1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 11-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to ___________________ Commission file number ____________ A. Full title of the plan and the address of the plan, if different from that of the issuer named below: VTEL Corporation 401(k) Plan B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: VTEL Corporation 108 Wild Basin Road Austin, Texas 78746 2 VTEL CORPORATION 401(k) PLAN FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION DECEMBER 31, 1998 AND 1997 3 REPORT OF INDEPENDENT ACCOUNTANTS To the Participants and Administrator of the VTEL Corporation 401(k) Plan In our opinion, the accompanying statements of net assets available for benefits with fund information and the related statements of changes in net assets available for benefits with fund information present fairly, in all material respects, the net assets available for benefits of the VTEL Corporation 401(k) Plan (the "Plan") at December 31, 1998 and 1997, and the changes in net assets available for benefits for the years ended December 31, 1998 and 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Plan's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of assets held for investment purposes and of reportable transactions are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The fund information in the statements of net assets available for benefits and the statements of changes in net assets available for benefits is presented for purposes of additional analysis rather than to present the net assets available for plan benefits and changes in net assets available for benefits of each fund. These supplemental schedules and fund information are the responsibility of the Plan's management. The supplemental schedules and fund information have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. As further discussed in Note 1 to the financial statements, the Board of Directors of VTEL Corporation, the Plan's sponsor, merged the Plan with the Compression Labs, Incorporated Savings and Retirement Plan (the "CLI Plan") effective December 31, 1997. PricewaterhouseCoopers LLP May 28, 1999 4 VTEL CORPORATION 401(k) PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1998 - -------------------------------------------------------------------------------
CIGNA RETIREMENT SERVICES ------------------------------------------------------------------------------------------ GUARANTEED GUARANTEED CORPORATE CIGNA CIGNA CIGNA INCOME FUND* GOV'T SECURITIES BOND FUND* LIFETIME 20 LIFETIME 30 LIFETIME 40 ------------ ---------------- ------------ ----------- ----------- ----------- ASSETS Investments at fair market value $2,677,152 $ 15,994 $1,262,942 $ 10,254 $ 92,247 $ 91,464 Contributions receivable -- -- -- -- -- -- Loans receivable -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- NET ASSETS AVAILABLE FOR BENEFITS $2,677,152 $ 15,994 $1,262,942 $ 10,254 $ 92,247 $ 91,464 ========== ========== ========== ========== ========== ========== * Identifies investments that represent 5% or more of net assets available for benefits. The accompanying notes are an integral part of these financial statements. 2
CIGNA RETIREMENT SERVICES ----------------------------------------------------------------------- CIGNA CIGNA FIDELITY GROWTH FOUNDERS N&B PARTNERS LIFETIME 50 LIFETIME 60 OPPORTUNITES* GROWTH* TRUST* ----------- ----------- --------------- --------- ------------- ASSETS Investments at fair market value $ 4,444 $ 20,037 $4,729,168 $2,466,858 $2,943,396 Contributions receivable -- -- -- -- -- Loans receivable -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- NET ASSETS AVAILABLE FOR BENEFITS $ 4,444 $ 20,037 $4,729,168 $2,466,858 $2,943,396 ========== ========== ========== ========== ========== 5 VTEL CORPORATION 401(k) PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------
CIGNA RETIREMENT SERVICES --------------------------------------------------------------------------------------------- INVESCO LAZARD JANUS STATE STREET SMALL COMPANY TEMPLETON TOTAL RETURN* EQUITY WORLDWIDE* RUSSELL 3000* STOCK FUND FOREIGN ------------- ----------- ----------- ------------- -------------- ----------- ASSETS Investments at fair market value $ 2,462,497 $ 78,155 $ 1,315,760 $ 1,847,679 $ 2,452,755 $ 1,034,136 Contributions receivable -- -- -- -- -- -- Loans receivable -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $ 2,462,497 $ 78,155 $ 1,315,760 $ 1,847,679 $ 2,452,755 $ 1,034,136 =========== =========== =========== =========== =========== =========== * Identifies investments that represent 5% or more of net assets available for benefits. The accompanying notes are an integral part of these financial statements. 3
CIGNA RETIREMENT SERVICES ------------- SMALL COMPANY VTEL STOCK GROWTH STOCK RECEIVABLE LOANS TOTAL ------------- ----------- ----------- ----------- ----------- ASSETS Investments at fair market value $ 120,272 $ 77,607 $ -- $ -- $23,702,817 Contributions receivable -- -- 61,793 -- 61,793 Loans receivable -- -- -- 785,985 785,985 ----------- ----------- ----------- ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $ 120,272 $ 77,607 $ 61,793 $ 785,985 $24,550,595 =========== =========== =========== =========== =========== 6 VTEL CORPORATION 401(k) PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1997 - ------------------------------------------------------------------------------- * Identifies investments that represent 5% or more of net assets available for benefits. ** Identifies investments transferred in as of December 31, 1997 from the Compressions Labs, Inc. Savings and Retirement Plan (Note 1). The accompanying notes are an integral part of these financial statements. 4
FIDELITY ADVISORS FUNDS -------------------------------------------------------------------------------- DAILY MONEY LIMITED TERM INCOME & GROWTH OPPOR- EQUITY PORTFOLIO FUND BOND FUND GROWTH FUND* TUNITIES FUND* GROWTH FUND* ----------- ------------ ----------- ------------- ---------------- ASSETS Cash $ - $ - $ - $ - $ - Investments at fair market value 539,577 692,989 1,368,498 4,120,909 3,549,958 Contributions receivable - - - - - Dividends & interest receivable - - - 20,386 32,245 Loans receivable - - - - - ----------- ----------- ------------ ------------ ----------- NET ASSETS AVAILABLE FOR BENEFITS $ 539,577 $ 692,989 $ 1,368,498 $ 4,141,295 $ 3,582,203 =========== =========== ============ ============ =========== FIDELITY ADVISORS FUNDS ------------- OVERSEAS FUND RECEIVABLE OTHER** LOANS TOTAL ------------ ----------- ------------ ------------ ----------- ASSETS Cash $ - $ - $ 9,319,247 $ - $ 9,319,247 Investments at fair market value 833,955 - - - 11,105,886 Contributions receivable - 40,890 - - 40,890 Dividends & Interest receivable - - - - 52,631 Loans receivable - - - 558,809 558,809 ----------- ----------- ------------ ------------ ------------ NET ASSETS AVAILABLE FOR BENEFITS $ 833,955 $ 40,890 $ 9,319,247 $ 558,809 $ 21,077,463 =========== =========== ============ ============ ============ 7 VTEL CORPORATION 401(k) PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1998 - --------------------------------------------------------------------------------
FIDELITY ADVISOR FUNDS ------------------------------------------------------------------------------------------- DAILY MONEY LIMITED TERM INCOME & GROWTH OPPOR- EQUITY PORTFOLIO OVERSEAS FUND BOND FUND GROWTH FUND TUNITIES FUND GROWTH FUND FUND ----------- ----------- ----------- ------------- ---------------- ----------- ADDITIONS Employee contributions $ -- $ -- $ -- $ -- $ -- $ -- ----------- ----------- ----------- ----------- ----------- ----------- -- -- -- -- -- -- Income: Interest & dividends 279 374 734 2,213 1,896 447 Net realized & unrealized gains/(losses) (4,849) 5,230 1,504 (9,760) (41,662) 1,044 Interfund transfers -- -- -- -- -- -- Transfer of assets to new trustee (Note 1) (535,007) (698,593) (1,370,736) (4,133,748) (3,542,437) (835,446) Loan repayments - principal -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Total additions (539,577) (692,989) (1,368,498) (4,141,295) (3,582,203) (833,955) ----------- ----------- ----------- ----------- ----------- ----------- DEDUCTIONS Withdrawals -- -- -- -- -- -- New participant loans -- -- -- -- -- -- Administrative expenses -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Total deductions -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) (539,577) (692,989) (1,368,498) (4,141,295) (3,582,203) (833,955) Net assets available for benefits at the beginning of the year 539,577 692,989 1,368,498 4,141,295 3,582,203 833,955 ----------- ----------- ----------- ----------- ----------- ----------- Net assets available for benefits at the end of the year $ -- $ -- $ -- $ -- $ -- $ -- =========== =========== =========== =========== =========== =========== The accompanying notes are an integral part of these financial statements. 5
CIGNA RETIREMENT SERVICES -------------------------------------------- GUARANTEED GUARANTEED CORPORATE INCOME FUND GOV'T SECURITIES BOND FUND ----------- ---------------- ----------- ADDITIONS Employee contributions $ 202,865 $ 23,974 $ 126,982 ----------- ----------- ----------- 202,865 23,974 126,982 Income: Interest & dividends 127,139 496 2,963 Net realized & unrealized gains/(losses) -- -- 71,788 Interfund transfers 270,286 (26) 104,368 Transfer of assets to new trustee (Note 1) 2,577,366 -- 1,106,157 Loan repayments - principal 17,120 591 10,505 ----------- ----------- ----------- Total additions 3,194,776 25,035 1,422,763 ----------- ----------- ----------- DEDUCTIONS Withdrawals 495,683 -- 142,531 New participant loans 21,269 9,012 16,941 Administrative expenses 672 29 349 ----------- ----------- ----------- Total deductions 517,624 9,041 159,821 ----------- ----------- ----------- Net increase (decrease) 2,677,152 15,994 1,262,942 Net assets available for benefits at the beginning of the year -- -- -- ----------- ----------- ----------- Net assets available for benefits at the end of the year $ 2,677,152 $ 15,994 $ 1,262,942 =========== =========== =========== 8 VTEL CORPORATION 401(k) PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1998 - --------------------------------------------------------------------------------
CIGNA Retirement Services --------------------------------------------------------------------------- CIGNA CIGNA CIGNA CIGNA CIGNA Lifetime 20 Lifetime 30 Lifetime 40 Lifetime 50 Lifetime 60 ----------- ----------- ----------- ----------- ----------- ADDITIONS Employee contributions $ 2,633 $ 28,942 $ 32,375 $ 5,763 $ 296 ----------- ----------- ----------- ----------- ----------- 2,633 28,942 32,375 5,763 296 Income: Interest & dividends 127 211 470 - - Net realized & unrealized gains/(losses) 613 4,943 10,237 516 1,194 Interfund transfers 6,413 57,405 46,603 1,994 18,547 Transfer of assets to new trustee (Note 1) - - - - - Loan repayments - principal 468 746 3,801 - - ----------- ----------- ----------- ----------- ----------- Total additions 10,254 92,247 93,486 8,273 20,037 ----------- ----------- ----------- ----------- ----------- DEDUCTIONS Withdrawals - - - 3,829 - New participant loans - - 1,924 - - Administrative expenses - - 98 - - ----------- ----------- ----------- ----------- ----------- Total deductions - - 2,022 3,829 - ----------- ----------- ----------- ----------- ----------- Net increase (decrease) 10,254 92,247 91,464 4,444 20,037 Net assets available for benefits at the beginning of the year - - - - - ----------- ----------- ----------- ----------- ----------- Net assets available for benefits at the end of the year $ 10,254 $ 92,247 $ 91,464 $ 4,444 $ 20,037 =========== =========== =========== =========== =========== The accompanying notes are an integral part of these financial statements. 6
CIGNA Retirement Services --------------------------------------------------------------------------- Fidelity N&B Growth Founders Partners Invesco Lazard Opportunities Growth Trust Total Return Equity ------------- ----------- ----------- ------------ ----------- ADDITIONS Employee contributions $ 767,109 $ 297,452 $ 550,982 $ 316,913 $ 18,769 ------------- ----------- ----------- ------------ ----------- 767,109 297,452 550,982 316,913 18,769 Income: Interest & dividends 12,055 2,950 12,849 5,965 288 Net realized & unrealized gains/(losses) 1,001,382 422,161 316,306 339,816 910 Interfund transfers (540,165) 353,407 (890,387) (278,552) 59,234 Transfer of assets to new trustee (Note 1) 4,133,748 1,582,310 3,542,437 2,577,360 - Loan repayments - principal 56,133 30,251 41,070 29,560 966 ------------- ----------- ----------- ------------ ----------- Total additions 5,430,262 2,688,531 3,573,257 2,991,062 80,167 ------------- ----------- ----------- ------------ ----------- DEDUCTIONS Withdrawals 606,460 176,663 554,465 490,940 2,012 New participant loans 93,359 44,509 74,490 37,085 - Administrative expenses 1,275 501 906 540 - ------------- ----------- ----------- ------------ ----------- Total deductions 701,094 221,673 629,861 528,565 2,012 ------------- ----------- ----------- ------------ ----------- Net increase (decrease) 4,729,168 2,466,858 2,943,396 2,462,497 78,155 Net assets available for benefits at the beginning of the year - - - - - ------------- ----------- ----------- ------------ ----------- Net assets available for benefits at the end of the year $ 4,729,168 $ 2,466,858 $ 2,943,396 $ 2,462,497 $ 78,155 ============= =========== =========== ============ =========== 9 VTEL CORPORATION 401(k) PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1998 - -------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. 7
CIGNA RETIREMENT SERVICES --------------------------------------------------------------------------------- STATE STREET SMALL SMALL JANUS RUSSELL COMPANY TEMPLETON COMPANY WORLDWIDE 3000 STOCK FUND FOREIGN STOCK GROWTH ----------- ------------ ---------- --------- ------------ ADDITIONS Employee contributions $ 345,368 $ 251,897 $ 368,005 $ 202,986 $ 39,548 ----------- ----------- ----------- ----------- --------- 345,368 251,897 360,005 202,986 39,548 Income: Interest & dividends 3,416 3,344 2,755 2,432 152 Net realized & unrealized gains/(losses) 23,810 304,464 252,072 (10,811) (8,355) Interfund transfers 953,183 372,746 (100,449) (492,772) 89,464 Transfer of assets to new trustee (Note 1) -- 957,042 2,156,290 1,516,279 -- Loan repayments - principal 26,404 24,651 8,406 12,543 855 ----------- ----------- ----------- ----------- --------- Total additions 1,352,181 1,914,144 2,687,079 1,230,657 121,664 ----------- ----------- ----------- ----------- --------- DEDUCTIONS Withdrawals 880 31,319 209,136 187,964 869 New participant loans 35,346 34,915 24,758 8,381 499 Administrative expenses 195 231 430 176 24 ----------- ----------- ----------- ----------- --------- Total deductions 36,421 66,465 234,324 196,521 1,392 ----------- ----------- ----------- ----------- --------- Net increase (decrease) 1,315,760 1,847,679 2,452,755 1,034,136 120,272 Net assets available for benefits at the beginning of the year -- -- -- -- -- ----------- ----------- ----------- ----------- --------- Net assets available for benefits at the end of the year $ 1,315,760 $ 1,847,679 $ 2,452,755 $ 1,034,136 $ 120,272 =========== =========== =========== =========== ========= VTEL STOCK RECEIVABLE OTHER LOANS TOTAL ----------- ------------ ---------- --------- ------------ ADDITIONS Employee contributions $ 20,220 $ 61,793 $ -- $ -- $ 3,664,872 ----------- ----------- ----------- ----------- ----------- 20,220 61,793 -- -- 3,664,872 Income: Interest & dividends 115 -- 13,990 -- 197,660 Net realized & unrealized gains/(losses) (113,256) -- 33,573 -- 2,602,870 Interfund transfers 28,052 (40,890) (18,461) -- -- Transfer of assets to new trustee (Note 1) 148,143 -- (9,346,504) 165,339 -- Loan repayments - principal 336 -- -- (264,406) -- ----------- ----------- ----------- ----------- ----------- Total additions 83,610 20,903 (9,317,402) (99,067) 6,465,402 ----------- ----------- ----------- ----------- ----------- DEDUCTIONS Withdrawals 3,896 -- -- 78,305 2,984,952 New participant loans 2,060 -- -- (404,548) -- Administrative expenses 47 -- 1,845 -- 7,318 ----------- ----------- ----------- ----------- ----------- Total deductions 6,003 -- 1,845 (326,243) 2,992,270 ----------- ----------- ----------- ----------- ----------- Net increase (decrease) 77,607 20,903 (9,319,247) 227,176 3,473,132 Net assets available for benefits at the beginning of the year -- 40,890 9,319,247 558,809 21,077,463 ----------- ----------- ----------- ----------- ----------- Net assets available for benefits at the end of the year $ 77,607 $ 61,793 $ -- $ 785,985 $24,550,595 =========== =========== =========== =========== =========== 10 VTEL CORPORATION 401(k) PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. 8
FIDELITY ADVISOR FUNDS -------------------------------------------------------------------------------------- DAILY MONEY LIMITED TERM INCOME & GROWTH OPPOR- EQUITY PORTFOLIO FUND BOND FUND GROWTH FUND TUNITIES FUND GROWTH FUND ----------- ------------ ----------- ------------- ---------------- ADDITIONS Employee contributions $ 79,510 $ 114,377 $ 221,250 $ 655,822 $ 554,091 Income: Interest & dividends 45,259 39,269 131,878 293,046 430,207 Net realized & unrealized gains/(losses) -- 6,401 116,729 663,746 252,011 Interfund transfers 20,166 26,431 (14,559) (43,949) 87,692 Transfer of assets from CLI plan (Note 1) -- -- -- -- -- Loan repayments - principal 20,762 12,085 28,360 73,948 60,129 ----------- ----------- ----------- ----------- ------------ Total additions 165,697 198,563 483,658 1,642,613 1,384,130 ----------- ----------- ----------- ----------- ------------ DEDUCTIONS Withdrawals 620,727 66,786 103,541 405,052 334,292 New participant loans 15,343 30,247 46,343 172,498 74,382 ----------- ----------- ----------- ----------- ------------ Total deductions 636,070 97,033 149,884 577,550 408,674 ----------- ----------- ----------- ----------- ------------ Net increase (decrease) (470,373) 101,530 333,774 1,065,063 975,456 Net assets available for benefits at the beginning of the year 1,009,950 591,459 1,034,724 3,076,232 2,606,747 ----------- ----------- ----------- ----------- ------------ Net assets available for benefits at the end of the year $ 539,577 $ 692,989 $ 1,368,498 $ 4,141,295 $ 3,582,203 =========== =========== =========== =========== ============ FIDELITY ADVISOR FUNDS ---------------------- OVERSEAS FUND RECEIVABLE OTHER LOANS TOTAL ----------- ------------ ---------- --------- ------------ ADDITIONS Employee contributions $ 176,236 $ 40,890 $ -- $ -- $ 1,842,176 Income: Interest & dividends 57,911 -- -- -- 997,570 Net realized & unrealized gains/(losses) 32,391 -- -- -- 1,071,278 Interfund transfers (75,781) -- -- -- -- Transfer of assets from CLI plan (Note 1) -- -- 9,319,247 -- 9,319,247 Loan repayments - principal 29,834 -- -- (225,118) -- ----------- ----------- ----------- ----------- ----------- Total additions 220,591 40,890 9,319,247 (225,118) 13,230,271 ----------- ----------- ----------- ----------- ----------- DEDUCTIONS Withdrawals 113,904 -- -- 8,737 1,653,039 New participant loans 29,063 -- -- (367,876) -- ----------- ----------- ----------- ----------- ----------- Total deductions 142,967 -- -- (359,139) 1,653,039 ----------- ----------- ----------- ----------- ----------- Net increase (decrease) 77,624 40,890 9,319,247 134,021 11,577,232 Net assets available for benefits at the beginning of the year 756,331 -- -- 424,788 9,500,231 ----------- ----------- ----------- ----------- ----------- Net assets available for benefits at the end of the year $ 833,955 $ 40,890 $ 9,319,247 $ 558,809 $21,077,463 =========== =========== =========== =========== =========== 11 VTEL CORPORATION 401(k) PLAN NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 1. DESCRIPTION OF PLAN: The following description of the VTEL Corporation (the "Company") 401(k) Plan (the "Plan") provides only general information. Participants should refer to the Plan Agreement for a more complete description of the Plan's provisions. GENERAL The Plan is a defined contribution retirement plan covering all regular employees of the Company who are age twenty-one or older. It is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). PLAN MERGER Effective December 31, 1997, the Company merged its Plan with the assets of Compression Labs, Inc. Savings and Retirement Plan as a result of the Company's merger with Compression Labs, Inc. ("CLI") which occurred on May 23, 1997. All assets from the CLI Savings and Retirement Plan were transferred into the Company's Plan as of December 31, 1997. Effective December 31, 1997, the Company changed to a new service provider. The service organization provides both recordkeeping and trustee services for the Company. The Company began the transfer of all Plan assets, amounting to over $21 million, to the new trustee on January 5, 1998 and completed the transfer on February 25, 1998. CONTRIBUTIONS Employee contributions are recorded in the period during which the Company makes payroll deductions from the Plan participants' earnings. Participants may contribute up to 20% of their annual wages subject to limitations as provided by the Internal Revenue Code. The Company may make matching contributions up to specified amounts at its discretion. The Company has not made matching contributions since the Plan's inception. PARTICIPANT ACCOUNTS Each participant's account is credited with the participant's contribution and allocation of Plan earnings. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account. VESTING Participants are 100% vested in their voluntary contributions plus actual earnings thereon. Should the Company decide to match contributions, the contributions would vest based on years of service completed by participants. PARTICIPANT LOANS Upon written application of a participant and approval by the Plan's Advisory Committee, the Plan may make a loan to a participant. The amount of the loan may not be less than $1,000 and may not be greater than the lesser of $50,000 or 50% of the participant's vested balance. These loans are secured by the balance of the 9 12 VTEL CORPORATION 401(k) PLAN NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- participant's account and bear interest at a rate commensurate with local rates for similar loans. 10 13 VTEL CORPORATION 401(k) PLAN NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- TERMINATION OF EMPLOYMENT If a participant's employment terminates and the total vested account balance is not greater than $5,000, the participant will receive a distribution of the value of the vested portion of the account balance. In the event that the vested account balance is greater than $5,000, the participant may elect to receive a distribution of the vested amount. If the participant does not elect to receive a distribution, the vested portion will continue to be maintained in accordance with the Plan until such time as the participant attains age 65. At that time, a distribution may be made to the participant. There were no significant termination distribution amounts which had been approved and processed prior to year-end, but not yet paid at that date. PLAN TERMINATION Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. METHOD OF ACCOUNTING The Plan's financial statements are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. INVESTMENTS Plan investments are stated at fair market value. The fair market value of investments, other than loans, is based on the net asset value quoted in an active market as of the last business day of the Plan year. Net appreciation/depreciation in fair market value of investments consists of realized gains or losses and unrealized appreciation/depreciation on those investments. Participant loans are stated at cost, which approximates fair market value. EXPENSES Certain expenses incidental to the administration of the Plan are paid by the Company. The total of these expenses were $32,876 and $30,715 for December 31, 1998 and 1997, respectively. These consist primarily of recordkeeping and audit fees for the Plan. These fees do not include any allocation of payroll or overhead costs incurred by the Plan or the Company. 11 14 VTEL CORPORATION 401(k) PLAN NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- RISKS AND UNCERTAINTIES Financial instruments which potentially subject the Plan to concentrations of credit risk consist primarily of securities in which the Plan invests. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the near-term could materially affect participants' account balances and the amounts reported in the statement of net assets available for plan benefits. 3. DESCRIPTION OF INVESTMENT FUNDS: Prior to December 31, 1997, a participant, upon enrollment in the Plan, could direct contributions in any of the following six Fidelity Advisor investment options: Fidelity Advisor Daily Money Fund: Funds are invested in high-quality U.S. government securities and repurchase agreements backed by the U.S. government. Fidelity Advisor Limited Term Bond Fund: Funds are invested primarily in corporate bonds rated high or upper-medium quality by such rating agencies as Standard & Poor's Corporation and Moody's Investors Services, Inc., as well as U.S. government or agency obligations. Fidelity Advisor Income & Growth Fund: Funds are invested primarily in common stock, securities convertible into common stocks and debt obligations of varying maturities and quality ratings. Fidelity Advisor Growth Opportunities Fund: Funds are invested in common and preferred stocks, securities convertible into common stock, bonds and foreign securities. Fidelity Advisor Equity Portfolio Growth: Funds are invested in common and preferred stocks, securities convertible into common stock and, to a lesser degree, bonds and foreign securities. Fidelity Advisor Overseas Fund: Funds are invested primarily in common and preferred stock of foreign corporations, as well as debt securities. As of December 31, 1997, the Plan was amended, allowing a participant to direct subsequent employee contributions in any of the following nineteen investment options: CIGNA Guaranteed Income Fund: Funds are invested in a diversified portfolio of high quality, fixed income instruments. CIGNA Guaranteed Government Securities Fund: Funds are invested in short-term, guaranteed government securities. CIGNA Corporate Bond Fund: Funds are invested primarily in investment-grade, publicly traded U.S. dollar-dominated corporate bonds. 12 15 VTEL CORPORATION 401(k) PLAN NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- CIGNA Lifetime 20: Funds are invested in a balanced portfolio of bonds, stocks, and cash equivalent investments, depending on progressive age groups (age 20 to 29), time horizons (time frame 35 to 45 years) and investment risk tolerance. CIGNA Lifetime 30: Funds are invested in a balanced portfolio of bonds, stocks, and cash equivalent investments, depending on progressive age groups (age 30 to 39), time horizons (time from 25 to 35 years) and investment risk tolerance. CIGNA Lifetime 40: Funds are invested in a balanced portfolio of bonds, stocks, and cash equivalent investments, depending on progressive age groups (age 40 to 49), time horizons (time frame 15 to 25 years) and investment risk tolerance. CIGNA Lifetime 50: Funds are invested in a balanced portfolio of bonds, stocks, and cash equivalent investments, depending on progressive age groups (age 50 to 59), time horizons (time frame 5 to 15 years) and investment risk tolerance. CIGNA Lifetime 60: Funds are invested in a balanced portfolio of bonds, stocks, and cash equivalent investments, depending on progressive age groups (age 60 to 69), time horizons (time frame less than 5 years) and investment risk tolerance. Fidelity Advisors Growth Opportunities Fund: Funds are invested in common and preferred stocks, securities convertible into common stock and, to a lesser degree, bonds and foreign securities. Founders Growth: Funds are invested in common and preferred stocks, securities convertible into common stock, bonds, foreign securities and, to a lesser degree, currency exchange contracts and repurchase agreements. Neuberger & Berman Partners Trust: Funds are invested in common stocks of established medium to large capitalization companies. Invesco Total Return Fund: Funds are invested in a combination of equity and fixed income securities. Lazard Equity Portfolio Account: Funds are invested primarily in the equity securities of companies with relatively large capitalizations that the portfolio managers believe are inexpensively priced relative to the return on total capital or equity. Janus Worldwide: Funds are invested primarily in common stocks of foreign and domestic issuers. State Street Russell 3000 Fund: Funds are invested primarily in the equity securities of the largest 3,000 U.S. companies. CIGNA Charter Small Company Stock Fund: Funds are invested in the common stocks of small companies with market capitalizations of less than $1 billion at the time of initial purchase, with emphasis on stocks with market capitalizations under $600 million, that are undervalued by the market. 13 16 VTEL CORPORATION 401(k) PLAN NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- Templeton Foreign: Funds are invested primarily in common stocks, including American, European and Global Depository Receipts. CIGNA Charter Small Company Stock Growth Fund: Funds are invested primarily in common and preferred stocks of U.S. companies with market capitalizations between $30 million and $3 billion with a focus on growing companies involved in new product development and technological breakthroughs. VTEL Common Stock: Funds are invested in VTEL Corporation's common stock. 4. RELATED PARTY TRANSACTIONS: Certain Plan investments are units of funds managed by CIGNA Retirement and Investment Services ("CIGNA"). CIGNA is the trustee as defined by the Plan and, therefore, these transactions quality as party-in-interest. Fees paid by the employer for the investment management services amounted to $20,876 for the year ended December 31, 1998. 5. INCOME TAXES: Management believes that the Plan is qualified under section 401(a) of the Internal Revenue Code and, therefore, the Plan is exempt from taxation under section 501(a). Generally, contributions to a qualified plan are deductible by the Company when made. Earnings of the Plan are tax exempt and participants are not taxed on their benefits until withdrawn from the Plan. The Plan received a favorable determination letter dated March 31, 1995 from the Internal Revenue Service concerning the March 1993 Plan amendment. The Plan Administrator filed for a new determination letter in April 1999 for the newly merged Plan. * * * 14 17 ADDITIONAL INFORMATION 18 VTEL CORPORATION 401(k) PLAN ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES DECEMBER 31, 1998 - ------------------------------------------------------------------------------- 14
DESCRIPTION OF INVESTMENT IDENTITY OF ISSUER BORROWER, LESSOR INCLUDING MATURITY DATE, RATE OF CURRENT OR SIMILAR PARTY INTEREST OR PAR VALUE COST VALUE - ---------------------------------------------- --------------------------------------------- ------------ ------------ Connecticut General Life Insurance Company CIGNA Guaranteed Income Fun; 101,754 units, unit value $26.31 $ 2,677,152 $ 2,677,152 Connecticut General Life Insurance Company CIGNA Guaranteed Government Securities; 1,257 units, unit value $12.72 15,994 15,994 Connecticut General Life Insurance Company CIGNA Corporate Bond Fund; 111,666 units, unit value $11.31 1,199,764 1,262,942 Connecticut General Life Insurance Company CIGNA Lifetime 20; 542 units, unit value $18.92 9,642 10,254 Connecticut General Life Insurance Company CIGNA Lifetime 30; 4,907 units, unit value 18.80 87,082 92,247 Connecticut General Life Insurance Company CIGNA Lifetime 40; 5,017 units, unit value $18.23 83,310 91,464 Connecticut General Life Insurance Company CIGNA Lifetime 50; 250 units, unit value $17.80 4,136 4,444 Connecticut General Life Insurance Company CIGNA Lifetime 60; 1,232 units, unit value $16.27 18,843 20,037 Connecticut General Life Insurance Company Fidelity Advisors Growth Opportunities; 60,755 units, unit value $21.52 3,869,850 4,729,168 Connecticut General Life Insurance Company Founders Growth; 90,527 units, unit value $27.25 2,085,894 2,466,858 Connecticut General Life Insurance Company Neuberger & Berman Partners Trust; 136,775 units, unit value $21.52 2,735,365 2,943,396 Connecticut General Life Insurance Company Invesco Total Return Fund; 62,579 units, unit value $39.35 2,193,817 2,462,497 Connecticut General Life Insurance Company Lazard Equity Portfolio Account; 2,786 units, unit value $28.05 74,661 78,155 Connecticut General Life Insurance Company Janus Worldwide; 24,169 units, unit value $54.44 1,249,236 1,315,760 Connecticut General Life Insurance Company State Street Russell 3000 Fund; 99,821 units, unit value $18.51 1,567,434 1,847,679 Connecticut General Life Insurance Company CIGNA Charter Small Company Stock Fund; 219,978 units, unit value $11.15 2,223,696 2,452,755 Connecticut General Life Insurance Company Templeton Foreign; 94,098 units, unit value $10.99 1,076,672 1,034,136 Connecticut General Life Insurance Company CIGNA Charter Small Company Stock Growth Fund; 11,700 units, unit value $10.28 124,483 120,272 Connecticut General Life Insurance Company VTEL Common Stock; 30,315 units, unit value $2.56 167,014 77,607 Participant Loans Loaned funds of various maturities (1999- 2012) and rates from 7.75% to 10.50% 785,985 785,985 ------------ ------------ $ 22,250,030 $ 24,488,802 ============ ============ 19 VTEL CORPORATION 401(k) PLAN ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 1998 - -------------------------------------------------------------------------------- 15
PURCHASE SELLING COST OF NET GAIN/ IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSETS PRICE PRICE ASSET (LOSS) - ------------------------------------------ ----------------------------- ----------- ----------- ----------- --------- PURCHASES: Connecticut General Life Insurance Company CIGNA Guaranteed Income Fund $ 3,405,625 $ -- $ 3,405,625 $ -- Connecticut General Life Insurance Company CIGNA Corporate Bond Fund 1,558,085 -- 1,558,085 -- Connecticut General Life Insurance Company Fidelity Advisors Growth Opportunities Fund 5,334,437 -- 5,334,437 -- Connecticut General Life Insurance Company Founders Growth 2,595,359 -- 2,595,359 -- Connecticut General Life Insurance Company Neuberger & Berman Partners Trust 4,287,962 -- 4,287,962 -- Connecticut General Life Insurance Company Invesco Total Return Fund 3,065,986 -- 3,065,986 -- Connecticut General Life Insurance Company Janus Worldwide 1,610,980 -- 1,610,980 -- Connecticut General Life Insurance Company Templeton Foreign 1,767,744 -- 1,767,744 -- Connecticut General Life Insurance Company State Street Russell 3000 Fund 1,827,863 -- 1,827,863 -- Connecticut General Life Insurance Company CIGNA Charter Small Company 2,708,047 -- 2,708,047 -- SALES: Connecticut General Life Insurance Company CIGNA Guaranteed Income Fund -- 852,010 852,010 -- Connecticut General Life Insurance Company CIGNA Corporate Bond Fund -- 366,930 358,320 8,610 Connecticut General Life Insurance Company Fidelity Advisors Growth Opportunities Fund -- 1,613,584 1,464,587 148,997 Connecticut General Life Insurance Company Founders Growth -- 550,662 509,465 41,197 Connecticut General Life Insurance Company Neuberger & Berman Partners Trust -- 1,660,872 1,552,597 108,275 Connecticut General Life Insurance Company Invesco Total Return Fund -- 943,306 872,170 71,136 Connecticut General Life Insurance Company Janus Worldwide -- 326,030 361,744 (35,714) Connecticut General Life Insurance Company Templeton Foreign -- 722,798 691,073 31,725 Connecticut General Life Insurance Company State Street Russell 3000 Fund -- 284,648 260,429 24,219 Connecticut General Life Insurance Company CIGNA Charter Small Company Stock Growth Fund -- 507,364 484,351 23,013 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employees benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized. VTEL Corporation 401(k) Plan Date: July 14, 1999 /s/ Paul Tesluk ----------------------------------- Paul Tesluk Plan Advisor 21 EXHIBIT INDEX
Exhibit Number Document Description - ------- -------------------- 23(b) Consent of PricewaterhouseCoopers LLP
1 EXHIBIT 23(b) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-44533) of VTEL Corporation of our report dated May 28, 1999 relating to the financial statements of the VTEL Corporation 401(k) Plan, which appears in this Form 11-K. PricewaterhouseCoopers LLP Austin, TX July 14, 1999