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 June 30, 1997
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-15761
GLENAYRE TECHNOLOGIES, INC.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 98-0085742
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5935 CARNEGIE BLVD., CHARLOTTE, NORTH CAROLINA 28209
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(Address of principal executive offices) Zip Code
(704) 553-0038
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(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed
since last report)
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 number of shares outstanding of the Registrant's common stock, par value
$.02 per share, at July 22, 1997 was 60,309,184 shares.
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Glenayre Technologies, Inc. and Subsidiaries
INDEX
Part I - Financial Information:
Item 1. Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Accountant's Review Report...................................................3
Condensed Consolidated Balance Sheets as of
June 30, 1997 (Unaudited) and December 31, 1996.....................................4
Condensed Consolidated Statements of Income for the
six months ended June 30, 1997 and 1996 (Unaudited).................................5
Condensed Consolidated Statements of Income for the
three months ended June 30, 1997 and 1996 (Unaudited)...............................6
Condensed Consolidated Statement of Stockholders' Equity
for the six months ended June 30, 1997 (Unaudited)..................................7
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 (Unaudited).................................8
Notes to Condensed Consolidated Financial Statements (Unaudited).........................9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................................13
Part II - Other Information:
Item 4. Submission of Matters to a Vote of Security Holders................................18
Item 6. Exhibits and Reports on Forms 8-K..................................................18
</TABLE>
2
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Glenayre Technologies, Inc. and Subsidiaries
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Independent Accountants' Review Report
To the Board of Directors and Stockholders of
Glenayre Technologies, Inc.
Charlotte, North Carolina
We have reviewed the accompanying condensed consolidated balance sheet of
Glenayre Technologies, Inc. and subsidiaries as of June 30, 1997, and the
related condensed consolidated statements of income for the three-month periods
and six-month periods ended June 30, 1997 and 1996, the condensed consolidated
statement of stockholders' equity for the six months ended June 30, 1997 and the
condensed consolidated statements of cash flows for the six-month periods ended
June 30, 1997 and 1996. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Glenayre Technologies, Inc. as of
December 31, 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended (not presented
herein) and in our report dated January 28, 1997, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1996, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
Ernst & Young LLP
Charlotte, North Carolina
July 18, 1997
3
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Glenayre Technologies, Inc. and Subsidiaries
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CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................... $ 79,340 $ 53,785
Short-term investments....................................... 63,412 78,016
Accounts receivable, net..................................... 123,498 119,851
Trade notes receivable, current.............................. 8,356 10,236
Inventories ................................................. 49,906 50,460
Deferred income taxes........................................ 7,920 19,291
Prepaid expenses and other current assets.................... 7,008 7,957
Total Current Assets..................................... 339,440 339,596
Trade notes receivable............................................ 36,107 13,085
Property, plant and equipment, net................................ 86,426 80,501
Goodwill.......................................................... 83,829 76,818
Deferred income taxes............................................. 11,114 10,372
Other assets...................................................... 2,739 838
TOTAL ASSETS...................................................... $559,655 $521,210
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................. $ 18,897 $19,614
Accrued liabilities.......................................... 43,192 40,781
Other current liabilities.................................... 228 170
Total Current Liabilities................................ 62,317 60,565
Other liabilities................................................. 5,180 4,784
Stockholders' Equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized,
no shares issued and outstanding.......................... --- ---
Common stock, $.02 par value; authorized 200,000,000 shares;
outstanding: June 30, 1997 - 60,306,516 shares;
December 31, 1996 - 59,868,202 shares..................... 1,206 1,197
Contributed capital.......................................... 310,798 301,771
Retained earnings............................................ 180,154 152,893
Total stockholders' equity................................ 492,158 455,861
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................ $559,655 $521,210
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements.
4
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Glenayre Technologies, Inc. and Subsidiaries
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
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1997 1996
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<S> <C> <C>
NET SALES ........................................................ $215,943 $194,463
COSTS AND EXPENSES:
Costs of sales.............................................. 101,121 85,599
Selling, general and administrative expense............... 47,957 37,055
Research and development expense............................. 18,018 13,407
Depreciation and amortization expense........................ 9,285 6,376
Total Costs and Expenses................................. 176,381 142,437
INCOME FROM OPERATIONS............................................ 39,562 52,026
OTHER INCOME (EXPENSES):
Interest income.............................................. 5,043 4,821
Interest expense............................................. (35) (96)
Other, net................................................... (743) 76
Total Other Income (Expenses), net....................... 4,265 4,801
INCOME BEFORE INCOME TAXES........................................ 43,827 56,827
PROVISION FOR INCOME TAXES........................................ 15,421 16,888
NET INCOME........................................................ $28,406 $39,939
NET INCOME PER COMMON SHARE - PRIMARY............................. $ .45 $ .63
NET INCOME PER COMMON SHARE -
FULLY DILUTED................................................ $ .45 $ .62
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
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1997 1996
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<S> <C> <C>
NET SALES ........................................................ $110,172 $105,085
COSTS AND EXPENSES:
Costs of sales............................................... 50,571 45,832
Selling, general and administrative expense............... 24,513 19,041
Research and development expense............................. 9,369 7,054
Depreciation and amortization expense........................ 4,750 3,280
Total Costs and Expenses................................. 89,203 75,207
INCOME FROM OPERATIONS............................................ 20,969 29,878
OTHER INCOME (EXPENSES):
Interest income.............................................. 2,882 2,542
Interest expense............................................. (21) (43)
Other, net................................................... (814) 56
Total Other Income (Expenses), net....................... 2,047 2,555
INCOME BEFORE INCOME TAXES........................................ 23,016 32,433
PROVISION FOR INCOME TAXES........................................ 8,056 9,570
NET INCOME........................................................ $14,960 $22,863
NET INCOME PER COMMON SHARE - PRIMARY............................. $ .24 $ .36
NET INCOME PER COMMON SHARE -
FULLY DILUTED................................................ $ .24 $ .36
</TABLE>
See notes to condensed consolidated financial statements
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Glenayre Technologies, Inc. and Subsidiaries
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CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(dollars and shares in thousands)
(unaudited)
<TABLE>
<CAPTION>
Total
Common Stock Contributed Retained Stockholders'
Shares Amount Capital Earnings Equity
-------- ----------- -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1996.......... 59,868 $1,197 $301,771 $152,893 $455,861
Net Income............................ 28,406 28,406
Stock options exercised............... 126 3 1,193 1,196
Shares issued in connection with
business acquisition............... 313 6 6,535 6,541
Utilization of net operating loss
carryforwards...................... 1,145 (1,145) ---
Tax benefit of stock options
exercised.......................... 154 154
Balances, June 30, 1997...............60,307 $1,206 $310,798 $180,154 $492,158
</TABLE>
See notes to condensed consolidated financial statements
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Glenayre Technologies, Inc. and Subsidiaries
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(tabular amounts in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
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1997 1996
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<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES......................... $24,500 $65,547
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................... (12,681) (10,568)
Proceeds from sale of equipment.............................. 38 94
Maturities of short-term investments......................... 73,084 78,535
Purchases of short-term investments.......................... (58,480) (98,272)
Payments for business acquisition, net of cash acquired...... (1,122) ---
Net cash provided by (used in) investing activities...... 839 (30,211)
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in other liabilities................................. (980) (90)
Issuance of common stock..................................... 1,196 12,943
Common stock repurchases..................................... --- (2,429)
Net cash provided by financing activities................ 216 10,424
NET INCREASE IN CASH AND CASH
EQUIVALENTS................................................. 25,555 45,760
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD.................................................... 53,785 70,600
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $79,340 $116,360
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest..................................................... $ 49 $ 75
Income taxes................................................. 2,007 3,685
</TABLE>
SUPPLEMENTAL INFORMATION OF NONCASH INVESTING AND FINANCING ACTIVITIES:
On January 9, 1997, the Company acquired CNET, Inc. ("CNET"). In connection with
this acquisition the Company paid $1,194,000 (including $194,000 in acquisition
costs) and issued common stock valued at $6,541,000 for assets with a fair value
of $11,853,000 and assumed liabilities of $4,118,000.
See notes to condensed consolidated financial statements
8
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Glenayre Technologies, Inc. and Subsidiaries
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of dollars)
(unaudited)
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month and six-month periods ended
June 30, 1997 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1997. The Company's financial results in any
quarter are highly dependent upon various factors, including the timing and size
of customer orders and the shipment of products for large orders. Large orders
from customers can account for a significant portion of products shipped in any
quarter. Accordingly, the shipment of products in fulfillment of such large
orders can dramatically affect the results of operations of any single quarter.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Glenayre Technologies, Inc. Annual Report on
Form 10-K for the year ended December 31, 1996.
1. BUSINESS ACQUISITION
On January 9, 1997, the Company completed the acquisition of CNET, Inc.
("CNET"), located in Plano, Texas. CNET develops and provides integrated
operational support systems, network management, traffic analysis, and radio
frequency propagation software products and services for the global wireless
communications industry. CNET licenses its products to cellular, paging and
personal communications services operators and wireless equipment manufacturers
worldwide. The purchase price of $7.7 million consisted of 369,983 shares of the
Company's common stock (including 56,620 shares issuable upon exercise of stock
options) valued at $6.5 million, $1.0 million in cash and $194,000 in
acquisition costs. The acquisition was accounted for as a purchase business
combination and the purchase price was assigned to the net assets acquired based
on the fair values of such assets and liabilities at the date of the
acquisition, as follows:
Current assets.......................... $1,752
Equipment............................... 412
Goodwill................................ 9,343
Other non-current assets................ 346
Liabilities assumed..................... (4,118)
$7,735
2. INVENTORIES
<TABLE>
<CAPTION>
June 30, December 31,
Inventories consist of: 1997 1996
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<S> <C> <C>
Raw materials........................... $24,997 $25,656
Work-in-process:
Uncompleted contracts................ 3,903 3,757
Other................................ 6,379 7,603
Finished goods........................... 14,627 13,444
$49,906 $50,460
</TABLE>
9
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3. GOODWILL
Goodwill is shown net of accumulated amortization of $14.7 million and
$12.4 million at June 30, 1997 and December 31, 1996, respectively.
4. INCOME TAXES
The Company's consolidated income tax provision was different from the
amount computed using the U.S. statutory income tax rate for the following
reasons:
<TABLE>
<CAPTION>
Three Months Ended June Six Months Ended June
30, 30,
-------------------------- -------------------------
1997 1996 1997 1996
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Income tax provision at U.S. statutory rate............ $8,055 $11,351 $15,339 $19,889
Reduction in valuation allowance....................... (902) (650) (1,145) (2,492)
Foreign taxes at rates other than U.S.
statutory rate...................................... (72) (1,742) (630) (1,980)
State taxes (net of federal benefit)................... 560 1,054 1,039 1,847
U.S. Research and Experimentation Credits.............. --- (744) --- (977)
Non-deductible goodwill amortization................... 415 301 818 601
Income tax provision................................... $8,056 $9,570 $15,421 $16,888
</TABLE>
Subsequent to the quasi-reorganization completed on February 1, 1988, as
described in Note 5, the benefits derived from the utilization of tax net
operating loss carryforwards are reported in the statement of operations in the
year such tax benefits are realized and then reclassified from retained earnings
to contributed capital. The Company adopted the accounting method for
utilization of these tax net operating loss carryforwards outlined above on
February 1, 1988. On September 28, 1989, the Securities and Exchange Commission
("SEC") released Staff Accounting Bulletin No. 86 ("SAB 86") which set forth the
SEC staff's position with respect to this accounting treatment. According to the
SEC staff's interpretation of Statement of Financial Accounting Standards No.
96, "Accounting for Income Taxes," contained in SAB 86, realized tax benefits
should be reported as a direct addition to contributed capital. Subsequently,
the Company consulted with the SEC staff and determined that the SEC staff would
not object to the accounting method outlined above for companies which had
adopted such accounting methods prior to the issuance of SAB 86.
If the original guidance in SAB 86 had been applied, the Company's net
income for the three-month and six-month periods ended June 30, 1997 and 1996
would have been reduced by the amount of the benefit from utilization of tax net
operating loss carryforwards. Such reduction in net income would have been $902
thousand ($.01 per share) and $650 thousand ($.01 per share) for the three
months ended June 30, 1997 and 1996, respectively. Additionally, the reduction
in net income would have been $1.1 million ($.02 per share) and $2.5 million
($.04 per share) for the six months ended June 30, 1997 and 1996, respectively.
The Company believes that it is more likely than not that the net
deferred tax asset recorded at June 30, 1997 will be fully realized.
10
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Glenayre Technologies, Inc. and Subsidiaries
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5. STOCKHOLDERS' EQUITY
(a) Quasi-Reorganization
On February 1, 1988, the Company completed a quasi-reorganization. After
determining that the Company's balance sheet reflected approximate fair value on
that date and that revaluation was not necessary, the accumulated deficit and
the cumulative translation adjustment were adjusted to zero by reclassifying
them to contributed capital. A new retained earnings account was established as
of February 1, 1988.
(b) Stockholders Rights Agreement
In May 1997, the Company's Board of Directors adopted a Preferred Shares Rights
Agreement. Under the Preferred Shares Rights Agreement, the Board of Directors
declared a dividend of one Right for each outstanding share of common stock to
holders of record as of the close of business on June 12, 1997. Initially, the
Rights will automatically trade with the common stock and will not be
exercisable.
If any person or group acquires beneficial ownership of 15% or more of the
Company's outstanding common stock, or commences a tender or exchange offer that
results in that person or group acquiring such level of beneficial ownership,
each Rights holder (other than Rights owned by such person or group, which
become void) is entitled to purchase, for an exercise price of $80, 1/100th of a
share of Series A Junior Participating Preferred Stock. Each fractional
preferred share will have economic and voting terms similar to those of one
share of common stock. In the event of such a tender offer or 15% or more stock
acquisition, the Rights certificates, after a short period, will trade
separately from the common stock and will be exercisable.
Each Right, under certain circumstances, entitles the holder to purchase the
number of Glenayre common stock (or, at the discretion of the Board of
Directors, share of Series A Junior Participating Preferred Stock) which have an
aggregate market value equal to twice the exercise price of $80. Under certain
circumstances, the Board of Directors may exchange each outstanding Right for
either one share of Glenayre common stock or 1/100th share of Series A Junior
Participating Preferred Stock. The Board may also redeem the Rights at a price
of $0.01 per Right.
In addition, if any person or group acquires beneficial ownership of 15% or more
of the Company's outstanding common stock and Glenayre either merges with or
into another company or Glenayre sells 50% or more of its assets or earning
power to another company, each Rights holder (other than Rights owned by such
person or group, which become void) is entitled to purchase, for an exercise
price of $80, a number of shares of the surviving company which has a market
value equal to twice the exercise price.
The Rights will expire on May 21, 2007, unless redeemed earlier.
11
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Glenayre Technologies, Inc. and Subsidiaries
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(c) Stock Options
In April 1997, due to a significant decline in the market price of the Company's
common stock, the Plan Administration Committee of the Board of Directors
reduced the exercise price to $9.00 per share on options to purchase
approximately 3.0 million shares which had been awarded originally at various
dates from May 1994 to March 1997 at $10.63 to $47.67 per share to employees of
the Company. The reduced exercise price and the original exercise prices
reflected the fair market value of the Company's common stock on the date of
modification and the dates of the original awards.
In April 1997, the Board of Directors approved an amendment to the 1996
Incentive Stock Plan (the "Plan") which provides for formula-based awards of
stock options to non-officer directors who are directors as of April 18, 1997 or
first elected a director subsequent to that date. In April 1997, the Plan
Administration Committee of the Board of Directors granted options to purchase
150,000 shares of common stock at $9.00 per share to five directors pursuant to
the amended formula-based provisions of the Plan.
(d) Income per Common Share
Primary income per common share was computed by dividing net income by
the weighted average number of shares of common stock outstanding plus the
shares that would be outstanding assuming exercise of dilutive stock options
which are considered to be common stock equivalents. The number of common shares
that would be issued from the exercise of stock options has been reduced by the
number of common shares that could be purchased from the proceeds at the average
market price of the Company's stock during the periods such options were
outstanding. The number of shares used to compute the primary per share data for
the six-month periods ended June 30, 1997 and 1996 was 62,922,120 and
63,882,377, respectively. The number of shares used to compute primary per share
data for the three-month period ended June 30, 1997 and 1996 was 62,705,222 and
64,014,861, respectively.
For purposes of the fully diluted income per share computations, the
number of shares that could be issued from the exercise of stock options
outstanding at the end of the period has been reduced by the number of shares
which could have been purchased from the proceeds at the higher of the market
price of the Company's stock on June 30, 1997 and 1996 or the average market
prices during the periods such options were outstanding. For those options
exercised during the period, the computation for the period prior to exercise is
based on the market price when the option was exercised. The number of shares
used to compute fully diluted per share data for the six-month periods ended
June 30, 1997 and 1996 was 63,195,515 and 64,118,305, respectively. The number
of shares used to compute fully diluted per share data for the three-month
periods ended June 30, 1997 and 1996 was 63,245,571 and 64,144,361 respectively.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share," ("FASB 128") which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact is expected to
result in an increase of $.01 and $.02 to primary earnings per share for the
three months ended June 30, 1997 and 1996, respectively. The impact is expected
to result in an increase of $.02 and $.03 to primary earnings per share for the
six months ended June 30, 1997 and 1996, respectively. The impact of FASB 128 on
the calculation of fully diluted earnings per share for these periods is not
expected to be material.
12
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Glenayre Technologies, Inc. and Subsidiaries
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
Glenayre Technologies, Inc. ("Glenayre" or the "Company") designs, manufactures,
markets and services telecommunications equipment and software used in wireless
personal communications systems throughout the world. The Company's product
families are grouped in either (i) Wireless Messaging (including products and
services sold into the paging and Narrowband Personal Communication Services
("NPCS") marketplace and the Company's major service and support groups); (ii)
Integrated Network (including the Company's MVP(R) Modular Voice Processing
system and the network management systems of its newly acquired subsidiary,
CNET, Inc.); and (iii) Wireless Interconnect (including products for microwave
communications systems and rural radio.) On January 9, 1997 the Company
completed the acquisition of CNET, Inc. ("CNET"). The operating results of CNET
are included in the operating results of the Company since the acquisition date.
The following discussion should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and related Notes and the Cautionary
Statement included as Exhibit 99.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
NET SALES
The Company's net sales for the six months ended June 30, 1997 increased to $216
million from net sales for the six months ended June 30, 1996 of $194 million,
an increase of $22 million, or 11%. The increase in sales was primarily due to
increased delivery of the Company's MVP systems and microwave radio products.
Net sales of the Wireless Messaging, Integrated Network and Wireless
Interconnect groups were approximately $165 million, $34 million and $17
million, respectively, for the six months ended June 30, 1997 compared to
approximately $170 million, $12 million, and $12 million, respectively, for the
six months ended June 30, 1996. Sales to a single customer, Paging Network, Inc.
("PageNet"), totaled approximately 14% and 15% of sales for the six months ended
June 30, 1997 and 1996, respectively. PageNet issued a press release on April
17, 1997 which announced, among other things, that Motorola, Inc. had been
selected as PageNet's preferred infrastructure supplier. The Company is unable
to determine the impact this development will have on future orders from PageNet
or future operating results of the Company. The Company believes that the
dependence on any one customer is mitigated by the large number of companies in
the Company's customer base and the timing for development and expansions of
their systems.
The Company continues to anticipate continued growth in 1997 sales of its paging
products to the international market and delivery of its MVP systems. However,
due to the current constrained financing market for the U.S. paging industry and
existing capacity of paging providers to serve their subscribers, the Company
expects 1997 shipments to the domestic market of its one-way paging products to
be below 1996 levels. These are forward-looking statements and the Company's
actual results could differ materially due to rapid technological advances in
the wireless telecommunications industry, delays in the introduction and market
acceptance of NPCS products and systems, competition, limits on protection of
Glenayre's proprietary technology, changes in governmental regulation and
international business risks.
13
<PAGE>
GROSS PROFIT
Gross profit increased to $115 million, or 53% of net sales, for the six months
ended June 30, 1997, from $109 million, or 56% of net sales, for the six months
ended June 30, 1996. The decrease in gross margin percentage is primarily the
result of: (i) a change in the product mix which included a greater portion of
sales of products with lower margins including increased revenue from
international turn-key projects; and (ii) additional customer support costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense increased to $48 million, or 22% of
net sales, for the six months ended June 30, 1997, from $37 million, or 19% of
net sales, for the six months ended June 30, 1996. The increase in expense is
primarily due to: (i) the addition of sales, marketing, and administrative
personnel and other expenses associated with the Company's higher international
sales volume; (ii) the inclusion of operating expenses incurred by CNET since
its acquisition on January 9, 1997; and (iii) general increases in personnel
costs and other purchased services.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased to $9.3 million or 4% of net
sales, for the six months ended June 30, 1997 from $6.4 million or 3% of net
sales for the six months ended June 30, 1996. The increase is primarily
attributable to: (i) the significant increase in purchases of equipment during
1996 and (ii) the amortization of goodwill related to the acquisition of CNET in
January 1997.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development costs increased to $18 million, or 8% of net sales, for
the six months ended June 30, 1997, from $13 million, or 7% of net sales, for
the six months ended June 30, 1996, an increase of $5 million, or 34%. The
Company relies on its research and development programs related to new products
and the improvement of existing products for the continued growth of its
business. The increase in expense is primarily a result of additional
expenditures in manpower and materials for these programs and the inclusion of
expenditures incurred by CNET since its acquisition on January 9, 1997. Research
and development costs are expensed as incurred.
INTEREST INCOME, NET
The Company realized net interest income of $5.0 million for the six months
ended June 30, 1997 compared to net interest income realized of $4.7 million for
the six months ended June 30, 1996. Higher balances in notes receivable and
higher average interest rates experienced on cash equivalents and short-term
investments were offset by lower average balances in cash, cash equivalents and
short-term investments.
OTHER EXPENSE, NET
The increase in expense for the six months ended June 30, 1997 from the same
period in the prior year is primarily a result of expenses resulting from a
realignment of certain domestic sales, management, and engineering personnel in
order to enhance organizational efficiencies.
14
<PAGE>
Glenayre Techologies, Inc. and Subsidiaries
- --------------------------------------------
INCOME TAXES
The difference between the combined U.S. federal and state statutory tax rate of
approximately 40% and the effective tax rate of 35% for the six months ended
June 30, 1997 and 30% for the six months ended June 30, 1996 is primarily the
result of: (i) the utilization of the Company's net operating losses; (ii) lower
tax rates on earnings indefinitely reinvested in certain non-U.S. jurisdictions
and (iii) the application of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes," ("SFAS 109"), in computing the Company's tax
provision. The difference between the effective tax rate of 35% in 1997 and 30%
in 1996 is primarily the result of a variance between the 1997 and 1996
adjustments for realization of tax benefits of net operating loss carryforwards
for financial statement purposes in accordance with SFAS 109 primarily due to
revisions during each period to the estimated future taxable income during the
Company's loss carryforward period. See Note 4 to the Condensed Consolidated
Financial Statements.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996
NET SALES
The Company's net sales for the three months ended June 30, 1997 increased to
$110 million from net sales for the three months ended June 30, 1996 of $105
million, an increase of $5 million, or 5%. The increase in sales was primarily
due to increased delivery of the Company's MVP systems. Net sales of the
Wireless Messaging, Integrated Network and Wireless Interconnect groups were
approximately $81 million, $21 million and $8 million, respectively, for the
three months ended June 30, 1997 compared to approximately $90 million, $8
million, and $7 million, respectively, for the three months ended June 30, 1996.
Sales to PageNet totaled approximately 13% and 12% of sales for the three months
ended June 30, 1997 and 1996, respectively. Sales to another single customer
totaled approximately 11% of sales for the three months ended June 30, 1997.
GROSS PROFIT
Gross profit increased to $60 million, or 54% of net sales, for the three months
ended June 30, 1997, from $59 million, or 56% of net sales, for the three months
ended June 30, 1996. The decrease in gross margin percentage is primarily the
result of: (i) a change in the product mix which included a greater portion of
sales of products with lower margins including increased revenue from
international turn-key projects; and (ii) additional customer support costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense increased to $25 million, or 22% of
net sales, for the three months ended June 30, 1997, from $19 million, or 18% of
net sales, for the three months ended June 30, 1996. The increase in expense is
primarily due to: (i) the addition of sales, marketing, and administrative
personnel and other expenses associated with the Company's higher international
sales volume; (ii) the inclusion of operating expenses incurred by CNET since
its acquisition on January 9, 1997; and (iii) general increases in personnel
costs and other purchased services.
15
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased to $4.8 million or 4% of net
sales, for the three months ended June 30, 1997 from $3.3 million or 3% of net
sales for the three months ended June 30, 1996. The increase is primarily
attributable to: (i) the significant increase in purchases of equipment during
1996 and (ii) the amortization of goodwill related to the acquisition of CNET in
January 1997.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development costs increased to $9.4 million, or 9% of net sales,
for the three months ended June 30, 1997, from $7.1 million, or 7% of net sales,
for the three months ended June 30, 1996, an increase of $2.3 million, or 33%.
The increase in expense is primarily a result of additional expenditures in
manpower and materials and the inclusion of expenditures incurred by CNET since
its acquisition on January 9, 1997.
INTEREST INCOME, NET
The Company realized net interest income of $2.9 million for the three months
ended June 30, 1997 compared to net interest income realized of $2.5 million for
the three months ended June 30, 1996. Higher balances in notes receivable and
higher average interest rates experienced on cash equivalents and short-term
investments were offset by lower average balances in cash, cash equivalents and
short-term investments.
OTHER EXPENSE, NET
The increase in expense for the three months ended June 30, 1997 from the same
period in the prior year is primarily a result of expenses resulting from a
realignment of certain domestic sales, management, and engineering personnel in
order to enhance organizational efficiencies.
INCOME TAXES
The difference between the combined U.S. federal and state statutory tax rate of
approximately 40% and the effective tax rate of 35% for the three months ended
June 30, 1997 and 30% for the three months ended June 30, 1996 is primarily the
result of: (i) the utilization of the Company's net operating losses; (ii) lower
tax rates on earnings indefinitely reinvested in certain non-U.S. jurisdictions
and (iii) the application of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes," ("SFAS 109"), in computing the Company's tax
provision. The difference between the effective tax rate of 35% in 1997 and 30%
in 1996 is primarily the result of a variance between the 1997 and 1996
adjustments for realization of tax benefits of net operating loss carryforwards
for financial statement purposes in accordance with SFAS 109 primarily due to
revisions during each period to the estimated future taxable income during the
Company's loss carryforward period. See Note 4 to the Condensed Consolidated
Financial Statements.
16
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
FINANCIAL CONDITION AND LIQUIDITY
The Company's working capital at June 30, 1997 was $277 million, including cash
and cash equivalents and short-term investments of $143 million. During the six
months ended June 30, 1997, the Company received cash of $1.2 million from the
exercise of stock options. Accrued liabilities at June 30, 1997 increased from
December 31, 1996 primarily as a result of increased operating activities and
timing differences. Accounts and notes receivables at June 30, 1997 increased
from December 31, 1996 due to customer financing primarily for purchases of the
Company's one-way paging and NPCS products. Goodwill at June 30, 1997 increased
from December 31, 1996 as a result of the CNET acquisition in January 1997.
During the six months ended June 30, 1997, the Company spent $13 million for
capital expenditures. These expenditures were necessary in order to provide the
equipment to meet the growth of the business. Additionally, in 1996, the Company
began the implementation of a new operating business system. This business
system is expected to be operational by the second quarter of 1998 at a total
capitalized cost of approximately $16 million. Of this total approximately $8.3
million ($4.7 million in 1997) has been paid as of June 30, 1997.
The Company's cash and cash equivalents are placed in short-term investments
consisting of high-grade commercial paper, bank certificates of deposit, U.S.
Treasury bills and notes, and repurchase agreements backed by U.S. Government
securities with original maturities of three months or less. The Company's
short-term investments are comprised of identical types of investments with the
exception that their original maturities are greater than three months, but do
not exceed one year.
The Company expects to use its cash, cash equivalents, and short-term
investments for working capital and other general corporate purposes, including
the expansion and development of its existing products and markets, and the
possible expansion into complementary businesses. In September 1996, the Board
of Directors authorized the purchase of 2,500,000 shares of the Company's common
stock. As of June 30, 1997, no shares had been repurchased under the 1996
authorization. Additionally, the competitive telecommunications market often
requires customer financing commitments. These commitments may be in the form of
guarantees, secured debt or lease financing. At June 30, 1997, the Company had
agreements to finance and arrange financing for approximately $106 million of
paging and voice mail products. The Company cannot currently predict the extent
to which these commitments will be utilized, since certain customers may be able
to obtain more favorable terms using traditional financing sources. From time to
time, the Company also arranges for third-party investors to assume a portion of
its commitments. If exercised, the financing arrangements will be secured by the
equipment sold by Glenayre.
The Company believes that funds generated from continuing operations, together
with its current cash reserves, will be sufficient to support its short-term and
long-term liquidity requirements for current operations (including capital
expenditures and stock repurchases). Company management believes that, if
needed, it can establish appropriate borrowing arrangements with lending
institutions.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company's Form 10-K, Annual Report to Stockholders, Form 10-Q or any Form
8-K or any other written or oral statements made by or on behalf of the Company
may include forward-looking statements reflecting the Company's current views
with respect to future events and financial performance.
Although certain cautionary statements have been made in this Form 10-Q related
to factors which may affect future operating results, a more detailed discussion
of these factors is set forth in Exhibit 99 of this Form 10-Q.
17
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
PART II - OTHER INFORMATION
ITEMS 1 through 3 are inapplicable and have been omitted.
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Stockholders held on May 21, 1997, the
following matters were submitted to a vote of the stockholders of the Company.
(i). The election of three directors each to serve a three-year term
expiring in 2000:
Nominee Shares Voted Shares
For Withheld
Clarke H. Bailey 53,346,799 837,764
Donald S. Bates 53,352,949 831,614
Peter W. Gilson 53,352,699 831,864
(ii).Ratification of the selection of Ernst & Young LLP as auditors for the
year ending December 31, 1997 was approved by a vote of 53,926,721
shares for and 189,407 shares against, with 68,435 shares abstaining.
ITEM 5 is inapplicable and has been omitted.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
Exhibit 4.1 Preferred Shares Rights Agreement dated May 21,
1997 between the Company and American Stock
Transfer & Trust Company, incorporated herein by
reference to Exhibit 4.1 to the Company's
Registration Statement on Form 8-A, File No.
0-15761.
Exhibit 4.2 Certificate of Designation of Rights, Preferences
and Privileges of Series A Junior Participating
Preferred Stock of the Company filed May 23, 1997
is filed herewith.
Exhibit 10.1 Second Amendment, dated May 21, 1997, to the
Employment Agreement dated August 27, 1996 between
the Company and Gary B. Smith is filed herewith.
Exhibit 10.2 Employment Agreement, dated May 21, 1997 between
the Company and Stanley Ciepcielinski is filed
herewith.
18
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Exhibit 10.3 Executive Severance Benefit Agreement, dated May
21, 1997, between the Company and Lee M. Ellison
(the "Ellison Agreement") is filed herewith.
Executive Severance Benefit Agreements, dated
February 1, 1995 and December 16, 1996 between the
Company and individually with Beverley W. Cox and
Eugene C. Pridgen, respectively, as amended May 21,
1997 are identical, in all material respects, with
the Ellison Agreement and are not filed as exhibits.
Exhibit 10.4 Glenayre 1996 Incentive Stock
Plan, as amended April 18, 1997, is
filed herewith.
Exhibit 11 Computation of earnings per common share for the
six-month and three-month periods ended June 30,
1997 and 1996.
Exhibit 15 Letter regarding unaudited interim financial
information.
Exhibit 27 Financial Data Schedule. (Filed in electronic
format only. Pursuant to Rule 402 of Regulation
S-T, this schedule shall not
be deemed filed for purposes of
Section 11 of the Securities Act of
1933 or Section 18 of the Securities
Exchange Act of 1934.)
Exhibit 99 Cautionary statement under safe harbor provisions
of the Private Securities Litigation Reform Act of
1995.
</TABLE>
(b) Reports on Form 8-K
During the three months ended June 30, 1997, the
Company filed a Current Report on Form 8-K dated May
21, 1997. Under Item 5 the Company reported that in
conjunction with the adoption of a Stockholder Rights
Plan, the Board of Directors of the Company had
declared a dividend of one Right for each outstanding
share of Glenayre common stock to holders of record at
the close of business on June 12, 1997.
<PAGE>
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.
Glenayre Technologies, Inc.
---------------------------------------------
(Registrant)
/s/ Stanley Ciepcielinski
---------------------------------------------
Stanley Ciepcielinski
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Billy C. Layton
---------------------------------------------
Billy C. Layton
Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)
Date: July 23, 1997
<PAGE>
Exhibit 4.2
CERTIFICATE OF DESIGNATION
OF RIGHTS, PREFERENCES AND PRIVILEGES
OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
GLENAYRE TECHNOLOGIES, INC.
Pursuant to Section 151 and Section 103 of the General Corporation Law
of the State of Delaware, the undersigned, Gary B. Smith, the President and
Chief Executive Officer, and Eugene C. Pridgen, the Secretary of Glenayre
Technologies, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Amended and Restated Certificate of Incorporation of the said Corporation,
the said Board of Directors, on May 21, 1997, and effective as of that date,
adopted the following resolution creating a series of shares of Preferred Stock
designated as Series A Junior Participating Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of
Directors of the corporation by the Amended and Restated Certificate of
Incorporation, the Board of Directors does hereby provide for the issue of a
series of Preferred Stock, $.01 par value, of the Corporation, to be designated
"SERIES A JUNIOR PARTICIPATING PREFERRED STOCK", initially consisting of Two
Million (2,000,000) shares and to the extent that the designations, powers,
preferences and relative and other special rights and the qualifications,
limitations and restrictions of the Series A Junior Participating Preferred
Stock are not stated and expressed in the Amended and Restated Certificate of
Incorporation, does hereby fix and herein state and express such designations,
powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions thereof, as follows (all terms used
herein which are defined in the Amended and Restated Certificate of
Incorporation shall be deemed to have the meanings provided therein):
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock," par value $0.01
per share, and the number of shares constituting such series shall be Two
Million (2,000,000).
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior right of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock shall be
entitled to receive when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the last day of March, June, September and December in each year (each such date
being referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Participating Preferred Stock, in an
amount per share (rounded to the nearest cent) equal
<PAGE>
to, subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock of the Corporation (the "COMMON STOCK")
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Junior Participating Preferred
Stock. In the event the Corporation shall at any time after May 21, 1997 (the
"RIGHTS DECLARATION DATE") (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such event
under the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were Outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
2
<PAGE>
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Junior Participating Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
Outstanding Common Stock into a smaller number of shares, then in each such case
the number of votes per share to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) Except as required by law, holders of Series A Junior Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) The Corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for consideration
any shares of Common Stock after the first issuance of a share or fraction of a
share of Series A Junior Participating Preferred Stock unless concurrently
therewith it shall declare a dividend on such Preferred Stock as required by
Section 2 hereof.
(B) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 hereof are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of the Series A
Junior Participating Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
A Junior Participating Preferred Stock;
(ii) declare or pay dividends on, make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Preferred Stock, except dividends paid
ratably on the Series A Junior Participating Preferred Stock and all
such parity stock
3
<PAGE>
on which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Junior
Participating Preferred Stock;
(iv) purchase or otherwise acquire for consideration any
shares of the Series A Junior Participating Preferred Stock, or any
shares of stock ranking on a parity with the Series A Junior
Participating Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes.
(C) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on issuance
set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of the Series A Junior
Participating Preferred Stock shall have received an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the date
of such payment, plus an amount equal to the greater of (1) $100 per share,
provided that in the event the Corporation does not have sufficient assets,
after payment of its liabilities and distribution to holders of Preferred Stock
ranking prior to the Series A Junior Participating Preferred Stock, available to
permit payment in full of the $100 per share amount, the amount required to be
paid under this
4
<PAGE>
Section 6(A)(1) shall, subject to Section 6(B) hereof, equal the value of the
amount of available assets divided by the number of Outstanding shares of the
Series A Junior Participating Preferred Stock or (2) subject to the provisions
for adjustment hereinafter set forth, 100 times the aggregate per share amount
to be distributed to the holders of Common Stock (the greater of (1) or (2), the
"Series A Liquidation Preference"). In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such event
under clause (2) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock that were outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Junior Participating Preferred Stock,
then such remaining assets shall be distributed ratably to the holders of such
parity shares in proportion to their respective liquidation preferences.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Junior Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Junior Participating
Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred Stock as to
the payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
5
<PAGE>
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preference or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of the Series A Junior Participating Preferred Stock, voting separately as a
class.
Section 11. Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of the Series A Junior Participating Preferred Stock."
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury this 21st day
of May, 1997.
s/ Gary B. Smith
President and Chief Executive Officer
Gary B. Smith
ATTEST:
s/ Eugene C. Pridgen
Secretary
Eugene C. Pridgen
6
<PAGE>
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is
made and entered into as of the 21st day of May, 1997 by and between GLENAYRE
TECHNOLOGIES, INC., a Delaware corporation (the "Corporation"), and GARY B.
SMITH (the "Executive").
Statement of Purpose
The Corporation and the Executive entered into an Employment Agreement
dated as of August 27, 1996, as amended by an Amendment to Employment Agreement
dated as of December 12, 1996 (the "Employment Agreement"). The Corporation and
the Executive desire to amend the Employment Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing Statement of Purpose
and the terms and provisions of this Amendment, the parties hereto agree as
follows:
1. Paragraph 1(b)(1) of the Employment Agreement shall be amended to
add the following clause at the end thereof:
",provided, that the Executive may engage in personal investment
and charitable or community activities so long as such activities
do not interfere with the performance of the Executive's duties
hereunder;"
2. Paragraph 2(b) of the Employment Agreement shall be amended as
follows: (i) the reference in Paragraph 2(b)(1) to "Paragraph 2(f)(1) below"
shall be amended to read "Paragraph 3(a)(1) below"; and (ii) the reference in
Paragraph 2(b)(2) to Paragraph 2(f)(1) and (2) below" shall be amended to read
"Paragraphs 3(a)(1), 3(a)(2), 3(b) and 3(c) below."
3. Paragraph 2(b) of the Employment Agreement shall be amended by
adding a new Paragraph 2(b)(5) thereto as follows:
"(5) The Corporation may terminate the Executive's employment
hereunder at any time without 'Cause' (as defined in Paragraph 2(c)
below), provided that the Corporation complies with the provisions
of Paragraphs 3(a)(1), 3(a)(2), 3(a)(3) (if applicable), 3(a)(4)
(if applicable), 3(b) and 3(c) below."
4. Paragraphs 2(e)(2), (3), (4) and (5) of the Employment Agreement
shall be amended to read as follows:
<PAGE>
"(2) the liquidation or dissolution of the Corporation;
(3) any failure by the Corporation to pay to the Executive the Base
Salary or other compensation and benefits provided for herein; provided,
however, that the Executive must first (i) provide the Board with written notice
specifying the particular failure of the Corporation under this Paragraph
2(e)(3) and (ii) allow the Board 15 days from receipt of notice to cure such
failure;
(4) any other material breach of this Agreement by the Corporation;
provided, however, that the Executive must first (i) provide the Board with
written notice specifying the particular failure of the Corporation under this
Paragraph 2(e)(4) and (ii) allow the Board 60 days from receipt of notice to
cure such failure;
(5) any 'Change in Control,' which shall mean any of the following:
(A) the acquisition, directly or indirectly after the date of this
Agreement, in one or a series of transactions, of 25% or more of the
Corporation's common stock by any 'person' as that term is defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended;
(B) the consummation of a merger, consolidation, share exchange or
similar transaction of the Corporation with any other corporation,
entity or group, as a result of which the holders of the voting capital
stock of the Corporation as a group would receive less than 50% of the
voting capital stock of the surviving or resulting corporation;
(C) the consummation of an agreement providing for the sale or
transfer (other than as security for obligations of the Corporation) of
substantially all the assets of the Corporation;
(D) a material change in the composition or character of the Board
as follows: (i) the replacement of a majority of directors on the
effective date of this Agreement by directors opposed by the Executive
and a majority of the members of the Executive Committee of the Board
(or, in the absence of the existence of the Executive Committee, a
majority of the members of the Board), or (ii) at any meeting of the
Corporation's shareholders, the election of a majority of directors
standing for election who are opposed by the
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Executive and a majority of the members of the Executive Committee of the Board
(or, in the absence of the existence of the Executive Committee, a majority of
the members of the Board)."
5. Paragraph 2(f) of the Employment Agreement shall be deleted and a
new Paragraph 3 shall be added to the Employment Agreement as follows:
"3. Payments to the Executive Upon Termination of Employment.
(a) Compensation. In the event that the Executive's employment with the
Corporation is terminated, whether upon the expiration of the Term or upon the
earlier termination of the Term as provided in Paragraph 2(b) above, then the
Corporation shall pay to the Executive the following amounts on the date of such
termination and shall provide to the Executive the following benefits, as
applicable:
(1) In the event that the Executive's employment hereunder is
terminated for any reason whatsoever, the Corporation shall pay to the
Executive an amount equal to the sum of (i) his accrued but unpaid Base
Salary, (ii) his accrued but unpaid vacation pay, (iii) any other
compensation payments or benefits which have accrued and are payable in
connection with such termination.
(2) In the event that the Executive's employment hereunder is
terminated (i) by the Corporation because of the Executive's 'Total and
Permanent Disability' pursuant to Paragraph 2(b)(2) above, (ii) because
of the Executive's death pursuant to Paragraph 2(b)(4) above, (iii) by
the Executive for 'Good Reason' pursuant to Paragraph 2(b)(3) above or
(iv) by the Corporation pursuant to Paragraph 2(b)(5) above, then and
in any such event, the Corporation shall pay to the Executive, in
addition to the payments described in Paragraph 3(a)(1), a pro rata
share of his bonus under the Management by Objectives Bonus Plan
described in Paragraph 4(b) below for the fiscal year of the
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Corporation in which such termination occurs, calculated, for purposes
of determining whether the targets contained therein have been met,
under the assumption that the results of operations and financial
condition of the Corporation (or any applicable subsidiary) as of the
Executive's termination date shall continue on the same basis through
the end of such fiscal year.
(3) In the event that the Executive's employment hereunder is
terminated (i) by the Corporation without 'Cause' pursuant to Paragraph
2(b)(5) above(except in the event of a 'Change in Control') or (ii) by
the Executive for 'Good Reason' (except in the event of a 'Change in
Control') pursuant to Paragraph 2(b)(3) above, then and in any such
event, the Corporation shall pay to the Executive, in addition to the
payments described in Paragraphs 3(a)(1 ) and 3(a)(2), an amount equal
to two times the annual rate of Base Salary being paid to the Executive
at the time of such termination.
(4) In the event that the Executive's employment hereunder is
terminated (i) by the Executive for 'Good Reason' because of a 'Change
in Control' pursuant to Paragraph 2(b)(3) above or (ii) by the
Corporation pursuant to Paragraph 2(b)(5) above following a 'Change in
Control,' then the Corporation shall pay to the Executive, in addition
to the payments described in Paragraphs 3(a)(1 ) and 3(a)(2), an amount
equal to two and one-half times the annual rate of Base Salary being
paid to the Executive at the time of such termination (or if the
Executive's Base Salary was then greater, on the date immediately
preceding the date of the Change in Control).
(5) In the event that the Executive's employment is terminated
upon expiration of the Term (unless the Executive refused to negotiate
with the Corporation for an employment agreement with terms
substantially similar to
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this Agreement), then the Corporation shall pay to the Executive an
amount equal to the annual rate of Base Salary being paid to the
Executive at the time of such termination.
(b) Stock Options. The Executive has been awarded options to purchase
shares of the Corporation's common stock under the Glenayre Technologies, Inc.
1991 Long-Term Incentive Plan and the Glenayre Technologies, Inc. 1996 Incentive
Stock Plan and may in the future be awarded additional options to purchase
shares of the Corporation's or a successor corporation's common stock under the
Glenayre Technologies, Inc. 1996 Incentive Stock Plan or other option plans
(collectively, the 'Options'), such Options having been granted, or to be
granted, for the number of shares and at a price per share specified in the
agreements between the Corporation (or a successor corporation) and the
Executive granting the Options. Notwithstanding any terms to the contrary
contained in such stock option agreements, upon the Executive's termination of
employment for any reason other than 'Cause' (as that term is defined in
Paragraph 2(c) above), (i) all Options shall become fully vested in the
Executive and (ii) all Options shall become immediately exercisable and shall
remain exercisable for a period of 12 months following the date of the
Executive's termination of employment.
(c) Welfare Benefits. In the event that the Executive's employment
hereunder is terminated (i) by the Corporation because of the Executive's 'Total
and Permanent Disability' pursuant to Paragraph 2(b)(2) above, (ii) because of
the Executive's death pursuant to Paragraph 2(b)(4) above, (iii) by the
Executive for 'Good Reason' pursuant to Paragraph 2(b)(3) above, (iv) by the
Corporation under Paragraph 2(b)(5) above, or (v) upon expiration of the Term
(unless the Executive refused to negotiate with the Corporation for an
employment agreement with terms substantially similar to this Agreement), then
and in any such event, the Corporation shall provide medical and dental benefits
to the Executive (and the Executive's dependents) for a period of 12 months
following such termination of employment at the Corporation's full expense and
at the same levels of coverage as such benefits are provided to active employees
of the Corporation. The Executive's right to continued medical and dental
coverage required under the Consolidated Omnibus Budget Reconciliation Act of
1985 ('COBRA') shall begin at the expiration of the one year period described in
this Paragraph 3(c)."
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6. Paragraph 3 through 16 of the Employment Agreement shall be
renumbered as Paragraphs 4 through 17 and all references in the Employment
Agreement to such Paragraphs shall be amended to reflect such renumbering.
7. Paragraph 8 of the Employment Agreement shall be amended to read as
follows:
"8. Indemnification. The Corporation agrees (i) to indemnify,
defend and hold harmless the Executive from and against any and
all liabilities to which he may be subject as a result of his
employment hereunder (as a result of his service as an officer or
director of the Corporation or as an officer or director of any of
the Corporation's subsidiaries or affiliates), and (ii) to
indemnify the Executive for all costs, including attorney's fees
and other professional fees and disbursements, of (A) any legal
action brought or threatened against him as a result of such
employment, or (B) any legal action in which the Executive is
compelled to give testimony as a result of his employment
hereunder, to the fullest extent permitted by, and subject to the
limitations of, the laws of the State of Delaware."
8. The Executive acknowledges and agrees that no event has occurred
prior to the date hereof which constitutes "Good Reason" (as defined in
Paragraph 2(e) of the Employment Agreement as amended by this Amendment),
including without limitation a Change in Control" (as defined in Paragraph
2(e)(5) of the Employment Agreement as amended by this Amendment), which would
entitle the Executive to terminate his employment under the Employment
Agreement, as amended by this Amendment, and to be paid certain payments and
benefits under Paragraph 3 of the Employment Agreement, as amended by this
Amendment.
9. Except as expressly amended hereby, the Employment Agreement shall
continue in full force and effect.
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
GLENAYRE TECHNOLOGIES, INC.
By: /s/ Ramon D. Ardizzone
Name: Ramon D. Ardizzone
Title: Chairman of the Board
/s/ Gary B. Smith
Gary B. Smith
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of the 21st day of May, 1997 by and between GLENAYRE TECHNOLOGIES, INC., a
Delaware corporation (the "Corporation"), and STANLEY CIEPCIELINSKI (the
"Executive").
Statement of Purpose
The Executive has been a valuable employee of the Corporation and
wishes to continue his role as a member of the management of the Corporation on
the following specific terms and conditions. The Corporation desires to retain
the services of the Executive, and the Executive desires to provide services to
the Corporation, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing Statement of Purpose
and the terms and provisions of this Agreement, the parties hereto agree as
follows:
1. Employment and Duties.
(a) Employment. The Corporation hereby employs the Executive, and the
Executive hereby agrees to serve, as the Executive Vice President, Treasurer and
Chief Financial Officer of the Corporation pursuant to the terms of this
Agreement.
(b) Duties. In such capacity, the Executive agrees to perform such
duties and exercise such powers commensurate with his office as may from time to
time be reasonably requested of him by the Chief Executive Officer of the
Corporation or the Board of Directors of the Corporation (the "Board") or vested
in him by the bylaws of the Corporation, subject to the control and direction of
the Chief Executive Officer of the Corporation and the Board. During the Term,
the Executive shall:
(1) devote substantially all of his business time, attention
and abilities to the businesses of the Corporation (including its
subsidiaries or affiliates, when so required), and in any case as much
thereof as the Chief Executive Officer of the Corporation or the Board
may reasonably deem to be necessary for such businesses, provided, that
the Executive may engage in personal investment and charitable or
community activities so long as such activities do not interfere with
the performance of the Executive's duties hereunder;
<PAGE>
(2) faithfully serve the Corporation and use his best
efforts to promote and develop the interests of the Corporation; and
(3) not acquire, directly or indirectly, any interest in any
firm, partnership, association or corporation, the business operations
of which may in any manner, directly or indirectly, compete with the
trade or businesses conducted by the Corporation or any of its
subsidiaries, or affiliates, provided that the Executive may
beneficially own, directly or indirectly, or exercise control or
direction over, the voting securities of a publicly traded company
which is engaged in any of the foregoing trade or businesses, on the
condition that the percentage of such securities owned, controlled or
directed by the Executive shall not exceed 5% of the voting securities
of the publicly traded company.
2. Term of Employment.
(a) Term. The initial term of the Executive's employment hereunder
shall be for a period of two years, commencing as of the effective date of this
Agreement. The term of the Executive's employment hereunder shall be
automatically renewed for successive two-year renewal terms thereafter unless
written notice is given by either party to the other party not later than 180
days prior to the expiration of the initial term or any renewal term. The
initial term and each renewal term are referred to collectively in this
Agreement as the "Term."
(b) Earlier Termination. Notwithstanding the provisions of
Paragraph 2(a) above, the Executive's employment hereunder may be terminated
prior to the expiration of the Term as follows:
(1) The Corporation may terminate the Executive's employment
hereunder for "Cause" (as defined in Paragraph 2(c) below), provided
that the Corporation complies with the provisions of Paragraph 3(a)(1)
below;
(2) The Corporation may terminate the Executive's employment
hereunder upon the Executive's "Total and Permanent Disability" (as
defined in Paragraph 2(d) below), provided that the Corporation
complies with the provisions of Paragraphs 3(a)(1), 3(a)(2), 3(b) and
3(c) below;
(3) The Executive may terminate his employment
hereunder for "Good Reason" (as defined in Paragraph 2(e) below);
(4) The Executive's employment hereunder shall terminate
automatically upon his death;
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(5) The Corporation may terminate the Executive's employment
hereunder at any time without "Cause" (as defined in Paragraph 2(c)
below), provided that the Corporation complies with the provisions of
Paragraphs 3(a)(1), 3(a)(2), 3(a)(3) (if applicable), 3(a)(4) (if
applicable), 3(b) and 3(c) below.
(c) Definition of "Cause". As used herein, "Cause" shall mean the
occurrence of any of the following:
(1) the Executive's resignation from the office of Executive
Vice President, Treasurer and Chief Financial Officer of the Corporation
without the prior consent of the Corporation;
(2) acts of dishonesty or fraud on the part of the Executive
which are intended to result in his substantial personal enrichment at
the expense of the Corporation or its affiliates;
(3) the conviction after the exhaustion of all appeals by the
Executive of a felony involving moral turpitude or the entry of a plea
of nolo contendere for such a felony; or
(4) material violation of the Executive's responsibilities as
set forth herein which are willful and deliberate; provided, however,
that prior to the determination by the Board (acting on the
recommendation of the Chief Executive Officer of the Corporation) that
"Cause" under this Paragraph 2(c)(4) has occurred, the Board shall (A)
provide to the Executive in writing, in reasonable detail, the reasons
for the Board's determination that such "Cause" exists, (B) afford the
Executive a reasonable opportunity to remedy any such breach, (C)
provide the Executive an opportunity to be heard at the Board meeting
where the final decision to terminate the Executive's employment
hereunder for such "Cause" is to be considered, and (D) make any
decision that such "Cause" exists in good faith.
(d) Definition of "Total and Permanent Disability." The Executive shall
be considered to have a "Total and Permanent Disability" if he qualifies for
disability benefits under a long-term disability plan sponsored by the
Corporation or its affiliates.
(e) Definition of "Good Reason." As used herein, "Good Reason"
shall mean the occurrence of any of the following:
(1) except where such failure or change is specifically
approved by the Executive (whether as a member of the Board or
individually), failure to elect or reelect or to appoint or reappoint
the Executive to the offices of Executive Vice President, Treasurer and
Chief Financial Officer
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of the Corporation, or to a senior executive
office of the Corporation or of any of its subsidiaries or affiliates
at least equal in dignity, responsibility, importance and scope
thereto, or any other material change by the Corporation of the
Executive's functions, duties or responsibilities which would cause the
ranking or level, dignity, responsibility, importance or scope of the
Executive's position with the Corporation to become of less dignity,
responsibility, importance or scope from the position and attributes
thereof described in Paragraph 1 above; provided, however, that the
Executive must first (i) provide the Board with written notice
specifying the particular failure of the Corporation under this
Paragraph 2(e)(1) and (ii) allow the Board 60 days from receipt of
notice to cure such failure;
(2) the liquidation or dissolution of the Corporation;
(3) any failure by the Corporation to pay to the Executive the
Base Salary or other compensation and benefits provided for herein;
provided, however, that the Executive must first (i) provide the Board
with written notice specifying the particular failure of the
Corporation under this Paragraph 2(e)(3) and (ii) allow the Board 15
days from receipt of notice to cure such failure;
(4) any other material breach of this Agreement by the
Corporation; provided, however, that the Executive must first (i)
provide the Board with written notice specifying the particular failure
of the Corporation under this Paragraph 2(e)(4) and (ii) allow the
Board 60 days from receipt of notice to cure such failure;
(5) any "Change in Control," which shall mean any of the
following:
(A) the acquisition, directly or indirectly after the
date of this Agreement, in one or a series of transactions, of
25% or more of the Corporation's common stock by any "person"
as that term is defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended;
(B) the consummation of a merger, consolidation,
share exchange or similar transaction of the Corporation with
any other corporation, entity or group, as a result of which
the holders of the voting capital stock of the Corporation as
a group would receive less than 50% of the voting capital
stock of the surviving or resulting corporation;
(C) the consummation of an agreement providing
for the sale or transfer (other than as security for
obligations of the Corporation) of substantially all the
assets of the Corporation;
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(D) a material change in the composition or character
of the Board as follows: (i) the replacement of a majority of
directors on the effective date of this Agreement by directors
opposed by the Executive and a majority of the members of the
Executive Committee of the Board (or, in the absence of the
existence of an Executive Committee, a majority of the members
of the Board) or (ii) at any meeting of the Corporation's
shareholders, the election of a majority of directors standing
for election who are opposed by the Executive and a majority
of the members of the Executive Committee of the Board (or, in
the absence of the existence of an Executive Committee, a
majority of the members of the Board).
(6) Any change in the principal office of the Corporation to a
location which is more than 30 miles from its current principal office
at 5935 Carnegie Boulevard, Charlotte, North Carolina 28209.
3. Payments to the Executive Upon Termination of Employment.
(a) Compensation. In the event that the Executive's employment with the
Corporation is terminated, whether upon the expiration of the Term or upon the
earlier termination of the Term as provided in Paragraph 2(b) above, then the
Corporation shall pay to the Executive the following amounts on the date of such
termination and shall provide to the Executive the following benefits, as
applicable:
(1) In the event that the Executive's employment hereunder is
terminated for any reason whatsoever, the Corporation shall pay to the
Executive an amount equal to the sum of (i) his accrued but unpaid Base
Salary, plus (ii) his accrued but unpaid vacation pay, plus (iii) any
other compensation payments or benefits which have accrued and are
payable in connection with such termination.
(2) In the event that the Executive's employment hereunder is
terminated (i) by the Corporation because of the Executive's "Total and
Permanent Disability" pursuant to Paragraph 2(b)(2) above, (ii) because
of the Executive's death pursuant to Paragraph 2(b)(4) above, (iii) by
the Executive for "Good Reason" pursuant to Paragraph 2(b)(3) above or
(iv) by the Corporation pursuant to Paragraph 2(b)(5) above, then and in
any such event, the Corporation shall pay to the Executive, in addition
to the payments described in Paragraph 3(a)(1), a pro rata share of his
bonus under the Management by Objectives Bonus Plan described in
Paragraph 4(b) below for the fiscal year of the Corporation in which
such termination occurs, calculated, for purposes of determining whether
the targets contained therein have been met, under the assumption that
the results of operations and financial condition of the Corporation (or
any applicable
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subsidiary) as of the Executive's termination date shall
continue on the same basis through the end of such fiscal year.
(3) In the event that the Executive's employment hereunder is
terminated (i) by the Corporation without "Cause" pursuant to Paragraph
2(b)(5) above (except in the event of a "Change in Control") or (ii) by
the Executive for "Good Reason" (except in the event of a "Change in
Control") pursuant to Paragraph 2(b)(3) above, then and in any such
event, the Corporation shall pay to the Executive, in addition to the
payments described in Paragraphs 3(a)(1) and 3(a)(2), an amount equal to
two times the annual rate of Base Salary being paid to the Executive at
the time of such termination.
(4) In the event that the Executive's employment hereunder is
terminated (i) by the Executive for "Good Reason" because of a "Change
in Control" pursuant to Paragraph 2(b)(3) above or (ii) by the
Corporation under Paragraph 2(b)(5) above following a "Change in
Control," then the Corporation shall pay to the Executive, in addition
to the payments described in Paragraphs 3(a)(1) and 3(a)(2), an amount
equal to two and one-half times the annual rate of Base Salary being
paid to the Executive at the time of such termination (or if the
Executive's Base Salary was then greater, on the date immediately
preceding the date of the Change in Control).
(5) In the event that the Executive's employment hereunder is
terminated upon expiration of the Term (unless the Executive refused to
negotiate with the Corporation for an employment agreement with terms
substantially similar to this Agreement), then the Corporation shall
pay to the Executive an amount equal to the annual rate of Base Salary
being paid to the Executive at the time of such termination.
(b) Stock Options. The Executive has been awarded options to purchase
shares of the Corporation's common stock under the Glenayre Technologies, Inc.
1991 Long-Term Incentive Plan and the Glenayre Technologies, Inc. 1996 Incentive
Stock Plan and may in the future be awarded additional options to purchase
shares of the Corporation's or a successor corporation's common stock under the
Glenayre Technologies, Inc. 1996 Incentive Stock Plan or other option plans
(collectively, the "Options"), such Options having been granted, or to be
granted, for the number of shares and at a price per share specified in the
agreements between the Corporation (or a successor corporation) and the
Executive granting the Options. Notwithstanding any terms to the contrary
contained in such stock option agreements, upon the Executive's termination of
employment for any reason other than "Cause" (as that term is defined in
Paragraph 2(c) above), (i) all Options shall become fully vested in the
Executive and (ii) all Options shall become immediately exercisable
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and shall remain exercisable for a period of 12 months following the date of the
Executive's termination of employment.
(c) Welfare Benefits. In the event that the Executive's employment
hereunder is terminated (i) by the Corporation because of the Executive's "Total
and Permanent Disability" pursuant to Paragraph 2(b)(2) above, (ii) because of
the Executive's death pursuant to Paragraph 2(b)(4) above, (iii) by the
Executive for "Good Reason" pursuant to Paragraph 2(b)(3) above, (iv) by the
Corporation under Paragraph 2(b)(5) above or (v) upon expiration of the Term
(unless the Executive refused to negotiate with the Corporation for an
employment agreement with terms substantially similar to this Agreement), then
and in any such event, the Corporation shall provide medical and dental benefits
to the Executive (and the Executive's dependents) for a period of 12 months
following such termination of employment at the Corporation's full expense and
at the same levels of coverage as such benefits are provided to active employees
of the Corporation. The Executive's right to continued medical and dental
coverage required under the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") shall begin at the expiration of the one year period described in
this Paragraph 3(c).
4. Compensation and Benefits. Subject to the terms of this Agreement
and until the termination of the Term as provided in Paragraph 2 above, the
Corporation shall pay compensation and provide benefits to the Executive as
follows:
(a) Base Salary. The Corporation shall pay to the Executive an initial
salary of $210,000 per annum. Such base salary, as increased from time to time,
is referred to herein as the "Base Salary". The Base Salary shall be payable in
approximately equal monthly installments on the last business day of each month,
or in such other installments and at such other times as the parties hereto may
mutually agree upon. The Base Salary shall be increased (but not decreased)
effective on January 1, 1998 and on each January 1 thereafter during the Term in
the manner determined by the Board or its Compensation Committee in its absolute
discretion.
(b) Management by Objectives Bonus Plan. The Executive shall
participate at a 70% level in the Glenayre Management by Objectives Bonus Plan,
as in effect from time to time (the "MBO Plan"). The Executive's level of
participation in the MBO Plan may be increased (but not decreased) from time to
time as determined by the Board or its Compensation Committee in its absolute
discretion.
(c) 401(k) Plan. During the Term, the Executive shall be eligible to
participate in the Corporation's 401(k) voluntary deferred compensation program
(the "401(k) Plan") up to the maximum amount permitted by the terms of the
401(k) Plan, and the Corporation agrees to match the amounts of compensation
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deferred up to the maximum amount permitted under the provisions of the 401(k)
Plan.
(d) Automobile or Automobile Allowance. The Corporation shall furnish
an automobile or, at the Corporation's election, an automobile allowance to the
Executive. Such automobile or automobile allowance shall be commensurate with
the Executive's senior position, and, if the Executive is furnished an
automobile, the Corporation shall pay all reasonable expenses for the operation,
insurance and maintenance of such automobile.
(e) Vacation and Holidays. The Executive shall be entitled to take four
weeks of vacation (or, if more, the vacation provided under the Corporation's
standard vacation policy for senior executives) in each successive 12-month
period during the Term at such times as shall be mutually convenient to the
Executive and the Corporation. The Executive shall be entitled to all paid
holidays in accordance with the Corporation's policies.
(f) Other Benefits. In addition to participation in all of the
compensation and incentive programs as described in this Agreement, the
Executive shall be entitled to participate in all bonus, compensation, savings,
stock option, and other incentive plans and programs and in all qualified and
non-qualified retirement plans, life, medical/dental insurance plans and short
and long-term disability insurance plans of the Corporation, to the extent that
he qualifies under the eligibility requirements of the respective plan or
program.
(g) Reimbursement of Expenses. In addition to automobile expenses, the
Corporation shall reimburse the Executive for all reasonable expenses incurred
personally by him on behalf of the Corporation.
5. Location of Office. The Executive's principal place of employment
shall be in Charlotte, North Carolina and he shall not be required to change
such principal place of employment.
6. Confidential Information.
(a) Covenant. The Executive shall not divulge, during the Term or at
any time thereafter, to any person not employed by the Corporation or its
subsidiaries or affiliates or otherwise engaged to render services to the
Corporation, its subsidiaries or affiliates, any material Confidential
Information.
(b) Definition of "Confidential Information." As used herein,
"Confidential Information" means:
(1) the name, address or requirements of any customer of
the Corporation; or
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(2) any other secret or confidential information relating to
any activity, invention or discovery of the Corporation not already in
the public domain that the Executive has or shall have acquired during
his employment by the Corporation or its subsidiaries or affiliates.
Provided, however, that this provision shall not preclude the Executive from
disclosing such Confidential Information as may be required by any applicable
law, regulation or directive or any governmental agency, court or other
authority having jurisdiction in the matter, or in the proper course of conduct
of the Corporation's business. In the event that any person seeks legally to
compel the Executive to disclose Confidential Information, the Executive shall
promptly provide the Corporation with notice so that the Corporation may have
opportunity to seek a protective order or other appropriate remedy.
7. Indemnification. The Corporation agrees (i) to indemnify, defend and
hold harmless the Executive from and against any and all liabilities to which he
may be subject as a result of his employment hereunder (as a result of his
service as an officer or director of the Corporation or as an officer or
director of any of the Corporation's subsidiaries or affiliates), and (ii) to
indemnify the Executive for all costs, including attorney's fees and other
professional fees and disbursements, of (A) any legal action brought or
threatened against him as a result of such employment, or (B) any legal action
in which the Executive is compelled to give testimony as a result of his
employment hereunder, to the fullest extent permitted by, and subject to the
limitations of, the laws of the State of Delaware.
8. Reimbursement of Legal and Related Expenses. In the event that any
dispute shall arise between the Executive and the Corporation relating to his
rights under this Agreement, and it is determined by agreement between the
parties, or by a final judgment of a court of competent jurisdiction that is no
longer subject to appeal, that the Executive has been substantially successful
in his claims, then reasonable legal fees and disbursements of the Executive in
connection with such dispute shall be paid by the Corporation.
9. Assignment. The Executive may not assign this Agreement or any of
his rights, benefits, obligations or duties hereunder to any other person, firm,
corporation or other entity.
10. Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given when
personally delivered or on the fourth business day after being placed in the
United States mail by certified mail, return receipt requested, postage prepaid,
addressed to the parties hereto as follows (provided that notice of change of
address shall be deemed given only when actually received):
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As to the Corporation: Glenayre Technologies, Inc.
5935 Carnegie Boulevard
Charlotte, North Carolina 28209
Attention: Chief Executive Officer
As to the Executive: Stanley Ciepcielinski
632 Stanhope Lane
Matthews, North Carolina 28105
The address of any of the parties may be changed from time to time by such party
service notice upon the other parties.
11. Law Applicable. This Agreement is made and executed with
the intention that the construction, interpretation and validity hereof shall be
determined in accordance with and governed by the laws of the State of North
Carolina.
12. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Corporation, its successors and assigns. This
Agreement shall be binding upon and inure to the benefit of the Executive, his
heirs and personal representatives.
13. Entire Agreement; Modification. This Agreement constitutes
the entire agreement between the parties with respect to the subject matter
hereof and supersedes and cancels all prior or contemporaneous oral or written
agreements and understandings between them with respect to the subject matter
hereof (including without limitation the Executive Severance Benefit Agreement
dated as of February 1, 1995 between the Corporation and the Executive). This
Agreement may not be changed or modified orally but only by an instrument in
writing signed by the parties hereto, which instrument states that it is an
amendment to this Agreement.
14. Severability. Should any provision of this Agreement or
any part thereof be held invalid or unenforceable, the same shall not affect or
impair any other provision of this Agreement shall not have any effect on or
impair the obligation of the Corporation or the Executive.
15. Execution. This Agreement is hereby executed in multiple
counterparts, each of which shall be deemed an original hereof.
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IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
signed by its officers and its corporate seal to be hereunto affixed, and the
Executive has hereunto set his hand and seal, all as of the day and year first
above written.
GLENAYRE TECHNOLOGIES, INC.
[CORPORATE SEAL]
By /s/ Gary B. Smith
ATTEST: President and Chief Executive Officer
/s/ Eugene C. Pridgen
Secretary
/s/ Stanley Ciepcielinski ___________[SEAL]
Stanley Ciepcielinski
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EXECUTIVE SEVERANCE BENEFIT AGREEMENT
THIS EXECUTIVE SEVERANCE BENEFIT AGREEMENT (this "Agreement") is made
and entered into as of the 21st day of May, 1997, by and between GLENAYRE
TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and LEE M. ELLISON
(the "Executive").
Statement of Purpose
It is important to the success of the Company that it continues to
have the benefit of the services of experienced management personnel such as the
Executive. It is therefore desirable and in the best interest of the Company
that, in the event of any prospective change in control of the Company, the
Executive be reasonably secure in the Executive's position with the Company so
that the Executive can exercise independent judgment for the best interests of
the Company and its shareholders, without concern for the security of the
Executive's own continued employment with the Company. For such purpose, the
Company and the Executive are entering into this Agreement to provide
compensation to the Executive in certain events in accordance with the terms
hereof.
NOW, THEREFORE, in consideration of the Statement of Purpose and the
mutual covenants and agreements hereinafter set forth, the Company and the
Executive do hereby agree as follows:
1. Definitions and Construction.
(a) Definitions. As used herein, the following terms shall have the
following meanings:
"Board" means the Board of Directors of the Company.
"Cause" means (1) dishonesty or fraud on the part of the Executive
which is intended to result in the Executive's substantial personal enrichment
at the expense of the Company or its affiliates; (2) a material violation of the
Executive's responsibilities as an executive of the Company or its subsidiaries
which is willful and deliberate; or (3) the conviction (after the exhaustion of
all appeals) of the Executive of a felony involving moral turpitude or the entry
of a plea of nolo contendere for such a felony. However, "Cause" shall not
include (i) any personal or policy disagreement between the Executive and the
Company or any member of the Board or (ii) any action taken by the Executive in
connection with the Executive's duties if the Executive acted in good faith and
in a manner the Executive reasonably believed to be in the best interest of the
Company and had no reasonable cause to believe the Executive's conduct was
unlawful.
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"Change in Control" means any of the following:
(A) the acquisition, directly or indirectly after the date of this
Agreement, in one or a series of transactions, of 25% or more of the Company's
common stock by any "person" as that term is defined in Section 13(d)(3) of the
Exchange Act;
(B) the consummation of a merger, consolidation, share exchange or
similar transaction of the Company with any other corporation, entity or group,
as a result of which the holders of the voting capital stock of the Company as a
group would receive less than 50% of the voting capital stock of the surviving
or resulting corporation;
(C) the consummation of an agreement providing for the sale or
transfer (other than as security for obligations of the Company) of
substantially all the assets of the Company;
(D) a material change in the composition or character of the Board as
follows: (i) the replacement of a majority of directors on the effective date of
this Agreement by directors opposed by the Executive and a majority of the
members of the Executive Committee of the Board (or, in the absence of the
existence of an Executive Committee, a majority of the members of the Board) or
(ii) at any meeting of the Company's shareholders, the election of a majority of
directors standing for election who are opposed by the Executive and a majority
of the members of the Executive Committee of the Board (or, in the absence of
the existence of an Executive Committee, a majority of the members of the
Board).
"Disability" means the inability of the Executive, due to the condition
of the Executive's physical, mental or emotional health, to regularly and
satisfactorily perform the duties of the Executive's responsibilities as an
executive of the Company or its subsidiaries for a continuous period in excess
of three months. If the existence of the Executive's Disability shall be
disputed by either party, the determination by a physician duly licensed to
practice medicine that such Disability exists shall be necessary to establish
such Disability, unless the Executive refuses to submit to appropriate
examinations at the request of the Board, in which case the determination of the
Board in good faith and after the requisite period of Disability shall be
conclusive as to whether such Disability exists.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Good Reason" means the occurrence of any of the following without the
Executive's express written consent: (1) a significant change in the nature or
the scope of the Executive's authority as in effect immediately prior to a
Change in Control; (2) an assignment to the Executive of duties (or a change in
the Executive's title resulting in duties) which
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are materially inconsistent with the Executive's status, duties or
responsibilities immediately prior to a Change in Control; (3) a reduction in
the Executive's rate of base salary or level of participation in the Company's
Management by Objectives Plan; or (4) a change (or the requirement by the
Company of a change) of more than 30 miles in the principal location where the
Executive is required to perform services; provided, however, that the Executive
must first (i) provide the Board with written notice specifying the particular
failure of the Company under clauses (1), (2), (3) or (4) above and (ii) allow
the Board 60 days from receipt of written notice to cure such failure.
"Retirement" means the termination of the Executive's employment with
the Company on or after the Executive attains 65 years of age.
"Termination of Employment" means the termination of the Executive's
employment with the Company and its subsidiaries for any reason other than (1)
the Executive's death, (2) the Executive's Disability, (3) the Executive's
Retirement, (4) the termination by the Company of the Executive's employment for
Cause or (5) the Executive's voluntary termination of employment other than for
Good Reason.
(b) Construction. Paragraph headings and subheadings have been inserted
herein for convenience of reference only and shall not be deemed to have any
legal effect whatsoever in the interpretation of this agreement. As used herein,
the singular shall include the plural and the plural the singular, the word
"any" means one or more or all, and the conjunction "or" includes both the
conjunctive and the disjunctive.
2. Severance Benefits. If a Change in Control occurs and if the
Executive's Termination of Employment occurs within three years after the Change
in Control, the Company shall pay to the Executive, within 10 days after such
termination, in cash or equivalent a lump sum severance benefit equal to (i)
250% of the Executive's base salary in effect on such termination date (or if
the base salary was then greater, on the date immediately preceding the date of
the Change in Control), plus (2) a pro rata share of any bonus in which the
Executive participates for the fiscal year of the Company in which such
termination occurs, calculated under the assumption that all objectives and
goals for the payment of such bonus are met. The Executive shall also be
entitled to the sum of (1 ) the Executive's accrued but unpaid base salary
through the date of such termination, plus (2) the Executive's accrued but
unpaid vacation pay through such date, plus (3) any other compensation payments
or benefits which have accrued and are payable in connection with such
termination. In addition, the Company shall provide medical and dental benefits
to the Executive (and the Executive's dependents) for a period of 12 months
following such termination of employment (after a Change in Control) at the
Company's full expense and at the same levels of coverage as such benefits are
provided to active employees of the Company. The Executive's right to continue
medical and dental coverage required under the Consolidated Omnibus Budget
Reconciliation Act of 1995 ("'COBRA") shall begin at the expiration of the
one-year period described in the foregoing sentence. The Executive has been
awarded options to purchase shares of the Company's
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common stock under the Company's stock option plans (including the Glenayre
Technologies, Inc. 1996 Incentive Stock Plan) and may in the future be awarded
additional options to purchase shares of the Company's or a successor
corporation's common stock under the Glenayre Technologies, Inc. 1996 Incentive
Stock Plan or other option plans (collectively, the "Options"), such Options
having been granted, or to be granted, for the number of shares and at a price
per share specified in the agreements between the Company (or a successor
corporation) and the Executive granting the Options. Notwithstanding any terms
to the contrary contained in such stock option agreements, upon the Executive's
termination of employment for any reason other than "Cause" after a Change in
Control, (i) all Options shall become immediately vested in the Executive and
(ii) all Options shall become immediately exercisable and shall remain
exercisable for a period of 12 months following the date of Executive's
termination of employment.
3. Legal Expenses. The Company agrees to pay any reasonable legal
expenses incurred by the Executive in connection with the enforcement of this
Agreement or any determination of the validity of this Agreement.
4. Effect of Agreement on Other Rights. This Agreement shall not be
construed to provide the Executive with any right of continued employment by the
Company or its subsidiaries. This Agreement shall not diminish or increase other
rights the Executive (or the Executive's heirs or legal representatives) may
have under any other contract, employee benefit plan or policy of the Company
except as expressly provided in this Agreement.
5. Assignment. Neither this Agreement nor any rights or benefits
hereunder shall be assignable, either voluntarily or involuntarily, by the
Executive, except that all rights of the Executive under this Agreement shall
inure to the benefit of and be enforceable by the Executive's legal
representatives and heirs.
6. Notices. All notices and other communications hereunder to a party
hereto shall be in writing and, except as otherwise expressly provided herein,
shall be deemed to have been duly given when placed in the United States mail by
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party as follows:
As to the Company: Glenayre Technologies, Inc.
5935 Carnegie Boulevard
Charlotte, North Carolina 28209
Attention: Chief Executive Officer
As to the Executive: Lee M. Ellison
c/o 5935 Carnegie Boulevard
Charlotte, North Carolina 28209
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Either party hereto may change such party's address (and in the case of the
Company the title of the person to whose attention communications hereunder
shall be directed) from time to time by serving notice thereof upon the other
party hereto as provided herein.
7. Survival. The provisions of this Agreement shall survive the
termination of the Executive's employment with the Company and its subsidiaries
regardless of the date, cause or manner of such termination, and such
termination shall not impair or otherwise affect the Executive's rights to the
severance benefits to the extent set forth in Paragraph 2.
8. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the subject matter hereof and all
prior or contemporaneous oral or written agreements or instruments are merged
herein. No amendment to or modification of this Agreement shall be effective
unless in writing and signed by both parties hereto.
9. Severability. If any provision of this Agreement is declared
invalid or unenforceable as a matter of law, such invalidity or unenforceability
shall not affect or impair the validity or enforceability of any other provision
of this Agreement or the remainder of this Agreement as a whole.
10. Law Applicable. The construction, interpretation and validity of
this Agreement shall be determined in accordance with and governed by the laws
of the State of North Carolina.
11. Freedom of the Company to Act. No provision of Agreement shall be
deemed to restrict the absolute right of the Company at any time to sell or
dispose of all or any part of its business or assets, or to reconstitute the
same into any one or more subsidiaries or to merge, consolidate, sell or
otherwise dispose of said subsidiaries or any of the assets thereof.
12. Execution. This Agreement is hereby executed in multiple
originals, one of which is being retained by each of the parties hereto and each
of which shall be deemed an original hereof.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized officers its corporate seal to be hereunto affixed and
the Executive has hereunto set the Executive's hand and seal, all as of the day
and year first above written.
GLENAYRE TECHNOLOGIES, INC.
[CORPORATE SEAL]
ATTEST: By:/s/ Gary B. Smith
/s/ Eugene C. Pridgen Title: President and Chief Executive
Secretary Officer
/s/ Lee M. Ellison [SEAL]
Lee M. Ellison
Exhibit 10.4
GLENAYRE 1996 INCENTIVE STOCK PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. Glenayre Technologies, Inc. hereby establishes
an incentive compensation plan to be known as the "Glenayre 1996 Incentive Stock
Plan" as set forth in this document. The Plan permits the grant of Nonqualified
Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted
Stock and Performance Shares.
Subject to approval by the Company's stockholders, the Plan shall become
effective as of May 22, 1996 (the "Effective Date") and shall remain in effect
as provided in Section 1.3 hereof. The Plan shall not become effective unless
stockholder approval is obtained.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the success
and enhance the value of the Company by linking the personal interests of
Participants to those of the Company's stockholders, and by providing
Participants with an incentive for outstanding performance.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract and retain the services of Participants upon whose
judgment, interest and special effort the successful conduct of its operation
largely is dependent.
1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date, as
described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 16 hereof, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions. However, in no event
may an Award of an ISO be granted under the Plan after May 21, 2006.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below and, when the meaning is intended, the initial letter of the word is
capitalized:
2.1 "AWARD" means, individually or collectively, a grant under the Plan of
Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock or Performance Shares.
2.2 "AWARD AGREEMENT" means an agreement entered into by the Company and
each Participant setting forth the terms and provisions applicable to Awards
granted under the Plan.
2.3 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
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2.4 "CHANGE IN CONTROL" of the Company shall have occurred when any
Acquiring Person (other than the Company, any employee benefit plan of the
Company or any person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan), alone or together with
its Affiliates and Associates, shall become the beneficial owner of 25% or more
of the shares of Common Stock of the Company then outstanding (except pursuant
to an offer for all outstanding shares of the Company's Common Stock at a price
and upon such terms and provisions as a majority of the Continuing Directors
determine to be in the best interests of the Company and its stockholders other
than the Acquiring Person or any Affiliate or Associate thereof on whose behalf
the offer is being made), and the Continuing Directors no longer constitute a
majority of the Board. For purposes of this definition, the following terms
shall have the following meanings:
(a) "Acquiring Person" means any individual, firm, corporation or other
entity who or which, together with all Affiliates and Associates,
shall be the beneficial owner of a substantial block of the Company's
Common Stock.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 as promulgated under the Exchange
Act.
(c) "Continuing Director" means any individual who is a member of the
Board, while such individual is a member of the Board, who is not an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person,
or a representative or nominee of an Acquiring Person or of any such
Affiliate or Associate, and was a member of the Board prior to the
occurrence of the Change in Control; or any successor of a Continuing
Director, while such successor is a member of the Board, and who is
not an Acquiring Person, or an Affiliate or Associate of an Acquiring
Person, or a representative or nominee of an Acquiring Person or of
any such Affiliate or Associate, and is recommended or elected to
succeed the Continuing Director by a majority of the Continuing
Directors.
2.5 "CODE" means the Internal Revenue Code of 1986, as amended from time to
time. References to the Code shall include the valid and binding governmental
regulations, court decisions and other regulatory and judicial authority issued
or rendered thereunder.
2.6 "COMMITTEE" means the Plan Administration Committee of the Board, as
specified in Article 3 herein, appointed by the Board to administer the Plan.
2.7 "COMMON STOCK" means the $0.02 par value common stock of the Company.
2.8 "COMPANY" means Glenayre Technologies, Inc., a Delaware corporation,
and any successor as provided in Article 19 herein.
2.9 "DIRECTOR" means any individual who is a member of the Board of
Directors.
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2.10 "DISABILITY," with respect to a Participant, means "disability" as
defined from time to time under any long-term disability plan of the Company or
Subsidiary with which the Participant is employed.
2.11 "EARNINGS PER SHARE" means "earnings per common share" of the Company
determined in accordance with generally accepted accounting principles that
would be reported in the Company's Annual Report to Stockholders.
2.12 "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.13 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.14 "FAIR MARKET VALUE," with respect to a share of the Company's Common
Stock at a particular time, shall be that value as determined by the Committee
which shall be (i) if such Common Stock is listed on a national securities
exchange (which includes the NASDAQ Stock Market), on any given date, (A) the
closing price of a share of Common Stock, as reported on the consolidated
transaction reporting system for such exchange for that date, or if shares of
Common Stock were not traded on such date, on the next preceding day on which
shares of Common Stock were traded, or (B) if the Common Stock is not reported
on the consolidated transaction reporting system for such exchange, the last
price at which the Common Stock shall have been sold regular way on a national
securities exchange on said date, or, if no sales occur on said date, then on
the next preceding date on which there were such sales of Common Stock; or (ii)
if the Common Stock shall not be listed on a national securities exchange, the
mean between the average high bid and low asked prices last reported by the
National Association of Securities Dealers, Inc. for the over-the-counter market
on said date or, if no bid and asked prices are reported on said date, then on
the next preceding date on which there were such quotations; or (iii) if at any
time quotations for the Common Stock shall not be reported by the National
Association of Securities Dealers, Inc. for the over-the-counter market and the
Common Stock shall not be listed on any national securities exchange, the fair
market value determined by the Committee on the basis of available prices for
such Common Stock or in such other manner as the Committee may deem reasonable.
2.15 "FREESTANDING SAR" means an SAR that is granted independently of any
Option.
2.16 "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares,
granted under Article 6 herein, and which is designated an Incentive Stock
Option intended to meet the requirements of Section 422 of the Code.
2.17 "INSIDER" shall mean an individual who is, on the relevant date, an
officer, director or 10% beneficial owner of any class of the Company's equity
securities that is registered pursuant to Section 12 of the Exchange Act, all as
defined under Section 16 of the Exchange Act.
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2.18 "KEY PERSON" means an employee or officer of the Company or a
Subsidiary, in a managerial or other position, who can make important
contributions to the Company or a Subsidiary or a key person providing important
services to the Company or a Subsidiary, all as determined by the Committee in
its discretion.
2.19 "NAMED EXECUTIVE OFFICER" means, for a calendar year, a Participant
who is one of the group of "covered employees" for such calendar year within the
meaning of Code Section 162(m) or any successor statute.
2.20 "NET INCOME" means "net income" of the Company determined in
accordance with generally accepted accounting principles that would be reported
in the Company's Annual Report to Stockholders.
2.21 "NET SALES" means the "net sales" of the Company determined in
accordance with generally accepted accounting principles that would be reported
in the Company's Annual Report to Stockholders.
2.22 "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares granted to Key Persons under Article 6 or to non-officer Directors under
Article 15 which is not intended to meet the requirements of Code Section 422.
2.23 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.24 "OPTION PRICE" means the price at which a Share may be purchased by a
Participant upon the exercise of an Option.
2.25 "PARTICIPANT" means a person who has outstanding an Award granted
under the Plan.
2.26 "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
set forth in Code Section 162(m)(4)(C) from the deductibility limitations of
Code Section 162(m).
2.27 "PERFORMANCE SHARE" means an Award granted to a Participant pursuant
to Article 9 herein.
2.28 "PERIOD OF RESTRICTION" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of time,
the achievement of performance goals, or upon the occurrence of other events as
determined by the Committee, at its discretion), and the Shares are subject to a
substantial risk of forfeiture, as provided in Article 8 herein.
2.29 "RESTRICTED STOCK" means an Award granted to a Participant pursuant to
Article 8 herein.
2.30 "SHARES" means shares of Common Stock of the Company.
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2.31 "STOCK APPRECIATION RIGHT" or "SAR" means an Award granted alone or in
connection with a related Option to a Participant pursuant to Article 7 herein.
2.32 "SUBSIDIARY" means any corporation, partnership, joint venture,
affiliate or other entity in which the Company has an ownership interest, and
which the Committee designates as a participating entity in the Plan.
2.33 "TANDEM SAR" means an SAR that is granted in connection with a related
Option, the exercise of which shall require forfeiture of the right to purchase
a Share under the related Option (and when a Share is purchased under the
Option, the Tandem SAR shall similarly be canceled).
2.34 "TOTAL STOCKHOLDER RETURN" means the percentage change in value of an
initial investment in Shares over a specified period assuming reinvestment of
all dividends during the period.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Plan
Administration Committee of the Board or by any other Committee appointed by the
Board consisting of not less than two (2) Directors. All of the members of the
Committee shall comply with the "disinterested administration" rules of Rule
16b-3 under the Exchange Act, if applicable. The members of the Committee shall
be appointed from time to time by, and shall serve at the discretion of, the
Board of Directors. In addition, any action taken with respect to Named
Executive Officers for purposes of meeting the Performance-Based Exception shall
be taken by the Committee only if all of the members of the Committee are
"outside directors" within the meaning of Code Section 162(m), subject to any
applicable transition rules under Code Section 162(m). If all of the members of
the Committee are not "outside directors," such action shall be taken by a
subcommittee of the Committee comprised of at least two members who are "outside
directors."
3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law, or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select Key Persons who
shall participate in the Plan; determine the sizes and types of Awards;
determine the terms and provisions of Awards in a manner consistent with the
Plan; construe and interpret the Plan and any agreement or instrument entered
into under the Plan; establish, amend or waive rules and regulations for the
Plan's administration; and (subject to the provisions of Article 16 herein),
amend the terms and provisions of any outstanding Award to the extent such terms
and provisions are within the discretion of the Committee as provided in the
Plan. Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan. To the extent
permitted by law, the Committee may delegate its authority hereunder.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its stockholders, employees, Participants and their
estates and beneficiaries.
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ARTICLE 4. SHARES SUBJECT TO THE PLAN.
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Beginning on the Effective Date,
there is hereby reserved for grants of Awards under the Plan 2,200,000 Shares.
The number of Shares reserved for grants of Awards under this paragraph shall be
subject to adjustment as provided in Section 4.3.
In no event shall a Participant receive an Award or Awards during any one
calendar year covering in the aggregate more than 250,000 Shares. The limitation
on awards to a Participant during a calendar year under this paragraph shall be
subject to adjustment as provided in Section 4.3.
4.2 LAPSED AWARDS. If any Award granted under the Plan is canceled,
terminates, expires or lapses for any reason (with the exception of the
termination of a Tandem SAR upon exercise of the related Option, or the
termination of a related Option upon exercise of the corresponding Tandem SAR),
any Shares subject to such Award again shall be available for the grant of an
Award under the Plan.
4.3 ADJUSTMENTS IN AVAILABLE SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under the
Plan, in the number and class of and/or price of Shares subject to outstanding
Awards granted under the Plan and in the limitation on awards to a Participant
during a calendar year, as may be determined to be appropriate and equitable by
the Committee, in its sole discretion, to prevent the dilution or enlargement of
rights under the Plan; provided, however, that the number of Shares subject to
any Award shall always be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in the Plan are Key
Persons, as determined by the Committee, and any non-officer Director who
participates in the Plan pursuant to Article 15.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Key Persons those to
whom Awards shall be granted and shall determine the nature and amount of each
Award. Non-officer Directors shall be granted Awards in accordance with the
provisions of Article 15.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Key Persons in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Committee.
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6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains and such other provisions as the
Committee shall determine. The Award Agreement also shall specify whether the
Option is intended to be an ISO within the meaning of Section 422 of the Code,
or an NQSO whose grant is intended not to fall under Code Section 422.
6.3 OPTION PRICE. The Committee shall determine the Option Price for each
grant of an Option under this Article 6, which such Option Price shall be set
forth in the applicable Award Agreement; provided, however, that the Option
Price shall be at least equal to 100% of the Fair Market Value of a Share on the
date the Option is granted with respect to the grant of either (i) an Option
granted to a Named Executive Officer that is intended to satisfy the
Performance-Based Exception or (ii) an ISO.
6.4 DURATION OF OPTIONS. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the 10th anniversary date of its grant.
6.5 EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve and which shall be set forth in the
applicable Award Agreement, which need not be the same for each grant or for
each Participant.
6.6 PAYMENT. Options shall be exercised by the delivery of a written notice
of exercise to the Company, setting forth the number of Shares with respect to
which the Option is to be exercised, accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered to satisfy the Option Price must have been held by the Participant for
at least six months prior to their tender), or (c) by a combination of (a) and
(b).
The Committee also may allow cashless exercise as permitted under the
Federal Reserve Board's Regulation G or Regulation T, subject to applicable
securities law restrictions, or by any other means which the Committee
determines to be consistent with the Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of exercise
and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s).
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6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including without
limitation, restrictions under applicable Federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded and under any blue sky or state securities laws applicable
to such Shares.
6.8 TERMINATION OF EMPLOYMENT. Each Option Award Agreement shall set forth
the extent to which the Participant shall have the right to exercise the Option
following termination of the Participant's employment with the Company and its
Subsidiaries. Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement entered into with the
Participant, need not be uniform among all Options issued pursuant to this
Article 6, may reflect distinctions based on the reasons for termination of
employment and may include provisions relating to the Participant's competition
with the Company after termination of employment. In that regard, if an Award
Agreement permits exercise of an Option following the death of the Participant,
the Award Agreement shall provide that such Option shall be exercisable to the
extent provided therein by any person that may be empowered to do so under the
Participant's will, or if the Participant shall fail to make a testamentary
disposition of the Option or shall have died intestate, by the Participant's
executor or other legal representative.
6.9 NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under this Article 6 may be
sold, transferred, pledged, assigned or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, all ISOs granted to a Participant under the
Plan shall be exercisable during his or her lifetime only by such
Participant.
(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a
Participant's Award Agreement, no NQSO granted under this Article 6
may be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in a
Participant's Award Agreement, all NQSOs granted to a Participant
under this Article 6 shall be exercisable during his or her lifetime
only by such Participant.
6.10 NO RIGHTS. A Participant granted an Option shall have no rights as a
stockholder of the Company with respect to the Shares covered by such Option
except to the extent that Shares are issued to the Participant upon the due
exercise of the Option.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARS. Subject to the terms and provisions of the Plan, SARs
may be granted to Key Persons in such number, and upon such terms, and at any
time and from time to time as shall be determined by the Committee. The
Committee may grant Freestanding SARs, Tandem SARs or any combination of these
forms of SARs.
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The Committee shall have complete discretion in determining the number of
Shares covered by SARs granted hereunder (subject to Article 4 herein) and,
consistent with the provisions of the Plan, in determining the terms and
provisions pertaining to such SARs. The number of Shares covered by a
Freestanding SAR shall be counted against the number of Shares available for
grants of Awards under Section 4.1, but the number of Shares covered by a Tandem
SAR shall not be so counted.
The grant price of a Freestanding SAR shall equal the Fair Market Value of
a Share on the date of grant of the SAR. The grant price of Tandem SARs shall
equal the Option Price of the related Option.
7.2 EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of the Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than 100% of the
difference between the Option Price of the underlying ISO and the Fair Market
Value of the Shares subject to the underlying ISO at the time the Tandem SAR is
exercised; and (iii) the Tandem SAR may be exercised only when the Fair Market
Value of the Shares subject to the ISO exceeds the Option Price of the ISO.
7.3 EXERCISE OF FREESTANDING SARS. Freestanding SARs may be exercised upon
whatever terms and provisions the Committee, in its sole discretion, imposes
upon them.
7.4 SAR AGREEMENT. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the grant price, the term of the SAR and such other
provisions as the Committee shall determine.
7.5 TERM OF SARS. The term of an SAR granted under the Plan shall be
determined by the Committee, in its sole discretion; provided, however, that
such term shall not exceed 10 years.
7.6 PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the date of
exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Committee, the payment upon SAR exercise may be in
cash, in Shares of equivalent value or in some combination thereof; provided,
however, that from and after the date of a Change in Control, the exercise of an
SAR may be settled only in cash.
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7.7 RULE 16B-3 REQUIREMENTS. Notwithstanding any other provision of the
Plan, the Committee may impose such conditions on exercise of an SAR (including
without limitation, the right of the Committee to limit the time of exercise to
specified periods) as may be required to satisfy the requirements of Section 16
(or any successor provision) of the Exchange Act.
7.8 TERMINATION OF EMPLOYMENT. Each SAR Award Agreement shall set forth the
extent to which the Participant shall have the right to exercise the SAR
following termination of the Participant's employment with the Company and its
Subsidiaries. Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement entered into with the
Participant, need not be uniform among all SARs issued pursuant to the Plan and
may reflect distinctions based on the reasons for termination of employment. In
that regard, if an Award Agreement permits exercise of an SAR following the
death of the Participant, the Award Agreement shall provide that such SAR shall
be exercisable to the extent provided therein by any person that may be
empowered to do so under the Participant's will, or if the Participant shall
fail to make a testamentary disposition of the SAR or shall have died intestate,
by the Participant's executor or other legal representative.
7.9 NONTRANSFERABILITY OF SARS. Except as otherwise provided in a
Participant's Award Agreement, no SAR granted under this Article 7 may be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, all SARs granted to a
Participant under the Plan shall be exercisable during his or her lifetime only
by such Participant.
7.10 NO RIGHTS. A Participant granted an SAR shall have no rights as a
stockholder of the Company with respect to the Shares covered by such SAR except
to the extent that Shares are issued to the Participant upon the due exercise of
the SAR.
ARTICLE 8. RESTRICTED STOCK
8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, Restricted Stock may be granted to Key Persons in such number, and upon
such terms, and at any time and from time to time as shall be determined by the
Committee.
8.2 RESTRICTED STOCK AWARD AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the Period of
Restriction, the number of Shares of Restricted Stock granted and such other
provisions as the Committee shall determine.
8.3 TRANSFERABILITY. Except as provided in this Article 8, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged, assigned
or otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the Restricted Stock
Award Agreement, or upon earlier satisfaction of any other conditions, as
specified by the Committee in its sole discretion and set forth in the
Restricted Stock Agreement. All rights with respect to the
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Restricted Stock granted to a Participant under the Plan shall be available
during his or her lifetime only to such Participant.
8.4 OTHER RESTRICTIONS. The Committee may impose such other conditions
and/or restrictions on any Shares of Restricted Stock granted pursuant to the
Plan as it may deem advisable including without limitation, a requirement that
Participants pay a stipulated purchase price for each Share of Restricted Stock,
restrictions based upon the achievement of specific performance goals
(Company-wide, divisional, and/or individual), time-based restrictions on
vesting following the attainment of the performance goals and/or restrictions
under applicable Federal or state securities laws.
The Company shall retain the certificates representing Shares of Restricted
Stock in the Company's possession until such time as all conditions and/or
restrictions applicable to such Shares have been satisfied.
Except as otherwise provided in this Article 8 or in the applicable Award
Agreement, Shares of Restricted Stock covered by each Restricted Stock grant
made under the Plan shall become freely transferable by the Participant after
the last day of the Period of Restriction.
8.5 VOTING RIGHTS. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
8.6 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the underlying Shares
while they are so held. The Committee may apply any restrictions to the
dividends that the Committee deems appropriate.
In the event that any dividend constitutes a "derivative security" or an
"equity security" pursuant to Rule 16(a) under the Exchange Act, such dividend
shall be subject to a vesting period equal to the remaining vesting period of
the Shares of Restricted Stock with respect to which the dividend is paid.
8.7 TERMINATION OF EMPLOYMENT. Each Restricted Stock Award Agreement shall
set forth the extent to which the Participant shall have the right to receive
unvested Restricted Shares following termination of the Participant's employment
with the Company and its Subsidiaries. Such provisions shall be determined in
the sole discretion of the Committee, shall be included in the Award Agreement
entered into with Participants, need not be uniform among all Shares of
Restricted Stock issued pursuant to the Plan and may reflect distinctions based
on the reasons for termination of employment; provided, however, that except in
cases of terminations resulting from a Change in Control and terminations by
reason of death or Disability, payment of an Award of Restricted Stock which is
intended to qualify for the Performance-Based Exception may not occur before
attainment of the related performance goal.
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ARTICLE 9. PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE SHARES. Subject to the terms and provisions of the
Plan, Performance Shares may be granted to eligible Key Persons in such amount
and upon such terms, and at any time and from time to time as shall be
determined by the Committee. The number and/or vesting of Performance Shares
granted, in the Committee's discretion, shall be contingent upon the degree of
attainment of specified performance goals or other conditions over a specified
period (the "Performance Period"). The terms and provisions of an Award of
Performance Shares shall be evidenced by an appropriate Award Agreement.
9.2 VALUE OF PERFORMANCE SHARES. The value of a Performance Share at any
time shall equal the Fair Market Value of a Share at such time.
9.3 FORM AND TIMING OF PAYMENT OF PERFORMANCE SHARES. During the course of
a Performance Period, the Committee shall determine the number of Performance
Shares as to which the Participant has earned a right to be paid pursuant to the
terms of the applicable Award Agreement. The Committee shall pay any earned
Performance Shares as soon as practicable after they are earned in the form of
cash, Shares or a combination thereof (as determined by the Committee) having an
aggregate Fair Market Value equal to the value of the earned Performance Shares
as of the date they are earned. Any Shares used to pay out earned Performance
Shares may be granted subject to any restrictions deemed appropriate by the
Committee. In addition, the Committee, in its discretion, may cancel any earned
Performance Shares and grant Stock Options to the Participant which the
Committee determines to be of equivalent value based on a conversion formula
stated in the Performance Shares Award Agreement.
The Committee, in its discretion, may also grant dividend equivalents
rights with respect to earned but unpaid Performance Shares as evidenced by the
applicable Award Agreement. Performance Shares shall not have any voting rights.
9.4 TERMINATION OF EMPLOYMENT. Each Performance Share Award Agreement shall
set forth the extent to which the Participant shall have the right to receive
unearned Performance Shares following termination of the Participant's
employment with the Company and its Subsidiaries. Such provisions shall be
determined in the sole discretion of the Committee, shall be included in the
Award Agreement entered into with the Participant, need not be uniform among all
Performance Shares awarded pursuant to the Plan and may reflect distinctions
based on the reasons of termination of employment; provided, however, that
except in cases of terminations resulting from a Change in Control and
terminations by reason of death or Disability, payment of an Award of
Performance Shares which is intended to qualify for the Performance-Based
Exception may not occur before attainment of the related performance goal.
9.5 NONTRANSFERABILITY. Except as otherwise provided in a Participant's
Award Agreement, Performance Shares may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Further, except as otherwise provided in a
Participant's Award Agreement,
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a Participant's rights under the Plan shall be exercisable during the
Participant's lifetime only by the Participant.
ARTICLE 10. PERFORMANCE MEASURES
The performance measure(s) to be used for purposes of Awards (other than
Options) to Named Executive Officers which are designed to qualify for the
Performance-Based Exception shall be chosen from among the following
alternatives:
(a) Earnings Per Share;
(b) Net Income;
(c) Net Sales; or
(d) Total Stockholder Return.
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, the Committee shall have the
discretion to make such changes without obtaining stockholder approval.
ARTICLE 11. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
ARTICLE 12. DEFERRALS
The Committee may permit a Participant to defer such Participant's receipt
of the payment of cash or the delivery of Shares that would otherwise be due to
such Participant by virtue of the exercise of an Option or SAR, the lapse or
waiver of restrictions with respect to Restricted Stock or the satisfaction of
any requirements or goals with respect to Performance Shares. If any such
deferral election is required or permitted, the Committee shall, in its sole
discretion, establish rules and procedures for such payment deferrals.
ARTICLE 13. RIGHTS OF KEY PERSONS
13.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company or Subsidiary. For purposes of the Plan, a transfer of a Participant's
employment between the Company and a Subsidiary, or between Subsidiaries, shall
not be deemed to be a termination of employment.
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13.2 PARTICIPATION. No Key Person shall have the right to be selected to
receive an Award under the Plan or, having been so selected, to be selected to
receive a future Award.
ARTICLE 14. CHANGE IN CONTROL
14.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges:
(a) Any and all Options and SARs granted hereunder shall become
immediately exercisable, and shall remain exercisable throughout their
entire term;
(b) Any restriction periods and restrictions imposed on shares of
Restricted Stock shall lapse; and
(c) The target payout opportunities attainable under all outstanding
Awards of Restricted Stock and Performance Shares shall be deemed to
have been fully earned for the entire Performance Period(s) as of the
effective date of the Change in Control, and the vesting of all Awards
shall be accelerated as of the effective date of the Change in
Control.
14.2 LIMITATION ON CHANGE-IN-CONTROL BENEFITS. (a) It is the intention of
the Company and the Participants to reduce the amounts payable or distributable
to a Participant hereunder if the aggregate Net After Tax Receipts (as defined
below) to the Participant would thereby be increased, as a result of the
application of the excise tax provisions of Section 4999 of the Code.
Accordingly, anything in the Plan to the contrary notwithstanding, in the event
that the independent accountants regularly employed by the Company immediately
prior to any "change" described below (the "Accounting Firm") shall determine
that receipt of all Payments (as defined below) would subject the Participant to
tax under Section 4999 of the Code, it shall determine whether some amount of
Payments would meet the definition of a "Reduced Amount," (as defined below). If
the Accounting Firm determines that there is a Reduced Amount, the aggregate
Payments shall be reduced to such Reduced Amount in accordance with the
provisions of Section 14.2(b) below.
For purposes of this Section 14.2(a):
(i) A "Payment" shall mean any payment or distribution in the nature
of compensation to or for the benefit of a Participant who is a
"disqualified individual" within the meaning of Section 280G(c)
of the Code and which is contingent on a "change" described in
Section 280G(b)(2)(A)(i) of the Code with respect to the Company,
whether paid or payable pursuant to the Plan or otherwise;
(ii) "Plan Payment" shall mean a Payment paid or payable pursuant to
the Plan (disregarding this Section 14.2);
(iii)"Net After Tax Receipt" shall mean the Present Value of a
Payment, net of all taxes imposed on the Participant with respect
thereto under Sections 1 and 4999 of the Code, determined by
applying the highest marginal rate
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under Section 1 of the Code which applied to the Participant's
Federal taxable income for the immediately preceding taxable
year;
(iv) "Present Value" shall mean such value determined in accordance
with Section 280G(d)(4) of the Code; and
(v) "Reduced Amount" shall mean the smallest aggregate amount of
Payments which (A) is less than the sum of all Payments and (B)
results in aggregate Net After Tax Receipts which are equal to or
greater than the Net After Tax Receipts which would result if all
Payments were paid to or for the benefit of the Participant.
(b) If the Accounting Firm determines that aggregate Payments should be
reduced to the Reduced Amount, the Committee shall promptly give the
Participant notice to that effect and a copy of the detailed
calculation thereof, and the Participant may then elect, in the
Participant's sole discretion, which and how much of the Payments,
including without limitation Plan Payments, shall be eliminated or
reduced (as long as after such election the Present Value of the
aggregate Payments is equal to the Reduced Amount), and shall advise
the Committee in writing of such election within 10 days of the
Participant's receipt of notice. If no such election is made by the
Participant within such 10 day period, the Committee may elect which
of the Payments, including without limitation Plan Payments, shall be
eliminated or reduced (as long as after such election the Present
Value of the aggregate Payments is equal to the Reduced Amount) and
shall notify the Participant promptly of such election. All
determinations made by the Accounting Firm under this Section 14.2
shall be binding upon the Company and the Participant and shall be
made within 60 days immediately following the event constituting the
"change" referred to above. As promptly as practicable following such
determination, the Company shall pay to or distribute for the benefit
of the Participant such Payments as are then due to the Participant
under the Plan.
(c) At the time of the initial determination by the Accounting Firm
hereunder, it is possible that amounts will have been paid or
distributed by the Company to or for the benefit of the Participant
pursuant to the Plan which should not have been so paid or distributed
("Overpayment") or that additional amounts which will have not been
paid or distributed by the Company to or for the benefit of the
Participant pursuant to the Plan could have been so paid or
distributed ("Underpayment"), in each case, consistent with the
calculation of the Reduced Amount hereunder. In the event that the
Accounting Firm, based either upon the assertion of a deficiency by
the Internal Revenue Service against the Company or the Participant
which the Accounting Firm believes has a high probability of success
or controlling precedent or other substantial authority, determines
that an Overpayment has been made, any such Overpayment paid or
distributed by the Company to or for the benefit of the Participant
shall be treated for all purposes as a loan ab initio to the
Participant which the Participant shall repay to the Company together
with interest at the applicable Federal rate provided for in Section
7872(f)(2) of the Code; provided, however, that no such loan shall be
deemed to have been made and no amount shall be payable by the
Participant to the Company if and to the extent such deemed loan
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and payment would not either reduce the amount on which the
Participant is subject to tax under Section 1 and Section 4999 of the
Code or generate a refund of such taxes.
In the event that the Accounting Firm, based upon controlling
precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Participant together
with interest at the applicable Federal rate provided for in Section
7872(f)(2) of the Code.
14.3 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL
PROVISIONS. Notwithstanding any other provision of the Plan or any Award
Agreement provision, the provisions of this Article 14 may not be terminated,
amended or modified on or after the date of a Change in Control to affect
adversely any Award theretofore granted under the Plan without the prior written
consent of the Participant with respect to said Participant's outstanding
Awards; provided, however, the Board of Directors, upon recommendation of the
Committee, may terminate, amend or modify this Article 14 at any time and from
time to prior to the date of a Change in Control.
ARTICLE 15. AWARDS TO NON-OFFICER DIRECTORS
15.1 AWARDS UNDER PRIOR PLAN. Each non-officer Director on July 15, 1992
was granted an option under the Glenayre Technologies, Inc. Long-Term Incentive
Plan (the "Prior Plan") to purchase Common Stock on the later of October 30,
1992 or the date such Director completed three years of service on the Board.
Each non-officer Director elected to the Board for the first time after July 15,
1992 was granted an option under the Prior Plan to purchase Common Stock on the
third anniversary of the Director's service on the Board. Thereafter, each
non-officer Director was awarded an additional option under the Prior Plan to
purchase Common Stock on the third anniversary of the initial option award.
15.2 AWARDS UNDER THE PLAN. (a) Between May 22, 1996 (the date the Plan was
approved by the Company's stockholders) and April 17, 1997, the provisions of
this Section 15.2(a) applied to the grant of Nonqualified Stock Options to
non-officer Directors. Each non-officer Director, who was awarded an option
under the Prior Plan to purchase Common Stock as described in Section 15.1 shall
be granted a Nonqualified Stock Option to purchase 18,000 shares of Common Stock
upon each third anniversary of the date on which such option was granted under
the Prior Plan, if he or she is then a non-officer Director. Each non-officer
Director who was not awarded an option under the Prior Plan shall be granted a
Nonqualified Stock Option to purchase 18,000 shares of Common Stock upon the
date such non-officer Director completes 3 years of service as a non-officer
Director and upon each third anniversary date thereafter, if he or she is then a
non-officer Director.
(b) On and after April 18, 1997, the following provisions of this Section
15.2(b) shall apply to the grant of Nonqualified Stock Options to non-officer
Directors in lieu of the grant of Nonqualified Stock Options pursuant to Section
15.2(a) hereof:
(1) Each non-officer Director, who is first elected a Director on or
after April 18, 1997, shall be granted a Nonqualified Stock Option to
purchase 30,000
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shares of Common Stock on the date of his or her election as such and upon
each third anniversary date thereafter, if he or she is then a non-officer
Director.
(2) Each non-officer Director, who first becomes a non-officer
Director on or after April 18, 1997 and who was an officer Director
immediately prior to becoming a non-officer Director, shall be granted a
Nonqualified Stock Option to purchase 30,000 shares of Common Stock on the
date he or she first becomes a non-officer Director and upon each third
anniversary date thereafter, if he or she is then a non-officer Director.
(3) Each non-officer Director, who is a non-officer Director on
April 18, 1997 and who was not granted a Nonqualified Stock Option in 1997
pursuant to Section 15.2(b)(1) or (2) above, shall be granted a
Nonqualified Stock Option to purchase 30,000 shares of Common Stock on
April 18, 1997 and upon each third anniversary date thereafter, if he or
she is then a non-officer Director.
(c) For purposes of this Article 15, a "non-officer Director" shall mean a
Director of the Company who is not performing services as an employee of the
Company or a Subsidiary regardless of whether such Director may hold an office
in the Company or a Subsidiary such as Chairman of the Board or Vice Chairman of
the Board.
(d) Each Option granted under this Article 15 shall be evidenced by an
Award Agreement.
15.3 OPTION PRICE. The Option Price for each Option granted under this
Article 15 shall be equal to the Fair Market Value of a Share on the date the
Option is granted.
15.4 EXERCISE AND DURATION OF OPTION. Options granted under this Article 15
prior to April 18, 1997 shall be immediately exercisable. Options granted under
this Article 15 on or after April 18, 1997 shall be vested and immediately
exercisable as to one-third of the shares; an additional one-third of the shares
shall become vested and exercisable on the first anniversary of the date of
grant and the balance shall become vested and exercisable on the second
anniversary of the date of grant. A non-officer Director shall forfeit the
portion of any Option granted under this Article 15 on or after April 18, 1997
that has not become vested and exercisable prior to the date such non-officer
Director's service on the Board terminates. Vested and exercisable Options shall
remain exercisable for 10 years from the date of grant, whether or not the
Director's service on the Board continues during such period.
15.5 PAYMENTS. Options shall be exercised by the delivery of a written
notice of exercise to the Company, setting forth the number of Shares with
respect to which the Option is to be exercised, accompanied by full payment for
the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered to satisfy the Option Price must have been held by the Director for at
least six months prior to their tender), or (c) by a combination of (a) and (b).
17
<PAGE>
As soon as practicable after receipt of a written notification of exercise
and full payment, the Company shall deliver to the Director, in the Director's
name, Share certificates in an appropriate amount based upon the number of
Shares purchased under the Option(s).
15.6 NONTRANSFERABILITY OF OPTIONS. No Options granted under this Article
15 may be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Further, Options granted to a Director under this Article 15 shall be
exercisable during his or her lifetime only by such Director.
15.7 NO RIGHTS. A Director granted an Option under this Article 15 shall
have no rights as a stockholder of the Company with respect to the Shares
covered by such Option except to the extent that shares are issued to the
Director upon the due exercise of the Option.
15.8 LIMITATION ON AWARDS. Notwithstanding anything to the contrary herein,
(i) no Awards shall be made pursuant to this Article 15 to a Director who is an
employee of the Company or any Subsidiary; (ii) no awards shall be made pursuant
to this Article 15 following the suspension or termination of the Plan pursuant
to Article 16; and (iii) no awards shall be made pursuant to this Article 15
unless shares of Common Stock are available therefor under Section 4.1.
ARTICLE 16. AMENDMENT, MODIFICATION AND TERMINATION
16.1 AMENDMENT, MODIFICATION, AND TERMINATION. The Board may at any time
and from time to time, alter, amend, suspend or terminate the Plan in whole or
in part; provided, however, that no amendment which requires stockholder
approval in order for the Plan to continue to comply with Rule 16b-3 under the
Exchange Act, including any successor to such Rule, shall be effective unless
such amendment shall be approved by the requisite vote of stockholders of the
Company entitled to vote thereon.
The Committee shall not have the authority to cancel outstanding Awards and
issue substitute Awards in replacement thereof.
16.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment or modification
of the Plan shall adversely affect in any material way any Award previously
granted under the Plan, without the written consent of the Participant holding
such Award.
16.3 ACCELERATION OF AWARD VESTING; WAIVER OF RESTRICTIONS. Notwithstanding
any provision of the Plan or any Award Agreement provision to the contrary, the
Committee, in its sole and exclusive discretion, shall have the power at any
time to (i) accelerate the vesting of any Award granted under the Plan,
including without limitation, acceleration to such a date that would result in
said Awards becoming immediately vested or (ii) waive any restrictions of any
Award granted under the Plan.
ARTICLE 17. WITHHOLDING
17.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state and local taxes (including the
Participant's FICA obligation)
18
<PAGE>
required by law to be withheld with respect to any taxable event arising as a
result of the Plan.
17.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock
or upon any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Committee, to satisfy the
withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date as of which the tax is to be
determined equal to the minimum statutory total tax which could be imposed on
the transaction. All such elections shall be irrevocable, made in writing,
signed by the Participant, and shall be subject to any restrictions or
limitations that the Committee, in its sole discretion, deems appropriate.
ARTICLE 18. INDEMNIFICATION
Each person who is or shall have been a member of the Committee or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him or her in satisfaction of any
judgment in any such action, suit, or proceeding against him or her, provided he
or she shall give the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it on his or
her own behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such persons may be entitled under
the Company's Certificate of Incorporation or Bylaws, as a matter of law or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
ARTICLE 19. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 20. LEGAL CONSTRUCTION
20.1 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
20.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
20.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.
19
<PAGE>
20.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under the Plan are intended to comply with all applicable conditions or Rule
16b-3 or its successors under the Exchange Act. To the extent any provision of
the Plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
20.5 GOVERNING LAW. To the extent not preempted by Federal law, the Plan,
and all Award Agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of North Carolina.
20
<PAGE>
EXHIBIT 11
GLENAYRE TECHNOLOGIES, INC.
Computation of Earnings Per Common Share
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Income..................................................... $28,406 $39,939 $14,960 $22,863
Primary Earnings Per Share:
Weighted average shares outstanding during the period.......... 60,188 60,664 60,216 60,935
Common stock equivalents....................................... 2,734 3,218 2,489 3,080
62,922 63,882 62,705 64,015
Net income per share........................................... $ .45 $ .63 $ .24 $ .36
Fully Diluted Earnings Per Share:
Weighted average shares outstanding during the period.......... 60,188 60,664 60,216 60,935
Common stock equivalents....................................... 3,008 3,454 3,030 3,209
63,196 64,118 63,246 64,144
Net income per share........................................... $ .45 $ .62 $ .24 $ .36
</TABLE>
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
EXHIBIT 15
To the Board of Directors and Stockholders of
Glenayre Technologies, Inc.
Charlotte, North Carolina
We are aware of the incorporation by reference in the Registration Statement
Number 33-43797 on Form S-8 dated November 5, 1991, Registration Statement
Number 33-43798 on Form S-8 dated November 5, 1991 (amended December 9, 1992),
Registration Statement Number 33-68766 on Form S-8 dated September 14, 1993,
Registration Statement Number 33-80464 on Form S-8 dated June 17, 1994,
Registration Statement Number 33-88818 on Form S-4, dated March 24, 1995
(amended by Post Effective Amendment Number 1 on Form S-8 dated March 25, 1996),
Registration Statement Number 333-04635 on Form S-8 dated May 28, 1996, and
Registration Statement Number 333-15845 on Form S-4 dated November 8, 1996
(amended by Post-Effective Amendment Number 1 on From S-8 dated January 30,
1997) of our report dated July 18, 1997 relating to the unaudited condensed
consolidated interim financial statements of Glenayre Technologies, Inc. and
subsidiaries which are included in its Form 10-Q, for the quarter ended June 30,
1997.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 or the Securities Act of 1933.
Ernst & Young LLP
Charlotte, North Carolina
July 18, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CAPTION>
<S> <C>
<MULTIPLIER> 1000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> dec-31-1997
<PERIOD-END> jun-30-1997
<CASH> 142,752
<SECURITIES> 0
<RECEIVABLES> 167,961
<ALLOWANCES> 0
<INVENTORY> 49,906
<CURRENT-ASSETS> 339,440
<PP&E> 86,426
<DEPRECIATION> 0
<TOTAL-ASSETS> 559,655
<CURRENT-LIABILITIES> 62,317
<BONDS> 0
0
0
<COMMON> 1,206
<OTHER-SE> 490,952
<TOTAL-LIABILITY-AND-EQUITY> 559,655
<SALES> 215,943
<TOTAL-REVENUES> 215,943
<CGS> 101,121
<TOTAL-COSTS> 101,121
<OTHER-EXPENSES> 75,260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 43,827
<INCOME-TAX> 15,421
<INCOME-CONTINUING> 28,406
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,406
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
<PAGE>
</TABLE>
EXHIBIT 99
CAUTIONARY STATEMENT UNDER SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Glenayre Technologies, Inc. ("Glenayre" or the "Company"), from time to
time, makes "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements reflect the
expectations of management of the Company at the time such statements are made.
Glenayre is filing this cautionary statement to identify important factors that
could cause Glenayre's actual results to differ materially from those in any
forward-looking statements made by or on behalf of Glenayre.
Potential Market Changes Resulting from Rapid Technological Advances
Glenayre's business is primarily focused on paging and is subject to
competition from alternative forms of communication. In addition, Glenayre's
business is also focused on the wireless telecommunications industry. The
wireless telecommunications industry is characterized by rapid technological
change, including digital cellular telephone systems, which compete, directly or
indirectly, with Glenayre's products or the services provided by the Company's
customers. While the introduction of more advanced forms of telecommunication
may provide opportunities to Glenayre for the development of new products, these
advanced forms of telecommunication may reduce the demand for pagers and thus
the type of paging systems and related software designed and sold by Glenayre.
Introduction and Acceptance of NPCS Products
While certain of Glenayre's customers have completed "beta testing" of
Glenayre's products used to provide narrowband personal communications services
("NPCS"), the introduction of NPCS is just beginning on a commercial basis. The
timing of the installation of NPCS systems by Glenayre's paging service provider
customers may be delayed depending upon delays in installation, difficulties in
initial operation of NPCS systems, the availability of financing for its paging
service provider customers and the market acceptance of NPCS by the customers of
such paging service providers. The development of the NPCS market will also be
affected by other technological changes in wireless messaging services,
regulatory developments and general economic conditions.
Competition
The Company currently faces competition from a number of other
equipment manufacturers, certain of which are larger and have significantly
greater resources than the Company. The Company also faces indirect competition
from alternative wireless telecommunications technologies, including cellular
telephone services, mobile satellite systems, specialized and private mobile
radio systems, digital cellular telephone systems and broadband personal
communication services. Although these technologies are generally higher priced
than traditional paging services, technological improvements could result in
increased capacity and efficiency for wireless two-way communication and could
result in increased competition for the Company.
<PAGE>
Variability of Quarterly Results
The Company's financial results in any single quarter are highly
dependent upon the timing and size of customer orders and the shipment of
products for large orders. Large orders from customers can account for a
significant portion of products shipped in any quarter. Although sales to one
customer totaled approximately 13%, 16% and 15% of 1994, 1995 and 1996 fiscal
year net sales, respectively, the customers with whom the Company does the
largest amount of business is generally subject to change from year to year as a
result of the timing for development and expansion of its customers' systems.
Furthermore, if a customer delays or accelerates its delivery requirements or a
product's completion is delayed or accelerated, revenues expected in a given
quarter may be deferred or accelerated into subsequent or earlier quarters.
Therefore, annual financial results are more indicative of the Company's
performance than quarterly results, and results of operations in any quarterly
period may not be indicative of results likely to be realized in the following
quarterly periods.
Volatility of Stock Price
The market price of Glenayre Common Stock is volatile. The market price
of Glenayre Common Stock could be subject to significant fluctuations in
response to variations in Glenayre's quarterly operating results and other
factors such as announcements of technological developments or new products by
Glenayre, developments in Glenayre's relationships with its customers,
technological advances by existing and new competitors, general market
conditions in the industry and changes in government regulations. In addition,
in recent years conditions in the stock market in general and shares of
technology companies in particular have experienced significant price and volume
fluctuations which have often been unrelated to the operating performance of
these specific companies.
Limits on Protection of Proprietary Technology
Glenayre owns or licenses numerous patents used in its operations.
Glenayre believes that while these patents are useful to Glenayre, they are not
critical or valuable on an individual basis. The collective value of the
intellectual property of Glenayre is comprised of its patents, blueprints,
specifications, technical processes and cumulative employee knowledge. Although
Glenayre attempts to protect its proprietary technology through a combination of
trade secrets, patent law, nondisclosure agreements and technical measures, such
protection may not preclude competitors from developing products with features
similar to Glenayre's products. The laws of certain foreign countries in which
Glenayre sells or may sell its products, including The Republic of Korea, The
People's Republic of China, Saudi Arabia, Thailand, Dubai, India and Brazil, do
not protect Glenayre's proprietary rights in the products to the same extent as
do the laws of the United States.
Potential Changes in Government Regulation
Many of Glenayre's products operate on radio frequencies. Radio
frequency transmissions and emissions, and certain equipment used in connection
therewith, are regulated in the United States, Canada and internationally.
Regulatory approvals generally must be obtained by Glenayre in connection with
the manufacture and sale of its products, and by Glenayre's paging service
provider and other wireless customers to operate Glenayre's products. The
enactment by federal, state, local or international governments of new laws or
regulations or a change in the interpretation of existing regulations could
affect the market for Glenayre's products. Although recent deregulation of
international telecommunications industries along with recent radio frequency
spectrum allocations made by the Federal Communications Commission ("FCC") in
the United States have increased the demand for Glenayre's products by providing
users of those products with opportunities to establish new paging and other
wireless personal communications services, the trend toward deregulation and
current regulatory developments favorable to the promotion of new and expanded
personal communications services may not
2
<PAGE>
continue and future regulatory changes may not have a positive impact on
Glenayre. As the issuance of paging system licenses stimulates demand for the
Company's products, delays in the issuance of licenses may adversely affect
sales and the timing of sales of the Company's products.
Financing Customer Purchases For Development of NPCS Market
The Company finances customer purchases of its products for development
of the narrowband personal communications services ("NPCS") market for the
build-out of NPCS networks by its customers who acquired NPCS licenses auctioned
by the FCC (the "NPCS License Holders"). Many of the NPCS License Holders with
whom the Company has or expects to enter into customer financing arrangements
have limited operating histories, significant debt related to the acquisition of
their NPCS licenses and start-up expenses, negative cash flows from operations
and some have never generated an operating profit. The Company generally retains
a security interest on equipment for which it provides financing.
International Business Risks
Approximately 40% of 1996 fiscal year net sales were generated in
markets outside of the United States. International sales are subject to the
customary risks associated with international transactions, including political
risks, local laws and taxes, the potential imposition of trade or currency
exchange restrictions, tariff increases, transportation delays, difficulties or
delays in collecting accounts receivable and exchange rate fluctuations.
Although a substantial portion of the international sales of the Company's
products and services for fiscal year 1996 was negotiated in U.S. dollars, the
Company may not be able to maintain such a high percentage of U.S. dollar
denominated international sales. The Company seeks to mitigate its currency
exchange fluctuation risk by entering into currency hedging transactions. The
Company also acts to mitigate certain risks associated with international
transactions through the purchase of political risk insurance and the use of
letters of credit.
3
<PAGE>
