-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bgrks4i4xeRvp2nzCTEexSjHWs0h7YPWdG3qmDmqDVQtnqbcLteIej1KXBtQn0cI R7uCSrMOI3t9K4kMAROV/g== /in/edgar/work/20000814/0001012870-00-004335/0001012870-00-004335.txt : 20000921 0001012870-00-004335.hdr.sgml : 20000921 ACCESSION NUMBER: 0001012870-00-004335 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASPECT COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000779390 STANDARD INDUSTRIAL CLASSIFICATION: [7372 ] IRS NUMBER: 953962471 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18391 FILM NUMBER: 695734 BUSINESS ADDRESS: STREET 1: 1730 FOX DR CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4083252200 MAIL ADDRESS: STREET 1: 1730 FOX DRIVE CITY: SAN JOSE STATE: CA ZIP: 95131 FORMER COMPANY: FORMER CONFORMED NAME: ASPECT TELECOMMUNICATIONS CORP DATE OF NAME CHANGE: 19940218 10-Q 1 0001.txt FORM 10-Q PERIOD ENDED JUNE 30, 2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended June 30, 2000 or o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ______to ______ Commission file number: 0-18391 ASPECT COMMUNICATIONS CORPORATION (Exact name of registrant as specified in its charter) California 94-2974062 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1310 Ridder Park Drive, San Jose, California 95131-2313 (Address of principal executive offices and zip code) Registrant's telephone number: (408) 325-2200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ The number of shares outstanding of the Registrant's Common Stock, $.01 par value, was 51,723,147 at July 31, 2000. ASPECT COMMUNICATIONS CORPORATION INDEX
Description Page Number ----------- ----------- Cover Page 1 Index 2 Part I: Financial Information Item 1: Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 3 Condensed Consolidated Statements of Operations for the Three and Six Month Periods Ended June 30, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 2000, and 1999 5 Notes to Condensed Consolidated Financial Statements 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3: Qualitative and Quantitative Disclosures About Financial Market Risk 16 Item 4: Submission of Matters to a Vote of Security Holders 17 Part II: Other Information Item 6: Exhibits and Reports on Form 8-K 17 Signature 18
ASPECT COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
June 30, December 31, 2000 1999 ---------- ----------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 80,277 $ 84,826 Short-term investments 149,189 167,840 Marketable equity securities 59,774 86,139 Accounts receivable, net 97,640 77,138 Inventories 20,032 16,636 Other current assets 29,108 17,475 --------- --------- Total current assets 436,020 450,054 Property and equipment, net 92,474 79,397 Intangible assets, net 151,527 98,711 Other assets 16,864 8,050 --------- --------- Total assets $696,885 $636,212 --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 31,920 $ 14,525 Accrued compensation and related benefits 26,732 25,866 Other accrued liabilities 39,220 59,437 Deferred revenue 47,895 36,964 --------- --------- Total current liabilities 145,767 136,792 Deferred taxes 12,185 5,114 Convertible subordinated debentures 168,001 163,107 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: 51,673,160 and 49,462,303 at June 30, 2000 and December 31, 1999, respectively 219,026 155,277 Accumulated other comprehensive income 31,726 48,328 Retained earnings 120,180 127,594 --------- --------- Total shareholders' equity 370,932 331,199 --------- --------- Total liabilities and shareholders' equity $696,885 $636,212 --------- ---------
See Notes to Condensed Consolidated Financial Statements. ASPECT COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data - unaudited)
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 ---------- --------- ---------- --------- Net revenues: Product $ 73,580 $ 64,566 $ 159,941 $ 115,762 Services 64,821 47,620 126,711 96,509 ---------- --------- ---------- ---------- Total net revenues 138,401 112,186 286,652 212,271 ---------- --------- ---------- ---------- Cost of revenues: Cost of product revenues 27,282 22,044 57,006 39,784 Cost of services revenues 40,358 36,498 81,573 72,151 ---------- --------- ---------- ---------- Total cost of revenues 67,640 58,542 138,579 111,935 ---------- --------- ---------- ---------- Gross margin 70,761 53,644 148,073 100,336 Operating expenses: Research and development 26,604 21,916 52,825 41,417 Selling, general and administrative 56,011 49,186 106,935 95,129 Purchased in-process technology -- -- 5,018 -- ---------- --------- ---------- ---------- Total operating expenses 82,615 71,102 164,778 136,546 ---------- --------- ---------- ---------- Loss from operations (11,854) (17,458) (16,705) (36,210) Interest and other income 8,221 2,142 14,936 4,385 Interest expense (2,408) (2,497) (5,004) (4,959) ---------- --------- ---------- ---------- Loss before income taxes (6,041) (17,813) (6,773) (36,784) Benefit (provision) for income taxes 1,414 5,343 (643) 11,035 ---------- --------- ---------- ---------- Net loss $ (4,627) $ (12,470) $ (7,416) $ (25,749) ---------- --------- ---------- ---------- Basic and diluted loss per share $ (0.09) $ (0.26) $ (0.15) $ (0.53) Weighted average shares outstanding 51,413 47,634 50,977 48,395
See Notes to Condensed Consolidated Financial Statements. ASPECT COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands--unaudited)
Six Months Ended June 30, ------------------------------ 2000 1999 ------------------------------ Cash flows from operating activities: Net loss $ (7,416) $ (25,749) Reconciliation of net loss to cash provided by operating activities: Depreciation 16,451 10,556 Amortization of intangible assets 13,766 10,256 Purchased in-process technology 5,018 -- Noncash interest expense on debentures 4,894 4,613 Deferred taxes (22,987) (3,099) Changes in assets and liabilities; net of effects from company acquired in 2000: Accounts receivable (22,299) 38,192 Inventories (3,545) (330) Other current assets and other assets 18,799 (8,120) Accounts payable 17,026 1,518 Accrued compensation and related benefits 324 2,021 Other accrued liabilities (10,047) (2,463) Deferred revenue 11,482 11,066 ------------ ------------ Cash provided by operating activities 21,466 38,461 Cash flows from investing activities: Short-term investment purchases (195,428) (56,542) Short-term investment sales and maturities 214,633 52,583 Property and equipment purchases (30,624) (12,305) Purchase of company, net of cash acquired (44,942) -- ------------ ------------ Cash used in investing activities (56,361) (16,264) Cash flows from financing activities: Other common stock transactions--net 30,158 4,444 Repurchase of common stock -- (21,709) Payments on notes payable (1,676) (1,574) ------------ ------------ Cash provided by (used in) financing activities 28,482 (18,839) Effect of exchange rate changes on cash and cash equivalents 1,864 580 ------------- ------------ Increase (decrease) in cash and cash equivalents (4,549) 3,938 Cash and cash equivalents: Beginning of period 84,826 67,071 ------------ ------------ End of period $ 80,277 $ 71,009 ------------ ------------ Noncash investing and financing activities: Stock options issued in connection with the acquisition of PakNetX Corporation $ 10,422 --
See Notes to Condensed Consolidated Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--UNAUDITED Basis of Presentation The consolidated financial statements include the accounts of Aspect Communications Corporation (Aspect or the Company) and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the consolidated financial statements and notes thereto included in the Company's 1999 "Annual Financial Report to Shareholders" attached as an appendix to the Proxy Statement for the 2000 Annual Meeting of Shareholders. Business Combinations 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 was accounted for as a purchase and resulted in a one-time charge of approximately $5 million related to in-process technology in the quarter ended March 31, 2000. The Company paid approximately $45 million in cash for all of the outstanding common and preferred shares and warrants of PakNetX. The Company is also obligated to make up to $10 million in future payments contingent on the achievement of certain milestones. Such payments will be capitalized as part of the purchase price when the milestones are attained. In addition, Aspect assumed the existing PakNetX stock option plan and converted PakNetX stock options into options to purchase approximately 160,000 shares of Aspect Common Stock with a fair value of approximately $10 million, plus transaction costs of approximately $2 million. The historical operations of PakNetX are not material to the financial position or results of operations of the Company. The total purchase price and final allocation among the tangible and intangible assets and liabilities acquired (including purchased in-process technology) is summarized as follows (in thousands):
Amortization period Total purchase price: Purchase price allocation: (years) Total cash consideration $44,948 Tangible assets $301 Value of options assumed 10,422 Intangible assets: Transaction costs 1,850 Developed and core technology 41,466 7 Assembled workforce 567 4 Testing tools 518 4 Goodwill 24,018 7 In-process technology 5,018 Expensed Tangible liabilities (1,790) Deferred tax liabilities (12,878) ------- ------- $57,220 $57,220 ------- -------
As noted above, Aspect recorded a one-time charge of $5 million in the first quarter of 2000 for purchased in-process technology that had not reached technological feasibility and had no alternative future use. The purchased in- process technology related to the development of Version 4.0 of PakNetX's integrated contact center solution that had not reached technological feasibility and for which the successful development was therefore uncertain. Management expects that this product will be completed and will become available for sale in fiscal 2000 after integration into Aspect's product line. Aspect will begin to benefit from the acquired research and development related to this product upon shipment. Failure to reach successful completion of this project could result in impairment of the associated capitalized intangible assets and could require the Company to accelerate the time period over which the intangibles are being amortized, which could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. Significant assumptions used to determine the value of in-process technology included: (i) projected net cash flows that were expected to result from the development effort; (ii) an estimate of percentage complete for the project; and (iii) a discount rate of approximately 25%. As of June 30, 2000, technological feasibility had not been reached and no significant departures from the assumptions included in the valuation analysis have occurred. Reclassifications Certain prior-year amounts have been reclassified to conform to the current-year presentation. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories consist of (in thousands): June 30, December 31, 2000 1999 ------------ ------------ Raw materials $13,034 $9,816 Work in progress 3,364 3,529 Finished goods 3,634 3,291 ------- ------- Total $20,032 $16,636 ------- ------- Comprehensive Income (Loss) Comprehensive loss is calculated as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Net loss $ (4,627) $(12,470) $ (7,416) $(25,749) Unrealized gain (loss) on investments, net (4,590) 459 (16,355) 112 Accumulated translation adjustments, net 219 (217) (247) (1,028) -------- -------- --------- -------- Total comprehensive loss $ (8,998) $(12,228) $ (24,018) $(26,665) -------- -------- --------- --------
Interest and Other Income Interest and other income of $8.2 million in the second quarter of 2000 included a pre-tax gain of approximately $5.7 million on the sale of appreciated marketable equity securities. Interest and other income of $14.9 million for the first six months of 2000 included a pre-tax gain of approximately $9.4 million on the sale of appreciated marketable equity securities. Contingencies The Company is from time to time involved in litigation or claims that arise in the normal course of business. The Company does not expect that any current litigation or claims will have a material adverse effect on the Company's business, operating results, or financial condition. Per Share Information Basic loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted loss per share further includes the dilutive impact of stock options. Basic and diluted loss per share for the three and six months ended June 30 are calculated as follows (in thousands, except per share data):
Three Months Ended June 30, Six Months Ended June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Net loss $(4,627) $(12,470) $(7,416) $(25,749) Weighted average shares outstanding 51,413 47,634 50,977 48,395 Basic and diluted loss per share $(0.09) $(0.26) $(0.15) $(0.53)
At June 30, 2000 and 1999, the Company had 10.5 million and 11.9 million common stock options outstanding, respectively, which could potentially dilute basic earnings per share in the future. These options were excluded from the computation of diluted earnings per share because inclusion of these shares would have had an anti-dilutive effect, as the Company had a net loss for these periods. Additionally, as of June 30, 2000 and 1999, 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 any of the periods presented, because this inclusion would have been anti-dilutive. 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. Subsequent Event In July 2000, the Company paid $5 million in milestone payments related to the February 2000 PakNetX acquisition. This amount will be included in goodwill and will be amortized over the remaining life of the intangible asset. The Company anticipates making an additional $5 million milestone payment by the end of 2000. Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I - - Item 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis in the Company's 1999 Annual Financial Report to Shareholders attached as an appendix to Aspect's 2000 Proxy Statement. 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. Specific factors that may cause actual results to differ include: the significant percentage of Aspect's quarterly sales consummated in the last few days of the quarter making financial predictions especially difficult and raising a substantial risk of variance in actual results, as well as other risks that are discussed under the caption "Business Environment and Risk Factors". 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 or to reflect the occurrence of unanticipated events. Background and Acquisitions 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 was accounted for as a purchase and resulted in a one-time charge of approximately $5 million related to in-process technology in the quarter ended March 31, 2000. The Company paid approximately $45 million in cash for all of the outstanding common and preferred shares and warrants of PakNetX. The Company is also obligated to make up to $10 million in future payments contingent on the achievement of certain milestones. Such payments will be capitalized as part of the purchase price when the milestones are attained. In addition, Aspect assumed the existing PakNetX stock option plan and converted PakNetX stock options into options to purchase approximately 160,000 shares of Aspect Common Stock with a fair value of approximately $10 million, plus transaction costs of approximately $2 million. The historical operations of PakNetX are not material to the financial position or results of operations of the Company. The total purchase price and final allocation among the tangible and intangible assets and liabilities acquired (including purchased in-process technology) is summarized as follows (in thousands):
Amortization period Total purchase price: Purchase price allocation: (years) Total cash consideration $44,948 Tangible assets $ 301 Value of options assumed 10,422 Intangible assets: Transaction costs 1,850 Developed and core technology 41,466 7 Assembled workforce 567 4 Testing tools 518 4 Goodwill 24,018 7 In-process technology 5,018 Expensed Tangible liabilities (1,790) Deferred tax liabilities (12,878) ------- -------- $57,220 $ 57,220 ------- --------
As noted above, Aspect recorded a one-time charge of $5 million in the first quarter of 2000 for purchased in-process technology that had not reached technological feasibility and had no alternative future use. The purchased in-process technology related to the development of Version 4.0 of PakNetX's integrated contact center solution that had not reached technological feasibility and for which the successful development was therefore uncertain. Management expects that this product will be completed and will become available for sale in fiscal 2000 after integration into Aspect's product line. Aspect will begin to benefit from the acquired research and development related to this product upon shipment. Failure to reach successful completion of this project could result in impairment of the associated capitalized intangible assets and could require the Company to accelerate the time period over which the intangibles are being amortized, which could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. Significant assumptions used to determine the value of in-process technology included: (i) projected net cash flows that were expected to result from the development effort; (ii) an estimate of percentage complete for the project; and (iii) a discount rate of approximately 25%. As of June 30, 2000, technological feasibility had not been reached and no significant departures from the assumptions included in the valuation analysis had occurred. In July 2000, the Company paid $5 million in milestone payments related to the February 2000 PakNetX acquisition. This amount will be included in goodwill and will be amortized over the remaining life of the intangible asset. The Company anticipates making an additional $5 million milestone payment by the end of 2000. Results of Operations During 1999, we initiated a transformation of our business from a telecommunications equipment supplier to a provider of customer relationship portals and associated software applications. 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 that 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. 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 and associated software applications. Net revenues for the second quarter of 2000 increased 23% to $138.4 million from $112.2 million for the second quarter of 1999. Net revenues for the first six months of 2000 increased 35% to $286.7 million from $212.3 million for the first six months of 1999. International net revenues, as a percentage of total net revenues over the periods presented, continued to be approximately 33% in the second quarter and in the first six months of 2000. Product revenues for the second quarter of 2000 increased 14% to $73.6 million from $64.6 million for the second quarter of 1999. Product revenues for the first six months of 2000 increased 38% to $159.9 million from $115.8 million for the first six months of 1999. The increases across the periods presented relates primarily to the business model transformation previously described. Changes in average selling prices for our products across the periods presented are not meaningful due to the change in our business model. Gross margin on product revenues was 63% in the second quarter of 2000, and 66% in the second quarter of 1999. Gross margin on product revenues was 64% in the first six months of 2000, and 66% in the first six months of 1999. The decrease in product margins across the periods presented primarily reflects the change in product mix and the repricing and repackaging of Aspect's traditional product offerings. On a forward-looking basis, we anticipate that product margins will fluctuate from period to period due to fluctuations in mix of product revenues. Services revenues for the second quarter of 2000 increased 36% to $64.8 million from $47.6 million in the second quarter of 1999. Services revenues for the first six months of 2000 increased 31% to $126.7 million from $96.5 million for the first six months of 1999. Growth in services revenues resulted primarily from increases in maintenance revenues as a result of the growth in our installed base during Q1 and Q2 2000. Services revenues include fees for providing contractually agreed-upon system service, installation of products, systems integration revenues, and other support services. Gross margin on services revenues was 38% in the second quarter of 2000, and 23% in the second quarter of 1999. Gross margin on services revenues was 36% in the first six months of 2000, and 25% in the first six months of 1999. The increase in services margins reflects services revenues growing while the costs associated with providing the related services, in particular, costs associated with consulting and systems integration services, are stabilizing. 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 in the second quarter of 2000 increased 21% to $26.6 million from $21.9 million in the second quarter of 1999. R&D expenses in the first six months of 2000 (excluding the one-time in-process technology charge) increased 28% to $52.8 million from $41.4 million in the first six months of 1999. 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 19% and 20% in the second quarter of 2000 and 1999, respectively. As a percentage of net revenues, R&D expenses were 18% and 20% for the first six months of 2000 and 1999, respectively. Excluding amortization of intangible assets, R&D expenses were $24.1 million in the second quarter of 2000, and $20.9 million in the second quarter of 1999. Excluding amortization of intangible assets, R&D expenses were $48.5 million in the first six months of 2000, and $39.3 million in the first six months of 1999. We continue to believe that a 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 in the second quarter of 2000 increased 14% to $56.0 million from $49.2 million in the second quarter of 1999. SG&A expenses in the first six months of 2000 increased 12% to $106.9 million from $95.1 million in the first six months of 1999. The increases primarily resulted from additional amortization expenses related to the purchase of intangible assets as a result of the acquisition of PakNetX, increased staffing, and other costs related to the expansion of our business. SG&A expenses as a percentage of net revenues were 40% in the second quarter of 2000 and 44% in the second quarter of 1999. SG&A expenses as a percentage of net revenues were 37% in the first six months of 2000 and 45% in the first six months of 1999. Excluding amortization of intangible assets, SG&A expenses were $52.3 million in the second quarter of 2000 and $46.3 million in the second quarter of 1999. Excluding amortization of intangible assets, SG&A expenses were $100.0 million in the first six months of 2000 and $89.4 million in the first six months of 1999. 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 a non-recurring charge of $5 million in the first quarter of 2000, or $0.10 per diluted share, related to the acquisition of PakNetX. Net interest and other income and expense were a net income of $5.8 million in the second quarter of 2000, compared to $355,000 of net interest expense in the second quarter of 1999. The increase resulted primarily from a pre-tax gain of approximately $5.7 million on the sale of appreciated marketable equity securities, as well as an increase in interest income due to a rise in interest rates and amount of funds invested. Net interest and other income and expense were a net income of $9.9 million for the first six months of 2000, compared to a net expense of $574,000 in the first six months of 1999. The increase resulted primarily from a pre-tax gain of approximately $9.4 million on the sale of appreciated marketable equity securities. The Company's effective tax rate, excluding the effect of purchased in-process technology related to acquisitions, for the three and six months ended June 30, 2000 was 23.4% and (36.6%) compared with 30.0% for the same periods of 1999. Current year and 1999 effective tax rates reflect the non-deductibility of goodwill amortization. Fluctuations in the tax rate are primarily attributable to the amount of such goodwill amortization relative to income/loss before tax expense. Liquidity and Capital Resources At June 30, 2000, the principal source of liquidity consisted of cash, cash equivalents, short-term investments, and marketable equity securities totaling $289 million, which represented 42% of total assets. The primary sources of cash during the first six months of 2000 were $21.5 million from operating activities, net short-term sales of short-term investments of $19.2 million, and proceeds from the issuance of common stock under various stock plans of $30.2 million. The primary uses of cash during the first six months of 2000 were $44.9 million cash paid to acquire PakNetX, and $30.6 million for the purchase of property and equipment. We currently anticipate higher spending levels for property and equipment throughout 2000, primarily related to expansion of our facilities. As of June 30, 2000, the fair market value of the Company's marketable equity securities was $60 million. These securities are available for sale at Aspect's discretion and are subject to market prices, which have historically fluctuated significantly. At June 30, 2000, outstanding borrowings totaled $168 million. 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. 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 and associated software applications. 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 and associated software applications; . Reduced demand for some of our products and services; . A limited number of large orders accounting for a significant portion of product revenues in any particular quarter; . The timing of consulting projects and completion of project milestones; . The size and timing of individual software license transactions; . Dependence on new customers for a significant percentage of product revenues; . The ability of our sales force to achieve quarterly revenue objectives; . Fluctuations in the results of existing operations, recently acquired subsidiaries, or distributors of our products or services; . Seasonality and mix of products and services and channels of distribution; . Our ability to sell support agreements and support renewal agreements for our products; . 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 potentially 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, business models, 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 companies in our industry consolidate to offer integrated solutions. Our competitors include the following: . Providers of call and contact center systems; . Providers of PBX systems; . Providers of voice-over-IP technologies; . Companies offering computer-telephony integration (CTI) applications; . Providers of Internet collaboration and personalization products; . Systems integrators; . Telephone operating companies that market automatic call distributor functionality; . Providers of wireless application products; . Participants in the front-office and back-office enterprise software applications/integration market; . Companies with technologies that independently balance calls across multiple call centers enterprise wide; . Companies offering blending technology for multiple channels of communication including voice, voice-over-IP, e-mail, and the Web; . Providers of interactive voice response systems; and/or . Internet and eBusiness infrastructure and application providers. As the hardware requirements for our traditional market diminishes, companies offering alternative or complementary technologies may obtain a significant position in our market. 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 may result in increased competition for us. Many current and potential competitors, including Cisco Systems, Lucent Technologies, Inc., Nortel Networks, Rockwell International Corporation, Alcatel, IBM, Siebel Systems Inc., and Oracle Corporation, have considerably greater resources, larger customer bases, and a broader international presence than Aspect. Many current and potential competitors have lower revenues but considerably larger market capitalization, including Kana Communications, Inc., E.piphany, Inc., eGain Communications Corporation, BEA Systems, Inc., Quintus Corporation, Interactive Intelligence, Inc., and Onyx Software Corporation. 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. 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. Organizations in our industry may 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. 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 . Global economic climate including 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. Growth may 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 telecommunications equipment to becoming a provider of customer relationship portals and associated software applications. 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 and services, 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. Item 3. Quantitative and Qualitative Disclosures About Financial Market Risk Reference is made to the information appearing under the caption "Quantitative and Qualitative Disclosures About Financial Market Risk" of the Registrant's 1999 Annual Financial Report to Shareholders, attached as an appendix to Aspect's 2000 Proxy Statement, which information is hereby incorporated by reference. The Company believes there were no material changes in the Company's exposure to financial market risk during the three or six months ended June 30, 2000. Part II: Other Information Item 4. Submission of Matters to a Vote of Security Holders On May 4, 2000, the Annual Meeting of Shareholders of Aspect Communications Corporation was held in San Jose, California. An election of directors was held with the following individuals being elected to the Board of Directors of the Company: James R. Carreker (34,718,553 votes for, 6,245,275 votes withheld) Debra J. Engel (34,722,727 votes for, 6,241,101 votes withheld) Norman A. Fogelsong (34,718,388 votes for, 6,245,440 votes withheld) Christopher B. Paisley (34,459,616 votes for, 6,504,212 votes withheld) John W. Peth (34,720,609 votes for, 6,243,219 votes withheld) Other matters voted upon and approved at the meeting, and the number of affirmations and negative votes cast with respect to each such matters were as follows: To approve an amendment of the Company's Bylaws to increase the authorized number of directors (32,718,661 votes in favor, 212,816 votes opposed, 35,692 votes abstaining). 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 (39,771,352 votes in favor, 1,121,931 votes opposed, 26,365 votes abstaining). To approve the Aspect Incentive Plan (39,278,340 votes in favor, 1,565,784 votes opposed, 75,224 votes abstaining). To ratify the appointment of Deliotte & Touche LLP as independent auditors of the Company for the fiscal year ending December 31, 2000 (40,864,102 votes in favor, 26,118 votes opposed, 29,428 votes abstaining). Item 6. Exhibits and Reports on Form 8-K A. Exhibits Exhibit Bylaws of the Registrant, as amended to date. 3.3 Exhibit Form of Employment Agreement between the Registrant and certain 10.71 executive officers of the Registrant. (1) Exhibit Employment Agreement between the Registrant and Gary L. Smith, 10.75 Chief Operating Officer, dated April 6, 2000. Exhibit 27 Financial Data Schedule (1) The following executive officers signed the above agreement: (a) Gary E. Barnett, Senior Vice President eCRM Applications, dated February 16, 2000. (b) Rod D. Butters, Senior Vice President Product Strategy and Portal Platform, dated February 16, 2000. (C) Frederick H. Harder, Senior Vice President Product Operations, dated February 16, 2000. B. Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 2000. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Aspect Communications Corporation (Registrant) Date: August 14, 2000 By /s/ Kevin T. Parker --------------------- Kevin T. Parker Chief Financial and Accounting Officer (Principal Financial and Accounting Officer) EX-3.3 2 0002.txt BYLAWS OF ASPECT TELECOMMUNICATIONS CORPORATION Exhibit 3.3 BYLAWS OF ASPECT TELECOMMUNICATIONS CORPORATION BYLAWS OF ASPECT TELECOMMUNICATIONS CORPORATION TABLE OF CONTENTS
Page ---- ARTICLE I -- CORPORATE OFFICES............................................. 1 1.1 Principal Office................................................. 1 1.2 Other Offices.................................................... 1 ARTICLE II -- MEETINGS OF SHAREHOLDERS..................................... 1 2.1 Place of Meetings................................................ 1 2.2 Annual Meeting................................................... 1 2.3 Special Meeting.................................................. 2 2.4 Notice of Shareholders' Meetings................................. 2 2.5 Manner of Giving Notice; Affidavit of Notice..................... 3 2.6 Quorum........................................................... 3 2.7 Adjourned Meeting; Notice........................................ 4 2.8 Voting........................................................... 4 2.9 Validation of Meetings; Waiver of Notice; Consent................ 5 2.10 Shareholder Action by Written Consent Without a Meeting.......... 6 2.11 Record Date for Shareholder Notice; Voting; Giving Consents...... 7 2.12 Proxies.......................................................... 7 2.13 Inspectors of Election........................................... 8 ARTICLE III -- DIRECTORS................................................... 9 3.1 Powers........................................................... 9 3.2 Number of Directors.............................................. 9 3.3 Election and Term of Office of Directors......................... 9 3.4 Resignation and Vacancies........................................ 10 3.5 Place of Meetings; Meetings by Telephone......................... 10 3.6 Regular Meetings................................................. 11 3.7 Special Meetings; Notice......................................... 11 3.8 Quorum........................................................... 11 3.9 Waiver of Notice................................................. 12 3.10 Adjournment...................................................... 12 3.11 Notice of Adjournment............................................ 12 3.12 Action Without Meeting........................................... 12 3.13 Fees and Compensation of Directors............................... 12 3.14 Approval of Loans to Officers.................................... 13
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Page ---- ARTICLE IV -- COMMITTEES.............................................................. 13 4.1 Committees of Directors..................................................... 13 4.2 Meetings and Action of Committees........................................... 14 ARTICLE V -- OFFICERS................................................................. 14 5.1 Officers.................................................................... 14 5.2 Election of Officers........................................................ 15 5.3 Subordinate Officers........................................................ 15 5.4 Removal and Resignation of Officers......................................... 15 5.5 Vacancies in Offices........................................................ 15 5.6 Chairman of the Board....................................................... 15 5.7 President................................................................... 16 5.8 Vice Presidents............................................................. 16 5.9 Secretary................................................................... 16 5.10 Chief Financial Officer..................................................... 17 ARTICLE VI -- INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS..... 17 6.1 Indemnification of Directors and Officers................................... 17 6.2 Indemnification of Others................................................... 18 ARTICLE VII -- RECORDS AND REPORTS.................................................... 18 7.1 Maintenance and Inspection of Share Register................................ 18 7.2 Maintenance and Inspection of Bylaws........................................ 19 7.3 Maintenance and Inspection of Other Corporate Records....................... 19 7.4 Inspection by Directors..................................................... 20 7.5 Annual Report to Shareholders; Waiver....................................... 20 7.6 Financial Statements........................................................ 20 7.7 Representation of Shares of Other Corporations.............................. 21 ARTICLE VIII -- GENERAL MATTERS....................................................... 21 8.1 Record Date for Purposes Other Than Notice and Voting....................... 21 8.2 Checks; Drafts; Evidences of Indebtedness................................... 22 8.3 Corporate Contracts and Instruments; How Executed........................... 22 8.4 Certificates for Shares..................................................... 22 8.5 Lost Certificates........................................................... 23 8.6 Construction; Definitions................................................... 23
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Page ---- ARTICLE IX -- AMENDMENTS................................................. 23 9.1 Amendment by Shareholders...................................... 23 9.2 Amendment by Directors......................................... 23
-iii- BYLAWS ------ OF -- ASPECT TELECOMMUNICATIONS CORPORATION ------------------------------------- ARTICLE I CORPORATE OFFICES ----------------- 1.1 PRINCIPAL OFFICE ---------------- The board of directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside such state and the corporation has one or more business offices in such state, then the board of directors shall fix and designate a principal business office in the State of California. 1.2 OTHER OFFICES ------------- The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF SHAREHOLDERS ------------------------ 2.1 PLACE OF MEETINGS ----------------- Meetings of shareholders shall be held at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. 2.2 ANNUAL MEETING -------------- The annual meeting of shareholders shall be held each year on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of shareholders shall be held on the first Tuesday of April in each year at 2:00 p.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected, and any other proper business may be transacted. 2.3 SPECIAL MEETING --------------- A special meeting of the shareholders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or by one or more shareholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. If a special meeting is called by any person or persons other than the board of directors or the president or the chairman of the board, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held. 2.4 NOTICE OF SHAREHOLDERS' MEETINGS -------------------------------- All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) (or, if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty (30)) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date, and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders (but subject to the provisions of the next paragraph of this Section 2.4 any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board intends to present for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Cor- -2- porations Code of California (the "Code"), (ii) an amendment of the articles of incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, then the notice shall also state the general nature of that proposal. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE -------------------------------------------- Written notice of any meeting of shareholders shall be given either (i) personally or (ii) by first-class mail or (iii) by third-class mail but only if the corporation has outstanding shares held of record by five hundred (500) or more persons (determined as provided in Section 605 of the Code) on the record date for the shareholders' meeting, or (iv) by telegraphic or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, then all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice. An affidavit of the mailing or other means of giving any notice of any shareholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice. 2.6 QUORUM ------ The presence in person or by proxy of the holders of a majority of the shares entitled to vote thereat constitutes a quorum for the -3- transaction of business at all meetings of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. 2.7 ADJOURNED MEETING; NOTICE ------------------------- Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy. In the absence of a quorum, no other business may be transacted at that meeting except as provided in Section 2.6 of these bylaws. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken. However, if a new record date for the adjourned meeting is fixed or if the adjournment is for more than forty-five (45) days from the date set for the original meeting, then notice of the adjourned meeting shall be given. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Section 2.4 and 2.5 of these bylaws. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. 2.8 VOTING ------ The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 702 through 704 of the Code (relating to voting shares held by a fiduciary, in the name of a corporation or in joint ownership). The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder at the meeting and before the voting has begun. Except as provided in the last paragraph of this Section 2.8, or as may be otherwise provided in the articles of incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. Any shareholder entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or, except when the matter is the election of directors, may vote them against the proposal; but, if the shareholder fails -4- to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares which the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented and voting at a duly held meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or a vote by classes is required by the Code or by the articles of incorporation. At a shareholders' meeting at which directors are to be elected, a shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such shareholder normally is entitled to cast) if the candidates' names have been placed in nomination prior to commencement of the voting and the shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination either (i) by giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are normally entitled or (ii) by distributing the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, shall be elected; votes against any candidate and votes withheld shall have no legal effect. 2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT ------------------------------------------------- The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. The waiver of notice or consent or approval need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent or approval shall state the general nature of the proposal. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. -5- Attendance by a person at a meeting shall also constitute a waiver of notice of and presence at that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting. 2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING -------------------------------------------------------- Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors. However, a director may be elected at any time to fill any vacancy on the board of directors, provided that it was not created by removal of a director and that it has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares, or a personal representative of the shareholder, or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the secretary. If the consents of all shareholders entitled to vote have not been solicited in writing and if the unanimous written consent of all such shareholders has not been received, then the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. Such notice shall be given to those shareholders entitled to vote who have not consented in writing and shall be given in the manner specified in Section 2.5 of these bylaws. In the case of approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section -6- 2007 of the Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. 2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS ----------------------------------------------------------- For purposes of determining the shareholders entitled to notice of any meeting or to vote thereat or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days before any such action without a meeting, and in such event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Code. If the board of directors does not so fix a record date: (a) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; and (b) the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action by the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating to that action, or the sixtieth (60th) day before the date of such other action, whichever is later. The record date for any other purpose shall be as provided in Article VIII of these bylaws. 2.12 PROXIES ------- Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) the person who executed -7- the proxy revokes it prior to the time of voting by delivering a writing to the corporation stating that the proxy is revoked or by executing a subsequent proxy and presenting it to the meeting or by voting in person at the meeting, or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705 (e) and 705(f) of the Code. 2.13 INSPECTORS OF ELECTION ---------------------- Before any meeting of shareholders, the board of directors may appoint an inspector or inspectors of election to act at the meeting or its adjournment. If no inspector of election is so appointed, then the chairman of the meeting may, and on the request of any inspectors of election to act at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting pursuant to the request of one (1) or more shareholders or proxies, then the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. Such inspectors shall: (a) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) receive votes, ballots or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; (e) determine when the polls shall close; (f) determine the result; and -8- (g) do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III DIRECTORS --------- 3.1 POWERS ------ Subject to the provisions of the Code and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS ------------------- The number of directors of the corporation shall be not less than three (3) nor more than five (5). The exact number of directors shall be three (3) 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. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the fixed number or the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two (2) times the stated minimum number of directors minus one (1). No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS ---------------------------------------- Directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office -9- until the expiration of the term for which elected and until a successor has been elected and qualified. 3.4 RESIGNATION AND VACANCIES ------------------------- Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. Vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum), or by the unanimous written consent of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified. A vacancy or vacancies in the board of directors shall be deemed to exist (i) in the event of the death, resignation or removal of any director, (ii) if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, (iii) if the authorized number of directors is increased, or (iv) if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be elected at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election other than to fill a vacancy created by removal, if by written consent, shall require the consent of the holders of a majority of the outstanding shares entitled to vote thereon. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE ---------------------------------------- Regular meetings of the board of directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office, of the corporation. Special meetings of the board may be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if -10- not stated in the notice or if there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting. 3.6 REGULAR MEETINGS ---------------- Regular meetings of the board of directors may be held without notice if the times of such meetings are fixed by the board of directors. 3.7 SPECIAL MEETINGS; NOTICE ----------------------- Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 QUORUM ------ A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.10 of these bylaws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of Section 310 of the Code (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code (as to appointment of committees), Section -11- 317(e) of the Code (as to indemnification of directors), the articles of incorporation, and other applicable law. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE ---------------- Notice of a meeting need not be given to any director (i) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such directors. All such waivers, consents, and approvals shall be filed with the corporate records or made part of the minutes of the meeting. A wavier of notice need not specify the purpose of any regular or special meeting of the board of directors. 3.10 ADJOURNMENT ----------- A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. 3.11 NOTICE OF ADJOURNMENT --------------------- Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.7 of these bylaws, to the directors who were not present at the time of the adjournment. 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING ------------------------------------------------- Any action required or permitted to be taken by the board of directors may be taken without a meeting, provided that all members of the board individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board. 3.13 FEES AND COMPENSATION OF DIRECTORS ---------------------------------- Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of -12- directors. This Section 3.13 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. 3.14 APPROVAL OF LOANS TO OFFICERS* ----------------------------- The corporation may, upon the approval of the board of directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the corporation or its parent or subsidiary, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that (i) the board of directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation, (ii) the corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the Code) on the date of approval by the board of directors, and (iii) the approval of the board of directors is by a vote sufficient without counting the vote of any interested director or directors. ARTICLE IV COMMITTEES ---------- 4.1 COMMITTEES OF DIRECTORS ----------------------- The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one (1) or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to: (a) the approval of any action which, under the Code, also requires shareholders' approval or approval of the outstanding shares; (b) the filling of vacancies on the board of directors or in any committee; _____________________ *This section is effective only if it has been approved by the shareholders in accordance with Sections 315(b) and 152 of the Code. -13- (c) the fixing of compensation of the directors for serving on the board or any committee; (d) the amendment or repeal of these bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or (g) the appointment of any other committees of the board of directors or the members of such committees. 4.2 MEETINGS AND ACTION OF COMMITTEES --------------------------------- Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section 3.12 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS -------- 5.1 OFFICERS -------- The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as my be -14- appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. 5.2 ELECTION OF OFFICERS -------------------- The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws, shall be chosen by the board, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS -------------------- The board of directors may appoint, or may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS ----------------------------------- Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors at any regular or special meeting of the board or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES ------------------- A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office. 5.6 CHAIRMAN OF THE BOARD --------------------- The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be pre- -15- scribed by these bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 PRESIDENT --------- Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the shareholders and, in the absence or non-existence of a chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. 5.8 VICE PRESIDENTS --------------- In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 5.9 SECRETARY --------- The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date -16- of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.10 CHIEF FINANCIAL OFFICER ----------------------- The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all his transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, -------------------------------------------------- AND OTHER AGENTS ---------------- 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS ----------------------------------------- The corporation shall, to the maximum extent and in the manner permitted by the Code, indemnify each of its directors and officers against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint ven- -17- ture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS ------------------------- The corporation shall have the power, to the extent and in the manner permitted by the Code, to indemnify each of its employees and agents (other than directors and officers) against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. ARTICLE VII RECORDS AND REPORTS ------------------- 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER -------------------------------------------- The corporation shall keep either at its principal executive office or at the office of its transfer agent or registrar (if either be appointed), as determined by resolution of the board of directors, a record of its shareholders listing the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation who holds at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who holds at least one percent (1%) of such voting shares and has filed a Schedule 14B with the Securities and Exchange Commission relating to the election of directors, may (i) inspect and copy the records of shareholders' names, addresses, and shareholdings during usual business hours on five (5) days' prior written demand on the corporation, (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the names and addresses of the shareholders who are entitled to vote for the election of directors, and their shareholdings, as of the -18- most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand. Such list shall be made available to any such shareholder by the transfer agent on or before the later of five (5) days after the demand is received or five (5) days after the date specified in the demand as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this Section 7.1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. 7.2 MAINTENANCE AND INSPECTION OF BYLAWS ------------------------------------ The corporation shall keep at its principal executive office or, if its principal executive office is not in the State of California, at its principal business office in California the original or a copy of these bylaws as amended to date, which bylaws shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in such state, then the secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of these bylaws as amended to date. 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS ----------------------------------------------------- The accounting books and records and the minutes of proceedings of the shareholders, of the board of directors, and of any committee or committees of the board of directors shall be kept at such place or places as are designated by the board of directors or, in absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney and shall include the right to copy and make extracts. -19- Such rights of inspection shall extend to the records of each subsidiary corporation of the corporation. 7.4 INSPECTION BY DIRECTORS ----------------------- Every director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind as well as the physical properties of the corporation and each of its subsidiary corporations. Such inspection by a director may be made in person or by an agent or attorney. The right of inspection includes the right to copy and make extracts of documents. 7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER ------------------------------------- The board of directors shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year adopted by the corporation. Such report shall be sent at least fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days) before the annual meeting of shareholders to be held during the next fiscal year and in the manner specified in Section 2.5 of these bylaws for giving notice to shareholders of the corporation. The annual report shall contain (i) a balance sheet as of the end of the fiscal year, (ii) an income statement, (iii) a statement of changes in financial position for the fiscal year, and (iv) any report of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation. The foregoing requirement of an annual report shall be waived so long as the shares of the corporation are held by fewer than one hundred (100) holders of record. 7.6 FINANCIAL STATEMENTS -------------------- If no annual report for the fiscal year has been sent to shareholders, then the corporation shall, upon the written request of any shareholder made more than one hundred twenty (120) days after the close of such fiscal year, deliver or mail to the person making the request, within thirty (30) days thereafter, a copy of a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year. If a shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than thirty -20- (30) days before the date of the request, and for a balance sheet of the corporation as of the end of that period, then the chief financial officer shall cause that statement to be prepared, if not already prepared, and shall deliver personally or mail that statement or statements to the person making the request within thirty (30) days after the receipt of the request. If the corporation has not sent to the shareholders its annual report for the last fiscal year, the statements referred to in the first paragraph of this Section 7.6 shall likewise be delivered or mailed to the shareholder or shareholders within thirty (30) days after the request. The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of any independent accountants engaged by the corporation or by the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation. 7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS ---------------------------------------------- The chairman of the board, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VIII GENERAL MATTERS --------------- 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING ----------------------------------------------------- For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the shareholders entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action. In that case, only shareholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any trans- -21- fer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the Code. If the board of directors does not so fix a record date, then the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later. 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS ----------------------------------------- From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED ------------------------------------------------- The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.4 CERTIFICATES FOR SHARES ----------------------- A certificate or certificates for shares of the corporation shall be issued to each shareholder when any of such shares are fully paid. The board of directors may authorize the issuance of certificates for shares partly paid provided that these certificates shall state the total amount of the consideration to be paid for them and the amount actually paid. All certificates shall be signed in the name of the corporation by the chairman of the board or the vice chairman of the board or the president or a vice president and by the chief financial officer or an assistant treasurer or the secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate ceases to be that officer, transfer agent or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue. -22- 8.5 LOST CERTIFICATES ----------------- Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require; the board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. 8.6 CONSTRUCTION; DEFINITIONS ------------------------- Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Code shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. ARTICLE IX AMENDMENTS ---------- 9.1 AMENDMENT BY SHAREHOLDERS ------------------------- New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, then the authorized number of directors may be changed only by an amendment of the articles of incorporation. 9.2 AMENDMENT BY DIRECTORS ---------------------- Subject to the rights of the shareholders as provided in Section 9.1 of these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the authorized number of directors (except to fix the authorized number of directors pursuant to a bylaw providing for a variable number of directors), may be adopted, amended or repealed by the board of directors. -23- CERTIFICATE OF ADOPTION OF BYLAWS OF ASPECT TELECOMMUNICATIONS CORPORATION Certificate by Secretary of Adoption by Incorporator ---------------------------------------------------- The undersigned hereby certifies that he is the duly elected, qualified and acting Secretary of Aspect Telecommunications Corporation, and that the foregoing Bylaws, comprising twenty-three (23) pages, were adopted as the Bylaws of the corporation on August 16, 1985, by the person appointed in the Articles of Incorporation to act as the Incorporator of the corporation. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the corporate seal this 16th day of August 1985. /s/ Craig W. Johnson --------------------------- Craig W. Johnson, Secretary Amendment to the second sentence of Section 3.2 of the Bylaws adopted by the Board of Directors and Shareholders of the Company on October 20, 1986: "The exact number of directors shall be four (4) 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." The second sentence of Section 3.2 of the Bylaws is hereby amended to read as follows (as approved by the Board on September 30, 1987): "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." Article VI of the Bylaws is hereby amended to read in its entirety as follows (as approved by the Board of Directors and shareholders on January 29, 1988): "ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, -------------------------------------------------- AND OTHER AGENTS ---------------- 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS ----------------------------------------- The corporation shall, to the maximum extent and in the manner permitted by the Code, indemnify each of its directors and officers against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Article VI, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS ------------------------- The corporation shall have the power, to the extent and in the manner permitted by the Code, to indemnify each of its employees and agents (other than directors and officers) against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Article VI, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 PAYMENT OF EXPENSES IN ADVANCE ------------------------------ Expenses incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors may be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified part is not entitled to be indemnified as authorized in this Article VI. 6.4 INDEMNITY NOT EXCLUSIVE ----------------------- The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the Articles of Incorporation. 6.5 INSURANCE INDEMNIFICATION ------------------------- The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. 6.6 CONFLICTS --------- No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (1) That it would be inconsistent with a provision of the Articles of Incorporation, these bylaws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement." Section 3.2 of the Bylaws is hereby amend to read in its entirety as follows (as approved by the Board on March 30, 1989 and by the shareholders on May 19, 1989): "3.2 NUMBER OF DIRECTORS ------------------- The number of directors of the corporation shall be not less than four (4) nor more than seven (7). 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. The indefinite number may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided however, that an amendment reducing the fixed number or the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two (2) times the stated minimum number of directors minus one (1). No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires." On May 11, 1994 the second sentence of Section 3.2 of the Bylaws was amended by the Board of Directors as follows: "The exact number of directors shall be four (4) 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." On May 9, 1996 the second sentence of Section 3.2 of the Bylaws was amended by the Board of Directors as follows: "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." On May 4, 2000, the shareholders of the Company, at their annual meeting, approved an amendment to Section 3.2 of the Bylaws to change the authorized number of directors to a range of from five (5) to nine (9), with the Board of Directors enpowered to alter its own size within such range. On May 8, 2000, the second sentence of Section 3.2 of the Bylaws was amended by the Board of Directors as follows: "The exact number of directors shall be six (6) 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." EX-10.71 3 0003.txt FORM OF EMPLOYMENT AGREEMENT February 16, 2000 Exhibit 10.71 /Name/ /Title/ Aspect Communications San Jose, CA 95131 Dear /Name/: This letter agreement (the "Agreement") is to confirm the terms of your ongoing employment with Aspect Communications Corporation (the "Company") and supersedes and replaces all prior oral and/or written agreements regarding the subject matter hereof between you and the Company. 1. This Agreement will commence on the date hereof and continue until February 28, 2002 (the "Original Term"), unless extended for one or more ------------- additional one-year terms upon mutual written agreement between you and the Company or unless terminated pursuant to the terms described herein. Approval by the Company shall be evidenced by the adoption of resolutions by the Compensation Committee of the Board of Directors of the Company (the "Committee"). In the event that the Company has entered into discussions with a --------- third party regarding a Change of Control in the beneficial ownership of the Company (as defined below) and such Change of Control discussions are ongoing at the end of the Original Term or any extension, this Agreement automatically shall be extended until the later of (a) the end of a period of eighteen (18) months following the closing of such Change of Control transaction or (b) at the time that the parties have ceased their discussions. 2. You are employed as /Title/, and as such report to the Company's /Title/. Your job duties and responsibilities are described on Exhibit A --------- attached hereto. You agree to the best of your ability and experience that you will, to the reasonable satisfaction of the Company and its Board, at all times loyally and conscientiously perform all of the duties and obligations required of you pursuant to the terms of this Agreement; provided, however, that you shall not be precluded from engaging in civic, charitable or religious activities, from devoting a reasonable amount of time to private investments, or from serving on the boards of directors of other business entities with the prior written approval of the Board of Directors of the Company (the "Board"), so long as such activities or service do not interfere with your responsibilities to the Company hereunder. You will comply with and be bound by the Company's operating policies, procedures and practices in effect from time to time during the term of your employment. 3. You acknowledge that your employment is and will continue to be at- will, as defined under applicable law, and that your employment with the Company may be terminated by either party at any time for any or no reason, with or without cause, and with or without notice. If your employment terminates for any reason, you will not be entitled to any payments, benefits, damages, award or compensation other than as provided in this Agreement. Notwithstanding the foregoing, you still shall have the right to receive (i) payment of regular monthly salary and any bonus that has accrued but is unpaid on the date of termination, (ii) payment of all of your accrued and unused vacation through the date of termination, (iii) following your submission of proper expense reports, reimbursement by the Company for all expenses reasonably and necessarily incurred by you in connection with the business of the Company prior to termination, (iv) vested contributions and earnings from the Company's 401(k) plan, and (v) your rights under any of the Company's employee benefit plans, policies or arrangements in accordance with the terms of such plans, policies and arrangements. Any payments described in this paragraph shall be made promptly upon termination, but in any event in compliance with applicable law and any applicable terms of the Company's plans, policies, and arrangements. The rights and duties created by this paragraph may not be modified in any way except by a written agreement executed by you and the Chief Executive Officer on behalf of the Company. 4. If your employment is involuntarily terminated other than for Cause (as defined below) or terminated by you following a Constructive Termination (as defined below) at any time upon or within twelve (12) months following a Change of Control (the "Coverage Period"), you will be entitled to receive payment of severance benefits equal to 24 months of your regular monthly salary plus your annual target bonus (subject to any applicable tax withholding) in effect on the date of your termination or upon the occurrence of the Change of Control, whichever is greater. (Effective January 1, 2001, the Coverage Period shall be expanded to include the period beginning three (3) months prior to the occurrence of a Change of Control and ending thirteen (13) months following a Change of Control.) Payment will be made in a lump sum not more than thirty (30) days following the date of termination. Provided that you make a timely election to continue coverage under the Company's group health plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), health insurance benefits with the same coverage provided to you prior to the termination (e.g. medical, dental, optical, mental health) will be provided at the Company's cost for eighteen (18) months following the termination date, but not longer than until you are covered by comparable health insurance benefits from another employer or are otherwise ineligible for COBRA continuation coverage. Nothing in this Section 4 shall restrict the ability of the Company or its successor from changing some or all of the terms of such health insurance benefits, the cost to participants, or other features of such benefits; provided, however, that all similarly situated participants are treated the same. In addition, and except as otherwise determined below, each stock option and share of restricted stock you hold that is not otherwise fully exercisable and/or vested (i.e., released from the Company's repurchase option) as of the termination date shall become immediately exercisable and/or vested in full as of such date. 2 Notwithstanding the foregoing, you shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise nor, except for your eligibility for COBRA continuation coverage, shall the amount of any payment or benefit provided for in this paragraph be reduced or otherwise affected by any compensation or benefits received by you as a result of employment by another employer or self- employment, by any retirement benefits regardless of source, by offset against any amount claimed to be owed by you to the Company, or otherwise. 5. In the event that the severance and other benefits provided to you by this Agreement (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), or any ---- comparable successor provisions, and (ii) but for this paragraph would be subject to the excise tax imposed by Section 4999 of the Code, or any comparable successor provisions (the "Excise Tax"), then your benefits hereunder shall be either (i) provided to you in full, or (ii) provided to you as to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax, whichever of the foregoing amounts, when taking into account applicable federal, state, local and foreign income and employment taxes, the Excise Tax, and any other applicable taxes, results in the receipt by you, on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under the Excise Tax. Unless the Company and you agree otherwise in writing, any determination required under this paragraph shall be made in writing in good faith by a qualified third party (the "Professional Service Firm"). In the event of a reduction of benefits ------------------------- hereunder, you shall be given the choice of which benefits to reduce, in the event that the reduction to zero dollars ($0) of all benefits paid in cash is insufficient to avoid liability under the Excise Tax. For purposes of making the calculations required by this paragraph, the Professional Service Firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of the Code, and other applicable legal authority. The Company and you shall furnish to the Professional Service Firm such information and documents as the Professional Service Firm may reasonably request in order to make a determination under this Section 5. The Company shall bear all costs the Professional Service Firm may reasonably incur in connection with any calculations contemplated by this paragraph. If, notwithstanding any reduction described in this paragraph, the Internal Revenue Service ("IRS") determines that you are liable for the Excise --- Tax as a result of the receipt of the payment of benefits described above, then you shall be obligated to pay back to the Company, within thirty (30) days after a final IRS determination or in the event that you challenge the final IRS determination, a final judicial determination, a portion of the payment equal to the "Repayment Amount." The Repayment Amount with respect to the payment of benefits shall be the smallest amount, if any, as shall be required to be paid to the Company so that your net after-tax proceeds with respect to any payment of benefits (after taking into account the payment of the Excise Tax and all other applicable taxes imposed on such payment) shall be maximized. The Repayment Amount with respect to the payment of benefits shall be zero if a Repayment Amount of more than zero would not result in your net 3 after-tax proceeds with respect to the payment of such benefits being maximized. If the Excise Tax is not eliminated pursuant to this paragraph, you shall pay the Excise Tax. Notwithstanding any other provision of this paragraph, if (i) there is a reduction in the payment of benefits as described in this paragraph, (ii) the IRS later determines that you are liable for the Excise Tax, the payment of which would result in the maximization of your net after-tax proceeds (calculated as if your benefits previously had not been reduced), and (iii) you pay the Excise Tax, then the Company shall pay to you those benefits which were reduced pursuant to this paragraph contemporaneously or as soon as administratively possible after you pay the Excise Tax so that your net after- tax proceeds with respect to the payment of benefits is maximized. 6. For purposes of this Agreement, the following definitions will apply: (a) "Cause" for your termination will exist if the Company terminates ----- your employment for any of the following reasons: (i) you willfully fail to substantially perform your duties hereunder (other than any such failure due to your physical or mental illness), and such willful failure is not remedied within ten (10) business days after written notice from the Company's Chief Executive Officer, which written notice shall state that failure to remedy such conduct may result in an involuntary termination for Cause; (ii) you engage in willful and serious misconduct (including, but not limited to, an act of fraud or embezzlement) that has caused or is reasonably expected to result in material injury to the Company or any of its affiliates, (iii) you are convicted of or enter a plea of guilty or nolo contendere to a crime that constitutes a felony related to your employment with the Company or which materially adversely affects your ability to perform your duties on behalf of the Company, or (iv) you willfully breach any of your obligations hereunder or under any other written agreement or covenant with the Company or any of its affiliates, including, but not limited to, the Confidentiality Agreement, and such willful breach is not remedied within ten (10) business days after written notice from the Company's Chief Executive Officer, which written notice shall state that failure to remedy such conduct may result in an involuntary termination for Cause. (b) "Change of Control" will mean (i) a dissolution or liquidation of ----------------- the Company; (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company so long as the Company's stockholders of record immediately prior to such transaction will, immediately after such transaction, hold less than fifty percent (50%) of the voting power of the acquiring entity; (iii) an acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation but excluding any merger effected exclusively for the purpose of changing the domicile of the Company), so long as the Company's stockholders of record immediately prior to such transaction or series of related transactions will, immediately after such transaction or series of related transactions, hold less than fifty percent (50%) of the voting power of the surviving or acquiring entity; or (iv) the individuals who, as of the date of this Agreement, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least fifty percent (50%) of the Board. If the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least fifty percent (50%) of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board. Effective January 1, 2001, "Change of Control" will mean (i) a dissolution or liquidation of the Company; (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company so long as the Company's stockholders 4 immediately prior to such transaction will, immediately after such transaction, fail to possess direct or indirect beneficial ownership of more than fifty percent (50%) of the voting power of the acquiring entity (for purposes of this clause 7(b)(ii), any person who acquired securities of the Company prior to the occurrence of such asset transaction in contemplation of such transaction and who after such transaction possesses direct or indirect ownership of at least ten percent (10%) of the securities of the acquiring entity immediately following such transaction shall not be included in the group of stockholders of the Company immediately prior to such transaction); (iii) either a merger or consolidation in which the Company is not the surviving corporation and the stockholders of the Company immediately prior to the merger or consolidation fail to possess direct or indirect beneficial ownership of more than fifty percent (50%) of the voting power of the securities of the surviving corporation (or if the surviving corporation is a controlled affiliate of another entity, then the required beneficial ownership shall be determined with respect to the securities of that entity which controls the surviving corporation and is not itself a controlled affiliate of any other entity) immediately following such transaction, or a reverse merger in which the Company is the surviving corporation and the stockholders of the Company immediately prior to the reverse merger fail to possess direct or indirect beneficial ownership of more than fifty percent (50%) of the securities of the Company (or if the Company is a controlled affiliate of another entity, then the required beneficial ownership shall be determined with respect to the securities of that entity which controls the Company and is not itself a controlled affiliate of any other entity) immediately following the reverse merger (for purposes of this clause 6(b)(iii), any person who acquired securities of the Company prior to the occurrence of a merger, reverse merger, or consolidation in contemplation of such transaction and who after such transaction possesses direct or indirect beneficial ownership of at least ten percent (10%) of the securities of the Company or the surviving corporation (or if the Company or the surviving corporation is a controlled affiliate, then of the appropriate entity as determined above) immediately following such transaction shall not be included in the group of stockholders of the Company immediately prior to such transaction); (iv) an acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or a subsidiary or other controlled affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors; or (v) the individuals who, as of the date of this Agreement, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least fifty percent (50%) of the Board. If the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least fifty percent (50%) of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board. (c) "Constructive Termination" will be deemed to occur if (A)(i) your ------------------------ duties and responsibilities as Chief Operating Officer of the Company (or a successor corporation) are materially diminished from your duties and responsibilities as in effect at any time from the time immediately prior to the occurrence of a Change of Control or at any time thereafter, without your prior written consent; (ii) any reduction in the total value of your base compensation and benefits occurs; (iii) your new business office location is either (a) more than thirty (30) miles in distance from your current business office location or (b) greater than your current commute to and from your current business office location; and (B) within sixty (60) days immediately following such event described in clauses (i) through (iii) above, you elect to terminate your employment voluntarily. For purposes of this definition and this Agreement, however, a change in title with substantially the same duties and responsibilities 5 shall not be considered a Constructive Termination, should this result solely from an acquisition by a larger company in which you have continuing responsibilities for the acquiror which are substantially the same as those you had for the Company when it was independent. 7. You have signed a document entitled "Employee Agreement" (the "Confidentiality Agreement") substantially in the form attached hereto as ------------------------- Exhibit B. You hereby represent and warrant to the Company that you have - --------- complied with all obligations under the Confidentiality Agreement and agree to continue to abide by the terms of the Confidentiality Agreement and further agree that the provisions of the Confidentiality Agreement will survive any termination of this Agreement or of your employment relationship with the Company. Upon your involuntary termination of employment other than for Cause or your voluntary termination following a Constructive Termination, and as a condition of the receipt of any benefits under this Agreement, you shall execute an effective release (the "Release") in substantially the form incorporated ------- herein and attached hereto as Exhibit C (or if you are under forty (40) years --------- old at the time of such termination, in substantially the form attached hereto as Exhibit C with appropriate changes to reflect the inapplicability of the Age Discrimination in Employment Act) as shall ultimately be determined by the Company. Such Release shall specifically relate to all of your rights and claims in existence at the time of such execution and shall confirm your obligations under the Confidentiality Agreement. It is understood that you have twenty-one (21) days to consider whether to execute such Release, and you may revoke such Release within seven (7) business days after execution. In the event you do not execute such Release within the twenty-one (21) day period, or if you revoke such Release within the subsequent seven (7) business day period, no benefits shall be payable under this Agreement and this Agreement shall be null and void. Notwithstanding the foregoing, in addition to or in lieu of the Release attached hereto as Exhibit C, you may be required to execute and deliver an effective release in such other form as the Company may, in its sole discretion, determine to be necessary or appropriate in order to comply with the requirements of the laws of any jurisdiction applicable to you in order to make a general release of claims effective and enforceable. 9. You represent that you have not entered into any agreements, understandings, or arrangements with any other person or entity which would be breached by you as a result of, or that would in any way preclude or prohibit you from entering into this Agreement or performing any of the duties and responsibilities provided for herein. 10. Any successor to the Company as a result of the occurrence of a Change of Control (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) or otherwise which succeeds to all or substantially all of the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Company" shall include any successor to the Company's business and/or assets which executes and delivers the assumption agreement described in this paragraph or which becomes bound by the terms of this Agreement by operation of law. 6 The terms of this Agreement and all of your rights hereunder shall inure to the benefit of, and be enforceable by, your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees or legatees. 11. This Agreement, including any Exhibits hereto, constitutes the sole agreement of the parties and supersedes all negotiations and prior agreements with respect to the subject matter hereof, i.e., the rights and responsibilities of you and the Company in the event of certain terminations of your employment with the Company relating to the occurrence of a Change of Control. 12. Any term of this Agreement may be amended or waived only with the written consent of the parties. 13. Any notice required or permitted by this Agreement will be in writing and will be deemed sufficient upon receipt, when delivered personally, by facsimile or by a nationally-recognized delivery service (such as Federal Express or Express Mail), or 72 hours after being deposited in the U.S. mail as certified or registered mail with postage prepaid, if such notice is addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. 14. The validity, interpretation, construction and performance of this Agreement will be governed by the laws of the State of California, without giving effect to the principles of conflict of laws. 15. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to re-negotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision will be excluded from this Agreement or a legal authority of competent jurisdiction (including an arbitrator) will have the authority to modify or replace the invalid or unenforceable provision with a valid and enforceable provision that most accurately embodies the parties' intention with respect to the invalid or unenforceable provision, (ii) the balance of the Agreement will be interpreted as if such provision were so excluded, modified or replaced and (iii) the balance of the Agreement will be enforceable in accordance with its terms. 16. You and the Company agree to attempt to settle any disputes arising in connection with this Agreement through good faith consultation. In the event that we are not able to resolve any such disputes within fifteen (15) days after notification in writing to the other, we agree that any dispute or claim arising out of or in connection with this Agreement will be finally settled by binding arbitration in Santa Clara County, California in accordance with the rules of the American Arbitration Association by one arbitrator appointed in accordance with said rules. The arbitrator will apply California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision. You agree that punitive damages will not be awarded. This paragraph will not apply to the Confidentiality Agreement. If there is termination of your employment with the Company followed by a dispute as to whether you are entitled to the benefits provided under this Agreement, then, 7 during the period of that dispute the Company shall pay you fifty percent (50%) of the amount specified in Section 4 hereof (except that the Company shall pay one hundred percent (100%) of any insurance premiums provided for in Section 4), if, and only if, you agree in writing that if the dispute is resolved against you, you shall promptly refund to the Company all payments you receive plus interest at the rate provided in Section 1274(d) of the Code, compounded quarterly. If the dispute is resolved in your favor, promptly after resolution of the dispute the Company shall pay you the sum that was withheld during the period of the dispute plus interest at the rate provided in Section 1274(d) of the Code, compounded quarterly. Notwithstanding any other provisions of this Agreement, if you either (i) bring any action to enforce your rights pursuant to this Agreement, or (ii) defend any legal challenge to your rights hereunder, you shall be entitled to recover reasonable attorneys' fees and costs incurred in connection with such action from the Company, payable on a monthly basis, regardless of the outcome of such action; provided, however, that in the event such action is commenced by you, the court finds the claim was brought in good faith. 17. You acknowledge that, in executing this Agreement, you have had the opportunity to seek the advice of independent legal counsel, and have read and understood all of the terms and provisions of this Agreement. Please indicate your agreement with the above terms by signing below. Sincerely, Aspect Communications Corporation /s/ James R. Carreker Title: Chief Executive Officer and President Address: 1310 Ridder Park Drive San Jose, CA 95131 Facsimile Number: (408) 325-2261 My signature below signifies my agreement with the above terms. By: /Name/ Address: /Address/ 8 EXHIBIT A --------- DESCRIPTION OF JOB DUTIES ------------------------- AND RESPONSIBILITIES -------------------- EXHIBIT B --------- CONFIDENTIALITY AGREEMENT -------------------------- EXHIBIT C --------- RELEASE ------- RELEASE [NOTE: INCLUDES ADEA LANGUAGE] Certain capitalized terms used in this Release are defined in the letter agreement between me and the Company dated /Date/, (the "Agreement") which I have executed and of which this Release is a part. I hereby confirm my obligations under the Company's Confidentiality Agreement. Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of disputed compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; tort law; contract law; statutory law; common law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company's indemnification obligation pursuant to agreement or applicable law. In giving this release, which includes claims that may be unknown to me at present, I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." I expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any unknown or unsuspected claims I may have against the Company. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA. I also acknowledge that the consideration given under this Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following the execution of this Release by the parties to revoke the Release; and (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Release is executed by me. By: __________________________________ Date: ________________________________ EX-10.75 4 0004.txt EMPLOYMENT AGREEMENT - GARY L. SMITH April 6, 2000 Exhibit 10.75 Mr. Gary L. Smith Chief Operating Officer Aspect Communications San Jose, CA 95131 Dear Gary: This letter agreement (the "Agreement") is to confirm the terms of your ongoing employment with Aspect Communications Corporation (the "Company") and supersedes and replaces all prior oral and/or written agreements regarding the subject matter hereof between you and the Company. 1. This Agreement will commence on the date hereof and continue until February 28, 2002 (the "Original Term"), unless extended for one or more ------------- additional one-year terms upon mutual written agreement between you and the Company or unless terminated pursuant to the terms described herein. Approval by the Company shall be evidenced by the adoption of resolutions by the Compensation Committee of the Board of Directors of the Company (the "Committee"). In the event that the Company has entered into discussions with a --------- third party regarding a Change of Control in the beneficial ownership of the Company (as defined below) and such Change of Control discussions are ongoing at the end of the Original Term or any extension, this Agreement automatically shall be extended until the later of (a) the end of a period of eighteen (18) months following the closing of such Change of Control transaction or (b) at the time that the parties have ceased their discussions. 2. You are employed as Chief Operating Officer of the Company, and as such report to the Company's CEO/President. Your job duties and responsibilities are described on Exhibit A attached hereto. You agree to the --------- best of your ability and experience that you will, to the reasonable satisfaction of the Company and its Board, at all times loyally and conscientiously perform all of the duties and obligations required of you pursuant to the terms of this Agreement; provided, however, that you shall not be precluded from engaging in civic, charitable or religious activities, from devoting a reasonable amount of time to private investments, or from serving on the boards of directors of other business entities with the prior written approval of the Board of Directors of the Company (the "Board"), so long as such activities or service do not interfere with your responsibilities to the Company hereunder. You will comply with and be bound by the Company's operating policies, procedures and practices in effect from time to time during the term of your employment. 3. You acknowledge that your employment is and will continue to be at- will, as defined under applicable law, and that your employment with the Company may be terminated by either party at any time for any or no reason, with or without cause, and with or without notice. If your employment terminates for any reason, you will not be entitled to any payments, benefits, damages, award or compensation other than as provided in this Agreement. Notwithstanding the foregoing, you still shall have the right to receive (i) payment of regular monthly salary and any bonus that has accrued but is unpaid on the date of termination, (ii) payment of all of your accrued and unused vacation through the date of termination, (iii) following your submission of proper expense reports, reimbursement by the Company for all expenses reasonably and necessarily incurred by you in connection with the business of the Company prior to termination, (iv) vested contributions and earnings from the Company's 401(k) plan, and (v) your rights under any of the Company's employee benefit plans, policies or arrangements in accordance with the terms of such plans, policies and arrangements. Any payments described in this paragraph shall be made promptly upon termination, but in any event in compliance with applicable law and any applicable terms of the Company's plans, policies, and arrangements. The rights and duties created by this paragraph may not be modified in any way except by a written agreement executed by you and the Chief Executive Officer on behalf of the Company. 4. If your employment is involuntarily terminated other than for Cause (as defined below) or terminated by you following a Constructive Termination (as defined below) at any time upon or within twelve (12) months following a Change of Control (the "Coverage Period"), you will be entitled to receive payment of severance benefits equal to 24 months of your regular monthly salary plus your annual target bonus (subject to any applicable tax withholding) in effect on the date of your termination or upon the occurrence of the Change of Control, whichever is greater. (Effective January 1, 2001, the Coverage Period shall be expanded to include the period beginning three (3) months prior to the occurrence of a Change of Control and ending thirteen (13) months following a Change of Control.) Payment will be made in a lump sum not more than thirty (30) days following the date of termination. Provided that you make a timely election to continue coverage under the Company's group health plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), health insurance benefits with the same coverage provided to you prior to the termination (e.g. medical, dental, optical, mental health) will be provided at the Company's cost for eighteen (18) months following the termination date, but not longer than until you are covered by comparable health insurance benefits from another employer or are otherwise ineligible for COBRA continuation coverage. Nothing in this Section 4 shall restrict the ability of the Company or its successor from changing some or all of the terms of such health insurance benefits, the cost to participants, or other features of such benefits; provided, however, that all similarly situated participants are treated the same. In addition, and except as otherwise determined below, each stock option and share of restricted stock you hold that is not otherwise fully exercisable and/or vested (i.e., released from the Company's repurchase option) as of the termination date shall become immediately exercisable and/or vested in full as of such date. 2 Notwithstanding the foregoing, you shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise nor, except for your eligibility for COBRA continuation coverage, shall the amount of any payment or benefit provided for in this paragraph be reduced or otherwise affected by any compensation or benefits received by you as a result of employment by another employer or self- employment, by any retirement benefits regardless of source, by offset against any amount claimed to be owed by you to the Company, or otherwise. 5. In the event that the severance and other benefits provided to you by this Agreement (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), or any ---- comparable successor provisions, and (ii) but for this paragraph would be subject to the excise tax imposed by Section 4999 of the Code, or any comparable successor provisions (the "Excise Tax"), then your benefits hereunder shall be either (i) provided to you in full, or (ii) provided to you as to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax, whichever of the foregoing amounts, when taking into account applicable federal, state, local and foreign income and employment taxes, the Excise Tax, and any other applicable taxes, results in the receipt by you, on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under the Excise Tax. Unless the Company and you agree otherwise in writing, any determination required under this paragraph shall be made in writing in good faith by a qualified third party (the "Professional Service Firm"). In the event of a reduction of benefits ------------------------- hereunder, you shall be given the choice of which benefits to reduce, in the event that the reduction to zero dollars ($0) of all benefits paid in cash is insufficient to avoid liability under the Excise Tax. For purposes of making the calculations required by this paragraph, the Professional Service Firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of the Code, and other applicable legal authority. The Company and you shall furnish to the Professional Service Firm such information and documents as the Professional Service Firm may reasonably request in order to make a determination under this Section 5. The Company shall bear all costs the Professional Service Firm may reasonably incur in connection with any calculations contemplated by this paragraph. If, notwithstanding any reduction described in this paragraph, the Internal Revenue Service ("IRS") determines that you are liable for the Excise --- Tax as a result of the receipt of the payment of benefits described above, then you shall be obligated to pay back to the Company, within thirty (30) days after a final IRS determination or in the event that you challenge the final IRS determination, a final judicial determination, a portion of the payment equal to the "Repayment Amount." The Repayment Amount with respect to the payment of benefits shall be the smallest amount, if any, as shall be required to be paid to the Company so that your net after-tax proceeds with respect to any payment of benefits (after taking into account the payment of the Excise Tax and all other applicable taxes imposed on such payment) shall be maximized. The Repayment Amount with respect to the payment of benefits shall be zero if a Repayment Amount of more than zero would not result in your net 3 after-tax proceeds with respect to the payment of such benefits being maximized. If the Excise Tax is not eliminated pursuant to this paragraph, you shall pay the Excise Tax. Notwithstanding any other provision of this paragraph, if (i) there is a reduction in the payment of benefits as described in this paragraph, (ii) the IRS later determines that you are liable for the Excise Tax, the payment of which would result in the maximization of your net after-tax proceeds (calculated as if your benefits previously had not been reduced), and (iii) you pay the Excise Tax, then the Company shall pay to you those benefits which were reduced pursuant to this paragraph contemporaneously or as soon as administratively possible after you pay the Excise Tax so that your net after- tax proceeds with respect to the payment of benefits is maximized. 6. For purposes of this Agreement, the following definitions will apply: (a) "Cause" for your termination will exist if the Company terminates ----- your employment for any of the following reasons: (i) you willfully fail to substantially perform your duties hereunder (other than any such failure due to your physical or mental illness), and such willful failure is not remedied within ten (10) business days after written notice from the Company's Chief Executive Officer, which written notice shall state that failure to remedy such conduct may result in an involuntary termination for Cause; (ii) you engage in willful and serious misconduct (including, but not limited to, an act of fraud or embezzlement) that has caused or is reasonably expected to result in material injury to the Company or any of its affiliates, (iii) you are convicted of or enter a plea of guilty or nolo contendere to a crime that constitutes a felony related to your employment with the Company or which materially adversely affects your ability to perform your duties on behalf of the Company, or (iv) you willfully breach any of your obligations hereunder or under any other written agreement or covenant with the Company or any of its affiliates, including, but not limited to, the Confidentiality Agreement, and such willful breach is not remedied within ten (10) business days after written notice from the Company's Chief Executive Officer, which written notice shall state that failure to remedy such conduct may result in an involuntary termination for Cause. (b) "Change of Control" will mean (i) a dissolution or liquidation of ----------------- the Company; (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company so long as the Company's stockholders of record immediately prior to such transaction will, immediately after such transaction, hold less than fifty percent (50%) of the voting power of the acquiring entity; (iii) an acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation but excluding any merger effected exclusively for the purpose of changing the domicile of the Company), so long as the Company's stockholders of record immediately prior to such transaction or series of related transactions will, immediately after such transaction or series of related transactions, hold less than fifty percent (50%) of the voting power of the surviving or acquiring entity; or (iv) the individuals who, as of the date of this Agreement, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least fifty percent (50%) of the Board. If the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least fifty percent (50%) of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board. Effective January 1, 2001, "Change of Control" will mean (i) a dissolution or liquidation of the Company; (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company so long as the Company's stockholders 4 immediately prior to such transaction will, immediately after such transaction, fail to possess direct or indirect beneficial ownership of more than fifty percent (50%) of the voting power of the acquiring entity (for purposes of this clause 7(b)(ii), any person who acquired securities of the Company prior to the occurrence of such asset transaction in contemplation of such transaction and who after such transaction possesses direct or indirect ownership of at least ten percent (10%) of the securities of the acquiring entity immediately following such transaction shall not be included in the group of stockholders of the Company immediately prior to such transaction); (iii) either a merger or consolidation in which the Company is not the surviving corporation and the stockholders of the Company immediately prior to the merger or consolidation fail to possess direct or indirect beneficial ownership of more than fifty percent (50%) of the voting power of the securities of the surviving corporation (or if the surviving corporation is a controlled affiliate of another entity, then the required beneficial ownership shall be determined with respect to the securities of that entity which controls the surviving corporation and is not itself a controlled affiliate of any other entity) immediately following such transaction, or a reverse merger in which the Company is the surviving corporation and the stockholders of the Company immediately prior to the reverse merger fail to possess direct or indirect beneficial ownership of more than fifty percent (50%) of the securities of the Company (or if the Company is a controlled affiliate of another entity, then the required beneficial ownership shall be determined with respect to the securities of that entity which controls the Company and is not itself a controlled affiliate of any other entity) immediately following the reverse merger (for purposes of this clause 6(b)(iii), any person who acquired securities of the Company prior to the occurrence of a merger, reverse merger, or consolidation in contemplation of such transaction and who after such transaction possesses direct or indirect beneficial ownership of at least ten percent (10%) of the securities of the Company or the surviving corporation (or if the Company or the surviving corporation is a controlled affiliate, then of the appropriate entity as determined above) immediately following such transaction shall not be included in the group of stockholders of the Company immediately prior to such transaction); (iv) an acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or a subsidiary or other controlled affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors; or (v) the individuals who, as of the date of this Agreement, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least fifty percent (50%) of the Board. If the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least fifty percent (50%) of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board. (c) "Constructive Termination" will be deemed to occur if (A)(i) your ------------------------ duties and responsibilities as Chief Operating Officer of the Company (or a successor corporation) are materially diminished from your duties and responsibilities as in effect at any time from the time immediately prior to the occurrence of a Change of Control or at any time thereafter, without your prior written consent; (ii) any reduction in the total value of your base compensation and benefits occurs; (iii) your new business office location is either (a) more than thirty (30) miles in distance from your current business office location or (b) greater than your current commute to and from your current business office location; and (B) within sixty (60) days immediately following such event described in clauses (i) through (iii) above, you elect to terminate your employment voluntarily. For purposes of this definition and this Agreement, however, a change in title with substantially the same duties and responsibilities 5 shall not be considered a Constructive Termination, should this result solely from an acquisition by a larger company in which you have continuing responsibilities for the acquiror which are substantially the same as those you had for the Company when it was independent. 7. You have signed a document entitled "Employee Agreement" (the "Confidentiality Agreement") substantially in the form attached hereto as ------------------------- Exhibit B. You hereby represent and warrant to the Company that you have - --------- complied with all obligations under the Confidentiality Agreement and agree to continue to abide by the terms of the Confidentiality Agreement and further agree that the provisions of the Confidentiality Agreement will survive any termination of this Agreement or of your employment relationship with the Company. Upon your involuntary termination of employment other than for Cause or your voluntary termination following a Constructive Termination, and as a condition of the receipt of any benefits under this Agreement, you shall execute an effective release (the "Release") in substantially the form incorporated ------- herein and attached hereto as Exhibit C (or if you are under forty (40) years --------- old at the time of such termination, in substantially the form attached hereto as Exhibit C with appropriate changes to reflect the inapplicability of the Age Discrimination in Employment Act) as shall ultimately be determined by the Company. Such Release shall specifically relate to all of your rights and claims in existence at the time of such execution and shall confirm your obligations under the Confidentiality Agreement. It is understood that you have twenty-one (21) days to consider whether to execute such Release, and you may revoke such Release within seven (7) business days after execution. In the event you do not execute such Release within the twenty-one (21) day period, or if you revoke such Release within the subsequent seven (7) business day period, no benefits shall be payable under this Agreement and this Agreement shall be null and void. Notwithstanding the foregoing, in addition to or in lieu of the Release attached hereto as Exhibit C, you may be required to execute and deliver an effective release in such other form as the Company may, in its sole discretion, determine to be necessary or appropriate in order to comply with the requirements of the laws of any jurisdiction applicable to you in order to make a general release of claims effective and enforceable. 9. You represent that you have not entered into any agreements, understandings, or arrangements with any other person or entity which would be breached by you as a result of, or that would in any way preclude or prohibit you from entering into this Agreement or performing any of the duties and responsibilities provided for herein. 10. Any successor to the Company as a result of the occurrence of a Change of Control (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) or otherwise which succeeds to all or substantially all of the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Company" shall include any successor to the Company's business and/or assets which executes and delivers the assumption agreement described in this paragraph or which becomes bound by the terms of this Agreement by operation of law. 6 The terms of this Agreement and all of your rights hereunder shall inure to the benefit of, and be enforceable by, your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees or legatees. 11. This Agreement, including any Exhibits hereto, constitutes the sole agreement of the parties and supersedes all negotiations and prior agreements with respect to the subject matter hereof, i.e., the rights and responsibilities of you and the Company in the event of certain terminations of your employment with the Company relating to the occurrence of a Change of Control. 12. Any term of this Agreement may be amended or waived only with the written consent of the parties. 13. Any notice required or permitted by this Agreement will be in writing and will be deemed sufficient upon receipt, when delivered personally, by facsimile or by a nationally-recognized delivery service (such as Federal Express or Express Mail), or 72 hours after being deposited in the U.S. mail as certified or registered mail with postage prepaid, if such notice is addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. 14. The validity, interpretation, construction and performance of this Agreement will be governed by the laws of the State of California, without giving effect to the principles of conflict of laws. 15. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to re-negotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision will be excluded from this Agreement or a legal authority of competent jurisdiction (including an arbitrator) will have the authority to modify or replace the invalid or unenforceable provision with a valid and enforceable provision that most accurately embodies the parties' intention with respect to the invalid or unenforceable provision, (ii) the balance of the Agreement will be interpreted as if such provision were so excluded, modified or replaced and (iii) the balance of the Agreement will be enforceable in accordance with its terms. 16. You and the Company agree to attempt to settle any disputes arising in connection with this Agreement through good faith consultation. In the event that we are not able to resolve any such disputes within fifteen (15) days after notification in writing to the other, we agree that any dispute or claim arising out of or in connection with this Agreement will be finally settled by binding arbitration in Santa Clara County, California in accordance with the rules of the American Arbitration Association by one arbitrator appointed in accordance with said rules. The arbitrator will apply California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision. You agree that punitive damages will not be awarded. This paragraph will not apply to the Confidentiality Agreement. If there is termination of your employment with the Company followed by a dispute as to whether you are entitled to the benefits provided under this Agreement, then, 7 during the period of that dispute the Company shall pay you fifty percent (50%) of the amount specified in Section 4 hereof (except that the Company shall pay one hundred percent (100%) of any insurance premiums provided for in Section 4), if, and only if, you agree in writing that if the dispute is resolved against you, you shall promptly refund to the Company all payments you receive plus interest at the rate provided in Section 1274(d) of the Code, compounded quarterly. If the dispute is resolved in your favor, promptly after resolution of the dispute the Company shall pay you the sum that was withheld during the period of the dispute plus interest at the rate provided in Section 1274(d) of the Code, compounded quarterly. Notwithstanding any other provisions of this Agreement, if you either (i) bring any action to enforce your rights pursuant to this Agreement, or (ii) defend any legal challenge to your rights hereunder, you shall be entitled to recover reasonable attorneys' fees and costs incurred in connection with such action from the Company, payable on a monthly basis, regardless of the outcome of such action; provided, however, that in the event such action is commenced by you, the court finds the claim was brought in good faith. 17. You acknowledge that, in executing this Agreement, you have had the opportunity to seek the advice of independent legal counsel, and have read and understood all of the terms and provisions of this Agreement. Please indicate your agreement with the above terms by signing below. Sincerely, Aspect Communications Corporation /s/ Beatriz Infante --------------------------- Title: Chief Executive Officer and President Address: 1310 Ridder Park Drive San Jose, CA 95131 Facsimile Number: (408) 325-2261 My signature below signifies my agreement with the above terms. By: /Gary L. Smith/ Address: /Address/ 8 EXHIBIT A --------- DESCRIPTION OF JOB DUTIES ------------------------- AND RESPONSIBILITIES -------------------- EXHIBIT B --------- CONFIDENTIALITY AGREEMENT -------------------------- EXHIBIT C --------- RELEASE ------- RELEASE [NOTE: INCLUDES ADEA LANGUAGE] Certain capitalized terms used in this Release are defined in the letter agreement between me and the Company dated /Date/, (the "Agreement") which I have executed and of which this Release is a part. I hereby confirm my obligations under the Company's Confidentiality Agreement. Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of disputed compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; tort law; contract law; statutory law; common law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company's indemnification obligation pursuant to agreement or applicable law. In giving this release, which includes claims that may be unknown to me at present, I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." I expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any unknown or unsuspected claims I may have against the Company. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA. I also acknowledge that the consideration given under this Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following the execution of this Release by the parties to revoke the Release; and (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Release is executed by me. By: __________________________________ Date: ________________________________ EX-27 5 0005.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDING JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS. 1,000 USD 3-MOS DEC-31-2000 APR-01-2000 JUN-30-2000 1 80,277 208,963 104,930 (7,290) 20,032 436,020 207,613 (115,140) 696,885 145,767 168,001 0 0 219,026 31,726 696,885 73,580 138,401 27,282 70,761 82,615 0 5,813 (6,041) 1,414 (4,627) 0 0 0 (4,627) (0.09) (0.09)
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