-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F0VqYbZ2v+C3WtwdsVXtEkRjvpRuwGrEq4ONDHDQM/tVGTuxBPyQPXiVee029+2m df93xtht3mwCuoTtAL8XAQ== /in/edgar/work/0000950134-00-008633/0000950134-00-008633.txt : 20001017 0000950134-00-008633.hdr.sgml : 20001017 ACCESSION NUMBER: 0000950134-00-008633 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000831 FILED AS OF DATE: 20001016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERVOICE BRITE INC CENTRAL INDEX KEY: 0000764244 STANDARD INDUSTRIAL CLASSIFICATION: [3661 ] IRS NUMBER: 751927578 STATE OF INCORPORATION: TX FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15045 FILM NUMBER: 740754 BUSINESS ADDRESS: STREET 1: 17811 WATERVIEW PKWY CITY: DALLAS STATE: TX ZIP: 75252 BUSINESS PHONE: 9724548000 FORMER COMPANY: FORMER CONFORMED NAME: INTERVOICE INC DATE OF NAME CHANGE: 19920703 10-Q 1 d80915e10-q.txt FORM 10-Q FOR QUARTER ENDED AUGUST 31, 2000 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-13616 INTERVOICE-BRITE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 75-1927578 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 17811 WATERVIEW PARKWAY, DALLAS, TX 75252 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 972-454-8000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ] THE REGISTRANT HAD 32,929,863 SHARES OF COMMON STOCK, NO PAR VALUE PER SHARE, OUTSTANDING AS OF THE CLOSE OF THE PERIOD COVERED BY THIS REPORT. ================================================================================ 2 InterVoice-Brite, Inc. Consolidated Balance Sheets (Unaudited)
(In Thousands) August 31, February 29, ASSETS 2000 2000 ------------ ------------ Cash and cash equivalents $ 17,642 $ 23,263 Trade accounts receivable, net of allowance for doubtful accounts of $3,212 in 2001 and $4,161 in 2000 67,643 93,157 Income tax receivable 3,903 3,903 Inventory 41,775 27,211 Prepaid expenses and other current assets 8,247 8,997 Deferred income taxes 5,077 4,029 ------------ ------------ Current Assets 144,287 160,560 Building 20,220 19,522 Computer equipment and software 46,871 46,228 Furniture, fixtures and other 4,573 4,566 Service equipment 7,042 5,956 ------------ ------------ 78,706 76,272 Less allowance for depreciation 41,616 35,257 ------------ ------------ Net property and equipment 37,090 41,015 Intangible assets, net of amortization of $21,528 in 2001 and $14,400 in 2000 90,459 98,568 Other assets 1,080 2,880 ------------ ------------ $ 272,916 $ 303,023 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 27,557 $ 27,240 Accrued expenses 12,850 14,596 Customer deposits 9,674 8,010 Deferred income 22,388 14,450 Current portion of long term borrowings 30,000 25,000 ------------ ------------ Current liabilities 102,469 89,296 Long term liabilities -- 958 Deferred income taxes 24,664 25,738 Long term borrowings 45,000 75,000 Preferred Stock, $100 par value--2,000,000 shares authorized: none issued Common Stock, no par value, at nominal assigned value--62,000,000 shares authorized: 32,929,863 issued and outstanding in 2001, 32,587,524 issued and outstanding in 2000 16 16 Additional capital 51,805 49,984 Unearned compensation (2,677) (3,701) Retained earnings 56,123 66,642 Accumulated other comprehensive loss (4,484) (910) ------------ ------------ Stockholders' equity 100,783 112,031 ------------ ------------ $ 272,916 $ 303,023 ============ ============
3 InterVoice-Brite, Inc. Consolidated Statements of Operations (Unaudited)
(In Thousands, Except Per Share Data) Three Months Ended Six Months Ended ------------------------------ ------------------------------ August 31, August 31, August 31, August 31, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Sales $ 72,382 $ 79,860 $ 143,850 $ 119,937 Cost of goods sold 36,238 47,879 71,139 63,226 ------------ ------------ ------------ ------------ Gross Margin 36,144 31,981 72,711 56,711 ------------ ------------ ------------ ------------ Research and development expenses 8,872 37,797 17,889 41,637 Selling, general and administrative expenses 21,336 27,258 43,233 38,689 Amortization of goodwill and acquired intangible assets 3,437 3,528 6,911 3,528 ------------ ------------ ------------ ------------ Income (loss) from operations 2,499 (36,602) 4,678 (27,143) Other income 603 918 794 1,077 Interest expense (1,963) (2,822) (4,011) (2,873) ------------ ------------ ------------ ------------ Income (loss) before taxes and the cumulative effect of a change in accounting principle 1,139 (38,506) 1,461 (28,939) Income taxes (benefit) 606 (2,399) 730 901 ------------ ------------ ------------ ------------ Income before the cumulative effect of a change in accounting principle 533 (36,107) 731 (29,840) Cumulative effect on prior years of adopting SEC Staff Accounting Bulletin No. 101 -- -- (11,250) -- ------------ ------------ ------------ ------------ Net income (loss) $ 533 $ (36,107) $ (10,519) $ (29,840) ============ ============ ============ ============ Per Basic Share: Income (loss) before the cumulative effect of a change in accounting principle $ 0.02 $ (1.24) $ 0.02 $ (1.03) Cumulative effect on prior years of adopting SEC Staff Accounting Bulletin No. 101 -- -- (0.34) -- ------------ ------------ ------------ ------------ Net income (loss) $ 0.02 $ (1.24) $ (0.32) $ (1.03) ============ ============ ============ ============ Per Diluted Share: Income (loss) before the cumulative effect of a change in accounting principle $ 0.02 $ (1.24) $ 0.02 $ (1.03) Cumulative effect on prior years of adopting SEC Staff Accounting Bulletin No. 101 -- -- $ (0.33) -- ------------ ------------ ------------ ------------ Net income (loss) $ 0.02 $ (1.24) $ (0.31) $ (1.03) ============ ============ ============ ============
4 InterVoice-Brite, Inc. Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(In Thousands, Except Share Data) Common Stock Accumulated Other ------------------------ Additional Unearned Retained Comprehensive Shares Amount Capital Compensation Earnings Loss Total ---------- ---------- ---------- ------------ ---------- ----------------- ---------- Balance at February 29, 2000 32,587,524 $ 16 $ 49,984 $ (3,701) $ 66,642 $ (910) $ 112,031 Net loss -- -- -- -- (10,519) -- (10,519) Foreign currency translation adjustment -- -- -- -- -- (3,574) (3,574) Exercise of stock options 342,339 -- 1,821 -- -- -- 1,821 Amortization of unearned compensation -- -- -- 1,024 -- -- 1,024 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at August 31, 2000 32,929,863 $ 16 $ 51,805 $ (2,677) $ 56,123 $ (4,484) $ 100,783 ========== ========== ========== ========== ========== ========== ==========
5 InterVoice-Brite, Inc. Consolidated Statements of Cash Flows (Unaudited)
(In Thousands) Three Months Ended Six Months Ended ------------------------------ ------------------------------ August 31, August 31, August 31, August 31, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ OPERATING ACTIVITIES Income (loss) before the cumulative effect of a change in accounting principle $ 533 $ (36,107) $ 731 $ (29,840) Adjustments to reconcile income before the cumulative effect of a change in accounting principle to net cash provided by operating activities: Depreciation and amortization 7,113 9,548 15,353 12,818 In-process research and development charge -- 30,100 -- 30,100 Changes in operating assets and liabilities: 1,369 (4,089) 2,974 (6,276) ------------ ------------ ------------ ------------ NET CASH FROM OPERATIONS 9,015 (548) 19,058 6,802 INVESTING ACTIVITIES Purchases of property and equipment (1,664) (2,901) (3,181) (3,704) Purchased software (704) (502) (704) (529) Purchase of Brite Voice Systems, Inc., net of cash acquired -- (116,513) -- (116,513) Other 2,800 -- 2,800 -- ------------ ------------ ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 432 (119,916) (1,085) (120,746) FINANCING ACTIVITIES Paydown of debt (5,000) (5,000) (25,000) (5,000) Borrowings -- 135,000 -- 135,000 Exercise of stock options 806 1,025 1,821 1,660 ------------ ------------ ------------ ------------ NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (4,194) 131,025 (23,179) 131,660 Effect of exchange rate on cash (21) 80 (415) 80 ------------ ------------ ------------ ------------ (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 5,232 10,641 (5,621) 17,796 Cash and cash equivalents, beginning of period 12,410 19,351 23,263 12,196 ------------ ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,642 $ 29,992 $ 17,642 $ 29,992 ============ ============ ============ ============
6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE AND SIX MONTHS ENDED AUGUST 31, 2000 NOTE A -- BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. The consolidated balance sheet at February 29, 2000 has been derived from audited financial statements at that date. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the unaudited August 31, 2000 and 1999 consolidated financial statements have been included. Operating results for the three and six month periods ended August 31, 2000 are not necessarily indicative of the results that may be expected for the year ending February 28, 2001 as they may be affected by a number of factors, including the timing and ultimate receipt of orders from significant customers which continue to constitute a large portion of the Company's sales, the sales channel mix of products sold, and changes in general economic conditions, any of which could have an adverse effect on operations. In accordance with Statement of Financial Accounting Standards No. 130, the following comprehensive income disclosures are provided. Total comprehensive income (loss), i.e., net income (loss) plus foreign currency translation adjustments to stockholders' equity, for the second quarter of fiscal 2001 and 2000 was ($0.8) million and ($35.9) million. For the six month period ended August 31, 2000 and 1999 it was ($14.1) million and ($29.6) million. Financial statements of the Company's foreign subsidiaries have been translated into U. S. dollars at current and average exchange rates. Resulting translation adjustments are recorded in accumulated other comprehensive loss. Any transaction gains or losses are included in the accompanying consolidated statements of operations. NOTE B - ACQUISITION OF BRITE VOICE SYSTEMS, INC. As discussed in the Company's Form 10-K for the fiscal year ended February 29, 2000, during the second quarter of fiscal 2000, the Company acquired all of the outstanding stock of Brite Voice Systems, Inc. (Brite) in a two-step transaction involving aggregate consideration of approximately $165.1 million of cash and common stock. Results of operations of Brite were consolidated with the Company beginning June 1, 1999; therefore, the Company's results of operations presented for the six months ended August 31, 1999 include those of Brite only from June 1, 1999 forward. In connection with this transaction, the Company obtained senior secured credit facilities amounting to $150 million from Bank of America, including a $125 million term loan facility and a $25 million revolving credit agreement. The term loan agreement is subject to scheduled repayments, as defined, during 2000-2003. The revolving credit agreement will expire upon the earlier of the termination of the term loan, or August 31, 2003. The credit facilities require the Company to comply with certain financial covenants as defined in the related credit agreements. As of August 31, 2000, $75 million was outstanding under the credit facilities. Interest under the credit facilities accrues at a variable rate indexed to the prime rate or an adjusted London Interbank Offering Rate. The current average annual interest rate is 8.91% NOTE C - CHANGE IN ACCOUNTING PRINCIPLE/REVENUE RECOGNITION Effective March 1, 2000, the Company changed its method of accounting for revenue recognition in accordance with Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements". For systems that do not require customization to be performed by the Company, revenue is recognized when the related hardware and software are delivered, when there is persuasive evidence that an arrangement exists, when the fee is fixed and determinable and when collection is probable. Historically, revenue generally had been recognized at the time of shipment. Although the Company's contract arrangements often include installation and customer acceptance provisions, revenue generally had been recognized at the time of shipment based on the Company's belief that no significant 7 uncertainties regarding customer acceptance existed. For systems that required significant customization where the completed contract method of accounting was applicable, the Company generally had recognized revenue upon completion of installation and testing procedures but prior to customer acceptance. Under the new accounting method, effective March 1, 2000, the Company now recognizes revenue upon customer acceptance. For more complex, customized systems (generally over a $500,000 sales price), the Company has continued to use a percentage of completion methodology based on labor inputs. The Company also continues to recognize revenue from services when the services are performed, or ratably over a contract period. The Company had also recognized revenue upon shipment of products to the customer for systems shipped FOB destination as a common carrier had been used by the Company resulting in the transfer of substantially all the risks and rewards of ownership. For systems for which the risk of loss transfers upon delivery to the customer's site and for which the Company has no significant post-delivery implementation service obligation, the Company now recognizes revenue when risk of loss passes. The cumulative effect of the change on prior years (which principally relates to changes relating to customer acceptance provisions) resulted in a charge to operations of $11.3 million (after reduction for income taxes of $7.0 million) which is included in results of operations for the three months ended May 31, 2000. For the three and six month periods ended August 31, 2000, the Company recognized $1.2 million and $17.0 million in revenue that is included in the cumulative effect adjustment as of March 1, 2000. Assuming the accounting change had been applied retroactively by the Company to prior periods, proforma net income (loss) for the three and six month periods ended August 31, 1999 would have been ($39.3) million and ($32.8) million, respectively. Net income (loss) per common share would have been ($1.34) and ($1.14), respectively. Had the Company not adopted SAB 101, revenues for the three months ended August 31, 2000 would have been $65.6 million and net income (loss) per common share would have been ($0.07). 8 NOTE D - INVENTORIES Inventories consist of the following (in millions):
August 31, 2000 February 29, 2000 --------------- ----------------- Purchased parts $ 30.7 $ 21.1 Work in progress 9.0 5.2 Finished goods 2.1 0.9 ------------ ------------ $ 41.8 $ 27.2 ============ ============
NOTE E - EARNINGS PER SHARE
(in millions except per share data) Three Months Ended Six Months Ended August 31, 2000 August 31, 1999 August 31, 2000 August 31, 1999 --------------- --------------- --------------- --------------- Numerator: Income before the cumulative effect of a change in accounting principle $ 0.5 $ (36.1) $ 0.7 $ (29.8) Cumulative effect on prior years of adopting SAB No. 101 -- -- (11.3) -- ---------- ---------- ---------- ---------- Net Income (loss) $ 0.5 $ (36.1) $ (10.6) $ (29.8) ---------- ---------- ---------- ---------- Denominator: Denominator for basic earnings per share 32.7 29.1 32.6 28.9 Employee Stock Options .9 -- 1.6 -- Non-vested restricted shares -- -- .1 -- ---------- ---------- ---------- ---------- Dilutive Potential common shares .9 0 1.7 0 Denominator for diluted earnings per share $ 33.6 $ 29.1 $ 34.3 $ 28.9 BASIC: Income (loss) before the cumulative effect of a change in accounting principle 0.02 (1.24) 0.02 (1.03) Cumulative effect on prior years of adopting SAB No. 101 -- -- (0.34) -- ---------- ---------- ---------- ---------- Net Income (loss) $ 0.02 $ (1.24) $ (0.32) $ (1.03) ========== ========== ========== ========== DILUTED: Income (loss) before the cumulative effect of a change in accounting principle $ 0.02 $ (1.24) $ 0.02 $ (1.03) Cumulative effect on prior years of adopting SAB No. 101 -- -- (0.33) -- ---------- ---------- ---------- ---------- Net Income (loss) $ 0.02 $ (1.24) $ (0.31) $ (1.03) ========== ========== ========== ==========
Options to purchase 3,319,992 and 79,874 shares of common stock at average prices of $12.64 and $20.87, respectively, were outstanding during the three and six month periods ended August 31, 2000, respectively, but were not included in the computation of diluted earnings per share because the options' 9 prices were greater than the average market price of the Company's common stock during such periods and, therefore, the effect would have been anti-dilutive. 1,802,005 and 1,746,282 potentially dilutive shares were excluded from the diluted earnings per share calculations for the three and six month periods ending August 31, 1999 as they would be anti-dilutive due to net losses. NOTE F - OPERATING SEGMENT INFORMATION AND MAJOR CUSTOMERS The Company is comprised of a single operating segment which develops, sells and services call automation systems. The Company's Chief Operating Decision Maker (CODM) assesses performance and allocates resources on an enterprise wide basis. Therefore, no separately reportable operating segments exist. The CODM monitors sales based on customer markets, including Business Systems, Network Systems and Services. The Business Systems market includes interactive voice response (IVR) and customer relationship management (CRM) systems. The Network Systems customer market focuses on systems for telecommunications network operators. Services sales include fees for system maintenance, software license fees and fees for providing voice and call processing services to the Company's customers on equipment owned and operated by the Company. The Company's net sales by market and geographic area were as follows (in millions):
Three Months Ended Six Months Ended --------------------------------- --------------------------------- August 31, 2000 August 31, 1999 August 31, 2000 August 31, 1999 --------------- --------------- --------------- --------------- Sales: Business Systems $ 25.4 $ 28.7 $ 49.3 $ 55.1 Network Systems 23.1 29.3 47.4 39.1 Services 23.9 21.8 47.2 25.7 ---------- ---------- ---------- ---------- Total $ 72.4 $ 79.8 $ 143.9 $ 119.9 ========== ========== ========== ========== Geographic Area Net Sales: United States $ 36.2 $ 46.2 $ 77.2 $ 75.9 The Americas (Excluding U.S.) 2.0 2.5 2.9 8.6 Pacific Rim 3.5 5.0 7.3 8.0 Europe, Middle East & Africa 30.7 26.1 56.5 27.4 ---------- ---------- ---------- ---------- Total $ 72.4 $ 79.8 $ 143.9 $ 119.9 ========== ========== ========== ==========
One customer accounted for approximately 23% of the Company's sales during the three month period ended August 31, 2000 and approximately 21% of the Company's sales during the six month period ended August 31, 2000. Another customer accounted for approximately 18% and 10% of the Company's sales during the three and six month periods ended August 31, 2000, respectively. No customer accounted for 10% or more of the Company's sales during the three or six month periods ended August 31, 1999. NOTE G - WARRANT During fiscal 1997, the Company received a warrant to purchase 741,237 shares of SpeechWorks International, Inc. common stock at an exercise price of $2.05 per share. The warrant was issued in connection with a supply agreement, pursuant to which SpeechWorks supplies the Company with software products and services. Upon the Company's receipt of the warrant, SpeechWorks was not a publicly traded company and no value was assigned to the security. The warrant and the shares underlying the warrant are unregistered securities with no readily ascertainable market valuation, therefore, the warrant is carried at cost, i.e. no value, on the Company's balance sheet at August 31, 2000 for the unregistered warrant or the underlying shares. SpeechWorks became a publicly traded company on August 1, 2000. The October 13, 2000 closing price for a share of SpeechWorks common stock was $65. For several reasons, the Company is currently unable to estimate what gain, if any, it will ultimately realize in connection with the warrant. First, the Company has not completed its evaluation of its alternatives with respect to monetizing the warrant. Second, the ultimate price received for the warrant or the shares underlying the warrant cannot be determined due to relatively long periods of time before such securities could be sold in a private or public placement. The Company has agreed not to sell the warrant or underlying securities in a private placement for a period of six months after SpeechWorks' initial public offering (August 1, 2000). Should the Company exercise the warrant with the intent of selling the underlying shares in the public market, the unregistered shares must be held at least one year before the Company could sell such shares, subject to limitations under the Securities and Exchange Commission's Rule 144. The Company does have certain demand registration rights which could allow the sale of the shares in the public market before the Rule 144 one year holding period lapses. However, such rights cannot be exercised unilaterally, except in the case of a registration of the shares by SpeechWorks on Form S-3, for which SpeechWorks will not be eligible until at least August 1, 2001. Third, there is not a readily ascertainable price for the unregistered warrant or underlying unregistered shares. Generally, unregistered securities sold through a private offering sell at discounts from the then current market price. Fourth, a large percentage of SpeechWorks' outstanding common stock is unregistered and is subject to a lock up period, as are the shares underlying the Company's warrant. Such an arrangement is not unusual, but the potential introduction of a large number of shares following a lock up period can affect the market for an issuer's shares. Should the Company decide to exercise its warrant, the underlying shares received will be valued at market as a current asset with a corresponding increase to the Company's stockholders' equity. Any change of valuation prior to the final disposition of the underlying shares will be reflected as an adjustment to the Company's stockholders' equity through accumulated other comprehensive income. NOTE H - CONTINGENCIES The Company provides certain automated call processing services on a managed services basis for a large domestic telecommunications company. The telecommunications company has asserted that the Company should pay monetary penalties under the managed services contract for failing to achieve certain representations, covenants and specified levels of service. The telecommunications company is also in the process of performing an audit of the Company's records relating to the managed services, as expressly contemplated by the contract. While the Company does not believe that the audit will result in any claims for material amounts, it is possible that the telecommunications company will make such claims and such claims may be material. The Company has acknowledged that it may owe an immaterial amount as a monetary penalty for failing to adhere to a specific service level, and has denied all other asserted failures under the contract. A reserve has been established to cover the immaterial amount the Company has acknowledged it might owe. The parties are in the process of attempting to negotiate mutually satisfactory agreements to resolve their dispute and to extend the managed services contract. 10 There is no assurance that the parties will negotiate mutually acceptable agreements. The telecommunications company has not threatened litigation against the Company. In the event litigation is instituted against the Company concerning the dispute under the contract, the Company intends to vigorously contest the claims and to assert appropriate defenses. As with any legal proceeding, there is no guarantee that the Company would prevail in any litigation that might be asserted against the Company in connection with the managed services contract. 11 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS This report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this Form 10-Q, including, without limitation, statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Notes to Consolidated Financial Statements" located elsewhere herein regarding the Company's financial position, business strategy, plans and objectives of management of the Company for future operations, and industry conditions, are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. In addition to important factors described elsewhere in this report, the following significant factors, among others, sometimes have affected, and in the future could affect, the Company's actual results and could cause such results during fiscal 2001, and beyond, to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company: o The Company faces intense competition based on product capabilities and experiences ever increasing demands from its actual and prospective customers for its products to be compatible with a variety of rapidly proliferating computing, telephony and computer networking technologies and standards. The ultimate success of the Company's products is dependent, to a large degree, on the Company allocating its resources to developing and improving products compatible with those technologies, standards and functionalities that ultimately become widely accepted by the Company's actual and prospective customers. The Company's success is also dependent, to a large degree, on the Company's ability to implement arrangements with other vendors with complementary product offerings to provide actual and prospective customers greater functionality and to ensure that the Company's products are compatible with the increased variety of technologies and standards. o Continued availability of suitable non-proprietary computing platforms and system operating software that are compatible with the Company's products. o Certain of the components for the Company's products are available from limited suppliers. The Company's operating results could be adversely affected if the Company were unable to obtain such components in the future. o Increasing litigation with respect to the enforcement of patents, copyrights and other intellectual property. o The ability of the Company to retain its customer base and, in particular, its more significant customers such as British Telecom, which purchases both systems and managed services from the Company. Sales to British Telecom accounted for approximately 21% of the Company's total sales during the first six months of fiscal 2001. The Company's installed base of customers generally are not contractually obligated to place further systems orders with the Company or are not obligated to extend their services contracts with the Company at the expiration of their current contracts. British Telecom's managed services contract with the Company expires in December of 2001, unless the parties agree to extend it. o Legislative and administrative changes and, in particular, changes affecting the telecommunications industry, such as the Telecommunications Act of 1996. While many industry analysts expect the Telecommunications Act of 1996 ultimately to result in at least a temporary surge in the procurement of telecommunications equipment and related software and other products, there is no assurance that the Company can estimate with sufficient accuracy those products which will ultimately be purchased, the timing of any such purchases or the quantities to be purchased. 12 o The Company's sales are largely dependant upon the strength of the domestic and international economies and, in particular, demand for the types of systems offered by the Company in its primary markets. In this regard, demand for all of the Company's systems is partially dependant upon the general level of demand for telecommunications equipment, computers, software and other technology products. Furthermore, demand for the Company's products offered to telecommunications companies is very dependant upon the general level of demand for telephone switches and other telecommunications equipment for public networks. There are certain indications that, at least for the short term, demand for such technology products and network-based telecommunications equipment might be softening. o Risks involved in the Company's international distribution and sales of its products, including unexpected and adverse changes in regulatory requirements, unexpected changes in exchange rates, the difficulty and expense of maintaining foreign offices and distribution channels, tariffs and other barriers to trade, difficulty in protecting intellectual property rights, and foreign governmental regulations that may limit or restrict the sales of call automation systems. Additionally, changes in foreign credit markets and currency exchange rates may result in requests by many international customers for extended payment terms and may have an adverse impact on the Company's cash flow and its level of accounts receivable. Due in part to the merger with Brite, the Company's sales outside the United States, as a percentage of the Company's total sales, increased from 25% to 43% from the first quarter of fiscal 2000 to the first quarter of fiscal 2001. o The quantity and size of large sales (sales valued at approximately $4 million or more) during any fiscal quarter, which can cause wide variations in the Company's sales and earnings on a quarter to quarter basis. o Many of the Company's contracts, particularly for managed services, foreign contracts and contracts with telecommunication companies, include provisions to assess liquidated damages for delayed performance. Since the Company's projects frequently require a significant degree of customization, it is difficult for the Company to predict when it will complete such projects. Accordingly, the Company has had to pay liquidated damages in the past and may have to pay additional liquidated damages in the future. Any such future liquidated damages could be significant. o Ability of the Company to properly estimate costs under fixed price contracts in developing application software and otherwise tailoring its systems to customer-specific requests. o The Company's ability to hire and retain, within the Company's compensation parameters, qualified sales, administrative and technical talent and outside contractors in highly competitive markets for the services of such personnel. o Mergers and acquisitions between companies in the telecommunications and financial industries which could result in fewer companies purchasing the Company's products for telecommunications and banking applications, and/or delay such purchases by companies that are in the process of reviewing their strategic alternatives in light of a merger or acquisition. o Extreme price and volume trading volatility in the U.S. stock market, which has had a substantial effect on the market prices of securities of many high technology companies, frequently for reasons other than the operating performance of such companies. These broad market fluctuations could adversely affect the market price of the Company's common stock. o The ability of the Company to successfully integrate the products, customers, employees and other business components of the former InterVoice and the former Brite in an efficient fashion. 13 o The ability of the Company to retain certain customers of the former Brite in light of the Company's decision to phase out certain Brite products and its ability to persuade such customers to purchase similar products offered by the Company. SALES. The Company has complied with generally accepted accounting principles for its historical revenue recognition. However, in December 1999, the Securities and Exchange Commission issued new guidance, to which all registrants are expected to comply, on revenue recognition in its Staff Accounting Bulletin No. 101. "Revenue Recognition in Financial Statements". Under such guidance, the Company changed its revenue recognition policy effective with the first quarter of fiscal 2001. The result of such change is that, for a portion of the Company's system sales, revenue recognition has shifted from the date of shipment to the date of customer acceptance, which generally occurs after shipment. The Company's total sales in the second quarter and first six months of fiscal 2001 were approximately $72.4 million and $143.9 million, respectively. Second quarter sales decreased approximately $7.4 million, or 9%, when compared to the same period of fiscal 2000. Contributing factors for the sales decrease include: 1) a sluggish demand from the former Brite customer base as it evaluates the Company's product roadmap resulting from the merger with Brite, (2) sluggish demand from existing and prospective customers as they evaluate their post-Y2K capital expenditures, (3) a lengthening of the overall sales cycle resulting from the transition in customer demand from simpler, touch-tone to complex, speech enabled applications, (4) some possible softness, at least in the short term, in the market for network-based telecommunications equipment, and (5) attrition in the Company's Network Systems sales force. Sales during the first six months of fiscal 2001 were $143.9 million as compared to $119.9 million during the same period of the prior year. The increase is primarily due to the Company's merger with Brite Voice Systems, Inc. (Brite) which was accounted for using the purchase method of accounting. Results of Brite's operations were consolidated with those of InterVoice, Inc. effective June 1, 1999, the first day of the Company's second fiscal quarter of fiscal 2000. One customer accounted for approximately 18% and 10% of the Company's total sales during the second quarter and first six months of fiscal 2001, respectively. Another customer accounted for 23% and 21% of the Company's total sales during the second quarter and first six months of fiscal 2001, respectively. To enhance comparability of the Company's sales for the second quarter and first six months of fiscal 2001, the information below is presented on an "as adjusted" basis as though the merger with Brite and the adoption of SAB 101 (See Notes B and C to the Consolidated Financial Statements) had occurred at the beginning of the respective periods presented.
(In millions) As Adjusted As Reported ------------------------- ------------------------- Second Quarter 2001 2000* 2001 2000 ---------- ---------- ---------- ---------- Sales: Business Systems $ 25.4 $ 23.5 $ 25.4 $ 28.7 Network Systems 23.1 27.6 23.1 29.3 Services 23.9 21.8 23.9 21.8 ---------- ---------- ---------- ---------- Total $ 72.4 $ 72.9 $ 72.4 $ 79.8 ========== ========== ========== ========== First Six Months Sales: Business Systems $ 49.3 $ 58.4 $ 49.3 $ 55.1 Network Systems 47.4 52.2 47.4 39.1 Services 47.2 39.6 47.2 25.7 ---------- ---------- ---------- ---------- Total $ 143.9 $ 150.2 $ 143.9 $ 119.9 ========== ========== ========== ==========
* InterVoice-Brite's fiscal year ends the last day of February. Brite's fiscal year ended December 31. No adjustment has been made to account for the two companies' different fiscal year ends. 14 The following discussion compares second quarter and six month sales performance on an "As Adjusted" basis only. Business Systems sales during the second quarter of fiscal 2001 were approximately $25.4 million and increased 9% when compared to the same period of the previous year. The increase was attributable to a sale during the quarter of approximately $8.5 million to a domestic customer. Such sales were $49.3 million during the first six months of fiscal 2001 and declined 16% when compared to the same period of the previous year. The Company believes the declines are the result of: (1) a sluggishness in demand from the former Brite customer base as those companies continued to evaluate the Company's product roadmap resulting from the merger with Brite, (2) a continued sluggish demand from the Company's existing and prospective customers as they evaluate their post-Y2K capital expenditures, and (3) a lengthening of the overall sales cycle resulting from a transition in customer demand from relatively simple touch-tone based applications to complex applications embodying speech recognition capabilities. Additionally, speech recognition enabled sales opportunities tend to be larger in dollar value, which may extend the customer purchasing cycle. International Business Systems sales constituted 19% and 18% of the Company's total Business Systems sales during the second quarter and first six months of fiscal 2001, respectively. Network Systems sales during the second quarter of fiscal 2001 were approximately $23.1 million and declined 16% when compared to the same period of the previous fiscal year. Such sales for the first six months of fiscal 2001 were $47.4 million and declined 9% when compared to the same period of the previous year. Third-party surveys indicate good long term prospects for growth in the market addressed by the Company's Network Systems products. The Company believes contributing factors to its sales decline in this market segment include sales force attrition and some possible softness, at least for the short term, in the market for network-based telecommunication equipment. International Network Systems sales constituted 87% and 89% of the Company's total Network Systems sales during the second quarter and first six months of fiscal 2001, respectively. Services sales during the second quarter and first six months of fiscal 2001 were $23.9 million and $47.2 million, respectively, and increased 10% and 19%, respectively, when compared to the same periods of the previous fiscal year. An increase in the Company's Application Service Provider (ASP) sales was the primary reason for the increase in Services sales. As an ASP, Company provides certain voice and call processing services to its customers on equipment owned and operated by the Company. In return, the Company charges its customers for such services in one of multiple ways, including fixed rates per month or per transaction, and/or a share of the revenue generated by the Company's customer based on such services. Managed Services sales increased in the second quarter and first six months of fiscal 2001 primarily due to increased call volumes by customers offering prepaid telecommunication calling services in Europe and North America. Generally, the Company receives a portion of the prepaid calling revenues generated by its customers. International Services sales constituted 47% of the Company's total Services sales during both the second quarter and first six months of fiscal 2001. The Company continues to believe the long term prospects in its current markets remain strong. At the same time, the Company realizes its markets are being transformed by the ongoing convergence of voice, data and internet technologies. As a result, the Company is investigating alternate methods of combining its products and services and is focusing on new, strategic partnerships to profit from this transformation. The result of such investigations may lead the Company to redirect its marketing efforts and/or increase its investments in application engineering, customer service, research and development, sales, sales support, marketing and administrative personnel and resources to pursue new opportunities. COST OF GOODS SOLD. Cost of goods sold was approximately $36.2 million and $71.1 million for the second quarter and first six months of fiscal 2001 and, as a percentage of sales, was 50.0% and 49.4%, respectively. During the second quarter and first six months of the previous year, such expenses were $47.9 million and $63.2 million, respectively, and included non-recurring charges of $9.1 million. These non-recurring charges are described in the Company's Form 10-K as filed with the Securities and Exchange Commission on May 26, 2000. Without these non-recurring charges, cost of goods sold, as a percentage of the Company's total reported sales, would have been 48.6% and 45.1% during the second quarter and first six months of the previous year, respectively. The increases in cost of goods sold during the second quarter and first six months of fiscal 2001, as a percentage of sales, when compared to cost of goods sold, net of non-recurring charges, in the previous year, is attributable to the Company's continued investments in application engineering and customer service resources to pursue opportunities in all its markets. Additionally, the products acquired in the merger with Brite historically have had a 15 greater cost of goods sold, as a percentage of sales, than the Company's other products due to higher third party hardware content. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses during the second quarter and first six months of fiscal 2001 were approximately $8.8 million and $17.9 million, or 12.2% and 12.4% of the Company's total sales, respectively. During the second quarter and first six months of the previous fiscal year, research and development expenses were $37.8 million and $41.6 million including a charge of approximately $30.1 million for in-process research and development incurred in connection with the Brite merger, as described in the Company's Form 10-K as filed with the Securities and Exchange Commission on May 26, 2000. Net of this charge, research and development expenses, as a percentage of reported sales, for both periods would have been 9.6%. Research and development expenses included the design of new products and the enhancement of existing products. The Company expects to maintain its strong commitment to research and development to remain at the forefront of technology development in its business segments, which is essential to the continued improvement of the Company's position in the industry. SELLING, GENERAL AND ADMINISTRATION EXPENSES. Selling, general and administration expenses during the second quarter and first six months of fiscal 2001 were approximately $21.3 million and $43.2 million, or 29.4% and 30% of the Company's total sales, respectively. Such expenses during the second quarter and first six months of the previous year were $27.3 million and $38.7 million, respectively, and included non-recurring charges totaling $5.9 million. These non-recurring charges are described in the Company's Form 10-K as filed with the Securities and Exchange Commission on May 26, 2000. Without these non-recurring charges, selling, general and administrative expenses for the second quarter and first six months of the previous year, as a percentage of the Company's total reported sales, would have been 26.8% and 27.4%, respectively. The increase in selling, general and administrative expenses during the second quarter and first six months of fiscal 2001, as a percentage of sales, versus such expenses, net of non-recurring charges, during the previous year is the result of the Company's decision to continue to hire and train new and existing sales and sales support personnel and expand its marketing and advertising programs worldwide. AMORTIZATION OF GOODWILL AND ACQUIRED INTANGIBLE ASSETS. Goodwill and intangible assets acquired in the merger with Brite totaled approximately $104 million with useful lives averaging seven years. Amortization of these assets began during the second quarter of fiscal 2000. Such expenses were approximately $3.4 million and $6.9 million for the second quarter and first six months of fiscal 2001, respectively, versus $3.5 million and $3.5 million for the same periods of the previous fiscal year. Six month results for fiscal 2001 include two quarters amortization expense while six month data for the previous fiscal year include only one quarter's amortization expense. OTHER INCOME. Other income of approximately $0.6 million and $0.8 million during the second quarter and first six months of fiscal 2001, respectively, was primarily interest paid on the Company's net cash reserves. INTEREST EXPENSE. Interest expense was approximately $2.0 million and $4.0 million during the second quarter and first six months of fiscal 2001, respectively, versus $2.8 million and $2.9 million for the same periods of the previous fiscal year. The Company's obtained long term borrowings during the second quarter of fiscal 2000 in connection with its merger with Brite. See "Liquidity and Capital Resources" for a description of the Company's long term borrowings. Initial borrowings were $135 million and have been paid down to $75 million at August 31, 2000. The decrease in interest expense during the second quarter of fiscal 2001 is the result of the borrowings pay down. The increase of interest expense, when compared to the first six months of fiscal 2001 to the previous year, is the result of two quarters' interest expense on the Company's long term borrowings included in six month fiscal 2001 results versus one quarter's interest expense included in six month results of the previous year. INCOME (LOSS) FROM OPERATIONS. The Company generated operating income and net income of $2.5 million and $0.5 million during the second quarter of fiscal 2001. The Company incurred an operating loss and net loss of $36.6 million and $36.1 million, respectively, during the same period of the previous year. Such losses included non-recurring charges, as described above, totaling $45.1 million. Adjusting for the non-recurring charges, operating and net income during the second quarter of the previous year would have been $8.5 million and $5.5 million. During the first six months of fiscal 2001, the Company generated $4.7 million in operating income, $0.7 in million income before the cumulative effect of a change in accounting principle, and a net loss of $10.5 million. As described in Note C of the Notes to the Consolidated Financial Statements, during the first quarter of fiscal 2001, the Company recorded a charge of $11.3 million relating to the cumulative effect of a change in accounting principle as the result of changing its revenue recognition policy pursuant to guidance issued by the Securities and Exchange Commission in its Staff Accounting Bulletin No. 101. 16 During the first six months of the previous year the Company generated an operating and net loss of $27.1 million and $29.8 million respectively. Without the non-recurring charges totaling $45.1 million discussed above, the Company would have had operating and net income for the first six months of the previous year of $18.0 million and $11.7 million, respectively. To enhance comparability of the Company's operating and net incomes (losses), the information below is presented on an "As Adjusted" basis, excluding the $11.3 million charge booked in the first quarter of fiscal 2001 relating to the cumulative effect of a change in accounting principle and the previously described non-recurring charges totaling $45.1 million booked in the second quarter of fiscal 2000.
(In millions) As Adjusted As Reported --------------------- ---------------------- Second Quarter 2001 2000 2001 2000 -------- -------- -------- -------- Operating income (loss) $ 2.5 $ 8.5 $ 2.5 $ (36.6) Net income $ 0.5 $ 5.5 $ 0.5 $ (36.1) First Six Months Operating income (loss) $ 4.7 $ 18.0 $ 4.7 $ (27.1) Net income (loss) $ 0.7 $ 11.7 $ (10.5) $ (29.8)
During the second quarter and first six months of fiscal 2001, the Company continued to invest in application engineering, customer service, research and development, sales, sales support and administration personnel and resources to pursue opportunities in all its markets. This resulted in a decline in the Company's "as adjusted" operating and net income versus the same periods in the previous fiscal year. LIQUIDITY AND CAPITAL RESOURCES. At August 31, 2000, the Company had cash reserves of approximately $17.6 million while borrowings under the Company's term loan facility were $75.0 million. Operating cash flow during the second quarter and first six months of fiscal 2001 were approximately $9.0 million and $19.1 million, respectively. Income before the cumulative effect of a change in accounting principle plus non-cash expense items during the quarter and first six months totaled $7.6 million and $16.1 million, respectively, while decreases in operating assets totaled $1.4 million and $3.0 million respectively. Days sales outstanding (DSO's) of accounts receivable continue to be a focus for the Company. At August 31, 2000, DSO's were 84, which was down from 101 days at May 31, 2000. Investing activities, primarily the purchase of computer and test equipment, used cash of approximately $2.4 million and $3.9 million, respectively, while $2.8 million was received during the second quarter in connection with the extinguishment of a warrant acquired in the Company's merger with Brite to purchase shares of the common stock of EPS Solutions Corporation. Financing activities, primarily pay down of debt partially offset by the net proceeds from the exercise of employee stock options, consumed cash during the quarter and six month periods ended August 31, 2000 of approximately $4.2 million and $23.2 million, respectively. Net cash flow during the second quarter was approximately a positive $5.2 million while net cash flow for the first six months was a negative $5.6 million. The Company believes its cash reserves and internally generated cash flow will be sufficient to meet its operating cash requirements for the foreseeable future. In addition, the Company has an available $25 million revolving credit facility. The Company reviews share repurchase and acquisition opportunities from time to time and believes it has access to the financial resources necessary to pursue attractive repurchase and/or acquisition opportunities as they arise. The term loan and revolving credit agreement discussed below includes normal and customary provisions which limit the Company's ability to make such repurchase and acquisitions. In connection with the merger with Brite, the Company entered into a loan agreement with Bank of America and nine other banks to provide a senior secured credit facility amounting to $150 million, including a $125 million term loan and a $25 million revolving credit agreement. The term loan agreement is subject to scheduled repayments, as defined, during 2000-2003. The revolving credit agreement will expire upon the earlier of the termination of the term loan, or August 31, 2003. The cash required to service the facilities could have a material impact upon the operating cash requirements of the Company for the foreseeable future. At October 14, 2000, the Company had $75 million of borrowings outstanding under the agreement, at an average annual interest rate of 8.91%. Interest under the credit 17 facility accrues at a variable rate indexed to the prime rate or an adjusted London Interbank Offering Rate. During June 2000, the Company entered into interest rate swap agreements, expiring June 2002, to change the characteristics of interest payments on a portion of its long-term borrowings from LIBOR-based variable-rate payments to fixed-rate payments. At August 31, 2000 a notional amount of $40.0 million on debt with a variable rate of 8.91% had been swapped for an effective rate of 8.34%. The effect of interest rate swaps during the second quarter and first six months of fiscal 2001 was immaterial. During fiscal 1997, the Company received a warrant to purchase 741,237 shares of SpeechWorks International, Inc. common stock at an exercise price of $2.05 per share. The warrant was issued in connection with a supply agreement, pursuant to which SpeechWorks supplies the Company with software products and services. Upon the Company's receipt of the warrant, SpeechWorks was not a publicly traded company and no value was assigned to the security. The warrant and the shares underlying the warrant are unregistered securities with no readily ascertainable market valuation, therefore, the warrant is carried at cost, i.e. no value, on the Company's balance sheet at August 31, 2000 for the unregistered warrant or the underlying shares. SpeechWorks became a publicly traded company on August 1, 2000. The October 13, 2000 closing price for a share of SpeechWorks common stock was $65. For several reasons, the Company is currently unable to estimate what gain, if any, it will ultimately realize in connection with the warrant. First, the Company has not completed its evaluation of its alternatives with respect to monetizing the warrant. Second, the ultimate price received for the warrant or the shares underlying the warrant cannot be determined due to relatively long periods of time before such securities could be sold in a private or public placement. The Company has agreed not to sell the warrant or underlying securities in a private placement for a period of six months after SpeechWorks' initial public offering (August 1, 2000). Should the Company exercise the warrant with the intent of selling the underlying shares in the public market, the unregistered shares must be held at least one year before the Company could sell such shares, subject to limitations under the Securities and Exchange Commission's Rule 144. The Company does have certain demand registration rights which could allow the sale of the shares in the public market before the Rule 144 one year holding period lapses. However, such rights cannot be exercised unilaterally, except in the case of a registration of the shares by SpeechWorks on Form S-3, for which SpeechWorks will not be eligible until at least August 1, 2001. Third, there is not a readily ascertainable price for the unregistered warrant or underlying unregistered shares. Generally, unregistered securities sold through a private offering sell at discounts from the then current market price. Fourth, a large percentage of SpeechWorks' outstanding common stock is unregistered and is subject to a lock up period, as are the shares underlying the Company's warrant. Such an arrangement is not unusual, but the potential introduction of a large number of shares following a lock up period can negatively affect the market for an issuer's shares. Should the Company decide to exercise its warrant, the underlying shares received will be valued at market as a current asset with a corresponding increase to the Company's stockholders' equity. Any change of valuation prior to the final disposition of the underlying shares will be reflected as an adjustment to the Company's stockholders' equity through accumulated other comprehensive income. Impact of Inflation The Company does not expect any significant short term impact of inflation on its financial condition. Technological advances should continue to reduce costs in the computer and communications industries. Further, the Company presently is not bound by long term fixed price sales contracts which should reduce the Company's exposure to inflationary effects. 18 The Company's debt facilities financing is considered to be a material long term debt obligation, which may expose the Company to inflationary effects associated with such variable rate loans; however, the Company has entered into interest rate swap agreements to partially hedge such exposure. 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company invests cash balances in excess of operating requirements in short-term securities, generally with maturities of 90 days or less. In addition, the Company's current term loan and revolving credit agreement provides for borrowings up to $150 million which bear interest at variable rates based on either a prime rate, the federal funds rate or the London Interbank Offering Rate, plus an applicable margin. As of August 31, 2000, the Company had $75 million outstanding under the credit agreement. The credit agreement matures on August 31, 2003 and the term loan facility is subject to quarterly principal amortization. The fair value of the borrowings approximate their carrying value at August 31, 2000. Due to the magnitude of this credit facility, the Company believes that the effect of any reasonably possible near-term changes in interest rates on the Company's financial position, results of operations, and cash flows may be material. To mitigate the effect of interest rate changes, the Company enters into interest rate swap arrangements to change the characteristics of interest payments on its borrowings from LIBOR-based, variable rate payments to fixed rate payments. As of August 31, 2000, a notional amount of $40 million of the Company's long term borrowings with a variable interest rate of 8.91% had been swapped for an effective interest rate of 8.34%. The effect of interest rate swaps on the Company's interest expense during the quarter was immaterial. The Company transacts business in certain foreign currencies, including the British pound. Accordingly, the Company is subject to exposure from adverse movements in foreign currency exchange rates. The Company attempts to mitigate this risk by transacting business in the functional currency of each of its subsidiaries, thus creating a natural hedge by paying expenses incurred in the local currency in which revenues will be received. However, the Company's major foreign subsidiary procures much of its raw materials inventory from its US parent. Such transactions are denominated in U. S. dollars, limiting the Company's ability to hedge against adverse movements in foreign currency exchange rates. 20 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company provides certain automated call processing services on a managed services basis for a large domestic telecommunications company. The telecommunications company has asserted that the Company should pay monetary penalties under the managed services contract for failing to achieve certain representations, covenants and specified levels of service. The telecommunications company is also in the process of performing an audit of the Company's records relating to the managed services, as expressly contemplated by the contract. While the Company does not believe that the audit will result in any claims for material amounts, it is possible that the telecommunications company will make such claims and such claims may be material. The Company has acknowledged that it may owe an immaterial amount as a monetary penalty for failing to adhere to a specific service level, and has denied all other asserted failures under the contract. A reserve has been established to cover the immaterial amount the Company has acknowledged it might owe. The parties are in the process of attempting to negotiate mutually satisfactory agreements to resolve their dispute and to extend the managed services contract. There is no assurance that the parties will negotiate mutually acceptable agreements. The telecommunications company has not threatened litigation against the Company. In the event litigation is instituted against the Company concerning the dispute under the contract, the Company intends to vigorously contest the claims and to assert appropriate defenses. As with any legal proceeding, there is no guarantee that the Company would prevail in any litigation that might be asserted against the Company in connection with the managed services contract. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of shareholders of the Company was held at 10:00 a.m., local time, on Wednesday, June 28, 2000 in Plano, Texas. For/Against and Broker Non Votes Proxies were solicited by the Board of Directors of the Company pursuant to Regulation 14A under the Securities Exchange Act of 1934. There was no solicitation in opposition to the Board of Directors nominees as listed in the proxy statement and all such nominees were duly elected. The following persons are the nominees of the Board of Directors who were elected as directors at the annual meeting: Daniel D. Hammond, David W. Brandenburg, Joseph J. Pietropaolo, George C. Platt, Grant A. Dove and Stanley G. Brannan. The number of votes cast for the election of each of the nominees for director, and the number of abstentions, were as follows: 23,986,439 votes for the election of Daniel D. Hammond, with 5,569,120 abstentions; 28,333,410 votes for the election of David W. Brandenburg, with 1,222,149 abstentions; 28,276,251 votes for the election of Joseph J. Pietropaolo, with 1,279,308 abstentions; 28,371,170 votes for the election of George C. Platt, with 1,184,388 abstentions; 28,337,169 votes for the election of Grant A. Dove, with 1,218,390 abstentions; 28,308,660 votes for the election of Stanley G. Brannan, with 1,246,899 abstentions. No votes were cast against the election of any nominee for director. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Fourth Amended and Extended Employment effective as of September 13, 2000, between the Company and Daniel D. Hammond 10.2 First Amendment to Employment Agreement effective as of July 1, 2000, between the Company and Rob-Roy J. Graham 27.1 Financial Data Schedule (b) Reports on Form 8-K 1. A report on Form 8-K was filed June 27, 2000 to announce the election of David W. Brandenburg as Chief Executive Officer of the Company. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERVOICE-BRITE, INC. Date: 10/16/00 By: /s/ ROB-ROY J. GRAHAM --------------------- Rob-Roy J. Graham Chief Financial Officer (Chief Accounting Officer) 22 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.1 Fourth Amended and Extended Employment Agreement effective as of September 13, 2000, between the Company and Daniel D. Hammond 10.2 First Amendment to Employment Agreement effective as of July 1, 2000, between the Company and Rob-Roy J. Graham 27.1 Financial Data Schedule
EX-10.1 2 d80915ex10-1.txt 4TH AMENDED/EXTENDED EMPLOYMENT AGREEMENT 1 EXHIBIT 10.1 INTERVOICE-BRITE, INC. FOURTH AMENDED AND EXTENDED EMPLOYMENT AGREEMENT This Fourth Amended and Extended Employment Agreement (this "Agreement") effective as of September 13, 2000 by and between InterVoice-Brite, Inc., a Texas corporation formerly known as InterVoice, Inc. with its principal executive offices at 17811 Waterview Parkway, Dallas, Texas 75252 (the "Company"), and Daniel D. Hammond (the "Employee"). WITNESSETH: WHEREAS, the Employee is presently employed by the Company pursuant to that certain Third Amended and Extended Employment Agreement dated August 17, 1999, as amended by the First Amendment thereto dated as of June 26, 2000 (collectively, the "Old Agreement"), between the Company and the Employee; and WHEREAS, the Employee and the Company desire to amend the terms and conditions of the Old Agreement to, among other things, modify the Employee's title and responsibilities after December 31, 2000, extend the term of the Employee's employment by the Company and grant additional stock options to the Employee. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and conditions hereinafter set forth, the parties hereto agree as follows: 1. DEFINITIONS. In addition to the words and terms elsewhere defined in this Agreement, the following words and terms as used herein shall have the following meanings, unless the context or use indicates a different meaning: "Annualized Compensation Amount" means an amount equal to the annualized salary payable and bonuses accrued or payable to the Employee pursuant to Section 4 of this Agreement during the most recent completed fiscal year of the Company. "Cause" means (a) any act by the Employee that is materially adverse to the best interests of the Company and which, if the subject of a criminal proceeding, could result in a criminal conviction for a felony or (b) the willful failure by the Employee to substantially perform his duties hereunder, which duties are within the control of the Employee (other than the failure resulting from the Employee's incapacity due to physical or mental illness), provided, however, that the Employee shall not be deemed to be terminated for Cause under this subsection (b) unless and until (1) after the Employee receives written notice from the Company specifying with reasonable particularity the actions of Employee which constitute a violation of this -1- 2 subsection (b) and (2) within a period of 30 days after receipt of such notice (and during which the violation is within the control of the Employee), Employee fails to reasonably and prospectively cure such violation. "Common Stock" means the Company's common stock, no par value per share. An "Event of Default" means the occurrence of any of the following events prior to the Triggering Date, unless remedied or otherwise cured within 30 days after the Company's receipt of written notice from the Employee of such event, (a) a breach by the Company of any of its express or implied obligations under this Agreement, (b) without his prior concurrence, the Employee is assigned any duties or responsibilities that are inconsistent with his position, duties, responsibilities or status at the commencement of the term of this Agreement, or at January 1, 2001, as applicable, or his reporting responsibilities or titles in effect at such time are changed, (c) the Employee's base compensation is reduced or any other failure by the Company to comply with Section 4, or (d) any change in any employee benefit plans or arrangements in effect on the date hereof in which the Employee participates (including without limitation any pension and retirement plan, savings and profit sharing plan, stock ownership or purchase plan, stock option plan, or life, medical or disability insurance plan), which would adversely affect the Employee's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Company and does not result in a proportionately greater reduction in the rights of or benefits to the Employee as compared to any other executive officer of the Company. "Good Reason" means the occurrence of a Triggering Event (as defined below) and (a) a breach by the Company of any of its express or implied obligations under this Agreement, (b) without his prior concurrence, the Employee is assigned any duties or responsibilities that are inconsistent with his position, duties, responsibilities or status at the commencement of the term of this Agreement, or at January 1, 2001, as applicable, or his reporting responsibilities or titles in effect at such time are changed, (c) the Employee's base compensation is reduced or any other failure by the Company to comply with Section 4, or (d) any change in any employee benefit plans or arrangements in effect on the date hereof in which the Employee participates (including without limitation any pension and retirement plan, savings and profit sharing plan, stock ownership or purchase plan, stock option plan, or life, medical or disability insurance plan), which would adversely affect the Employee's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Company and does not result in a proportionately greater reduction in the rights of or benefits to the Employee as compared to any other executive officer of the Company. "Triggering Date" means the date of a Triggering Event. A "Triggering Event" shall be deemed to have occurred if (a) any person or group (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of securities of the Company representing more than 20% of the combined voting power of the Company's then outstanding securities, or (b) at any annual or special meeting of shareholders of the Company one or more directors are elected -2- 3 who were not nominated by management of the Company to serve on the Board of Directors of the Company, or (c) the Company is merged or consolidated with another corporation and as a result of such merger or consolidation less than 51% of the outstanding voting securities of the surviving or resulting corporation are owned in the aggregate by the former shareholders of the Company, other than by a party to such merger or consolidation or affiliates (within the meaning of the Exchange Act) of any party to such merger or consolidation, as the same existed immediately prior to such merger or consolidation, or (d) the Company sells all or substantially all of its assets to another corporation which is not a wholly-owned subsidiary of the Company. 2. EMPLOYMENT. The Company hereby employs the Employee and the Employee hereby accepts employment on the terms and conditions set forth herein. 3. TERM. The term of this Agreement shall be from September 13, 2000 until August 31, 2003 unless sooner terminated in accordance with the provisions herein regarding termination. 4. COMPENSATION. (a) Base Salary. For all services rendered by the Employee under this Agreement, the Company shall pay the Employee a base salary of $240,000 per year. Such salary shall be payable in equal monthly installments in accordance with the customary payroll policies of the Company in effect at the time such payment is made, or as otherwise mutually agreed upon. Effective as of March 1 of each year during the term hereof, the Compensation Committee of the Company shall review Employee's performance for the prior fiscal year and make such adjustments in base salary from time to time at their discretion as the Employee and the Company may agree. (b) Bonus. In addition to the Employee's annual base salary and other benefits provided for in this Agreement, the Company may pay to the Employee on an annual basis a discretionary bonus in an amount to be approved by the Board of Directors of the Company; provided, however, in no event shall the bonus payable hereunder, if any, exceed Employee's annual base salary provided for in Section 4(a). (c) Benefits. The Employee shall be entitled to participate in or receive benefits under any employee benefit plan or arrangement made available by the Company in the future to its executive officers and key management personnel, subject to and on a basis consistent with the terms, conditions and overall administration of such plan or arrangement. Nothing paid to the Employee under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary and bonuses payable to the Employee pursuant to Subsections 4(a) and (b). -3- 4 (d) Stock Option. In consideration of the Employee's execution of this Agreement, effective on the date hereof: (i) the vesting of the options to purchase 300,000 shares of the Company's Common Stock heretofore granted to the Employee under to the Company's 1999 Stock Option Plan have been fully accelerated, making such options exercisable immediately. Such options will be exercisable by the Employee for a period of two (2) years after the termination of the employment of Employee. (ii) the Company has granted options to the Employee to purchase 53,000 shares of the Company's Common Stock under the 1990 Incentive Stock Option Plan. Such options will become fully vested on March 13, 2001 and will be subject to the customary terms and conditions of the stock option agreements utilized in connection with the 1990 Stock Option Plan. (e) Expenses. Upon receipt of itemized vouchers, expense account reports, and supporting documents submitted to the Company in accordance with the Company's procedures from time to time in effect, the Company shall reimburse Employee for all reasonable and necessary travel, entertainment, and other reasonable and necessary business expenses incurred ordinarily and necessarily by Employee in connection with the performance of his duties hereunder. (f) Vacation. Employee shall be entitled to a minimum of 6 weeks paid vacation during each twelve month period commencing on the effective date of this Agreement. 5. POSITION, DUTIES, EXTENT OF SERVICES AND SITUS. (a) Position and Duties. Employee shall serve as the Chairman of the Board of the Company, accountable only to the Board of Directors of the Company and subject to the authority of such board and shall have such other powers and duties as may from time to time be prescribed by such board, provided that such duties are reasonable and customary for a Chairman of the Board of a public company. The Employee will submit his resignation from the office of Chairman of the Board of the Company to be effective as of December 31, 2000. After December 31, 2000, Employee shall serve as Technical Advisor to the Company, reporting to the Senior Vice President for Research and Development. Employee shall have duties and responsibilities as may from time to time be prescribed by the Senior Vice President for Research and Development, provided that such duties are reasonable and customary for the position of Technical Advisor. (b) Extent of Services and Situs. The Employee shall devote a sufficient amount of his business time, attention and energy to the business and affairs of the Company as is necessary to carry out his duties described in paragraph 5(a) above and shall not during the term of his employment under this Agreement engage in any other business activity which could constitute a conflict of interest, whether or not such business activity is pursued for gain, profit or other pecuniary advantage. This shall not be construed as preventing the Employee from managing his current investments or investing his assets in such form or manner as will not -4- 5 require any services on the part of the Employee in the operation and the affairs of the companies in which such investments are made, subject to the provisions of Sections 6 and 27. The Employee shall not be required to change the principal place of his employment to a location which is more than 15 miles further away from his principal residence than such principal place of employment at the time of the execution of this Agreement. 6. COVENANT NOT TO COMPETE. (a) The Employee acknowledges that (i) as a result of his position and tenure with the Company he has received and will continue to receive specialized and unique training and knowledge concerning the Company, its business, its customers and the industry in which it competes, (ii) the Company's business, in large part, depends upon its exclusive possession and use of the Proprietary Information (as defined in Section 27), (iii) the Company is entitled to protection against the unauthorized disclosure or use by Employee of the Proprietary Information or the training and knowledge received by the Employee and (iv) he has received in this Agreement good and valuable consideration for the covenants he is making in this Section 6 and in Section 27. The Company and the Employee acknowledge and agree that the covenants contained in this Section 6 and in Section 27 are reasonably necessary for the protection of the Company and are reasonably limited with respect to the activities they prohibit, their duration, their geographical scope and their effects on the Employee and the public. The parties acknowledge that the purpose and effect of the covenants are to protect the Company from unfair competition by the Employee. (b) Except as provided in the last sentence of this Section 6(b), during the period in which the Employee renders services to the Company under this Agreement and for either (i) the twelve (12) month period thereafter if the Employee stops rendering such services on or before August 31, 2002 or (ii) through August 31, 2003 if the Employee stops rendering such services any time after August 31, 2002, the Employee shall not, without the written consent of the Company, own, manage, operate, control, serve as an officer, director, employee, partner or consultant of or be connected in any way with or have any interest in any corporation, partnership, proprietorship or other entity which carries on business activities in competition with the Company's activities in any state of the United States or in any foreign country in which the Company has sold or installed its products or systems or has definitive plans to sell or install its products at any time prior to or at the time of the date of termination of the Employee's employment; except that the Employee may own up to 1% of the shares of any publicly-owned corporation, provided that none of his other relationships with such corporation violates such covenant. Notwithstanding the foregoing, the provisions of this Section 6 shall not apply if the Employee's employment with the Company under this Agreement is terminated (i) by the Company, unless the Employee is terminated in accordance with Section 7 or for Cause in accordance with Subsection 9.1(a) or 9.2(a), or (ii) at the election of the Employee prior to the Triggering Date after the occurrence of an Event of Default which has not been waived in writing or on or after the Triggering Date for Good Reason. (c) The Company and the Employee hereby agree that in the event that the noncompetition covenants contained herein should be held by any court or other constituted legal authority of competent jurisdiction to be effective in any particular area or jurisdiction only if -5- 6 said covenants are modified to limit their duration, geographical area or scope, then the parties hereto will consider Section 6 to be amended and modified with respect to that particular area or jurisdiction so as to comply with the order of any such court or other constituted legal authority and, as to all other jurisdictions or political subdivisions thereof, the noncompetition covenants contained herein will remain in full force and effect as originally written. The Company and the Employee further agree that in the event that the noncompetition covenants contained herein should be held by any court or other constituted legal authority of competent jurisdiction to be void or otherwise unenforceable in any particular area or jurisdiction notwithstanding the operation of this Section 6(c), then the parties hereto will consider this Section 6 to be amended and modified so as to eliminate therefrom that particular area or jurisdiction as to which such noncompetition covenants are so held void or otherwise unenforceable, and, as to all other areas and jurisdictions covered by the noncompetition covenants, the terms and provisions hereof shall remain in full force and effect as originally written. (d) Employee recognizes and acknowledges that the Company would suffer irreparable harm and substantial loss if Employee violated any of the terms and provisions of this Section 6 or Section 27 and that the actual damages which might be sustained by the Company as the result of any breach of this Section 6 or Section 27 would be difficult to ascertain. Employee agrees, at the election of the Company and in addition to, and not in lieu of, the Company's right to terminate Employee's employment and to seek all other remedies and damages which the Company may have at law and/or equity for such breach, that the Company shall be entitled to an injunction restraining Employee from breaching any of the terms or provisions of this Section 6 or Section 27. 7. COMPENSATION IN THE EVENT OF DISABILITY. (a) Disability. If the Employee becomes disabled during the term of this Agreement the Company shall cause to be paid to the Employee an amount equal to his base salary in effect at the time of disability under Subsection 4(a), for the shorter of the duration of the disability or the remainder of the term of this Agreement and, subject to the provisions of Sections 22 and 25, with no liability on its part for further payments to the Employee during the duration of the disability. Subject to Subsection 7(b) below, full compensation shall be reinstituted upon his return to employment and resumption of his duties. For purposes of this Subsection 7(a) the Employee shall be deemed "disabled" when he is unable, for a period of 90 consecutive days, to perform his normal duties of employment due to bodily injury or disease or any other physical or mental disability. (b) Complete Disability. The Company shall have the right to terminate the Employee's employment under this Agreement prior to the expiration of the term upon the "Complete Disability" of the Employee as hereinafter defined (provided, however, that the obligations of the Company under Subsection 7(a) shall not terminate). The term "Complete Disability" as used in this Subsection 7(b) shall mean (i) the total inability of the Employee, due to bodily injury or disease or any other physical or mental incapacity, to perform the services provided for hereunder for a period of 120 days, in the aggregate, within any given period of 180 consecutive days during the term of this Agreement, and (ii) where such inability will, in the -6- 7 opinion of a qualified physician (reasonably acceptable to Employee), be permanent and continuous during the remainder of his life. 8. COMPENSATION IN THE EVENT OF DEATH. If the Employee dies during the term of his employment, the Company shall pay to such person as the Employee shall designate in a notice filed with the Company, or, if no such person shall be designated, to his estate as a death benefit, his base salary in effect at the time of his death pursuant to Subsection 4(a), in equal semi-monthly installments on the first and fifteenth day of each month immediately succeeding his death, for a period of months (not exceeding 12) determined by multiplying the number of complete 12-month periods of employment of the Employee by the Company (whether pursuant to an employment agreement or not) by two, in addition to any payments the Employee's spouse, beneficiaries, or estate may be entitled to receive pursuant to any pension or employee benefit plan or life insurance policy maintained by the Company, and, except for any obligations of the Company under Sections 22 and 25, all other obligations of the Company hereunder shall cease at the time of the Employee's death. 9. TERMINATION. 9.1 Termination Prior to the Triggering Date. (a) Upon at least 30 days' prior written notice to the Employee and prior to the Triggering Date, the Company may terminate the Employee's employment with the Company under this Agreement only for Cause or in accordance with Section 7 and, subject to the provisions of Sections 7, 22 and 25, with no liability on its part for further payments to the Employee. The Company may effect a termination for Cause pursuant to this Subsection 9.1(a) only by the affirmative vote of a majority of the members of the Board of Directors of the Company. In voting upon such termination for Cause, if the Employee is also a member of the Board of Directors of the Company, then he may not vote on, and will not be considered present for any purpose with respect to, a matter presented to the Board of Directors of the Company pursuant to this Subsection 9.1(a). (b) Prior to the Triggering Date, the Employee may terminate his employment with the Company under this Agreement by giving at least 90 days' prior written notice of his desire to terminate employment to the Board of Directors of the Company. If the Employee's employment with the Company under this Agreement is terminated pursuant to this Subsection 9. 1(b), the Employee will continue to accrue and receive his base salary in effect at the time pursuant to Subsection 4(a) through the date of termination with no liability on the part of the Company for further payments to the Employee, subject to the provisions of Sections 22 and 25. (c) Prior to the Triggering Date, if the Employee's employment with the Company is terminated by the Company without Cause or if the Employee terminates his employment with the Company following the occurrence of an Event of Default which has not been waived in writing by the Employee, the Employee will continue to accrue and receive his base salary in effect at the time pursuant to Subsection 4(a) through the date of termination and will be entitled to receive the benefits provided for under Subsection 10.1 (unless the Employee's employment is -7- 8 terminated in accordance with Section 7) with no liability on the part of the Company for further payments to the Employee, subject to the provisions of Sections 7, 22 and 25; provided, however, that if the Company terminates the Employee without Cause prior to the Triggering Date, the Company must provide Employee with at least 90 days' prior written notice. 9.2 Termination On or After the Triggering Date. (a) Upon at least 30 days' prior written notice to the Employee and on or after the Triggering Date, the Company may terminate the Employee's employment with the Company under this Agreement only for Cause or in accordance with Section 7 and, subject to the provisions of Sections 7, 22 and 25, with no liability on its part for further payments to the Employee. The Company may effect a termination for Cause pursuant to this Subsection 9.2(a) only by the affirmative vote of two-thirds of the members of the Board of Directors of the Company. In voting upon such termination for Cause, if the Employee is also a member of the Board of Directors of the Company, then he may not vote on, and will not be considered present for any purpose with respect to, a matter presented to the Board of Directors of the Company pursuant to this Subsection 9.2(a). (b) On or after the Triggering Date, if the Employee's employment with the Company is terminated by the Company without Cause or if the Employee terminates his employment with the Company for Good Reason, the Employee will continue to accrue and receive his base salary in effect at the time pursuant to Subsection 4(a) through the date of termination and will be entitled to receive the payments and benefits provided for under Subsections 10.2 and 10.3 (unless the Employee's employment is terminated in accordance with Section 7) with no liability on the part of the Company for further payments to the Employee, subject to the provisions of Sections 7, 22 and 25. (c) On or after the Triggering Date, the Employee may, in his sole and absolute discretion and without any prior approval by the Board of Directors of the Company, and upon twelve months' prior written notice to the Board of Directors of the Company, terminate his employment with the Company under this Agreement for any reason whatsoever. If the Employee's employment with the Company under this Agreement is terminated pursuant to this Subsection 9.2(c), the Employee will continue to accrue and receive his base salary in effect at the time pursuant to Subsection 4(a) through the date of termination and will be entitled to receive the benefits provided for under Subsections 10.2 and 10.3 with no liability on the part of the Company for further payments to the Employee, subject to the provisions of Sections 22 and 25. 10. COMPENSATION AFTER CERTAIN TERMINATIONS. 10.1 Remaining Compensation. If the Employee's employment with the Company is terminated (whether such termination is by the Employee or by the Company) at any time prior to the Triggering Date for any reason other than (a) termination by the Company for Cause in accordance with Subsection 9.1(a); (b) termination by the Company in accordance with Section 7; (c) the Employee's death; or (d) termination at the election of the Employee pursuant to Subsection 9.1(b) then, within five days after the date of such termination, (i) the Remaining -8- 9 Compensation (as herein defined) which would have been paid to the Employee during the remainder of the term of this Agreement if termination had not occurred shall become due and payable and shall be paid to the Employee in a single lump sum in cash, (ii) all restricted stock awards granted to Employee which are not then fully vested shall, notwithstanding the provisions of any other agreement, become fully vested and (iii) all stock options at any time granted to Employee under any stock option plan which are not then exercisable shall, notwithstanding the provisions of any other agreement, become immediately exercisable and shall remain exercisable until they are exercised or until they otherwise would expire in accordance with the provisions governing the exercise period for stock options following a termination of employment without Cause under the applicable stock option agreements between the Company and Employee, as amended. For purposes of this Subsection 10.1, the "Remaining Compensation" shall mean the annual base salary payable to the Employee pursuant to Subsection 4 (a) at the time of termination plus an amount representing the value of all employee benefits including, without limitation, discretionary bonuses and incentive compensation under plans then in effect. For these purposes, the value of any unearned annual bonuses and all of such other employee benefits shall be deemed to be equal to 12 months base salary payable to the Employee pursuant to Subsection 4(a) at the time his employment is terminated. 10.2 Post Triggering Date Severance Payment. If the Employee's employment with the Company is terminated (whether such termination is by the Employee or by the Company) at any time on or within three years after the Triggering Date for any reason other than (a) termination by the Company for Cause in accordance with Subsection 9.2(a) or (b) termination by the Company in accordance with Section 7 or (c) the Employee's death or (d) termination at the election of the Employee other than termination for Good Reason without compliance with the retirements of Section 9.2(c), then, within five days after the date of such termination, the Company shall pay the Employee a lump sum amount in cash equal to 2.99 times the Annualized Compensation Amount. 10.3 Gross-Up Payment. In the event that (i) the Employee becomes entitled to the payments provided under Section 10.2 of this Agreement (the "Change in Control Payments") and any of the Change in Control Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor provision, or (ii) any payments or benefits received or to be received by the Employee pursuant to the terms of any other plan, arrangement or agreement (the "Benefit Payments") will be subject to the Excise Tax, the Company shall pay to the Employee an additional amount (the "Gross-Up Payment") such that the net amount retained by the Employee, after deduction of any Excise Tax on the Change in Control Payments and the Benefit Payments, and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 10.3, shall be equal to the Change in Control Payments and the Benefit Payments, provided, however, that in determining the amount of the Gross-Up Payment, any Excise Tax on the Change in Control Payments and the Benefit Payments shall be determined using a rate no higher than 20%. For purposes of determining whether any of the Change in Control Payments or the Benefit Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any payments or benefits received or to be received by the Employee in connection with a change in control of the Company or the Employee's termination of employment (whether pursuant to the terms of this agreement or any other plan, arrangement or agreement with the Company, any person -9- 10 whose actions result in change in control or any person affiliated with the Company or such persons) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and acceptable to the Employee such payments or benefits (in whole or in part) do not constitute parachute payments, or such excess payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code, (ii) the amount of the Change in Control Payments and the Benefit Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Change in Control Payments and the Benefit Payments or (B) the amount of excess parachute payments within the meaning of Sections 280G(b)(1) and (4) (after applying clause (i), above) and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of the Employee's residence on the date of termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Employee's employment, the Employee shall repay to the Company at that time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Employee's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment to the Employee in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. 11. MITIGATION. The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer after the date of termination of Employee's employment with the Company, or otherwise. 12. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior negotiations, agreements, and understandings relating to such subject matter, and may be modified or amended only by an instrument in writing signed by the parties hereto. -10- 11 13. LAW TO GOVERN. This Agreement is executed and delivered in the State of Texas and shall be governed, construed and enforced in accordance with the laws of the State of Texas. 14. ASSIGNMENT. This Agreement is personal to the parties, and neither this Agreement nor any interest herein may be assigned (other than by will or by the laws of descent and distribution) without the prior written consent of the parties hereto nor be subject to alienation, anticipation, sale; pledge, encumbrance, execution, levy, or other legal process of any kind against the Employee or any of his beneficiaries or any other person. Notwithstanding the foregoing, the Company shall be permitted to assign this Agreement to any corporation or other business entity succeeding to substantially all of the business and assets of the Company by merger, consolidation, sale of assets, or otherwise, if the Company obtains the assumption of this Agreement by such successor. Failure by the Company to obtain such assumption prior to the effectiveness of such succession shall be a breach of this Agreement and shall entitle the Employee to receive compensation from the Company under this Agreement in the same amount and on the same terms as he would be entitled to hereunder if he had voluntarily terminated his employment after the Triggering Date, and, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Triggering Date. 15. BINDING AGREEMENT. Subject to the provisions of Section 14 of this Agreement, this Agreement shall be binding upon and shall inure to the benefit of the Company and the Employee and their respective representatives, successors, and assigns. 16. REFERENCES AND GENDER. All references to "Sections" and "Subsections" contained herein are, unless specifically indicated otherwise, references to sections and subsections of this Agreement. Whenever herein the singular number is used, the same shall include the plural where appropriate, and words of either gender shall include the other gender where appropriate. 17. WAIVER. No waiver of any right under this Agreement shall be deemed effective unless the same is set forth in writing and signed by the party giving such waiver, and no waiver of any right shall be deemed to be a waiver of any such right in the future. 18. NOTICES. Except as may be otherwise specifically provided in this Agreement, all notices required or permitted hereunder shall be in writing and will be deemed to be delivered when deposited in the United States mail, postage prepaid, registered or certified mail, return receipt requested, -11- 12 addressed to the party or parties at 17811 Waterview Parkway, Dallas, Texas 75252, or at such other addresses as may have theretofore been specified by written notice delivered in accordance herewith. 19. OTHER INSTRUMENTS. The parties hereto covenant and agree that they will execute such other and further instruments and documents as are or may become necessary or convenient to effectuate and carry out the terms of this Agreement. 20. HEADINGS. The headings used in this Agreement are used for reference purposes only and do not constitute substantive matter to be considered in construing the terms of this Agreement. 21. INVALID PROVISION. Any clause, sentence, provision, section, subsection, or paragraph of this Agreement held by a court of competent jurisdiction to be invalid, illegal, or ineffective shall not impair, invalidate, or nullify the remainder of this Agreement, but the effect thereof shall be confined to the clause, sentence, provision, section, subsection, or paragraph so held to be invalid, illegal or ineffective. 22. RIGHTS UNDER PLANS AND PROGRAMS. Anything in this Agreement to the contrary notwithstanding, no provision of this Agreement is intended, nor shall it be construed, to reduce or in any way restrict any benefit to which the Employee may be entitled under any other agreement, plan, arrangement, or program providing benefits for the Employee. 23. MULTIPLE COPIES. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original and all of which shall together constitute one and the same instrument. The terms of this Agreement shall become binding upon each party from and after the time that he or it executed a copy hereof. In like manner, from and after the time that any party executes a consent or other document, such consent or other document shall be binding upon such parties. 24. WITHHOLDING OF TAXES. The Company may withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as shall be required pursuant to any law or government regulation or ruling. -12- 13 25. LEGAL FEES AND EXPENSES. The Company shall pay and be responsible for all legal fees and expenses which the Employee may incur as a result of the Company's failure to perform under this Agreement or as a result of the Company or any successor contesting the validity or enforceability of this Agreement. 26. SET OFF OR COUNTERCLAIM. Except with respect to any claim against or debt or other obligation of the Employee properly recorded on the books and records of the Company prior to the Triggering Date, there shall be no right of set off or counterclaim against, or delay in, any payment by the Company to the Employee or his beneficiaries provided for in this Agreement in respect of any claim against or debt or other obligation of the Employee, whether arising hereunder or otherwise. 27. ASSIGNMENT, PROTECTION AND CONFIDENTIALITY OF PROPRIETARY INFORMATION. Employee acknowledges and agrees that all items of the Company's Proprietary Information constitute valuable, special and unique assets and trade secrets of its business, which provide to the Company a competitive advantage over others who do not have access thereto and access to which is essential to the performance of Employee's duties hereunder. Employee shall not, during the term of this Agreement or thereafter, use or disclose any Proprietary Information that is not otherwise publicly available, in whole or in part, for his benefit or for the benefit of any other person or party, except for the Company. As used herein, "Proprietary Information" includes, but is not limited to, customer lists and prices, whether current or prospective, product designs or other product information, experimental developments and other research and development information, testing processes, marketing studies and research activities, and any other trade secrets concerning the Company, its shareholders, officers, directors, employees, business prospects, customers, transactions, finances, affairs, opportunities, operations, properties or assets. The Employee further agrees that all inventions, devices, compounds, processes, formulas, techniques, improvements and modifications which he may develop, in whole or in part, during the term of his employment or through or with the facilities, equipment or resources of the Company shall be and remain the sole and exclusive property of the Company. The Employee agrees to deliver to the Company at any time the Company may request, all memoranda, notes, plans, records, reports, and other documents (including copies thereof and all embodiments thereof whether in computerized form or any other medium) relating to the business or affairs of the Company or its subsidiaries which he may then possess or have under his control. Employee shall maintain in good condition all tangible and other forms of Proprietary Information in Employee's custody or control until his obligations under the preceding sentence are satisfied. Employee agrees to execute all documents and take such other actions as may be required to comply with this Section. -13- 14 IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. INTERVOICE-BRITE, INC. By: /s/ DAVID W. BRANDENBURG ------------------------------------- Name: David W. Brandenburg ----------------------------------- Title: Chief Executive Officer ---------------------------------- /s/ DANIEL D. HAMMOND ---------------------------------------- DANIEL D. HAMMOND -14- EX-10.2 3 d80915ex10-2.txt 1ST AMENDED/EXTENDED EMPLOYMENT AGREEMENT 1 EXHIBIT 10.2 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment to Employment Agreement effective as of July 1, 2000 by and between InterVoice-Brite, Inc., a Texas corporation formerly known as InterVoice, Inc. with its principal executive offices at 17811 Waterview Parkway, Dallas, Texas 75252 (the "Company") and Rob-Roy J. Graham (the "Employee"). WITNESSETH: WHEREAS, the Employee is presently employed by the Company pursuant to that certain Employment Agreement dated as of September 1, 1998 between the Company and the Employee (the "Agreement"); and WHEREAS, Employee and the Company desire to amend certain terms of the Agreement to, among other things, extend the term of the Agreement and adjust his compensation. NOW, THEREFORE, in consideration of the premises and mutual covenants herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and conditions hereinafter set forth, the parties hereto agree as follows: 1. In Paragraph 1 of the Agreement captioned "Definitions" the definitions of "Applicable EPS Bonus Percentage" and "Applicable Revenue Bonus Percentage" are amended in their entirety to read as follows: "Applicable EPS Bonus Percentage" means the percentage set forth in the right hand column below as determined (i) for the Company's fiscal year ending February 28, 2001, with reference to the Company's earnings per share for such fiscal year as set forth in the table below entitled "Applicable EPS Bonus Percentage: Fiscal 2001" and (ii) for the Company's fiscal year ending February 28, 2002, with reference to the increase or decrease in the Company's earnings per share between such fiscal year and the greater of $.31 or the Company's earnings per share for the immediately preceding fiscal year as set forth in the table below entitled "Applicable EPS Bonus Percentage: Fiscal 2002": APPLICABLE EPS BONUS PERCENTAGE: FISCAL 2001
Applicable EPS Earnings per Share Bonus Percentage ------------------ ---------------- $0.51 or more 50% $0.41 to $0.50 40% $0.32 to $0.40 30% $0.31 25% $0.21 to $0.30 15% $0.20 or less 0%
1 2 APPLICABLE EPS BONUS PERCENTAGE: FISCAL 2002
Increase or Decrease in Earnings per Share in Applicable Fiscal Applicable EPS Year Compared to Prior Fiscal Year Bonus Percentage ---------------------------------- ---------------- 40% or more increase 100% 35% through 39% increase 75% 25% through 34% increase 50% 10% through 24% increase 40% 0% through 9% increase 20% Decrease in EPS 0%
"Applicable Revenue Bonus Percentage" means the percentage set forth in the right hand column below as determined (i) for the Company's fiscal year ending February 28, 2001, with reference to the Company's total revenues for such fiscal year as set forth in the table below entitled "Applicable Revenue Bonus Percentage: Fiscal 2001" and (ii) for the Company's fiscal year ending February 28, 2002, with reference to the increase or decrease in the Company's total revenues between such fiscal year and the greater of $305,000,000 or the Company's total revenues for the immediately preceding fiscal year as set forth in the table below entitled "Applicable Revenue Bonus Percentage: Fiscal 2002": APPLICABLE REVENUE BONUS PERCENTAGE: FISCAL 2001
Applicable Revenue Total Revenue Bonus Percentage ------------- ------------------ $384,000,000 or more 50% $337,000,000 to $383,999,999 40% $306,000,000 to $336,999,999 30% $305,000,000 to $305,999,999 25% $295,000,000 to $304,999,999 15% $294,999,999 or less 0%
APPLICABLE REVENUE BONUS PERCENTAGE: FISCAL 2002
Increase or Decrease in Revenues in Applicable Fiscal Year Applicable Revenue Compared to Prior Fiscal Year Bonus Percentage -------------------------------- ------------------ 40% or more increase 100% 35% through 39% increase 75% 25% through 34% increase 50% 10% through 24% increase 40% 0% through 9% increase 20% Decrease in Revenues 0%
2 3 2. Paragraph 3 of the Agreement captioned "Term" is hereby amended in its entirety to read as follows: 3. Term The initial term of this Agreement shall be from September 1, 1998 until February 28, 2002 unless sooner terminated in accordance with the provisions herein regarding termination. Subject to earlier termination as provided herein, the initial term of this Agreement shall be automatically extended for one (1) year from March 1, 2002, unless either the Employee or the Company gives written notice to the other six months or more prior to February 28, 2002. 3. Paragraph 4(a) of the Agreement captioned "Base Salary" is hereby amended in its entirety to read as follows: 4(a) Base Salary. For all services rendered by the Employee under this Agreement, the Company shall pay the Employee a base salary of $225,000 per year. Such salary shall be payable in equal monthly installments in accordance with the customary payroll policies of the Company in effect at the time such payment is made, or as otherwise mutually agreed upon. Effective as of March 1 of each year during the term hereof, the Compensation Committee of the Company shall review Employee's performance for the prior fiscal year and make such adjustments in base salary from time to time at their discretion as the Employee and the Company may agree. 4. All of the provisions of the Agreement not specifically amended, deleted or modified by this First Amendment are hereby ratified in their entirety and shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this First Amendment to the Agreement on August __, 2000, and such First Amendment is effective July 1, 2000. INTERVOICE-BRITE, INC. By: /s/ DAVID W. BRANDENBURG ------------------------------- Name: David W. Brandenburg ----------------------------- Title: Chief Executive Officer ---------------------------- EMPLOYEE: /s/ ROB-ROY J. GRAHAM ---------------------------------- ROB-ROY J. GRAHAM 3 EX-27.1 4 d80915ex27-1.txt FINANCIAL DATA SCHEDULE
5 1,000 6-MOS FEB-28-2001 MAR-01-2000 AUG-31-2000 17,642 0 67,643 3,212 41,775 144,287 78,706 41,616 272,916 102,469 0 0 0 16 100,799 272,916 143,850 143,850 71,139 71,139 0 2,598 4,011 1,461 730 731 0 0 11,250 (10,519) (0.32) (0.31)
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