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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-21761
GEOTEL COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 04-3194255
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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25 PORTER ROAD
LITTLETON, MASSACHUSETTS 01460
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 508-486-1100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 17, 1997 there were 13,089,578 shares outstanding of the
registrant's common stock, $0.01 par value. As of that date, the aggregate
market value of voting stock held by non-affiliates of the registrant was
approximately $51,713,000.
DOCUMENTS INCORPORATED BY REFERENCE
PART III -- Portions of the definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on May 29, 1997 are incorporated by reference
into Part III (Items 10, 11, 12 and 13).
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PART I
CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. From time to time, information
provided by the Company or statements made by its directors, officers or
employees may contain "forward-looking" information which involve risks and
uncertainties. Actual future results may differ materially. Statements
indicating that the Company "expects," "estimates," "believes," "is planning" or
"plans to" are forward-looking, as are other statements concerning future
financial results, product offerings or other events that have not yet occurred.
There are several important factors which could cause actual results or events
to differ materially from those anticipated by the forward-looking statements.
Such factors, some of which are described in greater detail in Item 7 under the
heading "Risk Factors That May Affect Future Results," include, but are not
limited to, the receipt and shipment of new orders, the timely release of
enhancements to the Company's products, which could be subject to software
release delays, the growth rates of certain market segments, the positioning of
the Company's products in those market segments, variations in the demand for
customer service and technical support, pricing pressures and the competitive
environment in the software industry, and the Company's ability to penetrate
international markets and manage its international operations. Although the
Company has sought to identify the most significant risks to its business, the
Company cannot predict whether, or to what extent, any of such risks may be
realized nor can there be any assurance that the Company has identified all
possible issues which the Company might face.
ITEM 1: BUSINESS
GeoTel Communications Corporation ("GeoTel" or the "Company") is a 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, Compaq, Continental
Airlines, Delta Airlines, Fidelity, Gateway 2000, GTE, Household Credit
Services, MCI, Matrixx Marketing, Optus Systems, Private Health Care Systems,
Spiegel, Sprint 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
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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 software 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 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 scaleable to large enterprises. These solutions
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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, scaleable, 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 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 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 Voice Response Units (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.
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(R), Aspect CallCenter(R), 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 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.
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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, 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.
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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 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 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.
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The logic required to segment callers, identify their reason for calling, and
then forward 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 monitoring the enterprise. The system is designed to run on
single or multiple Windows NT server-class machines. Interprocess communication
is
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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.
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.
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In addition to the direct sales organization, the Company has signed
agreements with MCI and Optus 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.
The Company currently derives substantially all of its revenues from
licenses of the Intelligent CallRouter and related services. A significant
portion of the Company's revenues to date has been derived from a limited number
of customers. International sales represented 15.3% of revenues in 1996. More
information regarding the Company's revenues is included under the heading "Risk
Factors That May Affect Future Results," and Footnote J in Item 8 under "Notes
to Consolidated Financial Statements."
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 December 31,
1996, the Company had 16 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 maintenance 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.
8
<PAGE> 10
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.
As of December 31, 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 1996, 1995 and 1994 were
$3,086,000, $2,322,000 and $1,879,000, respectively. The Company anticipates
that it will continue to commit substantial resources to research and
development in the future and that product development expenses may increase in
absolute dollars in future periods.
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
9
<PAGE> 11
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.
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 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.
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 tradenames referred to in this Annual Report are the property of
their respective owners.
10
<PAGE> 12
EMPLOYEES
As of December 31, 1996, the Company had a total of 74 employees, all of
whom are based in the United States. Of the total, 31 were in research and
development, 16 were in support and support services, 19 were in sales and
marketing and 8 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.
ITEM 2: PROPERTIES
The Company's executive office is located in Littleton, Massachusetts in a
facility consisting of 14,356 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, Philadelphia, Phoenix and Washington, D.C.
The Company entered into a sublease agreement in February 1997 for office space
for its new executive office in Lowell, Massachusetts. Initially, the Company
will have the use of 31,770 square feet which will increase by an additional
15,885 square feet on January 1, 1998 and by a further addition of 15,885 square
feet on January 1, 1999. Annual operating sublease payments during the sublease
term will range from $302,000 in the first year to $731,000 beginning in 1999
and through the remainder of the lease term. The Company has the right, with
proper notice, to terminate this sublease at the end of the sixth year of the
sublease. Management believes that its new facilities will meet its needs for
the next twelve months and that it will be able to negotiate a termination of
its current lease or sublease the space.
ITEM 3: LEGAL PROCEEDINGS
On January 31, 1997 the Company filed suit for patent infringement against
Genesys Telecommunications Laboratories, Inc. ("Genesys"), of San Francisco,
Calif., in the U.S. District Court for the District of Massachusetts. In the
action, the Company, owner of U.S. Patent No. 5,546,452, alleges that certain of
Genesys' products infringe the Company's patent. The Company is seeking damages
and injunctive relief.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company became subject to the reporting requirements of the Securities
Exchange Act of 1934 on November 20, 1996. There were no matters submitted to a
vote of the Company's shareholders during the fourth quarter of the fiscal year
ended December 31, 1996.
ITEM 4A: EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by Item 10 of Form 10-K with respect to executive
officers of the Company is set forth below. Executive officers of the Company
are elected by the Board of Directors on an annual basis and service 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.
The executive officers of the Company, and their ages as of December 31,
1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------
<S> <C> <C>
John C. Thibault................. 43 President, Chief Executive Officer and
Director
Louis J. Volpe................... 47 Senior Vice President of Sales and Marketing
Timothy J. Allen................. 47 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
</TABLE>
- ---------------
11
<PAGE> 13
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 1989, 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.
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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock trades on the Nasdaq National Market tier of the
Nasdaq Stock Market under the Symbol: "GEOC". The following table sets forth,
for the periods indicated, the range of high and low bid prices for the
Company's common stock as reported by the Nasdaq Stock Market.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
------------------
HIGH LOW
------- ------
<S> <C> <C>
Fourth Quarter (Commencing on November 20, 1996) ..... $18.125 $12.00
</TABLE>
The Company has not declared or paid cash dividends on its common stock and
does not plan to pay cash dividends to its shareholders in the near future. The
Company presently intends to retain its earnings to finance further growth of
its business. As of March 14, 1997, the Company's common stock was held by
approximately 104 shareholders of record. This does not reflect persons or
entities who hold their stock in nominee or street name accounts through various
brokerage firms. The Company estimates that there are over 1,000 shareholders
who hold their stock in nominee or street name accounts.
12
<PAGE> 14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the Notes thereto
appearing elsewhere in this report.
<TABLE>
<CAPTION>
INCEPTION
(JUNE 4, 1993)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------------------
1993 1994 1995 1996
-------------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license.................... $ 1,360 $ 7,880
Services and other.................. 174 1,167
---------- ---------- ----------- -----------
Total revenues...................... 1,534 9,047
Cost of Revenues:
Cost of software license............ 264 297
Cost of services and other.......... 611 1,414
---------- ---------- ----------- -----------
Total cost of revenues.............. 875 1,711
---------- ---------- ----------- -----------
Gross profit............................. 659 7,336
---------- ---------- ----------- -----------
Operating Expenses:
Research and development............ $ 140 $ 1,879 2,322 3,086
Sales and marketing................. -- 570 1,476 2,760
General and administrative.......... 261 641 887 1,052
---------- ---------- ----------- -----------
Total operating costs............... 401 3,090 4,685 6,898
---------- ---------- ----------- -----------
Income (loss) from operations............ (401) (3,090) (4,026) 438
Interest income, net..................... 24 124 164 316
---------- ---------- ----------- -----------
Net income (loss)........................ (377) (2,966) (3,862) 754
Accretion of convertible preferred stock
to redemption value.................... (4) (35) (77) (97)
---------- ---------- ----------- -----------
Net income (loss) available
(attributable) to common
stockholders........................... $ (381) $ (3,001) $ (3,939) $ 657
========== ========== =========== ===========
Net income (loss) available
(attributable) to common
stockholders........................... $ (0.20) $ (1.10) $ (1.25) $ 0.06
========== ========== =========== ===========
Weighted average number of common and
common equivalent shares............... 1,950,088 2,724,895 3,154,729 11,730,906
========== ========== =========== ===========
Supplemental Basis (See Note B):
Net income (loss) per common and common
equivalent share....................... $ (0.11) $ (0.40) $ (0.37) $ 0.06
========== ========== =========== ===========
Weighted average number of common and
common equivalent shares............... 3,509,584 7,476,726 10,365,465 11,730,906
========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996
------ ------- ------- -------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 451 $ 3,793 $ 4,537 $33,263
Working capital.............................. 2,841 4,249 4,292 31,421
Total assets................................. 3,020 5,483 6,449 36,924
Long-term debt, less current portion......... -- 338 408 --
Convertible preferred stock.................. 3,267 7,937 11,986 --
Total stockholders' equity (deficit)......... $ (370) $(3,357) $(7,312) $32,437
</TABLE>
13
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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, selected
resellers and international partners.
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 49.1% of the Company's
total revenues in 1995 and 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.
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 in the future
on a quarterly or annual basis. 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
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.
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
14
<PAGE> 16
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.
15
<PAGE> 17
OPERATING RESULTS
The following table presents selected unaudited financial information for
the Company's last five 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
Consolidated Financial Statements and Notes thereto. 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,
1995 1996 1996 1996 1996
------------ --------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license................... $1,360 $ 1,705 $1,837 $ 2,076 $2,262
Services and other................. 174 134 212 320 501
------ ------- ------ ------- ------
Total revenues..................... 1,534 1,839 2,049 2,396 2,763
------ ------- ------ ------- ------
Cost of Revenues:
Cost of software license........... 264 75 108 52 62
Cost of services and other......... 240 278 338 372 426
------ ------- ------ ------- ------
Total cost of revenues............. 504 353 446 424 488
------ ------- ------ ------- ------
Gross Profit............................ 1,030 1,486 1,603 1,972 2,275
------ ------- ------ ------- ------
Operating Expenses:
Research and development........... 601 656 734 820 876
Sales and marketing................ 479 621 575 773 791
General and administrative......... 386 204 242 259 347
------ ------- ------ ------- ------
Total operating costs.............. 1,466 1,481 1,551 1,852 2,014
------ ------- ------ ------- ------
Income (loss) from operations........... (436) 5 52 120 261
Interest income, net.................... 52 40 45 46 185
------ ------- ------ ------- ------
Net income (loss)....................... $ (384) $ 45 $ 97 $ 166 $ 446
====== ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1996 1996 1996 1996
------------ --------- -------- ------------- ------------
(PERCENTAGE OF REVENUES)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license................... 88.6% 92.7% 89.7% 86.7% 81.9%
Services and other................. 11.4 7.3 10.3 13.3 18.1
------ ----- ----- ----- -----
Total revenues..................... 100.0 100.0 100.0 100.0 100.0
------ ----- ----- ----- -----
Cost of Revenues:
Cost of software license........... 17.2 4.1 5.3 2.2 2.2
Cost of services and other......... 15.6 15.6 16.5 15.5 15.4
------ ----- ----- ----- -----
Total cost of revenues............. 32.8 19.2 21.8 17.7 17.6
------ ----- ----- ----- -----
Gross Profit............................ 67.2 80.8 78.2 82.3 82.4
------ ----- ----- ----- -----
Operating Expenses:
Research and development........... 39.2 35.7 35.8 34.2 31.7
Sales and marketing................ 31.2 33.8 28.1 32.3 28.6
General and administrative......... 25.2 11.1 11.8 10.8 12.6
------ ----- ----- ----- -----
Total operating costs.............. 95.6 80.6 75.7 77.3 72.9
------ ----- ----- ----- -----
Income (loss) from operations........... (28.4) 0.2 2.5 5.0 9.5
Interest income, net.................... 3.4 2.2 2.2 1.9 6.6
------ ----- ----- ----- -----
Net income (loss)....................... (25.0)% 2.4% 4.7% 6.9% 16.1%
====== ===== ===== ===== =====
</TABLE>
16
<PAGE> 18
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%, 16.9% and 15.3% for the first, second, third and fourth quarters 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 15.3% of revenues for the year ended
December 31, 1996. The Company believes that it will continue to derive a
significant portion of its revenues from international sales and that
international revenue will comprise a larger percentage of total revenue in
future years. 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, maintenance services
and other revenue represented 58.9%, 31.4% and 9.7%, respectively, of total
service and other revenues for the year ended December 31, 1996. Service and
other revenues increased as a percentage of total revenue during 1996 due to the
increase in maintenance revenue. Maintenance revenue has increased as a result
of the increase in Company's customer base. 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%, 2.5% and 2.7% for the fourth
quarter of 1995 and the first, second, third and fourth quarter of 1996,
respectively. The decreases in percentage from the fourth quarter of 1995
resulted from a decrease in 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 any other quarter in 1996, was the result of an increase in the
provision for warranty expense. The Company believes that in future periods, the
percentage of cost of software licenses will approximate the percentages
realized in the third and fourth quarters of 1996.
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%, 116.3% and 85.0% for the fourth
quarter of 1995 and the first, second, third and fourth quarter of 1996,
respectively. The dollar increases were a result of start-up costs associated
with building 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. In the fourth quarter of 1996,
revenues from services and other revenue exceeded the related costs of services
and other expenses. The Company believes this trend will continue in the future
as the Company continues to experience the anticipated efficiencies from a
growing customer base and as 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%, 35.8%, 34.2% and 31.7% for
the fourth quarter of 1995 and the first, second, third and fourth quarter of
1996, respectively. The decrease in percentage from the fourth quarter of 1995
to the first quarter in 1996 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 fourth quarter of
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<PAGE> 19
1996 was the result of an increase in employees and the associated hiring costs.
The major product development efforts in 1996 related to the development of
significant enhancements to the Company's ICR product such as expanding the
products interface compatibility through the addition of new ACD interfaces,
interfaces to Voice Response Units ("VRU's"), engineering the product to operate
in a service bureau environment (i.e. one system supporting several customers)
and improvements in the existing graphical user interface and security features
of the product. 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 future.
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%, 28.1%,
32.3% and 28.6% for the fourth quarter of 1995 and the first, second, third and
fourth 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 because of the increase in revenue during the
periods. The decrease in the percentage of sales and marketing expenses in the
fourth quarter from the third quarter of 1996 was the result of the increase in
revenue in the fourth quarter while the Company maintained spending at the same
level as the third quarter of 1996. 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%, 10.8% and 12.6% for the fourth quarter of
1995 and the first, second, third and fourth quarter of 1996, respectively.
General and administrative expenses in the fourth quarter of 1995 were higher
than in any of the 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 significant increase in absolute dollars
in the fourth quarter of 1996 compared to the prior quarters of 1996, was the
result of the Company recognizing an expense of approximately $69,000 relating
to the forgiveness of a note receivable and compensation to offset the
associated officer's income taxes. Excluding this charge, the Company would have
experienced an increase in general and administrative expenses in absolute
dollars but a decrease as a percentage of total revenues from the prior quarters
in 1996. 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, $46,000 and $185,000
for the fourth quarter of 1995 and the first, second, third and fourth quarter
of 1996, respectively, resulted from investments of the Company's cash balances,
net of interest expense incurred on bank term notes. In the fourth quarter 1996,
the Company raised approximately $26,669,000 in cash from its initial public
offering. The Company used a portion of the proceeds from the offering to repay
in full the Company's outstanding debt and invested the remainder of the
proceeds. Interest income increased significantly in the fourth quarter due to
the increase in cash invested.
PROVISION FOR INCOME TAXES
No income tax provision was recorded for federal income tax purposes for
the years ended December 31, 1996, 1995 and 1994 as the Company has not reported
taxable income in those periods. As of December 31, 1996, the Company had
capitalized start-up costs of approximately $4,800,000 that are amortized to
offset taxable income over the five year period beginning in 1994 and net
operating loss carryforwards of approximately $1,111,000 for federal and state
income tax purposes that may be used to offset future federal
18
<PAGE> 20
income tax, if any. The Company also has $223,000 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 Consolidated Financial Statements and Notes thereto.
LIQUIDITY AND CAPITAL RESOURCES
The Company, prior to its initial public offering on November 20, 1996, had
financed its operations since inception 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. 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. On November 20,
1996, the Company completed its initial public offering of common stock, which
generated net proceeds of $26,669,000. The Company used approximately $756,000
of the proceeds to repay borrowings under its outstanding equipment lines of
credit. At December 31, 1996, the Company had cash and cash equivalents of
$33,263,000. As of December 31, 1996, the Company had $2,121,000 in accounts
receivable. The Company's working capital increased to $31,421,000 at December
31, 1996 from $4,292,000 at December 31, 1995.
The Company's operating activities provided cash of $3,306,000 in 1996 and
used cash of $3,940.000 and 2,511,000 in 1995 and 1994, respectively. The
Company was in the development stage up until the fourth quarter of 1995 which
resulted in a negative cash flow from operations. In 1996, the Company
experienced significant positive cash flow as a result of achieving
profitability of $754,000 in its first full year of revenues and due to the
increase in deferred revenue of $2,017,000 partially offset by an increase in
receivables of $1,106,000.
Cash used in investing activities in 1996 was $743,000 for capital
expenditures. Cash provided from investing activities was $472,000 and $752,000
in 1995 and 1994, respectively. The positive cash flow in those years was the
result of the sale and maturity of marketable securities partially offset by
capital expenditures.
Cash provided by financing activities was $26,163,000, $4,212,000 and
$5,101,000 in 1996, 1995 and 1994, respectively. In 1996, the positive cash flow
was primarily the result of the Company's initial public offering of common
stock. In 1995 and 1994, the financing activities consisted primarily of the
sale of Convertible Preferred Stock.
As of December 31, 1996, the Company had no material commitments for
capital expenditures.
The Company believes that 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.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a highly competitive and changing environment that
involve a number of risks, some of which are beyond the Company's control. The
following discussion highlights a number of these risks.
These discussions involve forward looking statements that involve a number
of risks and uncertainties that could cause future results to differ materially.
Among these risk factors are continuing acceptance of GeoTel's products in the
marketplace, the Company's ability to grow from the sales of these products,
general competitive pressures in the marketplace, and the continued overall
growth in the market for telecommunications software products.
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 December 31, 1996, the Company had an accumulated deficit of
$6,455,000. 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
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<PAGE> 21
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.
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 adversely affected.
Potential Volatility of Stock Price. The market price of the Company's
Common Stock may be volatile and may be significantly affected by factors such
as actual or anticipated fluctuations in the Company's quarterly operating
results, announcements of new products by the Company or its competitors,
developments with respect to conditions and trends in the telecommunications
industry, government regulation, changes in estimates by securities analysts of
the Company's future performance, general market conditions and other factors.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have adversely affected the market prices of
securities of companies for reasons unrelated to their operating performance. In
the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted against
such a company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which would have a material
adverse effect on the Company's business, financial condition and results of
operations. These broad market fluctuations may adversely affect the market
price of the Common Stock.
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 49.1% of the Company's total
revenues in 1995 and 1996, respectively. 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, Delta, American Express,
and GTE accounted for approximately 14.1%, 11.4%, 8.9%, 7.6% and 7.3%,
respectively, of the Company's total revenues for 1996. The Company expects that
it will continue to be dependent upon a
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<PAGE> 22
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.
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.
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 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.
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
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<PAGE> 23
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.
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.
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.
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<PAGE> 24
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. 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.
Risks Associated with International Expansion. International sales
accounted for approximately 15.3% of the Company's revenues for 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
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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 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.
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.
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.
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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets as of December 31, 1996 and 1995............ 26
Consolidated Statements of Operations for the years ended December 31,
1996, 1995, and 1994.................................................. 27
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1996, 1995 and 1994................................ 28
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995, and 1994.................................................. 29
Notes to Consolidated Financial Statements.............................. 30
Reports of Independent Accountants...................................... 40
</TABLE>
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GEOTEL COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $33,263 $ 4,537
Accounts receivable................................................. 2,121 749
Accounts receivable -- related party................................ -- 266
Prepaid expenses and other current assets........................... 524 107
------- -------
Total current assets........................................... 35,908 5,659
------- -------
Property and equipment, net.............................................. 1,016 790
------- -------
Total assets................................................... $36,924 $ 6,449
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................................... $ 656 $ 160
Accrued expenses.................................................... 857 310
Accrued compensation and related accruals........................... 685 324
Current portion of long-term debt................................... -- 301
Deferred revenue.................................................... 2,080 242
Deferred revenue -- related party................................... 209 30
------- -------
Total current liabilities...................................... 4,487 1,367
------- -------
Long-term debt........................................................... -- 408
------- -------
Commitments (Notes E and I)
Convertible preferred stock, $.01 par value, authorized, issued and
outstanding none and 7,718,615 shares in 1996 and 1995, respectively... -- 11,986
------- -------
Stockholders' equity (deficit):
Preferred stock, $.01 par value, authorized 5,000,000 shares, none
issued............................................................. -- --
Common stock, $.01 par value, authorized 40,000,000 shares, issued
13,358,296 and 2,572,580 shares; outstanding 13,083,553 and
2,329,094 shares in 1996 and 1995, respectively.................... 134 26
Additional paid-in capital.......................................... 39,967 74
Accumulated deficit................................................. (6,455) (7,209)
Notes receivable from stockholders.................................. (116) (180)
Unearned compensation............................................... (1,051) --
------- -------
32,479 (7,289)
Less treasury stock, at cost, 274,743 and 243,486 shares in 1996 and
1995, respectively................................................. (42) (23)
------- -------
Total stockholders' equity (deficit)........................... 32,437 (7,312)
------- -------
Total liabilities and stockholders' equity (deficit)........... $36,924 $ 6,449
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE> 28
GEOTEL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
------ ------- -------
<S> <C> <C> <C>
Revenues:
Software license................................... $6,850 $ 821
Services and other................................. 921 126
Related party licenses and services (Note J)....... 1,276 587
------ -------
Total revenues..................................... 9,047 1,534
------ -------
Cost of Revenues:
Cost of software license........................... 297 264
Cost of services and other......................... 1,414 611
------ -------
Total cost of revenues............................. 1,711 875
------ -------
Gross profit............................................ 7,336 659
------ -------
Operating Expenses:
Research and development........................... 3,086 2,322 $ 1,879
Sales and marketing................................ 2,760 1,476 570
General and administrative......................... 1,052 887 641
------ ------- -------
Total operating costs.............................. 6,898 4,685 3,090
------ ------- -------
Income (loss) from operations........................... 438 (4,026) (3,090)
Interest income......................................... 386 225 141
Interest expense........................................ (70) (61) (17)
------ ------- -------
Net income (loss)....................................... 754 (3,862) (2,966)
Accretion of convertible preferred stock to redemption
value................................................. (97) (77) (35)
------ ------- -------
Net income (loss) available (attributable) to common
stockholders.......................................... $ 657 $(3,939) $(3,001)
====== ======= =======
Net income (loss) per common and common equivalent share
-- Supplemental Basis (Note B)
Net income (loss) available (attributable) to common
stockholders.......................................... $ 0.06 $ (1.25) $ (1.10)
====== ======= =======
Weighted average number of common and common equivalent
shares................................................ 11,730,906 3,154,729 2,724,895
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE> 29
GEOTEL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------ NOTES ----------------
NUMBER ADDITIONAL RECEIVABLE NUMBER
OF PAID-IN ACCUMULATED FROM UNEARNED OF
SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDERS COMPENSATION SHARES AMOUNT
---------- ------ ---------- ----------- ------------ ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Dec. 31, 1993................... 1,034,028 $ 10 $ 1 $ (381)
Sale of common stock for cash and notes
receivable............................ 1,038,560 11 100 $ (94)
Acquisition of treasury stock........... 163,211 $ (3)
Net loss................................ (2,966)
Accretion of Convertible preferred stock
to redemption value................... (35)
-----
---
---------- ---- -------- ------- ------ ---
Balance Dec. 31, 1994................... 2,072,588 21 66 (3,347) (94) 163,211 (3)
Sale of common stock for cash, services
and notes receivable.................. 499,992 5 85 (86)
Acquisition of treasury stock........... 80,275 (20)
Net loss................................ (3,862)
Accretion of Convertible preferred stock
to redemption value................... (77)
-----
---
---------- ---- -------- ------- ------ ---
Balance Dec. 31, 1995................... 2,572,580 26 74 (7,209) (180) 243,486 (23)
Sale of common stock and exercise of
stock options......................... 27,000 34 (101,222) 1
Accretion of Convertible preferred stock
to redemption value................... (97)
Issuance of common stock from initial
public offering, net.................. 2,465,000 25 26,644
Conversion of preferred stock into
common stock.......................... 8,293,716 83 12,161
Acquisition of treasury stock and
forgiveness of note receivable........ 64 132,479 (20)
Stock options granted below fair
value................................. 1,151 $ (1,151)
Amortization of unearned compensation... 100
Net income.............................. 754
-----
---
---------- ---- -------- ------- ------ -------- ---
Balance December 31, 1996............... 13,358,296 $134 $ 39,967 $(6,455) $ (116) $ (1,051) 274,743 $(42)
========== ==== ======== ======= ====== ======== === ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
------------
<S> <C>
Balance Dec. 31, 1993................... $ (370)
Sale of common stock for cash and notes
receivable............................ 17
Acquisition of treasury stock........... (3)
Net loss................................ (2,966)
Accretion of Convertible preferred stock
to redemption value................... (35)
----
Balance Dec. 31, 1994................... (3,357)
Sale of common stock for cash, services
and notes receivable.................. 4
Acquisition of treasury stock........... (20)
Net loss................................ (3,862)
Accretion of Convertible preferred stock
to redemption value................... (77)
----
Balance Dec. 31, 1995................... (7,312)
Sale of common stock and exercise of
stock options......................... 35
Accretion of Convertible preferred stock
to redemption value................... (97)
Issuance of common stock from initial
public offering, net.................. 26,669
Conversion of preferred stock into
common stock.......................... 12,244
Acquisition of treasury stock and
forgiveness of note receivable........ 44
Stock options granted below fair
value................................. --
Amortization of unearned compensation... 100
Net income.............................. 754
----
Balance December 31, 1996............... $ 32,437
====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE> 30
GEOTEL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ 754 $(3,862) $(2,966)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities
Depreciation and amortization.......................... 517 359 159
Equity compensation.................................... 137 1 --
Changes in operating assets and liabilities
Accounts receivable and accounts receivable --
related party................................... (1,106) (1,015) --
Prepaid expenses and other current assets......... (417) (38) (17)
Accounts payable.................................. 496 51 59
Accrued expenses and accrued compensation......... 908 292 254
Deferred revenue and deferred revenue -- related
party........................................... 2,017 272 --
------- ------- -------
Net cash provided by (used for) operating activities........ 3,306 (3,940) (2,511)
------- ------- -------
Cash flows from investing activities:
Proceeds from sales and maturities of marketable
securities................................................ -- 952 3,384
Purchases of marketable securities.......................... -- -- (1,875)
Purchases of property and equipment......................... (743) (480) (757)
------- ------- -------
Net cash provided by (used for) investing activities........ (743) 472 752
------- ------- -------
Cash flows from financing activities:
Proceeds from sale of common stock -- net................... 26,704 3 17
Proceeds from notes receivable for common stock............. 7 -- --
Proceeds from sale of convertible preferred stock -- net.... 161 3,972 4,635
Proceeds from long-term debt................................ 358 418 467
Principal payments under long-term debt..................... (1,067) (161) (15)
Acquisition of treasury stock............................... -- (20) (3)
------- ------- -------
Net cash provided by financing activities:.................. 26,163 4,212 5,101
------- ------- -------
Net change in cash and cash equivalents..................... 28,726 744 3,342
Cash and cash equivalents, beginning of year................ 4,537 3,793 451
------- ------- -------
Cash and cash equivalents, end of year...................... $33,263 $ 4,537 $ 3,793
======= ======= =======
Supplemental disclosures of noncash financing activities:
Notes received in exchange for common stock................. $ -- $ 86 $ 94
======= ======= =======
Supplemental cash flow information:
Interest paid............................................... $ 66 $ 60 $ 13
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
29
<PAGE> 31
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Principal operations of the Company
commenced during 1995. The Company currently derives substantially all of its
revenues from licenses of the Intelligent CallRouter and related services.
B. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidation
The consolidated financial statements include the accounts of GeoTel
Communications Corporation and its wholly owned subsidiary. All intercompany
balances and transactions have been eliminated.
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.
Cash, Cash Equivalents and Investments
The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents. The Company classifies its
investments as available-for-sale and states them at amortized cost plus accrued
interest which approximates fair market value. Cash equivalents consist of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------- ------
<S> <C> <C>
Commercial paper...................................... $31,216 $3,986
Money market instruments.............................. 1,415 340
------- ------
Total cash equivalents................................ $32,631 $4,326
======= ======
</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 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.
30
<PAGE> 32
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. 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
Carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, trade accounts receivable, accounts
payable, accrued expenses and other liabilities approximate fair value due to
their short maturities. The Company invests its excess cash primarily in highly
rated commercial paper and financial institutions.
Accounts receivable at December 31, 1996 and 1995 consist principally of
ten and three 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. The Company generally does not require collateral and historically has
not experienced significant losses on trade receivables.
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.
31
<PAGE> 33
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Computation of Net Income (Loss) Per Common and Common Equivalent Share
Net income (loss) per common share and common equivalent 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. Common equivalent shares
from Convertible Preferred Stock and options are excluded from the computation
when their effect is antidilutive, except that, pursuant to the 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 initial public offering ("IPO") have been
included in the calculation as if they were outstanding for all periods prior to
the IPO, using the treasury stock method at the IPO price of $12.00 per share.
Fully diluted net income (loss) per share is not presented as it is the same as
the amounts disclosed in primary net income (loss) per share for the years ended
December 31, 1996, 1995 and 1994.
Supplementary net income (loss) per common share has been computed in the
same manner, except that all outstanding shares of Convertible Preferred Stock
converted into common stock upon the closing of the IPO are treated as having
been converted into common stock at the date of original issuance.
Net income (loss) per share on a supplementary basis is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Net income (loss) per common and common
equivalent share........................... $0.06 $(0.37) $(0.40)
========== ========== =========
Weighted average number of common and common
equivalent shares outstanding.............. 11,730,906 10,365,465 7,476,726
========== ========== =========
</TABLE>
C. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------ ------
<S> <C> <C>
Computer and lab equipment.................................. $1,934 $1,218
Furniture and fixtures...................................... 86 67
Leasehold improvements...................................... 32 24
------ ------
2,052 1,309
Less accumulated depreciation and amortization.............. (1,036) (519)
------ ------
$1,016 $ 790
====== ======
</TABLE>
D. INCOME TAXES:
The difference between the statutory federal income tax rate and the
Company's effective tax rate for the year ended December 31, 1996 is principally
due to the utilization of net operating losses, capitalized start-up costs
including capitalized research and development cost carryforwards. No income tax
provision was recorded for federal income tax purposes for the years ended
December 31, 1996, 1995 and 1994 as the Company had 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.
32
<PAGE> 34
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred taxes were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------ ------
<S> <C> <C>
Deferred tax assets:
Depreciation................................................ $ 171 $ 110
Capitalized start-up costs.................................. 1,762 2,151
Accrued expenses............................................ 179 37
Tax credits................................................. 223 245
Net operating losses........................................ 443 574
------- -------
Net deferred tax assets....................................... 2,778 3,117
Valuation allowance........................................... (2,778) (3,117)
------- -------
Total net deferred tax asset.................................. $ -- $ --
======= =======
</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.
At December 31, 1996, the Company had net operating loss carryforwards of
$1,111,000 for federal and state income tax purposes 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 $223,000 and $245,000 were
available at December 31, 1996 and 1995, 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:
As of December 31, 1995, the Company had outstanding loans which aggregated
to $709,000 under several equipment lines of credit with a bank. All of the
outstanding debt was repaid in November 1996 from a portion of the proceeds from
the Company received from its IPO.
At December 31, 1996, the Company's existing equipment line of credit
allowed 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. The borrowing period ends on June 30, 1997. Borrowings under this
agreement bear interest at the bank's prime rate (8.25% at December 31, 1996).
Any borrowings will be collateralized by substantially all of the Company's
assets. This agreement contains 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, 1996, the Company was in compliance
with all related covenants.
33
<PAGE> 35
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
F. CONVERTIBLE PREFERRED STOCK:
The following table reflects Convertible Preferred Stock activity, from
December 31, 1993 through December 31, 1996:
<TABLE>
<CAPTION>
AMOUNT
SHARES --------------
---------- (IN THOUSANDS)
<S> <C> <C>
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....................... -- 97
Conversion to common stock.......................... (7,788,615) (12,244)
---------- --------
Balance at December 31, 1996........................ -- $ --
========== ========
</TABLE>
All outstanding shares of Convertible Preferred Stock were converted into
common stock upon the closing of the Company's IPO on November 20, 1996.
Shares of Convertible Preferred Stock, while outstanding, were subject to
the following rights and privileges:
Dividends
Preferred stockholders were entitled to receive dividends at the same rate
as dividends paid with respect to the common stock. Such preferred dividends
would have been determined by the number of shares of common stock into which
each share of preferred stock could have been converted, as defined. The Company
is prohibited from paying cash dividends under the outstanding equipment lines
unless the Company receives the bank's consent. The Company has not paid any
dividends to the preferred or common stockholders.
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
were 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 would be
made to the common stockholders. The holders of the Convertible Preferred Stock
would 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 were entitled to the number of votes equal to the
number of shares of common stock into which each share of Convertible Preferred
Stock was convertible.
Conversion and Redemption
The holders of a majority of the outstanding shares of Convertible
Preferred Stock were 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
34
<PAGE> 36
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
installments. 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 upon the IPO, 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 IPO price. At the IPO
price of $12.00 per share, the Convertible Preferred Stock was converted into an
additional 505,101 shares of Common Stock. Since the holders of the Convertible
Preferred Stock have voting control, such conversion resulted 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 was 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.
G. STOCKHOLDERS' EQUITY (DEFICIT):
Initial Public Offering
The Company completed its IPO on November 20, 1996 and sold 2,465,000
shares of common stock at $12.00 per share, resulting in net proceeds, after
deducting underwriting discounts and expenses, of $26,669,000. 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, of which 40,000,000 shares have been designated as common
stock and 5,000,000 shares have been designated as preferred stock.
Common Stock
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.
Preferred Stock
The Company authorized to issue an aggregate 5,000,000 shares of preferred
stock. The Company's Board of Directors has 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.
Stock Restriction Agreements
The Company 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 an officer of the Company. 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 IPO or other
liquidity event, as defined. This note and related interest were forgiven in
December 1996. All shares purchased under the Stock Restriction Agreements were
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
35
<PAGE> 37
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
through the fifth anniversary of the date of purchase or upon a qualified IPO.
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. Upon the IPO, the Stock Restriction Agreements terminated and all the
shares of common stock purchased under the Stock Restriction Agreements became
fully vested.
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, 1996, the Company may
repurchase up to 486,672 unvested shares. 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 December 31, 1996 under the 1993 Plan have a weighted average repurchase
price of $0.14 per share.
Information related to the 1993 Plan is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- -----------------------
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
year.......................... 1,091,622 $0.14 613,310 $0.14 -- --
Issued.......................... 27,000 0.18 499,992 0.18 628,310 $0.14
Repurchased..................... (132,479) 0.14 (21,680) 0.10 (15,000) 0.10
--------- --------- -------
Outstanding at end of year...... 986,143 $0.14 1,091,622 $0.14 613,310 $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 $86,000 and $57,000 from certain employees during the years ended
December 31, 1995 and 1994, respectively. These notes bear interest at 5.25% and
are required to be paid in full upon the one year anniversary of the Company's
initial public offering. The interest is payable at the date of maturity. Such
notes are collateralized by the common stock purchased and accordingly are
included in stockholders' equity (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 and 1995, certain options
were granted in conjunction with a management incentive program approved by the
board of directors. Under this program, options were granted at the beginning of
the year at fair market value with vesting occurring at the end of five years
subject to immediate full vesting if certain annual performance criteria were
attained. The performance criteria was met in both years and vesting was
accelerated. 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
36
<PAGE> 38
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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, 1996, 1,474,726 shares were
authorized for issuance under the 1995 Plan. Effective January 1, 1997, the
number of authorized shares was increased to 2,009,057 shares.
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, 1996 DECEMBER 31, 1995
-------------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------- -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year................ 64,500 $ 0.24 -- --
Granted......................................... 982,018 2.62 64,500 $ 0.24
Cancelled....................................... (37,500) 2.47 -- --
Exercised....................................... (101,222) 0.30 -- --
-------- ------
Outstanding at end of year...................... 907,796 $ 2.72 64,500 $ 0.24
======== ======
</TABLE>
The following information summarizes information concerning currently
outstanding and exercisable options:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER REMAINING WEIGHTED AVERAGE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
- ---------------------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.18 to $0.30.............. 628,716 9.32 $ 0.29 20,208 $ 0.25
$3.00 to $8.00.............. 222,580 9.73 6.94 -- --
$12.00 to $14.75............ 56,500 9.89 13.03 -- --
------- ------
Total....................... 907,796 9.45 $ 2.72 20,208 $ 0.25
======= ======
</TABLE>
No options were exercisable as of December 31, 1995. The 101,222 options
exercised during the year ended December 31, 1996, related to merit grants which
included immediate vesting provisions. As of December 31, 1996 and 1995, the
Company had 465,708 and 361,551, respectively, shares available for future
option grants under the 1995 Plan.
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,
subject to a defined maximum percentage of base compensation and number of
shares, 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. The first offering period began in January 1997 and will end in July
1997.
37
<PAGE> 39
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 the year ended December 31, 1996, the Company recorded
approximately $1,151,000 in unearned compensation for options to purchase
674,580 shares granted at exercise prices below the fair value of the common
stock. The weighted average fair value of options granted at fair value during
1996 and 1995 were $0.30 and $0.24, respectively. The weighted average fair
value of options granted below fair value at date of grant during 1996 was
$4.21. There were no options granted below fair value at date of grant for 1995.
Had compensation cost for the 1995 Plan been determined based upon the fair
value at the grant date as calculated in accordance with Financial Accounting
Standards No. 123 ("SFAS 123") "Accounting for Stock-Based Compensation," the
Company's net income would have decreased by approximately $97,000 in 1996 and
the net loss for 1995 would have increased by approximately $9,000. The pro
forma effect of adopting SFAS 123 would have reduced net income per share by
$0.01 in 1996 and no effect on the Company's net loss per share in 1995. In
computing these pro forma amounts the Company has assumed a risk-free interest
rate equal to 8.25% and 8.75%, for 1996 and 1995, respectively, expected
volatility of 60% for post-IPO grants and no volatility (minimum value method)
for pre-IPO grants, expected life of five years and no dividends. 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 years 1997 and
1998 are $158,000 and $145,000, respectively.
The Company entered into a sublease agreement in February 1997 for office
space for its new executive office in Lowell, Massachusetts. Initially, the
Company will have the use of 31,770 square feet which will increase by an
additional 15,885 square feet on January 1, 1998 and by a further addition of
15,885 square feet on January 1, 1999. Annual operating sublease payments during
the sublease term will range from $302,000 in the first year to $731,000
beginning in 1999 and through the remainder of the lease term. The Company has
the right, with proper notice, to terminate this sublease at the end of the
sixth year of the sublease.
Rent expense was approximately $170,000, $124,000, $41,000 for the years
ended December 31, 1996, 1995 and 1994, 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 14% and
38% of revenue for the years ended December 31, 1996 and 1995, respectively, and
this customer had no outstanding receivable balance as of December 31, 1996 and
approximately $266,000 at December 31, 1995. 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.
38
<PAGE> 40
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues attributable to the Company's five largest customers accounted for
49.1% and 94.4% in 1996 and 1995, respectively. The following table summarizes
sales as a percentage of total revenue to significant customers for the year
ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1996 1995
---- ----
<S> <C> <C>
Related Party Customer...................................... 14% 38%
Customer A.................................................. -- 20
Customer B.................................................. -- 26
Customer C.................................................. 11 --
-- --
Percentage of total revenue................................. 25% 84%
== ==
</TABLE>
Export sales to Australia and the United Kingdom in 1996 were approximately
11% and 4% of total revenues, respectively. No export sales occurred in 1995.
39
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
GeoTel Communications Corporation:
We have audited the accompanying consolidated balance sheets of GeoTel
Communications Corporation as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the two years then ended. 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, 1996 and 1995, and the results of its operations
and its cash flows for the two years then ended, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 17, 1997, except as to the
second paragraph in Note I
for which the date is March 20, 1997
40
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
To GeoTel Communications Corporation:
We have audited the balance sheet (not presented herein) of GeoTel
Communications Corporation (a Delaware corporation in the development stage) as
of December 31, 1994 and the accompanying statements of operations,
stockholders' deficit and cash flows 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 for the year ended December 31, 1994 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 21, 1995
41
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with accountants on any matter of accounting
principles, financial statement disclosure, or auditing scope or procedures
required to be reported under this item.
The Company's financial statements for the two years ended December 31,
1996 and 1995 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 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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding executive officers set forth under the caption
"Executive Officers of the Registrant" in Item 4A of this Annual Report is
incorporated herein by reference.
The information regarding directors set forth under the caption "Election
of Directors" appearing in the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on May 29, 1997, which will be filed
with the Securities and Exchange Commission not later than 120 days after
December 31, 1996, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation"
appearing in the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 29, 1997, which will be filed with the Securities
and Exchange Commission not later than 120 days after December 31, 1996, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Holders and Management" appearing in the Company's definitive Proxy Statement
for the Annual Meeting of Shareholders to be held on May 29, 1997, which will be
filed with the Securities and Exchange Commission not later than 120 days after
December 31, 1996, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" appearing in the Company's definitive Proxy Statement for
the Annual Meeting of Shareholders to be held on May 29, 1997, which will be
filed with the Securities and Exchange Commission not later than 120 days after
December 31, 1996, is incorporated herein by reference.
42
<PAGE> 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(1) FINANCIAL STATEMENTS
The following financial statements are filed as part of this Annual Report:
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended December 31,
1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995, and 1994
Notes to Consolidated Financial Statements
Reports of Independent Accountants
(2) FINANCIAL STATEMENT SCHEDULE
All schedules are omitted because they are not required.
(3) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1996.
(4) EXHIBITS
Documents listed below, except for documents identified by an asterisk, are
being filed as exhibits herewith. Documents identified by parenthetical numbers
are not being filed herewith and, pursuant to Rule 12b-32 of the General Rules
and Regulations promulgated by the Commission under the Securities Exchange Act
of 1934 (the "Act"), reference is made to such documents as previously filed as
exhibits with the Commission.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------
<C> <S>
*3.1 Amended and Restated Certificate of Incorporation of the Company.
*3.2 By-Laws of the Company, as amended and restated.
*4.1 Specimen of Stock Certificate representing shares of Common Stock.
*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.
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------
<C> <S>
*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.
+10.22 Software Agreement Incorporating Licensing Rights between the Company and Digital
Equipment Co., Limited, dated December 1, 1996
10.23 Sublease Agreement between the Company and National Medical Care, Inc. d/b/k
Fresenius Medical Care-North America dated February 7, 1997.
11.1 Statement Regarding Computation of Net Income (loss) Per Common and Common
Equivalent Share.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included on the signature pages of the Annual Report on Form
10-K).
</TABLE>
- ---------------
* Incorporated by reference to the Company's Registration Statement on Form S-1
filed with the Securities and Exchange Commission (Reg. No. 333-13263).
+ Confidential Treatment Requested.
44
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boston, Commonwealth of Massachusetts on the 27th day of March, 1997.
GEOTEL COMMUNICATIONS CORPORATION
/s/ JOHN C. THIBAULT
By: ................................
JOHN C. THIBAULT
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints John C. Thibault and Timothy J. Allen, and each
of them, with the power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or in his name, place and stead, in any and all capacities to sign any
and all amendments to this Annual Report on Form 10-K, and to file the same,
with all exhibit is thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents or either of
them, or their or his substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ---------------
<C> <S> <C>
/s/ JOHN C. THIBAULT President, Chief Executive March 27, 1997
........................................ Officer and Director
JOHN C. THIBAULT (Principal Executive Officer)
/s/ TIMOTHY J. ALLEN Vice President of Finance, March 27, 1997
........................................ Chief Financial Officer
TIMOTHY J. ALLEN Treasurer and Assistant
Secretary (principal
accounting and financial
officer)
/s/ G. WAYNE ANDREWS Director March 27, 1997
........................................
G. WAYNE ANDREWS
/s/ ALEXANDER V. D'ARBELOFF Director March 27, 1997
........................................
ALEXANDER V. D'ARBELOFF
/s/ GARY BOWEN Director March 27, 1997
........................................
GARY BOWEN
/s/ GARDNER C. HENDRIE Director March 27, 1997
........................................
GARDNER C. HENDRIE
/s/ W. MICHAEL HUMPHREYS Director March 27, 1997
........................................
W. MICHAEL HUMPHREYS
</TABLE>
45
<PAGE> 47
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
GEOTEL COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
================================================================================
<PAGE> 48
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ----------- ---------------------------------------------------------------------------- ----
<C> <S> <C>
*3.1 Amended and Restated Certificate of Incorporation of the Company.
*3.2 By-Laws of the Company, as amended and restated.
*4.1 Specimen of Stock Certificate representing shares of Common Stock.
*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.
+10.22 Software Agreement Incorporating Licensing Rights between the Company and
Digital Equipment Co., Limited, dated December 1, 1996.
10.23 Sublease Agreement between the Company and National Medical Care, Inc. d/b/k
Fresenius Medical Care-North America dated February 7, 1997.
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ----------- ---------------------------------------------------------------------------- ----
<C> <S> <C>
11.1 Statement Regarding Computation of Net Income (loss) Per Common and Common
Equivalent Share.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included on the signature pages of the Annual Report on
Form 10-K).
</TABLE>
- ---------------
* Incorporated by reference to the Company's Registration Statement on Form S-1
filed with the Securities and Exchange Commission (Reg. No. 333-13263).
+ Confidential Treatment Requested.
<PAGE> 1
EXHIBIT 10.22
ISSUE 2.
DIGITAL & GEOTEL
SOFTWARE AGREEMENT
INCORPORATING LICENSING RIGHTS
<PAGE> 2
CONTENTS
PAGE
NOS
1. Definitions 3
2. Term of Agreement 5
3. The Work 5
4. Variations 6
5. The Price 6
6. Delivery 7
7. Receipt of the Software 7
8. Acceptance Tests 7
9. Software Licence Rights 8
10. Indemnity - Virus Protection 9
11. Documentation 9
12. Commercial Service 9
13. Interface with other Equipment 10
14. Access, Assistance and Progress Reports 10
15. Mistakes in Information 10
16. Digital and/or BT Supplied Items and Property 11
17. Warranty 11
18. Title and Risk 13
19. Information 13
20. Confidentiality 13
21. Intellectual Property 14
22. Intellectual Property Rights Indemnification 14
23. Escrow 15
24. Indemnity 17
25. Limitation of Liability 17
26. Insurance 17
27. Termination 18
28. Force Majeure 19
29. Suspension of Work 19
30. Working on Site 19
31. Delivery and Removal of the Software and GeoTel's Equipment 21
32. Security 21
33. Quality 22
34. Compliance with Laws and Regulations 22
35. Assignment and Subcontracting 22
36. Contract Personnel 22
37. Non-Nuclear use and Export Control 22
38. Notices 23
39. General 23
40. Publicity 24
APPENDICES
Appendix 1. The Work and the Customer Specification Document 25
Appendix 2. Digital Price List and Payment Terms 26
Appendix 3. The Project Plan 29
Appendix 4. Support and Maintenance 30
Appendix 5 Documentation 31
Appendix 6 Potential Exclusivity Agreement in respect of GeoTel's
Standard Products 32
2
<PAGE> 3
SOFTWARE AGREEMENT
INCORPORATING LICENSING RIGHTS
AGREEMENT NUMBER: VL/14/11/96
THIS AGREEMENT, effective as at the Agreement Date is made between:
GeoTel Communications Corporation of 25 Porter Road, Littleton, MA 01460
("GeoTel"); and Digital Equipment Co. Limited of Plumtree Court, London. EC4A
4HT ("Digital").
BACKGROUND
i) GeoTel is a company carrying out a range of activities relating to
information technology including, but not limited to the development
and licensing of computer software programs; and
ii) Digital, who also operates within the field of information technology
and develops, uses, licenses and markets its own computer software
programs (together with equipment), desires that GeoTel develops
specific computer software programs for Digital pursuant to the
requirements of the BT Contract utilising GeoTel's Standard Products;
and
iii) GeoTel has agreed to develop and deliver to Digital the Software and
grant appropriate licensing rights pursuant to the BT Contract in
accordance with the terms and conditions of this Agreement.
For the avoidance of any doubt, this Agreement shall become effective
upon Digital issuing to GeoTel its Purchase Order(s) in accordance with
the provisions of this Agreement.
NOW IT IS AGREED AS FOLLOWS:
1. DEFINITIONS
1.1 "Software" means collectively or individually:
i) GeoTel's Standard Products; and
ii) the object computer programs and corresponding
documentation, which is clarified in Appendix 5 ("the
Documentation"), which are to be developed via
modifications to GeoTel's Standard Products to
support BT NUP and interconnection with the BT CTN
specifically for Digital/BT pursuant to the BT
Contract and provided by GeoTel under the terms of
this Agreement ("the BT Specific Development")
all of which is as defined in and will comply with the details
set out in the Customer Specification Document.
1.2 "Customer Specification Document" means the proprietary
specification in accordance with which GeoTel shall develop
the Software and is as referenced in and attached at Appendix
1.
1.3 "the Work" means all of GeoTel's activities as described in
Section 1 of Appendix 1 which result in the creation and
completion of the Software.
1.4 "Intellectual Property Rights" ("IPRs") means the copyright,
patent, design right, trade secret, tradename or mark or such
other rights.
1.5 "the Storage Media" means the agreed media upon which GeoTel
shall deliver the Software and Documentation, as detailed in
the Customer Specification Document.
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1.6 "the Object Code" means the machine readable code of the
Software which can be executed on Digital computer systems for
which the Software has been designed.
1.7 "Evaluation Software Licence" means that licence agreement
which has been entered into between the parties dated 21
August 1996 and which continues for a period of 180 days from
said date ("the Evaluation Period") at the expiry of which the
Evaluation Software Licence becomes superseded by the terms
and conditions of this Agreement except, for the avoidance of
any doubt, payment in respect of the Evaluation Software
Licence which shall be made under the terms and conditions of
same and not under this Agreement.
1.8 "Development Agreement" means that agreement, the final draft
of which was dated 21 August 1996 against which GeoTel carried
out the initial proof of concept development work ("the
Initial Development Work") and which is superseded as at the
Agreement Date by the terms and conditions of this Agreement
except, for the avoidance of any doubt, payment in respect of
the Initial Development Work which shall be made under the
terms and conditions of same and not under this Agreement.
1.9 "the Equipment" means that equipment and associated
peripherals (in conjunction with which the Software is
required to operate) to be delivered by Digital to BT under
the BT Contract.
1.10 "Ready for Service" means the ready for service date upon
which the Software is ready for use by BT and is that date
specified in the Project Plan.
1.11 "Documentation" means the documentation to be provided
hereunder pursuant to the Customer Specification Document to
include, but not be limited to directions for and
verifications of installation and use of the Software, reports
and any other explanatory materials.
1.12 "Revisions" mean all modifications, upgrades, enhancements and
new versions of the Software which may be provided under this
Agreement.
1.13 "Variations" shall mean any variation to the Customer
Specification Document or any other aspect of this Agreement
communicated and agreed in writing between the parties
pursuant to the provisions set out in the change control
process defined Condition 4.1.
1.14 "Acceptance" shall mean a written statement issued by Digital
to GeoTel, (in accordance with acceptance criteria and an
appropriate acceptance process to be agreed between the
parties and BT and documented within the period set for such
activities in the Project Plan) following acceptance testing
by Digital confirming that the Software complies with the
Customer Specification Document. The terms "Acceptance Tests"
and "Accepted" shall have the corresponding meanings.
1.15 "the Project Plan" shall mean the agreed timetable, (the key
dates of which are detailed in Appendix 3, to which GeoTel
shall perform its obligations under this Agreement subject
always to Digital's performance of its non GeoTel dependent
obligations and BT's performance of its obligations as
contained in the BT Contract) and is that document as at the
Agreement Date entitled "Project Telemarketing" dated: 4.10.96
version: 3.0 which may subsequently be revised by the mutual
written consent of the parties.
1.16 "the Review Process" shall mean any appropriate review process
agreed in writing by the parties by which the Work may be
measured by Digital on an on-going basis.
1.17 "the Price" shall mean the USS payments to be received by
GeoTel from Digital and is as detailed in Appendix 2.
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1.18 "GeoTel's Standard Products" shall mean the C7 cards specified
in the Development Agreement and those standard software
products proprietary to GeoTel as specified in the Evaluation
Software Licence and as may be enhanced by GeoTel pursuant to
GeoTel's enhancement policy prior to Acceptance. For the
avoidance of any doubt, details of such enchancements shall be
advised to Digital and shall not prevent the Software
performing in accordance with the Customer Specification
Document
1.19 "BT" means British Telecommunications plc of 81 Newgate
Street, London EC2 with whom Digital shall contract pursuant
to the BT Contract defined in Condition 3.7 below.
1.20 "Contract Personnel" means those personnel whom GeoTel use for
the performance of its duties under this Agreement, whether
such personnel are employed by GeoTel, act as consultants to
GeoTel or otherwise.
1.21 "the Agreement Date" means that date upon which this Agreement
becomes effective by its being signed by both parties and
Digital's issuing to GeoTel of its Purchase Order(s).
1.22 "Purchase Order(s)" means those Digital purchase order(s) to
be issued by Digital under this Agreement.
1.23 "Commercial Service" means that state of commercial service
into which Digital requires the Software to be put due to any
failure of the Software or any part thereof to pass the
Acceptance Tests as set out in Conditions 8.5, 8.6 and 12
below and "Certificate of Commercial Service" shall have the
corresponding meaning.
1.24 "Information" means all information whether written or oral or
any other form, including, but not limited to documentation,
specifications, reports, data, notes, drawings, models,
patterns, samples, software, computer outputs, designs,
circuit diagrams, inventions, (whether patentable or not) and
know how.
2. TERM OF THIS AGREEMENT
This Agreement shall commence upon the Agreement Date and shall
continue, unless otherwise agreed in writing between the parties to
ensure the simultaneous termination of the BT Contract and this
Agreement, for a period of 24 months (with the option to extend
annually at Digital's discretion for a further 36 months) unless
terminated by either party in accordance with Condition 27.
3. THE WORK
3.1 GeoTel agrees to develop, supply, license the Software to
Digital and carry out other related activities in accordance
with the terms and conditions of this Agreement.
3.2 GeoTel agrees to complete the Work in accordance with the key
dates which are detailed in Appendix, to which GeoTel shall
perform its obligations under this Agreement subject always to
Digital's performance of its non-GeoTel dependent obligations
and BT's performance of its obligations as contained in the BT
Contract.
3.3 The Work shall be monitored by Digital in accordance with the
Review Process. GeoTel agrees to follow the Review Process and
co-operate with Digital in its monitoring of the Work.
3.4 The Software and Storage Media will be delivered to Digital at
the Digital site as referenced in the Project Plan in object
code together with its appropriate Documentation.
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3.5 It is acknowledged and agreed between the parties that support
and maintenance in respect of the Work and the resultant
Software is, at the date of signing this Agreement, yet to be
agreed between the parties.
Within 60 days of the Agreement Date, the parties shall have
agreed the terms and conditions in respect of such support and
the same shall be attached at Appendix 4.
3.6 GeoTel shall provide monthly reports to Digital detailing
progress made against milestones indicated in the Project Plan
one week prior to progress meetings. GeoTel shall provide
suitable representation at these meetings. Such meetings shall
be held via conference call or other appropriate and
economical means
3.7 In accordance with and subject to Condition 9 below, GeoTel
hereby grants to Digital an irrevocable, royalty free license
to use the Software and Documentation solely for the purposes
of performing Digital's obligations (including but not limited
to those relating to the granting of sub-licences to BT and
its obligations in respect of support and warranty) under its
contracts(s) with BT pursuant to BT's project known as
"Signalling Requirement for Telemarketing Near Real Time
Control and Reports Platform ("the BT Contract") as set out in
the Project Plan.
3.8 The licence as referenced in Condition 3.7 above shall
commence upon the date appropriate for such commencement as
set out in the Project Plan and shall continue for a period
appropriate to the performance of Digital's obligations under
the BT Contract. At the end of said period the Software shall
be returned to GeoTel.
3.9 Pursuant to the licensing arrangements set out in Condition
3.7 above, Digital agrees that the Software shall not be
decompiled, reverse engineered, disassembled, analysed or
otherwise examined for the purpose of reverse engineering,
except and solely in so far as such activities are permitted
pursuant to Condition 50B of the Copyright Designs and Patents
Act 1998.
4. VARIATIONS
4.1 Either party shall have the right from time to time during the
performance of this Agreement by written request and by mutual
agreement, in accordance with and subject to the change
control process included in the quality plan referred in
Condition 33 below ("the Change Control Process") to alter,
amend, add to or otherwise vary any aspect of this Agreement.
4.2 The Price shall be increased or decreased subject to and in
accordance with the Change Control Process and dependent
contractual timescales shall be adjusted by a fair and
reasonable amount.
4.3 No variation shall be carried out under unless it is
authorised and processed in accordance with the Change Control
Process and notified in writing by Digital as an amendment to
this Agreement.
4.4 Any variation carried out other than in accordance with this
Condition 4 shall be the sole responsibility of GeoTel and no
change in the Price and/or no extension of timescales shall be
allowed.
5. THE PRICE
Subject to GeoTel's performance of all of its duties and obligations
under this Agreement, Digital shall pay GeoTel subject to and in
accordance with Appendix 2.
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6. DELIVERY
6.1 GeoTel shall develop and provide the Software in accordance
with the key dates as defined in Appendix .3. If no time is so
specified, GeoTel shall develop and provide the Software in
accordance with such timescales as the parties may agree in
writing.
6.2 GeoTel shall not, without the prior permission of Digital,
deliver any part order (by quantity or by item). In the event
that the Software is not available for delivery at the due
time, GeoTel shall (without prejudice to Digital's rights
under this Agreement) immediately inform Digital by telephone
or facsimile and confirm such communication by post
7. RECEIPT OF THE SOFTWARE
7.1 Initial receipt of the Software at the delivery point may be
signed for as unexamined and this shall not affect Digital's
rights subsequently to reject the Software. Where subsequent
checking shows a deficiency in the quantity of Software items
delivered, GeoTel shall make good the deficiency within 14
days of notice from Digital of the deficiency.
8. ACCEPTANCE TESTS
8.1 Digital and GeoTel shall agree a series of Acceptance Tests
which shall take place at appropriate stages within the
Project as indicated in the Project Plan.
8.2 When the Acceptance Tests have been passed in accordance with
this Agreement, Digital shall issue a dated certificate of
Acceptance to GeoTel.
8.3 Where the Software consists of sections or portions, the
Acceptance procedures outlined above shall be repeated for
each section or portion of the Software.
8.4 If the Software or any relevant part of it fails to pass the
Acceptance Tests, then GeoTel will either:
i) implement free of charge and within a reasonable time
such alterations or modifications to the Software as
are necessary to make possible the repetition of the
Acceptance Tests; or
ii) upon the request of Digital and, with GeoTel's
agreement, bring the Software into Commercial Service
in accordance with Condition 12 below.
8.5. If the Software fails to pass any repetition of the Acceptance
Tests then, Digital at its option, may:
i) request GeoTel to implement free of charge, and
within a reasonable time, such alterations or
modifications to the Software as are necessary to
make possible the repetition of the Acceptance Tests;
or
ii) bring the Work into Commercial Service; or
iii) terminate future performance of this Agreement.
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9. SOFTWARE LICENCE RIGHTS
9.1 GeoTel hereby grants to Digital:
i) where GeoTel shall have failed or been unable to meet Digital
and/or BT's reasonable requirements for new facilities and
features or shall have ceased to support the Software as provided
for in this Agreement; and,
ii) an exclusive, irrevocable, royalty free licence to use and copy
the BT Specific Development as defined in 1.1 and corresponding
Documentation and grant sub licences to BT in respect of the
same; and
iii) a non exclusive, irrevocable, royalty free licence to use and
copy GeoTel's Standard Products and corresponding Documentation
and grant sub-licences to BT in respect of the same; and
for the purposes of Digital's performance of the BT Contract
anywhere in the United Kingdom. Such rights shall include the
right, under the Condition entitled "Intellectual Property
Rights, in order to:
a) Use and copy for the purposes of operating or maintaining
the BT Network anywhere in the United Kingdom, including
training purposes, and the making of copies for back-up and
maintenance purposes; and
b) Modify or have modified the Software under the Condition
relating to Confidentiality, in the following circumstances:
iv) with the written consent of GeoTel, to allow integration with
Digital and/or BT support systems; and
v) to meet Digital and/or BT urgent operational requirements where
GeoTel is unable or fails to meet those operational requirements;
and (after proper consultation with GeoTel and with GeoTel's
written permission, where GeoTel shall have failed or been unable
to meet Digital and/or BT's reasonable requirements for new
features and facilities or shall have ceased to support the
Software as provided for in this Agreement:
a) enhance or have enhanced the Software; and
b) merge or have merged Digital and/or BT data with any
Software; and,
c) supply the Software or copies of the Software to third
parties under Conditions of Confidentiality for the purposes
of modification or enhancement or merger of the Software as
provided for above; and,
e) supply the Software or copies of the Software to third
parties under Conditions of Confidentiality for the purpose
of the design and supply to Digital and/or BT of systems
interoperable with the Equipment or Software which are
necessary for enabling such design and supply.
9.2 The sub licensing rights mentioned above shall always be subject to
the entering into of appropriate licenses containing no less stringent
licensing terms and conditions to those as set out in this Agreement.
9.3 Without prejudice to any other obligations of GeoTel under this
Agreement, GeoTel undertakes to obtain for Digital and/or BT an
irrevocable, royalty free licence upon the same terms from any third
party owning Intellectual Property Rights in the Software.
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9.4 Without prejudice to Digital's rights granted hereunder and always
subject to and in accordance with the terms and conditions of this
Agreement, for the purposes of Section 117 of the Copyright Act of
1976, as amended, and for all other purposes GeoTel shall be
considered the owner of the Software and any copies thereof and of its
Intellectual Property Rights. Physical copies of the Software, in
firmware, diskette, tape, paper, or other form shall be deemed to be
in loan to Digital and/or BT during the term of the licence and rights
as set out in this Agreement.
9.5 The provisions of this Condition 9 shall survive the expiry or
termination of this Agreement except in the event of termination due
to Digital's breach of this Agreement.
10. INDEMNITY - VIRUS PROTECTION
10.1 Each party shall take reasonable care to avoid the introduction of any
computer virus or malicious code in any Software that either party
supplies to the other or uses in the performance of the Work. If any
computer virus or malicious code is introduced into Digital or BT's
systems and/or network by GeoTel as a result of GeoTel's failure to
comply with this condition (including, but not limited to not using
any state of the art virus checker), then GeoTel shall, at its own
expense, use all reasonable endeavours to remove or, at its option,
counteract the virus or malicious code and restore such systems to the
state they were in prior to the introduction of the virus or malicious
code. GeoTel shall ensure, where possible, to keep adequate back-up
copies of all data, software and other materials and will take all
reasonable precautions to counteract the spread of any virus or
malicious code which has been introduced.
11. DOCUMENTATION
11.1 GeoTel shall, in consideration of the amount specified in Appendix 2
in respect of Documentation, prepare and supply to Digital all
installation guides and maintenance guides associated with the
Software and all other documentation (including without limitation
software documentation) necessary to use and maintain the Software and
to meet the requirements of this Agreement. The Documentation is
listed in the Customer Specification Document. GeoTel hereby grants to
Digital, BT and BT's customers the right to copy the Documentation and
make free use of the same for any reasonable purpose connected with
the sale, use or maintenance of the Software. Digital and/or BT
proprietary software documentation shall not be copied by GeoTel
without prior written authorisation from Digital.
12. COMMERCIAL SERVICE
12.1 Where Digital wishes to put the Software (or any portion thereof) into
Commercial Service in accordance with Conditions 8.5 and 8.6 above in
the event that the Software or any relevant part of it fails to pass
the Acceptance Tests, Digital will issue a Certificate of Commercial
Service. Such Certificate will detail all outstanding items and
deficiencies to be made good by GeoTel, as are known to Digital at the
date of issue of such Certificate.
12.2 *
12.3 The warranty arrangements detailed in this Agreement shall apply to
any Software put into Commercial Service from the date that such
Commercial Service begins. However, such
* Confidential Information omitted and filed separately with the Commission.
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arrangements shall be extended (free of additional charge to Digital)
for a period equal to that between the formal entry into Commercial
Service date and the Acceptance date by up to a maximum of 3 months.
12.4 GeoTel shall carry the risk in respect of any Software put into
Commercial Service (and for which title is still vested in GeoTel)
until such Software is Accepted by Digital. However, where Digital
puts the Software into Commercial Service prior to Acceptance against
the advice of GeoTel, then use of such Work shall be at Digital's sole
risk.
12.5 Digital and GeoTel shall agree mutually convenient times during which
GeoTel may be allowed access to the Software in Commercial Service for
the purposes of facilitating Acceptance by Digital of the Software in
Commercial Service. Such activities will be performed at no additional
expense to Digital.
12.6 When the deficiencies detailed in the Certificate of Commercial
Service have been remedied and the Software (or portion thereof) has
passed the agreed Acceptance Test(s), Digital will issue a certificate
of Acceptance.
12.7 Digital and GeoTel anticipate that for the 12 months subsequent to
acceptance of the product or initial placement into commercial
service, the licenses granted under this agreement will be deployed in
customer applications at rate of two (2) licenses per month. Digital
may accelerate this deployment rate at any time.
13. INTERFACE WITH OTHER EQUIPMENT
13.1 GeoTel shall ensure the successful interworking of the Software in or
with the BT Network existing at the date of BT's use of the Software
pursuant to the BT Contract and that the Software does not impair or
degrade the performance or operation of the BT Network or any other
telecommunications network.
13.2 GeoTel shall supply within two months of any request, at its own
reasonable cost such information as Digital or GeoTel may reasonably
require to enable Digital to interface and fully interwork Software
with the BT Network or any other telecommunications network.
14. ACCESS, ASSISTANCE AND PROGRESS REPORTS
14.1 GeoTel shall:
a) ensure that Digital (or any person authorised by Digital) shall
have access.. upon reasonable notice, at all reasonable times to
the premises of GeoTel, and those of any sub contractor, as
Digital may require to assess the progress of this Agreement; and
b) render such reports to Digital on the performance of this
Agreement, and attend such meetings, as may be reasonably
required by Digital; and nominate a suitable representative to
attend all such meetings.
c) The representative shall be fully conversant at all times with
the performance of this Agreement.
15. MISTAKES IN INFORMATION
15.1 GeoTel shall inform Digital in writing of any mistakes in design
information within a reasonable time of receipt.
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15.2 Any mistakes in Information owned or controlled by GeoTel and in any
Information relating to GeoTel's Intellectual Property Rights shall be
GeoTel's responsibility to remedy at its cost whether such Information
has been approved by Digital or not. Where any such remedial work is
undertaken by Digital after proper consultation with GeoTel, GeoTel
shall bear all costs.
16. DIGITAL AND/OR BT SUPPLIED ITEMS AND PROPERTY
16.1 Any and all items supplied by either Digital and/or BT ("the Digital
and/or BT Supplied Items") shall remain the property of Digital and/or
BT, as appropriate. GeoTel shall return them to Digital and/or BT upon
completion or termination of this Agreement or earlier upon reasonable
request. GeoTel shall keep the Digital and/or BT Supplied Items and
(before their delivery to Digital and/or BT) any items or things that
are or have become Digital's and/or BT Property ("Digital and/or BT
Property"), in safe custody and good condition, set aside and clearly
marked as Digital and/or BT Property.
16.2 Upon receipt of the Digital and/or BT Supplied Items, GeoTel shall
satisfy itself that they are not defective or deficient for the
purpose for which they are being provided, and within 14 days of
receipt shall notify Digital of any defects or deficiencies.
16.3 GeoTel shall not, without the prior written consent of Digital, use
the Digital and/or BT Supplied Items for any purpose other than is
necessary for the performance of this Agreement or allow any other
party to use, take possession of, or have any rights or lien over the
Digital and/or BT Supplied Items or Digital and/or BT Property.
16.4 Without limiting the generality of GeoTel's obligations, GeoTel shall
not have, and shall ensure that Contract Personnel shall not have, a
lien on the Digital and/or BT Supplied Items or Digital and/or BT
Property for any sum due. GeoTel shall take all reasonable steps to
ensure the title of Digital and/or BT and the exclusion of such lien
are brought to the notice of all Contract Personnel dealing with any
Digital and/or BT Supplied Items or Digital and/or BT Property.
16.5 In the event of any threatened seizure of any Digital and/or BT
Supplied Items or Digital and/or BT Property or in the event of GeoTel
(or any Contract Personnel in possession of such Digital and/or BT
Supplied Items or Property) going into receivership, administration or
liquidation (or the equivalent of any of these) GeoTel shall:
a) notify Digital immediately; and,
b) draw to the attention of the relevant official that Digital
and/or BT Supplied Items and Digital and/or BT Property are the
Property of Digital and/or BT and do not form part of GeoTel's
assets; and,
c) allow Digital and/or BT to enter GeoTel's premises or those of
any Contract Personnel where Digital and/or BT Supplied Items or
Digital and/or BT Property are stored and take possession of
them.
17. WARRANTY
17.1 GeoTel agrees that it fully understands the nature of the Work and
that it has satisfied itself as to the relevance and content of the
Customer Specification Document. Accordingly, GeoTel confirms that it
has the capacity to complete the Work and deliver the Software and
Documentation in accordance with this Agreement.
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17.2 GeoTel agrees that GeoTel are the sole legal and beneficial owner of
the Software and Documentation and that the same are free and clear of
all liens and encumbrances and free and clear from all claims and
demands of third parties.
17.3 GeoTel agrees that the Software and Intellectual Property Rights (or
any part thereof) shall not infringe or violate any United States of
America and/or United Kingdom patent, copyright, trademark, trade
secret or other right of any third party. GeoTel shall give Digital
immediate written notice if it becomes aware of any alleged
infringement or violation and shall indemnify Digital and Digital in
accordance with Condition 22 below.
17.4 GeoTel warrants that the Software shall conform and perform in
accordance with the Customer Specification Document and shall at its
own cost promptly remedy (by repair, replacement or modification, at
Digital's option), any defects in the Software notified by Digital and
which become apparent during the period commencing at Acceptance or
Commercial Service (as appropriate) and expiring 12 months thereafter
("Warranty Period"), due to:
i) defective workmanship; or,
ii) faulty design, (other than a design made or furnished or
specified by Digital and for which GeoTel has previously
disclaimed responsibility in writing within a reasonable time of
receipt of design); or,
iii) defective material supplied by GeoTel; or,
iv) any act, neglect or omission by GeoTel or Contract Personnel.
17.5 GeoTel shall:
i) ensure that any remedied part of the Software is compatible with
all of the Software and
ii) complete the remedy to the satisfaction of Digital within the
timescales set out in this Agreement; and
iii) ensure that defective Software is not remedied on Digital and/or
BT premises without Digital's consent, unless, for operational or
technical reasons they can only be removed or replaced with
difficulty; and cause the minimum of disruption to Digital and/or
BT and said parties' customers in effecting any remedy. The time
at which any remedy is to be effected shall be agreed with
Digital and Digital may at its discretion direct GeoTel to work
outside normal working hours at no cost to Digital.
17.6 The unexpired period of the Warranty Period or, if longer, a further
Warranty Period of 90 days, and the provisions of this Condition,
shall apply to all repaired or replacement Software and parts. GeoTel
shall, upon receipt of the Software returned under this Condition,
immediately investigate the Software and take all necessary
corrective action to prevent recurrence of the defects in any Software
to be supplied under this Agreement.
17.7 GeoTel warrants that the Software is where applicable, fully
compatible (without modification, loss of performance, loss of use, or
work or expense on the part of Digital and/or BT) with changes to
inputs or other information in relation to the dates arising in the
year 2000 and beyond and this warranty will remain effective after
the end of this Agreement.
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17.8 For the avoidance of any doubt, it is agreed that support and
maintenance shall commence from Acceptance or Commercial Service, as
appropriate and shall be provided in addition to the warranty
arrangements set out in this Condition 17 and that the fee for such
support and maintenance is included in the Price.
18. TITLE AND RISK
18.1 For the avoidance of any doubt, no title shall pass to Digital and/or
BT under this Agreement except that title in the C7 cards (as defined
in the Customer Specification Document) shall pass to Digital upon
payment therefor.
18.2 The risk of loss of or damage to the Software shall pass to Digital
upon delivery.
19. INFORMATION
19.1 Either party that has during the term of this Agreement received
Information in a recorded form from the other (or has recorded
received Information) shall return these records upon:
a) expiry or termination of this Agreement; or
b) earlier upon reasonable request:
unless such records are part of the Software.
19.2 Except as expressly set out in this Agreement, no assignment of or
licence under any Intellectual Property Right or trade mark or service
mark (whether registered or not) is granted by this Agreement.
20. CONFIDENTIALITY
20.1 A party to this Agreement receiving Information ("the Recipient") from
the other shall not, without the prior written consent of the other:
i) disclose the Information to any person other than the Recipient's
employees or a sub-contractor engaged for the purposes of this
Agreement; or
ii) use the Information other than for the purposes of this
Agreement.
20.2 Condition 20.1 of this Condition shall not apply to Information that
is:
i) published or becomes so otherwise than by breach of this
Agreement;
ii) lawfully known to the Recipient at the time of disclosure and is
not subject to any obligations of confidentiality;
iii) lawfully disclosed to the Recipient without any obligations of
confidentiality by a third party; or
iv) replicated by development independently carried out by or for the
Recipient.
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20.3 For the avoidance of doubt, it is agreed that this Condition 20 shall
also apply to
GeoTel's (and any sub-contractor of GeoTel) disclosure and use of
Information relating to Digital and/or BT's Intellectual Property
Rights which is owned or controlled by Digital.
20.4 GeoTel shall ensure that each sub-contractor engaged for the purpose
of this Agreement is bound by similar confidentiality terms to those
in this Condition.
20.5 Nothing in this Agreement shall prevent the Recipient from utilising
general skill or knowledge or experience gained from work carried out
under this Agreement insofar as such skill, knowledge or experience
does not infringe the other party's Intellectual Property Rights or
would involve a direct disclosure or unauthorised use of Information
which the Recipient is required under this Agreement to keep
confidential.
20.6 This Condition shall survive the expiry or termination of this
Agreement.
21. INTELLECTUAL PROPERTY
21.1 Due to GeoTel developing the Software (which is a Digital/BT specific
requirement) to be incorporated within GeoTel's Standard Products for
sub licensing to BT under the terms of this Agreement, the following
specific Condition 21.1. i) shall apply to the Software in addition to
Conditions 21.2 - 21.4 below:
i) The IPRs relating to all parts of the Software shall reside with
GeoTel and its licensor(s), as appropriate and Digital are
granted rights for the use and copying of the Software in
accordance with the terms and conditions of this Agreement.
21.2 The Intellectual Property Rights in any work and software additional
to the Work and the Software shall be agreed between the parties
pursuant to the Change Control Process.
21.3 To the extent necessary for Digital's use (including any agreed
further development) of the Software and the corresponding
Intellectual Property Rights, Digital shall have the right (in
addition to the rights set out in Conditions 3.7 and 3.8 above) to a
non-exclusive irrevocable licence to GeoTel's Intellectual Property
Rights. Such licence shall be granted subject to the payment of agreed
amounts.
21.4 In the event that GeoTel wishes to license its Intellectual Property
Rights under Condition 21.3 on royalty bearing terms, it shall
appropriately mark the deliverables hereunder or submit a written
notice to Digital indicating that use of the Software requires a
licence in respect of GeoTel's Intellectual Property Rights.
22. INTELLECTUAL PROPERTY RIGHTS INDEMNIFICATION
22.1 GeoTel indemnifies Digital against all actions, claims, proceedings,
damages, costs and expenses arising from any actual or alleged
infringement occurring in the United Kingdom and/or the United States
of America of GeoTel's Intellectual Property Rights whether created
under this Agreement or otherwise or breach of confidentiality by the
possession or use of the Software (or any part thereof) or GeoTel's
Intellectual Property Rights whether created under this Agreement or
otherwise or any other deliverable under this Agreement.
22.2 Digital shall notify GeoTel in writing of any such allegation received
by Digital and shall not make any admissions unless GeoTel gives prior
written consent.
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22.3 At GeoTel's request and expense, Digital shall permit GeoTel to
conduct all negotiations and litigation. Digital shall give all
reasonable assistance and GeoTel shall pay Digital's costs and
expenses so incurred.
22.4 GeoTel may (at GeoTel's option and at its expense) modify or replace
the Software to avoid any alleged or actual infringement or breach.
The modification or replacement must not affect the performance of the
Software.
22.5 This indemnity shall not apply to infringement or breaches arising
directly from:
i) compliance with the design information where such compliance
inevitably results in the infringement. This exception does not
apply to infringement resulting from a BT requirement that the
Software comply with a national or international standard; or
ii) the combination of the Software with other items not supplied
under this Agreement or the BT Contract.
22.6 Without prejudice to Condition 22.5.i) above, Digital warrants that
compliance with the design information for the purposes of the
provision of the Software to Digital and/or BT will not cause
infringement or breach.
22.7 This Condition 22 shall survive the expiry or termination of this
Agreement.
23. ESCROW
23.1.GeoTel shall not incorporate Information which is owned or controlled
by a third party into the Software if such Information could be
necessary for the maintenance or support of the Software unless GeoTel
shall have secured:
i) in the case of Information necessary for the maintenance or
support of the Software, the right to put the Information into
escrow to the benefit of Digital;
iv) or the prior written consent of Digital.
23.2 In addition to Condition 23.1 above, the Software (and all Revisions
thereto) shall be put into an appropriate escrow deposit in the United
Kingdom in accordance with this Condition. GeoTel shall if required by
Digital, enter into an agreement upon mutually fair and reasonable
terms and conditions for the deposit and maintenance of Documentation
and the source code version of the Software and information relating
thereto ("the Escrow Items"). The Escrow Items shall be released by
the escrow agent to Digital and/or BT in the event that has not been
satisfactorily remedied within a 30-day period by:
i) Source Code Escrow. Within 10 business days of the successful
acceptance by Digital as defined in paragraph 8 GeoTel agrees to
deposit the Escrow Items into escrow with a mutually agreed upon
escrow agent. This Escrow Agreement requires GeoTel to, and
GeoTel will, deposit updates to such deposited material upon
delivery of updates and upgrades to Digital hereunder. Evidence
of each deposit will be provided annually to Digital.
Additionally, such Escrow Agreement will provide for the release
of such Escrow Items in the event (each, a "Release Condition")
GeoTel:
a) ceases to be engaged in normal business operations for
period of thirty (30) days;
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<PAGE> 16
b) becomes involved in any voluntary or involuntary bankruptcy
or other insolvency proceeding or petition for the benefit
of creditors, or makes an assignment for the benefit of
creditors, and such proceeding, petition or assignment is
not dismissed or set aside within sixty (60) days after it
was made;
c) *
23.3 The information to be held in escrow in regard to Software shall
include the following:
i) Details of the programming language and version used (to include,
but not be limited to any extensions employed;
ii) Details of the compiler used;
iii) Full design documentation (this may be held on magnetic or
similar media);
iv) A copy of the source code listing on magnetic or similar media;
v) Any other documentation, records, methodologies, tools,
procedures and processes which may be deemed necessary in order
that Digital or an agent of Digital could support, maintain, and
enhance the Software.
This information shall be updated as necessary to incorporate changes
resulting from defect fixes and enhancements. It shall be the
responsibility of GeoTel to ensure the long term integrity and
security of this information. Where information is held on magnetic or
similar media, suitable hardware and if necessary software shall be
maintained in escrow by GeoTel to enable its retrieval. In the event
of the retrieval hardware/software becoming obsolete, it shall be the
responsibility of GeoTel to transfer the escrowed information to a
current system of storage.
23.4 In respect of Software written by GeoTel or its associate companies
and supplied to Digital under this Agreement, GeoTel shall either:
i) offer to provide, on fair and reasonable terms, maintenance
services for the Software in support of its use by Digital or
ii) supply Digital, at the cost of collation, reproduction and
dispatch, relevant source code for the relevant Software (or
parts thereof) for which GeoTel is no longer willing to offer
maintenance services solely for maintenance by or on behalf of
Digital of the relevant Software.
23.5 Fees and Expenses. The fees and expenses associated with the creation
of the escrow and naming of Digital as a third party beneficiary will
be borne by Digital.
23.6 Rights Transferable. Digital shall be entitled to make BT a party to
the Escrow Agreement provided for in this Article to the extent
required by BT. Notwithstanding anything to the contrary herein,
Digital may sublicense its rights to BT under the license described in
this Software Agreement under substantially similar terms and
conditions as are specified in the Software Agreement to the extent
required by BT.
* Confidential Information omitted and filed separately with the Commission.
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24. INDEMNITY
Without prejudice to any other rights or remedies available to Digital,
GeoTel shall indemnify Digital against all loss of or damage to any Digital
and/or BT property to the extent arising as a result of the negligence or
wilful acts or omissions of GeoTel or Contract Personnel in relation to the
performance of this Agreement; and all claims and proceedings, damages,
costs and expenses arising or incurred in respect of:
a) death or personal injury of any person in relation to the performance
of this Agreement, except to the extent caused by Digital's
negligence; or
b) death or personal injury of any other person to the extent arising as
a result of any defect in the Software or the negligence or wilful
acts or omissions of GeoTel or Contract Personnel in relation to the
performance of this Agreement; or
c) loss of or damage to any property to the extent arising as a result of
the negligence or wilful acts or omissions of GeoTel or Contract
Personnel in relation to the performance of this Agreement.
25. LIMITATION OF LIABILITY
25.1 Subject to Paragraph 3 of this Condition, GeoTel shall not be liable
to Digital and Digital shall not in any event be liable to GeoTel
whether founded in contract, tort, (including negligence), for any
breach of statutory duty or otherwise, or any damages resulting from
loss of data or use, corruption of data, loss of profits, anticipated
savings or business or for any indirect or consequential losses or
damage.
25.2 Subject to Paragraph 3 of this Condition, the liability of GeoTel to
Digital under this Agreement shall not exceed $* per unrelated
incident or in any event a total maximum of the amount paid to GeoTel
under this Agreement exclusive of any amounts paid under Appendix 6.
25.3 Paragraphs 1 and 2 of this Condition shall not apply to loss or damage
arising out of or in connection with:
i) death or personal injury; or
ii) Digital's obligation to pay the Price.
26. INSURANCE
26.1 GeoTel shall at its own expense effect and maintain for this term of
Agreement such insurances as required by any applicable law and as
appropriate in respect of its obligations under this Agreement. Such
insurances shall include third party liability insurance with an
indemnity limit of not less than $2,000,000 for each and every claim.
Digital insurance is limited to personal injury and damage to
property.
26.2 If GeoTel cannot provide evidence of such insurance to Digital on
request, Digital may arrange such insurance and recover the cost from
GeoTel.
26.3 GeoTel shall notify Digital as soon as it is aware of any event
occurring in relation to this Agreement which may give rise to an
obligation to indemnify Digital under this Agreement, or to a claim
under any insurance required by this Agreement.
26.4 This Condition shall not be deemed to limit in any way GeoTel's
liability under this Agreement.
* Confidential Information omitted and filed separately with the Commission.
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<PAGE> 18
27. TERMINATION
27.1 If either party commits a material breach or persistent breaches of
this Agreement and, in the case of a breach which is capable of
remedy, fails to remedy the breach within 30 days (or such longer
period as the parties may agree in writing including as indicted by
clauses in this Agreement) of written notice from the notifying party
to do so, then the notifying party shall have the right:
a) at any time to terminate this Agreement forthwith as a whole or
in respect of any part of this Agreement to be performed; and
b) to recover from the other party all losses and expenses incurred
subject always to the Limitation of Liability Condition.
27.2 Either party shall have the right at any time to terminate this
Agreement forthwith and to recover from the other all losses and
expenses incurred subject always to the Limitation of Liability
Condition if the other party shall become insolvent or cease to trade
or compound with its creditors; or a bankruptcy petition or order is
presented or made against the other party; or where the other party is
a partnership, against any one partner, or if a trustee in
sequestration is appointed in respect of the assets of the other party
or (where applicable) any one partner; or a receiver or an
administrative receiver is appointed in respect of any of the other
party's assets; or a petition for an administration order is presented
or such an order is made in relation to the other party; or a
resolution or petition or order to wind up the other party is passed
or presented or made or a liquidator is appointed in respect of the
other party (otherwise than for reconstruction or amalgamation).
27.3 Digital may at any time on written notice terminate this Agreement
forthwith. Where Digital terminates this Agreement under this
paragraph 3 and does not have any other right to terminate this
Agreement, the following shall apply:
a) Digital shall subject to sub-paragraph (b) below, pay GeoTel such
amounts as may be necessary to cover its reasonable costs and
outstanding and unavoidable commitments (and reasonable profit
thereon) necessarily and solely incurred in properly performing
this Agreement in relation to Applicable Software (as defined
below) prior to termination.
b) Digital shall not pay for any such costs or commitments that
GeoTel is able to mitigate and shall only pay costs and
commitments that Digital has validated to its reasonable
satisfaction. Digital shall not be liable to pay for any
Applicable Software that, at the date of termination, Digital is
entitled to reject (including any Software for which Digital may
have issued a Certificate of Commercial Service) or has already
rejected. Digital's total liability under sub-paragraph (a) above
shall not in any circumstances exceed the price that would have
been payable by Digital for Applicable Software if this Agreement
had not been terminated.
c) In this paragraph 3, "Applicable Software" means Software in
respect of which this Agreement has been terminated under this
paragraph, which were ordered by Digital under this Agreement
before the date of termination, and for which payment has not at
that date become due from Digital.
d) Sub-paragraphs (a) and (b) above encompass the total liability of
Digital for termination pursuant to this Paragraph, and Digital
shall be liable for no other costs, claims, damages, or expenses
consequent upon such termination.
27.4 The rights of the parties under this Condition is without prejudice to
any other right of the parties under this Condition or otherwise.
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28. FORCE MAJEURE
28.1 Neither party shall be liable to the other party for any delay in the
performance of this Agreement directly caused by any event beyond its
reasonable control provided such party shall have first given the
other party written notice within seven days after becoming aware that
such delay was likely to occur.
28.2 For the avoidance of any doubt, the provisions of this Condition shall
not affect Digital's right to terminate this Agreement under Paragraph
3 of the Condition headed "Termination".
29. SUSPENSION OF WORK
29.1 Digital may suspend the Work at any time (Digital will notify GeoTel if the
suspension is likely to be more than 3 months) and will pay to GeoTel all
reasonable resulting expenses incurred by GeoTel (other than those arising
from GeoTel's own default) provided that:
a) no payment shall be made for any period of suspension, prevention or
delay less than 2 consecutive working days; and,
b) GeoTel has within 10 working days after the event giving rise to the
claim, given notice in writing to Digital of its intention to make
such a claim; and,
c) GeoTel makes such claim giving details of each item claimed and the
reason for such cost within 30 days after Acceptance of the Software.
30. WORKING ON SITE
30.1 GeoTel shall be deemed to have examined the BT site in the United
Kingdom to which GeoTel may require access to perform its obligations
under this Agreement and to which deliveries may be made ("the Site")
and no claim from GeoTel for additional payment will be allowed on the
grounds of misinterpretation of any matter relating to the Site, or
which GeoTel could reasonably have satisfied itself by a visit to the
premises, reference to Digital and/or BT or otherwise.
30.2 GeoTel, if applicable, shall inform Digital and/or BT of the number of
employees to be brought onto the Site, and Digital and/or BT shall,
where reasonably practicable, provide:
a) such permanent or temporary sanitary and messing facilities as
Digital and/or BT considers are adequate for the number of
employees; and
b) a lockable office for the use of GeoTel and reasonable, suitable
accommodation for equipment and supplier's equipment, including a
lockable area for valuable stores and test equipment; and
c) a direct exchange line and telephone instrument for GeoTel's use,
but GeoTel shall pay all call charges.
30.3 GeoTel shall not (and shall ensure that Contract Personnel shall not)
use premium rate service lines or BT service lines or Digital and/or
BT customer lines other than for essential test purposes or directly
in connection with the performance of this Agreement, ensuring that in
all such cases, by the use of charge cards 'answer no charge' lines or
otherwise, no charge to any Digital and/or BT customer will arise.
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<PAGE> 20
30.4 GeoTel shall, as appropriate and as mutually agreed with GeoTel and
Digital, employ one or more competent representatives to supervise
the carrying out of the Work on the Site whose names shall be
notified to Digital and/or BT in writing.
30.5 Digital and/or BT shall provide GeoTel with facilities for carrying
out installation and commissioning of the Software on the Site and
shall provide facilities to carry out the Work on Digital and/or BT
premises. If Digital and/or BT envisage working out of hours then
they shall inform Digital and/or BT within a reasonable timescale to
enable Digital and/or BT to facilitate internal rota/overtime
arrangements.
30.6 Where the Work is to be carried out on Digital and/or BT customer
premises or other non-Digital and/or BT premises, Digital and/or BT
shall wherever possible provide facilities during reasonable working
hours as may be applicable to each Site as are agreed between
Digital and/or BT and GeoTel.
30.7 Digital and/or BT shall allow the application of electric power to
relevant parts of the Software on the Site outside the agreed
working hours, provided always that:
a) GeoTel has provided both power plant and system prompt alarms
to the Software and has successfully demonstrated their
operation to the satisfaction of Digital and/or BT; and,
b) Digital and/or BT is satisfied as to the adequacy of alarms
prior to giving agreement that such Software shall be left
unattended; and,
c) When a prompt alarm is generated by such Software it shall be
attended by the Digital and/or BT emergency call out engineer
who shall take such action as may be necessary to disconnect
the power supply (following appropriate procedures) and to
protect such Supplies, other equipment and the Site. Such
action shall be advised to GeoTel at the earliest opportunity
of action being taken, and shall be at GeoTel's risk and
expense; and,
d) GeoTel shall satisfy Digital and/or BT that the power
arrangements meet any safety provisions as may be applicable
to the Site.
30.8 Any statement of satisfaction by or on behalf of Digital and/or BT
shall be without prejudice to the obligations and liabilities of
GeoTel.
30.9 Digital and/or BT is responsible for preparing and maintaining a
safe and suitable site. GeoTel shall notify Digital and/or BT of any
potential health or safety risks that may exist on the Site. The
Work may not be performed if GeoTel reasonably believes that
conditions at the Site represent a safety or health risk. Where
GeoTel so requires, Digital and/or BT shall accompany GeoTel's
personnel while on Site for purposes connected with the Work.
30.10 Where there is a need to dispose of magnetic media (eg. computer
fixed disc storage) which is either old or faulty, the media shall
be securely disposed of in accordance with the requirements of a
non-disclosure agreement.
30.11 Operational machines which are used to process Digital and/or BT
data shall not be used for software code development purposes.
30.12 A software security policy document ("the Security Policy") shall be
prepared by GeoTel outlining the Software, the impact or loss
associated with a possible security failure, the threats to the
Software and the proposed countermeasures.
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31. DELIVERY AND REMOVAL OF THE SOFTWARE AND GEOTEL'S EQUIPMENT
31.1 GeoTel shall remove any of its equipment and any defective Software
(pursuant to the warranty, maintenance and support obligations set
out in the Agreement), leaving the Site clean and in no worse
condition as at the than commencement of Work, either:
a) immediately before submitting Software for Acceptance; or,
b) at any time prior to Acceptance, subject to 20 days written
notice from Digital.
31.2 If GeoTel fails to remove its equipment from Site as specified
above, then Digital may remove it at GeoTel's risk and expense.
32. SECURITY
32.1 GeoTel shall ensure that Contract Personnel conform to all security,
safety and works regulations and such other local instructions, as
may be notified by Digital or BT whilst on any Digital site or the
Site or customer premises.
32.2 Digital may remove from and refuse entry and re-admission to a
Digital site, the Site or customer premises any person who is, in
the reasonable opinion of Digital, not conforming with these
requirements or not a fit person to be allowed on such locations.
32.3 Digital and/or BT may, at its discretion, search any Contract
Personnel or their vehicles, huts, lockers or equipment upon any
Digital site or the Site or upon entry to and departure from the
Site, any Digital site or customer premises. GeoTel shall use its
best endeavours to ensure that Contract Personnel are aware of and
comply with these requirements and that no Contract Personnel
unwilling to comply will be employed on the Site, any Digital site
or customer premises.
32.3 GeoTel shall (and shall ensure Contract Personnel shall) access only
those parts of the Site, Digital sites or customer premises strictly
necessary for the purposes of this Agreement.
32.4 GeoTel shall ensure that no Digital or BT equipment, facilities or
materials are used or removed from the Site, any Digital site or
customer premises without Digital's written consent and shall
immediately notify Digital of any known or suspected breach of
security in relation to this Agreement and give Digital full
co-operation in any investigation.
32.5 GeoTel shall implement appropriate physical and electronic security
measures to safeguard any Digital or BT property it holds (whether
in vehicles or otherwise) against loss or theft. Digital shall have
the right to examine such arrangements and associated security
procedures where necessary, and to inspect all Digital property
being held by or on behalf of GeoTel, and GeoTel shall implement
such additional reasonable security measures as BT and/or Digital
shall require
32.6 GeoTel shall supply on request details (name, address, date of
birth) of any Contract Personnel who might have access to the Site,
any Digital site or customer premises under this Agreement.
32.7 Digital may examine any Information relating to the handling,
processing, transportation and storage of information or property of
or supplied by Digital and held by GeoTel under this Agreement,
which Information shall be kept by GeoTel for at least one year
after the termination or expiry of this Agreement
32.8 Digital shall not be responsible for safeguarding any property or
money of Contract Personnel.
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33. QUALITY
33.1 GeoTel and Digital shall, pursuant to the Project Plan, agree in
writing an appropriate quality plan to apply to this Agreement.
34. COMPLIANCE WITH LAWS AND REGULATIONS
34.1 GeoTel and the Software shall comply with:
a) all applicable legislation, regulations or by-laws of a local
or other authority; and any Digital site or Site regulations
that may be notified to GeoTel.
35. ASSIGNMENT AND SUBCONTRACTING
35.1 GeoTel shall not without Digital's written consent (such consent not
to be unreasonably withheld or delayed), assigned or subcontract the
whole or any part of this Agreement. Any consent, if given, shall
not affect GeoTel's obligations or liabilities under this Agreement.
35.2 GeoTel shall allow Digital access to its sub - contractors, if any,
for technical discussions provided that the proposed agenda for such
discussions and the outcome shall be promptly notified to GeoTel.
Digital will notify any changes or proposals identified during such
discussions to GeoTel who will process them in accordance with this
Agreement.
36. CONTRACT PERSONNEL
36.1 Contract Personnel shall be competent, appropriately qualified and
to Digital's reasonable satisfaction.
37. NON-NUCLEAR USE AND EXPORT CONTROL
37.1 Non Nuclear Use
Digital products are manufactured for standard commercial uses and
are not intended to be sold or licenced for use in critical safety
systems in nuclear facilities. Digital may require additional
contractual safeguard for other nuclear, mass transportation, and
aviation applications.
37.2 Export Control
GeoTel hereby warrants that the Software and Documentation are
licensed for the purpose and use contemplated by this Agreement
outside the United States. GeoTel and Digital shall comply with all
applicable laws, including without limitation, the export control
laws of the United States of America and prevailing regulations
which may be issued from time to time by the United States
Department of Commerce and Office of Munitions Control, US
Department of State concerning the exporting, importing and the
re-exporting of the Software and/or Documentation. Without limiting
the generality of the foregoing, Digital agrees that it should not
export or re-export any Software and/or Documentation in violation
of the regulations of the United States Department of Commerce or
the US Export Administration Act or without the prior written
consent of GeoTel which shall not be unreasonably delayed or
withheld.
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38. NOTICES
38.1 Notices required under this Agreement shall be in writing and be
delivered by hand, post or facsimile transmission to the Commercial
Contact of the recipient and shall be deemed to be given upon
receipt (except notices sent by facsimile transmission, which shall
be deemed to be given upon transmission).
39. GENERAL
39.1 The invalidity or unenforceability for any reason of any provision
of this Agreement shall not prejudice or affect the validity or
enforceability of its other provisions.
39.2 The headings to the Conditions are for reference only and shall not
affect their interpretation.
39.3 No delay, neglect or forbearance by either party in enforcing any
provision of this Agreement shall be deemed to be a waiver or in any
way prejudice any rights of that party. No waiver by either party
shall be effective unless made in writing or constitute a waiver of
rights in relation to any subsequent breach of this Agreement.
39.4 This Agreement governs the relationship between the parties to the
exclusion of any other terms and conditions on which any quotation
or tender response has been given to Digital and supersedes any
terms and conditions printed on the Purchase Order(s), all
conditions in the Evaluation Licence Agreement and the Development
Agreement, with the exception of the payment terms and acceptance
terms contained within said agreements.
39.5 This Agreement is governed by the laws of the Commonwealth of
Massachusetts. The parties will try and resolve any dispute relating
to this Agreement by negotiation between senior executives of the
parties. If the matter is not resolves, the parties agree to
consider resolving the dispute by an Alternative Dispute Resolution
("ADR") Procedure using the service of the Centre for Dispure
Resolution ("CEDR"), 3 - 5 Norwich Street London EC4A 1EJ.
39.6 GeoTel shall not be, nor in any way represent itself as, an agent of
Digital and shall have no authority to enter into any obligation on
behalf of Digital or to bind Digital in any way.
39.7 Except as expressly set out in this Agreement, no assignment of or
licence under any Intellectual Property Right or trade mark or
service mark (whether registered or not) is granted by this
Agreement.
39.8 The following provisions of this Agreement shall survive its
termination or expiry in addition to those provisions relating to
Intellectual Property and those which by their content or nature
will so survive:
Digital and/or BT Supplied Items and Property
Warranty,
Information,
Confidentiality,
Indemnity,
Intellectual Property,
Intellectual Property Rights Indemnification.
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40. PUBLICITY
40.1 No publicity relating to this Agreement shall be published in any
newspaper, magazine journal or any written or electronic (to
include, but not be limited to the Internet) or visual media without
the prior written consent of Digital and GeoTel.
Signed: /s/ John C. Thibault
--------------------------
For and on behalf of GeoTel Communications Corporation
Name: John C. Thibault
----------------------------
Title: President & CEO
---------------------------
Date: November 27, 1996
----------------------------
Signed: /s/ Virginia Lynch
---------------------------
For and on behalf of Digital Equipment Co. Limited
Name: Virginia Lynch
----------------------------
Title: Commercial Group Manager
----------------------------
Date: 1st December, 1996
----------------------------
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APPENDIX 1
THE WORK AND THE CUSTOMER SPECIFICATION DOCUMENT
1.1 *
1.2
1.3
1.4
1.5
* Confidential Information omitted and filed separately with the Commission.
25
<PAGE> 26
APPENDIX 2
DIGITAL PRICE LIST AND PAYMENT TERMS
1. BASE PRICES*
* Confidential Information omitted and filed separately with the Commission.
26
<PAGE> 27
APPENDIX 2
DIGITAL PRICE LIST AND PAYMENT TERMS - CONT'D
Other Extras*
* Confidential Information omitted and filed separately with the Commission.
27
<PAGE> 28
*
* Confidential Information omitted and filed separately with the Commission.
28
<PAGE> 29
APPENDIX 3
THE
PROJECT PLAN
*
* Confidential Information omitted and filed separately with the Commission.
29
<PAGE> 30
APPENDIX 4
SUPPORT AND MAINTENANCE
It is acknowledged and agreed between the parties that support and maintenance
has, as at the Agreement Date, yet to be agreed. In view of this, the parties
agree that the finalised details will be agreed within 60 days from such date
and incorporated into this Agreement at this Appendix. Such exercise will
consider the applicability of the including Section 5 of the BT Requirements
Document and in any event will be in respect of maintenance and support being
provided on the then prevailing current release and the release immediately
previous to the then current. In no case will the support extend beyond what is
defined in the GeoTel Customer Support policy or the Customer Specification
Document unless mutually agreed.
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APPENDIX 5
DOCUMENTATION
Final specification of the turnkey documentation (to be supplied to Digital as
set out in the Customer Specification Document Section 3.2 - Documentation and
Helpscreens) will be completed prior to the Documentation production activity
identified in the Project Plan as item 138 commencing on 3/2/1997
31
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APPENDIX 6
POTENTIAL EXCLUSIVITY AGREEMENT
EXCLUSIVITY
*
* Confidential Information omitted and filed separately with the Commission.
32
<PAGE> 1
EXHIBIT 10.23
SUBLEASE
THIS SUBLEASE made as of the ____day of February, 1997 between National
Medical Care, Inc. d/b/a Fresenius Medical Care - North America, a Delaware
corporation having a usual place of business at 95 Hayden Avenue, Lexington,
Massachusetts 02173 (hereinafter called "Sublandlord"), and Geotel
Communications Corporation, a Delaware corporation having a place of business at
25 Porter Drive, Littleton, Massachusetts 01460 (hereinafter called
"Subtenant").
WHEREAS, by a lease dated as of October 23,1995, (hereinafter called
the "Main Lease"), a copy of which is attached hereto as Exhibit A with the
rental amounts deleted, Cross Point Limited Partnership (hereinafter called
"Landlord"), leased to Sublandlord approximately 142,753 square feet of space in
the building located at 900 Chelmsford Street, Lowell, Massachusetts (the "Main
Premises") upon the terms, covenants and conditions therein contained; and
WHEREAS, Sublandlord has agreed to sublease to Subtenant a portion of
the premises demised under the Main Lease comprised of approximately 31,770
square feet in the location set forth in Exhibit B attached hereto (the
"Subleased Premises"), on the terms stated herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Sublandlord hereby leases to Subtenant, and Subtenant hereby takes and
leases from Sublandlord, the Subleased Premises; TO HAVE AND TO HOLD the
Subleased Premises for a term (the "Term") which commences on the date Landlord
gives consent to this Sublease (the "Commencement Date") and ends on December
31, 2006. The foregoing notwithstanding, Subtenant shall have the right to
terminate this Sublease at the end of the Seventy-second (72nd) month of the
Term (six years), provided Subtenant gives Sublandlord at least twelve (12)
months prior written notice.
2. The Subleased Premises shall be delivered to Subtenant in their "as is"
condition on the Commencement Date. The existing partitions, lights, doors,
ceiling tiles and any and all other building materials belonging to Sublandlord
located within the Premises on the Commencement Date shall become the permanent
property of Subtenant at no additional cost to Subtenant. Subtenant shall have
the same rights to make initial improvements to the Subleased Premises (the
"Initial Improvements") as set forth in Section 4 of the Main Lease, except that
Sublandlord shall have the same rights to review and approve such work as the
rights granted to Landlord under Section 4 of the Main Lease, and that such
rights of the Sublandlord shall be in addition to the rights of the Landlord
under Section 4 of the Main Lease. The plans and specifications for the Initial
Improvements are attached hereto as Exhibit C and made a part hereof. All
Initial Improvements and any and all other improvements to the Subleased
Premises will be made at the expense of Subtenant and in accordance with all
applicable local, state and federal laws, rules and regulations, including the
Americans With Disabilities Act.
3. 3.1. Sublandlord grants to Subtenant, to share in common with
Sublandlord, all of Sublandlord's rights, benefits, and interests (except as
otherwise provided for herein) and Subtenant
<PAGE> 2
agrees to accept from Sublandlord and hereby assumes all of Sublandlord's
obligations under the Main Lease. Subtenant hereby expressly agrees and
covenants to Landlord and to Sublandlord, that Subtenant assumes, is bound by
and shall faithfully perform, all of the obligations of Sublandlord as tenant
under the Main Lease with respect to the Subleased Premises, except as otherwise
expressly provided for herein. It is further agreed that the relationship
between, and the rights of, Subtenant and Sublandlord shall, except as expressly
provided for herein, be governed by the Main Lease as if they were tenant and
landlord, respectively, under the Main Lease, and that Sublandlord specifically
shall have all rights granted to Landlord under the Main Lease with respect to
enforcement of the provisions of this Sublease and the termination hereof;
provided, however, that Sublandlord shall not be deemed to guarantee performance
by Landlord of its obligations under the Main Lease, and Sublandlord shall have
no liability to Subtenant for any default in this Sublease caused by the default
or any other act of Landlord under the Main Lease. However, if Landlord shall
default in any of its obligations to Sublandlord under the Main Lease,
Sublandlord shall cooperate with Subtenant, upon request by Subtenant, in
enforcing Sublandlord's rights against Landlord under the Main Lease. Any
out-of-pocket costs associated with enforcing such rights shall be incurred
solely by Subtenant unless there is some mutual benefit between Subtenant and
Sublandlord in enforcing Landlord's obligations under the Main Lease, in which
case such costs shall be equitably shared between Subtenant and Sublandlord. It
is further agreed that performance by Sublandlord shall be conditional upon the
performance by Landlord of its obligations under the Main Lease. Sublandlord
shall be entitled to exercise any of the remedies set forth in Section 16 of the
Main Lease upon the occurrence of any of the defaults set forth therein.
3.2. The following provisions of the Main Lease are excluded from the
terms hereof, and Subtenant shall have no rights thereunder: items 6,7,8,9, 10
and 15 of the Lease Schedule except as specifically provided for herein;
subsection (c) of Section 24 (Parking); Section 26 (First Option to Extend);
Section 27 (Second Option to Extend); Section 28 (Right of First Offer to
Lease); Section 29 (First Expansion Option); and Section 30 (Second Expansion
Option). The second and third sentences of Section 3 are excluded such that
Subtenant shall not have the right to operate or maintain a health club or
fitness room within the Subleased Premises. The second paragraph of Section 32
(Signage) is excluded such that Subtenant shall have no right to exterior
signage.
3.3 The following references to numbers of days in the Main Lease are
changed as follows with respect to the relationship between Sublandlord and
Subtenant:
(i) subsection 2.C (v) - 90 days to inspect Landlord's accounting
records relative to Taxes and Expenses is reduced to 75 days;
(ii) subsection 2.C.(ix) - 10 working days to pay certain amounts
after receipt of notice that amounts are due is reduced to 7
working days;
(iii) subsection 5.E - 30 days of utility outage after notice is
received by Landlord is increased to 32 days;
(iv) subsection 10.A -15 days prior to commencement and expiration of
insurance policies to deliver certificates of insurance to
Landlord is increased to 20 days;
2
<PAGE> 3
(v) subsection 12.F - 60 days after casualty for Landlord to notify
Tenant of its decision to restore is increased to 65 days, and
15 days for Tenant to inform Landlord of exercise of a certain
termination right is reduced to 7 days;
(vi) Section 13 - 30 days after notice of condemnation to give notice
of exercise of right to terminate is reduced to 20 days in the
case of Tenant's notice to Landlord and increased to 35 days in
the case of Landlord's notice to Tenant;
(vii) subsection 16.A.(ii) - all references regarding cure that
prescribe 30 days are reduced to 25 days, and all references
prescribing 20 days are reduced to 15 days;
(viii) subsection 16.A.(iii) - 60 days for discharge of levy or
attachment is reduced to 45 days;
(ix) subsection 16.A.(v) -10 days to deliver certificates is reduced
to 7 days;
(x) subsection 16.A.(vi) -10 days to deliver instruments is reduced
to 7 days;
(xi) Section 18 -10 days' prior request to deliver certificates is
reduced to 7 days;
(xii) Section 33 - 30 day cure periods and payment periods are
increased to 40 days.
3.4. Subtenant's parking rights shall be comprised of its pro rata
share of Sublandlord's allocable share of vehicular parking spaces in the
Parking Lot and the Parking Garage, if any, as set forth in subsections 24.A.
and 24.B. of the Main Lease. Subtenant shall not be entitled to any credit
against the Rent due under this Sublease notwithstanding any provision of
subsection 24.B.
3.5. Notwithstanding anything herein to the contrary, Subtenant's
rights of access to Tower 2 Roof shall be limited as follows: All rights of
Subtenant pursuant to Section 35 of the Main Lease are subject to Landlord's
consent, and shall be limited by Sublandlord as reasonably appropriate to enable
Sublandlord's other subtenants in the Main Premises, existing now or hereafter,
to have access to the Tower 2 roof in accordance with Section 35 of the Main
Lease. To the extent practicable, Sublessor's grant of Subtenant's rights under
this Section 3.8 shall be based on Subtenant's proportionate share of the Main
Premises.
4. Subtenant covenants and agrees with Sublandlord to pay to Sublandlord
as rent during the term hereof as follows:
4.1. Base Rent shall be paid in advance on the first day of each month
of this Sublease beginning on the Occupancy Date and continuing through the
remaining term of this Sublease. For purposes of this Sublease, the Occupancy
Date is defined as the date Subtenant substantially completes its Initial
Improvements or occupies the Subleased Premises, whichever occurs first.
However, in the event of unreasonable delays caused by Subtenant which result in
Subtenant being unable to occupy the Subleased Premises on or before May 15,
1997, the Commencement Date will be May 15, 1997. Base Rent will be as follows:
3
<PAGE> 4
<TABLE>
<S> <C>
Occupancy Date through March 31, 2002: $25,151.25
April 1, 2002 through December 31, 2006: $30,446.25
</TABLE>
4.2 All Adjustment Rent as defined in Section 3 of the Main lease and
all other additional rent including, without limitation, operating costs, taxes,
expenses, charges and fees required by the Main Lease allocable to the Subleased
Premises during the term on a pro rata square footage basis, shall accrue and be
payable by Subtenant beginning on the Occupancy Date and continuing for the
remaining term of this Sublease. However, the cost of electrical power and other
utilities supplied to the Subleased Premises shall accrue and be payable by
Subtenant beginning on the Commencement Date and continuing for the entire term
of this Subleases. There will be a pro rata adjustment to the Base Rent and all
Adjustment and additional rent for the month in which either the Commencement
Date or the Occupancy Date occurs, if such date is a day other than the first
day of the month.
4.3 After the end of each calendar year during the Term after the Base
Year, Sublandlord shall deliver to Subtenant a written statement prepared in
accordance with generally accepted accounting principles showing for the
calendar year just ended (i) the amount of building expenses, as defined in the
Main Lease, (ii) the excess of building expenses above the Base Year amount, and
(iii) the aggregate amount previously paid by Subtenant for the calendar year.
If the statement shows the excess for the calendar year just ended
exceeded the amount paid by Subtenant on account thereof, Subtenant shall pay
the amount of such difference to Sublandlord on the later of thirty (30) days or
when the next Base Rent payment is due. If the statement shows that the amount
paid by Subtenant hereof on account of Adjustment Rent for the calendar year
just ended exceeded the excess of Adjustment Rent above the Base Year amount,
such amount shall be credited by Sublandlord against the monthly installments of
Adjustment Rent next due. Should such excess occur during the last month of the
term, Sublandlord shall refund such excess to Subtenant. Sublandlord shall
provide Subtenant appropriate documentation that itemizes all the building
expenses for the previous calendar year, upon Subtenants request.
4.4. All payments under this Section 4 shall be made by Subtenant
without any setoff or deduction whatsoever, in lawful money of the United
States. Such payments shall be paid to Sublandlord at Sublandlord's office
hereinabove set forth or at such other place or to such other party or parties
as Sublandlord may from time to tome designate by notice to Subtenant. Subtenant
shall pay Sublandlord interest at the default rate set forth in the Main Lease
on any payments required by this Section 4 which are not made by Subtenant when
due.
5. Subtenant covenants and agrees to use the Subleased Premises for office
purposes consistent with a first-class office building and for no other purpose.
Subject to Landlord's consent and to the terms of the Main Lease, Subtenant may
use the Subleased Premises for the following: general and executive offices;
sales, service and display of computers and related equipment and supplies;
computer operations; demonstration of Subtenant's products and customer/employee
training in the use thereof; receiving, shipping and storage of computers,
equipment and supplies associated with the foregoing; computer related research
and development; prototype assembly; and shipping and receiving packages and
equipment. To the extent permitted by Landlord, Subtenant shall be
4
<PAGE> 5
permitted to ship and receive packages and equipment by and between the loading
docks and other areas within the Main Premises.
6. Sublandlord warrants and represents that it has no knowledge of any
default by itself or by landlord under the Main Lease; that the Main Lease is in
full force and effect and that Sublandlord has a good right to sublease its
interest in the same provided Sublandlord obtains the consent of Landlord in
accordance with Subsection 14(A) of the Main Lease and obtains the consent of
Landlord's lender or lenders who may have approval rights in connection with
this Sublease; and that Sublandlord has done nothing to defeat or impair this
Sublease. Sublandlord further warrants and covenants that Subtenant, upon
performance of Subtenant's obligations hereunder and subject to the provisions
hereof, shall for the term hereof, succeed to all rights of Sublandlord under
the Main Lease with respect to the Subleased Premises and will have quiet
possession of the Subleased Premises unless the Main Lease be terminated for any
reason; provided, however, that this Sublease shall be in all respects subject
to the Main Lease and if the Main Lease shall terminate during the term hereof
for any reason, this Sublease shall terminate upon such termination with the
same force and effect as if such termination date had been named herein as the
termination date hereof; and if any provisions of this Sublease shall be in
violation of the provisions of the Main Lease, the provisions of the Main Lease
shall be deemed to limit the provisions hereof. It is expressly understood and
agreed, however, that nothing stated in this Section 6 shall be deemed to confer
upon Subtenant any greater rights than are set forth herein nor limit any of the
Subtenant's obligations hereunder.
7. Subtenant agrees to do nothing which will subject the Main Lease to
termination by Landlord under the provisions of the Main Lease, and it is
further agreed that if Subtenant is in default of the provisions of the Main
Lease, Sublandlord may, after seven (7) days written notice to Subtenant or
immediately in the event of an emergency, but need not, cure said default
specifically on behalf of and for the account of Subtenant, in which case all
costs, damages, and expenses incurred by Sublandlord in connection therewith
shall be paid to Sublandlord immediately upon its demand as additional rent
hereunder. By curing Subtenant's default on its behalf and account, as
aforesaid, Sublandlord shall not be deemed to have waived any of its rights nor
to have released Subtenant from any of its obligations under this Sublease. It
is agreed, however, that Sublandlord may cure said default on its own account to
preserve its interest in the Main Leases and may terminate this Sublease
pursuant to the terms hereof by reason of said default by Subtenant, if
Subtenant does not pay as additional rent to Sublandlord all costs, damages and
expenses incurred by Sublandlord in connection with such cure within the
applicable grace period provided for in the Main Lease, as amended by Section 3
above. In the event of such termination, Sublandlord shall be entitled to all
remedies and damages provided for Landlord in the Main Lease, or as otherwise
provided by law. In the event that the Sublease is terminated by reason of
Subtenant's default, Subtenant shall indemnify and hold Sublandlord harmless
from such damages as Sublandlord may become liable to pay under the Main Lease
with respect to the Sublease Premises resulting from such default, plus all
other expenses and costs related thereto, including without limitation
attorneys' fees.
8. Subtenant shall be permitted to install its own signage within the
Building, subject to approval by the Landlord.
9. Subtenant shall have the right to sublet or assign this Sublease
subject to the consent of the Landlord and Landlord's right to recapture under
the terms and conditions of the Main Lease and
5
<PAGE> 6
also subject to Sublandlord's independent consent, such consent by Sublandlord
not to be unreasonably withheld.
10. Subtenant shall maintain with respect to the Subleased Premises the
insurance required by the Main Lease to be taken out by the tenant thereunder,
which insurance shall name Landlord and Sublandlord as additional insureds, all
in accordance with said sections of the Main Lease.
11. At the expiration or earlier termination of this Lease, Subtenant shall
surrender and yield up the Subleased Premises in the condition required under
Section 15 of the Main Lease, and shall remove all equipment and trade fixtures
of Subtenant therefrom. If Subtenant shall remain in possession of the Subleased
Premises after the expiration or earlier termination of this Sublease without
any express agreement as to such holding over, Subtenant shall be liable to
Sublandlord in accordance with the Main Lease.
12. Subtenant further agrees to indemnify and hold Sublandlord harmless
from any claim of Landlord under the Main Lease, and against any claim for
injury to persons, including death, and for property damages, arising out of the
occupancy and use of the Subleased Premises by Subtenant its officers, agents,
employees or invitees.
13. Subtenant shall deposit with Sublandlord upon Subtenant's execution
hereof a security deposit in the amount of $37,726.88 (the "Security Deposit")
as security for Subtenant's faithful performance of Subtenant's obligations
under this Sublease. Subtenant shall pay an additional security deposit of
$5,295.00 on or before the first day of the 61st month of the term of this
Sublease, whereupon the Base Rent increases proportionally. If Subtenant fails
to pay Base Rent or other rent or charges due hereunder, or otherwise defaults
under this Sublease, Sublandlord may use, apply or retain all or any portion of
said Security Deposit for the payment of any amount due Sublandlord or to
reimburse or compensate Sublandlord for any liability, cost, expense, loss or
damage (including attorneys' fees) which Sublandlord may suffer or incur by
reason thereof. If Sublandlord uses or applies all or any portion of said
Security Deposit, Subtenant shall within ten (10) days after written request
therefore deposit monies with Sublandlord sufficient to restore said Security
Deposit to the full amount required by this Sublease. Sublandlord shall not be
required to keep all or any part of the Security Deposit separate from its
general accounts. Sublandlord shall, at the expiration or earlier termination
for the term hereof and after Subtenant has vacated the Premises, return to
Subtenant (or, at Sublandlord's option, to the last assignee, if any, of
Subtenant's interest herein), that portion of the Security Deposit not used or
applied by Sublandlord unless otherwise expressly agreed in writing by
Sublandlord, no part of the Security Deposit shall be considered to be held in
trust, to bear interest or other increment for its use, or to be prepayment for
any monies to be paid by Subtenant under this Sublease.
14. All notices required to be given under this Sublease shall be sent by
prepaid registered or certified mail, return receipt requested, to Sublandlord,
to the attention of the Corporate Law Department, at the addresses above stated,
and to Subtenant at the Sublease Premises, unless in either case a different
address is specified by either party to the other in writing by prepaid
registered or certified mail, return receipt requested. Any such notices shall
be deemed to have been given when deposited with the U.S. Mail.
6
<PAGE> 7
15. Sublandlord hereby reserves the right to enter onto the Subleased
Premises, from time to time at reasonable times and upon prior notice to
Subtenant which is reasonable under the circumstances, to ascertain whether
Subtenant is in compliance with the provisions of this Sublease.
16. Upon written request by Subtenant, Sublandlord agrees to use reasonable
efforts to obtain consent of the Landlord in a timely manner wherever such
consent is required in the Main Lease.
17. Sublandlord agrees to use reasonable efforts in a timely manner in
exercising its remedies under the Lease in the event the Landlord fails to
perform its obligations under the Main Lease.
18. If any provision of this Sublease, or the particular application
thereof, shall to any extent be held invalid or unenforceable by a court of
competent jurisdiction, the invalidity of such provision shall not be deemed to
affect the validity of any other provision of this Sublease. Such invalid
provisions shall be deemed to be stricken from this Sublease, which shall
otherwise continue in full force and effect in all respects.
19. This Sublease shall be binding upon and inure to the benefit of the
parties hereto and their respective permitted successors, assigns, heirs and
legal representatives.
20. This Sublease shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
21. Sublandlord and Subtenant each warrant to the other that it has had no
dealings with any broker or agent in connection with this Sublease except for
Spaulding & Slye who shall be paid by Sublandlord pursuant to a separate written
agreement. Sublandlord and Subtenant covenant to hold harmless and indemnify the
other party from and against any and all costs (including, without limitation,
attorney's fees for defense of an action), expenses or liability for any
compensation, commissions and charges which result from the breach of this
warranty.
22. Notwithstanding anything to the contrary contained herein, this
Sublease shall not become or be deemed to have become effective until mutually
executed and delivered by Subtenant and Sublandlord and consented to by Landlord
in writing.
23. ADDITIONAL SPACE. Sublandlord agrees to sublease to Subtenant
additional space on the 10th floor of Tower II of the Main Premises under the
terms and conditions contained in Addendum I and Addendum II attached hereto and
made a part hereof.
EXECUTED under seal as of the day and year first above written.
SUBLANDLORD:
NATIONAL MEDICAL CARE, INC.
By:______________________________
Its:_____________________________
7
<PAGE> 8
hereunto duly authorized
SUBTENANT:
GEOTEL COMMUNICATIONS CORPORATION
By:______________________________
Its:_____________________________
hereunto duly authorized
8
<PAGE> 1
EXHIBIT 11.1
GEOTEL COMMUNICATIONS CORPORATION
STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS)
PER COMMON SHARE AND COMMON AND EQUIVALENT SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
--------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Historical -- Primary (3):
Weighted average issued common stock outstanding..... 1,874,300 2,304,134 3,466,160
Cheap stock(1)....................................... 850,595 850,595 821,847
Weighted average common stock equivalents............ -- -- 7,442,899
--------- ---------- ----------
Weighted average number of common and common
equivalent shares outstanding................. 2,724,895 3,154,729 11,730,906
========= ========== ==========
Net income (loss)......................................... $(2,966) $(3,862) $754
Less: accretion of redeemable convertible preferred stock
to redemption value..................................... (35) (77) (97)
--------- ---------- ----------
Net income (loss) available (attributable) to common
shareholders............................................ $(3,001) $(3,939) $657
========= ========== ==========
Net income (loss) per common and common equivalent
shares.................................................. $(1.10) $(1.25) $0.06
========= ========== ==========
Supplemental (2):
Weighted average issued common stock and preferred
stock outstanding.................................. 6,626,131 9,514,870 10,909,059
Cheap stock(1)....................................... 850,595 850,595 821,847
--------- ---------- ----------
Pro Forma weighted average number of common and
common equivalent shares outstanding.......... 7,476,726 10,365,465 11,730,906
========= ========== ==========
Net income (loss)......................................... $(2,966) $(3,862) $754
========= ========== ==========
Pro Forma net income (loss) per common and common
equivalent shares....................................... $(0.40) $(0.37) $0.06
========= ========== ==========
</TABLE>
- ---------------
(1) In accordance with Securities and Exchange Commission Staff Accounting Bull
issuances of common stock, common stock equivalents and Convertible
Preferred Stock within one year prior to the initial filing of the
registration statement, at share prices below the assumed initial public
offering price of $12.00 are considered to have been made in anticipation of
the contemplated public of which this registration statement was prepared.
Accordingly, these stock issuance treated as if issued and outstanding,
using the treasury stock method for option the inception of the Company.
(2) Supplementary net income (loss) per common share has been computed in the
same manner as historical, except that all outstanding shares of Convertible
Preferred Stock converted into Common Stock upon the closing of the IPO are
treated as having been converted into Common Stock at the date of original
issuance.
(3) Fully diluted net income (loss) per share is not presented as it is the same
as the disclosed in historical net income (loss) per share for all periods
presented.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of GeoTel Communications Corporation on Form S-8 (File No. 33-21525) of our
report dated January 17, 1997, except as to the second paragraph in Note I for
which the date is March 20, 1997, on our audits of the consolidated financial
statements of GeoTel Communications Corporation as of December 31, 1996 and
1995, and for the two years then ended, which report is included in this
Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 27, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated March 21, 1995 included in this Form 10-K,
into the Company's previously filed Registration Statement No. 33-21525.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP;
Boston, Massachusetts
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 33,263
<SECURITIES> 0
<RECEIVABLES> 2,121
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,908
<PP&E> 2,052
<DEPRECIATION> (1,036)
<TOTAL-ASSETS> 36,924
<CURRENT-LIABILITIES> 4,487
<BONDS> 0
0
0
<COMMON> 134
<OTHER-SE> 39,967
<TOTAL-LIABILITY-AND-EQUITY> 36,924
<SALES> 9,047
<TOTAL-REVENUES> 9,047
<CGS> 1,711
<TOTAL-COSTS> 8,609
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70
<INCOME-PRETAX> 754
<INCOME-TAX> 0
<INCOME-CONTINUING> 754
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 754
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
