<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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:
[_] 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 Section 240.14a-11(c) or Section 240.14a-12
Aspect Communications Corporation
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(Name of Registrant as Specified In Its Charter)
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(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[LOGO OF ASPECT]
March 29, 2000
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
Aspect Communications Corporation, to be held on May 4, 2000. 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 1310 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 card as soon as possible.
Sincerely,
/s/ James R. Carreker
James R. Carreker
Chairman and Chief Executive Officer
<PAGE>
ASPECT COMMUNICATIONS CORPORATION
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Notice of Annual Meeting of Shareholders
May 4, 2000
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Aspect
Communications Corporation (the Company), a California corporation, will be
held on May 4, 2000 at 4:00 p.m., at 1310 Ridder Park Drive, San Jose,
California 95131, for the following purposes:
1. To elect five directors to serve for the ensuing year and until
their successors are elected.
2. To approve an amendment of the Company's Bylaws to increase the
authorized number of directors.
3. 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 2,400,000 shares.
4. To approve the Aspect Incentive Plan.
5. To ratify the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending December 31,
2000.
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 6, 2000, are
entitled to notice of and to vote at the Annual Meeting and any adjournment(s)
thereof.
To assure your representation at the Annual 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 Annual Meeting may vote in person even if such shareholder returned a
proxy card.
/s/ Craig W. Johnson
Craig W. Johnson, Secretary
San Jose, California
March 29, 2000
<PAGE>
ASPECT COMMUNICATIONS CORPORATION
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 4, 2000
AND
ANNUAL FINANCIAL REPORT TO SHAREHOLDERS
-----------------------------
TABLE OF CONTENTS
PROXY STATEMENT
<TABLE>
<CAPTION>
Page
<S> <C>
INFORMATION CONCERNING SOLICITATION AND VOTING........................... 1
PROPOSAL NO. 1 - ELECTION OF DIRECTORS................................... 2
PROPOSAL NO. 2 - APPROVAL OF AMENDMENT TO THE COMPANY'S BYLAWS........... 4
PROPOSAL NO. 3 - APPROVAL OF AMENDMENT TO THE 1990 EMPLOYEE STOCK
PURCHASE PLAN........................................................... 5
PROPOSAL NO. 4 - APPROVAL OF THE ASPECT INCENTIVE PLAN .................. 9
PROPOSAL NO. 5 - RATIFICATION OF THE APPOINTMENT OF INDEPENDENT
AUDITORS................................................................ 10
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT.............. 11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 13
EXECUTIVE COMPENSATION................................................... 14
COMPENSATION COMMITTEE REPORT............................................ 16
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.............. 18
COMPANY STOCK PRICE PERFORMANCE.......................................... 19
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934..... 20
STOCK OPTION PLAN INFORMATION............................................ 20
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS............................ 20
OTHER MATTERS............................................................ 20
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, 1999 and 1998........................................ F-12
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1999, 1998 and 1997 ................... F-13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1999, 1998 and 1997.................... F-14
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997.................... F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................... F-16
INDEPENDENT AUDITORS' REPORT............................................. F-31
SELECTED QUARTERLY FINANCIAL DATA (unaudited)............................ F-32
CORPORATE INFORMATION
</TABLE>
i
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Aspect Communications Corporation Proxy Statement
ASPECT COMMUNICATIONS CORPORATION
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of Aspect
Communications Corporation (Aspect or the Company) for use at the Annual
Meeting of Shareholders (Annual Meeting) to be held May 4, 2000, 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 1310 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 29, 2000, to
all shareholders entitled to vote at the Annual Meeting. The cost of
soliciting these proxies will be paid by the Company. The Company has retained
the services of Georgeson and Company (Georgeson) to solicit proxies and
distribute materials to brokerage houses, banks, custodians, and other
institutional owners. The Company will pay Georgeson a fee of approximately
$7,500 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 1310 Ridder Park Drive, San Jose, California 95131 (Attention: Kevin
T. Parker, Senior Vice President, Finance and Chief Financial Officer), a
written notice of revocation or a duly executed proxy card bearing a later
date, or by attending the Annual 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
may not be cast for more than five candidates. However, no shareholder shall
be entitled to cumulate votes for a candidate 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 Annual 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 6, 2000, are
entitled to notice of and to vote at the Annual Meeting. At the record date,
50,979,500 shares of the Company's common stock, with a par value of $.01 per
share, were issued and outstanding.
The required vote for approval of each proposal submitted at the Annual
Meeting is indicated in the section entitled "Required Vote" for each item.
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. The required quorum is a majority of the shares
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Aspect Communications Corporation Proxy Statement
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.
Any proxy which is returned using the proxy card enclosed and which is not
marked as to the particular item will be voted for the election of directors,
for the amendment to the Company's Bylaws, for the amendment to the 1990
Employee Stock Purchase Plan, for the approval of the Aspect Incentive 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, 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 29, 2000 are set forth below:
<TABLE>
<CAPTION>
Director
Name of Nominee Age Principal Occupation Since
--------------- --- -------------------- --------
<C> <C> <S> <C>
James R. Carreker....... 53 Chairman and Chief Executive Officer 1985
Debra J. Engel.......... 47 Investor and Advisor 1996
Norman A. Fogelsong..... 48 General Partner with Institutional 1985
Venture Partners
Christopher B. Paisley.. 47 Senior Vice President, Finance and N/A
Chief Financial Officer of 3Com
Corporation
John W. Peth............ 51 President and Chief Executive Officer 1992
of 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. Mr.
Carreker also held the title of President from August 1985 through October
1995 and from January 1999 through July 1999. He has served as Chairman of the
Company's Board of Directors since October 1995.
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Aspect Communications Corporation Proxy Statement
Ms. Engel has been a director of the Company since May 1996. Until August
1998, Ms. Engel served as Senior Vice President of Corporate Services of 3Com
Corporation, a data networking products and services company. Prior to joining
3Com in November 1983, as Vice President, Human Resources, Ms. Engel 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 General Partner 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 Concur
Technologies, Inc., as well as several privately owned technology companies.
Mr. Paisley is Senior Vice President, Finance and Chief Financial Officer of
3Com Corporation, a data networking products and services company. Prior to
joining 3Com in September 1985 as Vice President, Finance and Chief Financial
Officer, Mr. Paisley was Vice President, Finance of Ridge Computers, a
minicomputer manufacturer, from May 1982 to September 1985. Mr. Paisley also
serves as a director for several privately owned 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 as a director on the board of Business Resource Group since June
1995. From April 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. He served on the Board of Directors of TAB from
April 1991 through January 1997. From December 1989 to April 1991, Mr. Peth
served as the Office Managing Partner, San Jose Region, for Deloitte & Touche
LLP, a public accounting firm.
Board Meetings and Committees
The Board of Directors held a total of fourteen meetings during the year ended
December 31, 1999. 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 (the Audit Committee) currently
consists of Mr. Fogelsong and Mr. Peth, and held seven meetings during the
last fiscal year. Following the Annual Meeting, it is expected that the Audit
Committee will be composed of Mr. Fogelsong, Mr. Paisley and Mr. Peth. 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 (the Compensation
Committee) currently consists of Ms. Engel and Mr. Fogelsong. The Compensation
Committee held six meetings during the last fiscal year. The Compensation
Committee determines policy on executive compensation, administers the
Company's stock and option plans, and from time to time makes recommendations
to the Board of Directors concerning changes to such 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.
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.
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Aspect Communications Corporation Proxy Statement
2. Each receives payments under the Annual Retainer Compensation Plan for the
Board of Directors. This plan allows eligible nonemployee directors to
elect to receive compensation in either cash or stock initially valued at
$24,000 per year. Each director who elects to receive compensation in
stock, also receives a cash payment in the amount of $1,200 per quarter
designed to induce the director to accept payment in stock and to help
offset the tax liability associated with the stock grant.
3. Nonemployee directors who are newly appointed to the Board of Directors
receive options to purchase 24,000 shares of common stock upon election to
the Company's Board of Directors. All nonemployee directors are granted
options to purchase 6,000 shares of common stock annually under the 1998
Directors' Stock Option Plan as long as they meet the eligibility
requirements of the plan.
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 AMENDMENT TO THE COMPANY'S BYLAWS
At the Annual Meeting, the Company's shareholders are being asked to amend the
Company's Bylaws to increase the authorized number of directors.
General
Section 3.2 of Article III of the Company's Bylaws currently provides that the
authorized number of directors shall be a minimum of four (4) and a maximum of
seven (7), with the exact number of directors to be fixed from time to time
within such range by the Board of Directors or the shareholders. The Board of
Directors has adopted, subject to shareholder approval, an amendment to the
Bylaws that would increase the specified limits of the authorized number of
directors to a minimum of five (5) and a maximum of nine (9). The Board of
Directors believes that this proposed Bylaw amendment will enable the Company
to take timely advantage of the availability of well-qualified candidates for
appointment to the Board of Directors, particularly candidates from outside
the Company whose skills and experience will benefit the Company and its
shareholders.
Amendment to Bylaws
If approved, the first two sentences of Section 3.2 of Article III of the
Bylaws would be amended to read as follows:
"Section 3.2. NUMBER OF DIRECTORS. The number of directors of the
corporation shall be not less than five (5) nor more than nine (9). The
exact number of directors shall be five (5) until changed, within the
limits specified above, by a Bylaw amending this Section 3.2, duly adopted
by the Board of Directors or by the shareholders."
Required Vote
The affirmative vote of a majority of the outstanding shares of the Company
entitled to vote is required for approval of the proposed amendment to the
Bylaws at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE APPROVAL OF THE AMENDMENT TO
---
THE COMPANY'S BYLAWS.
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Aspect Communications Corporation Proxy Statement
PROPOSAL NO. 3 - 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
2,400,000 shares of common stock for issuance thereunder.
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 Purchase Plan by 800,000 shares in May 1992, by 500,000
shares in May 1996, by 1,000,000 in May 1998 and by 500,000 in April 1999,
bringing the total reserved shares to 3,600,000 as of February 29, 2000. On
March 17, 2000, 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 2,400,000 shares, for a total of 6,000,000
reserved shares.
As of February 29, 2000, 3,186,650 shares of common stock had been purchased
pursuant to the Purchase Plan and 413,350 shares remained available for
purchase (not including the additional 2,400,000 shares reserved by the Board
of Directors, for which shareholder approval is being requested).
The Purchase Plan has two six-month offering periods each year commencing on
February 16 and August 16, or at such time or times as may be determined by
the Board of Directors. 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. During an offering period, an eligible
employee may make payroll deductions for the purpose of exercising an option
that is granted on the first day of the offering period. The Purchase Plan was
implemented by the Company effective January 1, 1991. The Purchase Plan is
intended to qualify under Section 423 of the Internal Revenue Code of 1986
(the Code).
Summary of the 1990 Employee Stock Purchase Plan
The following is a summary of the principal features of the Purchase Plan, as
amended. 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 Kevin T. Parker, Senior Vice President, Finance and Chief Financial
Officer, at the Company's principal offices at 1310 Ridder Park Drive, San
Jose, California 95131.
Purpose
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.
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 (including officers and employee directors) who are employed with
the Company (including subsidiaries of the Company approved by the Board of
Directors) as of the first business day of each offering
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Aspect Communications Corporation Proxy Statement
period of the Purchase Plan (the Enrollment Date) are eligible to participate
in the Purchase Plan. For eligibility purposes, "employee" shall mean any
individual whose customary employment with the Company or any designated
subsidiary is at least twenty hours per week and more than five months in any
calendar year. Purchase Plan participants 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. No employee shall be granted an option under
the Purchase Plan if (i) 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) if such option would
permit such employee to purchase stock under all employee stock purchase plans
of the Company and its subsidiaries which exceeds $25,000 worth of stock for
each calendar year in which such option is outstanding at any time. A total of
approximately 2,136 employees were eligible to participate in the Purchase
Plan on December 31, 1999.
Eligible employees become participants in the Purchase Plan by filing with the
Company a subscription agreement authorizing payroll deductions prior to the
applicable Enrollment Date, unless a late time for filing the subscription
agreement has been set by the Board of Directors. Payroll deductions commence
on the first payroll following the Enrollment Date and end on the last payroll
paid on or prior to the last day (the Exercise Date) of the offering period to
which the subscription agreement is applicable, unless sooner terminated by
the participant.
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
eligible 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.
The plan administrator has the discretion under the Purchase Plan to determine
the maximum number of shares that a participant shall be permitted to purchase
in any six-month offering period. The current maximum number of shares an
employee may purchase is 250 shares (as adjusted for stock splits,
recapitalizations and the like) of common stock under the Purchase Plan in any
six-month offering period. The administrator, under the terms of the Purchase
Plan, may from time to time change this limit. In addition, such purchases
shall be subject to the other limitations set forth in the Purchase Plan. 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.
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 below. During his or her
lifetime, a participant's option to purchase shares under the Purchase Plan is
exercisable only by the participant.
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 sale price of the common stock for such date, as
reported on the Nasdaq National Market (or in the event that the common stock
is not traded on such date, on the last preceding trading date for which such
quotation exists).
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Aspect Communications Corporation Proxy Statement
Payroll Deductions
Money to purchase shares under the Purchase Plan is accumulated by payroll
deductions over the offering period. The deduction may not be less than 1% or
more than 10% of a participant's eligible 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 decreases during any offering period. A
participant's payroll deduction may be decreased to 0% if the aggregate of his
or her payroll deductions for a calendar year would result in the participant
purchasing shares in excess of any of the limitations set forth in the
Purchase Plan.
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, or in the event
an employee terminates his or her employment with the Company for any reason,
including retirement or death (except under the circumstance described below)
during the applicable offering period, 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.
In the event of a participant's death within three months of an exercise date,
the participant's option will survive and be exercised on the scheduled
exercise date for the offering period.
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, the number of shares subject to options under
the Purchase Plan and in the maximum number of shares that can be purchased by
a participant during an offering period provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration."
In the event of a proposed dissolution or liquidation of the Company, the
offering period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board of Directors. In the
event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, each
option under the Purchase Plan shall be assumed or an equivalent substitute
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation, unless the Board of Directors elects
to shorten the offering period then in progress by setting a new exercise date
and notifying the optionees of the change in their exercise date.
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 previously 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 and its shareholders or if continuation of the
Purchase Plan and/or offering period would cause the Company to incur adverse
accounting treatment as a result of a change in the generally accepted
accounting principles. 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 Securities Exchange Act
of 1934, Section 423 of the Code, and/or any other applicable law or
regulation. The Purchase Plan will expire in March 2010, unless sooner
terminated by the Board of Directors.
7
<PAGE>
Aspect Communications Corporation Proxy Statement
The Board of Directors may at any time, except during an offering period in
progress, without shareholder consent and without regard to whether any
participant rights may be adversely affected, establish limitations or
procedures as the Board of Directors determines advisable, provided, however,
that such limitations or procedures are consistent with the Purchase Plan.
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
and the disposition of stock acquired upon such exercises under the Purchase
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 employees 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
Purchase Plan.
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 of the shares. If a participant disposes of his or her shares
of common stock within two years from the first day of an offering period or
within one year from the exercise date, a transaction referred to as a
"disqualifying disposition," the participant will realize ordinary income in
the year of such disposition equal to the amount by which the fair market
value of the stock on the exercise date exceeds the purchase price. In such
instances, the amount of such ordinary income will be added to the
participant's basis in the shares, and any additional gain or resulting loss
recognized on the disposition of the shares after such basis adjustment will
be a capital gain or loss. A capital gain or loss will be long-term if the
participant holds the shares of common stock for more than one year after the
exercise date.
If the participant disposes of his or her shares of common stock more than two
years after the first day of an offering period and more than one year after
the exercise date, a transaction referred to as a "qualifying disposition,"
then the participant will realize ordinary income in the year of such
disposition equal to the lesser of (i) the excess of the fair market value of
the shares on the date of disposition over the purchase price or (ii) 15% of
the fair market value of the shares on the first day of the offering period.
The amount of such ordinary income will be added to the participant's basis in
the shares, and any additional gain recognized on the disposition of the
shares after such basis adjustment will be long-term capital gain. If the fair
market value of the shares on the date of disposition is less than the
purchase price, there will be no ordinary income and any loss recognized will
be a capital loss.
The Company will be entitled to a deduction in the year of a disqualifying
disposition equal to the amount of ordinary income recognized by the
participant as a result of such disposition. In all other cases, no deduction
is allowed the Company.
Required Vote
The amendment to the Purchase Plan to increase the number of shares of common
stock reserved for issuance thereunder by 2,400,000 shares requires the
affirmative vote of the holders of a majority of the shares of the Company's
common stock who are present at the Annual Meeting in person or by proxy and
entitled to vote at the Annual 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 2,400,000 SHARES.
8
<PAGE>
Aspect Communications Corporation Proxy Statement
PROPOSAL NO. 4 - APPROVAL OF THE ASPECT INCENTIVE PLAN
At the Annual Meeting, the Company's shareholders are being asked to approve
the Aspect Incentive Plan (the Incentive Plan).
General
The Incentive Plan was adopted by the Board of Directors in March 2000 and is
intended to qualify under Section 162(m) of the Code.
Summary of the Aspect Incentive Plan
The following is a summary of the principal features of the Incentive Plan.
The summary, however, does not purport to be a complete description of all the
provisions of the Incentive Plan. Any shareholder of the Company who wishes to
obtain a copy of the actual Incentive Plan document may do so upon written
request to Kevin T. Parker, Senior Vice President, Finance and Chief Financial
Officer, at the Company's principal offices at 1310 Ridder Park Drive, San
Jose, California 95131.
The Incentive Plan is a formula-driven, performance-based incentive plan that
is reviewed and approved by the Compensation Committee prior to the start of
each fiscal year. The Company established the Incentive Plan beginning in
January 2000 for all non-sales employees to create one Company-wide incentive
plan to:
. Provide a common framework for managing and rewarding performance across
the organization,
. Clearly establish and communicate the goals and objectives for the
Company and each participating employee,
. Motivate and reward performance supporting Aspect's critical business
goals,
. Link rewards with individual performance, and
. Provide upside compensation opportunity along with downside risk.
The funding for the Incentive Plan is determined by the Company's performance
against a set of performance goals and measurements as determined by the
Compensation Committee. Currently these goals and measurements include revenue
growth and operating profit margins excluding the amortization of intangible
assets. The Compensation Committee may also include other metrics as deemed
appropriate, including, but not limited to, total shareholder return, stock
price, value-added measures, asset turnover, return on investment, earnings
per share, customer satisfaction, internal operational criteria and management
objectives.
Achievements of the goals are substantially uncertain at the time the goals
are established and the Compensation Committee certifies the attainment of the
goals before any payment is made. The formula specifies the maximum annual
payout for any one employee and precludes the Compensation Committee from
increasing any amount once determined by the performance against the Company
and personal performance measurements.
The Incentive Plan was also designed to meet the exclusion requirements of
Section 162 (m) of the Code as described below. The 1993 Omnibus Budget
Reconciliation Act (OBRA) established a $1,000,000 ceiling for deductions 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 cash compensation figures for the five most
highly compensated executive officers identified in the Company's Proxy
Statement approached the limitation in 1999, there has been no requirement on
the part of the Company to use any of the available exemptions from the
deduction limit.
9
<PAGE>
Aspect Communications Corporation Proxy Statement
However, cash compensation levels for the highest paid executives are
beginning to approach the threshold of this limitation. The Compensation
Committee wants to take steps to ensure that performance-related compensation
continues to be deductible by the Company.
Required Vote
Adoption of the Incentive Plan requires the affirmative vote of the holders of
a majority of the shares of the Company's common stock who are present at the
Annual Meeting in person or by proxy and entitled to vote at the Annual
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE ASPECT INCENTIVE
---
PLAN.
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, 2000, 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 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.
Required Vote
The ratification of the appointment of Deloitte & Touche LLP requires the
affirmative vote of a majority of the shares represented and voting at the
Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
---
APPOINTMENT OF DELOITTE & TOUCHE LLP.
10
<PAGE>
Aspect Communications Corporation Proxy Statement
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 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 and nominee for
director, (iii) each of the Company's Named Executive Officers (as defined
hereafter) and (iv) all directors and executive officers as a group. The
information set forth below is as of February 29, 2000.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned (1)
-----------------
5% Shareholders, Directors, Nominee for Director, Named
Executive
Officers, and Directors and Executive Officers as a Group Number Percent
- --------------------------------------------------------- --------- -------
<S> <C> <C>
Entities affiliated with FMR Corporation (2)................ 6,322,500 12.4%
82 Devonshire Street
Boston, MA 02109
James R. Carreker (3)....................................... 1,711,641 3.3%
Debra J. Engel (4).......................................... 32,140 *
Norman A. Fogelsong (5)..................................... 1,413,500 2.8%
Christopher B. Paisley...................................... -- --
John W. Peth (6)............................................ 52,140 *
Deborah E. Barber (7)....................................... 12,439 *
David D. Hare............................................... 1,250 *
Beatriz V. Infante (8)...................................... 78,332 *
Barry Wright................................................ 250 *
Eric J. Keller (9).......................................... 3,226 *
All directors and executive officers as a group (12 persons)
(10)....................................................... 3,301,942 6.4%
</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 5,976,520 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 232,500 shares of common stock
owned by Fidelity Management Trust Company. Edward C. Johnson III and FMR
Corp. each have sole power to dispose of these shares, sole power to vote
130,200 shares and no power to vote 102,300 shares. Also includes 113,480
shares of common stock owned by Fidelity International Limited (FIL). FIL
has sole power to dispose of and to vote these 113,480 shares. This
information was determined as of February 29, 2000, from Schedule 13G
dated March 10, 2000, as filed by FMR Corp. with the Securities and
Exchange Commission.
(3) Includes 1,055,140 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 625,101 shares issuable pursuant to options that are
exercisable by Mr. Carreker within 60 days of February 29, 2000.
(4) Includes 19,500 shares issuable pursuant to options that are exercisable
by Ms. Engel within 60 days of February 29, 2000.
(5) Includes 1,006,000 shares held by the Fogelsong Family Trust. Also
includes 400,000 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
11
<PAGE>
Aspect Communications Corporation Proxy Statement
includes 7,500 shares issuable pursuant to options that are exercisable by
Mr. Fogelsong within 60 days of February 29, 2000.
(6) Includes 7,500 shares issuable pursuant to options that are exercisable by
Mr. Peth within 60 days of February 29, 2000.
(7) Includes 10,512 shares issuable pursuant to options that are exercisable
by Ms. Barber within 60 days of February 29, 2000.
(8) Includes 70,832 shares issuable pursuant to options that are exercisable
by Ms. Infante within 60 days of February 29, 2000.
(9) As of June 30, 1999, Mr. Keller transitioned from an executive officer to
a non-executive officer. Mr. Keller provided certain advisory services
until February 15, 2000.
(10) Includes 740,945 shares issuable pursuant to options that are exercisable
by all directors and executive officers within 60 days of February 29,
2000. The number of persons shown includes Mr. Paisley.
12
<PAGE>
Aspect Communications Corporation Proxy Statement
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 2000, the Company offered all executive officers new employment
agreements. Pursuant to the terms of the agreements, if an individual officer
is involuntarily terminated other than for cause or is constructively
terminated within 12 months following a change of control of the Company, the
officer is entitled to certain severance benefits, including acceleration of
vesting and continuation of salary and other benefits for up to twenty-four
months.
Additionally, for the Co-Presidents, each of their employment agreements
provide for additional severance benefits in the event of specified structural
changes which include the creation of an additional level of management
between the Co-President and the Chairman or certain conditions regarding the
succession of the existing Chief Executive Officer, followed shortly
thereafter by a subsequent reduction of their individual duties,
responsibilities or compensation. The Co-President shall be entitled to
receive a lump sum severance payment equal to 150% of the Co-President's then
current annual base salary. In addition, the Co-President is entitled to
certain other benefits for up to eighteen months.
In August 1999, in connection with his commencement of employment, the Company
loaned Co-President Barry Wright $809,890 pursuant to a full recourse
promissory note which bears interest at 6% per annum, compounded annually. The
note is due and payable in five years, but may become due earlier under
certain conditions. No amounts have been paid on the note to date.
Also in connection with Mr. Wright's commencement of employment, the Company
entered into a five-year cash bonus agreement wherein Mr. Wright will receive
various amounts ranging from $38,000 to $349,000 in annual payments, totaling
$766,000. This bonus agreement is subject to Mr. Wright's continued
employment.
In addition, if Mr. Wright's employment is terminated involuntarily before
June 1, 2004, other than for cause, or his employment is terminated by him
following a constructive termination, he shall be entitled to receive a cash
severance payment ranging from $663,000 to $166,000, dependent upon the date
of termination.
During 1999, the Company entered into severance agreements with former
executive officers Eric J. Keller, Kathleen M. Cruz, Robert A. Blatt and
Dennis L. Haar. As they continued to provide certain advisory services as
employees of the Company, they received monthly base pay and benefits through
their termination dates.
13
<PAGE>
Aspect Communications Corporation Proxy Statement
EXECUTIVE COMPENSATION
The following table presents compensation paid by the Company for services
rendered during fiscal years 1999, 1998 and 1997 for (i) the Chief Executive
Officer (CEO), (ii) the four most highly compensated executive officers (other
than the CEO) serving at the end of the last fiscal year whose salary plus
bonus exceeded $100,000 in fiscal 1999 and (iii) one former executive officer
who would have been included in the category described in subsection (ii) had
he still been an executive officer of the Company at the end of fiscal 1999
(the group of six individuals collectively referred to hereinafter as the
"Named Executive Officers"). The information set forth below is for fiscal
years ended December 31.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- ------------
Securities
Name and Principal Underlying All Other
Position Year Salary Bonus Options Compensation (1)
- ------------------ ---- -------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
James R. Carreker......... 1999 $304,512 $258,641 100,000 $4,800
Chairman and Chief
Executive Officer 1998 $299,363 $119,475 50,000 $4,800
1997 $276,884 $197,858 75,000 $4,750
Beatriz V. Infante (2).... 1999 $354,550 $296,771 150,000 $4,800
Co-President 1998 $ 69,027 $ 40,833 100,000 --
1997 -- -- -- --
Barry Wright (3).......... 1999 $177,465 $379,259 150,000 $1,521
Co-President 1998 -- -- -- --
1997 -- -- -- --
Deborah E. Barber (4)..... 1999 $237,266 $107,019 100,000 --
Senior Vice President,
Human Resources and 1998 $153,918 $ 26,871 40,000 --
Corporate Services 1997 -- -- -- --
David D. Hare (5)......... 1999 $137,692 $130,832 75,000 --
Senior Vice President,
Customer Services 1998 -- -- -- --
1997 -- -- -- --
Eric J. Keller (6)........ 1999 $298,160 $ 23,155 60,000 $4,800
Former Senior Vice
President, Finance and 1998 $252,062 $ 96,960 40,000 $4,800
Chief Financial Officer 1997 $236,992 $ 70,206 25,000 $4,750
</TABLE>
- --------
(1) The amounts in this column consist of matching contributions made by the
Company to individual 401(k) savings accounts.
(2) Ms. Infante joined the Company on October 5, 1998. The amounts included in
1998 reflect retroactive pay adjustments effected in 1999.
(3) Mr. Wright joined the Company on June 1, 1999.
(4) Ms. Barber joined the Company on April 13, 1998.
(5) Mr. Hare joined the Company on June 6, 1999.
(6) As of June 30, 1999, Mr. Keller transitioned from an executive officer to
a non-executive officer. Mr. Keller provided certain advisory services
until February 15, 2000.
14
<PAGE>
Aspect Communications Corporation Proxy Statement
The Company's 1999 Equity Incentive Plan provides for the grant of options to
executive officers of the Company. Options granted to Named Executive Officers
under this plan were incentive stock options to the extent allowable under
Section 422 of the Internal Revenue Code and were otherwise nonstatutory 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 1999 to the Named Executive Officers.
Option Grants in 1999
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock
Appreciation for
Individual Grants Option Term (3)
---------------------------------------------- -------------------
% of Total
Number of Options
Securities Granted to
Underlying Employees Exercise or
Options in Fiscal Base Price Expiration
Name Granted (1) Year (2) Per Share Date 5% 10%
- ---- ----------- ---------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
James R. Carreker....... 100,000(4) 1.9% $ 8.63 2/05/2009 $542,985 $1,376,356
Beatriz V. Infante...... 25,000 0.5% $ 8.25 1/25/2009 $129,710 $ 328,709
50,000(4) 0.9% $ 8.63 2/05/2009 $271,493 $ 688,178
75,000 1.4% $ 8.81 6/04/2009 $415,660 $1,053,364
Barry Wright............ 150,000 2.83% $ 8.63 6/01/2009 $813,632 $2,061,904
Deborah E. Barber....... 15,000 0.3% $ 8.25 1/25/2009 $ 77,826 $ 197,226
25,000(4) 0.5% $ 8.63 2/05/2009 $135,605 $ 343,651
60,000 1.1% $ 8.81 6/04/2009 $332,528 $ 842,691
David D. Hare........... 50,000 0.9% $ 9.25 6/07/2009 $290,864 $ 737,106
25,000(5) 0.5% $13.94 9/10/2009 $219,130 $ 555,320
Eric J. Keller.......... 25,000 0.5% $ 8.25 1/25/2009 $129,710 $ 328,709
35,000(4) 0.7% $ 8.63 2/05/2009 $190,045 $ 481,725
</TABLE>
- --------
(1) Except as otherwise footnoted, options become exercisable at the rate of
25% on the first anniversary of the grant date, and 2.0833% each month
thereafter.
(2) The Company granted options representing 5,310,584 shares to employees in
1999.
(3) 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.
(4) Options become exercisable at the rate of 50% on the first anniversary of
the grant date, and 2.0833% each month thereafter.
(5) Options become 100% exercisable on the first anniversary of the grant
date.
15
<PAGE>
Aspect Communications Corporation Proxy Statement
The following table presents information on stock options exercised during
1999 and the value of all stock options held on December 31, 1999, for the
Named Executive Officers.
Aggregated Option Exercises in 1999 and
December 31, 1999 Option Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
December 31, 1999 at December 31, 1999 (2)
------------------------- -------------------------
Shares Value
Acquired Realized
Name on Exercise (1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James R. Carreker....... 100,000 $ 775,000 555,518 169,482 $15,697,520 $4,176,222
Beatriz V. Infante...... -- -- 29,166 220,834 $ 647,121 $6,141,942
Barry Wright............ -- -- -- 150,000 -- $4,575,000
Deborah E. Barber....... -- -- 16,667 123,333 $ 211,463 $3,340,412
David D. Hare........... -- -- -- 75,000 -- $2,123,437
Eric J. Keller.......... 107,811 $1,219,161 19,374 97,815 $ 381,771 $2,407,236
</TABLE>
- --------
(1) The amount shown represents the difference between the fair market value
of the shares on the date of exercise and the exercise price of the
option.
(2) Based on the closing sale price of the Company's common stock as reported
on the Nasdaq National Market on December 31, 1999, $39.125 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 or the Securities Exchange
Act of 1934 that might incorporate future filings, including this Proxy
Statement, in whole or in part, the following Compensation Committee report
and the Company stock price performance graph shall not be incorporated by
reference into any such filings.
COMPENSATION COMMITTEE REPORT
The Company's compensation for executive officers is determined by the
Compensation Committee. The Compensation Committee is composed of two
nonemployee directors intended to qualify as "outside directors" under Section
162(m) of the Code and employs independent authorities on executive
compensation to assist them in determining appropriate executive pay. The
Compensation Committee meets on a scheduled basis to evaluate the
effectiveness of the program strategy as well as current and proposed fiscal
year Company performance and executive pay. Additionally, the Compensation
Committee is routinely consulted to approve the compensation package of a
newly hired executive or of an executive whose scope of responsibility has
significantly changed. During 1999, the Compensation Committee met on six
occasions.
The objective of the Company's executive compensation program is to align
executive compensation with the Company's long- and short-term business
objectives and performance. In the high technology marketplace where the
Company competes for executive talent, it is imperative that executive
compensation enables the Company to attract, retain and motivate qualified
executives able to contribute to the long-term business success of the
Company. The following specific strategies are used to guide the Company's
executive compensation decisions:
. Key Stakeholder Alignment. Executive compensation is designed to align
management's interests with shareholders' interests and the creation of
shareholder value.
. Risk and Reward. A significant portion of an executive's compensation is
tied to his or her performance and contributions to the success of the
Company.
16
<PAGE>
Aspect Communications Corporation Proxy Statement
. Pay for Performance. The achievement of higher levels of performance is
rewarded by higher levels of compensation. Similarly, performance below
minimum expectations may result in low or no variable compensation to the
executives.
. Compensate Competitively. The Company regularly compares its compensation
programs to those of other companies of comparable size within similar
industries to place target pay substantially at market.
The Compensation Committee meets with the CEO and the Senior Vice President,
Human Resources and Corporate Services to consider potential long-term
executive compensation and to propose specific compensation plans for the next
fiscal year. They evaluate current executive compensation from independent
market surveys supplied by independent human resource consultants, and
evaluate the performance of individual executives. The Compensation Committee
also independently reviews the individual performance of the CEO based upon
the data and the Compensation Committee's evaluation of the CEO's performance
and expected future contributions in leading the Company.
During 1999, the Company's executive compensation program included these key
elements:
. Base Salary. The Company established the base salaries of its executive
officers based on competitive market practices derived from comparisons
with companies of similar size in similar industries. The approach is to
target base salary levels around the 50th percentile of such data. Actual
pay decisions are based on performance, responsibility, future potential
and experience of the individual executive. The Compensation Committee
exercised its judgment based on all the factors described. No specific
formula was applied to determine the value of each criterion, and, once
established, base salary does not vary with the Company's performance.
. Cash-Based Incentives. During 1999, Company executive officers
participated in a cash incentive program under which payment was
contingent upon the achievement of specific Company-wide goals such as
operating profit and revenue performance. Cash-based incentives are
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.
. Equity-Based Incentives. Each year, the Compensation Committee considers
the grant to executives of stock options. The Compensation 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. Options are granted at
exercise prices equal to the stock's fair market value at the time of
grant and, typically, have four-year vesting periods to encourage
retention. The number of stock options that are granted to individual
executives is based on demonstrated sustained performance and independent
survey data reflecting competitive stock option practices.
CEO Compensation
The CEO's base salary for 1999 was based on competitive market rates and the
Compensation Committee's review of his past performance. During 1999, the
CEO's base salary was $304,512. Effective January 2000, the Compensation
Committee increased the CEO's base salary to $400,000 to be competitive with
salaries being paid to the CEO's of comparably sized companies engaged in
similar industries. The Compensation Committee determined that the CEO earned
$258,641 as a cash-based incentive for fiscal 1999.
17
<PAGE>
Aspect Communications Corporation Proxy Statement
Executive Compensation
As described in Proposal No. 4, the Compensation Committee has approved,
subject to shareholder approval, the adoption of the Aspect Incentive Plan. The
Compensation Committee will continue to monitor the issue of deductibility of
compensation payments.
COMPENSATION COMMITTEE
Debra J. Engel
Norman A. Fogelsong
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, the Compensation Committee consisted of directors Engel and
Fogelsong. 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 1999 requiring disclosure under Item
402(j) of Regulation S-K of the Securities and Exchange Commission.
18
<PAGE>
Aspect Communications 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 1994
Aspect Communications Corporation, the S&P 500 Index and
the S&P High Technology Composite Index.
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Aspect Communications
Corporation............ 100 200 379 249 206 467
S&P High Technology
Composite Index........ 100 144 204 258 446 781
S&P 500 Index........... 100 138 169 226 290 351
</TABLE>
- --------
* Assumes that the value of the investment in Aspect Communications
Corporation common stock and each index was $100 on December 31, 1994, and
that all dividends were reinvested.
19
<PAGE>
Aspect Communications Corporation Proxy Statement
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, 1999, all
Section 16(a) filing requirements applicable to its officers, directors, and
greater than ten percent beneficial owners were satisfied.
STOCK OPTION PLAN INFORMATION
The Company maintains three stock option plans: the 1999 Equity Incentive Plan
(1999 Plan), the 1996 Employee Stock Option Plan (1996 Plan) and the 1998
Directors' Stock Option Plan (Directors' Plan). Executive officers are only
eligible to receive grants under the 1999 Plan. Options granted under the 1999
Plan are usually granted as incentive stock options to the extent allowable
under Section 422 of the Internal Revenue Code, with the remaining options
being nonstatutory stock options, while all options granted under the 1996
Plan and the Directors' Plan are nonstatutory stock options. In addition, the
Company assumed stock option plans and options granted thereunder in
connection with its acquisitions of Commerce Soft, Inc., Voicetek Corporation
and PakNetX Corporation. No further grants have been made under the assumed
plans since their assumption.
The terms of the 1999 Plan and the 1996 Plan state that options must be
granted at a price not less than 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 seven to ten years after the grant date, whichever is sooner. The
maximum number of shares that may be granted to any individual during a fiscal
year, under the 1999 Plan or the 1996 Plan, is 500,000 shares, subject to
adjustment for stock splits.
In September and December 1999 the Board of Directors authorized a 1,100,000
and 1,500,000 share increase to the shares available under the 1996 Plan,
respectively. As of February 29, 2000, 1,500,000, 7,050,000 and 300,000 shares
were reserved for issuance and 580,000, 657,680 and 258,000 were available for
grant under the 1999 Plan, the 1996 Plan and the Directors' 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 2001 Annual Meeting of Shareholders must be
received by the Company no later than November 27, 2000, 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 proxy card to vote the shares
they represent as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
ASPECT COMMUNICATIONS CORPORATION
March 29, 2000
20
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
ASPECT COMMUNICATIONS CORPORATION
ANNUAL FINANCIAL REPORT TO SHAREHOLDERS
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(in thousands, except per share and employee
data)
-----------------------------------------------------
YEARS ENDED DECEMBER 1999 1998 1997 1996 1995
31,(a) --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues $ 489,112 $ 512,316 $ 390,642 $ 308,703 $ 198,972
Gross margin 245,943 284,132 221,669 174,781 111,596
(% of net revenues) 50% 55% 57% 57% 56%
Research and development 86,890 67,877 45,723 34,585 23,450
(% of net revenues) 18% 13% 12% 11% 12%
Selling, general and
administrative 199,050 150,118 104,431 82,478 50,726
(% of net revenues) 41% 29% 27% 27% 25%
Income (loss) from
operations (39,997) 56,238 52,605 57,718 35,620
(% of net revenues) -8% 11% 13% 19% 18%
Net income (loss) $ (28,851) $ 32,490 $ 35,182 $ 37,633 $ 23,991
(% of net revenues) -6% 6% 9% 12% 12%
Earnings (loss) per
share:
Basic $ (0.60) $ 0.64 $ 0.71 $ 0.86 $ 0.58
Diluted $ (0.60) $ 0.61 $ 0.67 $ 0.75 $ 0.52
Diluted excluding
amortization of
intangibles and non-
recurring items $ (0.29) $ 1.01 $ 1.05 $ 0.77 $ 0.53
AS OF DECEMBER 31,
Cash, cash equivalents,
short-term investments,
and marketable equity
securities $ 338,805 $ 196,111 $ 146,216 $ 115,797 $ 93,633
Working capital 313,262 258,177 169,814 140,079 108,588
Total assets 636,212 560,659 370,343 263,093 215,871
Long-term debt (b) 163,107 153,744 6,531 4,500 59,500
Shareholders' equity (b) $ 331,199 $ 298,157 $ 267,795 $ 219,448 $ 112,285
Shares outstanding (b) 49,462 49,309 49,997 48,807 41,753
Capital spending $ 33,292 $ 28,884 $ 24,922 $ 33,210 $ 16,627
Regular full-time
employees 2,360 2,280 1,610 1,330 950
</TABLE>
- --------
(a) In May 1998, Aspect acquired Voicetek Corporation. The transaction was
accounted for as a purchase, and a charge of $10 million, or $0.19 per
share on a diluted basis, was recorded for purchased in-process
technology. In February 1998, Aspect entered into a litigation settlement
and patent cross-license agreement with Lucent Technologies Inc. The
transaction resulted in a charge in fiscal 1997 of $14 million, or $0.17
per share on a diluted basis.
In September 1997, Aspect acquired Commerce Soft Inc. The transaction was
accounted for as a purchase, and a charge of $5 million, or $0.09 per
share on a diluted basis, was recorded for purchased in-process
technology. During 1997, Aspect recorded a gain on the sale of
appreciated equity securities of $2 million, or $0.02 per share on a
diluted basis.
During 1996, Aspect acquired Envoy Holdings Limited and Prospect
Software, Inc. The transactions were accounted for as pooling of
interests. In October 1995, Aspect acquired TCS Management Group, Inc.
The transaction was accounted for as a purchase, and a charge of $2
million, or $0.02 per share on a diluted basis, was recorded for
purchased in-process technology.
Diluted earnings per share excluding amortization of intangibles and non-
recurring items have been adjusted for these one-time events as well as
amortization of intangible assets purchased in connection with the
acquisitions of TCS, Voicetek, Commerce Soft, and various intellectual
property portfolios.
(b) In August 1998, Aspect completed a private placement of approximately
$150 million ($490 million principal amount at maturity) of zero coupon
convertible subordinated debentures due 2018.
In October 1996, Aspect converted a previously issued $55 million
convertible subordinated debenture into approximately 6 million shares of
common stock.
F-1
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Aspect Communications Corporation Annual Financial Report to Shareholders
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background and Acquisitions
In February 2000, Aspect acquired privately held PakNetX Corporation
(PakNetX), an eBusiness software provider based in Salem, New Hampshire. The
transaction will enable Aspect to integrate multimedia-over-IP technology into
its flagship customer relationship portal software and strengthen Aspect's
eCRM market position. The transaction will be accounted for as a purchase.
Under the terms of the agreement, Aspect purchased all of the outstanding
common and preferred shares and warrants of PakNetX for approximately
$55 million, which includes $10 million in payments contingent on the
achievement of certain milestones. In addition, Aspect assumed the existing
PakNetX stock option plan and converted PaxNetX stock options into Aspect
stock options. Aspect expects to record a one-time charge of between $4
million and $6 million for purchased in-process technology and development
expenses in the first quarter of 2000. The historical operations of PakNetX
are not material to Aspect's financial position or results of operations.
In September 1999, the Company changed its name from Aspect Telecommunications
Corporation to Aspect Communications Corporation to reflect the transformation
of its business from a telecommunications equipment supplier to a provider of
customer relationship portals.
In August 1998, Aspect completed a private placement of approximately $150
million ($490 million principal amount at maturity) of zero coupon convertible
subordinated debentures due 2018. The debentures are priced at a yield to
maturity of 6% per annum and are convertible into Aspect common stock anytime
prior to maturity at a conversion rate of 8.713 shares per $1,000 principal
amount.
In May 1998, Aspect acquired Voicetek Corporation (Voicetek), a leading
supplier of interactive voice response (IVR) applications. The transaction was
accounted for as a purchase. Aspect recorded a one-time charge of $10 million
in 1998, or $0.19 per diluted share, for purchased in-process technology
related to two development projects that had not reached technological
feasibility, had no alternative future use, and for which successful
development was uncertain.
In February 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 that are not
expected to be material to our results of operations. Aspect recorded a non-
recurring charge of $14 million ($0.17 per share on a diluted basis) in the
year ended December 31, 1997.
In September 1997, Aspect acquired Commerce Soft Inc. (Commerce Soft), a
developer of customer interaction technology, and its results of operations
are included in the accompanying condensed financial statements since the date
of acquisition. The transaction was accounted for as a purchase that resulted
in a one-time charge of $5 million ($0.09 per share on a diluted basis) in
1997 related to in-process technology.
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 21E 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.
F-2
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Aspect Communications Corporation Annual Financial Report to Shareholders
Results of Operations
During 1999, we initiated a transformation of our business from a
telecommunications equipment supplier to a provider of customer relationship
portals. The primary motive for the transformation was that forecasts for the
traditional market for voice applications and equipment indicated that we
could no longer sustain our historical growth rates in this market alone. We
needed to define and execute a market strategy that would fuel our next stage
of growth. This transformation included repackaging and repricing our products
and services, development and launch of new software-based products and
services, transforming our internal processes and systems so that we could
operate within a software-centric business model, establishing key systems
integration and technology partnerships, changes in our senior management
team, and retention of key employees. Our 1999 results reflect the slowdown in
business that drove this transformation, together with the impact of the
transformation, through reduced revenues and higher costs as discussed below.
Net revenues decreased 4.5% to $489 million in 1999 from $512 million in 1998,
and 1998 revenues increased by 31% from $391 million in 1997. Net revenues for
1998 include results of Voicetek for the period since its acquisition in May
1998. Excluding Voicetek revenues, Aspect's revenues increased by an estimated
25% from 1997 to 1998. Net revenues outside North America as a percentage of
total net revenues over the periods presented were 34% in 1999, 32% in 1998,
and 28% in 1997.
Product revenues decreased 18% to $282 million in 1999 from $343 million in
1998, and 1998 product revenues grew by 24% from $276 million in 1997. The
decrease in 1999 relates primarily to the business model transformation
previously described. The increase in product revenues for 1998 was primarily
attributable to increased market demand for our legacy products, as the volume
of new systems and add-ons increased from 1997. Product revenues in 1998 also
include Voicetek product revenues since May 1998. Changes in average selling
prices for our products across the periods presented are not meaningful due to
the change in our business model.
Services revenues increased 22% to $207 million in 1999 from $169 million in
1998, and 1998 services revenues increased 48% from $114 million in 1997.
Growth in services revenues for both periods resulted primarily from increases
in maintenance revenues as a result of the growth in our installed base,
including growth through acquisitions. Services revenues include fees for
providing contractually agreed-upon system service and maintenance (which
typically commence twelve months from delivery and, accordingly, are primarily
affected by growth in the installed base); installation of products; systems
integration revenues; and other support services.
Gross margin on product revenues was 67% in 1999, and 68% in both 1998 and
1997. The decline in product margins from 1998 to 1999 primarily reflects the
increased proportional impact of fixed costs during the first three quarters
of 1999 when compared with product revenues.
Gross margin on services revenues was 27% in 1999, 29% in 1998, and 30% in
1997. The decrease in services margins across the periods reflects services
revenues not growing proportionately with the costs associated with providing
the related services; in particular, costs associated with consulting and
systems integration services. On a forward-looking basis, we anticipate that
services margins will fluctuate from period to period due to fluctuations in
services revenues (since many of the costs of providing services do not vary
proportionately with related revenues) and ongoing efforts to expand services
infrastructure.
Research and development (R&D) expenses increased 28% to $87 million in 1999,
and 48% to $68 million in 1998 from $46 million in 1997. R&D expenditures
reflect our ongoing efforts to remain competitive through both new product
development and expanded capabilities for existing products. The increases
across the periods presented primarily reflect increased staffing, associated
transformation and infrastructure costs, and the impact of amortization costs
associated with purchased, developed, and core technology intangible assets.
As a percentage of net revenues, R&D expenses were 18% in 1999, 13% in 1998,
and 12% in 1997. Excluding
F-3
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Aspect Communications Corporation Annual Financial Report to Shareholders
amortization of intangible assets, R&D expenses were $83 million in 1999,
$65 million in 1998, and $46 million in 1997. We continue to believe that
significant investment in R&D is required to remain competitive, and
anticipate, on a forward-looking basis, that such expenses in 2000 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 33% to $199
million in 1999, and 44% to $150 million in 1998 from $104 million in 1997.
The increases in 1999 primarily resulted from increased staffing, higher
marketing expenses, costs related to our transformation, and the full-year
impact of amortization of intangible assets purchased in connection with the
Voicetek acquisition in May 1998. The increases in 1998 primarily resulted
from increased staffing, infrastructure expansion, and other costs related to
expansion of our business, offset by a reduction in legal expenses. SG&A
expenses as a percentage of net revenues were 41% in 1999, 29% in 1998, and
27% in 1997. Excluding amortization of intangible assets, SG&A expenses were
$188 million in 1999, $141 million in 1998, and $101 million in 1997. We
anticipate, on a forward-looking basis, that SG&A expenses will continue to
increase in absolute dollars for 2000, when compared with 1999, although such
expenses as a percentage of net revenues may fluctuate between periods.
Purchased in-process technology represents non-recurring charges of $10
million in 1998, or $0.19 per diluted share, related to the acquisition of
Voicetek; and $5 million in 1997, or $0.09 per diluted share, associated with
the acquisition of Commerce Soft.
The intellectual property settlement represents a non-recurring charge of $14
million, or $0.17 per diluted share, related to the resolution of our
litigation with Lucent in February 1998, which was recorded as a subsequent
event in the fourth quarter of 1997.
Net interest and other income and expense were a net expense of $1 million in
1999, a decrease from $3 million of net interest income in 1998. Net interest
income in 1998 decreased from $8 million in 1997. The decrease in 1999
resulted primarily from interest expense associated with the issuance of $150
million of convertible subordinated debentures in August 1998. The decrease in
1998 resulted from the following: interest expense associated with the
debentures; lower interest earning balances primarily due to the acquisition
of Voicetek; the implementation of a stock repurchase program; and generally
lower interest rates.
In 1999, we recognized an income tax benefit at an effective tax rate of
30.0%, compared with an income tax expense at effective tax rates of 45.2% in
1998 and 41.6% in 1997. The tax rates in all periods presented vary from the
statutory rate of 35.0%, primarily due to nondeductible expenses related to
acquisitions (primarily goodwill amortization) and, in 1999, foreign losses on
which no tax benefit can be recognized.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires that all derivatives be
carried at fair value and provides for hedging accounting when certain
conditions are met. This statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. We do not believe adoption of this
statement will have a material impact on our financial position or results of
operations.
Liquidity and Capital Resources
At December 31, 1999, the principal source of liquidity consisted of cash,
cash equivalents, short-term investments, and marketable equity securities
totaling $339 million, which represented 53% of total assets. The primary
sources of cash during 1999 were $86 million from operating activities,
predominantly a result of significant net collections of accounts receivable,
and proceeds from the issuance of common stock under various stock plans of
$27 million. The primary sources of cash during 1998 were $146 million net
proceeds from the August 1998 private placement of convertible subordinated
debentures, cash provided by operating activities of $43 million, and proceeds
from the issuance of common stock under various stock plans of $13 million.
F-4
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
As of December 31, 1999, the fair market value of our marketable equity
securities was $86 million. These securities are available for sale at
Aspect's discretion and are subject to market prices, which have historically
fluctuated significantly.
The primary uses of cash during 1999 were net purchases of short-term
investments of $40 million, $22 million used for a stock repurchase program,
and $33 million for the purchase of property and equipment, primarily the
purchase of computer software and hardware. We currently anticipate higher
spending levels for capital equipment in 2000, primarily related to expansion
of our facilities. The primary uses of cash during 1998 were net purchases of
short-term investments of $89 million, $72 million for the acquisition of
Voicetek, $32 million used for a stock repurchase program, $29 million for the
purchase of property and equipment, and $17 million for payments on various
notes payable.
At December 31, 1999, outstanding borrowings totaled $165 million, and
comprised $163 million of convertible debentures and $1.7 million remaining on
a $4.5 million note payable incurred in connection with the acquisition of TCS
in 1995. The note payable is included in "other accrued liabilities" in the
accompanying balance sheet.
In October 1998, Aspect approved a 5-million-share stock repurchase plan; all
shares had been purchased by June 30, 1999.
On a forward-looking basis, cash, cash equivalents, short-term investments,
marketable equity securities, and anticipated cash flow from operations will
be sufficient to meet presently anticipated cash requirements during at least
the next twelve months.
Year 2000 and Proximate Dates
The information provided below constitutes a "Year 2000 Readiness Disclosure"
for purposes of the Year 2000 Readiness Disclosure Act.
Many computer systems were expected to experience problems handling dates
around the year 2000 (Y2K). We expect that most Y2K-related problems would
have become evident by January 31, 2000. We have experienced minor isolated
disruptions to date that were quickly and easily remedied. Therefore, we
believe that our mitigation activities outlined in prior public disclosures
were successful in limiting problems around January 1, 2000. Some exposure
continues to exist as follows:
. Certain dates in 2000 such as February 29;
. Within our supply chain if disruptions occur at suppliers that we are not
aware of and affect their ability to supply us products as needed; and,
. With our customers if disruptions occur that affect their buying
patterns.
On a forward-looking basis, based upon the success of our efforts to mitigate
problems around January 1, 2000, we believe that actions taken to date are
sufficient to mitigate likely disruptions, and, therefore, we are not actively
pursuing any significant additional Y2K remediation efforts other than those
required to address specific known or potential issues.
The total costs of our Y2K compliance efforts are estimated to be
approximately $10 million, substantially all of which has been spent to date.
Y2K costs included consultant fees, internal hardware and software upgrade or
replacement costs, and internal resources dedicated to identifiable Y2K
efforts. Some of these costs represent the acceleration of costs that would
have been incurred in the normal course of business in different periods.
F-5
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
Business Environment and Risk Factors
We operate in a rapidly changing environment that involves a number of risks,
some of which are beyond our control. You should read the cautionary
statements in this document, wherever they appear, as applying to all related
forward-looking statements. Our actual results may differ materially from our
projections due to, among other things, the occurrence of the risks set forth
below.
Our Company's Business Focus is Changing. We are shifting our focus from
supplying telecommunications equipment to becoming a provider of customer
relationship portals. Historically, we have supplied the hardware, software,
and associated support services for implementing call center solutions. Our
shift to an enterprise software business model has required and will continue
to require substantial change, potentially resulting in some disruption,
including the following:
. Changes in management and technical personnel;
. Modifications to the pricing and positioning of our products, which could
impact revenues and operating results;
. Expanded or differing competition resulting from entry into the
enterprise software market;
. More revenues being recognized over longer periods under software revenue
recognition rules; and
. An increased reliance on systems integrators to develop, deploy, and/or
manage our applications.
Our inability to successfully continue this transition in a timely manner
could materially affect our business, operating results, or financial
condition.
The Prices of Our Common Stock and Convertible Subordinated Debentures Are
Volatile. The price of our common stock and our convertible subordinated
debentures may be subject to significant volatility. You cannot consider our
past financial performance as a reliable indicator of performance for any
future period, and should not use historical data to predict future results or
trends. For any given quarter, a shortfall in our operating results from the
levels expected by securities analysts or others could immediately and
adversely affect the price of the convertible subordinated debentures and our
common stock. If we do not learn of such shortfalls until late in a fiscal
quarter, there could be an even more immediate and adverse effect on the price
of the convertible subordinated debentures and our common stock. In addition,
this volatility could be exacerbated by the relatively low trading volume of
our common stock and debentures. We operate in a rapidly changing high-
technology industry that exhibits significant stock market volatility. Should
the price of our securities decline rapidly, we may become subject to class
action securities litigation.
Our Revenues and Operating Results Are Uncertain and May Fluctuate. Our
revenues may fluctuate significantly from period to period. There are many
reasons for this variability, including the following:
. The shift in our focus from supplying telecommunications equipment to
becoming a provider of customer relationship portals;
. Reduced demand for our products and services, as was the case in some
recent quarters;
. A limited number of large orders accounting for a significant portion of
product revenues in any particular quarter;
. The timing of consulting projects;
. The size and timing of individual software license transactions;
. Dependence on new customers for a significant percentage of product
revenues;
F-6
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Aspect Communications Corporation Annual Financial Report to Shareholders
. Fluctuations in the results of existing operations, recently acquired
subsidiaries, newly established business units, or distributors of our
products or services;
. Seasonality and mix of products and services and channels of
distribution;
. Our ability to develop and market new products and control costs; and/or
. Changes in market growth rates for different products and services.
In addition, our products typically represent substantial capital commitments
by customers, involving a long sales cycle. As a result, customer purchase
decisions may be significantly affected by a variety of factors including
trends in capital spending for telecommunications or enterprise software for
customer relationship portals, market competition, and the availability or
announcement of alternative technologies.
Our Revenues Are Dependent on a Small Number of Products. Historically, sales
and installations of a small number of our products accounted for a
substantial portion of net revenues. Demand for our products could be
adversely affected by failure to meet customer specifications and problems
with system performance, system availability, installation or service delivery
commitments, or market acceptance.
Technology is Rapidly Changing. The market for our 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 our products.
We may not successfully anticipate market demand for new products or services,
or introduce them in timely manner.
The Internet presents unique risks and challenges, and the increased
commercial use of the Internet could require both substantial modification and
customization of our current products and the introduction of new products. We
may not be able to compete effectively in the Internet-related products and
services market. In addition, Aspect's products must readily integrate with
major third-party telephony, front-office, and back-office systems. Any
changes to these third-party systems could require us to redesign our portal
product, and any such redesign might not be possible on a timely basis or
achieve market acceptance.
Our Market Is Intensely Competitive. The market for our products is intensely
competitive, and competition is likely to intensify as competitors in our
industry consolidate to offer integrated solutions.
Our competitors include the following:
. Providers of call center systems;
. Companies offering computer-telephony integration (CTI) portal
applications;
. Systems integrators;
. Telephone operating companies that market automatic call distributor
functionality;
. Participants in the front-office and back-office enterprise software
applications market;
. Companies with technologies that independently balance calls across
several call centers;
. Providers of interactive voice response systems; and/or
. Internet infrastructure providers.
As the hardware requirements for our traditional market diminish, companies
offering alternative or complementary technologies may obtain a significant
position in our market. For example, the anticipated convergence of voice and
data over a single network and the growth of e-mail and the Web as a means of
providing customer services could result in increased competition for us.
F-7
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
Many current and potential competitors, including Lucent Technologies Inc.,
Nortel Networks, Rockwell International Corporation, Alcatel, Cisco Systems,
and Oracle Corporation, have considerably greater resources, larger customer
bases, and a broader international presence than Aspect. We expect to
encounter significant competition from these and other sources.
Acquisitions and Investments May Be Difficult and Disruptive. We have made a
number of acquisitions and have made minority equity investments in other
companies. These acquisitions and investments can be costly and disruptive,
and we may be unable to successfully integrate a new business or technology
into our business. We may continue to make such acquisitions and investments
and there are a number of risks that future transactions could entail. These
risks include the following:
. Inability to successfully integrate or commercialize acquired
technologies or otherwise realize anticipated synergies or economies of
scale on a timely basis;
. Diversion of management attention;
. Adverse impact on our annual effective tax rate;
. Dilution of existing equity holders;
. Disruption of our ongoing business;
. Inability to assimilate and/or retain key technical and managerial
personnel for both companies;
. Inability to establish and maintain uniform standards, controls,
procedures, and processes;
. Potential legal liability for pre-acquisition activities and permanent
impairment of our equity investments;
. Governmental or competitive responses to the proposed transactions;
and/or
. Impairment of relationships with employees, vendors, and/or customers
including, in particular, acquired original equipment manufacturer and
value-added reseller relationships.
Acquisitions or investments we make may experience significant fluctuations in
market value or may result in significant write-offs, the creation of
goodwill, or the issuance of additional equity or debt securities.
Recently, the Financial Accounting Standards Board (FASB) voted to eliminate
pooling of interests accounting for acquisitions and is considering
eliminating the immediate expensing of acquired in-process research and
development costs. These changes could materially increase the portion of the
purchase price for any future acquisitions that must be charged to our cost of
revenues and operating expenses in the periods following acquisition.
We May Be Involved in Litigation. We may be involved in litigation for a
variety of matters, including intellectual property infringement, securities
law violations, employee claims, and/or product liability claims. Any claim
brought against us would likely have a financial impact, both because of the
effect on our common stock performance and the disruption, costs, and
diversion of management attention such a claim would cause. In our industry,
there has been extensive litigation regarding patents and other intellectual
property rights, and we are periodically notified of such claims by third
parties. In the past, we have been sued for alleged patent infringement.
We believe that organizations in our industry intend to use intellectual
property litigation to generate revenues. In the future, claims asserting
infringement of intellectual property rights may be asserted or prosecuted
against us. Although we periodically negotiate with third parties to establish
intellectual property license or cross-license agreements, such as our patent
cross-license agreement with Lucent, such negotiations may not succeed.
F-8
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Aspect Communications Corporation Annual Financial Report to Shareholders
Moreover, even if we negotiate license agreements with a third party, future
disputes with such parties are possible. If we are unable to resolve an
intellectual property dispute through a license, settlement, or successful
litigation, we could be subject to damage assessments and be prevented from
making, using, or selling certain products or services.
In the future, we could become involved in other types of litigation, such as
shareholder lawsuits for alleged violations of securities laws, claims by
employees, and product liability claims. Any litigation could result in
substantial cost to us and diversion of our efforts.
Our Intellectual Property May Be Copied, Obtained, or Developed by Third
Parties. Our success depends in part upon our internally developed technology.
Despite the precautions we take to protect our intellectual property,
unauthorized third parties may copy or otherwise obtain and use our
technology. In addition, third parties may develop similar technology
independently.
Doing Business Internationally Involves Significant Risk. We market our
products and services worldwide and anticipate entering additional countries
in the future. The financial resources required to enter new international
markets may be substantial, and international operations are subject to
additional risks, including the following:
. The cost and timing of the multiple governmental approvals and product
modifications required by many countries;
. Market acceptance;
. Exchange rate fluctuations;
. Delays in market deregulation;
. Difficulties in staffing and managing foreign subsidiary operations;
and/or
. Potentially negative tax and foreign and domestic trade legislation,
which could result in the creation of trade barriers such as tariffs,
duties, quotas, and other restrictions.
If we fail to successfully enter certain major international markets, our
competitive position could be impaired and we may be unable to compete on a
global scale.
We May Experience Difficulty Managing Our Growth. Our rapid growth is expected
to place a significant strain on our operational and financial systems. We are
upgrading these systems and may experience substantial disruption and incur
significant expenses and write-offs during these transitions. We must
carefully manage accounts receivables to limit credit risk. We must also
maintain inventories at levels consistent with product demand. Inaccurate data
(for example, credit histories or supply/demand forecasts) could quickly
result in excessive balances or insufficient reserves.
We May Experience Difficulty Expanding Our Distribution Channels. We have
historically sold our products and services through our direct sales force and
a limited number of distributors. Changes in customer preferences, the
competitive environment, or other factors may require us to broaden original
equipment manufacturer distribution channels, as well as expand third-party
distributor, systems integrator, electronic, and other alternative
distribution channels. We may not be successful in expanding these
distribution channels.
We Are Dependent on Key Personnel. We depend on certain key management and
technical personnel and on our ability to attract and retain highly qualified
personnel in labor markets characterized by high turnover among, high demand
for, and limited supply of, qualified people; and we have recently experienced
increased levels of turnover among such personnel. We have recently undergone
significant changes in senior management and technical personnel and may
experience additional changes as a result of our shift from supplying
F-9
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
telecommunications equipment to becoming a provider of customer relationship
portals. Further, we have replaced a large number of our sales people and are
currently increasing the size of our sales force. New personnel require
extensive training and initially tend to be less productive than those with
greater experience. Any delays or difficulties we encounter in recruiting,
training, or retention could impair our ability to sell products, may be
disruptive to our operations, and may make retention of highly qualified
personnel increasingly challenging.
Our Operations Are Geographically Concentrated. Significant elements of our
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 localized extended outages of critical utilities or
transportation systems, we could experience a significant business
interruption.
We Are Dependent on Third Parties. We subcontract substantial elements of our
manufacturing to third parties. We depend on certain critical components in
the production of our products and services. Certain of these components are
obtained only from a single supplier and only in limited quantities. In
addition, some of our major suppliers use proprietary technology and software
code that could require significant redesign of our products in the case of a
change in vendor. Further, suppliers could discontinue their products, or
modify them in manners incompatible with our current use, or use manufacturing
processes and tools that could not be easily migrated to other vendors. If any
of these vendors experience difficulty meeting our requirements for
components, we may be unable to meet development or delivery commitments.
Our Debt and Debt Service Obligations Are Significant. We incurred $150
million of principal indebtedness ($490 million principal at maturity) from
the sale of convertible subordinated debentures in August 1998. This debt
resulted in a ratio of long-term debt to total shareholders' equity of
approximately 1:2 at December 31, 1999. As a result of this sale, we have
substantially increased our principal and interest obligations. The degree to
which we are leveraged could materially and adversely affect our ability to
obtain additional financing and could make us more vulnerable to industry
downturns and competitive pressures. Our ability to meet our debt service
obligations will depend on our future performance, which will be subject to
financial, business, and other factors affecting our operations, many of which
are beyond our control.
We May Have Problems Coping with Y2K Issues. Many computer systems were
expected to experience problems handling dates around the year 2000 (Y2K). Our
mitigation activities outlined in previous public disclosures, and as outlined
above in Management's Discussion and Analysis of Financial Condition and
Results of Operations, were successful in limiting problems related to January
1, 2000. However, some exposure continues to exist around certain dates in
2000 and within our customer and supplier chains.
Quantitative and Qualitative Disclosures About Financial Market Risk
We are exposed to financial market risk from fluctuations in foreign currency
exchange rates, interest rates, and stock prices of marketable equity
securities. With the exception of the stock price volatility of our marketable
equity securities, we manage our exposure to these and other risks through our
regular operating and financing activities and, when appropriate, through our
hedging activities. Our policy is not to use hedges or other derivative
financial instruments for speculative purposes. We deal with a diversified
group of major financial institutions to limit the risk of nonperformance by
any one institution on any financial instrument. Separate from our financial
hedging activities, material changes in foreign exchange rates, interest
rates, and, to a lesser extent, commodity prices could cause significant
changes in the costs to manufacture and deliver our products and in our
customers' buying practices. We have not substantially changed our risk
management practices during 1999 and do not currently anticipate significant
changes in financial market risk exposures in the near future that would
require us to change our risk management practices.
F-10
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
Foreign Currency Exchange. Revenues generated from international operations
are generally denominated in foreign currencies. We enter into foreign
exchange contracts as a hedge against intercompany account balances. Market
value gains and losses on these contracts are substantially offset by
fluctuations in the underlying balances being hedged, and the impact has not
been material in any of the three years presented. At December 31, 1999 and
1998, our primary net foreign currency market exposures included deutsche
marks, British pounds, and Dutch guilders.
A sensitivity analysis assuming a hypothetical 10% movement in foreign
exchange rates applied to our hedging contracts and underlying balances being
hedged at December 31, 1999 and 1998, indicated that these market movements
would not have a material effect on our business, operating results, or
financial condition. Actual gains or losses in the future may differ
materially from this analysis, depending on actual changes in the timing and
amount of interest rate and foreign currency exchange rate movements and our
actual balances and hedges. Foreign currency rate fluctuations can impact the
U.S. dollar translation of our foreign operations in our consolidated
financial statements. In 1999 and 1998, these fluctuations have not been
material to our operating results.
Interest and Investment Income. Our interest and investment income is subject
to changes in the general level of U.S. interest rates. Changes in U.S.
interest rates affect the interest earned on our cash equivalents and short-
term investments. A sensitivity analysis assuming a hypothetical 10% movement
in interest rates applied to our investment balances at December 31, 1999 and
1998, indicated that such market movement would not have a material effect on
our business, operating results, or financial condition. Actual gains or
losses in the future may differ materially from this analysis, depending on
our actual balances and changes in the timing and amount of interest rate
movements.
Marketable Equity Securities. We are exposed to market price risks on our
marketable equity securities. These investments are in publicly traded
companies in the volatile high-technology and Internet software industry
sectors. We do not attempt to reduce or eliminate our market exposure on these
securities. A 50% adverse change in the equity price would result in an
approximate $43.1 million decrease in the fair value of our marketable equity
securities as of December 31, 1999 (no such marketable equity securities were
held as of December 31, 1998).
Debt and Interest Expense. The fair market value of our zero coupon
convertible subordinated debentures is sensitive to changes in interest rates
and to the prices of our common stock into which it can be converted. Because
the yield to maturity on the debentures is fixed, our interest expense on the
debt does not fluctuate with market rates. Based upon a hypothetical immediate
50-basis-point increase in interest rates at December 31, 1999, the market
value of our fixed-rate long-term debt would decrease by approximately 1%.
Conversely, a 50-basis-point decrease in interest rates at December 31, 1999,
would result in an increase in the market value of our fixed-rate long-term
debt outstanding of approximately 1%. Based upon a hypothetical immediate 100-
basis-point increase in interest rates at December 31, 1998, the market value
of our fixed-rate long-term debt would decrease by approximately 4%.
Conversely, a 100-basis-point decrease in interest rates at December 31, 1998,
would increase the market value of our fixed-rate long-term debt outstanding
by approximately 4%. Actual gains or losses in the future may differ
materially from this analysis, depending on changes in the timing and amount
of interest rate movements.
F-11
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
-------- --------
(in thousands,
except
share amounts)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 84,826 $ 67,071
Short-term investments 167,840 129,040
Marketable equity securities 86,139 --
Accounts receivable (net of allowance for doubtful
accounts:
$7,180 in 1999 and $4,415 in 1998) 77,138 132,818
Inventories 16,636 18,916
Other current assets 17,475 14,820
-------- --------
Total current assets 450,054 362,665
Property and equipment, net 79,397 69,192
Intangible assets, net 98,711 119,052
Other assets 8,050 9,750
-------- --------
Total assets $636,212 $560,659
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,525 $ 18,239
Accrued compensation and related benefits 25,866 21,049
Other accrued liabilities 59,437 38,029
Customer deposits and deferred revenue 36,964 27,171
-------- --------
Total current liabilities 136,792 104,488
Deferred taxes 5,114 4,270
Convertible subordinated debentures 163,107 153,744
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value: 2,000,000 shares
authorized, none outstanding -- --
Common stock, $.01 par value: 100,000,000 shares
authorized, shares outstanding: 49,462,303 in 1999 and
49,309,383 in 1998 155,277 142,132
Accumulated other comprehensive income (loss) 48,328 (420)
Retained earnings 127,594 156,445
-------- --------
Total shareholders' equity 331,199 298,157
-------- --------
Total liabilities and shareholders' equity $636,212 $560,659
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-12
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(in thousands, except per
share amounts)
<S> <C> <C> <C>
Net revenues:
Product $282,342 $342,903 $276,471
Services 206,770 169,413 114,171
-------- -------- --------
Total net revenues 489,112 512,316 390,642
-------- -------- --------
Cost of revenues:
Cost of product revenues 92,991 108,397 89,529
Cost of services revenues 150,178 119,787 79,444
-------- -------- --------
Total cost of revenues 243,169 228,184 168,973
-------- -------- --------
Gross margin 245,943 284,132 221,669
Operating expenses:
Research and development 86,890 67,877 45,723
Selling, general and administrative 199,050 150,118 104,431
Purchased in-process technology -- 9,899 4,910
Intellectual property settlement -- -- 14,000
-------- -------- --------
Total operating expenses 285,940 227,894 169,064
-------- -------- --------
Income (loss) from operations (39,997) 56,238 52,605
Interest and other income 8,877 7,317 7,966
Interest expense (10,095) (4,306) (293)
-------- -------- --------
Income (loss) before income taxes (41,215) 59,249 60,278
Benefit (provision) for income taxes 12,364 (26,759) (25,096)
-------- -------- --------
Net income (loss) $(28,851) $ 32,490 $ 35,182
======== ======== ========
Basic earnings (loss) per share $ (0.60) $ 0.64 $ 0.71
Weighted average shares outstanding 48,375 50,459 49,302
Diluted earnings (loss) per share $ (0.60) $ 0.61 $ 0.67
Weighted average shares outstanding--
assuming dilution 48,375 53,146 52,307
</TABLE>
See Notes to Consolidated Financial Statements.
F-13
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
-------------------- Comprehensive Retained
Shares Amount Income (Loss) Earnings Total
---------- -------- ------------- -------- --------
(in thousands, except share amounts)
<S> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1,
1997 48,806,580 $128,186 $ 2,489 $ 88,773 $219,448
Comprehensive income:
Net income -- -- -- 35,182 35,182
Net unrealized loss on
securities (net of
tax of $825) -- -- (1,267) -- (1,267)
Accumulated
translation
adjustments (net of
tax of $1,242) -- -- (1,906) -- (1,906)
--------
Comprehensive income 32,009
--------
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
---------- -------- ------- -------- --------
BALANCES, DECEMBER 31,
1997 49,996,731 144,524 (684) 123,955 267,795
---------- -------- ------- -------- --------
Comprehensive income:
Net income -- -- -- 32,490 32,490
Net unrealized loss on
securities (net of
tax of $569) -- -- (873) -- (873)
Accumulated
translation
adjustments (net of
tax of $741) -- -- 1,137 -- 1,137
--------
Comprehensive income 32,754
--------
Issuance of common stock
under stock purchase
plans 172,435 3,078 -- -- 3,078
Issuance of common stock
under other stock plans 1,150,217 10,193 -- -- 10,193
Value of stock options
issued in Voicetek
acquisition -- 11,184 -- -- 11,184
Income tax benefit for
employee stock option
transactions -- 4,755 -- -- 4,755
Stock repurchased under
stock repurchase
program (2,010,000) (31,602) -- -- (31,602)
---------- -------- ------- -------- --------
BALANCES, DECEMBER 31,
1998 49,309,383 142,132 (420) 156,445 298,157
---------- -------- ------- -------- --------
Comprehensive income:
Net loss -- -- -- (28,851) (28,851)
Net unrealized gain on
securities (net of
tax of $32,076) -- -- 50,170 -- 50,170
Accumulated
translation
adjustments (net of
tax of $909) -- -- (1,422) -- (1,422)
--------
Comprehensive income 19,897
--------
Issuance of common stock
under stock purchase
plans 940,427 5,748 -- -- 5,748
Issuance of common stock
under other stock plans 2,202,493 21,102 -- -- 21,102
Income tax benefit for
employee stock option
transactions -- 8,003 -- -- 8,003
Stock repurchased under
stock repurchase
program (2,990,000) (21,708) -- -- (21,708)
---------- -------- ------- -------- --------
BALANCES, DECEMBER 31,
1999 49,462,303 $155,277 $48,328 $127,594 $331,199
========== ======== ======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-14
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1999 1998 1997
--------- --------- --------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (28,851) $ 32,490 $ 35,182
Reconciliation of net income (loss) to cash
provided by operating activities:
Depreciation 23,087 20,228 12,654
Amortization of intangible assets 20,341 15,387 4,516
Purchased in-process technology -- 9,899 4,910
Gain on the sale of equity securities -- -- (2,070)
Noncash interest expense on debentures 9,363 3,530 --
Deferred taxes (5,749) 3,359 (9,284)
Changes in assets and liabilities; net of
effects from companies acquired in 1998 and
1997:
Accounts receivable 52,405 (40,649) (34,865)
Inventories 2,129 (3,701) 2,904
Other current assets and other assets 5,119 (2,630) 7,463
Accounts payable (3,749) 5,309 (645)
Accrued compenstation and related benefits 12,688 10,311 5,406
Accrued intellectual property settlement -- (14,000) 14,000
Other accrued liabilities (10,352) (6,949) 19,131
Customer deposits and deferred revenue 9,539 10,459 (3,624)
--------- --------- --------
Cash provided by operating activities 85,970 43,043 55,678
Cash flows from investing activities:
Short-term investment purchases (279,513) (266,511) (41,936)
Short-term investment sales and maturities 239,615 177,641 69,781
Acquisition of intellectual property -- (3,284) (9,750)
Property and equipment purchases (33,292) (28,884) (24,922)
Purchase of company, net of cash acquired -- (71,382) (278)
--------- --------- --------
Cash used in investing activities (73,190) (192,420) (7,105)
Cash flows from financing activities:
Repurchase of common stock (21,708) (31,602) --
Other common stock transactions--net 26,849 13,271 9,533
Payments on notes payable (1,624) (16,944) --
Net proceeds from issuance of debentures -- 145,708 --
--------- --------- --------
Cash provided by financing activities 3,517 110,433 9,533
Effect of exchange rate changes on cash and
cash equivalents 1,458 (31) (56)
--------- --------- --------
Increase (decrease) in cash and cash
equivalents 17,755 (38,975) 58,050
Cash and cash equivalents:
Beginning of year 67,071 106,046 47,996
--------- --------- --------
End of year $ 84,826 $ 67,071 $106,046
--------- --------- --------
Supplemental disclosure of cash flow
information:
Cash paid for income taxes, net $ 7,286 $ 31,625 $ 24,047
Supplemental schedule of noncash investing and
financing activities:
Stock options issued in conjunction with
acquisition of Company $ -- $ 11,184 $ --
Income tax benefit from employee stock
transactions $ 8,003 $ 4,755 $ 2,195
Notes payable issued in connection with the
acquisition of intellectual property, net of
discount of $1,570 $ -- $ -- $ 8,430
</TABLE>
See Notes to Consolidated Financial Statements.
F-15
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Organization and Significant Accounting Policies
Organization
In September 1999, the Company changed its name from Aspect Telecommunications
Corporation to Aspect Communications Corporation (Aspect or the Company) to
reflect the transformation of its business from a telecommunications equipment
supplier to a provider of customer relationship portals. The name change has
been reflected in the accompanying financial statements. The Company markets
and sells its products and services worldwide to enterprises in a broad array
of industries including financial services, government, health care,
retailing, technology, telecommunications, and transportation.
Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. 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 in Debt and Equity Securities
The Company has classified all of its marketable securities as available-for-
sale. While the Company may hold debt securities to maturity, the Company has
classified all debt securities as available-for-sale, as the sale of such
securities may be required prior to maturity to implement management's
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 accumulated other
comprehensive income (loss) in the consolidated statement 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 consist of (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Goodwill, net $44,021 $ 51,998
Other intangible assets, net 54,690 67,054
------- --------
Total intangible assets, net $98,711 $119,052
======= ========
</TABLE>
Other intangible assets include purchased existing technology, purchased
intellectual property, assembled workforce, and customer relationships and
sales channels. These intangible assets are amortized on a straight-line
F-16
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
basis over periods of two to ten years. Accumulated amortization at December
31, 1999 and 1998 was $45 million and $24 million, respectively.
Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.
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 (SFAS) 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.
Revenue Recognition
Beginning in 1998, the Company adopted Statement of Position 97-2 "Software
Revenue Recognition" as amended by Statements of Position 98-4 and 98-9. The
effect of adoption did not have a material impact on the Company's financial
position or results of operations. The Company generally recognizes product
and license revenue upon delivery under an executed agreement, when the fee is
fixed and determinable, and when collection is probable. Services revenues
include ongoing maintenance contract revenues, which are recognized ratably
over the contract period, consulting and system integration revenues which are
recognized on a percentage of completion basis, and installation revenues
which are recognized at the time the service is provided. Revenues are
recorded net of sales returns and allowances. Product warranty costs are
accrued when revenue is recognized.
Customer Deposits and Deferred Revenue
Customer deposits primarily represent payments received from customers upon
product order. Deferred revenue primarily represents payments received from
customers for maintenance support or products prior to revenue recognition.
Advertising Expenses
The Company expenses the costs of advertising, including promotional expenses,
as incurred. Advertising expenses for the years ended December 31, 1999, 1998,
and 1997, were $10.0 million, $3.2 million, and $1.4 million, respectively.
Stock-Based Compensation
The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation." In accordance with the provisions of SFAS No.
123, the Company applies Accounting Principles Board (APB) No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its employee stock option plans.
Per Share Information
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income per
share further includes the dilutive impact of stock options.
F-17
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency Translation and Foreign Exchange Contracts
Operations of the Company's foreign subsidiaries are measured using local
currencies 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 the average rates in
effect for the periods presented. Translation adjustments are reported as a
separate component of accumulated other comprehensive income (loss) in the
consolidated statements of shareholders' equity. Foreign currency transaction
gains and losses, which are included in the consolidated statements of
operations, have not been material in any of the three years presented. The
Company enters into foreign exchange contracts that are designed to hedge
intercompany account balances. Market value gains and losses on these
contracts substantially offset foreign exchange gains or losses on the
balances being hedged.
Use of Estimates in the Preparation of Financial Statements
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.
Actual results could differ from those estimates and assumptions.
Concentration of Credit Risks
The Company sells its products primarily to large organizations in diversified
industries worldwide. The Company performs ongoing credit evaluations of its
customers' financial condition and generally does not require its customers to
provide collateral or other security to support accounts receivable. The
Company maintains an allowance for doubtful accounts based on an assessment of
the collectibility of such accounts.
Comprehensive Income
Accumulated other comprehensive income (loss) at December 31 is comprised of
(in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ----- -------
<S> <C> <C> <C>
Accumulated unrealized gains on available-for-
sale securities, net $50,564 $ 394 $ 1,267
Accumulated translation adjustments, net (2,236) (814) (1,951)
------- ----- -------
Accumulated other comprehensive income (loss) $48,328 $(420) $ (684)
======= ===== =======
</TABLE>
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 $10,000 in 1999) to this plan, for
which the Company, at the discretion of the Board of Directors and within
certain limitations, may make matching contributions, and discretionary
contributions to cover the administrative costs of the plan. Contributions
made by the Company to the plan were $2.7 million in 1999, and $2.3 million in
1998 and 1997.
Reclassifications
Certain prior-year amounts have been reclassified to conform to the current-
year presentation.
F-18
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Pronouncements
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
requires that all derivatives be carried at fair value and provides for
hedging accounting when certain conditions are met. This statement, issued in
June 1998, is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company does not believe adoption of this statement
will have a material impact on the Company's financial position or results of
operations.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101
"Revenue Recognition in Financial Statements," which summarizes certain of the
SEC staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company believes that its
revenue recognition policy complies with the provisions of SAB No. 101.
Note 2: Business Combinations and Other Acquisitions
In May 1998, the Company acquired Voicetek Corporation (Voicetek), a leading
supplier of interactive voice response (IVR) applications. The transaction was
accounted for as a purchase. The Company paid approximately $72 million in
cash for all Voicetek common and preferred shares outstanding and converted
all outstanding Voicetek options to purchase approximately 450,000 shares of
Aspect common stock with a fair value of approximately $11 million plus
transaction costs of approximately $3 million, and assumed certain operating
assets and liabilities. In connection with the acquisition, the Company
recorded approximately $90 million of intangible assets, which are being
amortized over a period of four to seven years. The Company recorded a one-
time charge of $10 million in 1998 for purchased in-process technology. The
operating results of Voicetek have been included in the consolidated
statements of operations since the date of acquisition. Had the acquisition
taken place at the beginning of 1997, the 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>
1998 1997
-------- --------
<S> <C> <C>
Net revenues $520,383 $418,848
Net income $ 31,656 $ 15,421
Basic earnings per share $ 0.63 $ 0.31
Diluted earnings per share $ 0.60 $ 0.29
</TABLE>
The pro forma results of operations give effect to certain adjustments,
including amortization of purchased intangibles and goodwill, interest income
associated with funding the acquisition and entries to conform to the
Company's accounting policies. The $10 million charge for purchased in-process
technology has been excluded from the pro forma results, as it is a material
non-recurring charge.
In October 1997, the Company acquired certain rights to two intellectual
property portfolios by paying $9.8 million in cash and issuing $10 million in
notes payable. In July and September 1998, the Company acquired remaining
rights under these intellectual portfolios.
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 $5 million
related to in-process technology. The operating results of Commerce Soft have
been included in the consolidated statements of operations 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
results of operations.
F-19
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3: Investments
Short-term investments in marketable debt and equity securities at December 31
consist of the following (in thousands):
<TABLE>
<CAPTION>
1999
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Corporate notes and bonds $ 65,176 $ -- $ (620) $ 64,556
Municipal obligations 45,113 15 (140) 44,988
Government obligations 58,648 -- (352) 58,296
-------- ------- ------- --------
Total marketable debt securities $168,937 $ 15 $(1,112) $167,840
-------- ------- ------- --------
Marketable equity securities 2,150 83,989 -- 86,139
-------- ------- ------- --------
Total $171,087 $84,004 $(1,112) $253,979
======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Corporate notes and bonds $ 52,111 $202 $ (23) $ 52,290
Municipal obligations 38,868 266 -- 39,134
Government obligations 37,576 83 (43) 37,616
-------- ---- ----- --------
Total $128,555 $551 $ (66) $129,040
======== ==== ===== ========
</TABLE>
The maturity of short-term investments in marketable debt securities at
December 31, 1999, was as follows (in thousands):
<TABLE>
<CAPTION>
Market Value
--------------------
Within One to
One Year Three Years
-------- -----------
<S> <C> <C>
Corporate notes and bonds $10,929 $ 53,627
Municipal obligations 13,362 31,626
Government obligations 6,436 51,860
------- --------
Total $30,727 $137,113
======= ========
Note 4: Inventories
Inventories at December 31 consist of (in thousands):
<CAPTION>
1999 1998
-------- -----------
<S> <C> <C>
Raw materials $ 9,816 $ 9,494
Work in progress 3,529 4,829
Finished goods 3,291 4,593
------- --------
Total $16,636 $ 18,916
======= ========
</TABLE>
F-20
<PAGE>
Aspect Communications 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>
1999 1998
-------- --------
<S> <C> <C>
Land $ 3,914 $ 3,914
Buildings and improvements 11,930 9,825
Computer and development equipment 97,987 76,186
Field spares 19,469 17,785
Office equipment 34,171 31,002
Leasehold improvements 23,582 19,051
-------- --------
Total $191,053 $157,763
Accumulated depreciation and amortization (111,656) (88,571)
-------- --------
Property and equipment, net $ 79,397 $ 69,192
-------- --------
</TABLE>
Note 6: Other Accrued Liabilities
Other accrued liabilities at December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Advertising and marketing expenses $ 5,151 $ 354
Accrued sales and use taxes 5,852 7,825
Deferred taxes 16,817 --
Other accrued liabilities 31,617 29,850
------- -------
Total $59,437 $38,029
======= =======
</TABLE>
Note 7: Convertible Subordinated Debentures and Notes Payable
In August 1998, the Company completed a private placement of approximately
$150 million ($490 million principal amount at maturity) of zero coupon
convertible subordinated debentures due 2018. The debentures are priced at a
yield to maturity of 6% per annum and are convertible into Aspect common stock
anytime prior to maturity at a conversion rate of 8.713 shares per $1,000
principal amount. Holders can require Aspect to repurchase the debentures on
August 10, 2003, August 10, 2008, and August 10, 2013, for cash; or at the
election of Aspect, for Aspect common stock, if certain conditions are met.
The debentures are not secured by any Aspect assets and are subordinated in
right of payment to all of Aspect senior indebtedness and effectively
subordinated to the debt of Aspect's subsidiaries. At December 31, 1999 and
1998, debt issuance costs of approximately $4.2 million and $4.5 million,
respectively, net of amortization of approximately $350,000 and $100,000,
respectively, are included in other assets in the consolidated balance sheets
and are being amortized over the life of the debt.
In October 1997, the Company acquired certain rights to two intellectual
property portfolios by paying $9.8 million in cash and issuing $10 million in
notes payable. These notes were stated net of $1.6 million in discounts with
imputed interest rates of 7%, and were payable in installments over the next
five to six years. In July and September 1998, the Company acquired remaining
rights under these intellectual portfolios by making additional payments of
$7.5 million and $3.8 million, respectively.
A note relating to the 1995 acquisition of TCS was payable on October 31,
1998. In 1999, $1.6 million was paid on this note. Payment of the remaining
balance of $1.7 million on this note was delayed pending resolution of various
tax matters relating to periods prior to the Company's acquisition of TCS.
F-21
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8: 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 are
granted at fair market value. Options granted to nondirectors become
exercisable as determined by the Board of Directors (generally over one to
four years) and typically expire seven to ten years after the date of grant.
Options granted to outside directors become exercisable over four years and
expire ten years after the date of grant.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
Weighted-
Average
Number of Exercise
Shares Price
---------- ---------
<S> <C> <C>
Outstanding, January 1, 1997 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
==========
Granted 7,549,395 $20.70
Canceled (4,819,269) 25.52
Exercised (1,149,816) 8.92
----------
Outstanding, December 31, 1998 10,528,842 $15.55
==========
Granted 5,310,584 $11.41
Canceled (3,221,773) 16.69
Exercised (2,192,175) 9.87
----------
Outstanding, December 31, 1999 10,425,478 $14.28
==========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Range of Number Life Exercise Number Exercise
Exercise Prices Outstanding (in years) Price Exercisable Price
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.16 -- $ 6.97 446,449 4.30 4.62 335,844 $ 4.16
7.00 -- 9.88 3,093,481 8.19 8.43 437,623 9.32
10.09 -- 13.94 2,173,126 8.44 12.67 392,679 11.58
14.06 -- 18.50 3,729,577 7.21 18.15 1,638,914 18.10
18.63 -- 37.94 982,845 8.06 25.96 204,177 24.77
---------- ---------
$ 0.16 -- $37.94 10,425,478 7.71 $14.28 3,009,237 $14.87
========== =========
</TABLE>
At December 31, 1999, 3,002,005 shares were available for future grant under
the Company's stock option plans. At December 31, 1998 and 1997, options to
purchase 3,967,930 and 3,981,370 shares, respectively, were exercisable at
weighted-average exercise prices of $11.05 and $11.44, respectively.
F-22
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Repurchase Program
In October 1998, the Company's Board of Directors approved a stock repurchase
program to acquire up to 5 million shares of its common stock. The Company
repurchased 2,990,000 shares in 1999 and 2,010,000 shares in 1998 at an
average acquisition price of $7.26 and $15.72 per share, respectively. A total
of 5 million shares have been repurchased under this program at an average
acquisition price of approximately $10.66. The Company completed this program
in June 1999 and has retired all shares repurchased.
Stock Option Exchange Program
In October 1998, the Company's Board of Directors approved an option exchange
program for all current outstanding stock with exercise prices in excess of
$17.50 per share. Executive officers and non-employee directors of the Company
were not eligible to participate in the exchange program. Under this program,
eligible employees could elect to exchange existing options with higher
exercise prices for the same number of replacement options with an exercise
price equal to the closing sale price of the Company's common stock on
November 21, 1998. Replacement options were granted with a one-year exercise
prohibition period. The vesting schedule for unvested shares and the final
expiration date of the replacement options remained the same as the expiring
option. On November 21, 1998, 3.8 million options with exercise prices ranging
from $19.63 to $32.02 per share were exchanged for the same number of options
with an exercise price of $18.50 per share.
Shareholder Rights Plan
On May 11, 1999, the Company's Board of Directors declared a dividend of one
preferred share purchase right (a Right) for each outstanding share of common
stock, $0.01 par value, of the Company. The dividend was payable on May 26,
1999 to shareholders of record as of the close of business on that date. Each
Right entitles the registered holder to purchase from the Company one-
thousandth of a share of Series A Participating Preferred Stock, $0.01 par
value, of the Company, subject to adjustment, at a price of $80.00 per one-
thousandth of a share, subject to adjustment. The rights are not exercisable
until 10 days after a person or group announces acquisition of 15% or more of
Aspect's common stock or tenders such an offer. The rights expire on May 11,
2009. The description and terms of the Rights are set forth in a Preferred
Shares Rights Agreement dated May 11, 1999.
Employee Stock Purchase Plan
In 1990, the Board of Directors established the 1990 Employee Stock Purchase
Plan, under which 3.6 million common shares are currently 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 each offering
period. At December 31, 1999, 2,974,368 shares had been issued under this
plan.
Shares Reserved for Issuance
At December 31, 1999, the Company had reserved shares of common stock for
issuance as follows:
<TABLE>
<S> <C>
Stock option plans 13,427,483
Stock purchase plans 625,632
Other stock plans 7,810
----------
Total 14,060,925
==========
</TABLE>
F-23
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. SFAS No. 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
tradeable, 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 No. 123, do not necessarily
provide a reliable single measure of the fair value of the Company's stock-
based awards.
The fair value of each option grant (estimated on the date of grant) were
estimated using the Black-Scholes model with the following assumptions:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
Employee Stock Options 1999 1998 1997
---------------------- ------- ------- -------
<S> <C> <C> <C>
Expected life from vest date (in months) 14 7 7
Stock volatility 74% 63% 50%
Risk-free interest rate 5% 5% 6%
Dividend yield -- -- --
Weighted-average fair value $ 7.90 $ 8.50 $ 9.50
Employee Stock Purchase Plan
----------------------------
Expected life from vest date (in months) 6 6 6
Stock volatility 94% 72% 72%
Risk-free interest rate 5% 5% 6%
Dividend yield -- -- --
Weighted-average fair value $ 7.65 $ 9.00 $ 9.00
</TABLE>
The Company accounts 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 stock option plans
and the 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 beginning in 1995 consistent with the method of
SFAS No. 123, the Company's net income (loss) and earnings (loss) per share
would have been reduced to the pro forma amounts indicated below (in
thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) As reported $(28,851) $32,490 $35,182
Pro forma $(46,709) $15,632 $21,267
Basic earnings (loss) per share As reported $ (0.60) $ 0.64 $ 0.71
Pro forma $ (0.97) $ 0.31 $ 0.43
Diluted earnings (loss) per share As reported $ (0.60) $ 0.61 $ 0.67
Pro forma $ (0.97) $ 0.29 $ 0.41
</TABLE>
The initial impact of adopting SFAS No. 123 disclosures may not be
representative of the effect on pro forma net income (loss) and earnings
(loss) per share in future years because the impact of outstanding non-vested
stock
F-24
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Note 9: Income Taxes
Tax benefits (provisions) for the years ended December 31 consist of (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 5,057 $(17,882) $(27,183)
State 578 (3,533) (4,855)
Foreign 980 (1,985) (2,342)
------- -------- --------
Subtotal 6,615 (23,400) (34,380)
Deferred:
Federal 3,645 (3,159) 8,217
State 2,104 (200) 1,067
------- -------- --------
Subtotal 5,749 (3,359) 9,284
------- -------- --------
Total $12,364 $(26,759) $(25,096)
======= ======== ========
</TABLE>
Income (loss) before income taxes for the years ended December 31 consists of
(in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Domestic $(19,556) $57,348 $53,095
Foreign-net (21,659) 1,901 7,183
-------- ------- -------
Total $(41,215) $59,249 $60,278
======== ======= =======
</TABLE>
A reconciliation of the statutory federal income tax rate and the effective tax
rate as a percentage of income (loss) before income taxes for the years ended
December 31 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
Tax at statutory rate (35.0)% 35.0 % 35.0 %
State income taxes--net of federal effect (3.5) 4.1 4.1
Nondeductible goodwill amortization 6.3 2.6 --
Research and development tax credits (7.7) (1.5) (1.6)
Tax exempt investment income (1.4) (1.2) (1.0)
Foreign sales corporation benefit (0.7) (1.0) (0.8)
Foreign losses taxed at different rates 13.4 -- --
Other (1.4) 0.7 2.8
----- ---- ----
Subtotal (30.0)% 38.7 % 38.5 %
Nondeductible charge for purchased in-process
technology -- % 6.5 % 3.1 %
----- ---- ----
Total (30.0)% 45.2 % 41.6 %
===== ==== ====
</TABLE>
F- 25
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Accruals deductible in different periods $ 10,153 $ 9,510
Depreciation and amortization 4,044 3,678
Net operating loss and tax credit carryovers of
purchased company 5,500 5,500
Costs capitalized for tax purposes 2,000 --
Other deferred tax assets 468 473
-------- --------
Total deferred tax assets $ 22,165 $ 19,161
======== ========
Deferred tax liabilities:
Unrealized gains on investments $(32,328) $ (257)
Nondeductible intangible amortization (11,197) (13,641)
Other deferred tax liabilities (571) (873)
-------- --------
Total deferred tax liabilities $(44,096) $(14,771)
======== ========
Net deferred tax asset (liability) $(21,931) $ 4,390
======== ========
Deferred taxes included in:
Other current assets $ -- $ 8,660
Other accrued liabilities (16,817) --
Noncurrent deferred taxes (5,114) (4,270)
-------- --------
Net deferred tax asset (liability) $(21,931) $ 4,390
======== ========
</TABLE>
At December 31, 1999, the Company had approximately $13.3 million of U.S. net
operating loss and $0.8 million tax credit carryovers from its acquisition of
Voicetek, which expire beginning in 2004. The amount of net operating losses
relating to the Voicetek acquisition that can be utilized in any given year to
reduce certain future taxable income may be limited.
Note 10: Commitments
Certain manufacturing and administrative facilities are leased under operating
leases through 2023. 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 $12.1
million, $10.4 million, and $6.4 million, in 1999, 1998, and 1997,
respectively.
Future minimum payments under the Company's operating leases at December 31,
1999, are (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 $12,898
2001 9,858
2002 8,339
2003 6,911
2004 5,516
2005 and thereafter 37,614
-------
Total $81,136
=======
</TABLE>
F-26
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11: Legal Proceedings
In February 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 terms of the
agreement, Aspect agreed to pay Lucent a one-time fee and future royalties
that are not expected to be material to Aspect's future results of operations.
Aspect recorded a non-recurring charge of $14 million during the year ended
December 31, 1997.
The Company is subject to various other legal proceedings and claims, either
asserted or unasserted, which arise in the normal course of business. The
Company does not believe that any current litigation or claims will have a
material adverse effect on the Company's business, operating results, or
financial condition.
Note 12: Related Party Transactions
In August 1999, the Company loaned an officer of the Company approximately
$800,000 pursuant to a full recourse promissory note which bears interest at
6% per annum, compounded annually. Principal and interest under the note is
due on the earlier of August 9, 2004 or June 1st following termination.
Repayments of principal amounts on the loan of approximately $300,000 and
$150,000 are to be made by the officer on August 9, 2002 and August 9, 2003,
respectively, with the remaining balance due on August 9, 2004.
In August 1999, the Company entered into a cash bonus agreement with an
officer of the Company, under which the Company agreed to pay cash bonuses of
approximately $766,000 in aggregate, which will be paid annually over a period
of five years beginning June 1, 2000.
Note 13: Earnings (Loss) Per Share
Basic and diluted earnings (loss) per share for the years ended December 31
are calculated as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Weighted average shares outstanding 48,375 50,459 49,302
Net income (loss) $(28,851) $32,490 $35,182
Basic earnings (loss) per share $ (0.60) $ 0.64 $ 0.71
======== ======= =======
Weighted average shares outstanding 48,375 50,459 49,302
Dilutive effect of options -- 2,687 3,005
-------- ------- -------
Total 48,375 53,146 52,307
Net income (loss) $(28,851) $32,490 $35,182
Diluted earnings (loss) per share $ (0.60) $ 0.61 $ 0.67
======== ======= =======
</TABLE>
At December 31, 1999, the Company had common stock options outstanding which
could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted earnings per share as the common
stock options' exercise prices were greater than the average market price of
the common shares for the period. For the years ended December 31, 1999, 1998
and 1997, 5.8 million, 2.9 million and 2.7 million shares, respectively, of
such common stock were excluded from the diluted earnings per share
computations. Additionally, as of December 31, 1999 and 1998, there were 4.3
million shares of common stock issuable upon conversion of debentures. The
weighted average of these shares were not included in the calculation of
diluted earnings per share for the year ended December 31, 1999 and 1998,
because this inclusion would have been anti-dilutive.
F-27
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14: Segment, Geographic and Customer Information
The Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information," at December 31, 1998, which establishes annual and
interim reporting standards for an enterprise's operating segments and related
disclosures about its products and services, major customers, and the
countries in which the entity holds material assets and reports revenue. Under
SFAS No. 131, the Company's operations are reported as one operating segment,
therefore, all financial segment information required by SFAS No. 131 can be
found in the consolidated financial statements. For geographical reporting,
revenues are attributed to the geographic location in which customers are
invoiced and revenue is recognized. Long-lived assets (excluding intangible
assets for purposes of geographical reporting) consist of property and
equipment and are attributed to the geographic location in which they are
located. No single customer accounted for 10% or more of net revenues or
accounts receivable in 1999, 1998, or 1997.
The following presents net revenues for the years ended December 31, 1999,
1998, and 1997 and property and equipment as of December 31, 1999, 1998, and
1997 by geographic area (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net revenues:
United States $415,562 $438,833 $337,020
United Kingdom 67,547 82,678 60,876
Other International (<10%) 72,895 60,468 43,514
Eliminations (66,892) (69,663) (50,768)
-------- -------- --------
Total Consolidated $489,112 $512,316 $390,642
======== ======== ========
Long-lived assets (property and equipment):
United States $ 63,195 $ 54,523 $ 49,316
United Kingdom 12,639 9,319 6,150
Other International (<10%) 6,175 6,128 4,181
Eliminations (2,612) (778) (943)
-------- -------- --------
Total Consolidated $ 79,397 $ 69,192 $ 58,704
======== ======== ========
</TABLE>
F-28
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15: Financial Instruments Fair Value Disclosure
The following summary disclosures are made in accordance with the provisions
of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",
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 No. 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. Because SFAS No. 107
excludes certain financial instruments and all non-financial 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>
1999 1998
------------------ ------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 84,826 $ 84,826 $ 67,071 $ 67,071
Short-term investments 167,840 167,840 129,040 129,040
Marketable equity securities 86,139 86,139 -- --
Other investments in equity securities 1,450 1,450 3,600 3,600
Commitments:
Foreign exchange sale contracts $ 48,212 $ 48,643 $134,018 $135,092
Foreign exchange purchase contracts -- -- 69,075 69,074
-------- -------- -------- --------
Net foreign exchange sale contracts $ 48,212 $ 48,643 $ 64,943 $ 66,018
</TABLE>
Of the estimated fair value of open sale contracts at December 31, 1999 and
1998, approximately $49 million and $66 million respectively were current
hedges against intercompany balances. The remaining sale contracts outstanding
at December 31, 1998 represented prior hedges against intercompany balances
that had been offset by purchase contracts with common expiration dates in
January 1999. At December 31, 1999 and 1998, foreign exchange contracts were
primarily deutsche marks, British pounds, and Dutch guilders. Unrealized gains
or losses on foreign exchange contracts were not significant at December 31,
1999 or 1998. Other than the items disclosed in the previous table, the
Company has not entered into any other material financial derivative
instruments.
Included in other current assets at December 31, 1997, was an investment in
equity securities with a market value of $2,261,000 (cost of $169,000). During
1998 this investment in equity securities was donated in lieu of cash to fund
the Company's corporate giving program. The Company realized a gain of
$2,070,000 from the sale of appreciated equity securities in 1997. Other
realized gains and losses on debt and equity securities were not significant
in the periods presented.
The fair value of cash and cash equivalents reported in the balance sheets
approximate their carrying value. The fair value of short-term investments,
investments in marketable equity securities, and foreign exchange contracts is
based on quoted market prices. Marketable equity securities are comprised of
investments in companies in the historically volatile high-technology market.
Note 16: Subsequent Events
On February 18, 2000, the Company acquired privately held PakNetX Corporation
(PakNetX), an eBusiness software provider based in Salem, New Hampshire. The
transaction will enable Aspect to integrate multimedia-over-IP technology into
its flagship customer relationship portal software and strengthen the
Company's eCRM market position. The transaction will be accounted for as a
purchase and will result in a one-time charge of
F-29
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
approximately $5 million related to in-process technology in the quarter ended
March 31, 2000. The Company agreed to pay approximately $55 million in cash
for all of the outstanding common and preferred shares and warrants of
PakNetX, which includes $10 million in payments contingent on the achievement
of certain milestones. In addition, Aspect assumed the existing PakNetX stock
option plan and converted PakNetX stock options into Aspect stock options. The
historical operations of PakNetX are not material to the financial position or
results of operations of the Company.
F-30
<PAGE>
Aspect Communications Corporation Annual Financial Report to Shareholders
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Aspect Communications
Corporation:
We have audited the accompanying consolidated balance sheets of Aspect
Communications Corporation (formerly Aspect Telecommunications Corporation)
and its subsidiaries (the Company) as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. 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 respects, the financial position of Aspect Communications Corporation
and its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
San Jose, California
January 22, 2000 (February 18, 2000, as to Note 16)
F-31
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Dec. 31 Sept. 30 June 30 Mar. 31
-------- -------- -------- --------
(in thousands except per share
data)
<S> <C> <C> <C> <C>
1999 Quarters Ended
Net revenues $146,899 $129,942 $112,186 $100,085
Gross margin 79,612 65,996 53,644 46,691
(% of net revenues) 54% 51% 48% 47%
Income (loss) from operations 1,173 (4,959) (17,458) (18,753)
Net income (loss) $ 597 $ (3,698) $(12,470) $(13,280)
(% of net revenues) 0% -3% -11% -13%
Diluted earnings (loss) per share $ 0.01 $ (0.08) $ (0.26) $ (0.27)
Quarterly stock price:
High $ 43.31 $ 17.06 $ 10.31 $ 17.06
Low $ 15.44 $ 9.81 $ 6.13 $ 6.25
1998 Quarters Ended
Net revenues $134,816 $137,952 $126,091 $113,457
Gross margin 71,640 77,809 69,768 64,915
(% of net revenues) 53% 56% 55% 57%
Income (loss) from operations 9,172 17,938 8,127 21,001
Net income (loss) $ 5,662 $ 11,242 $ 1,689 $ 13,897
(% of net revenues) 4% 8% 1% 12%
Diluted earnings (loss) per share $ 0.11 $ 0.21 $ 0.03 $ 0.26
Quarterly stock price:
High $ 24.00 $ 36.25 $ 31.25 $ 30.38
Low $ 11.63 $ 23.81 $ 23.75 $ 21.00
</TABLE>
Income from operations and net income in the second quarter of 1998 include a
$10 million ($0.19 per diluted share) non-recurring charge for purchased in
process technology.
The information shown below has been adjusted for the $10 million non-
recurring charge for purchased in-process technology as well as amortization
of intangible assets purchased in connection with the acquisitions of TCS,
Voicetek, Commerce Soft, and various intellectual property portfolios.
<TABLE>
<CAPTION>
Dec. 31 Sept. 30 June 30 Mar. 31
------- -------- ------- -------
(in thousands, except per share
data)
<S> <C> <C> <C> <C>
1999 Quarters Ended
Net income (loss) excluding amortization
of intangibles $4,050 $ (114) $(8,656) $(9,438)
Diluted earnings (loss) per share
excluding amortization of intangibles $ 0.08 $ 0.00 $ (0.18) $ (0.19)
1998 Quarters Ended
Net income excluding non-recurring item
and amortization of intangibles $9,577 $15,066 $14,101 $14,728
Diluted earnings per share excluding non-
recurring item and amortization of
intangibles $ 0.19 $ 0.28 $ 0.26 $ 0.28
</TABLE>
F-32
<PAGE>
ASPECT COMMUNICATIONS CORPORATION
1990 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1990 Employee Stock Purchase
Plan of Aspect Communications Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan shall, accordingly, he construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Aspect Communications Corporation, a
-------
California corporation.
(e) "Compensation" shall mean all base straight time gross earnings
------------
plus commissions, overtime, shift differential, on-call pay, call-in pay,
incentive compensation, bonus or other cash compensation but exclusive of fringe
benefits (including disability benefits).
(f) "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an employee of the
--------
Company for purposes of tax withholding under the Code whose customary
employment with the Company or any Designated Subsidiary is at least twenty (20)
hours per week and more than five (5) months in any calendar year. For purposes
of the Plan, the employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of absence approved by the
Company. Where the period of leave exceeds 90 days and the individual's right
to reemployment is not guaranteed either by statute or by contract, the
employment relationship will be deemed to have terminated on the 91st day of
such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
(i) "Exercise Date" shall mean the last day of each Offering Period.
-------------
(j) "Offering Period" shall mean a period of approximately six (6)
---------------
months, commencing on February 16 and terminating on August 15, or commencing on
August 16 and terminating on February 15 of the next year, during which an
option granted pursuant to the Plan may be exercised. If February 16 or August
16 falls on a Saturday, Sunday or holiday, then the period will
<PAGE>
commence on the next business day. If August 15 or February 15 falls on a
Saturday, Sunday or holiday, then the period will terminate on the preceding
business day.
(k) "Plan" shall mean this Employee Stock Purchase Plan.
----
(l) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(m) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(n) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the National Association of Securities Dealers Automated Quotation System
are open for trading.
3. Eligibility.
-----------
(a) Any Employee as defined in paragraph 2 who shall be employed by
the Company on a given Enrollment Date shall be eligible to participate in the
Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 425(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (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) which permits his or her
rights to purchase stock under all employee stock purchase plans of the Company
and its subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand
Dollars ($25,000) worth of stock (determined at the fair market value of the
shares at the time such option is granted) for each calendar year in which such
option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive
----------------
Offering Periods with a new Offering Period commencing on February 16 and August
16 of each year (if February 16 or August 16 falls on a Saturday, Sunday or
holiday, the period will commence on the next business day), or on such other
date as the Board shall determine, and continuing thereafter until terminated in
accordance with paragraph 19 hereof. The Board shall have the power to change
the duration of Offering Periods with respect to future offerings without
shareholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan either
by enrolling via the Genie Human Resources Information Access and Processing
System or by completing a subscription agreement authorizing payroll deductions
in the form provided by the Company's Stock Administration department.
Enrollment must be received by the Stock Administration department prior to the
close of business on the applicable Enrollment Date, unless a later time for
filing the subscription agreement is set by the Board for all eligible Employees
with respect to a given Offering Period.
<PAGE>
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in paragraph 10.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each payday during the
Offering Period in an amount not exceeding ten percent (10%) of the Compensation
which he or she receives on each payday during the Offering Period, and the
aggregate of such payroll deductions during the Offering Period shall not exceed
ten percent (10%) of the participant's Compensation during said Offering Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in paragraph 10, or may decrease, but not increase, the rate of his
or her payroll deductions during the Offering Period (within the limitations of
Section 6(a)) by changing his or her payroll deduction rate through the Genie
Human Resources Information Access and Processing System or by completing and
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board shall be authorized to limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following ten (10) business days
after the Company's receipt of the new subscription agreement or change in
payroll deduction rate unless the Company elects to process a given change in
participation more quickly. A participant's subscription agreement or change in
payroll deduction rate shall remain in effect for successive Offering Periods
unless revised as provided herein or terminated as provided in paragraph 10.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and paragraph 3(b) herein, a participant's
payroll deductions may be decreased to 0% during an Offering Period. Payroll
deductions shall recommence at the rate provided in such participant's
subscription agreement at the beginning of the first Offering Period which is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in paragraph 10.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefit attributable to sale or early disposition of
Common Stock purchased by the Employee under this Plan.
7. Grant of Option.
---------------
(a) On the Enrollment Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Exercise Date during such Offering Period (at the per share
option price) up to a number of shares of the Company's Common Stock determined
by dividing such Employee's payroll deductions accumulated prior to such
<PAGE>
Exercise Date and retained in the Participant's account as of the Exercise Date
by the lower of (i) eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Enrollment Date or (ii) eighty-five
percent (85%) of the fair market value of a share of the Company's Common Stock
on the Exercise Date; provided, however, that the maximum number of shares an
Employee may purchase during each Offering Period shall be 250 Shares, subject
to a pro rata adjustment upon a change in the duration of a future Offering
Period and subject to adjustment pursuant to Section 18 below and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in
Section 8, unless the participant has withdrawn pursuant to Section 10, and
shall expire on the last day of the Offering Period. Fair market value of a
share of the Company's Common Stock shall be determined as provided in Section
7(b) herein.
(b) The option price per share of the shares offered in a given
Offering Period shall be the lower of: (i) 85% of the fair market value of a
share of the Common Stock of the Company on the Enrollment Date; or (ii) 85% of
the fair market value of a share of the Common Stock of the Company on the
Exercise Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion; provided, however, that
where there is a public market for the Common Stock, the fair market value per
share shall be the closing sale price of the Common Stock for such date, as
reported by the Nasdaq National Market, or, in the event the Common Stock is
listed on a stock exchange, the fair market value per share shall be the closing
price on such exchange on such date, as reported in the Wall Street Journal.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in paragraph 10 below, his or her option for the purchase of shares
will be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable option price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased and any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, as the Board or its committee shall determine, subject to an
earlier withdrawal by the participant as provided in paragraph 10. Any other
monies left over in a participant's account after an Exercise Date shall be
refunded to the participant. During a participant's lifetime, a participant's
option to purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by withdrawing through the Genie Human
Resources Information Access and Processing System or by giving written notice
to the Company. All of the participant's payroll deductions credited to his or
her account will be paid to such participant promptly after receipt of notice of
withdrawal and such participant's option for the Offering Period will be
automatically terminated, and no further payroll deductions for the purchase of
shares will be made during the Offering Period. If a participant withdraws from
an Offering Period, payroll deductions will not resume at the beginning of the
succeeding Offering Period unless the participant delivers to the Company a new
subscription agreement.
<PAGE>
(b) Except as otherwise provided below, upon a participant's ceasing
to be an Employee for any reason or upon termination of a participant's
employment relationship (as described in Section 2(g)), the payroll deductions
credited to such participant's account during the Offering Period but not yet
used to exercise the option will be returned to such participant or, in the case
of his or her death, to the person or persons entitled thereto under paragraph
14, and such participant's option will be automatically terminated. In the
event a participant's employment terminates by reason of death within three (3)
months of an Exercise Date, the payroll deductions credited to the participant's
account during the Offering Period up to the date of death, but not yet used to
exercise the option, will be held in the participant's account and the maximum
number of full shares subject to such option shall be purchased for the
participant's account on the Exercise Date at the applicable option price. The
shares purchased for the participant will be issued to the person or persons
entitled thereto under Section 14.
(c) In the event an Employee fails to remain an Employee of the
Company for at least twenty (20) hours per week during an Offering Period in
which the Employee is a participant, he or she will be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to his or her account
will be returned to such participant and such participant's option terminated.
(d) A participant's withdrawal from an Offering Period will not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
12. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 6,000,000 shares,
subject to adjustment upon changes in capitalization of the Company as provided
in paragraph 18. If on a given Exercise Date the number of shares with respect
to which options are to be exercised exceeds the number of shares then available
under the Plan, the Company shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall determine to be equitable.
(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
13. Administration. The Plan shall be administered by the Board of the
--------------
Company or a committee of members of the Board appointed by the Board. The
Board or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties. Members of the
Board who are eligible Employees are permitted to participate in the Plan,
provided that:
<PAGE>
(a) Members of the Board who are eligible to participate in the Plan
may not vote on any matter affecting the administration of the Plan or the grant
of any option pursuant to the Plan.
(b) If a Committee is established to administer the Plan, no member of
the Board who is eligible to participate in the Plan may be a member of the
Committee.
14. Designation of Beneficiary.
--------------------------
(a) A participant may designate a beneficiary through the Genie Human
Resources Information Access and Processing System or by giving written notice
to the Company. Such beneficiary will receive any shares and cash, if any, from
the participant's account under the Plan in the event of such participant's
death within three (3) months of, or subsequent to, an Exercise Date on which
the option is exercised but prior to delivery to such participant of such shares
and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any shares and/or cash from the participant's
account under the Plan in the event of such participant's death prior to
exercise of the option.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in paragraph 14 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds from an Offering Period in accordance with paragraph 10.
16. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least semi-annually, which statements will set forth the amounts of payroll
deductions, the per share purchase price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization. Subject to any required
------------------------------------------
action by the shareholders of the Company, the Reserves as well as the price per
share of Common Stock covered by each option under the Plan which has not yet
been exercised, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
<PAGE>
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an option.
In the event of the proposed dissolution or liquidation of the
Company, the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.
In the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, each
option under the Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, to shorten the
Offering Period then in progress by setting a new Exercise Date (the "New
Exercise Date"). If the Board shortens the Offering Period then in progress in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify each participant in writing, at least ten (10) days prior
to the New Exercise Date, that the Exercise Date for his option has been changed
to the New Exercise Date and that his option will be exercised automatically on
the New Exercise Date, unless prior to such date he has withdrawn from the
Offering Period as provided in paragraph 10. For purposes of this paragraph, an
option granted under the Plan shall be deemed to be assumed if, following the
sale of assets or merger, the option confers the right to purchase, for each
share of option stock subject to the option immediately prior to the sale of
assets or merger, the consideration (whether stock, cash or other securities or
property) received in the sale of assets or merger by holders of Common Stock
for each share of Common Stock held on the effective date of the transaction
(and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if such consideration received in the
sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation and the participant, provide
for the consideration to be received upon exercise of the option to be solely
common stock of the successor corporation or its parent equal in fair market
value to the per share consideration received by holders of Common Stock and the
sale of assets or merger.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
19. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in paragraph 18, no such
termination can affect options previously granted, provided that an Offering
Period may be terminated by the Board of Directors on an Exercise Date or by the
Board's setting a new Exercise Date with respect to an Offering Period then in
progress if the Board determines that the termination of the Plan and/or the
Offering Period is in the best interests of the Company and its shareholders or
if continuation of the Plan and/or the Offering Period would cause the Company
to incur adverse accounting charges as a result of a change in the generally
accepted accounting principles applicable to the Plan. Except as provided in
paragraph 18 and this paragraph 19, no amendment may make any change in any
option
<PAGE>
theretofore granted which adversely affects the rights of any participant. To
the extent necessary to comply with Rule 16b-3 under the Securities Exchange Act
of 1934, as amended, or under Section 423 of the Code (or any successor rule or
provision or any other applicable law or regulation), the Company shall obtain
shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of twenty
(20) years unless sooner terminated under paragraph 19.
<PAGE>
THE ASPECT INCENTIVE PLAN
Summary
The Aspect Incentive Plan (AIP) is a formula-driven, performance-based incentive
plan that is reviewed and approved by the Compensation Committee prior to the
start of each fiscal year. Aspect Communications Corporation (the Company)
established the AIP beginning in January 2000 for all non-sales employees to
create one Company-wide incentive plan to:
. Provide a common framework for managing and rewarding performance across the
organization,
. Clearly establish and communicate the goals and objectives for the Company and
each participating employee,
. Motivate and reward performance supporting Aspect's critical business goals,
. Link rewards with individual performance, and
. Provide upside opportunity along with downside risk.
The funding for the AIP is determined by the Company's performance against a set
of performance goals and measurements as determined by the Compensation
Committee no later than 90 days after the start of each fiscal year. In FY2000,
these goals and measurements include revenue growth and operating profit margins
excluding the amortization of intangible assets. The Compensation Committee may
also include other metrics in future years as deemed appropriate, including, but
not limited to, total shareholder return, stock price, value-added measures,
asset turnover, return on investment, earnings per share, customer satisfaction,
internal operational criteria and management objectives.
Achievements of the goals are substantially uncertain at the time the goals are
established and the Compensation Committee certifies the attainment of the goals
before any payment is made. The formula specifies the maximum annual payout for
any one employee and precludes the Compensation Committee from increasing any
amount once determined by the performance against the Company, Division/Line of
Business and Individual pre-established goals.
Eligibility
All employees other than direct sales, pre-sales and non-executive sales
management employees are eligible to participate in the AIP, including all
executive officers.
Performance Period
Goals are set annually but they are measured and paid quarterly.
Levels/Types of Goals
Three types or levels of measures are used: Corporate, Division/Line of Business
and Individual. The annual Corporate goals are used to establish the related
Division
<PAGE>
goals and Individual goals. Results on all three levels of goals are measured
and incentive payments are paid quarterly based on these results.
Corporate: The Compensation Committee will review and approve the Corporate
Goals set at the beginning of the fiscal year. Company performance against
these goals will be determined at the end of each fiscal quarter and can range
from 0% to 200% against these pre-established goals.
Division/Line of Business: The Office of the President will review and
approve the Division/Line of Business goals set at the beginning of the
measurement period. The Office of the President will evaluate how each
Division/Line of Business performed at the end of the measurement period
against these goals. Division/Line of Business performance can range
from 0% to 150% against these pre-established goals.
Individual: Appropriate Company managers will evaluate individuals on how they
performed at the end of the measurement period compared to the goals that were
established with their respective management at the beginning of the
measurement period. Individual's performance against these pre-established
goals can range from 0% to 150%. Executive officers are not eligible for this
individual component of the AIP.
AIP Payment Amounts
The AIP payment amounts for all eligible employees, with the exception of the
Company's executive officers will be calculated by using the following formula:
E T x LP x IP x CP = BA
E = Quarterly earnings of the employee
T = Target AIP %, which is based on grade level
LP = Division/Line of Business performance results
IP = Individual performance percentage
CP = Company performance
BA = AIP payment amount
Note: While this formula will generally be followed, Aspect management reserves
the right to modify actual payout based on their subjective, but not arbitrary,
determination of an employee's contribution during the quarter. This applies to
all employees except executive officers. For executive officers, the AIP
payment amounts will be determined by the Compensation Committee based on
measurable Company performance results and Division/Line of Business performance
results against pre-established goals.
<PAGE>
Example of AIP payment
E = $20,000
T = 8%
LP = 100%
IP = 100%
CP = 110%
BA = $1,760
($20,000) x (8%) x (100%) x (100%) x (110%) = $1,760
AIP payment Maximum and Minimum
The maximum AIP payment an individual can receive is 300% of his or her target;
for example if an employee's target is 8% of his or her quarterly earnings, then
the maximum the employee could receive is 24% of his or her quarterly earnings.
For FY 2000 only, if a non-manager employee is not on a formal performance
improvement plan and the Company performs at 100% or better, then the minimum
payout for that employee will be 4% of his or her quarterly pay. For managers,
the minimum payout can be 0.
Terms and Conditions
1. Employees hired by Aspect after the first workday of the quarter will have
any incentive award prorated for that quarter based on salary paid. The
AIP award calculation will be based on the individual's status at the
measurement date.
2. An individual must be employed at the time the award is paid to receive
it.
3. Generally, the AIP payment will be paid within 45 to 60 days after the last
day of the quarter.
4. All required payroll withholdings will be deducted from the gross incentive
payment.
5. Employees on a performance improvement plan are not eligible to receive an
AIP payment until their performance is satisfactory or better.
6. Aspect management can recommend to the Compensation Committee that the plan
be changed or cancelled at any time.
7. Eligibility in the plan does not constitute a contract of employment with
Aspect; employees are still employed "at will."
8. The Chief Executive Officer and the Sr. VP of Human Resources will decide
any issues with respect to the administration of the plan, and their
decisions will be final and binding.
Executive Compensation
The Compensation Committee adopted the AIP in December 1999 and the Board of
Directors ratified the AIP on March 17, 2000. The AIP was also designed to meet
the performance-based income exclusion requirements of Section 162(m) of the
Internal Revenue Code.
<PAGE>
<TABLE>
<CAPTION>
Aspect Communications Corporation Annual Financial Report to Shareholders
CORPORATE INFORMATION
<S> <C> <C> <C>
BOARD OF DIRECTORS Michael G. DeMatteis D. Scott Sibuns ASPECT CORPORATE HEADQUARTERS
James R. Carreker Vice President Vice President Aspect Communications
Chairman and Eastern Region Portal eRouting 1310 Ridder Park Drive
Chief Executive Officer San Jose, California
Aspect Communications Robert L. Hayes SECRETARY 95131-2313
Corporation Vice President and Craig W. Johnson Tel: +1 (408) 325-2200
eWorkforce Management Director, 1 (800) 226-8441
Debra J. Engel CTO Venture Law Group Fax: +1 (408) 325-2260
Investor and Advisor www.aspect.com
James T. Hirni INDEPENDENT AUDITORS
Norman A. Fogelsong Vice President Deloitte & Touche LLP PRIMARY LOCATIONS
General Partner eBusinessIP San Jose, California North America
Institutional Venture Partners Atlanta, Georgia
P.K. Karnik LEGAL COUNSEL Chelmsford, Massachusetts
John W. Peth Vice President Venture Law Group Chicago, Illinois
President and Chief Global Consulting Menlo Park, California Dallas, Texas
Executive Officer Denver, Colorado
Business Resource Group Mark D. Lepko TRANSFER AGENT Greenbelt, Maryland
Vice President Boston EquiServe, L.P. Irvine, California
EXECUTIVE OFFICERS Central Region Boston, Massachusetts Mexico City, Mexico
James R. Carreker Nashville, Tennessee
Chairman and Simon N. Lonsdale INVESTOR RELATIONS San Jose, California
Chief Executive Officer Vice President Additional copies of Seattle, Washington
Portal eBusiness this annual report and Toronto, Ontario, Canada
Beatriz V. Infante Applications other financial White Plains, New York
Co-President information are available
Mark J. Meltzer without charge upon Europe
Barry Wright Vice President request to: Amsterdam, The Netherlands
Co-President General Counsel Investor Relations Brussels, Belgium
Aspect Communications Copenhagen, Denmark
Deborah E. Barber Clive Merredew 1310 Ridder Park Drive Dublin, Ireland
Senior Vice President Vice President San Jose, California Dusseldorf, Germany
Human Resources and Corporate Real Estate and 95131-2313 Frankfurt, Germany
Services Facilities Tel: +1 (408) 325-2629 London, England
E-mail: [email protected] Manchester, England
Carol E. Broadbent John D. Meyers Munich, Germany
Senior Vice President Vice President STOCK LISTING Paris, France
Corporate Communications Platform Development Aspect Communications Zurich, Switzerland
Corporation's common stock
William H. Delevati David J. Parcell is traded on the Nasdaq Asia-Pacific
Senior Vice President Vice President Stock Market under the Hong Kong
Information Technology and EMEA symbol "ASPT." As of Singapore
Chief Information Officer December 31, 1999, there Sydney, Australia
James A. Patrice were approximately 967 Tokyo, Japan
David D. Hare Vice President shareholders of record of
Senior Vice President Global Support Aspect's common stock. (C)2000 Aspect Communications
Customer Services Corporation. Aspect and the
Ken Porter DIVIDEND POLICY Aspect logo are trademarks or
Kevin T. Parker Vice President Aspect has never paid registered trademarks of
Senior Vice President EMEA Services cash dividends on our Aspect Communications
Finance and capital stock. We currently Corporation in the United
Chief Financial Officer David B. Puglia anticipate that we will States and/or other countries.
Vice President retain all available funds All other product or
OFFICERS Product Marketing for use in our business. service names mentioned in
Gary E. Barnett this document may be
Senior Vice President Chris T. Purpura ANNUAL MEETING trademarks of the companies
eCRM Applications Vice President Aspect Communications with which they are associated.
Market Strategy Corporation's annual meeting
Rod D. Butters of shareholders will be held
Senior Vice President Andie L. Rees at 4:00 p.m. on May 4, 2000,
Product Strategy and Market Vice President at Aspect headquarters.
Strategy Asia-Pacific
Portal Platform
Garry A. Reichert
Frederick H. Harder Vice President
Senior Vice President Global Alliances
Product Operations
Ronald W. Sandstrom
Vice President
Customer Self-Service
Applications
</TABLE>
<PAGE>
1042-PS-00
<PAGE>
DETACH HERE
[ASPECT LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ASPECT COMMUNICATIONS CORPORATION
2000 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Aspect Communications Corporation, a
California corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and the Proxy Statement, each dated March 29, 2000, and
hereby appoints James R. Carreker, Kevin T. Parker 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 2000 Annual Meeting of Shareholders of Aspect Communications Corporation to
be held on May 4, 2000 at 4:00 p.m. at the Company's facilities located at 1310
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
AMENDMENT TO THE COMPANY'S BYLAWS, FOR THE AMENDMENT TO THE 1990 EMPLOYEE STOCK
PURCHASE PLAN, FOR THE APPROVAL OF THE ASPECT INCENTIVE 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.
- --------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- --------------- -------------
<PAGE>
[ASPECT logo]
c/o EquiServe
P.O.Box 9398
Boston, MA 02205-9398
DETACH HERE
[X] Please mark
votes as in
this example.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
1. Election of Directors. 2. Approval of an amendment to the [ ] [ ] [ ]
Company's Bylaws to increase the
Nominees: (01) James R. Carreker; (02) Debra J. Engel; authorized number of directors.
(03) Norman A. Fogelsong; (04) Christopher B. Paisley; 3. Approval of an amendment to the [ ] [ ] [ ]
(05) John W. Peth. 1990 Employee Stock Purchase Plan
to increase the number of shares
FOR WITHHELD of common stock reserved for
ALL [ ] [ ] FROM ALL issuance thereunder by 2,400,000
NOMINEES NOMINEES shares.
MARK HERE [ ] 4. Approval of the Aspect Incentive [ ] [ ] [ ]
IF YOU PLAN Plan.
TO ATTEND 5. Ratification of Deloitte & Touche [ ] [ ] [ ]
[ ]________________________________________ THE MEETING LLP as independent auditors of the
For all nominee(s) except as noted above. Company for the fiscal year ending
December 31, 2000.
and, in their discretion, upon such other matter or matters
which may properly come before the meeting and any
adjournment(s) thereof.
MARK HERE FOR 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:_______________
</TABLE>
