-----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, TWxuinCJSUzsXpMVfaMraRtRVxAzW2upaghD+X7J1LZjD7/MdQHtRKSoncBBPER/ 87GNGDLscBKcINVGM3WSsA== 0000950134-02-000215.txt : 20020413 0000950134-02-000215.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950134-02-000215 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011130 FILED AS OF DATE: 20020111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERVOICE BRITE INC CENTRAL INDEX KEY: 0000764244 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 751927578 STATE OF INCORPORATION: TX FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15045 FILM NUMBER: 2507959 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 d93337e10-q.txt FORM 10-Q FOR QUARTER ENDED NOVEMBER 30, 2001 ================================================================================ 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 NOVEMBER 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______ COMMISSION FILE NUMBER: 0-13616 INTERVOICE-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 33,735,258 SHARES OF COMMON STOCK, NO PAR VALUE PER SHARE, OUTSTANDING AS OF THE CLOSE OF THE PERIOD COVERED BY THIS REPORT. ================================================================================ INTERVOICE-BRITE, INC. CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data) ASSETS November 30, 2001 February 28, 2001 ----------------- ----------------- (Unaudited) Current Assets Cash and cash equivalents $ 11,751 $ 15,901 Trade accounts receivable, net of allowance for doubtful accounts of $3,233 in fiscal 2002 and $3,642 in fiscal 2001 75,011 72,148 Income tax receivable 3,323 3,323 Inventory 38,997 40,184 Prepaid expenses and other current assets 6,685 5,238 Deferred income taxes 4,180 3,968 -------------- -------------- 139,947 140,762 -------------- -------------- Property and Equipment Building 20,303 20,228 Computer equipment and software 46,143 46,316 Furniture, fixtures and other 4,609 4,528 Service equipment 7,731 6,905 -------------- -------------- 78,786 77,977 Less allowance for depreciation 48,465 42,037 -------------- -------------- 30,321 35,940 Other Assets Intangible assets, net of amortization of $37,100 in fiscal 2002 and $26,702 in fiscal 2001 68,823 79,760 Other assets 1,851 299 -------------- -------------- $ 240,942 $ 256,761 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 22,491 $ 22,952 Accrued expenses 14,965 16,863 Customer deposits 6,200 7,730 Deferred income 19,174 19,705 Current portion of long term borrowings 20,179 18,537 Income taxes payable 1,708 5,117 -------------- -------------- 84,717 90,904 Deferred income taxes 20,127 20,127 Long term borrowings 14,846 31,100 Stockholders' Equity Preferred Stock, $100 par value--2,000,000 shares authorized: none issued Common Stock, no par value, at nominal assigned value--62,000,000 shares authorized: 33,735,258 issued and outstanding in fiscal 2002, 33,099,647 issued and outstanding in fiscal 2001 17 17 Additional capital 59,987 55,671 Unearned compensation (315) (1,311) Retained earnings 67,473 64,308 Accumulated other comprehensive loss (5,910) (4,055) -------------- -------------- Stockholders' equity 121,252 114,630 -------------- -------------- $ 240,942 $ 256,761 ============== ==============
See notes to consolidated financial statements. INTERVOICE-BRITE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands, Except Per Share Data) Three Months Ended Nine Months Ended ------------------------------ ------------------------------ November 30, November 30, November 30, November 30, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Sales Systems $ 36,777 $ 46,437 $ 117,673 $ 143,056 Services 21,276 22,178 66,374 69,409 ------------ ------------ ------------ ------------ 58,053 68,615 184,047 212,465 ------------ ------------ ------------ ------------ Cost of goods sold Systems 18,761 21,465 58,190 69,723 Services 8,760 10,990 28,550 33,871 ------------ ------------ ------------ ------------ 27,521 32,455 86,740 103,594 ------------ ------------ ------------ ------------ Gross margin Systems 18,016 24,972 59,483 73,333 Services 12,516 11,188 37,824 35,538 ------------ ------------ ------------ ------------ 30,532 36,160 97,307 108,871 Research and development expenses 6,938 8,704 21,561 26,593 Selling, general and administrative expenses 18,964 20,492 57,498 63,725 Amortization of goodwill and acquisition related intangible assets 3,359 3,466 10,147 10,377 ------------ ------------ ------------ ------------ Income from operations 1,271 3,498 8,101 8,176 Other income 137 390 1,094 1,184 Interest expense (1,355) (1,675) (3,919) (5,686) ------------ ------------ ------------ ------------ Income before taxes and the cumulative effect of a change in accounting principle 53 2,213 5,276 3,674 Income taxes 21 1,107 2,111 1,837 ------------ ------------ ------------ ------------ Income before the cumulative effect of a change in accounting principle 32 1,106 3,165 1,837 Cumulative effect on prior years of adopting SEC Staff Accounting Bulletin No. 101 -- -- -- (11,850) ------------ ------------ ------------ ------------ Net income (loss) $ 32 $ 1,106 $ 3,165 $ (10,013) ============ ============ ============ ============ Per Basic Share: Income before the cumulative effect of a change in accounting principle $ 0.00 $ 0.03 $ 0.09 $ 0.06 Cumulative effect on prior years of adopting SEC Staff Accounting Bulletin No. 101 -- -- -- (0.36) ------------ ------------ ------------ ------------ Net income (loss) $ 0.00 $ 0.03 $ 0.09 $ (0.30) ============ ============ ============ ============ Per Diluted Share: Income before the cumulative effect of a change in accounting principle $ 0.00 $ 0.03 $ 0.09 $ 0.05 Cumulative effect on prior years of adopting SEC Staff Accounting Bulletin No. 101 -- -- -- (0.34) ------------ ------------ ------------ ------------ Net income (loss) $ 0.00 $ 0.03 $ 0.09 $ (0.29) ============ ============ ============ ============
See notes to consolidated financial statements. INTERVOICE-BRITE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands) Three Months Ended Nine Months Ended ------------------------------ ------------------------------ November 30, November 30, November 30, November 30, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Operating Activities Income before the cumulative effect of a change in accounting principle $ 32 $ 1,106 $ 3,165 $ 1,837 Adjustments to reconcile income before the cumulative effect of a change in accounting principle to net cash provided by operating activities Depreciation and amortization 6,310 7,201 19,599 22,554 Other changes in operating activities (6,385) (10,314) (11,797) (7,340) ------------ ------------ ------------ ------------ Net cash provided by (used in) operating activities (43) (2,007) 10,967 17,051 Investing Activities Purchases of property and equipment (1,511) (1,817) (4,678) (5,702) Other (81) -- (81) 2,800 ------------ ------------ ------------ ------------ Net cash used in investing activities (1,592) (1,817) (4,759) (2,902) Financing Activities Paydown of debt (5,045) (7,500) (14,612) (32,500) Borrowings -- 7,500 -- 7,500 Exercise of stock options 2,199 335 4,316 2,156 ------------ ------------ ------------ ------------ Net cash provided by (used in) financing activities (2,846) 335 (10,296) (22,844) Effect of exchange rates on cash (58) 46 (62) (369) ------------ ------------ ------------ ------------ Decrease in cash and cash equivalents (4,539) (3,443) (4,150) (9,064) Cash and cash equivalents, beginning of period 16,290 17,642 15,901 23,263 ------------ ------------ ------------ ------------ Cash and cash equivalents, end of period $ 11,751 $ 14,199 $ 11,751 $ 14,199 ============ ============ ============ ============
See notes to consolidated financial statements. INTERVOICE-BRITE, INC. CONSOLIDATED STATEMENT 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 28, 2001 33,099,647 $ 17 $ 55,671 $ (1,311) $ 64,308 $ (4,055) $ 114,630 Net income 3,165 3,165 Foreign currency translation adjustment (1,406) (1,406) Cumulative effect on prior years of adopting Statement of Financial Accounting Standards No. 133, as amended, net of tax effect of $261 (425) (425) Valuation adjustment of interest rate swap hedge, net of tax effect of $14 (24) (24) Exercise of stock options 635,611 4,316 4,316 Amortization of unearned compensation 996 996 ---------- ---------- ---------- ------------ ---------- ------------ ------------ Balance at November 30, 2001 33,735,258 $ 17 $ 59,987 $ (315) $ 67,473 $ (5,910) $ 121,252 ========== ========== ========== ============ ========== ============ ============
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED NOVEMBER 30, 2001 NOTE A - BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. The consolidated balance sheet at February 28, 2001 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 November 30, 2001 and 2000 consolidated financial statements have been included. Operating results for the three and nine month periods ended November 30, 2001 are not necessarily indicative of the results that may be expected for the year ending February 28, 2002, as such results 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) for the third quarters of fiscal 2002 and 2001 was $(1.6) million and $0.5 million, respectively. For the nine month periods ended November 30, 2001 and 2000, comprehensive income (loss) was $1.3 million and $(14.2) million, respectively. Total comprehensive income is comprised of net income (loss), foreign currency translation adjustments, the cumulative effect of the adoption in fiscal 2002 of Statement of Financial Accounting Standards No. 133 - Accounting for Derivative Instruments and Hedging Activities, as amended, ("Statement No. 133") and the adjustments to the carrying value of certain derivative instruments as of November 30, 2001. Financial statements of the Company's foreign subsidiaries have been translated into U.S. dollars at current and average exchange rates. Resulting translation adjustments are recorded as a separate component of stockholders' equity. Any transaction gains or losses are included in the accompanying consolidated statements of operations. In June 2001, the Financial Accounting Standards Board issued new rules on accounting for goodwill and other intangible assets in its Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets (the "Statements"), which become effective for fiscal years beginning after December 15, 2001. Under the new rules: 1) goodwill and intangible assets deemed to have indefinite lives will no longer be amortized and 2) such assets will be subject to impairment tests at least annually in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules in the first quarter of fiscal 2003. The Company's preliminary estimate is that the application of the non-amortization provisions of the Statements will result in an increase in net income in fiscal 2003 of the $4.0 million ($0.12 per share). Final results, however, may vary from this preliminary estimate, and any such variance may be material. The Company is not in a position to estimate the effect on fiscal 2003 net income resulting from the impairment tests required by the Statements until the tests and any additional required tests are performed during the fourth quarter of fiscal 2002 and the first quarter of fiscal 2003. The balance, as of November 30, 2001, of unamortized goodwill and other indefinite lived assets was $25.6 million. The results of the required tests may result in a charge to earnings if any such assets are deemed to be impaired. The Company will not be in a position to determine what impact the impairment tests will have on its fiscal 2003 earnings and financial position until the required tests are completed, however, the impact could be material. NOTE B - CHANGE IN ACCOUNTING PRINCIPLE FOR DERIVATIVES Since entering into its current credit facilities in 1999, the Company has used interest rate swap arrangements to hedge the variability of interest payments on its variable rate debt. The swap arrangements have effectively converted the Company's outstanding floating rate debt to a fixed rate basis. Prior to March 1, 2001, the Company did not assign a value to the interest rate swaps, and gains and losses from the swaps were included on the accrual basis in interest expense. Effective March 1, 2001, the Company adopted Statement No. 133 which requires that the Company record an asset or liability for the fair value of its derivatives and that it mark such asset or liability to market on an ongoing basis. For derivatives, such as the Company's interest rate swaps, which are defined as cash flow hedges, changes to the derivative's market value are initially reported as a component of other comprehensive loss to the extent that the hedge is determined to be effective. Such changes are subsequently reclassified into earnings when the related transaction (the quarterly payment of variable rate interest) affects earnings. Changes in market value attributable to the ineffective portion of a hedge are reported in earnings immediately as incurred. At March 1, 2001, the Company was a party to swap arrangements with a notional amount of $50 million under which the Company paid interest at a fixed rate of 6.2% and received interest at the three-month London Interbank Offering Rate ("LIBOR") (5.1% at March 1, 2001). Upon adoption of Statement No. 133, the Company recorded an initial derivative liability included in accrued liabilities of approximately $0.7 million and incurred a charge to other comprehensive loss totaling approximately $0.4 million (net of tax). The charge to other comprehensive loss represented the transition adjustment associated with the cumulative effect on prior years of adopting Statement No. 133. During the three and nine month periods ended November 30, 2001, the Company increased its derivative liability by $0.0 million and $0.3 million, respectively, to reflect changes in its fair value attributable to reductions in the LIBOR offset by the reduction of the obligation through the payment of scheduled quarterly interest rate swap settlements. During the same periods, the Company recorded a net of tax charge to other comprehensive loss of less than $0.1 million and charges to interest expense for the ineffective portion of the derivative and the payment of its quarterly swap settlements of approximately $0.5 million and $1.1 million, respectively. The interest rate swap arrangements were scheduled to expire in June 2002, but in response to the continued downward movement in the LIBOR rate, the Company terminated its swap arrangements in October 2001, retiring the derivative liability and related accrued settlement charges through a cash payment of $1.4 million. Under the provisions of Statement No. 133, the Company will recognize non-cash interest expense of approximately $0.4 million and $0.3 million in its quarters ending February 28, 2002 and May 31, 2002, respectively, as a result of the final reclassifications into earnings of the remaining balance in other comprehensive loss that is related to the derivative agreements. The Company will also continue to incur interest expense under the provisions of the credit facilities. Amounts due under the credit facilities totaled $35.0 million and $49.6 million at November 30, 2001 and February 28, 2001, respectively. Interest accrues at variable rates indexed to a combination of LIBOR, the prime rate and the federal funds rate. The average annual interest rate under the facilities was 5.9% and 9.2% at November 30, 2001 and February 28, 2001, respectively, and was reduced to 4.8% subsequent to November 30, 2001. NOTE C - CHANGE IN ACCOUNTING PRINCIPLE FOR 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" issued by the Securities and Exchange Commission. The cumulative effect of the adoption of SAB 101 on prior years resulted in a charge to operations of $11.9 million (after reduction for income taxes of $6.4 million) which is included in results of operations for the three months ended May 31, 2000. For the three and nine months ended November 30, 2000, the net effect of the change in accounting was to increase income before the cumulative effect of the accounting change $3.0 million ($0.09 per share) and $11.5 million ($0.34 per share), respectively. For the three and nine months ended November 30, 2000, the Company recognized $5.0 million and $22.0 million, respectively, in revenue whose contribution to income is included in the cumulative effect adjustment as of March 1, 2000. NOTE D - INVENTORIES Inventories consist of the following (in thousands):
November 30, 2001 February 28, 2001 ----------------- ----------------- Purchased parts $ 28,577 $ 33,103 Work in progress 8,262 5,961 Finished goods 2,158 1,120 -------------- -------------- $ 38,997 $ 40,184 ============== ==============
NOTE E - RESTRUCTURING ACTIVITIES AND UNUSUAL ITEMS Accrued expenses at February 28, 2001 included $1.8 million of severance and related special charges incurred by the Company in the fourth quarter of fiscal 2001. The Company charged payments of $1.4 million against this accrual during the nine months ended November 30, 2001. During the third quarter of fiscal 2002, the Company determined that it had settled its severance related obligations for less than originally anticipated, and, accordingly, the Company reversed the remaining accrual of $0.4 million which reduced selling, general and administrative expenses. Accrued expenses at February 28, 2001 also included $0.9 million of accrued customer settlement expenses recorded in the fourth quarter of fiscal 2001 in connection with the Company's discontinuance of its Agent Connect product line. During the third quarter of fiscal 2002, the Company reached settlement with its affected customers for amounts that were less than originally anticipated. As a result of its settlement activities, the Company reversed $0.5 million of accrued settlement expenses which reduced selling, general and administrative expenses and retained $0.4 million in accrued liabilities for settlements to be completed in the fourth quarter of fiscal 2002. During the third quarter of fiscal 2002, the Company recognized $0.8 million of revenue and pretax profit relating primarily to non-refundable customer deposits received in prior quarters. During the quarter, the Company determined that the orders associated with these deposits had been canceled and that the Company had no remaining unperformed obligations. NOTE F - EARNINGS PER SHARE (in thousands except per share data)
Three Months Ended Nine Months Ended November 30, 2001 November 30, 2000 November 30, 2001 November 30, 2000 ----------------- ----------------- ----------------- ----------------- Numerator: Income before the cumulative effect of a change in accounting principle $ 32 $ 1,106 $ 3,165 $ 1,837 Cumulative effect on prior years of adopting SEC SAB No. 101 -- -- -- (11,850) --------------- --------------- --------------- --------------- Net Income (loss) $ 32 $ 1,106 $ 3,165 $ (10,013) --------------- --------------- --------------- --------------- Denominator: Denominator for basic earnings per share 33,557 32,807 33,295 32,684 Employee stock options 1,541 1,370 1,401 1,770 Non-vested restricted shares 56 50 55 53 --------------- --------------- --------------- --------------- Dilutive potential common shares 1,597 1,420 1,456 1,823 Denominator for diluted earnings per share 35,154 34,227 34,751 34,507 BASIC: Income before the cumulative effect of a change in accounting principle $ 0.00 $ 0.03 $ 0.09 $ 0.06 Cumulative effect on prior years of adopting SEC SAB No. 101 -- -- -- (0.36) --------------- --------------- --------------- --------------- Net Income (loss) $ 0.00 $ 0.03 $ 0.09 $ (0.30) =============== =============== =============== =============== DILUTED: Income before the cumulative effect of a change in accounting principle $ 0.00 $ 0.03 $ 0.09 $ 0.05 Cumulative effect on prior years of adopting SEC SAB No. 101 -- -- -- (0.34) --------------- --------------- --------------- --------------- Net Income (loss) $ 0.00 $ 0.03 $ 0.09 $ (0.29) =============== =============== =============== ===============
Options to purchase 1,430,937 and 1,528,437 shares of common stock at average prices of $14.82 and $14.64, respectively, were outstanding during the three and nine month periods ended November 30, 2001, respectively, but were not included in the computation of diluted earnings per share because the options' 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. Options to purchase 2,170,824 and 1,614,374 shares of common stock at average prices of $13.97 and $15.14, respectively, were excluded from the diluted earnings per share calculations for the three and nine month periods ended November 30, 2000, respectively, because their prices were greater than the average market price of the Company's common stock during such periods. NOTE G - OPERATING SEGMENT INFORMATION AND MAJOR CUSTOMERS Beginning in fiscal 2002, the Company has defined two reportable segments: the Enterprise Solutions Division ("ESD") and the Network Solutions Division ("NSD"). The ESD focuses on the interactive voice response (IVR) market in which the Company provides automated customer service and self-help solutions to enterprises and institutions. The NSD focuses on the enhanced telecommunications market in which the Company provides value-added, revenue generating solutions to network service providers. Each division sells integrated systems and related services including system maintenance and software licenses. As a complement to the Company's systems sales, the NSD also provides and manages enhanced network services and IVR applications for customers on an application service provider (ASP) basis. The Company's reportable segments are strategic business units that focus on separate customer groups. They are managed separately to enable the Company to target its product development and marketing efforts to meet the unique needs of the Company's target markets. The accounting policies of the segments are the same as those of the Company. The Company evaluates performance based on profit or loss from operations before income taxes, excluding the amortization of goodwill and acquisition related intangible assets. Corporate operating expenses are allocated to the segments based on budgeted and historical percentages of revenue. The Company does not have material intersegment sales and does not allocate Company assets to individual segments. The operating results of the Company's segments for the three and nine month periods ended November 30, 2001 and 2000 are as follows (in thousands).
Three Months Ended Three Months Ended November 30, 2001 November 30, 2000 -------------------------------------------- -------------------------------------------- Enterprise Network Enterprise Network Solutions Solutions Total Solutions Solutions Total ------------ ------------ ------------ ------------ ------------ ------------ Systems $ 20,421 $ 16,356 $ 36,777 $ 25,613 $ 20,824 $ 46,437 Services 8,068 13,208 21,276 6,360 15,818 22,178 ------------ ------------ ------------ ------------ ------------ ------------ Total sales to external customers 28,489 29,564 58,053 31,973 36,642 68,615 ------------ ------------ ------------ ------------ ------------ ------------ Systems 10,357 7,659 18,016 15,096 9,876 24,972 Services 6,102 6,414 12,516 3,640 7,548 11,188 ------------ ------------ ------------ ------------ ------------ ------------ Total gross margin 16,459 14,073 30,532 18,736 17,424 36,160 ------------ ------------ ------------ ------------ ------------ ------------ Segment operating expenses 12,292 13,610 25,902 14,423 14,773 29,196 ------------ ------------ ------------ ------------ ------------ ------------ Segment operating income* $ 4,167 $ 463 $ 4,630 $ 4,313 $ 2,651 $ 6,964 ============ ============ ============ ============ ============ ============
Nine Months Ended Nine Months Ended November 30, 2001 November 30, 2000 -------------------------------------------- -------------------------------------------- Enterprise Network Enterprise Network Solutions Solutions Total Solutions Solutions Total ------------ ------------ ------------ ------------ ------------ ------------ Systems $ 65,666 $ 52,007 $ 117,673 $ 74,880 $ 68,176 $ 143,056 Services 22,969 43,405 66,374 18,352 51,057 69,409 ------------ ------------ ------------ ------------ ------------ ------------ Total sales to external customers 88,635 95,412 184,047 93,232 119,233 212,465 ------------ ------------ ------------ ------------ ------------ ------------ Systems 33,716 25,767 59,483 40,779 32,554 73,333 Services 16,603 21,221 37,824 9,961 25,577 35,538 ------------ ------------ ------------ ------------ ------------ ------------ Total gross margin 50,319 46,988 97,307 50,740 58,131 108,871 ------------ ------------ ------------ ------------ ------------ ------------ Segment operating expenses 37,537 41,522 79,059 45,454 44,864 90,318 ------------ ------------ ------------ ------------ ------------ ------------ Segment operating income* $ 12,782 $ 5,466 $ 18,248 $ 5,286 $ 13,267 $ 18,553 ============ ============ ============ ============ ============ ============
* Consolidated income from operations includes amortization of goodwill and acquisition related intangible assets of $3,359 and $10,147 for the three and nine month periods ended November 30, 2001, respectively, that is not allocated by the Company to individual segments. Such expenses were $3,466 and $10,377 for the same periods of fiscal 2001. Geographic Operations The Company's net sales by geographic area were as follows (in thousands):
Three Months Ended Nine Months Ended ------------------------------------- -------------------------------------- November 30, 2001 November 30, 2000 November 30, 2001 November 30, 2000 ----------------- ----------------- ----------------- ----------------- Geographic Area Net Sales: United States $ 30,726 $ 38,758 $ 96,678 $ 109,426 The Americas (Excluding U.S.) 2,297 3,032 12,757 12,387 Pacific Rim 1,137 2,965 4,825 10,095 Europe, Middle East & Africa 23,893 23,860 69,787 80,557 -------------- -------------- -------------- -------------- Total $ 58,053 $ 68,615 $ 184,047 $ 212,465 ============== ============== ============== ==============
Concentration of Revenue One Network Solutions Division customer, British Telecom (together with its affiliate BT Cellnet), accounted for approximately 14% and 15% of the Company's sales during the three-month periods ended November 30, 2001 and 2000, respectively. The same customer accounted for 14% and 19% of the Company's sales during the nine-month periods ended November 30, 2001 and 2000, respectively. During the three months ended May 31, 2001, the Company extended its managed services contract with British Telecom through July 2003. Under the terms of the extended contract and at current exchange rates, BT Cellnet continued to purchase managed services totaling at least $2.6 million per month through July 2001, and the Company will recognize revenues of approximately $2.1 million per month for the six month period ending January 2002 and totaling approximately $0.9 million per month thereafter for the remaining term of the contract. No other customer accounted for 10% or more of the Company's sales during the three and nine month periods ended November 30, 2001. NOTE H - CONTINGENCIES Customer Dispute The Company provides certain automated call processing services on a managed services basis for a large domestic telecommunications company. As previously disclosed by the 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 could make such claims and such claims could be material. The telecommunications company recently expressed confidence that if it conducted an exhaustive audit, it would find that the Company issued material amounts of improper credits to the telecommunications company's customers. The Company believes that it did not issue material amounts of improper credit. If the audit ultimately proves that the Company issued such improper credits, the Company could be assessed significant penalties under the managed services contract, but the telecommunications company has not provided the Company with evidence to substantiate its beliefs. 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 recently amended and extended their managed services agreement. The parties are in the process of attempting to negotiate mutually satisfactory agreements to resolve their dispute. There is no assurance that the parties will negotiate mutually acceptable agreements. The telecommunications company has not threatened litigation against the Company in connection with this matter. 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. Intellectual Property Matters From time to time Ronald A. Katz Technology Licensing L.P. ("RAKTL") has sent letters to certain customers of the Company suggesting that the customer should negotiate a license agreement to cover the practice of certain patents owned by RAKTL. In the letters, RAKTL has alleged that certain of its patents pertain to certain enhanced services offered by network providers, including prepaid card and wireless services and postpaid card services. RAKTL has further alleged that certain of its patents pertain to certain call processing applications, including applications for call centers that route calls using a called party's DNIS identification number. Certain products offered by the Company can be programmed and configured to provide enhanced services to network providers and call processing applications for call centers. The Company's contracts with customers usually include a qualified obligation to indemnify and defend customers against claims that products as delivered by the Company infringe a third party's patent. To the Company's knowledge, RAKTL has not initiated litigation against any of the Company's customers. Moreover, none of the customers have notified the Company that RAKTL has claimed that any product provided by the Company infringes any claims of any RAKTL patent. Accordingly, the Company has not been required to defend any customers against a claim of infringement under a RAKTL patent. The Company has, however, received letters from customers notifying the Company of the efforts by RAKTL to license its patent portfolio and reminding the Company of its potential obligations under the indemnification provisions of the applicable agreements in the event that a claim is asserted. In response to correspondence from RAKTL, a few customers have attempted to tender to the Company the defense of its products under contractual indemnity provisions. The Company has informed these customers that while it fully intends to honor any contractual indemnity provisions, it does not believe it currently has any obligation to provide such a defense because RAKTL does not appear to have made a claim that a Company product infringes a patent. Even though RAKTL has not instituted litigation against any customers, it is always possible that RAKTL may do so. In the event of such litigation, a customer could attempt to invoke the Company's indemnity obligations under the applicable agreement. As with most sales contracts with suppliers of computerized equipment, the Company's contractual indemnity obligations are generally limited to the products provided by the Company, and generally require the customer to allow the Company to have sole control over any litigation and settlement negotiations with the patent holder. The customers who have received letters from RAKTL generally have multiple suppliers of the types of products that might potentially be subject to claims by RAKTL. Even though no claims have been made that a specific product offered by the Company infringes any claim under the RAKTL patent portfolio, the Company has received opinions from its outside patent counsel that certain products and applications offered by the Company do not infringe certain claims of the RAKTL patents. The Company has also received opinions from its outside counsel that certain claims under the RAKTL patent portfolio are invalid. Furthermore, based on the reviews by outside counsel, the Company is not aware of any claims under the RAKTL portfolio that are infringed by the Company's products. If the Company does become involved in litigation in connection with the RAKTL patent portfolio, under a contractual indemnity or any other legal theory, the Company intends to vigorously contest the claims and to assert appropriate defenses. A number of companies, including some large, well known companies and some customers of the Company, have already licensed certain rights under the RAKTL patent portfolio. During November 2000, RAKTL announced license agreements with, among others, AT&T Corp., Microsoft Corporation and International Business Machines Corporation. In the matter of Aerotel, Ltd. et al, vs. Sprint Corporation, et al, Cause No. 99-CIV-11091 (SAS), pending in the United States District Court Southern District of New York, Aerotel, Ltd., has sued Sprint Corporation alleging that certain prepaid services offered by Sprint are infringing Aerotel's U.S. Patent No. 4,706,275 ("275 patent"). According to Sprint, the suit originally focused on land-line prepaid services not provided by the Company. Recently, as part of an unsuccessful mediation effort, Aerotel also sought compensation for certain prepaid wireless services provided to Sprint PCS by the Company. As a result of the mediation effort, Sprint has requested that the Company provide a defense and indemnification to Aerotel's infringement claims, to the extent that they pertain to any wireless prepaid services offered by the Company. In response to this request, the Company has offered to assist Sprint's counsel in defending against such claims, to the extent they deal with issues unique to the system and services provided by the Company, and to reimburse Sprint for the reasonable attorneys' fees associated therewith. The trial court has stayed the lawsuit pending certain rulings from the United States Patent and Trademark Office. The Company has received opinions from its outside patent counsel that the wireless prepaid services offered by the Company do not infringe the "275 patent". If the Company does become involved in litigation in connection with the "275 patent", under a contractual indemnity or any other legal theory, the Company intends to vigorously contest any claims that its prepaid wireless services infringe the "275 patent" and to assert appropriate defenses. Pending Litigation Several related class action lawsuits were filed in the United States District Court for the Northern District of Texas on behalf of purchasers of common stock of the Company during the period from October 12, 1999 through June 6, 2000, the "Class Period." These lawsuits have been consolidated in the case of David Barrie, et al., on Behalf of Themselves and All Others Similarly Situated v. InterVoice-Brite, Inc., et al.; No. 3-01CV1071-D, pending in the United States District Court, Northern District of Texas, Dallas Division. Plaintiffs have filed claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and the Securities and Exchange Commission Rule 10b-5 against the Company as well as certain named current and former officers and directors of the Company on behalf of the alleged class members. In the Complaint, Plaintiffs claim that the Company and the named current and former officers and directors issued false and misleading statements during the Class Period concerning the financial condition of the Company, the results of the Company's merger with Brite Voice Systems, Inc., and the alleged future business projections of the Company. Plaintiffs have asserted that these alleged statements resulted in artificially inflated stock prices. The Company must answer or otherwise respond to these complaints, which have now been consolidated into one proceeding, on or before January 14, 2002. Plaintiffs will then have 45 days to respond. The Company believes that it and its officers complied with their obligations under the securities laws, and intends to defend the lawsuits vigorously. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DISCLOSURE 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 2002, 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 The continued availability of suitable non-proprietary computing platforms and system operating software that are compatible with the Company's products. o Certain components for the Company's products are available only from select suppliers and, as a result, 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. The Company's installed base of customers generally is not contractually obligated to place further systems orders with the Company or to extend their services contracts with the Company at the expiration of their current contracts. Sales to British Telecom accounted for approximately 14% and 15% of the Company's total sales during the three month periods ended November 30, 2001 and 2000, respectively. For the nine month periods ended November 30, 2001 and 2000, sales to British Telecom accounted for 14% and 19% of the Company's sales, respectively. British Telecom's managed services contract with the Company was extended by eighteen months through July 17, 2003. Under the managed services contract at current exchange rates, BT Cellnet purchased services in a minimum amount of approximately $2.6 million per month through July 17, 2001, and revenues have been reduced to approximately $2.1 million per month for the six month period that commenced July 18, 2001, and will be further reduced to approximately $0.9 million per month for the eighteen month period commencing on January 18, 2002. The amounts received under the agreement may vary based on future changes in the exchange rate between the dollar and the British pound. o The Company's ability to successfully qualify, estimate and close "pipeline" opportunities for systems sales during a quarter. See the discussion entitled "Sales" in this "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of the Company's "pipeline" of systems sales opportunities. o Legislative and administrative changes and, in particular, changes affecting the telecommunications industry, such as the Telecommunications Act of 1996. o The Company's sales are largely dependent 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 dependent 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 dependent upon the general level of demand for telephone switches and other telecommunications equipment for public networks. There are indications that, at least for the short term, demand for such technology products and network-based telecommunications equipment has softened. In addition, the slow down in certain sectors of the economy that followed the attacks by terrorists on September 11, 2001, has increased concerns that demand for the types of products offered by the Company might soften as a result of domestic and global economic and political conditions. The Company noted a slowing of general business activity in the period immediately following the September 11, 2001 incident, however, it is too soon for the Company to determine whether the slow down will be sustained and whether it will have a material adverse effect on the Company's future financial performance. The Company's revenues are not overly dependent upon sales to the travel, lodging and entertainment industries, which were among the industries most severely affected by the events of September 11, 2001. 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, the difficulty in protecting intellectual property rights, and foreign governmental regulations that may limit or restrict the sales of the Company's systems. Additionally, changes in foreign credit markets and currency exchange rates may result in requests by many international customers for extended payment terms and may have an adverse impact on the Company's cash flow and its level of accounts receivable. o The ability of the Company to currently estimate the impact on future earnings of Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets which the Company will adopt beginning with fiscal 2003. These Statements will affect the Company's amortization of goodwill and other intangible assets and could require the Company to write off certain of those assets should the Company conclude that the value of such assets has been impaired. See "Item 2 - Amortization of Goodwill and Acquired Intangible Assets." 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 quarterly sales and earnings. o Many of the Company's contracts, particularly for managed services, foreign contracts and contracts with telecommunication companies, include provisions for the assessment of liquidated damages for delayed performance by the Company or for system down time under ASP contracts. 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 The Company's ability 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 financial applications, and/or delay such purchases by companies that are in the process of reviewing their strategic alternatives in light of a merger or acquisition. o Extreme price and volume trading volatility in the U.S. stock market, which has had a substantial effect on the market prices of securities of many high technology companies, frequently for reasons other than the operating performance of such companies. These broad market fluctuations could adversely affect the market price of the Company's common stock. o The ability of the Company to 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. o The Company's business transactions in foreign currencies are subject to adverse movements in foreign currency exchange rates. o The effect of class action lawsuits alleging securities law violations and other litigation filed against the Company which could negatively affect the Company and its financial condition if adversely determined. See "Item 1 - Legal Proceedings" in Part II for a discussion of these lawsuits. RESULTS OF OPERATIONS SALES. The Company's total sales for the third quarter of fiscal 2002 were $58.1 million, including $0.8 million of revenue and pretax profit relating primarily to non-refundable customer deposits received in prior quarters. During the quarter, the Company determined that the orders associated with these deposits had been canceled and that the Company had no remaining unperformed obligations. Total sales for the nine months ended November 30, 2001 were $184.1 million. Third quarter sales decreased $10.5 million, or 15%, when compared to the same period of fiscal 2001. The Company's Enterprise Solutions Division ("ESD") sales were down $3.5 million or 11% and its Network Solutions Division ("NSD") sales were down $7.0 million or 19% from the prior year's third quarter totals. Sales during the first nine months of fiscal 2002 decreased $28.4 million, or 13%, when compared to the same period of fiscal 2001. The Company's ESD sales were down $4.6 million or 5% while its NSD sales were down $23.8 million or 20% from the prior year's nine-month totals. Sales and gross margin results for the Company's segments for the three and nine month periods ended November 30, 2001 and 2000 are as follows (in millions).
Three Months Ended Three Months Ended November 30, 2001 November 30, 2000 -------------------------------------------- -------------------------------------------- Enterprise Network Enterprise Network Solutions Solutions Total Solutions Solutions Total ------------ ------------ ------------ ------------ ------------ ------------ Systems $ 20.4 $ 16.4 $ 36.8 $ 25.6 $ 20.8 $ 46.4 Services 8.1 13.2 21.3 6.4 15.8 22.2 ------------ ------------ ------------ ------------ ------------ ------------ Total sales to external customers 28.5 29.6 58.1 32.0 36.6 68.6 ------------ ------------ ------------ ------------ ------------ ------------ Systems 10.3 7.7 18.0 15.1 9.9 25.0 Services 6.1 6.4 12.5 3.6 7.5 11.1 ------------ ------------ ------------ ------------ ------------ ------------ Total gross margin 16.4 14.1 30.5 18.7 17.4 36.1 ------------ ------------ ------------ ------------ ------------ ------------
Nine Months Ended Nine Months Ended November 30, 2001 November 30, 2000 -------------------------------------------- -------------------------------------------- Enterprise Network Enterprise Network Solutions Solutions Total Solutions Solutions Total ------------ ------------ ------------ ------------ ------------ ------------ Systems $ 65.7 $ 52.0 $ 117.7 $ 74.9 $ 68.2 $ 143.1 Services 23.0 43.4 66.4 18.4 51.0 69.4 ------------ ------------ ------------ ------------ ------------ ------------ Total sales to external customers 88.7 95.4 184.1 93.3 119.2 212.5 ------------ ------------ ------------ ------------ ------------ ------------ Systems 33.7 25.8 59.5 40.8 32.5 73.3 Services 16.6 21.2 37.8 9.9 25.6 35.5 ------------ ------------ ------------ ------------ ------------ ------------ Total gross margin 50.3 47.0 97.3 50.7 58.1 108.8 ------------ ------------ ------------ ------------ ------------ ------------
ESD system sales in the third quarter and first nine months of fiscal 2002 were, respectively, $20.4 million, down $5.2 million or 20% from the prior year's same period totals, and $65.7 million, down $9.2 million or 12%. ESD systems sales continue to be affected by a lengthening of the overall sales cycle resulting from the transition in customer demand from simpler, touch-tone systems to complex, speech enabled applications and were also affected in the third quarter by a general slowing of business activity following the terrorists attacks of September 11, 2001. ESD service sales in the third quarter and first nine months of fiscal 2002 were $8.1 million and $23.0 million, respectively, an increase of $1.7 million or 27% and $4.6 million or 25%, respectively, over the same periods from the prior year. The increase was primarily attributable to growth in the Company's sales of extended warranty services. International sales accounted for approximately 11% and 14% of the Company's total ESD sales during the third quarter and the first nine months of fiscal 2002, respectively, versus 20% and 17% for the same periods in fiscal 2001. NSD system sales in the third quarter and first nine months of fiscal 2002 were, respectively, $16.4 million, down $4.4 million or 22% from the prior year's same period totals, and $52.0 million, down $16.2 million or 24%. Contributing factors to the decline in system sales are the rebuilding and training of the sales force and softness in the markets for network-based telecommunications systems. NSD system sales were also affected in the third quarter by a general slowing of business activity following the terrorists attacks of September 11, 2001. NSD services sales totaled $13.2 million and $43.4 million for the third quarter and first nine months of fiscal 2002, down $2.6 million or 17% and $7.6 million or 15% compared to the same periods of fiscal 2001. The decline in NSD service sales is primarily comprised of a reduction in managed services (ASP) revenues attributable to a decrease in the volume of activity processed under certain of the division's ASP contracts. See "Disclosures Regarding Forward-Looking Statements" for a discussion of BT Cellnet's monthly contractual revenue commitments through July 2003, including reductions in monthly revenue commitments that began in July 2001 and further reductions commencing in January 2002. NSD international sales constituted 81% and 79% of the Company's total NSD sales during the third quarter and first nine months of fiscal 2002 as compared to 64% and 73% for the same periods 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 continues to investigate 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. The Company uses a system combining estimated sales from its service and support contracts, "pipeline" of systems sales opportunities, and backlog of committed systems orders to estimate sales and trends in its business. Sales for the last four quarters from service and support contracts, including contracts for ASP managed services, have averaged approximately 35% of the Company's quarterly sales. On average, the pipeline of opportunities for systems sales and backlog of systems sales during the same period contributed approximately 35% and 30% of quarterly revenues, respectively. The Company's service and support contracts range in duration from one month to three years, with many longer duration contracts allowing customer cancellation privileges. The Company's largest services customer is BT Cellnet, which accounted for 31% of service and support sales during the third quarter of fiscal 2002 and 33% of service and support sales during the first nine months of fiscal 2002. See "Disclosures Regarding Forward-Looking Statements" for a discussion of BT Cellnet's monthly revenue commitments through July 2003, under its managed services contract, including reductions in monthly revenue that began in July 2001 and further reductions commencing in January 2002. It is easier for the Company to estimate service and support sales than to measure systems sales for the next quarter because service and support contracts generally span multiple quarters, and revenues recognized under each contract are generally similar from one quarter to the next. The Company's backlog is made up of customer orders for systems for which it has received complete purchase orders and which the Company expects to ship within twelve months. At November 30, 2001, August 31, 2001. May 31, 2001 and February 28, 2001 the Company's backlog of systems sales was approximately $21.3 million, $25.4 million, $31.0 million and $35.0 million, respectively. As a result of the decline in backlog and the reduction of quarterly revenues under the managed services contract with BT Cellnet, the Company will have to increase sales from its pipeline of opportunities for systems sales and/or other service and support contracts to maintain or increase revenues in future quarters. The Company's pipeline of opportunities for systems sales is the aggregation of its sales opportunities, with each opportunity evaluated for the date the potential customer will make a purchase decision, competitive risks, and the potential amount of any resulting sale. No matter how promising a pipeline opportunity may appear, there is no assurance it will ever result in a sale. While this pipeline may provide the Company some sales guidelines in its business planning and budgeting, pipeline estimates are necessarily speculative and may not consistently correlate to revenues in a particular quarter or over a longer period of time. While the Company knows the amount of systems backlog available at the beginning of a quarter, it must speculate on its pipeline of systems opportunities for the quarter. The Company's accuracy in estimating total systems sales for future fiscal quarters is, therefore, highly dependent upon its ability to successfully estimate which pipeline opportunities will close during the quarter. COST OF GOODS SOLD. Cost of goods sold for the third quarter and first nine months of fiscal 2002 was $27.5 million or 47% of sales and $86.7 million or 47% of sales, respectively, as compared to 47% and 49% of sales for the same periods of fiscal 2001. ESD systems costs averaged approximately 49% of sales for the third quarter and first nine months of fiscal 2002 compared to 41% and 46% for the same periods of fiscal 2001. NSD systems costs averaged 53% of sales for the third quarter of fiscal 2002 and 51% of sales for the first nine months of fiscal 2002 as compared to 53% of sales and 52% of sales for the same periods of fiscal 2001. ESD services cost of sales was 24% of sales for the third quarter of fiscal 2002, and 28% of sales for the first nine months of fiscal 2002, significantly down from 43% of sales for the third quarter of fiscal 2001 and 46% of sales for the first nine months of fiscal 2001. ESD services costs for the first nine months of fiscal 2001 included a larger than normal charge of $0.5 million (3% of services sales) to increase the obsolescence reserve on the division's customer service inventory. The remainder of the improvement resulted primarily from efficiency gains as the division was able to reduce its absolute support costs while serving a larger customer base. NSD services costs were 51% of sales for the third quarter and first nine months of fiscal 2002 compared to 52% and 50% for the same periods of fiscal 2001. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses during the third quarter and first nine months of fiscal 2002 were approximately $6.9 million or 12% of the Company's total sales and $21.6 million or 12% of sales, respectively. R&D expenses in comparable periods of fiscal 2001 totaled $8.7 million and $26.6 million, or 12% of sales for each period. Research and development expenses include the design of new products and the enhancement of existing products. SELLING, GENERAL AND ADMINISTRATION EXPENSES. Selling, general and administration expenses during the third quarter and first nine months of fiscal 2002 were approximately $19.0 million and $57.5 million, or 33% and 31%, respectively, of the Company's total sales. Such expenses totaled $20.5 million and $63.7 million, respectively, each approximately 30% of the Company's total sales for comparable periods in fiscal 2001. SG&A expenses in the third quarter of fiscal 2002 were reduced by $0.9 million ($0.02 per diluted share) as a result of the favorable settlement of certain restructuring accruals originally established in fiscal 2001. The Company's results for the nine months ended November 30, 2001 continue to reflect the benefits from cost reduction initiatives implemented by the Company during the fourth quarter of fiscal 2001. AMORTIZATION OF GOODWILL AND ACQUIRED INTANGIBLE ASSETS. Goodwill and intangible assets acquired in the fiscal 2000 merger with Brite Voice Systems, Inc. ("Brite") totaled approximately $104 million with useful lives averaging seven years. Amortization of these assets totaled $3.4 million and $10.1 million for the third quarter and first nine months of fiscal 2002, respectively. Such expenses are essentially unchanged from the same periods of the prior year. In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules: 1) goodwill and intangible assets deemed to have indefinite lives will no longer be amortized and 2) such assets will be subject to impairment test at least annually in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules in the first quarter of fiscal 2003. The Company's preliminary estimate is that the application of the non-amortization provisions of the Statements will result in an increase in net income in fiscal 2003 of $4.0 million ($0.12 per share). Final results, however, may vary from this preliminary estimate, and any such variance may be material. The Company is not in a position to estimate the effect on fiscal 2003 net income resulting from the impairment tests required by the Statements until the tests and any additional required tests are performed during the fourth quarter of fiscal 2002 and the first quarter of fiscal 2003. The balance, as of November 30, 2001, of unamortized goodwill and other indefinite lived assets was $25.6 million. The result of the required tests may result in a charge to earnings if any of such assets are deemed to be impaired. However, ongoing amortization expense associated with any impaired asset would be reduced. The Company will not be in a position to determine what impact the impairment tests will have on its fiscal 2003 earnings and financial position until the required tests are completed, however, the impact could be material. OTHER INCOME. Other income of $0.1 million and $1.1 million during the third quarter and first nine months of fiscal 2002, respectively, was primarily interest income. INTEREST EXPENSE. Interest expense was $1.4 million and $3.9 million during the third quarter and first nine months of fiscal 2002, respectively, versus $1.7 million and $5.7 million for the same periods of the previous fiscal year. The Company reduced its outstanding long term debt by $40 million from November 30, 2000 to November 30, 2001. See "Liquidity and Capital Resources" for a description of the Company's long term borrowings and related interest rate swap arrangements. INCOME FROM OPERATIONS AND NET INCOME (LOSS). The Company generated operating income and net income of $1.3 million and $0.0 million, respectively, for the third quarter of fiscal 2002 as compared to $3.5 million and $1.1 million, respectively, for the third quarter of fiscal 2001. For the first nine months of fiscal 2002, the Company generated operating income and net income of $8.1 million and $3.2 million, respectively. For the first nine months of fiscal 2001, the Company generated operating income of $8.2 million, income before the cumulative effect of a change in accounting principle of $1.8 million, and a net loss of $10.0 million, respectively. The Company's third quarter results were negatively affected by softness in the Company's sales and were positively affected by the Company's continuing efforts to control operating expenses. LIQUIDITY AND CAPITAL RESOURCES. At November 30, 2001, the Company had cash reserves of $11.8 million and borrowings under the Company's long-term debt facilities of $35.0 million. Net cash provided by operating activities for the third quarter and first nine months of fiscal 2002 was $0.0 million and $11.0 million, respectively. Investing activities for the three and nine month periods, primarily the purchase of computer equipment and software, used cash of $1.6 million and $4.8 million, respectively. Financing activities included the pay down of debt, which used $5.0 million and $14.6 million of cash during the third quarter and first nine months of fiscal 2002, respectively, and the receipt of net proceeds from the exercise of employee stock options which provided $2.2 million and $4.3 million for the third quarter and first nine months of fiscal 2002. Net cash flow was a negative $4.5 million for the third quarter and a negative $4.2 million for the first nine months of fiscal 2002. The Company continuously monitors its days sales outstanding (DSO) of accounts receivable. At November 30, 2001, DSO was 116 days, up from 104 days at February 28, 2001. The increase arises from both the softness in fiscal 2002 third quarter sales and the increase in the Company's international business where more extended payments terms are frequently required as a condition of the sale. In addition, for sales of certain of its more complex, customized systems (generally ones with a sales price of $500,000 or more), the Company recognizes revenue based on a percentage of completion methodology. Unbilled receivables accrued under the methodology totaled $27.9 million at November 30, 2001, up from $25.6 million at August 31, 2001 and up from $24.1 million at February 28, 2001. The Company expects to bill and collect unbilled receivables as of November 30, 2001 within the next twelve months. As noted above, the Company generates a significant percentage of its sales outside of the United States. Certain customers outside the United States are accustomed to vendor financing in the form of extended payment terms. To remain competitive in markets outside the United States, the Company may offer its most creditworthy customers such payment terms. Historically, customer extended payment terms have had no material adverse impact on the Company's DSO. However, there is no assurance such extended payment terms will not adversely impact DSO for the remainder of fiscal 2002 and beyond. In connection with its plans to sell software solutions that integrate speech and wireless internet technologies, the Company purchased $2.8 million and $0.9 million in software licenses from a vendor during the quarters ended November 30, 2001 and August 31, 2001, respectively. Payment for the third quarter purchases will be due in the Company's fourth fiscal quarter. The Company expects to resell these licenses during its fiscal year ending February 28, 2003. During the third quarter of fiscal 2002, the Company modified its managed services agreement with BT Cellnet by transferring title to certain assets used in the provision of the service to BT Cellnet in exchange for BT Cellnet's assumption of certain responsibilities under the agreement. In connection with this modification, the parties also amended the contract payment terms such that the Company will now receive approximately $0.9 million more in net cash flow from this contract in the fourth quarter of fiscal 2002 and approximately $1.3 million less in net cash flow in the first quarter of fiscal 2003. The amount and timing of revenue recognized in the third fiscal quarter and to be recognized in future quarters on the BT Cellnet managed services contract were not materially changed as a result of these modifications. 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 (subsequently reduced to $27.5 million as a result of principal repayments) and a $25 million revolving credit agreement. The term loan agreement is subject to future scheduled repayments of $5.0 million, $20.2 million, and $2.3 million during fiscal 2002, 2003 and 2004, respectively. The revolving credit agreement will expire upon the earlier of the termination of the term loan or November 30, 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 November 30, 2001, the Company had $35.0 million of borrowings outstanding under the agreement at an average annual interest rate of 5.9%. This variable rate was reduced to 4.8% subsequent to November 30, 2001. Interest under the credit facility accrues at variable rates indexed to a combination of the adjusted LIBOR, the prime rate and the federal funds rate. The Company's annual interest cost and cash flow have also been impacted by its interest rate swap contracts as discussed below. The Company has historically used interest rate swap contracts to hedge the variability of interest payments on its variable rate debt. As of the beginning of the third quarter of fiscal 2002, the Company was a party to swap arrangements with a notional amount of $50 million under which the Company paid interest at a fixed rate of 6.2% and received interest at the LIBOR three-month rate. The swap arrangements were scheduled to expire in June 2002, but in response to the continued downward movement in the LIBOR rate, the Company paid $1.4 million in October 2001 to terminate the contracts. 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 $17.5 million available under its $25 million revolving credit facility. The Company reviews share repurchase and acquisition opportunities from time to time. Although, the term loan and revolving credit agreement discussed above includes normal and customary provisions which limit the Company's ability to make such repurchases and acquisitions, the Company believes that should an attractive opportunity arise, the Company will be able to access the necessary financial resources to pursue the opportunity and to extinguish any remaining borrowings under its existing credit agreement. ASSET AND ORGANIZATIONAL REVIEWS. The Company anticipates reviewing the current and future positioning of all product lines brought forward from its merger with Brite. The Company also anticipates reviewing the ongoing value of the Brite tradename and other separately identifiable intangible assets. It is possible that, as a result of these reviews, the Company might make decisions about its future direction that could cause the Brite tradename and certain of its separately identifiable intangible assets to be impaired and/or to be subject to a shortened useful life. The result of any such decision may result in a charge to earnings if any such assets are deemed to be impaired, with a resulting decrease to ongoing amortization expense. If any such asset is deemed to have only a shortened useful life, there could be an increase to amortization expense. Until the reviews are conducted and any such decisions are made, it is not possible for the Company to determine what impact, if any, such activities may have on its financial position or on earnings in the fourth quarter of fiscal 2002 or in fiscal 2003, however, the impact could be material. The Company also anticipates a review of its inventories and equipment in the light of any decision it may make as a result of its product line review. The results of such a review may result in a charge to earnings if such assets are deemed to be impaired. Until the reviews are conducted, it is not possible for the Company to determine what impact, if any, the results of the review may have on its financial position or on earnings in the fourth quarter of fiscal 2002 or in fiscal 2003, however, the impact could be material. The Company continuously monitors its organization for areas to improve efficiencies and reduce expenses. The Company also reviews its facilities utilization for the same purposes. Any decisions made to improve efficiencies or to reduce expenses with respect to the size of the Company's organization or its facilities utilization could result in restructuring charges, which could be material to the Company's financial position or on its earnings in the fourth quarter of fiscal 2002 or in fiscal 2003. 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. 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. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risks The Company invests cash balances in excess of operating requirements in short-term securities that generally have maturities of 90 days or less. The carrying value of these securities approximates market value, and there is no long-term interest rate risk associated with this investment. The Company's current term loan and revolving credit agreement provides for borrowings of up to $52.5 million which bear interest at variable rates based on the London Interbank Offering Rate, a prime rate or the federal funds rate plus an applicable margin. As of November 30, 2001, the Company had $35.0 million outstanding under the credit agreement. The fair value of the borrowings approximate their carrying value at November 30, 2001. The credit agreement matures on August 31, 2003, and the term loan facility is subject to quarterly principal amortization. Due to the magnitude of this credit facility, the Company believes that the effect of any reasonably possible near-term changes in interest rates on the Company's financial position, results of operations, and cash flows may be material. The following table provides information about the Company's credit agreement which is sensitive to changes in interest rates. For the credit agreement, the table presents cash flows for scheduled principal payments and related weighted-average interest rates by expected maturity dates. Weighted-average variable rates are based on rates in effect as of November 30, 2001 and as anticipated by the Company.
Fair Value Fiscal -------------------- ----------------------------------------- (dollars in millions) November 30, 2001 2002* 2003 2004 Total -------------------- --------- --------- -------- -------- Long-term borrowings, including current portion $ 35.0 Maturities by fiscal year $ 5.0 $ 20.2 $ 9.8 $ 35.0 Projected weighted average interest rate 4.8% 5.5% 7.5%
* For the three months ending February 28, 2002. Foreign Currency Risks 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 dollars, limiting the Company's ability to hedge against adverse movements in foreign currency exchange rates. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Several related class action lawsuits were filed in the United States District Court for the Northern District of Texas on behalf of purchasers of common stock of the Company during the period from October 12, 1999 through June 6, 2000, the "Class Period." These lawsuits have been consolidated in the case of David Barrie, et al., on Behalf of Themselves and All Others Similarly Situated v. InterVoice-Brite, Inc., et al; No. 3-01CV1071-D, pending in the United States District Court, Northern District of Texas, Dallas Division. Plaintiffs have filed claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and the Securities and Exchange Commission Rule 10b-5 against the Company as well as certain named current and former officers and directors of the Company on behalf of the alleged class members. In the Complaint, Plaintiffs claim that the Company and the named current and former officers and directors issued false and misleading statements during the Class Period concerning the financial condition of the Company, the results of the Company's merger with Brite Voice Systems, Inc., and the alleged future business projections of the Company. Plaintiffs have asserted that these alleged statements resulted in artificially inflated stock prices. The Company must answer or otherwise respond to these complaints, which have now been consolidated into one proceeding, on or before January 14, 2002. Plaintiffs will then have 45 days to respond. The Company believes that it and its officers complied with their obligations under the securities laws, and intends to defend the lawsuits vigorously. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 First Amended Employment Agreement dated as of October 31, 2001, between the Company and David W. Brandenburg. 10.2 Second Amendment to Employment Agreement dated as of October 31, 2001, between the Company and Rob-Roy J. Graham. (b) Reports on Form 8-K The Company filed no reports on Form 8-K during the three month period ended November 30, 2001. 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: January 11, 2002 By: /s/ ROB-ROY J. GRAHAM ---------------------- ---------------------- Rob-Roy J. Graham Chief Financial Officer INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.1 First Amended Employment Agreement dated as of October 31, 2001, between the Company and David W. Brandenburg. 10.2 Second Amendment to Employment Agreement dated as of October 31, 2001, between the Company and Rob-Roy J. Graham.
EX-10.1 3 d93337ex10-1.txt 1ST AMENDED EMPLOYMENT AGREEMENT-DAVID BRANDENBURG EXHIBIT 10.1 INTERVOICE-BRITE, INC. FIRST AMENDED EMPLOYMENT AGREEMENT This First Amended Employment Agreement (this "Agreement") executed as of October 31, 2001, and effective as of March 1, 2001, by and between InterVoice-Brite, Inc., a Texas corporation with its principal executive offices at 17811 Waterview Parkway, Dallas, Texas 75252 (the "Company"), and David W. Brandenburg (the "Employee"). WITNESSETH: WHEREAS, the Employee is presently employed by the Company pursuant to that certain Employment Agreement executed as of June 26, 2000 (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 modify the bonus provisions and reflect the Employee's current base salary and the corporate offices he holds. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and conditions hereinafter set forth, the parties hereto agree as follows: 1. DEFINITIONS. In addition to the words and terms elsewhere defined in this Agreement, the following words and terms as used herein shall have the following meanings, unless the context or use indicates a different meaning: "Annualized Compensation Amount" means an amount equal to the annualized salary payable and bonuses accrued or payable to the Employee pursuant to Section 4 of this Agreement during the most recent completed fiscal year of the Company. "Applicable EPS Bonus Percentage" means the percentage set forth in the right hand column below as determined (i) for the Company's fiscal year ending February 28, 2002, 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 2002" and (ii) for the Company's fiscal year ending February 28, 2003, with reference to the increase or decrease in the Company's earnings per share between such fiscal year and the greater of $.25, or the Company's earnings per share for the fiscal year ending February 28, 2002, as set forth in the table below entitled "Applicable EPS Bonus Percentage: Fiscal 2003": 1 APPLICABLE EPS BONUS PERCENTAGE: FISCAL 2002
Applicable EPS Earnings per Share Bonus Percentage ------------------ ---------------- $0.58 or more 75% $0.48 to $0.57 60% $0.38 to $0.47 45% $0.37 37.5% $0.30 to $0.36 22.5% $0.29 or less 0%
APPLICABLE EPS BONUS PERCENTAGE: FISCAL 2003
Increase or Decrease in Earnings Per Share in Applicable Fiscal Applicable EPS Year Compared to Prior Fiscal Year Bonus Percentage ---------------------------------- ---------------- 40% or more increase 125% 35% through 39% increase 100% 25% through 34% increase 75% 10% through 24% increase 50% 0% through 9% increase 25% Decrease in 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, 2002, 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 2002" and (ii) for the Company's fiscal year ending February 28, 2003, with reference to the increase or decrease in the Company's total revenues between such fiscal year and the greater of $258,000,000, or the Company's total revenues for the fiscal year ending February 28, 2002 as set forth in the table below entitled "Applicable Revenue Bonus Percentage: Fiscal 2003": 2 APPLICABLE REVENUE BONUS PERCENTAGE: FISCAL 2002
Applicable Revenue Total Revenue Bonus Percentage ------------- ------------------ $316,000,000 or greater 125% $288,000,000 to $315,999,999 100% $287,000,000 to $287,999,999 75% $258,000,000 to $286,999,999 50% $230,000,000 to $257,999,999 25% $229,999,999 or less 0%
APPLICABLE REVENUE BONUS PERCENTAGE: FISCAL 2003
Increase or Decrease in Revenues in Applicable Fiscal Year Applicable Revenue Compared to Prior Fiscal Year Bonus Percentage ----------------------------- ------------------ 40% or more increase 125% 35% through 39% increase 100% 25% through 34% increase 75% 10% through 24% increase 50% 0% through 9% increase 25% Decrease in revenues 0%
"Cause" means (a) any act by the Employee that is materially adverse to the best interests of the Company and which, if the subject of a criminal proceeding, could result in a criminal conviction for a felony or (b) the willful failure by the Employee to substantially perform his duties hereunder, which duties are within the control of the Employee (other than the failure resulting from the Employee's incapacity due to physical or mental illness), provided, however, that the Employee shall not be deemed to be terminated for Cause under this subsection (b) unless and until (1) after the Employee receives written notice from the Company specifying with reasonable particularity the actions of Employee which constitute a violation of this subsection (b) and (2) within a period of 30 days after receipt of such notice (and during which the violation is within the control of the Employee), Employee fails to reasonably and prospectively cure such violation. "Common Stock" means the Company's common stock, no par value per share. An "Event of Default" means the occurrence of any of the following events prior to the Triggering Date, unless remedied or otherwise cured within 30 days after the Company's receipt of written notice from the Employee of such event, (a) a breach by the Company of any of its express or implied obligations under this Agreement, (b) without his prior concurrence, the Employee is assigned any duties or responsibilities that are inconsistent with his position, duties, responsibilities or status at the commencement of the term of this Agreement, or his reporting responsibilities or 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 3 limitation any pension and retirement plan, savings and profit sharing plan, stock ownership or purchase plan, stock option plan, or life, medical or disability insurance plan), which would adversely affect the Employee's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Company and does not result in a proportionately greater reduction in the rights of or benefits to the Employee as compared to any other executive officer of the Company. "Good Reason" means the occurrence of a Triggering Event (as defined below) and (a) a breach by the Company of any of its express or implied obligations under this Agreement, (b) without his prior concurrence, the Employee is assigned any duties or responsibilities that are inconsistent with his position, duties, responsibilities or status at the commencement of the term of this Agreement, or his reporting responsibilities or titles in effect at such time are changed, (c) the Employee's base compensation is reduced or any other failure by the Company to comply with Section 4, (d) any change in any employee benefit plans or arrangements in effect on the date hereof in which the Employee participates (including without limitation any pension and retirement plan, savings and profit sharing plan, stock ownership or purchase plan, stock option plan, or life, medical or disability insurance plan), which would adversely affect the Employee's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Company and does not result in a proportionately greater reduction in the rights of or benefits to the Employee as compared to any other executive officer of the Company, or (e) the shareholders of the Company shall fail to elect the Employee as a member of the Board of Directors of the Company. "Triggering Date" means the date of a Triggering Event. A "Triggering Event" shall be deemed to have occurred if (a) any person or group (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of securities of the Company representing more than 20% of the combined voting power of the Company's then outstanding securities, or (b) at any annual or special meeting of shareholders of the Company one or more directors are elected who were not nominated by management of the Company to serve on the Board of Directors of the Company, or (c) the Company is merged or consolidated with another corporation and as a result of such merger or consolidation less than 51% of the outstanding voting securities of the surviving or resulting corporation are owned in the aggregate by the former shareholders of the Company, other than by a party to such merger or consolidation or affiliates (within the meaning of the Exchange Act) of any party to such merger or consolidation, as the same existed immediately prior to such merger or consolidation, or (d) the Company sells all or substantially all of its assets to another corporation which is not a wholly-owned subsidiary of the Company. 2. EMPLOYMENT. The Company hereby employs the Employee and the Employee hereby accepts employment on the terms and conditions set forth herein. 4 3. TERM. The initial term of this Agreement shall be from March 1, 2001 until February 28, 2003 unless sooner terminated in accordance with the provisions herein regarding termination. Subject to earlier termination as provided herein, the initial term of this Agreement shall be automatically extended for one (1) year from March 1, 2003, unless either the Employee or the Company gives written notice to the other six months or more prior to February 28, 2003. 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 $350,000 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) Annual Bonus. Effective for the Company's fiscal year ending February 28, 2002 and continuing with respect to each subsequent fiscal year thereafter during the term of this Agreement, the Company will pay Employee an annual bonus equal to the sum of (a) the mathematical product of Employee's base salary pursuant to Subsection 4(a) for such fiscal year multiplied by the Applicable Revenue Bonus Percentage and (b) the mathematical product of the Employee's base salary pursuant to Subsection 4(a) for such fiscal year multiplied by the Applicable EPS Bonus Percentage. Employee's bonus pursuant to this Subsection 4(b) shall be earned as of the end of the Company's fiscal year and payable within five days after the Company's receipt of its audited annual financial statements. The formula set forth herein for determining annual bonuses shall be adjusted from time to time when and if there occur stock splits or other changes in capital structure which result in an increase or decrease in outstanding capital stock of more than 25%. (c) Bonus. In addition to the Employee's annual base salary and other benefits provided for in this Agreement, the Company may pay to the Employee on an annual basis a discretionary bonus in an amount to be approved by the Board of Directors of the Company; provided, however, in no event shall the bonus payable hereunder, if any, exceed Employee's annual base salary provided for in Section 4(a). (d) Benefits. The Employee shall be entitled to participate in or receive benefits under any employee benefit plan or arrangement made available by the Company in the future to its executive officers and key management personnel, subject to and on a basis consistent with the terms, conditions and overall administration of such plan or arrangement. Nothing paid to the Employee under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary and bonuses payable to the Employee pursuant to Subsections 4(a), (b) and (c). (e) Stock Option. In consideration of the Employee's execution of the Old Agreement, the Company granted effective June 26, 2000 options to purchase an aggregate of 500,000 shares of the Company's Common Stock to the Employee pursuant to the Company's 1990 Incentive Stock Option Plan and 1999 Stock Option Plan. The exercise price for such options was based on the price 5 for the Company's Common Stock on the Nasdaq National Market on June 26, 2000. The options vest in four equal components of 125,000 shares each on December 26, 2000, June 26, 2001, December 26, 2001, and June 26, 2002. The options are comprised of grants of an incentive stock option to purchase 49,485 shares under the 1990 Incentive Stock Option Plan and nonqualified stock options to purchase 300,000 shares under the 1999 Stock Option Plan and 150,515 shares under the 1990 Incentive Stock Option Plan. (f) Expenses. Upon receipt of itemized vouchers, expense account reports, and supporting documents submitted to the Company in accordance with the Company's procedures from time to time in effect, the Company shall reimburse Employee for all reasonable and necessary travel, entertainment, and other reasonable and necessary business expenses incurred ordinarily and necessarily by Employee in connection with the performance of his duties hereunder. (g) Vacation. Employee shall be entitled to a minimum of 6 weeks paid vacation during each twelve-month period commencing on the effective date of this Agreement. 6 5. POSITION, DUTIES, EXTENT OF SERVICES AND SITUS. (a) Position and Duties. Employee shall serve as the Chairman of the Board, Chief Executive Officer and President of the Company, accountable only to the Board of Directors of the Company and, subject to the authority of such board, shall have supervision and control over, and responsibility for, the general management and operation of the Company and shall have such other powers and duties as may from time to time be prescribed by such board, provided that such duties are reasonable and customary for a chairman of the board, chief executive officer and president of a public company. (b) Extent of Services and Situs. The Employee shall devote substantially all of his business time, attention, and energy to the business and affairs of the Company and shall not during the term of his employment under this Agreement engage in any other business activity which could constitute a conflict of interest, whether or not such business activity is pursued for gain, profit, or other pecuniary advantage. This shall not be construed as preventing the Employee from managing his current investments or investing his assets in such form or manner as will not require any services on the part of the Employee in the operation and the affairs of the companies in which such investments are made, subject to the provisions of Sections 6 and 27. The Employee shall not be required to change the principal place of his employment to a location which is more than 15 miles further away from his principal residence than such principal place of employment at the time of the execution of this Agreement: 6. COVENANT NOT TO COMPETE. (a) The Employee acknowledges that (i) as a result of his position and tenure with the Company he has received and will continue to receive specialized and unique training and knowledge concerning the Company, its business, its customers and the industry in which it competes, (ii) the Company's business, in large part, depends upon its exclusive possession and use of the Proprietary Information (as defined in Section 27), (iii) the Company is entitled to protection against the unauthorized disclosure or use by Employee of the Proprietary Information or the training and knowledge received by the Employee and (iv) he has received in this Agreement good and valuable consideration for the covenants he is making in this Section 6 and in Section 27. The Company and the Employee acknowledge and agree that the covenants contained in this Section 6 and in Section 27 are reasonably necessary for the protection of the Company and are reasonably limited with respect to the activities they prohibit, their duration, their geographical scope and their effects on the Employee and the public. The parties acknowledge that the purpose and effect of the covenants are to protect the Company from unfair competition by the Employee. (b) Except as provided in the last sentence of this Section 6(b), during the period in which the Employee renders services to the Company under this Agreement and for eighteen (18) months thereafter, the Employee shall not, without the written consent of the Company, own, manage, operate, control, serve as an officer, director, employee, partner or consultant of or be connected in any way with or have any interest in any corporation, partnership, proprietorship or other entity which carries on business activities in competition with the Company's activities in any state of the United States or in any foreign country in which the Company has sold or installed its products or systems 7 or has definitive plans to sell or install its products at any time prior to or at the time of the date of termination of the Employee's employment; except that the Employee may own up to 1% of the shares of any publicly-owned corporation, provided that none of his other relationships with such corporation violates such covenant. Notwithstanding the foregoing, the provisions of this Section 6 shall not apply if the Employee's employment with the Company under this Agreement is terminated (i) by the Company, unless the Employee is terminated in accordance with Section 7 or for Cause in accordance with Subsection 9.1(a) or 9.2(a), or (ii) at the election of the Employee prior to the Triggering Date after the occurrence of an Event of Default which has not been waived in writing or on or after the Triggering Date for Good Reason. (c) The Company and the Employee hereby agree that in the event that the noncompetition covenants contained herein should be held by any court or other constituted legal authority of competent jurisdiction to be effective in any particular area or jurisdiction only if said covenants are modified to limit their duration, geographical area or scope, then the parties hereto will consider Section 6 to be amended and modified with respect to that particular area or jurisdiction so as to comply with the order of any such court or other constituted legal authority and, as to all other jurisdictions or political subdivisions thereof, the noncompetition covenants contained herein will remain in full force and effect as originally written. The Company and the Employee further agree that in the event that the noncompetition covenants contained herein should be held by any court or other constituted legal authority of competent jurisdiction to be void or otherwise unenforceable in any particular area or jurisdiction notwithstanding the operation of this Section 6(c), then the parties hereto will consider this Section 6 to be amended and modified so as to eliminate therefrom that 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. 8 (b) Complete Disability. The Company shall have the right to terminate the Employee's employment under this Agreement prior to the expiration of the term upon the "Complete Disability" of the Employee as hereinafter defined (provided, however, that the obligations of the Company under Subsection 7(a) shall not terminate). The term "Complete Disability" as used in this Subsection 7(b) shall mean (i) the total inability of the Employee, due to bodily injury or disease or any other physical or mental incapacity, to perform the services provided for hereunder for a period of 120 days, in the aggregate, within any given period of 180 consecutive days during the term of this Agreement, and (ii) where such inability will, in the opinion of a qualified physician (reasonably acceptable to Employee), be permanent and continuous during the remainder of his life. 8. COMPENSATION IN THE EVENT OF DEATH. If the Employee dies during the term of his employment, the Company shall pay to such person as the Employee shall designate in a notice filed with the Company, or, if no such person shall be designated, to his estate as a death benefit, his base salary in effect at the time of his death pursuant to Subsection 4(a), in equal semi-monthly installments on the first and fifteenth day of each month immediately succeeding his death, for a period of months (not exceeding 12) determined by multiplying the number of complete 12-month periods of employment of the Employee by the Company (whether pursuant to an employment agreement or not) by two, in addition to any payments the Employee's spouse, beneficiaries, or estate may be entitled to receive pursuant to any pension or employee benefit plan or life insurance policy maintained by the Company, and, except 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. 9 (c) Prior to the Triggering Date, if the Employee's employment with the Company is terminated by the Company without Cause or if the Employee terminates his employment with the Company following the occurrence of an Event of Default which has not been waived in writing by the Employee, the Employee will continue to accrue and receive his base salary in effect at the time pursuant to Subsection 4(a) through the date of termination and will be entitled to receive the benefits provided for under Subsection 10.1 (unless the Employee's employment is terminated in accordance with Section 7) with no liability on the part of the Company for further payments to the Employee, subject to the provisions of Sections 7, 22 and 25. 9.2 Termination On or After the Triggering Date. (a) Upon at least 30 days' prior written notice to the Employee and on or after the Triggering Date, the Company may terminate the Employee's employment with the Company under this Agreement only for Cause or in accordance with Section 7 and, subject to the provisions of Sections 7, 22 and 25, with no liability on its part for further payments to the Employee. The Company may effect a termination for Cause pursuant to this Subsection 9.2(a) only by the affirmative vote of two-thirds of the members of the Board of Directors of the Company. In voting upon such termination for Cause, if the Employee is also a member of the Board of Directors of the Company, then he may not vote on, and will not be considered present for any purpose with respect to, a matter presented to the Board of Directors of the Company pursuant to this Subsection 9.2(a). (b) On or after the Triggering Date, if the Employee's employment with the Company is terminated by the Company without Cause or if the Employee terminates his employment with the 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 10. COMPENSATION AFTER CERTAIN TERMINATIONS. 10.1 Remaining Compensation. If the Employee's employment with the Company is terminated (whether such termination is by the Employee or by the Company) at any time prior to the Triggering Date for any reason other than (a) termination by the Company for Cause in accordance with Subsection 9.1(a); (b) termination by the Company in accordance with Section 7; (c) the Employee's death; or (d) termination at the election of the Employee pursuant to Subsection 9.1(b) then, within five days after the date of such termination, (i) the Remaining Compensation (as herein defined) which would have been paid to the Employee during the remainder of the term of this Agreement if termination had not occurred shall become due and payable and shall be paid to the Employee in a single lump sum in cash, and (ii) all stock options granted to Employee pursuant to Subsection 4(e) hereof which are not then exercisable shall, notwithstanding the provisions of any other agreement, become immediately exercisable and shall remain exercisable until they are exercised or until they otherwise would expire. For purposes of this Subsection 10.1, the "Remaining Compensation" shall mean the annual base salary payable to the Employee pursuant to Subsection 4 (a) at the time of termination plus an amount representing the value of all employee benefits including, without limitation, any unearned annual bonuses described in Subsection 4 (b), discretionary bonuses and incentive compensation under plans then in effect. For these purposes, the value of any unearned annual bonuses and all of such other employee benefits shall be deemed to be equal to 12 months base salary payable to the Employee pursuant to Subsection 4(a) at the time his employment is terminated. 10.2 Post Triggering Date Severance Payment. If the Employee's employment with the Company is terminated (whether such termination is by the Employee or by the Company) at any time on or within three years after the Triggering Date for any reason other than (a) termination by the Company for Cause in accordance with Subsection 9.2(a) or (b) termination by the Company in accordance with Section 7 or (c) the Employee's death or (d) termination at the election of the Employee other than termination for Good Reason without compliance with the retirements of 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 11 Employee in connection with a change in control of the Company or the Employee's termination of employment (whether pursuant to the terms of this agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in change in control or any person affiliated with the Company or such persons) shall be treated as "parachute payments" within the meaning of Section 280G(b) (2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b) (1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and acceptable to the Employee such payments or benefits (in whole or in part) do not constitute parachute payments, or such excess payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b) (4) of the Code, (ii) the amount of the Change in Control Payments and the Benefit Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Change in Control Payments and the Benefit Payments or (B) the amount of excess parachute payments within the meaning of Sections 280G(b)(1) and (4) (after applying clause (i), above) and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of the Employee's residence on the date of termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Employee's employment, the Employee shall repay to the Company at that time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Employee's employment (including by reason of any payment the existence or amount of 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. 12 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 13 United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed to the party or parties at 17811 Waterview Parkway, Dallas, Texas 75252, or at such other addresses as may have theretofore been specified by written notice delivered in accordance herewith. 19. OTHER INSTRUMENTS. The parties hereto covenant and agree that they will execute such other and further instruments and documents as are or may become necessary or convenient to effectuate and carry out the terms of this Agreement. 20. HEADINGS. The headings used in this Agreement are used for reference purposes only and do not constitute substantive matter to be considered in construing the terms of this Agreement. 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. 14 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. 15 IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. INTERVOICE-BRITE, INC. By: /s/ GEORGE C. PLATT --------------------------------------- Name: George C. Platt ------------------------------------- Title: Chairman of Compensation Committee ------------------------------------ /s/ DAVID W. BRANDENBURG ------------------------------------------ DAVID W. BRANDENBURG 16 EX-10.2 4 d93337ex10-2.txt 2ND AMENDMENT TO EMPLOYMENT AGRMT-ROB-ROY GRAHAM EXHIBIT 10.2 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Second Amendment to Employment Agreement effective as of March 1, 2001 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 (as heretofore amended 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, 2002, 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 2002" and (ii) for the Company's fiscal year ending February 28, 2003, with reference to the increase or decrease in the Company's earnings per share between such fiscal year and the greater of $.25, or the Company's earnings per share for the fiscal year ending February 28, 2002, as set forth in the table below entitled "Applicable EPS Bonus Percentage: Fiscal 2003": APPLICABLE EPS BONUS PERCENTAGE: FISCAL 2002
Applicable EPS Earnings per Share Bonus Percentage ------------------ ---------------- $0.58 or more 50% $0.48 to $0.57 40% $0.38 to $0.47 30% $0.37 25% $0.30 to $0.36 15% $0.29 or less 0%
1 APPLICABLE EPS BONUS PERCENTAGE: FISCAL 2003
Increase or Decrease in Earnings per Share in Applicable Fiscal Applicable E 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, 2002, 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 2002" and (ii) for the Company's fiscal year ending February 28, 2003, with reference to the increase or decrease in the Company's total revenues between such fiscal year and the greater of $258,000,000 or the Company's total revenues for the fiscal year ending February 28, 2002 as set forth in the table below entitled "Applicable Revenue Bonus Percentage: Fiscal 2003": APPLICABLE REVENUE BONUS PERCENTAGE: FISCAL 2002
Applicable Revenue Total Revenue Bonus Percentage ------------- ----------------- $316,000,000 or greater 100% $288,000,000 to $315,999,999 75% $287,000,000 to $287,999,999 50% $258,000,000 to $286,999,999 40% $230,000,000 to $257,999,999 20% $229,999,999 or less 0%
APPLICABLE REVENUE BONUS PERCENTAGE: FISCAL 2003
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. Paragraph 3 of the Agreement captioned "Term" is hereby amended in its entirety to read as follows: 2 3. Term The initial term of this Agreement shall be from September 1 1998 until February 28, 2003 unless sooner terminated in accordance with the provisions herein regarding termination. Subject to earlier termination as provided herein, the initial term of this Agreement shall be automatically extended for one (1) year from March 1, 2003 through February 28, 2004, unless either the Employee or the Company gives written notice of its intention not to renew this Agreement to the other six months or more prior to February 28, 2003. 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 $255,375.19 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 Second Amendment are hereby ratified in their entirety and shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Second Amendment to the Agreement as of October 31, 2001, and such Second Amendment is effective March 1, 2001. INTERVOICE-BRITE, INC. By: /s/ DAVID W. BRANDENBURG -------------------------------------------------- Name: David W. Brandenburg ------------------------------------------------ Title: Chairman, Chief Executive Officer and President ------------------------------------------------ EMPLOYEE: /s/ ROB-ROY J. GRAHAM ------------------------------------------------------ ROB-ROY J. GRAHAM 3 -----END PRIVACY-ENHANCED MESSAGE-----