e10vq

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 o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No x

The number of shares outstanding of the Registrant’s common stock, par value $.02 per share, at August 7, 2003 was 65,762,110 shares.


			Page

Part I –	Financial Information:
	Item 1.	Financial Statements
		Independent Auditors’ Review Report		3
		Condensed Consolidated Balance Sheets as of June 30, 2003 (Unaudited) and December 31, 2002		4
		Condensed Consolidated Statements of Operations for the three months ended June 30, 2003 and 2002 (Unaudited)		5
		Condensed Consolidated Statements of Operations for the six months ended June 30, 2003 and 2002 (Unaudited)		6
		Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Loss for the six months ended June 30, 2003 (Unaudited)		7
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002 (Unaudited)		8
		Notes to Condensed Consolidated Financial Statements (Unaudited)		9
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		40
	Item 4.	Controls and Procedures		40
Part II –	Other Information:
	Item 1.	Legal Proceedings		41
	Item 4.	Submission of Matters to a Vote of Security Holders		42
	Item 6.	Exhibits and Reports on Form 8-K		43

Glenayre Technologies, Inc. and Subsidiaries
Independent Auditors’ Review Report

To the Board of Directors and Stockholders of
Glenayre Technologies, Inc.
Atlanta, Georgia

We have reviewed the accompanying condensed consolidated balance sheet of Glenayre Technologies, Inc. and subsidiaries as of June 30, 2003 and the related condensed consolidated statements of operations for the three-month and six-month periods ended June 30, 2003 and 2002, the condensed consolidated statement of stockholders’ equity for the six-month period ended June 30, 2003 and the condensed consolidated statements of cash flows for the six-month period ended June 30, 2003 and 2002. These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States.

We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Glenayre Technologies, Inc. as of December 31, 2002, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein) and in our report dated February 14, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.


		June 30, 2003			December 31, 2002

		(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	47,968		$	64,333
Short-term investments			49,725			43,884
Accounts receivable, net			10,663			5,584
Inventories, net			6,709			6,943
Assets, net, discontinued operations			10,394			11,709
Prepaid expenses and other current assets			3,046			6,698

	Total Current Assets		128,505			139,151
Property, plant and equipment, net			8,309			5,858
Other assets			776			795

TOTAL ASSETS		$	137,590		$	145,804

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	3,832		$	3,226
Accrued liabilities			25,923			22,497
Accrued liabilities, discontinued operations			11,409			10,574

	Total Current Liabilities		41,164			36,297
Other liabilities			6,147			6,416
Accrued liabilities, discontinued operations - noncurrent			12,614			15,299
Stockholders’ Equity:
Preferred stock, $.01 par value; authorized: 5,000,000 shares, no shares issued and outstanding			—			—
Common stock, $.02 par value; authorized: 200,000,000 shares, outstanding: 2003 - 65,674,690 shares; 2002 - 65,448,353 shares			1,313			1,308
Contributed capital			361,681			361,485
Accumulated deficit			(285,999	)		(275,001	)
Accumulated other comprehensive income			670			—

	Total Stockholders’ Equity		77,665			87,792

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	137,590		$	145,804

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)


		Three Months Ended
		June 30,

		2003			2002

REVENUE:
	Product sales	$	10,420		$	13,747
	Service revenue		4,208			4,360

	Total Revenue		14,628			18,107

COST of REVENUE (exclusive of depreciation and amortization shown separately below):
	Cost of sales		5,593			6,149
	Cost of services		2,729			2,470

	Total Cost of Revenue		8,322			8,619

GROSS MARGIN (exclusive of depreciation and amortization shown separately below):			6,306			9,488
OPERATING EXPENSES:
	Selling, general and administrative expense		5,563			7,330
	Provision for doubtful receivables, net of recoveries		(47	)		(403	)
	Research and development expense		4,774			4,110
	Restructuring expense		1,582			577
	Depreciation and amortization expense		264			2,280

	Total Operating Expenses		12,136			13,894

OPERATING LOSS			(5,830	)		(4,406	)

OTHER INCOME (EXPENSES):
	Interest income, net		460			520
	Gain on disposal of assets, net		—			36
	Realized and unrealized gain on securities, net		—			122
	Other, net		3			93

	Total Other Income		463			771

LOSS FROM OPERATIONS BEFORE INCOME TAXES			(5,367	)		(3,635	)
	Provision for income taxes		—			—

LOSS FROM CONTINUING OPERATIONS			(5,367	)		(3,635	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS			(1,104	)		15,782

NET INCOME (LOSS)		$	(6,471	)	$	12,147

INCOME (LOSS) PER WEIGHTED AVERAGE COMMON SHARE:
Loss from continuing operations		$	(0.08	)	$	(0.06	)
Income (loss) from discontinued operations			(0.02	)		0.24

Net income (loss) per weighted average common share		$	(0.10	)	$	0.19

INCOME (LOSS) PER COMMON SHARE — ASSUMING DILUTION:
Loss from continuing operations		$	(0.08	)	$	(0.06	)
Income (loss) from discontinued operations			(0.02	)		0.24

Net income (loss) per weighted average common share		$	(0.10	)	$	0.19

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)


		Six Months Ended
		June 30,

		2003			2002

REVENUE:
	Product sales	$	19,827		$	33,083
	Service revenue		8,144			8,458

	Total Revenue		27,971			41,541

COST of REVENUE (exclusive of depreciation and amortization shown separately below):
	Cost of sales		9,309			12,443
	Cost of services		5,330			4,754

	Total Cost of Revenue		14,639			17,197

GROSS MARGIN (exclusive of depreciation and amortization shown separately below):			13,332			24,344
OPERATING EXPENSES:
	Selling, general and administrative expense		13,519			15,294
	Provision for doubtful receivables, net of recoveries		(215	)		(342	)
	Research and development expense		9,983			8,442
	Restructuring expense		1,804			368
	Depreciation and amortization expense		408			4,510

	Total Operating Expenses		25,499			28,272

OPERATING LOSS			(12,167	)		(3,928	)

OTHER INCOME (EXPENSES):
	Interest income, net		885			999
	Gain on disposal of assets, net		14			33
	Realized and unrealized loss on securities, net		—			(250	)
	Other, net		96			99

	Total Other Income		995			881

LOSS FROM OPERATIONS BEFORE INCOME TAXES			(11,172	)		(3,047	)
	Provision (benefit) for income taxes		28			(2,413	)

LOSS FROM CONTINUING OPERATIONS			(11,200	)		(634	)
INCOME FROM DISCONTINUED OPERATIONS			202			15,858

NET INCOME (LOSS)		$	(10,998	)	$	15,224

INCOME (LOSS) PER WEIGHTED AVERAGE COMMON SHARE:
Loss from continuing operations		$	(0.17	)	$	(0.01	)
Income from discontinued operations			0.00			0.24

Net income (loss) per weighted average common share		$	(0.17	)	$	0.23

INCOME (LOSS) PER COMMON SHARE — ASSUMING DILUTION:
Loss from continuing operations		$	(0.17	)	$	(0.01	)
Income from discontinued operations			0.00			0.24

Net income (loss) per weighted average common share		$	(0.17	)	$	0.23

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE LOSS
(In thousands)
(Unaudited)


															Total
													Accumulative		Stockholders'
													Other		Equity and
	Common Stock						Contributed			Accumulated			Comprehensive		Comprehensive
	Shares			Amount			Capital			Deficit			Income		Loss

Balances, January 1, 2003		65,448		$	1,308		$	361,485		$	(275,001	)	$	—	$	87,792
Net loss											(10,998	)				(10,998	)
Other Comprehensive Income:
Foreign currency translation adjustment														670		670

Comprehensive Loss																(10,328	)
Shares issued for ESP Plan and option exercises		263			6			229								235
Repurchase of common stock		(36	)		(1	)		(33	)							(34	)

Balances, June 30, 2003		65,675		$	1,313		$	361,681		$	(285,999	)	$	670	$	77,665

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)


		Six Months Ended
		June 30,

		2003			2002

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		$	(7,919	)	$	9,435
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property, plant and equipment		(2,806	)		(1,450	)
	Proceeds from sale of building and equipment		—			4,517
	Investment in short-term securities, net		(5,841	)		(5,000	)
	Proceeds from sale of available-for-sale securities		—			406

NET CASH USED IN INVESTING ACTIVITIES			(8,647	)		(1,527	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Issuance of common stock		235			327
	Purchase of treasury stock		(34	)		—

NET CASH PROVIDED BY FINANCING ACTIVITIES			201			327

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(16,365	)		8,235
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			64,333			89,149

CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	47,968		$	97,384

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
	Interest	$	42		$	24
	Income taxes		22			165

Glenayre Technologies, Inc. and subsidiaries (“Glenayre” or the “Company”) is an established provider of network-based messaging and communications systems and software that enable applications like voice messaging, multimedia messaging and other enhanced telephony services. The Company designs, manufactures, markets and services its products principally under the Glenayre name. The Company’s customers are communications service providers (CSPs), including wireless and fixed network carriers, as well as broadband and cable service providers. The Company’s products make it possible for CSPs to provide a variety of messaging services like voice mail, one-number services, voice-activated dialing and picture messaging to their customers. Glenayre is headquartered in Atlanta, Georgia.

Prior to June 2001, the Company’s operations also included its Wireless Messaging (Paging) business. In May 2001, the Company began exiting the Wireless Messaging (Paging) business and as a result the Wireless Messaging (Paging) segment was reported as a disposal of a segment of business in the second quarter of 2001. The operating results of the Wireless Messaging (Paging) segment are reported as discontinued operations in the accompanying financial statements (see “Note 3”).

The accompanying unaudited condensed consolidated financial statements of Glenayre Technologies, Inc. and subsidiaries (“the Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All significant intercompany accounts and transactions are eliminated in consolidation. Certain reclassifications have been made to the prior period’s financial information to conform with the presentation used in 2003. Operating results for the six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. Glenayre’s financial results in any quarter are highly dependent upon various factors, including the timing and size of customer orders and the shipment of products for large orders. Large orders from customers can account for a significant portion of products shipped in any quarter. Accordingly, the shipment of products in fulfillment of such large orders can dramatically affect the results of operations of any single quarter.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Glenayre Technologies, Inc. Annual Report on Form 10-K for the year ended December 31, 2002.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. These investments generally consist of high-grade commercial paper, bank certificates of deposit, Treasury bills, notes or agency securities guaranteed by the U.S. Government and repurchase agreements backed by U.S. Government securities.

The Company maintains cash and cash equivalents with various financial institutions. These financial institutions are large diversified entities with operations throughout the U.S. and Company policy is designed to limit exposure to any one institution. The Company performs periodic evaluations of the relative credit standing of those financial institutions that are considered in the Company’s investment strategy.

Short-term investments consist of highly liquid investments purchased with original maturities of greater than three months and less than twelve months when purchased.

Accounts receivable are presented net of an allowance for doubtful accounts of $588,000 and $805,000 at June 30, 2003 and December 31, 2002, respectively. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. On a monthly basis the Company applies a reserve calculation based on the aging of its receivables and either increases or decreases its estimate of doubtful accounts accordingly. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, which such allowances, if any, would be recorded in the period the impairment is identified.

Inventories are valued at the lower of average cost or market. In assessing the ultimate realization of inventories, the Company is required to make judgments as to future demand requirements and compare these with the current or committed inventory levels. The reserve requirements generally increase as projected demand requirements decrease due to market conditions, technological and product life cycle changes, and longer than previously expected usage periods. The Company has experienced changes in required reserves in recent periods due to the discontinuances of product lines, as well as declining market conditions. As a result, charges for obsolescence and slow-moving inventory were approximately $665,000 and $883,000 for the six month periods ended June 30, 2003 and 2002, respectively. At June 30, 2003 and December 31, 2002, inventories of $6.7 million and $6.9 million, respectively, were net of reserves of approximately $5.5 million and $4.9 million, respectively. It is possible that significant changes in required inventory reserves may continue to occur in the future if there is a further decline in market conditions or if additional product lines are discontinued. In connection with the introduction of new products and services as well as in an effort to demonstrate its products to new and existing customers, the Company, from time to time, delivers new product test systems for demonstration and test to customer third-party locations. The Company expenses the cost associated with new product test equipment upon shipment from the Company’s facilities.

Property, plant and equipment, including internally developed software, are stated at cost less accumulated depreciation. Depreciation is computed principally using the straight-line method based on the estimated useful lives of the related assets (buildings, 20 years; furniture, fixtures and equipment, 3-7 years; internally developed software for internal use, 5-10 years).

The Company reviews the recoverability of its long-lived assets, including buildings, equipment and internal use software when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset from the expected future pre-tax cash flows of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations.

The accounts of foreign subsidiaries have been translated into U.S. dollars using the current exchange rate in effect at the balance sheet date for monetary assets and liabilities; and for non-monetary items, the exchange rates in effect when acquired. Revenue and expenses are translated into U.S. dollars using average exchange rates, except for depreciation, which is translated at the exchange rate in effect when the related assets were acquired. The resulting gains or losses on currency translations are reflected in the Condensed Consolidated Statements of Operations or the Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Loss.

The Company recognizes revenue in accordance with the guidance of Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” and with Statement of Position 97-2, “Software Revenue Recognition,” and related interpretations. The Company recognizes revenue for products sold at the time delivery occurs, collection of the resulting receivable is deemed probable, the price is fixed and determinable and evidence of an arrangement exists. Certain products sold by the Company have operating software imbedded in the configuration of the system. Existing customers may purchase product enhancements and upgrades after such enhancements or upgrades are developed by the Company based on a standard price list in effect at the time such product enhancements and upgrades are purchased. The Company generally has no significant performance obligations to customers after the date products, product enhancements and upgrades are delivered, except for product warranties (see Estimated Warranty Costs below).

The Company recognizes service revenue from installation and repair services based on a standard price list in effect when such services are provided to customers. Installation is not essential to the functionality of the products sold and is inconsequential or perfunctory to the sale of the products. Revenues derived from postcontract support services are recognized ratably over the contract support period.

During the six months ended June 30, 2003, Nextel Communications, Nortel Networks, an OEM distributor, United States Cellular, Alltel Communications, Verizon Wireless and Nextel Partners individually accounted for approximately 23%, 17%, 9%, 8%, 8% and 8%, respectively, of the Company’s total revenue from continuing operations. During the six months ended June 30, 2002, Nextel, Nortel, Verizon and Alltel individually accounted for approximately 24%, 18%, 15% and 7%, respectively, of the Company’s total revenue from continuing operations. Nortel sells the Company’s products to several end user customers including T-Mobile whose purchases of Glenayre’s products from Nortel represented approximately 14% of the Company’s total revenue during both the six months ended June 30, 2003 and 2002.

Product related computer software development costs are expensed as incurred. Such costs are required to be expensed until the point of technological feasibility is established. Costs that may otherwise be capitalized after such point are generally not significant and are therefore expensed as incurred.

The Company capitalizes the cost associated with the internal development of major business process application software in accordance with Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal use. The Company expenses preliminary project assessment, research and development, re-engineering and application maintenance costs.

The Company generally warrants its products for one year after sale and a provision for estimated warranty costs is recorded at the time of sale. The following is a summary of activity of the Company’s continuing operations warranty obligation for the six months ended June 30, 2003:

The Company also offers postcontract extended warranty and support services, known as Glenayre Care, for its products and services to customers. The Company generally requires its customers to enter into Glenayre Care agreements of varying terms which typically require payment in advance of the performance of the extended warranty service. Revenue derived from postcontract support services are recognized ratably over the contracted support period. Deferred revenue at June 30, 2003 related to postcontract support services was approximately $1.8 million.

The Company grants stock options and issues shares under option plans and an employee stock purchase plan as described in Note 9 to the Company’s Consolidated Financial Statements. The Company accounts for stock option grants and shares sold under the employee stock purchase plan in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly, records compensation expense for options granted and sales made at prices that are less than fair market value at the date of grant or sale. No compensation expense is recognized for options granted to employees with an exercise price equal to the fair value of the shares at the date of grant.

The following table compares the Company’s results of continuing operations as reported, in which stock-based compensation expense is recorded under the intrinsic value method in accordance with APB 25, as compared to the pro forma results of continuing operations whereby stock-based compensation is computed under the fair value method. There was no expense recorded under the intrinsic value method in accordance with APB 25 for the six months ended June 30, 2003 and 2002, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense on a straight-line basis over the options’ vesting period, for each of the three and six month periods ended June 30:


		Three Months Ended						Six Months Ended
		June 30,						June 30,

		2003			2002			2003			2002

Income (loss) from continuing operations – as reported		$	(5,367	)	$	(3,635	)	$	(11,200	)	$	(634	)
	Pro forma stock option expense (1)		(28	)		(328	)		(269	)		(707	)

Income (loss) from continuing operations – pro forma		$	(5,395	)	$	(3,963	)	$	(11,469	)	$	(1,341	)

Income (loss) from continuing operations per common share – as reported		$	(0.08	)	$	(0.06	)	$	(0.17	)	$	(0.01	)
	Pro forma stock option expense		—			—			—			(0.01	)

Income (loss) from continuing operations per common share – pro forma		$	(0.08	)	$	(0.06	)	$	(0.17	)	$	(0.02	)

Income (loss) from continuing operations, assuming dilution – as reported		$	(0.08	)	$	(0.06	)	$	(0.17	)	$	(0.01	)
	Pro forma stock option expense		—			—			—			(0.01	)

Income (loss) from continuing operations, assuming dilution – pro forma		$	(0.08	)	$	(0.06	)	$	(0.17	)	$	(0.02	)

(1) As a result of employee terminations in 2003 and 2002 resulting from restructuring activities, a credit to the pro forma stock option expense was included in the June 30, 2003 and 2002 pro forma stock option expense. The credit for the three months ended June 30, 2003 and 2002 was approximately $214,000, or $.00 per share, and $147,000 or $.00 per share, respectively. The credit for the six months ended June 30, 2003 and 2002 was approximately $290,000, or $0.00 per share, and $423,000, or $0.01 per share, respectively. This credit related to the pro forma stock option expense previously recognized for these employees in prior years.

Income taxes are accounted for using the liability method in accordance with SFAS 109, Accounting for Income Taxes.

The carrying amount of cash and cash equivalents, trade accounts and notes receivable, and other current and long-term liabilities approximates their respective fair values.

The Company computes income (loss) per common share pursuant to SFAS No. 128, “Earnings per Share”. The computation of basic income (loss) per share is based on the weighted average number of common shares outstanding during the period. The computation of diluted income (loss) per share is based on the weighted average number of common shares outstanding plus, when their effect is dilutive, potential common stock consisting of shares subject to stock options. There were no shares of potential common stock included in the calculation of diluted loss per share as their effect would be antidilutive. See Note 9.

In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30,

Reporting the Results of Operations for a disposal of a segment of a business. FAS 144 was adopted by the Company effective January 1, 2002 and the initial adoption did not have a significant impact on the Company’s financial position or results of operations. However, during the fourth quarter of 2002, the Company recorded an impairment loss of approximately $21.3 million associated with assets held for use in its continuing operations. The Company has facilities associated with its discontinued paging operations located in Vancouver, British Columbia and Singapore. These facilities are currently being actively marketed for sale and are considered held for sale assets. The Company continues to monitor the status of the sales activities and market conditions surrounding these held for sale facilities and has made adjustments, as required, to the estimated market values. The Company has received and accepted offers on both the Vancouver and Singapore facilities. The Company anticipates that these future sales of this real estate could generate approximately $10.4 million of cash proceeds in the second half of 2003, however there can be no assurance that these sale transactions will be completed.

In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities (FAS 146). FAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies the Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity Including Certain Costs Incurred in a Restructuring. FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, whereas EITF 94-3 had recognized the liability at the commitment date to an exit plan. The Company adopted the provisions of FAS 146 effective January 1, 2003

On December 31, 2002, the FASB issued SFAS 148, Accounting for Stock-Based Compensation — Transition and Disclosure (FAS 148). The Company currently utilizes the intrinsic value method of accounting for its stock-based employee compensation described in APB Opinion No. 25, Accounting for Stock Issued to Employees. FAS 148 does not amend FAS 123, Accounting for Stock-Based Compensation, to require companies to account for their employee stock-based awards using the fair value approach. However, the disclosure provisions are required for all companies with stock-based employee compensation, regardless of whether they utilize the fair value method of accounting as described in FAS 123 or the intrinsic value method described in APB Opinion No. 25. In addition, FAS 148 amends the disclosure provisions of FAS 123 to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation reported in net income and earnings per share in annual and interim financial statements.

FAS 148 amends FAS 123 to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation should the Company decide to change its method of accounting from the intrinsic value method to the fair value method. The three methods provided in FAS 148 include (1) the prospective method which is the method currently provided for in FAS 123, (2) the retroactive restatement method which would allow companies to restate all periods presented and (3) the modified prospective method which would allow companies to present the recognition provisions to all outstanding stock-based employee compensation instruments as of the beginning of the fiscal year of adoption. The Company believes that it has provided the disclosures required under FAS 148 in these condensed consolidated financial statements and has no current plans to change its accounting for stock-based compensation to the fair value method.

At the November 21, 2002 meeting, the Emerging Issues Task Force of the FASB reached a consensus on EITF Issue 00-21, which addresses revenue recognition for arrangements that may involve the delivery or performance of multiple products, services, and/or rights to use assets. In certain instances, the model would impact the application of SEC Staff Accounting Bulletin No. 101, Income Recognition. The final consensus will be applicable to agreements entered into in fiscal periods beginning after June 15, 2003 with early adoption permitted. Additionally, companies will be permitted to apply the consensus guidance to all existing arrangements as the cumulative effect of a change in accounting principle in accordance with APB Opinion No. 20, Accounting Changes. Application of the model is likely to have a significant effect on current accounting practices in a variety of industries and may require changes to current policies and methods of gathering information used in reporting revenue. The Company’s adoption of EITF 00-21 is not expected to have a significant impact on the Company’s financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation Number 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires an entity to disclose in its interim and annual financial statements information with respect to its obligations under certain guarantees that it has issued. It also requires an entity to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN 45 are effective for interim and annual periods after December 15, 2002. The initial recognition and initial measurement requirements of FIN 45 are effective prospectively for guarantees issued or modified after December 31, 2002. The Company does not believe that the recognition requirements will have a material impact on the Company’s financial position, cash flows or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), which requires variable interest entities (commonly referred to as Special Purpose Entities or SPEs) to be consolidated by the primary beneficiary of the entity if certain criteria are met. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 become effective for the Company during the third quarter of 2003. For variable interest entities acquired prior to February 1, 2003, any difference between the net amount added to the balance sheet and the amount of any previously recognized interest in the variable interest entity will be recognized as a cumulative effect of an accounting change. The Company currently has no variable interest entities and therefore the Company believes the adoption of FIN 46 will not have a material impact on its financial position.

On May 15, 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, (FAS 150). This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. FAS 150 is only the first phase of the FASB’s Liabilities and Equity Project. It represents a significant change in practice in the accounting for a number of financial instruments, including mandatorily redeemable equity instruments and certain equity derivatives that frequently are used in connection with share repurchase programs. The Company does not believe the adoption of FAS 150 will have a material impact on its financial position.

Certain items in the prior year consolidated financial statements have been reclassified to conform to the current presentation.

During the first quarter of 2003, the Company recorded a restructuring charge of $234,000 for severance and outplacement services related to the reduction of the Company’s workforce by approximately 19 positions impacting several functional areas within the Company. Additionally, the Company recorded net favorable adjustments to its original estimates associated with the Company’s 2002 and 2001 restructuring activities of $12,000 primarily related to a reduction in accrued severance benefits.

During the second quarter of 2003, the Company recorded a restructuring charge of $1.4 million for severance and outplacement services related to the reduction of the Company’s workforce by approximately 64 positions impacting several functional areas within the Company. In addition to the restructuring charge, a net favorable adjustment of $41,000 was recorded related to the original estimates associated with the Company’s first quarter of 2003 restructuring charge for severance. Additionally, the Company recorded a restructuring charge of $183,000 related to lease cancellation and other exit costs expected to be incurred by the Company through October 2006.

During the first quarter 2002, the Company recorded a restructuring credit of $210,000 primarily related to the collection of accounts receivable previously reserved for in the 2001 restructuring charge and the change in estimate of accrued severance benefits related to the reduction of the Company’s workforce.

During the second quarter of 2002, the Company recorded a restructuring charge of $759,000 for severance and outplacement services related to the further reduction of the Company’s workforce by approximately 30 positions. Additionally, the Company recorded net favorable adjustments to its original estimates associated with the Company’s 2001 restructuring activities of $182,000 primarily related to a reduction in the prepaid product line warranty obligation partially offset by additional facility lease expenses.

The following is a summary of activity for the six months ended June 30, 2003 related to the restructuring reserves:


	Severance			Lease Cancellation
	and			and Other
	Benefits			Exit Costs			Total

Balance at January 1, 2003	$	265		$	1,483		$	1,748
Expense accrued		234			—			234
Credits and changes in estimates		(12	)		—			(12	)
Payments and charges		(166	)		(178	)		(344	)

Balance at March 31, 2003		321			1,305			1,626
Expense accrued		1,440			183			1,623
Credits and changes in estimates		(41	)		—			(41	)
Payments and charges		(673	)		(150	)		(823	)

Balance at June 30, 2003	$	1,047		$	1,338		$	2,385

In May 2001, the Company began exiting its Wireless Messaging (Paging) business and refocusing all of its strategic efforts on the Enhanced Services Platform and Unified Communication systems business segment based in Atlanta, Georgia. As a result, the Wireless Messaging (Paging) segment was reported as a disposal of a segment of business in the second quarter 2001 in accordance with APB Opinion No. 30. Accordingly,

the operating results of the Wireless Messaging (Paging) segment have been classified as a discontinued operation for all periods presented in the Company’s condensed consolidated statements of operations. Additionally, the Company has reported all of the Wireless Messaging (Paging) segment assets at their estimated net realizable values in the Company’s condensed consolidated balance sheet as of June 30, 2003. All business transactions related to the Wireless Messaging (Paging) segment, with the exception of contractual obligations, ceased in May 2002, the end of the transition period.

The net income (loss) from discontinued operations consists of (a) operating losses incurred in the Wireless Messaging (Paging) segment adjusted for cash received from Wireless Messaging (Paging) trade receivables previously reserved and (b) an estimated loss on disposal of the segment which includes charges for the following: (i) the write-off of goodwill and other intangibles, (ii) reserves on property, plant and equipment, (iii) customer accounts and notes receivable settlement costs, (iv) employee termination costs, (v) inventory and non-inventory purchase commitments, (vi) anticipated losses from operations during a no more than twelve month transition period, (vii) facility exit and lease termination costs, (viii) expenses to be incurred to fulfill contractual obligations existing prior to the formal disposal date and (ix) related net tax expense, primarily related to a valuation allowance for related deferred tax assets. Numerous estimates and assumptions were made in determining the net realizable value related to the discontinued assets, operating results and various obligations noted above. These estimates are subject to adjustment resulting from, but not limited to, future changes in real estate market conditions or changes in estimates related to on-going contractual obligations and commitments.


	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2003			2002 (1)			2003		2002 (1)

Net sales	$	—		$	5,803	(1)	$	—	$	7,962	(1)
Income (loss) from discontinued operations:
Income from operations before income taxes		—			3,371	(1)		—		3,447	(1)
Provision for income taxes		—			—	(1)		—		—	(1)

Income from operations		—			3,371	(1)		—		3,447	(1)
Gain (loss) on disposal before income taxes		(1,104	)		7,911			202		7,911
Benefit for income taxes		—			(4,500	)		—		(4,500	)

Income (loss) on disposal of discontinued operations		(1,104	)		12,411			202		12,411

Net income (loss) from discontinued operations	$	(1,104	)	$	15,782		$	202	$	15,858

(1) Includes the results of discontinued operations from the beginning of the period to May 23, 2002, the end of the transition period.

In the second quarter of 2003, as a result of the Company’s review of the estimated asset values and liabilities and future commitments related to the discontinued operations, a net increase in the loss on disposal of $1.1 million was recorded. The adjustments to the original estimates made at May 23, 2001 related mainly to additional write-down of the market value of the Company’s Vancouver, British Columbia facility partially offset by collections of accounts receivable previously reserved for and better than expected warranty experience.

In the first quarter of 2003, as a result of the Company’s review of the estimated asset values and liabilities and future commitments related to the discontinued operations, a net reduction in the loss on disposal of $1.3 million was recorded. The adjustments to the original estimates made at May 23, 2001 related mainly to collections of accounts receivable previously reserved for, reduction in the original estimate of anticipated headcount related costs to support the on-going obligations and commitments partially offset by additional write-down of the market value of the Singapore facility.

In January 2002, the Company sold its building held for sale located in Quincy, Illinois for cash proceeds of approximately $4.4 million. The Company entered into a five-year lease with the purchaser whereby 131,334 square feet of the total 154,256 square feet was leased from January 2002 to May 2002 and 66,656 square feet is being leased for the remainder of the term.

In connection with the introduction of new products and services as well as in an effort to demonstrate its products to new and existing customers, the Company, from time to time, delivers new product test systems for demonstration and testing to customer third-party locations. The Company expenses the cost associated with new product test equipment upon the shipment from the Company’s facilities.

During the first six months of 2002 the Company sold its remaining investment in Proxim Corporation (“Proxim”) which merged in March 2002 with Western Multiplex Corporation, a former subsidiary, of which the Company sold 95% of the equity in November 1999. During the six months ended June 30, 2002, the Company sold 136,800 shares of Proxim stock at a pre-tax gain of $301,200. As of May 2002, the Company had fully liquidated its shares of Proxim and accordingly, the Company realized all previously unrealized holding gains related to this available-for-sale security.

During the first quarter of 2002, the Company recorded a pre-tax impairment charge of approximately $76,000 related to the decline in value deemed to be other than temporary on an additional available-for-sale security held by the Company. In addition, the Company recorded a pre-tax impairment charge of approximately $475,000 related to its investment in a privately held company. This impairment charge was determined based upon management’s review of the valuations of publicly traded companies in similar sectors and other factors such as the status of the investees’ technology, operating performance and financial condition.

Comprehensive income (loss) was $(10.3) million and $14.6 million for the six months ended June 30, 2003 and 2002, respectively. The comprehensive loss for the six months ended June 30, 2003 includes gain from foreign currency translation of $670,000.

The Company’s consolidated income tax provision (benefit) was different from the amount computed using the U.S. federal statutory income tax rate for the following reasons:


	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2003			2002			2003			2002

Income tax benefit federal U.S statutory rate	$	(1,771	)	$	(1,272	)	$	(3,735	)	$	(1,067	)
Increase in valuation allowance		1,762			1,263			3,717			1,062
State and foreign taxes, net of federal benefit and related valuation allowance		—			—			28			51
Benefit from NOL carryback claims		—			—			—			(2,480	)
Other non deductibles		9			9			18			21

Income tax provision (benefit)	$	—		$	—			28		$	(2,413	)

In the first quarter of 2002, the Company recorded a one-time benefit for refundable alternative minimum income taxes under the “Job Creation and Worker Assistance Act of 2002” (the “Act”) of $2.5 million. The Act became effective on March 9, 2002 and among other things extended the carryback period for net operating losses from two to five years for taxpayers with net operating losses for any tax year ending during 2001 or 2002. The new provision also temporarily suspended the 90% limitation found in Internal Revenue Code Section 56(d)(1) on the use of net operating loss carrybacks arising in tax years ending in 2001 and 2002 for alternative minimum tax purposes. Therefore, taxpayers that had paid alternative minimum tax because of the 90% limitation on the use of net operating losses to offset alternative minimum taxable income, can utilize this provision to obtain a refund.

In July 2002, the Company amended its U.S. Federal income returns for tax years 1996, 1997 and 1998 to obtain refunds of alternative minimum tax paid of $853,000, $1,444,000 and $183,000, respectively. The total carryback claim amounted to $2,480,000 and the refund was received in August 2002.

The Company accounts for income taxes under the liability method in accordance with FAS 109, Accounting for Income Taxes. At June 30, 2003, the Company’s net deferred tax asset was fully reserved by a valuation allowance. Pursuant to FAS 109, a valuation allowance should be recognized to reduce the deferred tax asset to the amount that is more likely than not to be realized as offsets to the Company’s future taxable income. As a result of the Company’s discontinuance of its Wireless Messaging (Paging) business and other restructuring activities, a valuation allowance has been recognized by the Company to fully reserve the deferred tax asset due to the inability to project future income of the restructured business.

The following table sets forth the computation of loss from continuing operations per share:


		Three Months Ended						Six Months Ended
		June 30,						June 30,

		2003			2002			2003			2002

Numerator:
	Net loss from continuing operations	$	(5,367	)	$	(3,635	)	$	(11,200	)	$	(634	)
Denominator:
	Denominator for basic income from continuing operations per share - weighted average shares		65,574			65,281			65,555			65,245
Effect of dilutive securities: Stock options			—			—			—			—

Denominator for diluted loss from continuing operations per share			65,574			65,281			65,555			65,245

Loss from continuing operations per weighted average common share		$	(0.08	)	$	(0.06	)	$	(0.17	)	$	(0.01	)

Loss from continuing operations per common share-assuming dilution		$	(0.08	)	$	(0.06	)	$	(0.17	)	$	(0.01	)

The Company maintains two stock option plans (the “1996 Plan” and the “1991 Plan”) which were approved by the stockholders, are administered by a committee of the Board of Directors and are utilized to promote the long-term financial interests and growth of the Company. The 1996 and 1991 Plans as amended, authorize the grant of up to 9,650,000 and 11,475,000 shares, respectively, of the Company’s common stock to directors, officers and key employees. Options granted have an option price equal to the fair market value of the Company’s common stock on the date of grant. Options under the plan expire no later than ten years from the grant date.

The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, Accounting for Stock-Based Compensation, (“FAS 123”) requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by FAS 123, which also requires that the information be determined as if the Company had accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions:

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

In December 2000, the Board of Directors rescinded its 1996 stock repurchase program and authorized the repurchase of up to 3.0 million shares of the Company’s common stock. In September 2001, the stock repurchase program was amended to authorize management to repurchase up to 5% of the Company’s outstanding common stock, or approximately 3.3 million shares based on shares outstanding as of December 31, 2002. For the six months ended June 30, 2003, the Company repurchased 36,000 shares at a total cost of $34,000. The Company did not repurchase shares in 2002.

In late 2001, Phillip Jackson (“Jackson”) filed lawsuits against two of the Company’s customers claiming that products sold by these customers infringed a patent held by Jackson seeking total damages of approximately $10 million. The alleged infringement related to certain features included in products sold by the Company to these customers. By December 2001, the Company agreed to indemnify each of these customers for the claims in these lawsuits and assumed primary responsibility for defending the claims with respect to the Company’s products. In January 2002, the Company filed a lawsuit in the Federal District Court in the Northern District of Illinois (Chicago) seeking a declaratory judgment that none of the Company’s products infringe the Jackson patent. On February 18, 2003, the trial court summarily dismissed three of the four infringement claims alleged by Jackson in this case. The remaining claim went to trial in late March 2003. On April 1, 2003, the jury found in favor of Jackson and awarded damages of $12 million. On July 8, 2003, in response to the Company’s Motion for a Judgment as a Matter of Law regarding the finding of infringement and the damages, the trial judge ordered a reduction in damages that the Company owes to Jackson to $2.65 million plus pre and post judgment interest and certain court costs. Jackson agreed to the reduction in damages. The Company is assessing its options regarding appeal and related matters.

In addition to the legal proceeding discussed above, the Company is from time to time, involved in various disputes and legal actions related to its business operations. Based on information currently available, it is the opinion of the Company, that the currently identified claims or actions, including the Jackson litigation, should not have a material adverse effect on the Company’s financial position, future results of operations or cash flows.

On November 1, 1999, the Company sold 95% of the equity in its microwave radio business, Western Multiplex Corporation, which merged with Proxim Corporation in March 2002. The Company is contingently liable for Proxim’s building lease payments through June 2006. The maximum contingent liability as of June 30, 2003 for this obligation is approximately $1.9 million.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company, from time to time, makes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect the expectations of management of the Company at the time such statements are made. The reader can identify such forward-looking statements by the use of words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intend(s),” “potential,” “continue,” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.

Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those set forth under “Risk Factors That May Affect Future Results” below. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to the Company on the date hereof. The Company assumes no obligation to update any forward-looking statements.

The Company is an established provider of network-based messaging and communications systems and software that enable applications including voice messaging, multimedia messaging and other enhanced telephony services. The Company designs, manufactures, markets and services its products principally under the Glenayre name. The Company’s customers are communications service providers (CSPs), including wireless and fixed network carriers, as well as broadband and cable service providers. The Company’s products enable CSPs to provide a variety of messaging services including voice mail, one-number services, voice-activated dialing and picture messaging to their customers.

The Company’s market consists of CSPs around the world that provide basic telephone and cable services to individual subscribers and enterprise customers and want to increase Average Revenue Per User (ARPU) and reduce subscriber churn by delivering enhanced services using the Company’s platforms and applications, generally through a monthly service fee or on a pay-per-usage basis.

Prior to June 2001, the Company’s operations also included its Wireless Messaging (Paging) business. In May 2001, the Company began exiting the Wireless Messaging (Paging) business, and as a result, the Wireless Messaging (Paging) segment was reported as a disposal of a segment of business in the second quarter of 2001. The operating results of the Wireless Messaging (Paging) segment are reported as discontinued operations in the accompanying financial statements (see Discontinued Operations). As a result of the discontinuance of the Wireless Messaging (Paging) segment, the Company currently operates in one business segment, its “Continuing Operations.”

General. The Company’s discussion and analysis of its financial condition and results of operations are based on the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to customer programs and incentives, bad debts, inventories, income taxes, warranty obligations, restructuring and contractual obligations associated with its discontinued Wireless Messaging (Paging) business. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition. The Company recognizes revenue in accordance with the guidance of Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” and with Statement of Position 97-2, “Software Revenue Recognition,” and related interpretations. The Company recognizes revenue for products sold at the time delivery occurs, collection of the resulting receivable is deemed probable, the price is fixed and determinable and evidence of an arrangement exists. The Company recognizes service revenue from installation and repair services when such services are provided to customers. Revenue derived from contractual post-contract support services are recognized ratably over the contract support period. The Company records estimated reductions to revenue for customer programs and incentive offerings including special pricing agreements and other volume-based incentives. If market conditions were to decline, the Company may take actions to increase customer incentive offerings possibly resulting in an incremental reduction of revenue at the time the incentive is offered.

The Company’s revenue recognition policy is significant because its revenue is a key component of the Company’s results of operations. In addition, the recognition of revenue determines the timing of certain expenses, such as commissions and royalties. Although the Company follows very specific and detailed guidelines in measuring revenue, certain judgments affect the application of its revenue policy. Revenue results are difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause the Company’s operating results to vary significantly from quarter to quarter and could result in future operating losses.

Bad Debt. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. On a monthly basis the Company applies a reserve calculation based on the aging of its receivables and either increases or decreases its estimate of doubtful accounts accordingly. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, and such allowances, if any, would be recorded in the period the impairment is identified.

Warranties. The Company provides for the estimated cost of product warranties as a component of its cost of product sales at the time revenue is recognized. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Company’s warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. At June 30, 2003, the Company’s reserve for warranty obligations was $1.8 million. Should actual product failure rates, material usage or service delivery costs differ from the Company’s estimates, revisions to the estimated warranty liability would be required.

Inventory. The Company is required to state its inventories at the lower of cost or market. In assessing the ultimate realization of inventories, the Company is required to make judgments as to future demand requirements and compare these with the current or committed inventory levels. These reserve requirements generally increase as projected demand requirements decrease due to market conditions, technological and product life cycle changes, and longer than previously expected usage periods. The Company has experienced changes in required reserves in recent periods due to the discontinuances of product lines, as well as declining market conditions. As a result, charges for obsolescence and slow-moving inventory were approximately $665,000 and $883,000 during the six months ended June 30, 2003 and 2002, respectively. At June 30, 2003 and December 31, 2002, inventories related to continuing operations of $6.7 million and $6.9 million, respectively, were net of reserves of approximately $5.5 million and $4.9 million, respectively.

It is possible that significant changes in required inventory reserves may continue to occur in the future if there is a further decline in market conditions or if additional product lines are discontinued. In connection with the introduction of new products and services as well as in an effort to demonstrate its products to new and existing customers, the Company, from time to time, delivers new product test systems for demonstration and test to customer third-party locations. The Company expenses the cost associated with new product test equipment upon shipment from the Company’s facilities.

Wind-Down of Discontinued Operations. During 2001, the Company recorded a significant loss from discontinued operations related to the discontinuance of the Wireless Messaging (Paging) segment. At June 30, 2003, the Company had current liabilities and non-current liabilities of $11.4 million and $12.6 million, respectively, related to the discontinued Wireless Messaging (Paging) segment. Approximately $2.6 million of these liabilities relate to obligations recorded prior to the discontinuance of the segment. Approximately $21.4 million of these liabilities relate to one-time charges recorded in the second quarter of 2001 and consist of (i) employee terminations costs; (ii) lease commitment costs; and (iii) estimated operating costs during the wind-down period and other estimated business exit costs related to meeting customer contractual commitments. In addition to the obligations mentioned above, at June 30, 2003, the Company had assets with a net realizable value of approximately $10.4 million related to the discontinued operations that consisted primarily of facilities in Vancouver, British Columbia, Canada and Singapore that are currently being marketed for sale.

Numerous estimates and assumptions were made in determining the net realizable value related to the discontinued assets and various obligations noted above. These original estimates have been and are subject to further adjustment as a result of future changes in real estate market conditions or in estimates related to the Company’s future obligations associated with its pre-existing contractual commitments. During the six months ended June 30, 2003 and the year ended December 31, 2002, the Company recorded net reductions in the loss on the disposal of discontinued operations of $202,000 and $25.8 million, respectively, primarily as a result of the Company’s review of the estimated asset values and liabilities and future commitments related to the discontinued operations. These further adjustments to the original estimates made in May 2001 were primarily due to better than anticipated revenue during the transition period, collections of accounts and notes receivable previously reserved for, better than expected warranty experience, reduced estimates of ongoing wind-down liabilities and reduced income tax liabilities in 2002 partially offset by additional write-downs of the market values of the Vancouver and Singapore facilities. Management will continue to monitor its future obligations associated with its pre-existing contractual commitments as well as real estate market conditions, in order to assess the current carrying values of the assets and liabilities associated with the discontinued operations.

Taxes. SFAS 109, Accounting for Income Taxes, establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact the Company’s financial position or its results of operations.

At December 31, 2002, the Company had net deferred tax assets of $132.1 million. The Company is required to record a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. In 2001, the Company assessed the realizability of its net deferred tax assets and determined due to the significant net operating losses and management’s then current inability to project future taxable income that the entire amount should be reserved. Due to its operating losses, the Company maintained a full valuation allowance as of June 30, 2003. Until the Company reaches an appropriate level of profitability no tax benefits associated with the net deferred tax assets will be recognized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would be able to realize its deferred tax assets in the future an adjustment to the deferred tax asset would increase income in the period such determination was made.

Commitments and Contingencies. During the ordinary course of business contingencies arise resulting from an existing condition, situation, or set of circumstances involving uncertainty as to possible gain, a gain, contingency, or loss, a loss contingency, that will ultimately be resolved when one or more future events

occur or fail to occur. Resolution of the uncertainty may confirm the acquisition of an asset or the reduction of a liability or the loss or impairment of an asset or the incurrence of a liability. When loss contingencies exist, such as, but not limited to, pending or threatened litigation, actual or possible claims and assessments, collectability of receivables or obligations related to product warranties and product defects or statutory obligations, the likelihood of the future event or events occurring generally will confirm the loss or impairment of an asset or the incurrence of a liability. The Company accounts for such contingencies in accordance with the provisions of Statement of Financial Accounting Standards No. 5. The Company records a provision for estimated legal costs associated with the defense of pending or threatened litigation at the time pending or threatened litigation is identified by the Company and such legal costs can be reasonably estimated.

In May 2001, as a result of the rapid decline in both the paging infrastructure and device market and certain paging carriers’ financial health, the Company adopted a plan to exit the Wireless Messaging (Paging) business. Wireless messaging products included switches, transmitters, receivers, controllers and related software and two-way messaging devices as a result, the Wireless Messaging (Paging) segment was reported as a disposal of a segment of business in the second quarter 2001. Accordingly, the operating results of the Wireless Messaging (Paging) segment have been classified as a discontinued operation for all periods presented in the Company’s consolidated statements of operations. Additionally, the Company has reported all of the Wireless Messaging (Paging) segment assets at their estimated net realizable value in the Company’s consolidated balance sheets as of June 30, 2003 and December 31, 2002 in accordance with APB No. 30. See Note 3 to the Company’s Condensed Consolidated Financial Statements.

During 2001, the Company recorded a loss from discontinued operations of approximately $232.5 million related to the discontinuance of the Wireless Messaging (Paging) segment. This loss consists of (i) operating losses of approximately $46.8 million incurred in the Wireless Messaging (Paging) segment and (ii) an estimated loss on disposal of the segment of approximately $185.7 million which included charges for the following: (i) the write-off of goodwill and other intangibles, (ii) impairment reserves on property, plant and equipment, (iii) customer accounts and notes receivable settlement costs, (iv) employee termination costs, (v) inventory and non-inventory purchase commitments, (vi) anticipated losses from operations during the twelve-month transition period, (vii) facility exit and lease termination costs, (viii) expenses to be incurred to fulfill existing contractual obligations and (ix) a valuation allowance for related deferred tax assets.

The Company believes all business transactions related to the Wireless Messaging (Paging) segment, with the exception of existing contractual obligations, were completed by May 2002. As of June 30, 2003, the Company reported assets with a net realizable value of approximately $10.4 million related to the discontinued operations that consisted primarily of facilities in Vancouver, British Columbia, Canada and Singapore that are currently being marketed for sale. The Company has classified these assets as “Assets, net, discontinued operations” in the current assets section of its Condensed Consolidated Balance Sheet. The Company is continuing its efforts to divest the Vancouver and Singapore facilities and has received and accepted offers on both the Vancouver and Singapore facilities. The Company anticipates that these future sales of this real estate could generate approximately $10.4 million of cash proceeds in the second half of 2003, however there can be no assurance that these sale transactions will be completed. The Company has adopted FAS 144, which may impact the accounting for these long-lived assets held for sale and require such assets to be reclassified as held for use in its continuing operations if certain requirements cannot be met and may require adjustments and reclassification to its results of continuing operations.

The Company reported current liabilities and non-current liabilities of $11.4 million and $12.6 million, respectively, at June 30, 2003, related to the discontinued Wireless Messaging (Paging) segment. Approximately $2.6 million of these liabilities relate to warranty obligations and other obligations recorded prior to the discontinuance of the segment. Approximately $21.4 million of these liabilities relate to one-time charges recorded in the second quarter of 2001 and consist of (i) employee termination costs; (ii) lease commitment costs; (iii) estimated operating costs during the wind-down period; and (iv) other estimated business exit costs related to meeting customer contractual commitments.

During the six months ended June 30, 2003 and the year ended December 31, 2002, the Company recorded net reductions in the loss on the disposal of discontinued operations of $202,000 and $25.8 million, respectively, primarily as a result of the Company’s review of the estimated asset values and liabilities and future commitments related to the discontinued operations. These further adjustments to the original estimates made in May 2001 were primarily due to better than anticipated revenue during the transition period, collections of accounts and notes receivable previously reserved for, better than expected warranty experience, reduced estimates of ongoing wind-down liabilities and reduced income tax liabilities in 2002 partially offset by additional write-downs of the market values of the Vancouver and Singapore facilities.

The Company estimates that approximately $2 million to $4 million of the remaining $24.0 million liabilities associated with the discontinued Wireless Messaging (Paging) segment will be disbursed in the second half of 2003 and the remainder in 2004 and beyond. A management team focused solely on the wind down of the Wireless Messaging (Paging) segment was put in place in 2001. A portion of this team remains in place and is currently focused on managing the Company’s contractual obligations and commitments that existed prior to the formal disposal.

Numerous estimates and assumptions were made in determining the net realizable value of the Company’s discontinued assets and various obligations noted above. Management will continue to monitor the Company’s future obligations associated with its pre-existing contractual commitments as well as real estate market conditions, in order to assess the current carrying values of the assets and liabilities associated with the discontinued operations. These original estimates have been and are subject to further adjustment as a result of future changes in real estate market conditions or in estimates related to the Company’s future obligations associated with its pre-existing contractual commitments. See Note 3 to the Company’s Condensed Consolidated Financial Statements.

The following table sets forth for the periods indicated the percentage of total revenue represented by certain line items from Glenayre’s consolidated statements of operations from continuing operations:


			Three Months Ended						Six Months Ended
			June 30,						June 30,

			2003			2002			2003			2002

REVENUE:
	Product sales			71	%		76	%		71	%		80	%
	Service revenue			29			24			29			20

		Total Revenue		100			100			100			100

COST of REVENUE (exclusive of depreciation and amortization shown separately below)
	Cost of sales			38			34			33			30
	Cost of services			19			14			19			11

		Total Cost of Revenue		57			48			52			41

GROSS MARGIN (exclusive of depreciation and amortization shown separately below)				43			52			48			59
OPERATING EXPENSES:
	Selling, general and administrative expense			38			40			48			37
	Provision for doubtful receivables			*			(2	)		(1	)		(1	)
	Research and development expense			33			23			36			20
	Restructuring expense			11			3			7			1
	Depreciation and amortization expense			1			12			1			11

		Total Operating Expenses		83			76			91			68

OPERATING LOSS				(40	)		(24	)		(43	)		(9	)

OTHER INCOME (EXPENSES):
	Interest income, net			3			3			3			2
	Gain on disposal of assets, net			—			*			*			*
	Realized and unrealized gain (loss) on available-for-sale securities, net			—			1			—			(1	)
	Other, net			*			*			*			*

		Total Other Income		3			4			3			1

LOSS FROM OPERATIONS BEFORE INCOME TAXES				(37	)		(20	)		(40	)		(8	)
	Provision (benefit) for income taxes			—			—			*			(6	)

LOSS FROM CONTINUING OPERATIONS				(37	)%		(20	)%		(40	)%		(2	)%

Revenue. Total revenue for the three months ended June 30, 2003 decreased 19% to $14.6 million as compared to $18.1 million for the three months ended June 30, 2002. Product sales for the three months ended June 30, 2003 decreased 24% to $10.4 million as compared to $13.7 million for the three months ended June 30, 2002. Service revenue for the three months ended June 30, 2003 decreased 3% to $4.2

million as compared to $4.4 million for the three months ended June 30, 2002. International sales decreased to $1.8 million for the three months ended June 30, 2003 as compared to $4.6 million for the three months ended June 30, 2002 and accounted for 12% and 25% of total net sales for the three months ended June 30, 2003 and 2002, respectively.

The decrease in product sales for the three months ended June 30, 2003 was due primarily to a decline in the capital spending of North American and international CSPs. The decrease in service revenue was primarily due to reduced product installations resulting from the decline in product sales.

The Company’s total revenue for the three months ended June 30, 2003 of $14.6 million represented a 10% increase over the $13.3 million in total revenue for the three months ended March 31, 2003. During the three months ended June 30, 2003, four customers individually accounted for approximately 35%, 12%, 10% and 10%, respectively, of the Company’s total revenue from continuing operations. During the three months ended June 30, 2002, three customers individually accounted for 17%, 17%, and 15%, respectively, of the Company’s total revenue from continuing operations. There can be no assurance that these significant customers will continue to purchase systems and services from the Company at current levels in the future, and the loss of these significant customers could have a materially adverse affect on the Company’s business, financial condition or results of operations.

Profit Margins on Product Sales and Services (exclusive of depreciation and amortization). Gross profit margins from continuing operations were 43 percent for the three months ended June 30, 2003 compared to 52 percent for the three months ended June 30, 2002. Profit margin on products sold, exclusive of depreciation and amortization, (product margin), was 46% during the three months ended June 30, 2003 compared to 55% during the three months ended June 30, 2002. The decline in the product margin is partly attributable to increased royalty expense relating to a cross-licensing agreement. Product margins were also negatively impacted during the second quarter of 2003 as a result of the Company entering into a competitively priced, four-year strategic supply agreement with an existing OEM customer. Under this agreement, which includes a minimum purchase commitment of $8 million, the Company will deliver the Versera™ Large Solutions Platform to a major U.S. wireless service provider. Profit margin on services, exclusive of depreciation and amortization, (service margin), was 35% during the three months ended June 30, 2003 compared to 43% during the three months ended June 30, 2002. Service margins decreased during the three months ended June 30, 2003 primarily as a result of the increased cost related to the Company’s postcontract support group in 2003.

Increased competition in its industry has adversely affected the Company’s margins. Glenayre’s margins may be affected by several factors including, but not limited to: (i) the mix of products sold and services provided, (ii) the price of products sold and services provided and (iii) changes in material costs and other components of cost of sales. During 2003, the Company expects to continue its on-going product cost reduction programs, however increased pricing competition may continue to adversely affect its product margins in the future. The Company anticipates total gross margins in the low-fifty percent range for the remainder of 2003. However, there can be no assurance that the Company’s gross margins will meet these anticipated levels.

Selling, General and Administrative Expense. Selling, general and administrative expenses were $5.6 million and $7.3 million for the three months ended June 30, 2003 and June 30, 2002, respectively. The selling, general and administrative expenses were reduced in the three months ended June 30, 2003 by lower headcount related and other selling and administrative costs resulting from corporate restructuring activities and ongoing cost reduction initiatives. The Company anticipates reduced selling, general and administrative expense levels for the remainder of the year.

Provision for Doubtful Receivables. The provision for doubtful receivables was a credit of ($47,000) during the three months ended June 30, 2003 and a credit of ($403,000) during the three months ended June 30, 2002. These credits are primarily due to the collection of older receivables previously reserved as part of the Company’s reserve calculation and adjustments to bad debt expense reflecting the Company’s assessment of its current credit risk.

Research and Development Expense. Research and development expenses increased to $4.8 million during the three months ended June 30, 2003 compared to $4.1 million during the three months ended June 30, 2002. The increase is primarily attributable to increased subcontract and outsourcing spending directly related to the development of the Company’s next generation product. Research and development costs are expensed as incurred. Primarily as a result of the decline in total revenue for the three months ended June 30, 2003 as compared to the three months ended 2002, research and development expenses, as a percentage of net revenue, increased to 33% during the three months ended June 30, 2003 from 23% during the three months ended June 30, 2002. Research and development spending on the development of the Company’s next generation product was accelerated during the first six months of 2003 and Glenayre expects research and development expenses to decrease from the first half levels for the remainder of 2003. The Company relies on its research and development programs related to new products and the improvement of existing products for the continued growth in revenue. The Company’s ability to continue to develop and effectively bring to market new competitive products is critical to its future success.

Depreciation Expense. Depreciation was $264,000 during the three months ended June 30, 2003 compared to $2.3 million during the three months ended June 30, 2002. The decrease in depreciation expense was due to a decrease in property, plant and equipment resulting from the $21.3 million charge associated with the impairment of long-lived assets recorded in the fourth quarter of 2002.

Interest Income, Net. Interest income, net was $460,000 and $520,000 for the three months ended June 30, 2003 and 2002, respectively. Interest earned in the second quarter of 2003 was lower primarily due to lower yields on investment instruments. The Company’s current weighted average yield on its cash and investments was 1.43% at June 30, 2003.

Gain (Loss) on Disposal of Assets. The Company recorded a gain on disposal of assets of $36,000 for the three months ended June 30, 2002.

Realized and Unrealized Gain (Loss) on Sale of Securities, Net. On November 1, 1999 the Company sold 95% of the equity interest in its microwave radio business, Western Multiplex Corporation (“MUX”) and received cash of approximately $37 million. In August 2000, MUX completed its initial public offering. In November 2000, the Company became eligible to sell its shares of MUX and immediately began selling such shares. In March 2002, MUX merged with and into Proxim Corporation (“Proxim”). During the three months ended June 30, 2002 the Company sold approximately 56,700 shares of Proxim and realized pre-tax gains of approximately $122,000. See Note 7 to the Company’s Condensed Consolidated Financial Statements.

Provision for Income Taxes. Notwithstanding the Company’s operating loss during the second quarter of 2003, due to the significant net operating loss carryforwards available to the Company, no tax benefit was recognized and, accordingly, there was no provision for income taxes recorded. The effective tax rate for the three months ended June 30, 2003 differed from the combined US federal and state statutory tax rate due

primarily to the increase in valuation allowance. The Company recorded a $2.5 million one-time tax benefit during the first quarter of 2002 for taxes refundable under the “Job Creation and Worker Assistance Act of 2002”. The effective tax rate for the three months ended June 30, 2002 differed from the combined U.S. federal and state statutory tax rate of approximately 40% due primarily to the increase in valuation allowance.

Revenue. Total revenue for the six months ended June 30, 2003 decreased 33% to $28.0 million as compared to $41.5 million for the six months ended June 30, 2002. Product sales for the six months ended June 30, 2003 decreased 40% to $19.8 million as compared to $33.1 million for the six months ended June 30, 2002. Service revenue for the six months ended June 30, 2003 decreased 4% to $8.1 million as compared to $8.5 million for the six months ended June 30, 2002. International revenue was $3.1 million for the six months ended June 30, 2003 as compared to $7.4 million for the six months ended June 30, 2002 and accounted for 11% and 18% of total revenue for the six months ended June 30, 2003 and 2002, respectively.

The decrease in product sales for the six months ended June 30, 2003 was due primarily to the overall slowing of service provider capital spending. The decrease in service revenue was primarily due to reduced product installations resulting from the decline in product sales.

During the six months ended June 30, 2003, three customers individually accounted for approximately 23%, 17% and 9%, respectively, of the Company’s total revenue from continuing operations. For the six months ended June 30, 2002, three customers individually accounted for 24%, 18% and 15%, respectively, of the Company’s total revenue from continuing operations. There can be no assurance that these significant customers will continue to purchase systems and services from the Company at current levels in the future, and the loss of one or more of these significant customers could have a material adverse affect on the Company’s business, financial condition or results of operations.

Profit Margins on Product Sales and Services (exclusive of depreciation and amortization). Profit margin from continuing operations, exclusive of depreciation and amortization, was 48% for the six months ended June 30, 2003 compared to 59% for the six months ended June 30, 2002. Profit margin on products sold, exclusive of depreciation and amortization, (product margin), was 53% for the six months ended June 30, 2003 compared to 62% for the six months ended June 30, 2002. Profit margin on services, exclusive of depreciation and amortization, (service margin), was 35% for the six months ended June 30, 2003 compared to 44% for the six months ended June 30, 2002. The decrease in the product margin is due to lower volume of product revenue, increased royalty expense relating to a cross-licensing agreement in the second quarter as well as competitive pricing. Product margins were negatively impacted in the second quarter of 2003 as a result of the Company entering into a competitively priced, four-year strategic supply agreement with an existing OEM customer. Service margins decreased during the six months ended June 30, 2003 primarily as a result of the increased cost related to the Company’s postcontract support group in 2003. Glenayre’s margins may be affected by several factors including (i) the mix of products sold and services provided, (ii) the price of products sold and provided and (iii) changes in material costs and other components of cost of sales.

Selling, General and Administrative Expense. Selling, general and administrative expenses were $13.5 million and $15.3 million for the six months ended June 30, 2003 and 2002, respectively. The decrease is primarily due to the reduced cost structure resulting from 2002 restructuring activities and reduced expenditures for trade show and other selling and marketing activities during the first half of 2003.

Provision for Doubtful Receivables. The provision for doubtful receivables was a credit of $(215,000) for the six months ended June 30, 2003 as compared to a credit of $(342,000) for the six months ended June 30, 2002. These credits are a result of collections of older receivables previously reserved as part of the Company’s reserve calculation and adjustments to bad debt expense reflecting the Company’s assessment of its current credit risk.

Research and Development Expense. Research and development expenses were $10.0 million and $8.4 million for the six months ended June 30, 2003 and 2002, respectively. The increase is primarily attributable to increased subcontract and outsourcing spending related to the development of the Company’s next generation product.

Restructuring Expense. During the second quarter of 2003, the Company recorded a restructuring charge of $1.4 million for severance and outplacement services related to the reduction of the Company’s workforce by approximately 64 positions impacting several functional areas within the Company. In addition to the restructuring charge, a net favorable adjustment of $41,000 was recorded related to the original estimates associated with the Company’s first quarter of 2003 restructuring charge for severance. Additionally, the Company recorded a restructuring charge of $183,000 related to lease cancellation and other exit costs expected to be incurred by the Company. During the second quarter of 2002, the Company recorded a restructuring charge of $759,000 for severance and outplacement services related to the further reduction of the Company’s workforce by approximately 30 positions. Additionally, the Company recorded net favorable adjustments to its original estimates associated with the Company’s 2001 restructuring activities of $182,000 primarily related to a reduction in the prepaid product line warranty obligation partially offset by additional facility lease expenses. Additionally, during the first six months of 2002, the Company recorded net reductions to its original estimates associated with the Company’s 2001 restructuring activities of $392,000 primarily related to the collection of accounts receivable previously reserved for in the 2001 restructuring charge, reduced accrued severance benefits related to the reduction of the Company’s workforce and the reduction in the prepaid product-line warranty obligation which were partially offset by a decrease in the estimated recoveries related to subleasing vacated leased space. See Note 2 to the Company’s Condensed Consolidated Financial Statements.

Depreciation. Depreciation expense was $408,000 and $4.5 million for the six months ended June 30, 2003 and 2002, respectively. The decrease in depreciation expense was due to a decrease in property, plant and equipment resulting from the $21.3 million charge associated with the impairment of long-lived assets recorded in the fourth quarter of 2002.

Interest Income, Net. Interest income, net was $885,000 and $999,000 for the six months ended June 30, 2003 and 2002, respectively. Interest earned for the six months ended June 30, 2003 is lower primarily due to lower yields on investment instruments than during the 2002 comparable period partially offset by increased cash and cash equivalent and short-term investment balances in 2003.

Realized and Unrealized Gain (Loss) on Securities, Net. On November 1, 1999 the Company sold 95% of the equity interest in its microwave radio business, Western Multiplex Corporation (“MUX”) and received cash of approximately $37 million. In August 2000, MUX completed its initial public offering. In November 2000, the Company began selling its shares of MUX. In March 2002, MUX merged with Proxim Corporation and is referred to hereafter as “Proxim”. During the six months ended June 30, 2002, the Company sold approximately 137,000 shares of Proxim and realized pre-tax gains of approximately $301,000. The realized gain on the sales of Proxim securities during the first six months of 2002 was offset by permanent impairment charges of approximately $77,000 related to the Company’s investment in Multi-Link Telecommunications, Inc. In addition, during the first quarter of 2002, the Company recorded a pre-tax impairment charge of approximately $475,000 related to its investment in a privately held company. This impairment charge was determined based upon management’s review of the valuations of publicly traded companies in similar sectors and other factors such as the status of the company’s technology, operating performance and financial condition. See Note 7 to the Company’s Condensed Consolidated Financial Statements.

Provision for Income Taxes. Notwithstanding the Company’s operating loss during the first six months of 2003, due to the significant net operating loss carryforwards available to the Company, no tax benefit was recognized and a provision of approximately $28,000 was recorded related to foreign tax on earned income from foreign operations. The effective tax rate for the six months ended June 30, 2003 differed from the combined U.S. federal and state statutory tax rate due primarily to the increase in the valuation

allowance recorded to reflect no tax benefit from the operating losses incurred during the first six months of 2003. The Company recorded a $2.5 million one-time tax benefit during the first quarter of 2002 for refundable alternative minimum taxes under the “Job Creation and Worker Assistance Act of 2002”. The effective tax rate for the six months ended June 30, 2002 differed from the combined U.S. federal and state statutory tax rate due primarily to this one-time tax benefit and the increase in the valuation allowance recorded to reflect no tax benefit from the operating losses incurred during the first six months of 2002.

Overview. At June 30, 2003, the Company had cash and cash equivalents and short-term investments totaling $97.7 million. At June 30, 2003, Glenayre’s principal source of liquidity was its $48.0 million of cash and cash equivalents and $49.7 million in short-term investments. The Company’s cash generally consists of money market demand deposits and the Company’s cash equivalents generally consist of high-grade commercial paper, bank certificates of deposit, treasury bills, notes or agency securities guaranteed by the U.S. government, and repurchase agreements backed by U.S. government securities with original maturities of three months or less. Short-term investments at June 30, 2003 consisted primarily of bank certificates of deposit with original maturities of greater than three months. The Company expects to use its cash and cash equivalents and short-term investments for working capital and other general corporate purposes, including the expansion and development of its existing products and markets and the expansion into complementary businesses. The Company has no off-balance sheet arrangements including special purpose entities.

Included in the Company’s loss on disposal of discontinued operations (see Discontinued Operations) for the year ended December 31, 2001 were charges totaling approximately $49 million for employee termination benefits, equipment and facility lease termination costs, inventory and non-inventory purchase commitments, anticipated losses from operations during the transition period and expenses to be incurred to fulfill contractual obligations existing prior to the formal disposal date. At June 30, 2003 approximately $24.0 million in discontinued operations liabilities remain outstanding of which the Company anticipates approximately $2 million to $4 million will be disbursed during the second half of 2003 and the remainder in 2004 and beyond.

Operating Activities. Cash provided by (used in) operating activities, including both continuing and discontinued operations, was $(7.9) million for the six months ended June 30, 2003 and $9.4 million for the six months ended June 30, 2002.

Accounts receivable related to continuing operations increased $5.1 million to $10.7 million at June 30, 2003 from $5.6 million at December 31, 2002. Average days sales outstanding, calculated based on three months rolling average was 47 days at June 30, 2003 unchanged from 47 days at December 31, 2002. The increase in accounts receivable related to continuing operations was due to the increased sales for the second quarter of 2003 as compared to the fourth quarter of 2002 of approximately $3.3 million and the timing of product shipments in the second quarter of 2003. A significant portion of the Company’s product shipments occurred in the last month of the second quarter of 2003 due to the timing of orders.

Inventories related to continuing operations decreased $234,000 to $6.7 million at June 30, 2003 from $6.9 million at December 31, 2002. The decrease in inventories was primarily due to decreased finished goods on-hand at June 30, 2003.

Accounts payable increased $600,000 to $3.8 million at June 30, 2003 from $3.2 million at December 31, 2002 primarily as a result of increased inventory purchases and operating cost levels mainly associated with the increased research and development activities during 2003. Accrued liabilities related to continuing operations increased $3.4 million to $25.9 million at June 30, 2003 from $22.5 million at December 31, 2002. The increase in accrued liabilities primarily related to the increased accrued legal cost associated with the defense of the Jackson patent infringement case, an increase in deferred revenue related to Glenayre Care extended warranty contracts, an increase in accrued restructuring costs associated with the second quarter

restructuring activities and increased research and development subcontracting costs associated with the development of the Company’s next-generation products. At June 30, 2003, the Company’s remaining restructuring obligations were approximately $2.4 million related to employee termination benefits and lease termination costs. The Company anticipates all of the cash payments for its restructuring activities will be made within the next nine months with the exception of lease termination costs, which could require cash payments through 2005 to the extent sub-leases are not obtained.

Investing Activities. In 1999, the Company consolidated its manufacturing activities in Quincy, Illinois and ceased manufacturing activities in its Vancouver, British Columbia facility but continued to utilize the Vancouver facility for engineering, product management and customer service functions. Further, the Company continued its expansion of an office tower in Vancouver with the intention of a subsequent sale of all of its Vancouver facilities and partial lease-back of the new office tower to meet its ongoing operational needs. However, as a result of the Company’s decision to exit its Wireless Messaging (Paging) segment in the second quarter of 2001, it no longer has significant operational requirements for its Vancouver facilities and no longer plans to lease back a portion of these facilities. During the six months ended June 30, 2003 and 2002, the Company spent approximately $613,000 and $1.5 million, respectively, on the new Vancouver office tower development. At June 30, 2003 the Company had outstanding contractual commitments to spend an additional $223,000 to complete the office tower build-out.

In January 2002, the Company sold its manufacturing facility in Quincy, Illinois for cash proceeds of approximately $4.4 million. In addition to the Vancouver facility, the Company owns its facilities in Singapore and Atlanta, Georgia. The Company is continuing its efforts to divest the Vancouver and Singapore facilities and has received and accepted offers on both the Vancouver and Singapore facilities. The Company anticipates that these future sales of this real estate could generate approximately $10.4 million of cash proceeds in the second half of 2003, however there can be no assurance that these sale transactions will be completed. The Company is not currently marketing its headquarters facility that it owns in Atlanta, Georgia. At June 30, 2003, the Vancouver and Singapore facilities are recorded on the balance sheet as assets held for sale at their estimated fair values net of selling costs.

The Company spent $2.8 million and $1.5 million during the six months ended June 30, 2003 and 2002, respectively, on equipment needed in its operations. The $2.8 million and $1.5 million invested in 2003 and 2002, respectively, related entirely to the Company’s continuing operations. The Company anticipates that property, plant and equipment purchases related to its continuing operations for the remainder of 2003 will approximate $700,000.

On November 1, 1999, the Company sold 95% of the equity interest in its microwave radio business, Western Multiplex Corporation (“MUX”) and received cash of approximately $37 million. MUX marketed products for use in point-to-point microwave communication systems and was acquired by the Company in April 1995. Additionally, the Company is contingently liable for MUX’s building lease payments. The maximum contingent liability as of June 30, 2003 for these obligations is approximately $1.9 million. In August 2000, MUX completed an initial public offering. In November 2000, the Company became eligible to sell its shares of MUX and immediately began selling such shares. In March 2002, MUX merged with and into Proxim Corporation (“Proxim”). During the six months ended June 30, 2002, the Company sold 136,800 shares of Proxim for cash proceeds of approximately $406,000.

Financing Activities. During the six months ended June 30, 2003, and 2002, the Company received proceeds from the sale of Company common stock of $235,000 and $327,000, respectively, upon the exercise of stock options and sales of common stock to employees in the Employee Stock Purchase Plan.

In December 2000, the Board of Directors rescinded its 1996 stock repurchase program and authorized the repurchase of up to 3.0 million shares of the Company’s common stock. In September 2001, the stock repurchase program was amended to authorize management the ability to repurchase up to 5% of the Company’s outstanding common stock, or approximately 3.3 million shares based on shares outstanding as of December 31, 2001. For the six months ended June 30, 2003, the Company repurchased 36,000 shares at a total cost of approximately $34,000. The Company made no purchases during 2002. The Company may commence or suspend purchasing under this program from time to time without notice.

Income Tax Matters. Glenayre’s recent cash outlays for income taxes have been limited primarily to foreign income taxes. In April 2003, the Company received approximately $2.8 million related to Canadian tax refunds.

Inflation. For the six months ended June 30, 2003 and 2002, the Company does not believe inflation has had a material effect on its results of operations.

Summary. The Company believes that funds generated from continuing operations, together with its current cash reserves, will be sufficient to (i) support the short-term and long-term liquidity requirements for current operations (including annual capital expenditures) and its discontinued operations and (ii) repurchase common stock as discussed above. Company management believes that, if needed, it can establish borrowing arrangements with lending institutions.

Growth drivers for the communications software and advanced messaging markets include:

•

The necessity for CSPs to deploy new revenue generating services that reduce customer churn.

CSPs will continue to seek to differentiate themselves in increasingly competitive markets by offering high-demand solutions. Glenayre is investing in applications and services like voice services, multimedia messaging, multimodal messaging and presence and availability solutions to help wireless, wireline and cable and broadband operators enhance their competitive positions. These products and solutions, currently under development, are expected to expand the uses and applications in this market.

The Company also expects that reducing the total cost of ownership of next-generation investments will remain a primary concern for CSPs. By providing open, standards-based platforms based on Intel/Linux architecture, Glenayre believes it is well-positioned to help CSPs offer competitive services at one of the lowest total costs of ownership.

However, macroeconomic conditions and CSPs continued lack of access to capital markets may negatively impact the growth of the communications software and advanced messaging markets.

Eric L. Doggett, President and Chief Executive Officer, will leave the Company on October 31, 2003 as provided in his Employment Agreement. However, the Company retains the option to extend his departure date up to 90 days after October 31, 2003. Clarke H. Bailey, Chairman of the Board of the Company and a former Chief Executive Officer of the Company, will assume the duties of Chief Executive Officer on an interim basis upon the departure of Mr. Doggett.

This Outlook section contains forward-looking statements that are subject to the risks described under the Risk Factors That May Affect Future Results immediately below.

The Company’s prospects are subject to certain risks and uncertainties as follows:

The majority of the Company’s competitors are seasoned communications providers. These companies include Comverse Technologies, Inc., SS8’s Centigram, Unisys Corporation, the Octel Messaging division of Lucent Technologies, Inc., OpenWave and Tecnomen. Additional competitors from the voice portal and voice services market include BeVocal, TellMe, HeyAnita and InterVoice. Many of these competitors have the financial stability, aggressive research and development programs and long-term customer relationships required to compete in the current environment. The competition among these remaining firms continues to be quite fierce and is primarily based on a combination of price, product architecture, features, system capacity, reliability and services and support.

Several of the Company’s competitors have substantially greater financial, technical, marketing and distribution resources than Glenayre and Glenayre may be unable to successfully compete with these companies. In addition, competitive pricing pressures exist which may have an adverse effect on the Company’s profit margins in the future.

The Company’s financial results in any single quarter are highly dependent upon the timing and size of customer orders and the shipment of products for large orders. Large orders from customers can account for a significant portion of products shipped in any quarter. During the six months ended June 30, 2003, Nextel Communications, Nortel Networks, an OEM distributor, U.S. Cellular, Alltel Communications, Verizon, and Nextel Partners individually accounted for approximately 23%, 17%, 9%, 8%, 8% and 8%, respectively, of the Company’s total revenue from continuing operations. During the year ended December 31, 2002, Nortel, an OEM distributor, Nextel, Verizon, U.S. Cellular and Alltel individually accounted for approximately 20%, 19%, 14%, 10% and 8%, respectively, of the Company’s total revenue from continuing operations. Nortel sells the Company’s products to several end user customers including T-Mobile whose purchases of Glenayre’s products from Nortel represented approximately 14% and 15% of the Company’s total revenue during the six months ended June 30, 2003 and year ended December 31, 2002, respectively. There can be no assurance that these significant customers will continue to purchase systems and services from the Company at current levels in the future, and the loss of one or more of these significant customers could have a material adverse effect on the Company’s business, financial condition or results of operations. In the future, the customers with whom the Company does the largest amount of business are expected to vary from quarter to quarter and year to year as a result of the timing for development and expansion of customers’ communications networks and systems, the continued expansion into international markets and changes in the proportion of revenue generated by the Company’s newly developed products and services. Furthermore, if a customer delays or accelerates its delivery requirements or a product’s completion is delayed or accelerated, revenues expected in a given quarter may be deferred or accelerated into subsequent or earlier quarters. The Company has also historically experienced reduced revenue in its fourth quarter resulting from reduced system expansions as many CSPs halt system upgrades during their busiest retail season. Therefore, annual financial results are more indicative of the Company’s performance than quarterly results, and results of operations in any quarterly period may not be indicative of results likely to be realized in the subsequent quarterly periods.

The Company has restructured its business to respond to industry and market conditions and may have to restructure its business again in the future.

The Company continues to restructure its business to realign resources and achieve desired cost savings. Restructuring efforts have been based on certain assumptions regarding the cost structure of the Company’s business and the nature, severity and duration of the industry downturn which may or may not be correct. These restructuring efforts may not be sufficient for the Company to achieve profitability and meet the changes in industry and market conditions. The Company will continue to make judgments as to whether further reductions in its workforce may be required. These workforce reductions may impair the Company’s ability to achieve its current or future business objectives. Costs incurred in connection with restructuring

efforts may be higher than estimated. Any decision by the Company to further limit investment or exit, or dispose of, businesses may result in the recording of additional charges. As a result, the costs actually incurred in connection with the restructuring efforts may be higher than originally planned and may not lead to the anticipated cost savings and a return to profitability.

As part of the Company’s review of its restructured business, it must also review long-lived assets for recoverability under FAS 144. Future market conditions may trigger further write-downs of these assets due to uncertainties in the estimates and assumptions used in asset valuations, which are based on the Company’s forecasts of future business performance and accounting estimates relating to the useful life and recoverability of the net book value of these assets.

The Adverse Resolution of Litigation Against the Company Could Negatively Impact its Business.

The Company is currently a defendant in several lawsuits some of which seek damages of material amounts. The Company is, and may in the future be, subject to other litigation arising in the normal course of business. Litigation may be time consuming, expensive and distracting from the conduct of the Company’s business and the outcome of litigation is difficult to predict. The adverse resolution of any specific lawsuit could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.

The market for the Company’s products has contracted as a result of reduced worldwide CSP spending. The Company is dependent on the continued growth of its markets as well as the effective and successful convergence of technologies for its systems and related applications and solutions such as voice, fax and data messaging, short message services, one touch call return, continuous calling, voice activated dialing, unified messaging and its CONSTANT TOUCH™ call feature. The markets for these technologies are still emerging and market acceptance of these converging services is uncertain. If the commercial market for these services and related bundled or converged technologies is lower than Glenayre anticipates or grows more slowly than Glenayre anticipates, it could have a material adverse effect on the Company’s business. There can be no assurance that these technologies will be successfully integrated or that a significant commercial market for the integrated services will develop.

Glenayre’s business is primarily focused on offering advanced messaging solutions to wireless and fixed network carriers, as well as broadband and cable operators worldwide. These industries are characterized by rapid technological change and are likely to experience consolidation in the future. Glenayre has been focused on building next-generation messaging platforms such as its Versera™ Large Solution and High Density platforms and communications solutions that leverage speech-driven, multimedia, multimodal and presence and availability technologies. Demand for these products and services may be affected by changes in technology and the development of substitute products and services by competitors. If changing technology negatively affects demand for Glenayre’s Versera Solutions, it could have a material adverse effect on Glenayre’s business.

The Company owns or licenses numerous patents used in its operations. Glenayre believes that while these patents are useful to the Company, they are not critical or valuable on an individual basis. The collective value of the intellectual property of Glenayre is comprised of its patents, blueprints, specifications, technical processes and cumulative employee knowledge. Although Glenayre attempts to protect its proprietary technology through a combination of trade secrets, patent, trademark and copyright law, nondisclosure agreements and technical measures, such protection may not preclude competitors from developing products with features similar to Glenayre’s products. The laws of certain foreign countries in which Glenayre sells or

may sell its products, including The Republic of Korea, The People’s Republic of China, Saudi Arabia, Thailand, Dubai, India and Brazil, do not protect Glenayre’s proprietary rights in the products to the same extent as do the laws of the United States. Though the Company believes its technology does not infringe any third party rights, the Company is currently party to certain infringement claims. See Note 10 to the Condensed Consolidated Financial Statements and Part II, Item 1 — Legal Proceedings. In addition, there can be no assurance that other parties will not assert future infringement claims. An adverse decision in an infringement claim asserted against the Company could result in the Company being prohibited from using the allegedly infringing technology. In such an instance, the Company might need to expend substantial resources to develop alternative technology or to license the allegedly infringing technology. There can be no assurance that any such efforts would be successful.

Many of Glenayre’s products connect to public telecommunications networks. While many of Glenayre’s current products are not directly subject to regulation, national, regional and local governments regulate public telecommunications networks, as well as the operations of telecommunication service providers in most domestic and international markets. When introducing products to a market, there is no assurance that the Company’s customers will obtain regulatory approval. In addition, it is always possible that a new regulation, changing political climates, or a change in the interpretation of existing regulations could adversely affect the Company’s ability to sell products in that market. Regulatory approvals must be obtained by Glenayre in connection with the manufacture and sale of certain of its products, and by Glenayre’s telecommunications service provider customers to operate the systems that utilize certain Glenayre products. The enactment by federal, state, local or international governments of new laws or regulations or a change in the interpretation of existing regulations could affect the market for Glenayre’s products.

Approximately 11% and 18% of total revenue from continuing operations for the six months ended June 30, 2003 and 2002, respectively, was generated in markets outside of the United States. International sales are subject to the customary risks associated with international transactions, including political risks, local laws and taxes, the potential imposition of trade or currency exchange restrictions, tariff increases, transportation delays, difficulties or delays in collecting accounts receivable, exchange rate fluctuations and the effects of prolonged currency destabilization in major international markets. Although a substantial portion of the international sales of Glenayre’s products and services for the six months ended June 30, 2003 and 2002 were negotiated in United States dollars, Glenayre may not be able to maintain such a high percentage of United States dollar denominated international sales. Should the amount of sales denominated in local currencies of foreign countries increase, the Company may seek to mitigate its currency exchange fluctuation risk by entering into currency hedging transactions. The Company also acts to mitigate certain risks associated with international transactions through the use of letters of credit. However, there can be no assurance that these efforts will successfully limit the risks associated with these international transactions.

Continued Terrorist Attacks, War or Other Civil Disturbances Could Lead to Further Economic Instability and Depress the Company’s Stock Price or Adversely Affect the Company’s Business

On September 11, 2001, the United States was the target of terrorist attacks of unprecedented scope. These attacks as well as the U.S. military involvement in overseas operations, including the war with Iraq, have caused instability in the global financial markets and contributed to the volatility of the stock prices of many U.S. publicly traded companies. In the future, there may be armed hostilities, further acts of terrorism and civil disturbances in the U.S. or elsewhere, which may further contribute to economic instability in the U.S. and in the foreign markets served by the Company. Additionally, such disturbances could have a material adverse effect on the Company’s business, results of operations or financial condition.

The Company intends to continue to make significant investments in its business, and to examine opportunities for growth through acquisitions, strategic investments and potential business combinations. These activities may involve significant expenditures and obligations that cannot readily be curtailed or reduced if anticipated demand for the associated products does not materialize or is delayed. The impact of these decisions on future financial results cannot be predicted with assurance, and the Company’s commitment to growth may increase its vulnerability to downturns in its markets, technology changes and shifts in competitive conditions.

The Company has made, and in the future, may continue to make strategic investments in other companies. These investments have been made in, and future investments will likely be made in, immature businesses with unproven track records and technologies. Such investments have a high degree of risk, with the possibility that the Company may lose its entire investment. The Company may not be able to identify suitable investment candidates, and, even if it does, the Company may not be able to make those investments on acceptable terms, or at all. In addition, even if the Company makes investments, it may not gain strategic benefits from those investments.

Glenayre has entered into initiatives with third parties that provide development services, products and channels to market that are used to enhance the Company’s business and is continuing to explore additional third party arrangements. Additionally, Glenayre has entered into several Original Equipment Manufacturer agreements with companies that market and distribute Glenayre’s products and Glenayre intends to enter into service reseller arrangements. Glenayre is dependent upon these third parties to augment its research and development efforts as well as to distribute its products and services and increase its product offerings. If these third parties are not successful or the agreements are terminated, a material adverse effect on Glenayre’s business could result. Glenayre intends to continue entering into agreements and initiatives with third parties; however, there can be no assurance that additional arrangements with suitable vendors and distributors on acceptable terms will be available. The inability of Glenayre to enter into agreements with third parties on acceptable terms could have a material adverse effect on Glenayre’s business.

The market price of the Company’s common stock is volatile. The market price of its common stock could be subject to significant fluctuations in response to variations in quarterly operating results and other factors such as announcements of technological developments or new products by the Company, developments in relationships with its customers, strategic alliances and partnerships, technological advances by existing and new competitors, general market conditions in the industry and changes in government regulations. In addition, in recent years, conditions in the stock market in general and shares of technology companies in particular have experienced significant price and volume fluctuations that have often been unrelated to the operating performance of these specific companies.

The Company’s Common Stock May be Subject to Delisting from the Nasdaq National Market

The Company’s common stock currently trades on the Nasdaq National Market (“Nasdaq”). The continued listing requirements of Nasdaq require, among other things, that the closing bid price of the Company’s Common Sock not remain below $1.00 for more than 30 consecutive trading days. After notice from Nasdaq that the Company’s common stock has failed to satisfy this test, Nasdaq may commence suspension and delisting procedures unless within 180 days following receipt of such notice, the closing bid price of the

Company’s common stock is $1.00 or greater for at least 10 consecutive trading days. This grace period would be extended by an additional 180 days if the Company elects to transfer its listing to the Nasdaq SmallCap Market, and upon the expiration of the initial grace period, the Company has at least $5 million in stockholders’ equity, $50 million in market value of listed securities or $750,000 in net income from continuing operations for the current fiscal year or two of the previous three fiscal years.

On April 17, 2003 the Company received notice that its common stock’s closing bid price was below $1.00 for 30 consecutive trading days and that its common stock was subject to potential delisting. The Company regained compliance with this requirement in the second quarter of 2003. In the event the Company is subject to delisting under this requirement in the future, the Company will consider all options available to enable it to regain compliance with Nasdaq’s continued listing requirements and avoid the delisting of the Common Stock. These options include implementing open market purchases of the Common Stock under the Company’s stock repurchase program. Under this program, subject to Glenayre’s Insider Trading policy and applicable SEC rules including Rule 10b-18 which restrict the daily volume of repurchases the Company can effect to 25% of the average daily volume during the four calendar weeks preceding the week in which purchases are made, management is authorized to purchase up to 5% of the outstanding Common Stock, or approximately 3.3 million shares based on outstanding shares as of June 30, 2003. In addition, at the Company’s Annual Meeting of Stockholders’ held on May 20, 2003 the Company’s stockholders approved a proposal to authorize the Board of Directors to amend the Company’s Certificate of Incorporation to effect a reverse stock split of the outstanding Common Stock at a ratio, to be selected by the Board of Directors in its sole discretion, of one-for-three or one-for-five (the Reverse Stock Split Proposal). As a result, the Company’s Board of Directors has the discretion to implement the reverse stock split if it determines such action is necessary to regain compliance with the Nasdaq’s minimum bid price requirement at any time through May 15, 2004 or to effect no reverse stock split at all. There can be no assurance that the trading price of the Company’s common stock will meet the minimum bid price requirement and, in the future, the Company’s common stock could be subject to delisting. If the Company’s common stock were to be delisted from trading on Nasdaq the trading market for the common stock could be materially adversely affected.

The Company’s continued growth and success depends to a significant extent on the continued service of senior management and other key employees, the development of additional management personnel and the hiring of new qualified employees. There can be no assurance that the Company will be successful in continuously recruiting new personnel or in retaining existing personnel. The loss of one or more key or other employees or Glenayre’s inability to attract additional qualified employees or retain other employees could have a material adverse effect on Glenayre’s business, results of operations or financial condition.

The Company is subject to market risk arising from adverse changes in interest rates, foreign exchange and stock market volatility. The Company does not enter into financial investments for speculation or trading purposes and is not a party to any financial or commodity derivatives.

The Company’s exposure to market rate risk for a change in interest rates relates primarily to its investment portfolio. The Company’s investment policy requires investment of surplus cash in high-grade commercial paper, bank certificates of deposits, Treasury bills, Notes or agency securities guaranteed by the U.S. Government and repurchase agreements backed by U.S. Government securities. The Company typically invests its surplus cash in these types of securities for periods of relatively short duration. Although the Company is exposed to market risk related to changes in short-term interest rates on these investments, the Company manages these risks by closely monitoring market interest rates and the duration of its investments. Due to the short-term duration and the limited dollar amounts exposed to market interest rates, management believes that fluctuations in short-term interest rates will not have a material adverse effect on the Company’s results of operations.

The Company operates internationally and is exposed to movements in foreign currency exchange rates primarily as a result of its holding demand deposits denominated in non-functional currencies. At June 30, 2003, approximately U.S. $3.4 million or 7% of the Company’s cash and cash equivalent balances were denominated in foreign currencies of which $2.3 million was denominated in Canadian dollars. In the aggregate, if the value of the dollar against the foreign denominated currency strengthens by 10%, the Company would record an exchange loss of approximately $340,000. Conversely, if the value of the dollar declines by 10%, the Company would record an exchange gain of approximately $340,000. During the six months ended June 30, 2003, the value of the U.S. dollar against Canadian dollar declined by approximately 17%. The Company seeks to mitigate the risk associated with foreign currency deposits by monitoring and limiting the total cash deposits held at each of its subsidiaries abroad. Additionally, the Company may seek to mitigate the risk by entering into currency hedging transactions. The Company was not a party to any hedge transactions as of June 30, 2003.

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in its filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The Company’s principal executive and financial officers have evaluated these disclosure controls and procedures within 90 days prior to the filing of this Quarterly Report on Form 10-Q and have determined that such disclosure controls and procedures are effective.

Subsequent to their evaluation, there were no significant changes in internal controls or other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

In August 2001, the Company’s wholly-owned subsidiary, Glenayre Manufacturing Ltd. (“GML”), filed two lawsuits against Pilot Pacific Properties, Inc., (“Pilot Pacific”), in Vancouver, British Columbia, Canada. These lawsuits, which were consolidated in February 2002, seek a total of over $12 million (Canadian), including the return of a $5.3 million (Canadian) deposit, for breach of contract, breach of fiduciary duties and improper charges to, and paid by, GML in connection with the development and construction of an office building in Vancouver. In October 2001, Pilot Pacific filed counterclaims against GML and the Company for $4.3 million (Canadian) for unpaid invoices (a lien on the building has been filed for such amount) and lost profits of $60 to $65 million (Canadian). During the second quarter of 2002, Pilot Pacific and its chief executive officer issued news releases with unsubstantiated allegations and claims relating to this project. On April 30, 2003, GML was successful in amending its statement of claim to, among other things, include claims of breach of trust and fraud and to join Pilot Pacific’s chief executive officer and former corporate controller as additional defendants. To date, the defendants’ efforts to appeal this ruling have been unsuccessful. On May 26, 2003, the defendants filed an amended counterclaim alleging fraudulent misrepresentations by GML, the Company and the Company’s chief executive officer and increasing the claim for unpaid invoices from $4.3 million (Canadian) to approximately $6 million (Canadian). Additionally the amended counterclaim seeks Pilot Pacific’s retention of the approximately $5.3 million (Canadian) deposit. This case is scheduled for trial in April 2004. Based on the investigations conducted in the lawsuits to date, the Company believes it should prevail.

In late 2001, Phillip Jackson (“Jackson”) filed lawsuits against two of the Company’s customers claiming that products sold by these customers infringed a patent held by Jackson seeking total damages of approximately $10 million. The alleged infringement related to certain features included in products sold by the Company to these customers. By December 2001 the Company agreed to indemnify each of these customers for the claims in these lawsuits and assumed primary responsibility for defending the claims with respect to the Company’s products. In January 2002 the Company filed a lawsuit in the Federal District court in the Northern District of Illinois (Chicago) seeking a declaratory judgment that none of the Company’s products infringe the Jackson patent. On February 18, 2003, the trial court summarily dismissed three of the four infringement claims alleged by Jackson in this case. The remaining claim went to trial in late March 2003. On April 1, 2003 the jury found in favor of Jackson and awarded damages of $12 million. On July 8, 2003, in response to the Company’s Motion for a Judgment as a Matter of Law regarding the finding of infringement and the damages, the trial judge ordered a reduction in damages that the Company owes to Jackson to $2.65 million plus pre and post judgment interest and certain court costs. Jackson agreed to the reduction in damages. The Company is assessing its options regarding appeal and related matters.

In January 2003, BellSouth Intellectual Property Corp. (“BellSouth”) filed a lawsuit against the Company claiming that products sold by the Company infringed a patent held by BellSouth, seeking unspecified damages and an injunction prohibiting the Company from utilizing the allegedly infringing technology in its products. Based on its investigations and analysis, the Company believes it has defenses to BellSouth’s claims. Even if BellSouth were to succeed in establishing infringement, the Company believes that BellSouth would not be able to prove significant damages. Additionally, the Company believes that the specific feature in question is of such nominal value that an injunction prohibiting the Company from utilizing this technology in its products would have minimal impact on the Company’s product portfolio. This case remains in the early stages, and no discovery has taken place.

On July 23, 2003, the Company received a letter and supporting materials from the Intellectual Property Asset Corporation (IPAC), representing AudioFAX IP LLC asserting certain patent rights and proposing that the Company consider entering into a license agreement regarding some or all of four identified patents. The Company is reviewing the patents to determine if any are applicable to the Company’s business.

In June, 2001, Alberta Environment, a department of the Government of Alberta, issued an Environmental Protection Order requiring Imperial Oil Limited to remediate significant petroleum-based contamination discovered on a Calgary residential development, Lynnview Ridge. The Company understands that the land on which some of this residential development was located at one time contained a petroleum storage tank farm and is adjacent to land on which Imperial Oil operated a refinery for many years. In July 2002, following an appeal to the Environmental Appeal Board, the Alberta Minister of the Environment issued a Ministerial Order confirming this Environmental Protection Order. Imperial Oil initiated a judicial proceeding to quash this Ministerial Order, which was unsuccessful. The Company is not a party to these proceedings. The Company understands that Imperial Oil has purchased from the homeowners 137 of the 160 homes located in the Lynnview Ridge development.

In November 2002 and April 2003, a total of twenty lawsuits seeking approximately $22.3 million (Canadian) in damages were filed in the Court of Queen’s Bench, Judicial Centre of Calgary, in Alberta, Canada, against the Company and several other defendants, including Imperial Oil. All of these claims relate to the Lynnview Ridge development, that was jointly developed in the early 1980s by a corporate predecessor of the Company and a wholly-owned subsidiary of Imperial Oil.

These lawsuits assert that the defendants, including the Company, are liable for negligence, nuisance, and negligent misrepresentation arising out of the development and sale of homes located in the Lynnview Ridge development. To date, the Company has conducted preliminary investigations regarding these lawsuits but discovery has not yet been conducted.

On May 16, 2003, a further action was commenced against the same defendants, including the Company, seeking $6.0 million (Canadian) on behalf of twenty plaintiffs alleging personal injury as a result of the contamination. As of the date of this Report, this action has not been served on the Company, or to the Company’s knowledge, on any of the other defendants.

While no assurance can be given regarding the outcome of the litigation discussed above, the Company believes that, based on information currently available, the resolution of these matters will not have a material adverse effect on the financial position or results of future operations of the Company. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, the Company’s business, financial condition, results of operations and cash flows could be adversely affected.

At the Company’s Annual Meeting of Stockholders held on May 20, 2003, the following matters were submitted to a vote of the stockholders of the Company and the results were as follows:

(i)

The election of the three directors each to serve a three-year term expiring 2006:

(ii)

The proposal to approve the appointment of Ernst & Young LLP as independent auditors of the Company was approved by a vote of 41,959,683 in favor, 15,243,477 against and 73,367 abstaining.

(iii)

The proposal to approve an amendment to the Company’s Employee Stock Purchase Plan to increase the number of shares of common stock authorized from 2,006,250 to 2,756,250 was approved by a vote of 54,260,591 in favor, 1,854,434 against and 1,161,502 abstaining.

(iv)

The proposal to approve an amendment to the Company’s 1996 Incentive Stock Plan to increase the number of shares of common stock authorized from 7,650,000 to 9,650,000 was approved by a vote of 36,557,670 in favor, 19,534,926 against and 1,183,931 abstaining.

(v)

The proposal to approve an amendment to the Company’s 1996 Incentive Stock Plan to provide for Formula Grants of Restricted Stock Units to Non-officer Directors on an annual basis was approved by a vote of 40,568,460 in favor, 15,507,155 against and 1,200,912 abstaining.

(vi)

The proposal to authorize the Board of Directors in its discretion to amend the Company’s Certificate of Incorporation to effect a reverse stock split of the Company’s common stock at a ratio, to be selected by the Board of Directors in its discretion, of One-for-Three or One-for-Five was approved by a vote of 54,817,482 shares in favor, 2,284,561 against and 174,484 abstaining.


Exhibit 3.1		Composite Certificate of Incorporation of Glenayre reflecting the Certificate of Amendment filed December 8, 1995 was filed as Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1995 and is incorporated herein by reference.
Exhibit 3.2		Restated by-laws of Glenayre effective June 7, 1990, as amended September 21, 1994 was filed as Exhibit 3.5 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1994 and is incorporated herein by reference.
Exhibit 10.1*		Employment Agreement dated June 19, 2003 between the Registrant and Eric L. Doggett.
Exhibit 10.2*		Employee Stock Purchase Plan, as amended effective May 20, 2003.
Exhibit 10.3*		1996 Incentive Stock Plan, as amended effective May 20, 2003.
Exhibit 15.1		Letter regarding unaudited financial information.
Exhibit 31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

On April 29, 2003, the Company filed a Current Report on Form 8-K to report that the Company had issued a press release providing financial results for the first quarter of 2003.

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.


Exhibit
Number		Description

3.1		Composite Certificate of Incorporation of Glenayre reflecting the Certificate of Amendment filed December 8, 1995 was filed as Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1995 and is incorporated herein by reference.

3.2		Restated by-laws of Glenayre effective June 7, 1990, as amended September 21, 1994 was filed as Exhibit 3.5 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1994 and is incorporated herein by reference.

10.1*		Employment Agreement dated June 19, 2003 between the Registrant and Eric L. Doggett.

10.2*		Employee Stock Purchase Plan, as amended effective May 20, 2003.

10.3*		1996 Incentive Stock Plan, as amended effective May 20, 2003.

15.1		Letter regarding unaudited financial information.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification Statement of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

45 EX-10.1 3 g84304exv10w1.txt EX-10.1 EMPLOYMENT AGREEMENT EXHIBIT 10.1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of June 19, 2003 by and between GLENAYRE TECHNOLOGIES, INC., a Delaware corporation (the "Corporation"), and ERIC L. DOGGETT (the "Executive"). STATEMENT OF PURPOSE The Corporation desires to continue to retain the services of the Executive, and the Executive desires to continue to provide services to the Corporation, on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing Statement of Purpose and the terms and provisions of this Agreement, the parties hereto agree as follows: 1. Employment and Duties. (a) Employment. The Corporation hereby employs the Executive, and the Executive hereby agrees to serve, as the President and Chief Executive Officer of the Corporation pursuant to the terms of this Agreement. (b) Duties. The Executive shall have the duties and authority and exercise such powers as are customary for his office and such other duties commensurate with his position as may from time to time be reasonably requested of him by the Board of Directors of the Corporation (the "Board"), the Chairman of the Board or vested in him by the bylaws of the Corporation. The Executive shall report to the Board, any applicable Committee of the Board and the Chairman of the Board. During the Term, the Executive shall: (1) devote substantially all of his business time, attention and abilities to the businesses of the Corporation (including its subsidiaries or affiliates, when so required), provided, that the Executive may engage in personal investment, charitable or community activities and, with the consent of the Board (which will not unreasonably be withheld) serve on the boards of directors of for-profit entities so long as such activities do not materially interfere with the performance of the Executive's duties hereunder; (2) faithfully serve the Corporation and use his best efforts to promote and develop the interests of the Corporation; and (3) not acquire, directly or indirectly, any interest in any firm, partnership, association or corporation, the business operations of which may in any material manner, directly or indirectly, compete with the trade or businesses conducted by the Corporation or any of its subsidiaries, or affiliates, provided that (i) the Executive may beneficially own, directly or indirectly, or exercise control or direction over, the voting securities or publicly traded debt of a publicly traded company which is engaged in any of the foregoing trade or businesses, on the condition that the percentage of such securities owned, controlled or directed by the Executive shall not exceed 5% of the voting securities or 5% of the principal amount of publicly traded debt (as the case may be) of the publicly traded company and (ii) the Executive may own less than 5% of investment partnerships or similar entities so long as they are blind pools. 2. Term of Employment. (a) Term. The initial term of the Executive's employment hereunder shall commence on the date of this Agreement and extend through October 31, 2003 (the "Initial Term"). The term of the Executive's employment hereunder may, in the Corporation's sole discretion, be extended by the Corporation for up to 90 additional days (if and to the extent extended by the Corporation, the "Extended Term") by written notice to the Executive at least 30 days prior to the expiration of the Initial Term. The written notice shall specify the number of days in the Extended Term. The Initial Term and the Extended Term are referred to collectively in this Agreement as the "Term." (b) Earlier Termination. Notwithstanding the provisions of Paragraph 2(a) above, the Executive's employment hereunder may be terminated prior to the expiration of the Term as follows: (1) The Corporation may terminate the Executive's employment hereunder for Cause, provided that the Corporation complies with the provisions of Paragraph 3(a)(1) below; (2) The Executive may terminate his employment at any time with or without Good Reason upon at least 30 days written notice; (3) The Executive's employment hereunder shall terminate automatically upon his death; (4) The Corporation may terminate the Executive's employment hereunder at any time without Cause, provided that the Corporation complies with the provisions of Paragraphs 3(a)(1), 3(a)(2), 3(a)(3), 3(b) and 3(c) below. (c) Definition of "Cause". As used herein, "Cause" shall mean the occurrence of any of the following: (1) acts of dishonesty or fraud on the part of the Executive with regard to the Corporation which are intended to result in his substantial personal enrichment at the expense of the Corporation or its affiliates, provided, however, that this Paragraph 2(c)(1) shall not apply to good faith disputes over the Executive's expense reimbursements; (2) the conviction after the exhaustion of all appeals by the Executive of a felony involving moral turpitude or the entry of a plea of nolo contendere for such a felony; or 2 (3) the failure of the Executive to comply with Paragraph 6 below or any other material violation of the Executive's responsibilities as set forth herein which are willful and deliberate; provided, however, that prior to the determination by the Board that Cause under this Paragraph 2(c)(3) has occurred, the Board shall (A) provide to the Executive in writing, in reasonable detail, the reasons for the Board's determination that such Cause exists, (B) afford the Executive a reasonable opportunity to remedy any such breach, (C) provide the Executive an opportunity to be heard at the Board meeting where the final decision to terminate the Executive's employment hereunder for such Cause is to be considered, and (D) make any decision that such Cause exists in good faith. (d) Definition of "Good Reason." As used herein, "Good Reason" shall mean the occurrence of any of the following: (1) except where such change is specifically approved by the Executive in writing, any change in the Executive's title as President and Chief Executive Officer of the Corporation; (2) any failure by the Corporation to pay to the Executive the Base Salary or other compensation and benefits provided for herein; provided, however, that the Executive must first (i) provide the Board with written notice specifying the particular failure of the Corporation under this Paragraph 2(d)(2) and (ii) allow the Board 15 days from receipt of notice to cure such failure; or (3) any change in the principal office of the Corporation to a location which is more than 30 miles from its current principal office at 11360 Lakefield Drive, Duluth, Georgia 30097. 3. Payments to the Executive Upon Termination of Employment. (a) Compensation. Upon the termination of the Executive's employment with the Corporation, whether upon the expiration of the Term or upon the earlier termination of the Term as provided in Paragraph 2(b) above, the Corporation shall pay to the Executive the following amounts and provide to the Executive the following benefits, as applicable: (1) In the event that the Executive's employment hereunder is terminated for any reason whatsoever, the Corporation shall pay to the Executive an amount equal to the sum of (i) his accrued but unpaid Base Salary, plus (ii) his accrued but unpaid vacation pay, plus (iii) any other compensation payments or benefits which have accrued and are payable in connection with such termination under any plan, program or practice then in effect. (2) In the event that the Executive's employment hereunder is terminated during the Initial Term or the Extended Term (i) by the Corporation without Cause pursuant to Paragraph 2(b)(4) above or (ii) by the Executive for Good Reason pursuant to Paragraph 2(b)(2) above, the Corporation shall continue to pay to the Executive the compensation and provide to the Executive the benefits for the remainder of the Initial 3 Term or the Extended Term (as applicable), plus pay the severance benefit described in Paragraph 3(a)(3) below at the expiration of the Initial Term or the Extended Term (as applicable). (3) In the event that the Executive's employment hereunder is terminated (i) by the Corporation without Cause pursuant to Paragraph 2(b)(4) above, (ii) by the Executive with or without Good Reason pursuant to Paragraph 2(b)(2) above during the Extended Term, (iii) by the Executive with Good Reason pursuant to Paragraph 2(b)(2) above during the Initial Term or (iv) upon the expiration of the Term, the Corporation shall pay to the Executive a lump sum severance benefit of $266,250 at the expiration of the Term. The Corporation shall not be obligated to pay this severance benefit to the Executive if his employment is terminated for any other reason, including without limitation the termination of the Executive's employment hereunder by the Executive without Good Reason pursuant to Paragraph 2(b)(2) above during the Initial Term. (b) Stock Options. The Executive has been awarded options to purchase shares of the Corporation's common stock under the Glenayre Technologies, Inc. 1996 Incentive Stock Plan (collectively, the "Options"), such Options having been granted for the number of shares and at a price per share specified in the agreements between the Corporation and the Executive granting the Options. Notwithstanding any terms to the contrary contained in such stock option agreements, upon the Executive's termination of employment for any reason other than Cause pursuant to Section 2(b)(1) above or by the Executive without Good Reason pursuant to Paragraph 2(b)(2) above, (i) all Options shall become fully vested in the Executive and (ii) all Options shall become immediately exercisable and shall remain exercisable for a period of 12 months following the date of the Executive's termination of employment. (c) Welfare Benefits. In the event that the Executive's employment hereunder is terminated (i) because of the Executive's death pursuant to Paragraph 2(b)(3) above, (ii) by the Corporation without Cause under Paragraph 2(b)(4) above, (iii) by the Executive for Good Reason pursuant to Paragraph 2(b)(2) above or (iv) upon expiration of the Term, then and in any such event, the Corporation shall provide medical and dental benefits to the Executive (and the Executive's dependents), and the Corporation shall pay the Consolidated Omnibus Budget Reconciliation Act ("COBRA") premium, for a period of 12 months following such termination of employment at the same levels of coverage for the Executive as such benefits are provided to active employees of the Corporation. The Executive's right to continued medical and dental coverage required under COBRA shall begin upon the termination of his employment hereunder and continue for the full period required by COBRA, with the Executive to pay the COBRA premium (if he elects COBRA coverage) beyond the 12-month period described in the preceding sentence. (d) Resignation as a Director. The Executive agrees that, contemporaneously with the termination of his employment with the Corporation for any reason, he will be deemed to have resigned automatically as a member of the Board of Directors of the Corporation and from all other offices, directorships and positions he holds with the Corporation or its affiliates. This resignation by the Executive is a condition to the receipt of the payment and benefits described in 4 this Paragraph 3. The Executive further agrees, at the Board's request, to execute any and all documents to confirm such resignation. 4. Compensation and Benefits. Subject to the terms of this Agreement and until the termination of the Term as provided in Paragraph 2 above, the Corporation shall pay compensation and provide benefits to the Executive as follows: (a) Base Salary. The Corporation shall pay to the Executive a salary of $355,000 per annum (the "Base Salary"). The Base Salary shall be payable in approximately equal monthly installments on the last business day of each month, or in such other installments and at such other times as the parties hereto may mutually agree upon. (b) Relocation Payment. As full and final payment to the Executive for any relocation expenses which may be incurred by the Executive in connection with or arising from his potential relocation from the Duluth, Georgia area following the Term and in lieu of any other relocation benefits that might be payable to the Executive under the Corporation's Relocation Policy or otherwise, the Corporation shall pay to the Executive, contemporaneously with the execution of this Agreement, the sum of $25,000. (c) 401(k) Plan. During the Term, the Executive shall be eligible to participate in the Corporation's 401(k) voluntary deferred compensation program (the "401(k) Plan") up to the maximum amount permitted by the terms of the 401(k) Plan, and the Corporation agrees to match the amounts of compensation deferred up to the maximum amount permitted under the provisions of the 401(k) Plan. (d) Automobile or Automobile Allowance. The Corporation shall pay an automobile allowance of $900 per month to the Executive. (e) Other Benefits. The Executive shall be entitled to participate in such other retirement plans, life, medical/dental insurance plans and short and long-term disability insurance plans of the Corporation, as determined by the Corporation, generally available to senior executives of the Corporation at a level commensurate with his position, subject to the eligibility requirements of the respective plan or program. (f) Reimbursement of Expenses. In addition to automobile expenses, the Corporation shall reimburse the Executive for all reasonable expenses incurred personally by him in performing his duties, including travel and entertainment. 5. Location of Office and Principal Residence. The Executive's principal place of employment shall be in Duluth, Georgia. 6. Confidential Information. (a) Covenant. The Executive shall not divulge, during the Term or at any time thereafter, to any person not employed by the Corporation or its subsidiaries or affiliates or otherwise engaged to render services to the Corporation, its subsidiaries or affiliates, any 5 material Confidential Information except, during the Term only, as he in good faith believes desirable and in the best interest of the Corporation. (b) Definition of "Confidential Information." As used herein, "Confidential Information" means: (1) except to the extent generally known in the industry, the name, address or requirements of any customer of the Corporation; or (2) any other secret or confidential information relating to any activity, invention or discovery of the Corporation not already in the public domain that the Executive has or shall have acquired during his employment by the Corporation or its subsidiaries or affiliates, Provided, however, that this provision shall not preclude the Executive from disclosing such Confidential Information as may be required by any applicable law, regulation or directive or any governmental agency, court or other authority having jurisdiction in the matter, or in the proper course of conduct of the Corporation's business. In the event that any person seeks legally to compel the Executive to disclose Confidential Information, the Executive shall promptly provide the Corporation with notice so that the Corporation may have opportunity to seek a protective order or other appropriate remedy. 7. Indemnification. The Corporation agrees (i) to indemnify, defend and hold harmless the Executive from and against any and all liabilities to which he may be subject as a result of his employment by the Corporation (either before or during the term of this Agreement) (as a result of his service as an officer or director of the Corporation or as an officer or director of any of the Corporation's subsidiaries or affiliates or as a fiduciary of any benefit plan sponsored by the Corporation or any of its subsidiaries or affiliates) to the fullest extent permitted by law, and (ii) to indemnify the Executive for all costs, including attorney's fees and other professional fees and disbursements, of (A) any legal action brought or threatened against him as a result of such employment, or (B) any legal action in which the Executive is compelled to give testimony as a result of his employment hereunder, to the fullest extent permitted by, and subject to the limitations of, the laws of the State of Delaware. The obligation of the Corporation under this Paragraph 7 shall survive the termination of the Executive's employment hereunder for any reason, and upon such termination the Executive shall continue to be covered by the Corporation's directors and officers insurance policies on the same basis as other directors and officers. 8. Assignment. Neither the Executive nor the Corporation may assign this Agreement or any of the rights, benefits, obligations or duties hereunder to any other person, firm, corporation or other entity. 9. Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when personally delivered or on the fourth business day after being placed in the United States mail by certified mail, return 6 receipt requested, postage prepaid, addressed to the parties hereto as follows (provided that notice of change of address shall be deemed given only when actually received): As to the Corporation: Glenayre Technologies, Inc. 11360 Lakefield Drive Duluth, Georgia 30097 Attention: Chairman of the Board As to the Executive: Eric L. Doggett c/o Glenayre Technologies, Inc. 11360 Lakefield Drive Duluth, Georgia 30097 The address of any of the parties may be changed from time to time by such party serving notice upon the other parties. 10. Law Applicable. This Agreement is made and executed with the intention that the construction, interpretation and validity hereof shall be determined in accordance with and governed by the laws of the State of Georgia. 11. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Corporation, its successors and assigns. This Agreement shall be binding upon and inure to the benefit of the Executive, his heirs and personal representatives. 12. Entire Agreement; Modification. The Corporation and the Executive hereby agree that the Amended Employment Agreement dated as of July 31, 2001 between the Corporation and the Executive (the "Old Employment Agreement") is hereby terminated, that the Old Employment Agreement is of no further force or effect and that neither party has any rights, obligations or liabilities under the Old Employment Agreement, except that the Executive shall continue to be entitled to the indemnification provided to the Executive under Paragraph 7 of the Old Employment Agreement, and any coverage under the Corporation's directors and officers insurance policies, for the period of employment covered by the Old Employment Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes and cancels all prior or contemporaneous oral or written agreements and understandings between them with respect to the subject matter hereof, including without limitation the Old Employment Agreement, except as expressly provided herein. This Agreement may not be changed or modified orally but only by an instrument in writing signed by the parties hereto, which instrument states that it is an amendment to this Agreement. 13. Severability. Should any provision of this Agreement or any part thereof be held invalid or unenforceable, the same shall not affect or impair any other provision of this Agreement and shall not have any effect on or impair the obligation of the Corporation or the Executive. 14. Acknowledgments. The Executive acknowledges and agrees that no event constituting "Good Reason" under the Old Employment Agreement or this Agreement has occurred, or that if such an event has occurred the Executive hereby irrevocably waives any 7 rights he may have with respect to such occurrence. The Corporation acknowledges and agrees that no event constituting "Cause" under Paragraph 2(c)(2) or (3) of the Old Employment Agreement or this Agreement has occurred, or if such event has occurred the Corporation hereby irrevocably waives any rights it may have with respect with such occurrence. In addition, the Corporation acknowledges and agrees that, to its knowledge, no event constituting "Cause" under Paragraph 2(c)(1) of the Old Employment Agreement or this Agreement has occurred. 15. Execution. This Agreement is hereby executed in multiple counterparts, each of which shall be deemed an original hereof. IN WITNESS WHEREOF, the Corporation has caused this Agreement to be signed by its officers and its corporate seal to be hereunto affixed, and the Executive has hereunto set his hand and seal, all as of the day and year first above written. GLENAYRE TECHNOLOGIES, INC. [CORPORATE SEAL] By /s/ C. H. Bailey --------------------------------------- ATTEST: Chairman of the Board - ------------------------------- Secretary /s/ Eric L. Doggett SEAL) ---------------------------------- Eric L. Doggett 8 EX-10.2 4 g84304exv10w2.txt EX-10.2 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.2 GLENAYRE TECHNOLOGIES, INC. EMPLOYEE STOCK PURCHASE PLAN (AS AMENDED EFFECTIVE MAY 20, 2003) GLENAYRE TECHNOLOGIES, INC. EMPLOYEE STOCK PURCHASE PLAN (AS AMENDED EFFECTIVE MAY 20, 2003)

GLENAYRE TECHNOLOGIES, INC. EMPLOYEE STOCK PURCHASE PLAN (AS AMENDED EFFECTIVE MAY 20, 2003) ARTICLE I - DEFINITIONS As used herein: (a) "Associated Company" means any company in which Glenayre has a 50% or greater share interest, directly or indirectly, through one or more intermediaries. (b) "Balance of Contributions" means at any time that amount which is the sum of the aggregate amount of contributions made by a Member pursuant to Paragraphs 1 and 2 of Article IV, during the Six-Month Period current at the time of determination, and any amount carried forward from a previous Six-Month Period pursuant to Subclause 1(a)(i) or Subparagraph 1(b) of Article VII. (c) "Board" means the Board of Directors of Glenayre. (d) "Compensation Committee" means the committee appointed by the Board that has responsibility for appointing the Plan Committee as well as overall responsibility for all compensation matters of Glenayre. (e) "Employee" means any person employed on a permanent full-time basis (per the respective company's facility policy) by a Participating Company. (f) "Glenayre" means Glenayre Technologies, Inc., a company incorporated under the laws of Delaware. (g) "Glenayre Common Shares" means common shares in the capital of Glenayre. (h) "Market Price" means the closing quoted sale price of Glenayre Common Shares on NASDAQ for the day on which the Market Price is to be determined. If there is no sale of Glenayre Common Shares on such day, then the average of the bid and ask prices for Glenayre Common Shares on such day should be included. If Glenayre Common Shares are no longer quoted on the NASDAQ system, then the Plan Committee shall have the authority to specify the method for determining the Market Price of Glenayre Common Shares. (i) "Member" means any person who is currently participating in this Plan under the terms of Article III hereof. (j) "NASDAQ" means the National Association of Securities Dealers, Inc. Automated Quotation System. (k) "Participating Company" means Glenayre or any Associated Company which has adopted the Plan pursuant to Article IX hereof, until such time as that company ceases to be a participant in accordance with Article IX hereof. (l) "Plan" means the Glenayre Technologies, Inc. Employee Stock Purchase Plan as set forth herein or as hereinafter amended. (m) "Plan Committee" means the Compensation and Plan Administration Committee appointed by the Board. (n) "Purchase Price" means the price established pursuant to Article VI for the purchase of Glenayre Common Shares in a particular Six-Month Period. (o) "Salary" means the base salary paid to an Employee by a Participating Company for personal services rendered by him as an Employee of such Participating Company, including vacation pay as earned under the Participating Company's vacation policy applicable to all employees, but not including bonuses, commissions, overtime pay, living or other allowances, reimbursements or special payments, or any contributions or benefits under any plan of current or deferred compensation adopted by a Participating Company. (p) "Service" as of any date means the continuous period ending on such date during which a person has been an Employee. (q) "Six-Month Period" means (i) prior to July 1, 2000, the six calendar month period beginning on each January 1 and June 1; (ii) the period from July 1, 2000 to January 31, 2001; and (iii) from and after February 1, 2001, the six calendar month period beginning on each February 1 and August 1." Except as otherwise expressly provided, the masculine gender includes the feminine, and the singular number includes the plural. ARTICLE II - GENERAL The purpose of the Plan is to enable Employees to acquire Glenayre Common Shares through payroll deductions in order to attract and retain persons of ability as Employees of Glenayre and its Associated Companies and to motivate such Employees to exert their best efforts on behalf of Glenayre and any Associated Company. 2 The Board has established the number of Glenayre Common Shares available for the Plan at 2,756,250 shares and such shares are hereby conditionally allotted and shall be reserved for issuance to Employees pursuant to the terms contained herein. The Board may, subject to compliance with all regulatory requirements, from time to time increase the number of Glenayre Common Shares available for purchase under the Plan, provided that the aggregate number of Glenayre Common Shares reserved for issuance pursuant to the Plan or pursuant to any other employee share option or share purchase plan, shall at no time exceed 10% of the number of Glenayre Common Shares then outstanding. ARTICLE III - MEMBERSHIP 1. Eligibility for Membership Each Employee who is employed by a Participating Company as of the first day of any Six-Month Period shall be eligible to become a Member on such day or on the first day of any Six-Month Period thereafter. Membership shall be voluntary. In accordance with Internal Revenue Code Section 423, no grants under the Plan will be allowed to any owners of 5 percent or more of the total combined voting power or value of all classes of stock of Glenayre or an Associated Company. 2. Application for Membership An Employee who is eligible to participate in the Plan may apply for participation in it. Such application for participation shall be in writing or made by such telephonic, electronic or other means as the Plan Committee may approve for purposes of the Plan. Each application shall contain the Employee's agreement to the effect that he: (a) applies for membership in the Plan, and (b) agrees to be bound by all the terms and conditions of the Plan. An Employee's membership in the Plan shall commence upon acceptance of his application by Glenayre as of the commencement of the next Six-Month Period. 3. Termination of a Membership A person shall cease to be a Member upon the happening of any of the following events: (a) A person shall cease to be a Member whenever he ceases to be an Employee for any reason including his retirement, permanent disability or death. (b) An Employee shall cease to be a Member at any time during a Six-Month Period in which he is participating in the Plan by giving ten (10) days' notice to the Plan Committee of his intention to withdraw from the Plan; provided, however, no withdrawals may be made during the final thirty-one (31) days of a Six-Month 3 Period. Such withdrawal notice shall be in writing or made by such telephonic, electronic or other means as the Plan Committee may approve for purposes of the Plan. (c) A person shall cease to be a Member if: (i) the company by which he is employed ceases to be a Participating Company, unless he immediately becomes an Employee of another Participating Company, or (ii) this Plan terminates or is terminated. 4. Payment of Balance of Contributions upon Termination A person whose membership has been terminated pursuant to Paragraph 3 of this Article shall receive his Balance of Contributions as soon as practicable after the date of such termination from Glenayre, payable by check or such other means as the Plan Committee may approve for purposes of the Plan. 5. Renewal of Membership A person whose membership has been terminated may renew his membership as follows: (a) A person whose membership has been terminated and whose Service has been interrupted may apply for membership in accordance with Paragraph 2 of this Article when he is again eligible under Paragraph 1 of this Article. (b) An Employee whose membership has been terminated pursuant to Subparagraph 3(b) of this Article but whose Service has not been interrupted may apply for membership in accordance with Paragraph 2 of this Article at the commencement of the next Six-Month Period following such termination. ARTICLE IV - CONTRIBUTIONS 1. Contributions by Members Any Member may contribute on a monthly basis in any Six-Month Period toward the purchase of Glenayre Common Shares for his account under the Plan, an amount which shall not exceed 10% of his Salary during each month. Provided, however, that: (a) in the case of a Member whose Salary is paid in United States currency his contribution shall be not less than $20.00 USD during such month, or (b) in the case of a Member whose Salary is paid in any currency other than that of the United States his contribution during such month shall be not less than an 4 amount in the currency in which he is paid approximately equivalent to $20.00 USD. 2. Payroll Deductions (a) All contributions to the Plan must be made through monthly payroll deductions. A Member (or prospective Member) shall direct such deductions to be made for a given Six-Month Period at the time of the Member's application for membership pursuant to Paragraph 2 of Article III. Any such direction shall remain in effect for subsequent Six-Month Periods until it is changed or revoked by the Member in accordance with Plan requirements. (b) Subject to the limitations on minimum contributions in Paragraph 1 of this Article, a Member may direct such deductions to be increased or decreased in amount prior to the commencement of any Six-Month Period by executing and delivering to the office of the Participating Company by which he is employed written notice to that effect or by transmitting notice to that effect by such telephonic, electronic or other means as the Plan Committee may approve for purposes of the Plan, but any such notice shall not be effective with respect to any Six-Month Period unless it is received prior to the commencement of such period. Except as provided in this Subparagraph or in Paragraph 3 of Article III upon a Member's withdrawal from the Plan, a Member's deductions for a Six-Month Period may not be changed during the Six-Month Period. 3. Remittance of Contributions The Participating Company shall (if not Glenayre), as soon as practicable after the close of each calendar month, forward the Member's contribution to Glenayre together with a statement setting forth the following information: (a) the name of the Member, (b) the amount of his contribution, and (c) such additional information as the Board, Compensation Committee or Plan Committee may require. ARTICLE V - ACCOUNTS 1. Individual Accounts Glenayre shall maintain a Plan account for each Member. 5 2. Recording of Transactions Glenayre shall cause the account of each Member to be credited with the amount of any contributions by such Member, and debited with the amount of such contributions applied to purchase Glenayre Common Shares. 3. Annual Review The operation of the Plan shall be reviewed by Glenayre's independent accountants at least annually. 4. Statements of Account As promptly as practicable after the close of each Six-Month Period, Glenayre shall cause a statement to be mailed or delivered to each Member setting forth the accounts of such Member as of the close of the Six-Month Period. Such statement shall be deemed to be correct unless Glenayre is notified to the contrary within thirty (30) days after it is mailed to such Member. ARTICLE VI - PRICE The Purchase Price for each Glenayre Common Share to be purchased with Plan contributions in any Six-Month Period shall be eighty-five percent (85%) of the lower of (i) the Market Price of Glenayre Common Shares on the first day of such Six-Month Period on which the NASDAQ is open or (ii) the Market Price of Glenayre Common Shares on the last day of such Six-Month Period on which the NASDAQ is open. ARTICLE VII - PURCHASES 1. Purchase of Glenayre Common Shares (a) As of the last business day of each Six-Month Period, Glenayre shall apply the Member's Balance of Contributions to the purchase from Glenayre of Glenayre Common Shares at the Purchase Price established for that Six-Month Period, and shall as expeditiously as possible thereafter cause the Glenayre Common Shares purchased for the Member under the Plan to be delivered to such Member. (b) Nothing shall obligate Glenayre to purchase, or the registrar of Glenayre to issue, fractional shares, and where the application of all of a Member's Balance of Contributions for the purchase of Glenayre Common Shares would result in the issuance of fractional shares, the excess of the Balance of Contributions over the maximum amount that may be applied to the purchase of whole Glenayre Common Shares shall be retained in the Member's account and carried forward into the next Six-Month Period. 6 2. Limitations on Purchases If a Member could acquire within the same calendar year shares of stock of Glenayre or an Associated Company under all "employee stock ownership plans" within the meaning of Section 423(b) of the Internal Revenue Code sponsored by Glenayre or an Associated Company (including Glenayre Common Shares such Member would be entitled to purchase under the Plan) having a total fair market value which exceeds $25,000, then the maximum number of Glenayre Common Shares purchased for such Member for a Six-Month Period shall be reduced so that such total fair market value does not exceed $25,000. If the Plan Committee determines that a Member may be affected by the limitation of this Paragraph, such Member may make a special election to such Member's payroll deductions. Any such election shall not be deemed a withdrawal from membership in the Plan. ARTICLE VIII - ADMINISTRATION OF THE PLAN 1. Duties and Powers The Plan Committee shall be responsible for the day-to-day administration of the Plan and the proper execution of its provisions. It shall maintain all necessary books of account and records. The Plan Committee shall be responsible for the implementation of the Plan and the determination of all questions arising hereunder. It shall have the power, as directed by the Compensation Committee: (a) to establish, interpret, enforce, amend and revoke from time to time, such rules and regulations for the administration of the Plan and the conduct of its operations as it deems appropriate, provided such rules and regulations are uniformly applicable to all persons similarly situated, and (b) to retain such counsel and employ such accounting, clerical and other assistance as in its judgment may from time to time be required. Any action which the Plan Committee is required or authorized to take shall be final and binding upon each and every person who is or may become interested in the Plan. 2. Expenses The expenses of administering the Plan shall be paid by the Participating Companies on an allocated basis calculated on an annual basis by the Plan Committee using the pro rata Member ratio to the total number of Members. 7 ARTICLE IX - OTHER COMPANIES 1. Additional Companies Any Associated Company may, with the consent of the Board, and provided that the issue of Glenayre Common Shares to employees of the Associated Company may be effected without any filing of an additional prospectus or registration under applicable securities laws, become a Participating Company and shall become one upon its delivering to the Board a certified copy of a resolution duly adopted by its board of directors to the effect that it: (a) adopts the Plan as then in effect or thereafter amended, and (b) consents to have the Plan administered by the Plan Committee as constituted from time to time. 2. Withdrawal Any company which is a Participating Company, other than Glenayre, may cease to be a Participating Company at any time and shall cease to be one upon delivering to the Board a certified copy of a resolution to that effect duly adopted by its board of directors. 3. Divestiture If Glenayre ceases to have, either directly or indirectly through one or more intermediaries, a share interest in any company which is a Participating Company hereunder, such company shall cease to be a Participating Company as of the date on which Glenayre ceased to have such an interest. ARTICLE X - AMENDMENT AND TERMINATION 1. Amendment Glenayre reserves the right to amend the Plan in whole or in part at any time and from time to time. It shall promptly notify all Participating Companies of any such amendment. Any such amendment may be given retroactive effect, but may not deprive any Member or his legal representative without their consent of any contributions or Glenayre Common Shares held by Glenayre, the Transfer Agent, or a Participating Company for his account at the time of such amendment. 2. Termination Glenayre reserves the right to terminate the Plan at any time. 8 3. Effect of Termination Upon the termination of the Plan, the membership of every Member shall terminate and Glenayre shall, upon the election of each person who was a Member at the time of such termination using a form established by the Plan Committee: (a) pay to such person, within twenty (20) days, by check his Balance of Contributions without interest, or (b) apply such person's Balance of Contributions to the purchase of Glenayre Common Shares at a price equivalent to the Purchase Price established for the Six-Month Period in which such termination occurs, and shall as expeditiously as possible thereafter cause the Glenayre Common Shares purchased for the person under the Plan to be delivered to him. If such person fails to notify Glenayre of his election within five (5) days of such termination Glenayre shall be entitled to pay him his Balance of Contributions without interest. ARTICLE XI - MISCELLANEOUS 1. Effect of Certain Transactions The number of Glenayre Common Shares reserved for issuance under the Plan pursuant to Article III and the Purchase Price established for a Six-Month Period shall be appropriately adjusted to reflect any increase or decrease in the number of issued Glenayre Common Shares resulting from a stock split, a consolidation of shares, the payment of a stock dividend or any other capital adjustment affecting the number of issued Glenayre Common Shares. In the event that issued and outstanding Glenayre Common Shares shall be changed into or exchanged for a different number or kind of shares of stock or other securities of Glenayre or another corporation, whether through reorganization, recapitalization, merger, consolidation or otherwise, then there shall be substituted for each Glenayre Common Share reserved for issuance under the Plan but not yet purchased for Members, the number and kind of shares of stock or other securities into which each outstanding Glenayre Common Share shall be so changed or for which each such Glenayre Common Share shall be exchanged. The foregoing adjustments and the manner of application of the foregoing provisions shall be determined by the Plan Committee in its sole discretion. Any such adjustment may provide for the elimination of any fractional share which might otherwise be reserved for issuance or issued under the Plan. 2. Non-assignability No right or interest of any Member under the Plan, or in any assets or Glenayre Common Shares held by Glenayre, the transfer agent for Glenayre Common Shares or any Participating Company for his account shall be assignable or transferable in whole or in part, either directly, by operation of law or otherwise, except through devolution by death or incompetency, and no right or interest 9 of any Member under the Plan or in such assets shall be liable for or subject to any obligation or liability of such Member. 3. Right to Continued Employment Nothing in the Plan shall be construed as giving any Employee the right to be retained in the employ of any Participating Company or any right to any payment whatsoever except to the extent of the benefits provided for by the Plan. Each Participating Company expressly reserves the right to dismiss any Employee at any time without liability for the effect which such dismissal might have upon him as a Member of the Plan. 4. Registration No Glenayre Common Shares shall be issued for purposes of the Plan until such shares have been authorized for listing on each stock exchange on which such shares are required to be listed, nor may Glenayre Common Shares be offered under the Plan in jurisdictions in which registration of the Plan or Glenayre or the filing of a prospectus in respect thereof is required, unless Glenayre elects to effect such registration or filing, and thereafter until such registration or filing has been effected. 5. Construction The Plan shall be governed by and construed in accordance with the laws of the State of Delaware. 10 EX-10.3 5 g84304exv10w3.txt EX-10.3 1996 INCENTIVE STOCK PLAN EXHIBIT 10.3 GLENAYRE 1996 INCENTIVE STOCK PLAN CONTENTS

GLENAYRE 1996 INCENTIVE STOCK PLAN ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION 1.1 ESTABLISHMENT OF THE PLAN. Glenayre Technologies, Inc. hereby establishes an incentive compensation plan to be known as the "Glenayre 1996 Incentive Stock Plan" as set forth in this document. The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock and Performance Shares. Subject to approval by the Company's stockholders, the Plan shall become effective as of May 22, 1996 (the "Effective Date") and shall remain in effect as provided in Section 1.3 hereof. The Plan shall not become effective unless stockholder approval is obtained. 1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the success and enhance the value of the Company by linking the personal interests of Participants to those of the Company's stockholders, and by providing Participants with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract and retain the services of Participants upon whose judgment, interest and special effort the successful conduct of its operation largely is dependent. 1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date, as described in Section 1.1 hereof, and shall remain in effect, subject to the right of the Board of Directors to amend or terminate the Plan at any time pursuant to Article 16 hereof, until all Shares subject to it shall have been purchased or acquired according to the Plan's provisions. However, in no event may an Award of an ISO be granted under the Plan after May 21, 2006. ARTICLE 2. DEFINITIONS Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized: 2.1 "AWARD" means, individually and collectively, a grant under the Plan of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units or Performance Shares. 2.2 "AWARD AGREEMENT" means an agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to Awards granted under the Plan. 2.3 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the Company. 2.4 "CHANGE IN CONTROL" of the Company shall have occurred when any Acquiring Person (other than the Company, any employee benefit plan of the Company or any person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan), alone or together with its Affiliates and Associates, shall become the beneficial owner of 25% or more of the shares of Common Stock of the Company then outstanding (except pursuant to an offer for all outstanding shares of the Company's Common Stock at a price and upon such terms and provisions as a majority of the Continuing Directors determine to be in the best interests of the Company and its stockholders other than the Acquiring Person or any Affiliate or Associate thereof 1 on whose behalf the offer is being made), and the Continuing Directors no longer constitute a majority of the Board. For purposes of this definition, the following terms shall have the following meanings: (a) "Acquiring Person" means any individual, firm, corporation or other entity who or which, together with all Affiliates and Associates, shall be the beneficial owner of a substantial block of the Company's Common Stock. (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 as promulgated under the Exchange Act. (c) "Continuing Director" means any individual who is a member of the Board, while such individual is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative or nominee of an Acquiring Person or of any such Affiliate or Associate, and was a member of the Board prior to the occurrence of the Change in Control; or any successor of a Continuing Director, while such successor is a member of the Board, and who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative or nominee of an Acquiring Person or of any such Affiliate or Associate, and is recommended or elected to succeed the Continuing Director by a majority of the Continuing Directors. 2.5 "CODE" means the Internal Revenue Code of 1986, as amended from time to time. References to the Code shall include the valid and binding governmental regulations, court decisions and other regulatory and judicial authority issued or rendered thereunder. 2.6 "COMMITTEE" means the Compensation and Plan Administration Committee of the Board, as specified in Article 3 herein, appointed by the Board to administer the Plan. 2.7 "COMMON STOCK" means the $0.02 par value common stock of the Company. 2.8 "COMPANY" means Glenayre Technologies, Inc., a Delaware corporation, and any successor as provided in Article 19 herein. 2.9 "DIRECTOR" means any individual who is a member of the Board of Directors. 2.10 "DISABILITY," with respect to a Participant, means "disability" as defined from time to time under any long-term disability plan of the Company or Subsidiary with which the Participant is employed. 2.11 "EARNINGS PER SHARE" means "earnings per common share" of the Company determined in accordance with generally accepted accounting principles that would be reported in the Company's Annual Report to Stockholders. 2.12 "EFFECTIVE DATE" shall have the meaning ascribed to such term in Section 1.1 hereof. 2.13 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto. 2.14 "FAIR MARKET VALUE," with respect to a share of the Company's Common Stock at a particular time, shall be that value as determined by the Committee which shall be (i) if such Common Stock is listed on a national securities exchange (which includes the NASDAQ Stock 2 Market), on any given date, (A) the closing price of a share of Common Stock, as reported on the consolidated transaction reporting system for such exchange for that date, or if shares of Common Stock were not traded on such date, on the next preceding day on which shares of Common Stock were traded, or (B) if the Common Stock is not reported on the consolidated transaction reporting system for such exchange, the last price at which the Common Stock shall have been sold regular way on a national securities exchange on said date, or, if no sales occur on said date, then on the next preceding date on which there were such sales of Common Stock; or (ii) if the Common Stock shall not be listed on a national securities exchange, the mean between the average high bid and low asked prices last reported by the National Association of Securities Dealers, Inc. for the over-the-counter market on said date or, if no bid and asked prices are reported on said date, then on the next preceding date on which there were such quotations; or (iii) if at any time quotations for the Common Stock shall not be reported by the National Association of Securities Dealers, Inc. for the over-the-counter market and the Common Stock shall not be listed on any national securities exchange, the fair market value determined by the Committee on the basis of available prices for such Common Stock or in such other manner as the Committee may deem reasonable. 2.15 "FREESTANDING SAR" means an SAR that is granted independently of any Option. 2.16 "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares, granted under Article 6 herein, and which is designated an Incentive Stock Option intended to meet the requirements of Section 422 of the Code. 2.17 "INSIDER" shall mean an individual who is, on the relevant date, an officer, director or 10% beneficial owner of any class of the Company's equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act. 2.18 "KEY PERSON" means an employee or officer of the Company or a Subsidiary, in a managerial or other position, who can make important contributions to the Company or a Subsidiary or a key person providing important services to the Company or a Subsidiary, all as determined by the Committee in its discretion. 2.19 "NAMED EXECUTIVE OFFICER" means, for a calendar year, a Participant who is one of the group of "covered employees" for such calendar year within the meaning of Code Section 162(m) or any successor statute. 2.20 "NET INCOME" means "net income" of the Company determined in accordance with generally accepted accounting principles that would be reported in the Company's Annual Report to Stockholders. 2.21 "NET SALES" means the "net sales" of the Company determined in accordance with generally accepted accounting principles that would be reported in the Company's Annual Report to Stockholders. 2.22 "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase Shares granted to Key Persons under Article 6 or to non-officer Directors under Article 15 which is not intended to meet the requirements of Code Section 422. 2.23 "OPTION" means an Incentive Stock Option or a Nonqualified Stock Option. 2.24 "OPTION PRICE" means the price at which a Share may be purchased by a Participant upon the exercise of an Option. 3 2.25 "PARTICIPANT" means a person who has outstanding an Award granted under the Plan. 2.26 "PERFORMANCE-BASED EXCEPTION" means the performance-based exception set forth in Code Section 162(m)(4)(C) from the deductibility limitations of Code Section 162(m). 2.27 "PERFORMANCE SHARE" means an AWARD granted to a Participant pursuant to Article 9 herein. 2.28 "PERIOD OF RESTRICTION" means the period during which the transfer of Shares of Restricted Stock is limited in some way (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Committee, at its discretion), and the Shares are subject to a substantial risk of forfeiture, as provided in Article 8 herein. 2.29 "RESTRICTED STOCK" means an Award granted to a Participant pursuant to Article 8 herein. 2.30 "SHARES" means shares of Common Stock of the Company. 2.31 "STOCK APPRECIATION RIGHT" or "SAR" means an Award granted alone or in connection with a related Option to a Participant pursuant to Article 7 herein. 2.32 "SUBSIDIARY" means any corporation, partnership, joint venture, affiliate or other entity in which the Company has an ownership interest, and which the Committee designates as a participating entity in the Plan. 2.33 "TANDEM SAR" means an SAR that is granted in connection with a related Option, the exercise of which shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR shall similarly be canceled). 2.34 "TOTAL STOCKHOLDER RETURN" means the percentage change in value of an initial investment in Shares over a specified period assuming reinvestment of all dividends during the period. 2.35 "EFFECTIVE AMENDMENT DATE" means the date on which the stockholders of the Company approve the amendment to the Plan to increase the number of Shares reserved for grants of Awards under the Plan by an additional 2,200,000 Shares. 2.36 "SECOND EFFECTIVE AMENDMENT DATE" means that date on which the stockholders of the Company approve the amendment to the Plan to increase the number of Shares reserved for grants of Awards under the Plan by an additional 750,000 Shares. 2.37 "THIRD EFFECTIVE AMENDMENT DATE" means that date on which the stockholders of the Company approve the amendment to the Plan to increase the number of shares reserved for grants of Awards under the Plan by an additional 2,500,000 Shares. 2.38 "FOURTH EFFECTIVE AMENDMENT DATE" means that date on which the stockholders of the Company approve the amendment to the Plan to increase the number of Shares for grants of Awards under the Plan by an additional 2,000,000 Shares. 4 2.39 "RESTRICTED STOCK UNIT" OR "UNIT" means an Award granted to a Participant pursuant to Article 15A herein. ARTICLE 3. ADMINISTRATION 3.1 THE COMMITTEE. The Plan shall be administered by the Plan Administration Committee of the Board or by any other Committee appointed by the Board consisting of not less than two (2) Directors. All of the members of the Committee shall comply with the "disinterested administration" rules of Rule 16b-3 under the Exchange Act, if applicable. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board of Directors. In addition, any action taken with respect to Named Executive Officers for purposes of meeting the Performance-Based Exception shall be taken by the Committee only if all of the members of the Committee are "outside directors" within the meaning of Code Section 162(m), subject to any applicable transition rules under Code Section 162(m). If all of the members of the Committee are not "outside directors," such action shall be taken by a subcommittee of the Committee comprised of at least two members who are "outside directors." 3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law, or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions herein, the Committee shall have full power to select Key Persons who shall participate in the Plan; determine the sizes and types of Awards; determine the terms and provisions of Awards in a manner consistent with the Plan; construe and interpret the Plan and any agreement or instrument entered into under the Plan; establish, amend or waive rules and regulations for the Plan's administration; and (subject to the provisions of Article 16 herein), amend the terms and provisions of any outstanding Award to the extent such terms and provisions are within the discretion of the Committee as provided in the Plan. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. To the extent permitted by law, the Committee may delegate its authority hereunder. 3.3 DECISIONS BINDING. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Board shall be final, conclusive and binding on all persons, including the Company, its stockholders, employees, Participants and their estates and beneficiaries. ARTICLE 4. SHARES SUBJECT TO THE PLAN. 4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Beginning on the Effective Date, there is hereby reserved for grants of Awards under the Plan 2,200,000 Shares. Beginning on the Effective Amendment Date, there is hereby reserved for grants of Awards under the Plan an additional 2,200,000 Shares. Beginning on the Second Effective Amendment Date, there is hereby reserved for grants of Awards under the Plan an additional 750,000 Shares, provided that the persons who are eligible for such grants shall be limited to those persons described in Section 5.1. Beginning on the Third Effective Amendment Date, there is hereby reserved for grants of Awards under the Plan an additional 2,500,000 Shares. Beginning on the Fourth Effective Amendment Date, there is hereby reserved for grants of Awards under the Plan an additional 2,000,000 Shares. The number of Shares reserved for grants of Awards under this paragraph shall be subject to adjustment as provided in Section 4.3. In no event shall a Participant receive an Award or Awards during any one calendar year ending prior to the Second Effective Amendment Date covering in the aggregate more than 250,000 Shares or during any one calendar year ending on or after the Second Effective 5 Amendment Date covering in the aggregate more than 500,000 Shares. The limitation on awards to a Participant during a calendar year under this paragraph shall be subject to adjustment as provided in Section 4.3. In no event shall the Committee grant Restricted Stock Awards under Article 8 herein or Restricted Stock Unit Awards under Article 15A herein covering in the aggregate more than 550,000 Shares of Common Stock. 4.2 LAPSED AWARDS. If any Award granted under the Plan is canceled, terminates, expires or lapses for any reason (with the exception of the termination of a Tandem SAR upon exercise of the related Option, or the termination of a related Option upon exercise of the corresponding Tandem SAR), any Shares subject to such Award again shall be available for the grant of an Award under the Plan. 4.3 ADJUSTMENTS IN AVAILABLE SHARES. In the event of any change in corporate capitalization, such as a stock split, or a corporate transaction, such as any merger, consolidation, separation, including a spin-off or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368) or any partial or complete liquidation of the Company, such adjustment shall be made in the number and class of Shares which may be delivered under the Plan, in the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan and in the limitation on awards to a Participant during a calendar year, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent the dilution or enlargement of rights under the Plan; provided, however, that the number of Shares subject to any Award shall always be a whole number. ARTICLE 5. ELIGIBILITY AND PARTICIPATION 5.1 ELIGIBILITY. Persons eligible to participate in the Plan are Key Persons, as determined by the Committee, and any non-officer Director who participates in the Plan pursuant to Article 15. The Key Persons who are eligible for grants of Awards covering the 750,000 Shares reserved under the Plan on the Second Effective Amendment Date shall be limited to: (i) a Chief Executive Officer of the Company hired after March 1, 1999; (ii) a Chief Financial Officer of the Company hired after March 1, 1999; and (iii) any other senior executive of the Company or a Subsidiary (as determined by the Committee) hired after March 1, 1999. 5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible Key Persons those to whom Awards shall be granted and shall determine the nature and amount of each Award. Non-officer Directors shall be granted Awards in accordance with the provisions of Article 15. ARTICLE 6. STOCK OPTIONS 6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan, Options may be granted to Key Persons in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee. 6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains and such other provisions as the Committee shall determine. The Award Agreement also 6 shall specify whether the Option is intended to be an ISO within the meaning of Section 422 of the Code, or an NQSO whose grant is intended not to fall under Code Section 422. 6.3 OPTION PRICE. The Committee shall determine the Option Price for each grant of an Option under this Article 6, which such Option Price shall be set forth in the applicable Award Agreement; provided, however, that the Option Price shall be at least equal to 100% of the Fair Market Value of a Share on the date the Option is granted with respect to the grant of either (i) an Option granted to a Named Executive Officer that is intended to satisfy the Performance-Based Exception or (ii) an ISO. 6.4 DURATION OF OPTIONS. Each Option shall expire at such time as the Committee shall determine at the time of grant; provided, however, that no Option shall be exercisable later than the 10th anniversary date of its grant. 6.5 EXERCISE OF OPTIONS. Options granted under this Article 6 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve and which shall be set forth in the applicable Award Agreement, which need not be the same for each grant or for each Participant. 6.6 PAYMENT. Options shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. The Option Price upon exercise of any Option shall be payable to the Company in full either: (a) in cash or its equivalent, (b) by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Option Price (provided that the Shares which are tendered to satisfy the Option Price must have been held by the Participant for at least six months prior to their tender), or (c) by a combination of (a) and (b). The Committee also may allow cashless exercise as permitted under the Federal Reserve Board's Regulation G or Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law. As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant's name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s). 6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable, including without limitation, restrictions under applicable Federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded and under any blue sky or state securities laws applicable to such Shares. 6.8 TERMINATION OF EMPLOYMENT. Each Option Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant's employment with the Company and its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with the Participant, need not be uniform among all Options issued pursuant to this Article 6, may reflect distinctions based on the reasons for termination of employment and may include provisions relating to the Participant's competition with the Company after termination of employment. In that regard, if an Award Agreement permits exercise of an Option following the 7 death of the Participant, the Award Agreement shall provide that such Option shall be exercisable to the extent provided therein by any person that may be empowered to do so under the Participant's will, or if the Participant shall fail to make a testamentary disposition of the Option or shall have died intestate, by the Participant's executor or other legal representative. 6.9 NONTRANSFERABILITY of OPTIONS. (a) INCENTIVE STOCK OPTIONS. No ISO granted under this Article 6 may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant. (b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a Participant's Award Agreement, no NQSO granted under this Article 6 may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, all NQSOs granted to a Participant under this Article 6 shall be exercisable during his or her lifetime only by such Participant. 6.10 NO RIGHTS. A Participant granted an Option shall have no rights as a stockholder of the Company with respect to the Shares covered by such Option except to the extent that Shares are issued to the Participant upon the due exercise of the Option. ARTICLE 7. STOCK APPRECIATION RIGHTS 7.1 GRANT OF SARS. Subject to the terms and provisions of the Plan, SARs may be granted to Key Persons in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee. The Committee may grant Freestanding SARs, Tandem SARs or any combination of these forms of SARs. The Committee shall have complete discretion in determining the number of Shares covered by SARs granted hereunder (subject to Article 4 herein) and, consistent with the provisions of the Plan, in determining the terms and provisions pertaining to such SARs. The number of Shares covered by a Freestanding SAR shall be counted against the number of Shares available for grants of Awards under Section 4.1, but the number of Shares covered by a Tandem SAR shall not be so counted. The grant price of a Freestanding SAR shall equal the Fair Market Value of a Share on the date of grant of the SAR. The grant price of Tandem SARs shall equal the Option Price of the related Option. 7.2 EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. Notwithstanding any other provision of the Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR will expire no later than the expiration of the underlying ISO; (ii) the value of the payout with respect to the Tandem SAR may be for no more than 100% of the difference between the Option Price of the underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (iii) 8 the Tandem SAR may be exercised only when the Fair Market Value of the Shares subject to the ISO exceeds the Option Price of the ISO. 7.3 EXERCISE OF FREESTANDING SARS. Freestanding SARs may be exercised upon whatever terms and provisions the Committee, in its sole discretion, imposes upon them. 7.4 SAR AGREEMENT. Each SAR grant shall be evidenced by an Award Agreement that shall specify the grant price, the term of the SAR and such other provisions as the Committee shall determine. 7.5 TERM OF SARS. The term of an SAR granted under the Plan shall be determined by the Committee, in its sole discretion; provided, however, that such term shall not exceed 10 years. 7.6 PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying: (a) The difference between the Fair Market Value of a Share on the date of exercise over the grant price; by (b) The number of Shares with respect to which the SAR is exercised. At the discretion of the Committee, the payment upon SAR exercise may be in cash, in Shares of equivalent value or in some combination thereof; provided, however, that from and after the date of a Change in Control, the exercise of an SAR may be settled only in cash. 7.7 RULE 16B-3 REQUIREMENTS. Notwithstanding any other provision of the Plan, the Committee may impose such conditions on exercise of an SAR (including without limitation, the right of the Committee to limit the time of exercise to specified periods) as may be required to satisfy the requirements of Section 16 (or any successor provision) of the Exchange Act. 7.8 TERMINATION OF EMPLOYMENT. Each SAR Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the SAR following termination of the Participant's employment with the Company and its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with the Participant, need not be uniform among all SARs issued pursuant to the Plan and may reflect distinctions based on the reasons for termination of employment. In that regard, if an Award Agreement permits exercise of an SAR following the death of the Participant, the Award Agreement shall provide that such SAR shall be exercisable to the extent provided therein by any person that may be empowered to do so under the Participant's will, or if the Participant shall fail to make a testamentary disposition of the SAR or shall have died intestate, by the Participant's executor or other legal representative. 7.9 NONTRANSFERABILITY OF SARS. Except as otherwise provided in a Participant's Award Agreement, no SAR granted under this Article 7 may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, all SARs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant. 7.10 NO RIGHTS. A Participant granted an SAR shall have no rights as a stockholder of the Company with respect to the Shares covered by such SAR except to the extent that Shares are issued to the Participant upon the due exercise of the SAR. 9 ARTICLE 8. RESTRICTED STOCK 8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the Plan, Restricted Stock may be granted to Key Persons in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee. 8.2 RESTRICTED STOCK AWARD AGREEMENT. Each Restricted Stock grant shall be evidenced by a Restricted Stock Award Agreement that shall specify the Period of Restriction, the number of Shares of Restricted Stock granted and such other provisions as the Committee shall determine. 8.3 TRANSFERABILITY. Except as provided in this Article 8, the Shares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Restricted Stock Award Agreement, or upon earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Restricted Stock Agreement. All rights with respect to the Restricted Stock granted to a Participant under the Plan shall be available during his or her lifetime only to such Participant. 8.4 OTHER RESTRICTIONS. The Committee may impose such other conditions and/or restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock, restrictions based upon the achievement of specific performance goals (Company-wide, divisional, and/or individual), time-based restrictions on vesting following the attainment of the performance goals and/or restrictions under applicable Federal or state securities laws. The Company shall retain the certificates representing Shares of Restricted Stock in the Company's possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied. Except as otherwise provided in this Article 8 or in the applicable Award Agreement, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the Period of Restriction. 8.5 VOTING RIGHTS. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares. 8.6 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may be credited with regular cash dividends paid with respect to the underlying Shares while they are so held. The Committee may apply any restrictions to the dividends that the Committee deems appropriate. In the event that any dividend constitutes a "derivative security" or an "equity security" pursuant to Rule 16(a) under the Exchange Act, such dividend shall be subject to a vesting period equal to the remaining vesting period of the Shares of Restricted Stock with respect to which the dividend is paid. 8.7 TERMINATION OF EMPLOYMENT. Each Restricted Stock Award Agreement shall set forth the extent to which the Participant shall have the right to receive unvested Restricted Shares following termination of the Participant's employment with the Company and its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with Participants, need not be uniform among all Shares of Restricted Stock 10 issued pursuant to the Plan and may reflect distinctions based on the reasons for termination of employment; provided, however, that except in cases of terminations resulting from a Change in Control and terminations by reason of death or Disability, payment of an Award of Restricted Stock which is intended to qualify for the Performance-Based Exception may not occur before attainment of the related performance goal. ARTICLE 9. PERFORMANCE SHARES 9.1 GRANT OF PERFORMANCE SHARES. Subject to the terms and provisions of the Plan, Performance Shares may be granted to eligible Key Persons in such amount and upon such terms, and at any time and from time to time as shall be determined by the Committee. The number and/or vesting of Performance Shares granted, in the Committee's discretion, shall be contingent upon the degree of attainment of specified performance goals or other conditions over a specified period (the "Performance Period"). The terms and provisions of an Award of Performance Shares shall be evidenced by an appropriate Award Agreement. 9.2 VALUE OF PERFORMANCE SHARES. The value of a Performance Share at any time shall equal the Fair Market Value of a Share at such time. 9.3 FORM AND TIMING OF PAYMENT OF PERFORMANCE SHARES. During the course of a Performance Period, the Committee shall determine the number of Performance Shares as to which the Participant has earned a right to be paid pursuant to the terms of the applicable Award Agreement. The Committee shall pay any earned Performance Shares as soon as practicable after they are earned in the form of cash, Shares or a combination thereof (as determined by the Committee) having an aggregate Fair Market Value equal to the value of the earned Performance Shares as of the date they are earned. Any Shares used to pay out earned Performance Shares may be granted subject to any restrictions deemed appropriate by the Committee. In addition, the Committee, in its discretion, may cancel any earned Performance Shares and grant Stock Options to the Participant which the Committee determines to be of equivalent value based on a conversion formula stated in the Performance Shares Award Agreement. The Committee, in its discretion, may also grant dividend equivalents rights with respect to earned but unpaid Performance Shares as evidenced by the applicable Award Agreement. Performance Shares shall not have any voting rights. 9.4 TERMINATION OF EMPLOYMENT. Each Performance Share Award Agreement shall set forth the extent to which the Participant shall have the right to receive unearned Performance Shares following termination of the Participant's employment with the Company and its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with the Participant, need not be uniform among all Performance Shares awarded pursuant to the Plan and may reflect distinctions based on the reasons of termination of employment; provided, however, that except in cases of terminations resulting from a Change in Control and terminations by reason of death or Disability, payment of an Award of Performance Shares which is intended to qualify for the Performance-Based Exception may not occur before attainment of the related performance goal. 9.5 NONTRANSFERABILITY. Except as otherwise provided in a Participant's Award Agreement, Performance Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, a Participant's rights under the Plan shall be exercisable during the Participant's lifetime only by the Participant. 11 ARTICLE 10. PERFORMANCE MEASURES The performance measure(s) to be used for purposes of Awards (other than Options) to Named Executive Officers which are designed to qualify for the Performance-Based Exception shall be chosen from among the following alternatives: (a) Earnings Per Share; (b) Net Income; (c) Net Sales; or (d) Total Stockholder Return. In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing performance measures without obtaining stockholder approval of such changes, the Committee shall have the discretion to make such changes without obtaining stockholder approval. ARTICLE 11. BENEFICIARY DESIGNATION Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Company and will be effective only when filed by the Participant in writing with the Company during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. ARTICLE 12. DEFERRALS The Committee may permit a Participant to defer such Participant's receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant by virtue of the exercise of an Option or SAR, the lapse or waiver of restrictions with respect to Restricted Stock or the satisfaction of any requirements or goals with respect to Performance Shares. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals. ARTICLE 13. RIGHTS OF KEY PERSONS 13.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or Subsidiary. For purposes of the Plan, a transfer of a Participant's employment between the Company and a Subsidiary, or between Subsidiaries, shall not be deemed to be a termination of employment. 13.2 PARTICIPATION. No Key Person shall have the right to be selected to receive an Award under the Plan or, having been so selected, to be selected to receive a future Award. 12 ARTICLE 14. CHANGE IN CONTROL 14.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in Control, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges: (a) Any and all Options and SARs granted hereunder shall become immediately exercisable, and shall remain exercisable throughout their entire term; (b) Any restriction periods and restrictions imposed on shares of Restricted Stock shall lapse; and (c) The target payout opportunities attainable under all outstanding Awards of Restricted Stock and Performance Shares shall be deemed to have been fully earned for the entire Performance Period(s) as of the effective date of the Change in Control, and the vesting of all Awards shall be accelerated as of the effective date of the Change in Control. 14.2 LIMITATION ON CHANGE-IN-CONTROL BENEFITS. (a) It is the intention of the Company and the Participants to reduce the amounts payable or distributable to a Participant hereunder if the aggregate Net After Tax Receipts (as defined below) to the Participant would thereby be increased, as a result of the application of the excise tax provisions of Section 4999 of the Code. Accordingly, anything in the Plan to the contrary notwithstanding, in the event that the independent accountants regularly employed by the Company immediately prior to any "change" described below (the "Accounting Firm") shall determine that receipt of all Payments (as defined below) would subject the Participant to tax under Section 4999 of the Code, it shall determine whether some amount of Payments would meet the definition of a "Reduced Amount," (as defined below). If the Accounting Firm determines that there is a Reduced Amount, the aggregate Payments shall be reduced to such Reduced Amount in accordance with the provisions of Section 14.2(b) below. For purposes of this Section 14.2(a): (i) A "Payment" shall mean any payment or distribution in the nature of compensation to or for the benefit of a Participant who is a "disqualified individual" within the meaning of Section 280G(c) of the Code and which is contingent on a "change" described in Section 280G(b)(2)(A)(i) of the Code with respect to the Company, whether paid or payable pursuant to the Plan or otherwise; (ii) "Plan Payment" shall mean a Payment paid or payable pursuant to the Plan (disregarding this Section 14.2); (iii) "Net After Tax Receipt" shall mean the Present Value of a Payment, net of all taxes imposed on the Participant with respect thereto under Sections 1 and 4999 of the Code, determined by applying the highest marginal rate under Section 1 of the Code which applied to the Participant's Federal taxable income for the immediately preceding taxable year; (iv) "Present Value" shall mean such value determined in accordance with Section 280G(d)(4) of the Code; and (v) "Reduced Amount" shall mean the smallest aggregate amount of Payments which (A) is less than the sum of all Payments and (B) results in aggregate Net After Tax Receipts 13 which are equal to or greater than the Net After Tax Receipts which would result if all Payments were paid to or for the benefit of the Participant. (b) If the Accounting Firm determines that aggregate Payments should be reduced to the Reduced Amount, the Committee shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof, and the Participant may then elect, in the Participant's sole discretion, which and how much of the Payments, including without limitation Plan Payments, shall be eliminated or reduced (as long as after such election the Present Value of the aggregate Payments is equal to the Reduced Amount), and shall advise the Committee in writing of such election within 10 days of the Participant's receipt of notice. If no such election is made by the Participant within such 10 day period, the Committee may elect which of the Payments, including without limitation Plan Payments, shall be eliminated or reduced (as long as after such election the Present Value of the aggregate Payments is equal to the Reduced Amount) and shall notify the Participant promptly of such election. All determinations made by the Accounting Firm under this Section 14.2 shall be binding upon the Company and the Participant and shall be made within 60 days immediately following the event constituting the "change" referred to above. As promptly as practicable following such determination, the Company shall pay to or distribute for the benefit of the Participant such Payments as are then due to the Participant under the Plan. (c) At the time of the initial determination by the Accounting Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of the Participant pursuant to the Plan which should not have been so paid or distributed ("Overpayment") or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of the Participant pursuant to the Plan could have been so paid or distributed ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Accounting Firm, based either upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant which the Accounting Firm believes has a high probability of success or controlling precedent or other substantial authority, determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of the Participant shall be treated for all purposes as a loan ab initio to the Participant which the Participant shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be deemed to have been made and no amount shall be payable by the Participant to the Company if and to the extent such deemed loan and payment would not either reduce the amount on which the Participant is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Accounting Firm, based upon controlling precedent or other substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Participant together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. 14.3 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL PROVISIONS. Notwithstanding any other provision of the Plan or any Award Agreement provision, the provisions of this Article 14 may not be terminated, amended or modified on or after the date of a Change in Control to affect adversely any Award theretofore granted under the Plan without the prior written consent of the Participant with respect to said Participant's outstanding Awards; provided, however, the Board of Directors, upon recommendation of the Committee, may terminate, amend or modify this Article 14 at any time and from time to prior to the date of a Change in Control. 14 ARTICLE 15. AWARDS TO NON-OFFICER DIRECTORS 15.1 AWARDS UNDER PRIOR PLAN. Each non-officer Director on July 15, 1992 was granted an option under the Glenayre Technologies, Inc. Long-Term Incentive Plan (the "Prior Plan") to purchase Common Stock on the later of October 30, 1992 or the date such Director completed three years of service on the Board. Each non-officer Director elected to the Board for the first time after July 15, 1992 was granted an option under the Prior Plan to purchase Common Stock on the third anniversary of the Director's service on the Board. Thereafter, each non-officer Director was awarded an additional option under the Prior Plan to purchase Common Stock on the third anniversary of the initial option award. 15.2 AWARDS UNDER THE PLAN. (a) Between May 22, 1996 (the date the Plan was approved by the Company's stockholders) and April 17, 1997, the provisions of this Section 15.2(a) applied to the grant of Nonqualified Stock Options to non-officer Directors. Each non-officer Director, who was awarded an option under the Prior Plan to purchase Common Stock as described in Section 15.1 shall be granted a Nonqualified Stock Option to purchase 18,000 shares of Common Stock upon each third anniversary of the date on which such option was granted under the Prior Plan, if he or she is then a non-officer Director. Each non-officer Director who was not awarded an option under the Prior Plan shall be granted a Nonqualified Stock Option to purchase 18,000 shares of Common Stock upon the date such non-officer Director completes 3 years of service as a non-officer Director and upon each third anniversary date thereafter, if he or she is then a non-officer Director. (b) On and after April 18, 1997, the following provisions of this Section 15.2(b) shall apply to the grant of Nonqualified Stock Options to non-officer Directors in lieu of the grant of Nonqualified Stock Options pursuant to Section 15.2(a) hereof: (1) Each non-officer Director, who is first elected a Director on or after April 18, 1997, shall be granted a Nonqualified Stock Option to purchase 30,000 shares of Common Stock on the date of his or her election as such and upon each third anniversary date thereafter, if he or she is then a non-officer Director. (2) Each non-officer Director, who first becomes a non-officer Director on or after April 18, 1997 and who was an officer Director immediately prior to becoming a non-officer Director, shall be granted a Nonqualified Stock Option to purchase 30,000 shares of Common Stock on the date he or she first becomes a non-officer Director and upon each third anniversary date thereafter, if he or she is then a non-officer Director. (3) Each non-officer Director, who is a non-officer Director on April 18, 1997 and who was not granted a Nonqualified Stock Option in 1997 pursuant to Section 15.2(b)(1) or (2) above, shall be granted a Nonqualified Stock Option to purchase 30,000 shares of Common Stock on April 18, 1997 and upon each third anniversary date thereafter, if he or she is then a non-officer Director. (c) For purposes of this Article 15, a "non-officer Director" shall mean a Director of the Company who is not performing services as an employee of the Company or a Subsidiary regardless of whether such Director may hold an office in the Company or a Subsidiary such as Chairman of the Board or Vice Chairman of the Board. (d) Each Option granted under this Article 15 shall be evidenced by an Award Agreement. 15 15.3 OPTION PRICE. The Option Price for each Option granted under this Article 15 shall be equal to the Fair Market Value of a Share on the date the Option is granted. 15.4 EXERCISE AND DURATION OF OPTION. Options granted under this Article 15 prior to April 18, 1997 shall be immediately exercisable. Options granted under this Article 15 on or after April 18, 1997 shall be vested and immediately exercisable as to one-third of the shares; an additional one-third of the shares shall become vested and exercisable on the first anniversary of the date of grant and the balance shall become vested and exercisable on the second anniversary of the date of grant. A non-officer Director shall forfeit the portion of any Option granted under this Article 15 on or after April 18, 1997 that has not become vested and exercisable prior to the date such non-officer Director's service on the Board terminates. Vested and exercisable Options shall remain exercisable for 10 years from the date of grant, whether or not the Director's service on the Board continues during such period. 15.5 PAYMENTS. Options shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. The Option Price upon exercise of any Option shall be payable to the Company in full either: (a) in cash or its equivalent, (b) by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Option Price (provided that the Shares which are tendered to satisfy the Option Price must have been held by the Director for at least six months prior to their tender), or (c) by a combination of (a) and (b). As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Director, in the Director's name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s). 15.6 NONTRANSFERABILITY OF OPTIONS. No Options granted under this Article 15 may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, Options granted to a Director under this Article 15 shall be exercisable during his or her lifetime only by such Director. 15.7 NO RIGHTS. A Director granted an Option under this Article 15 shall have no rights as a stockholder of the Company with respect to the Shares covered by such Option except to the extent that shares are issued to the Director upon the due exercise of the Option. 15.8 LIMITATION ON AWARDS. Notwithstanding anything to the contrary herein, (i) no Awards shall be made pursuant to this Article 15 to a Director who is an employee of the Company or any Subsidiary; (ii) no awards shall be made pursuant to this Article 15 following the suspension or termination of the Plan pursuant to Article 16; and (iii) no awards shall be made pursuant to this Article 15 unless shares of Common Stock are available therefor under Section 4.1. ARTICLE 15A. RESTRICTED STOCK UNIT AWARDS TO NON-OFFICER DIRECTORS 15A.1 RESTRICTED STOCK UNIT AWARDS. (a) Each non-officer Director shall be granted Restricted Stock Units (with each Unit to be equivalent to one Share of Common Stock) as follows: 16 (1) Each non-officer Director who is a non-officer Director on May 20, 2003 shall be granted Restricted Stock Units, with the number of such Units to equal $3,450 divided by the Fair Market Value of a Share of the Common Stock on the first trading day in 2003. (2) In connection with each Annual Meeting of the Stockholders of the Company, beginning with the 2003 Annual Meeting, each non-officer Director whose term as a non-officer Director begins on, or continues beyond, such Annual Meeting shall be granted Restricted Stock Units, with the number of such Units to equal $9,000 (or such greater dollar amount as the Committee shall determine from time to time) divided by the Fair Market Value of a Share of Common Stock on the last trading day immediately preceding such Annual Meeting. (3) Each non-officer Director who first becomes a non-officer Director after May 20, 2003, other than at an Annual Meeting of the Stockholders of the Company (e.g., by being elected to fill the unexpired term of another Director or becoming a non-officer Director after having been an officer Director) shall be granted Restricted Stock Units, with the number of Units to equal the Pro Rata Amount divided by the Fair Market Value of a Share of the Common Stock on the last trading day immediately prior to the date such individual becomes a non-officer Director. For this purpose, the "Pro Rata Amount" shall be an amount equal to $9,000 (or the greater dollar amount determined by the Committee pursuant to Section 15A.1(a)(2)) multiplied by a fraction, the numerator of which is the approximate number of days (as determined by the Committee) from the date on which the individual becomes a non-officer Director until the next Annual Meeting of the Stockholders of the Company and the denominator of which is 365. In determining the number of Restricted Stock Units to be granted to a Director under this Article 15A, all fractions shall be rounded up to the next whole number. (b) For purposes of this Article 15A, a "non-officer Director" shall have the same meaning as set forth in Section 15.2(c). (c) Each grant of Restricted Stock Units shall be evidenced by an Award Agreement. 15A.2 VESTING. Restricted Stock Units granted under this Article 15A shall be vested as to one-third of the Units on the first anniversary of the date of grant; an additional one-third of the Units shall become vested on the second anniversary of the date of grant; and the balance shall become vested on the third anniversary of the date of grant. For any of the Restricted Stock Units granted under this Article 15A that have not become vested prior to the date such non-officer Director's service on the Board terminates, (i) if such termination is on account of such non-officer Director's voluntary resignation or involuntary removal, then such non-vested Units shall be forfeited, provided that any non-vested Units granted to such non-officer Director during a prior term as a Director (rather than the term during which the termination of service occurs) shall not be forfeited and will continue to vest according to the vesting schedule provided in this Section 15A.2, or (ii) if such termination is for any other reason (including death, disability or the expiration of such non-officer Director's term as a Director), then such non-vested Units shall not be forfeited and will continue to vest according to the vesting schedule provided in this Section 15A.2. 15A.3 ISSUANCE OF SHARES UPON VESTING. Each non-officer Director shall be entitled to receive one Share of Common Stock for each Unit that has become vested pursuant to Section 17 15A.2. Such Shares shall be issued to the non-officer Director as soon as practicable after such vesting. 15A.4 NONTRANSFERABILITY OF UNITS. Restricted Stock Units may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Any Shares of Common Stock issued as payment of vested Restricted Stock Units are not subject to such restrictions. 15A.5 NO VOTING RIGHTS. Non-officer Directors holding Restricted Stock Units granted under this Article 15A shall not be entitled to exercise any voting rights with respect to such Units. 15A.6 DIVIDEND EQUIVALENTS. Non-officer Directors holding Restricted Stock Units granted under this Article 15A shall be credited with an amount equal to the dividends that would have been paid if the Units were Shares. 15A.7 LIMITATION ON AWARDS. Notwithstanding anything to the contrary contained herein, (i) no Awards of Restricted Stock Units pursuant to this Article 15A shall be made to a Director who is an employee of the Company or a Subsidiary; (ii) no Awards of Restricted Stock Units shall be made pursuant to this Article 15A following the suspension or termination of the Plan pursuant to Article 16; and (iii) no Awards of Restricted Stock Units shall be made pursuant to this Article 15A unless Shares of Common Stock are available therefor under Section 4.1. ARTICLE 16. AMENDMENT, MODIFICATION AND TERMINATION 16.1 AMENDMENT, MODIFICATION, AND TERMINATION. The Board may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part; provided, however, that no amendment which requires stockholder approval in order for the Plan to continue to comply with Rule 16b-3 under the Exchange Act, including any successor to such Rule, shall be effective unless such amendment shall be approved by the requisite vote of stockholders of the Company entitled to vote thereon. The Committee shall not have the authority to cancel outstanding Awards and issue substitute Awards in replacement thereof. In no event shall any issued and outstanding Option be repriced to a lower Option Price at any time during the term of such Option, without the prior affirmative vote of a majority of shares of stock of the Company present at a stockholders meeting in person or by proxy and entitled to vote thereon. Any amendment or repeal of this provision shall require the affirmative vote of a majority of shares of stock of the Company present at a stockholders meeting in person or by proxy and entitled to vote thereon. 16.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award. 16.3 ACCELERATION OF AWARD VESTING; WAIVER OF RESTRICTIONS. Notwithstanding any provision of the Plan or any Award Agreement provision to the contrary, the Committee, in its sole and exclusive discretion, shall have the power at any time to (i) accelerate the vesting of any Award granted under the Plan, including without limitation, acceleration to such a date that would result in 18 said Awards becoming immediately vested or (ii) waive any restrictions of any Award granted under the Plan. ARTICLE 17. WITHHOLDING 17.1 TAX WITHHOLDING. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any taxable event arising as a result of the Plan. 17.2 SHARE WITHHOLDING. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock or upon any other taxable event arising as a result of Awards granted hereunder, Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date as of which the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction. All such elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate. ARTICLE 18. INDEMNIFICATION Each person who is or shall have been a member of the Committee or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or Bylaws, as a matter of law or otherwise, or any power that the Company may have to indemnify them or hold them harmless. ARTICLE 19. SUCCESSORS All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business and/or assets of the Company. ARTICLE 20. LEGAL CONSTRUCTION 20.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 20.2 SEVERABILITY. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 19 20.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 20.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions under the Plan are intended to comply with all applicable conditions or Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 20.5 GOVERNING LAW. To the extent not preempted by Federal law, the Plan, and all Award Agreements hereunder, shall be construed in accordance with and governed by the laws of the State of North Carolina. This document incorporates the Plan and subsequent amendments adopted on January 20, 1997, May 21, 1998, December 18, 1998 , May 25, 1999, May 11, 2000 and May 20, 2003. 20 EX-15.1 6 g84304exv15w1.txt EX-15.1 UNAUDITED FINANCIAL INFORMATION EXHIBIT 15.1 To the Board of Directors and Stockholders of Glenayre Technologies, Inc. Atlanta, Georgia We are aware of the incorporation by reference in the Registration Statement Number 33-43797 on Form S-8 dated November 5, 1991, Registration Statement Number 33-68766 on Form S-8 dated September 14, 1993, Registration Statement Number 33-80464 on Form S-8 dated June 17, 1994, Registration Statement Number 333-04635 on Form S-8 dated May 28, 1996 (amended by Post-Effective Amendment Number 1 on Form S-8 dated May 22, 1998), Registration Statement Number 333-15845 on Form S-4 dated November 8, 1996 (amended by Post-Effective Amendment Number 1 on Form S-8 dated January 30, 1997), Registration Statement Number 333-38169 on Form S-8 dated October 17, 1997, Registration Statement Number 333-39717 on Form S-8 dated November 7, 1997, Registration Statement Number 333-56375 on Form S-8 dated June 9, 1998, Registration Statement number 333-81161 on Form S-8 dated June 21, 1999 Registration Statement number 333-81155 on Form S-8 dated June 21, 1999, and Registration Statement number 333-37446 on Form S-8 dated May 19, 2000 of our report dated August 4, 2003, relating to the unaudited condensed consolidated interim financial statements of Glenayre Technologies, Inc. and subsidiaries which are included in its Form 10-Q for the quarter ended June 30, 2003. /s/ Ernst & Young LLP Atlanta, Georgia August 4, 2003 48 EX-31.1 7 g84304exv31w1.txt EX-31.1 CERT. OF CE0 PURSUANT TO SEC.302 EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Eric L. Doggett, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Glenayre Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 8, 2003 /s/ Eric L. Doggett Eric L. Doggett Chief Executive Officer EX-31.2 8 g84304exv31w2.txt EX-31.2 CERT. OF CFO PURSUANT TO SEC. 302 EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Debra Ziola, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Glenayre Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 8, 2003 /s/ Debra Ziola Debra Ziola Chief Financial Officer EX-32.1 9 g84304exv32w1.txt EX-32.1 CERT. OF CEO PURSUANT TO SEC 906 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Glenayre Technologies, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Eric L. Doggett, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Eric L. Doggett Eric L. Doggett Chief Executive Officer August 8, 2003 49 EX-32.2 10 g84304exv32w2.txt EX-32.2 CERT. OF CFO PURSUANT TO SECTION 906 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Glenayre Technologies, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Debra Ziola, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Debra Ziola Debra Ziola Chief Financial Officer August 8, 2003 50 -----END PRIVACY-ENHANCED MESSAGE-----


	x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________


DELAWARE		98-0085742

(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)


11360 LAKEFIELD DRIVE, DULUTH, GEORGIA		30097

(Address of principal executive offices)		(Zip Code)


Balance at January 1, 2003	$	2,193
Provision for warranty obligations		53
Payments of warranty obligations		(33	)

Balance at March 31, 2003		2,213
Provision (credit) for warranty obligations		(86	)
Payments of warranty obligations		(280	)

Balance at June 30, 2003	$	1,847


	June 30,			December 31,
	2003			2002

Trade receivables	$	11,251		$	6,389
Less: allowance for doubtful accounts		(588	)		(805	)

	$	10,663		$	5,584


	June 30, 2003		June 30, 2002

Expected Life in Years		1 to 4		1 to 4
Risk Free Interest Rate	1.0% to 3.3%		2.2% to 4.9%
Volatility		0.87		1.11
Dividend Yield		—		—


Nominees	Shares Voted in Favor		Shares Withheld

Clarke H. Bailey		52,590,281		4,686,246
Donald S. Bates		52,590,489		4,686,038
Peter W. Gilson		52,589,785		4,686,742