<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1996
REGISTRATION NO. 333-13263
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GEOTEL COMMUNICATIONS
CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 04-3194255
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
25 PORTER ROAD
LITTLETON, MASSACHUSETTS 01460
(508) 486-1100
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------
JOHN C. THIBAULT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GEOTEL COMMUNICATIONS CORPORATION
25 PORTER ROAD
LITTLETON, MASSACHUSETTS 01460
(508) 486-1100
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------
Copies to:
<TABLE>
<S> <C>
ANTHONY J. MEDAGLIA, JR., ESQUIRE JOHN A. BURGESS, ESQUIRE
MICHAEL J. RICCIO, JR., ESQUIRE DAVID A. WESTENBERG, ESQUIRE
HUTCHINS, WHEELER & DITTMAR HALE AND DORR
A PROFESSIONAL CORPORATION 60 STATE STREET
101 FEDERAL STREET BOSTON, MASSACHUSETTS 02109
BOSTON, MASSACHUSETTS 02110 (617) 526-6000
(617) 951-6600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
GEOTEL COMMUNICATIONS
CORPORATION
------------------------
CROSS-REFERENCE SHEET
(PURSUANT TO ITEM 501 OF REGULATION S-K SHOWING THE LOCATION IN
THE PROSPECTUS OF THE RESPONSES TO THE ITEMS IN PART I OF FORM S-1)
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING OF FORM S-1 LOCATION IN PROSPECTUS
------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover Page; Outside Back Cover
Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Underwriting
6. Dilution................................... Risk Factors; Dilution
7. Selling Security Holders................... Principal and Selling Stockholders
8. Plan of Distribution....................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered............................... Capitalization; Description of Capital
Stock
10. Interests of Named Experts and Counsel..... Legal Matters
11. Information with Respect to the
Registrant............................... Outside Front Cover Page; Prospectus
Summary; Risk Factors; Use of Proceeds;
Dividend Policy; Capitalization; Dilution;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal and Selling Stockholders;
Description of Capital Stock; Shares
Eligible for Future Sale
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
DATED NOVEMBER 5, 1996
2,200,000 SHARES
LOGO
COMMON STOCK
------------------
All of the shares of Common Stock offered hereby are being sold by GeoTel
Communications Corporation ("GeoTel" or the "Company"). Prior to this offering,
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price will be between $8.00
and $10.00 per share. See "Underwriting" for the factors to be considered in
determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market under the symbol "GEOC."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
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<S> <C> <C> <C>
Per Share............................. $ $ $
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Total(2).............................. $ $ $
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</TABLE>
(1) Before deducting expenses payable by the Company estimated at $600,000.
(2) The Company and certain Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to 330,000 additional shares of
Common Stock solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to the Selling Stockholders
will be $ , $ , $ and $ , respectively.
See "Principal and Selling Stockholders" and "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that the delivery of the shares of Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1996.
ALEX. BROWN & SONS WESSELS, ARNOLD & HENDERSON
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 4
[GEOTEL LOGO]
[Screen Shots Showing the Implementation of
GEOTEL'S Intelligent CallRouter Software by Customer Service Representatives]
Enterprise-Wide Call Distribution Creates a Virtual Call Center Network
* Each call is matched with the best answering resource
* Enterprise-wide call monitoring and reporting
* Full integration with AT&T, MCI, Sprint networks, all major ACD/PBX/VRU
equipment
* Open/industry standards -- Microsoft Windows NT
<PAGE> 5
GEOTEL INTELLIGENT CALLROUTER(R)
Managing the interaction between customers and answering resources
The system operates in a fault-tolerant, multi-vendor, multi-carrier, open
telecommunications environment.
Pre-Routing(R) allows intelligence to be applied at the network level before
the call is sent to a destination.
Post-Routing(R) controls the routing of calls among ACDs, PBXs or VRUs.
[DIAGRAM ILLUSTRATING THE PRINCIPAL COMPONENTS OF THE INTELLIGENT CALLROUTER]
EVENT AND THRESHOLD MONITORING
The Intelligent CallRouter contains a comprehensive event monitoring system. It
uses intuitive graphical display elements to immediately notify users of
conditions requiring management intervention.
[SCREEN SHOT OF EVENT MONITORING SYSTEM]
<PAGE> 6
VISUAL SCRIPT EDITOR
A powerful visual object-oriented environment is used to create and monitor
call flow.
The ICR combines real-time call information with customer profile data before
determining a destination for a call.
[SCREEN SHOT OF VISUAL SCRIPT EDITOR]
COMPREHENSIVE MANAGEMENT INFORMATION SYSTEM
Real-time call handling statistics are integrated with consolidated historical
reporting for all calls across attached ACDs, PBXs, and VRUs. Data can be mixed
and matched in any real-time/historical combination.
[SCREEN SHOT OF GRAPHICAL MANAGEMENT REPORT PREPARED BY CUSTOMER]
<PAGE> 7
[GEOTEL LOGO]
[Screen Shots Showing the Implementation of
GEOTEL'S Intelligent CallRouter Software by Customer Service Representatives]
Enterprise-Wide Call Distribution Creates a Virtual Call Center Network
* Each call is matched with the best answering resource
* Enterprise-wide call monitoring and reporting
* Full integration with AT&T, MCI, Sprint networks, all major ACD/PBX/VRU
equipment
* Open/industry standards -- Microsoft Windows NT
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus.
THE COMPANY
GeoTel Communications Corporation ("GeoTel" or the "Company") is a leading
provider of telecommunications software solutions focused on enhanced call
routing technology that enables customer-oriented companies to deliver
responsive and cost-effective customer service. The Company's software solutions
are aimed at decentralized or service-oriented corporations that use call
centers, voice response units and other answering resources to interact with
their customers. GeoTel's software solution, the Intelligent CallRouter, is
designed for companies that utilize multiple call centers to handle high volumes
of inbound customer calls and regard their effective handling of customer
interaction through call center technology as a key competitive advantage. The
Company is focused on open, standards-based software solutions for
enterprise-wide call distribution in a multi-vendor, multi-carrier,
fault-tolerant, distributed environment. GeoTel's call routing solutions have
been deployed by a variety of companies, including America Online, American
Express, Fidelity, MCI, Matrixx Marketing, Spiegel and USAir, representing
approximately 6.5%, 2.6%, 23.3%, 7.0%, 4.9%, 3.8% and 6.7%, respectively, of the
Company's total revenues to date.
Companies are increasingly recognizing that excellent customer service can
be used as a strategic weapon to differentiate their firms from competitors. In
order to remain competitive, corporations must continually evaluate their
product and service offerings to expand market share, lower costs and meet
customer expectations. To improve service quality, companies have invested in
technologies that enable them to concentrate customer service representatives,
or agents, into groups known as call centers. Many large corporations utilize
call centers as the primary method of interfacing with their customers. These
call centers are typically deployed in multiple locations and can be utilized to
provide a prioritized level of services for the most valued customers. Call
centers allow businesses to reduce costs and deliver premium customer service.
The technology utilized by call centers has evolved dramatically over the
past three years. Historically, due to the closed nature of public networks,
corporations installed premises-based switching systems at the end of long
distance or local exchange telephone lines. Reliance on these switching systems
requires corporations to use proprietary closed solutions offered by service
providers where multi-vendor switching system interoperability was not possible.
Consequently, the call center solutions employed by most corporations have been
designed around the technological limits of premises-based switching systems and
the limitations of carrier networks, which prevent corporations from realizing
the potential benefits of virtual call centers. Virtual call centers draw upon
all of the organization's call response resources and utilize open systems-based
applications to enhance the capabilities of the existing call center
infrastructure by integrating it with existing business applications and data.
The Company's Intelligent CallRouter (the "ICR") enables enterprise-wide
call routing and consolidated real-time management information at the network
level. The ICR is an advanced call-by-call routing server that supports multiple
routing clients independent of their location, toll-free carrier or switch
provider. The multi-carrier, multi-vendor capabilities of the ICR allow the user
to focus on delivering premium customer service without the limitations of
proprietary or customer developed solutions. Its open architecture enables
interoperability with other call processing and call volume management systems
within an enterprise and provides a means for integrating these various
stand-alone solutions. The ICR can be interfaced to agent scheduling, workflow
management and other call center management tools. The distributed software
fault tolerance implemented in the ICR provides the mission-critical reliability
required for enterprise-wide call distribution. The Company also offers
consulting and training, installation services and post-sale maintenance and
support services.
3
<PAGE> 9
The Company's objective is to become the leading supplier of
enterprise-wide call distribution software solutions. To achieve this objective,
the Company is pursuing a number of strategies, including extending its
technology leadership in order to expand the value-added call processing
features required by its customers; expanding its call distribution technology
to include all of the answering resources available within a customer's business
environment; leveraging its open architecture to develop interfaces to both
existing and emerging call center technologies; utilizing a multiple-channel
distribution system to cost-effectively address the market for its products; and
providing superior customer service, support and training to ensure customer
satisfaction and the effective deployment of the Company's products.
GeoTel sells its software and services to large corporations with multiple
call center locations that are major users of inbound, toll-free services. The
Company sells primarily through a direct sales force in the United States and is
also developing strategic relationships both domestically and internationally.
The Company has signed agreements with MCI Telecommunications Corporation and
Optus Systems PTY Ltd, representing 7.0% and 12.8%, respectively, of the
Company's total revenues to date. To date, the Company has licensed its software
to over 20 companies.
The Company was incorporated in Delaware in June 1993. The Company's
principal executive offices are located at 25 Porter Road, Littleton,
Massachusetts 01460. The Company's telephone number is (508) 486-1100.
------------------------
Intelligent CallRouter, Pre-Routing and Post-Routing are registered
trademarks of the Company and GeoTel is a trademark of the Company. All other
trademarks and trade names referred to in this Prospectus are the property of
their respective owners.
4
<PAGE> 10
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company......................... 2,200,000 shares
Common Stock to be outstanding after the offering........... 12,986,923 shares(1)(2)
Use of proceeds............................................. For working capital and other
general corporate purposes,
including repayment of bank
indebtedness
Proposed Nasdaq National Market symbol...................... GEOC
</TABLE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
INCEPTION
(JUNE 4, 1993) YEAR ENDED NINE MONTHS ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------- -------------------
1993 1994 1995 1995 1996
-------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ -- $ -- $ 1,534 $ -- $ 6,284
Income (loss) from operations.... (401) (3,090) (4,026) (3,591) 215
Net income (loss)................ (377) (2,966) (3,862) (3,479) 346
Pro forma net income (loss) per
common and common equivalent
share(2)....................... $ (0.37) $ 0.03
Pro forma weighted average number
of common and common equivalent
shares(2)...................... 10,365,465 11,514,315
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(2) ADJUSTED(2)(3)
------- -------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 5,812 $5,812 $ 22,803
Working capital....................................... 4,699 4,699 22,063
Total assets.......................................... 9,176 9,176 26,167
Long-term debt, less current portion.................. 450 450 --
Convertible preferred stock........................... 12,229 -- --
Preferred stock....................................... -- --
Total stockholders' equity (deficit).................. (7,004) 5,225 23,039
</TABLE>
- ---------------
(1) Based upon the number of shares of Common Stock outstanding as of September
30, 1996. Excludes 860,396 shares of Common Stock issuable upon the exercise
of options outstanding on that date, of which options to purchase 8,400
shares were then exercisable. See "Management -- Stock Plans."
(2) Reflects the conversion of all issued and outstanding shares of Convertible
Preferred Stock into 8,462,086 shares of Common Stock upon the closing of
this offering. See Notes F and G to Financial Statements.
(3) Adjusted to reflect the sale of 2,200,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $9.00 per
share, after deducting estimated underwriting discounts and commissions and
offering expenses. See "Use of Proceeds."
Unless otherwise indicated, all information contained in this Prospectus
reflects (i) the conversion of all outstanding shares of the Company's Series A
Convertible Participating Preferred Stock, Series B Convertible Participating
Preferred Stock and Series C Convertible Participating Preferred Stock
(collectively, the "Convertible Preferred Stock") into an aggregate of 8,462,086
shares of Common Stock upon the closing of this offering, based upon an assumed
initial public offering price of $9.00 per share; (ii) reflects the restatement
of the Company's Certificate of Incorporation, to be filed upon the closing of
this offering, to eliminate the Company's existing series of Convertible
Preferred Stock and to create a class of authorized but undesignated preferred
stock; and (iii) assumes no exercise of the Underwriters' over-allotment option.
See "Description of Capital Stock" and "Underwriting."
5
<PAGE> 11
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of the Common Stock offered by this Prospectus. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Limited Operating History; Future Operating Results Uncertain. The Company
was incorporated in June 1993 and did not begin shipping products until May
1995. As of September 30, 1996, the Company had an accumulated deficit of
$6,863,000. The Company has experienced substantial revenue growth since product
introduction, and first achieved profitability in the first quarter of 1996.
However, due to the Company's limited operating history there can be no
assurance that such revenue growth and profitability will continue on a
quarterly or annual basis in the future. Future operating results will depend on
many factors, including the demand for the Company's products, the level of
product and price competition, the Company's success in expanding its direct
sales force and indirect distribution channels and the ability of the Company to
develop and market new products and control costs. In order to support the
growth of its business, the Company plans to significantly expand its level of
operations. Due to the anticipated increase in the Company's operating expenses
caused by this expansion, the Company's operating results will be adversely
affected if revenues do not increase. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Potential Fluctuations in Quarterly Operating Results. The Company's
quarterly operating results may in the future vary significantly depending on
factors such as increased competition, the timing of new product announcements
and changes in pricing policies by the Company and its competitors, market
acceptance of new and enhanced versions of the Company's products, the size and
timing of significant orders, order cancellations by customers, the lengthy
sales cycles of the Company's products, changes in operating expenses, changes
in Company strategy, personnel changes and general economic factors. Product
revenues are also difficult to forecast because the market for the Company's
software products is rapidly evolving, and the Company's sales cycle varies
substantially from customer to customer. A significant portion of the Company's
revenues and operating income has been, and is expected to continue to be,
derived from software licensing fees from a limited number of customers.
Variability in the timing of such license fees may cause material fluctuations
in the Company's business, operating results and financial condition. The
Company's products and services generally require capital expenditures by
customers as well as the commitment of resources to implement the Company's
products. Accordingly, the Company is substantially dependent on its customers'
decisions as to the timing and level of such expenditures and resource
commitments. In addition, the Company typically realizes a significant portion
of license revenues in the last month of a quarter. As a result, the magnitude
of quarterly fluctuations may not become evident until late in, or after the
close of, a particular quarter. The Company's expenses are based in part on the
Company's expectations as to future revenue levels and to a large extent are
fixed in the short-term. If revenues do not meet expectations, the Company's
business, operating results and financial condition are likely to be materially
adversely affected. In particular, because only a small portion of the Company's
expenses varies with revenues, net income may be disproportionately affected by
a reduction in revenues. As a result, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and should
not be relied upon as indications of future performance. Due to the foregoing
factors, it is likely that in some future quarter the Company's revenue or
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock could be
materially
6
<PAGE> 12
adversely affected. See "Selected Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Risks Associated with Customer Concentration and One-Time License Fees. A
significant portion of the Company's revenues to date has been derived from a
limited number of customers. Revenues attributable to the Company's five largest
customers accounted for approximately 94.4% and 62.2% of the Company's total
revenues in 1995 and the nine months ended September 30, 1996, respectively.
Fidelity Investments ("Fidelity"), Sprint Corporation and America Online
accounted for approximately 38.3%, 25.9% and 20.0%, respectively, of the
Company's total revenues in 1995, and Fidelity, Optus Systems PTY Ltd ("Optus"),
GTE Communication Systems Corporation, MCI Telecommunications Corporation
("MCI"), and USAir Corp. accounted for approximately 19.7%, 15.9%, 10.2%, 8.7%
and 7.7%, respectively, of the Company's total revenues for the nine months
ended September 30, 1996. The Company expects that it will continue to be
dependent upon a limited number of customers for a significant portion of its
revenues in future periods. None of the Company's customers, other than MCI and
Optus, is contractually obligated to license or purchase additional products or
services from the Company and these customers generally have acquired fully-paid
licenses to the installed product. As a result of this customer concentration,
the Company's business, operating results and financial condition could be
materially adversely affected by the failure of anticipated orders to
materialize or by deferrals or cancellations of orders. In addition, a
significant portion of the Company's revenues to date has been derived from
initial license fees from customers who have acquired fully-paid licenses to the
installed product. There can be no assurance that any of the Company's customers
will continue to purchase the Company's products and services in amounts similar
to previous periods or that revenues from customers that have accounted for
significant revenues in past periods, individually or as a group, will continue
or, if continued, will reach or exceed historical levels in any future period.
The Company's operating results may in the future be subject to substantial
period-to-period fluctuations as a consequence of such customer concentration.
See "Business -- Customers."
Lengthy Sales and Implementation Cycles. The Company's products are
typically intended for use in applications that may be critical to a customer's
business. The license and implementation of the Company's software products
generally involves a significant commitment of resources by prospective
customers. As a result, the Company's sales process is often subject to delays
associated with lengthy approval processes that typically accompany significant
capital expenditures. For these and other reasons, the sales cycle associated
with the license of the Company's products is often lengthy (recently averaging
approximately six months) and subject to a number of significant delays over
which the Company has little or no control. In addition, the Company does not
recognize license revenues until all significant post-delivery obligations have
been satisfied, including the development of specific product features which, in
certain cases, can take several quarters. The time required to implement the
Company's products can vary significantly with the needs of its customers and is
generally a process that extends for several months. There can be no assurance
that the Company will not experience delays in the future, particularly if the
Company receives orders for large, complex installations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Sales and Marketing" and "-- Customer Service and Support."
Product Concentration; Dependence on Growth in Call Center Market. The
Company currently derives substantially all of its revenues from licenses of the
Intelligent CallRouter and related services. Broad market acceptance of the
Company's product is critical to the Company's future success. As a result, a
decline in demand for or failure to achieve broad market acceptance of the
Intelligent CallRouter as a result of competition, technological change or
otherwise, would have a material adverse effect on the business, operating
results and financial condition of the Company. A decline in sales of the
Intelligent CallRouter could also have a material adverse effect on sales of
other Company products that may be sold to Intelligent CallRouter customers. The
Company's future financial performance will depend in part on the successful
development, introduction and customer acceptance of new and enhanced versions
of the Intelligent CallRouter and other
7
<PAGE> 13
products. There can be no assurance that the Company will continue to be
successful in marketing the Intelligent CallRouter or any new or enhanced
products. See "Business -- Products," "-- Product Development" and
"-- Competition."
The Intelligent CallRouter is utilized in call centers maintained by
companies in a variety of industries. This product is currently expected to
account for substantially all of the Company's future revenues. Although demand
for the Intelligent CallRouter has grown in recent quarters, the call center
market is still an emerging market. The Company's future financial performance
will depend in large part on continued growth in the number of organizations
adopting software applications to enhance their responsiveness to customers and
the number of applications developed for use in those environments. There can be
no assurance that the market for the Company's products will continue to grow.
In addition, changes in the business or pricing strategies of the interexchange
carriers or ACD vendors could adversely affect demand for the Company's
products. If the call center market fails to grow or grows more slowly than the
Company currently anticipates, the Company's business, operating results and
financial condition would be materially adversely affected. During recent years,
segments of the telecommunications industry have experienced significant
economic downturns characterized by decreased product demand, price erosion,
work slowdowns and layoffs. The Company's operations may in the future
experience substantial fluctuations from period to period as a consequence of
such industry patterns, general economic conditions affecting the timing of
orders from major customers, and other factors affecting capital spending. There
can be no assurance that such factors will not have a material adverse effect on
the Company's business, operating results and financial condition. See
"Business -- Industry Background."
Competition. The market for telecommunications software products is
intensely competitive and is subject to rapid technological change. Although to
date the Company has experienced limited competition, the Company expects
competition to increase significantly in the future. Currently, the Company's
principal competitors are the interexchange carriers, particularly AT&T, and to
a lesser extent MCI and Sprint, which provide proprietary call routing solutions
as part of their service offerings. In addition, a number of other companies
have introduced or announced their intention to introduce products that could be
competitive with the Company's products, including Genesys Telecommunications
Laboratories and IEX Corporation. Additional competitors, including traditional
ACD providers, such as Lucent Technologies, Aspect Telecommunications
Corporation, Northern Telecommunications, Inc. and Rockwell International
Corporation, may enter the market by enhancing their proprietary private network
solutions or by entering into arrangements with the interexchange carriers. The
Company believes that, to date, approximately one-half of the Company's
customers have purchased the Company's products to replace or enhance existing
call routing solutions offered by the interexchange carriers. The Company's
other customers have purchased the Company's products in order to implement a
virtual call center solution for the first time. Increased competition is likely
to result in price reductions, reduced gross margins and loss of market share,
any of which could materially adversely affect the Company's business, operating
results and financial condition. Some of the Company's current, and many of the
Company's potential, competitors have significantly greater financial,
technical, marketing and other resources than the Company. As a result, they may
be able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of their products than the Company. In addition, one or more
interexchange carriers, including MCI, Optus and Sprint which are customers of
the Company, could choose to provide or distribute competitive products and
services. Accordingly, there can be no assurance that the Company will be able
to compete successfully against current and future competitors or that
competitive pressures faced by the Company will not materially adversely affect
its business, operating results and financial condition. Moreover, the Company
may be subject to potential conflicts of interest from time to time if a
customer, such as MCI, Optus or Sprint, provides or distributes competitive
products or services. In this regard, a customer which elects to provide or
distribute competitive products or services could make strategic decisions with
respect to pricing and other matters relating to products provided or
distributed by it which could adversely affect the Company's business, operating
results and financial condition. See "Business -- Competition."
8
<PAGE> 14
Dependence on New Products and Rapid Technological Change. The market for
the Company's products is characterized by rapid technological change, frequent
new product introductions and evolving industry standards. The introduction of
products embodying new technologies and the emergence of new industry standards
can render existing products obsolete and unmarketable. The life cycles of the
Company's products are difficult to estimate. The Company's future success will
depend upon its ability to enhance its current products and to develop and
introduce new products on a timely basis that keep pace with technological
developments and emerging industry standards and address the increasingly
sophisticated needs of its customers. There can be no assurance that the Company
will be successful in developing and marketing product enhancements or new
products that respond to technological change or evolving industry standards,
that the Company will not experience difficulties that could delay or prevent
the successful development, introduction and marketing of these products, or
that its new products and product enhancements will adequately meet the
requirements of the marketplace and achieve market acceptance. If the Company is
unable, for technological or other reasons, to develop and introduce new
products or enhancements of existing products in a timely manner in response to
changing market conditions or customer requirements, the Company's business,
operating results and financial condition will be materially adversely affected.
In June 1996, the Company released a new version of its Intelligent CallRouter
and the Company plans to introduce additional enhancements in the near term.
These enhancements are subject to significant technical risks. If these
enhancements are delayed or if they do not achieve market acceptance, the
Company's business, operating results and financial condition will be materially
adversely affected. See "Business -- Product Development."
Risk of Product Defects or Development Delays. Software products as
complex as those offered by the Company frequently contain errors or failures,
especially when first introduced or when new versions are released. Although the
Company conducts extensive product testing, new products and enhancements could
contain software errors and, as a result, the Company could experience delays in
recognizing revenues during the period required to correct these errors. The
Company could in the future lose revenues as a result of software errors or
defects. The Company's products are typically intended for use in applications
that may be critical to a customer's business. As a result, the Company believes
that its current customers and potential customers have a greater sensitivity to
product defects than the market for software products generally. Although the
Company has not experienced material adverse effects resulting from any such
errors to date, there can be no assurance that, despite testing by the Company
and by current and potential customers, errors will not be found in new products
or releases after commencement of commercial shipments, resulting in the loss of
revenue or delay in market acceptance, diversion of development resources,
damage to the Company's reputation, or increased service and warranty costs, any
of which could have a material adverse effect upon the Company's business,
operating results and financial condition.
Management of Growth; Dependence Upon Key Personnel. The Company has
recently experienced a period of rapid growth in revenues that has placed a
significant strain upon its management systems and resources. The Company's
ability to compete effectively and to manage future growth, if any, will require
the Company to continue to improve its financial and management controls,
reporting systems and procedures on a timely basis and expand, train and manage
its employee work force. There can be no assurance that the Company will be able
to do so successfully. The Company's failure to do so could have a material
adverse effect upon the Company's business, operating results and financial
condition. The Company's future performance depends in significant part upon the
continued service of its key technical, sales and senior management personnel,
none of whom is bound by an employment agreement. The loss of the services of
one or more of the Company's executive officers could have a material adverse
effect on the Company's business, operating results and financial condition. The
Company's future success also depends on its continuing ability to attract and
retain highly qualified technical, sales and managerial personnel.
9
<PAGE> 15
Competition for such personnel is intense, and there can be no assurance that
the Company can retain its key technical, sales and managerial employees or that
it can attract, assimilate or retain other highly qualified technical, sales and
managerial personnel in the future. See "Business -- Sales and Marketing" and
"Management."
Risks Associated with International Expansion. International sales
accounted for approximately 21.6% of the Company's revenues for the nine months
ended September 30, 1996. As part of its business strategy, the Company is
seeking opportunities to expand its products into international markets. The
Company believes that such expansion is important to the Company's ability to
continue to grow and to market its products and services. In marketing its
products and services internationally, however, the Company will face new
competitors, some of whom may have established strong relationships with
carriers. In addition, the ability of the Company to enter the international
markets will be dependent upon the Company's ability to integrate its products
with local proprietary networks in foreign countries. There can be no assurance
that the Company will be successful in integrating its products with these
proprietary networks or marketing or distributing its products abroad or that,
if the Company is successful, its international revenues will be adequate to
offset the expense of establishing and maintaining international operations. To
date, the Company has limited experience in marketing and distributing its
products internationally. In addition to the uncertainty as to the Company's
ability to establish an international presence, there are certain difficulties
and risks inherent in doing business on an international level, such as
compliance with regulatory requirements and changes in these requirements,
export restrictions, export controls relating to technology, tariffs and other
trade barriers, protection of intellectual property rights, difficulties in
staffing and managing international operations, longer payment cycles, problems
in collecting accounts receivable, political instability, fluctuations in
currency exchange rates and potentially adverse tax consequences. There can be
no assurance that one or more of such factors will not have a material adverse
effect on any international operations established by the Company and,
consequently, on the Company's business, operating results and financial
condition.
Dependence on Proprietary Technology; Risks of Infringement. The Company
is dependent upon its ability to protect its proprietary technology. To protect
its proprietary rights, the Company relies on a combination of patents,
copyrights, trademarks, trade secret laws and confidentiality procedures. The
Company has been issued one United States patent and also has one patent
application pending in the United States and internationally. There can be no
assurance that patents will be issued with respect to the pending or future
patent applications or that the Company's existing or future patents will be
upheld as valid or will prevent the development of competitive products. In
addition, existing patent, copyright, trademark and trade secret laws afford
only limited protection, and many countries' laws do not protect the Company's
proprietary rights to the same extent as do the laws of the United States.
Accordingly, there can be no assurance that the Company will be able to protect
its proprietary rights against unauthorized third-party copying, use or
exploitation, any of which could have a material adverse effect on the Company's
business, operating results and financial condition. Attempts may be made to
copy or reverse engineer aspects of the Company's products, or to obtain, use or
exploit information or methods which the Company deems proprietary.
Additionally, there can be no assurance that the Company's customers and others
will not develop products which infringe upon the Company's rights, or that
compete with the Company's products. Policing the use of the Company's products
is difficult and expensive, and there is no assurance that such efforts would
prove effective. Litigation or other action may be necessary in the future to
enforce the Company's proprietary rights, to seek and confirm patent protection
for the Company's technologies, or to determine the validity and scope of the
proprietary rights of others. Any litigation could be time-consuming and result
in significant costs. The Company expects that its software products may
increasingly be subject to claims as the number of products and competitors in
the Company's markets grows and the functionality of such products overlaps. Any
such claims, with or without merit, could result in substantial costs and
diversions of resources and management's attention, and could cause product
shipment delays or require the Company to enter into royalty or licensing
agreements, any of which could have a material adverse
10
<PAGE> 16
impact on the Company's business, operating results and financial condition.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company, if at all, which could have a material adverse effect
upon the Company's business, operating results and financial condition. See
"Business -- Intellectual Property and Other Proprietary Rights."
Dependence on a Single Supplier for a Certain Product. The software and
network adapter necessary to enable the Company's Intelligent CallRouter to
interface with the AT&T network is licensed by the Company from a single vendor
under a perpetual, fully-paid license. Although the Company has access to the
source code underlying this software and rights to manufacture the network
adapter, if for any reason the vendor does not make the software or network
adapter available to the Company, there can be no assurance that the Company
will be able to develop these products on a timely basis. See
"Business -- Intellectual Property and Other Proprietary Rights."
Product Liability. The Company's license agreements with its customers
generally contain provisions designed to limit the Company's exposure to
potential product liability claims. However, it is possible that the limitation
of liability provisions contained in the Company's license agreements may not be
effective under the laws of certain jurisdictions. Although the Company has not
experienced any product liability claims to date, the sale and support of
products by the Company may entail the risk of such claims, and there can be no
assurance that the Company will not be subject to such claims in the future. A
successful product liability claim brought against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition.
No Prior Public Market; Determination of Public Offering Price; Potential
Volatility of Stock Price. Prior to this offering there has been no public
market for the Common Stock, and there can be no assurance that an active
trading market will develop or be sustained. The initial public offering price
for the Common Stock will be determined by negotiation between the Company and
the Representatives of the Underwriters. Among the factors to be considered in
determining the initial public offering price are prevailing market and economic
conditions, revenues and earnings of the Company, the market valuations of other
companies engaged in activities similar to those of the Company, estimates of
the business potential and prospects of the Company, the present state of the
Company's business operations, the Company's management and other factors deemed
relevant, and may not be indicative of the market price of the Common Stock
after this offering. In addition, the stock markets in general, and the market
prices for high technology companies in particular, have historically
experienced volatility that at times has been unrelated to the operating
performance of such companies. The trading price of the Common Stock could also
be subject to significant fluctuations in response to variations in quarterly
results of operations, announcements of new products or acquisitions by the
Company or its competitors, governmental regulatory action, other developments
or disputes with respect to proprietary rights, general trends in the industry
and overall market conditions, and other factors. These broad market and
industry fluctuations may adversely affect the market price of the Common Stock
regardless of the Company's operating performance. See "Underwriting" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Shares Eligible for Future Sale; Registration Rights. A substantial number
of outstanding shares of Common Stock and shares of Common Stock issuable upon
exercise of outstanding options will become available for future sale in the
public market at prescribed times or pursuant to the exercise of registration
rights. Sales of substantial amounts of such shares in the public market could
adversely affect the market price of the Common Stock. Approximately 265,999
shares may be immediately eligible for resale in the public market without
restriction in reliance on Rule 144(k) under the Securities Act of 1933, as
amended (the "Securities Act"). An additional 84,443 shares may be eligible for
resale in the public market without restriction in reliance on Rule 144(k) upon
the expiration of certain 180-day lock-up agreements. In addition, beginning 90
days after the date of this Prospectus, 6,925,250 shares of Common Stock, of
which 6,799,853 shares are subject to 180-day lockup agreements with the
Representatives of the Underwriters, will be eligible for resale in the public
market subject to the restrictions of Rule 144 under the Securities Act. See
"Shares
11
<PAGE> 17
Eligible for Future Sale." In addition, the Securities and Exchange Commission
has proposed an amendment to Rule 144 which would reduce the holding period
before shares subject to Rule 144 become eligible for sale in the public market.
This proposal, if adopted, would substantially increase the number of shares of
the Company's Common Stock eligible for immediate sale following the expiration
of the lock-up period. Approximately 90 days after the date of this Prospectus,
the Company intends to register on one or more registration statements on Form
S-8 approximately 2,972,341 shares of Common Stock issuable under its restricted
stock purchase plan, stock restriction agreements and stock option plan. Shares
covered by such registration statements will be eligible for sale in the public
market after the effective date of such registration, except for 1,704,146
shares which are subject to 180-day lockup agreements with Representatives of
the Underwriters.
The executive officers and the directors of the Company and certain
stockholders, who in the aggregate own beneficially approximately 10,509,580
shares of Common Stock (including shares issuable pursuant to the exercise of
stock options), have agreed pursuant to lock-up agreements that they will not,
without the prior written consent of Alex. Brown & Sons Incorporated, sell or
otherwise dispose of any such shares of Common Stock beneficially owned by them
for a period of 180 days from the date of this Prospectus. Upon the expiration
of these lock-up agreements, 7,828,630 of such shares (including shares issuable
pursuant to the exercise of stock options) will become eligible for sale in the
public market, subject to the provisions of Rule 144 under the Securities Act.
As of the date of this Prospectus, the holders of 9,674,416 shares of
Common Stock are entitled to certain registration rights with respect to such
shares. If the Company is required to register shares held by any such holder
pursuant to the exercise of its or his registration rights, such sales may have
an adverse effect on the Company's ability to raise needed capital or adversely
affect the Common Stock. See "Management," "Principal and Selling Stockholders,"
"Shares Eligible for Future Sale" and "Underwriting."
Control by Existing Stockholders. Following this offering, the Company's
executive officers, directors and their respective affiliates, in the aggregate,
will beneficially own approximately 44.5% of the Company's outstanding Common
Stock (43.1% of the outstanding Common Stock if the over-allotment option is
exercised in full). As a result, these stockholders, if acting together, would
be able to exert substantial influence over the Company and to effectively
control most matters requiring approval by the stockholders of the Company,
including the election of directors. The voting power of these stockholders
under certain circumstances could have the effect of delaying or preventing a
change in control of the Company. See "Management," "Principal and Selling
Stockholders" and "Description of Capital Stock."
Certain Anti-Takeover Provisions Affecting Stockholders. The Company's
Restated Certificate of Incorporation and Bylaws contain provisions that might
diminish the likelihood that a potential acquiror would make an offer for the
Common Stock, or impede a transaction favorable to the interest of the
stockholders, or increase the difficulty of removing an incumbent Board of
Directors or management. After the closing of this offering, the Company's Board
of Directors will have the authority, without further stockholder approval, to
issue up to 5,000,000 shares of Preferred Stock in one or more series and to
determine the price, rights, preferences and privileges of those shares. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of shares of Preferred Stock, while potentially
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue shares of Preferred Stock. In
addition, the Company is subject to the anti-takeover provisions of Section 203
of the Delaware General Corporation Law, which will prohibit the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. The application of Section 203 also could
12
<PAGE> 18
have the effect of delaying or preventing a change of control of the Company.
Furthermore, certain provisions of the Company's Restated Certificate of
Incorporation, including provisions that provide for the Board of Directors to
be divided into three classes to serve for staggered three-year terms, may have
the effect of delaying or preventing a change of control of the Company, which
could adversely affect the market price of the Company's Common Stock. Each of
the Company's executive officers is a party to a change in control agreement
which provides for salary continuation and other benefits upon the occurrence of
certain events following a change of control. These agreements could have the
effect of discouraging a change of control of the Company. See "Description of
Capital Stock -- Certain Charter, Bylaw and Statutory Provisions Affecting
Stockholders" and "Management -- Employment Agreements and Change of Control
Arrangements."
Dilution. Purchasers in this offering will suffer an immediate and
substantial dilution, in the amount of $7.23 per share, in the net tangible book
value of the Common Stock from the initial public offering price. See
"Dilution."
No Dividends. The Company has never declared or paid cash dividends to its
stockholders and does not anticipate paying cash dividends in the foreseeable
future. See "Dividend Policy."
Discretion as to Use of Proceeds. The principal purposes of this offering
are to increase the Company's equity capital, to create a public market for the
Company's Common Stock, to increase the visability of the Company in the
marketplace and to facilitate future access to public equity markets. As of the
date of this Prospectus, the Company has no specific plans to use the net
proceeds from this offering other than for working capital and general corporate
purposes, including repayment of bank indebtedness. Accordingly, the Company's
management will retain broad discretion as to the allocation of the net proceeds
from this offering. Pending any such uses, the Company plans to invest the net
proceeds in the investment grade, interest-bearing securities. See "Use of
Proceeds."
13
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock offered by the Company pursuant to this offering are estimated to
be $17,814,000 ($20,032,000 if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $9.00 per share
and after deducting the estimated underwriting discounts and commissions and
offering expenses payable by the Company. The principal purposes of this
offering are to increase the Company's equity capital, to create a public market
for the Common Stock, to increase the visibility of the Company in the
marketplace and to facilitate future access by the Company to public equity
markets.
The Company anticipates using a portion of the net proceeds to repay in
full the Company's existing bank indebtedness and the balance for general
corporate purposes, including working capital. At September 30, 1996, the
Company's bank indebtedness consisted of equipment lines of credit which
amounted to approximately $823,000, payable in monthly installments. Future
principal payments are $101,000, $347,000, $252,000, $99,000 and $24,000 for the
remainder of 1996 and annually for 1997, 1998, 1999 and 2000, respectively. At
September 30, 1996, interest accrued on such loans at the bank's prime rate
(8.25% at September 30, 1996) per annum. The proceeds of such loans were used by
the Company to acquire capital equipment. The Company may seek acquisitions of
businesses, products and technologies that are complementary to those of the
Company, and a portion of the net proceeds may be used for such acquisitions.
While the Company engages from time to time in discussions with respect to
potential acquisitions, the Company has no plans, commitments or agreements with
respect to any such acquisitions as of the date of this Prospectus, and there
can be no assurance that any such acquisitions will be made. Pending such uses,
the Company intends to invest the net proceeds from this offering in short-term,
investment-grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and currently intends to retain all available funds for use in the
operation and expansion of its business. The Company does not, therefore,
anticipate that any cash dividends will be declared or paid in the foreseeable
future. The Company's current loan agreement prohibits the payment of cash
dividends without the bank's consent. See Financial Statements and the related
Notes.
14
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 on an actual, pro forma and as adjusted basis to give effect
to the sale of 2,200,000 shares of Common Stock offered by the Company in this
offering at an assumed initial public offering price of $9.00 per share, and the
application of the estimated net proceeds therefrom. This table should be read
in conjunction with the Financial Statements and Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current portion............... $ 450 $ 450 --
Convertible preferred stock, $.01 par value,
7,788,615 shares authorized, issued and
outstanding (actual), no shares (pro forma and pro
forma as adjusted) (aggregate liquidation
preference of $12,756,000)........................ 12,229 -- --
Stockholders' equity (deficit):
Preferred stock, $.01 par value; no shares
authorized, issued and outstanding (actual);
5,000,000 shares authorized, no shares issued and
outstanding (pro forma and pro forma as
adjusted)(3)
Common Stock, $.01 par value; 14,000,000 shares
authorized, 2,599,580 shares issued and 2,324,837
shares outstanding (actual); 40,000,000 shares
authorized, 11,061,666 shares issued and
10,786,923 shares outstanding (pro forma); and
40,000,000 shares authorized, 13,261,666 shares
issued and 12,986,923 shares outstanding (pro
forma as adjusted)(3)(4).......................... 26 111 $ 133
Additional paid-in capital......................... 51 12,195 29,987
Accumulated deficit................................ (6,863) (6,863) (6,863)
Notes receivable from stockholders................. (153) (153) (153)
Unearned compensation.............................. (23) (23) (23)
Less treasury stock, at cost, 274,743 shares....... (42) (42) (42)
------- -------- --------
Total stockholders' equity (deficit).......... (7,004) 5,225 23,039
------- -------- --------
Total capitalization.......................... $ 5,675 $ 5,675 $ 23,039
======= ======== ========
</TABLE>
- ---------------
(1) Reflects the conversion of all issued and outstanding shares of Convertible
Preferred Stock into 8,462,086 shares of Common Stock upon the closing of
this offering, based upon an assumed initial public offering price of $9.00
per share.
(2) Adjusted to give effect to the sale of 2,200,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$9.00 per share, after deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company, and the
anticipated application of the net proceeds therefrom.
(3) On September 26, 1996, the Company's Board of Directors and stockholders
approved amendments to the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock from 14,000,000 to
40,000,000 and to set the number of authorized shares of undesignated
Preferred Stock at 5,000,000 to be effected upon the closing of this
offering. See "Description of Capital Stock" and Notes to the Financial
Statements.
(4) Excludes 860,396 shares of Common Stock issuable pursuant to the exercise of
options outstanding at September 30, 1996, of which options to purchase
8,400 shares were then exercisable. See "Management -- Stock Plans."
15
<PAGE> 21
DILUTION
The pro forma net tangible book value of the Company at September 30, 1996,
after giving effect to the automatic conversion of Convertible Preferred Stock
upon the closing of the offering, was approximately $5,225,000, or $0.48 per
share of Common Stock. Net tangible book value per share is equal to the
Company's total tangible assets less total liabilities, divided by the total
number of shares of Common Stock outstanding. Net tangible book value dilution
per share represents the difference between the amount per share paid by
purchasers of shares of Common Stock in the offering made hereby and the net
tangible book value per share of Common Stock immediately after completion of
this offering. After giving effect to the sale by the Company of the 2,200,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $9.00 per share, and after deducting the estimated underwriting
discounts and commissions and offering expenses, the pro forma net tangible book
value of the Company as of September 30, 1996 would have been $23,039,000 or
$1.77 per share of Common Stock. This represents an immediate increase in such
pro forma net tangible book value of $1.29 per share to existing stockholders
and an immediate dilution of $7.23 per share to new investors purchasing shares
in this offering. If the initial public offering price is higher or lower, the
dilution to the new investors will be, respectively, greater or less. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $9.00
Pro forma net tangible book value per share before this offering.... $0.48
Increase per share attributable to new investors.................... 1.29
Pro forma net tangible book value per share after this offering..... 1.77
----
Dilution per share to new investors................................. $7.23
====
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1996, after giving effect to the conversion of all outstanding shares of
Convertible Preferred Stock into 8,462,086 shares of Common Stock upon the
closing of this offering, the number of shares of Common Stock purchased from
the Company (excluding shares repurchased by the Company and held in treasury),
the total consideration paid and the average price per share paid to the Company
by existing stockholders (net of expenses) and by new investors purchasing
shares offered by the Company hereby (at an assumed initial public offering
price of $9.00 per share), respectively, before deducting the underwriting
discounts and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 10,786,923 83.1% $12,250,000 38.2% $1.14
New investors.................... 2,200,000 16.9% 19,800,000 61.8% 9.00
---------- ----- ----------- -----
Total.................. 12,986,923 100.0% $32,050,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing tables assume no exercise of the Underwriters' over-allotment
option or of options to purchase an aggregate of 860,396 shares of Common Stock
that were outstanding at September 30, 1996. To the extent that the
Underwriters' over-allotment option and other options are exercised in the
future, there will be further dilution to new investors. If all of the
outstanding options were exercised in full, the dilution per share to new
investors would be $7.21. Such exercises would increase the number of shares
held by existing stockholders to 11,647,319 shares, or 84.1%, of the total
number of shares of Common Stock to be outstanding after this offering, and
would (i) decrease the percentage ownership of the Company held by the new
investors to 15.9% of the total number of shares of Common Stock to be
outstanding after this offering, (ii) increase the total consideration paid to
the Company by existing stockholders to $13,941,000, or 41.3% of the total
consideration paid to the Company, and (iii) increase the average price per
share paid by existing stockholders to $1.20. See "Management -- Stock Plans."
16
<PAGE> 22
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Financial Statements and the Notes thereto and other financial information
included elsewhere in this Prospectus. The selected financial data set forth
below has been derived from, and qualified by reference to, those Financial
Statements and Notes thereto. The selected financial data set forth below for
the year ended December 31, 1995 and the nine months ended September 30, 1996
has been derived from Financial Statements of the Company which has been audited
by Coopers & Lybrand L.L.P., independent accountants. The selected financial
data set forth below from inception (June 4, 1993) through December 31, 1993 and
for the year ended December 31, 1994 has been derived from Financial Statements
of the Company which have been audited by Arthur Andersen LLP, independent
public accountants. The selected financial data for the nine months ended
September 30, 1995 is unaudited but has been prepared on the same basis as the
audited financial statements and, in the opinion of management, contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the operating results for the period. The operating results
for the nine months ended September 30, 1996 are not necessarily indicative of
the results to be expected for any other interim period or the full year.
<TABLE>
<CAPTION>
INCEPTION
(JUNE 4, 1993) YEAR ENDED DECEMBER NINE MONTHS ENDED
THROUGH 31, SEPTEMBER 30,
DECEMBER 31, -------------------- --------------------
1993 1994 1995 1995 1996
-------------- ------- ---------- ------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license.......................... $ 1,360 $ 5,618
Services and other........................ 174 666
---------- ----------
Total revenues............................ 1,534 6,284
---------- ----------
Cost of Revenues:
Cost of software license.................. 264 235
Cost of services and other................ 611 $ 372 986
---------- --------- ----------
Total cost of revenues.................... 875 372 1,221
---------- --------- ----------
Gross profit (loss)......................... 659 (372) 5,063
---------- --------- ----------
Operating Expenses:
Research and development.................. $ 140 $ 1,879 2,322 1,720 2,197
Sales and marketing....................... -- 570 1,476 998 1,951
General and administrative................ 261 641 887 501 700
------ -------- ---------- --------- ----------
Total operating costs..................... 401 3,090 4,685 3,219 4,848
------ -------- ---------- --------- ----------
Income (loss) from operations............... (401) (3,090) (4,026) (3,591) 215
Interest income, net........................ 24 124 164 112 131
------ -------- ---------- --------- ----------
Net income (loss)........................... $ (377) $(2,966) $ (3,862) $(3,479) $ 346
====== ======== ========== ========= ==========
Pro forma net income (loss) per common and
common equivalent share(1)................ $ (0.37) $ 0.03
========== ==========
Pro forma weighted average number of common
and common equivalent
shares(1)................................. 10,365,465 11,514,315
========== ==========
</TABLE>
17
<PAGE> 23
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
DECEMBER 31, ------------------------------------------
---------------------------- PRO FORMA
1993 1994 1995 ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------ ------- ------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.......... $ 446 $ 3,793 $ 4,537 $ 5,812 $5,812 $22,803
Working capital........ 2,832 4,249 4,292 4,699 4,699 22,063
Total assets........... 3,011 5,483 6,449 9,176 9,176 26,167
Long-term debt, less
current portion...... -- 338 408 450 450 --
Convertible preferred
stock................ 3,267 7,937 11,986 12,229 -- --
Preferred stock........ -- --
Total stockholders'
equity (deficit)..... (370) (3,357) (7,312) (7,004) 5,225 23,039
</TABLE>
- ---------------
(1) Reflects the conversion of all issued and outstanding shares of Convertible
Preferred Stock into 8,462,086 shares of Common Stock upon the closing of
this offering, based upon an assumed initial public offering price of $9.00
per share. See Notes F and G to Financial Statements.
(2) Adjusted to give effect to the sale of 2,200,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$9.00 per share, after deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company, and the
anticipated application of the net proceeds therefrom.
18
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to such a difference include, but are not limited to, those discussed
in "Risk Factors." The following discussion of the financial condition and
results of operations of the Company should be read in conjunction with the
Company's Financial Statements and Notes thereto, and the other financial
information included elsewhere in this Prospectus.
OVERVIEW
The Company was incorporated in June 1993 to develop telecommunications
software solutions that enable enhanced call center applications. From inception
through the first half of 1995, the Company was engaged principally in research
and product development of its Intelligent CallRouter product. The Company's
first customer installation of the Intelligent CallRouter occurred in May 1995
and the Company recognized its first revenue from customer shipments in the
fourth quarter of 1995. The Company initially achieved profitability in the
first quarter of 1996. Unit shipments have grown due to increasing market
acceptance of the Company's product and increases in the size of the Company's
direct sales force. The Company expects that the Intelligent CallRouter product
will account for substantially all of its revenue for the foreseeable future.
The Company believes that its future performance will depend in large part on
its ability to maintain and enhance its current Intelligent CallRouter product
line, develop new products that achieve market acceptance, maintain
technological competitiveness, meet an expanding range of customer requirements
and continue to recruit highly skilled and qualified software professionals. The
Company primarily markets its products in the United States through a direct
sales force which is complemented by strategic sales channels, including MCI,
selected resellers and an international partner.
The Company's revenue is derived from two sources: software licenses and
services. Software license revenue, which has historically represented the
majority of the Company's total revenue, is generally payable within thirty days
of product acceptance. The Company recognizes software license fee revenues upon
shipment unless there are significant post-delivery obligations. When
significant post-delivery obligations exist, revenues are deferred until such
obligations have been satisfied. Service revenues consist primarily of
maintenance, installation and training revenues. Maintenance revenues are
recognized ratably over the term of the support period, which is typically
twelve months. Installation and training revenues are recognized when the
services are performed.
A significant portion of the Company's revenues to date has been derived
from a limited number of customers. Revenues attributable to the Company's five
largest customers accounted for approximately 94.4% and 62.2% of the Company's
total revenues in 1995 and the nine months ended September 30, 1996,
respectively. The Company expects that it will continue to be dependent upon a
limited number of customers for a significant portion of its revenues in future
periods. See "Risk Factors -- Risks Associated with Customer Concentration."
The Company has experienced substantial revenue growth since product
introduction and first achieved profitability in the first quarter of 1996.
However, due to the Company's limited operating history there can be no
assurance that such revenue growth and profitability will continue on a
quarterly or annual basis in the future. Future operating results will depend on
many factors, including the demand for the Company's products, the level of
product and price competition, the Company's success in expanding its direct
sales force and indirect distribution channels and the ability of the Company to
develop and market new products and control costs. In order to support the
growth of its business, the Company plans to significantly expand its level of
operations. Due to the anticipated increase in the Company's operating expenses
caused by this expansion, the Company's operating results will be adversely
affected if revenues do not increase. Although demand for the Intelligent
CallRouter has grown in recent quarters, the call center market is still an
emerging market. The Company's future financial performance will depend in large
part on
19
<PAGE> 25
continued growth in the number of organizations adopting software applications
to enhance their responsiveness to customers and the number of applications
developed for use in these environments. See "Risk Factors -- Limited Operating
History; Future Operating Results Uncertain."
The Company's quarterly operating results may in the future vary
significantly depending on factors such as increased competition, the timing of
new product announcements and changes in pricing policies by the Company and its
competitors, market acceptance of new and enhanced versions of the Company's
products, the size and timing of significant orders, order cancellations by
customers, changes in operating expenses, changes in Company strategy, personnel
changes, and general economic factors. The Company's expense levels are based,
in part, on its expectations of future revenues and to a large extent are fixed
in the short-term. If revenue levels are below expectations, the Company's
business, operating results and financial condition are likely to be materially
adversely affected. Net income may be disproportionately affected by a reduction
in revenues because a proportionately smaller amount of the Company's expenses
varies with its revenues. As a result, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
See "Risk Factors -- Potential Fluctuations in Quarterly Operating Results."
OPERATING RESULTS
The following table presents selected unaudited financial information for
the Company's last four quarters (since the Company began recognizing revenue),
as well as the percentage of the Company's total revenues represented by each
item. The Company has not included quarterly financial information for any
quarter prior to the quarter ended December 31, 1995 as the Company was a
development stage enterprise and expenses in those quarters related primarily to
the research and development of the Company's products and initial marketing
efforts. In the opinion of the Company's management, this unaudited information
reflects all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly this information when read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
The Company's operating results for any one quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1996 1996 1996 1995 1996 1996 1996
------------ --------- -------- -------------- ------------ --------- -------- --------------
(IN THOUSANDS) (PERCENTAGE OF TOTAL REVENUE)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license...... $1,360 $ 1,705 $1,837 $2,076 88.6% 92.7% 89.7% 86.7%
Services and other.... 174 134 212 320 11.4 7.3 10.3 13.3
------ ------ ------ ------ ---- ---- ---- -----
Total revenues........ 1,534 1,839 2,049 2,396 100.0 100.0 100.0 100.0
------ ------ ------ ------ ---- ---- ---- -----
Cost of Revenues:
Cost of software
license............. 264 75 108 52 17.2 4.1 5.3 2.2
Cost of services and
other............... 240 278 338 370 15.6 15.1 16.5 15.4
------ ------ ------ ------ ---- ---- ---- -----
Total cost of
revenues............ 504 353 446 422 32.8 19.2 21.8 17.6
------ ------ ------ ------ ---- ---- ---- -----
Gross Profit............ 1,030 1,486 1,603 1,974 67.2 80.8 78.2 82.4
------ ------ ------ ------ ---- ---- ---- -----
Operating Expenses:
Research and
development......... 601 656 732 809 39.2 35.7 35.7 33.8
Sales and marketing... 479 621 570 760 31.2 33.8 27.8 31.7
General and
administrative...... 386 204 241 255 25.2 11.1 11.8 10.6
------ ------ ------ ------ ---- ---- ---- -----
Total operating
costs............... 1,466 1,481 1,543 1,824 95.6 80.6 75.3 76.1
------ ------ ------ ------ ---- ---- ---- -----
Income(loss) from
operations............ (436) 5 60 150 (28.4) 0.2 2.9 6.3
Interest income, net.... 52 40 45 46 3.4 2.2 2.2 1.9
------ ------ ------ ------ ---- ---- ---- -----
Net income (loss)....... $ (384) $ 45 $ 105 $ 196 (25.0)% 2.4% 5.1% 8.2%
====== ====== ====== ====== ==== ==== ==== =====
</TABLE>
20
<PAGE> 26
REVENUES
Revenues consist of software license fees and services. The Company
recorded no revenues until the fourth quarter of 1995. Since the fourth quarter
of 1995, the Company's quarterly revenues have increased sequentially by 19.9%,
11.4% and 16.9% for the first, second and third quarter of 1996, respectively.
The increases were due to increases in unit sales. The Company did not record
any revenues from international sales until the first quarter of 1996.
International sales represented 21.6% of revenues for the nine months ended
September 30, 1996. To date, the Company's international sales have been
denominated in U.S. currency. Most of the Company's revenues have been from
software license and installation revenues. The Company anticipates that
maintenance revenues will increase as a percentage of revenues as the Company's
customer base increases. Service and other revenues for the fourth quarter of
1995 were derived solely from installation services. Installation and
maintenance services represented 68% and 28%, respectively, of total service and
other revenues for the nine months ended September 30, 1996. Installation
services are one time sales. Maintenance contracts are generally twelve months
in duration and are subject to customer renewal.
COST OF REVENUES
To date, cost of software licenses consists principally of product warranty
costs and costs attributable to a discontinued marketing program offered to the
Company's first five customers. Cost of software licenses as a percentage of
software license revenue were 19.4%, 4.4%, 5.9% and 2.5% for the fourth quarter
of 1995 and the first, second and third quarter of 1996, respectively. The
decreases in percentage for the fourth quarter of 1995, the first quarter of
1996 and the third quarter of 1996 resulted from decreasing hardware costs. As
part of the initial introduction of the Company's software products, the Company
purchased and resold certain hardware required by customers in order to
implement the Company's products. This program was discontinued as the Company's
general practice in September 1995. The Company does not anticipate that
hardware costs will represent a significant portion of cost of revenues in the
future. The increase in dollars and as a percentage of software license revenue
in the second quarter of 1996 as compared to the first and third quarter of
1996, was the result of an increase in the provision for warranty expense.
Cost of services consists principally of the costs incurred to provide
installation, consulting, maintenance and training services. The expenses
incurred to provide these services are comprised primarily of personnel costs,
travel and facility costs. Cost of services as a percentage of services and
other revenues were 137.9%, 207.5%, 159.4% and 115.6% for the fourth quarter of
1995 and the first, second and third quarter of 1996, respectively. The dollar
increases were a result of start-up costs associated with the building of a
customer support infrastructure to handle the anticipated future growth in
customers. The Company anticipates that the cost of services will increase in
absolute dollars, while decreasing as a percentage of services and other
revenues in the foreseeable future. The Company anticipates that services
revenues will begin to exceed the related costs of services and other expenses
as the Company begins to benefit from cost efficiencies anticipated as the
customer base and maintenance customer renewals increase.
OPERATING EXPENSES
Research and Development. Research and development expenses consist
principally of personnel and facility costs. Research and development expenses
as a percentage of total revenues were 39.2%, 35.7%, 35.7% and 33.8% for the
fourth quarter of 1995 and the first, second and third quarter of 1996,
respectively. The decrease in percentage from the fourth quarter to the first
quarter was the result of expenses remaining relatively constant during the
period while the Company experienced significant revenue growth. The increase in
absolute dollars from the fourth quarter of 1995 through the third quarter of
1996 was the result of an increase in employees and the associated hiring costs
each quarter. The Company anticipates that research and development expenses
will continue to increase in absolute dollars, while decreasing as a percentage
of total revenues in the foreseeable
21
<PAGE> 27
future. To date, the Company's development efforts have not resulted in any
capitalized software development costs.
Sales and Marketing. Sales and marketing expenses consist principally of
personnel costs, travel, promotional expenses and facility costs. Sales and
marketing expenses as a percentage of total revenues were 31.2%, 33.8%, 27.8%
and 31.7% for the fourth quarter of 1995 and the first, second and third quarter
of 1996, respectively. The Company recorded a charge associated with the
termination of an employee in the first quarter of 1996. Excluding this charge,
the Company would have experienced an increase in sales and marketing expenses
in absolute dollars but a decrease as a percentage of total revenues from the
preceding quarter. The increase in sales and marketing expenses was the result
of adding sales personnel to the direct sales force and an increase in
commission expense attributable to higher sales. The Company anticipates that
sales and marketing expenses will increase in absolute dollars and as a
percentage of total revenues in the foreseeable future.
General and Administrative. General and administrative expenses consist
principally of personnel costs for administrative, finance, information systems,
human resources and general management personnel, as well as legal expenses and
facility costs. General and administrative expenses as a percentage of total
revenues were 25.2%, 11.1%, 11.8% and 10.6% for the fourth quarter of 1995 and
the first, second and third quarter of 1996, respectively. General and
administrative expenses in the fourth quarter of 1995 were higher than in any of
the first three quarters in 1996 principally due to the settlement of litigation
for approximately $127,000. General and administrative expenses have been
increasing in absolute dollars since the first quarter of 1996 due to an
increase in employees and travel. The Company anticipates that general and
administrative expenses will increase in absolute dollars, while decreasing as a
percentage of total revenues for the foreseeable future.
INTEREST INCOME, NET
Interest income, net, of $52,000, $40,000, $45,000 and $46,000 for the
fourth quarter of 1995 and the first, second and third quarter of 1996,
respectively, resulted from investments of the Company's cash balances, net of
interest expense incurred on bank term notes.
PROVISION FOR INCOME TAXES
The Company reported a net loss in each completed year and accordingly did
not provide for an income tax liability. See Financial Statements and Notes
thereto. As of September 30, 1996, the Company had net operating loss
carryforwards of approximately $1,400,000 for federal and state income tax
purposes, and capitalized start-up costs of approximately $4,800,000 that may be
used to offset future federal income tax, if any. The Company also has $117,000
of federal research and development tax credits which expire beginning in the
year 2009 if not utilized. An ownership change, as defined in the Tax Reform Act
of 1986, may restrict the utilization of certain tax attributes. A valuation
allowance has been recorded for the entire deferred tax asset as a result of
uncertainties regarding the realization of the asset due to the limited history
of operating profits. See the Financial Statements and Notes thereto.
INFLATION
Certain of the Company's expenses increase with general inflation in the
economy. However, the Company does not believe that its results of operations
have been, or will be, adversely affected by inflation.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had cash and cash equivalents of
$5,812,000, an increase of approximately $1,275,000 from December 31, 1995. The
Company has financed its operations to
22
<PAGE> 28
date primarily by the private sales of equity securities pursuant to which the
Company received approximately $12,123,000 and by bank term notes to finance
purchases of equipment. Since inception, the principal uses of cash have been to
fund research and development of the Company's products and initial marketing of
the products and to purchase capital equipment. As of September 30, 1996, the
Company had $2,163,000 in accounts receivable.
At September 30, 1996, the Company's bank indebtedness, consisting of
equipment lines of credit amounted to $823,000, payable in monthly installments.
Future principal payments are $101,000, $347,000, $252,000, $99,000 and $24,000
for the remainder of 1996 and annually for 1997, 1998, 1999 and 2000,
respectively. Interest accrues on such loans at the bank's prime rate (8.25% at
September 30, 1996) per annum. The proceeds of such loans were used by the
Company to acquire capital equipment. In September 1996, the Company negotiated
an additional equipment line in the amount of $800,000 under similar terms. The
Company is prohibited from paying cash dividends without the consent of the bank
while there are outstanding borrowings.
As of September 30, 1996, the Company had no material commitments for
capital expenditures.
The Company believes that the net proceeds from the sale of the Common
Stock in this offering, together with existing cash balances, funds available
under the equipment line and funds generated by operations, will be sufficient
to meet its anticipated liquidity and working capital requirements for at least
the next twelve months.
23
<PAGE> 29
BUSINESS
OVERVIEW
GeoTel Communications Corporation ("GeoTel" or the "Company") is a leading
provider of telecommunications software solutions focused on enhanced call
routing technology that enables customer-oriented companies to deliver
responsive and cost-effective customer service. The Company's software solutions
are aimed at decentralized or service-oriented corporations that use call
centers, voice response units and other answering resources to interact with
their customers. GeoTel's software solution, the Intelligent CallRouter, is
designed for companies that utilize multiple call centers to handle high volumes
of inbound customer calls and regard their effective handling of customer
interaction through call center technology as a key competitive advantage. The
Company is focused on open, standards-based software solutions for
enterprise-wide call distribution in a multi-vendor, multi-carrier,
fault-tolerant, distributed environment. GeoTel's call routing solutions have
been deployed by a variety of companies, including America Online, American
Express, Fidelity, MCI, Matrixx Marketing, Spiegel and USAir.
INDUSTRY BACKGROUND
Call Center Market
Companies are increasingly recognizing that excellent customer service can
be used as a strategic weapon to differentiate their firms from competitors. In
order to remain competitive, corporations must continually evaluate their
product and service offerings to expand market share, lower costs and meet
customer expectations. To improve service quality, companies have invested in
technologies that enable them to concentrate customer service representatives,
or agents, into groups known as call centers. Many corporations utilize call
centers as the primary method of interacting with their customers. These call
centers are typically deployed in multiple locations and can be utilized to
provide a prioritized level of services for their most valued customers. Call
centers allow businesses to reduce costs and deliver premium customer service.
While call centers have grown both in size and importance, current
technologies have been focused on stand-alone, call center applications, rather
than the customer interaction requirements of the entire corporation. This has
led to a fragmented environment in businesses that have multiple call centers,
branch offices and divisions, with call centers evolving as technology "islands"
within the corporation. As a result, corporations are unable to provide
solutions that utilize all the customer response resources within the
organization whether they are personnel or systems-based. Increasingly,
successful organizations are seeking solutions to address these strategic
business requirements through the implementation of "virtual call centers."
Virtual call centers utilize all the relevant resources maintained by the
corporation in order to achieve a unified, controllable and adaptable customer
service solution. Enterprise-wide utilization of resources and technology
enables the corporation to maximize levels of customer service while fully
utilizing existing investments in telephony, technology and personnel.
Call Center Technology
In response to customer demand, the telecommunications environment has
changed rapidly with the emergence of new carrier-based, Advanced Intelligent
Network (AIN) services and 800/888 number portability. Most interexchange
carriers (IXCs), including AT&T, MCI and Sprint, have opened network control to
their customers, enabling the development of third party sofware to control the
routing of customer calls within their networks. Corporations can now shop for
the most competitive carrier rates and implement new network-based services
which are not based on proprietary closed solutions, while retaining their
existing telephone numbers. As the era of "open public networking" evolves,
corporations are seeking business solutions that encompass more than
24
<PAGE> 30
the limited, non-integrated, proprietary telecommunication products that have
been dominant in the past.
The technology utilized by call centers has evolved dramatically over the
past three years. Historically, due to the closed nature of public networks,
corporations installed premises-based switching systems at the end of long
distance or local exchange telephone lines. Reliance on these switching systems
requires corporations to use proprietary closed solutions offered by service
providers where multi-vendor switching system interoperability was not possible.
Consequently, the call center solutions employed by most corporations have been
designed around the technological limits of premises-based switching systems and
the limitations of carrier networks, which prevent corporations from realizing
the potential benefits of virtual call centers. Virtual call centers draw upon
all of the organization's call response resources and utilize open-systems based
applications to enhance the capabilities of the existing call center
infrastructure by integrating it with existing business applications and data.
The primary providers of call center solutions are IXCs and Automatic Call
Distribution (ACD) switching system vendors. Currently, the major IXCs offer
services that can route inbound toll-free calls to more than one call center,
but they have limited visibility as to why the call is being delivered to that
location. These services attempt to distribute calls among multiple call center
locations by relying on percentage allocations based on historical data or call
counting. Since there is no real-time data, these routing schemes are limited
because the system is not aware of what is actually taking place in the
individual call centers. For example, carriers might route 40% of a business'
incoming calls to Boston, 30% to Dallas and 30% to Denver using a set table
based on time of day and origin of call. While this solution is viable as long
as each site is staffed accordingly to handle the inflow of calls, it cannot
dynamically adjust to variances in agent availability, call handling times, and
calls from non-network sources. Furthermore, the customer is unable to benefit
from a multi-carrier environment. Many ACD switching system vendors provide
private networking options that allow calls to flow from one system to another,
but these systems consume network bandwidth and still do not optimize network
resources. They are also ineffective in a multi-vendor ACD environment.
Due to the migration towards open systems by the IXCs, customers are now
able to control connections across interexchange carrier networks based on
resources, customer profiles and other factors as determined by high-end
enterprise-level software applications. ACDs and other customer premises-based
switching systems have also opened control to computer applications. The
evolution of Computer Telephony Integration (CTI) technology allows computer
applications to interface with and control functions of the ACD or Private
Branch Exchange (PBX). These applications are capable of utilizing business
data, legacy systems and client/server systems and integrating them with
existing telecommunications systems.
To date, few organizations have fully realized the potential benefits
offered by virtual call centers due to the lack of enterprise-wide call
distribution. In particular, the need for enterprise-wide call distribution must
be addressed as a prerequisite for a well-managed customer-focused call center.
Traditional carrier services and ACD products have limited flexibility and are
generally not scalable to large enterprises. These solutions do not facilitate
enterprise-wide call distribution since they offer only local routing within a
stand-alone ACD, and do not enable a multi-vendor, multi-carrier solution. As a
result, the Company believes that the need exists for flexible, scalable,
customer premises-based call processing software that will manage the control of
customer-based switching systems, network routing, call queuing and voice
services.
GEOTEL SOLUTION
GeoTel's solution allows companies that utilize call center technology to
deliver cost-effective, premium customer service. The Company's Intelligent
CallRouter (ICR) enables enterprise-wide call routing and consolidated real-time
management information at the network level. These
25
<PAGE> 31
capabilities are independent of the manufacturer of the ACD, PBX or key system
to which they are attached. The ICR also provides interfaces to multiple carrier
networks enabling call routing independent of the toll-free network provider.
The following diagram illustrates how the ICR connects geographically dispersed
agent groups into a single virtual call center.
[DIAGRAM]
The ICR extends a corporation's existing public and private network
solutions with enterprise-wide, intelligent call processing directed at
organizations that utilize call center technologies to interact with their
customers. The ICR allows corporations to blend the logic of both the carrier
network and ACDs as well as business applications required to provide high-level
customer service and customer contact support. By integrating all call center
applications, a corporation can achieve large group efficiencies, such as
utilizing available agents regardless of location, instead of physically adding
staff to a specific call center. To achieve enterprise-wide call control, the
ICR has visibility of all call answering resources, enabling the system to route
calls and associated data transactions to the agent or skill group that best
satisfies the rules established by the corporation. The ICR connects all call
centers into a hierarchical, networked system, so that an enterprise routing
application can receive the real-time status information required to control
call transactions throughout the enterprise.
The Company's solutions offer the following advantages:
Virtual Call Center. The ICR transforms geographically dispersed agent
groups connected to different ACDs and VRUs into a single virtual team, reducing
the number of agents required for a given service level, while offering a more
uniform level of service to all callers. Since labor is a significant cost for
service-oriented corporations, the ability to utilize agent resources more
effectively provides a significant cost savings for the Company's customers. In
addition, the ICR allows local ACD capabilities to be extended to the entire
network. Sophisticated enterprise-wide call routing routines, such as those
using customer account numbers or Automatic Number Identification (ANI), can be
developed once and deployed at either the network level or in conjunction with
an ACD or VRU at the customer's premises, or both.
26
<PAGE> 32
Multiple Carrier and Switch Interoperability. The Company's open solution
does not require the customer to replace its existing premises-based equipment,
switches or carriers, therefore extending their value in a "plug-and-play"
environment. The Company's customers are also able to select among AT&T, MCI or
Sprint, offering them the ability to leverage new features and cost saving
opportunities from the major 800 providers. In addition, the ICR allows
customers to remain vendor independent by supporting the major ACD
switches -- Lucent DEFINITY(@), Aspect CallCenter(@), Northern Telecom
Meridian(TM), Rockwell Galaxy(TM) and Rockwell Spectrum(TM).
Real-Time Routing. The routing of customer calls is a real-time,
mission-critical application. The ICR's Pre-Routing feature is the application
of ACD-like call routing at the network level, before the caller hears ringing
and before the call is sent to a given destination. Unlike any currently
available call routing service offered by carriers, the Pre-Routing feature can
route calls based on real-time knowledge of agent availability and queue status,
not on a fixed percentage or allocation basis. The ICR recognizes where the call
originates, gathers real-time information about the status of all call centers
and agents, and then routes calls based on best available enterprise-wide
capabilities and resources at the moment the call is received. Post-Routing is
the control of calls already connected to an ACD or PBX, such as the intelligent
transfer of calls from Voice Response Units (VRUs), agent-to-agent transfers and
the overflow of calls between call centers. These capabilities enable the ICR to
route calls on an individual call basis, across different ACDs and multiple
carriers.
Fault Tolerant Open Architecture. The ICR is designed to be fault tolerant
to hardware component failures, communications network failures, asynchronous
software errors and the catastrophic loss of a site supporting the ICR. The
Company's technology utilizes an open architecture and is based on industry
standard software, such as Windows NT, SQL Server and PowerBuilder. The ICR has
been designed to integrate with existing call center applications and facilitate
support of future applications. The Company has defined and published
application programming interfaces for major call center applications such as
workforce management, interactive VRUs and customer databases.
Consolidated Management Reporting. The Company's call routing solution
enables customers to manage their distributed call centers with consolidated,
real-time and historical reporting. The ICR provides the ability to access and
combine data from multiple databases, allowing the user to source best-of-class
applications for call volume forecasting, agent scheduling, workflow management
and screen-synchronization while maintaining an enterprise-wide view of the
performance of their call centers.
STRATEGY
The Company's primary business objective is to become the leading supplier
of enterprise-wide call distribution software solutions. To achieve this
objective, the Company is pursuing the following strategies:
Extend Technology Leadership. Capitalizing on the Company's experience in
call centers, communications and software technologies, the Company was the
first to deliver a client/server-based application solely focused on
enterprise-wide call distribution. The Company intends to continue to utilize
and integrate industry available technologies whenever appropriate and focus its
development resources on expanding the value-added call processing features
required by its customers. The Company believes it distinguishes itself through
its portfolio of supported ACDs, multi-carrier connectivity, product
adaptability to business environments, implementation of industry standards,
open systems platforms, scalability and product integration with most call
center applications.
Expand Enterprise Call Distribution. GeoTel intends to ensure that its
call distribution technology continues to expand to include all of the answering
resources available within a customer's business environment. This will include
high-end production call centers, VRUs and distributed call answering resources
including branch offices, remote agents and professionals,
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network resources and desktop applications. In June 1996, GeoTel delivered and
installed ICR release Version 1.4 which includes support for the integration of
VRUs. By integrating VRU systems, the Intelligent CallRouter extends routing
control to network and premise VRUs, allows the corporation to use VRUs as an
intelligent call answering resource in the virtual call center, and provides
consolidated management information of VRU data. Intelligent CallRouter
applications have been implemented in systems supporting as few as 200 and as
many as 5,000 call center agents.
Leverage Open Architecture. The Company continues to develop interfaces to
both existing and emerging call center technologies provided by the vendors of
market-leading technologies. The Company intends to provide its customers with
the ability to protect their investment in current call center solutions, while
providing value-added services and functionally beyond their existing
infrastructure. This will be accomplished by adhering to open industry standard
interfaces of other vendor products and publishing interfaces to the Company's
call routing software platform for products and services such as ACDs, carrier
networks, interactive VRUs and customer databases.
Utilize Multiple Distribution Channels. The Company has established a
multi-channel distribution system to cost-effectively address the potential
market for its products. To date, the Company has generated the majority of its
revenues through its direct sales force which maintains frequent customer
contact and knowledge of customer applications. The Company's direct sales force
is complemented by strategic sales channels, including its relationship with
MCI, selected resellers and an international partner. The Company intends to
expand both direct and indirect distribution channels and to penetrate
international markets by expanding its relationships with the market leaders of
toll-free services on a country-by-country basis.
Ensure Customer Success. GeoTel believes that superior customer service,
support and training are essential for customer satisfaction and are key to
differentiating its overall product offering. The Company offers consulting and
installation services to assist customers in designing and deploying call
routing applications and also provides training for end-users and distribution
partners. GeoTel intends to expand its own customer service, support and
training activities, as well as to encourage third-party organizations, such as
international partners, to become proficient in deploying the Company's
products.
PRODUCTS
The GeoTel Intelligent CallRouter is an advanced call-by-call routing
server that supports multiple call routing clients independent of their
location, ACD, IXC or VRU. The multi-carrier, multi-vendor capabilities of the
ICR allow the user to focus on delivering premium customer service without the
limitations of proprietary or custom-developed solutions. The ICR combines
real-time call routing capabilities with an extensive management reporting
system. Its open architecture enables interoperability with other call
processing and call volume management systems within an enterprise and provides
a means for integrating those various stand-alone solutions. The ICR can be
interfaced to agent scheduling, workflow management and other call center
management tools. The distributed software fault tolerance implemented in the
Intelligent CallRouter provides the mission-critical reliability required for
enterprise-wide call distribution.
The principal function of the ICR is to route telephone calls among
geographically distributed call centers in a way that optimizes the use of
resources across all call centers or other answering locations. In order to
perform these functions, the ICR utilizes network-based information on the
origin of the call and information provided by the caller to match the caller
with the skills of the available answering resources. The primary components of
the ICR are a central routing controller, a database, and interfaces to the
telephone network and call answering devices such as PBXs, ACDs and VRUs.
The ICR is an open systems product that has been deployed on
industry-standard platforms. The Company designed the system to support a broad
range of intelligent telecommunications interfaces, industry standard MIS tools,
computer platforms and a growing number of vertical market
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<PAGE> 34
applications. The ICR uses Windows NT as the core multitasking operating
environment. Windows NT allows customers to select from a variety of hardware
platforms certified by the Company on which to deploy the ICR application. The
database utilized by the ICR is Microsoft SQL Server for Windows NT, which
provides an advanced, client/server database management system. The Company
provides a monitoring and reporting system based on PowerBuilder, which is a
Windows-based, client-server application development tool. PowerBuilder allows
users to quickly and easily build sophisticated, graphical applications that can
access information stored in multiple databases. Since the Company utilizes a
database technology that is open database connectivity (ODBC) compliant, the
customer may choose a reporting tool of its preference as an alternative to
PowerBuilder. The following diagram illustrates the principal components of the
ICR. The components included in the ICR provided by the Company are the
CallRouter, Network Interface Controller, Peripheral Gateway, Database Server
and AWS (Admin Workstation).
[DIAGRAM]
The major components of the ICR are as follows:
CallRouter. The core of the Intelligent CallRouter is a suite of software
processes called the CallRouter that provides the central intelligence by which
customers translate business goals into call routing decisions. The CallRouter
receives and responds to routing requests from the routing clients (Network
Interface Controllers and Peripheral Gateways), collects call center event
activity from the Peripheral Gateways and communicates with users through
desktop Admin Workstations. The CallRouter provides all the routing choices
available in today's ACDs and applies them at the network level. The
implementation of routing services on an enterprise basis creates a call center
management model where geographically distributed call centers appear as if they
were at one location. The ICR utilizes real-time, event-driven data such as
agent status, queue status, and incoming call volume in making its call-by-call
routing decisions. It allows customers to establish routing decisions for a wide
range of agent and service performance metrics, including agent availability,
the ratio of calls in progress to logged-in/ready agents, and the ratio of calls
in queue to staffed/scheduled agents. The CallRouter makes routing decisions
through user-defined call routing scripts. The logic required to segment
callers, identify their reason for calling, and then forward
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<PAGE> 35
those requests for service to the appropriate agent(s) is defined in call
routing objects. Having determined these routing guidelines, business rules are
defined to arbitrate between routing options where the demand for a given skill
or service resource exceeds availability. Threshold parameters can be input to
allow for the use of backup agents under certain circumstances or to prioritize
call handling of a given class of caller.
Network Interface Controller (NIC). The NIC is the software interface
between the Intelligent CallRouter and the interexchange carrier network. It
communicates with the IXC network through the intelligent network control
interfaces that have recently been made available by the carriers. The NIC
receives call routing requests from the network, forwards them to the
CallRouter, and returns responses to the carrier network. In effect, the NIC
transforms the network into a routing client. This approach allows customers to
control routing decisions at the network level and gain greater flexibility as
they seek to further deploy advanced intelligent network services.
Peripheral Gateway (PG). The PG software provides the interface between
the CallRouter and the call center system (ACD, PBX, or VRU) that is being
monitored and/or controlled by the ICR. The PG connects to the CTI link and/or
ACD's management reporting system and obtains information regarding agent
availability, agent performance, the number of calls in progress, and how they
are being handled. To facilitate Post-Routing, the PG can also exert control
over the ACD, PBX or VRU and instruct it where to route calls.
Database Server. GeoTel's database technology reduces the performance
constraints normally associated with ACD and network data aggregation. Operating
in conjunction with the CallRouter, the ICR's Database Server stores and manages
historical information, including Pre-Routing and Post-Routing records, routing
scripts, and ICR configuration data. The ICR Database Server is a relational
database that can collect and process large amounts of call and transaction
data, including call handling, planning and performance data.
Admin Workstation. The Intelligent CallRouter records call activity on an
enterprise-wide basis and reports on this activity on a real-time basis
utilizing the Admin Workstation. In addition to providing real-time call
handling statistics, the ICR provides consolidated, historical reporting for all
calls across all attached networks, ACDs, PBXs, and VRUs. Using any desktop
workstation within the network, customers can mix and match data in virtually
any combination, allowing analysis of real-time data with historical data. For
example, customers may want to compare current performance to past performance
over the last few minutes, days, or weeks.
Software license fees for the Intelligent CallRouter vary significantly
based on a number of factors, including the functionality of the system, the
number of sites, the number of agents at each site and the level of redundancy
required. The customer list price for software license fees for the Intelligent
CallRouter software typically range from approximately $420,000 for a three site
configuration with some redundancy to approximately $1,000,000 for an eight site
configuration with extensive redundancy. The Company typically provides
discounts based on volume purchases. The Company and its customers generally
enter into maintenance agreements providing for ongoing service and product
upgrades for a fixed annual fee. Maintenance services and installation services,
which are not included in the license fee, amount to an additional 15% and 10%,
respectively, of the list price license fee. Maintenance contracts are renewable
on an annual basis.
TECHNOLOGY
The Company has developed a number of innovative technologies to support
its open strategy:
Real-Time Routing. The ICR's real-time delivery of enterprise-wide call
center data makes use of innovative Local and Wide Area Network (LAN/WAN)
solutions to efficiently distribute information and facilitate connectivity. A
mixed LAN/WAN environment is supplemented by dial capabilities for both casual
access of data from remote premises as well as alarm notification and paging.
All clients are configured with redundant data paths to central services for
both configuring and
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<PAGE> 36
monitoring the enterprise. The system is designed to run on single or multiple
Windows NT server-class machines. Interprocess communication is efficient based
on native capabilities within Windows NT integrated with the Company's
processes. The architecture can scale to support very large numbers of agents,
small offices, and home agents.
Fault Tolerance. To meet rigorous requirements for system reliability in
the call processing market, the Company has developed innovative industry
standard fault tolerant software solutions to provide not only tolerance of
hardware, software and communications failures, but also for the loss of an
entire site. The Company's software technology relating to virtual time
synchronization provides fault tolerance at the process level and includes
protection against single-point hardware failures. Detection of failures is
immediate and the Company has augmented standard TCP/IP protocols with features
designed to minimize outages due to communications failures.
Remote Support and Diagnostics Technology. The ICR incorporates extensive
system management capabilities, including alarming with automatic "phone home"
and paging capabilities; symmetric database replication; intelligent PC Server
node management; and tools to provide graphical representations of system
status. Consistent with an open architecture, the system will export Simple
Network Management Protocol (SNMP) "traps" to management systems. Fully
redundant communications paths are enhanced with real-time detection of
communications failures with near instantaneous switch-over to redundant links.
Carrier Connectivity. The ICR meets the certification standards of all
three of the major U.S. interexchange carrier networks, AT&T, MCI and Sprint, by
interfacing with the SS7, UDP/IP, and X.25 networks, respectively, using the
proprietary protocols of each carrier. The ICR architecture is designed to
support the introduction of other network interfaces as the Telecommunications
Act of 1996 enables the entry of other providers into the toll-free marketplace.
In addition, the Company is developing interfaces for several international
carriers.
Premises-based Switching/Call Processing lnterfaces. The Company has
developed event-based interfaces to all of the major ACDs. The ICR currently
supports five switches: Lucent DEFINITY, Aspect CallCenter, NTI Meridian,
Rockwell Galaxy and Rockwell Spectrum. By developing event-based tracking of the
ACDs (detecting when any event of interest happens at the ACD), the ICR has the
capability to report accurate enterprise-wide statistics and know accurately
which agents are available and skilled to handle incoming calls. The ICR can
also control, via Post-Routing, how calls directed to or from the switch are
subsequently routed and has the ability to deliver CTI information. By designing
the ICR to have the capability to interface to all ACDs, PBXs, VRUs, and other
premises-based equipment, the ICR enables customers to utilize equipment from
multiple vendors allowing effective use of a multi-vendor switching environment.
In contrast, proprietary solutions require all switches to be purchased from the
same vendor.
Visual Script Editor. The ICR uses visual/object-based call routing
scripts controlled and defined by the customer. The Visual Script Editor is used
to describe how calls are to be routed on a call-by-call basis. Each dialed
number can have a unique treatment or can be handled with a collection of other
dialed numbers. Many scripting objects are defined to assist the script designer
in choosing an appropriate algorithm. The Database Lookup and Application
Gateway objects enable the Script editor to import, in real-time, external
database information or arbitrary data that can be used in subsequent script
objects.
CUSTOMERS
The Company provides its software and services to customers in a variety of
industries. The Company's typical customers are large, high volume users of
toll-free services that conduct a significant portion of their interaction with
their customers using the telephone. The Company announced the Intelligent
CallRouter in August 1994. As of September 30, 1996, the Company had licensed
its products to over 20 companies directly or through its distribution partners.
These customers include some of the largest users of toll-free services in the
world. The Company believes
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<PAGE> 37
that the following list is representative of its target customers by virtue of
call volume, industries represented and the required business applications:
<TABLE>
<S> <C>
America Online Matrixx Marketing
American Express MCI Telecommunications
Compaq Computer Corporation Optus Systems
Continental Airlines Private Healthcare Systems
Fidelity Investments Spiegel
GTE Sprint
Household Credit Services USAir
</TABLE>
Fidelity, Sprint and America Online accounted for approximately 38.3%,
25.9% and 20.0%, respectively, of the Company's total revenues in 1995, and
Fidelity, Optus, GTE Communications Systems Corporation, MCI and USAir accounted
for approximately 19.7%, 15.9%, 10.2%, 8.7% and 7.7%, respectively, of the
Company's total revenues for the nine months ended September 30, 1996.
A description of certain customer relationships follows:
MCI. MCI Telecommunications Corporation is one of the largest and fastest
growing diversified communications companies in the world. The Company has
entered into a three-year agreement with MCI, whereby MCI will offer the
Company's products as a network service within MCI's set of call center
solutions. Under the terms of the agreement, MCI's Call Center Division will
deploy the Company's products as a component of MCI's expanded network-based,
call center technology offerings. Additionally, the MCI worldwide sales force
offers a call center solution incorporating the Company's products. The
agreement requires MCI to make certain minimum purchases during the three year
term and may be terminated by either party upon thirty days' notice in the event
of a material default by the other party.
Spiegel. Spiegel is a leading multi-channel specialty retailer. While
catalogs remain its primary distribution channel, Spiegel also markets
merchandise through over 400 Eddie Bauer stores. Spiegel's goal is to provide
excellent customer service through more efficient call center management,
increased agent productivity, and improved load balancing across business units.
Spiegel uses the Company's products to route 20 million yearly calls to its
approximately 1,300 agent stations, located in three geographically dispersed
call centers. Spiegel is using the Company's products in a mixed ACD/VRU
environment to reduce its average speed of answer and automatically balance
loads. The Company has entered into an agreement with Spiegel pursuant to which
Spiegel was granted a non-exclusive, perpetual license to use the Company's
products in exchange for a one-time license fee. The agreement may be terminated
by Spiegel or by the Company if Spiegel fails to comply with the terms of the
agreement.
USAir. USAir is one of the world's largest airlines with 4,800 daily
flights servicing over 160,000 passengers. It operates 11 call centers, with
4,000 agents who handle between seven to eight million inbound calls each month.
The Company's products are used in a multi-carrier environment to make routing
decisions based on factors such as agent availability, load balancing across
centers, and data contained in USAir's customer database. The Company has
entered into an agreement with USAir pursuant to which USAir was granted a
non-exclusive, perpetual license to use the Company's products in exchange for a
one-time license fee. The agreement may be terminated by the Company if USAir
fails to comply with the terms of the agreement.
A significant portion of the Company's revenues to date have been derived
from initial license fees from customers who have acquired fully-paid licenses
to the installed product. None of the Company's customers, other than MCI and
Optus, is contractually obligated to license or purchase additional products or
services from the Company and there can be no assurance that revenues from these
customers will continue or, if continued, will reach or exceed historical levels
in any future period. Service revenues represent an insignificant portion of the
Company's revenues to date.
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SALES AND MARKETING
The Company's distribution strategy is to sell its software products and
services to major corporations who are significant users of inbound toll-free
services, and have multiple locations with resources that respond to incoming
calls. The Company uses a direct sales force in the United States as its primary
distribution channel to market to these companies. There are currently nine
direct sales representatives located in eight offices throughout the U.S. Each
sales representative carries a quota for a defined geographic territory and is
compensated for all sales within the territory. The Company's sales strategy is
based on a consultative sales process, working closely with customers to
understand and define their needs and determine how they can be addressed by the
Company's products. This strategy continues after the initial sale. The Company,
through ongoing sales, support, training, and maintenance, maintains close
contact with its existing customers in order to determine the customers'
evolving requirements for updates and enhancements.
In addition to the direct sales organization, the Company has signed
agreements with MCI, Optus and Rockwell Switching Systems Division to complement
direct sales and provide international distribution. MCI has signed a three-year
renewable agreement with the Company to offer its products as a service to
customers on a worldwide basis. Optus is a distributor of the Company's products
in the Australian and New Zealand markets. To complement its domestic sales
strategy, the Company intends to develop its sales channels for its products in
the international markets. The Company plans to continue to address
international markets by using its direct sales force and expects to add several
other distribution partners.
The Company supports its distribution strategy with a variety of focused
marketing activities designed to identify qualified prospects and expand the
Company's reputation. The Company attends several industry trade shows, conducts
numerous informational seminars in different cities, regularly speaks at
industry events, publishes articles and white papers, and uses direct mail. In
addition, the telecommunications marketplace is heavily influenced by reference
accounts and, as such, the Company is dependent upon its existing customers for
favorable references.
As part of its marketing and product strategy, the Company cultivates
relationships with the major ACD/PBX vendors and VRU vendors, as well as the
interexchange carriers. Equipment from each of the ACD/PBX vendors is maintained
at the Company's facilities and technical discussions are ongoing to ensure
tight integration with the various switches. The Company intends to continue to
expand the range and number of products it supports based on customer requests
and market opportunities.
CUSTOMER SERVICE AND SUPPORT
The Company believes that high quality customer service and support are
integral components of the solutions it offers. The Company's customer service
and support organization provides customers with technical support, training,
consulting and implementation/installation services. The Company believes that
in order to meet its customers' support expectations it must invest in and
leverage technology to build its service infrastructure. As of September 30,
1996, the Company had 12 employees in its customer service and support
organization. All of the Company's customers currently have software maintenance
agreements with the Company that provide for one or more of the following
services:
Software Maintenance and Support. The Company's support organization
offers a variety of support services to its customers including telephone,
electronic mail and facsimile customer support through its support services
staff. In addition, the product provides a "call home" application which allows
customers to request service on-line. Initial product license fees do not cover
software maintenance. Through its standard customer support package, the Company
provides its customers with 12-hour weekday telephone support and 24-hour
monitoring and quick response through use of the Company's remote support
technology. Periodic product updates and mainte-
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nance releases are included with the annual support fees for the company's
standard support package, which is 15% of the then-current list price of the
licensed products.
Documentation and Training. The Company provides each customer with
product design, documentation and training. The product includes an easy-to-use
graphical user applications interface with on-line help. A complete library of
end-user documentation is also provided with each system. The Company offers
comprehensive training courses in all aspects of the product at its facility in
Littleton, Massachusetts, and at the customer's option, provides on-site
customer training upon request. Fees for education and training services, beyond
those services provided as a part of installation services, are in addition to
and separate from the license fees charged for the Company's software products
and are charged per student, per class or on a time and materials basis.
Consulting. The Company's application consultants are available to work
closely with customers to provide assistance concerning application design and
report customization. Fees for consulting services are charged separately from
the Company's software products on a time and materials basis. In addition, the
Company intends to continue to develop relationships with third-party consulting
organizations in order to support its customer base.
Installation Services. The Company provides customers with comprehensive
installation services, including initial application design, implementation
planning, system design support, project management, initial education and
training, and coordination of third-party software and hardware acquisition. The
Company's fee for installation services is charged separately from the Company's
licensing fees and is based on a percentage of the current list price of the
products being installed. Fees for the Company's standard installation services
are typically 10% of the then-current list price of the licensed products.
PRODUCT DEVELOPMENT
Since its inception, the Company has made substantial investments in
product development. The Company's development organization was built upon a
base of software professionals with extensive experience in operating systems,
communications, fault tolerance, and software quality processes. Customer
experience and direct input to the product planning process is reflected in all
products designed and delivered by the Company.
The Company announced the Intelligent CallRouter in August 1994 and began
customer shipments in May 1995. The Company plans to introduce enhancements to
the Intelligent CallRouter and new products that can be sold to existing and new
customers. The Company is currently working on several strategic projects that
will enhance the ICR product in the areas of desktop integration, computer
telephony integration, and the use of the Internet and Intranets. There is also
a significant emphasis on enhancing the product to work in international
markets.
The Company intends to expand its existing product offerings and introduce
new products for the call processing software market. Although the Company
expects that most of its new products will be developed internally, the Company
may, based on timing and cost considerations, acquire technology and products
from third parties and evaluate third-party applications for inclusion within
its products on an ongoing basis. The Company believes that its future
performance will depend, in large part, on its ability to maintain and enhance
its current product line, develop new products that achieve market acceptance,
maintain technological competitiveness, meet an expanding range of customer
requirements and continue to recruit highly-skilled and qualified software
professionals. See "Risk Factors -- Dependence on New Products and Rapid
Technological Change."
As of September 30, 1996, the Company's product development, quality
assurance and technical writing staff consisted of 28 employees. The Company's
total expenses for research and development for fiscal years 1993, 1994, 1995
and the nine months ended September 30, 1996 were $140,000, $1,879,000,
$2,322,000 and $2,197,000, respectively. The Company anticipates that it will
continue to commit substantial resources to research and development in the
future and that product
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<PAGE> 40
development expenses may increase in absolute dollars in future periods. To
date, the Company's development efforts have not resulted in any capitalized
software development costs.
COMPETITION
The market for telecommunications software products is intensely
competitive and is subject to rapid technological change. Although to date the
Company has experienced limited competition, the Company expects competition to
increase significantly in the future. Currently, the Company's principal
competitors are the interexchange carriers, particularly AT&T, and to a lesser
extent MCI and Sprint, which provide proprietary call routing solutions as part
of their service offerings. In addition, a number of other companies have
introduced or announced their intention to introduce products that could be
competitive with the Company's products, including Genesys Telecommunications
Laboratories and IEX Corporation. Additional competitors, including traditional
ACD providers, such as Lucent Technologies, Aspect Telecommunications
Corporation, Northern Telecommunications, Inc. and Rockwell International
Corporation, may enter the market by enhancing their proprietary private network
solutions or by entering into arrangements with the interexchange carriers. The
Company believes that, to date, approximately one-half of the Company's
customers have purchased the Company's products to replace or enhance existing
call routing solutions offered by the interexchange carriers. The Company's
other customers have purchased the Company's products in order to implement a
virtual call center solution for the first time. This additional competition
could adversely affect the Company's sales and profitability through price
reductions, reduced gross margins and loss of market share. In particular,
should one or more interexchange carriers, including MCI, Optus and Sprint which
are customers of the Company, choose to provide or distribute competitive
products and services, the Company's business could be materially adversely
affected. Many of the Company's current and potential competitors have
substantially greater financial, marketing and technical resources than the
Company. See "Risk Factors -- Competition."
The Company believes that the principal competitive factors affecting its
market include product performance and functionality, customer service and
support, product reputation, company reputation, carrier support, ACD support,
fault tolerance, adaptability to individual customer call routing requirements,
scalability, ability to integrate with third party products, ease-of-use, price,
and effectiveness of sales and marketing efforts. Although the Company believes
that it currently competes favorably with respect to such factors, there can be
no assurance that the Company can maintain its competitive position against
current and potential competitors, especially those with greater financial,
marketing, service, support, technical, and other resources than the Company.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies primarily on a combination of patent, copyright,
trademark and trade secrets laws, as well as confidentiality agreements to
protect its proprietary rights. The Company has been issued one patent relating
to the architecture, operating methodologies and interfaces of the Company's
Intelligent CallRouter. The Company also has one patent application pending in
the United States and internationally. While the Company believes that its
pending patent application relates to a patentable invention, there can be no
assurance that such patent application or any future patent application will be
granted or that any patent relied upon by the Company will not be challenged,
invalidated or circumvented, or that rights granted thereunder will provide
competitive advantages to the Company. Moreover, despite the Company's efforts
to protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain the use of information that the
Company regards as proprietary. In addition, the laws of some foreign countries
do not protect the Company's proprietary rights to as great an extent as do the
laws of the United States. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology.
The Company is not aware that any of its products infringes the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim infringement by the
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Company with respect to current or future products. The Company expects that
software product developers will increasingly be subject to infringement claims
as the number of products and competitors in the Company's industry segment
grows and the functionality of products in different industry segments overlaps.
Any such claims, with or without merit, could be time-consuming, resulting in
costly litigation, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all,
which could have a material adverse effect upon the Company's business,
operating results and financial condition.
The software and network adapter necessary to enable the Company's
Intelligent CallRouter to interface with the AT&T network is licensed by the
Company from a single vendor under a perpetual, fully-paid license. Although the
Company has access to the source code underlying this software and rights to
manufacture the network adapter, if for any reason the vendor does not make the
software or network adapter available to the Company, there can be no assurance
that the Company will be able to develop these products on a timely basis.
EMPLOYEES
As of September 30, 1996, the Company had a total of 65 employees, all of
whom are based in the United States. Of the total, 28 were in research and
development, 12 were in support and support services, 18 were in sales and
marketing and 7 were in administration and finance. The Company's future
performance depends in significant part upon the continued service of its key
technical, sales and marketing, and senior management personnel and its
continuing ability to attract and retain highly qualified technical, sales and
marketing, and managerial personnel. Competition for such personnel is intense
and there can be no assurance that the Company will be successful in attracting
or retaining such personnel in the future. None of the Company's employees are
represented by a labor union or are subject to a collective bargaining
agreement. The Company has not experienced any work stoppages and considers its
relations with its employees to be good. See "Risk Factors -- Management of
Growth; Dependence Upon Key Personnel."
FACILITIES
The Company's executive offices are located in Littleton, Massachusetts in
a facility consisting of approximately 14,000 square feet, under a lease which
expires in December 1998. In addition, the Company leases office space in the
metropolitan areas of Atlanta, Chicago, Dallas, Phoenix and Washington, D.C.
Management believes that its current facilities will not meet its needs through
the next twelve months. The Company is evaluating alternatives for additional
space and believes that suitable additional space will be available to
accommodate expansion of the Company's operations on commercially reasonable
terms.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
September 30, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -----------------------------------------------
<S> <C> <C>
John C. Thibault..................... 42 President, Chief Executive Officer and Director
Louis J. Volpe....................... 47 Senior Vice President of Sales and Marketing
Timothy J. Allen..................... 46 Vice President of Finance, Chief Financial
Officer, Treasurer and Assistant Secretary
G. Wayne Andrews..................... 45 Vice President, Chief Technology Officer and
Director
Steven H. Webber..................... 52 Vice President of Engineering
Alexander V. d'Arbeloff(1)(2)........ 68 Director
Gardner C. Hendrie(2)................ 64 Director
W. Michael Humphreys(1)(2)........... 44 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
John C. Thibault has served as President, Chief Executive Officer and
Director of the Company since January 1994. From April 1991 to October 1993, Mr.
Thibault served as President, Chief Executive Officer and Director of Coral
Network Corporation. From April 1988 to April 1991, Mr. Thibault served as an
officer of Motorola, Inc. and Senior Vice President and General Manager of
Motorola's Codex product division. From May 1986 to April 1988, Mr. Thibault was
President and Chief Executive Officer of PBX manufacturer Intecom, Inc., a
subsidiary of Wang Laboratories. Prior to his position at Intecom, he held
several senior management positions over an 11-year period with Wang.
Louis J. Volpe has served as Senior Vice President of Sales and Marketing
of the Company since May 1996. From February 1995 to April 1996, Mr. Volpe
served as Vice President of Marketing of the Company. Mr. Volpe served as Senior
Vice President of Marketing and Operations of Parametric Technology Corporation
from May 1993 to January 1995 and as Vice President of Marketing and Operations
from September 1989 to May 1993. Prior to Parametric, Mr. Volpe was an executive
at Prime Computer. Mr. Volpe is a director of Pure Atria, Inc. and Softdesk
Inc., each of which is a publicly-traded company.
Timothy J. Allen has served as Vice President of Finance, Chief Financial
Officer, Treasurer and Assistant Secretary of the Company since February 1995.
From March 1990 to September 1994, Mr. Allen served as Vice President and Chief
Financial Officer of Object Design, Inc. From July 1988 to October 1990, Mr.
Allen served as Vice President of Finance and Chief Accounting Officer for
Xyvision Inc. From January 1983 to June 1988, Mr. Allen served as Xyvision's
corporate controller. Prior to joining Xyvision, Mr. Allen was Corporate
Controller at Nixdorf Computer Corporation.
G. Wayne Andrews, a co-founder of the Company, has served as a Director of
the Company since June 1993 and as Vice President and Chief Technical Officer of
the Company since January 1994 and served as President of the Company from June
1993 to December 1993. From October 1989 to December 1992, Mr. Andrews was
co-founder and Vice President of Teloquent Communications Corporation. At
Teloquent, Mr. Andrews held positions as Vice President Product Management, Vice
President Engineering and Vice President Customer Support. Prior to co-founding
Teloquent, Mr. Andrews was Director, International Development Center, and
Director, Advanced Switching Systems at Teknekron Infoswitch Corp.
37
<PAGE> 43
Steven H. Webber, a co-founder of the Company, has served as Vice President
of Engineering of the Company since October 1993. Prior to joining the Company,
Mr. Webber held a number of key technical and management positions with Stratus
Computer Inc., including Chief Technical Advisor and Director of Strategic
Planning. Prior to Stratus, Mr. Webber held a number of key technical positions
at Honeywell Information Systems, Inc. and Massachusetts Institute of
Technology.
Alexander V. d'Arbeloff has been a Director of the Company since July 1994.
Mr. d'Arbeloff is Chairman and Chief Executive Officer of Teradyne, Inc. He
co-founded Teradyne in 1960 and became President and Chief Executive Officer in
1971. Mr. d'Arbeloff is a life member of the MIT Corporation, Chairman of
Semi/Sematech, a trustee of Partners Health Care System, a trustee of
Massachusetts General Hospital and a trustee of the New England Conservatory. He
is a director of Stratus Computer, Inc., PRI Automation, Inc. and BTU
International Corporation, each of which is a publicly traded company. He also
serves on the boards of several privately-held companies.
Gardner C. Hendrie has been a Director of the Company since October 1993.
Since 1988, Mr. Hendrie has been a general partner of Sigma Partners, a private
venture capital firm. Mr. Hendrie is a director of Stratus Computer, Inc., which
is a publicly-traded company. He also serves on the boards of several
privately-held companies.
W. Michael Humphreys has been a Director of the Company since October 1993.
Mr. Humphreys has been a partner of Matrix Partners, a private venture capital
firm since 1982. Prior to his association with Matrix, he was a general partner
of Hellman, Ferri Investment Associates. Mr. Humphreys is a director of several
privately-held companies.
Each director holds office until that director's successor has been elected
and qualified. Upon the closing of this offering, the Company's Board of
Directors will be divided into three classes. Mr. Andrews will serve in the
class whose term expires in 1997; Messrs. d'Arbeloff and Hendrie will serve in
the class whose term expires in 1998; and Messrs. Humphreys and Thibault will
serve in the class whose term expires in 1999. Upon the expiration of the term
of each class of directors, directors comprising such class will be elected for
a three-year term at the annual meeting of stockholders in the year in which
such term expires.
Certain of the current directors of the Company were nominated and elected
in accordance with a stockholders' agreement, which will terminate upon the
closing of this offering. See "Certain Transactions."
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until their successors have been duly elected and
qualified. There are no family relationships among any of the executive officers
or directors of the Company.
COMMITTEES OF THE BOARD
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees of
and consultants to the Company and administers the Company's stock option plans.
The members of the Compensation Committee currently are Messrs. Humphreys,
d'Arbeloff and Hendrie. The Board of Directors also has an Audit Committee,
which reviews the results and scope of the audit and other services provided by
the Company's independent accountants. The members of the Audit Committee
currently are Messrs. Humphreys and d'Arbeloff.
BOARD COMPENSATION
Each non-employee director of the Company serves without compensation.
Directors who are employees of the Company are not paid any separate fees for
serving as directors. In July 1994, in conjunction with his election as a
director, Mr. d'Arbeloff purchased shares of Series A Convertible Participating
Preferred Stock and Common Stock. See "Certain Transactions."
38
<PAGE> 44
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors was established in
October 1993, and currently consists of Messrs. d'Arbeloff, Hendrie and
Humphreys. Mr. Hendrie and Mr. Humphreys are general partners of private venture
capital firms which purchased shares of Convertible Preferred Stock. Mr.
d'Arbeloff has purchased shares of Convertible Preferred Stock and Common Stock.
See "Certain Transactions."
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation earned in the year ended December 31, 1995 by the Company's Chief
Executive Officer and its five most highly compensated executive officers during
the year ended December 31, 1995 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
-------------------------------------------- -------- ------- ---------------
<S> <C> <C> <C>
John C. Thibault............................ $164,583 $26,915 $ 224
President, Chief Executive
Officer and Director
Louis J. Volpe.............................. 101,200 10,571
Senior Vice President of
Sales and Marketing(2)
Timothy J. Allen............................ 100,625 14,071 116
Vice President of Finance,
Chief Financial Officer,
Treasurer and Assistant
Secretary
G. Wayne Andrews............................ 115,000 10,571 122
Vice President,
Chief Technology
Officer and Director
Steven H. Webber............................ 115,000 10,571 302
Vice President of
Engineering
Joseph A. Murphy............................ 112,260 25,500 30,075
Vice President of
Sales(3)
</TABLE>
- ---------------
(1) The Company did not grant any restricted stock awards or stock appreciation
rights to the Named Executive Officers during the year ended December 31,
1995. Other annual compensation in the form of perquisites and other
personal benefits has been omitted because the aggregate amount of such
perquisites and other personal benefits constituted less than $50,000 or 10%
of each executive's total annual salary. Consists of premiums paid on behalf
of named executives for excess life insurance coverage. Consists of amounts
paid to Mr. Murphy for relocation expenses.
(2) Mr. Volpe's annual compensation was paid to Mr. Volpe for his services as a
consultant to the Company prior to his becoming an employee of the Company
in April 1996.
(3) Mr. Murphy's employment was terminated by the Company in April 1996.
39
<PAGE> 45
STOCK PLANS
1993 Restricted Stock Purchase Plan. The 1993 Restricted Stock Purchase
Plan (the "1993 Plan") was adopted by the Board of Directors in October 1993 and
approved by the stockholders of the Company in December 1993. A maximum of
1,324,063 shares of Common Stock may be issued and sold pursuant to the 1993
Plan. Under the 1993 Plan, shares of Common Stock may be sold to directors,
officers, consultants and other key personnel of the Company (collectively
"Participants") at a purchase price determined by the Compensation Committee of
the Board of Directors. As of September 30, 1996, 986,143 shares of Common Stock
were outstanding under the 1993 Plan. All shares sold pursuant to the 1993 Plan
are subject to repurchase by the Company at the original purchase price for up
to a period of five years from the date of purchase, unless the shares become
"vested" under the terms of the 1993 Plan. None of the shares become vested
until the first anniversary of the date of purchase by the Participant. A
Participant vests in twenty percent of the shares on the first anniversary of
the date of purchase and, thereafter, the remaining shares become vested on a
monthly basis through the fifth anniversary of the date of purchase. In the
event of a change in control, if the Participant has been employed by the
Company for at least six months, an additional twenty percent of the shares held
by the Participant pursuant to the 1993 Plan will become vested shares, unless
such change in control has not been approved by the Board of Directors, in which
event all shares held by the Participant pursuant to the 1993 Plan will become
vested shares.
1995 Stock Option Plan. The 1995 Stock Option Plan (the "1995 Plan") was
adopted by the Board of Directors in September 1995 and approved by the
stockholders of the Company in January 1996. A maximum of 1,474,726 shares of
Common Stock may currently be issued pursuant to the 1995 Plan upon exercise of
options. The number of shares of Common Stock available for grants under the
1995 Plan will be increased by the number of shares repurchased by the Company
from time to time under the 1993 Plan. The maximum number of shares will
increase, effective January 1, 1997 and each January 1 thereafter during the
term of the 1995 Option Plan, by an amount equal to four percent of the total
number of shares of Common Stock issued and outstanding as of the close of
business on December 31 of the preceding year. No more than an aggregate of
6,000,000 shares of Common Stock may be issued pursuant to the exercise of
options granted under the 1995 Plan. Under the 1995 Plan, incentive stock
options may be granted to employees and officers of the Company and
non-qualified stock options may be granted to consultants, employees and
officers of the Company.
The 1995 Plan is administered by the Compensation Committee of the Board of
Directors, subject to the supervision and control of the entire Board. Subject
to the provisions of the 1995 Plan, the Compensation Committee has the authority
to select optionees and determine the terms of the options granted, including
(i) the number of shares subject to each option, (ii) when the option becomes
exercisable, (iii) the exercise price of the option (which in the case of an
incentive stock option cannot be less than the fair market value of the Common
Stock on the date of grant, or less than 110% of fair market value in the case
of employees or officers holding 10% or more of the voting stock of the
Company), (iv) the duration of the option, and (v) the time, manner and form of
payment upon exercise of an option.
Options granted under the 1995 Plan vest and become exercisable starting
one year after the date of grant, with twenty percent of the shares subject to
an option becoming exercisable at that time and 1/60th of the shares subject to
the option becoming exercisable each month thereafter. The Option Agreements
governing options granted under the 1995 Plan provide that in the event of a
change in control, if the optionee has been employed by the Company for at least
six months, an additional twenty percent of the options held by the optionee
will vest and become immediately exercisable, unless such change in control has
not been approved by the Board of Directors, in which event all options will
vest and become immediately exercisable.
40
<PAGE> 46
An option is not transferrable by the optionee except by will, by the laws
of descent and distribution or pursuant to a qualified domestic relations order.
Options are exercisable only while the optionee remains in the employ of the
Company or for a short period of time thereafter. If an optionee becomes
permanently disabled or dies while in the employ of the Company, the option is
exercisable prior to the last day of the sixth or twelfth month, respectively,
following the date of termination of employment. If the optionee leaves the
employ of the Company for any other reason, the option is exercisable for only
thirty days following the date of termination of employment, which time period
may be extended by the Compensation Committee. Options which are exercisable
following termination of employment are exercisable only to the extent that the
optionee was entitled to exercise such options on the date of such termination.
As of September 30, 1996, options to purchase 860,396 shares of Common
Stock were outstanding under the 1995 Plan, of which options to purchase 8,400
shares were then exercisable. As of September 30, 1996, the following executive
officers held options to purchase Common Stock in the amounts indicated: John C.
Thibault (98,750 shares); Timothy J. Allen (30,000 shares); G. Wayne Andrews
(28,000 shares); Louis J. Volpe (163,867 shares); and Steven H. Webber (63,000
shares).
1996 Employee Stock Purchase Plan. The 1996 Employee Stock Purchase Plan
(the "1996 Purchase Plan") for employees of the Company was adopted by the Board
of Directors and approved by the stockholders of the Company in September 1996.
The 1996 Purchase Plan authorizes the issuance of a maximum of 250,000 shares of
Common Stock pursuant to the exercise of nontransferable options granted to
participating employees.
The 1996 Purchase Plan is administered by the Compensation Committee of the
Board of Directors. All employees of the Company whose customary employment is
20 hours or more per week and have been employed by the Company for at least six
months are eligible to participate in the 1996 Purchase Plan. Employees who own
5% or more of the Company's stock and directors who are not employees of the
Company may not participate in the 1996 Purchase Plan. To participate in the
1996 Purchase Plan, an employee must authorize the Company in writing to deduct
an amount (not less than 1% nor more than 10% of a participant's base
compensation) from his or her pay commencing on January 1 and July 1 of each
year (each a "Purchase Period"). On the first day of each Purchase Period, the
Company grants to each participating employee an option to purchase up to 1,000
shares of Common Stock. The exercise price for the option for each Purchase
Period is the lesser of 85% of the fair market value of the Common Stock on the
first or last business day of the Purchase Period. The fair market value will be
the closing selling price of the Common Stock as quoted on the Nasdaq National
Market. If an employee is not a participant on the last day of the Purchase
Period, such employee is not entitled to exercise his or her option, and the
amount of his or her accumulated payroll deduction will be refunded to the
employee. An employee's rights under the 1996 Purchase Plan terminate upon his
or her voluntary withdrawal from the Plan at any time or upon termination of
employment.
Common Stock for the 1996 Purchase Plan will be made available either from
authorized but unissued shares of Common Stock or from shares of Common Stock
reacquired by the Company, including shares repurchased in the open market.
EXECUTIVE INCENTIVE PROGRAM
The Company has adopted a 1996 Executive Incentive Program (the "Incentive
Program") which is available to executive officers and other management
employees of the Company. Under the Incentive Program, participants may receive
specified bonuses based upon the Company's attainment of certain financial
targets and strategic initiatives in 1996 and job performance evaluations. The
Incentive Program also provides that options to purchase an aggregate of 68,217
shares previously granted to the participants, which would otherwise vest on the
fifth anniversary of the
41
<PAGE> 47
date of grant, will be fully vested on the first anniversary of the date of
grant, subject to the achievement of the foregoing criteria.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
Messrs. Thibault, Allen, Andrews, Volpe and Webber are parties to change in
control agreements with the Company which provide for salary continuation and
other benefits upon the occurrence of certain events following a change of
control. These events will occur if such person is terminated without cause or
constructively terminated following a change of control. Upon the occurrence of
such events, the Company is required to continue to pay such person his base
salary for a period of twelve months after termination and provide medical
benefits to such person for such period.
LIMITATION OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation limits the personal
liability of directors to the Company, and the Company's Amended and Restated
Bylaws provide that the Company shall indemnify the Company's directors and
officers, in each case to the full extent permitted by the Delaware General
Corporation Law, including under circumstances in which indemnification is
otherwise discretionary under Delaware law. See "Description of Capital
Stock -- Certain Charter, Bylaw and Statutory Provisions Affecting
Stockholders."
42
<PAGE> 48
CERTAIN TRANSACTIONS
CERTAIN STOCK TRANSACTIONS
On September 30, 1993, the Company issued an aggregate of 3,300,000 shares
of Series A Convertible Participating Preferred Stock for aggregate
consideration of $3,300,000 in a private venture capital financing, at a price
of $1.00 per share. The following 5% or greater stockholders and affiliated
entities were purchasers of the Series A Convertible Participating Preferred
Stock in the amounts indicated: Matrix Partners III, L.P. (1,160,000 shares);
Sigma Partners II, L.P. (985,400 shares); Sigma Associates II, L.P. (74,600
shares); and Atlas Venture Fund II, L.P. (750,000 shares).
On January 5, 1994, the Company issued 410,250 shares of restricted Common
Stock to John C. Thibault, President and Chief Executive Officer, at a price per
share of $0.10. The Company loaned Mr. Thibault $36,922 in order to fund a
portion of the purchase of such shares. The loan bears interest at 5.25% per
year and is required to be repaid on the first anniversary of the closing of
this offering.
On July 29, 1994, the Company entered into a Stock Purchase Agreement with
Alexander d'Arbeloff pursuant to which the Company issued to Mr. d'Arbeloff
100,000 shares of Series A Convertible Participating Preferred Stock at a price
per share of $1.00. On such date, Mr. d'Arbeloff also purchased 50,000 shares of
Common Stock at a price per share of $0.10 pursuant to the 1993 Plan.
On July 29, 1994, the Company issued an aggregate of 2,604,286 shares of
Series B Convertible Participating Preferred Stock for an aggregate
consideration of $4,557,500 in a private venture capital financing, at a price
of $1.75 per share. The following 5% or greater stockholders, affiliated
entities, executive officers and directors were purchasers of the Series B
Convertible Participating Preferred Stock in the amounts indicated: New
Enterprise Associates VI, Limited Partnership (971,429 shares); Matrix Partners
III, L.P. (542,857 shares); Sigma Partners II, L.P. (462,343 shares); Sigma
Associates II, L.P. (34,800 shares); Atlas Venture Fund II, L.P. (351,429
shares); Alexander d'Arbeloff (90,000 shares); G. Wayne Andrews (5,714 shares);
John C. Thibault (5,714 shares); and Steven H. Webber (5,714 shares).
On August 9, 1995, the Company issued an aggregate of 1,712,329 shares of
its Series C Convertible Participating Preferred Stock for an aggregate
consideration of $4,000,000 in a private venture capital financing, at a price
of $2.336 per share. The following 5% or greater stockholders, affiliated
entities, executive officers and directors were purchasers of the Series C
Convertible Participating Preferred Stock in the amounts indicated: Fidelity
Ventures Limited (1,048,801 shares); Matrix Partners III, L.P. (200,946 shares);
Sigma Partners II, L.P. (170,888 shares); Sigma Associates II, L.P. (12,863
shares); Atlas Venture Fund II, L.P. (129,974 shares); New Enterprise Associates
VI, Limited Partnership (114,634 shares); and Alexander d'Arbeloff (22,421
shares).
On January 24, 1996, the Company issued an aggregate of 70,000 shares of
Series C Convertible Participating Preferred Stock to certain executive officers
and other employees at a purchase price of $2.336 for an aggregate consideration
of $163,520. The following executive officers were purchasers of the Series C
Convertible Participating Preferred Stock in the following amounts: Timothy J.
Allen (1,000 shares); G. Wayne Andrews (4,000 shares); and Louis J. Volpe (5,000
shares).
The terms of the Convertible Preferred Stock provided that each share of
Convertible Preferred Stock would automatically convert into one share of Common
Stock immediately prior to this offering and, upon conversion, each holder of
Convertible Preferred Stock would be entitled to receive a cash payment equal to
the original purchase price of the Convertible Preferred Stock. On September 26,
1996, the Board of Directors and stockholders of the Company approved an
amendment to the Company's Certificate of Incorporation to provide that, in lieu
of any cash payment in connection with the automatic conversion of the
Convertible Preferred Stock in an initial public offering, the Convertible
Preferred Stock will be converted into an additional number of
43
<PAGE> 49
shares of Common Stock determined by dividing fifty percent of the original
purchase price of the Convertible Preferred Stock by the initial public offering
price. Accordingly, at an assumed initial public offering price of $9.00 per
share, each share of Series A Convertible Participating Preferred Stock, Series
B Convertible Participating Preferred Stock and Series C Convertible
Participating Preferred Stock will automatically convert into 1.0555, 1.0972 and
1.1297 shares of Common Stock, respectively, immediately prior to the closing of
this offering.
The investors who purchased shares of Series A, Series B and Series C
Convertible Participating Preferred Stock, which are convertible into Common
Stock as described above, and certain executive officers have certain
registration rights with respect to the shares of Common Stock. See "Shares
Eligible for Future Sale -- Registration Rights."
The Company is a party to an Amended and Restated Stockholders Agreement
dated August 9, 1995, with certain of its shareholders, including certain of its
executive officers and entities affiliated with certain of its directors,
pursuant to which such stockholders agreed to vote all securities of the Company
owned by them to elect as directors of the Company (i) two persons nominated by
Matrix Partners III, L.P., Sigma Partners II, L.P., Sigma Associates, II, L.P.
and Atlas Venture Fund II, L.P., (ii) one person nominated by certain members of
the Company's management, including Messrs. Thibault, Andrews and Webber, (iii)
the Chief Executive Officer of the Company, and (iv) one person nominated by
Matrix Partners III, L.P., Sigma Associates, L.P., Atlas Ventures Fund II, L.P.,
Sigma Partners II, L.P., Atlas Venture Fund II, L.P., New Enterprise Associates
VI Limited Partnership and Fidelity Ventures Limited. The Stockholders Agreement
will terminate upon the closing of this offering.
OTHER RELATIONSHIPS
W. Michael Humphreys, a director of the Company, is a general partner of
Matrix III Management Company, a general partner of Matrix Partners III, L.P., a
greater than 5% stockholder of the Company. Gardner C. Hendrie, a director of
the Company, is a general partner of Sigma Management II, L.P., the general
partner of Sigma Partners II, L.P., a greater than 5% stockholder of the
Company.
Fidelity Investors Limited Partnership, a greater than 5% stockholder of
the Company, is an affiliate of Fidelity Investments ("Fidelity"), one of the
Company's customers. The Company recognized approximately $587,000 and
$1,235,000 in revenue from Fidelity during the year ended December 31, 1995 and
the nine months ending September 30, 1996, respectively, representing
approximately 38.3% and 19.7% of the Company's total revenues for such periods.
The purchases by Fidelity for the year ended December 31, 1995 were made through
Aspect Telecommunications Corporation ("Aspect"), a stockholder of the Company.
The Company negotiated this transaction with Fidelity and Aspect on an arms'
length basis.
The Company has adopted a policy pursuant to which all future transactions
between the Company and its officers, directors and affiliates will be on terms
no less favorable to the Company than could be obtained from unrelated third
parties and will be approved by a majority of the disinterested members of the
Company's Board of Directors.
44
<PAGE> 50
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1996, and as
adjusted to reflect the sale of the shares offered hereby by, (i) each person
who is known by the Company to own beneficially more than 5 % of the outstanding
shares of Common Stock, (ii) each director and Named Executive Officer, and
(iii) all directors and current executive officers of the Company as a group.
Unless otherwise indicated below, to the knowledge of the Company, all persons
listed below have sole voting and investment power with respect to their shares
of Common Stock, except to the extent authority is shared by spouses under
applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER
OFFERING THE OFFERING(1)(2)
--------------------- ----------------------
NUMBER PERCENT NUMBER PERCENT
--------- ------- ---------- -------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS
Matrix Partners III, L.P...................... 2,047,102 19.0% 2,047,102 15.8%
1000 Winter Street
Suite 4500
Waltham, MA 02154
Sigma Partners II, L.P.
Sigma Associates II, L.P.(3)................ 1,871,961 17.4 1,871,961 14.4
2884 Sand Hill Road
Suite 121
Menlo Park, CA 94025
Atlas Venture Fund II, L.P.................... 1,324,102 12.3 1,324,102 10.2
222 Berkeley Street
Suite 1950
Boston, MA 02116
New Enterprise Associates VI,
Limited Partnership......................... 1,195,383 11.1 1,195,383 9.2
1119 St. Paul Street
Baltimore, MD 21202
Fidelity Investors Limited Partnership........ 1,184,912 11.0 1,184,912 9.1
82 Devonshire Street
Boston, MA 02109
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Gardner C. Hendrie(4)......................... 1,871,961 17.4 1,871,961 14.4
W. Michael Humphreys(5)....................... 2,047,102 19.0 2,047,102 15.8
G. Wayne Andrews(6)........................... 486,882 4.5 486,882 3.8
John C. Thibault(7)........................... 444,363 4.1 444,363 3.4
Steven H. Webber.............................. 378,961 3.5 378,961 2.9
Alexander V. d'Arbeloff(8).................... 279,635 2.6 279,635 2.2
Louis J. Volpe(9)............................. 181,922 1.7 181,922 1.4
Timothy J. Allen(10).......................... 81,911 0.8 81,911 0.6
Joseph A. Murphy.............................. 46,019 0.4 46,019 0.3
All Executive Officers and Directors as a
group (8 persons)(4)(5)..................... 5,772,737 53.5% 5,772,737 44.5%
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable, or become exercisable within 60 days following
45
<PAGE> 51
September 30, 1996, are deemed outstanding. However, such shares are not
deemed outstanding for purposes of computing the percentage ownership of
any other person. The number of shares of Common Stock deemed outstanding
prior to this offering includes (i) 2,324,837 shares of Common Stock
outstanding as of September 30, 1996, (ii) an aggregate of 8,462,086 shares
of Common Stock issuable upon conversion of the Convertible Preferred
Stock, based upon an assumed initial public offering price of $9.00 and
(iii) shares issuable pursuant to options held by the respective person or
group which may be exercised within 60 days after September 30, 1996. No
options are presently exercisable within 60 days after September 30, 1996.
The number of shares of Common stock deemed outstanding after this offering
includes an additional 2,200,000 shares of Common Stock that are being
offered for sale by the Company in this offering.
(2) In the event that the Underwriters' over-allotment option is exercised in
full, the following stockholders will sell the following number of shares:
G. Wayne Andrews (50,000 shares) and John C. Thibault (15,000 shares). The
remaining shares subject to the Underwriters' over-allotment option will be
sold by the Company.
(3) Consists of 1,740,502 shares of Common Stock held by Sigma Partners II,
L.P. and 131,459 shares of Common Stock held by Sigma Associates II, L.P.
Sigma Management II, L.P. serves as a general partner for the
aforementioned entities, and as such exercises sole investment and voting
power.
(4) Includes 1,871,961 shares held by Sigma Partners II, L.P. and Sigma
Associates II, L.P. Mr. Hendrie is a general partner of Sigma Management
II, L.P. which is the general partner of each of Sigma Partners II, L.P.
and Sigma Associates II, L.P. and as such may be deemed to beneficially own
all of such shares. Mr. Hendrie disclaims beneficial ownership of such
shares, except to the extent of his proportionate pecuniary interest
therein.
(5) Includes 2,047,102 shares held by Matrix Partners III, L.P. Mr. Humphreys
is a general partner of Matrix III Management Company, the general partner
of Matrix Partners III, L.P. and as such may be deemed to beneficially own
all of such shares. Mr. Humphreys disclaims beneficial ownership of such
shares, except to the extent of his proportionate pecuniary interest
therein.
(6) Includes 8,200 shares of Common Stock held by Mr. Andrews' children under
the Massachusetts Uniform Transfer to Minors Act.
(7) Includes 22,844 shares of Common Stock held by Mr. Thibault's children
under the Massachusetts Uniform Transfer to Minors Act.
(8) Includes 28,333 shares of restricted Common Stock which remain subject to
vesting and the Company's right to repurchase at cost.
(9) Includes 113,085 shares of restricted Common Stock which remain subject to
vesting and the Company's right to repurchase at cost.
(10) Includes (i) 47,833 shares of restricted Common Stock which remain subject
to vesting and the Company's right to repurchase at cost; (ii) 7,000 shares
of Common Stock held by Mr. Allen's children under the Massachusetts
Uniform Transfer to Minor Act; and (iii) 3,782 shares of Common Stock held
jointly by Mr. Allen and his wife.
46
<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering, the authorized capital stock
of the Company will consist of 40,000,000 shares of Common Stock, $.01 par value
per share, and 5,000,000 shares of Preferred Stock, $.01 par value per share
(the "Preferred Stock").
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Restated Certificate of
Incorporation as amended and restated upon the closing of this offering (the
"Certificate of Incorporation") which is included as an exhibit to the
Registration Statement, and by the provisions of applicable law.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights. Holders
of Common Stock are entitled to receive ratable dividends when, as and if
declared by the Board of Directors out of funds legally available therefor,
subject to any preferential dividend rights of any then outstanding Preferred
Stock. Upon the liquidation, dissolution or winding up of the Company, holders
of Common Stock share ratably in the assets of the Company available for
distribution to its stockholders, subject to the preferential rights of any then
outstanding Preferred Stock. The shares of Common Stock outstanding upon the
effective date of this Prospectus are, and the shares offered hereby will be,
when issued and paid for, fully paid and nonassessable. The rights, preferences
and privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of holders of shares of any Preferred Stock that the
Company may designate in the future.
PREFERRED STOCK
After the closing of this offering, the Company's Board of Directors will
have the authority, without further stockholder approval, to issue up to
5,000,000 shares of Preferred Stock in one or more series and to fix the
relative rights, preferences, privileges, qualifications, limitations and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of delaying, deferring or preventing a change in
control of the Company, may discourage bids for the Company's Common Stock at a
premium over the market price of the Common Stock and may adversely affect the
market price and the voting and other rights of the holders of the Common Stock.
The Company has no present plans to issue any shares of Preferred Stock.
CERTAIN CHARTER, BYLAW AND STATUTORY PROVISIONS AFFECTING STOCKHOLDERS
Classified Board and Other Matters. The Company's Board of Directors will
be divided into three classes, each of which, after a transitional period, will
serve for three years, with one class being elected each year. Under the
Delaware General Corporation Law, in the case of a corporation having a
classified Board, stockholders may remove a Director only for cause. Advance
notice of stockholder nominations and any other matter to be brought before a
meeting of stockholders will be required to be given in writing to the Secretary
of the Company within the time periods in the Bylaws. The Certificate of
Incorporation provides that special meetings of stockholders of the Company may
be called only by the Board of Directors, the Chairman of the Board of Directors
or the President. The Certificate of Incorporation also provides that no action
required or permitted to be taken at any Annual or Special Meeting of the
Stockholders of the Company may be taken without a meeting, unless the unanimous
consent of stockholders entitled to vote thereon is obtained. The affirmative
vote of the holders of at least 80% of the combined voting power of then
outstanding voting stock of the Company will be required to alter, amend or
repeal the foregoing provisions. The classification of the Board of Directors
and the limitations on the removal of directors and filling of
47
<PAGE> 53
vacancies could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of the
Company.
Section 203 of Delaware Law. Following the consummation of this offering,
the Company will be subject to the "business combination" statute of the
Delaware General Corporation Law. In general, such statute prohibits a
publicly-held Delaware corporation from engaging in various "business
combination" transactions with any "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
"interested stockholder," unless (i) the transaction is approved by the Board of
Directors prior to the date the interested stockholder obtains such status, (ii)
upon the consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer, or (iii) on or subsequent to
such date the "business combination" is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the "interested stockholder." A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the stockholder. An "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of a corporation's voting stock. By virtue of the Company's
decision not to elect out of the statute's provision, the statute applies to the
Company. The statute could prohibit or delay the accomplishment of mergers or
other takeover or change of control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
Directors Liability. The Certificate of Incorporation of the Company
provides that no director shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for (i) any breach of the director's duty of loyalty to the Company or
its stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct; (iii) acts or omissions in respect of certain unlawful
dividend payments or stock redemptions or repurchases; or (iv) any transaction
from which such director derives improper personal benefit. The effect of this
provision is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care as
a director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (iv) above.
The limitations summarized above, however, do not affect the ability of the
Company or its stockholders to seek non-monetary based remedies, such as an
injunction or rescission, against a director for breach of his fiduciary duty
nor would such limitations limit liability under the Federal Securities Laws.
The Company's Amended and Restated Bylaws provide that the Company shall, to the
full extent permitted by the Delaware General Corporation Law, as amended from
time to time, indemnify and advance expenses to each of its currently acting and
former directors, officers, employees and agents arising in connection with
their acting in such capacities.
Certain provisions described above may have the effect of delaying
shareholder actions with respect to certain business combinations and the
election of new members to the Board of Directors. As such, the provisions could
have the effect of discouraging open market purchases of the Company's Common
Stock because they may be considered disadvantages by a shareholder who desires
to participate in a business combination or elect a new director. The existence
of these provisions may have an adverse effect on the market price of the Common
Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Fleet Bank.
48
<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 12,986,923 shares
of Common Stock outstanding (assuming no exercise of outstanding options). Of
these shares, the 2,200,000 shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), except that any shares purchased by "affiliates"
of the Company, as that term is defined in Rule 144 ("Rule 144") under the
Securities Act ("Affiliates"), may generally only be sold in compliance with the
limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 10,786,923 shares of Common Stock outstanding upon completion
of this offering will be "restricted securities" as that term is defined in Rule
144 under the Securities Act ("Restricted Shares"). Restricted Shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 promulgated under the Securities Act, which is
summarized below. Sales of the Restricted Shares in the public market, or the
availability of such shares for sale, could adversely affect the market price of
the Common Stock. Of the Restricted Shares, up to 350,442 may be eligible for
sale in the public market immediately after this offering pursuant to Rule
144(k) under the Securities Act, of which 84,443 shares are subject to lock-up
agreements as described below. An additional 6,925,250 Restricted Shares will be
eligible for resale under Rule 144 commencing 90 days after the effective date
of this offering. Of these shares, 6,799,853 shares are subject to lock-up
agreements as described below (the "Lock-Up Agreements"). Approximately 90 days
after the date of this Prospectus, the Company intends to register on one or
more registration statements on Form S-8 approximately 2,972,341 shares of
Common Stock issuable under its restricted stock purchase plan, stock
restriction agreements and stock option plan. Shares covered by such
registration statements will be eligible for sale in the public market after the
effective date of such registration, except for 1,704,146 shares which are
subject to the Lock-Up Agreements. In addition, 9,674,416 of the Restricted
Shares are entitled to registration rights as described below.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of this offering, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least two years
(including the holding period of any prior owner except an affiliate) would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) one percent of the number of shares of Common Stock
then outstanding (which will equal approximately 129,869 shares immediately
after this offering); or (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks preceding the filing of a Form 144 with
respect to such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions and notice requirements and to the availability of current
public information about the Company. Under Rule 144(k), a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least three years (including the holding period of any prior owner except
an affiliate), is entitled to sell such shares without complying with the manner
of sale, public information, volume limitation or notice provision of Rule 144.
In addition, the Securities and Exchange Commission has proposed an
amendment to Rule 144 which would reduce the holding period by one year before
shares subject to Rules 144 and 144(k) become eligible for sale in the public
market. This proposal, if adopted, would substantially increase the number of
shares of the Company's Common Stock eligible for immediate sale following the
expiration of the lock-up period.
OPTIONS
As of September 30, 1996, options to purchase a total of 860,396 shares of
Common Stock were outstanding. Of the total shares issuable pursuant to such
options, 495,757 are subject to lock-up agreements. An additional 763,108 shares
of Common Stock are currently available for future grants
49
<PAGE> 55
under the Company's stock option and employee stock purchase plans. See
"Management -- Stock Plans."
In general, under Rule 701, as currently in effect, beginning 90 days after
the effective date of this offering, certain shares issued upon exercise of
options granted by the Company prior to the date of this Prospectus will also be
available for sale in the public market. Any employee, officer or director of or
consultant to the Company who purchased his or her shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the public information, volume
limitation or notice provisions of Rule 144. In both cases, a holder of Rule 701
shares is required to wait until 90 days after the date of this Prospectus
before selling such shares.
Prior to this offering, there has been no public market for the Common
Stock of the Company and no predictions can be made as to the effect, if any,
that market sales of shares of Common Stock prevailing from time to time may
have on the price of the Common Stock. Nevertheless, sales of significant
numbers of shares of the Common Stock in the public market could adversely
affect the market price of the Common Stock and could impair the Company's
future ability to raise capital through an offering of its equity securities.
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options and Common Stock issuable pursuant to the Company's
restricted stock purchase plan, stock restriction agreements and employee stock
purchase plan that do not qualify for an exemption under Rule 701 from the
registration requirements of the Securities Act. The Company expects to file
these registration statements 90 days after the date of this Prospectus, and
such registration statements are expected to become effective upon filing.
Shares covered by these registration statements will thereupon be eligible for
sale in the public markets, subject to the lock-up agreements, to the extent
applicable.
LOCK-UP AGREEMENTS
The Company, certain stockholders and all executive officers and directors
of the Company, who in the aggregate hold 10,509,580 shares of Common Stock
(including shares issuable pursuant to the exercise of stock options), have
agreed, pursuant to the lock-up agreements, not to directly or indirectly,
without the prior written consent of Alex. Brown & Sons Incorporated, offer,
sell, offer to sell or otherwise dispose of any shares of Common Stock, options
or warrants to acquire shares of Common Stock, beneficially owned by them for a
period of 180 days after the date of this Prospectus. See "Underwriting."
REGISTRATION RIGHTS
At the completion of this offering, certain stockholders (the
"Rightsholders") will be entitled to require the Company to register under the
Securities Act up to a total 9,674,416 shares of outstanding Common Stock (the
"Registrable Shares") under the terms of agreements among the Company and the
Rightsholders (the "Registration Agreements"). The Registration Agreements
provide that in the event the Company proposes to register any of its securities
under the Securities Act at any time or times, the Rightsholders, subject to
certain exceptions, shall be entitled to include Registrable Shares in such
registration. However, the managing underwriter of any such offering may exclude
for marketing reasons some or all of such Registrable Shares from such
registration. Certain Rightsholders have, subject to certain conditions and
limitations, additional rights to require the Company to prepare and file a
registration statement under the Securities Act with respect to their
Registrable Shares if Rightsholders holding at least a majority of the
Registrable Shares held by all such Rightsholders so request. The Company is
generally required to bear the expenses of all such registrations, except
underwriting discounts and commissions.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the
prevailing market price for the Common Stock. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could adversely
affect prevailing market prices for the Common Stock and could impair the
Company's future ability to obtain capital through an offering of equity
securities.
50
<PAGE> 56
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated and Wessels, Arnold & Henderson, L.L.C., have
severally agreed to purchase from the Company the following respective numbers
of shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
Alex. Brown & Sons Incorporated..................................................
Wessels, Arnold & Henderson, L.L.C. .............................................
-------
Total..................................................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering, the public offering price and other
selling terms may be changed by the Representatives of the Underwriters.
The Company and the Selling Stockholders have granted the Underwriters an
option, exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 330,000 additional shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by it shown in the above table bears to 330,000, and the
Company and such Selling Stockholders will be obligated, pursuant to cover
over-allotments made in connection with the sale of the Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on the
same terms as those on which the 2,200,000 shares of Common Stock are being
offered.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
The Company and each of its directors and executive officers and certain of
its stockholders, who in the aggregate will hold, following this offering,
10,013,823 shares of Common Stock and options to purchase 495,757 shares of
Common Stock, have agreed that they will not directly or indirectly, without the
prior written consent of Alex. Brown & Sons Incorporated, offer, sell, offer to
sell, contract to sell, or otherwise dispose of any shares of Common Stock for a
period of 180 days after the date of this Prospectus, except that the Company
may issue, and grant options to purchase, shares of Common Stock under its
current stock option and purchase plans and other currently outstanding options.
In addition, the Company may issue shares of Common Stock in connection with
corporate acquisitions so long as such shares are not resold until 180 days
after the date of this Prospectus. See "Shares Eligible for Future Sale."
51
<PAGE> 57
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price of the
Common Stock will be determined by negotiations among the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations will be the prevailing market conditions, the results of operations
of the Company in recent periods, the market capitalizations and stages of
development of other companies which the Company and the Representatives of the
Underwriters believe to be comparable to the Company, estimates of the business
potential of the Company, the present state of the Company's development and
other factors deemed relevant. Application has been made to list the Common
Stock on the Nasdaq National Market under the symbol "GEOC."
The Underwriters have reserved for sale, at the initial public offering
price, up to 7.5% of the shares of Common Stock offered hereby for employees of
the Company and certain other individuals who have expressed an interest in
purchasing such shares of Common Stock in the offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the Underwriters to the general public on the same basis as other
shares offered hereby.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hutchins, Wheeler & Dittmar, A Professional Corporation,
Boston, Massachusetts. Certain legal matters in connection with the offering
will be passed upon for the Underwriters by Hale and Dorr, Boston,
Massachusetts. Anthony J. Medaglia, Jr., a shareholder of Hutchins, Wheeler &
Dittmar, is Secretary of the Company and beneficially owns 39,929 shares of
Convertible Preferred Stock which will convert into 42,697 shares of Common
Stock upon the closing of this offering.
EXPERTS
The balance sheets of the Company as of December 31, 1995 and September 30,
1996 and the statements of operations, stockholders' deficit and cash flows for
the year ended December 31, 1995 and the nine months ended September 30, 1996
included in this Prospectus, have been included herein in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The balance sheet of the Company as of December 31, 1994 and the statements
of operations, stockholders' deficit and cash flows from inception (June 4,
1993) through December 31, 1993 and for the year ended December 31, 1994
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
CHANGE IN INDEPENDENT ACCOUNTANTS
The Company's financial statements for the year ended December 31, 1995 and
the nine months ended September 30, 1996 were audited by Coopers & Lybrand
L.L.P. The financial statements for the period from inception (June 4, 1993)
through December 31, 1993 and for the year ended December 31, 1994 were audited
by Arthur Andersen LLP. The Company retained Coopers & Lybrand L.L.P. as its
independent accountants in September 1995, after the Company's management, in
consultation with the Board of Directors of the Company, decided to dismiss
Arthur Andersen LLP. The audit reports of Arthur Andersen LLP for the period
from inception (June 4, 1993) through December 31, 1993 and for the year ended
December 31, 1994 did not contain an adverse opinion
52
<PAGE> 58
or a disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principles. During the period from
inception (June 4, 1993) through December 31, 1994 and through the date of
dismissal, there were no disagreements with Arthur Andersen LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act (the
"Registration Statement") with respect to the Common Stock offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock, reference is hereby made to the Registration
Statement and the exhibits and schedules filed therewith. Statements contained
in this Prospectus as to the contents of any contract or other document are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission in
Washington, D.C. and copies of all or any part of which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549, and at
the Commission's Regional Offices located at The Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material may be
obtained at prescribed rates by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent accountants and will
make available copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
53
<PAGE> 59
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants -- Coopers & Lybrand L.L.P. ........................ F-2
Report of Independent Accountants -- Arthur Andersen LLP.............................. F-3
Balance Sheets as of December 31, 1994, 1995 and September 30, 1996................... F-4
Statements of Operations from inception (June 4, 1993) through December 31, 1993, for
the years ended December 31, 1994 and 1995 and for the nine months ended September
30, 1995 (unaudited) and 1996....................................................... F-5
Statements of Stockholders' Deficit from inception (June 4, 1993) through September
30, 1996............................................................................ F-6
Statements of Cash Flows from inception (June 4, 1993) through December 31, 1993, for
the years ended December 31, 1994 and 1995, and for the nine months ended September
30, 1995 (unaudited) and 1996....................................................... F-7
Notes to Financial Statements......................................................... F-8
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
GeoTel Communications Corporation:
We have audited the accompanying balance sheets of GeoTel Communications
Corporation (formerly a development stage enterprise) as of December 31, 1995
and September 30, 1996, and the related statements of operations, stockholders'
deficit and cash flows for the year ended December 31, 1995 and the nine months
ended September 30, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GeoTel Communications
Corporation as of December 31, 1995 and September 30, 1996, and the results of
its operations and its cash flows for the year ended December 31, 1995 and the
nine months ended September 30, 1996 in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 16, 1996
F-2
<PAGE> 61
REPORT OF INDEPENDENT ACCOUNTANTS
To GeoTel Communications Corporation:
We have audited the accompanying balance sheet of GeoTel Communications
Corporation (a Delaware corporation in the development stage) as of December 31,
1994 and the related statements of operations, stockholders' deficit and cash
flows for the period from inception (June 4, 1993) to December 31, 1993 and for
the year ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GeoTel Communications
Corporation as of December 31, 1994, and the results of its operations and its
cash flows from inception (June 4, 1993) through December 31, 1993 and the year
ended December 31, 1994 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 21, 1995
F-3
<PAGE> 62
GEOTEL COMMUNICATIONS CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
------------------- SEPTEMBER 30, SEPTEMBER 30, 1996
1994 1995 1996 (UNAUDITED)
------- ------- ------------- ------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 3,793 $ 4,537 $ 5,812
Marketable securities............................... 952 -- --
Accounts receivable................................. -- 749 1,412
Accounts receivable -- related party................ -- 266 751
Prepaid expenses and other current assets........... 69 107 225
------ ------ ------
Total current assets......................... 4,814 5,659 8,200
------ ------ ------
Property and equipment, net........................... 669 790 976
------ ------ ------
Total assets................................. $ 5,483 $ 6,449 $ 9,176
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................... $ 109 $ 160 $ 240
Accrued expenses.................................... 187 310 805
Accrued compensation and related accruals........... 155 324 497
Current portion of long-term debt................... 114 301 373
Deferred revenue.................................... -- 242 1,357
Deferred revenue -- related party................... -- 30 229
------ ------ ------
Total current liabilities.................... 565 1,367 3,501
------ ------ ------
Long-term debt........................................ 338 408 450
------ ------ ------
Commitments (Notes E, F and I)
Convertible preferred stock, $.01 par value,
authorized, issued and outstanding 6,006,286,
7,718,615 and 7,788,615 shares in 1994, 1995 and at
September 30, 1996, respectively, none pro forma
(aggregate liquidation preference of $12,756 at
September 30, 1996)................................. 7,937 11,986 12,229 --
------ ------ ------
Stockholders' equity (deficit):
Preferred stock, $.01 par value, authorized
5,000,000 shares pro forma, none issued
Common stock, $.01 par value, authorized 14,000,000
shares actual, and 40,000,000 shares pro forma,
issued 2,072,588, 2,572,580, 2,599,580 and
11,061,666 shares at December 31, 1994 and 1995,
September 30, 1996 and pro forma, respectively,
outstanding 1,909,377, 2,329,094, 2,324,837 and
10,786,923 shares at December 31, 1994, and 1995,
September 30, 1996, and pro forma, respectively... 21 26 26 $ 111
Additional paid-in capital.......................... 66 74 51 12,195
Accumulated deficit................................. (3,347) (7,209) (6,863) (6,863)
Notes receivable from stockholders.................. (94) (180) (153) (153)
Unearned compensation............................... -- -- (23) (23)
------ ------ ------ ------
(3,354) (7,289) (6,962) 5,267
Less treasury stock, at cost, 163,211, 243,486,
274,743 and 274,743 shares at December 31, 1994
and 1995, September 30, 1996 and pro forma,
respectively...................................... (3) (23) (42) (42)
------ ------ ------ ------
Total stockholders' equity (deficit)......... (3,357) (7,312) (7,004) $ 5,225
======
------ ------ ------
Total liabilities and stockholders' equity
(deficit).................................. $ 5,483 $ 6,449 $ 9,176
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 63
GEOTEL COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
INCEPTION YEAR ENDED -------------------------
(JUNE 4, 1993) DECEMBER 31, 1995
THROUGH DEC. 31, --------------------- -----------
1993 1994 1995 1996
------------------ ------- ----------- (UNAUDITED) -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Software license................... $ 821 $ 4,589
Services and other................. 126 460
Related party licenses and services
(Note J)........................ 587 1,235
----- -----
Total revenues..................... 1,534 6,284
----- -----
Cost of Revenues:
Cost of software license........... 264 235
Cost of services and other......... 611 $ 372 986
----- ----- -----
Total cost of revenues............. 875 372 1,221
----- ----- -----
Gross profit (loss).................. 659 (372) 5,063
----- ----- -----
Operating Expenses:
Research and development........... $ 140 $ 1,879 2,322 1,720 2,197
Sales and marketing................ -- 570 1,476 998 1,951
General and administrative......... 261 641 887 501 700
---- ----- ----- ----- -----
Total operating costs.............. 401 3,090 4,685 3,219 4,848
---- ----- ----- ----- -----
Income (loss) from operations........ (401) (3,090) (4,026) (3,591) 215
---- ----- ----- ----- -----
Other Income:
Interest income.................... 24 141 225 155 182
Interest expense................... -- 17 61 43 51
---- ----- ----- ----- -----
Total other income................. 24 124 164 112 131
---- ----- ----- ----- -----
Net income (loss).................... $ (377) $(2,966) $ (3,862) $ (3,479) $ 346
==== ===== ===== ===== =====
Net income (loss) per common and
common equivalent share --
historical basis (Note B)..........
Pro forma net income (loss) per
common and common equivalent
share.............................. $ (0.37) $ 0.03
===== =====
Pro forma weighed average number of
common and common equivalent
shares............................. 10,365,465 11,514,315
===== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 64
GEOTEL COMMUNICATIONS CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
INCEPTION (JUNE 4, 1993) THROUGH SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK NOTES TREASURY STOCK
----------------- ADDITIONAL RECEIVABLE ----------------- TOTAL
NUMBER OF PAID-IN ACCUMULATED FROM UNEARNED NUMBER OF STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDERS COMPENSATION SHARES AMOUNT DEFICIT
--------- ------ ---------- ----------- ------------- ------------ --------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of common stock
for cash............. 1,034,028 $ 10 $ 1 $ 11
Net loss............... $ (377) (377)
Accretion of
Convertible preferred
stock to redemption
value................ (4) (4)
-------- --- --- -----
Balance Dec. 31,
1993................. 1,034,028 10 1 (381) (370)
-------- --- --- -----
Sale of common stock
for cash and notes
receivable........... 1,038,560 11 100 $ (94) 17
Acquisition of treasury
stock................ 163,211 $ (3) (3)
Net loss............... (2,966) (2,966)
Accretion of
Convertible preferred
stock to redemption
value................ (35) (35)
--
-------- --- --- ----- --- ----
Balance Dec. 31,
1994................. 2,072,588 21 66 (3,347) (94) 163,211 (3) (3,357)
--
-------- --- --- ----- --- ----
Sale of common stock
for cash, services
and notes
receivable........... 499,992 5 85 (86) 4
Acquisition of treasury
stock................ 80,275 (20) (20)
Net loss............... (3,862) (3,862)
Accretion of
Convertible preferred
stock to redemption
value................ (77) (77)
--
-------- --- --- ----- --- ----
Balance Dec. 31,
1995................. 2,572,580 26 74 (7,209) (180) 243,486 (23) (7,312)
--
-------- --- --- ----- --- ----
Sale of common stock
and exercise of stock
options.............. 27,000 34 (101,222 ) 1 35
Acquisition of treasury
stock................ 27 132,479 (20) 7
Stock options granted
below fair value..... 25 $(25)
Amortization of
unearned
compensation......... 2 2
Net income............. 346 346
Accretion of
Convertible preferred
stock to redemption
value................ (82) (82)
--
-------- --- --- ----- --- ------ ----
Balance September 30,
1996................. 2,599,580 $ 26 $ 51 $(6,863) $(153) $(23) 274,743 $(42) $(7,004)
======== === === ===== === ====== == ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 65
GEOTEL COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
INCEPTION YEAR ENDED ----------------------
(JUNE 4, 1993) DECEMBER 31, 1995
THROUGH DEC. ------------------ -----------
31, 1993 1994 1995 1996
-------------- ------- ------- (UNAUDITED) -------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $ (377) $(2,966) $(3,862) $(3,479) $ 346
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities:
Depreciation and amortization.............. 1 159 359 274 370
Amortization of unearned compensation...... -- -- -- -- 2
Issuance of common stock in exchange for
services................................ -- -- 1 -- --
Changes in operating assets and
liabilities:
Accounts receivable..................... -- -- (1,015) -- (1,148)
Prepaid expenses and other current
assets................................ (53) (17) (38) (26) (118)
Accounts payable........................ 50 59 51 181 80
Accrued expenses and accrued
compensation.......................... 74 254 292 (113) 668
Deferred revenue........................ -- -- 272 311 1,314
----- ------- ------- ------- -----
Net cash provided by (used for) operating
activities................................. (305) (2,511) (3,940) (2,852) 1,514
----- ------- ------- ------- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of marketable
securities................................. 1,975 3,384 -- -- --
Proceeds from maturities of marketable
securities................................. -- -- 952 202 --
Purchases of marketable securities........... (4,436) (1,875) -- -- --
Purchases of property and equipment.......... (57) (757) (480) (579) (556)
----- ------- ------- ------- -----
Net cash provided by (used for) investing
activities................................. (2,518) 752 472 (377) (556)
----- ------- ------- ------- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock........... 11 17 3 3 35
Proceeds from notes receivable for common
stock...................................... -- -- -- -- 7
Proceeds from sale of convertible preferred
stock -- net............................... 3,263 4,635 3,972 3,972 161
Proceeds from long-term debt................. -- 467 418 418 358
Principal payments under long-term debt...... -- (15) (161) (124) (244)
Acquisition of treasury stock................ (3) (20) (3) --
----- ------- ------- ------- -----
Net cash provided by financing activities:... 3,274 5,101 4,212 4,266 317
----- ------- ------- ------- -----
Net change in cash and cash equivalents...... 451 3,342 744 1,037 1,275
Cash and cash equivalents, beginning of
period..................................... -- 451 3,793 3,793 4,537
----- ------- ------- ------- -----
Cash and cash equivalents, end of period..... $ 451 $ 3,793 $ 4,537 $ 4,830 $ 5,812
===== ======= ======= ======= =====
Supplemental disclosures of noncash financing
activities:
Notes received in exchange for common stock.. -- $ 94 $ 86 $ 87 --
===== ======= ======= ======= =====
Supplemental cash flow information:
Interest paid................................ -- $ 13 $ 60 $ 42 $ 51
===== ======= ======= ======= =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 66
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
A. NATURE OF BUSINESS:
GeoTel Communications Corporation (the "Company") develops and markets
telecommunications software solutions, consisting primarily of one product, that
enable enhanced call center applications. The Company engages in a single
business segment.
Principal operations of the Company commenced during 1995. Prior to the
commencement of principal operations, the Company was considered to be a
development stage enterprise. The Company currently derives substantially all of
its revenues from licenses of the Intelligent CallRouter and related services.
B. SIGNIFICANT ACCOUNTING POLICIES:
Use of Accounting Estimates
The preparation of the 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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Statements (unaudited)
The financial statements of the Company for the nine months ended September
30, 1995 and related footnote information are unaudited. All adjustments,
consisting only of normal recurring adjustments, have been made which, in the
opinion of management, are necessary for a fair presentation of the interim
financial information. Results of operations for the nine months ended September
30, 1996 are not necessarily indicative of the results that may be expected for
any future period.
Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents. The Company classifies its
marketable securities as available-for-sale and states them at amortized cost
plus accrued interest, which approximates fair market value. Marketable
securities include the following at December 31, 1994, December 31, 1995 and
September 30, 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
<S> <C> <C> <C>
Cash equivalents:
Commercial paper................................ $3,468 $3,986 $ 4,374
Money market instruments........................ 134 340 628
Marketable securities:
U.S. Government obligations..................... 752 -- --
Commercial paper................................ 200 -- --
------ ------ ------
$4,554 $4,326 $ 5,002
====== ====== ======
</TABLE>
Income Taxes
The Company provides for income taxes under the liability method, which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets are determined
based on the difference between the financial statement basis of assets and
liabilities
F-8
<PAGE> 67
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Under this method, a valuation allowance is required
against net deferred tax assets if, based upon the available evidence, it is
more likely than not that some or all of the deferred tax assets will not be
realized.
Management evaluates on a quarterly basis the recoverability of the
deferred tax assets and the level of the valuation allowance. At such time as it
is determined that it is more likely than not that deferred tax assets are
realizable, the valuation allowance will be appropriately reduced.
Property and Equipment
Property and equipment are stated at cost. The Company provides for
depreciation and amortization using the straight-line method over their
estimated useful lives as follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
---------------------------------------------------------- -------------------------
<S> <C>
Computer and lab equipment................................ 3 years
Furniture and fixtures.................................... 3 years
Leasehold improvements.................................... Shorter of lease term or
estimated useful life
</TABLE>
Repairs and maintenance are charged to expense as incurred. Significant
improvements are capitalized and depreciated. Upon retirement or sale, the cost
of the assets disposed of and the related accumulated depreciation are removed
from the accounts and any resulting gain or loss is included in the results of
operations.
Revenue Recognition
The Company recognizes license fee revenues upon shipment unless there are
significant post-delivery obligations. When significant post-delivery
obligations exist, typically, customer acceptance criteria, revenues are
deferred until no such significant obligations remain. Service and other
revenues have consisted primarily of maintenance, installation and training
revenues. Maintenance revenues are recognized ratably over the term of the
support period, which is typically twelve months. Installation and training
revenues generally are recognized when the services are performed. Amounts
received prior to revenue recognition and for prepaid maintenance revenue are
classified as deferred revenue.
Product Warranty Costs
The Company provides a ninety day warranty and provides for estimated
direct labor and associated indirect costs at the time of sale. Provision for
estimated warranty costs is recorded at the time of sale and periodically
adjusted to reflect actual experience.
Financial Instruments and Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents,
trade accounts receivable and short-and long-term debt which had fair values
that approximate their carrying amounts. The Company invests its excess cash
primarily in highly rated commercial paper and financial institutions.
Accounts receivable at December 31, 1995 and September 30, 1996 consist
principally of three and eight customer balances, respectively (See Note J). To
reduce risk, the Company routinely assesses the financial strength of its
customers and, as a consequence believes that its trade accounts receivable
credit risk exposure is limited.
Based on borrowing rates currently available to the Company for installment
notes with similar terms and maturities, the fair value of long-term debt
instruments approximates their carrying values.
F-9
<PAGE> 68
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Research and Development
Research and development costs are charged to operations as incurred. The
Company capitalizes eligible software costs incurred after technological
feasibility of the product has been established. The Company achieves
technological feasibility when a working model has been established. To date,
costs eligible for capitalization have been immaterial and no costs have been
capitalized.
Net Income (Loss) Per Common and Common Equivalent Share
The pro forma net income (loss) per common share is computed based upon the
weighted average number of common and common equivalent shares outstanding
(using the treasury stock method) after certain adjustments described below.
Common equivalent shares consist of the Company's Series A, B and C Convertible
Participating Preferred Stock (collectively, the "Convertible Preferred Stock")
and common stock options outstanding. In accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 83 (SAB No. 83), all Convertible
Preferred Stock, common and common equivalent shares issued during the twelve
month period prior to the proposed date of the initial filing of the
Registration Statement have been included in the calculation as if they were
outstanding for all periods presented using the treasury stock method and
assuming an initial public offering price of $9.00 per share. In addition, all
outstanding shares of Convertible Preferred Stock, not subject to SAB No. 83, to
be converted into common stock upon the closing of the initial public offering
are treated as having been converted into common stock at the date of original
issuance.
Net income (loss) per common share on a historical basis is computed in the
same manner as pro forma net income (loss) per common share, except that all
Convertible Preferred Stock is not assumed to be converted and is included in
the calculation only as a common stock equivalent when its effect is dilutive.
Net income (loss) per common share on a historical basis is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
INCEPTION SEPTEMBER 30,
(JUNE 4, -------------------------
1993) YEAR ENDED 1995
THROUGH DECEMBER 31, -----------
DECEMBER 31, ----------------------
1993 1994 1995 (UNAUDITED) 1996
------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net income (loss).......... $ (377) $ (2,966) $ (3,862) $ (3,479) $ 346
Accretion of Convertible
preferred stock to
redemption value......... (4) (35) (77) (52) (82)
------- ------- ------- ------- --------
Net income (loss) available
(attributable)to common
stockholders............. $ (381) $ (3,001) $ (3,939) $ (3,531) $ 264
======= ======= ======= ======= ========
Net income (loss) available
(attributable) per common
and common equivalent
share.................... $ (0.20) $ (1.10) $ (1.25) $ (1.14) $ 0.02
======= ======= ======= ======= ========
Weighted average number of
common and common
equivalent shares........ 1,950,088 2,724,895 3,154,729 3,104,087 11,514,315
======= ======= ======= ======= ========
</TABLE>
F-10
<PAGE> 69
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Fully diluted net income (loss) per share is not presented as it is the
same as the amounts disclosed in historical net income (loss) per share from
inception (June 4, 1993) through December 31, 1993 and for the years ended
December 31, 1994 and 1995, and the nine month periods ended September 30, 1995
and 1996.
Pro Forma Presentation (Unaudited)
Upon the closing of a public offering, such as the one contemplated in the
Registration Statement in which the accompanying financial statements have been
included, all of the outstanding series of Convertible Preferred Stock will
automatically convert into 8,462,086 shares of common stock (assuming an initial
public offering price of $9.00 per share), and the Company's existing series of
Convertible Preferred Stock will be removed and a class of authorized but
undesignated preferred stock will be created. The unaudited pro forma
presentation of the September 30, 1996 stockholders' equity has been prepared
assuming such conversion.
New Accounting Pronouncement
In fiscal year 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121") "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which requires that
impairment losses be recognized when the carrying value of an asset exceeds its
fair value. The Company regularly assesses all of its long-lived assets for
impairment. Based upon Management's assessment as of September 30, 1996, the
Company has determined that no impairment of long-lived assets exists.
C. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1994 1995 1996
----- ------ -------------
<S> <C> <C> <C>
Computer and lab equipment......................... $ 799 $1,218 $ 1,760
Furniture and fixtures............................. 20 67 74
Leasehold improvements............................. 10 24 31
---- ------ ------
829 1,309 1,865
Less accumulated depreciation and amortization..... (160) (519) (889)
---- ------ ------
$ 669 $ 790 $ 976
==== ====== ======
</TABLE>
D. INCOME TAXES:
No income tax provision was recorded for federal income tax purposes from
inception (June 4, 1993) through December 31, 1993 and for the years ended
December 31, 1994 and 1995, and for the nine months ended September 30, 1996 as
the Company has not reported taxable income in those periods. The Company
elected to capitalize start-up costs and research and development costs for
income tax purposes and amortize them over five and ten years, respectively, for
the period prior to recording product revenue in 1995.
F-11
<PAGE> 70
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
The components of deferred taxes were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Depreciation.................................. $ 17 $ 110 $ 136
Capitalized start-up costs.................... 1,286 2,151 1,937
Accrued expenses.............................. 17 37 82
Tax credits................................... 134 245 183
Net operating losses.......................... -- 574 550
------- ------- -------
Net deferred tax assets......................... 1,454 3,117 2,888
Valuation allowance............................. (1,454) (3,117) (2,888)
------- ------- -------
Total net deferred tax asset.................... $ 0 $ 0 $ 0
======= ======= =======
</TABLE>
Valuation allowances have been recorded to offset the entire net deferred
tax assets as a result of the uncertainties regarding the realization of the
asset due to the limited history of operating profits.
The difference between the statutory federal income tax rate and the
Company's effective tax rate for the nine months ended September 30, 1996 is
principally due to the utilization of net operating losses, capitalized start-up
costs including capitalized research and development cost carryforwards.
At September 30, 1996, the Company had net operating loss carryforwards of
$1,400,000 for federal and state income tax purposes, and capitalized start-up
costs of approximately $4,800,000 that may be used to offset future federal
income tax, if any. The net operating loss carryforwards expire at various dates
beginning in 2009. Similarly, research and development and state investment tax
credit carryforwards aggregating $245,000 and $183,000 were available at
December 31, 1995 and September 30, 1996, respectively, which expire at various
dates beginning in 2009. An ownership change, as defined in the Tax Reform Act
of 1986, may restrict the utilization of certain tax attributes. The difference
between the federal net operating loss carryforwards and the amount of the
accumulated deficit results primarily from certain start-up costs and research
and development expenses, which have been capitalized for tax purposes.
E. LONG-TERM DEBT:
In 1994, the Company entered into an equipment line of credit agreement
with a bank. The agreement allowed the Company to borrow the lesser of $500,000
or a 90% advance rate against the invoice price of approved equipment purchased
after January 1, 1994, as defined. The agreement provided for two borrowing
periods. The first borrowing period began on May 18, 1994 and ended on November
5, 1994. The Company borrowed a total of approximately $319,000 under the line
of credit in the first borrowing period. This outstanding principal balance is
payable monthly, in 30 equal payments of principal plus interest, commencing on
December 5, 1994. The second borrowing period began on November 6, 1994 and
ended on May 5, 1995. The Company borrowed a total of approximately $148,000
under the line of credit in the second borrowing period. This outstanding
principal balance is payable monthly, in 30 equal payments of principal plus
interest, which began on June 5, 1995.
In 1995, the Company entered into a second equipment line of credit
agreement with the bank. The agreement allows the Company to borrow the lesser
of $600,000 or a 90% advance rate against the invoice price of approved
equipment purchased after November 30, 1994, as defined. The
F-12
<PAGE> 71
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
agreement provided for two borrowing periods. The first borrowing period began
on May 1, 1995 and ended on March 1, 1996. The Company borrowed a total of
approximately $385,000 under the line of credit in the first borrowing period.
This outstanding principal balance is payable monthly, in 36 equal payments of
principal plus interest, commencing on April 1, 1996. The second borrowing
period began on April 2, 1996 and ended on May 31, 1996. The Company borrowed a
total of approximately $214,000 under the line of credit in the second borrowing
period. This outstanding principal balance is payable monthly, in 34 equal
payments of principal plus interest, which began on June 1, 1996.
In September 1996, the Company entered into a third equipment line of
credit agreement with the bank. The agreement allows the Company to borrow the
lesser of $800,000 or a 90% advance rate against the invoice price of approved
equipment purchased after May 31, 1996, as defined. Borrowings outstanding under
this agreement approximated $143,000 at September 30, 1996. The borrowing period
ends on June 30, 1997.
Borrowings under the above agreements bear interest ranging from the bank's
prime rate to prime rate plus 1% (9.50% at December 31, 1995 and 8.25% at
September 30, 1996). The interest rate, on all outstanding debt, was reduced to
prime rate in September 1996.
The borrowings are collateralized by substantially all of the Company's
assets. These agreements contain restrictive covenants that require certain
levels of equity and liquidity and prohibit the payment of cash dividends
without the bank's consent. At December 31, 1995 and September 30, 1996, the
Company was in compliance with all related covenants.
Principal payments for the last three months of 1996 and for the years
1997, 1998, 1999 and 2000 are $101,000, $347,000, $252,000, $99,000 and $24,000,
respectively.
F. CONVERTIBLE PREFERRED STOCK:
The following table reflects Convertible Preferred Stock activity, from
inception through September 30, 1996:
<TABLE>
<CAPTION>
AMOUNT
SHARES --------------
--------- (IN THOUSANDS)
<S> <C> <C>
Shares of Series A issued, September 1993............... 3,300,000 $ 3,261
Shares of Series A issued, December 1993................ 2,000 2
Accretion to redemption value........................... -- 4
--------- -------
Balance at December 31, 1993............................ 3,302,000 3,267
--------- -------
Shares of Series A issued, July 1994.................... 100,000 100
Shares of Series B issued, July 1994.................... 2,604,286 4,535
Accretion to redemption value........................... -- 35
--------- -------
Balance at December 31, 1994............................ 6,006,286 7,937
--------- -------
Shares of Series C issued, August 1995.................. 1,712,329 3,972
Accretion to redemption value........................... -- 77
--------- -------
Balance at December 31, 1995............................ 7,718,615 11,986
--------- -------
Shares of Series C issued, February 1996................ 70,000 161
Accretion to redemption value........................... -- 82
--------- -------
Balance at September 30, 1996........................... 7,788,615 $ 12,229
========= =======
</TABLE>
F-13
<PAGE> 72
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Shares of Convertible Preferred Stock are subject to the following rights
and privileges:
Dividends
Preferred stockholders shall be entitled to receive dividends at the same
rate as dividends are paid with respect to the common stock. Such preferred
dividends will be determined by the number of shares of common stock into which
each share of preferred stock could then be converted, as defined. The Company
is prohibited from paying cash dividends under the outstanding equipment lines
unless the Company receives the bank's consent.
Liquidation
In certain events, including liquidation, dissolution or the winding up of
the Company, the holders of the Series A, B and C Convertible Preferred Stock
are entitled to receive an amount equal to $1.00, $1.75 and $2.336 per share,
respectively, plus declared but unpaid dividends, before any payment is made to
the common stockholders. The holders of the Convertible Preferred Stock shall
then share ratably with the common stockholders in the distribution of the
remaining assets distributable to the stockholders as if each share of
Convertible Preferred Stock had been converted, as defined.
Voting
Preferred stockholders are entitled to the number of votes equal to the
number of shares of common stock into which each share of Convertible Preferred
Stock is convertible.
Conversion and Redemption
The holders of a majority of the outstanding shares of Convertible
Preferred Stock shall be entitled, at any time after July 31, 2000, to cause all
such shares to be converted into common stock on a share-for-share basis, as
defined and to receive from the Company their liquidation amount in three equal,
annual installments. In addition, immediately prior to the closing of an initial
public offering of the Company's common stock, which results in proceeds of at
least $10,000,000 and a per share price of a least $4.67, each share of the
Convertible Preferred Stock will automatically convert. In September 1996, the
Company's Board of Directors adopted and the stockholders approved an amendment
to the terms of the Company's Convertible Preferred Stock to provide that, in
lieu of any cash payment in connection with the automatic conversion of the
Convertible Preferred Stock in an initial public offering, the Convertible
Preferred Stock will be converted into an additional number of shares of common
stock determined by dividing fifty percent of the original purchase price of the
Convertible Preferred Stock by the initial public offering price. At an assumed
initial public offering price of $9.00 per share, the Convertible Preferred
Stock will be converted into an additional 673,471 shares of Common Stock. Since
the holders of the Convertible Preferred Stock have voting control, such
conversion will result in an increase in common stock and additional paid-in
capital with no impact on net income or earnings per share.
The Convertible Preferred Stock is being accreted to approximately
$12,756,000 which is equal to the sum of (i) the price per share paid for each
share of Convertible Preferred Stock and (ii) the fair value of the common
stock, at the date of the original issuance of the Convertible Preferred Stock,
for which such Convertible Preferred Stock will be converted. The Company has
provided for periodic accretion of the fair value of the common stock using the
effective interest method.
F-14
<PAGE> 73
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
G. STOCKHOLDERS' EQUITY (DEFICIT):
Common and Preferred Stock
In September 1996, the Company's Board of Directors authorized management
of the Company to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell shares of common stock to the public.
In addition, the Company's Board of Directors adopted and the stockholders
approved an increase in the number of authorized shares of capital stock from
21,788,615 shares to 45,000,000 shares, to be effected upon the closing of the
offering, of which 40,000,000 shares have been designated as common stock and
5,000,000 shares have been designated as preferred stock, for which the
Company's Board of Directors will have the authority, without further
stockholder approval, to issue in one or more series and to fix the relative
rights, preferences, privileges, qualifications, limitations and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series.
Each share of common stock has full voting rights. The terms of the
Company's existing borrowing arrangements with a bank prohibit the payment of
cash dividends without the prior consent of the bank.
Stock Restriction Agreements
The Company has entered into Stock Restriction Agreements (the "Stock
Restriction Agreements") with certain employees pursuant to which such employees
purchased an aggregate of 1,444,278 shares of common stock, of which 1,034,028
were purchased for $0.01 per share in 1993 and 410,250 were purchased for $0.10
per share in 1994. In connection with the 1994 sale of common stock described
above, the Company received a full recourse note receivable totaling
approximately $37,000 from a certain employee. This note bears interest at 5.25%
and is required to be paid in full upon the earlier to occur of the tenth
anniversary date of issuance or the first anniversary of an initial public
offering or other liquidity event, as defined. All shares purchased under the
Stock Restriction Agreements are subject to repurchase by the Company at the
original purchase price for up to a period of five years from the date of
purchase, unless the shares become vested. An employee vests in twenty percent
of the shares on the first anniversary of the date of purchase and, thereafter,
the remaining shares become vested on a monthly basis through the fifth
anniversary of the date of purchase. In accordance with the terms of a Stock
Restriction Agreement, the Company repurchased 148,211 unvested shares in 1994
at a price of $0.01 per share from an employee whose employment with the Company
terminated. In addition, the Company repurchased 58,595 shares from this
employee in 1995 at a price of $0.30 per share. At September 30, 1996, 448,233
shares were subject to repurchase under the Stock Restriction Agreements. Upon
an initial public offering, all shares of common stock purchased under the Stock
Restriction Agreements will become vested.
The Stock Restriction Agreements further provide the Company and the
holders of the Convertible Preferred Stock with the right of first refusal to
purchase the shares of such an employee stockholder if he intends to sell them
and has received an offer from a third party. The Company may exercise its right
to purchase the shares at the offeror's price within 30 days of receipt of
written notification of the stockholder's intent to sell. If the Company elects
not to purchase the stock, the preferred stockholders may exercise their right
to purchase their pro rata share at the offeror's price for a period of 20 days.
If the preferred stockholders do not purchase the shares, then the stockholder
is free to transfer the shares to the offeror, provided the transfer is
completed within
F-15
<PAGE> 74
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
three months from the end of the preferred stockholder option period. These
Stock Restriction Agreements terminate upon an initial public offering.
Restricted Stock Purchase Plan
The Company has adopted, and subsequently amended, a 1993 Restricted Stock
Purchase Plan (the "1993 Plan"), which provides for the issuance of common stock
to directors, officers, consultants and other key personnel at prices determined
by a Committee selected by the Board of Directors. Participants' shares are
subject to repurchase by the Company at the original purchase price for up to
five years after the beginning of the vesting period. A participant vests in
twenty percent of the shares on the first anniversary of the date of purchase
and, thereafter, the remaining shares become vested on a monthly basis through
the fifth anniversary date of purchase. At December 31, 1995 and September 30,
1996, the Company may repurchase up to 868,222 and 533,925 unvested shares,
respectively. Such shares are to be repurchased at the original purchase price
ranging from $0.10 to $0.18 per share. There are no shares available for further
grant under the 1993 Plan. The shares outstanding at September 30, 1996 under
the 1993 Plan have a weighted price of $0.14 per share with share prices ranging
from $0.10 to $0.18 per share.
Information related to the 1993 Plan is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
SEPTEMBER 30,
1994 1995 1996
----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES SHARE PRICE SHARES SHARE PRICE SHARES SHARE PRICE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period............... -- -- 613,310 $0.14 1,091,622 $0.14
Issued.................... 628,310 $0.14 499,992 0.18 27,000 0.18
Repurchased............... (15,000) 0.10 (21,680) 0.10 (132,479) 0.14
--------- --------- ---------
Outstanding at end of
period.................. 613,310 $0.14 1,091,622 $0.14 986,143 $0.14
========= ========= =========
</TABLE>
In connection with the sale of common stock under the 1993 Plan described
above, the Company received full recourse notes receivable totaling
approximately $57,000 and $86,000 from certain employees during the years ended
December 31, 1994 and 1995, respectively. These notes bear interest at 5.25% and
are required to be paid in full upon the earlier to occur of the tenth
anniversary of the date of issuance or the first anniversary of an initial
public offering or other liquidity event, as defined. The interest is payable at
the date of maturity. Such notes are collateralized by the common stock
purchased and accordingly are included in stockholders' deficit.
Stock Option Plan
In 1995, the Board of Directors adopted and the stockholders subsequently
approved the Company's 1995 stock option plan (the "1995 Plan"), which provides
for the issuance of incentive stock options and nonqualified stock options to
eligible employees, officers and consultants to the Company. The options can be
granted for periods of up to ten years and generally vest ratably over a
five-year period with initial vesting occurring on the first anniversary from
the grant date and then monthly thereafter. In 1996, the Board of Directors
adopted and stockholders approved an increase in the 1995 Plan of 1,000,000
shares of common stock. In addition, the Board of Directors adopted and
stockholders approved the number of shares of common stock available for grants
under the 1995 Plan to be increased by the number of shares repurchased by the
Company from time to time under the 1993 Plan. The maximum number of shares will
increase effective January 1, 1997 and
F-16
<PAGE> 75
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
each January 1 thereafter during the term of the 1995 Plan, by an amount equal
to four percent of the total number of shares of common stock issued and
outstanding as of the close of business on December 31, of the preceding year,
not exceeding 6,000,000 shares. At December 31, 1995 and September 30, 1996,
426,051 and 1,474,726 shares, respectively, were authorized for issuance under
the 1995 Plan.
The option price for stock options granted under the 1995 Plan is
determined by a Committee consisting of two or more members of the Company's
Board of Directors. The option price for incentive stock options shall be the
fair value at the time the option is granted. In the case of options granted to
a shareholder who at the time of grant owns, directly or indirectly, stock
possessing more than 10% of total combined voting power of any class of stock of
the Company, the exercise price of the options shall not be less than 110% of
the fair value of the common stock as of the date of grant.
Information related to the 1995 Plan is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
--------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of period............... -- -- 64,500 $ 0.24
Granted................... 64,500 $ 0.24 909,618 1.88
Cancelled................. -- -- (12,500) 0.30
Exercised................. -- -- (101,222) 0.30
------ ----- -------- -----
Outstanding at end of
period.................. 64,500 $ 0.24 860,396 $ 1.97
====== ===== ======== =====
</TABLE>
The Company granted options at the per share price, which have ranged from
$0.18 to $8.00 per share, generally equal to the fair value on the date of each
grant. No options were exercisable as of December 31, 1995 and 8,400 were
exercisable at September 30, 1996. The 101,222 options exercised during the nine
months ended September 30, 1996, related to merit grants which included
immediate vesting provisions. As of December 31, 1995 and September 30, 1996,
the Company had 361,551 and 513,108, respectively, shares available for future
option grants under the 1995 Plan. The outstanding stock options at September
30, 1996 have a weighted average contractual life of 9.67 years.
Employee Stock Purchase Plan
In September 1996, the Company's Board of Directors adopted and the
stockholders approved the 1996 Employee Stock Purchase Plan (the "1996 Purchase
Plan"). The Company has reserved 250,000 shares of common stock for issuance
under the 1996 Purchase Plan. The 1996 Purchase Plan will enable employees to
purchase common stock at 85% of the lower of the fair market value of the
Company's common stock on the first or last day of each six-month purchase
period.
Stock-Based Compensation Plans
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees, and related interpretations in accounting for the
1995 Plan. Accordingly, compensation expense has been recognized for its
stock-based compensation plan for any options granted below fair value of the
common stock. In July 1996, the Company recognized approximately $25,000 in
unearned compensation for options to purchase 35,000 shares granted at exercise
prices below the fair value of the common stock. Had compensation cost for the
1995 Plan been
F-17
<PAGE> 76
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
determined based upon the fair value at the grant date for awards consistent
with the minimum value methodology prescribed under Statement of Financial
Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock-Based
Compensation," the Company's net loss would have increased by approximately
$9,000 in 1995 and net income would have decreased by approximately $18,000 for
the nine months ended September 30, 1996. The pro forma effect of adopting SFAS
123 has no effect on the Company's net income (loss) per share. In computing
these pro forma amounts the Company has assumed a risk-free interest rate equal
to approximately 8% and expected life of approximately five years. The options
granted during 1995 and for the nine months ended September 30, 1996 are
generally equal to the fair value at the time of option grant. The effects of
applying SFAS 123 in this disclosure are not indicative of future amounts. SFAS
123 does not apply to awards prior to 1995, and additional awards in future
years are anticipated.
H. RETIREMENT SAVINGS PLAN:
In 1994, the Company adopted a Retirement Savings Plan (the "Savings Plan")
for its employees, which has been qualified under Section 401(k) of the Internal
Revenue Code. Eligible employees are permitted to contribute to the Savings Plan
through payroll deductions within statutory limitations and subject to any
limitations included in the Savings Plan. To date the Company has made no
contributions to the Plan.
I. OPERATING LEASES:
The Company leases certain equipment and office space under operating
leases that expire through 1998. Future minimum annual lease commitments,
including operating costs, under the operating leases for the last three months
of 1996, and for the years 1997 and 1998 are $38,000, $158,000 and $145,000,
respectively.
Rent expense was approximately $1,000, $41,000, $124,000, $89,000 and
$135,000 from inception (June 4, 1993) through December 31, 1993 and the years
ended December 31, 1994 and 1995 and for the nine month periods ended September
30, 1995 and 1996, respectively.
J. RELATED PARTY TRANSACTIONS AND SIGNIFICANT CUSTOMERS:
In August 1995, the Company sold 1,048,801 shares of Series C Convertible
Participating Preferred Stock to an investor that subsequently became a customer
of the Company. This customer's purchases from the Company represented 38% and
20% of revenue for the year ended December 31, 1995 and the nine months ended
September 30, 1996, respectively, and this customer had an outstanding
receivable balance of approximately $266,000 and $751,000 at December 31, 1995
and September 30, 1996, respectively. Gross profit from related party
transactions approximated those realized in similar transactions with unrelated
parties. Purchases by this customer for the year ended December 31, 1995 were
made through another shareholder of the Company.
F-18
<PAGE> 77
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
The following table summarizes sales as a percentage of total revenue to
significant customers for the year ended December 31, 1995 and for the nine
months ended September 30, 1996:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1995 1996
----------------- -----------------
<S> <C> <C>
Related Party Customer......................... 38% 20%
Customer A..................................... 20 --
Customer B..................................... 26 --
Customer C..................................... -- 16
Customer D..................................... -- 10
---- --- -
Percentage of total revenue.................... 84% 46%
==== ====
</TABLE>
Export sales to Australia and the United Kingdom for the nine months ended
September 30, 1996 were approximately 16% and 6% of total revenues,
respectively. No export sales occurred in 1995.
F-19
<PAGE> 78
ENTERPRISE-WIDE CALL DISTRIBUTION
[Diagram illustrating
the deployment of the
Intelligent CallRouter
in a multi-carrier
call center]
- - Provides a software infrastructure that manages the interaction between
customers and agent or automated resources.
- - Interfaces to multiple carriers, multiple switches, VRUs, and customer
profile databases to create a distributed call processing environment.
- - Provides an enterprise-wide call management architecture that integrates
and leverages customers' current and future telecommunications technology.
- - Solutions based on open/industry standards--Microsoft Windows NT,
Powerbuilder, Microsoft SQL Server.
<PAGE> 79
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR
THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 24
Management............................ 37
Certain Transactions.................. 43
Principal and Selling Stockholders.... 45
Description of Capital Stock.......... 47
Shares Eligible for Future Sale....... 48
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 52
Change in Independent Accountants..... 52
Additional Information................ 53
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE
DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,200,000 SHARES
LOGO
COMMON STOCK
-------------------
PROSPECTUS
-------------------
ALEX. BROWN & SONS
INCORPORATED
WESSELS, ARNOLD & HENDERSON
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth various expenses in connection with the sale
and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee and the NASD filing
fee:
<TABLE>
<S> <C>
Registration fee under the Securities Act................................ $ 7,667
NASD filing fee.......................................................... 3,030
Nasdaq National Market listing fee....................................... 40,000
Legal fees and expenses.................................................. 200,000
Accounting fees and expenses............................................. 200,000
Blue Sky fees and expenses............................................... 18,000
Printing, engraving and mailing expenses................................. 100,000
Transfer agent fees and expenses......................................... 5,000
Miscellaneous............................................................ 26,303
--------
Total.......................................................... $600,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporate Law and the Company's Restated Certificate
of Incorporation and Amended and Restated By-laws, each to be effective upon the
closing of the offering, provide for indemnification of the Company's directors
and officers for liabilities and expenses that they may incur in such
capacities. In general, directors and officers are indemnified with respect to
actions taken in good faith in a manner reasonably believed to be in, or not
opposed to, the best interests of the Company, and with respect to any criminal
action or proceeding, actions that the indemnitee has no reasonable chance to
believe were unlawful. Reference is made to the Company's Restated Certificate
of Incorporation and Amended and Restated By-laws filed as Exhibits 3.2 and 3.4
hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Company has issued the following
securities, none of which have been registered under the Securities Act of 1933,
as amended (the "Act"):
(a) On September 30, 1993, the Company issued an aggregate of
3,300,000 shares of Series A Convertible Participating Preferred Stock for
aggregate consideration of $3,300,000 in a private venture capital
financing, at a price of $1.00 per share, to Matrix Partners III, L.P.,
Sigma Partners II, L.P., Sigma Associates II, L.P., Atlas Venture Fund II,
L.P., Aspect Telecommunications Corporation, Steven Finn and Anthony J.
Medaglia, Jr.
(b) On December 3, 1993, the Company issued 2,000 shares of Series A
Convertible Participating Preferred Stock at a price of $1.00 per share to
Michael Dobbins.
(c) On January 5, 1994, the Company issued 410,250 shares of
restricted Common Stock to John C. Thibault, President and Chief Executive
Officer, at a price per share of $0.10.
(d) On July 29, 1994, the Company issued to Alexander d'Arbeloff
100,000 shares of Series A Convertible Participating Preferred Stock at a
price per share of $1.00.
(e) On July 29, 1994, the Company issued an aggregate of 2,604,286
shares of Series B Convertible Participating Preferred Stock for an
aggregate consideration of $4,557,500 in a private venture capital
financing, at a price of $1.75 per share, to New Enterprise Associates VI,
II-1
<PAGE> 81
Limited Partnership, Matrix Partners III, L.P, Sigma Partners II, L.P,
Sigma Associates II, L.P, Atlas Venture Fund II, L.P., Aspect
Telecommunications Corporation, Alexander d'Arbeloff, Steven Finn, Anthony
J. Medaglia, Jr., G. Wayne Andrews, John C. Thibault and Steven Webber.
(f) On August 9, 1995, the Company issued an aggregate of 1,712,329
shares of Series C Convertible Participating Preferred Stock for an
aggregate consideration of $4,000,000 in a private venture capital
financing, at a price of $2.336 per share, to Fidelity Ventures Limited,
Matrix Partners III, L.P., Sigma Partners II, L.P., Sigma Associates II,
L.P., Atlas Venture Fund II, L.P., New Enterprise Associates VI, Limited
Partnership, Alexander d'Arbeloff, Steven Finn, Anthony J. Medaglia, Jr.
(g) On January 24, 1996, the Company sold an aggregate of 70,000
shares of Series C Convertible Participating Preferred Stock to certain
executive officers and other employees of the Company for an aggregate
consideration of $164,000, at a purchase price of $2.336 per share.
(h) Between September 29, 1993 and September 30, 1996, the Company (i)
sold an aggregate of 1,155,302 shares of Common Stock to employees and
directors of the Company pursuant to the 1993 Restricted Stock Purchase
Plan and (ii) granted options to purchase an aggregate of 967,188 shares of
Common Stock to employees of the Company pursuant to the Company's 1995
Stock Option Plan.
No underwriters were involved in any of the foregoing transactions. Such
sales of stock and options were made in reliance upon an exemption from the
registration provisions of the Act set forth in Section 4(2) thereof relative to
sales by an issuer not involving a public offering or the rules and regulations
thereunder, or, in the case of certain shares of Common Stock and options to
purchase Common Stock, Rule 701 of the Act. All of the foregoing securities are
deemed restricted securities for purposes of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. The following is a list of exhibits filed as part of the
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- ---------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of the Company, as amended.
*3.2 Form of Amended and Restated Certificate of Incorporation of the Company
*3.3 By-Laws of the Company.
*3.4 Form of By-Laws of the Company, as amended and restated.
*4.1 Specimen stock certificate representing the shares of Common Stock.
*5.1 Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation, as to the
legality of the securities being registered.
*10.1 Stock Purchase Agreement between the Company and the Investors named therein,
dated August 9, 1995.
*10.2 Amended and Restated Stockholders Agreement between the Company and certain
stockholders of the Company, dated August 9, 1995.
*10.3 Amended and Restated Founders Registration Rights Agreement between the Company,
G. Wayne Andrews, John C. Thibault and Steven Webber.
+*10.4 Development/License Agreement between the Company and DANAR Corporation, dated
March 4, 1996.
+*10.5 Software License and Technical Support Agreement between the Company and MCI
Telecommunications Corporation, dated as of June 17, 1996.
+*10.6 Software License and Distribution Agreement between the Company and Optus Systems
PTY Ltd. dated as of March 29, 1996.
*10.7 Office lease by and between Nationwide Life Insurance Company and the Company,
dated as of November 22, 1996.
</TABLE>
II-2
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- ---------------------------------------------------------------------------------
<C> <S>
*10.8 Loan Modification Agreement between the Company and Silicon Valley Bank, dated
September 11, 1996.
*10.9 Letter Agreement between Silicon Valley Bank and the Company, dated September 11,
1996.
*10.10 Letter Agreement between Silicon Valley Bank and the Company, dated May 1, 1995.
*10.11 Letter Agreement between Silicon Valley Bank and the Company, dated May 18, 1994.
*10.12 Promissory Note executed by the Company in favor of Silicon Valley Bank, dated
March 1, 1996.
*10.13 Executive Change in Control Agreement between the Company and Timothy J. Allen,
dated September 26, 1996.
*10.14 Executive Change in Control Agreement between the Company and G. Wayne Andrews,
dated September 26, 1996.
*10.15 Executive Change in Control Agreement between the Company and John C. Thibault,
dated September 26, 1996.
*10.16 Executive Change in Control Agreement between the Company and Louis J. Volpe,
dated September 26, 1996.
*10.17 Executive Change in Control Agreement between the Company and Steven H. Webber,
dated September 26, 1996.
*10.18 GeoTel Communications Corporation 1995 Stock Option Plan.
*10.19 GeoTel Communications Corporation 1993 Restricted Stock Purchase Plan.
*10.20 GeoTel Communications Corporation 1996 Employee Stock Purchase Plan.
*11.1 Statement Regarding Computation of Net Income (loss) Per Common and Common
Equivalent Share.
16.1 Letter regarding change in certifying accountant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Arthur Andersen LLP.
*23.3 Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in
Exhibit 5.1).
*24.1 Power of Attorney
*27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
+ Confidential Treatment Requested.
(b) Financial Statement Schedules. The financial statement schedules are
not included with this Registration Statement as they are either not applicable
or the information is included in the Financial Statements.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Restated Certificate of Incorporation and Amended and
Restated Bylaws of the Registrant and the laws of the State of Delaware, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being
II-3
<PAGE> 83
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Boston, Commonwealth of Massachusetts on the 5th day of November, 1996.
GEOTEL COMMUNICATIONS CORPORATION
By:/s/ John C. Thibault
------------------------------------
John C. Thibault
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ---------------------------------------- -----------------
<S> <C> <C>
/s/ John C. Thibault President, Chief Executive Officer and November 5, 1996
- ------------------------------ Director (principal executive officer)
John C. Thibault
/s/ Timothy J. Allen Vice President of Finance, Chief November 5, 1996
- ------------------------------ Financial Officer, Treasurer and
Timothy J. Allen Assistant Secretary (principal
accounting and financial officer)
* Director November 5, 1996
- ------------------------------
G. Wayne Andrews
* Director November 5, 1996
- ------------------------------
Alexander V. d'Arbeloff
* Director November 5, 1996
- ------------------------------
Gardner C. Hendrie
* Director November 5, 1996
- ------------------------------
W. Michael Humphreys
</TABLE>
*By: /s/ John C. Thibault
-------------------------------------
John C. Thibault
Attorney-in-fact
II-5
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- ---------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of the Company, as amended.
*3.2 Form of Amended and Restated Certificate of Incorporation of the Company
*3.3 By-Laws of the Company.
*3.4 Form of By-Laws of the Company, as amended and restated.
*4.1 Specimen stock certificate representing the shares of Common Stock.
*5.1 Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation, as to the
legality of the securities being registered.
*10.1 Stock Purchase Agreement between the Company and the Investors named therein,
dated August 9, 1995.
*10.2 Amended and Restated Stockholders Agreement between the Company and certain
stockholders of the Company, dated August 9, 1995.
*10.3 Amended and Restated Founders Registration Rights Agreement between the Company,
G. Wayne Andrews, John C. Thibault and Steven Webber.
+*10.4 Development/License Agreement between the Company and DANAR Corporation, dated
March 4, 1996.
+*10.5 Software License and Technical Support Agreement between the Company and MCI
Telecommunications Corporation, dated as of June 17, 1996.
+*10.6 Software License and Distribution Agreement between the Company and Optus Systems
PTY Ltd. dated as of March 29, 1996.
*10.7 Office lease by and between Nationwide Life Insurance Company and the Company,
dated as of November 22, 1996.
*10.8 Loan Modification Agreement between the Company and Silicon Valley Bank, dated
September 11, 1996.
*10.9 Letter Agreement between Silicon Valley Bank and the Company, dated September 11,
1996.
*10.10 Letter Agreement between Silicon Valley Bank and the Company, dated May 1, 1995.
*10.11 Letter Agreement between Silicon Valley Bank and the Company, dated May 18, 1994.
*10.12 Promissory Note executed by the Company in favor of Silicon Valley Bank, dated
March 1, 1996.
*10.13 Executive Change in Control Agreement between the Company and Timothy J. Allen,
dated September 26, 1996.
*10.14 Executive Change in Control Agreement between the Company and G. Wayne Andrews,
dated September 26, 1996.
*10.15 Executive Change in Control Agreement between the Company and John C. Thibault,
dated September 26, 1996.
*10.16 Executive Change in Control Agreement between the Company and Louis J. Volpe,
dated September 26, 1996.
*10.17 Executive Change in Control Agreement between the Company and Steven H. Webber,
dated September 26, 1996.
*10.18 GeoTel Communications Corporation 1995 Stock Option Plan.
*10.19 GeoTel Communications Corporation 1993 Restricted Stock Purchase Plan.
*10.20 GeoTel Communications Corporation 1996 Employee Stock Purchase Plan.
*11.1 Statement Regarding Computation of Net Income (loss) Per Common and Common
Equivalent Share.
16.1 Letter regarding change in certifying accountant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in
Exhibit 5.1).
*24.1 Power of Attorney.
*27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
+ Confidential Treatment Requested.
<PAGE> 1
HALE AND DORR
DRAFT OF 10/31/96
2,200,000 Shares
GEOTEL COMMUNICATIONS CORPORATION
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
November ____, 1996
Alex. Brown & Sons Incorporated
Wessels, Arnold & Henderson, L.L.C.
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Gentlemen:
GeoTel Communications Corporation, a Delaware corporation (the
"Company"), proposes to sell to the several underwriters (the
"Underwriters") named in Schedule I hereto for whom you are acting as
representatives (the "Representatives") an aggregate of 2,200,000
shares of the Company's Common Stock, $.01 par value (the "Firm
Shares"). The respective amounts of the Firm Shares to be so purchased
by the several Underwriters are set forth opposite their names in
Schedule I hereto. The Company and certain shareholders of the Company
(the "Selling Shareholders") also propose to sell at the Underwriters'
option an aggregate of up to 330,000 additional shares of the Company's
Common Stock (the "Option Shares") as set forth below. The maximum
number of Option Shares to be sold by the Company and the Selling
Shareholders are set forth opposite their names on Schedule II hereto.
The Company and the Selling Shareholders are sometimes referred to
herein collectively as the "Sellers."
As the Representatives, you have advised the Company and the
Selling Shareholders (a) that you are authorized to enter into this
Agreement on behalf of the several Underwriters, and (b) that the
several Underwriters are willing, acting severally and not jointly, to
purchase the numbers of Firm Shares set forth opposite their respective
names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part
for the accounts of the
<PAGE> 2
several Underwriters. The Firm Shares and the Option Shares
(to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
In consideration of the mutual agreements contained herein and of
the interests of the parties in the transactions contemplated hereby,
the parties hereto agree as follows:
1. Representations and Warranties of the Company and the
Selling Shareholders.
(a) The Company represents and warrants as follows:
(i) A registration statement on Form S-1 (File No.
333-13263) with respect to the Shares has been carefully prepared
by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the Rules and
Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been
filed with the Commission. Copies of such registration statement,
including any amendments thereto, the preliminary prospectuses
(meeting the requirements of the Rules and Regulations) contained
therein and the exhibits, financial statements and schedules, as
finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any
registration statement filed by the Company pursuant to Rule
462(b) of the Act, herein referred to as the "Registration
Statement," which shall be deemed to include all information
omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, has been declared effective by the
Commission under the Act and no post-effective amendment to the
Registration Statement has been filed as of the date of this
Agreement. For purposes of this Agreement, the term "Prospectus"
means (a) the form of prospectus first filed with the Commission
pursuant to Rule 424(b) or (b) the last preliminary prospectus
included in the Registration Statement filed prior to the time it
becomes effective or filed pursuant to Rule 424(a) under the Act
that is delivered by the Company to the Underwriters for delivery
to purchasers of the Shares, together with the term sheet or
abbreviated term sheet filed with the Commission pursuant to Rule
424(b)(7) under the Act. Each preliminary prospectus included in
the Registration Statement prior to the time it becomes effective
is herein referred to as a "Preliminary Prospectus."
(ii) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own or
lease its properties and conduct its
-2-
<PAGE> 3
business as described in the Registration Statement. The Company
is duly qualified to transact business in all jurisdictions in
which the conduct of its business requires such qualification,
except where the failure so to qualify would not have a material
adverse effect on the earnings, business, management, properties,
assets, operations or condition (financial or otherwise) of the
Company. There is no corporation, partnership, joint venture or
other entity in which the Company has, directly or indirectly, any
equity interest.
(iii) The outstanding shares of Common Stock of the
Company, including all shares to be sold by the Selling
Shareholders, have been duly authorized and validly issued and are
fully paid and non-assessable; the portion of the Shares to be
issued and sold by the Company have been duly authorized and when
issued and paid for as contemplated herein will be validly issued,
fully paid and non-assessable; and no preemptive rights of
shareholders exist with respect to any of the Shares or the issue
and sale thereof. Neither the filing of the Registration Statement
nor the offering or sale of the Shares as contemplated by this
Agreement gives rise to any rights, other than those which have
been waived or satisfied, for or relating to the registration of
any shares of Common Stock.
(iv) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct as of the
dates indicated in the information included under such caption.
All of the Shares conform to the description thereof contained in
the Registration Statement. The form of certificates for the
Shares conforms to the corporate law of the jurisdiction of the
Company's incorporation.
(v) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed
offering of the Shares nor instituted proceedings for that
purpose. The Registration Statement contains, and the Prospectus
and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and in all
respects conform or will conform, as the case may be, to the
requirements of, the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain,
and will not contain, any untrue statement of a material fact and
do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading. The Prospectus and any amendments and supplements
thereto do not contain, and will not contain, any untrue statement
of material fact and do not omit, and will not omit, to state
-3-
<PAGE> 4
any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however,
that the Company makes no representations or warranties as to
information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement,
in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter
through the Representatives specifically for use in the
preparation thereof.
(vi) The financial statements of the Company, together
with related notes as set forth in the Registration Statement,
present fairly the financial position and the results of
operations and cash flows of the Company at the indicated dates
and for the indicated periods. Such financial statements have been
prepared in accordance with generally accepted accounting
principles, consistently applied throughout the periods involved,
and all adjustments necessary for a fair presentation of results
for such periods have been made. The summary financial and
statistical data included in the Registration Statement presents
fairly the information shown therein and such data has been
compiled on a basis consistent with the financial statements
presented therein and the books and records of the Company.
(vii) Each of Coopers & Lybrand L.L.C. and Arthur
Andersen LLP, who have certified certain of the financial
statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the
Act and the Rules and Regulations.
(viii) There is no action, suit, claim or proceeding
pending or, to the knowledge of the Company, threatened against
the Company before any court or administrative agency or otherwise
which if determined adversely to the Company might result in any
material adverse change in the earnings, business, management,
properties, assets, operations or condition (financial or
otherwise) of the Company or prevent the consummation of the
transactions contemplated hereby, except as set forth in the
Registration Statement.
(ix) The Company has good and marketable title to all of
the properties and assets reflected in the financial statements
(or as described in the Registration Statement) hereinabove
described, subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except those reflected in such financial
statements (or as described in the Registration Statement) or
which are not material in amount.
-4-
<PAGE> 5
The Company occupies its leased properties under valid and binding
leases conforming to the description thereof set forth in the
Registration Statement.
(x) The Company has filed all federal, state, local and
foreign income tax returns which has been required to be filed and
has paid all taxes indicated by said returns and all assessments
received by it to the extent that such taxes have become due,
except for amounts which are not material to the financial
condition of the Company. All tax liabilities have been adequately
provided for in the financial statements of the Company, except
for amounts which are not material to the financial condition of
the Company.
(xi) Since the respective dates as of which information
is given in the Registration Statement, as it may be amended or
supplemented, there has not been any material adverse change or
any development involving a prospective material adverse change in
or affecting the earnings, business, management, properties,
assets, operations or condition (financial or otherwise) of the
Company, whether or not occurring in the ordinary course of
business, and there has not been any material transaction entered
into by the Company or any material transaction that is probable
of being entered into by the Company, other than transactions in
the ordinary course of business and changes and transactions
described in the Registration Statement, as it may be amended or
supplemented. The Company does not have any material contingent
obligations which are not disclosed in the Company's financial
statements which are included in the Registration Statement.
(xii) The Company is not and with the giving of notice
or lapse of time, or both, will not be in violation of or in
default under its Certificate of Incorporation or By-laws or under
any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it or any of its
properties is bound and which default is of material significance
in respect of the business, management, properties, assets,
operations or condition (financial or otherwise) of the Company.
The execution and delivery of this Agreement and the consummation
of the transactions herein contemplated and the fulfillment of the
terms hereof will not conflict with or result in a breach of any
of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust or other agreement or
instrument to which the Company is a party, or of the Certificate
of Incorporation or Bylaws of the Company or any order, rule or
regulation
-5-
<PAGE> 6
applicable to the Company of any court or of any regulatory body
or administrative agency or other governmental body having
jurisdiction.
(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection
with the execution and delivery by the Company of this Agreement
and the consummation of the transactions herein contemplated
(except such additional steps as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for
public offering by the Underwriters under state securities or Blue
Sky laws) has been obtained or made and is in full force and
effect.
(xiv) The Company holds all material licenses,
certificates and permits from governmental authorities which are
necessary to the conduct of its business; and, to the Company's
knowledge, the Company has not infringed any patents, patent
rights, trade names, trademarks or copyrights, which infringement
is material to the business of the Company.
(xv) Neither the Company, nor to the Company's
knowledge, any of its affiliates, has taken or may take, directly
or indirectly, any action designed to cause or result in, or which
has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the
shares of Common Stock to facilitate the sale or resale of the
Shares.
(xvi) The Company is not, and after giving effect to the
issuance of the Shares hereunder will not be, an "investment
company" within the meaning of such term under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules
and regulations of the Commission thereunder.
(xvii) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances
that (A) transactions are executed in accordance with management's
general or specific authorization; (B) transactions are recorded
as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is
permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for
-6-
<PAGE> 7
assets is compared with existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(xviii) The Company carries, or is covered by, insurance
in such amounts and covering such risks as is adequate for the
conduct of its business and the value of its properties and as is
customary for companies engaged in similar industries.
(xix) The Company confirms as of the date hereof that it
is in compliance with all provisions of Section 1 of Laws of
Florida, Chapter 92-198, An Act Relating to Disclosure of doing
Business with Cuba, and the Company further agrees that if it
commences engaging in business with the government of Cuba or with
any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance
(the "Department"), whichever date is later, or if the information
reported or incorporated by reference in the Prospectus, if any,
concerning the Company's business with Cuba or with any person or
affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as
appropriate, in a form acceptable to the Department.
(xx) The Company owns or possesses adequate licenses or
other rights to use all patents, patent applications, trademarks,
trademark applications, service marks, service mark applications,
trade names, copyrights, trade secrets and know-how or other
information (collectively "Intellectual Property") described in
the Prospectus as owned or used by it or which is necessary for
the conduct of its business as now conducted or proposed to be
conducted as described in the Prospectus. To the Company's
knowledge, none of the Company's products, services or
Intellectual Property infringes or conflicts with the rights or
claims of others. The Company is not aware of any infringement of
any of the Company's Intellectual Property rights by any third
party which could have a material adverse effect on the earnings,
business, management, properties, assets, operations or condition
(financial or otherwise) of the Company.
(xxi) Except as otherwise set forth in the Prospectus,
there are no material legal, governmental, regulatory or
administrative proceedings pending to which the Company is a party
or to which any of its property is subject and, to the Company's
knowledge, no such proceedings are threatened or contemplated.
-7-
<PAGE> 8
(xxii) No contract or document of a character required
to be described in the Registration Statement or the Prospectus or
to be filed as an exhibit to the Registration Statement is not so
described or filed as required.
(b) Each of the Selling Shareholders severally
represents and warrants as follows:
(i) Such Selling Shareholder now has and at any Option
Closing Date (as such date is hereinafter defined) will have good
and marketable title to any Option Shares to be sold by such
Selling Shareholder, free and clear of any liens, encumbrances,
equities and claims, and full right, power and authority to effect
the sale and delivery of such Option Shares; and upon the delivery
of and payment for such Option Shares pursuant to this Agreement,
the Underwriters will acquire good and marketable title thereto,
free and clear of any liens, encumbrances, equities and claims.
(ii) Such Selling Shareholder has full right, power and
authority to execute and deliver this Agreement and the Power of
Attorney and Custodian Agreement referred to below and to perform
such Selling Shareholder's obligations under such documents. The
execution and delivery of this Agreement, the Power of Attorney
and the Custodian Agreement, the consummation by such Selling
Shareholder of the transactions herein and therein contemplated
and the fulfillment by such Selling Shareholder of the terms
hereof and thereof will not require any consent, approval,
authorization or order of or declaration or filing with any court,
regulatory body, administrative agency or other governmental body
(except as may be required under the Act, state securities laws or
Blue Sky laws) and will not result in a breach of any of the terms
and provisions of, or constitute a default under, organizational
documents of such Selling Shareholder, if not an individual, or
any indenture, mortgage, deed of trust or other agreement or
instrument to which such Selling Shareholder is a party, or of any
order, rule or regulation applicable to such Selling Shareholder
of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction.
(iii) Such Selling Shareholder has not taken and will
not take, directly or indirectly, any action designed to, or which
has constituted, or which might reasonably be expected to cause or
result in the stabilization or manipulation of the price of the
Common Stock of the Company and, other than as permitted by the
Act, the Selling
-8-
<PAGE> 9
Shareholder will not distribute any prospectus or other offering
material in connection with the offering of the Shares.
(iv) Without having undertaken to determine
independently the accuracy or completeness of either the
representations and warranties of the Company contained herein or
the information contained in the Registration Statement, such
Selling Shareholder has no reason to believe that the
representations and warranties of the Company contained in this
Section 1 are not true and correct, is familiar with the
Registration Statement and has no knowledge of any material fact,
condition or information not disclosed in the Registration
Statement which has adversely affected or may reasonably be
expected to adversely affect the business of the Company; and the
sale of any Option Shares by such Selling Shareholder pursuant
hereto is not prompted by any information concerning the Company
which is not set forth in the Registration Statement. The
information pertaining to such Selling Shareholder under the
caption "Principal and Selling Stockholders" in the Prospectus is
complete and accurate in all material respects.
2. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein
set forth, the Company agrees to sell to the Underwriters and each
Underwriter agrees, severally and not jointly, to purchase, at a
price of $_____ per share, the number of Firm Shares set forth
opposite the name of each Underwriter in Schedule I hereof,
subject to adjustment in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be
made in New York Clearing House funds by certified or bank
cashier's checks drawn to the order of the Company against
delivery of certificates therefor to the Representatives for the
several accounts of the Underwriters. Such payment and delivery
are to be made at the offices of Alex. Brown & Sons Incorporated,
135 East Baltimore Street, Baltimore, Maryland, at 10:00 a.m.,
Baltimore time, on the third business day after the date of this
Agreement or at such other time and date not later than five
business days thereafter as you and the Company shall agree upon,
such time and date being herein referred to as the "Closing Date."
(As used herein, "business day" means a day on which the New York
Stock Exchange is open for trading and on which banks in New York
are open for business and not permitted by law or executive order
to be closed.) The certificates for the Firm Shares will be
delivered in such
-9-
<PAGE> 10
denominations and in such registrations as the Representatives
request in writing not later than the second full business day
prior to the Closing Date, and will be made available for
inspection by the Representatives at least one business day prior
to the Closing Date.
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and
conditions herein set forth, the Company and the Selling
Shareholders listed on Schedule II hereto hereby grant an option
to the several Underwriters to purchase the Option Shares at the
price per share as set forth in the first paragraph of this
Section 2. The maximum number of Option Shares to be sold by the
Company and such Selling Shareholders is set forth opposite their
respective names on Schedule II hereto. The option granted hereby
may be exercised in whole or in part by giving written notice (i)
at any time before the Closing Date and (ii) only once thereafter
within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company and
the Custodian setting forth the number of Option Shares as to
which the several Underwriters are exercising the option, the
names and denominations in which the Option Shares are to be
registered and the time and date at which such certificates are to
be delivered. If the option granted hereby is exercised in part,
the respective number of Option Shares to be sold by the Company
and each of the Selling Shareholders listed in Schedule II hereto
shall be determined on a pro rata basis in accordance with the
percentages set forth opposite their names on Schedule II hereto,
adjusted by you in such manner as to avoid fractional shares. The
time and date at which certificates for Option Shares are to be
delivered shall be determined by the Representatives but shall not
be earlier than three nor later than 10 full business days after
the exercise of such option, nor in any event prior to the Closing
Date (such time and date being herein referred to as the "Option
Closing Date"). If the date of exercise of the option is three or
more days before the Closing Date, the notice of exercise shall
set the Closing Date as the Option Closing Date. The number of
Option Shares to be purchased by each Underwriter shall be in the
same proportion to the total number of Option Shares being
purchased as the number of Firm Shares being purchased by such
Underwriter bears to the total number of Firm Shares, adjusted by
you in such manner as to avoid fractional shares. The option with
respect to the Option Shares granted hereunder may be exercised
only to cover over-allotments in the sale of the Firm Shares by
the Underwriters. You, as Representatives of the several
Underwriters, may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the
Company. To the extent, if any, that
-10-
<PAGE> 11
the option is exercised, payment for the Option Shares shall be
made on the Option Closing Date in New York Clearing House funds
by certified or bank cashier's check drawn to the order of the
Company for the Option Shares to be sold by it and to the order of
"GeoTel Communications Corporation, as Custodian" for the Option
Shares to be sold by the Selling Shareholders listed on Schedule
II against delivery of certificates therefor at the offices of
Alex. Brown & Sons Incorporated, 135 East Baltimore Street,
Baltimore, Maryland.
(d) Certificates in negotiable form for the total number of
the Option Shares to be sold hereunder by the Selling Shareholders
have been placed in custody with the Company as custodian (the
"Custodian") pursuant to the Custodian Agreement executed by each
Selling Shareholder for delivery of any Option Shares to be sold
hereunder by the Selling Shareholders. Each of the Selling
Shareholders specifically agrees that any Option Shares
represented by the certificates held in custody for the Selling
Shareholders under the Custodian Agreement are subject to the
interests of the Underwriters hereunder, that the arrangements
made by the Selling Shareholders for such custody are to that
extent irrevocable, and that the obligations of the Selling
Shareholders hereunder shall not be terminable by any act or deed
of the Selling Shareholders (or by any other person, firm or
corporation including the Company, the Custodian or the
Underwriters) or by operation of law (including the death of an
individual Selling Shareholder or the dissolution of a corporate
Selling Shareholder) or by the occurrence of any other event or
events, except as set forth in the Custodian Agreement. If any
such event should occur prior to the delivery to the Underwriters
of the Option Shares hereunder, certificates for the Option Shares
shall be delivered by the Custodian in accordance with the terms
and conditions of this Agreement as if such event has not
occurred. The Custodian is authorized to receive and acknowledge
receipt of the proceeds of sale of the Option Shares held by it
against delivery of such Option Shares.
3. Offering by the Underwriters.
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives
deem it advisable to do so. The Firm Shares are to be initially
offered to the public at the initial public offering price set
forth in the Prospectus. The Representatives may from time to time
thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are
purchased
-11-
<PAGE> 12
pursuant to Section 2 hereof, the Underwriters will offer them to
the public on the foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of
the Shares in accordance with a Master Agreement Among
Underwriters entered into by you and the several other
Underwriters.
4. Covenants of the Company and the Selling Shareholders.
(a) The Company covenants and agrees with the several
Underwriters that:
(i) The Company will (A) use its best efforts to cause
the Registration Statement to become effective or, if the
procedure in Rule 430A of the Rules and Regulations is followed,
to prepare and timely file with the Commission under Rule 424(b)
of the Rules and Regulations a Prospectus in a form approved by
the Representatives containing information previously omitted at
the time of effectiveness of the Registration Statement in
reliance on Rule 430A of the Rules and Regulations, and (B) not
file any amendment to the Registration Statement or supplement to
the Prospectus of which the Representatives shall not previously
have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which
is not in compliance with the Rules and Regulations.
(ii) The Company will advise the Representatives
promptly (A) when the Registration Statement or any post-effective
amendment thereto shall have become effective, (B) of receipt of
any comments from the Commission, (C) of any request of the
Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information,
and (D) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
use of the Prospectus or of the institution of any proceedings for
that purpose. The Company will use its best efforts to prevent the
issuance of any such stop order preventing or suspending the use
of the Prospectus and to obtain as soon as possible the lifting
thereof, if issued.
(iii) The Company will cooperate with the
Representatives in endeavoring to qualify the Shares for sale
under the securities laws of such jurisdictions as the
Representatives may reasonably have designated in writing and will
make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose,
provided the Company shall not be required to qualify as a foreign
corporation or to file a general
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<PAGE> 13
consent to service of process in any jurisdiction where it is not
now so qualified or required to file such a consent. The Company
will, from time to time, prepare and file such statements, reports
and other documents as are or may be required to continue such
qualifications in effect for so long a period as the
Representatives may reasonably request for distribution of the
Shares.
(iv) The Company will deliver to, or upon the order of,
the Representatives, from time to time, as many copies of any
Preliminary Prospectus as the Representatives may reasonably
request. The Company will deliver to, or upon the order of, the
Representatives during the period when delivery of a Prospectus is
required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the
Representatives may reasonably request. The Company will deliver
to the Representatives, at or before the Closing Date, four signed
copies of the Registration Statement and all amendments thereto,
including all exhibits filed therewith, and will deliver to the
Representatives such number of copies of the Registration
Statement (including such number of copies of the exhibits filed
therewith that may reasonably be requested), and of all amendments
thereto, as the Representatives may reasonably request.
(v) The Company will comply with the Act and the Rules
and Regulations, and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations of the
Commission thereunder, so as to permit the completion of the
distribution of the Shares as contemplated in this Agreement and
the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any
event shall occur as a result of which, in the judgment of the
Company or in the reasonable opinion of the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order
to make the statements therein, in the light of the circumstances
existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company
promptly will either (A) prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement
to the Prospectus or (B) prepare and file with the Commission an
appropriate filing under the Exchange Act which shall be
incorporated by reference in the Prospectus, so that the
Prospectus as so amended or supplemented will not, in the light of
the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with the law.
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<PAGE> 14
(vi) The Company will make generally available to its
security holders, as soon as it is practicable to do so, but in
any event not later than 15 months after the effective date of the
Registration Statement, an earnings statement (which need not be
audited) in reasonable detail, covering a period of at least 12
consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules
and Regulations and will advise you in writing when such statement
has been so made available.
(vii) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual
reports and copies of all other documents, reports and information
furnished by the Company to its shareholders or filed with any
securities exchange pursuant to the requirements of such exchange
or with the Commission pursuant to the Act or the Exchange Act.
The Company will deliver to the Representatives similar reports
with respect to significant subsidiaries, as that term is defined
in the Rules and Regulations, which are not consolidated in the
Company's financial statements.
(viii) No offering, sale, short sale or other disposition
of any shares of Common Stock of the Company or other securities
convertible into or exchangeable or exercisable for shares of
Common Stock or derivative of Common Stock (or agreement for such)
will be made for a period of 180 days after the date of this
Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of Alex. Brown & Sons
Incorporated, except that the Company may, without such consent,
(A) issue shares upon the exercise of options outstanding on the
date of this Agreement issued pursuant to its 1995 Stock Option
Plan, (B) issue shares of Common Stock upon the exercise of stock
options and purchase rights granted after the date hereof under
the 1995 Stock Option Plan and the 1996 Employee Stock Purchase
Plan and (C) issue shares of Common Stock in respect of the
Company's acquisition of the stock or assets of another entity so
long as the shares so issued by the Company may not be resold
until 180 days after the date of this Agreement. The Company shall
not file with the Commission any registration statements
(including without limitation any registration statements on Form
S-8 or any successor form) with respect to any stock option, stock
purchase, restricted stock or other similar plans until at least
90 days following the date of this Agreement.
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<PAGE> 15
(ix) The Company will use its best efforts to have its
Common Stock authorized for inclusion on the Nasdaq National
Market.
(x) The Company has caused each officer and director and
specific shareholders of the Company to furnish to you, on or
prior to the date of this Agreement, a letter or letters, in form
and substance satisfactory to the Underwriters, pursuant to which
each such person shall agree not to offer, sell, sell short or
otherwise dispose of any shares of Common Stock of the Company or
other capital stock of the Company, or any other securities
convertible, exchangeable or exercisable for Common Stock or
derivative of Common Stock owned by such person or request the
registration for the offer or sale of any of the foregoing (or as
to which such person has the right to direct the disposition of)
for a period of 180 days after the date of this Agreement,
directly or indirectly, except with the prior written consent of
Alex. Brown & Sons Incorporated ("Lockup Agreements").
(xi) The Company shall apply the net proceeds of its sale
of the Shares as set forth in the Prospectus and shall file such
reports with the Commission with respect to the sale of the Shares
and the application of the proceeds therefrom as may be required
in accordance with Rule 463 under the Act.
(xii) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in
such a manner as would require the Company to register as an
investment company under the 1940 Act.
(xiii) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company,
a registrar for the Common Stock.
(xiv) The Company will not take, directly or indirectly,
any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization
or manipulation of the price of any securities of the Company.
(b) Each of the Selling Shareholders covenants and
agrees with the several Underwriters that:
(i) No offering, sale, short sale or other disposition
of any shares of Common Stock of the Company or other capital
stock of the Company or other securities convertible,
exchangeable or exercisable for Common Stock or derivative of
Common Stock owned by the Selling Shareholder or request the
registration for the
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<PAGE> 16
offer or sale of any of the foregoing (or as to which the
Selling Shareholder has the right to direct the disposition
of) will be made for a period of 180 days after the date of
this Agreement, directly or indirectly, by such Selling
Shareholder otherwise than hereunder or with the prior
written consent of Alex.
Brown & Sons Incorporated.
(ii) In order to document the Underwriters' compliance
with the reporting and withholding provisions of the Tax
Equity and Fiscal Responsibility Act of 1982 and the Interest
and Dividend Tax Compliance Act of 1983 with respect to the
transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to you prior to or at the
Closing Date a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or
statement specified by Treasury Department regulations in
lieu thereof).
(iii) Such Selling Shareholder will not take, directly or
indirectly, any action designed to cause or result in, or
that has constituted or might reasonably be expected to
constitute, the stabilization or manipulation of the price of
any securities of the Company.
5. Costs and Expenses.
The Company will pay all costs, expenses and fees incident to
the performance of the obligations of the Sellers under this
Agreement, including, without limiting the generality of the
foregoing, the following: accounting fees of the Company; the fees
and disbursements of counsel for the Company and the Selling
Shareholders; the cost of printing and delivering to, or as
requested by, the Underwriters copies of the Registration
Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, the Underwriters'
Invitation Letter, the Listing Application, the Custodian
Agreement and related Power of Attorney, the Blue Sky Survey and
any supplements or amendments thereto; the filing fees of the
Commission; the filing fees and expenses (including legal fees and
disbursements) incident to securing any required review by the
NASD of the terms of the sale of the Shares; the Listing Fee of
the Nasdaq National Market; and the expenses, including the fees
and disbursements of counsel for the Underwriters, incurred in
connection with the qualification of the Shares under state
securities or Blue Sky laws. To the extent, if at all, that any of
the Selling Shareholders engage special legal counsel to represent
them in connection with this offering, the fees
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<PAGE> 17
and expenses of such counsel shall be borne by such Selling
Shareholders. Any transfer taxes imposed on the sale of the Shares
to the several Underwriters will be paid by the Sellers pro rata.
The Sellers shall not, however, be required to pay for any of the
Underwriters expenses (other than those related to qualification
under NASD regulation and state securities or Blue Sky laws)
except that, if this Agreement shall not be consummated because
the conditions in Section 6 hereof are not satisfied, or because
this Agreement is terminated by the Representatives pursuant to
Section 11 hereof, or by reason of any failure, refusal or
inability on the part of the Company or the Selling Shareholders
to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on their part
to be performed, unless such failure to satisfy said condition or
to comply with said terms be due to the default or omission of any
Underwriter, then the Company shall reimburse the several
Underwriters for reasonable out-of-pocket expenses, including fees
and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Shares
or in contemplation of performing their obligations hereunder; but
the Company and the Selling Shareholders shall not in any event be
liable to any of the several Underwriters for damages on account
of loss of anticipated profits from the sale by them of the
Shares.
6. Conditions to Obligations of the Underwriters.
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on
the Option Closing Date are subject to the accuracy, as of the
Closing Date or the Option Closing Date, as the case may be, of
the representations and warranties of the Company and the Selling
Shareholders contained herein, and to the performance by the
Company and the Selling Shareholders of their covenants and
obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all
filings required by Rule 424 and Rule 430A of the Rules and
Regulations shall have been made, and any request of the
Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to
the Representatives and complied with to their reasonable
satisfaction. No stop order suspending the effectiveness of the
Registration Statement, as amended from time to time, shall have
been issued and no proceedings for that purpose shall have been
taken or, to the knowledge of the Company or the Selling
Shareholders, shall be contemplated by the Commission and no
injunction,
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<PAGE> 18
restraining order, or order of any nature by a federal or state
court of competent jurisdiction shall have been issued as of the
Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion
of Hutchins, Wheeler & Dittmar, A Professional Corporation,
counsel for the Company and the Selling Shareholders, dated the
Closing Date or the Option Closing Date, as the case may be,
addressed to the Underwriters (and stating that it may be relied
upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of
the State of Delaware, with corporate power and authority to
own or lease its properties and conduct its business as
described in the Registration Statement; and the Company is
duly qualified to transact business in each of the
jurisdictions listed on Schedule III attached hereto based
solely upon certificates from the respective Secretary of
State in such jurisdictions.
(ii) The Company has authorized and outstanding capital
stock as set forth under the caption "Capitalization" in the
Prospectus other than changes resulting from the exercise of
options outstanding as of the date of the Prospectus and
described therein; the authorized shares of the Company's
Common Stock have been duly authorized; the outstanding
shares of the Company's Common Stock, including the Option
Shares to be sold by the Selling Shareholders, have been duly
authorized and validly issued and are fully paid and
non-assessable; all of the Shares conform, in all material
respects, to the description thereof contained in the
Prospectus under the caption "Description of Capital Stock --
Common Stock"; the certificates for the Shares, assuming they
are in the form filed with the Commission, are in due and
proper form; the shares of Common Stock, including the Option
Shares, if any, to be sold by the Company pursuant to this
Agreement have been duly authorized and will be validly
issued, fully paid and non-assessable when issued and paid
for as contemplated by this Agreement; and no preemptive
rights of shareholders exist pursuant to the Company's
charter or by-laws or any agreement to which the Company is a
party with respect to any of the Shares or the issue or sale
thereof.
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<PAGE> 19
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no
outstanding securities of the Company convertible or
exchangeable into any shares of capital stock of the Company
and there are no outstanding options or warrants obligating
the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into any shares of
such stock; and except as described in the Prospectus, to the
knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or
otherwise, which has not been satisfied or effectively
waived, to require registration under the Act of any shares
of Common Stock or other securities of the Company.
(iv) We have been advised by the Commission that the
Registration Statement has become effective under the Act
and, to the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are
pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all
material respects with the requirements of the Act and the
applicable Rules and Regulations thereunder (except that such
counsel need express no opinion as to the financial
statements, schedules and other financial or statistical
information included therein).
(vi) The statements under the captions "Risk Factors --
Shares Eligible for Future Sale; Registration Rights," "Risk
Factors -- Certain Anti-Takeover Provisions Affecting
Stockholders," "Management -- Stock Plans," "Management --
Executive Incentive Program," "Management -- Limitation of
Liability; Indemnification of Directors and Officers,"
"Certain Transactions -- Certain Stock Transactions,"
"Description of Capital Stock" and "Shares Eligible for
Future Sale" in the Prospectus, insofar as such statements
constitute a summary of documents referred to therein or
matters of law, fairly and correctly summarize and present in
all material respects the information called for with respect
to such documents and matters.
(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the
Registration Statement or described in the Registration
Statement or the Prospectus which are not so filed or
described as required, and such contracts and documents
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<PAGE> 20
as are summarized in the Registration Statement or the
Prospectus are fairly summarized in all material
respects.
(viii) Such counsel knows of no material legal or
governmental proceedings pending or threatened against the
Company except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and
the consummation of the transactions herein contemplated do
not conflict with or result in a breach of any of the terms
or provisions of, or constitute a default under, the
Certificate of Incorporation or Bylaws of the Company, or any
agreement or instrument listed as an Exhibit to the
Registration Statement.
(x) This Agreement has been duly authorized,
executed and delivered by the Company.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body is necessary in
connection with the execution and delivery of this Agreement
and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by
state securities and Blue Sky laws, as to which such counsel
need express no opinion) except such as have been obtained or
made, specifying the same.
(xii) The Company is not, and will not become, as a
result of the consummation of the transactions contemplated
by this Agreement, and application of the net proceeds
therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
(xiii) Each of this Agreement, the Custodian Agreement
and the related Power of Attorney has been duly authorized,
executed and delivered by or on behalf of each of the Selling
Shareholders.
(xiv) Each Selling Shareholder has full legal right,
power and authority, and any approval required by law (other
than as required by state securities and Blue Sky laws, as to
which such counsel need express no opinion), to sell, assign,
transfer and deliver the portion of the Option Shares to be
sold by such Selling Shareholder under this Agreement.
(xv) The Custodian Agreement and the Power of
Attorney executed and delivered by each Selling
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<PAGE> 21
Shareholder are valid, binding and irrevocable instruments
legally sufficient for the purposes intended.
(xvi) The Underwriters (assuming that they are bona fide
purchasers within the meaning of the Uniform Commercial Code)
have acquired good and marketable title to the Option Shares
being sold by each Selling Shareholder on the Option Closing
Date, free and clear of all liens, encumbrances and security
interests.
In rendering such opinion, Hutchins, Wheeler & Dittmar, A
Professional Corporation, may rely as to matters governed by the
laws of states other than the Commonwealth of Massachusetts, the
Delaware General Corporation Law or federal laws on local counsel
in such jurisdictions and as to the matters set forth in
subparagraphs (xiii), (xiv) and (xv) on opinions of other counsel
representing the respective Selling Shareholders, provided that in
each case Hutchins, Wheeler & Dittmar, A Professional Corporation,
shall state that they believe that they and the Underwriters are
justified in relying on the opinions of such other counsel. In
addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that (i) the
Registration Statement, at the time it became effective under the
Act (but after giving effect to any modifications incorporated
therein pursuant to Rule 430A under the Act) and as of the Closing
Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to Rule
424(b) and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact
or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are
made, not misleading (except that such counsel need express no
view as to financial statements, schedules and other financial and
statistical information included therein). With respect to such
statement, Hutchins, Wheeler & Dittmar, A Professional
Corporation, may state that their belief is based upon the
procedures set forth therein, but is without independent check and
verification.
(c) The Representatives shall have received from Hale and
Dorr, counsel for the Underwriters, an opinion dated the Closing
Date or the Option Closing Date, as the case may be, substantially
to the effect specified in subparagraphs (ii), (iii), (iv) and
(xi) of paragraph (b) of
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<PAGE> 22
this Section 6, and that the Company is a duly organized and
validly existing corporation under the laws of the State of
Delaware. In rendering such opinion, Hale and Dorr may rely as to
all matters governed other than by the laws of the Commonwealth of
Massachusetts, the Delaware General Corporation Law or federal
laws, and as to matters relating to the Selling Shareholders, on
the opinion of counsel referred to in paragraph (b) of this
Section 6. In addition to the matters set forth above, such
opinion shall also include a statement to the effect that nothing
has come to the attention of such counsel which leads them to
believe that (i) the Registration Statement, or any amendment
thereto, as of the time it became effective under the Act (but
after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act), as of the Closing Date or
the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date,
as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary in order to
make the statements therein, in the light of the circumstances
under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules
and other financial information included therein). With respect to
such statement, Hale and Dorr may state that their belief is based
upon the procedures set forth therein, but is without independent
check and verification.
(d) The Representatives shall have received at or prior to
the Closing Date from Hale and Dorr a memorandum or summary, in
form and substance satisfactory to the Representatives, with
respect to the qualification for offering and sale by the
Underwriters of the Shares under the state securities or Blue Sky
laws of such jurisdictions as the Representatives may reasonably
have designated to the Company.
(e) You shall have received, on each of the date hereof, the
Closing Date and the Option Closing Date, as the case may be, a
letter dated the date hereof, the Closing Date or the Option
Closing Date, as the case may be, in form and substance
satisfactory to you, of each of Coopers & Lybrand L.L.C. and
Arthur Andersen LLP confirming that they are independent public
accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating that in
their opinion the financial statements and schedules examined by
them and included in the Registration Statement comply in form in
all material
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<PAGE> 23
respects with the applicable accounting requirements of the Act
and the related published Rules and Regulations; and containing
such other statements and information as is ordinarily included in
accountants' "comfort letters" to Underwriters with respect to the
financial statements and certain financial and statistical
information contained in the Registration Statement and
Prospectus.
(f) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate
or certificates of the President and Chief Executive Officer and
the Vice President, Finance and Chief Financial Officer of the
Company to the effect that, as of the Closing Date or the Option
Closing Date, as the case may be, each of them severally
represents as follows:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness
of the Registrations Statement has been issued, and no
proceedings for such purpose have been taken or are, to his
knowledge, contemplated by the Commission.
(ii) He does not know of any litigation instituted or
threatened against the Company of a character required to be
disclosed in the Registration Statement which is not so
disclosed; he does not know of any material contract required
to be filed as an exhibit to the Registration Statement which
is not so filed; and the representations and warranties of
the Company contained in Section 1 hereof are true and
correct as of the Closing Date or the Option Closing Date, as
the case may be.
(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Act have been made.
(iv) He has carefully examined the Registration
Statement and the Prospectus and, in his opinion, as of the
effective date of the Registration Statement, the statements
contained in the Registration Statement were true and correct
in all material respects, and such Registration Statement and
Prospectus did not omit to state a material fact required to
be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading, and since the effective
date of the Registration Statement, no event has occurred
which should have been set forth in a supplement to or an
amendment of the Prospectus which has not been so set forth
in such supplement or amendment.
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<PAGE> 24
(v) Since the respective dates as of which information
is given in the Registration Statement and Prospectus, there
has not been any material adverse change or any development
involving a prospective material adverse change in or
affecting the condition (financial or otherwise) of the
Company or the earnings, business, management, properties,
assets, operations or condition (financial or otherwise) of
the Company, whether or not arising in the ordinary course of
business.
(g) The Company and, in the case of any Option Closing, the
Selling Shareholders shall have furnished to the Representatives
such further certificates and documents confirming the
representations and warranties, covenants and conditions contained
herein and related matters as the Representatives may reasonably
have requested.
(h) The Firm Shares and Option Shares, if any, shall have
been approved for designation upon notice of issuance on the
Nasdaq National Market.
(i) The Lockup Agreements described in Section 4(a)(x) shall
be in full force and effect.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof
only if they are in all material respects satisfactory to the
Representatives and to Hale and Dorr, counsel for the
Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by
this Agreement to be fulfilled, the obligations of the
Underwriters hereunder may be terminated by the Representatives by
notifying the Company and the Selling Shareholders of such
termination in writing or by telegram at or prior to the Closing
Date or the Option Closing Date, as the case may be. In such
event, the Selling Shareholders, the Company and the Underwriters
shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. Conditions to the Obligations of the Sellers.
The obligations of the Sellers to sell and deliver the
portion of the Shares required to be delivered as and when
specified in this Agreement are subject to the conditions that at
the Closing Date or the Option Closing Date, as the case may be,
no stop order suspending the effectiveness of the Registration
Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
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<PAGE> 25
8. Indemnification.
(a) The Company and the Selling Shareholders, jointly and
severally, agree to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or
liabilities to which such Underwriter or any such controlling
person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, in the light of the
circumstances under which they were made; and will reimburse each
Underwriter and each such controlling person upon demand for any
legal or other expenses reasonably incurred by such Underwriter
and each such controlling person in connection with investigating
or defending any such loss, claim, damage, liability, action or
proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Shares, whether or not such
Underwriter or controlling person is a party to any such action or
proceeding; provided, however, that the Company and the Selling
Shareholders will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement, or
omission or alleged omission, made in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof;
and provided further, that the indemnification agreement contained
in this Section 8(a) with respect to any Preliminary Prospectus,
or the Prospectus after it has been amended or supplemented, shall
not inure to the benefit of any Underwriter (or any person
controlling such Underwriter) from whom the person asserting such
loss, claim, damage or liability shall have purchased Shares that
are the subject thereof if, after copies thereof have been
delivered by the Company to such Underwriter, such Underwriter
shall have failed to send or give a copy of the final Prospectus
or the Prospectus as then amended or supplemented, as the case may
be, to such person at or prior to the confirmation of said sale of
such Shares to such person, and if such loss, claim, damage or
liability would not have arisen but for such failure. In no event,
however, shall the liability of any Selling Shareholder for
indemnification under this
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<PAGE> 26
Section 8(a) exceed the proceeds received by such Selling
Shareholder from the Underwriters in the offering. This indemnity
agreement will be in addition to any liability which the Company
or the Selling Shareholders may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify
and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement, the Selling
Shareholders and each person, if any, who controls the Company or
the Selling Shareholders within the meaning of the Act, against
any losses, claims, damages or liabilities to which the Company or
any such director, officer, Selling Shareholder or controlling
person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse any
legal or other expenses reasonably incurred by the Company or any
such director, officer, Selling Shareholder or controlling person
in connection with investigating or defending any such loss,
claim, damage, liability, action or proceeding; provided, however,
that each Underwriter will be liable in each case to the extent,
but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in
the Registration Statement, any Preliminary Prospectus, the
Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company by
or through the Representatives specifically for use in the
preparation thereof. This indemnity agreement will be in addition
to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect
of which indemnity may be sought pursuant to this Section 8, such
person (the "indemnified party") shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying
party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give
notice as provided in this Section 8(c) if the party to whom
notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by
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<PAGE> 27
the failure to give such notice, but the failure to give such
notice shall not relieve the indemnifying party or parties from
any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of the provisions of
Section 8(a) or (b). In case any such proceeding shall be brought
against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory
to such indemnified party and shall pay as incurred the fees and
disbursements of such counsel related to such proceeding. In any
such proceeding, any indemnified party shall have the right to
retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay as incurred the fees
and expenses of the counsel retained by the indemnified party in
the event (i) the indemnifying party and the indemnified party
shall have mutually agreed to the retention of such counsel, (ii)
the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would
be inappropriate due to a conflict of interest between them, or
(iii) the indemnifying party shall have failed to assume the
defense and employ counsel acceptable to the indemnified party
within a reasonable period of time after notice of commencement of
the action. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified
parties. Such firm shall be designated in writing by you in the
case of parties indemnified pursuant to Section 8(a) and by the
Company and the Selling Shareholders in the case of parties
indemnified pursuant to Section 8(b). The indemnifying party shall
not be liable for any settlement of any proceeding effected
without its written consent but, if settled with such consent or
if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior
written consent of the indemnified party, settle or compromise or
consent to the entry of any judgment in any pending or threatened
claim, action or proceeding of which indemnification may be sought
hereunder (whether or not any indemnified party is an actual or
potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional
release of
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<PAGE> 28
each indemnified party from all liability arising out of such
claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a) or (b) above in respect of any losses,
claims, damages or liabilities (or actions or proceedings in
respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) in such proportion
as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholders on the one hand and the
Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative
fault of the Company and the Selling Shareholders on the one hand
and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims,
damages or liabilities (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by
the Company and the Selling Shareholders bear to the total
underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied
by the Company or the Selling Shareholders on the one hand or the
Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters
agree that it would not be just and equitable if contributions
pursuant to this Section 8(d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above
in this Section 8(d). The amount paid or payable by an indemnified
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<PAGE> 29
party as a result of the losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) referred to above
in this Section 8(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 8(d), (i) no
Underwriter shall be required to contribute any amount in excess
of the underwriting discounts and commissions applicable to the
Shares purchased by such Underwriter, (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation, and (iii) no
Selling Shareholder shall be required to contribute any amount in
excess of the proceeds received by such Selling Shareholder from
the Underwriters in the offering. The Underwriters' obligations in
this Section 8(d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or
amendment thereto, each party against whom contribution may be
sought under this Section 8 hereby consents to the jurisdiction of
any court having jurisdiction over any other contributing party,
agrees that process issuing from such court may be served upon him
or it by any other contributing party and consents to the service
of such process and agrees that any other contributing party may
join him or it as an additional defendant in any such proceeding
in which such other contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or
contribution under this Section 8 shall be paid by the
indemnifying party to the indemnified party as such losses,
claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8
and the representations and warranties of the Company and the
Selling Shareholders set forth in this Agreement shall remain
operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter, the Company, its directors or
officers or any persons controlling the Company, (ii) acceptance
of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter, or
to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in
this Section 8.
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<PAGE> 30
9. Default by Underwriters.
If on the Closing Date or the Option Closing Date, as the
case may be, any Underwriter shall fail to purchase and pay for
the portion of the Shares which such Underwriter has agreed to
purchase and pay for on such date (otherwise than by reason of any
default on the part of the Company or a Selling Shareholder), you,
as Representatives of the Underwriters, shall use your reasonable
efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company
and the Selling Shareholders such amounts as may be agreed upon
and upon the terms set forth herein, the Firm Shares or Option
Shares, as the case may be, which the defaulting Underwriter or
Underwriters failed to purchase. If during such 36 hours you, as
such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option
Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate
number of shares with respect to which such default shall occur
does not exceed 10% of the Firm Shares or Option Shares, as the
case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of
Firm Shares or Option Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Shares or
Option Shares, as the case may be, which such defaulting
Underwriter or Underwriters failed to purchase, or (b) if the
aggregate number of shares of Firm Shares or Option Shares, as the
case may be, with respect to which such default shall occur
exceeds 10% of the Firm Shares or Option Shares, as the case may
be, covered hereby, the Company and the Selling Shareholders or
you as the Representatives of the Underwriters will have the
right, by written notice given within the next 36-hour period to
the parties to this Agreement, to terminate this Agreement without
liability on the part of the non-defaulting Underwriters or of the
Company or of the Selling Shareholders except to the extent
provided in Section 8 hereof. In the event of a default by any
Underwriter or Underwriters, as set forth in this Section 9, the
Closing Date or Option Closing Date, as the case may be, may be
postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes
in the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter"
includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 9 shall not relieve any defaulting
Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
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<PAGE> 31
10. Notices.
All communications hereunder shall be in writing and,
except as otherwise provided herein, will be mailed,
delivered, telecopied or telegraphed and confirmed as
follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, 101 Federal Street, Boston, Massachusetts
02110, Attention: R. William Burgess, Jr., with a copy to
Alex. Brown & Sons Incorporated, 135 East Baltimore Street,
Baltimore, Maryland 21202, Attention: General Counsel; and
if to the Company or the Selling Shareholders, to:
GeoTel Communications Corporation
25 Porter Road
Littleton, Massachusetts 01460
Attention: President
11. Termination.
This Agreement may be terminated by you by notice to the
Sellers as follows:
(a) at any time prior to the earlier of (i) the time
the Shares are released by you for sale by notice to the
Underwriters, or (ii) 11:30 a.m. on the first business day
following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the
Prospectus, any material adverse change or any development
involving a prospective material adverse change in or affecting
the condition (financial or otherwise) of the Company or the
earnings, business, management, properties, assets, operations or
condition (financial or otherwise) of the Company, whether or not
arising in the ordinary course of business, (ii) any outbreak or
escalation of hostilities or declaration of war or national
emergency or other national or international calamity or crisis or
change in economic or political conditions in the United States if
the effect of such outbreak, escalation, declaration, emergency,
calamity, crisis or change on the financial markets of the United
States would, in your reasonable judgment, make it impracticable
to market the Shares or to enforce contracts for the sale of the
Shares, (iii) suspension of trading in securities generally on the
New York Stock Exchange, the American Stock Exchange or the Nasdaq
National Market or limitation on prices (other than limitations on
hours or numbers of days of trading) for securities on any such
exchange or market, (iv) the enactment, publication, decree or
other promulgation of any statute, regulation, rule or
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<PAGE> 32
order of any court or other governmental authority which in your
opinion materially and adversely affects or may materially and
adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by United States or New York
State authorities, (vi) the suspension of trading of the Company's
Common Stock by the Commission on the Nasdaq National Market, or
(vii) the taking of any action by any governmental body or agency
in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities
markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
This Agreement has been and is made solely for the benefit of
the Underwriters, the Company and the Selling Shareholders and
their respective successors, executors, administrators, heirs and
assigns, and the officers, directors and controlling persons
referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign merely because
of such purchase.
13. Information Provided by Underwriters.
The Company, the Selling Shareholders and the Underwriters
acknowledge and agree that the only information furnished or to be
furnished by any Underwriter to the Company for inclusion in any
Preliminary Prospectus, Prospectus or the Registration Statement
consists of the information set forth in the last paragraph on the
front cover page (insofar as such information relates to the
Underwriters), legends required by Item 502(d) of Regulation S-K
under the Act and the information under the caption "Underwriting"
in the Prospectus.
14. Miscellaneous.
The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full
force and effect regardless of (a) any termination of this
Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors or officers, and (c) delivery of and
payment for the Shares under this Agreement.
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<PAGE> 33
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding
of our agreement, please sign and return to us the enclosed duplicates
hereof, whereupon it will become a binding agreement among the Selling
Shareholders, the Company and the several Underwriters in accordance
with its terms.
Any person executing and delivering this Agreement as
Attorney-in-Fact for a Selling Shareholder represents by so doing that
he has been duly appointed as Attorney-in-Fact by such Selling
Shareholder pursuant to a validly existing and binding Power of
Attorney which authorizes such Attorney-in-Fact to take such action.
Very truly yours,
GEOTEL COMMUNICATIONS CORPORATION
By____________________________
John C. Thibeault, President
SELLING SHAREHOLDERS LISTED ON SCHEDULE II
By_____________________________
___________, Attorney-in-Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
ALEX. BROWN & SONS INCORPORATED
WESSELS, ARNOLD & HENDERSON, L.L.C.
As Representatives of the several
Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By: ______________________________
Authorized Officer
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<PAGE> 34
SCHEDULE I
Schedule Of Underwriters
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
Alex. Brown & Sons Incorporated
Wessels, Arnold & Henderson, L.L.C.
----------
Total
==========
<PAGE> 35
SCHEDULE II
Schedule of Option Shares
Maximum Number Percentage of
of Option Shares Total Number of
Name of Seller to be Sold Option Shares
-------------- ---------------- ---------------
------- ---
Total 100%
======= ===
<PAGE> 36
SCHEDULE III
Foreign Qualifications
<PAGE> 1
EXHIBIT 16.1
November 4, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: GeoTel Communications Corporation
Dear Sirs:
We have reviewed a copy of Amendment No. 2 to the Registration Statement on
Form S-1 dated November 5, 1996 of GeoTel Communications Corporation and are in
agreement with the statements made by it therein in response to Item 304(a) of
Regulation S-K under the Securities Act of 1933, as amended.
Very truly yours,
ARTHUR ANDERSEN LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (No.
333-13263) of our report dated October 16, 1996 on our audits of the financial
statements of GeoTel Communications Corporation. We also consent to the
references to our firm under the caption "Experts".
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
November 4, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated March 21, 1995 and to all references to our Firm included in or
made a part of this registration statement. It should be noted that we have not
examined any financial statements of the Company subsequent to December 31, 1994
or performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 4, 1996
