-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BwpIozAtH8bGy8XO2JuP0h58CF8/VUi7BYmh83kh//+rGFLHqitJ163KolrFuc5p AzYa39Q3Fq/zQEn6xees6Q== 0001021408-01-505307.txt : 20010815 0001021408-01-505307.hdr.sgml : 20010815 ACCESSION NUMBER: 0001021408-01-505307 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLENAYRE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000808918 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 980085742 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15761 FILM NUMBER: 1711263 BUSINESS ADDRESS: STREET 1: 5935 CARNEGIE BOULEVARD STREET 2: SUITE 300 CITY: CHARLOTTE STATE: NC ZIP: 28209 BUSINESS PHONE: 7045530038 FORMER COMPANY: FORMER CONFORMED NAME: N W GROUP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NU WEST GROUP INC DATE OF NAME CHANGE: 19880221 FORMER COMPANY: FORMER CONFORMED NAME: NU WEST GROUP LTD DATE OF NAME CHANGE: 19871126 10-Q 1 d10q.txt GLENAYRE SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- ---------------- Commission File Number 0-15761 GLENAYRE TECHNOLOGIES, INC. ----------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) 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 (770) 283-1000 ---------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the Registrant's common stock, par value $.02 per share, at August 9, 2001 was 65,074,311 shares. Glenayre Technologies, Inc and Subsidiaries - ------------------------------------------- INDEX
Part I - Financial Information: Item 1. Financial Statements Page ---- Independent Accountants' Review Report.................................. 3 Condensed Consolidated Balance Sheets as of June 30, 2001 (Unaudited) and December 31, 2000....................... 4 Condensed Consolidated Statements of Operations for the three months ended June 30, 2001 and 2000 (Unaudited)................. 5 Condensed Consolidated Statements of Operations for the six months ended June 30, 2001 and 2000 (Unaudited)................... 6 Condensed Consolidated Statement of Stockholders' Equity for the six months ended June 30, 2001 (Unaudited).................... 7 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000 (Unaudited)................... 8 Notes to Condensed Consolidated Financial Statements (Unaudited)........ 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk.............. 20 Part II - Other Information: Item 4. Submission of Matters to a Vote of Security Holders..................... 21 Item 6. Exhibits and Reports on Forms 8-K....................................... 21
2 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Independent Accountants' Review Report To the Board of Directors and Stockholders of Glenayre Technologies, Inc. Charlotte, North Carolina We have reviewed the accompanying condensed consolidated balance sheet of Glenayre Technologies, Inc. and subsidiaries as of June 30, 2001, and the related condensed consolidated statements of operations for the three-month and six-month periods ended June 30, 2001 and 2000, the condensed consolidated statement of stockholders' equity for the six-month period ended June 30, 2001 and the condensed consolidated statements of cash flows for the six-month periods ended June 30, 2001 and 2000. 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, 2000, 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 5, 2001, 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, 2000, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Ernst & Young LLP Charlotte, North Carolina July 31, 2001 3 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEET (dollars in thousands)
June 30, 2001 December 31, 2000 -------------- ----------------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents................................... $ 58,698 $ 71,866 Restricted cash............................................. 4,762 16,893 Accounts receivable, net.................................... 30,214 36,572 Accounts receivable discontinued operations, net............ 23,425 58,405 Notes receivable, net....................................... 84 122 Notes receivable discontinued operations, net............... --- 4,312 Inventories, net............................................ 14,016 14,117 Inventories discontinued operations, net.................... 1,572 25,987 Deferred income taxes....................................... --- 19,140 Prepaid expenses and other current assets................... 2,530 6,177 --------- -------- Total current assets................................... 135,301 253,591 Notes receivable, net........................................... 12 303 Notes receivable discontinued operations, net................... --- 6,921 Property, plant and equipment, net.............................. 41,215 40,875 Property, plant and equipment discontinued operations, net...... 16,623 48,180 Goodwill........................................................ --- 45,311 Deferred income taxes........................................... --- 34,917 Other assets.................................................... 7,580 15,988 --------- -------- TOTAL ASSETS.................................................... $ 200,731 $446,086 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable............................................ $ 7,998 $ 25,150 Accrued liabilities......................................... 38,285 43,299 Accrued liabilities discontinued operations................. 33,854 --- Other current liabilities................................... 65 66 --------- -------- Total current liabilities.............................. 80,202 68,515 Other liabilities............................................... 7,870 6,644 Accrued liabilities discontinued operations-noncurrent.......... 15,108 --- Stockholders' Equity: Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding.............. --- --- Common stock, $.02 par value; authorized: 200,000,000 shares; outstanding: June 30, 2001 - 64,726,031 shares; December 31, 2000 - 64,446,012 shares............. 1,294 1,288 Contributed capital......................................... 360,808 359,181 Retained earnings (deficit)................................. (267,265) 3,235 Accumulated other comprehensive income...................... 2,714 7,223 --------- -------- Total stockholders' equity............................. 97,551 370,927 --------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................... $ 200,731 $446,086 ========= ========
Note: The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 4 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars and shares in thousands) (unaudited)
Three Months Ended June 30, --------------------- 2001 2000 --------------------- NET SALES.................................................... $ 26,505 $28,925 --------- ------- COSTS AND EXPENSES: Cost of sales.......................................... 12,365 9,389 Selling, general and administrative expense............ 15,329 10,076 Provision for doubtful receivables..................... 497 181 Research and development expense....................... 5,670 3,695 Depreciation expense................................... 2,294 2,315 --------- ------- Total Costs and Expenses......................... 36,155 25,656 --------- ------- INCOME (LOSS) FROM OPERATIONS................................ (9,650) 3,269 --------- ------- OTHER INCOME (EXPENSES): Interest income........................................ 1,079 1,717 Interest expense....................................... (18) (14) Gain (Loss) on disposal of assets (including impairment loss of $(1,760))...................................... (1,755) 129 Realized gain on available-for-sale securities, net.... 1,149 --- Other, net............................................. (446) (129) --------- ------- Total Other Income (Expenses), net.............. 9 1,703 --------- ------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES.................................... (9,641) 4,972 PROVISION FOR INCOME TAXES................................... 27,480 1,865 --------- ------- INCOME (LOSS) FROM CONTINUING OPERATIONS..................... (37,121) 3,107 LOSS FROM DISCONTINUED OPERATIONS (net of income tax)............................................ (227,725) (1,619) --------- ------- NET LOSS..................................................... $(264,846) $ 1,488 ========= ======= NET LOSS PER WEIGHTED AVERAGE COMMON SHARE:.......................................... Continuing Operations.................................. $ (0.57) $ 0.05 Discontinued Operations................................ (3.52) (0.03) --------- ------- $ (4.09) $ 0.02 ========= ======= NET LOSS PER COMMON SHARE - ASSUMING DILUTION: Continuing Operations.................................. $ (0.57) $ 0.04 Discontinued Operations................................ (3.52) (0.02) --------- ------- $ (4.09) $ 0.02 ========= =======
See notes to condensed consolidated financial statements. 5 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share amounts) (unaudited)
Six Months Ended June 30, --------------------- 2001 2000 --------------------- NET SALES................................................... $ 53,432 $57,090 --------- ------- COSTS AND EXPENSES: Cost of sales......................................... 26,165 20,624 Selling, general and administrative expense........... 27,682 19,897 Provision for doubtful receivables.................... 2,059 268 Research and development expense...................... 12,042 7,073 Depreciation expense.................................. 4,719 4,587 Adjustment to loss on sale of business................ (94) (524) --------- ------- Total Costs and Expenses........................ 72,573 51,925 --------- ------- INCOME (LOSS) FROM OPERATIONS............................... (19,141) 5,165 --------- ------- OTHER INCOME (EXPENSES): Interest income....................................... 2,586 3,010 Interest expense...................................... (83) (29) Gain (Loss) on disposal of assets (including impairment loss of $(1,760))......................... (1,767) 303 Realized gain on available-for-sale securities, net... 11,020 --- Other, net............................................ (465) (296) --------- ------- Total Other Income (Expenses), net............. 11,291 2,988 --------- ------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES................................... (7,850) 8,153 PROVISION FOR INCOME TAXES.................................. 28,105 2,940 --------- ------- INCOME (LOSS) FROM CONTINUING OPERATIONS.................... (35,955) 5,213 LOSS FROM DISCONTINUED OPERATIONS (net of income tax)........................................... (234,545) (2,600) --------- ------- NET INCOME (LOSS)........................................... $(270,500) $ 2,613 ========= ======= NET INCOME (LOSS) PER WEIGHTED AVERAGE COMMON SHARE:......................................... Continuing Operations................................. $ (0.56) $ 0.08 Discontinued Operations............................... (3.63) (0.04) --------- ------- $ (4.18) $ 0.04 ========= ======= NET INCOME (LOSS) PER COMMON SHARE - ASSUMING DILUTION: Continuing Operations................................. $ (0.56) $ 0.08 Discontinued Operations............................... (3.63) (0.04) --------- ------- $ (4.18) $ 0.04 ========= =======
See notes to condensed consolidated financial statements. 6 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (dollars and shares in thousands) (unaudited)
Accumulated Common Stock Other Total ------------------- Contributed Accumulated Comprehensive Stockholders' Shares Amount Capital Deficit Income Equity -------- --------- ----------- ------------ ------------- ------------- Balances, December 31, 2000............................ 64,446 $1,288 $359,181 $ 3,235 $7,223 $ 370,927 Net Loss..................................... (270,500) (270,500) Other Comprehensive Income: Adjustment to unrealized gain on securities available for sale, net of tax................................. (4,509) (4,509) --------- Comprehensive Loss........................... (275,009) Stock options exercised...................... 284 6 979 985 Repurchase of common stock................... (4) -- (15) (15) Stock Compensation Expense................... 663 663 -------- --------- Balances, June 30, 2001...................... 64,726 $1,294 $360,808 $(267,265) $2,714 $ 97,551 ====== ====== ======== ========= ====== =========
See notes to condensed consolidated financial statements. 7 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (tabular amounts in thousands of dollars) (unaudited)
Six Months Ended June 30, -------------------------- 2001 2000 -------------------------- NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES............ $(10,564) $15,132 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment............ (16,906) (5,332) Proceeds from sale of equipment....................... 18 134 Proceeds from sale of available-for-sale securities... 13,323 --- -------- ------- Net cash used in investing activities........... (3,565) (5,198) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Changes in other liabilities.......................... (9) (18) Issuance of common stock.............................. 985 13,330 Repurchase of common stock............................ (15) --- -------- ------- Net cash provided by financing activities....... 961 13,312 -------- ------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (13,168) 23,246 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 71,866 73,513 -------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 58,698 $96,759 ======== ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest............................................. $ 83 $ 35 Income taxes......................................... $ 1,398 $ 1,411
See notes to condensed consolidated financial statements. 8 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (tabular amounts in thousands except per share data) (unaudited) The accompanying unaudited condensed consolidated financial statements of Glenayre ("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. Operating results for the three-month and six-month periods ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 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, 2000. 1. Discontinued Operations In May 2001, the Company announced that it was exiting its Wireless Messaging business and refocusing all of its strategic efforts on the Enhanced Services Platform/Unified Communication systems business segment based in Atlanta, Georgia. As a result, the Wireless Messaging segment is being reported as a disposal of a segment of business in the second quarter 2001. Accordingly, the operating results of the Wireless Messaging segment have been classified as a discontinued operation for all periods presented in the Company's consolidated statement of operations. Additionally, the Company has reported all of the Wireless Messaging segment assets at their estimated net realizable value in the Company's condensed consolidated balance sheet as of June 30, 2001. The Company believes all business transactions related to the Wireless Messaging segment, with the exception of contractual obligations existing prior to the Company's approving a formal plan to dispose of the segment, will cease by May 2002.
Results for discontinued operations consist of the following: Three months ended Six months ended June 30, June 30, ------------------- ----------------- 2001 2000 2001 2000 ------------------- ----------------- Net Sales........................................... $ 4,016 $27,747 $ 23,014 $58,237 Loss from discontinued operations: Loss from operations before income taxes............ (38,344) (2,129) (48,474) (3,275) Benefit/(Provision) for income taxes................ (3,310) 510 --- 675 --------- ------- --------- ------- Net loss from operations............................ (41,654) (1,619) (48,474) (2,600) Loss on disposal before income taxes................ (156,800) --- (156,800) --- Provision for income taxes.......................... (29,271) --- (29,271) --- --------- ------- --------- ------- Net loss on disposal of discontinued operations......................................... (186,071) --- (186,071) --- --------- ------- --------- ------- Net loss from Discontinued Operations............... $(227,725) $(1,619) $(234,545) $(2,600) ========= ======= ========= =======
9 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continiued) (tabular amounts in thousands except per share data) (unaudited) The loss from discontinued operations consists of (i) operating losses incurred in the Wireless Messaging segment for the three and six-month periods ended June 30, 2001 and 2000 and (ii) an estimated loss on disposal of the segment for the three and six-month periods ended June 30, 2001 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) a valuation allowance for related deferred tax assets. 2. Restricted Cash Restricted cash at June 30, 2001 consisted of term deposits pledged as collateral to secure letters of credit substantially all of which expire in less than one year. 3. Accounts and Notes Receivables Accounts receivable related to continuing operations consist of:
June 30, December 31, 2001 2000 ---------- ------------- Trade receivables................................... $34,460 $38,477 Other............................................... 1,776 1,734 ------- ------- 36,236 40,211 Less: allowance for doubtful accounts............... (6,022) (3,639) ------- ------- $30,214 $36,572 ======= =======
4. Inventories
Inventories related to continuing operations consist of: June 30, December 31, 2001 2000 --------- ------------ Raw materials.............................. $ 8,110 $ 8,550 Work-in-process............................ 2,108 4,120 Finished goods............................. 3,798 1,447 ------- ------- $14,016 $14,117 ======= =======
5. Other Assets and Comprehensive Income Included in Other Assets related to continuing operations is the Company's remaining investment in Western Multiplex Corporation ("MUX"), a former subsidiary, of which the Company sold 95% in November 1999. During the three and six-month periods ended June 30, 2001, the Company sold 190,000 and 1,215,500 shares of MUX stock at a pre-tax gain of $1.1 million and $11.9 million, respectively. As of June 30, 2001, the Company had approximately 680,000 shares remaining in its investment in MUX. As of June 30, 2001, the market value of the Company's remaining interest in MUX has appreciated. Accordingly, as of June 30, 2001, the Company recorded in comprehensive income a cumulative unrealized holding gain of approximately $2.8 million, net of tax of $1.3 million, on the 10 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continiued) (tabular amounts in thousands except per share data) (unaudited) remaining shares of this available-for-sale security. Comprehensive income (loss) was $(8,756) and $(275,009), respectively, for the three and six months periods ended June 30, 2001. Additionally, during the first quarter 2001, the Company recorded a pre-tax impairment charge of approximately $900,000 related to the decline in value deemed to be other than temporary on an additional available-for-sale investment held by the Company.
Available-for-sale Securities --------------------------------------------- Gross Gross Unrealized Unrealized Estimated Cost Gains Losses Fair Value ------ ---------- ---------- ---------- Marketable equity securities as of June 30, 2001... $1,804 $4,123 $117 $5,810
Further, through July 31, 2001, the Company has sold an additional 300,000 shares of Western Multiplex securities at a pre-tax gain of approximately $1.2 million. The estimated fair value of the Company's remaining available-for-sale marketable equity securities at July 31, 2001 totaled approximately $2.2 million. 6. Income Taxes The Company's consolidated income tax provision was different from the amount computed using the U.S. statutory income tax rate for the following reasons:
Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------ 2001 2000 2001 2000 --------- -------- ------- ------- Income tax provision at U.S. statutory rate............ $(3,374) $1,740 $(2,749) $2,854 Change in valuation allowance.......................... 30,874 50 30,874 50 Foreign taxes at rates other than U.S. statutory rate.. --- 168 --- 168 U.S. Research and Experimentation Credit............... --- (50) --- (50) Benefit from foreign sales corporation................. --- (75) (50) (150) Other.................................................. (20) 32 30 68 ------- ------ ------- ------ Income tax provision .................................. $27,480 $1,865 $28,105 $2,940 ======= ====== ======= ======
11 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continiued) (tabular amounts in thousands except per share data) (unaudited) 7. Income (Loss) from Continuing Operations per Common Share The following table sets forth the computation of income (loss) from continuing operations per share:
Three Months Ended Six Months Ended June 30, June 30, --------------------- ----------------------- 2001 2000 2001 2000 ---------- -------- --------- ---------- Numerator: Net income (loss) from continuing operations.. $(37,121) $ 3,107 $(35,955) $ 5,213 Denominator: Denominator for basic income (loss) from continuing operations per share - weighted average shares....................... 64,695 64,257 64,639 63,737 Effect of dilutive securities: stock options................................. --- 2,789 --- 3,300 -------- ------- -------- ------- Denominator for diluted income (loss) from continuing operations per share-adjusted weighted average shares and assumed conversions..................................... 64,695 67,046 64,639 67,037 ======== ======= ======== ======= Income (loss) from continuing operations per weighted average common share............. $ (0.57) $ 0.05 $ (0.56) $ 0.08 ======== ======= ======= ======= Income (loss) from continuing operations per common share-assuming dilution............ $ (0.57) $ 0.04 $ (0.56) $ 0.08 ======== ======= ======= =======
8. Restructuring During the second quarter 2001, the Company recorded a pre-tax charge of approximately $11.2 million related to a reduction of approximately 140 positions related to the Company's continuing operations. This headcount reduction impacted several functional areas of the Company including positions associated with relocating Corporate headquarters from Charlotte, North Carolina to Atlanta, Georgia in addition to phasing out the Company's prepaid product line. As a result of this restructuring, the Company expensed $3.8 million for employee severance, outplacement services and retention bonuses earned. Severance and payments for outplacement services of approximately $630,000 were paid prior to June 30, 2001. Additionally during the second quarter 2001, the Company recorded a pre-tax charge of approximately $2.1 million of which approximately $40,000 was paid before June 30, 2001, for consolidation and exit costs from its Charlotte, NC, Atlanta, GA and Amsterdam, Netherlands facilities and a pre-tax charge of approximately $1.8 million for the impairment of long-lived assets. The consolidation and exit process for all of these above facilities is expected to be completed by the end of the fourth quarter 2001. Furthermore, the Company recorded a pre-tax charge of approximately $3.5 million to reserve excess inventories, accrue business exit costs and to reserve customer receivables associated with the Company's decision to abandon its prepaid product line. For the quarter ended June 30, 2001, the total pre-tax charge for the second quarter 2001 restructuring and exiting of leased facilities was recorded as approximately $2.8 million to cost of sales, $700,000 to research and development, $1.8 million to loss on sale of assets, and $5.9 million to selling, general and administrative expenses. 12 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (tabular amounts in thousands except per share data) (unaudited) The reserve balance for this restructuring was approximately $10.1 million at June 30, 2001. Additionally, during the first quarter 2001, the Company made cash payments of approximately $175,000 of accrued severance benefits in conclusion of its third quarter 1999 restructuring. The following is a summary of activity for the six-month period ended June 30, 2001 for the 2001 and 1999 restructuring reserves.
Business Exit, Severance Lease Cancellation and Benefits and Other Costs Total ----------------------------------------------- Balance at December 31, 2000........... $ 175 --- $ 175 Expense accrued ....................... 3,820 7,330 11,150 Charges................................ 800 475 1,275 ------ ------ ------- Balance at June 30, 2001............... $3,195 $6,855 $10,050 ====== ====== =======
On July 31, 2001 the Company announced an additional reduction in workforce of approximately 60 employees. A restructuring charge of approximately $1 million related to employee termination costs is anticipated against continuing operations in the third quarter of 2001. Management believes upon recording this adjustment in the third quarter 2001 the remaining reserves for this business restructuring will be adequate to complete this plan. 9. Segment Reporting As a result of the Company's decision to dispose of its Wireless Messaging segment, (See Note 1) the Company has only one operating segment remaining as of June 30, 2001. The Enhanced Services Platform/Unified Communications product segment consists of a MVP system which enables cellular, personal communication service, wireline and wireless messaging network operators to offer their subscribers value-added services that enhance and complement their core communication products. 10. Contingent Liability On November 1, 1999 the Company sold 95% of the equity in its microwave radio business, MUX. The Company is contingently liable for MUX's building lease payments. The maximum contingent liability as of June 30, 2001 for these obligations is approximately $3.7 million. 13 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview For almost 40 years, the Company has developed and provided carrier-grade communications systems for the global market. These products offer enhanced services platforms and unified communications solutions that allow wireless and fixed service providers to support next generation messaging through traditional and IP telephony networks. The Company's @ctiveMessaging portfolio leverages open APIs, allowing service providers to offer leading-edge unified communications services that integrate voice mail, fax and e-mail messaging capabilities with features such as voice activated services and find me/follow- me services to generate new revenue streams. Results of Discontinued Operations In May 2001, the Company announced that it was exiting its Wireless Messaging business and refocusing all of its strategic efforts on the Enhanced Services Platform/Unified Communication systems business segment based in Atlanta, Georgia. The Company's decision to abandon its Wireless Messaging segment was due to a rapid decline in both the paging infrastructure market and certain paging carriers' financial health, as well as concerns about the impact of the ongoing ReFLEX operator consolidation on channels for the device market. The Company's paging infrastructure revenue declined over 27% in 2000 from 1999 and the Company anticipates 2001 paging infrastructure revenue to decline over 70% from 2000 levels due to a dramatic market contraction. Wireless Messaging revenues for 2001 are expected to be approximately $30 million. The decision to abandon the Wireless Messaging segment was based on economic reality and the Company's inability to continue funding the investments required to position itself for the future of the wireless messaging market. The Wireless Messaging segment is being reported as a disposal of a segment of business in the second quarter 2001. Accordingly, the operating results of the Wireless Messaging 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 segment assets at their estimated net realizable value in the Company's condensed consolidated balance sheet as of June 30, 2001. The Company believes all business transactions related to the Wireless Messaging segment, with the exception of contractual obligations existing prior to the Company's approving a formal plan to dispose of the segment, will cease by May 2002. 14 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Results for discontinued operations consist of the following:
Three months ended Six months ended June 30, June 30, ------------------------------------------- 2001 2000 2001 2000 ------------------------------------------- Net Sales........................................... $ 4,016 $27,747 $ 23,014 $58,237 Loss from discontinued operations: Loss from operations before income taxes............ (38,344) (2,129) (48,474) (3,275) Benefit/(Provision) for income taxes................ (3,310) 510 --- 675 --------- ------- --------- ------- Net loss from operations............................ (41,654) (1,619) (48,474) (2,600) Loss on disposal before income taxes................ (156,800) --- (156,800) --- Provision for income taxes.......................... (29,271) --- (29,271) --- --------- ------- --------- ------- Net loss on disposal of discontinued operations......................................... (186,071) --- (186,071) --- --------- ------- --------- ------- Net loss from Discontinued Operations............... $(227,725) $(1,619) $(234,545) $(2,600) ========= ======= ========= =======
The loss from discontinued operations consists of (i) operating losses incurred in the wireless messaging segment for the three and six-month periods ended June 30, 2001 and 2000 and (ii) an estimated loss on disposal of the segment for the three and six-month periods ended June 30, 2001 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 transition period of no more than twelve months, (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) a valuation allowance for related deferred tax assets. 15 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Results of Continuing Operations The following table sets forth for the periods indicated the percentage of net sales of continuing operations represented by certain line items from Glenayre's consolidated statements of operations:
Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------ 2001 2000 2001 2000 ------- ------- ------- ------ Net sales......................................... 100.0% 100.0% 100.0% 100.0% Cost of sales..................................... 46.7 32.5 49.0 36.1 ------- ----- ----- ----- Gross profit.................................. 53.3 67.5 51.0 63.9 Operating expenses: Selling, general and administrative........... 57.8 34.8 51.8 34.9 Provision for doubtful receivables............ 1.9 0.6 3.9 * Research and development...................... 21.4 12.8 22.5 12.4 Depreciation and amortization................. 8.7 8.0 8.8 8.0 Adjustment to loss on sale of business........ --- --- * (0.9) ------- ----- -------- ----- Total operating expenses.................. 89.8 56.2 86.9 54.8 ------- ----- ----- ----- Income (loss) from operations..................... (36.4) 11.3 (35.8) 9.0 Interest, net..................................... 4.0 5.9 4.7 5.2 Gain (loss) on disposal of assets................. (6.6) * (3.3) 0.5 Realized gain on available-for-sale securities.... 4.3 --- 20.6 --- Other, net........................................ (1.7) * (0.8) (0.5) ------- ------ ----- ----- Income (loss) from continuing operations before income taxes.................................. (36.4) 17.2 (14.7) 14.3 Provision (benefit) for income taxes.............. 103.7 6.4 52.6 5.1 ------- ----- ----- ----- Income (loss) from continuing operations.......... (140.1)% 10.7% (67.3)% 9.1% ======= ===== ===== =====
- ------------- * less than 0.5 Three-Month and Six-Month Periods Ended June 30, 2001 and 2000 Net Sales. Net sales for the three-month period ended June 30, 2001 decreased 8% to $27 million as compared to $29 million for the three-month period ended June 30, 2000. Net sales decreased 6% and were $53 million and $57 million for the six-month periods ended June 30, 2001 and 2000, respectively. International sales (sales outside the United States) were approximately $3 million for the three-month period ended June 30, 2001 as compared to approximately $12 million for the three-month period ended June 30, 2000 and accounted for 12% and 42% of net sales for the three-month periods ended June 30, 2001 and 2000, respectively. International sales were approximately $8 million for the six- month period ended June 30, 2001 as compared to approximately $21 million for the six-month period ended June 30, 2000 and accounted for 14% and 37% of net sales for the six-month periods ended June 30, 2001 and 2000, respectively. The decrease in net sales for the three-month and six-month periods ended June 30, 2001 as compared to those same periods in 2000 is primarily due to decreased revenues from the Company's abandoned prepaid product line which was eliminated as part of the Company's second quarter 2001 restructuring. The Company anticipates for the last half of 2001 quarterly revenues will decline slightly as compared to the second quarter 2001, while expecting moderate revenue growth in 2002. These are forward-looking statements that are subject to the factors discussed in the cautionary statement attached as Exhibit 99 to this Form 10-Q. There can be no assurance that the Company's sales levels or growth will remain at, reach or exceed historical levels in any future period. 16 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- There were three separate customers who accounted for 44%, 14% and 10% and 31%, 14% and 11% of net sales for the three and six-month periods ended June 30, 2001, respectively. There was one single customer who accounted for approximately 11% and 15% of net sales for the three and six-month periods ended June 30, 2000, respectively. Two additional customers accounted for approximately 10% and 12% of net sales for the six months ended June 30, 2000. Gross Profit. Gross profit margins were 53% and 68% for three-month periods ended June 30, 2001 and 2000, respectively. Gross profit margins were 51% and 64% for the six-month periods ended June 30, 2001 and 2000, respectively. The decrease in margin percentages for 2001 is primarily attributable to warranty and obsolescence charges incurred as part of the second quarter 2001 restructuring related to the Company's decision to abandon its prepaid product line. Additionally, the decline can be attributed to inventory obsolescence charges incurred on the Company's MVP product line as a result of lower sales forecasts. Glenayre's gross profit margins may be affected by several factors including (i) the mix of products sold, (ii) the price of products sold and (iii) increases in material costs and other components of cost of sales. Selling, General and Administrative Expense. Selling, general and administrative expenses were $15 million and $10 million for the three-month periods ended June 30, 2001 and 2000, respectively and $28 million and $20 million for the six-month periods ended June 30, 2001 and 2000, respectively. The increase in the three and six-month periods of 2001 is primarily attributable to employee termination benefits and lease termination costs associated with the second quarter 2001 restructuring as well as increased employee related costs in the first quarter of 2001 in the Company's quality, technical operations and marketing functional areas. Provision for Doubtful Receivables. The provision for doubtful receivables was $497,000 and $181,000 for the three-month periods ended June 30, 2001 and 2000, respectively and $2.1 million and $268,000 for the six-month periods ended June 30, 2001 and 2000, respectively. The increase in bad debt reserves for the three and six-month periods ended June 30, 2001 is due primarily to specific reserves taken on the Company's abandoned prepaid product line partially offset by collections made in the second quarter of 2001 on older receivables previously reserved as part of the Company's normal recurring reserve calculation. Further, the provision recorded in the six-month period ended June 30, 2001 increased due to a specific customer experiencing poor financial condition in the first quarter 2001. Research and Development Expense. Research and development expenses were $6 million and $4 million for the three-month periods ended June 30, 2001 and 2000, respectively, and $12 million and $7 million for the six-month periods ended June 30, 2001 and 2000, respectively. The increase in the three and six-month periods ended June 30, 2001 is due primarily to restructuring charges incurred in the second quarter of 2001 for employee termination benefits. Additionally, the increases in the three-month and six-month periods ended June 30, 2001 are related to increased employee related costs and subcontracting expenses. The Company relies on its research and development programs for new products and the improvement of existing products for the growth in net sales. Research and development costs are expensed as incurred. Depreciation. Depreciation expense remained relatively flat at $2.0 million for both the three-month periods ended June 30, 2001 and 2000 and $5 million for both the six-month periods ended June 30, 2001 and 2000. Interest Income, Net. Interest income, net was $1.1 million and $1.7 million for the three-month periods ended June 30, 2001 and 2000, respectively, and $2.5 million and $3.0 million for the six-month periods ended June 30, 2001 and 2000, respectively. Interest earned for the three and six-month periods ended June 30, 2001 is lower due to decreased cash and cash equivalent investment balances offset partially by interest earned through May 2001 on the Company's one remaining customer financing commitment. Provision for Income Taxes. The effective tax rates for the three-month and six-month periods ended June 30, 2001 and 2000 differed from the combined U.S. federal and state statutory tax rate of 17 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- approximately 40% due primarily to (i) the change in the valuation allowance, (ii) nondeductible goodwill amortization and (iii) higher tax rates on earnings indefinitely reinvested in certain non-U.S. jurisdictions. The difference between the effective tax rates in 2001 compared to 2000 is primarily the result of the change in the valuation allowance. Financial Condition and Liquidity Liquidity and Capital Resources. At June 30, 2001 the Company had cash and cash equivalents and restricted cash totaling $63 million. The restricted cash consists of time deposits pledged as collateral to secure letters of credit, substantially all of which expire in less than one year. At June 30, 2001, Glenayre's principal source of liquidity is $59 million of cash and cash equivalents. Included in the Company's loss on disposal of discontinued operations (See Results of Discontinued Operations) for the three and six-month periods ended June 30, 2001 are cash 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 a transition period no longer than twelve months and expenses to be incurred to fulfill contractual obligations existing prior to the formal disposal date. The Company expects primarily all of these cash payments to be completed by no later than December 31, 2002. However, contractual obligations with customers existing prior to the measurement date and lease termination costs could extend through 2006. The Company's discontinued operations transition team is currently working on opportunities that may reduce the length of time cash payments are required for these obligations. Included in the Company's three and six-month periods ended June 30, 2001 losses from continuing operations are cash restructuring charges (See Note 8 of the Company's Condensed Consolidated Financial Statements) totaling approximately $8 million for employee termination benefits, prepaid product contractual obligations and consolidation and facility exit costs. The Company anticipates primarily all of the cash payments for this restructuring charge will be made within the next twelve months with the exception of lease termination costs which could require cash payments through 2005 if a sublessee is not obtained. Accounts payable decreased at June 30, 2001 compared to December 31, 2000 primarily as a result of decreased inventory purchases. Accrued expenses at June 30, 2001 increased from year-end 2000 primarily due to reserves recorded for the loss on discontinued operations and restructuring charges offset partially by a reduction in long term international project accruals and employee incentive accruals as a result of payments made in 2001 for bonuses earned in 2000. In December 2000, the Board of Directors of the Company rescinded its dormant stock repurchase program authorized in September 1996 and authorized the repurchase of up to 3 million shares of the Company's common stock. As of December 31, 2000, the Company had repurchased 12,500 shares at a total cost of approximately $40,000. In the first quarter of 2001, the Company purchased an additional 4,000 shares at a total cost of approximately $15,000. 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. The Company expects to use its cash and cash equivalents 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. During the third quarter 2000, the Company renegotiated its only prior financing commitment for wireless messaging infrastructure and voicemail products reducing the commitment from approximately $30 million to approximately $10 million. This agreement, which expires in 2001, has no remaining 18 Glenayre Technologies, Inc. and Subsidiaries - -------------------------------------------------------------------------------- financing commitment at June 30, 2001. Amounts outstanding under this financing arrangement as of June 30, 2001 were approximately $9 million. As a result of the customer filing bankruptcy and the Company's decision to exit its Wireless Messaging segment, this commitment was fully reserved in the second quarter 2001. In 1999, the Company consolidated its manufacturing activities in Quincy, Illinois and ceased manufacturing activities in its Vancouver, B.C. 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 segment in the second quarter of 2001, it no longer has significant operational requirements for its Vancouver facilities. In 2000, the Company spent approximately $8 million related to the Vancouver new office tower development. During the three and six months ended June 30, 2001, the Company spent approximately $4 million and $7 million, respectively related to the office tower development. The Company believes it may need to spend an additional $4 million in 2001 to complete this office tower. 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) to repurchase common stock as discussed above. Company management believes that, if needed, it can establish borrowing arrangements with lending institutions. Income Tax Matters. For 2000, Glenayre's actual cash outlay for taxes was limited to foreign income taxes primarily due to current losses and the availability of foreign sales corporation benefits. The Company's cash outlay for taxes is not expected to be significant in 2001 due to current losses and net operating loss carryforwards. Management has assessed the realizability of the Company's deferred tax asset of $117.1 million and determined that a valuation allowance of $117.1 million was necessary as of June 30, 2001. Management reached this conclusion based on the fact that the Company has incurred cumulative losses in recent years, including a significant loss in the three month period ended June 30, 2001, and that its remaining restructured business does not provide a historical basis for projecting future taxable income. 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to market risk arising from adverse changes in interest rates and foreign currency exchange rates. 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. Although a substantial portion of the Company's annual sales are negotiated in United States dollars, certain contracts in the normal course of business are negotiated in a foreign currency. When appropriate, the Company may seek to mitigate its currency exchange fluctuation risk by entering into currency hedging transactions. Due to the limited amount of such hedging transactions, management believes that fluctuations in currency exchange rates will not have a material adverse effect on the Company's results of operations. The Company does not enter into financial investments for speculation or trading purposes and is not a party to any financial or commodity derivatives. 20 PART II - OTHER INFORMATION ITEMS 1 through 3 and 5 are inapplicable and have been omitted. ITEM 4. Submission of Matters to a Vote of Security Holders. At the Company's Annual Meeting of Stockholders held on May 17, 2001, the following matters were submitted to a vote of the stockholders of the Company. The results of the voting were as follows: (i) The election of four directors each to serve a three-year term expiring 2004: Nominees Shares Voted in Favor Shares Withheld - ------------------ --------------------- --------------- John J. Hurley 59,507,774 625,161 Horace H. Sibley 59,508,051 624,884 Howard W. Speaks 59,557,149 575,786 (ii) The proposal to approve the appointment of Ernst & Young LLP as independent auditors of the Company was approved by a vote of 59,866,589 in favor, 214,070 against and 52,276 abstaining. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10.1 Amendment, dated April 26, 2001, to the Stock Option Agreement dated October 3, 1999 between the Company and Clarke H. Bailey is filed herewith.* Exhibit 10.2 Amendment, dated July 31, 2001, to the Employment Agreement dated June 18, 1999 between the Company and Eric L. Doggett is filed herewith.* Exhibit 10.3 Letter Agreement, dated May 23, 2001, between the Company and Bert C. Klein is filed herewith.* Exhibit 15 Letter regarding unaudited interim financial information. Exhibit 99 Cautionary statement under safe harbor provisions of the Private Securities Litigation Reform Act of 1995. ________________ *management contract. (b) Reports on Form 8-K None. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Glenayre Technologies, Inc. --------------------------- (Registrant) /s/ Debra Ziola ------------------------------- Debra Ziola Senior Vice President and Interim Chief Financial Officer (Principal Financial Officer) Date: August 14, 2001 EXHIBIT 15 To the Board of Directors and Stockholders of Glenayre Technologies, Inc. Charlotte, North Carolina We are aware of the incorporation by reference in the Registration Statement Number 33-43797 on Form S-8 dated November 5, 1991, Registration Statement Number 33-68766 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 July 31, 2001, 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, 2001. /s/ Ernst & Young LLP Charlotte, North Carolina July 31, 2001 EXHIBIT 99 CAUTIONARY STATEMENT UNDER SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Glenayre Technologies, Inc. ("Glenayre" or the "Company"), from time to time, makes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect the expectations of management of the Company at the time such statements are made. Glenayre is filing this cautionary statement to identify important factors that could cause Glenayre's actual results to differ materially from those in any forward-looking statements made by or on behalf of Glenayre. Effective Convergence of Technologies In recent years, the markets for wireless and internet services have grown significantly. Glenayre is dependent on the continued growth of these markets as well as the effective and successful convergence of these technologies for its Enhanced Services platform, such as the Modular Voice Processing system and Intelligis LSP, 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 CONSTANT TOUCH. The markets for these technologies are still emerging and continued growth in demand 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 will have a material adverse effect on Glenayre'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 continue and/or develop. Potential Market Changes Resulting from Rapid Technological Advances Glenayre's business is focused on growing its Enhanced Services and Unified Communication Systems products, such as the Modular Voice Processing system and Intelligis LSP, and enhanced services solutions such as voice, fax and data messaging, short message services, one touch call return, continuous calling, voice activated dialing, unified messaging and CONSTANT TOUCH. Demand for these products and services may be affected by changes in technology as well as the development of substitute products and services by competitors. If changing technology negatively affects demand for Glenayre's Enhanced Services and Unified Communication systems products, it could have a material adverse effect on Glenayre's business. Competition Glenayre currently faces competition for its Enhanced Services and Unified Communications Systems from a number of companies, including: Comverse Technologies, Inc., ADC Telecommunication, InterVoice-Brite, Inc., Openwave, Lucent/Octel Communications Corporation and Unisys Corporation. Many 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 for the sale of its Enhanced Services and Unified Communications Systems. Variability of Quarterly Results The Company's financial results in any single quarter are highly dependent upon the timing and size of customer orders and the shipment of products for large orders. Large orders from customers can account for a significant portion of products shipped in any quarter. Two customers accounted for approximately 16% and 18% of net sales for the year ended December 31, 2000. Three customers accounted for 11% of net sales for the year ended December 31, 1999. Beyond 2000, the customers with whom the Company does the largest amount of business are expected to vary from year to year and quarter to quarter as a result of the timing for the continued expansion into international markets and changes in the proportion of revenues generated by Glenayre'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. Therefore, annual financial results are more indicative of the Company's performance than quarterly results, and results of operations in any quarterly period may not be indicative of results likely to be realized in the following quarterly periods. Volatility of Stock Price The market price of Glenayre Common Stock is volatile. The market price of Glenayre Common Stock could be subject to significant fluctuations in response to variations in Glenayre's quarterly operating results and other factors such as announcements of technological developments or new products by Glenayre, developments in Glenayre's relationships with its customers, 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. Proprietary Technology Glenayre owns or licenses numerous patents used in its operations. Glenayre believes that while these patents are useful to Glenayre, they are not critical or valuable on an individual basis. The collective value of the intellectual property of Glenayre is comprised of its patents, blueprints, specifications, technical processes and cumulative employee knowledge. Although Glenayre attempts to protect its proprietary technology through a combination of trade secrets, patent, 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. 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 these efforts would be successful. Regardless, with respect to currently pending claims, the Company does not believe that an adverse resolution would have a material adverse effect on the Company. International Business Risks Approximately 29% of 2000 fiscal year net sales were generated in markets outside of the United States. International sales are subject to the customary risks associated with international transactions, including political risks, local laws and taxes, the potential imposition of trade or currency exchange restrictions, tariff increases, transportation delays, difficulties or delays in collecting accounts receivable, 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 fiscal year 2000 was negotiated in United States dollars, Glenayre may not be able to maintain such a high percentage of United States dollar denominated international sales. The Company seeks to mitigate its currency exchange fluctuation risk by entering into currency hedging transactions. The Company also acts to mitigate certain risks associated with international transactions through the purchase of political risk insurance and the use of letters of credit. However, there can be no assurance that these efforts will successfully limit Glenayre's currency exchange fluctuation risk. Continuation and Expansion of Original Equipment Manufacturer Agreements Glenayre has entered into several Original Equipment Manufacturer ("OEM") agreements with companies that market and distribute Glenayre's products and Glenayre intends to enter into service reseller arrangements. Glenayre is dependent upon these OEM agreements to distribute Glenayre's products and services. If these OEM agreements are not successful or are terminated, it may have a material adverse effect on Glenayre's business. Glenayre intends to continue entering into OEM agreements; however, there can be no assurance that additional arrangements with suitable partners on acceptable terms will be available. The inability of Glenayre to grow its current OEM agreements or enter into arrangements with additional partners on acceptable terms may have a material adverse effect on Glenayre's business. Glenayre Technologies, Inc. 11360 Lakefield Drive Duluth, GA 30097 Telephone: (770) 283-1000 Fax: (770) 497-3990 VIA EDGAR August 14, 2001 Division of Corporation Finance Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Glenayre Technologies, Inc. File No. 0-15761 Quarterly Report on Form 10-Q for the Quarter ended June 30, 2001. Gentlemen: On behalf of Glenayre Technologies, Inc. (the "Company"), and pursuant to Rule 101 of Regulation S-T, we enclose herewith one conformed copy, with exhibits of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. Please acknowledge receipt of the attached electronic filing in accordance with the rules and regulations of EDGAR. Regards, Debra Ziola Senior Vice President and Interim Chief Financial Officer Enclosures EX-10.1 3 dex101.txt AMENDMENT AGREEMENT Exhibit 10.1 AMENDMENT AGREEMENT ------------------- THIS AMENDMENT AGREEMENT (this "Amendment") is made and entered into effective as of the 26th day of April, 2001 by and between GLENAYRE TECHNOLOGIES, INC., a Delaware corporation formerly known as "N-W Group, Inc." (the "Company"), and CLARKE H. BAILEY ("Mr. Bailey"). Statement of Purpose -------------------- The Company and Mr. Bailey entered into a Stock Option Agreement dated as of December 3, 1990, as amended (the "Option Agreement"). Pursuant to the Option Agreement, Mr. Bailey currently holds options to purchase a total of 796,875 shares of the Company's common stock (the "Options"). The Options expire on May 14, 2001. On April 26, 2001, the Board of Directors of the Company approved an amendment to the Option Agreement as hereinafter set forth, as approved and recommended by the Plan Administration Committee of the Board of Directors of the Company. NOW, THEREFORE, in consideration of the foregoing Statement of Purpose and the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. The Company and Mr. Bailey confirm that all options awarded to Mr. Bailey under the Option Agreement are now fully vested and exercisable. 2. The Company and Mr. Bailey hereby agree that Paragraph 5 of the Option Agreement is hereby amended to provide that expiration date for all Options is hereby extended from May 14, 2001 to May 14, 2006. 3. Except as expressly amended hereby, the Option Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment effective as of the day and year first above written. GLENAYRE TECHNOLOGIES, INC. By: _____________________________ Title: President & Chief Executive Officer _____________________________________ Clarke H. Bailey EX-10.2 4 dex102.txt EMPLOYMENT AGREEMENT Exhibit 10.2 AMENDED EMPLOYMENT AGREEMENT ---------------------------- THIS AMENDED EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of the 31st day of July, 2001 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") 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 1 Exhibit 10.2 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 ---- be for a period of one year, commencing as of the date of this Agreement. The term of the Executive's employment hereunder shall be automatically renewed for successive one-year renewal terms thereafter unless written notice is given by either party to the other party not later than 30 days prior to the expiration of the initial term or any renewal term. The initial term and each renewal term are referred to collectively in this Agreement as the "Term." (b) Earlier Termination. Notwithstanding the provisions of Paragraph 2(a) ------------------- above, the Executive's employment hereunder may be terminated prior to the expiration of the Term as follows: (1) The Corporation may terminate the Executive's employment hereunder for "Cause" (as defined in Paragraph 2(c) below), provided that the Corporation complies with the provisions of Paragraph 3(a)(1) below; (2) The Corporation may terminate the Executive's employment hereunder upon the Executive's "Total and Permanent Disability" (as defined in Paragraph 2(d) below), provided that the Corporation complies with the provisions of Paragraphs 3(a)(1), 3(a)(2), 3(b) and 3(c) below; (3) The Executive may terminate his employment hereunder for "Good Reason" (as defined in Paragraph 2(e) below) or without Good Reason on 30 days prior notice at any time after the first anniversary of the date of this Agreement; (4) The Executive's employment hereunder shall terminate automatically upon his death; (5) The Corporation may terminate the Executive's employment hereunder at any time without "Cause" (as defined in Paragraph 2(c) below), provided that the Corporation complies with the provisions of Paragraphs 3(a)(1), 3(a)(2), 3(a)(3) (if applicable), 3(a)(4) (if applicable), 3(b) and 3(c) below. (c) Definition of "Cause". As used herein, "Cause" shall mean the -------------------- occurrence of any of the following: (1) 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 Exhibit 10.2 (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 --------------- (3) the failure of the Executive to comply with Paragraph 5 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 "Total and Permanent Disability." The Executive shall be --------------------------------------------- considered to have a "Total and Permanent Disability" if he is unable to perform, in all material respects, his duties because of illness or injury for six consecutive months. The Corporation may terminate the Executive for Total and Permanent Disability only by written notice given after the end of such six- month period while the Executive continues to have a Total and Permanent Disability. (e) Definition of "Good Reason." As used herein, "Good Reason" shall mean ---------------------------- the occurrence of any of the following: (1) except where such failure or change is specifically approved by the Executive in writing, failure to elect or reelect or to appoint or reappoint the Executive to the offices of President and Chief Executive Officer of the Corporation, or any other material diminution by the Corporation of the Executive's functions, authority, duties or responsibilities; provided, however, that the Executive must first (i) -------- ------- provide the Board with written notice specifying the particular failure of the Corporation under this Paragraph 2(e)(1) and (ii) allow the Board 10 days from receipt of notice to cure such failure; (2) the liquidation or dissolution of the Corporation; (3) any failure by the Corporation to pay to the Executive the Base Salary or other compensation and benefits provided for herein; provided, -------- however, that the Executive must first (i) provide the Board with written ------- notice specifying the particular failure of the Corporation under this Paragraph 2(e)(3) and (ii) allow the Board 15 days from receipt of notice to cure such failure; (4) any other material breach of this Agreement by the Corporation; provided, however, that the Executive must first (i) provide the Board with -------- ------- written notice specifying the particular failure of the Corporation under this Paragraph 2(e)(4) and (ii) allow the Board 30 days from receipt of notice to cure such failure; 3 Exhibit 10.2 (5) any "Change in Control," which shall mean any of the following: (A) the acquisition, directly or indirectly after the date of this Agreement, in one or a series of transactions, of 25% or more of the Corporation's voting common stock by any "person" as that term is defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (including any amounts owned as of the date hereof); (B) the consummation of a merger, consolidation, share exchange or similar transaction of the Corporation with any other corporation, entity or group, as a result of which the holders of the voting capital stock of the Corporation as a group would receive less than 50% of the voting capital stock of the surviving or resulting corporation and Paragraph 2(e)(5)(A) above is not violated; (C) the consummation of an agreement providing for the sale or transfer (other than as security for obligations of the Corporation) of all or substantially all the assets of the Corporation; (D) a material change in the composition or character of the Board as follows: (i) whether in one or more actions or elections, the replacement of a majority of directors on the effective date of this Agreement by directors opposed by the Executive and a majority of the members of the Executive Committee of the Board (or, in the absence of the existence of an Executive Committee, a majority of the members of the Board) or (ii) at any meeting or aggregate series of meetings of the Corporation's shareholders, the election of a majority of directors standing for election who are opposed by the Executive and a majority of the members of the Executive Committee of the Board (or, in the absence of the existence of an Executive Committee, a majority of the members of the Board). (6) Any change in the principal office of the Corporation to a location which is more than 30 miles from its current principal office at 11360 Lakefield Drive, Duluth, Georgia 30097. 3. Payments to the Executive Upon Termination of Employment. -------------------------------------------------------- (a) Compensation. In the event that the Executive's employment with the ------------ Corporation is terminated, whether upon the expiration of the Term as a result of a notice of nonrenewal or upon the earlier termination of the Term as provided in Paragraph 2(b) above, then the Corporation shall pay to the Executive the following amounts on the date of such termination and shall provide to the Executive the following benefits, as applicable: (1) In the event that the Executive's employment hereunder is terminated for any reason whatsoever, the Corporation shall pay to the Executive an amount equal to the sum of (i) his accrued but unpaid Base Salary, plus (ii) his accrued but unpaid vacation pay, plus (iii) any ---- ---- earned but unpaid bonus for any completed prior fiscal year, plus (iv) ---- 4 Exhibit 10.2 any other compensation payments or benefits which have accrued and are payable in connection with such termination under any prior plan, program or practice. (2) In the event that the Executive's employment hereunder is terminated (i) by the Corporation because of the Executive's "Total and Permanent Disability" pursuant to Paragraph 2(b)(2) above, (ii) because of the Executive's death pursuant to Paragraph 2(b)(4) above, (iii) by the Executive for "Good Reason" pursuant to Paragraph 2(b)(3) above or (iv) by the Corporation pursuant to Paragraph 2(b)(5) above, then and in any such event, the Corporation shall pay to the Executive, in addition to the payments described in Paragraph 3(a)(1), a pro rata share of the Projected Bonus for the fiscal year of the Corporation in which such termination occurs. The "Projected Bonus" shall mean the Executive's bonus under the Glenayre Incentive Plan described in Paragraph 4(b) below for the applicable fiscal year of the Corporation, calculated, for purposes of determining whether the targets contained therein have been met, under the assumption that the results of operations and financial condition of the Corporation (or any applicable subsidiary) as of the Executive's termination date shall continue on the same basis through the end of such fiscal year. (3) In the event that the Executive's employment hereunder is terminated (i) by the Corporation without "Cause" pursuant to Paragraph 2(b)(5) above (except in the event of a "Change in Control") or (ii) by the Executive for "Good Reason" (except in the event of a "Change in Control") pursuant to Paragraph 2(b)(3) above, then and in any such event, the Corporation shall pay to the Executive, in addition to the payments described in Paragraphs 3(a)(1) and 3(a)(2), an amount equal to 50% of the annual rate of Base Salary being paid to the Executive at the time of such termination. (4) In the event that the Executive's employment hereunder is terminated (i) by the Executive for "Good Reason" because of a "Change in Control" pursuant to Paragraph 2(b)(3) above, (ii) by the Corporation under Paragraph 2(b)(5) above following a "Change in Control" or (iii) by the Corporation under Paragraph 2(b)(5) in Contemplation of a Change in Control or the Executive for "Good Reason" in Contemplation of a Change in Control, then the Corporation shall pay to the Executive, in addition to the payments described in Paragraphs 3(a)(1) and 3(a)(2), an amount equal to two and one-half times the annual rate of Base Salary being paid to the Executive at the time of such termination (or if the Executive's Base Salary was then greater, on the date immediately preceding the date of the Change in Control). For this purpose, "Contemplation of a Change in Control" shall mean that the Corporation has received an offer, or is engaging in other formal discussions, with respect to events which subsequently result in a Change in Control. (5) In the event that the Executive's employment hereunder is terminated for any reason whatsoever, except by the Corporation for Cause or by the Executive without Good Reason, then the Corporation shall provide to the Executive the relocation benefits described in the Corporation's Relocation Policy (a copy of which is attached hereto as Exhibit B) in connection with a relocation from the Duluth, Georgia area to North Carolina. 5 Exhibit 10.2 (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 and may in the future be awarded additional options to purchase shares of the Corporation's or a successor corporation's common stock under the Glenayre Technologies, Inc. 1996 Incentive Stock Plan or other option plans (collectively, the "Options"), such Options having been granted, or to be granted, for the number of shares and at a price per share specified in the agreements between the Corporation (or a successor corporation) and the Executive granted the Options. Notwithstanding any terms to the contrary contained in such stock option agreements, upon the Executive's termination of employment for any reason other than "Cause" (as that term is defined in Paragraph 2(c) above) or his resignation without Good Reason other than at the end of a Term, (i) all Options shall become fully vested in the Executive and (ii) all Options shall become immediately exercisable and shall remain exercisable for a period of 12 months following the date of the Executive's termination of employment. (c) Welfare Benefits. In the event that the Executive's employment ---------------- hereunder is terminated (i) by the Corporation because of the Executive's "Total and Permanent Disability" pursuant to Paragraph 2(b)(2) above, (ii) because of the Executive's death pursuant to Paragraph 2(b)(4) above, (iii) by the Executive for "Good Reason" pursuant to Paragraph 2(b)(3) above, (iv) by the Corporation under Paragraph 2(b)(5) above or (v) upon expiration of the Term (unless the Executive refused to negotiate with the Corporation for an employment agreement with terms substantially similar to this Agreement), then and in any such event, the Corporation shall provide medical and dental benefits to the Executive (and the Executive's dependents) for a period of 12 months following such termination of employment at the Corporation's full expense and at the same levels of coverage as such benefits are provided to active employees of the Corporation. The Executive's right to continued medical and dental coverage required under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") shall begin at the expiration of the one year period described in this Paragraph 3(c). 4. Compensation and Benefits. Subject to the terms of this Agreement and ------------------------- until the termination of the Term as provided in Paragraph 2 above, the Corporation shall pay compensation and provide benefits to the Executive as follows: (a) Base Salary. The Corporation shall pay to the Executive an initial ----------- salary of $300,000 per annum. Such base salary, as increased from time to time, is referred to herein as the "Base Salary." The Base Salary shall be payable in approximately equal monthly installments on the last business day of each month, or in such other installments and at such other times as the parties hereto may mutually agree upon. The Base Salary may be increased (but not decreased) from time to time as determined by the Board or its Compensation Committee in its absolute discretion. (b) Glenayre Incentive Plan. The Executive shall participate at a 75% ----------------------- level in the Glenayre Incentive Plan, as in effect from time to time (the "Incentive Plan"). The Executive's level of participation in the Incentive Plan may be increased (but not decreased) from time to time as determined by the Board or its Compensation Committee in its absolute discretion. 6 Exhibit 10.2 (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) Vacation and Holidays. The Executive shall be entitled to take four --------------------- weeks of vacation (or, if more, the vacation provided under the Corporation's standard vacation policy for senior executives) in each successive 12-month period during the Term at such times as shall be mutually convenient to the Executive and the Corporation. The Executive shall be entitled to all paid holidays in accordance with the Corporation's policies. (f) Other Benefits. In addition to participation in all of the -------------- compensation and incentive programs as described in this Agreement, the Executive shall be entitled to participate in all bonus, compensation, savings, stock option, and other incentive plans and programs and in all qualified and non-qualified retirement plans, life, medical/dental insurance plans and short- and long-term disability insurance plans of the Corporation, 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. (g) 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. (h) Bridge Loan. The Executive intends to purchase, as his principal ----------- residence, a home in the Duluth, Georgia area (the "Residence"). In order to assist in the financing of the Residence, the Corporation agrees to lend to the Executive, on the date the Residence is purchased, the sum of $350,000 (the "Loan"). The Loan shall be evidenced by the Executive's promissory note (in form and substance satisfactory to the Corporation) and will be on the following terms and conditions: (1) The Loan shall be secured by a first priority mortgage on the Residence, such mortgage to be evidenced by an instrument in form and content satisfactory to the Corporation and to be recorded with the appropriate public registry. (2) The Loan shall bear interest at 6.75% per annum. (3) The Loan shall be repayable by the Executive in 11 equal consecutive monthly payments of principal and interest, each monthly payment to be an amount equal to 10% of the amount of the Base Salary paid to the Executive each month ($2,500 initially, but to be adjusted proportionately to any increases in the Base Salary), with all of the remaining principal balance and all accrued but unpaid interest being due and 7 Exhibit 10.2 payable in one lump sum payment on the first anniversary of the Loan, provided that the Loan is subject to the prepayment requirement described in Paragraph 4(h)(4) below. (4) The following shall be applied as a mandatory prepayment (up to the remaining principal balance and accrued but unpaid interest) of the Loan: (i) 100% of any payments made to the Executive under the Glenayre Incentive Plan or any other bonus plan of the Corporation; (ii) 100% of any severance payments made to the Executive under Paragraph 3(a)(3) or 3(a)(4) above; and (iii) 100% of any insurance proceeds received by the Executive as a result of any loss or damage to the Residence. All prepayments shall be applied first to all accrued but unpaid interest and then to principal. In addition, all of the remaining balance and all accrued but unpaid interest on the Loan shall be immediately due and payable to the Corporation (A) within 90 days after the termination of Executive's employment with the Corporation for any reason or (B) on the date the Residence is sold. 5. Location of Office and Principal Residence. The Executive's principal ------------------------------------------ place of employment shall be in Duluth, Georgia. The Executive agrees to relocate his principal residence to the Duluth, Georgia area no later than 60 days after the date of this Agreement and to maintain his principal residence in such area for the remainder of the Term. 6. Confidential Information. ------------------------ (a) Covenant. The Executive shall not divulge, during the Term or at any -------- time thereafter, to any person not employed by the Corporation or its subsidiaries or affiliates or otherwise engaged to render services to the Corporation, its subsidiaries or affiliates, any material Confidential Information 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, 8 Exhibit 10.2 Provided, however, that this provision shall not preclude the Executive from - -------- ------- disclosing such Confidential Information as may be required by any applicable law, regulation or directive or any governmental agency, court or other authority having jurisdiction in the matter, or in the proper course of conduct of the Corporation's business. In the event that any person seeks legally to compel the Executive to disclose Confidential Information, the Executive shall promptly provide the Corporation with notice so that the Corporation may have opportunity to seek a protective order or other appropriate remedy. 7. Indemnification. The Corporation agrees (i) to indemnify, defend and --------------- hold harmless the Executive from and against any and all liabilities to which he may be subject as a result of his employment hereunder (as a result of his service as an officer or director of the Corporation or as an officer or director of any of the Corporation's subsidiaries or affiliates) 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. 8. Reimbursement of Legal and Related Expenses. In the event that any ------------------------------------------- dispute shall arise between the Executive and the Corporation relating to his rights under this Agreement, any other agreement between the Corporation and the Executive, under any plan or program of the Corporation or with regard to his employment with the Corporation or its termination, and the Executive has been substantially successful in his claim, then the reasonable legal fees and disbursements of the Executive in connection with such dispute shall be paid by the Corporation. The Corporation shall pay the Executive's reasonable legal fees in connection with entering into this Agreement. 9. Assignment. The Executive may not assign this Agreement or any of his ---------- rights, benefits, obligations or duties hereunder to any other person, firm, corporation or other entity. The Corporation may not assign this Agreement except with all or substantially all of its assets and then only if the assignees promptly deliver to Executive an assumption of this Agreement in a form reasonably acceptable to Executive. 10. Excise Tax Gross-Up. The Executive shall be entitled to a gross-up of ------------------- any excise tax payable pursuant to Internal Revenue Code Section 280G in accordance with Exhibit A hereto. 11. Notices. All notices and other communications required or permitted ------- hereunder shall be in writing and shall be deemed to have been duly given when personally delivered or on the fourth business day after being placed in the United States mail by certified mail, return receipt requested, postage prepaid, addressed to the parties hereto as follows (provided that notice of change of address shall be deemed given only when actually received): As to the Corporation: Glenayre Technologies, Inc. 11360 Lakefield Drive 9 Exhibit 10.2 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. 12. Law Applicable. This Agreement is made and executed with the intention -------------- that the construction, interpretation and validity hereof shall be determined in accordance with and governed by the laws of the State of North Carolina. 13. 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. 14. Entire Agreement; Modification. This Agreement constitutes the entire ------------------------------ agreement between the parties with respect to the subject matter hereof and supersedes and cancels all prior or contemporaneous oral or written agreements and understandings between them with respect to the subject matter hereof, including without limitation the Employment Agreement between the Corporation and the Executive dated as of June 18, 1999 (the "Old Employment Agreement"). 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. 15. 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. 16. 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 rights he may have with respect to such occurrence, including without limitation (i) the relocation of the Corporation's corporate headquarters (and the Executive's principal place of employment) to Duluth, Georgia, (ii) the changes in the Executive's responsibilities as a result of the current management responsibilities being undertaken by the Chairman of the Board and the Vice Chairman of the Board of the Corporation and (iii) any changes in the Executive's employment arrangement effected through this Agreement. 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 10 Exhibit 10.2 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. 17. 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______________________________________ ATTEST: Chairman of the Board _______________________________ Secretary __________________________________(SEAL) Eric L. Doggett 11 Exhibit 10.2 Exhibit A --------- Parachute Gross Up ------------------ (a) In the event that the Executive shall become entitled to payments and/or benefits provided by this Agreement or any other amounts in the "nature of compensation" (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, any person whose actions result in a change of ownership or effective control covered by Section 280G(b)(2) of the Internal Revenue of 1986, as amended (the "Code") or any person affiliated with the Corporation or such person) as a result of such change in ownership or effective control (collectively the "Corporation Payments"), and such Corporation Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (and any similar tax that may hereafter be imposed by any taxing authority), the Corporation shall pay to the Executive at the time specified in subsection (d) below an additional amount (the "Gross-up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Corporation Payments and any U.S. federal, state, and for local income or payroll tax upon the Gross-up Payment provided for by this paragraph (a), but before deduction for any U.S. federal, state, and local income or payroll tax on the Corporation Payments, shall be equal to the Corporation Payments. (b) For purposes of determining whether any of the Corporation Payments and Gross-up Payments (collectively the "Total Payments") will be subject to the Excise Tax and the amount of such Excise Tax, (x) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the opinion of the Corporation's independent certified public accountants appointed prior to any change in ownership (as defined under Code Section 280G(b)(2)) or tax counsel selected by such accountants (the "Accountants"), such Total Payments (in whole or in part) either do not constitute "parachute payments," represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the "base amount" or are otherwise not subject to the Excise Tax, and (y) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (c) For purposes of determining the amount of the Gross-up Payment, the Executive shall be deemed to pay U.S. federal income taxes at the highest marginal rate of U.S. federal income taxation in the calendar year in which the Gross-up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence for the calendar year in which the Corporation Payment is to be made, net of the maximum reduction in U.S. federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year. In the event that the Excise Tax is subsequently determined by the Accountants to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, the Executive shall repay to the Corporation, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the prior Gross-up Payment attributable to such reduction (plus the portion of the Gross- up Payment attributable 12 Exhibit 10.2 to the Excise Tax and U.S. federal, state and local income tax imposed on the portion of the Gross-up Payment being repaid by the Executive if such repayment results in a reduction in Excise Tax or a U.S. federal, state and local income tax deduction), plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Gross-up Payment to be refunded to the Corporation has been paid to any U.S. federal, state and local tax authority, repayment thereof (and related amounts) shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Corporation shall not exceed the interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Corporation shall mutually agree upon the course of action to be pursued (and the method of allocating the expense thereof) if the Executive's claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountant or the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), the Corporation shall make an additional Gross-up Payment in respect of such excess (plus any interest or penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. (d) The Gross-up Payment or portion thereof provided for in subsection (c) above shall be paid not later than the thirtieth (30th) day following an event occurring which subjects the Executive to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Corporation shall pay to the Executive on such day an estimate, as determined in good faith by the Accountant, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), subject to further payments pursuant to subsection (c) hereof, as soon as the amount thereof can reasonably be determined, but in no event later than the ninetieth day after the occurrence of the event subjecting the Executive to the Excise Tax. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to the Executive, payable on the fifth day after demand by the Corporation (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). (e) In the event of any controversy with the Internal Revenue Service (or other taxing authority) with regard to the Excise Tax, the Executive shall permit the Corporation to control issues related to the Excise Tax (at its expense), provided that such issues do not potentially materially adversely affect the Executive, but the Executive shall control any other issues. In the event the issues are interrelated, the Executive and the Corporation shall in good faith cooperate so as not to jeopardize resolution of either issue, but if the parties cannot agree the Executive shall make the final determination with regard to the issues. In the event of any conference with any taxing authority as to the Excise Tax or associated income taxes, the Executive shall permit the representative of the Corporation to accompany the Executive, and the Executive and the Executive's representative shall cooperate with the Corporation and its representative. 13 Exhibit 10.2 (f) The Corporation shall be responsible for all charges of the Accountant. (g) The Corporation and the Executive shall promptly deliver to each other copies of any written communications, and summaries of any verbal communications, with any taxing authority regarding the Excise Tax covered by this Exhibit A. 14 EX-10.3 5 dex103.txt LETTER OF RESIGNATION Exhibit 10.3 May 23, 2001 Delivered By Hand - ----------------- Mr. Bert C. Klein Dear Bert: This letter confirms our discussion last week during which you voluntarily resigned from your employment as Senior Vice President, Chief Financial Officer and Secretary of Glenayre, effective May 23, 2001 (the "Resignation Date") on the terms and conditions set forth in this letter agreement. Glenayre and you mutually agree that your Employment Agreement with Glenayre dated April 27, 2000 (the "Employment Agreement") is terminated and of no further force or effect, effective as of the Resignation Date, and that the benefits provided to you under this letter agreement are in lieu of any and all benefits under the Employment Agreement. 1. Resignation. You hereby resign from your employment with any of the ----------- Glenayre Companies (defined in Paragraph 7 below) and resign from all offices, committees and positions you hold with the Glenayre Companies and any affiliated company, including but not limited to your position as Senior Vice President, Chief Financial Officer and Secretary of Glenayre, with said resignation to be effective on the Resignation Date. If requested by Glenayre, you will execute any additional resignation letters, forms or other documents which acknowledge your resignation from such employment, positions, committees and offices. 2. Services. So long as you receive severance payments under Paragraph 4 -------- below, you agree to be available on reasonable notice and at reasonable times to provide services to Glenayre in connection with financial or other matters. In this connection, you will act as an independent contractor and not as an employee of Glenayre. 3. Accrued Salary and Benefits. You will be paid all salary and benefits to --------------------------- which you are entitled through the Resignation Date. You will be paid for your accrued but unused vacation as of such date. 4. Payments after the Resignation Date (the "Special Exit Package"). On or ---------------------------------------------------------------- prior to June 1, 2001, you will receive one lump sum payment equal to $285,000. You will also receive additional severance benefits in the form of bi-weekly payments of $10,961.54 each (up to a maximum amount of $142,500) until the earlier of (i) the expiration of six months after the Resignation Date or (ii) such time as you accept employment from another company. The foregoing payments shall be made in accordance with Glenayre's payroll practices and shall be subject to all applicable withholding as an employee. 5. Benefits Following the Resignation Date. After the Resignation Date and so --------------------------------------- long as you receive severance payments under Paragraph 4 above, you and your dependents will continue to be eligible to participate in Glenayre's medical plan at current employee rates, which may be revised from time to time. Once such severance payments cease, you may continue your individual and dependent coverage through COBRA at rates which are evaluated annually. After the Resignation Date, you shall cease to be covered by all vacation and holiday leave programs, the 401(k) Retirement Savings Plan, the Employee Stock Purchase Plan, short and long-term disability, Life and AD&D, and you shall cease to be entitled to any perquisites or benefit rights not expressly covered by this letter agreement. You have been granted options to purchase Glenayre's common stock. You agree that all such options expire on the Resignation Date, except that options for 75,000 shares granted to you on March 30, 2001 will become immediately vested on the Resignation Date and you will have a period of one year after the Resignation Date in which to exercise any of such vested options. 6. No Recruitment of Employees. You agree not to recruit, provide information --------------------------- on any personnel of the Glenayre Companies (defined in Paragraph 7 below), or assist another employer in the recruitment of any employee of the Glenayre Companies within two years after the Resignation Date. 7. Release. In consideration for receipt of the Special Exit Package, which ------- you specifically acknowledge to be sufficient consideration to support this release, you hereby release and discharge Glenayre Technologies, Inc., Glenayre Electronics, Inc. and their predecessors, successors, and affiliates, successors, assigns and benefit plans (collectively, the "Glenayre Companies") and their respective directors, officers, shareholders, trustees, administrators, employees, representatives and agents from any and all claims or liabilities of whatever kind or nature, known or unknown, which you have ever had or which you now have, including but not limited to, claims arising out of your employment with any of the Glenayre Companies or the termination of your employment, whether based on tort, contract (express or implied) or any state or federal 2 wage, employment or common laws. This release does not, however, apply to any obligations of Glenayre under this letter agreement. 8. Confidential Information. You agree that you will keep strictly ------------------------ confidential and will not disclose, directly or indirectly, any document or information (including all proprietary, confidential, or trade secret information of the Glenayre Companies, that you have had in your possession or of which you were/are aware) relating to your employment with any of the Glenayre Companies or to the business and operations of any of the Glenayre Companies. You further agree that you will not make any statement nor take any action which might adversely reflect upon any of the Glenayre Companies, or any of their officers, directors or employees. Likewise, Glenayre and its directors and officers will not make any statement nor take any action which might adversely reflect upon you. 9. Remedies for Breach. You acknowledge and agree that in the event of a ------------------- breach by you of the provisions of Paragraph 6 (No Recruitment of Employees) or Paragraph 8 (Confidential Information), Glenayre may, in addition to whatever other rights and remedies it may have at law or in equity, withhold any amounts or benefits otherwise payable or due under Paragraphs 3 and 4 of this letter agreement. 10. Acknowledgment of Understanding and Voluntariness. You acknowledge that you ------------------------------------------------- understand completely everything set forth in this letter agreement, that you have had ample opportunity to review this letter agreement and all its ramifications with an attorney of your own choosing, and that you have entered into this letter agreement voluntarily, without any coercion whatsoever, of your own free will, and that you intend legally to be bound by this letter agreement. 11. Entire Agreement. This letter agreement constitutes the entire agreement ---------------- between Glenayre and you with respect to the subject matter hereof. This letter agreement will not be construed as an admission of liability, wrongdoing, or discrimination by any of the Glenayre Companies or any of their officers, directors, employees or agents. 12. Severability. If any provision hereof shall be determined to be ------------ unenforceable, such fact shall not invalidate or render unenforceable any other provision hereof. 13. Binding Effect. This letter agreement shall be binding upon and inure to -------------- the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns, as the case may be. 3 14. Governing Laws. This letter agreement shall be deemed to have made in the -------------- State of North Carolina and shall be interpreted, construed, and enforced in accordance with the laws of the State of North Carolina (without regard to any conflicts of laws principles). If the foregoing terms and conditions are acceptable to you, please sign in the space indicated below. Sincerely, Accepted and agreed to: /S/ Eric Doggett /S/ Bert C. Klein - ------------------------ -------------------------- Eric Doggett Bert C. Klein President and CEO cc: Personnel File 4 -----END PRIVACY-ENHANCED MESSAGE-----