<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
AUGUST 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-13616
INTERVOICE-BRITE, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1927578
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17811 WATERVIEW PARKWAY DALLAS, TX 75252
(Address of principal executive offices)
972-454-8000
(Registrant's telephone number, including area code)
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
--- ---
The Registrant had 32,038,259 shares of common stock, no par value per
share, outstanding as of the close of the period covered by this report.
<PAGE> 2
InterVoice-Brite, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
August 31, February 28,
ASSETS 1999 1999
- ------ ------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 29,991,542 $ 12,195,612
Accounts receivable, net of allowance
for doubtful accounts of $7,827,154 in 2000 and
$1,305,581 in 1999 89,669,202 42,156,004
Inventory 29,968,832 11,704,428
Prepaid expenses and other current assets 9,859,784 4,497,764
Deferred income taxes 10,689,051 4,513,769
------------- -------------
170,178,411 75,067,577
PROPERTY AND EQUIPMENT
Building 19,457,458 16,300,325
Computer equipment 39,653,198 24,839,081
Furniture, fixtures and other 3,659,143 3,599,873
Service equipment 5,300,580 5,071,153
------------- -------------
68,070,379 49,810,432
Less allowance for depreciation 27,796,994 22,755,583
------------- -------------
40,273,385 27,054,849
OTHER ASSETS
Intangible assets, net of amortization
of $6,659,261 in 2000 and
$3,416,433 in 1999 108,636,826 9,407,075
Other assets 2,912,834 --
------------- -------------
$ 322,001,456 $ 111,529,501
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable $ 28,796,980 $ 7,650,940
Accrued expenses 15,675,745 $ 4,206,377
Customer deposits 11,255,092 4,095,776
Deferred income 9,762,150 5,625,799
Income taxes payable -- 1,022,171
------------- -------------
65,489,967 22,601,063
LONG TERM LIABILITIES 1,208,332 --
DEFERRED INCOME TAXES 25,107,209 1,356,442
LONG TERM BORROWINGS 135,000,000 5,000,000
STOCKHOLDERS' EQUITY
Preferred Stock, $100 par value--2,000,000
shares authorized: none issued
Common Stock, no par value, at nominal
assigned value--62,000,000 shares
authorized: 32,038,259 issued
and outstanding in 2000,
28,728,016 issued and
outstanding in 1999 15,993 14,347
Additional capital 44,018,522 1,719,699
Unearned compensation (710,395) (649,612)
Retained earnings 51,647,385 81,487,562
Accumulated other comprehensive income 224,443 --
------------- -------------
95,195,948 82,571,996
------------- -------------
$ 322,001,456 $ 111,529,501
============= =============
</TABLE>
<PAGE> 3
InterVoice-Brite, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
August 31, August 31, August 31, August 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 79,860,176 $ 33,070,279 $ 119,936,937 $ 63,070,616
Cost of goods sold 47,878,954 13,443,991 63,226,082 25,974,089
------------- ------------- ------------- -------------
Gross Margin 31,981,222 19,626,288 56,710,855 37,096,527
------------- ------------- ------------- -------------
Research and development expenses 37,797,567 3,238,150 41,636,921 6,523,023
Selling, general and administrative
expenses 27,257,590 9,531,013 38,688,277 19,013,057
Amortization of goodwill and
acquired intangible assets 3,528,542 -- 3,528,542 --
------------- ------------- ------------- -------------
Income (loss) from operations (36,602,477) 6,857,125 (27,142,885) 11,560,447
Other income 918,478 108,445 1,077,236 214,643
Interest expense (2,822,404) (196,009) (2,873,228) (428,941)
------------- ------------- ------------- -------------
Income (loss) before income taxes (38,506,403) 6,769,561 (28,938,877) 11,346,149
Income taxes (benefit) (2,399,496) 2,340,421 901,300 3,914,421
------------- ------------- ------------- -------------
Net income (loss) $ (36,106,907) $ 4,429,140 $ (29,840,177) $ 7,431,728
============= ============= ============= =============
Net income (loss) per share - basic $ (1.24) $ 0.16 $ (1.03) $ 0.27
============= ============= ============= =============
Net income (loss) per share - diluted $ (1.24) $ 0.15 $ (1.03) $ 0.26
============= ============= ============= =============
</TABLE>
<PAGE> 4
InterVoice-Brite, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
--------------------------- Additional
Shares Amount Capital
------------ ------------ ------------
<S> <C> <C> <C>
Balance at February 28, 1999 28,728,016 $ 14,347 $ 1,719,699
Issuance of stock in
connection with acquisition 2,985,792 1,489 42,360,900
Exercise of stock
options 311,115 150 1,659,459
Tax effect from exercise
of stock options -- -- (1,912,234)
Issuance of restricted stock 13,336 7 190,698
Amortization of unearned
compensation -- -- --
Net income -- -- --
Foreign currency translation
adjustment -- -- --
------------ ------------ ------------
Balance at August 31, 1999 32,038,259 $ 15,993 $ 44,018,522
============ ============ ============
<CAPTION>
Accumulated Other
Unearned Retained Comprehensive
Compensation Earnings Income Total
------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Balance at February 28, 1999 $ (649,612) $ 81,487,562 -- $ 82,571,996
Issuance of stock in
connection with acquisition -- -- -- 42,362,389
Exercise of stock
options -- -- -- 1,659,609
Tax benefit from exercise
of stock options -- -- -- (1,912,234)
Issuance of restricted stock (190,705) -- -- --
Amortization of unearned
compensation 129,922 -- -- 129,922
Net income -- (29,840,177) -- (29,840,177)
Foreign currency translation
adjustment -- -- 224,443 224,443
------------ ------------ ------------ ------------
Balance at August 31, 1999 $ (710,395) $ 51,647,385 $ 224,443 $ 95,195,948
============ ============ ============ ============
</TABLE>
<PAGE> 5
InterVoice-Brite, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
August 31, August 31, August 31, August 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (36,106,907) $ 4,429,140 $ (29,840,177) $ 7,431,728
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization 9,547,766 2,553,079 12,818,303 5,161,719
In-process research
and development charge 30,100,000 -- 30,100,000 --
Changes in operating assets
and liabilities: (4,089,418) (372,944) (6,275,658) (2,788,879)
------------- ------------- ------------- -------------
NET CASH FROM OPERATIONS (548,559) 6,609,275 6,802,468 9,804,568
INVESTING ACTIVITIES
Purchase of property
and equipment (2,900,812) (1,080,957) (3,703,673) (2,428,080)
Purchased software (502,446) (232,855) (529,536) (246,848)
Purchase of Brite Voice
Systems, Inc., net of cash
acquired (116,512,518) -- (116,512,518) --
------------- ------------- ------------- -------------
(119,915,776) (1,313,812) (120,745,727) (2,674,928)
FINANCING ACTIVITIES
Purchase of Treasury Stock -- (4,267,738) -- (4,385,638)
Paydown of debt (5,000,000) -- (5,000,000)
Borrowings 135,000,000 -- 135,000,000
Exercise of stock options 1,024,768 917,629 1,659,609 1,318,936
------------- ------------- ------------- -------------
131,024,768 (3,350,109) 131,659,609 (3,066,702)
EFFECT OF EXCHANGE RATE ON CASH 79,580 79,580 -- --
------------- ------------- ------------- -------------
INCREASE IN CASH
AND CASH EQUIVALENTS 10,640,013 1,945,354 17,795,930 4,062,938
Cash and cash equivalents,
beginning of period 19,351,529 6,308,524 12,195,612 4,190,940
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 29,991,542 $ 8,253,878 $ 29,991,542 $ 8,253,878
============= ============= ============= =============
</TABLE>
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED AUGUST 31, 1999
NOTE A -- BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. The consolidated balance sheet at February 28, 1999 has been
derived from audited financial statements at that date. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the unaudited August 31, 1999 and 1998
consolidated financial statements have been included. Operating results for the
three and six month periods ended August 31, 1999 are not necessarily indicative
of the results that may be expected for the year ending February 29, 2000 as
they may be affected by a number of factors, including the timing and ultimate
receipt of orders from significant customers which continue to constitute a
large portion of the Company's sales, the sales channel mix of products sold,
and changes in general economic conditions, any of which could have an adverse
effect on operations.
In accordance with Statement of Financial Accounting Standards No. 130, the
following comprehensive income disclosures are provided. Total comprehensive
income (loss), i.e., net income (loss) plus foreign currency translation
adjustments to stockholders' equity, for the second quarters of fiscal 2000 and
1999 was ($35.9) million and $4.4 million. For the six months ended August 31,
1999 and 1998, it was ($29.6) million and $7.4 million.
Financial statements of the Company's foreign subsidiaries have been translated
into U. S. dollars at current and average exchange rates. Resulting translation
adjustments are recorded as a separate component of stockholders' equity. Any
transaction gains or losses are included in the accompanying consolidated
statements of operations.
NOTE B - ACQUISITION OF BRITE VOICE SYSTEMS, INC.
During the second quarter of fiscal 2000, the Company acquired all of the
outstanding stock of Brite Voice Systems, Inc. (Brite) in a two-step transaction
involving aggregate consideration of approximately $165.1 million of cash and
common stock consideration. Based in Orlando, Florida, Brite provides voice
processing and call processing systems and services which incorporate
prepaid/postpaid applications, voice response, voice recognition, voice/
facsimile messaging, audiotex and interactive computer applications into both
standard products and customized market solutions. Approximately $122.7 million
was paid in cash, and approximately $42.4 million was paid in InterVoice-Brite
common stock. The Company's consolidated statements of operations reflect the
results of operations of Brite beginning June 1, 1999.
The aggregate purchase price for Brite was approximately $174.3 million, which
includes direct costs and assumed liabilities relating to the merger. The
components of the aggregate purchase price were as follows (in millions):
<TABLE>
<S> <C>
Cash $122.7
Issuance of common stock 42.4
Other direct costs of merger and assumed liabilities 9.2
------
$174.3
======
</TABLE>
Other direct costs of the merger and assumed liabilities primarily consisted of
employee termination costs, transaction costs and costs associated with the
elimination of excess facilities. The merger has
<PAGE> 7
been accounted for as a purchase business combination. The purchase price has
been allocated to identifiable tangible and intangible assets acquired and
liabilities assumed based on their estimated fair values as follows:
<TABLE>
<S> <C>
Working capital $ 45.4
Property and equipment 17.8
Other assets 5.2
Other liabilities (1.4)
Identified intangible assets 74.5
Purchased in-process R&D (expensed) 30.1
Deferred tax liability on identified intangibles (28.8)
Goodwill 31.5
------
$174.3
======
</TABLE>
The estimates of fair value were determined by the Company's management based
on information furnished by management of Brite and an independent valuation of
existing product technology ($25.9 million), in-process R&D ($30.1 million),
and other identified intangibles. Other identified intangibles include customer
relationships ($32.8 million), assembled workforce ($9.2 million), and trade
name ($6.6 million). Identified intangibles and the excess of cost over net
assets acquired (i.e. goodwill) are being amortized on a straight-line basis
over 5-10 years and 10 years, respectively.
Amounts allocated to in-process R&D were expensed at the time of acquisition as
the Company determined that the in-process R&D had not reached technological
feasibility based on the status of design and development activities that
require further refinement and testing. Brite's in-process R&D related to
technologies which support Brite's interactive voice response (IVR)/computer
telephony integration (CTI), intelligent network, messaging, voice dialing, and
prepaid/postpaid product families. The valuation of existing product technology
and in-process R&D was performed using the income approach, which includes an
analysis of the markets, cash flows, and risks associated with achieving such
cash flows. The income approach focuses on the income producing capability of
the existing products and in-process R&D projects and best represents the
present value of the future economic benefits expected to be derived.
Significant assumptions used in the valuation of in-process R&D included the
stages of completion of R&D projects, projected operating cash flows, and the
discount rate. At the time of the merger, Brite management estimated the
remaining cost to complete the in-process R&D projects to be approximately $1.6
million with a remaining time requirement of approximately 8-12 months.
Projected operating cash flows were expected to begin in fiscal 2000. The
discount rate selected for Brite's in-process technologies was 27.5%.
Management is primarily responsible for estimating the value of the in-process
R&D. If the R&D projects are not successfully developed, the Company may not
realize the value assigned to the in-process R&D.
In connection with this transaction, the Company obtained senior secured credit
facilities amounting to $150 million from Bank of America, including a $125
million term loan facility and a $25 million revolving credit agreement. The
term loan agreement will be subject to scheduled repayments, as defined, during
2000-2003. The revolving credit agreement will expire upon the earlier of the
termination of the term loan, or August 31, 2003. The credit facilities require
the Company to comply with certain financial covenants as defined in the related
credit agreements. As of August 31, 1999, $135 million was outstanding under the
credit facilities. Interest under the credit facilities accrues at a variable
rate indexed to the prime rate or an adjusted London Interbank Offering Rate.
The current average annual interest rate is 8.02%
The following unaudited pro forma information presents the Company's results of
operations for the six month periods ended August 31, 1999 and 1998 as if the
Brite merger had occurred at March 1, 1999 and 1998, respectively. The pro
forma information has been prepared by combining the results of
<PAGE> 8
operations of the Company and Brite, adjusted for additional amortization
expense of identified intangibles and goodwill, interest expense on the credit
facilities, and the resulting impact on the provision for income taxes. No
adjustment has been made to account for the two companies' different fiscal year
ends. This pro forma information does not purport to be indicative of what would
have occurred had the Brite merger occurred as of the dates assumed or of
results of operations which may occur in the future (in thousands, except per
share data):
<TABLE>
<CAPTION>
Six Months Ended August 31 1999 1998
-------------------------- ------------ --------
<S> <C> <C>
Sales $ 156,511 $131,970
Income before income taxes $ 1,551 $ 2,766
Net income $ 1,644 $ 999
Net income per share - basic $ 0.06 $ 0.03
Net income per share - diluted $ 0.05 $ 0.03
</TABLE>
Proforma income before income taxes and net income exclude the effects of a
$30.1 million charge for in-process research and development acquired in the
merger with Brite Voice Systems, Inc. and approximately $4.2 million of
restructuring charges related to the merger consisting primarily of employee
severance expenses and the write-off of certain inventory and intangible assets
made redundant in the merger.
NOTE C - REVENUE RECOGNITION
The Company recognizes revenue for sales of systems which do not require
customization by the Company at the time of shipment. Revenue for systems which
require customization by the Company are recognized by the contract method of
accounting using percentage of completion for larger, more complex systems
(generally over a $500,000 sales price) and the completed contract method for
smaller systems. The Company recognizes revenue from services at the time the
service is performed or over the period of the contract for
maintenance/support.
NOTE D - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
August 31, 1999 February 28, 1999
---------------- -----------------
<S> <C> <C>
Purchased parts $17,606,900 $ 9,504,635
Work in progress 9,906,908 501,195
Furnished goods 2,455,024 1,698,598
----------- -----------
$29,968,832 $11,704,428
=========== ===========
</TABLE>
NOTE E - INCOME TAXES
The Company's income tax expense for the three and six months ended August 31,
1999 differ significantly from the federal statutory rate primarily due to
non-deductible charges during the periods relating to in-process R & D and
amortization of goodwill from the merger with Brite.
<PAGE> 9
NOTE F - EARNINGS PER SHARE
The Company completed a two-for-one stock split in the form of a 100% stock
dividend on January 11, 1999. Basic and diluted earnings per share have been
retroactively adjusted to reflect the split.
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------------- -----------------------------------
August 31, August 31, August 31, August 31,
1999 1998 1999 1998
------------------ ----------------- --------------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net Income (loss) $ (36,106,907) $ 4,429,140 $ (29,840,177) $ 7,431,728
================== ================= =============== ===========
Denominator:
Denominator for basic earnings per share
weighted average shares outstanding 29,126,873 27,732,754 28,937,610 27,717,932
================== ================= =============== ===========
Effect of dilutive securities:
Employee Stock Options 1,929,644 1,351,488
Non-vested restricted stock -0- -0- -0- -0-
------------------ ----------------- --------------- -----------
Dilutive Potential common shares -0- 1,929,644 -0- 1,351,488
------------------ ----------------- --------------- -----------
Denominator for diluted earnings per share 29,126,873 29,662,398 28,937,610 29,069,480
================== ================= =============== ===========
Net income (loss) per common share - basic $ (1.24) $ 0.16 $ (1.03) $ 0.27
================== ================= =============== ===========
Net income (loss) per common share - diluted $ (1.24) $ 0.15 $ (1.03) $ 0.26
================== ================= =============== ===========
</TABLE>
NOTE: 1,892,005 and 1,746,282 potentially dilutive shares were excluded from
the diluted earnings per share calculations for the three months and six months
ending August 31, 1999 as they would be anti-dilutive due to net losses.
NOTE G - OPERATING SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company is comprised of a single operating segment which develops, sells and
services call automation systems. The Company's Chief Operating Decision Maker
(CODM) assesses performance and allocates resources on an enterprise wide basis.
Therefore, no separately reportable operating segments exist.
The CODM monitors revenues based on customer markets, including Business
Systems, Network Systems and Services and geographic area. The Business Systems
market includes interactive voice response and customer relationship management
systems such as the Company's OneVoice and AgentConnect products. The Network
Systems customer market focuses on systems for telecommunications network
operators and includes the Company's InControl and Brite
<PAGE> 10
Debit products. Services revenues include fees for post warranty system
maintenance, software license fees and fees for providing voice and call
processing services to the Company's customers on equipment owned and operated
by the Company. The Company's net revenues by market and geographic area were
as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ -------------------------------
August 31, August 31, August 31, August 31,
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Business Systems $28,718,937 $24,898,209 $ 55,148,923 $43,264,869
Network Systems 29,323,619 4,344,047 39,130,820 12,210,725
Services 21,817,620 3,828,023 25,657,194 7,595,022
----------- ----------- ------------ -----------
Total $79,860,176 $33,070,279 $119,936,937 $63,070,616
=========== =========== ============ ===========
Geographic Area Net Revenues:
United States $46,218,144 $29,799,580 $ 75,943,045 $51,368,565
The Americas (Excl U.S.) 2,569,065 1,177,950 8,592,435 6,785,633
Pacific Rim 5,001,240 892,890 8,021,412 3,031,782
Europe, Middle East & Africa 26,071,727 1,199,859 27,380,045 1,884,636
----------- ----------- ------------ -----------
Total $79,860,176 $33,070,279 $119,936,937 $63,070,616
=========== =========== ============ ===========
</TABLE>
No customer accounted for 10% or more of the Company's sales during the three
or six month periods ending August 31, 1999 or August 31, 1998.
NOTE H-NON-RECURRING AND UNUSUAL EXPENSES
Included in cost of goods sold for the second quarter of fiscal 2000 are charges
totaling $9.1 million including a charge related to a comprehensive
cross-license agreement executed with an affiliate of Lucent Technologies, Inc.
and charges related to the write-off of certain inventory and intangible assets
made obsolete as a result of the merger with Brite. Included in research and
development expenses for the second quarter of fiscal 2000 is a charge of $30.1
million related to in-process research and development as more fully described
in Note B. Finally, included in selling, general and administrative expenses for
the second quarter of fiscal 2000 are charges totaling $5.9 million including a
provision for severance for employees of the Company prior to the Brite merger
made redundant as a result of the merger, an increase in the Company's bad debt
provision related to the impairment of certain foreign accounts receivable, a
provision for lease termination expenses for properties made redundant by the
Brite merger and a charge related to bad debt expense relating to the write-off
of receivables relating to the cancellation of certain customer equipment
trade-in obligations.
<PAGE> 11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SALES. Sales in the first six months and second quarter of fiscal 2000 were
approximately $119.9 million and $79.9 million, respectively. Such sales
increased approximately $56.9 million and $46.8 million, respectively, or 90%
and 142%, when compared to the same periods of fiscal 1999. The increases are
primarily due to the Company's merger with Brite Voice Systems, Inc. (Brite)
which was accounted for using the purchase method of accounting. Results of
Brite's operations have been consolidated with those of InterVoice, Inc.
effective June 1, 1999, the first day of the Company's second fiscal quarter.
To enhance comparability of the Company's sales for its first six months and
second quarter of fiscal 2000 the information below is also presented on an "as
adjusted" basis as though the merger with Brite had occurred at the beginning
of the respective periods presented.
<TABLE>
<CAPTION>
As Adjusted ($000) As Reported ($000)
---------------------- ---------------------
Six Months 2000* 1999* 2000 1999
- ---------- ------- ------- ------- ------
<S> <C> <C> <C> <C>
Sales:
Business Systems 57,859 56,768 55,149 43,265
Network Systems 59,075 43,231 39,131 12,211
Services** 39,577 22,603 25,657 7,595
------- ------- ------- ------
Total 156,511 122,602 119,937 63,071
======= ======= ======= ======
Second Quarter
--------------
Sales:
Business Systems 28,719 31,317 28,719 24,898
Network Systems 29,323 24,500 29,323 4,344
Services** 21,818 11,409 21,818 3,828
------- ------- ------- ------
Total 79,860 67,226 79,860 33,070
======= ======= ======= ======
</TABLE>
*InterVoice-Brite's fiscal year ends the last day of February. Brite's fiscal
year ended December 31. No adjustment has been made to account for the two
companies' different fiscal year ends.
**Does not include sales of Brite's TSL division, which was sold December 1,
1998.
The following discussion compares sales performance on an "as adjusted" basis
only.
Business Systems sales increased 2% in the first six months and decreased 8% in
the second quarter of fiscal 2000 when compared to the same periods of the
previous fiscal year. Such sales in the previous fiscal year were favorably
impacted by a pent up demand for the Company's host computer and operating
system independent products which were then recently released. Excluding such
sales, Business Systems sales would have increased 9% in the first six months
and 3% in the second quarter of fiscal 2000 when compared to the same periods of
the previous fiscal year. Such increases are the result of the Company's
continued investments in product development, expanding its distribution
channels, increasing its advertising and marketing programs and in hiring and
training new sales, service and support personnel. International Business
Systems sales constituted 16% and 17% of the Company's total Business Systems
sales during the first six months and second quarter of fiscal 2000,
respectively.
Network Systems sales increased 37% in the first six months and 20% in the
second quarter of fiscal 2000 when compared to the same periods of the previous
fiscal year. Such sales increased for the same reasons as discussed in relation
to Business System sales. International Network Systems sales constituted 76%
and 66% of the Company's total Network Systems sales during the first six months
and second quarter of fiscal 2000, respectively.
<PAGE> 12
Services sales increased 75% in the first six months and 91% in the second
quarter of fiscal 2000 when compared to the same periods of the previous fiscal
year. An increase in the Company's Managed Services sales was the primary reason
for the increase in Service sales. The Company, by virtue of its merger with
Brite, provides certain voice and call processing services to its customers on
equipment owned and operated by the Company. In return, the Company charges its
customers for such services in one of multiple ways, including fixed rates per
month or per transaction, and/or a share of the revenue generated by the
Company's customer based on such services. Managed Services sales increased in
the first six months and second quarter of fiscal 2000 primarily due to
increased call volumes by customers offering prepaid telecommunication calling
services in Europe and North America. Generally, the Company receives a portion
of the prepaid calling revenues generated by its customers. International
Services sales constituted 37%, and 42% of the Company's total Services sales
during the first six months and second quarter of fiscal 2000, respectively.
COST OF GOODS SOLD. Cost of goods sold was approximately $63.2 million and $47.9
million for the first six months and second quarter of fiscal 2000. During the
second quarter the Company incurred charges of, in the aggregate, $9.1 million
of a non-recurring nature. These charges include a charge related to a
comprehensive patent cross-license agreement with an affiliate of Lucent
Technologies, Inc., a provision for inventories made obsolete as a result of the
merger with Brite, and a provision for the impairment of certain intangible
assets relating to the Company's ESP product line made obsolete as a result of
the merger with Brite. Without these charges, cost of goods sold would have been
$54.1 million and $38.8 million for the first six months and second quarter of
fiscal 1999. As a percentage of sales and without the charges described above,
cost of goods sold was 45.1% and 48.6% for the first six months and second
quarter of fiscal 2000 as compared to 41% for the same periods of the previous
fiscal year. The increase in cost of goods sold as a percentage of sales is
attributable to the Company's merger with Brite which, historically, has had a
greater cost of goods sold than the Company due to higher third party hardware
content in its systems, as a percentage of sales, than in the Company's systems.
RESEARCH AND DEVELOPMENT. Research and development expenses during the first six
months and second quarter of fiscal 2000 were approximately $41.6 million and
$37.8 million respectively. Such expenses include a $30.1 million charge for
in-process research and development, see "In-Process Research and Development"
below, incurred in connection with the Brite merger. Net of this charge,
research and development expenses were approximately $11.5 million and $7.7
million respectively, or, as a percentage of the Company's total sales, 9.6% for
both periods. Such recurring expenses included the design of new products and
the enhancement of existing products. The Company expects to maintain its strong
commitment to research and development to remain at the forefront of technology
development in its business segments, which is essential to the continued
improvement of the Company's position in the industry.
IN-PROCESS RESEARCH AND DEVELOPMENT. During the second quarter of fiscal 2000,
the Company acquired all of the outstanding stock of Brite in a two-step
transaction involving aggregate consideration of approximately $165.1 million of
cash and common stock. Based in Orlando, Florida, Brite provides voice
processing and call processing systems and services which incorporate
prepaid/postpaid applications, voice response, voice recognition, voice/
facsimile messaging, audiotex and interactive computer applications into both
standard products and customized market solutions. Approximately $122.7 million
was paid in cash, and approximately $42.4 million was paid in InterVoice-Brite
common stock. The Company's consolidated statements of operations reflect the
results of operations of Brite beginning June 1, 1999.
The aggregate purchase price for Brite was approximately $174.3 million, which
includes other direct costs and assumed liabilities relating to the merger.
Other direct costs of the merger and assumed liabilities primarily consisted of
employee termination costs, transaction costs and costs associated with the
elimination of excess facilities. The merger has been accounted for as a
purchase business combination.
<PAGE> 13
The purchase price has been allocated to identifiable tangible and intangible
assets acquired and liabilities assumed based on their estimated fair values.
The estimates of fair value were determined by the Company's management based
on information furnished by management of Brite and an independent valuation of
existing product technology ($25.9 million), in-process R&D ($30.1 million),
and other identified intangibles. Other identified intangibles include customer
relationships ($32.8 million), assembled workforce ($9.2 million), and trade
name ($6.6 million). Identified intangibles and the excess of cost over net
assets acquired (i.e. goodwill) are being amortized on a straight-line basis
over 5-10 years and 10 years, respectively.
In-process R&D of $30.1 million was expensed at the time of acquisition as the
Company determined that the in-process R&D had not reached technological
feasibility based on the status of design and development activities that
require further refinement and testing. Brite's in-process R&D related to
technologies which support Brite's interactive voice response (IVR)/computer
telephony integration (CTI), intelligent network, messaging, voice dialing, and
prepaid/postpaid product families.
The valuation of existing product technology and in-process R&D was performed
using the income approach, which includes an analysis of the markets, cash
flows, and risks associated with achieving such cash flows. The income approach
focuses on the income producing capability of the existing products and
in-process R&D projects and best represents the present value of the future
economic benefits expected to be derived. Significant assumptions used in the
valuation of in-process R&D included the stages of completion of R&D projects,
projected operating cash flows, and the discount rate. At the time of the
merger, Brite management estimated the remaining cost to complete the
in-process R&D projects to be approximately $1.6 million with a remaining time
requirement of approximately 8-12 months. Projected operating cash flows were
expected to begin in fiscal 2000. The discount rate selected for Brite's
in-process technologies was 27.5%. Management is primarily responsible for
estimating the value of the in-process R&D. If the R&D projects are not
successfully developed, the Company may not realize the value assigned to the
in-process R&D.
SELLING, GENERAL AND ADMINISTRATION. Selling, general and administration
expenses during the first six months and second quarter of fiscal 2000 were
approximately $38.7 million and $27.3 million respectively. Such expenses
include non-recurring charges totaling $5.9 million, including a provision for
severance for employees of the Company prior to the merger with Brite Voice
Systems made redundant to the Company's staffing plan as a result of the
merger, an increase to the Company's bad debts provision as a result of the
impairment of certain foreign accounts receivable, a provision for lease
termination expenses for properties occupied by the Company before the merger
with Brite made redundant as a result of the merger, travel expenses associated
with developing the plan for merging the operation of the Company with the
operations of Brite, and a charge to bad debt expense relating to the write off
of receivables relating to the cancellation of certain customer equipment
trade-in obligations. Net of these charges, selling, general and administrative
expenses were approximately $32.8 million and $21.4 million for the first six
months and second quarter of fiscal 2000, or as a percentage of the Company's
total sales 27.3% and 26.7%, respectively. The Company expects selling, general
and administrative expenses as a percentage of total sales to decline as
efficiencies are achieved through combining the operations of the Company with
those of Brite.
AMORTIZATION OF GOODWILL AND ACQUIRED INTANGIBLE ASSETS. Such expenses were
approximately $3.5 million for the first six months and second quarter of fiscal
2000. Goodwill and intangible assets acquired in the merger with Brite totaled
approximately $106 million with useful lives averaging seven years.
OTHER INCOME. Other income of approximately $1.1 million and $0.9 million
during the first six months and second quarter of fiscal 2000 was primarily
interest paid on the Company's net cash reserves.
<PAGE> 14
INTEREST EXPENSE. Interest expense of approximately $2.8 million for the first
six months and second quarter of fiscal 2000 was interest paid on the Company's
long term borrowings obtained during the second quarter in connection with the
merger with Brite. See "Liquidity and Capital Resources" for a description of
the Company's long term borrowings.
INCOME TAXES. The Company's income tax expense for the six and three months
ended August 31, 1999 differs significantly the federal statutory rate primarily
due to non-deductible charges during the periods relating to in-process R & D
and amortization of goodwill resulting from the merger with Brite.
INCOME (LOSS) FROM OPERATIONS. Operating losses for the first six months and
second quarter of fiscal 2000 were approximately $27.1 million and $36.6
million, respectively. Net losses were $29.8 million and $36.1 million for the
same periods.
As previously mentioned, the Company incurred unusual charges reported in cost
of goods sold and selling, general and administrative expenses totaling
approximately $9.1 million and approximately $5.9 million, respectively. In
addition, the Company incurred a charge of $30.1 million for in-process
research and development relating to its merger with Brite.
Adjusting for these unusual charges and the charge for in-process research and
development, operating income for the first six months and second quarter of
fiscal 2000 would have been approximately $18.0 million and $8.5 million,
respectively. Operating income for the same periods in the previous year was
approximately $11.6 million and $6.9 million. The increase in operating income
is primarily due to the merger with Brite.
Adjusting for the unusual charges and the charge for in-process research and
development, net income for the first six months and second quarter of fiscal
2000 would have been approximately $11.7 million and $5.5 million, respectively.
Net income for the same periods in the previous fiscal year was approximately
$7.4 million and $4.4 million. The increase is primarily due to the merger with
Brite.
LIQUIDITY AND CAPITAL RESOURCES. At August 31, 1999, the Company had cash
reserves of approximately $30.0 million while borrowings under the Company's
term loan and revolving credit facility with Bank of America were $135.0
million. Borrowings under the credit facilities was reduced to $125 million on
June 10, 1999. Operating cash flow during the quarter was approximately a
negative $0.5 million. Net loss plus non-cash expense items during the quarter
totaled $3.6 million while an increase in operating assets totaled $4.1 million.
The increase in operating assets was primarily attributable to the Company's
merger with Brite. Days sales outstanding (DSO's) of accounts receivable
continue to be a focus for the Company. At August 31, 1999, DSO's were 101 days
up slightly from 95 days at May 31, 1999. Investing activities, primarily the
merger with Brite and the purchase of computer and test equipment, used
approximately $119.9 million during the quarter while financing activities,
primarily net borrowings to finance the Brite merger and proceeds from the
exercise of employee stock options, contributed approximately $131.0 million to
cash flow. Net cash flow during the quarter was approximately a positive $10.6
million. The Company increased its borrowings by $130 million during the quarter
to finance its merger with Brite. The Company believes its cash reserves and
internally generated cash flow will be sufficient to meet its operating cash
requirements for the foreseeable future. In addition, the Company has an
available $25 million revolving credit facility with Bank of America. The
Company reviews share repurchase and acquisition opportunities from time to time
and believes it has access to the financial resources necessary to pursue
attractive repurchase and/or acquisition opportunities as they arise. The term
loan and revolving credit agreement discussed below includes normal and
customary provisions which limit the Company's ability to make such
acquisitions.
The Company completed a two-for-one stock split in the form of a 100% stock
dividend on January 11, 1999. Basic and diluted earnings per share have been
retroactively adjusted to reflect the stock split.
<PAGE> 15
In connection with the merger with Brite, the Company has entered into a loan
agreement with Bank of America and nine other banks to provide a senior secured
credit facility amounting to $150 million, including a $125 million term loan
and a $25 million revolving credit agreement. The term loan agreement is subject
to scheduled repayments, as defined, during 2000-2003. The revolving credit
agreement will expire upon the earlier of the termination of the term loan, or
August 31, 2003. The cash required to service the facilities could have a
material impact upon the operating cash requirements of the Company for the
foreseeable future. At October 15, 1999, the Company had borrowed $125 million
under the agreement, at an average annual interest rate of 8.02%. Interest under
the credit facility accrues at a variable rate indexed to the prime rate or an
adjusted London Interbank Offering Rate. In connection with the new senior
secured credit facility, the Company terminated its then existing $20 million
credit facility with Bank of America.
A Registration Statement on Form S-4 as amended, file No. 333-79839 (the
"Registration Statement"), for the proposed merger between the Company and
Brite was filed with the Securities and Exchange Commission on July 13, 1999.
This quarterly report on Form 10-Q incorporates by reference the following
sections from the Registration Statement which further describe certain matters
related to the acquisition of Brite that could have a material impact upon the
operating cash requirements of the Company for the foreseeable future: (i) "The
Merger Financing Arrangements Related to the Merger" (pages 38-40) and "Risk
Factors - The bank loan to finance the Brite acquisition puts InterVoice at
financial risk" (pages 12-13); (ii) "Risk Factors - Failure or inability to
successfully integrate the operations and products of Brite could negatively
impact InterVoice's business" (page 13); (iii) "The Merger - AT&T Warrant"
(page 45), "The Merger - Brite Stock Option Plans" (page 43) and "Risk Factors
- - Certain arrangements may have influenced the decision of Brite's board of
directors to recommend the merger" (page 18); and (iv) "The Merger - Fees and
Expenses" (page 45). The information is incorporated by reference and is deemed
to be a part of this quarterly report on Form 10-Q.
YEAR 2000 COMPLIANCE
Many installed computer systems used by numerous companies to run a variety of
applications are not capable of processing date sensitive information that falls
beyond the twentieth century. Unless these computer systems are replaced or
upgraded prior to the year 2000 to process such date sensitive information, the
systems may experience severe operating difficulties or system failures.
Beginning in fiscal 1996, the Company initiated a program to replace and upgrade
its information systems to accommodate the Company's growth, improve
productivity and remediate any century compliance problems. This program was
substantially completed during the second quarter of fiscal 1999.
Additionally, the Company has created a year 2000 project team to review and
test its information technology systems and non-information technology systems
and to resolve any century compliance issues that are found. The team also is
attempting to ensure that any replacements and upgrades to the Company's
information systems are century compliant before they are implemented. In this
regard, the team is continuing to work with third party vendors to assess the
year 2000 readiness of its information technology systems. The year 2000
readiness of the Company's information technology systems is, therefore,
partially dependent upon the accuracy of disclosures and representations made by
third party vendors, such as Oracle, PeopleSoft, MicroSoft, IBM and Dell
Computer. Because most of the expenditures to replace and upgrade the Company's
internal systems have been made and will be incurred in the ordinary course of
business (i.e., on a non-accelerated basis), the Company does not anticipate
that it will incur material incremental expenses in connection with its year
2000 remedial efforts. As a result of the program to replace and upgrade its
internal systems, and the efforts of the year 2000 project team, the Company
believes that its mission-critical internal systems will be century compliant
prior to the year 2000. However, there is no assurance that the Company will
identify and resolve any and all century compliance problems with its internal
systems in a timely manner, that the expenses associated with such remedial
efforts will not be significant, or that such problems will not have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company has created a detailed year 2000 testing program for its
mission-critical systems. During the first fiscal quarter, the Company completed
a century compliance testing and remediation program for its customer service
systems. The Company substantially completed its testing and remediation program
for year 2000 issues with respect to mission-critical systems during the second
fiscal quarter. Prior to the merger, Brite had conducted a testing and
remediation program for year 2000 issues associated with its mission-critical
systems. The Company is currently in the process of reviewing and confirming the
year 2000 readiness of mission-critical systems acquired in the merger that will
remain in operation after the end of calendar year 1999. Many mission-critical
systems and/or system applications associated with the domestic operations of
Brite, such as finance and purchasing, have been or will be transitioned to the
Company's existing enterprise system before the year 2000.
The commencement of the Company's fiscal year 2000 on March 1, 1999 helped to
accelerate its year 2000 testing program, particularly for mission-critical
financial, manufacturing and order entry applications which process dates that
reflect the fiscal year end date (i.e., February 29, 2000).
In addition to assessing and testing internal business systems for year 2000
readiness issues, the Company is also in the process of reviewing its other
contingency plans for system failures that might arise in connection with the
millennium transition. The Company currently has certain disaster recovery
processes and procedures designed to allow it to continue critical business
operations in the event of a software or hardware failure, or the failure of
infrastructure services (i.e., electricity, telephone services, water transport,
internet services, etc.).
These disaster recovery processes and procedures generally involve manual "work
arounds" and alternate computerized solutions. The Company is in the process of
reviewing the adequacy of these processes and procedures in light of potential
century compliance issues. While the Company has not yet finalized a full
contingency plan for system failures that may occur in connection with the year
2000, the Company believes that a satisfactory contingency plan can be developed
for mission critical systems based, in part, on existing disaster recovery
programs. To assist with the development of a full contingency plan, the Company
is in the process of engaging a disaster recovery service company. As part of
the contingency plan, the Company has acquired an auxiliary power generator to
help operate mission-critical systems in the event of temporary power failures.
The Company is also finalizing plans for addressing any year 2000 readiness
issues or concerns of customers that may arise in the weeks surrounding the turn
of the century. These plans include additional staffing in the Company's
RealCare maintenance department, specific procedures for diagnosing and
resolving year 2000 readiness issues for customer systems, restrictions on
vacations during the January 1st time-frame, and, if necessary, additional
phone capacity to handle any increase in customer service calls.
Based on a thorough review and testing of its software products and other
products, the Company believes that its current products are century compliant.
The Company began designating certain products as such in June 1997. Brite,
began designating certain of its products as century compliant in August 1998.
The Company's assessment of its current products, including Brite's products, is
partially dependent upon the accuracy of disclosures and representations
concerning century compliance made by its suppliers, such as MicroSoft, IBM and
Dell Computer. However, many of the Company's customers are using earlier
versions of the Company's software products and other products that may not be
century compliant. The Company has instituted programs to actively warn these
customers of the risks associated with using software and other products which
may not be century compliant, and to actively encourage such customers to
migrate to the Company's current products.
The Company's products are generally integrated with a customer's enterprise
system, which involves software products developed by other vendors. A customer
may mistakenly believe that century compliance problems with its enterprise
system are attributable to products provided by the Company. The Company may in
the future be subject to claims based on century compliance issues related to a
customer's enterprise system or other products provided by third parties, custom
modifications to the Company's products made by third parties, the Company's
earlier products which may not be completely century compliant, the Company's
performance and warranty obligations under customer contracts, or issues arising
from the customer's unique application or the integration of the Company's
products with other products. The Company has not been a party to any proceeding
involving its products or services in connection with century compliance issues,
however, there is no assurance that the Company will not in the future be
required to defend its products or services in such proceedings against claims
of century compliance issues, and any resulting liability of the Company for
damages could have a material adverse effect on the Company's business,
operating results and financial condition.
Based on recent discussions with current and potential customers, the Company
believes that the timing of purchases and implementations of call processing
systems may be influenced by year 2000 readiness issues. Year 2000 readiness
issues might encourage some customers to purchase new call processing systems,
or upgrades to existing systems, in order to ensure that they have century
compliant current systems. On the other hand, some customers may have to spend
significant amounts to remedy year 2000 readiness issues with their internal
computer systems not related to their call processing systems. These
expenditures could cause customers to delay or forego purchases of other
computerized systems, such as call processing systems. Some customers may also
choose to delay the implementation or purchase of new or upgraded computer
systems, including call processing systems, in order to stabilize their internal
operations and reduce the risk of introducing new year 2000 issues. Accordingly,
the Company believes that year 2000 issues may simultaneously encourage certain
customers to purchase call processing systems prior to the year 2000, and may
cause other customers to delay their purchases of call processing systems. If
year 2000 concerns lead to a net reduction in the Company's revenues, such a
reduction could have a material adverse effect on the Company's business,
financial condition and results of operations.
<PAGE> 16
BRITE VOICE SYSTEMS, INC. SUBSIDIARY. As discussed above in the section
entitled "Liquidity and Capital Resources", the Company has acquired all of the
common stock of Brite. The Company's future success will depend in part on its
ability to efficiently integrate and operate Brite and its products with the
Company's business, and its ability to retain and assimilate key employees of
Brite. This quarterly report on form 10-Q incorporates by reference the
following section from the Registration Statement which further describes
certain risks associated with assimilating Brite's business, products and
employees which could have a material impact on the Company's consolidated
operations: "Failure or inability to successfully integrate the operations and
products of Brite could negatively impact InterVoice's business" (page 13). The
information is incorporated by reference and is deemed to be a part of this
quarterly report on Form 10-Q.
FORWARD LOOKING STATEMENTS. This report on Form 10-Q includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements other than statements of historical facts included in this
announcement regarding the Company's financial position, business strategy,
plans and objectives of management of the Company for future operations, and
industry conditions, are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to be
correct. The following significant factors, among others, sometimes have
affected, and in the future could affect, the Company's actual results and
could cause such results during fiscal 2000, and beyond, to differ materially
from those expressed in any forward-looking statements made by or on behalf of
the Company:
o The Company faces intense competition based on product capabilities
and experiences ever increasing demands from its actual and
prospective customers for its products to be compatible with a variety
of rapidly proliferating computing, telephony and computer networking
technologies and standards. The ultimate success of the Company's
products is dependent, to a large degree, on the
<PAGE> 17
Company allocating its resources to developing and improving products
compatible with those technologies, standards and functionalities that
ultimately become widely accepted by the Company's actual and
prospective customers. The Company's success is also dependent, to a
large degree, on the Company's ability to implement arrangements with
other vendors with complementary product offerings to provide actual
and prospective customers greater functionality and to ensure that the
Company's products are compatible with the increased variety of
technologies and standards.
o Continued availability of suitable non-proprietary computing platforms
and system operating software that are compatible with the Company's
products.
o Certain of the components for the Company's products are available
from limited suppliers. The Company's operating results could be
adversely affected if the Company were unable to obtain such
components in the future.
o Increasing litigation with respect to the enforcement of patents,
copyrights and other intellectual property.
o The ability of the Company to retain its customer base and, in
particular, its more significant customers such as Siemens AG, an
InterVoice distributor, which accounted for over ten percent of the
Company's total sales during fiscal 1997, since such customers
generally are not contractually obligated to place further orders with
the Company.
o Legislative and administrative changes and, in particular, changes
affecting the telecommunications industry, such as the
Telecommunications Act of 1996. While many industry analysts expect
the Telecommunications Act of 1996 ultimately to result in at least a
temporary surge in the procurement of telecommunications equipment and
related software and other products, there is no assurance that the
Company can estimate with sufficient accuracy those products which
will ultimately be purchased, the timing of any such purchases or the
quantities to be purchased.
o Risks involved in the Company's international distribution and sales
of its products, including unexpected changes in regulatory
requirements, unexpected changes in exchange rates, the difficulty and
expense of maintaining foreign offices and distribution channels,
tariffs and other barriers to trade, difficulty in protecting
intellectual property rights, and foreign governmental regulations
that may limit or restrict the sales of call automation systems.
Additionally, changes in foreign credit markets and currency exchange
rates may result in requests by many international customers for
extended payment terms and may have an adverse impact on the Company's
cash flow and its level of accounts receivable.
o The quantity and size of large sales (sales valued at approximately $1
million or more) during any fiscal quarter, which can cause wide
variations in the Company's sales and earnings on a quarter to quarter
basis.
o Ability of the Company to properly estimate costs under fixed price
contracts in developing application software and otherwise tailoring
its systems to customer-specific requests.
o The Company's ability to hire and retain, within the Company's
compensation parameters, qualified technical talent and outside
contractors in highly competitive markets for the services of such
personnel.
<PAGE> 18
o Mergers and acquisitions between companies in the telecommunications
and financial industries which could result in fewer companies
purchasing the Company's products for telecommunications and financial
applications, and/or delay such purchases by companies that are in the
process of reviewing their strategic alternatives in light of a merger
or acquisition.
o Extreme price and volume trading volatility in the U.S. stock market,
which has had a substantial effect on the market prices of securities
of many high technology companies, frequently for reasons other than
the operating performance of such companies. These broad market
fluctuations could adversely affect the market price of the Company's
common stock.
o The ability of the Company to successfully integrate the products,
customers, employees and other business components of the former
InterVoice and the former Brite in an efficient manner.
o The Company transacts business in foreign currencies and is subject to
exposure from adverse movements in foreign currency exchange rates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. In
addition, the Company's current term loan and revolving credit agreement
provides for borrowings which bear interest at variable rates based on either a
prime rate, the federal funds rate or the London Interbank Offering Rate, plus
an applicable margin. As of October 15, 1999 the Company had $125 million
outstanding pursuant to the credit agreement. Due to the magnitude of this
credit facility, the Company believes that the effect of any reasonably
possible near-term changes in interest rates on the Company's financial
position, results of operations, and cash flows may be material.
The Company transacts business in certain foreign currencies, including the
British pound. Accordingly, the Company is subject to exposure from adverse
movements in foreign currency exchange rates. The Company generally mitigates
this risk by transacting business in the functional currency of each of its
subsidiaries, thus creating a natural hedge by paying expenses incurred in the
local currency in which revenues will be received.
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
Through their respective affiliates, the Company and Lucent Technologies, Inc.
("Lucent") have concluded a comprehensive patent cross-license agreement. The
terms of the agreement resulted in a charge against earnings during the second
fiscal quarter, but will not require a charge against any future earnings. The
Company had previously disclosed, most recently in its Annual Report on Form
10-K for the fiscal year ended February 28, 1999, that the Company and Lucent
had engaged in discussions concerning a possible patent cross-license agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held at 10:00 a.m., local
time, on Tuesday, August 17, 1999 in Dallas, Texas.
Proxies were solicited by the Board of Directors of the Company pursuant to
Regulation 14A under the Securities Exchange Act of 1934. There was no
solicitation in opposition to the Board of Directors nominees as listed in the
proxy statement and all such nominees were duly elected. The following persons
are the nominees of the Board of Directors who were elected as directors at the
annual meeting: Daniel D. Hammond, David W. Brandenburg, Joseph J. Pietropaolo,
George C. Platt, Grant A. Dove and Stanley G. Brannan. The number of votes cast
for the election of each of the nominees for director, and the number of
abstentions, were as follows: 25,824,892 votes for the election of Daniel D.
Hammond, with 1,517,901 abstentions; 25,818,825 votes for the election of David
W. Brandenburg, with 1,523,968 abstentions; 25,803,792 votes for the election of
Joseph J. Pietropaolo, with 1,539,001 abstentions, 25,794,114 votes for the
election of George C. Platt, with 1,548,679 abstentions; 25,787,814 votes for
the election of Grant A. Dove, with 1,554,979 abstentions; and 25,821,692 votes
for the election of Stanley G. Brannan, with 1,521,101 abstentions. No votes
were cast against the election of any nominee for director.
The second matter voted on and approved by the shareholders, was a resolution to
approve the Company's 1999 Stock Option Plan (the "Plan"). The Plan was duly
approved. The number of votes cast for the adoption of the resolution to approve
the Plan was 10,540,870, the number of votes cast against the adoption of the
resolution to approve the Plan was 8,880,502 and the number of abstentions was
166,457.
The last matter voted on and approved by the shareholders, was a resolution to
approve an amendment of the Articles of Incorporation of the Company to change
the corporate name of the Company to InterVoice-Brite, Inc. (the "Corporate Name
Change"). The resolution to approve the Corporate Name Change was duly approved.
The number of votes cast for the adoption of the resolution to approve the
Corporate Name Change was 27,196,749, the number of votes cast against the
adoption of the resolution to approve the Corporate Name Change was 88,783 and
the number of abstentions was 57,261.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
3.1 Amendment to Articles of Incorporation of the Company filed with the
Secretary of State of Texas on August 18, 1999.
10.1 Patent License Agreement between Lucent Technologies GRL Corp. and
InterVoice Limited Partnership, effective as of October 1, 1999.
Portions of this exhibit have been excluded pursuant to a request
for confidential treatment.
10.2 Third Amended and Extended Employment Agreement executed as of
August 17, 1999, between the Company and Daniel D. Hammond.
27.1 Financial Data Schedule
99.1 Pages 12, 13, 18, 38-40, 43 and 45 of the Registration Statement on
Form S-4, as amended (incorporated by reference to page 12, 13, 18,
38-40, 43 and 45 of the Registration Statement on Form S-4/A
(Amendment No. One) filed by the Company on July 13, 1999):
B. Reports on Form 8-K
1. Report on Form 8-K filed with the Securities and Exchange Commission
("SEC") on June 23, 1999.
2. Report on Form 8-K filed with the SEC on August 27, 1999.
<PAGE> 20
SIGNATURES
Pursuant to the requirements 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.
INTERVOICE-BRITE, INC.
Date: 10/15/99 By: /s/ ROB-ROY J. GRAHAM
-------------------------------
Rob-Roy J. Graham
Chief Financial Officer
(Chief Accounting Officer)
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 Amendment to Articles of Incorporation of the Company filed with the
Secretary of State of Texas on August 18, 1999.
10.1 Patent License Agreement between Lucent Technologies GRL Corp. and
InterVoice Limited Partnership, effective as of October 1, 1999.
Portions of this exhibit have been excluded pursuant to a request
for confidential treatment.
10.2 Third Amended and Extended Employment Agreement executed as of
August 17, 1999, between the Company and Daniel D. Hammond.
27.1 Financial Data Schedule
99.1 Pages 12, 13, 18, 38-40, 43 and 45 of the Registration Statement on
Form S-4, as amended (incorporated by reference to page 12, 13, 18,
38-40, 43 and 45 of the Registration Statement on Form S-4/A
(Amendment No. One) filed by the Company on July 13, 1999):
</TABLE>
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION OF
INTERVOICE, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation hereby adopts the following
Articles of Amendment to its Articles of Incorporation.
ARTICLE I
The name of the corporation is INTERVOICE, INC.
ARTICLE II
Article One of the Articles of Incorporation is hereby amended to read
in its entirety as follows:
"ARTICLE ONE
NAME
The name of the corporation is InterVoice-Brite, Inc. (the
"Corporation")."
ARTICLE III
The amendment was adopted by the shareholders of the corporation as of
August 17, 1999.
ARTICLE IV
The number of shares of common stock, no par value per share ("Common
Stock") of the Corporation outstanding, and the numbers of shares entitled to
vote on the amendment, is 28,899,109.
ARTICLE V
The number of shares of Common Stock voted for such amendment was
27,196,749. The number of shares of Common Stock voted against such amendment
was 88,783.
IN WITNESS WHEREOF, the corporation has executed these Articles of
Amendment as of the 17th day of August, 1999.
INTERVOICE-BRITE, INC.
By: /s/ DEAN C. HOWELL
------------------------------------
Dean C. Howell
Vice President and Corporate Counsel
<PAGE> 1
EXHIBIT 10.1
PATENT LICENSE AGREEMENT
BETWEEN
LUCENT TECHNOLOGIES GRL CORP.
AND
INTERVOICE LIMITED PARTNERSHIP
EFFECTIVE AS OF OCTOBER 1, 1999
RELATING TO AUTOMATED CALL AND TRANSACTION PROCESSING SYSTEMS
<PAGE> 2
INTERVOICE-IPGAD 092499
PATENT LICENSE AGREEMENT
TABLE OF CONTENTS
ARTICLE I - GRANTS OF LICENSES
1.01 Grant
1.02 Duration and Extent
1.03 Scope
1.04 Ability to Provide Licenses
1.05 Joint Inventions
1.06 Publicity
1.07 Covenant Not To Sue
ARTICLE II - ROYALTY AND PAYMENTS
2.01 Royalty Calculation
ARTICLE III - TERMINATION
3.01 Breach
3.02 Voluntary Termination
3.03 Survival
ARTICLE IV - MISCELLANEOUS PROVISIONS
4.01 Disclaimer
4.02 Nonassignability
4.03 Addresses
4.04 Taxes
4.05 Choice of Law
4.06 Integration
4.07 Outside the United States
4.08 Dispute Resolution
4.09 Releases
4.10 Counterparts
ARTICLE V - PRIOR LICENSE AGREEMENT
5.01 - Prior Agreement
5.02 - Retained Rights
DEFINITIONS APPENDIX
i
<PAGE> 3
* Confidential Treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as *. A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.
PATENT LICENSE AGREEMENT
Effective as of October 1, 1999, LUCENT TECHNOLOGIES GRL CORP., a Delaware
corporation ("LUCENT GRL"), having an office at Suite 105, 14645 N.W. 77th
Avenue, Miami Lakes, Florida 33014, and InterVoice Limited Partnership, a Nevada
limited partnership ("INTERVOICE"), with an address of 639 Isbell Road, Suite
390, Reno, Nevada 89509 having, as its sole general partner, InterVoice GP,
Inc., a corporation of Nevada, with an address of 639 Isbell Road, Suite 390,
Reno, Nevada 89509, agree as follows:
ARTICLE I
GRANTS OF LICENSES
1.01 GRANT
(a) LUCENT GRL grants to INTERVOICE under LUCENT'S PATENTS personal,
nonexclusive, * and non-transferable sublicenses (hereinafter referred to as
licenses) for AUTOMATED CALL AND TRANSACTION PROCESSING SYSTEMS.
(b) INTERVOICE grants to LUCENT GRL under INTERVOICE'S PATENTS personal,
nonexclusive, * and non-transferable licenses for any and all products and
services.
1.02 DURATION AND EXTENT
All licenses granted herein under any patent shall continue for the entire
unexpired term of such patent.
1.03 SCOPE
(a) The licenses granted herein are licenses to (i) make, have made, use,
lease, offer for sale, sell and import LICENSED PRODUCTS; (ii) make, have made,
use and import machines, tools, materials and other instrumentalities, insofar
as such machines, tools, materials and other instrumentalities are involved in
or incidental to the development, manufacture, testing or repair of LICENSED
PRODUCTS which are or have been made, used, leased, owned, sold or
- ------------------
+ANY TERM IN CAPITAL LETTERS WHICH IS DEFINED IN THE DEFINITIONS APPENDIX SHALL
HAVE THE MEANING SPECIFIED THEREIN.
<PAGE> 4
imported by the grantee of such license; and (iii) convey to any customer of the
grantee, with respect to any LICENSED PRODUCT which is sold or leased by such
grantee to such customer, rights to use and resell such LICENSED PRODUCT as sold
or leased by such grantee (whether or not as part of a larger combination);
provided, however, that no rights may be conveyed to customers with respect to
any invention which is directed to (1) a combination of such LICENSED PRODUCT
(as sold or leased) with any other product, (2) a method or process which is
other than the inherent use of such LICENSED PRODUCT itself (as sold or leased),
or (3) a method or process involving the use of a LICENSED PRODUCT to
manufacture (including associated testing) any other product.
(b) Licenses granted herein to INTERVOICE are not to be construed either
(i) as consent by the grantor to any act which may be performed by the grantee,
except to the extent impacted by a patent licensed herein to the grantee, or
(ii) to include licenses to contributorily infringe or induce infringement under
U.S. law or a foreign equivalent thereof.
(c) The grant of each license hereunder includes the right to grant
sublicenses within the scope of such license to a party's RELATED COMPANIES for
so long as they remain its RELATED COMPANIES. Any such sublicense may be made
effective retroactively, but not prior to the effective date hereof, nor prior
to the sublicensee's becoming a RELATED COMPANY of such party.
(d) The right to have product made pursuant to this Agreement is not
limited to products custom designed by the parties. Such have made rights shall
include the right to have "off the shelf" products made for the parties. The
have made rights shall not be exercised by a party in a manner such that the
exercise of those rights is a sham to sublicense the other party's patents to a
third party and not for bona fide business purposes of the exercising party.
1.04 ABILITY TO PROVIDE LICENSES
(a) LUCENT GRL has received the rights to grant the licenses and releases
under LUCENT's PATENTS herein granted to INTERVOICE. INTERVOICE has received
the rights to grant the licenses and releases under INTERVOICE's PATENTS herein
granted to LUCENT GRL.
(b) Notwithstanding the provisions of Section 1.04(a), it is recognized
that certain actions of the parties to this Agreement may limit their ability to
provide licenses hereunder without constituting a breach. In particular, (i)
prior to the earliest filing of a patent application disclosing an invention of
a party or its RELATED COMPANY, such party or RELATED COMPANY may assign to a
third party the title to patents on such invention, or (ii) prior to the
execution of this Agreement, a party or its RELATED COMPANY may have limited by
contract its
2
<PAGE> 5
ability to provide licenses hereunder with respect to certain patents or
technologies.
(c) Each party agrees to disclose to the other party, promptly upon receipt
of a written request for such disclosure, any such assignment or other
contractual limitation with respect to any patent and/or technology which is
specifically identified in such request.
1.05 JOINT INVENTIONS
(a) There are countries (not including the United States) which require
the express consent of all inventors or their assignees to the grant of
licenses or rights under patents issued in such countries for joint inventions.
(b) Each party shall give such consent, or shall obtain such consent from
its RELATED COMPANIES, its employees or employees of any of its RELATED
COMPANIES, as required to make full and effective any such licenses and rights
respecting any joint invention granted to the grantee hereunder by such party
and by another licensor of such grantee.
(c) Each party shall take steps which are reasonable under the
circumstances to obtain from third parties whatever other consents are necessary
to make full and effective such licenses and rights respecting any joint
invention purported to be granted by it hereunder. If, in spite of such
reasonable steps, such party is unable to obtain the requisite consents from
such third parties, the resulting inability of such party to make full and
effective its purported grant of such licenses and rights shall not be
considered to be a breach of this Agreement.
1.06 PUBLICITY
(a) Nothing in this Agreement shall be construed as conferring upon either
party or its RELATED COMPANIES any right to include in advertising, packaging or
other commercial activities related to a LICENSED PRODUCT, any reference to the
other party (or any of its RELATED COMPANIES), its trade names, trademarks or
service marks in a manner which would be likely to cause confusion or to
indicate that such LICENSED PRODUCT is in any way certified by the other party
hereto or its RELATED COMPANIES.
(b) The terms, but not the existence, of this Agreement shall be treated
as confidential information by the parties, and neither party shall disclose
such terms to any third party without the prior written consent of the other
party; provided however, that each party may represent to third parties that
such party is licensed for the products and patents as provided by this
Agreement. This Section 1.06(b) shall not prevent a party from making
disclosures reasonably required by law or as required by a stock exchange,
provided that the disclosing party takes all
3
<PAGE> 6
*Confidential Treatment has been requested for portions of this Exhibit.
reasonable steps to minimize such disclosure and provides prior written notice
to the other party of any such intended disclosure.
1.07 COVENANT NOT TO SUE
Each party ("the grantor") covenants to the other party ("the grantee"), on
behalf of itself and its RELATED COMPANIES, not to sue such grantee or its
RELATED COMPANIES for infringement of any patent owned by the grantor or its
RELATED COMPANIES * where such infringement arises from the manufacture, use,
sale, offer for sale or importation of LICENSED PRODUCTS. This covenant not to
sue shall terminate * years after the effective date of this Agreement.
ARTICLE II
ROYALTY AND PAYMENTS
2.01 ROYALTY CALCULATION
(a) In consideration of * granted to INTERVOICE and its RELATED COMPANIES by
LUCENT GRL and its RELATED COMPANIES herein, INTERVOICE shall pay to LUCENT GRL
*. Such amount shall be paid within thirty (30) days of execution of this
Agreement by both parties, and shall be payable in accordance with Section
4.03(b).
(b) Overdue payments hereunder shall be subject to a late payment charge
calculated at an annual rate of three percentage points (3%) over the prime rate
or successive prime rates (as posted in New York City) during delinquency. If
the amount of such charge exceeds the maximum permitted by law, such charge
shall be reduced to such maximum.
ARTICLE III
TERMINATION
3.01 BREACH
In the event of a breach of this Agreement by either party, the other party may,
in addition to any other remedies that it may have, at any time terminate all
licenses and rights granted by it hereunder by not less than two (2) months
prior written
4
<PAGE> 7
notice specifying such breach, unless within the period of such notice all
breaches specified therein shall have been remedied.
3.02 VOLUNTARY TERMINATION
By written notice to the other party, either party may voluntarily terminate
all or a specified portion of the licenses and rights granted to it hereunder.
Such notice shall specify the effective date (not less than six (6) months from
the date of said notice) of such termination and shall clearly specify any
affected patent, invention or product.
3.03 SURVIVAL
(a) If a company ceases to be a RELATED COMPANY of a party, licenses
and rights granted hereunder with respect to patents of such company on
inventions made prior to the date of such cessation, shall not be affected by
such cessation.
(b) Any termination of licenses and rights of a party under the
provisions of this Article III shall not affect such party's licenses, rights
and obligations with respect to any LICENSED PRODUCT made prior to such
termination, and shall not affect the other party's licenses and rights (and
obligations related thereto) hereunder.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.01 DISCLAIMER
NEITHER PARTY NOR ANY OF ITS RELATED COMPANIES MAKES ANY REPRESENTATIONS,
EXTENDS ANY WARRANTIES OF ANY KIND, ASSUMES ANY RESPONSIBILITY OR OBLIGATIONS
WHATEVER, OR CONFERS ANY RIGHT BY IMPLICATION, ESTOPPEL OR OTHERWISE, OTHER
THAN THE LICENSES, RIGHTS AND WARRANTIES HEREIN EXPRESSLY GRANTED.
4.02 ASSIGNABILITY
(a) The parties hereto have entered into this agreement in
contemplation of personal performance, each by the other, and intend that the
licenses and rights granted hereunder to a party not be extended to any other
entities without the other party's express written consent, except as expressly
provided herein.
5
<PAGE> 8
* Confidential Treatment has been requested for portions of this exhibit.
(b) All of LUCENT GRL's rights, title and interest in this agreement and
any licenses and rights granted to it hereunder may be assigned to any RELATED
COMPANY of LUCENT GRL at any time and for any reason.
(c) All of INTERVOICE's rights, title and interest in this agreement and
any licenses and rights granted to it hereunder may be assigned to
InterVoice-Brite, Inc. or to any ACQUISITION SUBSIDIARY at any time and for any
reason. *
4.03 ADDRESSES
(a) Any notice or other communication hereunder shall be sufficiently given
to INTERVOICE when sent by certified mail addressed to Dean Howell, Vice
President and Corporate Counsel, 17811 Waterview Parkway, Dallas, Texas 75252,
and a copy to David H. Tannenbaum, Esq., Fulbright & Jaworski LLP, 2200 Ross
Avenue, Suite 2800, Dallas, Texas 75201, or to LUCENT GRL when sent by certified
mail addressed to Contract Administrator, Lucent Technologies GRL Corporation,
Suite 105, 14645 N.W. 77th Avenue, Miami Lakes, Florida 33014, United States of
America. Changes in such addresses may be specified by written notice.
(b) Payments by INTERVOICE shall be made to LUCENT GRL at Chase Manhattan
Bank, N.A., Account No. 323857752, Lockbox No. 6219, New York, NY 10087-6219,
United States of America. Alternatively, payments to LUCENT GRL may be made by
bank wire transfers to LUCENT GRL's account: Lucent Technologies GRL
Corporation, Account No. 323857752, ABA Code: 021000021, at Chase Manhattan
Bank, N.A., P.O. Box 6219, New York, NY 10087-6219, United States of America.
4.04 TAXES
(a) INTERVOICE shall pay any tax, duty, levy, customs fee, or similar
charge ("taxes"), including interest and penalties thereon, however designated,
imposed as a result of the operation or existence of this Agreement, including
taxes which INTERVOICE is required to withhold or deduct from payments to LUCENT
GRL, except (i) net income taxes imposed upon LUCENT GRL by any governmental
entity within the United States (the fifty (50) states and the District of
6
<PAGE> 9
Columbia), and (ii) net income taxes imposed upon LUCENT GRL by jurisdictions
outside the United States which are allowable as a credit against the United
States Federal income tax of LUCENT GRL or any of its RELATED COMPANIES. In
order for the exception in (ii) to be effective, INTERVOICE must furnish to
LUCENT GRL evidence sufficient to satisfy the United States taxing authorities
that such taxes have been paid. Such evidence must be furnished to LUCENT GRL
within thirty (30) days of issuance by the local taxing authority.
(b) if INTERVOICE is required to bear a tax, duty, levy, or similar charge
pursuant to (a) above, INTERVOICE shall pay such tax, duty, levy or similar
charge and any additional amounts as are necessary to ensure that the net
amounts received by LUCENT GRL hereunder after all such payments or withholdings
equal the amounts to which LUCENT GRL is otherwise entitled under this
Agreement as if such tax, duty, levy or similar charge did not apply.
(c) LUCENT GRL represents that it is not aware of any tax, duty, or levy
which INTERVOICE will have to pay under Section 4.04(a), above, as a result of
the operation or existence of this Agreement.
4.05 CHOICE OF LAW
The parties are familiar with the principles of New York commercial law, and
agree that the law of New York shall apply in any dispute arising with respect
to this Agreement, exclusive of conflicts of law provisions.
4.06 INTEGRATION
This Agreement sets forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges all prior discussions between
them. Neither of the parties shall be bound by any modifications, warranties,
understandings or representations with respect to such subject matter other than
as expressly provided herein or in a writing signed with or subsequent to
execution hereof by an authorized representative of the party to be bound
thereby.
4.07 OUTSIDE THE UNITED STATES
(a) There are countries in which the owner of an invention is entitled to
compensation, damages or other monetary award for another's unlicensed
manufacture, sale, lease, use or importation involving such invention prior to
the date of issuance of a patent for such invention but on or after a certain
earlier date, hereinafter referred to as the invention's "protection
commencement date" (e.g., the date of publication of allowed claims or the date
of publication or "laying open" of the filed patent application). In some
instances, other conditions precedent must also be fulfilled (e.g., knowledge or
actual notification of the filed patent application). The parties agree that (i)
an invention which has a protection
7
<PAGE> 10
commencement date in any such country may be used in such country pursuant to
the terms of this Agreement on and after any such date, and (ii) all such
conditions precedent are deemed satisfied by this Agreement.
(b) There may be countries in which a party hereto may have, as a
consequence of this Agreement, rights against infringers of the other party's
patents licensed hereunder. Each party hereby waives any such right it may have
by reason of any third party's infringement or alleged infringement of any such
patents.
4.08 DISPUTE RESOLUTION
(a) If a dispute arises out of or relates to this Agreement, or the
breach, termination or validity thereof, the parties agree to submit the
dispute to a sole arbitrator selected by the parties within thirty (30) days of
the arbitration, or in the absence of such selection, to American Arbitration
Association arbitration, which shall be governed by the United States
Arbitration Act.
(b) Any award made (i) shall be a bare award limited to a holding for or
against a party and affording such remedy as is deemed equitable, just and
within the scope of the agreement; (ii) shall be without findings as to issues
(including but not limited to patent validity and/or infringement) or a
statement of the reasoning on which the award rests; (iii) may in appropriate
circumstances (other than patent disputes) include injunctive relief; (iv)
shall be made within four (4) months of the appointment of the arbitrator; and
(v) may be entered in any court.
(c) The requirement for and arbitration shall not be deemed a waiver of
any right of termination under this Agreement and the arbitrator is not
empowered to act or make any award other than based solely on the rights and
obligations of the parties prior to any such termination.
(d) The arbitrator shall be knowledgeable in the legal and technical
aspects of this Agreement and shall determine issues of arbitrability but may
not limit, expand or otherwise modify the terms of the agreement.
(e) The place of arbitration shall be New York City.
(f) Each party shall bear its own expenses but those related to the
compensation and expenses of the arbitrator shall be borne equally.
(g) A request by a party to a court for interim measures shall not be
deemed a waiver of the obligation to arbitrate.
8
<PAGE> 11
(h) The arbitrator shall not have authority to award punitive or other
damages in excess of compensatory damages and each party irrevocably waives any
claim thereto.
(i) The parties, their representatives, other participants and the
arbitrator shall hold the existence, content and result of arbitration in
confidence.
4.09 RELEASES
(a) In consideration of the receipt of the sum specified in Section 2.01
and other good and valuable consideration paid by INTERVOICE to LUCENT GRL,
subject to Section 4.09(c), LUCENT GRL, for itself and for its RELATED
COMPANIES, hereby releases INTERVOICE and its RELATED COMPANIES from all
claims, demands and rights of actions which LUCENT GRL or any of its RELATED
COMPANIES may have on account of any infringement or alleged infringement of
LUCENT GRL's PATENTS issued in any country of the world by reason of the
manufacture, offer for sale, use, lease, sale or importation of LICENSED
PRODUCTS prior to the effective date of this Agreement. The releases granted do
not include any releases for contributory infringement or inducing infringement
under United States law and foreign equivalents thereof. Notwithstanding the
foregoing, LUCENT GRL agrees for itself and its RELATED COMPANIES that they
shall not bring suit or otherwise exercise any of their other remedies under
LUCENT GRL's PATENTS against INTERVOICE or its RELATED COMPANIES for
contributory infringement or inducing infringement unless they have exhausted
all remedies under their patents against the direct infringer for the direct
infringement which gives rise to such contributory or inducing infringement.
(b) Subject to Section 4.09(c), INTERVOICE, for itself and for its RELATED
COMPANIES, hereby releases LUCENT GRL (for this release, "LUCENT GRL" includes
Lucent Technologies Inc. and its SUBSIDIARIES as they formerly existed as a part
of AT&T Corp.) and its RELATED COMPANIES from all claims, demands and rights of
actions which INTERVOICE or any of its RELATED COMPANIES may have on account of
any infringement or alleged infringement of INTERVOICE'S PATENTS issued in any
country of the world by reason of the manufacture, offer for sale, use, lease,
sale or importation of LICENSED PRODUCTS prior to the effective date of this
Agreement. The releases granted do not include any releases for contributory
infringement or inducing infringement under United States law and foreign
equivalents thereof. Notwithstanding the foregoing, INTERVOICE agrees for itself
and its RELATED COMPANIES that they shall not bring suit or otherwise exercise
any of their other remedies under INTERVOICE'S PATENTS against LUCENT GRL or its
RELATED COMPANIES for contributory infringement or inducing infringement unless
they have exhausted all remedies under their patents against the direct
infringer for the direct infringement which gives rise to such contributory or
inducing infringement.
9
<PAGE> 12
(c) LUCENT GRL, for itself and its present RELATED COMPANIES, hereby
releases customers (purchasers and users) of products sold to such customers by
INTERVOICE and its present RELATED COMPANIES from all claims, demands and
rights of action which LUCENT GRL or any of its present RELATED COMPANIES may
have as of the effective date hereof on account of any infringement or alleged
infringement of any patent issued in any country of the world by reason of the
use, lease, offer for sale, sale or importation of any such products.
INTERVOICE, for itself and its present RELATED COMPANIES, hereby releases
customers (purchasers and users) of products sold to such customers by LUCENT
GRL and its present RELATED COMPANIES from all claims, demands and rights of
action which INTERVOICE or any of its present RELATED COMPANIES may have as of
the effective date hereof on account of any infringement or alleged
infringement of any patent issued in any country of the world by reason of the
use, lease, offer for sale, sale or importation of any such products. Such
releases do not extend to any claim of any patent which is directed to (1) a
method or process other than a method or process the inventive steps of which
are implemented primarily by the LICENSED PRODUCT in the operation of that
LICENSED PRODUCT, (2) a method or process involving the use of a LICENSED
PRODUCT to manufacture (including associated testing) any other product, or (3)
a method or process involving the use of a LICENSED PRODUCT in combination with
any item not furnished by the grantee unless the method or process to which the
claim is directed would reside primarily in use or operation of the LICENSED
PRODUCT.
4.10 COUNTERPARTS
This Patent License Agreement may be executed by the Parties in identical
counterparts, all of which together shall constitute the final agreement.
Executed counterparts may be exchanged by facsimile transmission.
ARTICLE V
PRIOR LICENSE AGREEMENT
5.01 PRIOR AGREEMENT
VMX, Inc. and InterVoice, Inc. are parties to a Patent License Agreement
effective September 1, 1991 (hereinafter called the "Prior License Agreement"),
relating to certain voice messaging and automated attendant patents.
10
<PAGE> 13
*Confidential Treatment has been requested for portions of this exhibit.
5.02 RETAINED RIGHTS
(a) All licenses, rights and obligations under said Prior License Agreement
shall remain in effect. Notwithstanding anything to the contrary in this
Agreement, any patents licensed to InterVoice, Inc. pursuant to the Prior
License Agreement shall be excluded from the definition of LUCENT'S PATENTS. *
(b) The parties recognize that an audit of payments by InterVoice, Inc.
under the Prior License Agreement was pending during the negotiation of this
Agreement, and that LUCENT GRL has relied on statements made by INTERVOICE and
its RELATED COMPANIES regarding products sold under the Prior License Agreement.
INTERVOICE, on behalf of itself and its RELATED COMPANIES, represents to LUCENT
GRL that, as of the effective date of this Agreement, INTERVOICE and its RELATED
COMPANIES have not sold more than one hundred (100) systems or units which use
or include the subject matter of either the "Ladd Patents" or the "Matthews
Patent," as those terms are defined in the Prior License Agreement.
11
<PAGE> 14
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
in duplicate originals by its duly authorized representatives on the respective
dates entered below.
LUCENT TECHNOLOGIES GRL CORPORATION
By: /s/ GENE G. PARTHOW
--------------------------------------------
Name: Gene G. Parthow
------------------------------------------
Title: Chairman
-----------------------------------------
Date: 9/24/99
------------------------------------------
INTERVOICE LIMITED PARTNERSHIP
By: InterVoice GP, Inc.
its General Partner
By: /s/ ROB-ROY J. GRAHAM
-----------------------------
Rob-Roy J. Graham
Secretary/Treasurer
Date: 9/24/99
---------------------------
THIS AGREEMENT DOES NOT BIND OR OBLIGATE EITHER PARTY
IN ANY MANNER UNLESS DULY EXECUTED BY AUTHORIZED
REPRESENTATIVES OF BOTH PARTIES.
12
<PAGE> 15
DEFINITIONS APPENDIX
ACQUISITION SUBSIDIARY means a SUBSIDIARY of another company, which SUBSIDIARY
is organized for the express purpose of acquiring all or substantially all of
the assets and/or stock of InterVoice-Brite, Inc. by merger or otherwise, and
either InterVoice-Brite, Inc. or the ACQUISITION SUBSIDIARY is the surviving
company in any such merger. Any such SUBSIDIARY shall not have any products or
services of its own prior to the date of any such acquisition.
AUTOMATED CALL AND TRANSACTION PROCESSING SYSTEMS means all products and
services which automate the processing of telecommunication transactions under
customer-specific application control (which may include a system designed to
be modified for the specific customer by another party using a toolkit or
otherwise, to achieve customer-specific application control) and the operations
in support thereof (collectively, "Telecommunications Transactions"). Such
systems may include subsystems under application control which, without
limitation, gather, generate, manipulate, switch, store, communicate or
reproduce calls or data. Telecommunication Transactions may contain, without
limitation, audio, video, multimedia, other media and other types of information
communicated over any public or private networks, including, but not restricted
to, internet or intranet networks.
It is understood that the definition of AUTOMATED CALL AND TRANSACTION
PROCESSING SYSTEM includes, without limitation, (a) all hardware and software
products and services offered for sale (or license) as of the effective date by
INTERVOICE or RELATED COMPANIES of INTERVOICE; (b) all enhancements,
improvements, new releases, and new versions to or of such products and
services, which automate Telecommunications Transactions.
INTERVOICE'S PATENTS means every patent (including utility models but excluding
design patents and design registrations) issued in any country of the world
owned and controlled by INTERVOICE or its RELATED COMPANIES and issued on or
claiming priority from an application filed prior to the effective date of this
Agreement in any country of the world, with respect to which and to the extent
that INTERVOICE or its RELATED COMPANIES has a right, as of the date of
execution of this Agreement, to grant the licenses granted herein.
LICENSED PRODUCT means, as to any grantee, any product (including any specified
combination of other products) listed for such grantee in Section 1.01.
LUCENT'S PATENTS means every patent (including utility models but excluding
design patents and design registrations) issued in any country of the world
owned and controlled by LUCENT GRL or its RELATED COMPANIES and issued on or
claiming priority from an application filed prior to the effective date of this
Agreement in any country of the world, with respect to which and to the extent
that
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<PAGE> 16
LUCENT GRL or its RELATED COMPANIES has a right, as of the date of execution of
this Agreement, to grant the licenses granted herein. Notwithstanding the
foregoing, LUCENT'S PATENTS does not include any patent licensed under the
Prior License Agreement.
RELATED COMPANIES of LUCENT GRL are Lucent Technologies Inc., SUBSIDIARIES of
Lucent Technologies Inc. (other than LUCENT GRL), and any other company so
designated in writing signed by LUCENT GRL and INTERVOICE.
RELATED COMPANIES of INTERVOICE are InterVoice-Brite, Inc., SUBSIDIARIES of
InterVoice-Brite, Inc., (other than InterVoice Limited Partnership), any
ACQUISITION SUBSIDIARY, and any other company so designated in writing signed
by LUCENT GRL and INTERVOICE.
SUBSIDIARY of a company means a corporation or other legal entity (i) the
majority of whose shares or other securities entitled to vote for election of
directors (or other managing authority) is now or hereafter controlled by such
company either directly or indirectly; or (ii) which does not have outstanding
shares or securities but the majority of whose ownership interest representing
the right to manage such corporation or other legal entity is now or hereafter
owned and controlled by such company either directly or indirectly; but any
such corporation or other legal entity shall be deemed to be a SUBSIDIARY of
such company only as long as such control or ownership and control exists.
14
<PAGE> 1
EXHIBIT 10.2
INTERVOICE-BRITE, INC.
THIRD AMENDED AND EXTENDED EMPLOYMENT AGREEMENT
This Third Amended and Extended Employment Agreement (this "Agreement")
executed as of August 17, 1999 by and between InterVoice-Brite, Inc., a Texas
corporation formerly known as InterVoice, Inc. with its principal executive
offices at 17811 Waterview Parkway, Dallas, Texas 75252 (the "Company"), and
Daniel D. Hammond (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee is presently employed by the Company pursuant to
that certain Second Amended and Extended Employment Agreement dated June 21,
1996, as amended by the First Amendment thereto dated June 25, 1996
(collectively, the "Old Agreement"), between the Company and the Employee; and
WHEREAS, the Employee and the Company desire to amend the terms and
conditions of the Old Agreement to, among other things, extend the term of the
Employee's employment by the Company, further define the Employee's bonus
opportunity and grant additional stock options to the Employee.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and subject to the
terms and conditions hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS.
In addition to the words and terms elsewhere defined in this Agreement,
the following words and terms as used herein shall have the following meanings,
unless the context or use indicates a different meaning:
"Annualized Compensation Amount" means an amount equal to the
annualized salary payable and bonuses accrued or payable to the Employee
pursuant to Section 4 of this Agreement during the most recent completed fiscal
year of the Company.
"Applicable EPS Bonus Percentage" means the percentage set forth in the
right hand column below as determined (i) for the Company's fiscal year ending
February 29, 2000, with reference to the Company's earnings per share for such
fiscal year as set forth in the table below entitled "Applicable EPS Bonus
Percentage: Fiscal 2000" and (ii) for each of the Company's fiscal years ending
February 28, 2001, 2002 and 2003, with reference to the increase or decrease in
the Company's earnings per share between such fiscal year and the greater of
$.68 or the Company's earnings per share for the immediately preceding fiscal
year as set forth in the table below entitled "Applicable EPS Bonus Percentage:
Fiscal 2001-2003":
<PAGE> 2
APPLICABLE EPS BONUS PERCENTAGE: FISCAL 2000
<TABLE>
<CAPTION>
Applicable EPS
Earnings Per Share Bonus Percentage
------------------ ----------------
<S> <C>
$0.82 or more 125%
$0.75 to $0.81 100%
$0.66 to $0.74 75%
$0.61 to $0.65 50%
$0.60 or less 0%
</TABLE>
APPLICABLE EPS BONUS PERCENTAGE: FISCAL 2001-2003
<TABLE>
<CAPTION>
Increase or Decrease in Earnings
per Share in Applicable Fiscal Applicable EPS
Year Compared to Prior Fiscal Year Bonus Percentage
---------------------------------- ----------------
<S> <C>
40% or more increase 125%
35% through 39% increase 100%
25% through 34% increase 75%
10% through 24% increase 50%
0% through 9% increase 25%
1% through 10% decrease 10%
11% or more decrease 0%
</TABLE>
The Company's earnings per share for its fiscal year ending February 29, 2000
shall be determined net of (i) any nonrecurring charges relating to the
Company's acquisition of Brite Voice Systems, Inc. and (ii) any other charges
and/or benefits associated with unusual transactions as determined by the Board
of Directors of the Company in its reasonable discretion (with Employee
abstaining from any such determination).
"Applicable Revenue Bonus Percentage" means the percentage set forth in
the right hand column below as determined (i) for the Company's fiscal year
ending February 29, 2000, with reference to the Company's total revenues for
such fiscal year as set forth in the table below entitled "Applicable Revenue
Bonus Percentage: Fiscal 2000" and (ii) for each of the Company's fiscal years
ending February 28, 2001, 2002 and 2003, with reference to the increase or
decrease in the Company's total revenues between such fiscal year and the
greater of $320,000,000 or the Company's total revenues for the immediately
preceding fiscal year as set forth in the table below entitled "Applicable
Revenue Bonus Percentage: Fiscal 2001-2003":
2
<PAGE> 3
APPLICABLE REVENUE BONUS PERCENTAGE: FISCAL 2000
<TABLE>
<CAPTION>
Applicable Revenue
Total Revenue Bonus Percentage
------------- ----------------
<S> <C>
$384,000,000 or more 125%
$352,000,000 to $383,999,999 100%
$320,000,000 to $351,999,999 75%
$288,000,000 to $319,999,999 50%
$287,999,999 or less 0%
</TABLE>
APPLICABLE REVENUE BONUS PERCENTAGE: FISCAL 2001-2003
<TABLE>
<CAPTION>
Increase or Decrease in Revenues
in Applicable Fiscal Year Applicable Revenue
Compared to Prior Fiscal Year Bonus Percentage
----------------------------- ----------------
<S> <C>
40% or more increase 125%
35% through 39% increase 100%
25% through 34% increase 75%
10% through 24% increase 50%
0% through 9% increase 25%
Decrease in revenues 0%
</TABLE>
For purposes of determining the Company's total revenues for its fiscal year
ending February 29, 2000, the total revenues of Brite Voice Systems, Inc. for
the quarter ended March 31, 1999 shall be added to the Company's reported
revenues for the fiscal year ending February 29, 2000.
"Cause" means (a) any act by the Employee that is materially adverse to
the best interests of the Company and which, if the subject of a criminal
proceeding, could result in a criminal conviction for a felony or (b) the
willful failure by the Employee to substantially perform his duties hereunder,
which duties are within the control of the Employee (other than the failure
resulting from the Employee's incapacity due to physical or mental illness),
provided, however, that the Employee shall not be deemed to be terminated for
Cause under this subsection (b) unless and until (1) after the Employee receives
written notice from the Company specifying with reasonable particularity the
actions of Employee which constitute a violation of this subsection (b) and (2)
within a period of 30 days after receipt of such notice (and during which the
violation is within the control of the Employee), Employee fails to reasonably
and prospectively cure such violation.
"Common Stock" means the Company's common stock, no par value per
share.
An "Event of Default" means the occurrence of any of the following
events prior to the Triggering Date, unless remedied or otherwise cured within
30 days after the Company's receipt of written notice from the Employee of such
event, (a) a breach by the Company of any of its express or implied obligations
under this Agreement, (b) without his prior concurrence, the Employee is
assigned any duties or responsibilities that are inconsistent with his position,
duties, responsibilities or status at the commencement of the term of this
Agreement, or his reporting responsibilities or
3
<PAGE> 4
titles in effect at such time are changed, (c) the Employee's base compensation
is reduced or any other failure by the Company to comply with Section 4, or (d)
any change in any employee benefit plans or arrangements in effect on the date
hereof in which the Employee participates (including without limitation any
pension and retirement plan, savings and profit sharing plan, stock ownership or
purchase plan, stock option plan, or life, medical or disability insurance
plan), which would adversely affect the Employee's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to all
executive officers of the Company and does not result in a proportionately
greater reduction in the rights of or benefits to the Employee as compared to
any other executive officer of the Company.
"Good Reason" means the occurrence of a Triggering Event (as defined
below) and (a) a breach by the Company of any of its express or implied
obligations under this Agreement, (b) without his prior concurrence, the
Employee is assigned any duties or responsibilities that are inconsistent with
his position, duties, responsibilities or status at the commencement of the term
of this Agreement, or his reporting responsibilities or titles in effect at such
time are changed, (c) the Employee's base compensation is reduced or any other
failure by the Company to comply with Section 4, (d) any change in any employee
benefit plans or arrangements in effect on the date hereof in which the Employee
participates (including without limitation any pension and retirement plan,
savings and profit sharing plan, stock ownership or purchase plan, stock option
plan, or life, medical or disability insurance plan), which would adversely
affect the Employee's rights or benefits thereunder, unless such change occurs
pursuant to a program applicable to all executive officers of the Company and
does not result in a proportionately greater reduction in the rights of or
benefits to the Employee as compared to any other executive officer of the
Company, or (e) the shareholders of the Company shall fail to elect the Employee
as a member of the Board of Directors of the Company.
"Triggering Date" means the date of a Triggering Event.
A "Triggering Event" shall be deemed to have occurred if (a) any person
or group (as such terms are used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or
indirectly, of securities of the Company representing more than 20% of the
combined voting power of the Company's then outstanding securities, or (b) at
any annual or special meeting of shareholders of the Company one or more
directors are elected who were not nominated by management of the Company to
serve on the Board of Directors of the Company, or (c) the Company is merged or
consolidated with another corporation and as a result of such merger or
consolidation less than 51% of the outstanding voting securities of the
surviving or resulting corporation are owned in the aggregate by the former
shareholders of the Company, other than by a party to such merger or
consolidation or affiliates (within the meaning of the Exchange Act) of any
party to such merger or consolidation, as the same existed immediately prior to
such merger or consolidation, or (d) the Company sells all or substantially all
of its assets to another corporation which is not a wholly-owned subsidiary of
the Company.
4
<PAGE> 5
2. EMPLOYMENT.
The Company hereby employs the Employee and the Employee hereby accepts
employment on the terms and conditions set forth herein.
3. TERM.
The initial term of this Agreement shall be from August 17, 1999 until
February 28, 2003 unless sooner terminated in accordance with the provisions
herein regarding termination. Subject to earlier termination as provided herein,
the initial term of this Agreement shall be automatically extended for one (1)
year from March 1, 2003, unless either the Employee or the Company gives written
notice to the other six months or more prior to February 28, 2003. To the extent
the Old Agreement was automatically renewed as of March 1, 1999, the Old
Agreement is hereby terminated and replaced in all respects by this Agreement
effective as of August 17, 1999.
4. COMPENSATION.
(a) Base Salary. For all services rendered by the Employee under this
Agreement, the Company shall pay the Employee a base salary of $341,640 per
year. Such salary shall be payable in equal monthly installments in accordance
with the customary payroll policies of the Company in effect at the time such
payment is made, or as otherwise mutually agreed upon. Effective as of March 1
of each year during the term hereof, the Compensation Committee of the Company
shall review Employee's performance for the prior fiscal year and make such
adjustments in base salary from time to time at their discretion as the Employee
and the Company may agree.
(b) Annual Bonus. Effective for the Company's fiscal year ending
February 29, 2000 and continuing with respect to each subsequent fiscal year
thereafter during the term of this Agreement, the Company will pay Employee an
annual bonus equal to the sum of (a) the mathematical product of Employee's base
salary pursuant to Subsection 4(a) for such fiscal year multiplied by the
Applicable Revenue Bonus Percentage and (b) the mathematical product of the
Employee's base salary pursuant to Subsection 4(a) for such fiscal year
multiplied by the Applicable EPS Bonus Percentage. Employee's bonus pursuant to
this Subsection 4(b) shall be earned as of the end of the Company's fiscal year
and payable within five days after the Company's receipt of its audited annual
financial statements. The formula set forth herein for determining annual
bonuses shall be adjusted from time to time when and if there occur stock splits
or other changes in capital structure which result in an increase or decrease in
outstanding capital stock of more than 25%.
(c) Bonus. In addition to the Employee's annual base salary and other
benefits provided for in this Agreement, the Company may pay to the Employee on
an annual basis a discretionary bonus in an amount to be approved by the Board
of Directors of the Company; provided, however, in no event shall the bonus
payable hereunder, if any, exceed Employee's annual base salary provided for in
Section 4(a).
(d) Benefits. The Employee shall be entitled to participate in or
receive benefits under any employee benefit plan or arrangement made available
by the Company in the future to its
5
<PAGE> 6
executive officers and key management personnel, subject to and on a basis
consistent with the terms, conditions and overall administration of such plan or
arrangement. Nothing paid to the Employee under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of the salary and bonuses payable to the Employee pursuant to Subsections
4(a), (b) and (c).
(e) Stock Option. In consideration of the Employee's execution of this
Agreement, the Company has granted effective August 17, 1999 an option to
purchase 300,000 shares of the Company's Common Stock to the Employee pursuant
to the Company's 1999 Stock Option Plan. The exercise price for such option will
be the closing price for the Company's Common Stock on the Nasdaq National
Market on August 17, 1999. The option will vest in three equal components of
100,000 shares each on August 17 in each of 2000, 2001 and 2002.
(f) Expenses. Upon receipt of itemized vouchers, expense account
reports, and supporting documents submitted to the Company in accordance with
the Company's procedures from time to time in effect, the Company shall
reimburse Employee for all reasonable and necessary travel, entertainment, and
other reasonable and necessary business expenses incurred ordinarily and
necessarily by Employee in connection with the performance of his duties
hereunder.
(g) Vacation. Employee shall be entitled to a minimum of 6 weeks paid
vacation during each twelve month period commencing on the effective date of
this Agreement.
5. POSITION, DUTIES, EXTENT OF SERVICES AND SITUS.
(a) Position and Duties. Employee shall serve as the Chairman of the
Board and Chief Executive Officer of the Company, accountable only to the Board
of Directors of the Company and, subject to the authority of such board, shall
have supervision and control over, and responsibility for, the general
management and operation of the Company and shall have such other powers and
duties as may from time to time be prescribed by such board, provided that such
duties are reasonable and customary for a Chairman of the Board and Chief
Executive Officer of a public company.
(b) Extent of Services and Situs. The Employee shall devote
substantially all of his business time, attention, and energy to the business
and affairs of the Company and shall not during the term of his employment under
this Agreement engage in any other business activity which could constitute a
conflict of interest, whether or not such business activity is pursued for gain,
profit, or other pecuniary advantage. This shall not be construed as preventing
the Employee from managing his current investments or investing his assets in
such form or manner as will not require any services on the part of the Employee
in the operation and the affairs of the companies in which such investments are
made, subject to the provisions of Sections 6 and 27. The Employee shall not be
required to change the principal place of his employment to a location which is
more than 15 miles further away from his principal residence than such principal
place of employment at the time of the execution of this Agreement.
6
<PAGE> 7
6. COVENANT NOT TO COMPETE.
(a) The Employee acknowledges that (i) as a result of his position and
tenure with the Company he has received and will continue to receive specialized
and unique training and knowledge concerning the Company, its business, its
customers and the industry in which it competes, (ii) the Company's business, in
large part, depends upon its exclusive possession and use of the Proprietary
Information (as defined in Section 27), (iii) the Company is entitled to
protection against the unauthorized disclosure or use by Employee of the
Proprietary Information or the training and knowledge received by the Employee
and (iv) he has received in this Agreement good and valuable consideration for
the covenants he is making in this Section 6 and in Section 27. The Company and
the Employee acknowledge and agree that the covenants contained in this Section
6 and in Section 27 are reasonably necessary for the protection of the Company
and are reasonably limited with respect to the activities they prohibit, their
duration, their geographical scope and their effects on the Employee and the
public. The parties acknowledge that the purpose and effect of the covenants are
to protect the Company from unfair competition by the Employee.
(b) Except as provided in the last sentence of this Section 6(b),
during the period in which the Employee renders services to the Company under
this Agreement and for eighteen (18) months thereafter, the Employee shall not,
without the written consent of the Company, own, manage, operate, control, serve
as an officer, director, employee, partner or consultant of or be connected in
any way with or have any interest in any corporation, partnership,
proprietorship or other entity which carries on business activities in
competition with the Company's activities in any state of the United States or
in any foreign country in which the Company has sold or installed its products
or systems or has definitive plans to sell or install its products at any time
prior to or at the time of the date of termination of the Employee's employment;
except that the Employee may own up to 1% of the shares of any publicly-owned
corporation, provided that none of his other relationships with such corporation
violates such covenant. Notwithstanding the foregoing, the provisions of this
Section 6 shall not apply if the Employee's employment with the Company under
this Agreement is terminated (i) by the Company, unless the Employee is
terminated in accordance with Section 7 or for Cause in accordance with
Subsection 9.1(a) or 9.2(a), or (ii) at the election of the Employee prior to
the Triggering Date after the occurrence of an Event of Default which has not
been waived in writing or on or after the Triggering Date for Good Reason.
(c) The Company and the Employee hereby agree that in the event that
the noncompetition covenants contained herein should be held by any court or
other constituted legal authority of competent jurisdiction to be effective in
any particular area or jurisdiction only if said covenants are modified to limit
their duration, geographical area or scope, then the parties hereto will
consider Section 6 to be amended and modified with respect to that particular
area or jurisdiction so as to comply with the order of any such court or other
constituted legal authority and, as to all other jurisdictions or political
subdivisions thereof, the noncompetition covenants contained herein will remain
in full force and effect as originally written. The Company and the Employee
further agree that in the event that the noncompetition covenants contained
herein should be held by any court or other constituted legal authority of
competent jurisdiction to be void or otherwise unenforceable in any particular
area or jurisdiction notwithstanding the operation of this Section 6(c), then
the parties hereto will consider this Section 6 to be amended and modified so as
to eliminate therefrom that
7
<PAGE> 8
particular area or jurisdiction as to which such noncompetition covenants are so
held void or otherwise unenforceable, and, as to all other areas and
jurisdictions covered by the noncompetition covenants, the terms and provisions
hereof shall remain in full force and effect as originally written.
(d) Employee recognizes and acknowledges that the Company would suffer
irreparable harm and substantial loss if Employee violated any of the terms and
provisions of this Section 6 or Section 27 and that the actual damages which
might be sustained by the Company as the result of any breach of this Section 6
or Section 27 would be difficult to ascertain. Employee agrees, at the election
of the Company and in addition to, and not in lieu of, the Company's right to
terminate Employee's employment and to seek all other remedies and damages which
the Company may have at law and/or equity for such breach, that the Company
shall be entitled to an injunction restraining Employee from breaching any of
the terms or provisions of this Section 6 or Section 27.
7. COMPENSATION IN THE EVENT OF DISABILITY.
(a) Disability. If the Employee becomes disabled during the term of
this Agreement the Company shall cause to be paid to the Employee an amount
equal to his base salary in effect at the time of disability under Subsection
4(a), for the shorter of the duration of the disability or the remainder of the
term of this Agreement and, subject to the provisions of Sections 22 and 25,
with no liability on its part for further payments to the Employee during the
duration of the disability. Subject to Subsection 7(b) below, full compensation
shall be reinstituted upon his return to employment and resumption of his
duties. For purposes of this Subsection 7(a) the Employee shall be deemed
"disabled" when he is unable, for a period of 90 consecutive days, to perform
his normal duties of employment due to bodily injury or disease or any other
physical or mental disability.
(b) Complete Disability. The Company shall have the right to terminate
the Employee's employment under this Agreement prior to the expiration of the
term upon the "Complete Disability" of the Employee as hereinafter defined
(provided, however, that the obligations of the Company under Subsection 7(a)
shall not terminate). The term "Complete Disability" as used in this Subsection
7(b) shall mean (i) the total inability of the Employee, due to bodily injury or
disease or any other physical or mental incapacity, to perform the services
provided for hereunder for a period of 120 days, in the aggregate, within any
given period of 180 consecutive days during the term of this Agreement, and (ii)
where such inability will, in the opinion of a qualified physician (reasonably
acceptable to Employee), be permanent and continuous during the remainder of his
life.
8. COMPENSATION IN THE EVENT OF DEATH.
If the Employee dies during the term of his employment, the Company
shall pay to such person as the Employee shall designate in a notice filed with
the Company, or, if no such person shall be designated, to his estate as a death
benefit, his base salary in effect at the time of his death pursuant to
Subsection 4(a), in equal semi-monthly installments on the first and fifteenth
day of each month immediately succeeding his death, for a period of months (not
exceeding 12) determined by multiplying the number of complete 12-month periods
of employment of the Employee by the Company (whether pursuant to an employment
agreement or not) by two, in addition to any payments the Employee's spouse,
beneficiaries, or estate may be entitled to receive pursuant to any pension or
employee benefit plan or life insurance policy maintained by the Company, and,
except
8
<PAGE> 9
for any obligations of the Company under Sections 22 and 25, all other
obligations of the Company hereunder shall cease at the time of the Employee's
death.
9. TERMINATION.
9.1 Termination Prior to the Triggering Date. (a) Upon at least 30
days' prior written notice to the Employee and prior to the Triggering Date, the
Company may terminate the Employee's employment with the Company under this
Agreement only for Cause or in accordance with Section 7 and, subject to the
provisions of Sections 7, 22 and 25, with no liability on its part for further
payments to the Employee. The Company may effect a termination for Cause
pursuant to this Subsection 9.1(a) only by the affirmative vote of a majority of
the members of the Board of Directors of the Company. In voting upon such
termination for Cause, if the Employee is also a member of the Board of
Directors of the Company, then he may not vote on, and will not be considered
present for any purpose with respect to, a matter presented to the Board of
Directors of the Company pursuant to this Subsection 9.1(a).
(b) Prior to the Triggering Date, the Employee may terminate his
employment with the Company under this Agreement by giving at least 90 days'
prior written notice of his desire to terminate employment to the Board of
Directors of the Company. If the Employee's employment with the Company under
this Agreement is terminated pursuant to this Subsection 9.1(b), the Employee
will continue to accrue and receive his base salary in effect at the time
pursuant to Subsection 4(a) through the date of termination with no liability on
the part of the Company for further payments to the Employee, subject to the
provisions of Sections 22 and 25.
(c) Prior to the Triggering Date, if the Employee's employment with the
Company is terminated by the Company without Cause or if the Employee terminates
his employment with the Company following the occurrence of an Event of Default
which has not been waived in writing by the Employee, the Employee will continue
to accrue and receive his base salary in effect at the time pursuant to
Subsection 4(a) through the date of termination and will be entitled to receive
the benefits provided for under Subsection 10.1 (unless the Employee's
employment is terminated in accordance with Section 7) with no liability on the
part of the Company for further payments to the Employee, subject to the
provisions of Sections 7, 22 and 25.
9.2 Termination On or After the Triggering Date. (a) Upon at least 30
days' prior written notice to the Employee and on or after the Triggering Date,
the Company may terminate the Employee's employment with the Company under this
Agreement only for Cause or in accordance with Section 7 and, subject to the
provisions of Sections 7, 22 and 25, with no liability on its part for further
payments to the Employee. The Company may effect a termination for Cause
pursuant to this Subsection 9.2(a) only by the affirmative vote of two-thirds of
the members of the Board of Directors of the Company. In voting upon such
termination for Cause, if the Employee is also a member of the Board of
Directors of the Company, then he may not vote on, and will not be considered
present for any purpose with respect to, a matter presented to the Board of
Directors of the Company pursuant to this Subsection 9.2(a).
(b) On or after the Triggering Date, if the Employee's employment with
the Company is terminated by the Company without Cause or if the Employee
terminates his employment with the
9
<PAGE> 10
Company for Good Reason, the Employee will continue to accrue and receive his
base salary in effect at the time pursuant to Subsection 4(a) through the date
of termination and will be entitled to receive the payments and benefits
provided for under Subsections 10.2 and 10.3 (unless the Employee's employment
is terminated in accordance with Section 7) with no liability on the part of the
Company for further payments to the Employee, subject to the provisions of
Sections 7, 22 and 25.
(c) On or after the Triggering Date, the Employee may, in his sole and
absolute discretion and without any prior approval by the Board of Directors of
the Company, and upon twelve months' prior written notice to the Board of
Directors of the Company, terminate his employment with the Company under this
Agreement for any reason whatsoever. If the Employee's employment with the
Company under this Agreement is terminated pursuant to this Subsection 9.2(c),
the Employee will continue to accrue and receive his base salary in effect at
the time pursuant to Subsection 4(a) through the date of termination and will be
entitled to receive the benefits provided for under Subsections 10.2 and 10.3
with no liability on the part of the Company for further payments to the
Employee, subject to the provisions of Sections 22 and 25.
10. COMPENSATION AFTER CERTAIN TERMINATIONS.
10.1 Remaining Compensation. If the Employee's employment with the
Company is terminated (whether such termination is by the Employee or by the
Company) at any time prior to the Triggering Date for any reason other than (a)
termination by the Company for Cause in accordance with Subsection 9.1(a); (b)
termination by the Company in accordance with Section 7; (c) the Employee's
death; or (d) termination at the election of the Employee pursuant to Subsection
9.1(b) then, within five days after the date of such termination, (i) the
Remaining Compensation (as herein defined) which would have been paid to the
Employee during the remainder of the term of this Agreement if termination had
not occurred shall become due and payable and shall be paid to the Employee in a
single lump sum in cash, and (ii) all stock options granted to Employee pursuant
to Subsection 4(e) hereof which are not then exercisable shall, notwithstanding
the provisions of any other agreement, become immediately exercisable and shall
remain exercisable until they are exercised or until they otherwise would
expire. For purposes of this Subsection 10.1, the "Remaining Compensation" shall
mean the annual base salary payable to the Employee pursuant to Subsection 4 (a)
at the time of termination plus an amount representing the value of all employee
benefits including, without limitation, any unearned annual bonuses described in
Subsection 4 (b), discretionary bonuses and incentive compensation under plans
then in effect. For these purposes, the value of any unearned annual bonuses and
all of such other employee benefits shall be deemed to be equal to 12 months
base salary payable to the Employee pursuant to Subsection 4(a) at the time his
employment is terminated.
10.2 Post Triggering Date Severance Payment. If the Employee's
employment with the Company is terminated (whether such termination is by the
Employee or by the Company) at any time on or within three years after the
Triggering Date for any reason other than (a) termination by the Company for
Cause in accordance with Subsection 9.2(a) or (b) termination by the Company in
accordance with Section 7 or (c) the Employee's death or (d) termination at the
election of the Employee other than termination for Good Reason without
compliance with the retirements of
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<PAGE> 11
Section 9.2(c), then, within five days after the date of such termination, the
Company shall pay the Employee a lump sum amount in cash equal to 2.99 times the
Annualized Compensation Amount.
10.3 Gross-Up Payment. In the event that (i) the Employee becomes
entitled to the payments provided under Section 10.2 of this Agreement (the
"Change in Control Payments") and any of the Change in Control Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), or any successor provision, or
(ii) any payments or benefits received or to be received by the Employee
pursuant to the terms of any other plan, arrangement or agreement (the "Benefit
Payments") will be subject to the Excise Tax, the Company shall pay to the
Employee an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Employee, after deduction of any Excise Tax on the Change in
Control Payments and the Benefit Payments, and any federal, state and local
income tax and Excise Tax upon the payment provided for by this Section 10.3,
shall be equal to the Change in Control Payments and the Benefit Payments,
provided, however, that in determining the amount of the Gross-Up Payment, any
Excise Tax on the Change in Control Payments and the Benefit Payments shall be
determined using a rate no higher than 20%. For purposes of determining whether
any of the Change in Control Payments or the Benefit Payments will be subject to
the Excise Tax and the amount of such Excise Tax, (i) any payments or benefits
received or to be received by the Employee in connection with a change in
control of the Company or the Employee's termination of employment (whether
pursuant to the terms of this agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in change in control
or any person affiliated with the Company or such persons) shall be treated as
"parachute payments" within the meaning of Section 280G(b) (2) of the Code, and
all "excess parachute payments" within the meaning of Section 280G(b) (1) shall
be treated as subject to the Excise Tax, unless in the opinion of tax counsel
selected by the Company's independent auditors and acceptable to the Employee
such payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b) (4) of the Code, (ii) the amount of the Change in Control Payments and
the Benefit Payments that shall be treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of the Change in Control Payments
and the Benefit Payments or (B) the amount of excess parachute payments within
the meaning of Sections 280G(b)(1) and (4) (after applying clause (i), above)
and (iii) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Employee shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rates of taxation in the state and
locality of the Employee's residence on the date of termination, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of termination of the Employee's employment, the Employee shall repay to the
Company at that time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such reduction
plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time of the termination of
the Employee's employment (including by reason of any payment the existence or
amount of
11
<PAGE> 12
which cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional gross-up payment to the Employee in respect of such
excess (plus any interest payable with respect to such excess) at the time that
the amount of such excess is finally determined.
11. MITIGATION.
The Employee shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this Agreement be reduced by
any compensation earned by the Employee as the result of employment by another
employer after the date of termination of Employee's employment with the
Company, or otherwise.
12. ENTIRE AGREEMENT.
This Agreement embodies the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof and supersedes all
prior negotiations, agreements, and understandings relating to such subject
matter, and may be modified or amended only by an instrument in writing signed
by the parties hereto.
13. LAW TO GOVERN.
This Agreement is executed and delivered in the State of Texas and
shall be governed, construed and enforced in accordance with the laws of the
State of Texas.
14. ASSIGNMENT.
This Agreement is personal to the parties, and neither this Agreement
nor any interest herein may be assigned (other than by will or by the laws of
descent and distribution) without the prior written consent of the parties
hereto nor be subject to alienation, anticipation, sale, pledge, encumbrance,
execution, levy, or other legal process of any kind against the Employee or any
of his beneficiaries or any other person. Notwithstanding the foregoing, the
Company shall be permitted to assign this Agreement to any corporation or other
business entity succeeding to substantially all of the business and assets of
the Company by merger, consolidation, sale of assets, or otherwise, if the
Company obtains the assumption of this Agreement by such successor. Failure by
the Company to obtain such assumption prior to the effectiveness of such
succession shall be a breach of this Agreement and shall entitle the Employee to
receive compensation from the Company under this Agreement in the same amount
and on the same terms as he would be entitled to hereunder if he had voluntarily
terminated his employment after the Triggering Date, and, for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Triggering Date.
15. BINDING AGREEMENT.
Subject to the provisions of Section 14 of this Agreement, this
Agreement shall be binding upon and shall inure to the benefit of the Company
and the Employee and their respective representatives, successors, and assigns.
12
<PAGE> 13
16. REFERENCES AND GENDER.
All references to "Sections" and "Subsections" contained herein are,
unless specifically indicated otherwise, references to sections and subsections
of this Agreement. Whenever herein the singular number is used, the same shall
include the plural where appropriate, and words of either gender shall include
the other gender where appropriate.
17. WAIVER.
No waiver of any right under this Agreement shall be deemed effective
unless the same is set forth in writing and signed by the party giving such
waiver, and no waiver of any right shall be deemed to be a waiver of any such
right in the future.
18. NOTICES.
Except as may be otherwise specifically provided in this Agreement, all
notices required or permitted hereunder shall be in writing and will be deemed
to be delivered when deposited in the United States mail, postage prepaid,
registered or certified mail, return receipt requested, addressed to the party
or parties at 17811 Waterview Parkway, Dallas, Texas 75252, or at such other
addresses as may have theretofore been specified by written notice delivered in
accordance herewith.
19. OTHER INSTRUMENTS.
The parties hereto covenant and agree that they will execute such other
and further instruments and documents as are or may become necessary or
convenient to effectuate and carry out the terms of this Agreement.
20. HEADINGS.
The headings used in this Agreement are used for reference purposes
only and do not constitute substantive matter to be considered in construing the
terms of this Agreement.
13
<PAGE> 14
21. INVALID PROVISION.
Any clause, sentence, provision, section, subsection, or paragraph of
this Agreement held by a court of competent jurisdiction to be invalid, illegal,
or ineffective shall not impair, invalidate, or nullify the remainder of this
Agreement, but the effect thereof shall be confined to the clause, sentence,
provision, section, subsection, or paragraph so held to be invalid, illegal or
ineffective.
22. RIGHTS UNDER PLANS AND PROGRAMS.
Anything in this Agreement to the contrary notwithstanding, no
provision of this Agreement is intended, nor shall it be construed, to reduce or
in any way restrict any benefit to which the Employee may be entitled under any
other agreement, plan, arrangement, or program providing benefits for the
Employee.
23. MULTIPLE COPIES.
This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument. The terms of this Agreement
shall become binding upon each party from and after the time that he or it
executed a copy hereof. In like manner, from and after the time that any party
executes a consent or other document, such consent or other document shall be
binding upon such parties.
24. WITHHOLDING OF TAXES.
The Company may withhold from any amounts payable under this Agreement
all federal, state, city, or other taxes as shall be required pursuant to any
law or government regulation or ruling.
25. LEGAL FEES AND EXPENSES.
The Company shall pay and be responsible for all legal fees and
expenses which the Employee may incur as a result of the Company's failure to
perform under this Agreement or as a result of the Company or any successor
contesting the validity or enforceability of this Agreement.
26. SET OFF OR COUNTERCLAIM.
Except with respect to any claim against or debt or other obligation of
the Employee properly recorded on the books and records of the Company prior to
the Triggering Date, there shall be no right of set off or counterclaim against,
or delay in, any payment by the Company to the Employee or his beneficiaries
provided for in this Agreement in respect of any claim against or debt or other
obligation of the Employee, whether arising hereunder or otherwise.
14
<PAGE> 15
27. ASSIGNMENT, PROTECTION AND CONFIDENTIALITY OF PROPRIETARY
INFORMATION.
Employee acknowledges and agrees that all items of the Company's
Proprietary Information constitute valuable, special and unique assets and trade
secrets of its business, which provide to the Company a competitive advantage
over others who do not have access thereto and access to which is essential to
the performance of Employee's duties hereunder. Employee shall not, during the
term of this Agreement or thereafter, use or disclose any Proprietary
Information that is not otherwise publicly available, in whole or in part, for
his benefit or for the benefit of any other person or party, except for the
Company. As used herein, "Proprietary Information" includes, but is not limited
to, customer lists and prices, whether current or prospective, product designs
or other product information, experimental developments and other research and
development information, testing processes, marketing studies and research
activities, and any other trade secrets concerning the Company, its
shareholders, officers, directors, employees, business prospects, customers,
transactions, finances, affairs, opportunities, operations, properties or
assets. The Employee further agrees that all inventions, devices, compounds,
processes, formulas, techniques, improvements and modifications which he may
develop, in whole or in part, during the term of his employment or through or
with the facilities, equipment or resources of the Company shall be and remain
the sole and exclusive property of the Company. The Employee agrees to deliver
to the Company at any time the Company may request, all memoranda, notes, plans,
records, reports, and other documents (including copies thereof and all
embodiments thereof whether in computerized form or any other medium) relating
to the business or affairs of the Company or its subsidiaries which he may then
possess or have under his control. Employee shall maintain in good condition all
tangible and other forms of Proprietary Information in Employee's custody or
control until his obligations under the preceding sentence are satisfied.
Employee agrees to execute all documents and take such other actions as may be
required to comply with this Section.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
INTERVOICE-BRITE, INC.
By: /s/ ROB-ROY J. GRAHAM
-------------------------------------
Name: Rob-Roy J. Graham
--------------------------
Title: CHIEF FINANCIAL OFFICER
AND SECRETARY
-------------------------
/s/ DANIEL D. HAMMOND
----------------------------------------
DANIEL D. HAMMOND
15
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<PERIOD-START> MAR-01-1999
<PERIOD-END> AUG-31-1999
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0
0
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