-----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, Aj3AlLsg4Bmhlj65lydAjQyI5SlLWxXGKjCFSNPHe6cL/5Sh77kRHnqWcCgQ87Tj WYz1jQ09uMH6DUku/OVx6Q== 0000927016-97-000628.txt : 19970303 0000927016-97-000628.hdr.sgml : 19970303 ACCESSION NUMBER: 0000927016-97-000628 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970228 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAVOX CORP CENTRAL INDEX KEY: 0000811640 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 020364368 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-15578 FILM NUMBER: 97547822 BUSINESS ADDRESS: STREET 1: 6 TECHNOLOGY PARK DR CITY: WESTFORD STATE: MA ZIP: 01886 BUSINESS PHONE: 5089520200 MAIL ADDRESS: STREET 2: 6 TECHNOLOGY PARK DRIVE CITY: WESTFORD STATE: MA ZIP: 01886 10-K405 1 FORM 10-K405 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from __________ to __________ Commission file number 0-15578 DAVOX CORPORATION (Exact name of registrant as specified in its charter) Delaware 02-0364368 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 6 Technology Park Drive Westford, Massachusetts 01886 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (508) 952-0200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value, as of February 21, 1997 of Common Stock held by non-affiliates of the registrant: $156,077,752 based on the last reported sale price on the National Market System as reported by Nasdaq on that date. Number of shares of Common Stock outstanding at February 21, 1997: 7,543,954 DOCUMENTS INCORPORATED BY REFERENCE The registrant intends to file a definitive Proxy Statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 1996. Portions of such Proxy Statement are incorporated by reference in Part III. PART I ITEM 1 - BUSINESS - ----------------- General Davox Corporation ("Davox" or the "Company") is principally a software and systems integration company which develops, markets, implements, supports and services management systems for call center operations. These call center operations are responsible for business applications including credit/collections, customer service, telephone sales, and fund raising. Davox systems help calling operations integrate existing voice and data systems, manage outbound and inbound calling applications and focus on improving the quality of each customer contact, as well as the quantity of calls handled. This increased productivity and efficiency, documented by Davox users, has resulted in lower labor costs, increased revenue and/or increased transaction capacity for the user organization, and improved service levels. Davox systems include intelligent outbound calling, inbound call handling, inbound/outbound call integration and call center network management. Davox, through its direct sales force and through its distribution channel, has provided unified call center solutions to banks, consumer finance organizations, retailers, entertainment companies, telemarketing organizations, telecommunications companies, and utilities. Among the Company's current customers are: Chemical Bank, General Electric Capital Corporation (GECC), Household Finance, NationsBank, May Companies, AT&T, NYNEX, Precision Response Corporation, Superstar Satellite Entertainment, Gottschalks Department Stores, USAA Federal Savings Bank, TeleTech Holding, Unitel Corporation, and WGBH television. Statements in this Form 10-K which are not historical facts, so-called "forward-looking statements," are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in the Company's filings with the Securities and Exchange Commission. See also "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Certain Factors That May Affect Future Results." The Company was incorporated in Massachusetts in 1981 and reorganized in Delaware in 1982. The Company's principal offices are located at 6 Technology Park Drive, Westford, Massachusetts 01886 and its telephone number is (508) 952-0200. 2 Overview Today's businesses realize that their most important asset and source for additional business is their customer; therefore, within most corporations, several departments are in almost constant contact with buyers or users of their goods or services. These departments, or call centers, place and/or receive phone calls, supplying information to or receiving information from the customer, or processing account information from a database. The mission of call center management is to increase the productivity of telephone agents, improve the efficiency of the calling operation and enhance the quality of customer service. To achieve the mission of the call center, businesses have invested in different types of technology to accommodate different types of customer contact, such as incoming and outgoing calls. However, these discrete proprietary systems result in an environment characterized as "islands of technology" which limit the productivity and efficiency of the call center and degrade customer service. The majority of today's businesses are under economic and competitive pressure to protect their investment in technology, and require a method for integrating existing disparate technologies. By integrating these technologies, a business can share its resources, and provide its customers a higher quality of service. Davox recognized the growing demand for systems that would unify these disparate resources and calling applications. To deliver the level of integration necessary to unite a business' customer contact applications, Davox introduced in late 1993 the Unison(R) call center management system which represented a new generation technology for the call center market. The Unison(R) call center management system relies on open system, client/server architecture to communicate with a call center's existing and future voice and data systems, allowing call centers to share valuable system resources and a single data source, and to manage a more efficient customer contact operation. The UNISON(R) Open Systems Environment - -------------------------------------- The Unison(R) system's open systems-based architecture creates a flexible environment that enables customers to realize the potential of their call center investments now and in the future. A customer's PBX (Private Branch Exchange), ACD (Automatic Call Distributor) and VRU (Voice Response Unit) are usually made by different vendors and installed at different times and even at different locations. Furthermore, information about a specific customer may reside on one or more databases within a legacy system(s). A single Unison(R)-based agent workstation can handle all voice/data tasks associated with any call -- incoming or outgoing, regardless of point of origin. The system can track all calls in real-time, allowing managers to identify quickly both positive and negative trends as they develop. As a result, adjustments can be made instantly to correct unfavorable trends and exploit positive ones. One characteristic of the Unison(R) system is its Rules-Based(TM) software product which allows a call center manager to design, adjust, refine and implement calling strategies in real-time. With this Rules-Based(TM) management capability, the Unison(R) system's user can target 3 outbound calling campaigns based on user-defined criteria such as location, income level, or outstanding balance. This capability also allows call centers to match specific customers with telephone agents who have the necessary skills to handle these customer accounts. For example, foreign language speaking agents can be automatically assigned to handle calls to or from households where only that language is spoken; or agents skilled in handling a specific product can be assigned to those accounts. Using the Unison(R) system's Rules-Based(TM) management capability, a call center manager can set the calling "rules" for each campaign, such as: . The order in which phone numbers will be called . Acceptable talk time . The time of day clients will be called . Acceptable after call work time . Which accounts will be called Each campaign is monitored in real-time, notifying the call center's supervisors immediately if performance deviates from the prescribed norm, enabling the supervisor to take immediate corrective action. The Rules-Based(TM) management capability provides Unison(R) system users with real-time information to adapt their system "on the fly" to changing priorities within the call center. Our customers have told us that this Rules-Based(TM) capability also helps Unison(R) users maintain compliance with FTC/FCC regulations. UNISON(R) Functional Overview - ----------------------------- The Unison(R) family of call center management systems combines open system, client/server, and relational database technology with sophisticated applications. The Unison(R) system's open architecture performs equally well in the following call center environments: . Outbound . Outbound/Inbound blended . Inbound UNISON(R) Technology for a New Generation of Call Centers - --------------------------------------------------------- The Smart Management Center(R) (SMC(R)) is the central management engine which implements the Unison(R) system's Rules-Based(TM) management strategies and a broad range of software-driven features that allow the intelligent, strategic integration of all call center resources. The SMC(R) (a UNIX(TM) RISC-based management system built on the Sun Microsystems, Inc. SPARC(TM) architecture) manages, monitors, processes, reports, communicates, integrates and controls a broad range of telephony and data-oriented call center tasks -- all in real-time and using a friendly, point-and-click graphical user interface (GUI). The SMC(R) utilizes Sybase Incorporated relational database management software which supports the Rules-Based(TM) management capability and is integral to call center improvements in the areas of quality of contact, productivity, effectiveness and resource management. 4 The Company's ONEStation(TM) software product provides universal agent audio connectivity to an existing PBX/ACD. In conjunction with installed data resources, ONEStation(TM) functionality allows agents to access available voice and data resources from any single existing workstation anywhere in the company's data network. The Company's Smart Access(TM) software product provides a flexible management network allowing users to: . Access, monitor, and control multiple calling sites in real-time . Distribute information and outbound call campaigns to any center on the network Call Management Features Automate, Streamline Outbound Operations The Unison(R) system's sophisticated dial and pacing technology, campaign flow, dynamic campaign generation and filter capabilities streamline outbound call operations by automating unproductive or time-consuming processes. Supervisors control the parameters which affect the actual call placement, freeing agents to focus on engaging in productive conversations with customers. Layered upon this powerful dialing engine is Davox's broad array of real-time campaign management/measurement capabilities. Intelligent Integration Options For Call Blending Because Davox understands that a single call blending solution may not be appropriate for every call center, the Company offers both a Computer Telephony Integration (CTI) and a non-CTI Unison(R) system option. The Company's Smart ACD(TM) software product provides non-CTI inbound/outbound notification. Smart ACD(TM) software: . Interfaces with a call center's existing ACD and PBX . Monitors all designated ACD queues and displays inbound traffic information in real-time . Automatically and intelligently instructs agents to handle ACD queues and outbound calling lists as necessary to maximize productivity while maintaining the proper service levels The Company's SCALE(TM) (Seamless Call and Agent Load Equalization) software is available for call centers that wish to utilize CTI for their call handling. With SCALE(TM) functionality, all designated agents function as both inbound and outbound agents, and the movement of those agents from inbound to outbound calls is automatic; no separate login procedures are required. The standard Unison(R) system campaign management capabilities are available to SCALE(TM) users. In addition, Unison(R) agent management and real-time voice and data reporting features are available for inbound as well as outbound agents. 5 Software That Delivers Value Throughout A Call Center . Unison Strategist(TM) Applications Software lets supervisors specify and modify comprehensive calling strategies. . Unison Tactician(TM) Applications Software makes it easy for supervisors to monitor agent productivity during individual campaigns and shift resources quickly when needed. . Unison Precision Dial(TM) Applications Software streamlines call center operations by allowing the supervisor to control the parameters which affect the actual call placement, freeing agents to focus on engaging in productive conversations with customers. The Unison(R) system price begins at approximately $90,000. Specific and variable customer requirements, such as the number of agent positions, extent of inbound integration and multi-site connectivity determine actual Unison(R) system prices. Markets and Applications Davox markets its unified call center solutions to corporations that rely heavily on the telephone to conduct business with their customers. These corporations have typically made large investments in building inbound and/or outbound calling operations. The function of these operations is to place and receive customer calls. In many cases, these calling operations are responsible for specific business applications such as collections, customer service, fund raising or telephone sales. In 1991, new trends emerged in the marketplace. Customers began augmenting outbound calling applications with inbound call handling applications, allowing them to share system and labor resources, reduce overhead and improve the quality of their customer contacts and overall customer service. The Company believes that Unison(R) systems can significantly increase productivity in many applications where repetitive tasks can be automated. Additionally, Davox believes that its products are well suited to meet evolving CTI standards due to their multi-protocol capabilities, integrated voice functions, and flexible software design. Significant Customers In 1996, the Company's largest single customer was GE Capital Corporation, accounting for 4% of total revenue. In 1995, AT&T was the largest single customer, accounting for 12% of total revenue, and in 1994 Chemical Bank was the Company's largest single customer, accounting for 9% of the Company's total revenue. Total revenue from the Company's top three customers amounted to 12% of total revenue in 1996, 20% of total revenue in 1995, and 19% of total revenue in 1994. The Company believes that its dependence on any one end user customer is not likely to increase significantly as the Company continues to penetrate the broader call center market and expand its alternate distribution channels. 6 Marketing and Sales Davox takes a solutions-oriented approach to marketing its Unison(R) systems. The integration and management capabilities of the systems are presented as tools to help customers meet their business goals and objectives for customer service. This approach has two major benefits: . First, as Davox's relationship with a client grows, the Company is able to increase sales by developing additional call center capabilities for the client . Second, Davox can identify additional applications in other areas of the customer's business Additionally, by focusing on common applications and identifying industries with similar organizational or functional structures, Davox can address new markets with relatively small incremental development costs and a short training period for its sales force. The Company's sales force follows a disciplined selling program that focuses on selling business solutions, rather than stressing the features of individual products. Having identified departments in which Unison(R) systems may provide significant productivity increases, Davox sales representatives and technical consultants (system/application specialists) work with the customer to analyze the business and production objectives for the calling operation. This consultative, "team" approach is best suited to establish a long-term relationship with the client. The Company continues to expand market penetration through its Business Partners Program. This program represents a third party distribution channel through referral joint marketing and reseller relationships. Examples of third party partners include telecommunication system manufacturers, software vendors, and systems integrators. The Company plans to continue to expand its Business Partners Program, with particular emphasis on customer contact software vendors and telecommunication system providers. In North America, the Company markets its products primarily through a direct sales force with contributions from the Business Partners Program. Direct sales personnel are supported by a team of marketing professionals based at the Company's headquarters. Davox manages international activities for three global regions -- Europe, Latin America and the Pacific Rim. The Company's products are offered in these regions primarily through a series of mostly nonexclusive distribution agreements. In 1995, Davox established a European headquarters in the United Kingdom which provides marketing, technical support, and service to its European distributors. Also in 1995, Davox signed a distributor agreement with LaKe Corporation of Australia to distribute the Company's products in a select number of countries throughout the Pacific region. In 1996, Davox signed a distribution agreement with Marubeni Electronics Co. Ltd, a major Japanese importer, developer, and integrator of technology systems, and a subsidiary of one of the world's largest trading companies. Marubeni distributes Davox's Unison(R) call center management system in Japan. Also in 1996, Davox expanded its South American 7 distribution network through distribution agreements with GMA Consulting S.A. (Buenos Aires, Argentina) and TANDAM Chile S.A. (Santiago, Chile) to distribute its products in the Argentinean, Chilean, and Peruvian markets. Davox broadened its ability to reach its designated market through several new business relationships. PTT Telecom, the preeminent distributor of call center technology in the Netherlands, and Davox announced a distribution agreement under which PTT Telecom will be the exclusive distributor of Davox's Unison(R) call center management system product line in the Netherlands. Under terms of the agreement, PTT Telecom will market and support the Unison(R) family of products to its extensive customer base as part of its overall call center solution. In December 1995, Davox and GeoTel Communications Corporation signed a joint marketing agreement designed to combine their complementary products to create "virtual call centers." In November 1996, Davox and Intervoice, Inc. signed a product development and license agreement designed to produce an integrated call center solution. In connection with sales outside the United States, Davox products are subject to regulation by foreign governments, which requires the Company to follow certification procedures for some countries. Failure to obtain necessary local country approvals or certifications will restrict Davox's ability to sell into some countries. International product revenue was $7.6 million, $4.5 million, and $3.3 million in 1996, 1995, and 1994, respectively. Support and Service Davox's Customer Service Organization provides maintenance and systems integration services that include not only call center system installation and training, but also: . Call center network planning, design, and implementation services . Professional services that include call center consulting, custom application design, and development services Davox customer support comprises: . Support teams responsible for on-going account management and customer satisfaction of the installed base . On-site hardware and software support . A Worldwide Support Center located in the corporate offices in Westford, Massachusetts that provides centralized access to hardware and software support as required on a worldwide basis to end-users and distributors . Software services that enhance or modify current systems . Professional services that deliver consulting and customized project services as required . Training for customers' and distributors' personnel, delivered both in Davox's Westford, MA training facility and at customer sites Under the terms of an agreement with Grumman Systems Support Corporation (GSSC), a wholly-owned subsidiary of Northrop Grumman Corp., GSSC delivers hardware support 8 services for the Unison(R) system and older CAS(R) and SMC(R) product lines within the continental United States and Canada while Davox continues to deliver software support services. In addition, GSSC provides network design and systems integration services allowing Davox to focus its expertise on customizing advanced calling centers for its clients. Customer service revenue accounted for $16,465,000, or 30.7% of the Company's total revenue in 1996, an increase of $2,291,000 from $14,174,000, or 37.7% of the Company's total revenue in 1995, and an increase of $3,387,000 from $13,078,000, or 43.5% of the Company's revenue in 1994. Customer service revenue as a percentage of total revenue decreased in 1996 as compared to 1995 due largely to a 59% increase in product revenue in 1996. Research, Development and Engineering The Company employs an open system, client/server, relational database approach in developing its unified call center solutions. The platform selected for this approach is the SPARC(TM) Station from SUN Microsystems Inc. The Company's development efforts are focused on enhancing and expanding the functionality of these systems. Davox currently anticipates that areas of potential product development may include integration links to additional call center telephony components and the development of additional telephone management and reporting capabilities. The Company's continued success depends on, among other factors, maintaining close working relationships with its customers and resellers, and anticipating and responding to their evolving applications needs. The Company is committed to the development of new products, the improvement of existing products and the continuing evaluation of new technologies. During 1996, 1995, and 1994, the Company's research, development and engineering costs were approximately $5,861,000, $4,020,000, and $3,540,000, respectively, representing approximately 10.9%, 10.7%, and 11.8%, respectively of total revenue during these periods. In the future, the Company expects to incur approximately the same level of research, development and engineering expenditures as a percentage of total revenue as it did during 1996. In addition, the Company did not capitalize any of its software development costs in 1996 or 1995, while it capitalized approximately $310,000 of its software development costs during 1994. Operations While the majority of the Company's hardware needs are met by readily available off-the-shelf technology, a small portion remains proprietary. These proprietary hardware components are manufactured by third party contractors, and the Company believes there are many qualified vendors for these services. The Company's production process consists primarily of final test, quality assurance, and systems integration which occurs at its Westford facility. The Company purchases certain equipment for Unison(R) through an industry remarketer agreement with SUN Microsystems, Inc. The Company attempts to maintain multiple sources of supply for key items and believes it has adequate sources of supply for its expected needs. While any of these sources could be replaced if necessary, the Company might face significant delays in establishing replacement 9 sources or in modifying its products to incorporate replacement components or software code. There can be no assurance that the Company will not suffer delays resulting from non-performance by its vendors or cost increases due to a variety of factors, including component shortages or changes in laws or tariffs applicable to items imported by the Company. Competition Davox systems compete against various outbound, inbound, and blend calling systems. Companies such as Mosaix Inc. (formerly Digital Systems International, Inc.), Melita International Corporation and EIS International, Inc. offer predictive dialers, but with varying levels of functionality in terms of system management, integration and workstation support. Certain of the Company's potential competitors may be larger companies which have greater financial, technical and marketing resources. It is possible that competitors could produce products that perform the same or similar functions as those performed by the Company's products. The Company believes that the principal factors affecting competition are ease of use and range of functionality, reliability, performance, price and customer service, and that the Company competes favorably as to these factors. Reliance on Intellectual Property The Company relies on a combination of patent, copyright, contract and trade secret laws to establish and protect its proprietary rights in its technology. Software products are furnished under software license agreements which grant customers licenses to use, rather than to own, the products. The license agreements contain provisions protecting the Company's ownership of the underlying technology. Upon commencement of employment, employees execute an agreement under which inventions developed during the course of employment will, at the election of the Company, be assigned to the Company, and which further prohibits disclosure of confidential Company information. Despite the precautions undertaken by the Company, it may be possible to copy or otherwise obtain and use the Company's products or technology without authorization. In addition, effective protection of intellectual property rights may be limited or unavailable in certain foreign countries. The Company owns and licenses a number of patents relating to predictive dialing, real-time telecommunication management and user interfaces. Davox is very active in pursuing patents in its key technology and applications areas. The Company does not rely on the licensed patents as its sole competitive advantage. Employees As of December 31, 1996, the Company had 232 full-time employees, of whom 20 were engaged in operations, 149 in sales, marketing and customer support, 39 in research, development and engineering and 24 in general and administrative functions. The Company's ability to attract and retain qualified personnel is essential to its continued success. None of the Company's employees is represented by a collective bargaining agreement, nor has the Company ever experienced any work stoppage. The Company believes that its employee relations are good. 10 ITEM 2-PROPERTIES - ----------------- During January 1994, the Company moved its administrative offices and its operations and development facilities to a 60,000 square foot, two story building in Westford, Massachusetts. The facility is occupied under a lease which expires in September 1997. The Company incurred approximately $480,000 for various expenditures related to this move, of which $191,000 represents property under a capital lease. In addition, the Company leases facilities for district and regional sales and service offices in eight states. The current aggregate annual rental payments for all of the Company's facilities are approximately $446,000. ITEM 3-LEGAL PROCEEDINGS - ------------------------ The Company is from time to time subject to claims arising in the ordinary course of business. While the outcome of the claims cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the results of operations and financial condition of the Company. ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ---------------------------------------------------------- There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1996. 11 ITEM 4A-EXECUTIVE OFFICERS OF THE REGISTRANT - -------------------------------------------- The executive officers of the Company, the age of each, and the period during which each has served in his present office are as follows: Mr. Alphonse M. Lucchese (61) has served as Chairman, President and Chief Executive Officer since July 1994. Mr. Lucchese joined Davox following seven years as President and Chief Executive Officer at Iris Graphics, a manufacturer of high quality color printers. Prior to joining Iris, Mr. Lucchese had served as Vice President of Sales at Xyvision, Inc., a manufacturer of computer- integrated publishing systems sold to Fortune 500 companies, commercial printers and typesetters, and government agencies. Mr. Lucchese was Vice President of Sales for Davox Corporation from 1983 until 1984. Earlier, he had spent six years at Raytheon Data Systems, where he attained the position of Vice President and General Manager of Northeastern Operations. Following service in the U.S. Army during the mid-1950s, Mr. Lucchese began his professional career at IBM as a systems engineer, later moving into the position of marketing representative. Mr. John J. Connolly (40) has served as Vice President, Finance and Chief Financial Officer since August 1, 1994, and was elected Treasurer in January 1997. Mr. Connolly joined Davox from Iris Graphics where he had been Vice President of Finance since 1989. Prior to joining Iris, Mr. Connolly held finance and accounting positions of increasing responsibilities at Instrumentation Laboratory, a manufacturer of medical equipment. Mr. James F. Mitchell (50) is a founder of the Company and has served as Senior Vice President and Chief Technical Officer since 1983. From September 1993 to August 1994, Mr. Mitchell managed the domestic sales operations. From 1981 to 1983, he was Vice President, Engineering of the Company. Prior to joining Davox in 1981, Mr. Mitchell served as Manager of Systems Development at Applicon, Inc., a producer of CAD/CAM products. Mr. Douglas W. Smith (54) has served as Vice President, Sales and Marketing since September 1, 1994. Mr. Smith is responsible for the Company's direct and reseller sales in both the United States and Canada, as well as product and industry marketing, sales support and marketing communications. Mr. Smith joined Davox in 1994, following seven years at Iris Graphics where he contributed to that company's extraordinary growth. Prior to joining Iris, Mr. Smith worked for nearly 20 years in sales, managerial, and executive-level capacities for General Electric Information Systems, Honeywell Information Systems, Raytheon Data Systems, and Phoenix Data Systems. Mr. Mark Donovan (42) has served as Vice President, Operations since August 1994. Since joining Davox in 1983, Mr. Donovan has held management positions of increasing responsibility, including Vice President, Customer Service. He has also held various materials and manufacturing management positions within the Company. Prior to joining Davox, Mr. Donovan held various management positions with Applicon, Inc. and Raytheon Corporation. 12 EXECUTIVE OFFICERS OF THE REGISTRANT (continued) - ------------------------------------------------ Mr. John E. Cambray (41) has served as Vice President, Product Development since August 1993. Mr. Cambray has been with Davox since early 1982 and has held various software development and engineering management positions during this time. Prior to joining Davox, Mr. Cambray held various design and management positions with FASFAX Corporation and Sanders Associates. Mr. Douglas P. Langenberg (51) has served as Vice President, Customer Services since May 1996. Mr. Langenberg joined Davox following four years at Stratus Computer, Inc., where he held the position of Vice President, Customer Services. Prior to joining Stratus, Mr. Langenberg held executive-level positions with Apollo Computer, Inc. and Digital Equipment Corporation, as well as founding and serving as principal in a service-oriented consulting firm. Richard P. Santos (60) has served as Vice President of International Operations since May 1996. In this position, Mr. Santos is responsible for Davox's international sales and support activities. His duties also include management and development of Davox's distribution channels into its key international markets, including Europe, Latin America, Asia/Pacific Rim, Middle East, and Africa. Mr. Santos brings to Davox nearly 35 years of domestic and international experience in management, sales, marketing, and business development. Prior to joining Davox, he held senior level business development and management positions with several leading high-technology companies, including President and Chief Executive Officer of Monet, Inc., President of Pako Corporation, and co-founder and Senior Vice President of Iris Graphics. In 1994, Pako Corporation filed for bankruptcy. Officers are elected by and serve at the discretion of the Board of Directors. 13 PART II ITEM 5-MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - -------------------------------------------------------------------------------- Davox's Common Stock has been traded on the Nasdaq stock market under the symbol "DAVX" since its initial public offering on April 28, 1987. Prior to that date there was no public market for Davox's Common Stock. The following table sets forth the range of high and low sale prices per share of Common Stock on the National Market System for each quarter of the years ended December 31, 1996 and 1995 as reported by the National Association of Securities Dealers Automated Quotation System (NASDAQ). Fiscal 1996 High Low ----------- --------------------- First Quarter 18-3/8 11-1/4 Second Quarter 32-1/2 17-1/4 Third Quarter 39-1/4 23-3/4 Fourth Quarter 45-1/4 30-3/4 Fiscal 1995 High Low ----------- --------------------- First Quarter 8 5-3/8 Second Quarter 9-1/8 6-7/8 Third Quarter 13-1/4 8-7/8 Fourth Quarter 12-7/8 10 As of February 21, 1997, there were approximately 305 holders of record of the Company's Common Stock and approximately 1,600 beneficial shareholders of the Company's Common Stock. The Company has never paid cash dividends on its Common Stock and has no present intentions to pay cash dividends in the future. The Company intends to retain any future earnings to finance the growth of the Company. The Company has not sold any equity securities during the period covered by this report that were not registered under the Securities Act of 1933, as amended. 14 ITEM 6 SELECTED FINANCIAL DATA - ---------------------------------- The following table sets forth certain consolidated financial data with respect to the Company for each of the five years in the period ended December 31, 1996:
Years Ended December 31, -------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (in thousands, except per share amounts) Consolidated Statements of Operations Data: Total revenue....................... $53,642 $37,556 $30,047 $33,756 $30,636 Cost of revenue..................... 21,577 16,451 16,234 17,488 18,208 ------- ------- ------- ------- ------- Gross profit........................ 32,065 21,105 13,813 16,268 12,428 Research, development and engineering expenses............ 5,861 4,020 3,540 3,391 3,389 Selling, general and administrative expenses......... 17,213 12,166 12,681 12,472 12,485 Restructuring costs ................ - - - - - - 3,379 - - - - - - ------- ------- ------- ------- ------- Income (loss) from operations...... 8,991 4,919 (5,787) 405 (3,446) Interest income (expense), net..... 1,137 421 37 20 (35) ------- ------- ------- ------- ------- Income (loss) before provision for income taxes............... 10,128 5,340 (5,750) 425 (3,481) Provision for income taxes........ 1,013 534 - - - 40 - - - ------- ------- ------- ------- ------- Net income (loss)....................... $9,115 $4,806 ($5,750) $385 ($3,481) ======= ======= ======= ======= ======= Net income (loss) per common and common equivalent share.............. $1.11 $0.62 ($1.01) $0.07 ($0.66) ======= ======= ======= ======= ======= Weighted average number of common and common equivalent shares outstanding.......................... 8,190 7,711 5,689 5,776 5,256 ======= ======= ======= ======= ======= December 31, --------------------------------------------------- 1996 1995 1994 1993 1992 --------------------------------------------------- (In Thousands) Consolidated Balance Sheets Data: Working capital..................... $18,710 $8,589 $1,807 $3,627 $2,572 Total assets........................ 39,729 20,825 14,777 17,681 16,049 Long-term debt...................... - - - 45 138 96 50 Stockholders' equity................ 22,835 10,912 5,492 8,881 8,340
15 Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - -------------------------------------------------------------------- AND RESULTS OF OPERATIONS - ------------------------- All statements contained herein that are not historical facts, including but not limited to, statements regarding anticipated future capital requirements, the Company's future development plans, the Company's ability to obtain debt, equity or other financing, and the Company's ability to generate cash from operations, are based on current expectations. These statements are forward looking in nature and involve a number of risks and uncertainties, as more fully described under "Factors Affecting Future Performance." Actual results may differ materially. The following table sets forth, for the periods indicated, the percentage of revenue represented by items as shown in the Company's Consolidated Statements of Operations. This table should be read in conjunction with the Selected Financial Data, Consolidated Financial Statements and Notes to Consolidated Financial Statements contained elsewhere herein.
Percentage of Total Revenue For The Years Ended December 31, - ----------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------ Product revenue 69.3% 62.3% 56.5% Service revenue 30.7 37.7 43.5 - ------------------------------------------------------------------------------ Total revenue 100.0 100.0 100.0 Cost of revenue 40.2 43.8 54.0 - ------------------------------------------------------------------------------ Gross profit 59.8 56.2 46.0 Research, development and engineering expenses 10.9 10.7 11.8 Selling, general and administrative expenses 32.1 32.4 42.2 Restructuring costs ---- ---- 11.2 - ------------------------------------------------------------------------------ Income (loss) from operations 16.8 13.1 (19.2) Interest income, net 2.1 1.1 0.1 - ------------------------------------------------------------------------------ Income (loss) before provision for income taxes 18.9 14.2 (19.1) Provision for income taxes 1.9 1.4 ---- - ------------------------------------------------------------------------------ Net income (loss) 17.0% 12.8% (19.1%) - ------------------------------------------------------------------------------
16 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Total revenue was approximately $53,642,000, $37,556,000, and $30,047,000 for the fiscal years ended December 31, 1996, 1995 and 1994, respectively. Total revenue increased 42.8% for the year ended December 31, 1996 compared to the same period in 1995 and increased 25.0% in fiscal year 1995 compared to fiscal year 1994. Total cost of revenues as a percentage of total revenue was 40.2% in fiscal year 1996, 43.8% in fiscal year 1995, and 54.0% in fiscal year 1994. Product revenue was approximately $37,178,000, $23,382,000, and $16,969,000 in fiscal years 1996, 1995 and 1994, respectively. Product revenue increased by 59.0% from 1995 to 1996 and increased 37.8% from 1994 to 1995. The increase in 1996 was due to continued increasing demand for the Unison(R) call center management system, especially the telemarketing and collections outbound capabilities. The increase in 1995 was mainly attributable to strong demand for the Company's core collections call center products, sales of the new telemarketing product, and expansion into international markets. Cost of product revenue as a percentage of product revenue was 29.3%, 30.6%, and 39.6% in fiscal years 1996, 1995 and 1994, respectively. The continued improvements in product margin in 1996 represent the increased volume of product shipments relative to fixed costs, and a higher margin product mix. In 1995, the increase in product margin was mainly attributable to the favorable impact of increased volume as well as reduced costs related to inventory provisions and amortization of software development costs. Service revenue was approximately $16,465,000, $14,174,000, and $13,078,000 in fiscal years 1996, 1995 and 1994, respectively. Service revenue increased 16.2% from 1995 to 1996, and 8.4% from 1994 to 1995. The increases in 1996 and 1995 were due to increased installation revenue related to the increased volume of product shipments, and an increase in maintenance revenue related to the growth in the installed base of the Company's customers. Cost of service revenue as a percentage of service revenue was 64.9%, 65.6%, and 72.8% in 1996, 1995 and 1994, respectively. The decrease in 1996 was primarily attributable to the higher service revenue relative to fixed costs. The decrease in 1995 was primarily related to the increase in revenue, while also being favorably impacted by slightly reduced third-party maintenance costs. Revenue from the Company's largest single customer in each of 1996, 1995, and 1994 was 4%, 12%, and 9% of total revenue, respectively. Revenue from the Company's three largest customers amounted to 12% of total revenue in 1996, 20% of total revenue in 1995, and 19% of total revenue in 1994. The Company intends to broaden its base of existing and new customers by penetrating new markets, expanding its direct international sales force, and using alternate channels of distribution, thereby decreasing its dependence on its largest customers. 17 Research, development and engineering expenses were approximately $5,861,000, $4,020,000, and $3,540,000, representing 10.9%, 10.7%, and 11.8% of total revenue during 1996, 1995 and 1994, respectively. The increase in 1996 was primarily attributable to higher payroll and related expenses in 1996 resulting from personnel increases. In addition, due to a change in the Company's development cycle, no software development costs were capitalized in 1996 or 1995, while the Company capitalized approximately $310,000 of software development costs during 1994. The increase in expenses from 1994 to 1995 was primarily due to the absence of capitalized software development costs in 1995. Selling, general and administrative (SG&A) expenses were approximately $17,213,000, $12,165,000, and $12,681,000, representing 32.1%, 32.4%, and 42.2% of total revenue during 1996, 1995, and 1994, respectively. The increase in 1996 was primarily attributable to increased payroll and related expenses resulting from personnel increases, and direct and indirect selling expenses related to the increased revenue. The decrease as a percentage of revenue in 1996 and 1995 was mostly attributable to the significant increase in revenues. Interest income, derived primarily from money market instruments and investments in commercial paper, increased 159.9% from 1995 to 1996, and 559.2% from 1994 to 1995. These increases were due to the significantly higher average cash and investment balances from year to year, as well as the increased interest percentages received as a result of the Company's new investment policy of investing in commercial paper and government securities. Interest expense decreased 50.8% from 1995 to 1996, and 35.5% from 1994 to 1995. These decreases reflect an overall decrease in outstanding debt attributable to capital lease obligations. Restructuring In the second quarter of 1994, in response to lower revenue, the Company implemented a restructuring program. The restructuring was intended to refocus the strategic direction of the Company to exploit the full potential of the Unison(R) product line and maintain the Company's operating expenses in line with the revised revenue plan. As a result of this program, the Company hired a new Chief Executive Officer and a new Chief Financial Officer. This restructuring resulted in a 21% reduction in the Company's work force worldwide. The Company offered or was contractually committed to severance packages of up to fifteen months' salary. Additionally, the Company accelerated the phaseout of certain older product lines, necessitating the write-down of certain assets. In total, the restructuring cost was approximately $3,379,000, of which all costs have been paid as of December 31, 1996. The restructuring charge reflects approximately $1,487,000 of severance related costs and $1,892,000 related to the phase out of certain older product lines. Liquidity and Capital Resources As of December 31, 1996, the Company's principal sources of liquidity were its cash and cash equivalent balances of approximately $21,333,000, as well as its marketable securities of approximately $9,780,000. As of the end of fiscal 1995, the Company's cash and cash equivalent balances were approximately $12,936,000. The increase in cash is a result of the favorable operating results, an increase in customer deposits, and proceeds from exercises of stock options. In addition, the Company has an agreement for a working capital line of credit 18 with a bank for up to $2,000,000 based on eligible receivables, as defined. There were no outstanding balances as of December 31, 1996 or 1995 under this line of credit. Working capital as of December 31, 1996 was approximately $18,710,000 as compared to $8,589,000 as of December 31, 1995 and $1,807,000 as of December 31, 1994. Total assets as of December 31, 1996 were approximately $39,729,000 compared to $20,825,000 as of December 31, 1995 and $14,777,000 as of December 31, 1994. The increase from 1995 to 1996 was primarily attributable to the cash generated by operations and an increase in customer deposits. The increase from 1994 to 1995 was primarily attributable to the cash generated by operations. Management believes, based on the current operating plan, that the Company's existing cash and cash equivalents, marketable securities, cash generated from operations, and amounts available under its working capital line of credit will be sufficient to meet the Company's cash requirements for the foreseeable future. Impact of Inflation The Company believes that inflation did not have a material effect on the results of operations in 1996. Certain Factors That May Affect Future Results From time to time, information provided by the Company, statements made by its employees or information included in its filings with the Securities and Exchange Commission (including this Form 10-K) may contain statements which are not historical facts, so-called "forward-looking statements," which involve risks and uncertainties. In particular, statements in "Item 1. Business" relating to expansion of the Business Partners Program, and in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" relating to the Company's intent to broaden its customer base and decrease reliance on its largest customers and the sufficiency of working capital, may be forward-looking statements. The Company's actual future results may differ significantly from those stated in any forward-looking statements. Factors that may cause such differences include, but are not limited to, the factors discussed below. Each of these factors, and others, are discussed from time to time in the Company's filings with the Securities and Exchange Commission. The Company's future results may be subject to substantial risks and uncertainties. The Company purchases certain equipment for its products from third party suppliers and licenses certain components of its software code from a number of third party vendors. While the Company believes that third party equipment and software vendors could be replaced if necessary, the Company might face significant delays in establishing replacement sources or in modifying its products to incorporate replacement components or software code. There can be no assurance that the Company will not suffer delays resulting from non-performance by its vendors or cost increases due to a variety of factors, including component shortages or changes in laws or tariffs applicable to items imported by the Company. Also, the Company relies on certain intellectual property protections to preserve its intellectual property rights. Any invalidation of the Company's intellectual property rights or lengthy and expensive defense of those rights could have a material adverse affect on the financial position and results of 19 operations of the Company. The development of new products, the improvement of existing products and the continuing evaluation of new technologies is critical to the Company's success. Successful product development and introduction depends upon a number of factors, including anticipating and responding to the evolving applications needs of customers and resellers, timely completion and introduction of new products, and market acceptance of the Company's products. The telecommunications industry is extremely competitive. Certain current and potential competitors of the Company are more established, benefit from greater market recognition and have substantially greater financial, development and marketing resources than the Company. The Company's quarterly and annual operating results are affected by a wide variety of factors that could materially adversely affect revenue and profitability, including the timing of customer orders; the Company's ability to introduce new products on a timely basis; introduction of products and technologies by the Company's competitors; and market acceptance of the Company's and its competitors' products. As a result of the foregoing and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect its business, financial condition, results of operations and stock price. 20 ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - --------------------------------------------------------------- Index to Consolidated Financial Statements - ------------------------------------------
Page ---- Report of Independent Public Accountants 22 Consolidated Balance Sheets as of December 31, 1996 and 1995 23 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995, and 1994 24 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 25 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 26 Notes to Consolidated Financial Statements 27 Report of Independent Public Accountants on Financial Statement Schedule 42 Financial Statement Schedule 43
21 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Davox Corporation: We have audited the accompanying consolidated balance sheets of Davox Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Davox Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts January 21, 1997 22 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS DAVOX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, December 31, 1996 1995 ------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 21,333,300 $ 12,935,907 Marketable securities 9,780,273 ----- Accounts receivable, net of reserves of approximately $699,000 and $665,000 in 1996 and 1995, respectively 3,184,814 4,459,597 Inventories 1,204,058 1,009,029 Prepaid expenses and other current assets 101,802 52,357 ------------- ------------ Total current assets 35,604,247 18,456,890 Property and equipment, net 4,050,850 1,865,398 Other assets, net 74,207 502,274 ------------- ------------ $ 39,729,304 $ 20,824,562 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 40,067 $ 92,896 Accounts payable 4,771,123 2,927,172 Accrued expenses 6,174,935 3,926,054 Customer deposits 3,413,726 1,292,627 Deferred revenue 2,494,390 1,629,081 ------------- ------------ Total current liabilities 16,894,241 9,867,830 ------------- ------------ Long-term debt, net of current maturities --- 44,891 ------------- ------------ Commitments and Contingencies (Note 7) Stockholders' equity: Common stock, $.10 par value - Authorized - 10,000,000 shares Issued - 7,387,798 and 6,845,789 shares in 1996 and 1995, respectively 738,780 684,579 Capital in excess of par value 45,263,568 42,509,154 Accumulated deficit (23,143,139) (32,257,746) ------------- ------------ 22,859,209 10,935,987 Less - Treasury Stock, 2,807 shares at cost (24,146) (24,146) ------------- ------------ Total stockholders' equity 22,835,063 10,911,841 ------------- ------------ $ 39,729,304 $ 20,824,562 ============= ============ The accompanying notes are an integral part of these consolidated financial statements.
DAVOX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, --------------------------------------- 1996 1995 1994 ---- ---- ---- Product revenue $37,177,601 $23,382,089 $16,969,126 Service revenue 16,464,791 14,173,982 13,077,995 ----------- ----------- ------------ Total revenue 53,642,392 37,556,071 30,047,121 ----------- ----------- ------------ Cost of product revenue 10,883,420 7,155,766 6,715,886 Cost of service revenue 10,693,687 9,295,707 9,518,484 ----------- ----------- ------------ Total cost of revenue 21,577,107 16,451,473 16,234,370 ----------- ----------- ------------ Gross profit 32,065,285 21,104,598 13,812,751 ----------- ----------- ------------ Operating Expenses: Research, development and engineering expenses 5,861,108 4,020,350 3,539,858 Selling, general and administrative expenses 17,212,916 12,165,447 12,680,787 Restructuring costs ---- ---- 3,379,031 ----------- ----------- ------------ Total operating expenses 23,074,024 16,185,797 19,599,676 ----------- ----------- ------------ Income (loss) from operations 8,991,261 4,918,801 (5,786,925) Interest income 1,146,006 440,909 66,882 Interest expense 9,480 19,287 29,913 ----------- ----------- ------------ Income (loss) before provision for income taxes 10,127,787 5,340,423 (5,749,956) Provision for income taxes 1,013,180 534,176 ---- ----------- ----------- ------------ Net income (loss) $9,114,607 $4,806,247 ($5,749,956) =========== =========== ============ Net income (loss) per common and common equivalent share $1.11 $0.62 ($1.01) =========== =========== ============ Weighted average number of common and common equivalent shares outstanding 8,190,163 7,710,553 5,688,730 =========== =========== ============
The accompanying notes are an integral part of these consolidated financial statements. 24
DAVOX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Capital in Total Common Stock Excess of Accumulated Treasury Stock Stockholders' Shares Par Value Par Value Deficit Shares Amount Equity --------- -------- ----------- ------------- ------- --------- ------------- BALANCE, December 31, 1993 5,332,530 $533,253 $39,685,656 $(31,314,037) (2,807) $(24,146) $8,880,726 Proceeds from exercise of stock options 175,167 17,517 325,333 - - - - - - - - - - - 342,850 Proceeds from employee stock purchase plan 5,932 593 17,684 - - - - - - - - - - - 18,277 Proceeds from private placement 1,066,666 106,667 1,893,332 - - - - - - - - - - - 1,999,999 Net loss - - - - - - - - - - - - (5,749,956) - - - - - - - (5,749,956) --------- -------- ----------- ------------- ------- -------- ------------- BALANCE, December 31, 1994 6,580,295 658,030 41,922,005 (37,063,993) (2,807) 24,146 5,491,896 Proceeds from exercise of stock options, including related tax benefit 256,758 25,676 551,927 - - - - - - - - - - - 577,603 Proceeds from employee stock purchase plan 8,736 873 35,222 - - - - - - - - - - - 36,095 Net income - - - - - - - - - - - - 4,806,247 - - - - - - - 4,806,247 --------- -------- ----------- ------------- ------- -------- ------------- BALANCE, December 31, 1995 6,845,789 684,579 42,509,154 (32,257,746) (2,807) 24,146 10,911,841 Proceeds from exercise of stock options, including related tax benefit 532,023 53,202 2,664,494 - - - - - - - - - - - 2,717,696 Proceeds from employee stock purchase plan 9,986 999 89,920 - - - - - - - - - - - 90,919 Net income - - - - - - - - - - - - 9,114,607 - - - - - - - 9,114,607 --------- -------- ----------- ------------- ------- -------- ------------- BALANCE, December 31, 1996 7,387,798 $738,780 $45,263,568 $(23,143,139) (2,807) $(24,146) $22,835,063
The accompanying notes are an integral part of these consolidated financial statements. 25 DAVOX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ---------------------------------------------- 1996 1995 1994 ------------ ------------ ----------- Cash flows from operating activities: Net income (loss) $9,114,607 $4,806,247 ($5,749,956) Adjustments to reconcile net income (loss) to net cash provided by operating activities - Depreciation and amortization 2,373,168 2,643,814 3,138,413 Provision for losses on accounts receivable 98,000 248,561 338,289 Changes in current assets and liabilities - Accounts receivable 1,176,783 (8,439) 2,473,593 Inventories (195,029) (241,235) 1,233,663 Prepaid expenses and other current assets (49,445) 156,663 (109,296) Accounts payable 1,843,951 396,516 (836,149) Accrued expenses 3,136,927 179,619 702,235 Customer deposits 2,121,099 462,332 719,730 Deferred revenue 865,309 (229,160) (154,026) ------------ ------------ ----------- Net cash provided by operating activities 20,485,370 8,414,918 1,756,496 ------------ ------------ ----------- Cash flows from investing activities: Purchases of property and equipment (4,133,851) (1,230,140) (1,067,223) (Increase) decrease in other assets 3,298 41,458 (43,332) Purchases of marketable securities (10,865,105) ---- ---- Sales of marketable securities 1,084,832 ---- ---- Capitalized software development costs ---- ---- (309,961) ------------ ------------ ----------- Net cash used in investing activities (13,910,826) (1,188,682) (1,420,516) ------------ ------------ ----------- Cash flows from financing activities: Principal payments for long-term debt (97,720) (108,460) (137,575) Proceeds from private placement ---- ---- 1,999,999 Proceeds from exercise of stock options 1,829,650 504,256 342,850 Proceeds from exercise of employee stock purchase plan 90,919 36,095 18,277 ------------ ------------ ----------- Net cash provided by financing activities 1,822,849 431,891 2,223,551 ------------ ------------ ----------- Net increase in cash and cash equivalents 8,397,393 7,658,127 2,559,531 Cash and cash equivalents, beginning of year 12,935,907 5,277,780 2,718,249 ------------ ------------ ----------- Cash and cash equivalents, end of year $21,333,300 $12,935,907 $5,277,780 ============ ============ =========== Supplemental disclosures of cash flow information: Cash paid for- Interest $ 9,480 $ 19,287 $ 29,913 ============ ============ =========== Income taxes $ 429,000 $ 184,655 $ 20,826 ============ ============ =========== Supplemental disclosure of non-cash investing and financing activities: Equipment acquired under capital lease obligation $ ---- $ ---- $ 190,812 ============ ============ =========== Recognition of tax benefit relating to disqualifying dispositions and exercise of non-qualified stock options $ 888,046 $ 73,347 $ ---- ============ ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. 26 DAVOX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (1) Operations and Significant Accounting Policies Davox Corporation (the Company) is a software and systems integration company that develops, markets, supports and services management systems for call center operations. These systems are marketed directly, through joint marketing relationships, and distribution agreements. The Company provides its systems to banks, consumer finance organizations, retailers, entertainment companies, telemarketing organizations and utilities. These consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in the accompanying consolidated financial statements. (a) Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. (b) Revenue Recognition The Company recognizes revenue in accordance with the provisions of Statement of Position No. 91-1 (SOP 91-1), Software Revenue Recognition. The Company generates software revenue from licensing the rights to use its software products. The Company also generates service revenues from the sale of product maintenance contracts and consulting services. Revenue from software license fees are recognized upon delivery, net of estimated returns, provided there are no significant postdelivery obligations, and payment is due within one year and is probable of collection. If acceptance is required, software license revenue is recognized upon customer acceptance. Fees for consulting services are recognized upon customer acceptances or over the period in which services are provided if customer acceptance is not required, and the revenue is fixed and determinable. Maintenance revenue is deferred at the time of software license revenue recognition and is recognized ratably over the term of the support period, which is typically one year. 27 DAVOX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (Continued) (1) Operations and Significant Accounting Policies (Continued) (c) Warranty Costs The Company warrants its products for 90 days and provides for estimated warranty costs upon shipment of such products. Warranty costs have not been and are not anticipated to be significant. (d) Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. (e) Postretirement Benefits The Company has no obligations for postretirement or general postemployment benefits. (f) Cash, Cash Equivalents and Marketable Securities The Company considers all highly liquid investments with original maturities of three months or less at the time of acquisition to be cash equivalents. The Company accounts for investments in accordance with Statement of Financial Accounting Standard (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under SFAS No. 115, securities that the Company has the positive intent and ability to hold to maturity are reported at amortized cost and are classified as held-to-maturity. At December 31, 1996, held-to-maturity securities consisted of investments in high grade commercial paper instruments. All of these investments are classified as current as they mature within one year. At December 31, 1996 marketable securities consisted of the following:
Total Market Value Total Amortized Cost ---------------------- ------------------------- Commercial paper obligations................ $9,780,060 $9,780,273
28 DAVOX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (Continued) (1) Operations and Significant Accounting Policies (Continued) (g) Inventories Inventories are stated at the lower of first-in, first out (FIFO) cost or market and consist of the following:
December 31, ---------------------------------------------- 1996 1995 ---- ---- Raw materials and subassemblies.................... $ 82,684 $ 52,032 Work-in-process.................................... 854,768 641,430 Finished goods..................................... 266,606 315,567 ----------- ----------- $ 1,204,058 $ 1,009,029 =========== ===========
Subassemblies, work-in-process and finished goods inventories include material and sub-contract labor. Internal labor and overhead are not significant. (h) Property and Equipment The Company provides for depreciation and amortization of property and equipment using the straight-line and declining-balance methods by charges to operations in amounts to allocate the cost of the property and equipment over their estimated useful lives. The cost of property and equipment and their useful lives are summarized as follows:
December 31, ------------------------ Estimated Asset Classification Useful Life 1996 1995 - -------------------- ----------- ---------- ---------- Equipment and software ............ 2-3 Years $6,174,516 $3,564,708 Equipment under capital lease ..... Life of Lease 530,117 530,117 Rental and demonstration equipment .................. 3 Years 426,731 411,604 Service equipment ................. 1-5 Years 2,179,939 2,158,185 Leasehold improvements ............ Life of Lease 184,466 95,155 ---------- ---------- 9,495,769 6,759,769 Less-Accumulated depreciation and amortization ........... 5,444,919 4,894,371 ---------- ---------- $4,050,850 $1,865,398 ========== ==========
29 DAVOX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (Continued) (1) Operations and Significant Accounting Policies (Continued) (i) Research and Development and Software Development Costs Research and development expenses other than software development costs are charged to operations as incurred. In compliance with SFAS No. 86, Accounting for the Costs of Computer Software To Be Sold, Leased, or Otherwise Marketed, the Company capitalized certain computer software development costs. A change occurred in the Company's development cycle such that the period between the attainment of technological feasibility and the first commercial shipment of a software enhancement has shortened and the level of capitalizable costs incurred are no longer material. Accordingly, the Company expensed all software development costs incurred during the years ended December 31, 1996 and 1995. Approximately $380,000, $579,000, and $685,000 of capitalized software development costs were amortized to expense during the years ended December 31, 1996, 1995 and 1994, respectively. (j) Net Income (Loss) per Common and Common Equivalent Share Net income (loss) per common and common equivalent share has been computed using the weighted average number of common and common equivalent shares outstanding during each period. Common stock and common stock issuable pursuant to stock options and warrants have been reflected as outstanding using the treasury stock method. Common equivalent shares (stock options and warrants) have not been considered in the calculation of net loss per share for the year ended December 31, 1994, as their effect would be antidilutive. Fully diluted net income per common and common equivalent share has not been separately presented as the amounts are not materially different from primary net income per share. (k) Other Assets During March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of, which is effective for fiscal years beginning after December 15, 1995. The adoption of this standard did not have a material effect on the Company's financial position or results of operations. 30 DAVOX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (Continued) (2) Line of Credit The Company has a working capital line of credit (line of credit) with a bank that expires in June 1997, if not renewed, pursuant to which the Company may borrow up to the lesser of $2,000,000 or a percentage of accounts receivable, as defined. Borrowings under the line of credit will bear interest at the bank's prime rate (8.25% at December 31, 1996). There were no borrowings under the line of credit during 1996. (3) Accrued Expenses Accrued expenses consist of the following:
December 31, -------------------------- 1996 1995 ------ ------ Commissions and bonuses .................. $1,095,246 $ 913,574 Employee benefits ........................ 969,317 964,717 State sales tax .......................... 535,888 302,888 Other .................................... 3,574,484 1,744,875 ---------- ---------- $6,174,935 $3,926,054 ========== ==========
(4) Long-term debt Long-term debt consists of a capital lease obligation at an interest rate of 10.0%, collateralized by certain equipment. The total obligation under this lease was $40,067 and $137,787, with current maturities of $40,067 and $92,896 and long term debt of $0 and $44,891 as of December 31, 1996 and 1995, respectively. (5) 401(k) Plan The Company maintains The Davox Corporation 401(k) Retirement Plan (the Plan), which is a deferred contribution plan that covers all full-time employees over 21 years of age who have completed at least six months of service with the Company. The participants may make pretax deferred contributions to the plan of up to 15% of the annual compensation, as defined. Contributions by the Company are discretionary and are determined by the Board of Directors. The Company made discretionary contributions of approximately $161,000 in 1996. There were no Company contributions to the Plan in 1995 or 1994. 31 DAVOX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (Continued) (6) Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under the liability method specified by SFAS No. 109, a deferred tax asset or liability is determined based on the difference between the financial statement and tax basis of assets and liabilities, as measured by the enacted tax rates assumed to be in effect when these differences are expected to reverse. The income tax provision for the years ended December 31, 1996 and 1995 consists of federal alternative minimum and state income taxes payable. The components of the provision for income taxes consist of the following:
Fiscal Years Ended December 31, ---------------------------------------- 1996 1995 1994 ---- ---- ---- Current: Federal.................. $ 202,636 $ 106,835 $ -- State.................... 810,544 427,341 -- ---------- ---------- ---------- Total current......... $1,013,180 $ 534,176 $ -- ========== ========== ========== Deferred: Federal.................. $ -- $ -- $ -- State.................... -- -- -- ---------- ---------- ---------- Total deferred........ $ -- $ -- $ -- ---------- ---------- ---------- Provision for Income Taxes........ $1,013,180 $ 534,176 $ -- ========== ========== ==========
The provision for income taxes that is currently payable for the year ended December 31, 1996 does not reflect $888,000 of tax benefits included in additional paid in capital related to disqualifying dispositions and the exercise of non-qualified stock options. 32 DAVOX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (Continued) (6) Income Taxes (Continued) The approximate income tax effect of each type of temporary difference comprising the deferred tax asset is approximately as follows:
1996 1995 ---- ---- Net operating loss carryforwards............... $ 8,153,000 $ 8,862,000 Depreciation................................... 571,000 604,000 Inventory reserves............................. 561,000 651,000 Federal tax credit carryforwards............... 577,000 577,000 Other temporary differences.................... 1,940,000 926,000 -------------- -------------- 11,802,000 11,620,000 Valuation allowance............................ (11,802,000) (11,620,000) -------------- -------------- $ -- $ -- ============== ==============
Due to the uncertainty surrounding the timing of realization of the benefits of its favorable tax attributes in future tax returns, the Company placed a full valuation allowance against its net deferred tax asset. However, approximately $4,125,000 of the valuation allowance relates to the excess tax benefit of disqualifying dispositions and the exercise of non-qualified stock options. If the valuation allowance is reduced in future periods, this benefit will be recorded in additional paid in capital at that time. At December 31, 1996, the Company has available net operating loss carryforwards and tax credit carryforwards of approximately $20,383,000 and $577,000, respectively, expiring through 2009. These carryforwards may be used to offset future income taxes payable, if any, and are subject to review by the Internal Revenue Service. The Internal Revenue Code provides that net operating loss carryforwards available to be used in any given year may be limited in the event of certain circumstances, including significant changes in ownership, as defined. 33 DAVOX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (Continued) (6) Income Taxes (Continued) A reconciliation of the federal statutory rate to the Company's effective tax rate is as follows:
Years Ended December 31, ------------------------ 1996 1995 1994 ---- ---- ---- Federal statutory tax rate............................... 34.0% 34.0% 34.0% State income taxes, net of federal income tax benefit.... 6.3 6.3 6.3 Permanent items.......................................... (1.3) (2.6) -- Utilization of net operating loss carryforwards.......... (29.0) (27.7) -- Net operating loss generated............................. -- -- (40.3) -------- -------- -------- Effective tax rate....................................... 10.0% 10.0% ---% ===== ===== ====
(7) Commitments and Contingencies (a) Operating Lease Commitments The Company leases its facilities and sales offices under operating leases that expire at various dates through October 2001. The Company's lease for its corporate headquarters expires in September 1997. Pursuant to the lease agreements, the Company is responsible for maintenance costs and real estate taxes. Total rental expense for all operating leases for the years ended December 31, 1996, 1995 and 1994 amounted to approximately $507,000, $551,000, and $684,000, respectively. Future minimum lease payments by year, in the aggregate under operating leases are approximately as follows at December 31, 1996:
Years Ending December 31, Amount ----------------------------- ---------- 1997................................ $ 446,000 1998................................ 222,000 1999................................ 165,000 2000................................ 123,000 2001................................ 89,000 ---------- $1,045,000 ==========
34 DAVOX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (Continued) (7) Commitments and Contingencies (Continued) (b) Capital Lease Commitments The Company leases certain equipment that has been reported as equipment under capital lease and as lease obligations in the accompanying consolidated financial statements. The cost and accumulated amortization of this equipment were approximately $191,000 and $152,000, respectively, at December 31, 1996 and approximately $354,000 and $230,000, respectively, at December 31, 1995. Future minimum lease payments under capital leases are as follows at December 31, 1996:
Year Ending December 31, Amount ------------------------ ------ 1997............................................... $ 41,584 Less - Amount representing interest................ ( 1,517) --------- Less - Current portion $(40,067) --------- $ ---- =========
(c) Employment and Severance Agreements The Company has entered into employment and severance agreements with certain officers and employees whereby the Company may be required to pay the officers and employees a total of approximately $1,152,000 upon termination of employment by the Company under certain circumstances, as defined. (8) Litigation The Company is presently engaged in various legal actions and its ultimate liability, if any, cannot be determined at the present time. However, management has consulted with legal counsel, and management believes that any such liability will not have a material adverse effect on the Company's financial position or its results of operations. 35 DAVOX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (Continued) (9) Stockholders' Equity (a) 1986 Stock Plan The Company's 1986 Stock Plan (the "1986 Plan"), administered by the Board of Directors authorizes the issuance of a maximum of 1,114,286 shares of common stock for the exercise of options in connection with awards or direct purchases of stock. In August 1994, the Shareholders approved an amendment to increase the number of shares authorized for issuance under the 1986 Plan to 2,114,286. In April 1996, the Shareholders approved an amendment to increase the number of shares authorized for issuance under the 1986 Plan to 2,464,286. Options granted under the 1986 Plan may be either nonstatutory stock options or options intended to constitute "incentive stock options" under the Internal Revenue Code. Stock options may be granted to employees, officers, employee-directors or consultants of the Company and are exercisable in such installments as the Board of Directors may specify. The options granted currently vest over a four-year period and expire ten years from the date of grant. The 1986 Plan terminated pursuant to its terms in September 1996. (b) 1996 Stock Plan The Company's 1996 Stock Plan (the "1996 Plan") administered by the Board of Directors authorizes the issuance of a maximum of 600,000 shares of common stock for the exercise of options in connection with awards or direct purchases of stock. Options granted under the 1996 Plan may be either nonstatutory stock options or options intended to constitute "incentive stock options" under the Internal Revenue Code. Stock options may be granted to employees, officers, employee-directors or consultants of the Company and are exercisable in such installments as the Board of Directors may specify. The shares currently vest to the individual over a four-year period. There were 526,650 shares available for future grants under the 1996 Plan at December 31, 1996. (c) Stock Options to Directors The Company's 1988 Non-employee Director Stock Option Plan (the "1988 Plan"), as amended, is administered by the Board of Directors and authorizes the issuance of a maximum of 400,000 shares of common stock for the exercise of options. The 1988 Plan provided for the automatic grant of options for 40,000 shares for each non-employee director in office at the time of the amendment and provides for additional grants of options for 10,000 shares per non-employee director on each biennial anniversary of amendment approval. The 1988 Plan also 36 DAVOX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (Continued) (9) Stockholders' Equity (Continued) (c) Stock Options to Directors (Continued) provides for the automatic grant of options for 40,000 shares to each newly elected non-employee director and additional grants of 10,000 options per biennial anniversary of election to the Board of Directors. Options granted under the 1988 Plan vest 25% per year beginning one year from the date of grant and expire five years from the date of grant. There are 227,500 shares available for future grants under the 1988 Plan. The following is a summary of the stock option activity for all plans for the years ended December 31, 1996, 1995 and 1994:
Number of Exercise Options Price Range ------- ----------- Outstanding, December 31, 1993 943,936 $1.75 - $5.50 Granted .................................. 1,475,662 2.25 - 5.25 Exercised ................................ (162,180) 1.75 - 4.50 Canceled ................................. (553,576) 1.75 - 5.50 ---------- ---------------- Outstanding, December 31, 1994 1,703,842 1.75 - 5.50 Granted .................................. 112,875 6.75 - 12.25 Exercised ................................ (204,640) 1.75 - 7.13 Canceled ................................. (44,519) 1.75 - 12.25 ---------- ---------------- Outstanding, December 31, 1995 1,567,558 1.75 - 12.25 Granted .................................. 287,550 12.13 - 39.50 Exercised ................................ (532,023) 1.75 - 24.25 Canceled ................................. (50,789) 1.75 - 12.25 ---------- ---------------- Outstanding, December 31, 1996 1,272,296 $2.00 - $39.50 ========== ================ Exercisable, December 31, 1996 429,949 $2.00 - $28.63 ========== ================
(d) Employee Stock Purchase Plan The Company has adopted an Employee Stock Purchase Plan (the "Purchase Plan") under which a maximum of 100,000 shares of Common Stock may be purchased by eligible employees. Substantially all full-time employees of the Company are eligible to participate in the Purchase Plan. 37 DAVOX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (Continued) (9) Stockholders' Equity (Continued) (d) Employee Stock Purchase Plan (Continued) The Purchase Plan provides for two "purchase periods" within each of the Company's fiscal years, the first commencing on January 1 of each calendar year and continuing through June 30 of such calendar year, and the second commencing on July 1 of each year and continuing through December 31 of such calendar year. Eligible employees may elect to become participants in the Purchase Plan for a purchase period by completing a stock purchase agreement prior to the first day of the purchase period for which the election is made. Shares are purchased through accumulation of payroll deductions (of not less than 0.5% nor more than 10% of compensation, as defined) for the number of whole shares, determined by dividing the balance in the employee's account on the last day of the purchase period by the purchase price per share for the stock determined under the Purchase Plan. The purchase price for the shares will be the lower of 85% of the fair market value of the Common Stock at the beginning of the purchase period or 85% of such value at the end of the purchase period (rounded to the nearest quarter). During 1996 and 1995, 9,986 and 8,736 shares, respectively, were purchased under the Purchase Plan. (e) Accounting for Stock-Based Compensation The Company accounts for its stock-based compensation under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation, which is effective for fiscal years beginning after December 15, 1995. SFAS No. 123 establishes a fair-value-based method of accounting for stock-based compensation plans. The Company has adopted the disclosure-only alternative under SFAS No. 123, which requires the disclosure of the pro forma effects on earnings and earnings per share as if SFAS No. 123 had been adopted, as well as certain other information. The Company has computed the pro forma disclosures required under SFAS No. 123 for all stock options granted (including the employee stock purchase plan) as of December 31, 1996 using the Black-Scholes option pricing model prescribed by SFAS No. 123. 38 DAVOX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (Continued) (9) Stockholders' Equity (Continued) (e) Accounting for Stock-Based Compensation (Continued) The assumptions used and the weighted average information for the years ended December 31, 1996 and 1995 are as follows:
Years ended December 31, ------------------------ 1996 1995 ---- ---- Risk-free interest rates................................ 5.36% - 6.64% 5.86% - 7.76% Expected dividend yield................................. ----- ----- Expected lives.......................................... 5.5 years 5.5 years Expected volatility..................................... 71% 71% Weighted average grant-date fair value of options granted during the period.................... $19.20 $5.94 Weighted-average exercise price......................... $ 9.31 $3.58 Weighted-average remaining contractual life of options outstanding.............................. 7.45 years 7.63 years Weighted average exercise price of 429,949 and 546,147 options exercisable at December 31, 1996 and 1995, respectively.......................... $ 3.76 $3.08
The effect of applying SFAS No. 123 would be as follows:
Years ended December 31, ------------------------ 1996 1995 ---- ---- Pro forma net income.................................... $ 8,290,265 $ 4,703,345 =========== =========== Pro forma net income per share.......................... $ 0.99 $ 0.61 =========== ===========
39 DAVOX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (Continued) (10) Significant Customers Revenue from the Company's largest single customers were 4%, 12%, and 9% of total revenue in 1996, 1995 and 1994, respectively. Revenue from the Company's three largest customers amounted to 12%, 20% and 19% of total revenue in 1996, 1995 and 1994, respectively. (11) Export Sales Export product sales, primarily to Canada, Europe, Mexico, Australia and Japan, accounted for 14%, 12%, and 11% of total revenue in 1996, 1995 and 1994, respectively. All of the Company's sales for the years ended December 31, 1996, 1995 and 1994 were originated from its headquarters located in the United States. (12) Restructuring Costs In the second quarter of 1994, the Company restructured by downsizing in all areas of its operations. This downsizing resulted in a 21% reduction in the Company's work force worldwide. As a result, the Company recorded restructuring costs as follows: Write-downs of fixed assets, goodwill, inventory and other assets abandoned as a result of the restructuring $1,629,866 Severance and related benefits for 40 terminated employees 1,486,665 Abandoned facilities costs 262,500 ---------- $3,379,031 ========== As of December 31, 1994, the restructuring had been completed, and there were no additional restructuring charges recorded in 1995 or 1996. All costs have been paid as of December 31, 1996. None of the previously accrued expenses were reversed to the Consolidated Statements of Operations. 40 DAVOX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (Continued) (13) Quarterly Results of Operations (Unaudited) The following table presents a condensed summary of quarterly results of operations for the years ended December 31, 1996 and 1995:
Year Ended December 31, 1996 ---------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- Total revenue $11,410,267 $12,665,349 $14,079,224 $15,487,552 Gross profit 6,731,619 7,527,051 8,450,649 9,355,966 Net income 1,758,299 2,047,861 2,477,050 2,831,397 Net income per share $0.22 $0.25 $ 0.30 $0.34 Year Ended December 31, 1996 ---------------------------- Total revenue $8,541,101 $9,016,084 $9,568,619 $10,430,267 Gross profit 4,614,439 5,018,460 5,452,528 6,019,171 Net income 912,561 1,080,901 1,289,085 1,523,700 Net income per share $0.12 $0.14 $ 0.16 $0.19
41 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To Davox Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of Davox Corporation and subsidiaries included in this Form 10-K, and have issued our report thereon dated January 21, 1997. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and regulations and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Boston, Massachusetts January 21, 1997 42 DAVOX CORPORATION AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Deductions Balance at Beginning Costs and from End of of Year Expenses Reserves Year ------- -------- -------- ---- Accounts receivable Reserves: December 31, 1996 $665,030 $98,000 $64,118 $698,912 December 31, 1995 637,672 242,185 214,827 665,030 December 31, 1994 686,847 338,289 387,464 637,672
43 ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON - ---------------------------------------------------------- ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------- Not Applicable. PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ Directors The information concerning directors of the Company required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of the Company's 1996 fiscal year ended December 31, 1996 under the heading "Election of Directors." Executive Officers See Item 4A. ITEM 11 EXECUTIVE COMPENSATION - -------------------------------- The information required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of the Company's 1996 fiscal year ended December 31, 1996, under the heading "Compensation and Other Information Concerning Directors and Officers." ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ The information required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of the Company's 1996 fiscal year ended December 31, 1996, under the headings "Principal Holders of Voting Securities" and "Election of Directors." ITEM 13 CERTAIN RELATIONSHIPS AND TRANSACTIONS - ------------------------------------------------ The information required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission within 120 days after the close of the Company's 1996 fiscal year ended December 31, 1996, under the headings "Principal Holders of Voting Securities" and "Election of Directors." 44 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (a) Financial Statements and Financial Statement Schedules 1. Financial Statements. The following financial information is incorporated in Item 8 above. Report of Independent Public Accountants Consolidated Balance Sheets as of December 31, 1996 and 1995. Consolidated Statements of Operations for the years ended December 31, 1996, 1995, and 1994. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994. Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994. Notes to Consolidated Financial Statements. 2. Financial Statement Schedule. The following financial information is incorporated in Item 8 above. Report of Independent Public Accountants on Schedule II - Valuation and Qualifying Accounts. All other schedules are not submitted because they are not applicable, not required or because the information is included in the Financial Statements or Notes to Financial Statements. (b) Reports on Form 8-K The Company did not file any Current Report on Form 8-K during the fourth quarter of the fiscal year ended December 31, 1996. (c) List of Exhibits. Exhibit Number Description of Exhibit ------ ---------------------- 3.01(6) Restated Certificate of Incorporation of the Registrant, as amended. 45 (c). List of Exhibits (continued) 3.02(2) By-laws of the Registrant, as amended. 4.01(6) Description of Capital Stock contained in the Registrant's Restated Certificate of Incorporation, as amended, filed as Exhibit 3.01. 10.01(10) 1986 Stock Plan, as amended, of the Registrant. 10.02(8) Form of Incentive Stock Option Agreement under the Registrant's 1986 Stock Plan. 10.03(2) Form of Non-Qualified Stock Option Agreement under the Registrant's 1986 Stock Plan. 10.04(2) Incorporation Agreement of the Registrant dated June 1982. 10.05(4) Manufacturing Agreement dated as of February 20, 1987, between the Registrant and Wong's Electronics Company, Ltd. 10.06(2) Form of Nondisclosure Agreement. 10.07(3) Stock Purchase Agreement among the Registrant, The Dispatch Printing Company and TBS International, Inc. dated as of September 15, 1987. 10.08(7) Amended and Restated 1988 Non-Employee Director Stock Option Plan of the Registrant. 10.09(4) Form of Option Agreement under the Registrant's 1988 Non-Employee Director Stock Option Plan. 10.10(5) Asset Purchase Agreement dated August 9, 1988 between the Registrant, DAVOX/VCT Corporation and Voice Computer Technologies Corporation. 10.11(1) Merger Agreement dated December 15, 1988 between the Registrant, DAVOX/VCT Corporation and TBS International, Inc. 10.12(8) International Distribution Agreement between the Registrant and Datapoint Corporation dated January 8, 1993. 46 (c). List of Exhibits (continued) 10.13(1) Employee Deferred Compensation Savings Plan of the Registrant. 10.14(7) 1991 Employee Stock Purchase Plan. 10.15(8) Third party maintenance agreement dated August 3, 1992 between the Registrant and Grumman Systems Support Corporation. 10.16(9) Sublease Agreement dated October 22, 1993 between the Registrant and Digital Equipment Corporation. 10.17(10) Common Stock Purchase Agreement dated September 23, 1994 between the Registrant and the purchasers named therein. 10.18(10) Letter agreement dated December 30, 1994 between the Registrant and Fleet Bank of Massachusetts, N.A. 10.19 (11) Third party service provider agreement between the Registrant and Grumman Systems Support Corporation. 10.20 1996 Stock Plan of the Registrant. 10.21 Form of Incentive Stock Option Agreement under the Registrant's 1996 Stock Plan. 10.22 Form of Non-Qualified Stock Option Agreement under the Registrants's 1996 Stock Plan. 22. Subsidiaries of the Registrant. 24. Consent of Arthur Andersen LLP. 27. Financial Data Schedule. (1) Previously filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1988. (2) Previously filed as an exhibit to Registration Statement No. 33-12689 filed on March 17, 1987. (3) Previously filed as an exhibit to Form 8-K filed on September 29, 1987. 47 (c). List of Exhibits (continued) (4) Previously filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1987. (5) Previously filed as an exhibit to Form 8-K filed on September 15, 1988. (6) Previously filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1990. (7) Previously filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1991. (8) Previously filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1992. (9) Previously filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1993. (10) Previously filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1994. (11) Previously filed as an exhibit to Form 10-K for the fiscal year ended December 31, 1995. 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the Town of Westford, Commonwealth of Massachusetts, on the 21st day of February 1997. Davox Corporation By: /s/ Alphonse M. Lucchese ------------------------------ Alphonse M. Lucchese President, Chief Executive Officer and Chairman POWER OF ATTORNEY Each person whose signature appears below this Annual Report on Form 10-K hereby constitutes and appoints Alphonse M. Lucchese and Timothy C. Maguire and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead in any and all capacities (until revoked in writing) to sign all amendments (including post-effective amendments) to this Annual Report on Form 10-K of Davox Corporation, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitute, may lawfully do or cause to be done by virtue hereof. 49 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/ Alphonse M. Lucchese President, Chief - ------------------------ Executive Officer and Alphonse M. Lucchese Chairman (Principal Executive Officer) February 21, 1997 /s/ John J. Connolly Vice President of - -------------------- Finance and Chief John J. Connolly Financial Officer (Principal Financial Officer) February 21, 1997 /s/ Michael D. Kaufman Director February 21, 1997 - ---------------------- Michael D. Kaufman /s/ R. Scott Asen Director February 21, 1997 - ----------------- R. Scott Asen /s/ Walter J. Levison Director February 21, 1997 - --------------------- Walter J. Levison
50 EX-10.20 2 1996 STOCK PLAN DAVOX CORPORATION 1996 STOCK PLAN --------------- 1. Purpose. The purpose of the Davox Corporation 1996 Stock Plan (the ------- "Plan") is to encourage key employees of Davox Corporation (the "Company") and of any present or future parent or subsidiary of the Company (collectively, "Related Corporations") and other individuals who render services to the Company or a Related Corporation, by providing opportunities to participate in the ownership of the Company and its future growth through (a) the grant of options which qualify as "incentive stock options" ("ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"); (b) the grant of options which do not qualify as ISOs ("Non-Qualified Options"); (c) awards of stock in the Company ("Awards"); and (d) opportunities to make direct purchases of stock in the Company ("Purchases"). Both ISOs and Non-Qualified Options are referred to hereafter individually as an "Option" and collectively as "Options." Options, Awards and authorizations to make Purchases are referred to hereafter collectively as "Stock Rights." As used herein, the terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary corporation," respectively, as those terms are defined in Section 424 of the Code. 2. Administration of the Plan. --------------------------- A. Board or Committee Administration. The Plan shall be administered by --------------------------------- the Board of Directors of the Company (the "Board") or, subject to Paragraph 2D (relating to compliance with Section 162(m) of the Code), by a committee appointed by the Board (the "Committee"). Hereinafter, all references in this Plan to the "Committee" shall mean the Board if no Committee has been appointed. Subject to ratification of the grant or authorization of each Stock Right by the Board (if so required by applicable state law), and subject to the terms of the Plan, the Committee shall have the authority to (i) determine to whom (from among the class of employees eligible under paragraph 3 to receive ISOs) ISOs shall be granted, and to whom (from among the class of individuals and entities eligible under paragraph 3 to receive Non-Qualified Options and Awards and to make Purchases) Non-Qualified Options, Awards and authorizations to make Purchases may be granted; (ii) determine the time or times at which Options or Awards shall be granted or Purchases made; (iii) determine the purchase price of shares subject to each Option or Purchase, which prices shall not be less than the minimum price specified in paragraph 6; (iv) determine whether each Option granted shall be an ISO or a Non-Qualified Option; (v) determine (subject to paragraph 7) the time or times when each Option shall become exercisable and the duration of the exercise period; (vi) extend the period during which outstanding Options may be exercised; (vii) determine whether restrictions such as repurchase options are to be imposed on shares subject to Options, Awards and Purchases and the nature of such restrictions, if any, and (viii) interpret the Plan and prescribe and rescind rules and regulations relating to it. If the Committee determines to issue a Non-Qualified Option, it shall take whatever actions it deems necessary, under Section 422 of the Code and the regulations promulgated thereunder, to ensure that such Option is not treated as an ISO. The interpretation and construction by the Committee of any provisions of the Plan or of any Stock Right granted under it shall be final unless otherwise determined by the Board. -2- The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem advisable. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Stock Right granted under it. B. Committee Actions. The Committee may select one of its members ----------------- as its chairman, and shall hold meetings at such time and places as it may determine. A majority of the Committee shall constitute a quorum and acts of a majority of the members of the Committee at a meeting at which a quorum is present, or acts reduced to or approved in writing by all the members of the Committee (if consistent with applicable state law), shall be the valid acts of the Committee. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan. C. Grant of Stock Rights to Board Members. Stock Rights may be -------------------------------------- granted to members of the Board. All grants of Stock Rights to members of the Board shall in all respects be made in accordance with the provisions of this Plan applicable to other eligible persons. Members of the Board who either (i) are eligible to receive grants of Stock Rights pursuant to the Plan or (ii) have been granted Stock Rights may vote on any matters affecting the administration of the Plan or the grant of any Stock Rights pursuant to the Plan, except that no such member shall act upon the granting to himself or herself of Stock Rights, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the granting to such member of Stock Rights. D. Performance-Based Compensation. The Board, in its discretion, ------------------------------ may take such action as may be necessary to ensure that Stock Rights granted under the Plan qualify as "qualified performance-based compensation" within the meaning of Section 162(m) of the Code and applicable regulations promulgated thereunder ("Performance-Based Compensation"). Such action may include, in the Board's discretion, some or all of the following (i) if the Board determines that Stock Rights granted under the Plan generally shall constitute Performance-Based Compensation, the Plan shall be administered, to the extent required for such Stock Rights to constitute Performance-Based Compensation, by a Committee consisting solely of two or more "outside directors" (as defined in applicable regulations promulgated under Section 162(m) of the Code), (ii) if any Non-Qualified Options with an exercise price less than the fair market value per share of Common Stock are granted under the Plan and the Board determines that such Options should constitute Performance-Based Compensation, such options shall be made exercisable only upon the attainment of a pre-established, objective performance goal established by the Committee, and such grant shall be submitted for, and shall be contingent upon shareholder approval and (iii) Stock Rights granted under the Plan may be subject to such other terms and conditions as are necessary for compensation recognized in connection with the exercise or disposition of such Stock Right or the disposition of Common Stock acquired pursuant to such Stock Right, to constitute Performance-Based Compensation. -3- 3. Eligible Employees and Others. ISOs may be granted only to employees ----------------------------- of the Company or any Related Corporation. Non-Qualified Options, Awards and authorizations to make Purchases may be granted to any employee, officer or director (whether or not also an employee) or consultant of the Company or any Related Corporation. The Committee may take into consideration a recipient's individual circumstances in determining whether to grant a Stock Right. The granting of any Stock Right to any individual or entity shall neither entitle that individual or entity to, nor disqualify such individual or entity from, participation in any other grant of Stock Rights. 4. Stock. The stock subject to Stock Rights shall be authorized but ----- unissued shares of Common Stock of the Company, par value $.10 per share (the "Common Stock"), or shares of Common Stock reacquired by the Company in any manner. The aggregate number of shares which may be issued pursuant to the Plan is equal to the "Plan Share Limit" as defined below. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part or shall be repurchased by the Company, the unpurchased shares of Common Stock subject to such Option shall again be available for grants of Stock Rights under the Plan. For purposes of this Plan the "Plan Share Limit" shall be 600,000 shares, such total to include the number of shares that are available for grant, award or purchase under the Company's 1986 Stock Plan (the "Old Plan") at the time of expiration of the Old Plan. No employee of the Company or any Related Corporation may be granted Options to acquire, in the aggregate, more than 500,000 shares of Common Stock during any fiscal year of the Company. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part or shall be repurchased by the Company, the shares subject to such Option shall be included in the determination of the aggregate number of shares of Common Stock deemed to have been granted to such employee under the Plan. 5. Granting of Stock Rights. Stock Rights may be granted under the Plan ------------------------ at any time on or after July 25, 1996 and prior to July 25, 2006. The date of grant of a Stock Right under the Plan will be the date specified by the Committee at the time it grants the Stock Right; provided, however, that such date shall not be prior to the date on which the Committee acts to approve the grant. 6. Minimum Option Price; ISO Limitations. ------------------------------------- A. Price for Non-Qualified Options, Awards and Purchases. Subject ----------------------------------------------------- to Paragraph 2D (relating to compliance with Section 162(m) of the Code), the exercise price per share specified in the agreement relating to each Non- Qualified Option granted, and the purchase price per share of stock granted in any Award or authorized as a Purchase, under the Plan may be less than the fair market value of the Common Stock of the Company on the date of grant, provided that, in no event shall such exercise price or such purchase price be less than the minimum legal consideration required therefor under the laws of any -4- jurisdiction in which the Company or its successors in interest may be organized. The Committee may, in its discretion, subject any Stock Right granted under the Plan to any terms or conditions necessary for compensation recognized in connection with the exercise of such Stock Right or the disposition of Common Stock acquired pursuant to such Stock Right, to constitute qualified performance-based compensation under Section 162(m) of the Code and applicable regulations promulgated thereunder. B. Price for ISOs. The exercise price per share specified in the -------------- agreement relating to each ISO granted under the Plan shall not be less than the fair market value per share of Common Stock on the date of such grant. In the case of an ISO to be granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation, the price per share specified in the agreement relating to such ISO shall not be less than one hundred ten percent (110%) of the fair market value per share of Common Stock on the date of grant. For purposes of determining stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply. The date of grant for purposes of this subparagraph shall mean the date that the Company or a Related Corporation completes the corporate action constituting an offer of stock for sale to an individual. C. $100,000 Annual Limitation on ISO Vesting. Each eligible employee ----------------------------------------- may be granted Options treated as ISOs only to the extent that, in the aggregate under this Plan and all incentive stock option plans of the Company and any Related Corporation, ISOs do not become exercisable for the first time by such employee during any calendar year with respect to stock having a fair market value (determined at the time the ISOs were granted) in excess of $100,000. The Company intends to designate any Options granted in excess of such limitation as Non-Qualified Options and the Company shall issue separate certificates to the optionee with respect to Options that are Non-Qualified Options and Options that are ISOs. D. Determination of Fair Market Value. If, at the time an Option ---------------------------------- is granted under the Plan, the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the date of grant or, if the prices or quotes discussed in this sentence are unavailable for such date, the last business day for which such prices or quotes are available prior to the date of grant and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the Nasdaq National Market, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the Nasdaq National Market. If the Common Stock is not publicly traded at the time an Option is granted under the Plan, "fair market value" shall mean the fair value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. -5- 7. Option Duration. Subject to earlier termination as provided in --------------- paragraphs 9 and 10 or in the agreement relating to such Option, each Option shall expire on the date specified by the Committee, but not more than (i) ten years from the date of grant in the case of Options generally and (ii) five years from the date of grant in the case of ISOs granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation, as determined under paragraph 6(B). Subject to earlier termination as provided in paragraphs 9 and 10, the term of each ISO shall be the term set forth in the original instrument granting such ISO, except with respect to any part of such ISO that is converted into a Non-Qualified Option pursuant to paragraph 16. 8. Exercise of Option. Subject to the provisions of Paragraphs 9 through ------------------ 12, each Option granted under the Plan shall be exercisable as follows: A. Vesting. The Option shall either be fully exercisable on the ------- date of grant or shall become exercisable thereafter in such installments as the Committee may specify. B. Full Vesting of Installments. Once an installment becomes ---------------------------- exercisable it shall remain exercisable until expiration or termination of the Option, unless otherwise specified by the Committee. C. Partial Exercise. Each Option or installment may be exercised ---------------- at any time or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable. D. Acceleration of Vesting. The Committee shall have the right to ----------------------- accelerate the date that any installment of any Option becomes exercisable; provided that the Committee shall not, without the consent of an optionee, accelerate the permitted exercise date of any installment of any Option granted to any employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to paragraph 16) if such acceleration would violate the annual vesting limitation contained in Section 422(d) of the Code, as described in paragraph 6(C). 9. Termination of Employment. Unless otherwise specified in the agreement ------------------------- relating to such ISO, if an ISO optionee ceases to be employed by the Company and all Related Corporations other than by reason of death or disability as defined in paragraph 10, no further installments of his or her ISOs shall become exercisable, and his or her ISOs shall terminate on the earlier of (a) three months after the date of termination of his or her employment, or (b) their specified expiration dates, except to the extent that such ISOs (or unexercised installments thereof) have been converted into Non-Qualified Options pursuant to paragraph 16. For purposes of this paragraph 9, employment shall be considered as continuing uninterrupted during any bona fide leave of absence (such as those attributable to illness, military obligations or governmental service) provided that the period of such leave does not exceed 90 days or, if longer, any period during which such optionee's right to reemployment is guaranteed by statute or by contract. A bona fide leave of absence with the written approval of the Committee shall not be considered an interruption of employment under this paragraph 9, provided that such written approval contractually obligates the Company or any Related Corporation to continue the employment of the optionee after the approved period of absence. ISOs granted under the Plan -6- shall not be affected by any change of employment within or among the Company and Related Corporations, so long as the optionee continues to be an employee of the Company or any Related Corporation. Nothing in the Plan shall be deemed to give any grantee of any Stock Right the right to be retained in employment or other service by the Company or any Related Corporation for any period of time. 10. Death; Disability. ----------------- A. Death. If an ISO optionee ceases to be employed by the Company ----- and all Related Corporations by reason of his or her death, any ISO owned by such optionee may be exercised, to the extent otherwise exercisable on the date of death, by the estate, personal representative or beneficiary who has acquired the ISO by will or by the laws of descent and distribution, until the earlier of (i) the specified expiration date of the ISO or (ii) 180 days from the date of the optionee's death. B. Disability. If an ISO optionee ceases to be employed by the ---------- Company and all Related Corporations by reason of his or her disability, such optionee shall have the right to exercise any ISO held by him or her on the date of termination of employment, for the number of shares for which he or she could have exercised it on that date, until the earlier of (i) the specified expiration date of the ISO or (ii) 180 days from the date of the termination of the optionee's employment. For the purposes of the Plan, the term "disability" shall mean "permanent and total disability" as defined in Section 22(e)(3) of the Code or any successor statute. 11. Assignability. No Stock Right shall be assignable or transferable by the ------------- grantee except by will, by the laws of descent and distribution or, in the case of Non-Qualified Options only, pursuant to a valid domestic relations order. Except as set forth in the previous sentence, during the lifetime of a grantee each Stock Right shall be exercisable only by such grantee. 12. Terms and Conditions of Options. Options shall be evidenced by ------------------------------- instruments (which need not be identical) in such forms as the Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in paragraphs 6 through 11 hereof and may contain such other provisions as the Committee deems advisable which are not inconsistent with the Plan, including restrictions applicable to shares of Common Stock issuable upon exercise of Options. The Committee may specify that any Non- Qualified Option shall be subject to the restrictions set forth herein with respect to ISOs, or to such other termination and cancellation provisions as the Committee may determine. The Committee may from time to time confer authority and responsibility on one or more of its own members and/or one or more officers of the Company to execute and deliver such instruments. The proper officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments. 13. Adjustments. Upon the occurrence of any of the following events, an ----------- optionee's rights with respect to Options granted to such optionee hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in the written agreement between the optionee and the Company relating to such Option: -7- A. Stock Dividends and Stock Splits. If the shares of Common Stock -------------------------------- shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of Options shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. B. Consolidations or Mergers. If the Company is to be consolidated ------------------------- with or acquired by another entity in a merger or other reorganization in which the holders of the outstanding voting stock of the Company immediately preceding the consummation of such event, shall, immediately following such event, hold, as a group, less than a majority of the voting securities of the surviving or successor entity, or in the event of a sale of all or substantially all of the Company's assets or otherwise (each, an "Acquisition"), the Committee or the board of directors of any entity assuming the obligations of the Company hereunder (the "Successor Board"), shall, as to outstanding Options, either (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the shares then subject to such Options either (a) the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition, (b) shares of stock of the surviving or successor corporation or (c) such other securities as the Successor Board deems appropriate, the fair market value of which shall not materially exceed the fair market value of the shares of Common Stock subject to such Options immediately preceding the Acquisition; or (ii) upon written notice to the optionees, provide that all Options must be exercised, to the extent then exercisable or to be exercisable as a result of the Acquisition, within a specified number of days of the date of such notice, at the end of which period the Options shall terminate; or (iii) terminate all Options in exchange for a cash payment equal to the excess of the fair market value of the shares subject to such Options (to the extent then exercisable or to be exercisable as a result of the Acquisition) over the exercise price thereof. C. Recapitalization or Reorganization. In the event of a recapitalization or ---------------------------------- reorganization of the Company (other than a transaction described in subparagraph B above) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, an optionee upon exercising an Option shall be entitled to receive for the purchase price paid upon such exercise the securities he or she would have received if he or she had exercised such Option prior to such recapitalization or reorganization. D. Modification of ISOs. Notwithstanding the foregoing, any adjustments -------------------- made pursuant to subparagraphs A, B or C with respect to ISOs shall be made only after the Committee, after consulting with counsel for the Company, determines whether such adjustments would constitute a "modification" of such ISOs (as that term is defined in Section 424 of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Committee determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs or would cause adverse tax consequences to the holders, it may refrain from making such adjustments. -8- E. Dissolution or Liquidation. In the event of the proposed dissolution -------------------------- or liquidation of the Company, each Option will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee. F. Issuances of Securities. Except as expressly provided herein, no ----------------------- issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company. G. Fractional Shares. No fractional shares shall be issued under the ----------------- Plan and the optionee shall receive from the Company cash in lieu of such fractional shares. H. Adjustments. Upon the happening of any of the events described in ----------- subparagraphs A, B or C above, the class and aggregate number of shares set forth in paragraph 4 hereof that are subject to Stock Rights which previously have been or subsequently may be granted under the Plan shall also be appropriately adjusted to reflect the events described in such subparagraphs. The Committee or the Successor Board shall determine the specific adjustments to be made under this paragraph 13 and, subject to paragraph 2, its determination shall be conclusive. 14. Means of Exercising Options. An Option (or any part or installment --------------------------- thereof) shall be exercised by giving written notice to the Company at its principal office address, or to such transfer agent as the Company shall designate. Such notice shall identify the Option being exercised and specify the number of shares as to which such Option is being exercised, accompanied by full payment of the purchase price therefor either (a) in United States dollars in cash or by check, (b) at the discretion of the Committee, through delivery of shares of Common Stock having a fair market value equal as of the date of the exercise to the cash exercise price of the Option, (c) at the discretion of the Committee, by delivery of the grantee's personal recourse note bearing interest payable not less than annually at no less than 100% of the lowest applicable Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion of the Committee and consistent with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of the Common Stock acquired upon exercise of the Option and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be at the participant's direction at the time of exercise, or (e) at the discretion of the Committee, by any combination of (a), (b), (c) and (d) above. If the Committee exercises its discretion to permit payment of the exercise price of an ISO by means of the methods set forth in clauses (b), (c), (d) or (e) of the preceding sentence, such discretion shall be exercised in writing at the time of the grant of the ISO in question. The holder of an Option shall not have the rights of a shareholder with respect to the shares covered by such Option until the date of issuance of a stock certificate to such holder for such shares. Except as expressly provided above in paragraph 13 with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued. -9- 15. Term and Amendment of Plan. This Plan was adopted by the Board on July -------------------------- 25, 1996, subject, with respect to the validation of ISOs granted under the Plan, to approval of the Plan by the stockholders of the Company at the next Meeting of Stockholders or, in lieu thereof, by written consent. If the approval of stockholders is not obtained prior to July 25, 1997, any grants of ISOs under the Plan made prior to that date shall be Non-Qualified Options. The Plan shall expire at the end of the day on July 24, 2006 (except as to Options outstanding on that date). Subject to the provisions of paragraph 5 above, Options may be granted under the Plan prior to the date of stockholder approval of the Plan. The Board may terminate or amend the Plan in any respect at any time, except that, without the approval of the stockholders obtained within 12 months before or after the Board adopts a resolution authorizing any of the following actions: (a) the total number of shares that may be issued under the Plan may not be increased (except by adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3 regarding eligibility for grants of ISOs may not be modified; (c) the provisions of paragraph 6(B) regarding the exercise price at which shares may be offered pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph 13); and (d) the expiration date of the Plan may not be extended. Except as otherwise provided in this paragraph 15, in no event may action of the Board or stockholders alter or impair the rights of a grantee, without such grantee's consent, under any Stock Right previously granted to such grantee. 16. Modifications of ISOs; Conversion of ISOs into Non-Qualified Options. -------------------------------------------------------------------- Subject to Paragraph 13D, without the prior written consent of the holder of an ISO, the Committee shall not alter the terms of such ISO (including the means of exercising such ISO) if such alteration would constitute a modification (within the meaning of Section 424(h)(3) of the Code). The Committee, at the written request or with the written consent of any optionee, may in its discretion take such actions as may be necessary to convert such optionee's ISOs (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the optionee is an employee of the Company or a Related Corporation at the time of such conversion. Such actions may include, but shall not be limited to, extending the exercise period or reducing the exercise price of the appropriate installments of such ISOs. At the time of such conversion, the Committee (with the consent of the optionee) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Committee in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any optionee the right to have such optionee's ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Committee takes appropriate action. Upon the taking of such action, the Company shall issue separate certificates to the optionee with respect to Options that are Non-Qualified Options and Options that are ISOs. 17. Application Of Funds. The proceeds received by the Company from the sale -------------------- of shares pursuant to Options granted and Purchases authorized under the Plan shall be used for general corporate purposes. 18. Notice to Company of Disqualifying Disposition. By accepting an ISO ---------------------------------------------- granted under the Plan, each optionee agrees to notify the Company in writing immediately after such -10- optionee makes a Disqualifying Disposition (as described in Sections 421, 422 and 424 of the Code and regulations thereunder) of any stock acquired pursuant to the exercise of ISOs granted under the Plan. A Disqualifying Disposition is generally any disposition occurring on or before the later of (a) the date two years following the date the ISO was granted or (b) the date one year following the date the ISO was exercised. 19. Withholding of Additional Income Taxes. Upon the exercise of a Non- -------------------------------------- Qualified Option, the grant of an Award, the making of a Purchase of Common Stock for less than its fair market value, the making of a Disqualifying Disposition (as defined in paragraph 18), the vesting or transfer of restricted stock or securities acquired on the exercise of an Option hereunder, or the making of a distribution or other payment with respect to such stock or securities, the Company may withhold taxes in respect of amounts that constitute compensation includible in gross income. The Committee in its discretion may condition (i) the exercise of an Option, (ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for less than its fair market value, or (iv) the vesting or transferability of restricted stock or securities acquired by exercising an Option, on the grantee's making satisfactory arrangement for such withholding. Such arrangement may include payment by the grantee in cash or by check of the amount of the withholding taxes or, at the discretion of the Committee, by the grantee's delivery of previously held shares of Common Stock or the withholding from the shares of Common Stock otherwise deliverable upon exercise of a Option shares having an aggregate fair market value equal to the amount of such withholding taxes. 20. Governmental Regulation. The Company's obligation to sell and deliver ----------------------- shares of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. Government regulations may impose reporting or other obligations on the Company with respect to the Plan. For example, the Company may be required to send tax information statements to employees and former employees that exercise ISOs under the Plan, and the Company may be required to file tax information returns reporting the income received by grantees of Options in connection with the Plan. 21. Governing Law. The validity and construction of the Plan and the ------------- instruments evidencing Options shall be governed by the laws of the State of Delaware, or the laws of any jurisdiction in which the Company or its successors in interest may be organized. EX-10.21 3 INCENTIVE STOCK OPTION AGREEMENT Exhibit 10.21 DAVOX CORPORATION Incentive Stock Option Agreement -------------------------------- ================================================================================ Davox Corporation, a Delaware corporation (the "Company"), hereby grants this ((Date)) day of ((Month)), ((Year)), to ((Name)) (the "Employee"), an option to purchase a maximum of (Shares) shares of its Common Stock, $.10 par value, at the price of ((Price)) per share, on the following terms and conditions: 1. Grant Under 1996 Stock Plan. This option is granted pursuant to and --------------------------- is governed by the Company's 1996 Stock Plan (the "Plan") and, unless the context otherwise requires, terms used herein shall have the same meaning as in the Plan. Determinations made in connection with this option pursuant to the Plan shall be governed by the Plan as it exists on this date. The Corporation has approved the Davox Corporation 1996 Stock Option Plan, as it may be amended from time to time, (the Plan). It is the intent of this agreement that such stock options are granted unconditionally, to be Incentive Stock Options under the Plan, if the Plan is approved by the Stockholders of the Company, but that such options should nonetheless remain in full force and effect and shall be deemed to be non-qualified stock options under the Plan in the event that the Plan is not approved by the Stockholders of the Company. 2. Grant as Incentive Stock Option; Other Options. Subject to the ---------------------------------------------- provisions of Section 1, this option is intended to qualify as an "incentive stock option" under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). This option is in addition to any other options heretofore or hereafter granted to the Employee by the Company, but a duplicate original of this instrument shall not effect the grant of another option. 3. Extent of Option if Employment Continues. If the Employee has ---------------------------------------- continued to be employed by the Company on the following dates, the Employee may exercise this option in cumulative installations as follows: . Six months from the Commencement Date - one-eighth of the shares . One year but less than 18 months from - an additional one-eight the Commencement Date of the shares . Eighteen months but less than two years - an additional one-eight from the Commencement Date of the shares . Two years but less than thirty months - an additional one eighth from the Commencement Date of the shares . Thirty months but less than three years - an additional one eighth from the Commencement Date of the shares . Three years but less than forty-two - an additional one eighth months from the Commencement Date of the shares . Forty-two months but less than four - an additional one eighth years from the Commencement Date of the shares . Four years from the Commencement Date - an additional one eighth of the shares For the purposes hereof, the Commencement Date shall be ((Effective_Date)) Notwithstanding the vesting schedule set forth in this Article 3 and subject to the provisions of paragraph 8 (D) of the Plan, in the event the Employee continues to be employed by the Company on the effective date (the "Effective Date") of: (a) a change in control of the Company, pursuant to a sale, merger, consolidation, reorganization, combination, recapitalization or similar transaction, or pursuant to a transaction or series of transactions in which the holders of the then outstanding equity securities of the Company, after such transactions, shall hold less than 50% of the surviving entity; or (b) a sale by the Company of all or substantially all of its assets, then the option shall be immediately and automatically accelerated with respect to the total number of shares of Common Stock subject to the option which have not previously vested pursuant to the terms of this Article 3. The accelerated vesting provisions set forth above shall automatically be deferred to subsequent calendar years, as required, in the event and to the extent such provisions shall be in violation of paragraph 8 (D) of the Plan. The foregoing rights are cumulative and, while the Employee continues to be employed by the Company, may be exercised up to and including the date which is ten years from the date this option is granted. All of the foregoing rights are subject to Articles 4 and 5, as appropriate, if the Employee ceases to be employed by the Company or dies while in the employ of the Company. -2- 4. Retirement; Termination of Employment. If the Employee retires from ------------------------------------- employment with the Company, no further installments of this option shall become exercisable and this option shall terminate after the passage of 90 days from the date employment ceases, but in no event later than the scheduled expiration date. In such a case, the Employee's only rights hereunder shall be those which are properly exercised before the termination of this option. If the Employee ceases to be employed by the Company, other than by reason of retirement or death, no further installments of this option shall become exercisable and this option shall terminate after the passage of thirty (30) days from the date employment ceases, but in no event later than the scheduled expiration date. In such a case, the Employee's only rights hereunder shall be those which are properly exercised before the termination of this option. 5. Death. If the Employee dies while in the employ of the Company, this ----- option may be exercised, to the extent of the number of shares with respect to which the Employee could have exercised it on the date of his death, by his estate, personal representative or beneficiary to whom this option has been assigned pursuant to Article 10, at any time within 180 days after the date of death, but not later than the scheduled expiration date. At the expiration of such 180-day period or the scheduled expiration date, whichever is the earlier, this option shall terminate and the only rights hereunder shall be those as to which the option was properly exercised before such termination. 6. Partial Exercise. Exercise of this option up to the extent above ---------------- stated may be made in part at any time and from time to time within the above limits, except that this option may not be exercised for a fraction of a share unless such exercise is with respect to the final installment of stock subject to this option and a fractional share (or cash in lieu thereof) must be issued to permit the Employee to exercise completely such final installment. 7. Payment of Price. The option price is payable in United States ---------------- dollars and may be paid in cash or by check in the amount equal to the option price. 8. Agreement to Purchase for Investment. By acceptance of this option, ------------------------------------ the Employee agrees that a purchase of shares under this option will not be made with a view to their distribution, as that term is used in the Securities Act of 1933, as amended, unless in the opinion of counsel to the Company such distribution is in compliance with or exempt from the registration and prospectus requirements of that Act, and the Employee agrees to sign a certificate to such effect at the time of exercising this option and agrees that the certificate for the shares so purchased may be inscribed with a legend to ensure compliance with that Act. -3- 9. Method of Exercising Option. Subject to the terms and conditions of --------------------------- this Agreement, this option may be exercised by written notice to the Company, at the principal executive office of the Company, or to such transfer agent as the Company shall designate. Such notice shall state the election to exercise this option and the number of shares in respect of which it is being exercised and shall be signed by the person or persons so exercising this option. Such notice shall be accompanied by payment of the full purchase price of such shares, and the Company shall deliver a certificate or certificates representing such shares as soon as practicable after the notice shall be received. The certificate or certificates for the shares as to which this option shall have been so exercised shall be registered in the name of the person or persons so exercising this option (or, if this option shall be exercised by the Employee and if the Employee shall so request in the notice exercising this option, shall be registered in the name of the Employee and another person jointly, with right of survivorship) and shall be delivered as provided above to or upon the written order of the person or persons exercising this option. In the event this option shall be exercised, pursuant to Article 5 hereof, by any person or persons other than the Employee, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise this option. All shares that shall be purchased upon the exercise of this option as provided herein shall be fully paid and non-assessable. 10. Option Not Transferable. This option is not transferable or ----------------------- assignable except by will or by the laws of descent and distribution. During the Employee's lifetime only the Employee can exercise this option. 11. No Obligation to Exercise Option. The grant and acceptance of this -------------------------------- option imposes no obligation on the Employee to exercise it. 12. No Obligation to Continue Employment. The Company and any Related ------------------------------------ Corporations are not by the Plan or this option obligated to continue the Employee in employment. 13. No Rights as Stockholder until Exercise. The Employee shall have no --------------------------------------- rights as a stockholder with respect to shares subject to this Agreement until a stock certificate therefor has been issued to the Employee and is fully paid for. Except as is expressly provided in the Plan with respect to certain changes in the capitalization of the Company, no adjustment shall be made for dividends or similar rights for which the record date is prior to the date such stock certificate is issued. 14. Capital Changes and Business Successions. It is the purpose of this ---------------------------------------- option to encourage the Employee to work for the best interests of the Company and its stockholders. Since, for example, that might require the issuance of a stock dividend or a merger with another corporation, the purpose of this option would not be served if such a stock dividend, merger or similar occurrence would cause -4- the Employee's rights hereunder to be diluted or terminated and thus be contrary to the Employee's interest. The Plan contains extensive provisions designed to preserve options at full value in a number of contingencies. Therefore, provisions in the Plan for adjustment with respect to stock subject to options and the related provisions with respect to successors to the business of the Company are hereby made applicable hereunder and are incorporated herein by reference. In particular, without affecting the generality of the foregoing, it is understood that for the purposes of Articles 3 through 5 hereof, both inclusive, employment by the Company includes employment by a Related Corporation as defined in the Plan. 15. Early Disposition. The Employee agrees to notify the Company of any ----------------- disposition of any shares of Common Stock acquired on the exercise of this option within the two-year period beginning on the date of grant or within one year after the date of the transfer of such shares to the Employee. The Employee also agrees to provide the Company with any information which it shall request concerning any such disposition. Employees who receive incentive stock options will be disqualified under Section 422A of the Code from receiving the favorable income tax treatment otherwise available with respect to the exercise of such an option if they dispose of the stock received on exercise of the option within either of the one or two-year periods described in the preceding sentence. 16. Governing Law. This Agreement shall be governed by and interpreted in ------------- accordance with the internal laws of Delaware. IN WITNESS WHEREOF the Company and the Employee have caused this instrument to be executed, and the Employee whose signature appears below acknowledges receipt of a copy of the Plan and acceptance of an original copy of this Agreement. By: __________________________________________________ DAVOX Corporation __________________________________________________ Employee -5- EX-10.22 4 NON-QUALIFIED STOCK OPTION AGREEMENT Exhibit 10.22 DAVOX CORPORATION Non-Qualified Incentive Stock Option Agreement ---------------------------------------------- ================================================================================ Davox Corporation, a Delaware corporation (the "Company"), hereby grants this Date day of Month, Year, to Name (the "Employee"), an option to purchase a maximum of Shares shares of its Common Stock, $.10 par value, at the price of Price per share, on the following terms and conditions: 1. Grant Under 1996 Stock Plan. This option is granted pursuant to and --------------------------- is governed by the Company's 1996 Stock Plan (the "Plan") and, unless the context otherwise requires, terms used herein shall have the same meaning as in the Plan. Determinations made in connection with this option pursuant to the Plan shall be governed by the Plan as it exists on this date. The Corporation has approved the Davox Corporation 1996 Stock Option Plan, as it may be amended from time to time, (the Plan). 2. Grant as Non-Qualified Stock Option; Other Options. This options -------------------------------------------------- shall be treated for federal income tax purposes as a Non-Qualified Option (rather than an incentive stock option). This option is in addition to any other options heretofore or hereafter granted to the Employee by the Company, but a duplicate original of this instrument shall not effect the grant of another option. 3. Extent of Option if Employment Continues. If the Employee has ---------------------------------------- continued to be employed by the Company on the following dates, the Employee may exercise this option in cumulative installations as follows: . Six months from the Commencement Date - one-eighth of the shares . One year but less than 18 months from - an additional one-eighth of the Commencement Date the shares . Eighteen months but less than two years - an additional one-eighth of from the Commencement Date the shares
. Two years but less than thirty months - an additional one-eighth of from the Commencement Date the shares . Thirty months but less than three years - an additional one-eighth of from the Commencement Date the shares . Three years but less than forty-two months - an additional one-eighth of from the Commencement Date the shares . Forty-two months but less than four years - an additional one-eighth of from the Commencement Date the shares . Four years from the Commencement Date - an additional one-eighth of the shares
For the purposes hereof, the Commencement Date shall be Effective_Date Notwithstanding the vesting schedule set forth in this Article 3 and subject to the provisions of paragraph 8 (D) of the Plan, in the event the Employee continues to be employed by the Company on the effective date (the "Effective Date") of: (a) a change in control of the Company, pursuant to a sale, merger, consolidation, reorganization, combination, recapitalization or similar transaction, or pursuant to a transaction or series of transactions in which the holders of the then outstanding equity securities of the Company, after such transactions, shall hold less than 50% of the surviving entity; or (b) a sale by the Company of all or substantially all of its assets, then the option shall be immediately and automatically accelerated with respect to the total number of shares of Common Stock subject to the option which have not previously vested pursuant to the terms of this Article 3. The accelerated vesting provisions set forth above shall automatically be deferred to subsequent calendar years, as required, in the event and to the extent such provisions shall be in violation of paragraph 8 (D) of the Plan. The foregoing rights are cumulative and, while the Employee continues to be employed by the Company, may be exercised up to and including the date which is ten years from the date this option is granted. All of the foregoing rights are subject to Articles 4 and 5, as appropriate, if the Employee ceases to be employed by the Company or dies while in the employ of the Company. -2- 4. Retirement; Termination of Employment. If the Employee retires -------------------------------------- from employment with the Company, no further installments of this option shall become exercisable and this option shall terminate after the passage of 90 days from the date employment ceases, but in no event later than the scheduled expiration date. In such a case, the Employee's only rights hereunder shall be those which are properly exercised before the termination of this option. If the Employee ceases to be employed by the Company, other than by reason of retirement or death, no further installments of this option shall become exercisable and this option shall terminate after the passage of thirty (30) days from the date employment ceases, but in no event later than the scheduled expiration date. In such a case, the Employee's only rights hereunder shall be those which are properly exercised before the termination of this option. 5. Death. If the Employee dies while in the employ of the Company, this ----- option may be exercised, to the extent of the number of shares with respect to which the Employee could have exercised it on the date of his death, by his estate, personal representative or beneficiary to whom this option has been assigned pursuant to Article 10, at any time within 180 days after the date of death, but not later than the scheduled expiration date. At the expiration of such 180-day period or the scheduled expiration date, whichever is the earlier, this option shall terminate and the only rights hereunder shall be those as to which the option was properly exercised before such termination. 6. Partial Exercise. Exercise of this option up to the extent above ---------------- stated may be made in part at any time and from time to time within the above limits, except that this option may not be exercised for a fraction of a share unless such exercise is with respect to the final installment of stock subject to this option and a fractional share (or cash in lieu thereof) must be issued to permit the Employee to exercise completely such final installment. 7. Payment of Price. The option price is payable in United States ---------------- dollars and may be paid in cash or by check in the amount equal to the option price. 8. Agreement to Purchase for Investment. By acceptance of this option, ------------------------------------ the Employee agrees that a purchase of shares under this option will not be made with a view to their distribution, as that term is used in the Securities Act of 1933, as amended, unless in the opinion of counsel to the Company such distribution is in compliance with or exempt from the registration and prospectus requirements of that Act, and the Employee agrees to sign a certificate to such effect at the time of exercising this option and agrees that the certificate for the shares so purchased may be inscribed with a legend to ensure compliance with that Act. -3- 9. Method of Exercising Option. Subject to the terms and conditions of --------------------------- this Agreement, this option may be exercised by written notice to the Company, at the principal executive office of the Company, or to such transfer agent as the Company shall designate. Such notice shall state the election to exercise this option and the number of shares in respect of which it is being exercised and shall be signed by the person or persons so exercising this option. Such notice shall be accompanied by payment of the full purchase price of such shares, and the Company shall deliver a certificate or certificates representing such shares as soon as practicable after the notice shall be received. The certificate or certificates for the shares as to which this option shall have been so exercised shall be registered in the name of the person or persons so exercising this option (or, if this option shall be exercised by the Employee and if the Employee shall so request in the notice exercising this option, shall be registered in the name of the Employee and another person jointly, with right of survivorship) and shall be delivered as provided above to or upon the written order of the person or persons exercising this option. In the event this option shall be exercised, pursuant to Article 5 hereof, by any person or persons other than the Employee, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise this option. All shares that shall be purchased upon the exercise of this option as provided herein shall be fully paid and non-assessable. 10. Option Not Transferable. This option is not transferable or ----------------------- assignable except by will or by the laws of descent and distribution. During the Employee's lifetime only the Employee can exercise this option. 11. No Obligation to Exercise Option. The grant and acceptance of this -------------------------------- option imposes no obligation on the Employee to exercise it. 12. No Obligation to Continue Employment. The Company and any Related ------------------------------------ Corporations are not by the Plan or this option obligated to continue the Employee in employment. 13. No Rights as Stockholder until Exercise. The Employee shall have no --------------------------------------- rights as a stockholder with respect to shares subject to this Agreement until a stock certificate therefor has been issued to the Employee and is fully paid for. Except as is expressly provided in the Plan with respect to certain changes in the capitalization of the Company, no adjustment shall be made for dividends or similar rights for which the record date is prior to the date such stock certificate is issued. 14. Capital Changes and Business Successions. It is the purpose of this ---------------------------------------- option to encourage the Employee to work for the best interests of the Company and its stockholders. Since, for example, that might require the issuance of a stock dividend or a merger with another corporation, the purpose of this option would not be served if such a stock dividend, merger or similar occurrence would cause -4- the Employee's rights hereunder to be diluted or terminated and thus be contrary to the Employee's interest. The Plan contains extensive provisions designed to preserve options at full value in a number of contingencies. Therefore, provisions in the Plan for adjustment with respect to stock subject to options and the related provisions with respect to successors to the business of the Company are hereby made applicable hereunder and are incorporated herein by reference. In particular, without affecting the generality of the foregoing, it is understood that for the purposes of Articles 3 through 5 hereof, both inclusive, employment by the Company includes employment by a Related Corporation as defined in the Plan. 15. Early Disposition. The Employee agrees to notify the Company of ------------------ any disposition of any shares of Common Stock acquired on the exercise of this option within the two-year period beginning on the date of grant or within one year after the date of the transfer of such shares to the Employee. The Employee also agrees to provide the Company with any information which it shall request concerning any such disposition. Employees who receive incentive stock options will be disqualified under Section 422A of the Code from receiving the favorable income tax treatment otherwise available with respect to the exercise of such an option if they dispose of the stock received on exercise of the option within either of the one or two-year periods described in the preceding sentence. 16. Governing Law. This Agreement shall be governed by and interpreted in ------------- accordance with the internal laws of Delaware. IN WITNESS WHEREOF the Company and the Employee have caused this instrument to be executed, and the Employee whose signature appears below acknowledges receipt of a copy of the Plan and acceptance of an original copy of this Agreement. By: --------------------------------------------------- DAVOX Corporation -------------------------------------------------- Employee -5- EX-10.23 5 EXECUTIVE COMPENSATION PLAN Exhibit 10.23 ------------- DAVOX CORPORATION EXECUTIVE COMPENSATION PLAN The compensation arrangements between Davox Corporation (the "Company") and each of its executive officers are based on the Company's Executive Compensation Plan (the "Plan"), the terms of which are not set forth in a formal document but are described herein. The Company's executive compensation program is administered by the three member Compensation Committee of the Board of Directors (the "Compensation Committee"). The three members of the Compensation Committee are non-employee Directors. Pursuant to the authority delegated by the Board of Directors, the Compensation Committee establishes each year the compensation of the Chief Executive Officer, and together with the Chief Executive Officer, establishes the compensation of the other executive officers of the Company pursuant to the Plan. The Plan is designed to reward executive officers whose performance yields improvement in corporate operating results, market share and shareholder value. The ultimate goal of the Plan is to align the interests of management with those of the stockholders. Compensation under the Plan is comprised of cash compensation in the form of annual base salary, incentive compensation in the form of performance-based cash bonuses, and long-term incentive compensation in the form of stock options. In setting cash compensation levels for executive officers, the Compensation Committee takes into account such factors as: (i) the Company's past financial performance and future expectations, (ii) the general and industry-specific business environment, and (iii) corporate and individual performance goals. The base salaries are established at levels comparable to the amounts paid to senior executives with comparable qualifications, experience and responsibilities at other companies located in the northeastern United States of similar size and engaged in a similar business to that of the Company. Incentive compensation in the form of performance-based bonuses for the Company's executive officers is based upon management's success in meeting the Company's financial and strategic goals as well as meeting individual performance goals. Target levels of revenue and net income are set annually, and bonuses are allocated to the executive officers contingent upon the achievement of the target levels. In addition, based on the Company's exceeding both target revenues and target net income, additional bonuses are awarded to executive officers in the same proportion as bonuses are allocated under the Plan. Incentive compensation in the form of stock options is designed to provide long term incentives to executive officers, to encourage the executive officers to remain with the Company and to enable optionees to develop and maintain a significant, long-term stock ownership position in the Company's Common Stock. The Compensation Committee grants stock options to the Company's executive officers in consideration of the strategic goals and direction of the Company. EX-22 6 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 22. DAVOX CORPORATION List of Subsidiaries Name of Subsidiary Jurisdiction of Incorporation - ------------------ ----------------------------- Davox Securities Corporation Massachusetts Davox (Europe) Limited United Kingdom Davox Corporation Hong Kong Limited Hong Kong Davox Sales Corporation Barbados EX-24 7 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 24 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (file Nos. 33-89582, 333-07003 and 333-16209). It should be noted that we have not audited any financial statements of the company subsequent to December 31, 1996 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Boston, Massachusetts February 26, 1997 EX-27 8 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 21,333,300 9,780,273 3,883,814 699,000 1,204,058 35,604,247 4,050,850 0 39,729,304 16,894,241 0 0 0 738,780 22,120,429 39,729,304 37,177,601 53,642,392 10,883,420 21,577,107 5,861,108 0 1,136,526 10,127,787 1,013,180 9,114,607 0 0 0 9,114,607 $1.11 $1.11
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