or control over during the course of your employment with InterVoice and which you have not already returned. You were previously instructed to return all such property to InterVoice by no later than the close of business on the Separation Date, or as soon thereafter as was possible with respect to any items not then immediately available. By your signature below, you represent that you have complied with these requirements. 5. Use of Confidential Information. Whether or not you accept the terms of this Agreement, you are hereby notified that (i) you are a party to an existing agreement entitled Employee Agreement on Ideas, Inventions and Confidential Information, your obligations under which continue in full force and effect and undiminished in any way by this Agreement; and (ii) all of the documents and information to which you have had access during your employment, including but not limited to all information pertaining to any specific business transactions in which InterVoice or any of the other Released Parties (as defined in Paragraph 6 below) were, are, or may be involved, all information concerning salary and benefits paid to current or former employees of InterVoice or any of the other Released Parties, all personnel information relating in any way to current or former employees of InterVoice or those of any of the other Released Parties, all information pertaining in any way to customers and suppliers of InterVoice or those 4 Mr. Richard O. Herrmann January 31, 1997 Page 4 of any of the other Released Parties, pricing information, all financial and budgetary information, information regarding InterVoice's sales methods and techniques, information regarding InterVoice's training methods and techniques, all other information specified in Paragraph 4 above, and in general, the business and operations of InterVoice or any of the other Released Parties are considered confidential and are not to be disseminated or disclosed by you to any other parties, except as may be required by law or judicial process. In the event it appears that you will be compelled by law or judicial process to disclose such confidential information, to avoid potential liability you should notify InterVoice's Vice President Human Resources in writing immediately upon your receipt of a subpoena or other legal process. By your signature below, you represent that you will comply with these requirements. 6. GENERAL RELEASE. IN CONSIDERATION OF THE SPECIAL SEPARATION COMPENSATION DESCRIBED IN PARAGRAPH 3 ABOVE, YOU AND YOUR FAMILY MEMBERS, HEIRS, SUCCESSORS, AND ASSIGNS (COLLECTIVELY THE "RELEASING PARTIES") HEREBY RELEASE, ACQUIT, AND FOREVER DISCHARGE ANY AND ALL CLAIMS AND DEMANDS OF WHATEVER KIND OR CHARACTER, WHETHER VICARIOUS, DERIVATIVE, OR DIRECT, THAT YOU OR THEY, INDIVIDUALLY, COLLECTIVELY, OR OTHERWISE, MAY HAVE OR ASSERT AGAINST: (i) INTERVOICE; (ii) ANY PARENT COMPANY, SUBSIDIARY, OR AFFILIATED COMPANY OF INTERVOICE; OR (iii) ANY OFFICER, DIRECTOR, STOCKHOLDER, FIDUCIARY, AGENT, EMPLOYEE, REPRESENTATIVE, INSURER, ATTORNEY, OR ANY SUCCESSORS AND ASSIGNS OF THE ENTITIES JUST NAMED (COLLECTIVELY THE "RELEASED PARTIES"). THIS GENERAL RELEASE INCLUDES BUT IS NOT LIMITED TO ANY CLAIM OR DEMAND BASED ON ANY FEDERAL, STATE, OR LOCAL STATUTORY OR COMMON LAW OR CONSTITUTIONAL PROVISION THAT APPLIES OR IS ASSERTED TO APPLY, DIRECTLY OR INDIRECTLY, TO THE FORMATION, CONTINUATION, OR TERMINATION OF YOUR EMPLOYMENT RELATIONSHIP WITH INTERVOICE. THUS, YOU AND THE OTHER RELEASING PARTIES AGREE NOT TO MAKE ANY CLAIMS OR DEMANDS AGAINST INTERVOICE OR ANY OF THE OTHER RELEASED PARTIES SUCH AS FOR WRONGFUL DISCHARGE; UNLAWFUL EMPLOYMENT DISCRIMINATION ON THE BASIS OF AGE OR ANY OTHER FORM OF UNLAWFUL EMPLOYMENT DISCRIMINATION; RETALIATION; BREACH OF CONTRACT (EXPRESS OR IMPLIED); BREACH OF THE DUTY OF GOOD FAITH AND FAIR DEALING; VIOLATION OF THE PUBLIC POLICY OF THE UNITED STATES, THE STATE OF TEXAS, OR ANY OTHER STATE; INTENTIONAL OR NEGLIGENT INFLICTION OF EMOTIONAL DISTRESS; TORTIOUS INTERFERENCE WITH CONTRACT; PROMISSORY ESTOPPEL; DETRIMENTAL RELIANCE; DEFAMATION OF CHARACTER; DURESS; NEGLIGENT MISREPRESENTATION; INTENTIONAL MISREPRESENTATION OR FRAUD; INVASION OF PRIVACY; LOSS OF CONSORTIUM; ASSAULT; BATTERY; CONSPIRACY; BAD FAITH; NEGLIGENT HIRING, RETENTION, OR SUPERVISION; ANY INTENTIONAL OR NEGLIGENT ACT OF PERSONAL INJURY; ANY ALLEGED ACT OF HARASSMENT OR INTIMIDATION; OR ANY OTHER INTENTIONAL OR NEGLIGENT TORT; OR ANY ALLEGED VIOLATION OF THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967; TITLE VII OF THE CIVIL RIGHTS ACT OF 1964; THE AMERICANS WITH DISABILITIES ACT OF 1990; THE FAMILY AND MEDICAL LEAVE ACT OF 1993; THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974; THE FAIR LABOR STANDARDS ACT; THE FAIR CREDIT REPORTING ACT; THE TEXAS COMMISSION ON HUMAN RIGHTS ACT; AND THE TEXAS WAGE PAYMENT STATUTE. 5 Mr. Richard O. Herrmann January 31, 1997 Page 5 THE EFFECT OF YOUR ACCEPTANCE OF THIS AGREEMENT IS TO RELEASE, ACQUIT, AND FOREVER DISCHARGE ANY AND ALL CLAIMS AND DEMANDS OF WHATEVER KIND OR CHARACTER THAT YOU OR ANY OF THE OTHER RELEASING PARTIES MAY NOW HAVE OR HEREAFTER HAVE OR ASSERT AGAINST INTERVOICE OR ANY OF THE OTHER RELEASED PARTIES FOR ANY LIABILITY, WHETHER VICARIOUS, DERIVATIVE, OR DIRECT. THIS RELEASE INCLUDES ANY CLAIMS OR DEMANDS FOR DAMAGES (ACTUAL OR PUNITIVE), BACK WAGES, FUTURE WAGES OR FRONT PAY, COMMISSIONS, BONUSES, SEVERANCE BENEFITS, MEDICAL EXPENSES AND THE COSTS OF ANY COUNSELING, REINSTATEMENT OR PRIORITY PLACEMENT, PROMOTION, ACCRUED VACATION LEAVE BENEFITS, PAST AND FUTURE MEDICAL OR OTHER EMPLOYMENT BENEFITS (EXCEPT AS TO WHICH THERE IS EXISTING CONTRACTUAL OR VESTED ENTITLEMENT) INCLUDING CONTRIBUTIONS TO ANY EMPLOYEE BENEFIT PLANS, RETIREMENT BENEFITS (EXCEPT AS TO WHICH THERE IS VESTED ENTITLEMENT), RELOCATION EXPENSES, COMPENSATORY DAMAGES, INJUNCTIVE RELIEF, LIQUIDATED DAMAGES, PENALTIES, EQUITABLE RELIEF, ATTORNEY'S FEES, COSTS OF COURT, DISBURSEMENTS, INTEREST, AND ANY AND ALL OTHER LOSS, EXPENSE, OR DETRIMENT OF WHATEVER KIND OR CHARACTER, RESULTING FROM, GROWING OUT OF, CONNECTED WITH, OR RELATED IN ANY WAY TO THE FORMATION, CONTINUATION, OR TERMINATION OF YOUR EMPLOYMENT RELATIONSHIP WITH INTERVOICE. THIS GENERAL RELEASE APPLIES AND IS FULLY ENFORCEABLE WITH RESPECT TO ALL RIGHTS OR CLAIMS EXISTING ON OR BEFORE THE DATE THIS AGREEMENT IS EXECUTED BY YOU, AND DOES NOT ACT TO WAIVE ANY RIGHTS OR CLAIMS THAT ARISE AFTER THE DATE OF EXECUTION. 7. Confidentiality, Nonprosecution, Nondisparagement, and Cooperation. (a) The terms of this Agreement shall be and remain confidential, and shall not be disclosed by you to any persons other than the Releasing Parties and your attorney and accountant or tax return preparer if such persons have agreed to keep such information confidential. Notwithstanding the foregoing, either party may make any disclosures concerning the terms of this Agreement that are required by law, including without limitation any disclosures required under the federal securities laws and regulations. (b) Except as requested by InterVoice or as compelled by law or judicial process, you will not assist, cooperate with, or supply information of any kind to any party other than InterVoice or its duly authorized agents or attorneys (i) in any proceeding, investigation, or inquiry raising issues under the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, the Fair Labor Standards Act, the Fair Credit Reporting Act, the Texas Commission on Human Rights Act, the Texas Wage Payment Statute, or any other federal, state, or local law involving the formation, continuation, or termination of your employment relationship, or the employment of other persons, by InterVoice or any of the 6 Mr. Richard O. Herrmann January 31, 1997 Page 6 other Released Parties; or (ii) in any other litigation against InterVoice or any of the other Released Parties. (c) You will not make to any other parties any statement, oral or written, which directly or indirectly impugns the quality or integrity of InterVoice's or any of the other Released Parties' business or employment practices, or any other disparaging or derogatory remarks about InterVoice or any of the other Released Parties, their officers, directors, stockholders, managerial personnel, or other employees. InterVoice shall instruct its officers not to make any disparaging or derogatory remarks about you. (d) You will not initiate any proceeding, investigation, or inquiry with any governmental regulatory agency with respect to InterVoice's products, facilities, employment practices, or business operations. (e) It shall not be a breach of the obligations set forth in this Paragraph for you, your spouse, or your attorneys to state to any person that any differences, if you believe any to exist, between you and InterVoice have been settled or satisfactorily resolved. (f) You agree to cooperate fully and completely with InterVoice or any of the other Released Parties, at their request, in all pending and future litigation involving InterVoice or any of the other Released Parties. This obligation includes your providing testimony in court or upon deposition that is truthful, accurate, and complete, according to information known to you. If you appear as a witness in any pending or future litigation at the request of InterVoice or any of the other Released Parties, InterVoice agrees to reimburse you, upon submission of substantiating documentation, for necessary and reasonable expenses incurred by you as a result of your testifying. 8. Agreement Not to Seek Reemployment. InterVoice and the other Released Parties have no obligation to employ or to hire or rehire you, to consider you for hire, or to deal with you in any respect at any location, office, or place of business with regard to future employment or potential employment. Accordingly, you hereby agree: (i) that you will not ever apply for or otherwise seek employment by InterVoice or any of the other Released Parties at any time in the future, at any location, office, or place of business, and (ii) that your forbearance to seek future employment as just stated is purely contractual and is in no way involuntary, discriminatory, or retaliatory. 7 Mr. Richard O. Herrmann January 31, 1997 Page 7 9. Agreement Regarding Solicitation of Employees, Customers, and Suppliers. For a period of one year following the Separation Date, and thereafter to the extent provided by law, you will not directly or indirectly, for your own account or for the benefit of any other person or party: (a) Solicit, induce, entice, or attempt to entice any employee, contractor, or subcontractor of InterVoice to terminate his or her employment or contract with InterVoice (provided this paragraph will not be construed to prevent you from having discussions with any such person or entity concerning employment or contracts which are not expressly prohibited by this paragraph, including without limitation, discussions of employment opportunities or business opportunities, to the extent any such person or entity initiates the discussions concerning the opportunities, and further provided that you do not encourage the termination of employment or a contract with InterVoice); or (b) Solicit, induce, entice, or attempt to entice any customer or supplier of InterVoice, including any firms that have been customers or suppliers of InterVoice within one year preceding the Separation Date, to terminate its business relationship with InterVoice (provided this paragraph will not be construed to prevent you from having discussions with any such person or entity concerning business relationships which are not in direct competition with InterVoice). Should you breach this obligation, InterVoice will be entitled to enforce the provisions of this paragraph by seeking injunctive relief in addition to recovering any monetary damages InterVoice may sustain as a result of such breach, and you may be required to repay the Special Separation Compensation provided to you by this Agreement. 10. Nonadmission of Liability or Wrongdoing. This Agreement does not in any manner constitute an admission of liability or wrongdoing on the part of InterVoice or any of the other Released Parties, but InterVoice and the other Released Parties expressly deny any such liability or wrongdoing; and, except to the extent necessary to enforce this Agreement, neither this Agreement nor any part of it may be construed, used, or admitted into evidence in any judicial, administrative, or arbitral proceedings as an admission of any kind by InterVoice or any of the other Released Parties. 8 Mr. Richard O. Herrmann January 31, 1997 Page 8 11. Authority to Execute. You represent and warrant that you have the authority to execute this Agreement on behalf of all the Releasing Parties. You further agree to indemnify fully and hold harmless InterVoice and any of the other Released Parties from any and all claims brought by the Releasing Parties or derivative of your own, including the amount of any such claims InterVoice or any of the other Released Parties are compelled to pay, and the costs and attorney's fees incurred in defending against all such claims. 12. Governing Law and Interpretation. This Agreement and the rights and duties of the parties under it shall be governed by and construed in accordance with the laws of the State of Texas. If any provision of this Agreement is held to be unenforceable, such provision shall be considered separate, distinct, and severable from the other remaining provisions of this Agreement, and shall not affect the validity or enforceability of such other remaining provisions, and that, in all other respects, this Agreement shall remain in full force and effect. If any provision of this Agreement is held to be unenforceable as written but may be made to be enforceable by limitation thereof, then such provision shall be enforceable to the maximum extent permitted by applicable law. The language of all parts of this Agreement shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties. 13. Breach of Agreement. Should you fail to comply with any of your obligations as set forth in this Agreement, InterVoice will have no obligation to pay you the Special Separation Compensation described above, and you may be required to repay the Special Separation Compensation provided to you by this Agreement, but all other provisions of this Agreement shall remain in full force and effect. You may also be liable for InterVoice's damages and its attorney's fees and expenses resulting from your breach of any provision in this Agreement. 14. Time for Consideration of Offer, and Consultation With an Attorney. You acknowledge that you have consulted with and been represented by an attorney in your consideration of this Agreement, and that you have had more than 21 days in which to consider whether you wished to accept InterVoice's proposal. 15. Effective Date. This Agreement will become effective and enforceable upon the expiration of seven days after your execution of it ("Effective Date"). At any time before the Effective Date of this Agreement, you may revoke your acceptance. 16. Voluntary Agreement. You acknowledge that execution of this Agreement is knowing and voluntary on your part, and that you have had a reasonable time to deliberate regarding its terms. 9 Mr. Richard O. Herrmann January 31, 1997 Page 9 17. Entire Agreement. Except as specified herein with respect to certain preexisting agreements, this Agreement contains and constitutes the entire understanding and agreement between you and InterVoice as to its subject matter, and may be modified only by a writing of contemporaneous or subsequent date executed by both you and an authorized official of InterVoice. If you are in agreement with the foregoing provisions, please execute both copies of this letter in the space provided below and obtain your attorney's signature reflecting his approval. Return one fully executed original to Mr. Don Brown, Vice President Human Resources, on or before February 7, 1997, and maintain the other executed original in your files. This letter shall then constitute a valid and binding agreement by and between InterVoice and you, effective as of the expiration of seven days after the date of your execution. Sincerely, INTERVOICE, INC. By: /s/ MICHAEL W. BARKER ------------------------------ Michael W. Barker President and Chief Operating Officer ACCEPTED AND AGREED TO: /s/ RICHARD O. HERRMANN - -------------------------------- Richard O. Herrmann Date Signed: 2/6/97 ------------------- APPROVED: - -------------------------------- Bruce W. Bowman, Jr. Attorney for Richard O. Herrmann EX-11 8 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS
Year Ended February 29/28 --------------------------------------------------- 1997 1996 1995 --------------- --------------- --------------- PRIMARY Average shares outstanding 16,211,360 15,670,718 16,116,392 Net effect of dilutive stock options based on the treasury stock method using average market price 407,577 727,206 638,897 --------------- --------------- --------------- TOTAL 16,618,937 16,397,924 16,755,289 Net Income $ 12,760,481 $ 17,259,358 $ 2,533,580 =============== =============== =============== Per Share amount $ 0.77 $ 1.05 $ 0.15 =============== =============== =============== FULLY DILUTED Average shares outstanding 16,211,360 15,670,718 16,116,392 Net effect of dilutive stock options based on the treasury stock method using the year end market price, if higher than average market price -- 870,804 748,133 --------------- --------------- --------------- TOTAL 16,211,360 16,541,522 16,864,525 Net Income $ 12,760,481 $ 17,259,358 $ 2,533,580 =============== =============== =============== Per Share amount $ 0.79 $ 1.04 $ 0.15 =============== =============== ===============
EX-23 9 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under "Item 6. Selected Financial Data" and to the incorporation by reference in the Registration Statements (Form S-8 No. 33-17642, Form S-8 No. 33-45131, Form S-8 No. 33-45132, Form S-8 No. 33-62863, Form S-8 No. 33-64860, Form S-8 No. 33-72494, Form S-8 No. 33-77586, Form S-8 No. 33-77590 and Form S-3 No. 33-85898) of InterVoice, Inc. and subsidiaries of our report dated April 2, 1997, except for Note F, for which the date is April 9, 1997, with respect to the consolidated financial statements and schedule of InterVoice, Inc. and subsidiaries included in the Annual Report (Form 10-K) for the year ended February 28, 1997. ERNST & YOUNG LLP Dallas, Texas May 29, 1997 EX-27 10 FINANCIAL DATA SCHEDULE
5 12-MOS FEB-28-1997 MAR-01-1996 FEB-28-1997 24,162,024 0 33,506,747 250,950 12,107,738 75,029,252 44,102,680 13,676,956 109,178,509 21,292,695 0 0 0 9,667 86,180,853 109,178,509 104,845,697 104,845,697 40,131,308 0 0 397,740 0 18,229,259 5,468,778 12,760,481 0 0 0 12,760,481 .77 .79
-----END PRIVACY-ENHANCED MESSAGE-----