EXHIBIT 99.1
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of January 26, 2004, by and between
INTERVOICE, INC., a Texas Corporation ("Borrower"), and XXXXX FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested that Bank extend or continue credit to Borrower
as described below, and Bank has agreed to provide such credit to Borrower on
the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
CREDIT TERMS
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions
of this Agreement, Bank hereby agrees to make advances to Borrower from time to
time up to and including January 31, 2007, not to exceed at any time the
aggregate principal amount of Five Million Five Hundred Thousand Dollars
($5,500,000.00) ("Line of Credit"), the proceeds of which shall be used for
working capital. Borrower's obligation to repay advances under the Line of
Credit shall be evidenced by a promissory note dated as of January 26, 2004,
("Line of Credit Note"), all terms of which are incorporated herein by this
reference.
(b) Limitation on Borrowings. Outstanding borrowings
under the Line of Credit, to a maximum of the principal amount set forth above,
shall not at any time exceed an aggregate of seventy percent (70%) of Borrower's
eligible accounts receivable plus $2,750,000.00 of cash collateral (the
"Borrowing Base"). All of the foregoing shall be determined by Bank upon receipt
and review of all collateral reports required hereunder and such other documents
and collateral information as Bank may from time to time require. Borrower
acknowledges that said borrowing base was established by Bank with the
understanding that, among other items, the aggregate of all returns, rebates,
discounts, credits and allowances for the immediately preceding three (3) months
at all times shall be less than five percent (5%) of Borrower's gross sales for
said period. If such dilution of Borrower's accounts for the immediately
preceding three (3) months at any time exceeds five percent (5%) of Borrower's
gross sales for said period, or if there at any time exists any other matters,
events, conditions or contingencies which Bank reasonably believes may affect
payment of any portion of Borrower's accounts, Bank, in its sole discretion, may
reduce the foregoing advance rate against eligible accounts receivable to a
percentage appropriate to reflect such additional dilution and/or establish
additional reserves against Borrower's eligible accounts receivable.
As used herein, "eligible accounts receivable" shall consist solely of
trade accounts created in the ordinary course of Borrower's business, upon which
Borrower's right to receive
payment is absolute and not contingent upon the fulfillment of any condition
whatsoever, and in which Bank has a perfected security interest of first
priority, and shall not include:
(i) any account which is more than ninety (90)
days past due;
(ii) that portion of any account for which there
exists any right of setoff, defense or discount (except
regular discounts allowed in the ordinary course of business
to promote prompt payment) or for which any defense or
counterclaim has been asserted;
(iii) any account which represents an obligation
of any state or municipal government or of the United States
government or any political subdivision thereof (except
accounts which represent obligations of the United States
government and for which the assignment provisions of the
Federal Assignment of Claims Act, as amended or recodified
from time to time, have been complied with to Bank's
satisfaction);
(iv) any account which represents an obligation
of an account debtor located in a country other than the
United States or any of the following Canadian provinces:
Alberta, British Columbia, Manitoba, Ontario, Saskatchewan and
the Yukon Territory, except to the extent any such account, in
Bank's determination, is supported by a letter of credit or
insured under a policy of foreign credit insurance, in each
case in form, substance and issued by a party acceptable to
Bank;
(v) any account which arises from the sale or
lease to or performance of services for, or represents an
obligation of, an employee, affiliate, partner, member, parent
or subsidiary of Borrower;
(vi) that portion of any account which represents
interim or progress xxxxxxxx or retention rights on the part
of the account debtor;
(vii) any account which represents an obligation
of any account debtor when twenty percent (20%) or more of
Borrower's accounts from such account debtor are not eligible
pursuant to (i) above;
(viii) that portion of any account from an account
debtor which represents the amount by which Borrower's total
accounts from said account debtor exceeds twenty-five percent
(25%) of Borrower's total accounts;
(ix) any account deemed ineligible by Bank when
Bank, in its sole discretion, deems the creditworthiness or
financial condition of the account debtor, or the industry in
which the account debtor is engaged, to be unsatisfactory.
(c) Letter of Credit Subfeature. As a subfeature under
the Line of Credit, Bank agrees from time to time during the term thereof to
issue or cause an affiliate to issue Commercial/Standby letters of credit for
the account of Borrower (each, a "Letter of Credit" and
-2-
collectively, "Letters of Credit"); provided however, that the aggregate undrawn
amount of all outstanding Letters of Credit shall not at any time exceed Two
Million Dollars ($2,000,000.00). The form and substance of each Letter of Credit
shall be subject to approval by Bank, in its sole discretion. No Letter of
Credit shall have an expiration date subsequent to the maturity date of the Line
of Credit. The undrawn amount of all Letters of Credit shall be reserved under
the Line of Credit and shall not be available for borrowings thereunder. Each
Letter of Credit shall be subject to the additional terms and conditions of the
Letter of Credit Agreement, applications and any related documents required by
Bank in connection with the issuance thereof. Each drawing paid under a Letter
of Credit shall be deemed an advance under the Line of Credit and shall be
repaid by Borrower in accordance with the terms and conditions of this Agreement
applicable to such advances; provided however, that if advances under the Line
of Credit are not available, for any reason, at the time any draft is paid, then
Borrower shall immediately pay to Bank the full amount drawn, together with
interest thereon from the date such drawing is paid to the date such amount is
fully repaid by Borrower, at the rate of interest applicable to advances under
the Line of Credit. In such event Borrower agrees that Bank, in its sole
discretion, may debit any account maintained by Borrower with Bank for the
amount of any such drawing.
(d) Borrowing and Repayment. Borrower may from time to
time during the term of the Line of Credit borrow, partially or wholly repay its
outstanding borrowings without penalty or premium (other than costs incurred in
terminating any LIBOR tranche prior to the end of the applicable LIBOR period),
and reborrow, subject to all of the limitations, terms and conditions contained
herein or in the Line of Credit Note; provided however, that the total
outstanding borrowings under the Line of Credit shall not at any time exceed the
maximum principal amount available thereunder, as set forth above.
SECTION 1.2. INTEREST/FEES.
(a) Interest. The outstanding principal balance of each
credit subject hereto shall bear interest at the rate of interest set forth in
each promissory note or other instrument or document executed in connection
herewith.
(b) Computation and Payment. Interest shall be computed
on the basis of a 360-day year, actual days elapsed, unless such calculation
would result in a usurious rate, in which case interest shall be computed on the
basis of a 365/366-day year, as the case may be, actual days elapsed. Interest
shall be payable at the times and place set forth in each promissory note or
other instrument or document required hereby.
(c) Unused Commitment Fee. Borrower shall pay to Bank a
fee equal to one quarter percent (0.25%) per annum (computed on the basis of a
360-day year, actual days elapsed) on the average daily unused amount of the
Line of Credit, which fee shall be calculated on a quarterly basis by Bank and
shall be due and payable by Borrower in arrears within ten (10) days after each
billing is sent by Bank.
(d) Letter of Credit Fees. Borrower shall pay to Bank (i)
fees upon the issuance of each Letter of Credit equal to one percent (1.00%) per
annum (computed on the basis of a 360-day year, actual days elapsed) of the face
amount thereof, and (ii) fees upon the payment or negotiation of each drawing
under any Letter of Credit and fees upon the occurrence
-3-
of any other activity with respect to any Letter of Credit (including without
limitation, the transfer, amendment or cancellation of any Letter of Credit)
determined in accordance with Bank's standard fees and charges then in effect
for such activity.
SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to
collect all interest and fees due under the Line of Credit by charging
Borrower's deposit account number 4000064972 with Bank, or any other deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such deposit account to pay all such sums
when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
SECTION 1.4. COLLATERAL.
As security for all indebtedness of Borrower to Bank subject hereto,
Borrower hereby grants to Bank security interests of first priority in all
Borrower's accounts receivable and other rights to payment, general intangibles,
inventory, equipment and a Securities Account held at Xxxxx Fargo Brokerage
Services, LLC., Account # 00000000.
All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements, deeds of trust and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for
all costs and expenses incurred by Bank in connection with any of the foregoing
security, including without limitation, filing and recording fees and costs of
appraisals, audits and title insurance.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized
and existing and in good standing under the laws of the State of Texas, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each
promissory note, contract, instrument, and other document required hereby or at
any time hereafter delivered to Bank in connection herewith (collectively, the
"Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal, valid
and binding agreements and obligations of Borrower or the party which executes
the same, enforceable in accordance with their respective terms, except as
enforcement may be limited by equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws relating to or limiting creditors'
rights generally.
-4-
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any material
contract, obligation, indenture or other instrument to which Borrower is a party
or by which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those described on
Schedule 2.4 attached hereto, at any time and as from time to time updated or
modified by Borrower.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of Borrower most recently delivered to Bank on behalf of Borrower,
which as of the date of this Agreement, is the financial statement of Borrower
dated November 30, 2003, (a) is complete and correct and presents fairly the
financial condition of Borrower, (b) discloses all liabilities of Borrower that
are required to be reflected or reserved against under generally accepted
accounting principles, whether liquidated or unliquidated, fixed or contingent,
and (c) has been prepared in accordance with generally accepted accounting
principles consistently applied. Since the date of such financial statement
there has been no material adverse change in the financial condition of
Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or
otherwise encumbered any of its assets or properties except for Permitted Liens
(as defined in Section 5.9).
SECTION 2.6. INCOME TAX RETURNS. Borrower has timely filed all federal
and state income tax returns and is not aware of any material assessments or
adjustments of its income tax payable with respect to any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will
hereafter possess, all permits, consents, approvals, franchises and licenses
required and rights to all trademarks, trade names, patents, and fictitious
names, if any, necessary to enable it to conduct the business in which it is now
engaged in compliance in all material respects with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit
-5-
obligations as they come due in accordance with the Plan documents and under
generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Except for such matters that Borrower
is in good faith contesting or as to which a bona fide dispute exists, Borrower
is not in default on any material obligation for borrowed money, any material
purchase money obligation or any other material lease, commitment, contract,
instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters
incidental to the extension of credit by Bank shall be satisfactory to Bank's
counsel.
(b) Documentation. Bank shall have received, in form and
substance satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and each promissory note or
other instrument or document required
hereby;
(ii) Corporate Resolution: Borrowing;
(iii) Certificate of Incumbency;
(iv) Security Agreement: Equipment;
(v) Security Agreement: Securities Account;
(vi) Continuing Security Agreement: Rights to
Payment and Inventory;
(vii) Exhibit A to UCC Financing Statement;
(viii) Securities Account Control Agreement;
(ix) Statement of Purpose (Reg-U);
(x) Addendum to Securities Agreement: Securities
Account;
-6-
(xi) Payoff Letter from Xxxxx Fargo Foothill in
form satisfactory to Borrower and Bank; and
(xii) Such other documents as Bank may require
under any other Section of this Agreement.
(c) Financial Condition. There shall have been no
material adverse change, as determined by Bank, in the financial condition or
business of Borrower, nor any material decline, as determined by Bank, in the
market value of any collateral required hereunder or a substantial or material
portion of the assets of Borrower.
(d) Insurance. Borrower shall have delivered to Bank
evidence of insurance coverage on all Borrower's property, in form, substance,
amounts, covering risks and issued by companies satisfactory to Bank, and where
required by Bank, with loss payable endorsements in favor of Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) Compliance. The representations and warranties
contained herein and in each of the other Loan Documents shall be true on and as
of the date of the signing of this Agreement and on the date of each extension
of credit by Bank pursuant hereto, with the same effect as though such
representations and warranties had been made on and as of each such date (except
to the extent that such representations and warranties relate solely to an
earlier date), and on each such date, no Event of Default as defined herein, and
no condition, event or act which with the giving of notice or the passage of
time or both would constitute such an Event of Default, shall have occurred and
be continuing or shall exist.
(b) Documentation. Bank shall have received all
additional documents which may be required in connection with such extension of
credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and immediately upon demand by Bank,
the amount by which the outstanding principal balance of any credit subject
hereto at any time exceeds any limitation on borrowings applicable thereto.
-7-
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than 90 days after and as of the end of
each fiscal year, a 10-K report of Borrower, filed with the Securities Exchange
Commission, prepared by Borrower and to include auditor's report;
(b) not later than 45 days after and as of the end of
each quarter, a 10-Q report of Borrower filed with Securities Exchange
Commission, prepared by Borrower;
(c) not later than 20 days after and as of the end of
each month, a borrowing base certificate, an inventory collateral report, an
aged listing of accounts receivable, a listing of accounts payable, and a
reconciliation of accounts, and not later than 45 days after and as of the end
of each semi-annual period, a list of the names and addresses of all Borrower's
account debtors;
(d) contemporaneously with each annual and quarterly
financial statement of the Borrower required hereby, a certificate of the
president or chief financial officer of Borrower that said financial statements
are accurate and that there exists no Event of Default nor any condition, act or
event which with the giving of notice or the passage of time or both would
constitute an Event of Default;
(e) from time to time such other information as Bank may
reasonably request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business, the
failure to comply with would have a material adverse effect on the business,
operations or financial condition of Borrower.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
-8-
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due
any and all indebtedness, obligations, assessments and taxes, both real or
personal, including without limitation federal and state income taxes and state
and local property taxes and assessments, except such (a) as Borrower may in
good faith contest or as to which a bona fide dispute may arise, and (b) for
which Borrower has made provision, to Bank's satisfaction, for eventual payment
thereof in the event Borrower is obligated to make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower, an adverse decision of which
could reasonably be expected to have a material adverse effect on the business,
operations or financial condition of Borrower.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles consistently
applied and used consistently with prior practices (except to the extent
modified by the definitions herein):
(a) Net income after taxes shall not be less than $1.00
on an annual basis, determined as of each fiscal year end.
(b) Net income after taxes shall not be less than $1.00
for any two consecutive fiscal quarters, measured on a current quarter basis.
(c) Fixed Charge Coverage Ratio: As of any day, measured
as of the last day of any fiscal quarter, less than 1.50 to 1.00 determined for
the four quarter period ending on such day, defined as EBITDA divided by the
Fixed Charges. As used herein, the term "EBITDA" means at any time, measured as
of the last day of any fiscal quarter, Borrower's net profit for the previous
twelve months ending on such day before taxes, plus interest expense (net of
capitalized interest), depreciation and amortization expense for such four
consecutive fiscal quarter period. The term "Fixed Charges" means at any time,
measured as of the last day of any fiscal quarter, Borrower's total interest
expense, plus the scheduled principal payments of long-term debt for the prior
twelve months and the scheduled principal payments of subordinated debt for the
prior twelve months, plus all dividends, distributions and stock repurchases
plus capital expenditures, in each case for the period of four consecutive
fiscal quarters ending on such day.
(d) Total Funded Debt to EBITDA not greater than 1.50 to
1.0 as of each fiscal year end, with "Funded Debt" defined as the sum of all
obligations for borrowed money (including subordinated debt) plus all
obligations with respect to the principal component of capital leases, and with
"EBITDA" as defined above.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower is required to maintain, or
any uninsured or partially uninsured loss
-9-
through liability or property damage, or through fire, theft or any other cause
affecting Borrower's property.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article I hereof.
SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in
fixed assets in any fiscal year in excess of an aggregate of $8,000,000.00.
SECTION 5.3. LEASE EXPENDITURES. Incur operating lease expense (other
than expenses incurred for building rents) in any fiscal year in excess of an
aggregate of $3,000,000.00 except with Bank's prior written consent.
SECTION 5.4. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
(b) any other liabilities of Borrower existing as of, and disclosed to Bank, (c)
real estate debt in favor of Xxxx Bank, S.S.B. on Borrower's headquarters
location (the "Xxxx Debt"), (d) capital leases, purchase money indebtedness
incurred for the acquisition of fixed assets and other indebtedness in an
aggregate amount at any one time outstanding not to exceed $3,000,000, (e)
guaranties of indebtedness permitted by this Section 5.4, (f) refinancings,
renewals or extensions of indebtedness permitted by clauses (b), (c), and (d) of
this Section 5.4 (and continuance or renewal of the liens securing such
indebtedness), and (g) trade debt incurred in the ordinary course of business
and repayable in accordance with customary trade practices.
SECTION 5.5. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.
SECTION 5.6. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except as
permitted under Section 5.4.
SECTION 5.7. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances
to or investments in any person or entity, except (a) investment in cash and
cash equivalents, (b)
-10-
advances made in connection with the purchases of goods or services in the
ordinary course of business, and (c) loans and investments in consolidated
subsidiaries of Borrower set forth in Borrower's financial statements to be
delivered to Bank pursuant to Section 4.3.
SECTION 5.8. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding;
provided however, that Borrower may declare or pay any such dividends, or
acquire any such shares of stock, in a maximum aggregate amount of $6,000,000.00
in any fiscal year.
SECTION 5.9. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except (a) security interests and liens
held by Bank, (b) statutory mechanics and materialmens liens incurred in the
ordinary course of business, and other similar statutory liens incurred in the
ordinary course of business, provided such liens secure indebtedness which
either is not delinquent or is the subject of a good faith contest by Borrower,
(c) security interests and liens securing the Xxxx Debt, and renewals and
extensions thereof, (d) security interests and liens securing the indebtedness
permitted under Section 5.4(d), and renewals and extensions thereof, (e) liens
arising from deposits made in connection with obtaining worker's compensation of
other unemployment insurance, and (f) liens or deposits to secure performance of
bids, tenders, leases or statutory obligations incurred in the ordinary course
of business and not in connection with the borrowing of money (all of the
foregoing, herein called the "Permitted Liens").
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal,
interest, fees or other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to
Bank in connection with, or any representation or warranty made by Borrower or
any other party under this Agreement or any other Loan Document shall prove to
be incorrect, false or misleading in any material respect when furnished or
made.
(c) Any default in the performance of or compliance with
any obligation, agreement or other provision contained herein or in any other
Loan Document (other than those referred to in subsections (a) and (b) above),
and with respect to any such default which by its nature can be cured, such
default shall continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any
material obligation, except such obligations that Borrower is in good faith
contesting or as to which a bona fide dispute exists, or any defined event of
default, under the terms of any material contract or instrument (other than any
of the Loan Documents) pursuant to which Borrower or any guarantor
-11-
hereunder in Borrower has incurred any debt or other liability to any person or
entity, including Bank.
(e) For any amounts in excess of $100,000, (a) the filing
of a notice of judgment lien against Borrower or any Third Party Obligor; or (b)
the recording of any abstract of judgment against Borrower or any Third Party
Obligor in any county in which Borrower or any Third Party Obligor has an
interest in real property; or (c) the service of a notice of levy and/or of a
writ of attachment or execution, or other like process, against the assets of
Borrower or any Third Party Obligor; or (d) the entry of a judgment against
Borrower or any Third Party Obligor.
(f) Borrower or any Third Party Obligor shall become
insolvent, or shall suffer or consent to or apply for the appointment of a
receiver, trustee, custodian or liquidator of itself or any of its property, or
shall generally fail to pay its debts as they become due, or shall make a
general assignment for the benefit of creditors; Borrower or any Third Party
Obligor shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time ("Bankruptcy Code"), or under
any state or federal law granting relief to debtors, whether now or hereafter in
effect; or any involuntary petition or proceeding pursuant to the Bankruptcy
Code or any other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or commenced against
Borrower or any Third Party Obligor, or Borrower or any Third Party Obligor
shall file an answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition; or Borrower or any Third Party Obligor
shall be adjudicated a bankrupt, or an order for relief shall be entered against
Borrower or any Third Party Obligor by any court of competent jurisdiction under
the Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors.
(g) There shall exist or occur any event or condition
which Bank reasonably believes impairs, or is substantially likely to impair in
any material respect, the prospect of payment or performance by Borrower of its
obligations under any of the Loan Documents.
(h) The dissolution or liquidation of Borrower or any
Third Party Obligor which is a corporation; or Borrower or any Third Party
Obligor, or any of its directors, stockholders or members, shall take action
seeking to effect the dissolution or liquidation of Borrower or any Third Party
Obligor.
(i) Any "person" or "group" (within the meaning of
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as in effect
from time to time) becomes the beneficial owner (as defined in rule 13d-3 under
the Securities Exchange Act of 1934, as in effect from time to time), directly
or indirectly, of 25%, or more, of the stock of Borrower having the right to
vote for the election of members of the Board of Directors.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all principal and accrued and unpaid interest outstanding under each of the Loan
Documents, any term thereof to the contrary notwithstanding, shall at Bank's
option and without notice become immediately due and payable without
presentment, demand, or any notices of any kind,
-12-
including without limitation notice of nonperformance, notice of protest,
protest, notice of dishonor, notice of intention to accelerate or notice of
acceleration, all of which are hereby expressly waived by each Borrower; (b) the
obligation, if any, of Bank to extend any further credit under any of the Loan
Documents shall immediately cease and terminate; and (c) Bank shall have all
rights, powers and remedies available under each of the Loan Documents, or
accorded by law, including without limitation the right to resort to any or all
security for any credit subject hereto and to exercise any or all of the rights
of a beneficiary or secured party pursuant to applicable law. All rights, powers
and remedies of Bank may be exercised at any time by Bank and from time to time
after the occurrence of an Event of Default, are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies provided by law
or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: INTERVOICE, INC.
00000 Xxxxxxxxx Xxxxxxx
Xxxxxx, Xxxxx 00000
BANK: XXXXX FARGO BANK, NATIONAL ASSOCIATION
0000 Xxxxxxx Xxxx Xxxx. Xxxxx 000
Xxxxx, Xxxxx 00000
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel to the extent
permissible), expended or incurred by Bank in connection with (a) the
negotiation and preparation of this Agreement and the other Loan Documents,
Bank's continued administration hereof and thereof, and the preparation of any
-13-
amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights
and/or the collection of any amounts which become due to Bank under any of the
Loan Documents, and (c) the prosecution or defense of any action in any way
related to any of the Loan Documents, including without limitation, any action
for declaratory relief, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of the foregoing incurred
in connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to any Borrower or any other person or entity; provided that
Borrower shall have no obligation to pay any costs and expenses of Bank incurred
with respect to any action or proceeding in which a court of competent
jurisdiction or arbitrator determines in favor of Borrower.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to any credit subject hereto, Borrower or its business, or any
collateral required hereunder.
SECTION 7.5. AMENDMENT. This Agreement may be amended or modified only
in writing signed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
SECTION 7.11. SAVINGS CLAUSE. It is the intention of the parties to
comply strictly with applicable usury laws. Accordingly, notwithstanding any
provision to the contrary in the Loan Documents, in no event shall any Loan
Documents require the payment or permit the payment, taking, reserving,
receiving, collection or charging of any sums constituting interest
-14-
under applicable laws that exceed the maximum amount permitted by such laws, as
the same may be amended or modified from time to time (the "Maximum Rate"). If
any such excess interest is called for, contracted for, charged, taken, reserved
or received in connection with any Loan Documents, or in any communication by
Bank or any other person to Borrower or any other person, or in the event that
all or part of the principal or interest hereof or thereof shall be prepaid or
accelerated, so that under any of such circumstances or under any other
circumstance whatsoever the amount of interest contracted for, charged, taken,
reserved or received on the amount of principal actually outstanding from time
to time under the Loan Documents shall exceed the Maximum Rate, then in such
event it is agreed that: (a) the provisions of this paragraph shall govern and
control; (b) neither Borrower nor any other person or entity now or hereafter
liable for the payment of any Loan Documents shall be obligated to pay the
amount of such interest to the extent it is in excess of the Maximum Rate; (c)
any such excess interest which is or has been received by Bank, notwithstanding
this paragraph, shall be credited against the then unpaid principal balance
hereof or thereof, or if any of the Loan Documents has been or would be paid in
full by such credit, refunded to Borrower; and (d) the provisions of each of the
Loan Documents, and any other communication to Borrower, shall immediately be
deemed reformed and such excess interest reduced, without the necessity of
executing any other document, to the Maximum Rate. The right to accelerate the
maturity of the Loan Documents does not include the right to accelerate, collect
or charge unearned interest, but only such interest that has otherwise accrued
as of the date of acceleration. Without limiting the foregoing, all calculations
of the rate of interest contracted for, charged, taken, reserved or received in
connection with any of the Loan Documents which are made for the purpose of
determining whether such rate exceeds the Maximum Rate shall be made to the
extent permitted by applicable laws by amortizing, prorating, allocating and
spreading during the period of the full term of such Loan Documents, including
all prior and subsequent renewals and extensions hereof or thereof, all interest
at any time contracted for, charged, taken, reserved or received by Bank. The
terms of this paragraph shall be deemed to be incorporated into each of the
other Loan Documents.
To the extent that either Chapter 303 or 306, or both of the Texas
Finance Code apply in determining the Maximum Rate, Bank hereby elects to
determine the applicable rate ceiling by using the weekly ceiling from time to
time in effect, subject to Bank's right subsequently to change such method in
accordance with applicable law, as the same may be amended or modified from time
to time.
SECTION 7.12. RIGHT OF SETOFF; DEPOSIT ACCOUNTS. Upon and after the
occurrence of an Event of Default, (a) Borrower hereby authorizes Bank, at any
time and from time to time, without notice, which is hereby expressly waived by
each Borrower, and whether or not Bank shall have declared any credit subject
hereto to be due and payable in accordance with the terms hereof, to set off
against, and to appropriate and apply to the payment of, Borrower's obligations
and liabilities under the Loan Documents (whether matured or unmatured, fixed or
contingent, liquidated or unliquidated), any and all amounts owing by Bank to
Borrower (whether payable in U.S. dollars or any other currency, whether matured
or unmatured, and in the case of deposits, whether general or special (except
trust and escrow accounts), time or demand and however evidenced), and (b)
pending any such action, to the extent necessary, to hold such amounts as
collateral to secure such obligations and liabilities and to return as unpaid
for insufficient funds any and all checks and other items drawn against any
deposits so held as
-15-
Bank, in its sole discretion, may elect. Borrower hereby grants to Bank a
security interest in all deposits and accounts maintained with Bank to secure
the payment of all obligations and liabilities of Borrower to Bank under the
Loan Documents.
SECTION 7.13. BUSINESS PURPOSE. Borrower represents and warrants that
each credit subject hereto is for a business, commercial, investment,
agricultural or other similar purpose and not primarily for a personal, family
or household use.
SECTION 7.14. ARBITRATION.
(a) Arbitration. The parties hereto agree, upon demand by
any party, to submit to binding arbitration all claims, disputes and
controversies between or among them (and their respective employees, officers,
directors, attorneys, and other agents), whether in tort, contract or otherwise
arising out of or relating to in any way (i) the loan and related Loan Documents
which are the subject of this Agreement and its negotiation, execution,
collateralization, administration, repayment, modification, extension,
substitution, formation, inducement, enforcement, default or termination; or
(ii) requests for additional credit.
(b) Governing Rules. Any arbitration proceeding will (i)
proceed in a location in Texas selected by the American Arbitration Association
("AAA"); (ii) be governed by the Federal Arbitration Act (Title 9 of the United
States Code), notwithstanding any conflicting choice of law provision in any of
the documents between the parties; and (iii) be conducted by the AAA, or such
other administrator as the parties shall mutually agree upon, in accordance with
the AAA's commercial dispute resolution procedures, unless the claim or
counterclaim is at least $1,000,000.00 exclusive of claimed interest,
arbitration fees and costs in which case the arbitration shall be conducted in
accordance with the AAA's optional procedures for large, complex commercial
disputes (the commercial dispute resolution procedures or the optional
procedures for large, complex commercial disputes to be referred to, as
applicable, as the "Rules"). If there is any inconsistency between the terms
hereof and the Rules, the terms and procedures set forth herein shall control.
Any party who fails or refuses to submit to arbitration following a demand by
any other party shall bear all costs and expenses incurred by such other party
in compelling arbitration of any dispute. Nothing contained herein shall be
deemed to be a waiver by any party that is a bank of the protections afforded to
it under 12 U.S.C. Section 91 or any similar applicable state law.
(c) No Waiver of Provisional Remedies, Self-Help and
Foreclosure. The arbitration requirement does not limit the right of any party
to (i) foreclose against real or personal property collateral; (ii) exercise
self-help remedies relating to collateral or proceeds of collateral such as
setoff or repossession; or (iii) obtain provisional or ancillary remedies such
as replevin, injunctive relief, attachment or the appointment of a receiver,
before during or after the pendency or any arbitration proceeding. This
exclusion does not constitute a waiver of the right or obligation of any party
to submit any dispute to arbitration or reference hereunder, including those
arising from the exercise of the actions detailed in sections (i), (ii) and
(iii) of this paragraph.
(d) Arbitrator Qualifications and Powers. Any arbitration
proceeding in which the amount in controversy is $5,000,000.00 or less will be
decided by a single arbitrator
-16-
selected according to the Rules, and who shall not render an award of greater
than $5,000,000.00. Any dispute in which the amount in controversy exceeds
$5,000,000.00 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations. The arbitrator will be a neutral attorney licensed
in the State of Texas with a minimum of ten years experience in the substantive
law applicable to the subject matter of the dispute to be arbitrated. The
arbitrator will determine whether or not an issue is arbitratable and will give
effect to the statutes of limitation in determining any claim. In any
arbitration proceeding the arbitrator will decide (by documents only or with a
hearing at the arbitrator's discretion) any pre-hearing motions which are
similar to motions to dismiss for failure to state a claim or motions for
summary adjudication. The arbitrator shall resolve all disputes in accordance
with the substantive law of Texas and may grant any remedy or relief that a
court of such state could order or grant within the scope hereof and such
ancillary relief as is necessary to make effective any award. The arbitrator
shall also have the power to award recovery of all costs and fees, to impose
sanctions and to take such other action as the arbitrator deems necessary to the
same extent a judge could pursuant to the Federal Rules of Civil Procedure, the
Texas Rules of Civil Procedure or other applicable law. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.
(e) Discovery. In any arbitration proceeding discovery
will be permitted in accordance with the Rules. All discovery shall be expressly
limited to matters directly relevant to the dispute being arbitrated and must be
completed no later than 20 days before the hearing date and within 180 days of
the filing of the dispute with the AAA. Any requests for an extension of the
discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery is
essential for the party's presentation and that no alternative means for
obtaining information is available.
(f) Class Proceedings and Consolidations. The resolution
of any dispute arising pursuant to the terms of this Agreement shall be
determined by a separate arbitration proceeding and such dispute shall not be
consolidated with other disputes or included in any class proceeding.
(g) Payment of Arbitration Costs and Fees. The arbitrator
shall award all costs and expenses of the arbitration proceeding.
(h) Miscellaneous. To the maximum extent practicable, the
AAA, the arbitrators and the parties shall take all action required to conclude
any arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation. If more than one agreement for arbitration by or between the parties
potentially applies to a dispute, the arbitration provision most directly
related to the Loan Documents or the subject matter of the Dispute shall
control. This arbitration provision shall
-17-
survive termination, amendment or expiration of any of the Loan Documents or any
relationship between the parties.
SECTION 7.15. TERMINATION. In its sole and absolute discretion Borrower
may at anytime that no advances under the Line of Credit are owing elect in a
written notice delivered to Bank to terminate this Agreement. Within 10 days of
receipt by Bank of such notice, if no obligations are then owing to Bank, this
Agreement and all security documents and other agreements executed in connection
herewith (the "Loan Documents') shall thereupon be terminated and the parties
thereto released from all prospective obligations thereunder. At the request and
expense of Borrower, Bank shall prepare and execute all necessary instruments in
form satisfactory to Bank to reflect and effect such termination of the Loan
Documents. Bank agrees that there is no termination fee.
NOTICE: THIS DOCUMENT AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS
CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES RELATING TO THE INDEBTEDNESS.
[REST OF PAGE IS INTENTIONALLY LEFT BLANK]
-18-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
INTERVOICE, INC. XXXXX FARGO BANK,
NATIONAL ASSOCIATION
By: _____________________________________ By: _____________________________
Xxxxx X. Xxxxxx, Executive Vice Xxxxxx Xxxxxx, Vice President
President and Chief Financial Officer
SCHEDULE 2.4
LITIGATION
Xxxxx Xxxxxx, et al., on Behalf of Themselves and All Others Similarly
Situated v. InterVoice-Brite, Inc., et al.; No. 3-01CV1071-D, originally filed
in the United States District Court, Northern District of Texas, Dallas
Division:
Several related class action lawsuits were filed in the United States
District Court for the Northern District of Texas on behalf of purchasers of
common stock of the Company during the period from October 12, 1999 through June
6, 2000 (the "Class Period"). Plaintiffs filed claims, which were consolidated
into one proceeding, under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 and Securities and Exchange Commission Rule 10b-5 against the
Company as well as certain named current and former officers and directors of
the Company on behalf of the alleged class members. In the complaint, Plaintiffs
claimed that the Company and the named current and former officers and directors
issued false and misleading statements during the Class Period concerning the
financial condition of the Company, the results of the Company's merger with
Brite and the alleged future business projections of the Company. Plaintiffs
asserted that these alleged statements resulted in artificially inflated stock
prices.
The Company believes that it and its officers and directors complied
with their obligations under the securities laws, and vigorously defended the
lawsuit. The Company responded to the complaint by filing a motion to dismiss
the complaint in the consolidated proceeding. The Company asserted that the
complaint lacked the degree of specificity and factual support to meet the
pleading standards applicable to federal securities litigation. On this basis,
the Company requested that the United States District Court for the Northern
District of Texas dismiss the complaint in its entirety. Plaintiffs responded to
the Company's request for dismissal. On August 8, 2002, the Court entered an
order granting the Company's motion to dismiss the class action lawsuit. In the
order dismissing the lawsuit, the Court granted plaintiffs an opportunity to
reinstate the lawsuit by filing an amended complaint.
Plaintiffs filed an amended class action complaint on September 23,
2002. The Company filed a motion to dismiss the amended complaint, and
plaintiffs filed a response in opposition to the Company's motion to dismiss. On
September 15, 2003, the Court granted the Company's motion to dismiss the
amended class action complaint. Unlike the Court's prior order dismissing the
original class action complaint, the order dismissing the amended complaint did
not grant plaintiffs an opportunity to reinstate the lawsuit by filing a new
amended complaint. On October 9, 2003, the Plaintiffs filed a notice of appeal
to the Fifth Circuit Court of Appeals from the trial court's order of dismissal
entered on September 15, 2003. The plaintiffs' brief is due on or before
February 23, 2004.
INTELLECTUAL PROPERTY MATTERS
The Company provides its customers a qualified indemnity against the
infringement of third party intellectual property rights. From time to time
various owners of patents and copyrighted works send the Company or its
customers letters alleging that the Company's products do or might infringe upon
the owners' intellectual property rights, and/or suggesting that the Company or
its customers should negotiate a license or cross-license agreement with the
owner. The Company's policy is to never knowingly infringe upon any third
party's intellectual property rights. Accordingly, the Company forwards any such
allegation or licensing request to its outside legal counsel for their review
and, if appropriate, opinion. The Company generally attempts to resolve any such
matter by informing the owner of its position concerning non-infringement or
invalidity, and/or, if appropriate, negotiating a license or cross-license
agreement. Even though the Company attempts to resolve these matters without
litigation, it is always possible that the owner of the patent or copyrighted
works will institute litigation. Owners of patent(s) and/or copyrighted work(s)
have previously instituted litigation against the Company alleging infringement
of their intellectual property rights, although no such litigation is currently
pending against the Company. The Company currently has a portfolio of 67
patents, and it has applied for and will continue to apply for and receive a
number of additional patents to reflect its technological innovations. The
Company believes that its patent portfolio could allow it to assert
counterclaims for infringement against certain owners of intellectual property
rights if those owners were to assert claims of infringement against the
Company.
From time to time Xxxxxx X. Xxxx Technology Licensing L.P. ("RAKTL")
has sent letters to certain customers of the Company suggesting that the
customer should negotiate a license agreement to cover the practice of certain
patents owned by RAKTL. In the letters, RAKTL has alleged that certain of its
patents pertain to certain enhanced services offered by network providers,
including prepaid card and wireless services and postpaid card services. RAKTL
has further alleged that certain of its patents pertain to certain call
processing applications, including applications for call centers that route
calls using a called party's DNIS identification number. As a result of the
correspondence, an increasing number of the Company's customers have had
discussions, or are in discussions, with RAKTL. Certain products offered by the
Company can be programmed and configured to provide enhanced services to network
providers and call processing applications for call centers. The Company's
contracts with customers usually include a qualified obligation to indemnify and
defend customers against claims that products as delivered by the Company
infringe a third party's patent.
None of the Company's customers have notified the Company that RAKTL
has claimed that any product provided by the Company infringes any claims of any
RAKTL patent. Accordingly, the Company has not been required to defend any
customers against a claim of infringement under a RAKTL patent. The Company has,
however, received letters from customers notifying the Company of the efforts by
RAKTL to license its patent portfolio and reminding the Company of its potential
obligations under the indemnification provisions of the applicable agreements in
the event that a claim is asserted. In response to correspondence from RAKTL, a
few customers have attempted to tender to the Company the defense of its
products under contractual indemnity provisions. The Company has informed these
customers that while it fully intends to honor any contractual indemnity
provisions, it does not believe it currently has any obligation to provide such
a defense because RAKTL does not appear to have made a claim that a Company
product infringes a patent. Some of these customers have disagreed with the
Company and believe that the correspondence from RAKTL can be construed as
claim(s) against the Company's products. An affiliate of Verizon Communications,
Inc., Cellco Partnership d/b/a Verizon Wireless, recently settled all claims of
patent infringement asserted against it in the matter of RAKTL v. Verizon
Communications, Inc. et al, No. 01-CV-5627, in U.S. District Court, Eastern
District of Pennsylvania. Verizon Wireless had previously notified the Company
of the lawsuit and referenced provisions in a contract for prepaid services
which required a wholly owned subsidiary of the Company, Brite Voice Systems
Inc., to indemnify Verizon Wireless against claims that its services infringe
patents. The claims in the lawsuit made general reference to prepaid services
and a variety of other services offered by Verizon Wireless and its affiliates
but did not refer to Brite's products or services. The Company had informed
Verizon Wireless that it could find no basis for an indemnity obligation under
the expired contract and, accordingly, the Company did not participate in the
defense or settlement of the matter.
Even though RAKTL has not alleged that a product provided by the
Company infringes a RAKTL patent, it is always possible that RAKTL may do so. In
the event that a Company product becomes the subject of litigation, a customer
could attempt to invoke the Company's indemnity obligations under the applicable
agreement. As with most sales contracts with suppliers of computerized
equipment, the Company's contractual indemnity obligations are generally limited
to the products and services provided by the Company, and generally require the
customer to allow the Company to have control over any litigation and settlement
negotiations with the patent holder. The customers who have received letters
from RAKTL generally have multiple suppliers of the types of products that might
potentially be subject to claims by RAKTL.
Even though no claims have been made that a specific product offered by
the Company infringes any claim under the RAKTL patent portfolio, the Company
has received opinions from its outside patent counsel that certain products and
applications offered by the Company do not infringe certain claims of the RAKTL
patents. The Company has also received opinions from its outside counsel that
certain claims under the RAKTL patent portfolio are invalid or unenforceable.
Furthermore, based on the reviews by outside counsel, the Company is not aware
of any valid and enforceable claims under the RAKTL portfolio that are infringed
by the Company's products. If the Company does become involved in litigation in
connection with the RAKTL patent portfolio, under a contractual indemnity or any
other legal theory, the
Company intends to vigorously contest the claims and to assert appropriate
defenses. An increasing number of companies, including some large, well known
companies and some customers of the Company, have already licensed certain
rights under the RAKTL patent portfolio. RAKTL has previously announced license
agreements with, among others, AT&T Corp., Microsoft Corporation and
International Business Machines Corporation.
