<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
ASPECT TELECOMMUNICATIONS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[ASPECT LOGO]
March 26, 1998
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of Aspect
Telecommunications Corporation, to be held on May 14, 1998. Enclosed are the
Secretary's notice of this meeting, a proxy statement, and a form of proxy.
Please note that the meeting will be held at 4:00 p.m., at the Company's
facilities located at 1160 Ridder Park Drive, San Jose, California 95131.
Details of the business to be conducted at the meeting are given in the attached
Notice of Annual Meeting of Shareholders and Proxy Statement.
It is important that your shares be represented at the meeting, so please
complete and return the enclosed proxy as soon as possible.
Sincerely,
/s/ James R. Carreker
- ----------------------
James R. Carreker
Chairman and Chief Executive Officer
<PAGE> 3
ASPECT TELECOMMUNICATIONS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 14, 1998
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Aspect
Telecommunications Corporation (the Company), a California corporation, will be
held on May 14, 1998 at 4:00 p.m., at 1160 Ridder Park Drive, San Jose,
California 95131, for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve the adoption of the Annual Retainer Compensation Plan for
the Board of Directors and the reservation of 50,000 shares of the
Company's Common Stock for issuance thereunder.
3. To approve the adoption of the 1998 Directors' Stock Option Plan and
the reservation of 300,000 shares of the Company's Common Stock for
issuance pursuant to exercise of stock options granted under such
Plan.
4. To approve an amendment to the 1990 Employee Stock Purchase Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 1,000,000 shares.
5. To ratify the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending December 31, 1998.
6. To transact such other business as may properly come before the
meeting and any adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice.
Only shareholders of record at the close of business on March 17, 1998, are
entitled to notice of and to vote at the meeting and any adjournment(s) thereof.
To assure your representation at the meeting, you are urged to mark, sign, date,
and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if such shareholder returned a proxy.
/s/ Craig W. Johnson
- ----------------------------
Craig W. Johnson, Secretary
San Jose, California
March 26, 1998
<PAGE> 4
ASPECT TELECOMMUNICATIONS CORPORATION
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1998
AND
ANNUAL FINANCIAL REPORT TO SHAREHOLDERS
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROXY STATEMENT Page
<S> <C>
INFORMATION CONCERNING SOLICITATION AND VOTING ............................................ 1
PROPOSAL NO. 1 - ELECTION OF DIRECTORS .................................................... 2
PROPOSAL NO. 2 - APPROVAL OF THE ANNUAL RETAINER COMPENSATION PLAN
FOR THE BOARD OF DIRECTORS .............................................................. 4
PROPOSAL NO. 3 - APPROVAL OF THE 1998 DIRECTORS' STOCK OPTION PLAN ........................ 6
PROPOSAL NO. 4 - AMENDMENT TO THE 1990 EMPLOYEE STOCK PURCHASE PLAN ....................... 8
PROPOSAL NO. 5 - RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS .................. 11
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT ............................... 11
EXECUTIVE COMPENSATION .................................................................... 13
COMPENSATION COMMITTEE REPORT ............................................................. 15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION ............................... 16
COMPANY STOCK PRICE PERFORMANCE ........................................................... 17
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 ...................... 17
STOCK OPTION PLAN INFORMATION ............................................................. 18
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS ............................................. 18
OTHER MATTERS ............................................................................. 18
ANNUAL FINANCIAL REPORT TO SHAREHOLDERS
SELECTED CONSOLIDATED FINANCIAL DATA ...................................................... F-1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ............................................................... F-2
CONSOLIDATED BALANCE SHEETS as of December 31, 1997, and 1996 ............................. F-8
CONSOLIDATED STATEMENTS OF INCOME for the years ended December 31, 1997, 1996, and 1995.... F-9
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1997, 1996, and 1995 ................................... F-10
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995 .................................... F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................................................ F-12
INDEPENDENT AUDITORS' REPORT .............................................................. F-24
QUARTERLY FINANCIAL DATA (unaudited) ...................................................... F-25
CORPORATE INFORMATION ..................................................................... F-26
</TABLE>
i
<PAGE> 5
ASPECT TELECOMMUNICATIONS CORPORATION
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of Aspect
Telecommunications Corporation (Aspect or the Company) for use at the Annual
Meeting of Shareholders (Annual Meeting) to be held May 14, 1998, at 4:00 p.m.,
or at any adjournment(s) thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will
be held at the Company's facilities located at 1160 Ridder Park Drive, San Jose,
California 95131. The telephone number at that location is +1 (408) 325-2200.
These proxy solicitation materials were mailed on or about March 26, 1998, to
all shareholders entitled to vote at the meeting. The cost of soliciting these
proxies will be borne by the Company. The Company has retained the services of
Corporate Investor Communications, Inc. (CIC) to solicit proxies and distribute
materials to brokerage houses, banks, custodians, and other institutional
owners. The Company will pay CIC a fee of approximately $4,000 for these
services, plus expenses. In addition, the Company will reimburse brokerage firms
and other persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to such beneficial owners. The Company may
conduct further solicitation personally, by telephone, or by facsimile through
its officers, directors, and regular employees, none of whom will receive
additional compensation for assisting with the solicitation.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use, by delivering to the Company, at its
office at 1730 Fox Drive, San Jose, California 95131-2312 (Attention: Eric J.
Keller, Vice President, Finance and Chief Financial Officer), a written notice
of revocation or a duly executed proxy bearing a later date, or by attending the
meeting and voting in person.
VOTING AND SOLICITATION
Every shareholder voting for the election of directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of shares held by such
shareholder or distribute the shareholder's votes on the same principle among as
many candidates as the shareholder thinks fit, provided that votes not be cast
for more than five candidates. However, no shareholder shall be entitled to
cumulate votes unless the candidate's name has been placed in nomination prior
to the voting and the shareholder, or any other shareholder, has given notice at
the meeting prior to the voting of the intention to cumulate the shareholder's
votes. On all other matters, each share has one vote.
Only shareholders of record at the close of business on March 17, 1998, are
entitled to notice of and to vote at the meeting. At the record date, 50,227,126
shares of the Company's Common Stock, with a par value of $.01 per share, were
issued and outstanding.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by the
Inspector of Elections with the assistance of the Company's transfer agent. The
Inspector of Elections will also determine whether or not a quorum is present.
Except with respect to the election of directors where the five candidates
receiving the highest number of affirmative votes will be elected, all other
items to be submitted at the annual meeting for shareholder approval will
require for such approval: (i) the affirmative vote of a majority of those
shares present and voting, and (ii) the affirmative vote of a majority of the
required quorum. The required quorum is a majority of the shares issued and
outstanding on the record date, represented either in person or by proxy. Votes
that are cast for or against a proposal, abstentions, and broker non-votes are
counted as present for the purpose of determining the presence of a quorum for
the transaction of business. For purposes of determining the number of shares
voting on a particular proposal, votes cast for or against a proposal and
abstentions are counted as shares voting, whereas broker non-votes are not
counted as shares voting. Thus, an abstention will have the same effect as a
vote against the proposal, and broker non-votes can have the effect of
preventing approval of certain proposals where the number of affirmative votes,
though a majority of the votes cast, does not constitute a majority of the
required quorum.
1
<PAGE> 6
Aspect Telecommunications Corporation Proxy Statement
Any proxy which is returned using the form of proxy enclosed and which is not
marked as to the particular item will be voted for the election of directors,
for approval of the Annual Retainer Compensation Plan, for approval of the 1998
Directors' Stock Option Plan, for the amendment to the 1990 Employee Stock
Purchase Plan, for the ratification of the appointment of the designated
independent auditors and as the proxy holders deem advisable on other matters
that may come before the meeting, as the case may be with respect to the item
not marked.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
NOMINEES
A board of five directors will be elected at the meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for the
five nominees named below. In the event that any nominee of the Company is
unable to or declines to serve as a director at the time of the Annual Meeting
of Shareholders, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. In the event
that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will assure the election of as many of the
nominees listed below as possible, and, in such event, the specific nominees to
be voted for will be determined by the proxy holders. It is not expected that
any nominee listed below will be unable to or will decline to serve as a
director. The term of office of each person elected as a director will continue
until the next Annual Meeting of Shareholders or until his or her successor has
been elected and qualified.
The names of the nominees, their ages, and certain other information about them
as of February 28, 1998 are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- --------------- --- -------------------- --------
<S> <C> <C> <C>
James R. Carreker ........ 51 Chairman and Chief Executive Officer of the Company 1985
Debra J. Engel ........... 45 Senior Vice President of Corporate Services of 1996
3Com Corporation
Norman A. Fogelsong ...... 46 Venture capitalist with Institutional Venture Partners 1985
James L. Patterson ....... 60 Management consultant to various companies and 1987
Chairman of the Board of Directors of Clarify Inc.
John W. Peth ............. 49 President and Chief Executive Officer of 1992
Business Resource Group
</TABLE>
Except as set forth below, each of the nominees has been engaged in his or her
principal occupation set forth above during the past five years. There are no
family relationships among the directors or executive officers of the Company.
Mr. Carreker, a founder of the Company, has served as Chief Executive Officer
and as a director of the Company since its inception in August 1985. He has
served as Chairman of the Company's Board of Directors since October 1995, and
was President of the Company between August 1985 and October 1995. Since January
1997, Mr. Carreker has also served as a director of Herman Miller, Inc., a
company that manufactures and sells office systems products and services.
Ms. Engel has been a director of the Company since May 1996. Ms. Engel currently
holds the position of Senior Vice President of Corporate Services of 3Com
Corporation, a data networking products and services company. Ms. Engel has
served as a Vice President at 3Com since November 1983. Prior to that, she was
with Hewlett-Packard Company for seven years, most recently as Corporate
Staffing Manager at Hewlett-Packard's corporate headquarters.
Mr. Fogelsong has been a director of the Company since September 1985. Since
March 1989, Mr. Fogelsong has been a venture capitalist with Institutional
Venture Partners, a venture capital investment firm. Between March 1980 and
February 1989, Mr. Fogelsong was a venture capitalist with Mayfield Fund, a
venture capital investment firm. Mr. Fogelsong is also a director of several
privately owned technology companies.
Mr. Patterson has been a director of the Company since August 1987. Since June
1987, Mr. Patterson has been a management consultant to various companies and,
since 1991, he has also served on the Board of Directors of Clarify Inc., a
supplier of customer support software. Mr. Patterson was Chairman of the Board
of Clarify Inc. between 1991 and
2
<PAGE> 7
Aspect Telecommunications Corporation Proxy Statement
March 1998. From February 1980 to June 1987, Mr. Patterson was co-founder and
served as President and Chief Executive Officer of Quantum Corporation, a disk
drive manufacturer. Mr. Patterson also serves as a director of several privately
owned technology companies.
Mr. Peth has been a director of the Company since May 1992. Since December 1997,
Mr. Peth has been the President and Chief Executive Officer of Business Resource
Group, a provider of office workspace products and services. He has also served
on the Board of Business Resource Group since June 1995. From March 1991 through
March 1997, Mr. Peth served as an executive officer of TAB Products Company
(TAB), an office filing and furniture systems manufacturer and distributor, most
recently as acting President and Chief Executive Officer. He served as director
of TAB from April 1991 through January 1997. From December 1989 to March 1991,
Mr. Peth served as the Office Managing Partner, San Jose Region, for Deloitte &
Touche LLP, a public accounting firm. From August 1984 to December 1989, Mr.
Peth served as the partner in charge of the San Jose office of Deloitte, Haskins
& Sells (a predecessor public accounting firm that merged with a second public
accounting firm to form Deloitte & Touche LLP).
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of five meetings during the year ended
December 31, 1997. The Board of Directors has an Audit Committee and a
Compensation Committee. It does not have a nominating committee or a committee
performing the functions of a nominating committee.
The Audit Committee of the Board of Directors currently consists of directors
Fogelsong and Peth, and held five meetings during the last fiscal year. The
Audit Committee recommends engagement of the Company's independent auditors and
is primarily responsible for approving the services performed by the Company's
independent auditors, and for reviewing and evaluating the Company's accounting
principles and its system of internal accounting controls.
The Compensation Committee of the Board of Directors currently consists of
directors Engel and Patterson and held three meetings during the last fiscal
year. This Committee determines policy on executive compensation and makes
recommendations to the Board of Directors concerning the Company's stock and
option plans.
During the last fiscal year, each director attended at least 75% of the meetings
of the Board of Directors and the meetings of the committees of the Board of
Directors on which he or she serves.
Currently, nonemployee directors are compensated for their service to the
Company as follows:
1. They are reimbursed for out-of-pocket travel expenses associated with their
attendance at Board meetings.
2. Each receives $10,000 annually for his or her service on the Board of
Directors. Each director also received $4,000 in 1997 for attending board
and committee meetings.
3. They are annually granted options under the 1989 Directors' Stock Option
Plan. Directors Engel, Fogelsong, Patterson, and Peth were each granted
options to purchase 6,000 shares of Common Stock of the Company during 1997.
Shareholders are currently being asked to vote on two proposals that would
change nonemployee directors' compensation. Should both proposals be adopted by
shareholders, nonemployee directors would be compensated as follows:
1. They would be reimbursed for out-of-pocket travel expenses associated with
their attendance at Board meetings.
2. They would receive payments under the Annual Retainer Compensation Plan for
the Board of Directors. This plan would allow eligible nonemployee directors
to elect to receive compensation in either cash or stock initially valued at
$24,000. If a director elects to receive compensation in stock, he or she
would also receive an additional cash payment designed to reimburse him or
her for the tax liability associated with the stock grant. No additional
payments would be made for meeting attendance. See Proposal No. 2 for a
summary of the Annual Retainer Compensation Plan for the Board of Directors.
3. They would be granted options annually under the 1998 Directors' Stock
Option Plan. Nonemployee directors who are newly appointed to the Board
would receive 24,000 shares upon election to Aspect Telecommunications
Corporation's Board of Directors. Directors continuing to serve on the Board
would receive 6,000 shares yearly as long as they meet the eligibility
requirements of the Plan. See Proposal No. 3 for a summary of the 1998
Directors' Stock Option Plan.
3
<PAGE> 8
Aspect Telecommunications Corporation Proxy Statement
REQUIRED VOTE
The five nominees receiving the highest number of affirmative votes of the
shares entitled to be voted shall be elected as directors of the Company. Votes
against any nominee and votes withheld have no legal effect under California
law.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR ALL OF THE NOMINEES LISTED ABOVE.
PROPOSAL NO. 2 - APPROVAL OF THE ANNUAL RETAINER COMPENSATION PLAN
FOR THE BOARD OF DIRECTORS
At the Annual Meeting, the Company's shareholders are being asked to approve the
adoption of the Annual Retainer Compensation Plan for the Board of Directors of
the Company (the Retainer Plan) and the reservation of 50,000 shares of Common
Stock for issuance thereunder.
The following is a summary of the principal features of the Retainer Plan. The
summary, however, does not purport to be a complete description of all
provisions of the Retainer Plan. Any shareholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to the
Vice President, Finance and Chief Financial Officer at the Company's principal
offices at 1730 Fox Drive, San Jose, California 95131-2312.
GENERAL
The Retainer Plan was adopted by the Board of Directors in December 1997, and
the Board has reserved a total of 50,000 shares of Common Stock for issuance
thereunder. The Retainer Plan provides for payment of an annual retainer (the
Retainer) on a quarterly basis to nonemployee directors of the Company in either
cash or Common Stock, or a combination thereof, at the election of each
nonemployee director. The purpose of the Retainer Plan is to attract and retain
the best available individuals for services as directors of the Company, to
encourage ownership of the Company's Common Stock by nonemployee directors, to
provide financial incentive as a result of the Company's performance to such
nonemployee directors who own Company stock, and to encourage their continued
service on the Board.
ANNUAL RETAINER
A nonemployee director of the Company shall be eligible for the quarterly
payment if he or she was serving as a director on the last day of any fiscal
quarter during the time that the Retainer Plan is in effect. Payment will be
made as soon as administratively practicable after the last day of such quarter.
The dollar amount of the Retainer shall be determined by the Board over the term
of the Retainer Plan in accordance with the authority granted to the Board under
the Company's Bylaws.
PAYMENT OF RETAINER IN SHARES IN LIEU OF CASH COMPENSATION
With respect to the quarterly payments of the Retainer payable under the
Retainer Plan, each eligible director, at his or her election, has the right to
elect to accept payment in fully vested shares of the Company's Common Stock
equal to 50% or 100% of the Retainer. Each director must make this election for
each respective one-year period of the Retainer Plan on or before the date of
the Company's Annual Meeting of Shareholders, preceding the beginning of the
next succeeding one-year period that begins in July. An individual who first
becomes a nonemployee director after the effective date of the Retainer Plan
shall make the election for his or her initial period of service on the Board on
or before the date on which he or she first commences service as a director.
The number of shares issued each quarter will equal the dollar amount of the
Retainer to be taken in shares, divided by 100% of the market value of the
shares on the last trading day of the quarter for which the Retainer is due. The
market value shall be determined to be the closing sale price of the shares on
the date payable as reported by the Nasdaq National Market (or, if not so
reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotation System); or in the event the Common Stock is listed
on a stock exchange, the market value shall be the closing sale price on such
exchange on the payment date. No fractional shares will be issued; the number of
shares issued will be rounded down to the nearest number of whole shares.
4
<PAGE> 9
Aspect Telecommunications Corporation Proxy Statement
CASH INCENTIVE FOR PAYMENT IN SHARES
The Company will pay a cash incentive to those directors electing payment of the
Retainer in shares of the Company's Common Stock. The cash incentive will be
equal to 20% of the value of the Retainer being taken in stock and is designed
to induce directors to elect payment in shares so as to increase their ownership
of Company stock and to help defray their tax liability with respect to the
issuance of the shares. This incentive will be paid quarterly, in cash, at the
time the quarterly installment of the Retainer is payable in shares.
PURCHASE AND SALE OF SHARES
The sale or other transfer of the shares purchased by a director with a part or
all of his or her Retainer will be restricted for a period of six months after
the date of purchase. Notwithstanding the above, a director will be allowed to
transfer such shares within the restricted period to a family trust established
by the director or to a member of the director's immediate family, provided,
however, that any such transferee shall be subject to the same six-month
restriction on sale or subsequent transfer of the shares.
Under current law, a director's acquisition of shares in lieu of the cash
payment of a Retainer qualifies for an exemption under Rule 16b-3(d)(i) of the
Securities Exchange Act of 1934 and, therefore, is not a "purchase" for purposes
of Section 16(b) of that Act. Accordingly, it will not be a violation of Section
16(b) if a director sells shares of stock (regardless of the price at which such
other shares are sold) within six months before or six months after the director
acquires shares pursuant to the Retainer Plan. The Company will amend the
Retainer Plan as necessary to comply with any changes in the law.
ADMINISTRATION AND INTERPRETATION
The Retainer Plan will be administered and interpreted by the Board of
Directors. Issues arising under the Retainer Plan will be decided by the Board
of Directors and its decision will be final and binding on the Company and the
directors. All stock issuances shall be automatic and in accordance with the
election filed by a director. No person will have any discretion to select which
nonemployee directors can participate or to determine the number of shares to be
issued to a director, except with respect to each individual director's election
to accept payment of his or her Retainer in shares of the Company's Common
Stock.
PLAN BENEFITS
As of the date of this proxy statement, no shares of Common Stock have been
issued under the Retainer Plan. As discussed above, the executive officers of
the Company and the employees of the Company are not eligible to participate in
the Retainer Plan.
TERM OF PLAN
The term of the Retainer Plan shall be ten years with the initial one-year
period commencing on July 1, 1998, and ending on June 30, 1999, unless
terminated earlier by the Board, with any adjustments in the Retainer Plan and
the terms hereunder as may be approved by the Board over such term. The Retainer
Plan relates to the retainer fee payable to the members of the Board during each
one-year period commencing on July 1 of each year from 1998 through 2007.
U.S. FEDERAL INCOME TAX INFORMATION
The following is a brief summary of the effect of federal income taxation on
participating directors and the Company with respect to the payment of the
Retainers under the Retainer Plan. This summary does not purport to be complete,
and does not discuss the income tax laws of any municipality, state or foreign
country in which a participating director may reside. The Company advises all
eligible directors to consult their own tax advisors concerning tax implications
of the Retainers under the Retainer Plan.
A nonemployee director will recognize ordinary income for tax purposes equal to
the portion (if any) of the Retainer paid to such director in cash, the then
fair market value of any shares received by the director in lieu of cash, and
the amount of any cash incentive paid to the director. Upon resale of shares
received by the director, any difference between the sale price and the fair
market value at the time the shares are received by the director will be treated
as capital gain (or loss), and will be long-term capital gain if the optionee
has held the shares more than one year. For individual taxpayers, the current
U.S. federal income tax rate on long-term capital gains is alternatively 28% (in
the case of shares held more than one year but not more than 18 months after
exercise) and 20% (in the case of shares held more than 18 months after
5
<PAGE> 10
Aspect Telecommunications Corporation Proxy Statement
exercise), whereas the maximum rate on other income is 39.6%. Capital losses for
individual taxpayers are allowed under U.S. tax laws in full against capital
gains plus $3,000 of other income. The Company will be entitled to a tax
deduction in the amount that the director recognizes as ordinary income with
respect to shares acquired under the Retainer Plan or with respect to cash
payments of the Retainer or the cash incentive payment The Company will be
entitled to such deduction at the time that the director recognizes ordinary
income.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Company's Common Stock
who are present at the Annual Meeting in person or by proxy and entitled to vote
is required to approve the adoption of the Retainer Plan and the reservation of
50,000 shares of Common Stock for issuance thereunder.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE RETAINER PLAN
AND THE RESERVATION OF 50,000 SHARES OF COMMON STOCK FOR ISSUANCE THEREUNDER.
PROPOSAL NO. 3 - APPROVAL OF THE 1998 DIRECTORS' STOCK OPTION PLAN
At the Annual Meeting, the Company's shareholders are being asked to approve the
adoption of the 1998 Directors' Stock Option Plan (the Directors Plan) and the
reservation of 300,000 shares of Common Stock for issuance thereunder.
Should shareholders approve the Directors Plan, the Company's 1989 Directors'
Stock Option Plan (the 1989 Directors Plan) would be terminated, and no further
shares would be issued under the 1989 Directors Plan, provided that any options
outstanding under the 1989 Directors Plan shall remain outstanding and would be
exercisable in accordance with their terms. As of January 31, 1998, there were
266,000 shares available for grant and 120,000 shares outstanding under the 1989
Directors Plan. All shares available for grant under the 1989 Directors Plan at
the time of shareholder approval of the Directors Plan would terminate and would
no longer be available for issuance upon shareholder approval of the Directors
Plan.
The following is a summary of principal features of the Directors Plan. The
summary, however, does not purport to be a complete description of all the
provisions of the Directors Plan. Any shareholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to the
Chief Financial Officer at the Company's principal offices at 1730 Fox Drive,
San Jose, California 95131-2312.
GENERAL
The Directors Plan was adopted by the Board of Directors in December 1997, and
the Board has reserved a total of 300,000 shares of Common Stock for issuance
thereunder. The Directors Plan will become effective upon its approval by the
Company's shareholders. The Directors Plan provides for the grant of
nonstatutory stock options to nonemployee directors of the Company. It is
designed to work automatically and not to require administration; however, to
the extent administration is necessary, it will be provided by the Board of
Directors. The purpose of the Directors Plan is to attract and retain the best
available individuals for services as directors of the Company, to provide
incentive for nonemployee directors of the Company to serve as directors, and to
encourage their continued service on the Board.
GRANT AND EXERCISE OF OPTION
The Directors Plan provides that each person who initially becomes a nonemployee
director after the effective date of the Directors Plan shall be automatically
granted an option to purchase 24,000 shares of Common Stock (First Option) on
the date on which such person first becomes a nonemployee director, whether
through election by the shareholders of the Company or appointment by the Board
of Directors to fill a vacancy. An option to purchase 6,000 shares (Subsequent
Option) is automatically granted to each nonemployee director on August 31 of
each year, provided that on that date the nonemployee director shall have served
on the Board of Directors for at least six months.
The Directors Plan provides for neither a maximum nor a minimum number of shares
subject to options that may be granted to any one nonemployee director, but does
provide for the number of shares that may be included in any grant and the
method of making a grant. An option granted under the Directors Plan is not
transferable by the optionee other than by will or the laws of descent or
distribution or pursuant to the terms of a qualified domestic relations order,
as defined by the Internal Revenue Code of 1986 (the Code), or to a living trust
or family trust established by an optionee,
6
<PAGE> 11
Aspect Telecommunications Corporation Proxy Statement
under terms and conditions established by the Board of Directors. Each option is
exercisable, during the lifetime of the optionee, only by such optionee, or by a
transferee permitted under the Directors Plan.
The Directors Plan provides that the shares of each First Option granted
thereunder become 25% exercisable on each of the first, second, third, and
fourth anniversaries of the date of grant of the First Option. The Directors
Plan also provides that 100% of the shares subject to the Subsequent Option
become exercisable on the fourth anniversary of the date of grant of the
Subsequent Option. The options remain exercisable for up to 30 days following
the optionee's termination of service as a director of the Company, unless such
termination is a result of death or of total and permanent disability, in which
case the options remain exercisable for up to a six-month period.
EXERCISE PRICE AND TERM OF OPTIONS
The exercise price of all stock options granted under the Directors Plan shall
be equal to the fair market value of a share of the Company's Common Stock on
the date of grant of the option, which is defined to be the closing sale price
of the Company's Common Stock on the Nasdaq National Market (or such other stock
exchange on which the Common Stock is listed) on the date of grant (or, in the
event that the Common Stock is not traded on such date, on the immediately
preceding trading date). Options granted under the Directors Plan have a term of
ten years.
PLAN BENEFITS
As of the date of this proxy statement, no stock options have been granted under
the Directors Plan. As discussed above, the executive officers of the Company
and the employees of the Company are not eligible for grants under the Directors
Plan.
MERGER OR SALE OF ASSETS
In the event of the dissolution or liquidation of the Company; a sale of all or
substantially all of the assets of the Company; the merger or consolidation of
the Company with or into another corporation in which the Company is not the
surviving corporation; or any other capital reorganization in which more than
50% of the shares of the Company entitled to vote are exchanged, each
nonemployee director shall have a reasonable time within which to exercise the
option, including any part of the option that would not otherwise be
exercisable, prior to the effectiveness of such dissolution, liquidation, sale,
merger, consolidation, or reorganization. After such reasonable time, the option
shall terminate, or shall convert into a substitute option with comparable
terms, as to an equivalent number of shares of stock of the corporation
succeeding the Company or acquiring its business by reason of such dissolution,
liquidation, sale, merger, consolidation, or reorganization.
AMENDMENT AND TERMINATION
The Board of Directors may at any time amend or terminate the Directors Plan,
except that such termination cannot affect options previously granted without
the agreement of any optionee so affected. To the extent necessary and desirable
under applicable securities laws, the Company shall obtain approval of the
Company's shareholders for an amendment to the Directors Plan. If not terminated
earlier, the Directors Plan will expire in May 2008.
U.S. FEDERAL INCOME TAX INFORMATION
The following is a brief summary of the effect of federal income taxation on the
optionee and the Company with respect to the grant and exercise of options under
the Directors Plan. This summary does not purport to be complete, and does not
discuss the income tax laws of any municipality, state, or foreign country in
which an optionee may reside. The Company advises all eligible directors to
consult their own tax advisors concerning tax implications of option grants and
exercises, and the disposition of stock acquired upon such exercises under the
Directors Plan.
Options granted under the Directors Plan are nonstatutory stock options. An
optionee will not recognize any taxable income at the time he or she is granted
a nonstatutory stock option. However, upon exercise of the option, the optionee
will recognize ordinary income for tax purposes measured by the excess of the
then fair market value of the shares over the option price. Upon resale of such
shares by the optionee, any difference between the sale price and the exercise
price, to the extent not recognized as ordinary income as provided above, will
be treated as long-term or short-term capital gain (or loss) depending on the
holding period. The Company will be entitled to a tax deduction in the amount
that the optionee recognizes as ordinary income with respect to shares acquired
upon exercise of a nonstatutory stock option. The Company will be entitled to
such deduction at the time that the optionee recognizes ordinary income.
7
<PAGE> 12
Aspect Telecommunications Corporation Proxy Statement
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Company's Common Stock
who are present at the Annual Meeting in person or by proxy and entitled to vote
is required to approve the adoption of the Directors Plan and the reservation of
300,000 shares of Common Stock for issuance thereunder.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 1998 DIRECTORS'
STOCK OPTION PLAN AND THE RESERVATION OF 300,000 SHARES OF COMMON STOCK FOR
ISSUANCE THEREUNDER.
PROPOSAL NO. 4 - AMENDMENT TO THE 1990 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, the Company's shareholders are being asked to amend the
1990 Employee Stock Purchase Plan (the Purchase Plan) to reserve an additional
1,000,000 shares of Common Stock for issuance thereunder.
As of January 31, 1998, 1,861,507 shares of Common Stock had been purchased
pursuant to the Purchase Plan and 238,493 shares remained available for purchase
(not including the additional 1,000,000 shares reserved by the Board of
Directors, for which shareholder approval is being requested).
The following is a summary of principal features of the Purchase Plan. The
summary, however, does not purport to be a complete description of all the
provisions of the Purchase Plan. Any shareholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to the
Chief Financial Officer at the Company's principal offices at 1730 Fox Drive,
San Jose, California 95131-2312.
GENERAL
The Purchase Plan was adopted by the Board of Directors in March 1990 and was
approved by the Company's shareholders in April 1990. A total of 800,000 shares
of Common Stock were originally reserved for issuance. Shareholders approved
increases to the number of shares of Common Stock reserved for issuance under
the plan by 800,000 shares in May 1992 and by 500,000 shares in May 1996,
bringing the total reserved shares to 2,100,000. At a meeting on December 18,
1997, the Board of Directors amended the Purchase Plan, subject to shareholder
approval, to increase the number of shares of Common Stock reserved for issuance
thereunder by 1,000,000 shares, for a total of 3,100,000 reserved shares.
The purpose of the Purchase Plan is to provide employees of the Company and its
subsidiaries with an opportunity to purchase Common Stock of the Company through
payroll deductions. During an offering period, an eligible employee may make
payroll deductions for the purpose of exercising an option that is granted on
the last day of the offering period. The plan offering periods commence on
February 16 and terminate on August 15 of the same year, or commence on August
16 and terminate on February 15 of the next year. The Purchase Plan was
implemented by the Company effective January 1, 1991.
ADMINISTRATION
The Purchase Plan may be administered by the Board of Directors or a committee
appointed by the Board. At the present time, the Purchase Plan is being
administered by the Board of Directors. All questions of interpretation or
application of the Purchase Plan are determined by the Board of Directors or its
appointed committee, and its decisions are final, conclusive, and binding upon
all participants.
ELIGIBILITY AND PARTICIPATION
Employees who are employed with the Company (including subsidiaries of the
Company approved by the Board of Directors) for at least twenty hours per week
and five months per calendar year, are eligible to participate in the Purchase
Plan and are subject to certain limitations imposed by Section 423(b) of the
Code and limitations on stock ownership as set forth in the Purchase Plan. A
total of approximately 1,325 employees were eligible to participate in the
Purchase Plan on December 31, 1997.
8
<PAGE> 13
Aspect Telecommunications Corporation Proxy Statement
GRANT AND EXERCISE OF OPTION
At the beginning of an offering period, each participant is granted an option to
purchase that number of shares equal to up to 10% of the participant's aggregate
compensation received on each payday during the offering period divided by the
lower of 85% of the fair market value of a share of the Company's Common Stock
(i) at the beginning of the offering period or (ii) at the end of the offering
period, subject to the limitations set forth below. In no event may an employee
be granted an option under the Purchase Plan (i) if, immediately after the
grant, such employee would own stock and/or hold outstanding options to purchase
stock possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company or of any subsidiary of the Company, or (ii)
that would permit his or her rights to purchase stock under all employee stock
purchase plans of the Company and its subsidiaries to accrue at a rate that
exceeds $25,000 worth of stock for each calendar year in which such option is
outstanding at any time. The Company may make a pro rata reduction in the number
of shares subject to options if the total number of shares that would otherwise
be subject to options granted at the beginning of an offering period exceeds the
number of remaining available shares in the Purchase Plan. Unless an employee
withdraws his or her participation in the Purchase Plan by giving written notice
to the Company of his or her election to withdraw all accumulated payroll
deductions prior to the end of an offering period, the employee's option for the
purchase of shares will be exercised automatically at the end of the offering
period, and the maximum number of full shares subject to the option that are
purchasable with the accumulated payroll deductions in his or her account will
be purchased at the applicable purchase price determined, as provided below.
PURCHASE PRICE
The purchase price per share at which shares are sold to participating employees
under the Purchase Plan is the lower of (i) 85% of the fair market value per
share of the Common Stock at the time the option is granted at the commencement
of the offering period, or (ii) 85% of the fair market value per share of the
Common Stock at the time the option is exercised on the last day of the offering
period. The fair market value of the Common Stock on a given date shall be the
closing bid price of the Common Stock for such date, as reported on the Nasdaq
National Market.
PAYROLL DEDUCTIONS
The purchase price of the shares to be acquired under the Purchase Plan is
accumulated by payroll deductions over the offering period. The Board of
Directors may change the duration of the offering period by announcement at
least 15 days prior to the start of the first offering period to be affected.
The deductions may not be more than 10% of a participant's aggregate
compensation during the offering period. A participant may discontinue or
decrease his or her payroll deduction percentage, but may not increase his or
her rate of payroll deductions at any time during the offering period. The Board
of Directors is authorized to limit the number of participation rate changes
during any offering period. A participant's payroll deduction may be decreased
to 0% if the aggregate of his or her payroll deductions for the year (the sum of
the deductions that were previously used to purchase stock under the Purchase
Plan in a prior offering period that ended during that calendar year, plus all
payroll deductions accumulated with respect to the current offering period)
equals $21,250 (85% of $25,000, which is the maximum amount of stock that can be
purchased under the plan in any calendar year).
TERMINATION OF EMPLOYMENT
In the event an employee fails to remain an employee of the Company for at least
20 hours per week during the applicable offering period, for any reason,
including retirement or death, the participant will be deemed to have withdrawn
from the Purchase Plan and the participant's option will be terminated. In such
event, the payroll deductions credited to the participant's account will be
returned to him or her or, in the case of death, to the person or persons
entitled thereto, as provided in the Purchase Plan.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change is made in the Company's capitalization in the middle of
an offering period, such as a stock split or stock dividend, which results in an
increase or decrease in the number of shares of Common Stock outstanding without
receipt of consideration by the Company, appropriate adjustment shall be made in
the purchase price and in the number of shares subject to options under the
Purchase Plan; provided, however, that conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration."
9
<PAGE> 14
Aspect Telecommunications Corporation Proxy Statement
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors may at any time amend or terminate the Purchase Plan, but
no amendment or termination shall be made that would impair the rights of any
participant under any grant theretofore made, without his or her consent;
provided, however, that an offering period may be terminated if the Board of
Directors determines that the termination of the Purchase Plan is in the best
interest of the Company. In addition, the Company shall obtain shareholder
approval of any amendment to the Purchase Plan in such a manner and to the
extent necessary to comply with Rule 16b-3 under the Exchange Act, Section 423
of the Code, and/or any other applicable law or regulation. In any event, the
Purchase Plan will terminate in March 2010.
The Administrator may at any time, without shareholder consent and without
regard to whether any participant rights may be adversely affected, establish
limitations or procedures as the Administrator determines advisable; provided,
however, that such limitations or procedures are consistent with the Purchase
Plan.
U.S. FEDERAL INCOME TAX INFORMATION
The Purchase Plan, and the right of participants to make purchases thereunder,
is intended to qualify under the provisions of Sections 421 and 423 of the Code.
Under these provisions, no income will be taxable to a participant until the
shares purchased under the Purchase Plan are sold or otherwise disposed of. Upon
sale or other disposition of the shares, the participant will generally be
subject to tax; the amount of the tax will depend upon the holding period. If
the shares are sold or otherwise disposed of in a "qualifying disposition,"
defined as being held more than two years from the first day of the offering
period and more than one year from the date of transfer of the stock to the
participant, then the participant will recognize ordinary income measured as the
lesser of (i) the excess of the fair market value of the shares at the time of
such sale or disposition over the purchase price, or (ii) an amount equal to 15%
of the fair market value of the shares as of the first day of the offering
period. Any additional gain will be treated as long-term capital gain. If the
shares are sold or otherwise disposed of in a "disqualifying disposition" (i.e.,
before the expiration of the aforementioned qualifying holding period), the
participant will recognize ordinary income generally measured as the excess of
the fair market value of the shares on the date the shares are purchased over
the purchase price. Any additional gain or loss on such sale or disposition will
be long-term or short-term capital gain or loss, depending on the holding
period. The Company is entitled to a tax deduction for income tax purposes for
the amount that is taxed to participants as ordinary income from disqualifying
dispositions. The Company will be entitled to such deduction at the time that
participants recognize ordinary income.
The foregoing is only a summary of the effect of federal income taxation upon
the participant and the Company with respect to the shares purchased under the
Purchase Plan. Reference should be made to the applicable provisions of the
Code. In addition, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any municipality, state, or
foreign country in which the participant may reside.
REQUIRED VOTE
The amendment to the Purchase Plan to increase the number of shares of Common
Stock reserved for issuance thereunder by 1,000,000 shares requires the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock who are present in person or by proxy and entitled to vote at the
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE 1990 EMPLOYEE
STOCK PURCHASE PLAN, WHICH WILL INCREASE SHARES AUTHORIZED AND RESERVED UNDER
THE PLAN BY 1,000,000 SHARES. THE EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF
A VOTE AGAINST THE PROPOSAL.
10
<PAGE> 15
Aspect Telecommunications Corporation Proxy Statement
PROPOSAL NO. 5 - RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP, independent auditors,
to audit the financial statements of the Company for the year ending December
31, 1998, and recommends that the shareholders vote for ratification of such
appointment. In the event the shareholders do not ratify such appointment, the
Board of Directors will reconsider its selection. Deloitte & Touche LLP (or its
predecessor Deloitte, Haskins & Sells, an accounting firm that merged with a
second public accounting firm to form Deloitte & Touche LLP) has audited the
Company's financial statements since 1986. One or more representatives of
Deloitte & Touche LLP are expected to be present at the meeting, with the
opportunity to make a statement if they desire to do so and to be available to
respond to appropriate questions.
The ratification of the appointment of Deloitte & Touche LLP requires the
affirmative vote of a majority of the shares represented and voting at the
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT
OF DELOITTE & TOUCHE LLP.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth information known to the Company with respect to
the beneficial ownership of the Company's Common Stock as of February 28, 1998,
as to (i) each person who is known by the Company to beneficially own 5% or more
of the Company's Common Stock, (ii) each of the Company's directors, (iii) each
of the executive officers named in the Summary Compensation Table below (Named
Executive Officers), and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
5% SHAREHOLDERS, DIRECTORS, NAMED
EXECUTIVE OFFICERS, AND DIRECTORS SHARES BENEFICIALLY
AND EXECUTIVE OFFICERS AS A GROUP OWNED(1)
--------------------------------- -------------------
NUMBER PERCENT
------ -------
<S> <C> <C>
Entities affiliated with FMR Corp.(2) .......................... 7,468,800 14.9%
82 Devonshire Street
Boston, MA 02109
Massachusetts Financial Services Company(3)..................... 6,444,725 12.8%
500 Boylston Street
Boston, MA 02116
James R. Carreker(4) ........................................... 1,521,200 3.0%
Debra J. Engel(5) .............................................. 16,000 *
Norman A. Fogelsong(6) ......................................... 643,252 1.3%
James L. Patterson(7) .......................................... 42,000 *
John W. Peth(8) ................................................ 30,000 *
Dennis L. Haar(9) .............................................. 303,894 *
Eric J. Keller(10).............................................. 57,488 *
Robert A. Blatt(11) ............................................ 136,666 *
R. Dixon Speas, Jr.(12) ........................................ 156,959 *
All directors and executive officers as a group (17 persons)(13) 3,481,921 6.7%
</TABLE>
- -----------
* Less than 1%
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.
(2) Includes 6,333,500 shares of Common Stock owned by investment funds (the
Funds) managed by Fidelity Management & Research Company, a wholly owned
subsidiary of FMR Corp. and an investment adviser registered under the
Investment Advisers Act of 1940. Edward C. Johnson III (Chairman of FMR
Corp.), FMR Corp. and the Funds each have sole power to dispose of the
shares owned by the Funds. Also includes 1,135,300 shares of
11
<PAGE> 16
Aspect Telecommunications Corporation Proxy Statement
Common Stock owned by Fidelity Management Trust Company. Edward C. Johnson
III and FMR Corp. each have sole power to dispose of these shares and sole
power to vote 695,900 shares. The power to vote 439,400 shares has been
retained by institutional accounts for whom Fidelity Management Trust
Company acts as an investment manager. This information was determined as
of December 31, 1997, from Schedule 13G dated February 14, 1998, as filed
by FMR Corp. with the Securities and Exchange Commission.
(3) Massachusetts Financial Services Company (MFS) has sole voting power over
6,331,325 shares and sole depositive power over 6,444,725 shares. This
information was determined as of December 31, 1997, from Schedule 13G dated
February 12, 1998, as filed by MFS with the Securities and Exchange
Commission.
(4) Includes 1,005,140 shares held by the Carreker Family Trust and 400 shares
owned directly. Also includes 31,000 shares held by the Arbutus Educational
Trust, a charitable remainder trust of which Mr. Carreker is the trustee;
and 484,660 shares issuable pursuant to options that are exercisable by Mr.
Carreker within 60 days of February 28, 1998.
(5) Represents 16,000 shares issuable pursuant to options that are exercisable
by Ms. Engel within 60 days of February 28, 1998.
(6) Includes 487,252 shares held by the Fogelsong Family Trust. Also includes
150,000 shares held of record by Institutional Venture Partners for which
Mr. Fogelsong works as a venture capitalist and for which he disclaims
beneficial ownership of the securities except to the extent of his
pecuniary interest therein. Also includes 6,000 shares issuable pursuant to
options that are exercisable by Mr. Fogelsong within 60 days of February
28, 1998.
(7) Includes 36,000 shares held by the Patterson Family Trust. Also includes
6,000 shares issuable pursuant to options that are exercisable by Mr.
Patterson within 60 days of February 28, 1998.
(8) Includes 6,000 shares issuable pursuant to options that are exercisable by
Mr. Peth within 60 days of February 28, 1998.
(9) Includes 283,714 shares issuable pursuant to options that are exercisable
by Mr. Haar within 60 days of February 28, 1998.
(10) Includes 56,248 shares issuable pursuant to options that are exercisable by
Mr. Keller within 60 days of February 28, 1998.
(11) Includes 118,548 shares issuable pursuant to options that are exercisable
by Mr. Blatt within 60 days of February 28, 1998.
(12) Includes 137,370 shares issuable pursuant to options that are exercisable
by Mr. Speas within 60 days of February 28, 1998.
(13) Includes 1,489,594 shares issuable pursuant to options that are exercisable
by all directors and executive officers within 60 days of February 28,
1998.
12
<PAGE> 17
Aspect Telecommunications Corporation Proxy Statement
EXECUTIVE COMPENSATION
The table immediately following presents the compensation of the Chief Executive
Officer (the CEO) and the other four most highly compensated executive officers
for the last fiscal year (the group of five individuals collectively referred to
hereinafter as the Named Executive Officers).
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
---------
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS(1) COMPENSATION(2)
- --------------------------- ---- -------- -------- ------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James R. Carreker............... 1997 $276,884 $197,858 - 75,000 $4,810
Chairman and 1996 $254,021 $203,123 - 60,000 $4,590
Chief Executive Officer 1995 $234,480 $183,625 $505 120,000 $4,590
Dennis L. Haar.................. 1997 $255,958 $130,211 $201 75,000 $6,286
President and 1996 $221,397 $145,001 - 80,000 $5,178
Chief Operating Officer 1995 $188,777 $145,741 - 100,000 $4,590
Eric J. Keller(3)............... 1997 $236,992 $ 70,206 - 25,000 $6,024
Vice President, Finance and 1996 $215,132 $ 96,011 - 100,000 $5,397
Chief Financial Officer 1995 - - - - -
Robert A. Blatt ................ 1997 $189,425 $ 71,983 $225 35,000 $5,008
Vice President, Marketing and 1996 $154,475 $ 47,812 - 30,000 $4,817
Business Development 1995 $133,152 $ 31,444 - 40,000 $ 90
R. Dixon Speas, Jr. ............ 1997 $155,055 $103,735 - 10,000 $5,620
Vice President, Asia-Pacific 1996 $162,551 $119,831 - 13,000 $4,590
and Latin America 1995 $156,001 $ 92,644 - 40,000 $5,594
</TABLE>
- -----------
(1) No stock appreciation rights (SARs) were granted in 1997, 1996, or 1995.
(2) Amounts shown include Company matching contributions to individual's 401(k)
savings accounts and life insurance premiums. Contributions to 401(k)
savings accounts for the years 1997, 1996, and 1995 were $4,750, $4,500,
and $4,500, respectively, for all Named Executive Officers employed by the
Company during the three reporting years, except in 1995 for Mr. Blatt who
did not receive a 401(k) matching contribution that year.
(3) Mr. Keller joined the Company on January 15, 1996. Had he been employed for
all of the year ended December 31, 1996, his annual salary would have been
approximately $225,000.
The Company's 1989 Stock Option Plan provides for the grant of options to
executive officers of the Company. Options granted under this plan were
"incentive stock options" to the extent allowable under Section 422 of the
Internal Revenue Code and were otherwise "nonqualified stock options." The
options were granted at a price equal to the fair market value of the Company's
Common Stock on the date of grant. Such options typically expire ten years from
the date of grant. The following table presents stock option grants made during
1997 to the Named Executive Officers.
13
<PAGE> 18
Aspect Telecommunications Corporation Proxy Statement
<TABLE>
<CAPTION>
OPTION GRANTS IN 1997
INDIVIDUAL GRANTS
-----------------
% OF TOTAL POTENTIAL
NUMBER OF OPTIONS REALIZABLE VALUE AT
SECURITIES GRANTED TO ASSUMED ANNUAL RATES
UNDERLYING EMPLOYEES EXERCISE OR OF STOCK APPRECIATION
OPTIONS IN FISCAL BASE PRICE EXPIRATION FOR OPTION TERM(4)
NAME GRANTED(1)(2) YEAR(3) PER SHARE DATE 5% 10%
- ---- ------------- ----------- ----------- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
James R. Carreker... ... 75,000 3.4% $17.88 7/21/2007 $843,112 $2,136,611
Dennis L. Haar.......... 75,000 3.4% $17.88 7/21/2007 $843,112 $2,136,611
Eric J. Keller.......... 25,000 1.1% $17.88 7/21/2007 $281,037 $ 712,204
Robert A. Blatt ........ 35,000 1.6% $17.88 7/21/2007 $393,452 $ 997,085
R. Dixon Speas, Jr. .... 10,000 0.4% $17.88 7/21/2007 $112,415 $ 284,881
</TABLE>
- -----------
(1) Options to purchase the Company's Common Stock granted pursuant to the
Company's 1989 Stock Option Plan. Of the above grants, the following were
nonstatutory stock option grants: 60,175 for Mr. Carreker; 71,150 for Mr.
Haar; 19,750 for Mr. Keller; 32,000 for Mr. Blatt; and 2,975 for Mr. Speas.
No SARs were granted during 1997.
(2) Options become exercisable at the rate of 25% on the first anniversary of
the grant date, and 2.0833% each month thereafter.
(3) The Company granted options representing 2,232,584 shares to employees in
1997. There were no SARs granted to employees in 1997.
(4) The 5% and the 10% assumed rates of appreciation are mandated by the rules
of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future Common Stock price.
The following table presents information on stock options exercised during 1997
and the value of all stock options held on December 31, 1997, for the Named
Executive Officers.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1997 AND
DECEMBER 31, 1997 OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS(2) OPTIONS(2)(3)
ACQUIRED VALUE AT DECEMBER 31, 1997 AT DECEMBER 31, 1997
-------------------- --------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James R. Carreker...... - - 438,998 176,002 $ 6,723,035 $ 1,276,957
Dennis L. Haar......... 19,300 $439,762 230,965 143,835 $ 3,169,839 $ 929,836
Eric J. Keller ........ - - 47,914 77,086 $ 218,608 $ 312,642
Robert A. Blatt ....... - - 98,634 66,002 $ 1,358,570 $ 434,832
R. Dixon Speas, Jr. ... 32,500 $745,390 129,498 46,002 $ 1,837,436 $ 438,519
</TABLE>
- -----------
(1) The amount set forth represents the difference between the fair market
value of the shares on the date of exercise and the exercise price of the
option.
(2) No SARs were exercised or outstanding during 1997.
(3) Based on the closing sale price of the Company's Common Stock as reported
on the Nasdaq National Market on December 31, 1997, of $20.875 per share,
minus the exercise price, multiplied by the number of shares underlying the
option.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following Compensation
Committee Report and the Performance Graph shall not be incorporated by
reference into any such filings.
14
<PAGE> 19
Aspect Telecommunications Corporation Proxy Statement
COMPENSATION COMMITTEE REPORT
The Company's executive compensation policies are determined by the Compensation
Committee of the Board of Directors (the Committee). The Committee is composed
of two nonemployee directors. The Committee meets at least once a year to
establish the compensation program for the next fiscal year and to evaluate how
effectively the program for the current fiscal year is meeting its objectives.
Additionally, the Committee may hold special meetings to approve the
compensation program of a newly hired executive or of an executive whose scope
of responsibility has significantly changed.
The objective of the Company's executive compensation program is to align
executive compensation with the Company's business objectives and performance,
and to enable the Company to attract, retain, motivate, and reward qualified
executives who contribute to the long-term business success of the Company. The
Company's executive compensation program is based on the same four basic
principles that guide compensation decisions for all employees of the Company:
- Compensate for demonstrated and sustained performance
- Compensate competitively
- Strive for equity and fairness in the administration of
compensation
- Ensure that each employee understands how his or her
compensation is determined
The Company believes in compensating its executives for demonstrated and
sustained levels of performance in their individual jobs. The achievement of
higher levels of performance and contribution are rewarded by higher levels of
compensation. To ensure that it compensates its executives competitively, the
Company regularly compares its compensation practices to those of other
companies of comparable size within similar industries. Through the use of
independent compensation surveys and analyses, employee compensation training,
and periodic pay reviews, the Company strives to ensure that compensation is
administered equitably and fairly and that a balance is maintained between how
executives are paid relative to other employees and relative to executives with
similar responsibilities in comparable companies.
Each year, in December, the Committee meets with the CEO and the Vice President,
People Programs and Services, regarding potential executive compensation for the
next five years and proposals for executive compensation for the next operating
year. Compensation plans are based on compensation surveys and assessments as to
the demonstrated and sustained performance of the individual executives. The
Committee then independently reviews the individual performance of the CEO and
the Company, and develops the annual compensation plan for the CEO based on
competitive compensation data and the Committee's evaluation of the CEO's
demonstrated and sustained performance and its expectation as to his future
contributions in leading the Company. The Committee presents for adoption its
findings on the compensation of each executive at a subsequent meeting of the
full Board of Directors.
During 1997, the Company's executive compensation program included these key
components:
(1) Base Salary
The Company establishes the base salaries of its executives based on competitive
market rates derived through comparisons with companies of similar size engaged
in similar industries.
(2) Cash-Based Incentives
All executives of the Company participate in a cash incentive program under
which payment is contingent upon the achievement of specific company-wide goals
in the areas of customer satisfaction, quality, operating profit, revenue
performance, and cash management. The CEO and eight vice presidents are eligible
for participation in a second cash incentive program that focuses on the
achievement of specific individual performance goals that are measured
objectively, such as bookings, profit contribution, new product introductions,
and quality standards, as well as performance goals that are measured
subjectively, such as leadership effectiveness. The Company's cash incentives
are structured so that the total of base salary and cash incentives, when taken
together, will compensate executives at market levels when company-wide and
individual goals are achieved. The cash incentive elements are sensitive to
performance achievement versus plan, and payment of these cash bonuses is
designed to range from no bonus payment when performance is well below
established targets, to bonus amounts somewhat above market levels when
performance is well above established targets.
15
<PAGE> 20
Aspect Telecommunications Corporation Proxy Statement
(3) Equity-Based Incentives
Stock options are an important component of the total compensation of executives
and are designed to align the interests of each executive with those of the
shareholders. Each year, the Committee considers the grant to executives of
stock option awards under the Company's 1989 Stock Option Plan. The Committee
believes that stock options provide added incentive for executives to influence
the strategic direction of the Company and to create and grow value for
customers, shareholders, and employees. The option grants utilize four-year
vesting periods to encourage executives to continue contributing to the Company.
The number of stock option shares that are granted to individual executives is
based on the demonstrated sustained performance of the individual executives and
independent survey data reflecting competitive stock option practices.
CEO Compensation
The CEO's base salary for 1997 was based on competitive market rates and the
Committee's review of his past performance. Effective January 1998, the
Committee increased the CEO's base salary to keep pace with salaries being paid
to the CEOs of comparably sized companies engaged in similar industries. When
considering the CEO's cash-based incentives, it was the Committee's
determination that under the leadership of the CEO, the Company attained record
levels of bookings, revenues, and excluding certain non-recurring items,
operating income, net income, and earnings per share for the year ended December
31, 1997. In addition, the Company achieved specific strategic goals during the
year. The Company began a major new product initiative that furthers the
Company's capabilities in open architecture-based call center software
applications, integration enablers, and high-reliability platforms. The Company
continued to build its consulting and systems integration organization,
significantly expanding its business volume from the previous year, and bringing
the Company high-end opportunities that were not previously available.
Additionally, geographic expansion into more countries in Europe; a new direct
sales and support initiative in Australia; and the entry into Singapore, Hong
Kong, and Japan have positioned the Company to take advantage of a significant
expansion in international telecommunications in the years ahead. The Committee
was satisfied that the Company had progressed in directions both financially and
strategically that were consistent with the Company's goal of creating and
growing value for customers, employees, shareholders, business partners, and the
communities in which the Company's employees live and work.
The 1993 Omnibus Budget Reconciliation Act (OBRA) established a $1,000,000
ceiling for deductions taken for tax years beginning on or before January 1,
1994, where deductions are for compensation paid to any of the five most highly
compensated executive officers identified in the Company's proxy statement
(although performance-related compensation as defined by OBRA in excess of
$1,000,000 will remain deductible). Because none of the compensation figures for
the five most highly compensated executive officers identified in the Company's
proxy statement approached the limitation, there has been no requirement on the
part of the Committee to use any of the available exemptions from the deduction
limit. However, the Committee remains aware of the existence of these
limitations, and the available exemptions, and will address the issue of
deductibility when and if compensation levels warrant it in the future.
COMPENSATION COMMITTEE
Debra J. Engel
James L. Patterson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, the Compensation Committee consisted of directors Engel and
Patterson. Neither of these persons has ever been an officer or employee of the
Company or any of its subsidiaries, nor were there any compensation committee
interlocks or other relationships during 1997 requiring disclosure under Item
402(j) of Regulation S-K of the Securities and Exchange Commission.
16
<PAGE> 21
Aspect Telecommunications Corporation Proxy Statement
COMPANY STOCK PRICE PERFORMANCE
The following graph compares cumulative total shareholder returns for the
Company during the preceding five years to the S&P 500 Index, and the S&P High
Technology Composite Index.
COMPARISON OF CUMULATIVE TOTAL RETURN* SINCE DECEMBER 1992
Aspect Telecommunications Corporation, S&P High Technology Composite Index and
the S&P 500 Index
[Chart]
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Aspect Telecommunications Corporation 100 289 229 458 868 571
S&P High Technology Composite Index 100 122 139 201 289 353
S&P 500 Index 100 107 105 141 170 223
</TABLE>
- ----------
* Assumes that the value of the investment in Aspect Telecommunications
Corporation Common Stock and each index was $100 on December 31, 1992, and that
all dividends were reinvested.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission (SEC) initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors, and greater than ten percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely upon review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section
17
<PAGE> 22
Aspect Telecommunications Corporation Proxy Statement
16(a) filing requirements applicable to its officers, directors, and greater
than ten percent beneficial owners were complied with.
STOCK OPTION PLAN INFORMATION
In addition to a stock option plan for directors, discussed in Proposal No. 3,
the Company maintains two other stock option plans. The Company primarily grants
options to executive officers under the 1989 Option Plan (1989 Plan) and grants
options to employees who are not executive officers or directors under the 1996
Employee Stock Option Plan (1996 Plan). Options granted under the 1989 Plan are
usually granted as incentive stock options to the extent allowable under Section
422 of the Internal Revenue Code, with the remaining shares being nonqualified,
while all options granted under the 1996 Plan are nonqualified shares.
The terms of both the 1989 Plan and the 1996 Plan state that options must be
granted at a price equal to 100% of fair market value of the Company's stock on
the date of grant. Options are typically granted with a four-year vesting
schedule and typically expire 30 days after the optionee's termination date or
ten years after grant date, whichever is sooner. The maximum number of shares
that may be granted to any individual during a year is 250,000 shares.
In December 1997, the Board of Directors authorized a 1,000,000 share increase
to the shares available under the 1996 Plan. As of January 31, 1998,
approximately 2,632,791 and 1,212,500 shares were available for grant under the
1989 Stock Option Plan and the 1996 Employee Stock Option Plan, respectively.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals by shareholders of the Company that are intended to be presented by
such shareholders at the Company's 1999 Annual Meeting of Shareholders must be
received by the Company no later than November 25, 1998, in order that they may
be included in the proxy statement and form of proxy relating to that meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted to shareholders at the
meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed form of proxy to vote the shares
they represent as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
ASPECT TELECOMMUNICATIONS CORPORATION
March 26, 1998
18
<PAGE> 23
ASPECT TELECOMMUNICATIONS CORPORATION
ANNUAL FINANCIAL REPORT TO SHAREHOLDERS
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 (a);(b) 1996 (a) 1995 (a) 1994 1993
------------ -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
(in thousand, except per share and employee data)
Net revenues $390,642 $308,703 $198,972 $147,239 $106,473
Gross margin 221,669 174,781 111,596 81,561 58,812
(% of net revenues) 57% 57% 56% 55% 55%
Research and development 45,723 34,585 23,450 15,774 11,491
(% of net revenues) 12% 11% 12% 11% 11%
Selling, general and administrative 104,431 82,478 50,726 37,662 29,273
(% of net revenues) 27% 27% 25% 26% 27%
Income from operations 52,605 57,718 35,620 28,125 18,048
(% of net revenues) 13% 19% 18% 19% 17%
Net income $ 35,182 $ 37,633 $ 23,991 $ 17,573 $ 11,475
(% of net revenues) 9% 12% 12% 12% 11%
Basic earnings per share $ 0.71 $ 0.86 $ 0.58 $ 0.43 $ 0.29
Weighted average shares outstanding (c) 49,302 43,917 41,314 40,708 40,232
Diluted earnings per share $ 0.67 $ 0.75 $ 0.52 $ 0.40 $ 0.27
Weighted average shares outstanding --
assuming dilution 52,307 52,163 49,352 48,373 43,664
AS OF DECEMBER 31
Cash, cash equivalents, and
short-term investments $146,216 $115,797 $ 93,633 $102,597 $ 93,105
Working capital 169,814 140,079 108,588 113,128 103,632
Total assets 370,343 283,093 215,871 166,035 138,326
Long-term debt (c) 6,531 4,500 59,500 55,000 55,000
Shareholders' equity (c) $267,795 $219,448 $112,285 $ 80,813 $ 64,333
Shares outstanding (c) 49,997 48,807 41,753 40,652 40,642
Capital spending $ 24,922 $ 33,210 $ 16,627 $ 13,112 $ 8,853
Regular full-time employees 1,610 1,330 950 640 500
</TABLE>
(a) September 1997, the Company acquired Commerce Soft Inc. The transaction was
accounted for as a purchase, and a charge of $4.9 million, or approximately
$0.09 per share on a diluted basis, was recorded for purchased in-process
technology. During 1997, the Company recorded a gain on the sale of
appreciated equity securities of $2.1 million, or $0.02 per share on a
diluted basis.
During 1996, the Company acquired Envoy Holdings Limited and Prospect
Software, Inc. The transactions were accounted for as pooling of interests.
Results for years prior to 1996 have not been restated since the
adjustments would not be material.
In October 1995, the Company acquired TCS Management Group, Inc. The
transaction was accounted for as a purchase, and a charge of $1.8 million,
or $0.02 per share on a diluted basis, was recorded for purchased
in-process technology.
See Note 2 to the Consolidated Financial Statements.
(b) In February 1998, the Company entered into a litigation settlement and
patent cross-license agreement with Lucent Technologies Inc. The
transaction resulted in a charge of $14 million, or $0.17 per share on a
diluted basis. See Note 15 to the Consolidated Financial Statements.
(c) Amount reflects the October 1996 conversion of $55 million of 5%
convertible subordinated debentures into approximately 5.7 million shares
of common stock.
F-1
<PAGE> 24
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
Aspect Telecommunications Corporation (Aspect or the Company) is a worldwide
provider of comprehensive business solutions for companies that generate
revenue, serve customers, and handle inquiries. The Company's solutions include
automatic call distributor (ACD) systems and software; computer-telephony
integration (CTI) application software and tools; interactive voice response
(IVR) systems; Web response systems; management information and reporting tools;
and planning and forecasting packages. The Company also delivers consulting,
training, and systems integration services that help companies plan, integrate,
staff, and manage call centers effectively.
In September 1997, the Company acquired Commerce Soft Inc. (Commerce Soft), a
developer of customer interaction technology, and its results of operations are
included in the accompanying financial statements since the date of acquisition.
The transaction was accounted for as a purchase that resulted in a one-time
charge of $4.9 million in 1997 related to in-process technology. The Company
completed the acquisitions of Envoy Holdings Limited (Envoy) in September 1996
and Prospect Software, Inc. (Prospect), in October 1996, both of which were
accounted for as pooling of interests. In October 1995, the Company acquired TCS
Management Group, Inc. (TCS), which was accounted for as a purchase. (See Note 2
to the Consolidated Financial Statements.)
On February 27, 1998, Aspect and Lucent Technologies Inc. (Lucent) announced
that they had agreed to dismiss their patent lawsuits against each other,
released each other from claims of past infringement, and settled their patent
disputes by entering into a cross-license agreement. Under the terms of the
agreement, Aspect agreed to pay Lucent a one-time fee and future royalties. As a
result of this subsequent event affecting the 1997 consolidated financial
statements, the Company recorded a non-recurring charge of $14 million in its
fourth fiscal quarter ended December 31, 1997. (See Note 15 to the Consolidated
Financial Statements.)
Except for historical information contained herein, the matters discussed in
this report are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended; Section 32E of the Securities and
Exchange Act of 1934, as amended; and the Private Securities Litigation Reform
Act of 1995; and are made under the safe-harbor provisions thereof. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. See
"Business Environment and Risk Factors" below. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. Aspect undertakes no
obligation to publicly release any revision to these forward-looking statements
that may be made to reflect events or circumstances after the date hereof.
RESULTS OF OPERATIONS
Net revenues increased by 27% to $391 million in 1997 from $309 million in 1996,
and 1996 revenues increased by 55% from $199 million in 1995. Net revenues for
1995 include results for TCS for the two-month period ending December 31, 1995,
and net revenues for 1996 and 1997 each include a full year of results for Envoy
and Prospect.
Product revenues grew by 20% to $276 million in 1997 from $231 million in 1996,
and 1996 product revenues increased by 55% from $148 million in 1995. The
increases in product revenues for both periods were primarily attributable to
increased market demand for the Company's products, as the volume of new systems
and add-ons increased from year to year, and the impact of TCS's product
revenues in 1996 and 1997. Growth in product revenues for 1997 was higher in
international markets than in North America. There were no significant changes
in average selling prices for new systems across the periods presented.
Customer support revenues increased by 46% to $114 million in 1997 from $78
million in 1996, and 1996 customer support revenues increased 55% from $51
million in 1995. Growth in customer support revenues for both periods resulted
primarily from increases in maintenance revenues as a result of the growth in
the Company's installed base and the impact of TCS's customer support revenues
in 1996 and 1997. In addition, growth from 1996 to 1997 reflects expansion of
the Company's Consulting and Systems Integration (C&SI) business unit
established in 1996. Customer support revenues include charges for providing
contractually agreed-upon system service and maintenance (which typically
commence twelve months from the date a system is installed and, accordingly, are
primarily affected by growth in the installed base); charges to install
products; consulting and systems integration revenues; and other support
services.
F-2
<PAGE> 25
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
No single customer accounted for 10% or more of net revenues in any of the years
presented. Net revenues outside North America as a percentage of total net
revenues over the periods presented were 28% in 1997, 25% in 1996, and 24% in
1995. Revenues generated from international operations are generally denominated
in foreign currencies. The Company enters into forward exchange contracts to
reduce the impact of foreign currency fluctuations on the results of operations.
Gross margin on product revenues increased to 68% in 1997 from 66% in 1996 and
65% in 1995. The increase between 1997 and 1996 primarily reflects growth in
add-on revenues, which generally carry higher margins, and other factors. The
increase between 1996 and 1995 primarily reflects the inclusion of TCS's product
revenues, which typically carry higher margins than the Company's other product
revenues. On a forward-looking basis, the Company expects that the following
factors, among others, could have a material impact on product gross margins:
the mix of products sold; the channel of distribution; the portion of systems
revenues related to accounts purchasing multiple systems; the mix and level of
third-party product included as part of systems integration projects; the
results of recently acquired subsidiaries and newly established business units;
and cross-licensing or royalty arrangements with third parties.
Gross margin on customer support revenues was 30% in 1997, 28% in 1996, and 30%
in 1995. The improvement in customer support gross margins between 1997 and 1996
was primarily attributable to increases in maintenance revenues, with lower
increases in costs associated with providing customer support. The decrease in
customer support margins between 1996 and 1995 reflects customer support
revenues not growing proportionately with the costs associated with providing
the related services. On a forward-looking basis, the Company anticipates that
customer support margins will fluctuate from period to period due to
fluctuations in customer support revenues (since many of the costs of providing
customer support do not vary proportionately with customer support revenues),
ongoing efforts to expand the Company's customer support infrastructure, and the
Company's ability to build a successful C&SI business unit.
Research and development (R&D) expenses increased by 32% to $46 million in 1997
from $35 million in 1996, and 1996 R&D expenses increased 47% from $23 million
in 1995, reflecting the Company's ongoing efforts to remain competitive through
both new product development and expanded features for existing products. The
increases across the periods presented reflect increased staffing, associated
infrastructure costs, and the impact of TCS's R&D expenses in 1996 and 1997. As
a percentage of net revenues, R&D expenses were 12% in 1997, 11% in 1996, and
12% in 1995. The Company continues to believe that significant investment in R&D
is required to remain competitive and anticipates, on a forward-looking basis,
that such expenses in 1998 will increase in absolute dollars, although such
expenses as a percentage of net revenues may fluctuate between periods.
Selling, general and administrative (SG&A) expenses increased by 27% to $104
million in 1997 from $82 million in 1996, and 1996 SG&A expenses increased by
63% from $51 million in 1995. The increases across the periods presented were
primarily caused by increased staffing, infrastructure, and other costs related
to expansion of the Company's business; the impact of TCS's SG&A expenses in
1996 and 1997; amortization of intangible assets; and, in 1997, increased legal
expenses. Increases in SG&A expenses in 1997 were partially offset by the
donation of appreciated equity securities in lieu of cash to fund the Company's
corporate giving program. SG&A expenses as a percentage of net revenues were 27%
in 1997 and 1996, and 25% in 1995. The Company anticipates, on a forward-looking
basis, that SG&A expenses will continue to increase in absolute dollars for
1998, when compared with 1997, although such expenses as a percentage of net
revenues may fluctuate between periods.
Purchased in-process technology represents non-recurring charges of $4.9 million
and $1.8 million associated with the acquisitions of Commerce Soft and TCS in
1997 and 1995, respectively.
The intellectual property settlement represents a non-recurring charge of $14
million related to the resolution of the Company's litigation with Lucent in
February 1998, which was recorded as a subsequent event in the fourth quarter of
1997. (See Note 15 to the Consolidated Financial Statements.)
Net interest and other income increased to $7.7 million in 1997 from $2.1
million in 1996, and 1996 net interest and other income decreased from $2.5
million in 1995. The increase in net interest and other income during 1997 was
due primarily to a $2.1 million gain on the sale of appreciated equity
securities, higher interest earning balances, and the conversion of the
Company's $55 million of convertible subordinated debentures in October 1996.
The decrease from 1995 to 1996 was primarily attributable to lower interest
earning balances and lower interest rates. Through October 15, 1996, the Company
incurred interest expense related to $55 million of convertible subordinated
debentures issued in September 1993. The interest expense related to the
debentures was $2.3 million in 1996 and $2.9 million in 1995. On a
forward-looking basis, the Company anticipates that net interest income will be
reduced by interest expense associated with long-term debt incurred during 1997
in connection with the acquisition of intellectual property, and by an
increasing
F-3
<PAGE> 26
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
portion of the Company's investment portfolio invested in tax-advantaged
securities, which typically earn lower stated interest rates.
The Company's effective tax rate was 41.6% in 1997, 37.1% in 1996, and 37.0% in
1995. The 1997 rate reflects the tax effect of a $4.9 million non-deductible,
non-recurring charge for purchased in-process technology associated with the
acquisition of Commerce Soft. Without this charge, the Company's effective tax
rate for 1997 would have been 38.5%. The remaining increase in the Company's
effective tax rate from 1996 to 1997 reflects expanding international operations
and other factors.
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128), which requires the reporting of basic earnings
per share (EPS) and diluted EPS. Basic EPS is computed by dividing net income by
the weighted average common shares outstanding for the period. Diluted EPS is
essentially unchanged from numbers the Company previously reported as fully
diluted EPS, and includes the dilutive impact of stock options and, for 1996 and
1995, the incremental shares related to convertible subordinated debentures that
were redeemed in October 1996. EPS reported in prior periods have been restated
to conform with SFAS 128.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company's principal source of liquidity consisted
of cash, cash equivalents, and short-term investments totaling $146 million,
which represented 39% of total assets. The primary sources of cash during 1997
were cash provided by operating activities of $56 million, proceeds from the
issuance of common stock under various stock plans of $10 million, and net sales
and maturities of short-term investments of $28 million. The primary uses of
cash during 1997 were $25 million for the purchase of property and equipment,
and $10 million for the acquisition of intellectual property.
As of December 31, 1997, the Company's outstanding borrowings, including current
and non-current portions of notes payable, totaled $12.9 million. Borrowings
consisted of a $4.5 million note payable incurred in connection with the
acquisition of TCS and $8.4 million related to acquisitions of intellectual
property during 1997 (see Note 2 to the Consolidated Financial Statements).
The Company believes, on a forward-looking basis, that its cash, cash
equivalents, short-term investments, and anticipated cash flow from operations
will be sufficient to meet the Company's presently anticipated cash requirements
during at least the next twelve months.
BUSINESS ENVIRONMENT AND RISK FACTORS
The Company operates in a rapidly changing environment that involves a number of
risks, some of which are beyond the Company's control. The following discussion
highlights some of these risk factors.
The Company's revenues, gross margins, and operating results may fluctuate
significantly from period to period for many reasons including, without
limitation: reduced demand for the Company's products and services; a limited
number of large systems or multisystem orders accounting for a significant
portion of product revenues in any particular quarter; dependence on new
customers for a significant percentage of product revenues; fluctuations in the
results of operations of existing operations, recently acquired subsidiaries,
newly established business units or distributors of the Company's products or
services, or mix of products and services and channels of distribution; or
changes in market growth rates for different products and services. In addition,
the Company's products typically represent substantial capital commitments by
customers, involving a long sales cycle and, as a result, customer purchase
decisions have been, and in the future may be, significantly affected by a
variety of factors including, without limitation: general economic and financial
market conditions; world political events; trends in capital spending for
telecommunications products; market competition and the availability or
announcement of alternative technologies; and the degree to which call
transaction processing is mission critical for customers.
The Company's common stock price may be subject to significant volatility. Past
financial performance should not be considered a reliable indicator of
performance for any future period, and investors should not use historical data
to predict future results or trends. For any given quarter, a shortfall in the
Company's achieved revenues or earnings from the levels expected by securities
analysts or others could have an immediate and adverse effect on the price of
the Company's common stock. Additionally, the Company may not learn of such
shortfalls until late in a fiscal quarter, which could result in an even more
immediate and adverse effect on the Company's common stock price. Such
volatility may be exacerbated by the relatively low trading volume of the
Company's common stock. Further, the Company operates in
F-4
<PAGE> 27
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
a rapidly changing high-technology industry, which has in the past exhibited
significant stock market volatility. Often, when a high-technology company's
stock price declines rapidly, that company may become subject to class action
securities litigation. Were the Company to become involved in such litigation,
it could expend significant financial and management resources, which could have
a material adverse effect on the Company's business, operating results, and
financial condition.
Sales and installations of Aspect ACD Systems account for a substantial portion
of net revenues. Any factor adversely affecting demand or the failure of any
Aspect product or service to meet customer specifications, including system
performance, system availability, installation or service delivery commitments,
or other requirements, could have a material adverse effect on the Company's
business, operating results, and financial condition.
The market for Aspect products and services is subject to rapid technological
change and new product introductions. Current competitors or new market entrants
may develop new, proprietary products with features that could adversely affect
the competitive position of the Company's products. There can be no assurance
that the Company will be successful in accurately anticipating market demand for
products being developed; in developing, manufacturing, or marketing new
products or services in a timely manner; or in enhancing existing products and
services.
Due to their complexity and sophistication, from time to time the Company's
software products contain defects that can be difficult to correct. There can be
no assurance that software defects will not cause delays in product
introductions and shipments, result in increased costs, require design
modifications, impair customer satisfaction with the Company's products, or
result in unanticipated downtime and lost revenues. Any such event could
materially adversely affect the Company's business, operating results, and
financial condition.
The Company believes the market for its products and services is highly
competitive and that competition is likely to intensify. The Company's principal
competitors currently include companies that market ACD systems, private branch
exchange systems that include ACD features, and alternative or complementary
technologies and services such as CTI software companies and systems
integrators. The Company anticipates that telephone operating companies could
market ACD functionality. Additional potential competitors include companies
with technologies capable of providing call transaction processing, including
participants in the problem tracking and resolution software market, pre -
network routing companies, and a wide variety of CTI and software companies. As
the hardware requirements for a traditional call center diminish due to the
emergence of the Internet, local area networks, and other factors, other
companies may obtain a significant position in the call transaction processing
market. Many current and potential competitors, including but not limited to
Lucent, Northern Telecom Limited, Rockwell International Corporation, and
Siemens Business Communications Systems, Inc., have longer operating histories,
considerably greater resources, and larger customer bases than Aspect.
Consequently, the Company expects to encounter substantial competition from
these sources, as well as from new market entrants and emerging technologies.
Intensified competition could result in lower prices and margins for Aspect
products, which could materially adversely affect the Company's business,
operating results, and financial condition.
The telecommunications market has been characterized by extensive litigation
regarding patents and other intellectual property rights. The Company has been
in the past and may in the future be notified of claims that its products or
services are subject to patents or other proprietary rights of third parties.
For example, in March 1997, Lucent filed a lawsuit in the United States District
Court for the Eastern District of Pennsylvania alleging that the Company
infringed four of Lucent's U.S. patents. Although the Company attempts to ensure
that its products and processes do not infringe third-party patents or
proprietary rights, there can be no assurance that infringement or invalidity
claims (or claims for indemnification resulting from infringement claims) will
not be asserted or prosecuted against the Company. Periodically, the Company
negotiates with third parties to establish patent license or cross-license
agreements. Although the Company recently resolved its dispute with Lucent by
entering into a cross-license agreement, there can be no assurance that such
other future negotiations will result in the Company obtaining a license on
satisfactory terms or at all. Moreover, license agreements with third parties
may not include all intellectual property rights that may be issued to or owned
by the licensors, and thus future disputes with these companies are possible. In
the event an intellectual property dispute is not settled through a license,
litigation could ensue. An adverse determination in such litigation or
proceeding could prevent the Company from making, using, or selling certain of
its products, and subject the Company to damage assessments, any of which could
have a material adverse effect on the Company's business, operating results, and
financial condition.
In the future, Aspect could become involved in other types of litigation, such
as shareholder lawsuits for alleged violations of securities laws, claims
asserted by current or former employees, and product liability claims. Any
litigation in which the Company is involved, regardless of merit, source, or
outcome, could result in substantial cost to and
F-5
<PAGE> 28
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
diversion of effort by the Company, which could have a material adverse effect
on the Company's business, operating results, and financial condition.
The Company's success depends in part upon its internally developed technology.
The Company generally enters into confidentiality or license agreements with its
employees, consultants, and vendors, and generally controls access to and
distribution of its software, documentation, and other proprietary information.
Despite these precautions, unauthorized third parties may copy or otherwise
obtain and use the Company's technology. In addition, third parties may develop
similar technology independently.
The Company has experienced a period of rapid growth that has placed a
significant strain on the Company's managerial and operational resources. To
manage its growth, the Company must continue to implement and improve its
operational and financial systems and to expand, train, and manage its employee
base. For example, the Company intends to implement upgrades to its internal
integrated business application software systems. There can be no assurance that
complications will not arise from these software system transitions, resulting
in substantial unanticipated expenses. In addition, the Company must carefully
manage accounts receivables to limit credit risk and maintain inventories at
levels consistent with product demand and the requirements of new product
introductions. Inaccuracies in demand forecasts or disruption in the supply
chain could quickly result in insufficient or excessive inventories and
obsolescence expense.
Certain critical components are presently available only from a single source or
from limited sources of supply. Some of these suppliers utilize proprietary
technology that could require redesign of the Company's products with a change
in vendor. Additionally, there can be no assurance suppliers will not
discontinue or modify these components in a manner incompatible with the
Company's use. Some manufacturing processes have been contracted to outside
vendors, and certain of the tools and processes cannot be easily migrated to
other vendors. Any difficulty these vendors have in meeting the Company's
requirements for any reason could have a material adverse effect on the
Company's business, operating results, and financial condition.
The Company manufactures components incorporated into its products pursuant to
engineering and manufacturing licenses from third parties. The Company depends
upon the licensors to provide technical support and cooperation in optimizing
the Company's use of the licensed technologies. Should any of the licensors
become unable to provide such technical support, the Company would have to
develop internal capabilities or otherwise locate alternative technical support.
This in turn could adversely affect the Company's ability to complete timely
shipments during the transition. If, due to a breach of a license agreement or
otherwise, the Company becomes unable to continue to utilize the applicable
licensed technology, the Company's business, operating results, and financial
condition could be materially adversely affected.
The Company's product development, manufacturing, information technology
systems, corporate offices, and support functions are concentrated at a single
location in the Silicon Valley area of California. In the event of a natural
disaster, such as an earthquake or flood, or in localized extended outages in
critical utilities or transportation systems, the Company could experience a
business interruption that could have a material adverse effect on the Company's
business, operating results, and financial condition.
The Company depends upon certain key management and technical personnel and on
its ability to attract and retain highly qualified personnel in labor markets
characterized by high demand for, and limited supply of, qualified people.
Failure to attract and retain such personnel could have a material adverse
effect on the Company's business, operating results, and financial condition.
Aspect has periodically acquired companies and intellectual property and made
minority equity investments in companies with products, services, or
technologies that potentially complement the Company's business. In the future,
the Company may make further strategic acquisitions and investments or enter
into joint ventures or strategic alliances with other companies. Such
transactions entail numerous risks, including the following: inability to
successfully integrate such companies' personnel and businesses; inability to
realize anticipated synergies, economies of scale, or other value associated
with such transactions; inability to commercialize acquired technologies
successfully or on a timely basis; diversion of management's attention and
disruption of the Company's ongoing business; inability to retain key technical
and managerial personnel; inability to establish and maintain uniform standards,
controls, procedures, and policies; and impairment of relationships with
employees, customers, or others. In addition, future acquisitions or investments
by the Company may result in the issuance of additional equity or debt
securities, significant one-time write-offs, and the creation of goodwill or
other intangible assets that result in future charges to earnings. Failure to
avoid these or other
F-6
<PAGE> 29
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
risks and costs associated with such business combinations, investments, joint
ventures, or strategic alliances could have a material adverse effect on the
Company's business, operating results, and financial condition.
The Company currently operates in several international markets and anticipates
entering additional markets in the future. The financial resources required to
enter a new international market may vary substantially, and many countries
require multiple governmental approvals prior to allowing a new entrant into the
market. The cost and timing of these approvals, which may require the Company to
modify its products, are often subject to considerable uncertainty and could
result in longer lead times than initially anticipated. The Company's
international operations are subject to additional risks, including market
acceptance; exchange rate fluctuations; delays in telecommunications
deregulation; difficulties in staffing and managing foreign subsidiary
operations; political and economic instability; potentially negative tax
consequences; and foreign and domestic trade legislation, which could result in
the creation of trade barriers such as tariffs, duties, quotas, and other
restrictions. Failure to successfully enter certain international markets on a
timely basis could impair the Company's competitive position in such markets and
prevent the Company from obtaining the scale advantages of global competitors.
The Company's products are subject to various regulations that require, among
other things, that the Company's products meet certain radio frequency emission
standards, be compatible with the public telephone networks, and conform to
certain safety and other standards. Sales of products that fail to comply with
these regulations may be prohibited by regulatory authorities until appropriate
modifications are made. There can be no assurance that the Company will be
successful in obtaining or maintaining the necessary regulatory approvals for
its products, and failure to do so could have a material adverse effect on the
Company's business, operating results, and financial condition.
The Company historically has relied primarily on its direct sales force and a
limited number of distributors. In the future, the Company may depend
increasingly on expanded distributor, electronic, and other alternate
distribution channels to accommodate changing customer preferences. As a result,
if the Company is unable to successfully expand its channels of distribution to
address changes in customer preferences, competitive environment, or other
factors, it could have a material adverse effect on the Company's business,
operating results, and financial condition.
Many computer systems experience problems handling dates from the year 2000 and
beyond, and will need to be modified prior to the year 2000 in order to remain
functional. The Company is assessing both the internal readiness of its computer
systems and the compliance of its products and software sold to customers for
handling the year 2000. The Company expects to successfully implement the
changes necessary to address these year 2000 issues, and does not believe that
the cost of such actions will have a material effect on the Company. There can
be no assurance, however, that there will not be delays in, or increased costs
associated with, the implementation of such changes, and the Company's inability
to implement such changes could have a material adverse effect on the Company's
business, operating results, and financial condition. The Company has not yet
fully assessed the extent of its exposure, or investigated the plans of its
suppliers and vendors to address their exposures to these year 2000 problems,
and thus the Company may be adversely impacted should these organizations not
successfully address this issue.
F-7
<PAGE> 30
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- --------------------- --------- ---------
<S> <C> <C>
(in thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents $ 106,046 $ 47,996
Short-term investments 40,170 67,801
Accounts receivable (net of allowance for doubtful
accounts: $1,716 in 1997 and $1,202 in 1996) 86,896 53,211
Inventories 12,306 15,485
Other current assets 20,413 14,731
--------- ---------
Total current assets 265,831 199,224
Property and equipment -- net 58,704 51,348
Intangible assets -- net 42,654 28,888
Other assets 3,154 3,633
--------- ---------
Total assets $ 370,343 $ 283,093
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,401 $ 10,027
Current portion of notes payable 6,399 --
Accrued compensation and related benefits 14,256 8,896
Accrued intellectual property settlement 14,000 --
Other accrued liabilities 36,335 20,741
Customer deposits and deferred revenue 15,626 19,481
--------- ---------
Total current liabilities 96,017 59,145
Note(s) payable 6,531 4,500
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value:
2,000,000 shares authorized, none outstanding in 1997 an -- --
Common stock, $.01 par value:
100,000,000 shares authorized, shares outstanding:
49,996,731 in 1997 and 48,806,580 in 1996 144,524 128,186
Net unrealized gain on securities 1,267 2,534
Accumulated translation adjustments (1,951) (45)
Retained earnings 123,955 88,773
--------- ---------
Total shareholders' equity 267,795 219,448
--------- ---------
Total liabilities and shareholders' equity $ 370,343 $ 283,093
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE> 31
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 1996 1995
- ------------------------ --------- --------- ---------
<S> <C> <C> <C>
(in thousands, except per share amounts)
Net revenues:
Product $ 276,471 $ 230,539 $ 148,436
Customer support 114,171 78,164 50,536
--------- --------- ---------
Total net revenues 390,642 308,703 198,972
--------- --------- ---------
Cost of revenues:
Cost of product revenues 89,529 77,374 52,007
Cost of customer support revenues 79,444 56,548 35,369
--------- --------- ---------
Total cost of revenues 168,973 133,922 87,376
--------- --------- ---------
Gross margin 221,669 174,781 111,596
Operating expenses:
Research and development 45,723 34,585 23,450
Selling, general and administrative 104,431 82,478 50,726
Purchased in-process technology 4,910 -- 1,800
Intellectual property settlement 14,000 -- --
--------- --------- ---------
Total operating expenses 169,064 117,063 75,976
--------- --------- ---------
Income from operations 52,605 57,718 35,620
Interest and other income 7,966 4,884 5,649
Interest expense (293) (2,774) (3,188)
--------- --------- ---------
Income before income taxes 60,278 59,828 38,081
Provision for income taxes 25,096 22,195 14,090
--------- --------- ---------
Net income $ 35,182 $ 37,633 $ 23,991
--------- --------- ---------
Basic earnings per share $ 0.71 $ 0.86 $ 0.58
Weighted average shares outstanding 49,302 43,917 41,314
Diluted earnings per share $ 0.67 $ 0.75 $ 0.52
Weighted average shares outstanding --
assuming dilution 52,307 52,163 49,352
</TABLE>
See Notes to Consolidated Financial Statements.
F-9
<PAGE> 32
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES NET
RECEIVABLE UNREALIZED
FROM SALE GAIN ACCUMULATED
COMMON STOCK OF COMMON (LOSS) ON TRANSLATION RETAINED
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) SHARES AMOUNT STOCK SECURITIES ADJUSTMENTS EARNINGS TOTAL
---------- ---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1994 40,652,200 $ 55,226 $ (10) $ (606) $ (344) $ 26,547 $ 80,813
Issuance of common stock
under stock purchase plans 344,800 2,524 -- -- -- -- 2,524
Issuance of common stock
under other stock plans 755,922 2,911 -- -- -- -- 2,911
Collection of notes receivable -- -- 10 -- -- -- 10
Income tax benefit for employee
stock option transactions -- 1,421 -- -- -- -- 1,421
Net unrealized gain on securities -- -- -- 708 -- -- 708
Accumulated translation adjustments -- -- -- -- (93) -- (93)
Net income -- -- -- -- -- 23,991 23,991
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCES, DECEMBER 31, 1995 41,752,922 62,082 -- 102 (437) 50,538 112,285
Adjustment in connection with
pooling of interests 490,836 378 -- -- -- 602 980
Issuance of common stock
under stock purchase plans 178,426 3,149 -- -- -- -- 3,149
Issuance of common stock
under other stock plans 725,232 4,633 -- -- -- -- 4,633
Income tax benefit for employee
stock option transactions -- 4,177 -- -- -- -- 4,177
Issuance of common stock related to
the conversion of the convertible
subordinated debentures, net of
unamortized debt issuance costs
of $1,233 5,659,164 53,767 -- -- -- -- 53,767
Net unrealized gain on securities -- -- -- 2,432 -- -- 2,432
Accumulated translation adjustments -- -- -- -- 392 -- 392
Net income -- -- -- -- -- 37,633 37,633
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCES, DECEMBER 31, 1996 48,806,580 128,186 -- 2,534 (45) 88,773 219,448
Issuance of common stock
under stock purchase plans 238,478 4,291 -- -- -- -- 4,291
Issuance of common stock
under other stock plans 774,364 5,242 -- -- -- -- 5,242
Income tax benefit for employee
stock option transactions -- 2,195 -- -- -- -- 2,195
Issuance of common stock related to
acquisition 177,309 4,610 -- -- -- -- 4,610
Net unrealized loss on securities -- -- -- (1,267) -- -- (1,267)
Accumulated translation adjustments -- -- -- -- (1,906) -- (1,906)
Net income -- -- -- -- -- 35,182 35,182
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCES, DECEMBER 31, 1997 49,996,731 $ 144,524 $ -- $ 1,267 $ (1,951) $ 123,955 $ 267,795
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-10
<PAGE> 33
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 1996 1995
- ------------------------ --------- --------- ---------
<S> <C> <C> <C>
(in thousands)
Cash flows from operating activities:
Net income $ 35,182 $ 37,633 $ 23,991
Reconciliation of net income to cash provided by
operating activities:
Depreciation and amortization 17,170 16,296 8,687
Purchased in-process technology 4,910 -- 1,800
Gain on the sale of equity securities (2,070) -- --
Changes in assets and liabilities, net of effects from companies
acquired in 1997 and 1995:
Accounts receivable (34,865) (12,024) (9,764)
Inventories 2,904 (4,265) (2,297)
Other current assets and other assets (1,821) (4,191) (1,351)
Accounts payable (645) (3,966) 3,520
Accrued compensation and related benefits 5,406 67 464
Accrued intellectual property settlement 14,000 -- --
Other accrued liabilities 19,131 9,147 5,593
Customer deposits and deferred revenue (3,624) 10,078 (810)
--------- --------- ---------
Cash provided by operating activities 55,678 48,775 29,833
Cash flows from financing activities:
Other common stock transactions -- net 9,533 7,782 5,445
--------- --------- ---------
Cash provided by financing activities 9,533 7,782 5,445
Cash flows from investing activities:
Short-term investment purchases (41,936) (93,174) (85,794)
Short-term investment sales and maturities 69,781 96,531 89,597
Acquisition of intellectual property (9,750) -- --
Property and equipment purchases (24,922) (33,210) (16,627)
Purchase of company, net of cash acquired (278) -- (28,408)
--------- --------- ---------
Cash used in investing activities (7,105) (29,853) (41,232)
Effect of exchange rate changes on cash and cash equivalents (56) (810) 85
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 58,050 25,894 (5,869)
Cash and cash equivalents:
Beginning of year 47,996 22,102 27,971
--------- --------- ---------
End of year $ 106,046 $ 47,996 $ 22,102
--------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 379 $ 3,127 $ 2,750
Cash paid for income taxes $ 24,047 $ 18,852 $ 11,329
Supplemental schedule of noncash investing and financing activities:
Income tax benefit from employee stock transactions $ 2,195 $ 4,177 $ 1,421
Notes payable issued in connection with the
acquisition of intellectual property, net of discount of $1,570 $ 8,430 $ -- $ --
Conversion of convertible subordinated debentures
into shares of common stock, net of unamortized
debt issuance costs of $1,233 $ -- $ 53,767 $ --
</TABLE>
See Notes to Consolidated Financial Statements.
F-11
<PAGE> 34
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Aspect Telecommunications Corporation (Aspect or the Company) is a worldwide
provider of comprehensive business solutions for companies that generate
revenue, serve customers, and handle inquiries. The Company's solutions include
automatic call distributor (ACD) systems and software; computer-telephony
integration (CTI) application software and tools; interactive voice response
(IVR) systems; Web response systems; management information and reporting tools;
and planning and forecasting packages. The Company also delivers consulting,
training, and systems integration services that help companies plan, integrate,
staff, and manage call centers effectively.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity date of three months or less to be cash equivalents.
INVESTMENTS
The Company has classified all of its investments as available-for-sale
securities. While the Company's intent is to hold debt securities to maturity,
the Company has classified all debt securities as available-for-sale securities,
as the sale of such securities may be required prior to maturity to implement
management strategies. The carrying value of all securities is adjusted to fair
market value, with unrealized gains and losses, net of deferred taxes, being
excluded from earnings and reported as a separate component of shareholders'
equity. Cost is based on the specific identification method for purposes of
computing realized gains or losses.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over estimated useful lives of two to thirty years.
Leasehold improvements are amortized over the shorter of the lease term or the
estimated useful life.
INTANGIBLE ASSETS
Intangible assets at December 31, 1997, consist of $42,654,000 (net of
accumulated amortization of $8,992,000) of purchased existing technology,
goodwill, covenants not to compete, and a trademark acquired in the acquisition
of TCS Management Group, Inc.; purchased intellectual property; and purchased
existing technology associated with the acquisition of Commerce Soft Inc. (see
Note 2). These intangible assets are amortized on a straight-line basis over
periods of two to ten years.
SOFTWARE DEVELOPMENT COSTS
The costs for the development of new software products and substantial
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, at which time any additional
costs would be capitalized in accordance with Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Software to be Sold, Leased or
Otherwise Marketed." Because the Company believes its current process for
developing software is essentially completed concurrently with the establishment
of technological feasibility, no costs have been capitalized to date.
F-12
<PAGE> 35
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CUSTOMER DEPOSITS AND DEFERRED REVENUE
Customer deposits primarily represent payments received from customers upon
product order. Deferred revenue represents payments received from customers for
maintenance support or products prior to revenue recognition.
REVENUE RECOGNITION
The Company generally recognizes revenue from the sale of systems upon
installation at the customer site; revenues from add-ons, upgrades, software
licenses, and systems sales to distributors are generally recognized upon
shipment to the customer or distributor. Customer support revenues consist
primarily of revenues from new system installations, which are recognized when
the service is provided, and ongoing customer support revenues, which are
recognized ratably over the support period. Revenues are recorded net of sales
returns and allowances. Product warranty costs and costs related to
insignificant vendor obligations for post-contract customer support are accrued
when revenue is recognized.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with APB No. 25, "Accounting for Stock Issued to
Employees."
PER SHARE INFORMATION
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128), which requires the reporting of basic earnings
per share (EPS) and diluted EPS. Basic EPS is computed by dividing net income by
the weighted average common shares outstanding for the period. Diluted EPS is
essentially unchanged from numbers the Company previously reported as fully
diluted EPS, and includes the dilutive impact of stock options and, for 1996 and
1995, the incremental shares related to convertible subordinated debentures that
were redeemed in October 1996. EPS reported in prior periods have been restated
to conform with SFAS 128. See Note 12 for the calculation of basic and diluted
EPS for all periods presented.
FOREIGN CURRENCY TRANSLATION AND FOREIGN EXCHANGE CONTRACTS
Operations of the Company's foreign subsidiaries are measured using the local
currency as the functional currency for each subsidiary. Assets and liabilities
of the foreign subsidiaries are translated into U.S. dollars at the exchange
rates in effect as of the balance sheet dates, and results of operations for
each subsidiary are translated using average rates in effect for the periods
presented. Foreign currency transaction gains and losses, which are included in
the consolidated statements of income, have not been material in any of the
three years presented. The Company enters into foreign exchange contracts as a
hedge against intercompany account balances. Market value gains and losses on
these contracts offset foreign exchange gains or losses on the balances being
hedged.
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period. Such
management estimates include the allowance for doubtful accounts receivable, the
value of intangible assets, and warranty reserves. Actual results could differ
from those estimates.
The Company sells its products primarily to large organizations in diversified
industries in North America and Europe, and generally does not require its
customers to provide collateral or other security to support accounts
receivable. However, the Company's intention is to mitigate its credit risk on
system sales by receiving a portion of the sales price prior to shipping the
product. While the Company maintains allowances for potential bad debt losses,
such losses to date have not been material.
The Company operates in a rapidly changing environment that involves a number of
risks, some of which are beyond the Company's control, that could have a
material adverse effect on the Company's business, operating results, and
financial condition. These risks include variability and uncertainty of revenues
and operating results; product concentration, technological change, and new
products; competition; intellectual property/litigation; management of growth;
dependence on key personnel; limited sources of component supply; licenses from
third parties; geographic
F-13
<PAGE> 36
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
concentration; acquisitions and investments; international operations;
regulatory requirements; expansion of distribution channels; and year 2000
compliance issues.
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified to conform to the current-year
presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which
requires that an enterprise report, by major components and as a single total,
the change in its net assets during the period from nonowner sources; and
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for fiscal years beginning after December 15,
1997, with earlier application permitted. The Company will adopt these
pronouncements in 1998. Adoption of these statements will not affect the
Company's consolidated financial position, results of operations or cash flows.
In October 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 97-2,
"Software Revenue Recognition" (SOP 97-2). This statement provides guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions. This statement supersedes Statement of Position 91-1,
"Software Revenue Recognition". SOP 97-2 is effective for transactions entered
into in fiscal years beginning after December 15, 1997. While the Company has
not completed its evaluation of SOP 97-2, the Company currently believes that
the adoption of this statement will not have a material impact on the Company's
financial position or results of operations.
NOTE 2: BUSINESS COMBINATIONS AND OTHER ACQUISITIONS
In October 1997, the Company acquired two intellectual property portfolios by
paying $9,750,000 in cash and issuing $10,000,000 in notes payable. These notes
are stated net of $1,570,000 in discounts, with imputed interest rates of 7%,
and payable in installments over the next five to six years. These portfolios
were capitalized as intangible assets and are being amortized over periods
ranging from six to eight years. The agreements also contain balloon payments at
the end of five years that are contingent upon the Company achieving certain
financial and other parameters. Liabilities for these contingent amounts will be
reflected in the financial statements when these payments become probable.
In September 1997, the Company acquired Commerce Soft Inc. (Commerce Soft), a
developer of customer interaction technology. In connection with the
acquisition, the Company issued approximately 177,000 shares of common stock for
all the outstanding stock of Commerce Soft and assumed outstanding Commerce Soft
stock options, which were converted to options to purchase approximately 21,000
shares of the Company's common stock. The transaction was accounted for as a
purchase that resulted in a one-time charge of $4,910,000 related to in-process
technology. The remaining portion of the purchase price that exceeded the net
assets of Commerce Soft was recorded as intangible assets and is being amortized
over a period of two years. The operating results of Commerce Soft have been
included in the consolidated statements of income since the date of acquisition.
Pro forma results, as though Commerce Soft were acquired at the beginning of
1996, are not disclosed as they are insignificant to the 1997 and 1996 results
of operations.
In October 1996, the Company acquired Prospect Software, Inc. (Prospect), by
issuing 280,000 shares of common stock for all of the outstanding stock of
Prospect. Prospect is a provider of application development tools for building
connectivity to a variety of call center systems and network-based computer
applications. The acquisition was accounted for as a pooling of interests.
In September 1996, the Company acquired Envoy Holdings Limited (Envoy) by
issuing approximately 211,000 shares of common stock for all of the outstanding
stock of Envoy. Envoy Systems Limited, the primary operating subsidiary of
Envoy, provides call center and telebusiness solutions to help improve customer
service through consulting services, software, and systems integration. The
acquisition was accounted for as a pooling of interests.
All financial data for 1996 reflects the acquisitions of Envoy and Prospect, and
all material intercompany transactions during such period have been eliminated.
As the historical operations of Envoy and Prospect were not significant to any
F-14
<PAGE> 37
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
year presented, the Company's financial statements for prior years have not been
restated and the financial effect of the prior years' results of operations of
Envoy and Prospect has been accounted for as a $602,000 increase to retained
earnings in 1996.
Summarized results of operations of the separate companies for the nine months
ended September 30, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
NET REVENUES NET INCOME
------------ ----------
<S> <C> <C>
Aspect $ 215,613 $ 26,646
Envoy 2,638 157
Envoy acquisition costs -- (374)
Prospect 2,378 883
Eliminations (475) (123)
--------- ---------
$ 220,154 $ 27,189
--------- ---------
</TABLE>
In October 1995, the Company acquired TCS Management Group, Inc. (TCS), a
company engaged in the business of designing, marketing, and supporting software
that automates the tasks associated with managing the workforce in a call
center, specifically call forecasting, staff scheduling, and staff performance
tracking. The acquisition was accounted for as a purchase. The aggregate
purchase price of $37,500,000, consisting of $33,000,000 in cash and a
promissory note of $4,500,000, plus costs of approximately $250,000 directly
attributable to the acquisition, have been allocated to the assets acquired and
liabilities assumed. The promissory note is due October 31, 1998, and bears
interest at the prime rate (8.50% at December 31, 1997). Approximately
$1,800,000 of the total purchase price represented the value of in-process
technology that had not reached technological feasibility and that had no
alternative future use and was charged to research and development expense in
the fourth quarter of 1995.
The fair value of assets acquired, excluding the $1,800,000 of purchased
in-process technology charged to operations, was $42,214,000 and liabilities of
$6,514,000 were assumed.
The operating results of TCS have been included in the consolidated statements
of income since the date of acquisition. Had the acquisition taken place at the
beginning of 1995, unaudited pro forma results of operations would have been as
follows for the year ended December 31 (in thousands, except per share data):
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Net revenues $211,852
Net income 24,204
Diluted earnings per share 0.53
</TABLE>
The pro forma results of operations give effect to certain adjustments,
including amortization of purchased intangibles and goodwill, interest expense
on the promissory note, the elimination of certain non-recurring expenses, and
interest income associated with funding the acquisition. The $1,800,000 charge
for purchased in-process technology has been excluded from the pro forma results
as it is a non-recurring charge.
F-15
<PAGE> 38
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: INVESTMENTS
Short-term investments at December 31 consist of the following (in thousands):
<TABLE>
<CAPTION>
1997
-----------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Municipal obligations $32,760 $ 29 $ (13) $32,776
Corporate notes and bonds 2,946 2 (4) 2,944
Treasury bills 2,455 2 -- 2,457
Foreign debt issues 1,991 2 -- 1,993
------- ------- ------- -------
Total $40,152 $ 35 $ (17) $40,170
------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Municipal obligations $34,680 $ 105 $ (320) $34,465
Corporate notes and bonds 26,804 63 (38) 26,829
Treasury bills 3,506 -- (7) 3,499
Foreign debt issues 3,009 -- (1) 3,008
------- ------- ------- -------
Total $67,999 $ 168 $ (366) $67,801
------- ------- ------- -------
</TABLE>
The maturity of short-term investments at December 31, 1997, was as follows (in
thousands):
<TABLE>
<CAPTION>
MARKET VALUE
-------------------
WITHIN ONE TO
ONE YEAR TWO YEARS
-------- ---------
<S> <C> <C>
Municipal obligations $29,636 $ 3,140
Corporate notes and bonds 2,944 --
Treasury bills 2,457 --
Foreign debt issues 1,993 --
------- -------
Total $37,030 $ 3,140
------- -------
</TABLE>
Included in other current assets at December 31, 1997, is an investment in
equity securities with a market value of $2,261,000 (cost of $169,000).
The Company realized a gain of $2,070,000 from the sale of appreciated equity
securities in 1997. Realized gains and losses were not significant in 1996 and
1995.
NOTE 4: INVENTORIES
Inventories at December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials $ 5,331 $ 7,058
Work in progress 3,624 3,081
Finished goods 3,351 5,346
------- -------
Total $12,306 $15,485
------- -------
</TABLE>
F-16
<PAGE> 39
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land $ 3,912 $ 3,891
Building and improvements 9,820 6,809
Computer and development equipment 55,669 48,107
Field spares 15,034 13,633
Office equipment 23,669 15,393
Leasehold improvements 12,064 8,844
--------- ---------
Total 120,168 96,677
Accumulated depreciation and amortization (61,464) (45,329)
--------- ---------
Property and equipment -- net $ 58,704 $ 51,348
--------- ---------
</TABLE>
NOTE 6: OTHER ACCRUED LIABILITIES
Other accrued liabilities at December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Income taxes payable $12,048 $ 6,263
Product warranty 3,948 3,778
Other 20,339 10,700
------- -------
Total $36,335 $20,741
------- -------
</TABLE>
NOTE 7: SHAREHOLDERS' EQUITY
STOCK OPTION PLANS
Under the Company's stock option plans, incentive and nonqualified stock options
may be granted to employees, officers, and directors. All options must be
granted at fair market value. Options granted to nondirectors become exercisable
as determined by the Board of Directors (generally over four years) and
typically expire ten years after the date of grant. Options granted to outside
directors become exercisable over four years and currently expire five years
after the date of grant.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Outstanding, December 31, 1994 5,499,756 $ 5.70
Granted 2,788,100 $ 13.03
Canceled (690,412) $ 7.09
Exercised (754,682) $ 3.86
---------- ---------
Outstanding, December 31, 1995 6,842,762 $ 8.75
Granted 2,554,000 $ 25.84
Canceled (525,089) $ 13.05
Exercised (723,724) $ 6.16
---------- ---------
Outstanding, December 31, 1996 8,147,949 $ 14.06
Granted 2,256,584 $ 22.82
Canceled (684,971) $ 19.00
Exercised (771,030) $ 6.77
---------- ---------
Outstanding, December 31, 1997 8,948,532 $ 16.52
---------- ---------
</TABLE>
F-17
<PAGE> 40
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ----------------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.50 - $ 9.50 2,166,349 4.83 years $ 4.98 1,803,816 $ 4.45
$ 9.88 - $ 17.88 3,082,160 7.64 $ 13.64 1,372,266 $ 12.36
$ 18.25 - $ 32.02 3,700,023 8.50 $ 25.67 805,288 $ 25.52
- ------------------ --------- ----- --------- --------- ---------
$ 0.50 - $ 32.02 8,948,532 7.31 $ 16.52 3,981,370 $ 11.44
- ------------------ --------- ----- --------- --------- ---------
</TABLE>
At December 31, 1997, 4,107,556 shares were available for future grant under the
Company's stock option plans.
At December 31, 1996 and 1995, options to purchase 2,814,004 and 1,967,694
shares, respectively, were exercisable at weighted-average exercise prices of
$6.91 and $4.43, respectively.
EMPLOYEE STOCK PURCHASE PLAN
In April 1990, the Board of Directors established the 1990 Employee Stock
Purchase Plan, under which 2,100,000 common shares are authorized for sale to
qualified employees through payroll withholdings at a price equal to 85% of the
lower of the fair market value as of the beginning or end of the offering
period. At December 31, 1997, 1,861,507 shares had been issued under this plan.
STOCK-BASED COMPENSATION
The Company utilizes stock options to attract new employees and retain existing
employees. Such options provide the grantee an opportunity to purchase the
Company's common stock at the fair market value of such shares as of the date of
grant, pursuant to a vesting period. The options expire based on the earlier of
the employee's termination date or typically ten years from the grant date. In
1996, the Company was required to adopt Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS
123 requires that the fair value of stock-based awards to employees be
calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which differ significantly from the
Company's stock-based awards. These models also require highly subjective
assumptions, including future stock price volatility and expected time until
exercise, which greatly affect the calculated values. Accordingly, management
believes that the pro forma amounts below, which are based on the methodology
required under SFAS 123, do not necessarily provide a reliable single measure of
the fair value of the Company's stock-based awards.
SFAS 123 encourages, but does not require, companies to record compensation cost
for stock-based awards at fair value. Under this method, compensation cost is
measured based on the fair value of the stock award when granted, and is
recognized as an expense over the service period, which is usually the vesting
period. As discussed in Note 1, the Company has chosen to continue to account
for stock-based awards using the intrinsic value method prescribed in APB No.
25, "Accounting for Stock Issued to Employees." Accordingly, no compensation
cost has been recognized for its stock option plans and its stock purchase plan.
Had the compensation cost for the Company's stock-based awards been determined
based on the fair value at the grant dates for awards under those plans in 1997
and 1996 consistent with the method of SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income As reported $ 35,182 $ 37,633 $ 23,991
Pro forma $ 21,267 $ 27,849 $ 21,812
Basic earnings per share As reported $ 0.71 $ 0.86 $ 0.58
Pro forma $ 0.43 $ 0.63 $ 0.53
Diluted earnings per share As reported $ 0.67 $ 0.75 $ 0.52
Pro forma $ 0.41 $ 0.56 $ 0.48
</TABLE>
F-18
<PAGE> 41
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The initial impact of adopting SFAS 123 disclosures may not be representative of
the effect on pro forma net income and earnings per share in future years
because the impact of outstanding nonvested stock options granted prior to 1995
has been excluded from the pro forma calculations, options vest over several
years, and additional option grants may be made each year.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: expected life, seven months following vesting; stock volatility,
approximately 50%; risk-free interest rate, approximately 6%; and no dividends
during the expected term. The Company's calculations are based on a multiple
option valuation approach and forfeitures are recognized as they occur. The
weighted-average fair value of options granted during 1997, 1996, and 1995 was
approximately $9.50, $10.00, and $5.00, respectively.
The fair value of the employees' purchase rights under the Employee Stock
Purchase Plan was estimated using the Black-Scholes model with the following
weighted-average assumptions: expected life, six months; expected volatility,
72% in 1997, 54% in 1996, and 39% in 1995; risk-free interest rate,
approximately 6%; and no dividends during the expected term. The
weighted-average fair value of purchase rights granted in 1997, 1996, and 1995
was approximately $9.00, $6.00, and $2.50, respectively.
SHARES RESERVED FOR ISSUANCE
At December 31, 1997, the Company had reserved shares of common stock for
issuance as follows:
<TABLE>
<S> <C>
Stock option plans 13,056,088
Stock purchase plan 238,493
Other stock plans 8,090
----------
Total 13,302,671
----------
</TABLE>
NOTE 8: INCOME TAXES
Tax provisions for the years ended December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 27,183 $ 16,303 $ 10,140
State 4,855 2,371 2,300
Foreign 2,342 2,258 3,487
-------- -------- --------
Subtotal 34,380 20,932 15,927
Deferred:
Federal (8,217) 1,294 (1,730)
State (1,067) (31) (107)
-------- -------- --------
Subtotal (9,284) 1,263 (1,837)
-------- -------- --------
Total $ 25,096 $ 22,195 $ 14,090
-------- -------- --------
</TABLE>
Income before income taxes for the years ended December 31 consists of (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Domestic $53,095 $53,707 $27,740
Foreign - net 7,183 6,121 10,341
------- ------- -------
Total $60,278 $59,828 $38,081
------- ------- -------
</TABLE>
F-19
<PAGE> 42
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the statutory federal income tax rate and the effective tax
rate as a percentage of income before income taxes for the years ended December
31 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------ ------
<S> <C> <C> <C>
Tax at statutory rate 35.0% 35.0% 35.0%
State income taxes -- net of federal effect 4.1 3.8 3.8
Research and development tax credits (1.6) (0.8) (0.6)
Tax exempt investment income (1.0) (0.7) (1.3)
Foreign sales corporation benefit (0.8) (0.5) (0.4)
Other 2.8 0.3 0.5
---- ---- ----
Subtotal 38.5% 37.1% 37.0%
Nondeductible charge for purchased
in-process technology 3.1% -- --
---- ---- ----
Total 41.6% 37.1% 37.0%
---- ---- ----
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, as well as operating loss
carryforwards. Significant components of the Company's deferred income tax
assets and liabilities as of December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Accruals deductible in different periods $ 12,258 $ 4,976
Depreciation and amortization 2,992 1,495
Overhead in inventory 482 514
Net operating loss of foreign subsidiaries 136 520
Revenue recognized in different periods -- 224
-------- --------
15,868 7,729
Deferred tax liabilities:
Unrealized gains on investments (793) (1,554)
Valuation allowance for net operating loss of
foreign subsidiaries (136) (520)
-------- --------
Net deferred tax asset $ 14,939 $ 5,655
-------- --------
</TABLE>
NOTE 9: COMMITMENTS
Certain manufacturing and administrative facilities are leased under operating
leases through 2013. Certain leases provide for escalating rental payments over
the lease period, and rent expense for such leases is recognized on a
straight-line basis over the terms of the leases. Rent expense was $6,426,000,
$5,613,000, and $3,720,000 in 1997, 1996, and 1995, respectively.
Future minimum payments under the Company's operating leases at December 31,
1997, are (in thousands):
<TABLE>
<S> <C>
1998 $ 8,590
1999 8,429
2000 7,745
2001 6,172
2002 4,809
2003 and thereafter 22,986
----------
Total $ 58,731
----------
</TABLE>
F-20
<PAGE> 43
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10: LITIGATION
The segment of the telecommunications market that includes the Company's
products has been characterized by extensive litigation regarding patents and
other intellectual property rights. As is common in the telecommunications
industry, the Company has been in the past and may in the future be notified of
claims that its products or services are subject to patents or other proprietary
rights of third parties. While the Company is not aware that its products or
processes infringe any valid third-party patents or proprietary rights, there
can be no assurance that infringement or invalidity claims (or claims for
indemnification resulting from infringement claims) will not be asserted or
prosecuted against the Company. Periodically, the Company negotiates with third
parties to establish patent license or cross-license agreements. There can be no
assurance that such negotiations will result in the Company obtaining a license
on satisfactory terms or at all. Moreover, license agreements with third parties
may not include all intellectual property rights that may be issued to or owned
by the licensors, and thus future disputes with these companies are possible. In
the event an intellectual property dispute is not settled through a license,
litigation could ensue. Any litigation, or interference proceedings that may be
declared by the United States Patent and Trademark Office to determine the
priority of inventions, could result in substantial expense to the Company and
significant diversion of effort by the Company's technical and managerial
personnel. An adverse determination in such litigation or proceeding, could
prevent the Company from making, using, or selling certain of its products, and
subject the Company to damage assessments, all of which could have a material
adverse effect on the Company's business, operating results, or financial
condition. (See Note 15.)
In addition, the Company is from time to time involved in litigation or claims
that arise in the normal course of business. The Company does not expect that
any current litigation or claims will have a material adverse effect on the
Company's business, operating results, and financial condition.
NOTE 11: EMPLOYEE BENEFIT PLAN
Qualified employees are eligible to participate in the Company's 401(k)
tax-deferred savings plan. Participants may contribute up to 17% of their
eligible earnings (up to a maximum contribution of $9,500 in 1997) to this plan,
for which the Company, at the discretion of the Board of Directors and within
certain limitations, may make matching contributions, in addition to
discretionary contributions to cover the administrative costs of the plan.
Contributions made by the Company to the plan were $2,349,000, $1,811,000, and
$799,000 in 1997, 1996, and 1995, respectively.
NOTE 12: EARNINGS PER SHARE
Basic and diluted EPS for the years ended December 31 are calculated as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Basic EPS:
Weighted average shares outstanding 49,302 43,917 41,314
Net income $35,182 $37,633 $23,991
Basic EPS $ 0.71 $ 0.86 $ 0.58
------- ------- -------
Diluted EPS:
Weighted average shares outstanding 49,302 43,917 41,314
Dilutive effect of options 3,005 3,780 2,378
Weighted average shares issuable
upon assumed conversion of debt -- 4,466 5,660
------- ------- -------
Total 52,307 52,163 49,352
Net income $35,182 $37,633 $23,991
Interest expense during the period on convertible
subordinated debentures, net of tax -- 1,460 1,857
------- ------- -------
Net income adjusted for diluted calculation $35,182 $39,093 $25,848
------- ------- -------
Diluted EPS $ 0.67 $ 0.75 $ 0.52
------- ------- -------
</TABLE>
F-21
<PAGE> 44
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: OPERATIONS BY GEOGRAPHIC AREA AND MAJOR CUSTOMER
The Company operates in the telecommunications industry primarily in North
America and Europe. The following represents a summary of operations by
geographic area for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net revenues:
North America $ 288,363 $ 239,412 $ 152,731
Europe 102,279 69,291 46,241
--------- --------- ---------
Consolidated $ 390,642 $ 308,703 $ 198,972
--------- --------- ---------
North American transfers to
other geographic areas $ 50,768 $ 30,647 $ 13,076
--------- --------- ---------
Income from operations:
North America $ 45,471 $ 52,748 $ 25,256
Europe 6,637 5,968 10,165
Eliminations 497 (998) 199
--------- --------- ---------
Consolidated $ 52,605 $ 57,718 $ 35,620
--------- --------- ---------
Identifiable assets:
North America $ 332,638 $ 247,199 $ 199,690
Europe 44,574 40,421 28,746
Eliminations (6,869) (4,527) (12,565)
--------- --------- ---------
Consolidated $ 370,343 $ 283,093 $ 215,871
--------- --------- ---------
</TABLE>
Intercompany transfers are made at arm's-length prices. No single customer
accounted for 10% or more of net revenues in 1997, 1996, or 1995.
NOTE 14: FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE
The following summary disclosures are made in accordance with the provisions of
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" (SFAS 107), which requires the disclosure of
fair value information about both on- and off-balance sheet financial
instruments where it is practicable to estimate the value. Fair value is defined
in SFAS 107 as the amount at which an instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale
that is not the Company's intent.
Because SFAS 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements, any aggregation of the fair value
amounts presented would not represent the underlying value of the Company.
Amounts at December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $106,046 $106,046 $ 47,996 $ 47,996
Short-term investments 40,170 40,170 67,801 67,801
Investment in equity securities 2,261 2,261 4,736 4,736
Commitments:
Foreign exchange contracts $ 11,063 $ 11,059 $ 14,004 $ 14,070
</TABLE>
At December 31, 1997 and 1996, the Company had $30,452,000 and $7,848,000,
respectively, of outstanding foreign exchange contracts in which foreign
currencies (primarily British pound and German mark) were sold; and $19,389,000
and $6,156,000, respectively, of outstanding foreign exchange contracts
(primarily British pounds) were purchased. Unrealized gains or losses on forward
exchange contracts were not significant at December 31, 1997 or 1996. Other than
the items disclosed in the previous table, the Company has not entered into any
other material financial derivative instruments.
F-22
<PAGE> 45
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of cash and cash equivalents reported in the balance sheets
approximate their carrying value. The fair value of short-term investments,
investment in equity securities, and foreign exchange contracts is based on
quoted market prices.
NOTE 15: SUBSEQUENT EVENTS
On March 5, 1997, Lucent filed a lawsuit in the United States District Court for
the Eastern District of Pennsylvania alleging that the Company infringed four of
Lucent's U.S. patents (the Lucent Patents). In its complaint, Lucent sought to
enjoin the Company from allegedly continuing to infringe the Lucent Patents and
sought an unspecified amount of compensatory damages; treble damages for alleged
willful infringement; and interest, expenses, and attorneys' fees.
On February 4, 1998, the Company filed a complaint in the United States District
Court, Northern District of California, asserting that Lucent infringed seven
Aspect patents. Lucent responded by filing for a declaratory judgment regarding
these Aspect patents in the United States District Court, Northern District of
Texas.
On February 27, 1998, the Company announced that it entered into a patent
cross-license agreement with Lucent, under which each party agreed to dismiss
their patent lawsuits against each other, released each other from claims of
past infringement, and settled their patent disputes. Under the agreement,
Aspect paid Lucent a one-time fee and, for the duration of the cross-license
agreement, will pay royalties that are not expected to be material to Aspect's
future results of operations. As part of the settlement, Aspect recorded a
non-recurring charge of $14,000,000 (approximately 17 cents per diluted share)
for the quarter and year ended December 31, 1997.
F-23
<PAGE> 46
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Aspect Telecommunications
Corporation:
We have audited the accompanying consolidated balance sheets of Aspect
Telecommunications Corporation and its subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material aspects, the financial position of Aspect Telecommunications
Corporation and its subsidiaries at December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
- ------------------------------
San Jose, California
January 14, 1998 (February 27, 1998 as to Note 15 of the above-mentioned
financial statements)
F-24
<PAGE> 47
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
1997 QUARTERS ENDED 1996 QUARTERS ENDED
-------------------------------------------- --------------------------------------------
(in thousands, except per
share data) DEC. 31 SEPT. 30 JUNE 30 MAR. 31 DEC. 31 SEPT. 30 JUNE 30 MAR. 31
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $106,290 $ 99,192 $ 93,542 $ 91,618 $ 88,549 $ 80,224 $ 72,905 $ 67,025
Gross margin 60,882 56,210 53,390 51,187 49,086 45,138 41,873 38,684
(% of net revenues) 57% 57% 57% 56% 55% 56% 57% 58%
Income from operations 5,899 12,845 17,020 16,841 15,500 14,948 14,112 13,158
Net income $ 4,371 $ 7,009 $ 12,576 $ 11,226 $ 10,444 $ 9,690 $ 9,074 $ 8,425
(% of net revenues) 4% 7% 13% 12% 12% 12% 12% 13%
Diluted earnings per share $ 0.08 $ 0.13 $ 0.24 $ 0.21 $ 0.20 $ 0.19 $ 0.18 $ 0.17
Quarterly stock price:
High $ 26.94 $ 26.25 $ 24.63 $ 33.63 $ 32.38 $ 32.75 $ 29.50 $ 26.25
Low $ 18.88 $ 17.88 $ 16.50 $ 18.75 $ 22.38 $ 14.63 $ 22.06 $ 14.88
</TABLE>
Income from operations and net income in Q4 1997 include a $14 million
(approximately $0.17 per diluted share) non-recurring charge for intellectual
property settlement. Income from operations and net income in Q3 1997 include a
$4.9 million (approximately $0.09 per diluted share) non-recurring charge for
purchased in-process technology. Net income in Q2 1997 includes a non-recurring
$2.1 million ($0.02 per diluted share) gain on the sale of appreciated equity
securities. The 1996 quarterly information has been restated to reflect the
acquisitions of Envoy Holdings Limited in Q3 1996, and Prospect Software, Inc.,
in Q4 1996. (See Notes 2 and 15 to the Consolidated Financial Statements.)
<TABLE>
<CAPTION>
1997 QUARTERS ENDED 1996 QUARTERS ENDED
-------------------------------------------- --------------------------------------------
(in thousands, except per
share data) DEC. 31 SEPT. 30 JUNE 30 MAR. 31 DEC. 31 SEPT. 30 JUNE 30 MAR. 31
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income excluding
non-recurring items $ 12,981 $ 11,919 $ 11,303 $ 11,226 $ 10,444 $ 9,690 $ 9,074 $ 8,425
Diluted earnings per
share excluding
non-recurring items $ 0.25 $ 0.23 $ 0.22 $ 0.21 $ 0.20 $ 0.19 $ 0.18 $ 0.17
</TABLE>
F-25
<PAGE> 48
Aspect Telecommunications Corporation Annual Financial Report to Shareholders
CORPORATE INFORMATION
<TABLE>
<CAPTION>
CORPORATE OFFICERS BOARD OF DIRECTORS STOCK LISTING
<S> <C> <C>
James R. Carreker James R. Carreker Aspect Telecommunications Corporation's
Chairman and Chief Executive Officer Chairman and Chief common stock is traded on the Nasdaq
Executive Officer Stock Market under the symbol "ASPT."
Dennis L. Haar Aspect Telecommunications As of December 31, 1997, there were
President and Chief Operating Officer Corporation approximately 790 shareholders of
record of the Company's common stock.
Kirsten K. Berg-Painter Debra J. Engel
Vice President, Interactive Senior Vice President DIVIDEND POLICY
Communication Systems of Corporate Services
3Com Corporation The Company has never paid cash
Robert A. Blatt dividends on its capital stock.
Vice President, Marketing and Norman A. Fogelsong The Company currently anticipates
Business Development General Partner that it will retain all available
Institutional Venture Partners funds for use in its business.
Kathleen M. Cruz
Vice President, Information Technology James L. Patterson ANNUAL MEETING
and Chief Information Officer Chairman of the Board
Clarify Inc. Aspect Telecommunications Corporation's
Linda F. Johnstone annual meeting of shareholders will be
Vice President, Europe, Middle East John W. Peth held at 4:00 p.m. on May 14, 1998, at
and Africa President and Chief the Company's facilities located at 1160
Executive Officer Ridder Park Drive, San Jose, California.
Eric J. Keller Business Resource Group
Vice President, Finance ASPECT CORPORATE HEADQUARTERS
and Chief Financial Officer SECRETARY
Aspect Telecommunications
D. Thompson McCalmont Craig W. Johnson 1730 Fox Drive
Vice President, Enterprise CTI Director, Venture Law Group San Jose, California 95131-2312
Tel: +1 (408) 325-2200
Mark J. Meltzer INDEPENDENT AUDITORS 1 (800) 226-8441
Vice President, General Counsel Fax: +1 (408) 325-2260
Deloitte & Touche LLP www.aspect.com
John D. Meyers San Jose, California
Principal Engineer, Product Technology
and Chief Technical Officer LEGAL COUNSEL
Larry S. Miller Venture Law Group
Vice President, North America Menlo Park, California
R. Dixon (Dirk) Speas, Jr. TRANSFER AGENT
Vice President, Asia-Pacific (C) 1998 Aspect Telecommunications.
and Latin America Boston EquiServe, L.P. Aspect and the Aspect logo are
Boston, Massachusetts trademarks or registered trademarks
David M. Yoffie of Aspect Telecommunications
Vice President, Customer Support INVESTOR RELATIONS Corporation in the United States
and Manufacturing and/or other countries. All other
Additional copies of this product or service names mentioned
Annual Report and other in this document may be trademarks
financial information are of the companies with which they
available without charge are associated.
upon request to:
Investor Relations Department
Aspect Telecommunications
1730 Fox Drive
San Jose, California 95131-2312
Telephone: +1 (408) 325-2629
E-mail: [email protected]
</TABLE>
F-26
<PAGE> 49
[ASPECT LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ASPECT TELECOMMUNICATIONS CORPORATION
1998 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Aspect Telecommunications Corporation, a
California corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and the Proxy Statement, each dated March 26, 1998, and
hereby appoints James R. Carreker, Eric J. Keller and Craig W. Johnson, or any
of them, proxies and attorneys-in-fact, with full power to each of substitution,
on behalf and in the name of the undersigned, to represent the undersigned at
the 1998 Annual Meeting of Shareholders of Aspect Telecommunications Corporation
to be held on May 14, 1998 at 4:00 p.m. at the Company's facilities located at
1160 Ridder Park Drive, San Jose, California, and at any adjournment(s) thereof,
and to vote all shares of Common Stock that the undersigned would be entitled to
vote if then and there personally present, on the matters set forth on the
reverse side.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF ALL LISTED DIRECTORS, FOR THE
APPROVAL OF THE ANNUAL RETAINER COMPENSATION PLAN, FOR THE APPROVAL OF THE 1998
DIRECTORS' STOCK OPTION PLAN, FOR THE AMENDMENT TO THE 1990 EMPLOYEE STOCK
PURCHASE PLAN, FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP
AS INDEPENDENT AUDITORS, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY COME BEFORE THE MEETING.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE> 50
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
1. Election of Directors (Page 2).
Nominees:
James R. Carreker; Debra J. Engel; Norman A. Fogelsong;
James L. Patterson; John W. Peth.
FOR* WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
[ ] [ ]
FOR ALL EXCEPT THE FOLLOWING NOMINEES:
---------------------------------------------------------------
*FOR all nominees listed or, in the discretion of such proxies, for such
other persons as may be nominated if any of such nominees does not or cannot
stand for election (except as indicated).
FOR AGAINST ABSTAIN
2. Approval of the Annual Retainer [ ] [ ] [ ]
Compensation Plan for the Board of
Directors and the reservation of
50,000 shares of the Company's Common
Stock for issuance thereunder
(page 4).
3. Approval of the 1998 Directors' Stock [ ] [ ] [ ]
Option Plan and the reservation of
300,000 shares of the Company's Common
Stock for issuance pursuant to
exercise of stock options granted
under such plan (page 6).
4. Approval of an amendment to the 1990 [ ] [ ] [ ]
Employee Stock Purchase Plan to increase
the number of shares of Common Stock
reserved for issuance thereunder by
1,000,000 shares (page 8).
5. Ratification of Deloitte & Touche LLP [ ] [ ] [ ]
as independent auditors (page 11).
and, in their discretion, upon such other matter or matters which may properly
come before the meeting and any adjournment(s) thereof.
MARK BOX AT RIGHT IF YOU PLAN TO ATTEND THE MEETING [ ]
MARK BOX AT RIGHT IF ADDRESS CHANGE AND NOTE AT LEFT [ ]
(This Proxy should be marked, dated, signed by the shareholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign).
Signature: Date:
---------------------------------- --------------------
Signature: Date:
---------------------------------- --------------------
