<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1997.
REGISTRATION NO. 333-24479
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 7372 94-3120525
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1155 MARKET STREET
SAN FRANCISCO, CALIFORNIA 94103
(415) 437-1100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
<TABLE>
<S> <C>
GREGORY SHENKMAN ALEC MILOSLAVSKY
VICE CHAIRMAN OF THE BOARD AND CHIEF TECHNICAL
PRESIDENT AND CHIEF EXECUTIVE OFFICER OFFICER
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
1155 MARKET STREET
SAN FRANCISCO, CALIFORNIA 94103
(415) 437-1100
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
EDWARD M. LEONARD, ESQ. ROBERT V. GUNDERSON, JR., ESQ.
SCOTT D. LESTER, ESQ. DANIEL E. O'CONNOR, ESQ.
BROBECK, PHLEGER & HARRISON LLP GUNDERSON DETTMER STOUGH VILLENEUVE
TWO EMBARCADERO PLACE FRANKLIN & HACHIGIAN, LLP
2200 GENG ROAD 155 CONSTITUTION DRIVE
PALO ALTO, CALIFORNIA 94303 MENLO PARK, CALIFORNIA 94025
(415) 424-0160 (415) 321-2400
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par
value.................. 2,875,000 shares $16.00 $46,000,000 $13,940(3)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
(3) $558 paid herewith. $11,152 of such fee was previously paid in connection
with the original filing on April 3, 1997, $1,952 was previously paid in
connection with the filing of Amendment No. 1 on May 7, 1996 and $278 was
previously paid in connection with the filing of Amendment No. 2 on May
27, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 12, 1997
2,500,000 SHARES
LOGO
COMMON STOCK
(NO PAR VALUE)
-----------
Of the 2,500,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by Genesys Telecommunications Laboratories, Inc. and 500,000 shares
are being sold by the Selling Shareholders. See "Principal and Selling
Shareholders". The Company will not receive any of the proceeds from the sale
of shares by the Selling Shareholders. Prior to this offering, there has been
no public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $14.00 and $16.00 per
share. For factors to be considered in determining the initial public offering
price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "GCTI".
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HASTHE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIESCOMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) SHAREHOLDERS
-------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
Total(3).................. $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $1,100,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 375,000 shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments. If
such option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting".
-----------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about , 1997, against payment therefor in immediately available
funds.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
ROBERTSON, STEPHENS & COMPANY
-----------
The date of this Prospectus is , 1997.
<PAGE>
[ARTWORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THIS
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial data appearing elsewhere in this
Prospectus, including information under "Risk Factors". Except as set forth in
the Consolidated Financial Statements and the Notes thereto, and unless
otherwise indicated, all information contained in this Prospectus (i) reflects
the conversion of all outstanding shares of Preferred Stock of the Company into
shares of Common Stock of the Company on a one-to-one basis and (ii) assumes no
exercise of the Underwriters' over-allotment option. See "Description of
Capital Stock" and "Underwriting". Unless otherwise referenced herein,
references to Consolidated Financial Statements shall mean references to the
Consolidated Financial Statements of Genesys Telecommunications Laboratories,
Inc. and its subsidiaries. For the definition of certain terms used in this
Prospectus, see the Glossary included herein.
THE COMPANY
Genesys Telecommunications Laboratories, Inc. ("Genesys" or the "Company") is
a leading provider of enterprise-wide platform and applications software that
enables organizations to integrate critical business information and computing
resources with telephony and other telecommunications media. The Company's
products allow an organization to optimally manage its customer interactions
and employee communications to increase productivity, lower costs and achieve
greater customer satisfaction and loyalty. In addition, the Company's products
enable organizations to develop and offer new or enhanced revenue-generating
products and services. Genesys believes that it is the first company to offer a
suite of open, scaleable, enterprise-wide platform and applications software
solutions to address the evolving needs of organizations for intelligent
communications, a new market paradigm known as Enterprise Computer Telephony
Integration ("ECTI").
The Company's platform and applications software products allow organizations
to integrate disparate telecommunications media with heterogeneous computing
environments. The Company's platform products integrate with most major
telephone systems and interoperate across most major computing platforms,
operating systems and databases, enabling organizations to manage their desktop
and media resources throughout the enterprise. Together with the Company's
platform software, Genesys offers a range of applications that provide advanced
ECTI solutions, such as intelligent call routing, outbound/blended dialing and
campaign management, real-time and historical management reporting and Web-
based telephony fulfillment. The open, standards-based nature of the Company's
platform products allows an organization to leverage its investments in
existing telecommunications and computing infrastructure, software applications
and employee training. The Company's products also support the integration of
internally developed or commercially available business applications, such as
help desk or sales force automation. In order to assist customers in realizing
the maximum benefit from its solutions, the Company augments its products with
a range of implementation, training and support services.
The Company initially targeted formal call centers within key industries,
such as telecommunications, financial services and technology, as the initial
market for its products. More recently, Genesys has broadened its target
markets to include network service providers ("NSPs"), which the Company
believes, through the use of the Company's products in the NSPs' networks, may
be able to offer a range of solutions for the informal call center, small
office/home office ("SOHO") and, eventually, consumer markets. To date, the
Company has licensed its products to more than 125 end-users worldwide,
including: Ameritech, Bell South Communication Systems, BT, Charles Schwab &
Co., Inc., Gateway 2000 Inc., MCI Telecommunications Corporation, NationsBanc
Services, Inc., NB Tel, The SABRE Group, Sprint/United Management and The
Student Loan Corporation.
3
<PAGE>
An organization's ability to manage the increasingly complex information
requirements of customers and employees in a cost-effective manner is an
important competitive advantage. Modern organizations communicate, both
internally and externally, through a variety of different communications media,
including telephony, voice mail, e-mail, the Internet/intranets and video.
Traditionally, each of these media and its associated databases and information
retrieval systems have been treated as a unique and separate environment within
which specialized applications have been developed, resulting in the creation
of "silos" of information that are not intelligently utilized across the
enterprise. This lack of interoperability has prevented organizations from
optimally managing customer interactions and employee communications and has,
in turn, limited productivity, increased costs and restricted the ability of
organizations to generate greater customer satisfaction and loyalty. To be most
effective, organizations now need to make information available at any time it
is needed, anywhere it may be located and in any way that it may be requested.
The shortcomings in the traditional means of managing customer interactions and
employee communications, in combination with general business trends (such as
the increasingly global nature of business operations, the proliferation of
distributed computing environments, the deregulation of major industries and
the increase in merger and acquisition and partnering activity) have created
what the Company believes to be a significant market opportunity for open,
scaleable, standards-based ECTI solutions.
The Company's objective is to be the leading provider worldwide of open,
scaleable ECTI platform and applications software. In order to meet this goal,
the Company's strategy is to establish the Genesys framework as an open, ECTI
market standard, provide industry-leading, technologically advanced products,
target strategic markets, develop and leverage strategic business relationships
and penetrate the network services market. The Company's sales and marketing
strategy is to target large organizations through its worldwide direct sales
force and through a broad range of indirect channels, including
telecommunications equipment vendors, systems integrators, VARs, ISVs and NSPs.
THE OFFERING
<TABLE>
<C> <S>
Common Stock to be offered by the Company.............. 2,000,000 shares
Common Stock to be offered by the Selling Shareholders. 500,000 shares
Common Stock to be outstanding after this offering..... 19,228,150 shares(1)
Proposed Nasdaq National Market symbol................. GCTI
Use of Proceeds........................................ Working capital and general
corporate purposes
</TABLE>
- --------
(1) Based on the number of shares outstanding as of March 31, 1997. Excludes
6,335,811 shares of Common Stock issuable upon exercise of stock options
and 494,629 shares of Common Stock issuable upon exercise of warrants to
purchase Common Stock, which options and warrants were outstanding as of
March 31, 1997. Assumes the exercise of a warrant to purchase 420,282
shares of Common Stock prior to the closing of the offering. Assumes no
other exercise of stock options or warrants after March 31, 1997. See
"Management--Stock Plans", "Description of Capital Stock--Warrants" and
Notes 9 and 10 of Notes to Consolidated Financial Statements.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------ ------------------
1993 1994 1995 1996 1996 1997
----- ------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
License................... $ -- $ 460 $3,077 $ 7,369 $ 4,429 $ 19,445
Service................... 956 1,272 1,403 1,950 1,187 2,546
----- ------ ------ ------- -------- --------
Total revenues............ 956 1,732 4,480 9,319 5,616 21,991
Cost of revenues:
License................... -- 23 123 308 183 926
Service................... 352 595 1,190 2,568 1,487 2,574
----- ------ ------ ------- -------- --------
Total cost of revenues.... 352 618 1,313 2,876 1,670 3,500
----- ------ ------ ------- -------- --------
Gross margin............... 604 1,114 3,167 6,443 3,946 18,491
Operating expenses:
Research and development.. 357 578 959 3,673 2,475 5,995
Sales and marketing....... -- 162 705 3,030 1,731 9,303
General and
administrative........... 503 534 1,343 2,979 2,296 2,538
----- ------ ------ ------- -------- --------
Total operating expenses.. 860 1,274 3,007 9,682 6,502 17,836
----- ------ ------ ------- -------- --------
Income (loss) from
operations................ (256) (160) 160 (3,239) (2,556) 655
Interest and other income
(expense), net............ (8) 23 (6) (88) (88) 168
----- ------ ------ ------- -------- --------
Income before provision for
income taxes.............. (264) (137) 154 (3,327) (2,644) 823
Provision for income taxes. -- -- -- -- -- 230
----- ------ ------ ------- -------- --------
Net income (loss)(1)....... $(264) $ (137) $ 154 $(3,327) $ (2,644) $ 593
===== ====== ====== ======= ======== ========
Pro forma net income (loss)
per share(1).............. $ (0.18) $ (0.15) $ 0.03
======= ======== ========
Pro forma weighted average
common shares and
equivalents............... 18,644 18,079 22,540
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------
PRO PRO FORMA AS
ACTUAL FORMA(2) ADJUSTED(3)
------- -------- ------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 9,574 $12,074 $38,874
Working capital................................... 10,432 12,932 39,732
Total assets...................................... 31,015 33,515 60,315
Long-term obligations............................. 147 147 147
Total shareholders' equity........................ 18,239 20,739 47,539
</TABLE>
- --------
(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method of calculation.
(2) Pro forma as of March 31, 1997, to give effect to the exercise of an
outstanding warrant to purchase 420,282 shares of Common Stock on a cash
basis prior to the closing of this offering and the conversion of the
Company's Preferred Stock into Common Stock. See Note 2 of Notes to
Consolidated Financial Statements.
(3) Pro forma as provided in footnote (2), and as adjusted to reflect the sale
of 2,000,000 shares of Common Stock by the Company at an assumed initial
public offering price of $15.00 per share and the application of the
estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization".
----------------
NetVector, NetVectoring and VIDEOACD are registered trademarks of the
Company, and the Coil logo, Call Center Pulse, Campaign Manager, DART, ICD,
ICIS, InterActive-T, T-Server and VIDEOICD are trademarks of the Company. This
Prospectus also includes trade names and trademarks of other companies.
5
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating an
investment in the Common Stock offered hereby. Certain statements contained in
this Prospectus constitute "forward-looking statements". Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Given these uncertainties, prospective investors are cautioned not
to place undue reliance on such forward-looking statements. See "Special Note
Regarding Forward-Looking Statements".
LIMITED OPERATING HISTORY
The Company was founded in October 1990 and began shipment of its platform
product in 1991. As of March 31, 1997, the Company had an accumulated deficit
of approximately $3.0 million. Although the Company was profitable in the
quarters ended December 31, 1996 and March 31, 1997, there can be no assurance
that the Company will remain profitable on a quarterly basis or achieve
profitability on an annual basis. The Company's limited operating history
makes the prediction of future operating results unreliable. Although the
Company has experienced significant growth in revenues in recent periods, the
Company does not believe prior growth rates are sustainable or indicative of
future revenue growth rates or operating results. The Company's prospects must
be considered in light of the risks encountered by companies in an early stage
of development, particularly companies in new and rapidly evolving markets.
Future operating results will depend on many factors, including demand for and
market acceptance of the Company's products, the level of product and price
competition, the ability of the Company to develop, market and deploy new,
high-quality products and to control costs, the ability of the Company to
expand its direct sales force and indirect distribution channels, the
Company's success in attracting and retaining key personnel, the uncertainty,
recent emergence and acceptance of the ECTI market, and technological changes
in the ECTI market. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have in the past fluctuated and
may in the future fluctuate significantly, depending on a number of factors,
many of which are beyond the Company's control, including: market acceptance
of the Company products; the Company's ability to develop and market new
products and product enhancements; the size, timing and recognition of revenue
from significant orders; the length of sales and implementation cycles;
competition; the Company's success in establishing indirect sales channels and
expanding its direct sales force; the Company's success in retaining and
training third-party support personnel; the timing of new product releases by
the Company and its competitors; the delay or deferral of significant revenues
until acceptance of software required by an individual license transaction;
technological changes in the ECTI market; the deferral of customer orders in
anticipation of new products and product enhancements; purchasing patterns of
indirect channel partners and customers; changes in pricing policies by the
Company and its competitors; the mix of revenues derived from the Company's
direct sales force and various indirect distribution and marketing channels;
the mix of revenues derived from domestic and international customers;
seasonality; changes in operating expenses; changes in relationships with
strategic partners; changes in Company strategy; personnel changes; foreign
currency exchange rate fluctuations; the ability of the Company to control its
costs; and general economic factors.
The Company currently operates with limited backlog. The Company derives
substantially all of its revenues from licenses of the Company's platform and
related applications software and services.
6
<PAGE>
The Company believes that the purchase of its products is relatively
discretionary and generally involves a significant commitment of capital and
other resources by a customer. The Company's typical order size per site
ranges from $100,000 to $300,000; however, several orders during the nine
months ended March 31, 1997 have exceeded $1.0 million each. The timing of the
receipt and shipment of a single order can have a significant impact on the
Company's revenues and results of operations for a particular quarter. In
situations requiring customer acceptance of implementation, the Company does
not recognize license revenues until installations are complete and does not
recognize the consulting component of service revenues until the services are
rendered. As a result, revenue recognition may be delayed in many instances.
Historically, the Company has often recognized a substantial portion of its
revenues in the last month of a quarter, with these revenues frequently
concentrated in the last two weeks of a quarter. As a result, product revenues
in any quarter are substantially dependent on orders booked and shipped in
that quarter, and revenues for any future quarter are not predictable with any
meaningful degree of certainty. Product revenues are also difficult to
forecast because the market for ECTI software products is rapidly evolving,
and the Company's sales cycle, which may last from three to nine months or
more, varies substantially from customer to customer. The Company's quarterly
revenues are also subject to seasonal fluctuations, particularly in the
quarter ending in September when reduced activity outside North America during
the summer months can adversely affect the Company's revenues. The Company's
expenses are relatively fixed and are based, in part, on its expectations as
to future revenues. Consequently, if future revenue levels are below
expectations, net income would be disproportionately affected because a
proportionately smaller amount of the Company's expenses varies with its
revenues. In addition, the Company expects that sales derived through indirect
channels, which are more difficult to forecast and generally have lower gross
margins than direct sales, will increase as a percentage of total revenues.
Due to all of the foregoing factors, the Company believes that period-to-
period comparisons of its results of operations are not meaningful and should
not be relied upon as indications of future performance. It is likely that in
some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations".
LENGTHY SALES CYCLE
Because of the mission-critical nature of the Company's products, the
purchase of such products is typically a strategic decision that requires
approval at senior levels of customers' organizations. In addition, the
purchase of the Company's products involves a significant commitment of
customers' personnel, financial and other resources. Furthermore, the cost of
the Company's products is typically only a small portion of the related
hardware, software, development, training and integration costs associated
with implementing an ECTI solution. For these and other reasons, the sales
cycle associated with the purchase of the Company's products is typically
complex, lengthy and subject to a number of significant risks, including
changes in customers' budgetary constraints and approval at senior levels of
customers' organizations, over which the Company has no control. The Company's
sales cycle can range from three to nine months or more and varies
substantially from customer to customer. Because of the lengthy sales cycle
and the dependence of the Company's quarterly revenues upon a small number of
orders that represent large dollar amounts, the loss or delay of a single
order could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Sales, Marketing and Support".
LENGTHY IMPLEMENTATION CYCLE; DEPENDENCE ON THIRD PARTY CONSULTANTS
The time required to deploy the Company's products can vary significantly
with the needs of each customer and the complexity of a customer's
telecommunications and computing infrastructure.
7
<PAGE>
Accordingly, deployment of the Company's products is generally a process that
extends for several months and may involve a pilot implementation, successful
completion of which is typically a prerequisite for full-scale deployment.
Because of their complexity, larger implementations, especially multi-site or
enterprise-wide implementations, can take several quarters. The Company
generally relies upon internal resources or third-party consultants to
implement its products. The Company has experienced difficulty implementing
customer orders on a timely basis in the past due to the limited resources
available to the Company, although such difficulties have not had a material
adverse effect on the Company's business, results of operations or financial
condition. There can be no assurance that the Company will not experience
delays in the implementation of orders in the future, that third-party
consultants will be available as needed by the Company to implement orders on
a timely basis or that consultants will be able to successfully install the
Company's products. Any delays in the implementation of orders could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, any significant delay in the
implementation of a customer order could cause a customer to reject the
Company's software, which could impair the Company's reputation. The rejection
of the Company's software by one or more customers could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Sales, Marketing and Support".
DEPENDENCE ON NEW PRODUCTS; RAPID TECHNOLOGICAL CHANGE
The market for the Company's products is characterized by rapid
technological change, frequent new product introductions, changes in customer
requirements and emerging industry standards. The introduction of products
embodying new technologies and the emergence of new industry standards could
render the Company's 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 develop and introduce new
products and product enhancements on a timely basis that keep pace with
technological developments and emerging industry standards and address
increasingly sophisticated requirements of its customers. There can be no
assurance that the Company will be successful in developing and marketing new
products or product enhancements that respond to technological changes or
evolving industry standards, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these new products or product enhancements, or that its new
products or 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 market new products or product
enhancements in a timely and cost-effective manner, the Company's business,
financial condition and results of operations would be materially adversely
affected. As part of the Company's ongoing development process, in March 1997,
the Company announced version 5.0 of its T-Server platform software and the
potential future release of several new application products and certain
enhancements to existing application products, which the Company currently
plans to make available at various times during 1997. Certain of the Company's
competitors currently offer products with features and functionality similar
to these planned products and product enhancements. Due to the complexity of
ECTI software and the difficulty in gauging the engineering effort required to
produce these planned products and product enhancements, such planned products
and product enhancements are subject to significant technological risks. There
can be no assurance that such planned products and product enhancements will
be introduced and deployed on a timely basis or at all. In the past, the
Company has experienced significant delays in the commencement of commercial
shipments of its new and enhanced products. If any new products or product
enhancements are delayed or do not achieve market acceptance, this may result
in the cancellation or delay of customer orders which could materially
adversely affect the Company's business, financial condition and results of
operations. The Company has also, in the past, experienced delays in purchases
of its products by customers anticipating the launch of new products by the
Company. There can be no assurance there will not be significant cancellations
of orders received in anticipation of new product introductions in the future.
8
<PAGE>
The Company's products may contain undetected errors or failures when first
introduced or as new versions are released. The Company has in the past
discovered software errors in its new products and product enhancements after
their introduction and has experienced delays or lost revenues during those
periods required to correct these errors. 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 and product enhancements after commencement
of commercial shipments, resulting in loss of or delay in market acceptance,
which could have a material adverse effect upon the Company's business,
results of operations and financial condition. See "Business--Products" and
"--Research and Development".
COMPETITION
The market for the Company's software products is highly competitive and
subject to rapid technological change. The Company expects competition to
increase significantly in the future. The Company's principal competition
currently comes from different market segments including computer telephony
platform developers, computer telephony applications software developers and
telecommunications equipment vendors. These competitors include Aspect
Telecommunications, Dialogic Corporation, GeoTel Communications Corporation,
Hewlett-Packard, IBM Corporation, IEX Corporation, Lucent Technologies,
Nabnasset Corporation, Northern Telecom and Tandem Computers Incorporated. The
Company also competes to a lesser extent with new or recent entrants to the
marketplace. The Company's competitors vary in size and in the scope and
breadth of the products and services offered. Many of the Company's current
and potential competitors have longer operating histories, significantly
greater financial, technical, marketing, customer service and other resources,
greater name recognition and a larger installed base of customers than the
Company. As a result, such competitors may be able to respond to new or
emerging technologies and changes in customer requirements more expediently
than the Company, or to devote greater resources to the development, promotion
and sale of products than can the Company. Current and potential competitors
have established and may in the future establish cooperative relationships
among themselves or with third parties to increase the ability of their
products to address the needs of the Company's current or prospective
customers. In addition, as the ECTI market develops, a number of companies
with significantly greater resources than the Company could attempt to
increase their presence in the ECTI market by acquiring or forming strategic
alliances with competitors of the Company. Accordingly, it is likely that new
competitors or alliances among competitors will emerge and may rapidly acquire
significant market share, which would have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, because there are relatively low barriers to entry in the software
market, the Company expects additional competition from other established and
emerging companies if the ECTI market continues to develop and expand.
Increased competition is likely to result in price reductions, reduced margins
and loss of market share, any of which could materially adversely affect the
Company's business, financial condition and results of operations. In order to
be successful in the future, the Company must respond promptly and effectively
to the challenges of technological change, changing customer requirements and
competitors' innovations. 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, financial condition and results of operations.
PRODUCT CONCENTRATION
Substantially all of the Company's revenues to date have been attributable
to the license of the Company's platform and related applications software and
services and, in particular, revenues from the license of the Company's
platform products accounted for 49% of total revenues for the nine months
ended March 31, 1997. The Company's platform and related applications software
and services are currently expected to account for substantially all of the
Company's revenues for the foreseeable future.
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Consequently, a decline in demand for, or failure to achieve broad market
acceptance of, the Company's platform and related applications software
products, as a result of competition, technological change or otherwise, would
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company's application products can only be used
in conjunction with the Company's platform products. As a result, a decline in
demand for the Company's platform products would materially adversely affect
sales of the Company's application products. Furthermore, if customers
experience problems with the Company's platform products, it would adversely
affect their ability to utilize the Company's application products. The
Company's future financial performance will depend in part on the successful
development, introduction and customer acceptance of new and enhanced versions
of its platform and related applications software products. There can be no
assurance that the Company will continue to be successful in marketing its
platform products, related applications software or any new or enhanced
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Products".
MANAGEMENT OF GROWTH
The Company has recently experienced a period of significant expansion of
its operations, including substantial growth in its number of employees, that
has placed a strain upon its management, information systems and operations.
As of March 31, 1997, the Company had a total of 309 employees, as compared to
approximately 160 on June 30, 1996. The failure of the Company to manage its
internal expansion effectively could have a material adverse effect on the
Company's business, financial condition and results of operations. The
Company's ability to compete effectively and to manage future growth, if any,
will require the Company to significantly improve its financial and management
controls, reporting systems and procedures on a timely basis and expand, train
and manage its employee workforce. Six of the Company's nine executive
officers joined the Company within the past year, including its Chief
Financial Officer, Vice President of Sales, Vice President of Channels, Vice
President of Business Development, Vice President of Product Development and
Vice President of Network Services. In addition, the Company is currently
attempting to recruit a Vice President of Marketing. The Company's ability to
compete effectively and to successfully implement its strategies will depend
in part upon its ability to integrate these and future new managers into its
operations. Competition for such personnel is intense, and the failure to
attract, train and retain such personnel in the future on a timely basis could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company's future operating results will also
depend on its ability to expand its sales and marketing organizations, further
develop its channels to penetrate different and broader markets and expand its
support organization to accommodate the rapid growth in its installed base.
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, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Sales, Marketing and Support".
DEPENDENCE ON THIRD-PARTY RESELLERS
An integral part of the Company's strategy is to develop multiple
distribution channels, to increase the proportion of its revenue obtained from
third-party resellers and to enhance the Company's installation and deployment
capabilities. The Company intends to continue to expend significant resources
to develop third-party reseller channels, such as value-added resellers
("VARs"), original equipment manufacturers ("OEMs"), systems integrators and
independent software vendors ("ISVs"). Many of these third-party resellers do
not have minimum purchase or resale requirements and can cease marketing the
Company's products at any time. Certain of these third-party resellers also
offer competing products that they produce or that are produced by third
parties. There can be no assurance that the Company's existing third-party
resellers will continue to provide the level of services and technical support
required by the Company's customers or that they will not emphasize their own
or third-party products to the detriment of the Company's products. The loss
of a significant number of
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the Company's third-party resellers, the failure of such parties to sell the
Company's products, or the inability of the Company to attract and retain new
third-party resellers with the technical, industry and application expertise
required to market and deploy the Company's products successfully in the
future could have a material adverse effect on the Company's business,
financial condition and results of operations. To the extent that the Company
is successful in increasing its sales through third-party resellers, those
sales may be at more discounted rates, and revenue to the Company for each
such sale may be less than if the Company had licensed the same products to
the customer directly. See "Business--Sales, Marketing and Support".
The Company is also seeking to establish strategic relationships with
telecommunications switch vendors. Certain of these vendors' products offer
certain of the functionality provided by the Company's products. In addition,
certain of these vendors offer competing products that are produced by third
parties. The Company has entered into reseller agreements with certain of the
telecommunications switch vendors, including those that compete with the
Company. Such switch vendors often attempt to sell their products or third
party products, rather than the Company's products, to prospective customers.
Many of these switch vendors do not have minimum purchase or resale
requirements and can cease marketing the Company's products at any time. There
can be no assurance that the telecommunications switch vendors that currently
resell the Company's products or partner with the Company will continue to do
so in the future. There can also be no assurance that the Company will be able
to develop relationships with other switch vendors in the future. The loss of
a significant number of the switch vendors or failure of such parties to sell
the Company's products or the inability of the Company to attract and retain
new switch vendor resellers in the future could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Sales, Marketing and Support" and "--Competition".
A key element of the Company's strategy is to incorporate its products into
local and long distance network carriers' product offerings. In the near term,
the Company is focused on enabling Network Service Providers ("NSPs") to offer
ECTI services to their corporate customers. There can be no assurance that the
Company will be able to establish relationships with NSPs, that NSPs will
successfully incorporate the Company's products into their product offerings,
or that corporate or other customers will be interested in purchasing the
Company's products through the NSPs. Failure of the Company to develop this
channel for any of the foregoing or other reasons could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Sales, Marketing and Support".
GEOTEL LITIGATION
On December 17, 1996, GeoTel Communications Corporation ("GeoTel") filed a
lawsuit in the United States District Court for the District of Massachusetts
naming the Company as defendant, and alleging infringement of a patent issued
to GeoTel entitled "Communications System Using a Central Controller to
Control at Least One Network and Agent System", U.S. Patent No. 5,546,452 (the
"GeoTel Patent"). In the complaint, GeoTel requested injunctive relief, an
accounting for damages and an assessment of interest and costs, and other
relief as the court deems just and proper. On February 10, 1997, the Company
filed an answer in response to the complaint filed by GeoTel, asserting that
the GeoTel patent is invalid, denying the alleged patent infringement and
seeking dismissal of the complaint with prejudice. On April 24, 1997, the
Company received correspondence from GeoTel's counsel indicating that GeoTel
intends to request a reexamination of the GeoTel Patent with the Patent and
Trademark Office. The Company intends to move for a stay of the federal court
litigation pending the outcome of such a reexamination proceeding. If the
reexamination proceeding is ordered by the Patent Office, and the stay is
granted by the federal district court, it is expected that the Patent Office
activity will delay the litigation for at least one year. The Company believes
that it has meritorious defenses to the asserted claims and intends to defend
the litigation vigorously. GeoTel alleges that the Genesys Call
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Router, Genesys Call Center Manager and Genesys Call Concentrator products,
and the T-Server product, as a necessary element of all Genesys products,
infringe the GeoTel Patent. After consultation with the patent law firm of
Blakely Sokoloff Taylor & Zafman, the Company does not believe any of the
products described under "Business--Products" infringe any valid claims of the
GeoTel Patent. In connection with the Company's development of the potential
new products described under "Business--Research and Development", the Company
has sought the advice of such counsel and believes that such potential
products can be developed without infringing the GeoTel Patent; however, there
can be no assurance that GeoTel will not assert infringement of the GeoTel
Patent with respect to such potential new products. Further, the outcome of
litigation is inherently unpredictable, and there can be no assurance that the
results of these proceedings will be favorable to the Company or that they
will not have a material adverse effect on the Company's business, financial
condition or results of operations. Regardless of the ultimate outcome, the
GeoTel litigation could result in substantial expense to the Company and
significant diversion of effort by the Company's technical and managerial
personnel. If the Court determines that the Company infringes GeoTel's patent
and that the GeoTel patent is valid and enforceable, it could issue an
injunction against the use or sale of certain of the Company's products and it
could assess significant damages against the Company. Accordingly, an adverse
determination in the proceeding could subject the Company to significant
liabilities and require the Company to seek a license from GeoTel. Although
patent and other intellectual property disputes in the software area have
sometimes been settled through licensing or similar arrangements, costs
associated with such arrangements may be substantial, and there can be no
assurance that a license from GeoTel, if required, would be available to the
Company on acceptable terms or at all. Accordingly, an adverse determination
in the GeoTel litigation could prevent the Company from licensing certain of
its software products, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
CUSTOMER CONCENTRATION
A relatively small number of customers have accounted for a significant
percentage of the Company's revenues. In fiscal 1994, one customer accounted
for 26.5% of total revenues; in fiscal 1995, three other customers accounted
for 11.1%, 11.2% and 12.8% of total revenues, respectively; and in fiscal
1996, one of these customers and two other customers accounted for
approximately 10.2%, 10.0% and 10.8% of total revenues, respectively. One
customer accounted for 16.3% of total revenues in the nine months ended March
31, 1997 (and 27.8% for the quarter ended March 31, 1997). For the quarter
ended March 31, 1997, three customers accounted for 46.6% of total revenues.
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, and such customers are expected to vary from period-to-period. In
general, the Company's customers are not 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, the failure by the Company to successfully sell its products to one or
more targeted customers in any particular period, or the deferral or
cancellation of orders by one or more customers, could have a material adverse
effect on the Company's business, financial condition and results of
operations. There can be no assurance that any customer will continue to
purchase the Company's products. The loss of a major customer or any reduction
in orders by such customer, including reductions due to market or competitive
conditions, would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's operating results
may in the future be subject to substantial period-to-period fluctuations as a
consequence of such customer concentration. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Sales, Marketing and Support".
DEPENDENCE ON EMERGING ECTI MARKET
The market for ECTI software is an emerging market that is extremely
competitive, currently evolving and subject to rapid technological change. The
Company's future financial performance will
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depend in large part on continued growth in the number of organizations
adopting ECTI solutions. The market for the Company's products is relatively
new and undeveloped, and recent customers and prospective customers have
little experience with deploying, maintaining or managing ECTI solutions. If
the demand for ECTI software fails to develop, or develops more slowly than
the Company currently anticipates, it could have a material adverse effect on
the demand for the Company's products and on its business, financial condition
and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS
For the fiscal years ended June 30 1994, 1995 and 1996, and the nine months
ended March 31, 1997, the Company derived 40.6%, 30.9%, 36.2% and 36.0% of its
total revenues, respectively, from sales outside the United States. The
Company anticipates that a significant portion of its revenues for the
foreseeable future will be derived from sources outside the United States. The
Company intends to continue to expand its sales and support operations outside
the United States and to enter additional international markets. This will
require significant management attention and resources, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. To successfully expand international sales, the Company
must establish additional foreign operations, hire additional personnel,
establish a foreign direct sales force and recruit additional international
resellers. To the extent that the Company is unable to do so in a timely
manner, the Company's growth in international sales, if any, will be limited,
and the Company's business, financial condition and results of operations
could be materially adversely affected. The Company's ability to expand its
ECTI platform and applications software internationally is limited to those
countries where there is regulatory approval of the third-party telephony
hardware supported by the Company's products. The Company expects to commit
additional development resources to customizing its products for selected
international markets and to developing international sales and support
channels. There can be no assurance that the Company will be successful in
expanding its operations outside the United States, entering additional
international markets or expanding its international sales. See "Business--
Customers" and "--Sales, Marketing and Support".
International operations are generally subject to a number of risks,
including costs of customizing products for foreign countries, protectionist
laws and business practices that support local competition to the Company's
detriment, dependence on local resellers, multiple, conflicting and changing
government regulations regarding communications, use of data and control of
Internet access, longer sales and payment cycles, unexpected changes in
regulatory requirements, import and export restrictions and tariffs,
difficulties in staffing and managing foreign operations, greater difficulty
or delay in accounts receivable collection, potentially adverse tax
consequences, the burdens of complying with a variety of foreign laws, the
impact of possible recessionary environments in economies outside the United
States and political and economic instability. The Company's international
sales are currently denominated in both U.S. dollars and foreign currencies.
The Company believes that an increasing portion of the Company's revenues,
cost of revenues and operating expenses will be denominated in foreign
currencies. Although it is impossible to predict future exchange rate
movements between the U.S. dollar and other currencies, it can be anticipated
that to the extent the U.S. dollar strengthens or weakens against other
currencies, a substantial portion of the Company's revenues and operating
expenses will be proportionally lower or higher than would be the case in a
more stable foreign currency environment. Although the Company may from time
to time undertake foreign exchange hedging transactions to cover a portion of
its foreign currency transaction exposure, the Company does not currently
attempt to cover potential foreign currency exposure. In the event the Company
increases its international sales, its total revenue may also fluctuate to a
greater extent due to the seasonality of European sales during the summer
months. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation" and "Business--Sales, Marketing and Support".
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DEPENDENCE ON KEY PERSONNEL
The Company's future performance will depend significantly upon the
continued contributions of its executive officers and of its technical, sales,
marketing, customer service and finance personnel. The Company does not have
an employment agreement with any of its employees or maintain key person life
insurance with respect to any employee. The loss of any of the Company's
executive officers, in particular, Gregory Shenkman, President and Chief
Executive Officer, Alec Miloslavsky, Vice Chairman of the Board and Chief
Technical Officer or Michael J. McCloskey, Vice President of Finance and
International and Chief Financial Officer, or other key personnel could have a
material adverse effect on the Company's business, results of operations and
financial condition. The Company's future performance also depends on its
continuing ability to attract, train and retain highly qualified technical,
sales, marketing, customer service and finance personnel. The Company
continues to require additional personnel due to its recent growth and
occasional delays in filling key positions have placed additional burdens on
existing personnel. See "Business--Employees" and "Management".
GOVERNMENT REGULATION OF IMMIGRATION
As of April 30, 1997, over 25% of the Company's employees, including
approximately 65% of the Company's technical staff, are non-U.S. citizens or
non-permanent residents. Accordingly, the Company must comply with the
immigration laws of the United States. Most of the Company's foreign employees
are working in the United States under H-1 temporary work visas ("H-1 Visas").
An H-1 Visa allows the holder to work in the United States for three years
and, thereafter, to apply for a three-year extension. Upon the expiration of
such period, unless the holder thereof has become a Lawful Permanent U.S.
Resident or has obtained some other legal status permitting continued
employment, that holder must spend at least one year abroad before reapplying
for an H-1 Visa. Furthermore, Congress and administrative agencies with
jurisdiction over immigration matters have periodically expressed concerns
over the level of immigration into the United States. The inability of the
Company to utilize the continued services of such employees would have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON ABILITY TO INTEGRATE WITH THIRD-PARTY TECHNOLOGY
A key element of the Company's strategy is to establish the Genesys
framework as a market standard platform for the development of ECTI
applications and solutions. The Company's products currently integrate with
most major telephone systems and interoperate across most major computing
platforms, operating systems and databases. In the event that the Company's
platform is no longer able to readily integrate with major telephone systems
and computing platforms, operating systems or databases, (for instance, as a
result of technology enhancements or upgrades of such systems) the Company
could be required to redesign its platform product to ensure compatibility
with such systems. There can be no assurance that the Company would be able to
redesign its products or that any redesign would achieve market acceptance.
The inability of the Company's platform product to integrate with third-party
technology would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Architecture"
and "--Products".
PRODUCT LIABILITY
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential 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, and that liability limitations may be
negotiated in certain contractual agreements on a less favorable basis.
Although the Company has not experienced any product liability claims to date,
the sale and support of products by the Company and the incorporation of
products from other
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companies may entail the risk of such claims. The Company does not currently
have insurance against product liability risks, and, if the Company were to
elect to obtain such insurance, there can be no assurance that such insurance
will be available to the Company on commercially reasonable terms or at all. A
successful product liability claim brought against the Company could have a
material adverse effect upon the Company's business, financial condition and
results of operations. See "Business--Architecture" and "--Products".
PROTECTION OF INTELLECTUAL PROPERTY
The Company's success is heavily dependent upon proprietary technology. The
Company relies primarily on a combination of copyright, trademark and trade
secret laws, as well as nondisclosure agreements and other contractual
provisions to protect its proprietary rights. The Company presently holds no
patents, and as of March 31, 1997, had filed seventeen United States patent
applications and two corresponding foreign patent applications. There can be
no assurance that any of the Company's patent applications will be approved,
that the Company will develop additional proprietary products or technologies
that are patentable, that any issued patent will provide the Company with any
competitive advantages or will not be challenged by third parties or that the
patents of others will not have an adverse effect on the Company's ability to
do business. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate the Company's products or,
if patents are issued to the Company, design around the patents issued to the
Company. As part of its confidentiality procedures, the Company generally
enters into nondisclosure agreements with its employees, consultants and other
third-party providers who serve the Company in a technical capacity or who
have access to confidential information of the Company. In addition, the
Company limits access to and distribution of its software, documentation and
other proprietary information. 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 and use information that the Company regards
as proprietary. Policing unauthorized use of the Company's products is
difficult, and while the Company is unable to determine the extent to which
piracy of its software products exists, software piracy may become a problem.
In addition, effective protection of intellectual property rights may be
unavailable or limited in certain countries in which the Company currently
sells products and countries the Company may target to expand its sales
efforts. Accordingly, 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 or superior technology.
There has also been a substantial amount of litigation in the software
industry regarding intellectual property rights. The Company has from time to
time received claims that it is infringing third parties' intellectual
property rights, and there can be no assurance that third parties will not in
the future claim infringement by the Company with respect to current or future
products, trademarks or other proprietary rights. 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,
result 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 or at all, which could have a material adverse effect on the
Company's business, financial condition and results of operations. See "GeoTel
Litigation".
CONCENTRATION OF STOCK OWNERSHIP
Upon completion of this offering, the present directors, executive officers
and principal shareholders of the Company and their affiliates will
beneficially own approximately 65.0% of the outstanding Common Stock. Upon the
anticipated elimination of cumulative voting rights currently held by the
Company's
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shareholders, the foregoing shareholders will be able to control all matters
requiring shareholder approval, including the election of directors and
approval of significant corporate transactions. Under the California
Corporations Code, the Company's shareholders are currently entitled to
cumulate their votes for the election of directors so long as at least one
shareholder has given notice at the shareholder meeting prior to the voting of
that shareholder's desire to cumulate his or her votes. The Bylaws, in
accordance with the California Corporations Code, however, provide that
cumulative voting will no longer be permitted at such time as (i) the
Company's shares of Common Stock are listed on the Nasdaq National Market and
the Company has at least 800 holders of its equity securities as of the record
date of the Company's most recent annual meeting of shareholders or (ii) the
Company's shares of Common Stock are listed on the New York Stock Exchange or
the American Stock Exchange. The Company expects to have its shares listed on
the Nasdaq National Market and to have at least 800 holders of its equity
securities by the record date for its next annual meeting of shareholders.
This provision of the Bylaws, along with certain other provisions of the
Bylaws pertaining to the elimination of shareholder action by written consent
and the requirement that shareholders may only call a special meeting of
shareholders upon a request of shareholders owning at least 50% of the
Company's Common Stock, could delay or make more difficult a proxy contest
involving the Company, which could adversely affect the market price of the
Company's Common Stock. See "Principal and Selling Shareholders" and
"Description of Capital Stock--Anti-takeover Effects of Provisions of the
Bylaws".
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common Stock
of the Company, and there can be no assurance that an active public market
will develop or will be sustained after this offering or that investors will
be able to sell the Common Stock should they desire to do so. The initial
public offering price will be determined by negotiations among the Company,
the Selling Shareholders and the representatives of the Underwriters based
upon several factors. The trading price of the Company's Common Stock could be
subject to wide fluctuations in response to quarterly variations in operating
results, announcements of technological innovations or new products by the
Company or its competitors, as well as other events or factors. In addition,
the stock market has from time to time experienced extreme price and volume
fluctuations, which have particularly affected the market price of many
technology companies and which often have been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock. See "Underwriting" for
a discussion of factors to be considered in determining the initial public
offering price.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price for the
Company's Common Stock. The number of shares of Common Stock that may be sold
in the public market is limited by restrictions under Rule 144 and Rule 701
under the Securities Act of 1933, as amended (the "Securities Act"), and lock-
up agreements under which the holders of such shares have agreed not to sell
or otherwise dispose of any of their shares for a period of 180 days after the
date of this Prospectus without the prior written consent of the
Representatives of the Underwriters. However, such Representatives may, in
their sole discretion and at any time without notice, release all or any
portion of the securities subject to lock-up agreements. As a result of these
restrictions, based on shares outstanding and options granted as of March 31,
1997, the following shares of Common Stock will be eligible for future sale.
On the date of this Prospectus, no shares other than the 2,500,000 shares
offered hereby will be eligible for sale. Upon the expiration of the lock-up
period 180 days after the date of this Prospectus, an additional 14,978,505
shares will become available for sale. The remaining 1,749,645 shares will
become available for sale at various times after 180 days after the date of
this Prospectus. Furthermore, the Company intends to register on a
registration statement on Form S-8, approximately 30 days after the effective
date of this offering, a total of approximately 10,027,207 shares of Common
Stock subject to
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outstanding options or reserved for issuance under the Company's 1997 Stock
Incentive Plan, and a total of 500,000 shares of Common Stock reserved for
issuance under the Company's Employee Stock Purchase Plan. Upon expiration of
the lock-up agreements referred to above, holders of approximately 4,127,241
shares of Common Stock will be entitled to certain rights with respect to the
registration of such shares under the Securities Act. If such holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, such sales could have a material
adverse effect on the market price for the Company's Common Stock. See
"Description of Capital Stock--Registration Rights" and "Shares Eligible for
Future Sale".
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF PROVISIONS OF
THE BYLAWS
Immediately after the closing of this offering, the Company's Board of
Directors will have the authority to issue up to 5,000,000 shares of Preferred
Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the shareholders. The rights of the holders of Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. The issuance of Preferred
Stock could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. Further,
certain provisions of the Company's Bylaws pertaining to the future elimination
of cumulative voting and shareholder action by written consent, and the
requirement that shareholders may call a special meeting of shareholders only
upon a request of shareholders owning at least 50% of the Company's Common
Stock, could delay or make more difficult a proxy contest involving the
Company, which could adversely affect the market price of the Company's Common
Stock. See "Description of Capital Stock--Preferred Stock" and "--Anti-takeover
Effects of Provisions of the Bylaws".
DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors participating in this
offering will incur immediate, substantial dilution. To the extent outstanding
options and warrants to purchase the Company's Common Stock are exercised,
there will be further dilution. See "Dilution".
UNCERTAINTY AS TO USE OF PROCEEDS
The primary purposes of this offering are to create a public market for the
Common Stock, to facilitate future access to public markets and to obtain
additional equity capital. The Company expects to use the net proceeds for
general corporate purposes, including working capital. A portion of the net
proceeds may also be used for the acquisition of businesses, products and
technologies that are complementary to those of the Company. However, the
Company has no present plans, agreements or commitments and is not currently
engaged in any negotiations with respect to any such transaction. Accordingly,
the Company's management will retain broad discretion as to the allocation of a
substantial portion of the net proceeds from this offering. See "Use of
Proceeds".
17
<PAGE>
THE COMPANY
Genesys is a leading provider of enterprise-wide platform and applications
software that enables organizations to integrate critical business information
and computing resources with telephony and other telecommunications media. The
Company's products allow an organization to optimally manage its customer
interactions and employee communications to increase productivity, lower costs
and achieve greater customer satisfaction and loyalty. In addition, the
Company's products enable organizations to develop and offer new or enhanced
revenue-generating products and services. Genesys believes that it is the
first company to offer a suite of open, scaleable, enterprise-wide platform
and applications software solutions to address the evolving needs of
organizations for intelligent communications, a new market paradigm known as
Enterprise Computer Telephony Integration ("ECTI").
Genesys Telecommunications Laboratories, Inc. was incorporated in California
in October 1990. As used in this Prospectus, unless the context otherwise
indicates, references to "Genesys" or the "Company" refer to Genesys
Telecommunications Laboratories, Inc. and its subsidiaries. The Company's
principal executive offices are at 1155 Market Street, San Francisco,
California 94103 and its telephone number is (415) 437-1100.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be $26.8 million
($32.0 million if the Underwriters' over-allotment option is exercised in
full), assuming an initial public offering price of $15.00 per share and after
deducting estimated underwriting discounts and estimated offering expenses.
The primary purposes of this offering are to create a public market for the
Common Stock, to facilitate future access to public markets and to obtain
additional equity capital. The Company expects to use the net proceeds for
general corporate purposes, including working capital. A portion of the net
proceeds may also be used for the acquisition of businesses, products and
technologies that are complementary to those of the Company. Although the
Company has no present plans, agreements or commitments and is not currently
engaged in any negotiations with respect to any such transaction, the Company
may from time-to-time evaluate such opportunities. Pending such uses, the net
proceeds of this offering will be invested in investment grade, interest-
bearing securities. The Company will not receive any of the proceeds from the
sale of shares by the Selling Shareholders.
DIVIDEND POLICY
The Company has not paid any cash dividends on its capital stock since its
inception and does not intend to pay any cash dividends on its Common Stock in
the foreseeable future. Pursuant to the Company's bank line of credit
agreement, the Company may not pay cash dividends on its capital stock without
the bank's prior approval. See Note 7 to Notes to Consolidated Financial
Statements.
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
March 31, 1997 was $18,671,000, or approximately $1.08 per share. Pro forma
net tangible book value per share represents the amount of the Company's
shareholders' equity, less intangible assets, divided by 17,228,150 shares of
Common Stock outstanding after giving effect to the conversion of all
outstanding shares of Preferred Stock into 3,652,241 shares of Common Stock
and the exercise of an outstanding warrant to purchase 420,282 shares of
Common Stock at a price of $5.9483 per share prior to completion of this
offering.
Net tangible book value dilution per share represents the difference between
the amount per share paid by purchasers of shares of Common Stock in this
offering made hereby and the pro forma net tangible book value per share of
Common Stock immediately after completion of this offering. After giving
effect to the sale by the Company of 2,000,000 shares of Common Stock in this
offering at an assumed initial public offering price of $15.00 per share and
the application of the estimated net proceeds therefrom, the pro forma net
tangible book value of the Company as of March 31, 1997 would have been
$45,471,000 or $2.36 per share. This represents an immediate increase in net
tangible book value of $1.28 per share to existing shareholders and an
immediate dilution in net tangible book value of $12.64 per share to
purchasers of Common Stock in this offering, as illustrated in the following
table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $15.00
Pro forma net tangible book value per share as of March 31,
1997........................................................ $1.08
Increase in pro forma net tangible book value per share
attributable to new investors............................... 1.28
-----
Pro forma net tangible book value per share after this
offering...................................................... 2.36
------
Dilution per share to new investors............................ $12.64
======
</TABLE>
The following table sets forth as of March 31, 1997, after giving effect to
the conversion of all outstanding shares of Preferred Stock into Common Stock
upon completion of this offering, the exercise of a warrant to purchase
420,282 shares of Common Stock at a price of $5.9483 per share prior to
completion of this offering and excluding all other issuances subsequent to
March 31, 1997, of Common Stock and securities convertible, exchangeable or
exercisable for Common Stock, the difference between the existing shareholders
and the purchasers of shares in this offering (at an assumed initial public
offering price of $15.00 per share) with respect to the number of shares
purchased from the Company, the total consideration paid and the average price
per share paid:
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
------------------ ------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing shareholders......... 17,228,150 90% $24,146,000 45% $ 1.40
New shareholders.............. 2,000,000 10 30,000,000 55 15.00
---------- --- ----------- --- ------
Totals.................... 19,228,150 100% $54,146,000 100% $ 2.82
========== === =========== === ======
</TABLE>
As of March 31, 1997, there were options outstanding to purchase a total of
6,335,811 shares of Common Stock at a weighted average exercise price of $2.44
per share under the Company's 1995 Stock Option Plan. To the extent
outstanding options are exercised, there will be further dilution to new
investors. If all outstanding options are exercised, the pro forma net
tangible book value per share immediately after completion of the offering
would be $2.38. This represents an immediate dilution in net tangible book
value of $12.62 per share to purchasers of Common Stock in the offering. See
"Management--Stock Plans" and Note 10 of Notes to Consolidated Financial
Statements.
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1997, (i) on an actual basis, (ii) on a pro forma basis after giving
effect to the conversion of all outstanding shares of Preferred Stock into
Common Stock upon the closing of this offering, the filing of Amended and
Restated Articles of Incorporation upon the closing of this offering and the
assumed exercise of warrants to purchase 420,282 shares of Common Stock on a
cash basis for an aggregate of $2.5 million prior to the closing of this
offering, and (iii) on an as adjusted basis to reflect the receipt of the
estimated net proceeds from the sale by the Company of 2,000,000 shares of
Common Stock pursuant to this offering at an assumed initial public offering
price of $15.00 per share:
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------
PRO
PRO FORMA AS
ACTUAL FORMA ADJUSTED
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current portion(1)............. $ 147 $ 147 $ 147
Shareholders' equity:
Preferred Stock, 4,146,870 shares authorized,
3,652,241 shares outstanding at actual; 5,000,000
shares authorized pro forma and as adjusted; no
shares outstanding pro forma and as adjusted..... 18,096 -- --
Common Stock, 120,000,000 shares authorized;
13,155,627 shares outstanding at actual,
17,228,150 shares outstanding pro forma and
19,228,150 shares outstanding as adjusted(2)..... 5,297 25,893 52,693
Notes receivable.................................. (435) (435) (435)
Cumulative Translation Adjustment................. 12 12 12
Deferred Stock Compensation....................... (1,747) (1,747) (1,747)
Accumulated deficit............................... (2,984) (2,984) (2,984)
------- ------- -------
Total shareholders' equity...................... 18,239 20,739 47,539
------- ------- -------
Total capitalization............................ $18,386 $20,886 $47,686
======= ======= =======
</TABLE>
- --------
(1) See Notes 5 and 8 of Notes to Consolidated Financial Statements.
(2) Excludes 494,629 shares of Common Stock underlying warrants to purchase
Series C Preferred Stock. Also excludes 6,335,811 shares of Common Stock
issuable upon exercise of stock options, at a weighted average exercise
price of $2.44, which were outstanding as of March 31 1997, and 1,291,396
shares of Common Stock reserved for grant of future options or direct
issuances under the Company's 1995 Stock Option Plan. In addition, the
Company has adopted (i) the 1997 Stock Incentive Plan to replace the 1995
Stock Option Plan, with an increase in the number of shares available for
issuance thereunder of 2,400,000 shares and (ii) the Employee Stock
Purchase Plan and reserved 500,000 shares of Common Stock for issuance
thereunder. See "Management--Stock Plans" and Note 13 of Notes to
Consolidated Financial Statements.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated 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 included elsewhere in this Prospectus. The consolidated
statement of operations data for the years ended June 30, 1994, 1995 and 1996
and the nine month period ended March 31, 1997, and the consolidated balance
sheet data at June 30, 1995 and 1996 and March 31, 1997, are derived from, and
are qualified by reference to, the consolidated financial statements included
elsewhere in this Prospectus that have been audited by and reported on by
Arthur Andersen, LLP, independent public accountants, and should be read in
conjunction with those consolidated financial statements and notes thereto.
The consolidated balance sheet data at June 30, 1994, is derived from audited
consolidated financial statements not included herein. The consolidated
statement of operations data for the year ended June 30, 1993 and the nine
month period ended March 31, 1996, and the consolidated balance sheet data at
June 30, 1993, are derived from unaudited consolidated financial statements
that include, in the opinion of management, all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
information set forth therein. The operating results of the Company for the
nine month period ended March 31, 1997 are not necessarily indicative of
results to be expected for any future period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------ ------------------
1993 1994 1995 1996 1996 1997
----- ------ ------ ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
License................... $ -- $ 460 $3,077 $ 7,369 $ 4,429 $ 19,445
Service................... 956 1,272 1,403 1,950 1,187 2,546
----- ------ ------ ------- -------- --------
Total revenues............ 956 1,732 4,480 9,319 5,616 21,991
Cost of revenues:
License................... -- 23 123 308 183 926
Service................... 352 595 1,190 2,568 1,487 2,574
----- ------ ------ ------- -------- --------
Total cost of revenues.... 352 618 1,313 2,876 1,670 3,500
----- ------ ------ ------- -------- --------
Gross margin............... 604 1,114 3,167 6,443 3,946 18,491
Operating expenses:
Research and development.. 357 578 959 3,673 2,475 5,995
Sales and marketing....... -- 162 705 3,030 1,731 9,303
General and
administrative........... 503 534 1,343 2,979 2,296 2,538
----- ------ ------ ------- -------- --------
Total operating expenses.. 860 1,274 3,007 9,682 6,502 17,836
----- ------ ------ ------- -------- --------
Income (loss) from
operations................ (256) (160) 160 (3,239) (2,556) 655
Interest and other income
(expense), net............ (8) 23 (6) (88) (88) 168
----- ------ ------ ------- -------- --------
Income before provision for
income taxes.............. (264) (137) 154 (3,327) (2,644) 823
Provision for income taxes. -- -- -- -- -- 230
----- ------ ------ ------- -------- --------
Net income (loss).......... $(264) $ (137) $ 154 $(3,327) $ (2,644) $ 593
===== ====== ====== ======= ======== ========
Pro forma net income (loss)
per share(1).............. $ (0.18) $ (0.15) $ 0.03
======= ======== ========
Pro forma weighted average
common shares and
equivalents(1)............ 18,644 18,079 22,540
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
----------------------------- MARCH 31,
1993 1994 1995 1996 1997
----- ----- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA (IN
THOUSANDS):
Cash and cash equivalents............. $ 37 $ 253 $ 203 $ 5,926 $ 9,574
Working capital (deficiency).......... (131) (476) (515) 4,609 10,432
Total assets.......................... 151 689 2,256 11,961 31,015
Long-term obligations................. 2 -- 57 404 147
Shareholders' equity (deficit)........ (267) (404) (245) 5,460 18,239
</TABLE>
- --------
(1) See Note 2 of Notes to Consolidated Financial Statements for an
explanation of the method of calculation.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
This Management's Discussion and Analysis of Financial Condition and Results
of Operations and other parts of this Prospectus contain "forward-looking
statements". Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. See "Special Note Regarding Forward-Looking
Statements".
OVERVIEW
The Company was incorporated in October 1990, and prior to shipping its
first product, the Company generated revenues primarily from one-time
consulting projects. In fiscal 1991, the Company began shipping its platform
software product. From 1991 to 1994, the Company transitioned from a
consulting services company to a product company. During this transition, the
Company expanded the scope of its platform products and added several
applications to its product offerings.
Most of the Company's revenues to date have been derived from one-time
license fees from customers who have received a perpetual license to the
Company's products. License fees are generally based on the specific products
licensed and are determined on either a per site or per user basis. The
Company's license revenues have increased as a percentage of total revenues,
representing 26.6%, 68.7% and 79.1% of total revenues in fiscal 1994, 1995 and
1996, respectively, and 78.9% and 88.4% of total revenues in the nine months
ended March 31, 1996 and 1997, respectively. The Company currently expects
that license revenues will continue to account for a substantial majority of
the Company's revenues for the remainder of fiscal 1997 and for the
foreseeable future. The remainder of revenues are expected to be primarily
attributable to maintenance and other revenues, including consulting and
training revenues. As a result, factors adversely affecting the pricing of or
demand for the Company's licensed software products would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Substantially all of the Company's revenues to date have been attributable
to the license of the Company's platform and related applications software and
services and, in particular, revenues from the license of the Company's
platform products accounted for 49% of total revenues for the nine months
ended March 31, 1997. The Company's platform and related applications and
services are currently expected to account for substantially all of the
Company's revenues for the foreseeable future. Consequently, a decline in
demand for, or failure to achieve broad market acceptance of, the Company's
platform and related applications software products, as a result of
competition, technological change or otherwise, would have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company's application products can only be used in conjunction
with the Company's platform products. As a result, a decline in demand for the
Company's platform products would adversely affect sales of the Company's
application products. Furthermore, if customers experience problems with the
Company's platform products, it may limit the customers' ability to utilize
the Company's application products. The Company's future financial performance
will depend in part on the successful development, introduction and customer
acceptance of new and enhanced versions of its platform and related
applications software products. There can be no assurance that the Company
will continue to be successful in marketing its platform products, related
applications software or any new or enhanced products.
22
<PAGE>
License revenues are recognized upon execution of a license agreement by the
parties and shipment of the product if no significant obligations remain and
collection of the resulting receivable is probable. Fees for consulting and
training services are generally charged separately from the Company's software
products and are recognized as the services are performed. Maintenance
revenues primarily consist of fees for ongoing support and product updates,
are generally determined as a percentage of list price, and are recognized
ratably over the term of the maintenance contracts, which to date have
typically ranged from 12 to 24 months. For all periods presented, the Company
has recognized revenues in accordance with Statement of Position 91-1,
"Software Revenue Recognition". See Note 2 of Notes to Consolidated Financial
Statements.
A relatively small number of customers have accounted for a significant
percentage of the Company's revenues in each fiscal year. In fiscal 1994, one
customer accounted for 26.5% of total revenues; in fiscal 1995, three other
customers accounted for 11.1%, 11.2% and 12.8% of total revenues,
respectively; and in fiscal 1996, one of these customers and two other
customers accounted for approximately 10.2%, 10.0% and 10.8% of total
revenues, respectively. One customer accounted for 16.3% of total revenues in
the nine months ended March 31, 1997. The Company expects that licenses of its
products to a limited number of customers will continue to account for a large
percentage of revenues for the foreseeable future. The decision to license the
Company's software products is typically an enterprise-wide decision by
prospective customers and generally requires the Company to provide a
significant level of education to prospective customers regarding the use and
benefits of the Company's products. In addition, the implementation of the
Company's products involves a significant commitment of resources by
prospective customers and typically involves substantial integration efforts,
which may be performed by the Company, the customer or third-party vendors.
The cost of the Company's product is typically only a small portion of the
related hardware, software, development, training and integration costs of
implementing an ECTI solution. For these and other reasons, the sales and
implementation cycles associated with the license of the Company's products is
often lengthy and is subject to a number of significant delays over which the
Company has little or no control. Given these factors and the expected
customer concentration, the loss of a major customer or any reduction or delay
in sales to or implementations by such customers could have a material adverse
effect on the Company's business, financial condition and results of
operations.
The Company markets its products in North America primarily through its
direct sales force and internationally through VARs and, to a lesser extent,
through its direct sales force. International revenues accounted for 40.6%,
30.9%, and 36.2% of total revenues in fiscal 1994, 1995 and 1996,
respectively, and 48.6% and 36.0% in the nine months ended March 31, 1996 and
1997, respectively. The Company is increasing its international sales force,
primarily in Europe and the Asia Pacific region, and is seeking to establish
distribution relationships with appropriate strategic partners. As a result,
failure to increase international sales could have a material adverse effect
on the Company's business, operating results and financial condition. The
Company expects international revenues to account for an increasing portion of
total revenues in the future.
The Company's revenues have increased in each of the last seven quarters,
and, although the Company has been profitable in the quarters ended December
31, 1996 and March 31, 1997, the Company's limited operating history makes the
prediction of future operating results unreliable. In addition, given its
limited operating history and recent rapid growth, historical growth rates
cannot be relied upon as indicative of future growth, if any. Prior growth
rates in the Company's revenues should not be considered indicative of future
revenue growth rates or operating results. Future operating results will
depend upon many factors, including the demand for and market acceptance of
the Company's products, the level of product and price competition, the
ability of the Company to develop, market and deploy new, high-quality
products and control costs, the ability of the Company to expand its direct
sales force and indirect distribution channels, the Company's success in
attracting and retaining key personnel, the uncertainty, recent emergence and
acceptance of the ECTI market and
23
<PAGE>
technological changes in the ECTI market. There can be no assurance that any
of the Company's business or strategies will be successful or that the Company
will be able to achieve or sustain profitability on a quarterly or annual
basis.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data of the Company
expressed as a percentage of total revenues for the years and periods
indicated.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE ENDED
30, MARCH 31,
--------------------- -------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
License............................... 26.6 % 68.7 % 79.1 % 78.9 % 88.4 %
Service............................... 73.4 31.3 20.9 21.1 11.6
----- ----- ----- ----- -----
Total revenues....................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
License............................... 1.3 2.7 3.3 3.3 4.2
Service............................... 34.4 26.6 27.6 26.5 11.7
----- ----- ----- ----- -----
Total cost of revenues............... 35.7 29.3 30.9 29.8 15.9
----- ----- ----- ----- -----
Gross margin........................... 64.3 70.7 69.1 70.2 84.1
Operating expenses:
Research and development.............. 33.4 21.4 39.4 44.1 27.3
Sales and marketing................... 9.4 15.7 32.5 30.8 42.3
General and administrative............ 30.8 30.0 32.0 40.9 11.5
----- ----- ----- ----- -----
Total operating expenses............. 73.6 67.1 103.9 115.8 81.1
----- ----- ----- ----- -----
Income (loss) from operations.......... (9.3) 3.6 (34.8) (45.5) 3.0
Interest and other income (expense),
net................................... 1.3 (0.1) (0.9) (1.5) 0.8
----- ----- ----- ----- -----
Income (loss) before provision for
income taxes.......................... (8.0) 3.5 (35.7) (47.0) 3.8
Provision for income taxes............. -- -- -- -- (1.0)
----- ----- ----- ----- -----
Net income (loss)...................... (8.0)% 3.5 % (35.7)% (47.0)% 2.8 %
===== ===== ===== ===== =====
</TABLE>
REVENUES
LICENSE. License revenues were $460,000, $3.1 million and $7.4 million in
fiscal 1994, 1995 and 1996, respectively, representing increases of 569% from
fiscal 1994 to fiscal 1995, and 140% from fiscal 1995 to fiscal 1996. License
revenues were $4.4 million and $19.4 million in the nine months ended March
31, 1996 and 1997, respectively, an increase of 339%. These increases were due
to the market's growing acceptance of the Company's products and underlying
technology, an expansion of the Company's product offerings, and a significant
increase in the Company's sales, marketing and customer service organizations.
License fees as a percentage of total annual revenues have increased
consistently since fiscal 1994 as the Company has expanded its software
product suite and has engaged in fewer consulting service engagements, which
were a more significant part of its business from inception through fiscal
1994. The Company does not believe that the historical growth rates of license
revenues will be sustainable or are indicative of future results.
SERVICE. Service revenues primarily comprise fees from consulting, post-
contract support and, to a lesser extent, training services. Service revenues
were $1.3 million, $1.4 million and $2.0 million, in fiscal 1994, 1995 and
1996, respectively, representing increases of 10% from fiscal 1994 to fiscal
1995 and 39% from fiscal 1995 to fiscal 1996. Service revenues were $1.2
million and $2.5 million in the nine months ended March 31, 1996 and 1997,
respectively, an increase of 115%. The Company's
24
<PAGE>
software license agreements often provide for maintenance and for consulting
and training. Accordingly, increases in licensing activity have resulted in
increases in revenues from services related to maintenance, consulting and
training.
Service revenues have decreased as a percentage of total revenues from fiscal
1994 through the nine months ended March 31, 1997, due principally to a
significant increase in licensing of the Company's products. If the Company is
successful in implementing its strategy of encouraging third party
organizations such as systems integrators to undertake a greater percentage of
implementation of the Company's products, service revenues may decrease as a
percentage of total revenues, while maintenance as a percentage of total
revenues is expected to increase. The Company does not believe that the
historical growth rates of service revenues will be sustainable or are
indicative of future results.
COST OF REVENUES
LICENSE. Cost of license revenues includes the costs of product media,
product duplication and manuals, as well as allocated labor and overhead costs
associated with the preparation and shipment of products. Cost of license
revenues were $23,000, $123,000 and $308,000 in fiscal 1994, 1995 and 1996,
respectively. Cost of license revenues were $183,000 and $926,000 in the nine
months ended March 31, 1996 and 1997, respectively. These increases in absolute
dollar amounts relate primarily to increases in the volume of products shipped
by the Company, and the resulting increases in documentation material costs and
personnel necessary to assemble and ship the products.
SERVICE. Cost of service revenues primarily comprise employee-related costs
incurred in providing consulting, post-contract support and training services.
Cost of service revenues were $595,000, $1.2 million and $2.6 million in fiscal
1994, 1995 and 1996, respectively. Cost of service revenues were $1.5 million
and $2.6 million in the nine months ended March 31, 1996 and 1997,
respectively. These increases in absolute dollars were due primarily to
increases in consulting, support and training personnel, and increases in
overhead costs associated with travel, computer equipment and facilities. The
Company increased the number of consulting, maintenance, training and shipping
personnel significantly during fiscal 1996 from 7 employees to 33 employees in
anticipation of higher sales activity, and, as a result, in fiscal 1996 the
Company incurred a negative gross margin from service revenues. For the nine
months ended March 31, 1997, the Company further increased the number of such
personnel to 50 employees and continued to incur a negative gross margin from
service revenues. The cost of service revenues as a percentage of service
revenues may vary between periods due to the mix of services provided by the
Company and the resources used to provide these services.
OPERATING EXPENSES
The Company's operating expenses were $1.3 million, $3.0 million and $9.7
million, or 73.6%, 67.1% and 103.9% of total revenues in fiscal 1994, 1995 and
1996, respectively. For the nine months ended March 31, 1996 and 1997, the
Company's operating expenses were $6.5 million and $17.8 million, or 115.8% and
81.1% of total revenues, respectively.
RESEARCH AND DEVELOPMENT. Research and development expenses were $578,000,
$959,000 and $3.7 million, or 33.4%, 21.4% and 39.4% of total revenues in
fiscal 1994, 1995 and 1996, respectively. Research and development expenses
were $2.5 million and $6.0 million, or 44.1% and 27.3% of total revenues, in
the nine months ended March 31, 1996 and 1997, respectively. These expenses
increased in absolute dollars primarily as a result of an increase in personnel
to support the Company's product development activities. The Company expects
that research and development expenditures will continue to increase in
absolute dollars.
25
<PAGE>
Research and development expenses are generally charged to operations as
incurred. In accordance with Statement of Financial Accounting Standards No.
86, costs that were eligible for capitalization for these periods were
insignificant, and the Company charged all software development costs to
research and development expense.
SALES AND MARKETING. Sales and marketing expenses were $162,000, $705,000
and $3.0 million, representing 9.4%, 15.7% and 32.5% of total revenues in
fiscal 1994, 1995 and 1996, respectively. Sales and marketing expenses were
$1.7 million and $9.3 million, representing 30.8% and 42.3% of total revenues,
in the nine months ended March 31, 1996 and 1997, respectively. These expenses
increased in absolute dollars primarily due to the Company's investment in
building a direct sales force in North America and, to a lesser extent, in
Europe. From July 1, 1995 to March 31, 1997, the Company increased the number
of its sales and marketing personnel from 7 to 99 worldwide, and incurred
higher commission expenses related to higher sales levels. In addition, the
Company incurred increased marketing expenses associated with the Company's
expanding product line, including trade shows and promotional expenses. The
Company expects to continue to expand its direct sales and marketing efforts
and to develop a significant channel sales organization, and therefore,
anticipates sales and marketing expenditures will continue to increase
significantly in absolute dollars.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$534,000, $1.3 million and $3.0 million, or 30.8%, 30.0% and 32.0% of total
revenues in fiscal 1994, 1995 and 1996, respectively. These expenses increased
in absolute dollars during these periods principally due to the addition of
staff and information system investments to support the growth of the
Company's business during these periods. In addition, during fiscal 1996 the
Company recorded a provision for bad debts totaling approximately $410,000
related to the increased sales activity and related receivables, and incurred
higher legal costs associated primarily with general corporate matters,
trademark matters and patent filings. The Company expects to continue to
increase its allowance for doubtful accounts as its revenue levels and
accounts receivable increase. General and administrative expenses were $2.3
million and $2.5 million, representing 40.9% and 11.5% of total revenues, in
the nine months ended March 31, 1996 and 1997, respectively. During fiscal
1996, the Company incurred higher consulting expenses related primarily to the
engagement of temporary financial personnel, which expenses were reduced in
fiscal 1997 upon the hiring of the Company's Chief Financial Officer and other
finance personnel. The Company expects to continue to increase its general and
administrative staff and to incur other costs necessary to manage a growing
organization, and, accordingly, it expects general and administrative expenses
to continue to increase in absolute dollars.
PROVISION FOR INCOME TAXES
The Company did not incur state or federal income taxes in fiscal 1994, 1995
or 1996 due to operating losses incurred during those periods. The provision
for income taxes for the nine months ended March 31, 1997 is based on an
estimated effective tax rate of approximately 28% which reflects the estimated
realization of deferred tax assets, primarily net operating loss carryforwards
and research and development tax credit carryforwards. As of March 31, 1997,
the Company had net operating loss carryforwards for federal and state tax
reporting purposes of approximately $643,000 and $291,000, respectively,
available to offset future taxable income, which expire at various dates
through 2011 if not utilized. In addition, the Tax Reform Act of 1986 contains
certain provisions that may limit the net operating loss carryforwards
available for use in any given period upon the occurrence of certain events,
including a significant change in ownership interests. The Company has net
deferred tax assets, including its net operating loss carryforwards, totaling
approximately $1.1 million as of March 31, 1997 . The Company has recorded a
valuation allowance for a majority of its net deferred tax assets as a result
of significant uncertainties regarding the realization of most of its assets,
including the limited operating history of the Company, a recent history of
losses and the variability of operating results. See Note 11 of Notes to
Consolidated Financial Statements.
26
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain consolidated statement of operations
data for each of the seven quarters in the period ended March 31, 1997, as
well as the percentage of the Company's total revenues represented by each
item. This information has been derived from the Company's unaudited
consolidated financial statements. The unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements contained herein and include all adjustments, consisting
only of normal recurring adjustments, that the Company considers necessary for
a fair presentation of such information when read in conjunction with the
Company's annual audited consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus. The results of operations for any
quarter are not necessarily indicative of the results to be expected for any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1996 1996 1996 1996 1997
--------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
License................ $ 573 $2,006 $1,849 $2,941 $3,525 $6,708 $ 9,212
Service................ 393 207 587 763 711 860 975
------- ------ ------ ------ ------ ------ -------
Total revenues......... 966 2,213 2,436 3,704 4,236 7,568 10,187
Cost of revenues:
License................ 53 69 61 125 153 312 461
Service................ 300 519 668 1,081 682 890 1,002
------- ------ ------ ------ ------ ------ -------
Total cost of revenues. 353 588 729 1,206 835 1,202 1,463
------- ------ ------ ------ ------ ------ -------
Gross margin............ 613 1,625 1,707 2,498 3,401 6,366 8,724
Operating expenses:
Research and
development........... 710 852 913 1,198 1,571 1,964 2,460
Sales and marketing.... 303 608 820 1,299 1,909 3,144 4,249
General and
administrative........ 675 825 796 683 684 758 1,096
------- ------ ------ ------ ------ ------ -------
Total operating
expenses.............. 1,688 2,285 2,529 3,180 4,164 5,866 7,806
------- ------ ------ ------ ------ ------ -------
Income (loss) from
operations............. (1,075) (660) (822) (682) (763) 500 918
Interest and other
income (expense), net. (25) (25) (38) -- 143 72 (47)
------- ------ ------ ------ ------ ------ -------
Income (loss) before
provision for income
taxes.................. (1,100) (685) (860) (682) (620) 572 871
Provision for income
taxes.................. -- -- -- -- -- -- 230
------- ------ ------ ------ ------ ------ -------
Net income (loss)....... $(1,100) $ (685) $ (860) $ (682) $ (620) $ 572 $ 641
======= ====== ====== ====== ====== ====== =======
Pro forma net income
(loss) per share....... $ (0.06) $(0.04) $(0.05) $(0.03) $(0.03) $ 0.03 $ 0.03
======= ====== ====== ====== ====== ====== =======
Pro forma weighted
average common and
common equivalent
shares................. 17,300 18,400 18,900 20,500 20,200 22,400 22,540
======= ====== ====== ====== ====== ====== =======
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1996 1996 1996 1996 1997
--------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PERCENT OF TOTAL
REVENUES:
Revenues:
License................ 59.3 % 90.6 % 75.9 % 79.4 % 83.2 % 88.6% 90.4%
Service................ 40.7 9.4 24.1 20.6 16.8 11.4 9.6
------- ------ ------ ------ ------ ------ -------
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
License................ 5.5 3.1 2.5 3.4 3.6 4.1 4.5
Service................ 31.1 23.5 27.4 29.2 16.1 11.8 9.8
------- ------ ------ ------ ------ ------ -------
Total cost of revenues. 36.6 26.6 29.9 32.6 19.7 15.9 14.3
------- ------ ------ ------ ------ ------ -------
Gross margin............ 63.4 73.4 70.1 67.4 80.3 84.1 85.7
Operating expenses:
Research and
development........... 73.5 38.5 37.5 32.3 37.1 26.0 24.1
Sales and marketing.... 31.4 27.5 33.7 35.1 45.1 41.5 41.7
General and
administrative........ 69.9 37.3 32.7 18.4 16.1 10.0 10.8
------- ------ ------ ------ ------ ------ -------
Total operating
expenses.............. 174.8 103.3 103.9 85.8 98.3 77.5 76.6
------- ------ ------ ------ ------ ------ -------
Income (loss) from
operations............. (111.4) (29.9) (33.8) (18.4) (18.0) 6.6 9.1
Interest and other
income (expense), net. (2.6) (1.1) (1.6) 0.0 3.4 1.0 (0.5)
------- ------ ------ ------ ------ ------ -------
Income (loss) before
provision for income
taxes.................. (114.0) (31.0) (35.4) (18.4) (14.6) 7.6 8.6
Provision for income
taxes.................. -- -- -- -- -- -- 2.3
------- ------ ------ ------ ------ ------ -------
Net income (loss)....... (114.0)% (31.0)% (35.4)% (18.4)% (14.6)% 7.6% 6.3%
======= ====== ====== ====== ====== ====== =======
</TABLE>
27
<PAGE>
The Company's quarterly operating results have in the past fluctuated and
may in the future fluctuate significantly, depending on a number of factors,
many of which are beyond the Company's control, including: market acceptance
of the Company products; the Company's ability to develop and market new
products and product enhancements; the size, timing and recognition of revenue
from significant orders; the length of sales and implementation cycles;
competition; the Company's success in establishing indirect sales channels and
expanding its direct sales force; the Company's success in retaining and
training third-party support personnel; the timing of new product releases by
the Company and its competitors; the delay or deferral of significant revenues
until acceptance of software required by an individual license transaction;
technological changes in the ECTI market; the deferral of customer orders in
anticipation of new products and product enhancements; purchasing patterns of
indirect channel partners and customers; changes in pricing policies by the
Company and its competitors; the mix of revenues derived from the Company's
direct sales force and various indirect distribution and marketing channels;
the mix of revenues derived from domestic and international customers;
seasonality; changes in operating expenses; changes in relationships with
strategic partners; changes in Company strategy; personnel changes; foreign
currency exchange rate fluctuations; the ability of the Company to control its
costs; and general economic factors.
The Company currently operates with limited backlog. The Company derives
substantially all of its revenues from licenses of the Company's platform and
related applications software and services. The Company believes that the
purchase of its products is relatively discretionary and generally involves a
significant commitment of capital and other resources by a customer. The
Company's typical order size per site ranges from $100,000 to $300,000;
however, several orders during the nine months ended March 31, 1997 have
exceeded $1.0 million each. The timing of the receipt and shipment of a single
order can have a significant impact on the Company's revenues and results of
operations for a particular quarter. In situations requiring customer
acceptance of implementation, the Company does not recognize license revenues
until installations are complete and does not recognize the consulting
component of service revenues until the services are rendered. As a result,
revenue recognition may be delayed in many instances. Historically, the
Company has often recognized a substantial portion of its revenues in the last
month of a quarter, with these revenues frequently concentrated in the last
two weeks of a quarter. As a result, product revenues in any quarter are
substantially dependent on orders booked and shipped in that quarter, and
revenues for any future quarter are not predictable with any meaningful degree
of certainty. Product revenues are also difficult to forecast because the
market for ECTI software products is rapidly evolving, and the Company's sales
cycle, which may last from three to nine months or more, varies substantially
from customer to customer. The Company's quarterly revenues are also subject
to seasonal fluctuations, particularly in the quarter ending in September when
reduced activity outside North America during the summer months can adversely
affect the Company's revenues. The Company's expenses are relatively fixed and
are based, in part, on its expectations as to future revenues. Consequently,
if future revenue levels are below expectations, net income would be
disproportionately affected because a proportionately smaller amount of the
Company's expenses varies with its revenues. In addition, the Company expects
that sales derived through indirect channels, which are more difficult to
forecast and generally have lower gross margins than direct sales, will
increase as a percentage of total revenues. Due to all of the foregoing
factors, the Company believes that period-to-period comparisons of its results
of operations are not meaningful and should not be relied upon as indications
of future performance. It is likely that in some future quarter the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected.
Because of these factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
that such comparisons should not be relied upon as indications of future
performance.
28
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and met its capital
expenditure requirements primarily from proceeds from related party advances,
a $1.5 million term note (of which $900,000 was converted into Series A
Preferred Stock) and the private sale of Preferred Stock. Through March 31,
1997, the Company had raised $17.2 million from the sale of Preferred Stock.
At March 31, 1997, the Company's principal sources of liquidity included cash
and cash equivalents of $9.6 million and a $3.0 million line of credit
agreement. Under the terms of the agreement, the Company may borrow up to $3.0
million under a revolving line of credit, which includes sublimits of $500,000
for equipment purchases and $500,000 for letters of credit. As of March 31,
1997, the Company had no borrowings outstanding under the line of credit. The
line of credit is secured by substantially all of the Company's assets.
Advances under the line of credit are limited to 80% of eligible accounts
receivable. Borrowings accrue interest at the bank's prime rate plus 0.5% for
line of credit borrowings and 1.0% for borrowings under the equipment
sublimit. The line of credit contains provisions that prohibit the payment of
cash dividends and require the maintenance of certain financial covenants,
with which the Company is in compliance. See Note 7 of Notes to Consolidated
Financial Statements.
The Company generated cash from operating activities of $242,000 and
$295,000 in fiscal 1994 and 1995, respectively, and used cash for operating
activities of $2.5 million, in fiscal 1996. The Company also used cash of
$406,000 and $750,000 in the nine months ended March 31, 1996 and 1997,
respectively. The increased use of cash for operating activities in the nine
months ended March 31, 1997 is attributable primarily to an increase in
accounts receivable of approximately $7.6 million, offset in part by an
increase in deferred revenues of approximately $4.2 million.
The Company used cash for the purchase of property and equipment totaling
$83,000, $227,000 and $1.2 million in fiscal 1994, 1995 and 1996,
respectively. The Company used cash for the purchase of property and equipment
totaling $709,000 and $4.3 million in the nine months ended March 31, 1996 and
1997, respectively.
The Company generated $57,000 of cash from financing activities in fiscal
1994, used cash of $118,000 for financing activities in fiscal 1995 related to
the repayment of related party loans, and generated cash of $9.4 million from
financing activities in fiscal 1996, primarily related to the sales of Series
A and Series B Preferred Stock. The Company generated cash of $8.9 million
from financing activities in the nine months ended March 31, 1997 primarily
related to the sale of Series C Preferred Stock.
The Company has established subsidiaries in foreign countries, including the
United Kingdom, France, Canada, Russia and Australia, which function primarily
as sales offices in those locations. The Company expects to establish offices
in other foreign countries as it continues to expand its international
operations. The capital expenditures necessary to establish a foreign office
are not significant, and, accordingly, the Company does not expect that the
establishment of these subsidiaries will have a material adverse effect on its
liquidity and capital resources.
In connection with the sale of the Series C Preferred Stock, the Company has
committed to the expenditure of approximately $1.0 million toward the
development of certain call center technology. The Company's commitment is
cancelable by the Company in the event it encounters unforeseen technical
obstacles or business challenges. The Company does not believe that this
commitment will have a material adverse effect on its liquidity and capital
resources.
The Company currently has no significant capital commitments other than
commitments under capital leases. The Company believes that the proceeds from
the sale of the Common Stock offered hereby, together with its existing
sources of liquidity, will satisfy the Company's projected working capital and
capital requirements for at least the next twelve months.
29
<PAGE>
BUSINESS
Genesys is a leading provider of enterprise-wide platform and applications
software that enables organizations to integrate critical business information
and computing resources with telephony and other telecommunications media. The
Company's products allow an organization to optimally manage its customer
interactions and employee communications to increase productivity, lower costs
and achieve greater customer satisfaction and loyalty. In addition, the
Company's products enable organizations to develop and offer new or enhanced
revenue-generating products and services. Genesys believes that it is the
first company to offer a suite of open, scaleable, enterprise-wide platform
and applications software solutions to address the evolving needs of
organizations for intelligent communications, a new market paradigm known as
Enterprise Computer Telephony Integration ("ECTI").
The Company's platform and applications software products allow
organizations to integrate disparate telecommunications media with
heterogeneous computing environments. The Company's platform products
integrate with most major telephone systems and interoperate across most major
computing platforms, operating systems and databases, enabling organizations
to manage their desktop and media resources throughout the enterprise.
Together with the Company's platform software, Genesys offers a range of
applications that provide advanced ECTI solutions, such as intelligent call
routing, outbound/blended dialing and campaign management, real-time and
historical management reporting and Web-based telephony fulfillment. The open,
standards-based nature of the Company's platform products allows an
organization to leverage its investments in existing telecommunications and
computing infrastructure, software applications and employee training. The
Company's products support the integration of internally developed or
commercially available business applications, such as help desk or sales force
automation. In order to assist customers in realizing the maximum benefit from
its solutions, the Company augments its products with a range of
implementation, training and support services.
The Company initially targeted formal call centers within key industries,
such as telecommunications, financial services and technology, as the initial
market for its products. More recently, Genesys has broadened its target
markets to include network service providers ("NSPs"), which the Company
believes, through the use of the Company's products in the NSPs' networks, may
be able to offer a range of solutions for the informal call center, SOHO and,
eventually, consumer markets. To date, the Company has licensed its products
to more than 125 end-users worldwide, including: Ameritech, Bell South
Communication Systems, BT, Charles Schwab & Co., Inc., Gateway 2000 Inc., MCI
Telecommunications Corporation, NationsBanc Services, Inc., NB Tel, The SABRE
Group, Sprint/United Management and The Student Loan Corporation. As of March
31, 1997, the Company had 309 employees.
BACKGROUND
In the increasingly complex global business environment, an organization's
ability to manage the increased information demands of customers and employees
in a cost-effective manner is an important competitive advantage. In response
to these competitive pressures, the delivery of high-quality, cost-effective
services has become critical in differentiating an organization's product or
service offerings and expanding its market share. In order to provide these
services and optimally manage interactions with customers and communications
with employees, organizations need to integrate critical business information
and computing resources with telephony and other telecommunications media.
Modern organizations communicate, both internally and externally, through a
variety of different communications media, including telephony, voice mail, e-
mail, the Internet/intranets and video. Traditionally, each of these media and
its associated databases and information retrieval systems have been treated
as a unique and separate environment within which specialized applications
have been developed. The point solution nature of these systems has created
"silos" of information that are not intelligently utilized across the
enterprise. This lack of interoperability has prevented organizations from
optimally managing customer interactions and employee communications. This has
limited productivity,
30
<PAGE>
increased costs and restricted the ability of organizations to generate
greater customer satisfaction and loyalty. To be most effective, organizations
now need to make information available at any time it is needed, anywhere it
may be located and in any way that it may be requested.
A number of general business trends are also contributing to the increasing
importance of flexible and sophisticated means of integrating
telecommunications media and computing platforms:
THE INCREASINGLY GLOBAL NATURE OF BUSINESS OPERATIONS has significantly
complicated the task of managing information and providing expertise in a
real-time cost-effective manner.
THE PROLIFERATION OF DISTRIBUTED COMPUTING ENVIRONMENTS has resulted in
the broader dissemination of information, particularly through enterprise
software applications that address key business functions such as customer
service, finance, human resources, sales and marketing and supply chain
management. Consequently, the task of efficiently accessing this
information has become increasingly complex and difficult.
THE DEREGULATION OF MAJOR INDUSTRIES, specifically telecommunications,
banking and health care, has resulted in increased competition and new
business opportunities. Many companies within these industries are turning
to new and enhanced services as a means of competitive differentiation.
THE INCREASE IN MERGER AND ACQUISITION AND PARTNERING ACTIVITY has forced
organizations to integrate complex, disparate telecommunications and
computer systems. This integration must be accomplished while maintaining
high-quality customer service and without disrupting or delaying employees'
access to critical business information.
Organizations have confronted a variety of complex business and
technological issues associated with intelligently accessing customer
information in a real-time, automated and cost-effective manner. The initial
response to these issues has been the establishment of formal call centers,
where hundreds of customer service representatives may occupy a dedicated
facility with systems designed specifically to address high levels of customer
inquiry. Typically, these call centers have been automated at the hardware
level (i.e., the telephone switch) through automated call distribution ("ACD")
or interactive voice response ("IVR") systems. In the face of competitive
pressures, the stand-alone nature of these systems is becoming increasingly
burdensome to organizations, as the appropriate person to handle certain
customer interactions or employee inquiries is no longer just a call center
representative with limited, generic training, but is instead a more
experienced or specialized employee located elsewhere within the organization.
Providing intelligent access to these employees, as well as call center
representatives, and furnishing them with pertinent information requires a
level of sophistication and flexibility beyond the reach of traditional
solutions.
The shortcomings in the traditional means by which organizations have
managed customer interactions and employee communications, in combination with
the general business trends noted above, have created what the Company
believes to be a significant market opportunity for ECTI solutions with the
following characteristics:
. open, standards-based frameworks within which ECTI and other enterprise
business applications, whether developed by Genesys, ISVs or in-house IT
departments, may be incorporated;
. a suite of comprehensive business applications that address a wide
variety of customer needs;
. intelligent, real-time integration of and access to information matched
to customer and employee needs across different media and throughout the
organization;
. a high-performance, scaleable and flexible platform that can readily
integrate with existing computer architectures and business
applications, thereby preserving an organization's investment in its
infrastructure and applications; and
. a consistent level of functionality regardless of the underlying
infrastructure.
31
<PAGE>
The Company believes that ECTI solutions with these characteristics will
allow organizations of all sizes to increase productivity, lower costs and
achieve greater customer satisfaction and loyalty, as well as enable
organizations to develop and offer new or enhanced revenue-generating
services.
THE GENESYS SOLUTION
Genesys is a leading provider of enterprise-wide platform and applications
software that enables organizations to integrate critical business information
and computing resources with telephony and other telecommunications media.
Genesys believes that its products represent a fundamentally new approach to
CTI that addresses many of the limitations inherent in traditional call center
approaches. The Company's products provide the following benefits:
OPEN, SCALEABLE AND MEDIA-INDEPENDENT PLATFORM
The Company's open platform intelligently manages the convergence of
disparate telecommunications media and heterogeneous computing environments.
The Company's platform is designed to scale with increases in the volume of
customer inquiries and growth in the number of customer service
representatives and geographic locations. The Company's platform readily
integrates with a broad range of proprietary telephone switching platforms,
IVRs and major computing platforms, operating systems and databases. In
addition, the Genesys platform is designed to integrate with products
developed by third parties and customers' internal development teams. The
Genesys platform also supports many software development and network
communication standards. This open systems approach enables an organization to
leverage its investments in existing infrastructure, software applications and
employee training.
BROAD SUITE OF INTEGRATED BUSINESS APPLICATIONS
Genesys offers a broad array of integrated business applications that
provide a wide range of ECTI solutions. These applications include intelligent
call routing, outbound/blended dialing, real-time and historical reporting and
Web-based telephony fulfillment. These applications are designed to integrate
with an organization's existing telecommunications and computing
infrastructure. Genesys also offers a sophisticated ECTI development
environment to enable an organization to develop its own applications and
integrate applications from other vendors into the Genesys framework.
ENHANCED CUSTOMER INTERACTIONS
The Company's products enable organizations to enhance interactions with
customers, resulting in increased customer satisfaction and loyalty. For
example, the Genesys Call Router product may be utilized for the real-time
analysis of critical information, including a customer's account profile,
financial position and the nature of past interactions, in order to direct
incoming calls to the representative with the skills, attributes and
experience necessary to best address the customer's needs. In addition, the
Company's products extend the boundaries of the call center to enable a
customer inquiry to be routed to more specialized personnel located throughout
the organization, regardless of their location.
INCREASED EFFICIENCY AND PRODUCTIVITY
The Company's products enable organizations to improve the efficiency of
customer interactions, as well as optimize the distribution of information
across the enterprise. The Company's products automate the call routing and
placement function to minimize agents' idle time. The real-time availability
of relevant customer information enables agents to more quickly process calls,
resulting in significant cost savings through the more efficient use of
valuable customer service personnel and decreased toll charges. An extensive
suite of reporting tools enables managers to monitor and analyze
32
<PAGE>
the nature of inbound calls and the effectiveness of outbound campaigns in
real-time and on a historical basis. In addition, by providing agents with
increased access to pertinent information and improving the overall efficiency
of customer interactions, the Company's products create opportunities for
cross-selling and other revenue-generating activities.
IMPROVED TIME TO BENEFIT
The Company's platform and applications software are designed to provide
customers with comprehensive ECTI solutions that can be readily deployed.
Additionally, customers retain the flexibility to add new applications,
whether developed internally, by Genesys or by third parties, as market
requirements change. The deployability and flexibility of the Company's
software allow its customers to more quickly begin to benefit from the
efficiency and productivity gains that the software delivers.
THE GENESYS STRATEGY
Genesys seeks to be the leading provider worldwide of open, scaleable ECTI
platform and applications software. The Company's strategy includes the
following key elements:
ESTABLISH THE GENESYS FRAMEWORK AS AN OPEN, ECTI MARKET STANDARD
The Company's objective is to establish the Genesys framework as an open,
ECTI market standard. To achieve this goal, the Company's products are
designed to interoperate across most major telecommunications and computing
platforms. In addition, Genesys focuses on licensing its products to industry
leaders in targeted strategic markets. The Company has developed, and will
continue to develop, strategic relationships with major telecommunications
equipment and computer hardware vendors, systems integrators, VARs, ISVs and
NSPs.
PROVIDE INDUSTRY-LEADING, TECHNOLOGICALLY ADVANCED PRODUCTS
The Company offers a broad array of products that provide comprehensive ECTI
solutions. Genesys has developed an industry-leading platform and suite of
applications and continues to invest significant resources to enhance the
Company's products and to incorporate new technologies and standards as they
evolve. In addition, Genesys offers a sophisticated ECTI development
environment to enable an organization to develop its own applications and
integrate third-party applications into the Genesys framework.
TARGET STRATEGIC MARKETS
The Company targets organizations in industries with a strong need for
external or internal communications, a heavy transaction orientation or
significant requirements for managing customer information and providing
customer service. The Company also focuses on specific industries undergoing
structural changes, such as deregulation or significant mergers and
acquisitions activity, that create the need for ECTI solutions. Examples
include the telecommunications, financial services and health care industries,
where deregulation has substantially increased the competitive pressures to
provide new or enhanced products and services and mergers and acquisitions
have created the need to integrate heterogeneous communications and computing
environments without any disruption in customer service or employee
communications.
The Company has initially targeted formal call centers within these key
industries as important entry points for its products. The Company's framework
and applications software are well-suited to meeting the needs of formal call
centers. As the ECTI market evolves in the future and moves beyond the
boundaries of the formal call center, the Company believes it will be able to
leverage its market presence to offer a range of solutions for the informal
call center, small office/home office ("SOHO") and, eventually, consumer
markets.
33
<PAGE>
DEVELOP AND LEVERAGE STRATEGIC BUSINESS RELATIONSHIPS
The sale, installation and implementation of advanced ECTI solutions require
significant expenditures of time and resources. In order to supplement the
Company's direct sales organization and more rapidly take advantage of the
significant ECTI market opportunity, Genesys has focused on developing
strategic third-party relationships with network service providers ("NSPs"),
telecommunications equipment and computer hardware vendors, systems
integrators, value added resellers ("VARs"), and independent software vendors
("ISVs"). These relationships enable Genesys to leverage the technical
expertise of its partners and to access additional sales and marketing
channels, while further enhancing its efforts to establish the Genesys
platform as an open, ECTI market standard.
PENETRATE NETWORK SERVICES MARKET
By incorporating the Company's products into local and long distance network
carriers' offerings, Genesys believes that it can make its products available
to a broader customer base than would otherwise be possible. The Company is
focused on enabling NSPs to offer ECTI services to their corporate customers.
These services would also provide the functionality of formal call centers
without the need to assemble personnel in a single location or purchase
specialized equipment or software. These so-called "virtual" call centers
could subsequently be extended to the SOHO market, where cost considerations
have generally precluded the utilization of ECTI services.
ARCHITECTURE
The Genesys architecture consists of an ECTI framework and a suite of
integrated applications that are open, scaleable and standards-based. Whereas
traditional telecommunications applications are often embedded within hardware
such as ACDs and IVRs, the Genesys architecture supports a complete software-
based ECTI solution that interoperates across major telecommunications and
computing platforms. As a result, this architecture provides robust
scaleability from small premise call centers to multi-site global enterprises
and can be readily adapted to an organization's existing infrastructure. Thus,
the Company's solutions can scale with an increase in the size of the
organization and be quickly and easily adapted to accommodate changes in the
level or nature of customer interactions and employee communications. The
Company believes that its emphasis on, and investment in, this architecture is
the key to Genesys' ECTI technological leadership. The following diagram
illustrates the Genesys architecture:
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[DIAGRAM DEPICTING THE COMPANY'S FOUR LAYER ARCHITECTURE AND FRAMEWORK AS THEY
INTERFACE WITH VARIOUS HARDWARE EQUIPMENT AND THIRD PARTY APPLICATIONS.]
The Genesys architecture consists of four layers: The top layer--Real-Time
Business Applications--includes inbound, outbound, reporting and multimedia
applications and will incorporate future network services applications when
they become available. The remaining three layers--Media Control Services,
Common Application Services and Management Applications--comprise the Genesys
framework.
MEDIA CONTROL SERVICES
The Media Control Services layer contains the interfaces to various
telecommunications equipment and computing hardware, such as PBXs, ACDs, IVRs,
outbound dialers, SS7 gateways and Internet and video servers. This layer
incorporates a unified call control and event model that insulates the rest of
the software from the complexities of interfacing with particular types of
hardware and software. Media Control Services include a variety of device
drivers for major ACD/PBX and central office switch manufacturers. The
capabilities and behavior of different switches can vary widely and the
unified call control and event model creates a superset of these capabilities
to handle the interface. With the introduction of Genesys T-Server 5.0,
applications are able to query the capabilities of the underlying equipment
and appropriately adjust their behavior in real time, which enables
applications to interoperate across different ACD/PBX environments. The
Company's outbound solutions can utilize the capabilities of the ACD/PBX
equipment, where available, or a stand-alone server equipped with voice-
processing hardware. Currently, the outbound capabilities of Lucent
Technologies, Inc., Rockwell and Aspect Telecommunications switches are
supported. Genesys also supports a variety of IVR equipment from vendors such
as Lucent Technologies, Inc., Northern Telecom, Inc., Periphonics Corporation,
Syntellect, Inc., Voicetek, Inc., Edify Corporation, Brite Voice Systems,
Intervoice, Inc. and IBM Corporation.
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In order to enable network services, the Media Control Services layer
contains drivers for the Public Switched Telephone Network. The Company's
software is fully certified on MCI's network as a Customer Access Point
solution provider, interfacing to MCI's Gateway 800, as well as the AT&T
network as the solution provider for AT&T's Intelligent Call Processing
Service (SS7). Genesys has completed the development of the Sprint interface,
and is subject to testing and certification.
COMMON APPLICATION SERVICES
The Common Application services layer contains a rich set of services that
are used to create powerful ECTI client/server applications, whether by the
Company, third parties or an organization's information technology
departments. The following services are available:
STAT SERVER. Stat Server keeps track of vital call center statistics that
describe call traffic and agent activities. This service is used for making
real-time call routing decisions, as well as for real-time reporting.
DB SERVER. DB Server serves as the gateway to different databases. This
service is essential for integration with the enterprise computing environment
and is used by various applications for call routing, historical reporting and
outbound campaign management.
LIST MANAGER. List Manager provides the interface to customer contact
information used in outbound campaign management.
CLIENT SERVICES. Client Services consists of a broad array of services for
creating desktop applications and integrating with enterprise business
applications such as help desk or sales force automation. Genesys provides the
means for integrating different platforms such as Windows 95, Windows NT, Mac
O/S, OS/2 and UNIX. Client Services conforms with many standards, including
ActiveX, Java, TAPI and CORBA, as well as the Genesys API, T-Lib.
MANAGEMENT APPLICATIONS
The Management Applications layer contains all the facilities required to
install, configure, maintain and secure the Company's solutions. As more
mission-critical applications depend upon ECTI, this layer facilitates the
management of the Genesys solution. A Service Creation Environment is provided
to enable customers to configure the Genesys ECTI framework.
Genesys T-Server 5.0 includes significant new capabilities provided through
the addition of Simple Network Management Protocol ("SNMP") support to all
Genesys servers. Through SNMP, the Company's platform can integrate with all
industry standard network management solutions. Genesys T-Server 5.0
incorporates the Secure Socket Layer ("SSL") security protocol, which enables
users to ensure security of sensitive information.
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PRODUCTS
The Company's products allow an organization to optimally manage its
customer interactions and employee communications to increase productivity,
lower costs and achieve greater customer satisfaction and loyalty. The average
selling price for the Genesys platform products ranges from $15,000 to $70,000
per site, plus additional fees based on the number of seats. The average
selling price for an application product ranges from $25,000 to $75,000 per
site. The Company's typical order size per site ranges from $100,000 to
$300,000. In March 1997, the Company announced an enhanced version of its
entire product line and renamed certain of these products as described below.
[DIAGRAM DEPICTING THE COMPANY'S PLATFORM PRODUCT AND ITS VARIOUS SOFTWARE
APPLICATIONS AS THEY INTERFACE WITH MULTIPLE COMPUTER LANGUAGES,
TELECOMMUNICATIONS HARDWARE EQUIPMENT, DATABASES AND CALL CENTERS.]
PLATFORM
GENESYS T-SERVER. Genesys T-Server, the Company's platform product, is the
basis of the Company's software framework. T-Server consists of the Company's
ECTI software implemented on industry standard hardware, integrates with most
major PBXs, IVRs and ACDs and interoperates with most major computing
platforms, operating systems and databases. The Company's platform is designed
to scale with increases in the volume of customer inquiries and growth in the
number of customer service representatives and geographic locations. T-Server
creates a bridge between client/server applications and telephony devices.
Features include the ability to transfer voice and data across sites
regardless of the switch type, providing the immediate appearance of customer
data on the agent's screen (known as a "screen pop"). In March 1997, the
Company announced version 5.0 of T-Server, which is to have unified call model
and SNMP support, and which the Company expects to be available in the second
half of 1997.
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GENESYS INTERACTIVE-T SOFTWARE TOOLKIT. Genesys InterActive-T Software
Toolkit is a set of standards-based tools for integration and development of
client/server applications on top of the Genesys platform. The Toolkit is
compliant with TAPI, CORBA, DCOM, JAVA and ActiveX. In addition, it enables
integration with applications from leading enterprise software vendors, such
as Clarify, Scopus, Siebel and Vantive.
APPLICATIONS--INBOUND
GENESYS CALL ROUTER. Genesys Call Router is an intelligent, skills-based
call routing application. Using the ECTI capabilities embodied within T-
Server, calls are routed to the most appropriate agent based on a variety of
criteria including ANI (automatic number identification), DNIS (dialed number
identification service), customer account information, customer importance,
customer preferences, service desired and other business rules and relevant
database information. Call Router's client/server architecture allows agent-
level routing of call distribution over a multi-site environment. Features of
Call Router include the ability to track each agent in the system based on
ECTI events to enable performance monitoring, screen pops and routing
capability between multiple sites with different kinds of switches. The
Company expects to release, in the second half of 1997, the 5.0 version of
this product under the name Genesys ICD 5.0 (Intelligent Call Distributor).
ICD is being designed to include an easy-to-use graphical strategy builder to
customize routing strategies.
APPLICATIONS--OUTBOUND
GENESYS CAMPAIGN MANAGER. Genesys Campaign Manager is an advanced and robust
predictive dialing application for outbound call management. Campaign Manager
is a scaleable software application that is fully integrated with Genesys
inbound and reporting call center applications, providing a truly blended and
integrated environment that enables multiple campaigns to be run
simultaneously. The call result detection feature of Campaign Manager enables
customers to undertake large-scale, high-volume outbound call campaigns while
minimizing agent downtime between calls.
APPLICATIONS--REPORTING
GENESYS CALL CENTER MANAGER. Genesys Call Center Manager monitors real-time
activities across the call center and provides a graphical display of these
activities. The product collects data in real time and enables supervisors
from their desktops to monitor call activities for the enterprise across a
distributed network and observe statistics such as total calls handled by each
agent and average call duration. Call Center Manager is the current real-time
reporting product offered by Genesys and is expected to be replaced by Call
Center Pulse 5.0, which is expected to be generally available by mid-1997.
Call Center Pulse 5.0 is described below in "Products Under Development".
GENESYS CALL CONCENTRATOR. Genesys Call Concentrator is a historical
reporting package that tracks and stores data related to call center activity.
The product enables a call to be followed throughout the enterprise from
initiation through termination, even if the call is transferred or
conferenced. Call Concentrator operates with major databases such as Oracle,
Sybase, Informix, DB2 and SQL Server. Reports can be developed by the customer
using standard, off-the-shelf reporting packages. Call Concentrator is
expected to be replaced by Genesys DART, which is described below in "Products
Under Development" and expected to be generally available by mid-1997.
PRODUCTS UNDER DEVELOPMENT
The Company has various products that are currently in development and plans
to complete testing and introduce these products in mid-1997. Software
products as complex as those currently under development by the Company are
subject to frequent delays, and there can be no assurance
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that the Company will not encounter difficulties that could delay or prevent
the successful and timely development, introduction and marketing of these
potential new products. Moreover, even if such potential new products are
developed and introduced, there can be no assurance that they will achieve any
significant degree of market acceptance. Failure to release these or any other
potential new products on a timely basis, or failure of these or any other
potential new products, if and when released, to achieve any significant
degree of market acceptance, could have a material adverse effect upon the
Company's business, financial condition and results of operations.
GENESYS CALL CENTER PULSE. Genesys Call Center Pulse is being designed as a
real-time reporting application for the call center environment and is
expected to be a redesign of the Genesys Call Center Manager. Call Center
Pulse is being designed to include an improved GUI and to incorporate object-
based views of agents, groups, and call centers, allowing supervisors to
monitor one or more agents or predetermined groups. Call Center Pulse is being
designed to allow supervisors to visually monitor various information
regarding agent activity. This information should enable managers to make
real-time activity and resource decisions.
GENESYS DART (DATA ANALYSIS AND REPORTING TOOL). Genesys DART is being
designed to be a historical call center reporting package to replace the Call
Concentrator product. Features being designed include built-in reports of call
center activity such as reports on agent, group, queue, routing and switch
activity. DART is also being designed to enable reporting on business
information derived from applications accessed as a result of a customer
inquiry. DART is expected to incorporate browser-based administration and be
accessible from virtually any UNIX, NT, Windows, Macintosh, or OS/2 based
machine. DART is being designed to include SNMP support.
GENESYS VIDEO ICD. Genesys Video ICD is being designed to enable a customer
with video capability to place a video-call to a call center and be routed,
like any other incoming call, to an agent or agent group with video
capability. Traditional video-conferencing requires that a call be placed from
one predetermined number to another and does not allow calls to be routed.
GENESYS NET VECTOR. Genesys Net Vector is being designed to integrate the
Internet with the call center. An earlier, pre-release of the product won the
Call Center Magazine Product of The Year award for 1996. Net Vector is being
designed to allow a customer to click on a Web page and initiate an automatic
return call. The call center would then be able to utilize the Company's other
ECTI products to intelligently interact with the customer.
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CUSTOMERS
As of March 31, 1997, Genesys had, directly or indirectly through VARs,
systems integrators and resellers, licensed its products to more than 125 end-
users worldwide. The following is a representative list of end-users that
accounted for more than $75,000 in total revenue (license and service) to
Genesys since July 1, 1995:
<TABLE>
<S> <C> <C>
FINANCIAL SERVICES TELECOMMUNICATIONS
ABN AMRO Services Co. Airtouch Cellular Sprint/United
Charles Schwab & Co., Ameritech Services, Inc. Management Company
Inc. Bell Mobility Cellular, U S West Communications
NationsBanc Services, Inc. Vartec Telecom, Inc.
Inc. Bell South Communications
Old Kent Bank Systems OTHER
T. Rowe Price Associates, BT Gateway 2000 Inc.
Inc. MCI Telecommunications (U.K.)
USAA Information Services NB Tel The SABRE Group
The Vanguard Group PageNet, Inc. The Student Loan
Wells Fargo & Company Corporation
Westpac Banking Corporation
(NZ)
</TABLE>
For the nine months ended March 31, 1997, MCI Telecommunications accounted
for 16.3% of total revenues. In fiscal 1996, NationsBanc Services, Inc., Wells
Fargo & Company and Sixtel accounted for 10.8%, 10.2% and 10.0% of total
revenues, respectively. In fiscal 1995, Northern Telecom, Bell Mobility
Cellular and Wells Fargo & Company accounted for 12.8%, 11.2% and 11.1% of
total revenues, respectively. See "Risk Factors--Customer Concentration".
SALES, MARKETING AND SUPPORT
The Company's sales and marketing strategy is to target large organizations
through its worldwide direct sales force as well as through a broad range of
indirect channels, including telecommunications equipment vendors, systems
integrators, VARs, ISVs and NSPs. The Company has its sales headquarters in San
Francisco, California, and has domestic sales offices located in Colorado,
Georgia, Illinois, Massachusetts, New Jersey, New York and Texas and
international sales offices or other representation in Canada, the United
Kingdom, Japan, France and Australia.
DIRECT SALES
The Company employs a direct sales force to market is products and services
worldwide. As of March 31, 1997, the sales force consisted of 19 sales
representatives worldwide, of whom 17 were in the U.S. The sales force focuses
primarily on large accounts. Sales representatives are assigned quotas and
compensated for all license revenues, direct and indirect, generated within
their assigned territories. The Company intends to expand its sales
capabilities in the future. Many initial sales include a pilot implementation
of the Company's products, successful completion of which is typically a
prerequisite to full-scale deployment. While the sales cycle varies from
customer to customer, it typically ranges from three to nine months. See "Risk
Factors--Lengthy Sales Cycle".
INDIRECT SALES
In order to enhance its revenue generation and implementation capabilities
and extend its market reach, the Company complements its direct sales
organization with a network of distribution partners, including systems
integrators, value added resellers ("VARs"), telecommunications equipment
vendors, network service providers ("NSPs") and independent software vendors
("ISVs"). While the substantial majority of the Company's U.S. sales are
direct, a large proportion of international sales are executed via the indirect
channel. See "Risk Factors--Dependence on The Third-Party Resellers".
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. VARs and systems integrators such as Broadway & Seymour, Cambridge
Technology Partners, Pragmatix and Wiltel market, distribute and
implement the Company's products. The VARs and systems integrators
represent a critical product delivery and implementation channel for the
Company.
. Telecommunications equipment and computer hardware vendors such as NCR,
Nortel, Periphonics, Rockwell and Unisys market and distribute Genesys
products as part of a packaged solution with their own products.
. ISV partners such as Scopus, Siebel and Vantive integrate Genesys
solutions with their own software products. The Company's ISV
relationships are also an important source of sales leads.
. NSPs such as Ameritech, BT, MCI and NBTel have entered into a broad range
of relationships with the Company, including resale of the Company's
products and the provision of services utilizing the Company's products.
INTERNATIONAL
Revenues outside of the United States accounted for 40.6%, 30.9%, 36.2% and
36.0% for the fiscal years ended June 30, 1994, 1995 and 1996 and the nine
months ended March 31, 1997, respectively. The Company currently has sales
offices in Canada, the United Kingdom, Japan, France and Australia, and
intends to broaden its international presence. A significant portion of
international sales is currently conducted through indirect sales channels.
The Company believes that international revenues will continue to represent a
significant portion of its total revenues. The ability of the Company to
expand internationally, however, is limited to those countries where there is
regulatory approval of the third party telephony hardware supported by T-
Server. See "Risk Factors--Risks Associated with International Sales and
Operations".
SUPPORT SERVICES
Support services, which include maintenance, implementation, consulting,
installation, training and sales support, are an important element of the
Genesys solution. Consulting and systems integration services are provided
directly by the Company's systems integration group, as well as through
alliances with major systems integrators and VARs. The Company intends to
devote additional resources to supporting its customers and providing training
to indirect channels as the Genesys platform becomes more widely adopted.
There can be no assurance the Company will be successful in its efforts to
provide sufficient resources to expand its customer support capabilities. See
"Risk Factors--Lengthy Implementation Cycle; Dependence on Third Party
Consultants" and "--Dependence on Third-Party Resellers".
RESEARCH AND DEVELOPMENT
The market for the Company's products is characterized by rapid
technological change, frequent new product introductions, changes in customer
requirements and emerging industry standards. The introduction of products
embodying new technologies and the emergence of new industry standards could
render the Company's 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 develop and introduce new
products and product enhancements on a timely basis that keep pace with
technological developments and emerging industry standards and address
increasingly sophisticated requirements of its customers. There can be no
assurance that the Company will be successful in developing and marketing new
products or product enhancements that respond to technological changes or
evolving industry standards, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these new products or product enhancements, or that its new
products or product enhancements will adequately meet the requirements
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<PAGE>
of the marketplace and achieve market acceptance. If the Company is unable,
for technological or other reasons, to develop and market new products or
product enhancements in a timely and cost-effective manner, the Company's
business, financial condition and results of operations would be materially
adversely affected.
Genesys believes that strong product development capabilities are essential
to its strategy of building an industry standard platform, maintaining the
competitiveness of its current product suite and adding new features and
functionality to the Genesys platform and applications. The Company's product
development team consists of professionals with expertise in software,
telecommunications and computer hardware. From its founding, the Company has
believed that this combination of diverse technical and communications
expertise contributes to the highly integrated functionality of its software
products and thereby provides the Company with a significant competitive
advantage.
Research and development expenses were $578,000, $959,000, $3.7 million and
$6.0 million for the fiscal years ended June 30, 1994, 1995 and 1996, and the
nine months ended March 31, 1997, respectively. The Company's total research
and development staff consisted of 94 employees as of June 30, 1996 and 108
employees as of March 31, 1997. The Company expects that it will continue to
increase research and development expenditures in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
The Company's current product development efforts are focused on
enhancements to the Genesys platform and on new releases of many of the
Company's applications. The Company is also developing a suite of network-
based call center solutions that is intended to be offered as a service by
local and long-distance telephone service providers, and an application that
is intended to perform intelligent, skills-based routing across multiple
customer sites. There can be no assurance that these development efforts will
be completed within the Company's anticipated schedules or that, if completed,
they will have the features necessary to make them successful in the
marketplace. Moreover, products as complex as the Company's may contain
undetected errors or failures when first introduced or as new versions are
released. Errors in new products may be found after commencement of commercial
shipments, resulting in loss of or delay in market acceptance. Future delays
in the development or marketing of product enhancements or new products could
result in a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors--Dependence on New
Products; Rapid Technological Change" and "Business--Products".
COMPETITION
The market for the Company's software products is highly competitive and
subject to rapid technological change. The Company expects competition to
increase significantly in the future. The Company's principal competition
currently comes from different market segments including computer telephony
platform developers, computer telephony applications software developers and
telecommunications equipment vendors. These competitors include Aspect,
Dialogic, GeoTel, Hewlett-Packard, IBM, IEX, Lucent, Nabnasset, Northern
Telecom and Tandem. The Company also competes to a lesser extent with new or
recent entrants to the marketplace. The Company's competitors vary in size and
in the scope and breadth of the products and services offered. Many of the
Company's current and potential competitors have longer operating histories,
significantly greater financial, technical, marketing, customer service and
other resources, greater name recognition and a larger installed base of
customers than the Company. As a result, such competitors may be able to
respond to new or emerging technologies and changes in customer requirements
more expediently than the Company, or to devote greater resources to the
development, promotion and sale of products than can the Company. Current and
potential competitors have established and may in the future establish
cooperative relationships among themselves or with third parties to increase
the ability of their products to address the needs of the Company's current or
prospective customers. In addition, as the ECTI market develops, a number of
companies with significantly greater resources than the Company could attempt
to increase their presence in the ECTI market by acquiring or forming
strategic alliances with competitors of the Company. Accordingly, it is likely
that new competitors or alliances among
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<PAGE>
competitors will emerge and may rapidly acquire significant market share,
which would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, because there are
relatively low barriers to entry in the software market, the Company expects
additional competition from other established and emerging companies if the
ECTI market continues to develop and expand. Increased competition is likely
to result in price reductions, reduced margins and loss of market share, any
of which could materially adversely affect the Company's business, financial
condition and results of operations. In order to be successful in the future,
the Company must respond promptly and effectively to the challenges of
technological change, changing customer requirements and competitors'
innovations. 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, financial condition and results of operations.
INTELLECTUAL PROPERTY
The Company's success is heavily dependent upon proprietary technology. The
Company relies primarily on a combination of copyright, trademark and trade
secret laws, as well as nondisclosure agreements and other contractual
provisions to protect its proprietary rights. The Company presently holds no
patents, and as of March 31, 1997, had filed seventeen United States patent
applications and two corresponding foreign patent applications. There can be
no assurance that any of the Company's patent applications will be approved,
that the Company will develop additional proprietary products or technologies
that are patentable, that any issued patent will provide the Company with any
competitive advantages or will not be challenged by third parties or that the
patents of others will not have an adverse effect on the Company's ability to
do business. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate the Company's products or,
if patents are issued to the Company, design around the patents issued to the
Company. As part of its confidentiality procedures, the Company generally
enters into nondisclosure agreements with its employees, consultants and other
third-party providers who serve the Company in a technical capacity or who
have access to confidential information of the Company. In addition, the
Company limits access to, and distribution of, its software, documentation and
other proprietary information. 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 and use information that the Company regards
as proprietary. Policing unauthorized use of the Company's products is
difficult, and while the Company is unable to determine the extent to which
piracy of its software products exists, software piracy may become a problem.
In addition, effective protection of intellectual property rights may be
unavailable or limited in certain countries in which the Company currently
sells products and countries the Company may target to expand its sales
efforts. Accordingly, 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 or superior technology.
There has also been a substantial amount of litigation in the software
industry regarding intellectual property rights. The Company has from time to
time received claims that it is infringing third parties' intellectual
property rights, and there can be no assurance that third parties will not in
the future claim infringement by the Company with respect to current or future
products, trademarks or other proprietary rights. 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,
result 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 or at all, which could have a material adverse effect on the
Company's business, financial condition and results of operations. See "GeoTel
Litigation".
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GEOTEL LITIGATION
On December 17, 1996, GeoTel filed a lawsuit in the United States District
Court for the District of Massachusetts naming the Company as defendant, and
alleging infringement of a patent issued to GeoTel entitled "Communications
System Using a Central Controller to Control at Least One Network and Agent
System", U.S. Patent No. 5,546,452 (the "GeoTel Patent"). In the complaint,
GeoTel requested injunctive relief, an accounting for damages and an
assessment of interest and costs, and other relief as the court deems just and
proper. On February 10, 1997, the Company filed an answer in response to the
complaint filed by GeoTel, asserting that the GeoTel patent is invalid,
denying the alleged patent infringement and seeking dismissal of the complaint
with prejudice. On April 24, 1997, the Company received correspondence from
GeoTel's counsel indicating that GeoTel intends to request a reexamination of
the GeoTel Patent with the Patent and Trademark Office. The Company intends to
move for a stay of the federal court litigation pending the outcome of such a
reexamination proceeding. If the reexamination proceeding is ordered by the
Patent Office, and the stay is granted by the federal district court, it is
expected that the Patent Office activity will delay the litigation for at
least one year. The Company believes that it has meritorious defenses to the
asserted claims and intends to defend the litigation vigorously. GeoTel
alleges that the Genesys Call Router, Genesys Call Center Manager and Genesys
Call Concentrator products, and the T-Server product, as a necessary element
of all Genesys products, infringe the GeoTel Patent. After consultation with
the patent law firm of Blakely Sokoloff Taylor & Zafman, the Company does not
believe any of the products described under "Business--Products" infringe any
valid claims of the GeoTel Patent. In connection with the Company's
development of the potential new products described under "Business--Research
and Development", the Company has sought the advice of such counsel and
believes that such potential products can be developed without infringing the
GeoTel Patent; however, there can be no assurance that GeoTel will not assert
infringement of the GeoTel Patent with respect to such potential new products.
Further, the outcome of litigation is inherently unpredictable and there can
be no assurance that the results of these proceedings will be favorable to the
Company or that they will not have a material adverse effect on the Company's
business, financial condition or results of operations. Regardless of the
ultimate outcome, the GeoTel litigation could result in substantial expense to
the Company and significant diversion of effort by the Company's technical and
managerial personnel. If the Court determines that the Company infringes
GeoTel's patent and that the GeoTel patent is valid and enforceable, it could
issue an injunction against the use or sale of certain of the Company's
products and it could assess significant damages against the Company.
Accordingly, an adverse determination in the proceeding could subject the
Company to significant liabilities and require the Company to seek a license
from GeoTel. Although patent and other intellectual property disputes in the
software area have sometimes been settled through licensing or similar
arrangements, costs associated with such arrangements may be substantial, and
there can be no assurance that a license from GeoTel, if required, would be
available to the Company on acceptable terms or at all. Accordingly, an
adverse determination in the GeoTel litigation could prevent the Company from
licensing certain of its software products, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
EMPLOYEES
At March 31, 1997, the Company had 309 employees worldwide, of which 108
were primarily engaged in research and development, 50 in customer service, 99
in sales and marketing and 52 in finance and administration. The Company's
future performance will depend significantly upon the continued contributions
of its executive officers, technical, marketing, sales and customer service
and financial personnel and its continuing ability to attract, train and
retain highly qualified personnel. Competition for such personnel is intense,
and the failure to attract, train and retain such personnel in the future on a
timely basis could have a material adverse effect on the Company's business,
financial condition and results of operations. None of the Company's employees
is represented by a collective bargaining agreement and the Company has never
experienced any work stoppages. See "Risk Factors--Dependence on Key
Personnel" and "--Management of Growth".
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As of April 30, 1997, over 35% of the Company's employees, including
approximately 75% of the Company's technical staff, are foreign citizens.
Accordingly, the Company must comply with the immigration laws of the United
States. Most of the Company's foreign employees are working in the United
States under H-1 temporary work visas ("H-1 Visas"). An H-1 Visa allows the
holder to work in the United States for three years and, thereafter, to apply
for a three-year extension. Upon the expiration of such period, unless the
holder thereof has become a Lawful Permanent U.S. Resident or has obtained
some other legal status permitting continued employment, that holder must
spend at least one year abroad before reapplying for an H-1 Visa. Furthermore,
Congress and the administrative agencies with jurisdiction over immigration
matters have periodically expressed concerns over the level of immigration
into the United States. The inability of the Company to utilize the continued
services of such employees would have a material adverse effect on the
Company's business, financial condition and results of operations.
FACILITIES
The Company's headquarters are located in approximately 48,000 square feet
of office space in San Francisco, California under a lease, which expires on
September 30, 2000. The Company also leases space for its sales and support
offices in Colorado, Georgia, Illinois, Massachusetts, New Jersey, New York
and Texas, as well as for offices in Canada, the United Kingdom, Japan and
Australia. The Company believes that its existing facilities are adequate for
its current needs and that additional space will be available as needed.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their respective
ages and positions as of March 31, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Gregory Shenkman..... 35 President, Chief Executive Officer and Director
Alec Miloslavsky..... 33 Vice Chairman of the Board, Director and Chief
Technical Officer
Michael J. McCloskey. 41 Vice President, Finance and International, Chief
Financial Officer and Secretary
Richard DeGolia...... 46 Vice President, Business Development
Seth Homayoon........ 49 Vice President, Network Services
John McNulty......... 50 Vice President, Channels
Igor Neyman.......... 39 Vice President, Advanced Development
Yuri Shtivelman...... 41 Vice President, Product Development
William Wesemann..... 40 Vice President, Sales
James Jordan(1)(2)... 57 Chairman of the Board and Director
Bruce Dunlevie(1)(2). 40 Director
Paul D. Levy(1)(2)... 41 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mr. Shenkman co-founded the Company and has served as its President and
Chief Executive Officer since the Company's formation in October 1990 and as a
director since January 1993.
Mr. Miloslavsky co-founded the Company and has served as its Chief Technical
Officer since the Company's formation in October 1990, as a director since
January 1993 and as Vice Chairman of the Board since March 1997. Prior to co-
founding the Company, Mr. Miloslavsky worked as an independent software
consultant.
Mr. McCloskey joined the Company in September 1996 as its Vice President,
Finance and International, Chief Financial Officer and Secretary. From May
1995 to September 1996, Mr. McCloskey served as Vice President, Finance, Chief
Financial Officer and Vice President, Operations at Network Appliance, Inc., a
network data storage device company. From September 1993 to May 1995, he
served as Executive Vice President, Chief Financial Officer at Digital
Microwave, a telecommunications company. From September 1991 to September
1993, Mr. McCloskey was the Chief Operating Officer and a member of the Board
of Directors of Wavefront Technologies, a 3-D graphics visualization software
development company. From September 1986 to September 1991, he served as Chief
Financial Officer at Everex Systems, Inc., a computer equipment company.
Mr. McCloskey holds a B.S. in business administration from Santa Clara
University.
Mr. DeGolia joined the Company in September 1996 as Vice President, Business
Development. From August 1985 to September 1996, Mr. DeGolia was an attorney
with Wilson, Sonsini, Goodrich & Rosati, PC, a law firm located in Silicon
Valley. Mr. DeGolia holds a B.A. in American Studies from the University of
California at Berkeley and a J.D. from Harvard University.
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<PAGE>
Mr. Homayoon joined the Company in June 1996 as Vice President, Marketing
and became Vice President, Network Services in March 1997. From 1976 to 1996,
Mr. Homayoon was employed by Northern Telecom Limited ("Northern Telecom"), a
telecommunications company, in various capacities, including General Manager
of CTI and Desktop Applications, as well as Vice President, Marketing of the
FiberWorld products division. Mr. Homayoon holds a B.S. in engineering from
McGill University.
Mr. McNulty joined the Company in February 1997 as Vice President, Channels.
Prior to joining the Company, from July 1993 to February 1997, Mr. McNulty
served as Director of Enterprise Programs at Intel Corporation, a
semiconductor company. From July 1989 to June 1993, Mr. McNulty served as
President and Chief Executive Officer of Rose Communications, Inc., a wireless
telephone company. Prior to that, he served as President and Chief Executive
Officer for Integrated Solutions, Inc., a real-time systems company. Mr.
McNulty holds an associate's degree from RCA Technical Institute.
Mr. Neyman joined the Company in December 1990 and has served as Vice
President, Advanced Development since October 1993. Prior to joining the
Company, Mr. Neyman served as Director of Engineering for the Academy of
Science Research Institute in Moscow. Mr. Neyman holds an M.S. in computer
science from Moscow University.
Mr. Shtivelman joined the Company in July 1996 as Vice President, Product
Development. From 1986 to 1996, Mr. Shtivelman was employed in various
capacities by Northern Telecom, most recently as Assistant Vice President,
Meridian 1 Advanced Technology. Mr. Shtivelman holds an M.S. in mathematics
from Moscow University.
Mr. Wesemann joined the Company in May 1996 as Vice President, Sales. Prior
to joining the Company, Mr. Wesemann served as Vice President, Sales and
Professional Services at ParcPlace Systems, Inc., a software development tools
company, from December 1994 to May 1996. From May 1993 to December 1994, Mr.
Wesemann served as Vice President, Sales at NeXT Computer Inc., a software
development tools company, and from March 1989 to May 1993, he served as Vice
President, Sales and Marketing and as a member of the Board of Directors of
Viewpoint Systems, Inc., a software development tools company. Mr. Wesemann
holds a B.A. in marketing from Glassboro State College.
Mr. Jordan has served as director of the Company since November 1995 and as
Chairman of the Board since March 1997. From July 1992 to December 1994, Mr.
Jordan served as Chairman of the Board, President and Chief Executive Officer
of Kalpana, Inc., a provider of Ethernet switches. Prior to joining Kalpana in
July 1992, Mr. Jordan served as President of Telebit Corporation, a provider
of remote access solutions for computer networks. Prior to this time, Mr.
Jordan was a founder and Executive Vice President of Ungermann-Bass, Inc., a
network company. Mr. Jordan holds a B.S. in business and marketing from the
University of Utah.
Mr. Dunlevie has served as director of the Company since July 1996. Mr.
Dunlevie is a General Partner of Benchmark Capital LLC, a venture capital firm
founded by Mr. Dunlevie in May 1995. Mr. Dunlevie is also a General Partner of
Merrill, Pickard, Anderson & Eyre. Mr. Dunlevie has also served as Vice
President and General Manager of the Personal Computer Division of Everex
Systems, Inc., a personal computer manufacturer, and as an investment banker
with Goldman, Sachs & Co. He is also a director of Geoworks, Inc. and Rambus,
Inc. Mr. Dunlevie holds an M.B.A. from Stanford Graduate School of Business
and a B.A. from Rice University.
Mr. Levy has served as director of the Company since February 1997. In 1981,
Mr. Levy co-founded Rational Software Corporation, a software company
providing products that automate component-based development of software. He
is currently Chairman of the Board and Chief Executive Officer of Rational.
Prior to September 1996, Mr. Levy served as President and Chief Executive
Officer of Rational. Since August 1996, he has served as a director of
Peerless Systems Corporation, a provider of software-based imaging systems for
the digital document product marketplace. Mr. Levy holds a B.S. degree in
economics from the United States Air Force Academy and an M.S. degree in
engineering-economic systems from Stanford University.
47
<PAGE>
The Company's Bylaws currently authorize five directors. Each director holds
office until the next annual meeting of shareholders and until his successor
is duly elected and qualified. The officers serve at the discretion of the
Board. Except for grants of stock options, directors of the Company generally
do not receive compensation for services rendered as a director. The Company
also does not pay compensation for committee participation or special
assignments of the Board of Directors. Non-employee Board members will receive
option grants at periodic intervals under the Automatic Option Grant Program
of the 1997 Stock Incentive Plan and will also be eligible to receive
discretionary option grants under the Discretionary Option Grant Program of
such plan. See "Management--Stock Plans".
On January 18, 1996, Mr. Jordan purchased 528,000 shares of Common Stock at
a purchase price of $0.0167 per share, the fair market value of the Common
Stock on such date. The shares are unvested and subject to repurchase by the
Company, at the purchase price paid per share, upon Mr. Jordan's termination
of service as a Board member prior to vesting in the shares. The Company's
repurchase right shall lapse with respect to, and Mr. Jordan shall acquire a
vested interest in, 25% of the shares on November 27, 1996, and the balance in
a series of 36 equal monthly installments thereafter so long as Mr. Jordan
remains a member of the Board.
On February 28, 1997, the Company granted to each of Messrs. Dunlevie,
Jordan and Levy an option to purchase 30,000 shares of Common Stock and an
option to purchase 20,000 shares of Common Stock, each at an exercise price of
$7.50 per share. The options are immediately exercisable for all of the option
shares. However, the shares purchasable upon exercise of the options are
unvested and subject to repurchase, at the option exercise price paid per
share, upon the early termination of the optionee's Board service. The shares
subject to each 30,000-share grant will vest as to 25% of the option shares
upon the optionee's completion of each of the four years of Board service
after the grant date. The shares subject to each 20,000-share grant will vest
as to 25% of the option shares on each of the fifth, sixth, seventh and eighth
anniversaries of the option grant date. However, vesting of the 20,000 shares
will be subject to acceleration after the close of each fiscal year, beginning
with the 1998 fiscal year, in the event that the optionee has served on a
committee of the Board of Directors in such fiscal year. Vesting of 2,500
shares will accelerate with respect to each committee of the Board of
Directors on which the optionee has served, up to a maximum of two committees,
and will be conditioned on the optionee having attended at least 75% of the
meetings held by such committee during the fiscal year. The shares to be
accelerated will be those shares that would otherwise have been the first
shares to vest in accordance with the vesting schedule described above. The
options have a maximum term of 10 years measured from the grant date, subject
to earlier termination following the cessation of the optionee's Board
service. The options will immediately vest in the event that the Company is
acquired by merger or asset sale, unless such options are assumed by the
successor corporation.
In addition, on February 28, 1997, Mr. Levy purchased 30,000 vested shares
of Common Stock at a purchase price of $7.50 per share, the fair market value
of the Common Stock on such date.
COMMITTEES OF THE BOARD OF DIRECTORS
In February 1997, the Board of Directors established a Compensation
Committee and an Audit Committee. The Compensation Committee recommends
compensation levels of senior management and works with senior management on
benefit and compensation programs for the Company's employees. In addition,
the Compensation Committee will administer the Company's 1997 Stock Incentive
Plan and Employee Stock Purchase Plan. The Audit Committee is responsible for
reviewing the scope and results of audits and other services provided by the
Company's independent public accountants.
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<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation earned
by the Company's Chief Executive Officer and Chief Technical Officer for the
1996 fiscal year for services rendered in all capacities to the Company and
its subsidiaries for that fiscal year. No executive officer of the Company
earned salary and bonus in such fiscal year in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS(1)
NAME AND PRESENT ------------ ------------
PRINCIPAL POSITION SALARY
------------------ ------------
RESTRICTED
STOCK AWARDS
------------
<S> <C> <C>
Gregory Shenkman
President and Chief Executive Officer............ $88,885 $20,170
Alec Miloslavsky
Vice Chairman and Chief Technical Officer........ $86,538 $20,170
</TABLE>
- --------
(1) Mr. Shenkman and Mr. Miloslavsky each purchased 1,206,000 shares of Common
Stock on August 8, 1995, at a purchase price of $0.0167 per share, the
fair market value of the Common Stock on such date. Payment of a portion
of the purchase price was made with promissory notes, secured by the
purchased shares. The shares are unvested and subject to repurchase, at
the purchase price paid per share, upon Mr. Shenkman and Mr. Miloslavsky's
termination of service with the Company prior to vesting in the shares.
The Company's repurchase right lapses with respect to, and each of Mr.
Shenkman and Mr. Miloslavsky vests in, 25% of their respective shares on
October 15, 1995, and the balance in a series of 36 equal monthly
installments thereafter.
OPTION GRANTS IN LAST FISCAL YEAR
No stock options or stock appreciation rights were granted to Mr. Shenkman
or Mr. Miloslavsky during the fiscal year ended June 30, 1996.
In addition to the information provided above, the Company's current
executive officers received the following stock options and stock awards
during the period from the end of the 1996 fiscal year to March 31, 1997.
On September 30, 1996, Mr. McCloskey was awarded 480,000 shares of Common
Stock at $0.375 per share, which shares were purchased by him in November 1996
and January 1997 through the issuance of promissory notes in an aggregate
principal amount of $180,000, secured by the purchased shares. The shares are
unvested and subject to repurchase by the Company, at the purchase price paid
per share, upon Mr. McCloskey's termination of service with the Company prior
to vesting in the shares. The Company's repurchase right lapses with respect
to, and Mr. McCloskey vests in, 25% of the shares on July 17, 1997, and the
balance in a series of 36 equal monthly installments thereafter.
On September 30, 1996, Mr. DeGolia was awarded 36,000 shares of Common Stock
at $0.375 per share, the fair market value of the Common Stock on such date.
The shares are unvested and subject to repurchase by the Company, at the
purchase price paid per share, upon Mr. DeGolia's termination of service prior
to vesting in the shares. The Company's repurchase right lapses with respect
to, and Mr. DeGolia vests in, 25% of the shares on September 30, 1997 and as
to the balance in a series of 36 equal monthly installments thereafter.
On November 30, 1996, Mr. McNulty was awarded an option under the 1995 Stock
Option Plan to purchase 240,000 shares of Common Stock at an exercise price of
$0.375 per share, the fair market
49
<PAGE>
value of the Common Stock on such date. On February 24, 1997, Mr. McNulty
exercised this option. Payment of the option exercise price was made with a
promissory note, secured by the purchased shares. The shares are unvested and
subject to repurchase, at the option exercise price paid per share, upon Mr.
McNulty's termination of service with the Company prior to vesting in the
shares. The Company's repurchase right lapses with respect to, and Mr. McNulty
vests in, 25% of the shares on the first anniversary of the option grant date
and the balance in a series of 36 equal monthly installments thereafter.
On November 30, 1996, Mr. Shtivelman was awarded an option under the 1995
Stock Option Plan to purchase 90,000 shares of Common Stock at an exercise
price of $0.375 per share, the fair market value of the Common Stock on such
date. On January 30, 1997, Mr. Neyman was awarded an option under the 1995
Stock Option Plan to purchase 20,000 shares of Common Stock at an exercise
price of $3.50 per share, the fair market value of the Common Stock on such
date. On February 28, 1997, Mr. Shenkman and Mr. Miloslavsky were each awarded
an option to purchase 150,000 shares of Common Stock at an exercise price of
$7.50 per share, the fair market value of the Common Stock as determined by
the Board of Directors. Each option has a maximum term of 10 years measured
from the grant date, subject to earlier termination upon the optionee's
cessation of service with the Company. Each option becomes exercisable as to
25% of the option shares on the first anniversary of the option grant date and
the balance in a series of 36 equal monthly installments thereafter. However,
Mr. Shtivelman's option is subject to acceleration as to 50% of the option
shares on each of July 15, 1997 and July 15, 1998, in the event that certain
performance milestones are attained prior to each such date. In the event of
an acquisition of the Company by merger or asset sale, the options will
terminate unless assumed by the acquiring corporation.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
No stock options or stock appreciation rights were exercised by Mr. Shenkman
or Mr. Miloslavsky during the 1996 fiscal year and neither Mr. Shenkman nor
Mr. Miloslavsky held any such outstanding options or rights at the end of such
fiscal year.
STOCK PLANS
1997 STOCK INCENTIVE PLAN
The Company's 1997 Stock Incentive Plan (the "1997 Plan") is intended to
serve as the successor equity incentive program to the Company's 1995 Stock
Option Plan (the "Predecessor Plan"). The 1997 Plan has been adopted by the
Board of Directors and approved by the shareholders. 10,027,207 shares of
Common Stock have been authorized for issuance under the 1997 Plan. This share
reserve is comprised of (i) the shares that remained available for issuance
under the Predecessor Plan as of March 31, 1997, including the shares subject
to outstanding options thereunder, plus (ii) an additional increase of
2,400,000 shares. In addition, upon the commencement of each fiscal year of
the Company, beginning with the 1999 fiscal year, the share reserve will
automatically be increased on the first trading day of such year by a number
of shares equal to five percent (5%) of the total number of shares of Common
Stock outstanding on the last trading day of the immediately preceding fiscal
year. However, in no event may any one participant in the 1997 Plan receive
option grants or direct stock issuances for more than 750,000 shares per
calendar year.
The 1997 Plan is divided into four separate components: (i) the
Discretionary Option Grant Program, under which eligible individuals in the
Company's employ or service (including officers and other employees, non-
employee Board members and independent consultants) may, at the discretion of
the Plan Administrator, be granted options to purchase shares of Common Stock
at an exercise price not less than their fair market value on the grant date,
(ii) the Stock Issuance Program, under which such individuals may, in the Plan
Administrator's discretion, be issued shares of Common Stock
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<PAGE>
directly, either through the purchase of such shares at a price not less than
their fair market value at the time of issuance or as a fully-vested bonus for
services rendered the Company, (iii) the Salary Investment Option Grant
Program, under which executive officers and other highly compensated employees
may elect to apply a portion of their base salary to the acquisition of
special below-market stock option grants, and (iv) the Automatic Option Grant
Program, under which option grants will automatically be made at periodic
intervals to eligible non-employee Board members to purchase shares of Common
Stock at an exercise price equal to their fair market value on the grant date.
The Discretionary Option Grant and Stock Issuance Programs will be
administered by the Compensation Committee. A secondary committee of the Board
may be granted separate but concurrent jurisdiction to administer those
programs with respect to all individuals other than the Company's executive
officers and non-employee Board members. Each Plan Administrator will have
complete discretion, within the scope of its administrative jurisdiction under
the 1997 Plan, to determine which eligible individuals are to receive option
grants or stock issuances, the time or times when such option grants or stock
issuances are to be made, the number of shares subject to each such grant or
issuance, the vesting schedule to be in effect for the option grant or stock
issuance, the maximum term for which any granted option is to remain
outstanding and the status of any granted option as either an incentive stock
option or a non-statutory stock option under the Federal tax laws. The
Compensation Committee will have the discretion to determine the calendar
years in which the Salary Investment Option Grant Program is to be in effect,
the individuals who may participate in such program and the specific date on
which the option grants thereunder are to be awarded. The administration of
the Automatic Option Grant Program will be self-executing in accordance with
the express provisions of such program.
The exercise price for outstanding option grants under the 1997 Plan may be
paid in cash or in shares of Common Stock valued at fair market value on the
exercise date. The option may also be exercised through a same-day sale
program without any cash outlay by the optionee. In addition, the Plan
Administrator may provide financial assistance to one or more optionees in the
exercise of their outstanding options by allowing such individuals to deliver
a full-recourse, interest-bearing promissory note in payment of the exercise
price and any associated withholding taxes incurred in connection with such
exercise.
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program granted to an
optionee that has been employed with or providing services to the Company for
at least one year that is not to be assumed by the successor corporation will
automatically accelerate in full and all unvested shares under the Stock
Issuance Program will automatically vest in full except to the extent the
Company's repurchase rights with respect to those shares are to be assigned to
the successor corporation. The Plan Administrator will have the authority
under the Discretionary Option Grant and Stock Issuance Programs to grant
options and to structure repurchase rights so that the shares subject to those
options or repurchase rights will automatically vest in the event the
individual's service is terminated, whether involuntarily or through a
resignation for good reason, within a specified period (not to exceed 18
months) following (i) a merger or asset sale in which those options are
assumed or those repurchase rights are assigned or (ii) the completion of a
successful tender offer for more than 50% of the Company's outstanding voting
stock or a change in the majority of the Board through one or more contested
elections for Board membership. Finally, the Plan Administrator will have the
authority under the Discretionary Option Grant Program to grant options that
will automatically vest upon an acquisition of the Company by merger or asset
sale, whether or not those options are to be assumed by the acquiring entity.
Options currently outstanding under the Predecessor Plan will terminate upon
an acquisition of the Company by merger or asset sale, unless those options
are assumed by the acquiring entity. However, the Plan Administrator will have
the discretion to extend the acceleration provisions of the 1997 Plan to such
outstanding options.
Stock appreciation rights may be issued in tandem with option grants made
under the Discretionary Option Grant Program. The holders of such rights will
have the opportunity to elect
51
<PAGE>
between the exercise of their outstanding stock options for shares of Common
Stock or the surrender of those options for an appreciation distribution from
the Company equal to the excess of (i) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (ii) the
aggregate exercise price payable for those shares. Such appreciation
distribution may be made in cash or in shares of Common Stock.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program in return for
the grant of new options for the same or different number of option shares
with an exercise price per share based upon the fair market value of the
Common Stock on the new grant date.
In the event the Compensation Committee elects to activate the Salary
Investment Option Grant Program for one or more calendar years, each executive
officer and other highly compensated employee of the Company selected for
participation may elect, prior to the start of the calendar year, to reduce
his or her base salary for that calendar year by a specified dollar amount not
less than $10,000 nor more than $150,000. In return, the officer will
automatically be granted, on or prior to the last trading day in January of
the calendar year for which the salary reduction is to be in effect, a non-
statutory option to purchase that number of shares of Common Stock determined
by dividing the salary reduction amount by two-thirds of the fair market value
per share of Common Stock on the grant date. The option will be exercisable at
a price per share equal to one-third of the fair market value of the option
shares on the grant date. As a result, the total spread on the option shares
at the time of grant will be equal to the salary reduction amount. The option
will vest in a series of 12 equal monthly installments over the calendar year
for which the salary reduction is in effect and will be subject to full and
immediate vesting upon certain changes in the ownership or control of the
Company.
Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member after the date the underwriting agreement for this
offering is executed will receive two option grants at the time of his or her
commencement of Board service, provided such individual has not otherwise been
in the prior employ of the Company. One such option grant will be for 30,000
shares of Common Stock and the other for 20,000 shares of Common Stock. In
addition, at each Annual Shareholders Meeting, beginning with the 1998 Annual
Meeting, each individual who is to continue to serve as a non-employee Board
member will receive an option grant to purchase 7,500 shares of Common Stock,
whether or not such individual has been in the prior employ of the Company.
Each automatic grant will have an exercise price equal to the fair market
value per share of Common Stock on the grant date and will have a maximum term
of 10 years, subject to earlier termination following the optionee's cessation
of Board service. Each automatic option will be immediately exercisable for
all the option shares; however, any shares purchased upon exercise of the
option will be subject to repurchase, at the option exercise price paid per
share, should the optionee's service as a non-employee Board member cease
prior to vesting in those shares. The shares subject to each 30,000-share
grant will vest as to 25% of the option shares upon the optionee's completion
of each of the four (4) years of Board service after the grant date. The
shares subject to each 20,000-share option grant will vest as to 25% of the
option shares on each of the fifth, sixth, seventh and eighth anniversaries of
the option grant date. However, vesting of the shares will be subject to
acceleration after the close of each fiscal year, beginning with the 1998
fiscal year, in the event that the optionee has served on a committee of the
Board of Directors in such fiscal year. Vesting of 2,500 shares will
accelerate with respect to each committee of the Board of Directors on which
the optionee has served, up to a maximum of two committees, and will be
conditioned on the optionee having attended at least 75% of the meetings held
by such committee during the fiscal year. The shares to be accelerated will be
those shares which would otherwise have been the first shares to vest in
accordance with the vesting schedule described above. The shares subject to
each annual 7,500-share grant will vest upon the optionee's completion of one
year of Board service measured from the grant date. However, each outstanding
option will immediately vest upon (i) certain changes in the ownership or
control of the Company or (ii) the death or disability of the
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optionee while serving as a Board member. In the event of a hostile tender
offer for more than 50% of the Company's outstanding voting stock, the holders
of outstanding options under the Automatic Option Grant Program will have the
right surrender those options, whether or not those options are otherwise at
the time exercisable for vested shares, in return for a cash distribution from
the Company in an amount equal to the excess of (i) the take-over price of the
shares of Common Stock at the time subject to each surrendered option over
(ii) the aggregate exercise price payable for those shares. The take-over
price in clause (i) will be the greater of (a) the fair market value per share
of Common Stock on the date the option is surrendered to the Company in
connection with the hostile tender offer or (b) the highest reported price per
share of Common Stock paid by the tender offeror in effecting such hostile
take-over.
The Board may amend or modify the 1997 Plan at any time. The 1997 Plan will
terminate on March 26, 2007, unless sooner terminated by the Board.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan") has been
adopted by the Board of Directors and approved by the shareholders. The
Purchase Plan is designed to allow eligible employees of the Company and
participating subsidiaries to purchase shares of Common Stock, at semi-annual
intervals, through their periodic payroll deductions under the Purchase Plan,
and a reserve of 500,000 shares of Common Stock has been established for this
purpose.
The Purchase Plan will be divided into two separate components: the U.S.
Employee Stock Purchase Plan, in which the Company's employees in the United
States will participate, and the International Employee Stock Purchase Plan,
in which the Company's employees located outside the United States will
participate. The Purchase Plan will be implemented in a series of successive
offering periods, each with a maximum duration of 24 months. However, the
initial offering period will begin on the day the Underwriting Agreement is
executed in connection with this Offering and will end on the last business
day in July 1999.
Individuals who are eligible employees on the start date of any offering
period may enter the Purchase Plan on that start date or on any subsequent
semi-annual entry date (the first business day of February or August each
year). Individuals who become eligible employees after the start date of this
offering period may join the Purchase Plan on any subsequent semi-annual entry
date within that period.
At the beginning of each offering period, the Compensation Committee, acting
as Plan Administrator, will designate the maximum percentage of the
participant's base salary that may be applied to the Purchase Plan for each
semi-annual period of participation, such percentage not to exceed 10% in any
offering period. The accumulated payroll deductions will be applied to the
purchase of shares on the participant's behalf on each semi-annual purchase
date (the last business day of January and July each year, with the first such
purchase date to occur on January 31, 1998) at a purchase price per share
equal to 85% of the lower of (i) the fair market value of the Common Stock on
the participant's entry date into the offering period or (ii) the fair market
value on the semi-annual purchase date. In no event, however, may any
participant purchase more than 1,000 shares on any one semi-annual purchase
date. Should the fair market value of the Common Stock on any semi-annual
purchase date be less than the fair market value of the Common Stock on the
first day of the offering period, then the current offering period will
automatically end and a new 24-month offering period will begin, based on the
lower fair market value.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AGREEMENTS AND
CHANGE OF CONTROL ARRANGEMENTS
The Company has not entered into an employment contract with any of its
current executive officers.
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Should the Company be acquired by merger or asset sale, all outstanding
options granted to the Chief Executive Officer and the other executive
officers under the 1997 Plan will automatically accelerate, except to the
extent those options are to be assumed by the successor corporation. In
addition, the Compensation Committee as Plan Administrator of the 1997 Plan
will have the authority to provide for the accelerated vesting of the shares
of Common Stock subject to outstanding options held by the Chief Executive
Officer or any other executive officer or any unvested shares of Common Stock
subject to direct issuances held by such individual, in connection with the
termination of the officer's employment following: (i) a merger or asset sale
in which those options are assumed or the Company's repurchase rights with
respect to the unvested shares are assigned, (ii) the successful completion of
a tender offer for more than 50% of the Company's outstanding voting stock or
(iii) certain hostile changes in control of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board was formed in February
1997, and the members of the Compensation Committee are Messrs. Dunlevie,
Jordan and Levy. None of these individuals was at any time during the fiscal
year ended June 30, 1996, or at any other time, an officer or employee of the
Company. No executive officer of the Company serves as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
54
<PAGE>
CERTAIN TRANSACTIONS
On March 29, 1996, James Jordan, a director of the Company, purchased 67,668
shares of the Company's Series A Preferred Stock at a price of $2.2167 per
share.
On March 29, 1996, Richard DeGolia, the Company's Vice President, Business
Development, purchased 47,370 shares of the Company's Series A Preferred Stock
at a price of $2.2167 per share.
On March 29, 1996, entities affiliated with Benchmark Capital LLC
("Benchmark"), a greater than 5% shareholder of the Company, purchased shares
of the Company's Series A Preferred Stock at a price of $2.2167 per share in
the following amounts: Benchmark Capital Partners, L.P. (199,812 shares); and
Benchmark Founders' Fund, L.P. (23,274 shares). On April 26, 1996, the Company
granted Benchmark a warrant to purchase 420,282 shares of Common Stock at an
exercise price of $5.9483 per share (subject to adjustment upon occurrence of
certain events) which is exercisable upon the earlier of April 26, 1997 or the
filing of the Company's initial public offering with proceeds of not less than
$10,000,000. This warrant was issued in exchange for consulting services
provided to the Company by Bruce Dunlevie, a director of the Company and an
affiliate of Benchmark. On June 13, 1996, Benchmark purchased shares of the
Company's Series B Preferred Stock at a price of $3.6883 per share in the
following amounts: Benchmark Capital Partners, L.P. (957,084); and Benchmark
Founders' Fund, L.P. (127,416 shares).
In connection with the acceptance of an employment offer, on September 17,
1996, Michael McCloskey, the Company's Vice President, Finance and
International, Chief Financial Officer and Secretary, was granted 480,000
shares of the Company's Common Stock at $0.375 per share, which shares were
purchased by him in November 1996 and January 1997 through the delivery of
promissory notes payable to the Company in the aggregate principal amount of
$180,000 at an interest rate of 6.5% per annum, compounded annually. Principal
and interest on such notes is due and payable on the earliest of (i) five
years from the date of issuance, (ii) the sale of such shares of the Company's
Common Stock by such purchaser and (iii) 90 days following the date of such
purchaser's termination of employment with the Company.
On November 30, 1996, John McNulty, the Company's Vice President, Channels,
was granted an option to purchase 240,000 shares of the Company's Common Stock
at $0.375 per share, which shares were purchased by him in February 1997
through the delivery of a promissory note payable to the Company in the
aggregate principal amount of $90,000 at an interest rate of 6.1% per annum,
compounded annually. Principal and interest on such notes are due and payable
on the earliest of (i) five years from the date of issuance, (ii) the sale of
such shares of the Company's Common Stock by such purchaser and (iii) 90 days
following the date of such purchaser's termination of employment with the
Company.
During fiscal 1995 and 1996, the Company borrowed an aggregate of $104,500
and $720,000, respectively, from officers, shareholders and their affiliates.
Of these amounts $39,000 and $25,000 was outstanding as of June 30, 1995 and
1996, respectively. Certain of these related party loans were non-interest
bearing, however, the computed interest related to the borrowings was
immaterial.
During fiscal 1995 and 1996, the Company received $394,000 and $50,000 of
revenue, respectively, from sales to a company in which Gregory Shenkman, the
Company's President and Chief Executive Officer and a director of the Company,
and Alec Miloslavsky, the Company's Vice Chairman of the Board and Chief
Technical Officer and a director of the Company, held an ownership interest.
The Company has also granted options to certain of its directors and
executive officers. See "Management--Executive Compensation", "Management--
Executive Officers and Directors" and "Principal and Selling Shareholders".
55
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1997, and as adjusted
to reflect the sale of the shares of Common Stock offered hereby, by (i) each
person who is known by the Company to own beneficially more than five percent
of the Company's Common Stock, (ii) each of the Company's directors and Named
Officers, (iii) all executive officers and directors as a group and (iv) each
of the other Selling Shareholders.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO THE AFTER
OFFERING(1) NUMBER OF OFFERING(1)(2)
------------------ SHARES ------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------ ---------- ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Gregory Shenkman(3)............ 3,485,250 20.7% 100,000 3,385,250 18.0%
1155 Market Street
San Francisco, CA 94103
Alec Miloslavsky(4)............ 3,485,250 20.7 100,000 3,385,250 18.0
1155 Market Street
San Francisco, CA 94103
Entities affiliated with
Benchmark Capital LLC(5)...... 1,897,368 11.0 1,897,368 9.9
2480 Sand Hill Rd., Suite 200
Menlo Park, CA 94025
Entities affiliated with Weiss
Peck & Greer(6)............... 813,378 4.8 813,378 4.3
555 California Street, Suite
4760
San Francisco, CA 94104
Bruce Dunlevie(7).............. 1,947,368 11.3 1,947,368 10.1
James Jordan(8)................ 645,668 3.8 645,668 3.4
Paul Levy(9)................... 80,000 * 80,000 *
All directors and officers as a
group
(12 persons)(10).............. 12,260,781 70.5 12,060,781 62.2
OTHER SELLING SHAREHOLDERS
Bruncor, Inc................... 675,000 4.0 200,000 475,000 2.5
Denware
Warenhandelsgesellschaft mbH.. 548,796 2.9 100,000 448,796 2.3
</TABLE>
- --------
* Less than 1%.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock beneficially owned. Shares of Common Stock subject to options that
are currently exercisable or exercisable within 60 days of March 31, 1997
are deemed to be outstanding and to be beneficially owned by the person
holding such options for the purpose of computing the percentage
ownership of such person but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
(2) Assumes no exercise of the Underwriters' over-allotment option. If the
Underwriters exercise the over-allotment option, the Company will sell up
to an aggregate of 375,000 additional shares in this offering.
(3) Includes 36,000 shares held by Norm and Maya Shendon and 180,000 shares
held by Dmitry and Maria Shenkman, of which Mr. Shenkman disclaims
beneficial ownership. Includes 360,000 shares held by Dmitry Shenkman,
Trustee of the Michelle Shenkman 1996 Trust u/t/a dated March 18, 1996,
360,000 shares held by Dmitry Shenkman, Trustee of the Nikita Anthony
Shenkman 1996 Trust u/t/a dated March 18, 1996, and 1,428,000 shares held
by Gregory and Yelena Shenkman, Trustees of the Shenkman Family Trust
u/t/a dated March 7, 1996.
(4) Includes 180,000 shares held by Anatoly and Zhanna Elkinbard, and 180,000
shares held by Larry and Lidia Miloslavsky, of which Mr. Miloslavsky
disclaims beneficial ownership. Excludes 2,250 shares held by Lidia
Miloslavsky and options exercisable by Lidia Miloslavsky to purchase a
total of 375 shares of Common Stock which options were exercisable within
60 days of March 31, 1997, of which Mr. Miloslavsky disclaims beneficial
ownership. Includes 360,000 shares held by Larry Miloslavsky and Anatoly
Elkinbard, Trustees of the Miloslavsky 1996 Irrevocable Trust u/t/a dated
March 13, 1996 and 120,000 shares held by Larry and Lidia Miloslavsky,
Trustees of the Joshua Trobnikov Miloslavsky 1996 Trust u/t/a dated March
15, 1996.
56
<PAGE>
(5) Consists of 170,610 shares held by Benchmark Founders' Fund, L.P.,
1,306,476 shares held by Benchmark Capital Partners, L.P. and 420,282
shares issuable upon exercise of a warrant held by Benchmark Capital
Partners, L.P. Mr. Dunlevie, a director of the Company, is an affiliate
of the foregoing entities and may be deemed to share voting and
investment power with respect to such shares. Mr. Dunlevie disclaims
beneficial ownership of such shares, except to the extent of his
pecuniary interest in such shares arising from his interests in the
entities referred to above.
(6) Consists of 444,102 shares held by WPG Enterprise Fund II, L.P. and
369,276 shares held by Weiss Peck & Greer Venture Associates III, L.P.
(7) Includes 1,477,086 shares beneficially owned by entities affiliated with
Benchmark Capital LLC. See note (5). Includes options exercisable by Mr.
Dunlevie to purchase a total of 50,000 shares of Common Stock, which
options were issued and became exercisable on February 28, 1997 and
420,282 shares of Common Stock issuable to Benchmark Capital Partners,
L.P. upon exercise of an outstanding warrant which warrant became
exercisable upon the initial filing of the Registration Statement to
which this Prospectus is a part.
(8) Includes options exercisable by Mr. Jordan to purchase a total of 50,000
shares of Common Stock, which options were issued and became exercisable on
February 28, 1997.
(9) Includes options exercisable by Mr. Levy to purchase a total of 50,000
shares of Common Stock, which options were issued and became exercisable
on February 28, 1997.
(10) Includes 159,375 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of March 31, 1997 and 420,282 shares
issuable upon exercise of a warrant which warrant became exercisable upon
the initial filing of the Registration Statement to which this Prospectus
is a part.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, the authorized capital
stock of the Company will consist of 120,000,000 shares of Common Stock, no
par value, and 5,000,000 shares of Preferred Stock, no par value, after giving
effect to the amendment to the Company's Articles of Incorporation to
eliminate the Series A, Series B and Series C Preferred Stock, which will
occur upon conversion of such Preferred Stock into Common Stock upon the
closing of this offering, and the subsequent authorization of shares of
undesignated Preferred Stock, as described below.
COMMON STOCK
As of March 31, 1997, there were 16,807,868 shares of Common Stock
outstanding that were held of record by 76 shareholders. There will be
19,228,150 shares of Common Stock outstanding (assuming (i) no exercise of the
Underwriters' over-allotment option, (ii) no exercise after March 31, 1997 of
outstanding options, (iii) the exercise of a warrant to purchase 420,282
shares of Common Stock, and (iv) no other exercise after March 31, 1997 of
outstanding warrants) after giving effect to the sale of the shares of Common
Stock to the public offered hereby.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy". In the event of the liquidation, dissolution
or winding up of the Company, the holders of Common Stock are entitled to
share ratably in all assets remaining after payment of liabilities, subject to
prior distribution rights of Preferred Stock, if any, then outstanding. The
Common Stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are fully paid and
nonassessable, and the shares of Common Stock to be issued upon completion of
this offering will be fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, the Company's Articles of Incorporation
will authorize 5,000,000 shares of Preferred Stock. The Board of Directors
will have the authority to issue the Preferred Stock in one or more series and
to fix the rights, preferences, privileges 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, without
further vote or action by the shareholders. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control
of the Company without further action by the shareholders and may adversely
affect the voting and other rights of the holders of Common Stock. The
issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. The Company has no current plans to issue any of the
Preferred Stock.
WARRANTS
As of March 31, 1997, the Company had warrants outstanding to purchase an
aggregate of (i) 44,965 shares of Series C Preferred Stock at an exercise
price per share equal to 110% of the current fair value on the date such
shares vest pursuant to the vesting schedule, which warrants expire on
February 26, 2000, (ii) 449,664 shares of Series C Preferred Stock at an
exercise price per share equal to 110% of the current market price on December
31, 1997 (subject to certain adjustments), which warrants expire on February
26, 2004, and (iii) 420,282 shares of Common Stock at a price per share equal
to $5.9483, which warrant expires on the earlier of the closing of this
offering or April 26, 2001.
58
<PAGE>
The Company anticipates that the warrant to purchase 420,282 shares of Common
Stock will be exercised prior to the completion of this offering. Upon
consummation of this offering, the outstanding warrants to purchase shares of
the Company's Series C Preferred Stock will become exercisable for shares of
Common Stock only at the same respective exercise prices per share as noted
above. The holders of shares acquired upon the exercise of the warrants to
purchase Series C Preferred Stock are entitled to certain registration rights.
See "--Registration Rights".
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE BYLAWS
Upon the closing of this offering, the Bylaws will provide that all
shareholder actions must be effected at a duly called meeting and not by a
consent in writing. The Bylaws will also provide that the Company's
shareholders may call a special meeting of shareholders only upon a request of
shareholders owning at least 50% of the Company's capital stock. Furthermore,
the Company's shareholders are currently entitled to cumulate their votes for
the election of directors so long as at least one shareholder has given notice
at the shareholder meeting prior to the voting of that shareholder's desire to
cumulate his or her votes. Cumulative voting will no longer be permitted at
such time as (1) the Company's shares of Common Stock are listed on the Nasdaq
National Market and the Company has at least 800 holders of its equity
securities as of the record date of the Company's most recent annual meeting of
shareholders or (ii) the Company's shares of Common Stock are listed on the New
York Stock Exchange or the American Stock Exchange. The Company expects to have
its shares listed on the Nasdaq National Market and to have at least 800
holders of its equity securities by the record date for its next annual meeting
of shareholders. These provisions of the Bylaws and the existence of
authorized, but undesignated, Preferred Stock could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. These provisions are intended to enhance the likelihood of continuity
and stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of the
Company. The provisions also are intended to discourage certain tactics that
may be used in proxy fights. However, such provisions could have the effect of
discouraging others from making tender offers for the Company's shares and, as
a consequence, they also may inhibit fluctuations in the market price of the
Company's shares that could result from actual or rumored takeover attempts.
Such provisions also may have the effect of preventing changes in the
management of the Company. See "Risk Factors--Effect of Certain Charter
Provisions; Anti-takeover Effects of Provisions of the Bylaws".
REGISTRATION RIGHTS
After this offering, the holders of approximately 4,127,241 shares of Common
Stock (excluding the 494,629 shares of Common Stock underlying warrants to
purchase Series C Preferred Stock) will be entitled to certain rights with
respect to the registration of such shares under the Securities Act. Under the
terms of the agreements between the Company and the holders of such registrable
securities, if the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other security
holders exercising registration rights, such holders are entitled to notice of
such registration and are entitled to include shares of such Common Stock
therein. Certain of such shareholders benefitting from these rights may also
require the Company to file a registration statement under the Securities Act
at the Company's expense with respect to their shares of Common Stock, and the
Company is required to use its diligent best efforts to effect such
registration. Further, holders may require the Company at the Company's expense
to file additional registration statements on Form S-3 when such form becomes
available to the Company. These rights are subject to certain conditions and
limitations, among them the right of the underwriters of an offering to limit
the number of shares included in such registration in certain circumstances.
See "Risk Factors--Shares Eligible for Future Sale; Registration Rights".
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Boston EquiServe
L.P.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 19,228,150 shares of
Common Stock outstanding (assuming (i) no exercise of the Underwriters' over-
allotment option, (ii) no exercise after March 31, 1997 of outstanding
options, (iii) the exercise of a warrant to purchase 420,282 shares of Common
Stock and, (iv) no other exercise after March 31, 1997 of outstanding
warrants). Of these shares, the 2,500,000 shares sold in this offering will be
freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by "affiliates" of the
Company, as that term is defined under the Securities Act ("Affiliates"), may
generally only be sold in compliance with the limitations of Rule 144
described below.
SALES OF RESTRICTED SHARES
The remaining 16,728,150 shares of Common Stock are deemed "Restricted
Shares" under Rule 144. The number of shares of Common Stock available for
sale in the public market is limited by restrictions under the Securities Act
and lock-up agreements under which the holders of such shares have agreed not
to sell or otherwise dispose of any of their shares for a period of 180 days
after the date of this Prospectus without the prior written consent of the
Representatives of the Underwriters. However, such Representatives may, in
their sole discretion and at any time without notice, release all or any
portion of the securities subject to lock-up agreements. As a result of these
restrictions, based on shares outstanding and options granted as of March 31,
1997, the following shares of Common Stock will be eligible for future sale.
On the date of this Prospectus, no shares other than the 2,500,000 shares
offered hereby will be eligible for sale. Upon the expiration of the lock-up
period 180 days after the date of this Prospectus, an additional 14,978,505
shares will become available for sale. The remaining 1,749,645 shares will
become available for sale at various times after 180 days after the date of
this Prospectus.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person (or persons whose shares are
aggregated) who has beneficially owned "restricted" shares for at least one
year, including a person who may be deemed an Affiliate of the Company, is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the greater of 1% of the then-outstanding shares of
Common Stock of the Company (approximately 192,282 shares after giving effect
to this offering) and the average weekly trading volume of the Common Stock on
Nasdaq during the four calendar weeks preceding such sale. Sales under Rule
144 of the Securities Act are subject to certain restrictions relating to
manner of sale, notice and the availability of current public information
about the Company. A person who is not an Affiliate of the Company at any time
during the ninety days preceding a sale, and who has beneficially owned shares
for at least two years, would be entitled to sell such shares immediately
following this offering without regard to the volume limitations, manner of
sale provisions or notice or other requirements of Rule 144 of the Securities
Act. However, the transfer agent may require an opinion of counsel that a
proposed sale of shares comes within the terms of Rule 144 of the Securities
Act prior to effecting a transfer of such shares. Such opinion would be
provided by and at the cost of the transferor.
Rule 701 under the Securities Act permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee, officer or director of
or consultant to the Company who purchased his or her shares pursuant to a
written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701. Rule 701 permits Affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements
of Rule 144. Rule 701 further provides that non-Affiliates may sell such
shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule
144. All holders of Rule 701 shares are required to wait until 90 days after
the date of this Prospectus before selling such shares.
60
<PAGE>
The Company intends to register on a registration statement on Form S-8,
approximately 30 days after the effective date of this offering, a total of
approximately 10,027,207 shares of Common Stock subject to outstanding options
or reserved for issuance under the Company's 1997 Stock Incentive Plan and a
total of 500,000 shares of Common Stock reserved for issuance under the
Company's Employee Stock Purchase Plan. Such registration statement will
automatically become effective upon filing. Accordingly, shares registered
under such registration statement will, subject to Rule 144 volume limitations
applicable to Affiliates of the Company, be available for sale in the open
market immediately after the 180-day lock-up agreements expire. Also,
beginning six months after the date of this Prospectus, the holders of
4,127,241 Restricted Shares will be entitled to certain rights with respect to
registration of such shares for sale in the public market. See "Description of
Capital Stock--Registration Rights".
Prior to this offering, there has been no public market for the Common Stock
of the Company and no predictions can be made of the effect, if any, that the
sale or availability for sale of shares of additional Common Stock will have
on the market price of the Common Stock. Nevertheless, sales of substantial
amounts of such shares in the public market, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Shareholders by Brobeck, Phleger & Harrison LLP, Palo
Alto, California. Certain legal matters in connection with this offering will
be passed upon for the Underwriters by Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, Menlo Park, California.
EXPERTS
The financial statements and schedule included in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, to the extent
and for the periods indicated in their reports and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The statements in the Prospectus under the captions "Risk Factors--GeoTel
Litigation" and "Business--GeoTel Litigation" have been reviewed and approved
by Blakely Sokoloff Taylor & Zafman as experts in such matters, and are
included herein in reliance upon such review and approval.
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS
In February 1997, the Company's Board of Directors retained Arthur Andersen
LLP as its independent public accountants and dismissed the Company's former
public accountants, Coopers and Lybrand LLP. The decision to change
independent public accountants was approved by resolution of the Board of
Directors. The former independent public accountants' report on the Company's
financial statements at and for the years ended June 30, 1994 and 1995 did not
contain an adverse opinion, a disclaimer of opinion or any qualifications or
modifications related to uncertainty, limitation of audit scope or application
of accounting principles. The former independent public accountants' report
does not cover any of the consolidated financial statements of the Company
included in this Prospectus. Coopers & Lybrand LLP did not issue an audit
report on the Company's financial statements for any other period. There were
no disagreements with the former public accountants on any matter of
accounting
61
<PAGE>
principles or practices, financial statement disclosure or auditing scope or
procedure with respect to the Company's consolidated financial statements up
through the time of dismissal that, if not resolved to the former public
accountants' satisfaction, would have caused them to make reference to the
subject matter of the disagreement in connection with their report. Prior to
retaining Arthur Andersen LLP, the Company had not consulted with Arthur
Andersen LLP regarding accounting principles.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-1 under the Act
with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules to the Registration Statement. For further information
with respect to the Company and such Common Stock offered hereby, reference is
made to the Registration Statement and the exhibits and schedules filed as a
part of the Registration Statement. Statements contained in this Prospectus
concerning the contents of any contract or any other document referred to are
not necessarily complete; reference is made in each instance to the copy of
such contract or document filed as an exhibit to the Registration Statement.
Each such statement is qualified in all respects by such reference to such
exhibit. The Registration Statement, including exhibits and schedules thereto,
may be inspected without charge at the Commission's principal office in
Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of fees prescribed by the Commission. The Commission
maintains a World Wide Web Site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web Site
is http://www.sec.gov.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes", "anticipates",
"estimates", "expects" and words of similar import, constitute "forward-
looking statements". Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: the limited operating history of the Company; the
potential fluctuations in quarterly operating results; the lengthy sales
cycle; the lengthy implementation cycle and dependence on third party
consultants; the risks related to dependence on new products and rapid
technological change; competition; product concentration; the management of
growth; the dependence on third-party resellers; the GeoTel litigation;
customer concentration; the dependence on the emerging ECTI market; the risks
associated with international sales and operations; the dependence on key
personnel; government regulation of immigration; the dependence on ability to
integrate with third-party technology; risks related to product liability; the
risks related to protection of intellectual property; the concentration of
stock ownership; the lack of a prior public market and the possible volatility
of stock price; the shares eligible for future sale and the registration
rights of certain shareholders; the effect of certain charter provisions and
the anti-takeover effects of provisions of the bylaws; dilution; and other
factors referenced in this Prospectus. Certain of these factors are discussed
in more detail elsewhere in this Prospectus, including, "Risk Factors",
"Capitalization", "Selected Consolidated Financial Data", "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Business" and "Principal and Selling Shareholders". Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect any events
or developments.
62
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GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Shareholders' Equity (Deficit)................... F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Genesys Telecommunications Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of Genesys
Telecommunications Laboratories, Inc. (a California Corporation) and
subsidiaries as of June 30, 1995 and 1996 and March 31, 1997, and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for each of the three years in the period ended June 30, 1996 and the
nine-month period ended March 31, 1997. 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 Genesys Telecommunications
Laboratories, Inc. and subsidiaries as of June 30, 1995 and 1996 and March 31,
1997, and the results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996 and the nine-month period ended
March 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
May 1, 1997
F-2
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, 1997
PRO FORMA
JUNE 30, SHAREHOLDERS'
--------------- MARCH 31, EQUITY
1995 1996 1997 (DEFICIT)
------ ------- --------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS (NOTE 9)
CURRENT ASSETS:
Cash and cash equivalents........... $ 203 $ 5,926 $ 9,574
Accounts receivable, net of
allowance for doubtful accounts of
$16, $426, and $391, respectively.. 1,675 4,607 12,104
Prepaid expenses and other.......... 51 173 1,383
------ ------- -------
Total current assets.............. 1,929 10,706 23,061
PROPERTY AND EQUIPMENT, at cost, net
of accumulated depreciation and
amortization........................ 327 1,224 5,064
OTHER ASSETS:
Goodwill, net of amortization....... -- -- 2,068
Other............................... -- 31 822
------ ------- -------
$2,256 $11,961 $31,015
====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Advances from related parties....... $ 39 $ 25 $ --
Current portion of capital lease
obligations........................ 23 37 70
Accounts payable.................... 835 1,113 2,165
Accounts payable to related
parties............................ -- 268 40
Accrued payroll and related
benefits........................... 126 625 1,328
Other accrued liabilities........... 334 948 1,781
Deferred revenues................... 1,087 3,081 7,245
------ ------- -------
Total current liabilities......... 2,444 6,097 12,629
------ ------- -------
CAPITAL LEASE OBLIGATIONS, net of
current portion..................... 57 37 147
------ ------- -------
CONVERTIBLE DEBT TO RELATED PARTY.... -- 367 --
------ ------- -------
COMMITMENTS AND CONTINGENCIES (Notes
5 and 6)
SHAREHOLDERS' EQUITY (DEFICIT):
Convertible preferred stock, no par
value:
Series A:
Authorized-900,000 shares
Issued and outstanding-none in
1995, and
900,000 shares in 1996 and at
March 31, 1997
and none on a pro forma basis
Liquidation value-$1,995........ -- 1,995 1,995 --
Series B:
Authorized-1,897,878 shares
Issued and outstanding-none in
1995, 1,897,878
shares in 1996 and at March 31,
1997
and none on a pro forma basis
Liquidation value-$7,000........ -- 7,000 7,000 --
Series C:
Authorized-1,348,992 shares
Issued and outstanding-none in
1995 and 1996, 854,363 shares
at March 31, 1997 and none on a
pro forma basis
Liquidation value-$9,501........ -- -- 9,101 --
Common stock, no par value:
Authorized-120,000,000 shares
Issued and outstanding-6,801,000
shares in 1995, 11,319,000
shares in 1996, 13,155,627
shares at March 31, 1997 and
17,228,150 shares on a pro
forma basis.................... 23 227 5,297 25,893
Shareholder notes receivable........ (18) (112) (435) (435)
Cumulative translation adjustment... -- -- 12 12
Deferred stock compensation......... -- (73) (1,747) (1,747)
Accumulated deficit................. (250) (3,577) (2,984) (2,984)
------ ------- ------- --------
Total shareholders' equity
(deficit)........................ (245) 5,460 18,239 $ 20,739
------ ------- ------- ========
$2,256 $11,961 $31,015
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
JUNE 30, ENDED MARCH 31,
----------------------- -------------------
1994 1995 1996 1996 1997
------ ------ ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
License......................... $ 460 $3,077 $ 7,369 $ 4,429 $19,445
Service......................... 1,272 1,403 1,950 1,187 2,546
------ ------ ------- ------- -------
Total revenues................ 1,732 4,480 9,319 5,616 21,991
------ ------ ------- ------- -------
COST OF REVENUES:
License......................... 23 123 308 183 926
Service......................... 595 1,190 2,568 1,487 2,574
------ ------ ------- ------- -------
Total cost of revenues........ 618 1,313 2,876 1,670 3,500
------ ------ ------- ------- -------
GROSS MARGIN...................... 1,114 3,167 6,443 3,946 18,491
------ ------ ------- ------- -------
OPERATING EXPENSES:
Research and development........ 578 959 3,673 2,475 5,995
Sales and marketing............. 162 705 3,030 1,731 9,303
General and administrative...... 534 1,343 2,979 2,296 2,538
------ ------ ------- ------- -------
Total operating expenses...... 1,274 3,007 9,682 6,502 17,836
------ ------ ------- ------- -------
INCOME (LOSS) FROM OPERATIONS..... (160) 160 (3,239) (2,556) 655
OTHER INCOME (EXPENSE):
Interest income (expense), net.. (7) (17) (78) -- 74
Other, net...................... 30 11 (10) (88) 94
------ ------ ------- ------- -------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES..................... (137) 154 (3,327) (2,644) 823
PROVISION FOR INCOME TAXES........ -- -- -- -- 230
------ ------ ------- ------- -------
NET INCOME (LOSS)................. $ (137) $ 154 $(3,327) $(2,644) $ 593
====== ====== ======= ======= =======
PRO FORMA NET INCOME (LOSS) PER
SHARE............................ $ (0.18) $ (0.15) $ 0.03
======= ======= =======
PRO FORMA WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES..... 18,644 18,079 22,540
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
----------------------------------------------
SERIES A SERIES B SERIES C COMMON STOCK SHAREHOLDER CUMULATIVE DEFERRED
-------------- ---------------- -------------- ------------------- NOTES TRANSLATION STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT RECEIVABLE ADJUSTMENT COMPENSATION
------- ------ --------- ------ ------- ------ ---------- ------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JULY 1,
1993............. -- $ -- -- $-- -- $-- 1,200,000 $ 2 $ (2) $-- $ --
Net loss........ -- -- -- -- -- -- -- -- -- -- --
------- ------ --------- ------ ------- ------ ---------- ------- ----- ----- -------
BALANCES,
JUNE 30, 1994.... -- -- -- -- -- -- 1,200,000 2 (2) -- --
Issuances of
Common Stock.... -- -- -- -- -- -- 5,601,000 21 (16) -- --
Net income...... -- -- -- -- -- -- -- -- -- -- --
------- ------ --------- ------ ------- ------ ---------- ------- ----- ----- -------
BALANCES,
JUNE 30, 1995.... -- -- -- -- -- -- 6,801,000 23 (18) -- --
Issuance of
Common Stock.... -- -- -- -- -- -- 4,518,000 129 (102) -- --
Issuance of
Series A
Preferred Stock. 900,000 1,995 -- -- -- -- -- -- -- -- --
Issuance of
Series B
Preferred Stock. -- -- 1,897,878 7,000 -- -- -- -- -- -- --
Payments on
shareholder
notes
receivable...... -- -- -- -- -- -- -- -- 8 -- --
Deferred stock
compensation.... -- -- -- -- -- -- -- 75 -- -- (75)
Amortization of
deferred stock
compensation.... -- -- -- -- -- -- -- -- -- -- 2
Net loss........ -- -- -- -- -- -- -- -- -- -- --
------- ------ --------- ------ ------- ------ ---------- ------- ----- ----- -------
BALANCES,
JUNE 30, 1996.... 900,000 1,995 1,897,878 7,000 -- -- 11,319,000 227 (112) -- (73)
Exercise of
stock options... -- -- -- -- -- -- 665,627 100 (91) -- --
Issuances of
Common Stock.... -- -- -- -- -- -- 1,004,500 466 (234) -- --
Issuance of
Common Stock in
connection with
the acquisition
of a subsidiary -- -- -- -- -- -- 675,000 2,025 -- -- --
Issuance of
Series C
Preferred Stock. -- -- -- -- 854,363 9,101 -- -- -- -- --
Issuance of
Common Stock
Warrants........ -- -- -- -- -- -- -- 650 -- -- --
Repurchase of
Common Stock.... -- -- -- -- -- -- (508,500) (9) -- -- --
Cumulative
translation
adjustment...... -- -- -- -- -- -- -- -- -- 12 --
Payment on
shareholder
notes
receivable...... -- -- -- -- -- -- -- -- 2 -- --
Deferred stock
compensation.... -- -- -- -- -- -- -- 1,838 -- -- (1,838)
Amortization of
deferred stock
compensation.... -- -- -- -- -- -- -- -- -- -- 164
Net income...... -- -- -- -- -- -- -- -- -- -- --
------- ------ --------- ------ ------- ------ ---------- ------- ----- ----- -------
BALANCES,
MARCH 31, 1997... 900,000 $1,995 1,897,878 $7,000 854,363 $9,101 13,155,627 $ 5,297 $(435) $ 12 $(1,747)
======= ====== ========= ====== ======= ====== ========== ======= ===== ===== =======
PRO FORMA
BALANCES, MARCH
31, 1997
(Unaudited)...... -- $ -- -- $ -- -- $ -- 17,228,150 $25,893 $(435) $ 12 $(1,747)
======= ====== ========= ====== ======= ====== ========== ======= ===== ===== =======
<CAPTION>
TOTAL
SHAREHOLDERS'
ACCUMULATED EQUITY
DEFICIT (DEFICIT)
----------- -------------
<S> <C> <C>
BALANCES, JULY 1,
1993............. $ (267) $ (267)
Net loss........ (137) (137)
----------- -------------
BALANCES,
JUNE 30, 1994.... (404) (404)
Issuances of
Common Stock.... -- 5
Net income...... 154 154
----------- -------------
BALANCES,
JUNE 30, 1995.... (250) (245)
Issuance of
Common Stock.... -- 27
Issuance of
Series A
Preferred Stock. -- 1,995
Issuance of
Series B
Preferred Stock. -- 7,000
Payments on
shareholder
notes
receivable...... -- 8
Deferred stock
compensation.... -- --
Amortization of
deferred stock
compensation.... -- 2
Net loss........ (3,327) (3,327)
----------- -------------
BALANCES,
JUNE 30, 1996.... (3,577) 5,460
Exercise of
stock options... -- 9
Issuances of
Common Stock.... -- 232
Issuance of
Common Stock in
connection with
the acquisition
of a subsidiary -- 2,025
Issuance of
Series C
Preferred Stock. -- 9,101
Issuance of
Common Stock
Warrants........ -- 650
Repurchase of
Common Stock.... -- (9)
Cumulative
translation
adjustment...... -- 12
Payment on
shareholder
notes
receivable...... -- 2
Deferred stock
compensation.... -- --
Amortization of
deferred stock
compensation.... -- 164
Net income...... 593 593
----------- -------------
BALANCES,
MARCH 31, 1997... $(2,984) $18,239
=========== =============
PRO FORMA
BALANCES, MARCH
31, 1997
(Unaudited)...... $(2,984) $20,739
=========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS NINE MONTHS ENDED
ENDED JUNE 30, MARCH 31,
------------------------ ------------------
1994 1995 1996 1996 1997
------ ------- ------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss).............. $ (137) $ 154 $(3,327) $(2,644) $ 593
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Common stock issued for
services rendered............ -- 1 -- -- --
Amortization of deferred
stock compensation........... -- -- 2 -- 164
Depreciation and
amortization................. 11 56 264 143 664
Provision for doubtful
accounts..................... 51 4 410 -- 55
Changes in operating assets
and liabilities:
Accounts receivable......... (297) (1,324) (3,342) 279 (7,552)
Prepaid expenses and other.. (3) (43) (122) (15) (1,210)
Accounts payable............ 257 631 278 535 1,052
Accounts payable to related
parties.................... -- -- 268 296 (228)
Accrued payroll and related
benefits................... -- 126 499 61 703
Other accrued liabilities... 88 2 614 206 845
Deferred revenues........... 272 688 1,994 733 4,164
------ ------- ------- ------- ------
Net cash provided by (used
in) operating activities. 242 295 (2,462) (406) (750)
------ ------- ------- ------- ------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment..................... (83) (227) (1,161) (709) (4,328)
Increase in other assets....... -- -- (31) (32) (117)
Cost to acquire subsidiary..... -- -- -- -- (100)
------ ------- ------- ------- ------
Net cash used in investing
activities............... (83) (227) (1,192) (741) (4,545)
------ ------- ------- ------- ------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from bank line of
credit........................ -- -- -- -- 2,000
Repayment of bank line of
credit........................ -- -- -- -- (2,000)
Principal payments on capital
lease obligations............. -- (4) (34) 15 (90)
Proceeds from advances from
related parties............... 202 105 720 -- 33
Repayments of advances from
related parties............... (145) (224) (706) (22) --
Proceeds from convertible debt
to related parties............ -- -- 367 1,233 --
Repayment of convertible debt
to related parties............ -- -- -- -- (367)
Proceeds from promissory note.. -- -- 1,500 -- --
Repayment of promissory note... -- -- (600) -- --
Repayment of shareholder notes
receivable.................... -- -- 8 -- --
Repurchases of Common Stock.... -- -- -- -- --
Proceeds from sales of
preferred stock............... -- -- 8,095 -- 9,101
Proceeds from sales of common
stock......................... -- 5 27 33 266
------ ------- ------- ------- ------
Net cash provided by (used
in) financing activities. 57 (118) 9,377 1,259 8,943
------ ------- ------- ------- ------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............ 216 (50) 5,723 112 3,648
CASH AND CASH EQUIVALENTS:
Beginning of Period............ 37 253 203 203 5,926
------ ------- ------- ------- ------
End of Period.................. $ 253 $ 203 $ 5,926 $ 315 $9,574
====== ======= ======= ======= ======
ADDITIONAL DISCLOSURES OF NON-
CASH TRANSACTIONS:
Repayment of convertible debt
with issuance of preferred
stock......................... $ -- $ -- $ 900 $ -- $ --
Equipment capital lease........ -- 84 24 24 175
Common Stock issued to acquire
subsidiary.................... -- -- -- -- 2,193
Fair market value of warrants
issued........................ -- -- -- -- 650
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(INFORMATION RELATING TO THE NINE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
1. THE COMPANY:
Genesys Telecommunications Laboratories, Inc. (formerly Enhanced Voice
Processing, Inc.), was incorporated in California on October 11, 1990. During
fiscal 1995, Genesys Telecommunications Laboratories, Inc. established a
wholly-owned subsidiary in the United Kingdom, and in fiscal 1996 it
established a wholly-owned subsidiary in Russia. Also in fiscal 1996, Genesys
Telecommunications Laboratories, Inc. entered into a joint venture in Canada
through which it owned 51% of a Canadian corporation, Genesys Laboratories
Canada, Inc. In February 1997, Genesys Telecommunications Laboratories, Inc.
acquired the remaining 49% of Genesys Laboratories Canada, Inc.
Genesys Telecommunications Laboratories, Inc. and subsidiaries (the
"Company") operate in a single industry segment and are involved in the
design, development, marketing and support of a suite of Enterprise Computer
Telephony Integration ("ECTI") products, including platform and applications
software that enable organizations to integrate critical business information
and computing resources with telephony and other telecommunications media. The
Company's products are marketed primarily in North America, Europe and Asia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Genesys
Telecommunications Laboratories, Inc. and its subsidiaries. All significant
intercompany accounts and transactions are eliminated in consolidation.
UNAUDITED INTERIM FINANCIAL DATA
The unaudited financial statements as of March 31, 1996 and for the nine
months ended March 31, 1996 have been prepared on the same basis as the
audited consolidated financial statements and, in the opinion of management,
include all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial information set forth therein, in
accordance with generally accepted accounting principles. The data disclosed
in the notes to the consolidated financial statements for this period are
unaudited. The Company believes the results of operations for the interim
periods are not necessarily indicative of the results to be expected for any
future period.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's subsidiaries is the local currency.
Accordingly, the Company applies the current rate method to translate the
subsidiaries' financial statements into U.S. dollars. Translation adjustments
are included as a separate component of shareholders' equity (deficit) in the
accompanying consolidated financial statements.
Foreign exchange gains and losses resulting from foreign currency
transactions are recorded in other income (expense) in the accompanying
consolidated financial statements and were not material in any of the periods
presented.
F-7
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK-BASED COMPENSATION
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") in October 1995. This accounting standard permits the use of either a
fair value based method or the method defined in Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25") to account
for stock-based compensation arrangements. Companies that elect to employ the
valuation method provided in APB 25 are required to disclose the pro forma net
income (loss) and net income (loss) per share that would have resulted from
the use of the fair value based method. The Company has elected to continue to
determine the value of stock-based compensation arrangements under the
provisions of APB 25, and accordingly, it has included the pro forma
disclosures required under SFAS 123 in its consolidated financial statements.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
IMPAIRMENT OF LONG LIVED ASSETS
The Company reviews long lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. As of March 31, 1997, no
impairment losses have been incurred.
REVENUE RECOGNITION
The Company generates revenues from licensing the rights to use its software
products directly to end users and indirectly through value-added resellers.
The Company also generates revenues from sales of post-contract support,
consulting and training services performed for customers who license the
Company's products.
The Company recognizes revenues and records estimated warranty reserves from
software license agreements with end users and VARs upon shipment of the
software if there are no significant post-delivery obligations and if
collection is probable. If a software license agreement provides for
acceptance criteria that extend beyond the published specifications of the
applicable product, then revenues are recognized upon the earlier of customer
acceptance or the expiration of the acceptance period.
Customers who purchase post-contract support services under maintenance
agreements have the right to receive unspecified product updates, upgrades and
enhancements. Customers that do not purchase post-contract support must
purchase product updates, upgrades and enhancements under separate agreements
that are subject to the criteria of the Company's revenue recognition policy.
Revenues from post-contract support services are recognized ratably over the
term of the support period. If post-contract support services are included
free or at a discount in a license agreement, such amounts are allocated out
of the license fee at their fair market value based on the value established
by independent sale of such post-contract support services to customers.
Consulting revenues are primarily related to implementation services performed
on a time and materials basis under separate service arrangements related to
the installation of the Company's software products. Revenues from
F-8
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
consulting and training services are recognized as services are performed. If
a transaction includes both license and service elements, license fee revenue
is recognized upon shipment of the software, provided services do not include
significant customization or modification of the base product and the payment
terms for licenses are not subject to acceptance criteria. In cases where
license fee payments are contingent upon the acceptance of services, revenues
from both the license and the service elements are deferred until the
acceptance criteria are met.
Cost of license revenues includes the costs of product media, product
duplication and manuals, as well as allocated labor and overhead costs related
to preparation and shipment of the product. Cost
of service revenues consists primarily of salaries, benefits and allocated
overhead costs related to consulting personnel and the customer service
department.
Deferred revenues include software license fees and services that have been
invoiced to the customer for which the revenue earnings process has not been
completed.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less at the time of purchase to be cash
equivalents. The Company's investments have consisted of certificates of
deposit with original maturities of three months or less and money market
accounts.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the related assets (or over the lease term if it is
shorter for leasehold improvements), which range from 3 to 5 years. Property
and equipment leased under capital leases is amortized over the lesser of its
useful life or the lease term.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes eligible computer software development costs upon
the establishment of technological feasibility, which the Company has defined
as completion of a working model. For fiscal 1994, 1995 and 1996, and the nine
months ended March 31, 1996 and 1997, costs that were eligible for
capitalization were insignificant and, thus, the Company has charged all
software development costs to research and development expense in the
accompanying consolidated statements of operations.
PRO FORMA NET INCOME (LOSS) PER SHARE
Pro forma net income (loss) per share is computed using the weighted average
number of common and common equivalent shares outstanding during the period.
Common equivalent shares consist of Preferred Stock (using the "if converted"
method) and stock options and warrants (using the treasury stock method).
Common equivalent shares are excluded from the computation if their effect is
anti-dilutive except that, pursuant to the Securities and Exchange Commission
Staff Accounting Bulletins and staff policy, such computations include all
common and common equivalent shares issued within the 12 months preceding the
initial filing date as if they were outstanding for all periods presented
(using the treasury stock method and an assumed initial public offering price
of $15.00 per share). In addition, Preferred Stock is included in the
computation (using the "if converted" method) even when the effect of their
inclusion is anti-dilutive. Pro forma net loss per share data prior to fiscal
1996 have not been presented since such amounts are not deemed meaningful due
to the significant change in the Company's capital structure that will occur
in connection with the proposed offering.
F-9
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK SPLITS
In August 1996, the Company effected a 3:1 stock split of its Common Stock,
and in November 1996 the Company effected a 2:1 stock split of its Common
Stock. In February 1997, the Company effected a 6:1 stock split of its Series
A and Series B Preferred Stock.
All share and per share data in the accompanying consolidated financial
statements have been retroactively restated to reflect the stock splits,
including the reflection of all preferred share and per share data on an "as
converted" basis.
3. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to a
concentration of credit risk principally consist of accounts receivable. As of
June 30, 1995, approximately 30% of accounts receivable were concentrated with
three customers. As of June 30, 1996, approximately 43% of accounts receivable
were concentrated with three different customers. As of March 31, 1997,
approximately 22% of accounts receivable were concentrated with one customer.
The Company generally does not require collateral on accounts receivable, as
the majority of the Company's customers are large, well established companies.
The Company provides reserves for credit losses and such losses have been
insignificant in all periods presented in the accompanying consolidated
financial statements.
For cash equivalents, the carrying amount approximates fair value because of
the short maturity of those instruments. For debt, the fair value is estimated
based on market prices for similar debt instruments, and the carrying amount
approximates fair value. Substantially all of the Company's cash and cash
equivalents are held in five financial institutions.
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------- MARCH 31,
1995 1996 1997
----- ------ ---------
<S> <C> <C> <C>
Computer and office equipment....................... $ 227 $1,326 $4,411
Furniture and fixtures.............................. 86 104 693
Leasehold improvements and other.................... 82 120 951
----- ------ ------
395 1,550 6,055
Less accumulated depreciation and amortization...... (68) (326) (991)
----- ------ ------
$ 327 $1,224 $5,064
===== ====== ======
</TABLE>
Included in property and equipment are assets acquired under capital lease
obligations with an original cost of approximately $84,000, $108,000 and
$282,000 as of June 30, 1995 and 1996 and March 31, 1997, respectively.
Accumulated amortization on the leased assets was approximately $3,000,
$31,000 and $59,000 as of June 30, 1995 and 1996 and March 31, 1997,
respectively.
F-10
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS AND CAPITAL LEASE OBLIGATIONS
The Company leases its facilities under noncancellable operating lease
agreements, which expire on various dates through September 2000.
Minimum future lease payments under noncancellable capital and operating
leases as of March 31, 1997 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------- ------- ---------
<S> <C> <C>
1997 (three months)........................................ $ 23 $ 453
1998....................................................... 85 1,698
1999....................................................... 44 1,492
2000....................................................... 44 1,302
2001 and thereafter........................................ 72 324
---- ------
Total minimum lease payments............................. 268 $5,269
======
Less: Amount representing interest at 14% to 19%........... (51)
----
Present value of minimum lease payments.................... 217
Less: Current portion...................................... (70)
----
Long-term portion.......................................... $147
====
</TABLE>
Rent expense was approximately $61,000, $98,000 and $341,000 in fiscal 1994,
1995 and 1996, respectively, and $199,000 and $741,000 for the nine months
ended March 31, 1996 and 1997, respectively.
6. LITIGATION
On December 17, 1996, GeoTel Communications Corporation ("GeoTel") filed a
lawsuit in the United States District Court for the District of Massachusetts
naming the Company as defendant, and alleging infringement of a patent issued
to GeoTel. On February 10, 1997, the Company filed an answer in response to
the complaint filed by GeoTel, asserting that the GeoTel patent is invalid,
denying the alleged patent infringement and seeking dismissal of the complaint
with prejudice. The Company believes that it has meritorious defenses to the
asserted claims and intends to defend the litigation vigorously. The Company
does not believe that any of its current products infringe any valid claims of
GeoTel's patent. However, the outcome of litigation is inherently
unpredictable, and there can be no assurance that the results of these
proceedings will be favorable to the Company or that they will not have a
material adverse effect on the Company's business, financial condition or
results of operations. Regardless of the ultimate outcome, the GeoTel
litigation could result in substantial expense to the Company and significant
diversion of effort by the Company's technical and managerial personnel. If
the Court determines that the Company infringes GeoTel's patent and that the
GeoTel patent is valid and enforceable, it could issue an injunction against
the use or sale of certain of the Company's products and it could assess
significant damages against the Company. Accordingly, an adverse determination
in the proceeding could subject the Company to significant liabilities and
require the Company to seek a license from GeoTel. Although patent and
intellectual property disputes in the software area have sometimes been
settled through licensing or similar arrangements, costs associated with such
arrangements may be substantial, and there can be no assurance that a license
from GeoTel, if required, would be available to the Company on acceptable
terms or at all. Accordingly, an adverse determination in the GeoTel
litigation could prevent the Company from licensing certain of
F-11
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
its software products, which would have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
is unable to estimate the range of losses that may result from this matter.
7. BANK LINE OF CREDIT
In October 1996, the Company entered into a line of credit agreement that
has no expiration terms. Under the terms of the agreement, the Company may
borrow up to $3.0 million under a revolving line of credit, which includes
sublimits of $500,000 for equipment purchases and $500,000 for letters of
credit. The line of credit is secured by substantially all of the Company's
assets and advances are limited to 80% of eligible accounts receivable.
Advances under the line accrue interest at the bank's prime rate plus 0.5% (9%
at March 31, 1997) for line of credit borrowings and 1.0% for equipment loans.
The line of credit contains provisions that prohibit the payment of cash
dividends, and require the maintenance of specified levels of tangible net
worth and certain financial ratios. The Company was in compliance with these
financial covenants as of March 31, 1997.
As of March 31, 1997, no borrowings were outstanding under this line of
credit.
8. RELATED PARTY TRANSACTIONS
LOANS FROM OFFICERS, SHAREHOLDERS AND THEIR AFFILIATES
During fiscal 1995 and 1996 and the nine months ended March 31, 1997, the
Company borrowed an aggregate of $104,500, $720,000 and $33,000, respectively,
from officers, shareholders and their affiliates. Of these borrowings, $39,000
and $25,000 was outstanding as of June 30, 1995 and 1996, respectively. No
amount was outstanding as of March 31, 1997. Certain of these related party
loans were non-interest bearing; however, the imputed interest related to the
borrowings was immaterial.
In July 1995, the Company issued a $1.5 million promissory note to a
business associate of the Company's founders. The promissory note bore
interest at a rate of 8% per annum. In May 1996, the Company repaid $600,000
of principal, and the remaining principal and all accrued interest of $50,499
was converted into 428,796 shares of Series A Preferred Stock, at a conversion
rate of approximately $2.22 per share.
In February 1996, the minority interest shareholder of the Company's
Canadian subsidiary provided the subsidiary with a convertible revolving line
of credit for CDN $2.0 million (US $1,444,000 as of March 31, 1997), of which
US $367,000 was outstanding as of June 30, 1996. Loan amounts are due on
December 31, 1997 and bear interest at a rate charged by the Royal Bank of
Canada for 30 day Bankers Acceptances plus approximately 42 basis points.
Borrowings under this facility are secured by all of the assets of the
subsidiary. In March 1997, subsequent to the Company's acquisition of the
minority shareholders' shares in the Canadian subsidiary (Note 12), all
amounts outstanding under this facility were repaid, and the facility was
canceled.
OTHER RELATED PARTY TRANSACTIONS
During fiscal 1995 and 1996, the Company recognized $394,000 and $50,000 of
revenue, respectively, from a contract with a company in which two of the
Company's significant shareholders held an ownership interest. Costs
associated with these revenues were immaterial. No other transaction occurred
with this Company in any other period. As of June 30, 1995, $200,000 of
accounts receivable related to this transaction were outstanding, and as of
June 30, 1996 all amounts due from this related party had been paid.
F-12
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. PREFERRED STOCK
In March 1996, the Company issued 900,000 shares of Series A Preferred Stock
at a price of $2.2167 per share. In June 1996, the Company issued 1,897,878
shares of Series B Preferred Stock at a price of $3.6883 per share. In
February 1997, the Company issued 854,363 shares of Series C Preferred Stock
at a price of $11.12 per share.
The rights, preferences, privileges and restrictions granted to the
preferred shareholders are as follows:
Dividends
The holders of Series A, Series B and Series C preferred stock are entitled,
when and as declared by the Board of Directors, to annual dividends at a rate
of $0.1333, $0.225 and $0.6672 per share, respectively, prior to the
declaration, setting aside or payment of any dividend to the holders of Common
Stock. Dividends are not cumulative. To date, no dividends have been declared.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the assets and funds of the Company available
for distribution will be distributed as follows:
The holders of Series C Preferred Stock are entitled to receive, prior and
in preference to any distribution to the holders of Series A and Series B
Preferred Stock and Common Stock, an amount equal to $11.12 per share, plus
any declared but unpaid dividends with respect to such share.
Thereafter, the holders of Series A and Series B Preferred Stock are
entitled to receive, prior and in preference to any distribution to the
holders of Common Stock, an amount equal to $2.2167 and 3.6883 per share,
respectively, plus any declared but unpaid dividends with respect to such
shares.
After payment to the holders of Series A, Series B and Series C Preferred
Stock as described above, the holders of Common Stock of the Company receive
any remaining assets of the Company.
Conversion
The holders of Series A, Series B and Series C Preferred Stock have the
following conversion rights:
Each share is convertible into Common Stock at the option of the holder at
any time after the date of issuance. Each share is initially convertible into
one share of Common Stock, subject to adjustment for dilution, as defined in
the Articles of Incorporation.
Each share of Preferred Stock will be automatically converted into Common
Stock upon the consummation of a public offering of the Company's Common Stock
if the public offering price is not less than $11.12 per share and if the
aggregate proceeds are more than $15,000,000. Series A and Series B Preferred
Stock will be converted into Common Stock upon the written consent of holders
of more than 50% of such series (voting together as a class).
Voting Rights
The holder of each share of Preferred Stock has the right to one vote for
each share of Common Stock into which such share of Preferred Stock is
convertible.
F-13
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Protective Provisions
The Company cannot take certain actions, as defined in the Company's
Articles of Incorporation, without obtaining the affirmative vote or written
consent of (i) the holders of a majority of the outstanding shares of Series A
and Series B Preferred Stock (voting together as a class), and (ii) the
holders of at least seventy-five percent of the outstanding shares of Series C
Preferred Stock.
Registration Rights
The holders of Preferred Stock and certain other security holders of the
Company have certain demand and piggyback registration rights as defined in
the Company's Registration Rights Agreement dated February 26, 1997.
PRO FORMA SHAREHOLDERS' EQUITY (DEFICIT)
In connection with the initial public offering of the Company's Common
Stock, all outstanding Preferred Stock will automatically convert into Common
Stock upon the closing of the offering. The pro forma effects on shareholders'
equity (deficit) of the conversion of Series A, B and C Preferred Stock and
the assumed issuance of 420,282 shares of Common Stock upon the exercise of
certain warrants prior to the closing of the offering have been reflected in
the accompanying pro forma consolidated balance sheet as of March 31, 1997.
10. COMMON STOCK:
RESTRICTED STOCK PURCHASE AGREEMENTS
Since inception, the Company has sold an aggregate of 6,281,500 shares of
Common Stock to certain employees in connection with their employment and to
certain vendors. All of these shares were sold at the fair market value as of
the date of purchase as determined by Board of Directors. All of these shares
are subject to stock repurchase agreements whereby the Company has the right
to repurchase unvested shares upon termination of employment or engagement at
the original price paid for the shares. Vesting generally occurs 25% on the
first anniversary date of employment or engagement and monthly thereafter over
the following 36 months. As of March 31, 1997, an aggregate of 508,500 shares
of Common Stock have been repurchased under these agreements, and 3,632,592
shares are subject to the Company's repurchase right at prices ranging from
$0.01667 to $0.375 per share.
STOCK PLANS
Under the Company's 1995 Stock Option Plan (the "Option Plan"), the Board of
Directors may grant incentive and nonqualified stock options to employees,
directors and consultants. The exercise price per share for an incentive stock
option cannot be less than the fair market value, as determined by the Board
of Directors, on the date of grant. The exercise price per share for a
nonqualified stock option cannot be less than 85% of the fair market value, as
determined by the Board of Directors, on the date of grant. Options granted
under the Option Plan generally expire ten years after the date of grant and
generally vest over a four year period. As of March 31, 1997, a total of
8,292,834 shares of Common Stock have been authorized for grant under the
Option Plan.
F-14
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Details of option activity under the Option Plan are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES -------------------------------
AVAILABLE NUMBER PRICE WEIGHTED
FOR GRANT OF SHARES PER SHARE AVERAGE
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Inception of Option Plan........ 2,875,500 -- -- --
---------- ---------
Balances, June 30, 1995......... 2,875,500 -- -- --
Authorized.................... 437,334 -- -- --
Granted....................... (2,622,000) 2,622,000 $.02-$ .23 $ .04
---------- ---------
Balances, June 30, 1996......... 690,834 2,622,000 $.02-$ .23 $ .04
Authorized.................... 4,980,000
Granted....................... (4,536,500) 4,536,500 $.38-$12.50 $3.41
Exercised..................... -- (665,627) $.02-$ .38 $ .15
Canceled...................... 157,062 (157,062) $.02-$ .38 $ .10
---------- ---------
Balances, March 31, 1997........ 1,291,396 6,335,811 $.02-$12.50 $2.44
========== =========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------------
NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT AVERAGE AVERAGE EXERCISABLE AVERAGE
EXERCISE MARCH 31, REMAINING EXERCISE MARCH 31, EXERCISE
PRICES 1997 LIFE PRICE 1997 PRICE
-------- -------------- --------- -------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
$0.02 1,850,936 8.65 $0.02 93,758 $0.02
$0.23 225,000 9.18 $0.23 -- $0.23
$0.38 2,275,875 9.52 $0.38 8,376 $0.38
$1.25-
$12.50 1,984,000 9.91 $7.33 198,021 $7.53
------- --------- ----- ----- ---------------- ------------
$0.02-
$12.50 6,335,811 9.37 $2.44 820,155 $1.84
<CAPTION>
RESTRICTED COMMON STOCK ISSUED SHARES SUBJECT TO REPURCHASE
----------------------------------- --------------------------------
WEIGHTED NUMBER SUBJECT WEIGHTED
NUMBER AVERAGE TO REPURCHASE AVERAGE
PURCHASE OUTSTANDING AT PURCHASE AT MARCH 31, REPURCHASE
PRICE MARCH 31, 1997 PRICE 1997 PRICE
-------- -------------- --------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
$0.02 4,924,500 $0.02 2,816,592 $0.02
$0.23 240,000 $0.23 240,000 $0.23
$0.38 576,000 $0.38 576,000 $0.38
$7.50 32,500 $7.50 -- $7.50
------- --------- ----- ---------------- ------------
$0.02-
$7.50 5,773,000 $0.11 3,632,592 $0.09
</TABLE>
As of March 31, 1997, 820,155 shares were vested and exercisable under the
Option Plan. The weighted average of fair values of options granted during
fiscal 1996 and the nine months ended March 31, 1997 was $0.01 and $1.01,
respectively.
In connection with the issuance of stock options and common stock to
employees and consultants, the Company has recorded deferred compensation in
the aggregate amount of approximately $1.9 million, representing the
difference between the deemed fair value of the Company's common stock and the
issue price of the common stock or the exercise price of stock options at the
date of grant. The Company is amortizing the deferred compensation expense
over the applicable vesting period, which is typically four years. For fiscal
1996 and the nine month period ended March 31, 1997, amortization expense was
approximately $2,000 and $164,000, respectively. No compensation expense
related to any other periods presented has been recorded.
F-15
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Had compensation cost been determined under a fair value method consistent
with SFAS 123, the Company's net income (loss) and net income (loss) per share
would have resulted in the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1996 MARCH 31, 1997
------------- -----------------
<S> <C> <C>
Net income (loss) (In thousands):
As reported................................ $(3,327) $ 593
Pro forma.................................. $(3,331) $ 428
Net income (loss) per share:
As reported................................ $ (0.18) $0.03
Pro forma.................................. $ (0.18) $0.02
</TABLE>
The fair value of each option grant under the Option Plan is estimated on
the date of grant using the Black-Scholes option pricing model with the
following assumptions used for grants: risk-free rates ranging from 5-7% and
corresponding to government securities with original maturities similar to the
vesting periods; expected dividend yield of 0%; expected lives of 3 years
beyond vest dates; and expected volatility of 0%.
1997 Employee Stock Purchase Plan
In March 1997, the Board adopted the 1997 Employee Stock Purchase Plan (the
"Purchase Plan") subject to shareholder approval. The Company has reserved
500,000 shares of Common Stock for issuance under the Purchase Plan. The
Purchase Plan will enable eligible employees to purchase common stock at 85%
of the lower of the fair market value of the Company's common stock on the
first or the last day of each offering period.
1997 Stock Incentive Plan
In March 1997, the Board adopted the 1997 Stock Incentive Plan (the "1997
Plan"), subject to shareholder approval, which will serve as a successor to
the Company's 1995 Stock Option Plan (the "Predecessor Plan"). The Company
will reserve shares of Common Stock for issuance under the 1997 Plan equal to
the sum of (i) the shares which remain available for issuance under the
Predecessor Plan, including the shares subject to outstanding options
thereunder, and (ii) an additional increase of 2,400,000 shares. In addition,
upon the completion of each fiscal year of the Company, beginning with the
1998 fiscal year, the share reserve will automatically be increased on the
first trading day of July each year by a number of shares equal to five
percent (5%) of the total number of shares of Common Stock outstanding on the
last trading day of the immediately preceding calendar month.
The 1997 Plan is divided into four separate components: (i) the
Discretionary Option Grant Program, under which eligible individuals in the
Company's employ or service (including officers and other employees, non-
employee Board members and independent consultants) may, at the discretion of
the Plan Administrator, be granted options to purchase shares of Common Stock
at an exercise price not less than their fair market value on the grant date,
(ii) the Stock Issuance Program, under which such individuals may, in the Plan
Administrator's discretion, be issued shares of Common Stock directly, either
through the purchase of such shares at a price not less than their fair market
value at the time of issuance or as a fully-vested bonus for services rendered
the Company, (iii) the Salary Investment Option Grant Program, under which
executive officers and other highly compensated employees may elect to apply a
portion of their base salary to the acquisition of special below-market stock
option grants, and (iv) the Automatic Option Grant Program, under which option
grants will automatically be made at periodic intervals to eligible non-
employee Board members to purchase shares of Common Stock at an exercise price
equal to their fair market value on the grant date.
F-16
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ISSUANCE OF WARRANTS
Warrants Issued to Consultant
In connection with a services consulting agreement, in April 1996, the
Company issued a warrant to a shareholder for the purchase of 420,282 shares
of Common Stock at an exercise price of $5.95 per share. The warrant is first
exercisable on the earlier of April 26, 1997 or upon the filing of a
registration statement for an initial public offering of the Company's Common
Stock with aggregate proceeds of not less than $10,000,000. The warrant
expires on the earlier of the closing of an initial public offering or April
26, 2001. The fair value of the warrant at the date of grant was not material.
Warrants Issued to Series C Shareholders
Concurrent with the closing of the sale of Series C Preferred Stock to two
corporate investors, the Company issued warrants for the purchase of 449,664
shares of Common Stock to one investor (exercisable at a price of 110% of the
market price of Common Stock on December 31, 1997, subject to certain
adjustments, if the Company has completed an initial public offering;
otherwise $13.34 per share), and 44,965 shares of Common Stock to the other
investor (exercisable at a price of 110% of the fair market value of Common
Stock on the date such shares vest). The warrants expire in February 2004 and
February 2000, respectively. Each of these warrants becomes exercisable upon
the achievement of certain sales and development objectives specified in the
warrant agreements. In accordance with SFAS 123 and related interpretations,
the Company recorded the aggregate estimated fair value of the warrants of
$650,000 in February 1997, and will amortize the value of the warrants to cost
of license revenues as the sales and development milestones are achieved.
Amortization of the warrants is computed as the greater of (a) the ratio of
current gross revenues generated to total revenue milestones under the
agreement or (b) the straight-line method over the life of the agreement with
MCI.
SHARES RESERVED FOR ISSUANCE
As of March 31, 1997, the Company has shares of Common Stock reserved for
future issuance as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
----------
<S> <C>
Conversion of Series A Preferred Stock............................ 900,000
Conversion of Series B Preferred Stock............................ 1,897,878
Conversion of Series C Preferred Stock............................ 854,363
Exercise of stock options......................................... 7,627,207
Exercise of warrants.............................................. 914,911
----------
12,194,359
==========
</TABLE>
F-17
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES:
The provisions for income taxes consisted of the following components for
the nine-month period ended March 31, 1997 (in thousands):
<TABLE>
<S> <C>
Current
Federal.............................................................. $270
State................................................................ 43
Foreign.............................................................. --
----
Total.............................................................. 313
Deferred
Federal.............................................................. (83)
State................................................................ --
Foreign.............................................................. --
----
Total (83)
----
Total Provision........................................................ $230
====
</TABLE>
The Company had no provision for income taxes during the years ended June
30, 1994, 1995 and 1996 due to net operating losses incurred during those
periods.
The actual provision for income taxes differs from the statutory income tax
provision as follows for the nine-month period ended March 31, 1997 (in
thousands):
<TABLE>
<S> <C>
Statutory federal tax.................................................. $288
State tax, net of federal benefit...................................... 50
Change in valuation allowance.......................................... (129)
Other.................................................................. 21
----
$230
====
</TABLE>
For the years ended June 30, 1994, 1995 and 1996, the statutory tax
provision differed from the actual provision primarily as a result of changes
in the valuation allowance in each year.
The components of the net deferred tax asset are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------- MARCH 31,
1995 1996 1997
---- ------- ---------
<S> <C> <C> <C>
Net operating loss carryforwards.................... $ -- $ 261 $ 154
Reserves and accruals not currently deductible...... 49 856 856
Tax credit carryforwards............................ 28 51 110
Other............................................... 6 (22) (22)
---- ------- -------
83 1,146 1,098
Valuation allowance................................. (83) (1,146) (1,015)
---- ------- -------
Net deferred tax asset............................ $-- $ -- $ 83
==== ======= =======
</TABLE>
A valuation allowance has been recorded for a majority of the deferred tax
asset as a result of uncertainties regarding the realization of most of the
asset balance, including the limited operating history of the Company, the
lack of profitability to date and the variability of operating results.
F-18
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of March 31, 1997, the Company had federal and state net operating loss
carryforwards of approximately $643,000 and $291,000, respectively. In
addition, as of March 31, 1997, the Company had federal and California
research and development tax credit carryforwards of approximately $64,000 and
$79,000, respectively. These carryforwards expire in various periods from 2010
to 2011. The Tax Reform Act of 1986 contains provisions that may limit the net
operating loss and research and development credit carryforwards to be used in
any given year upon the occurrence of certain events, including a significant
change in ownership interest.
12. ACQUISITION OF MINORITY INTEREST IN CANADIAN SUBSIDIARY
In February 1996, the Company entered into a joint venture in Canada through
which it owned 51% of a Canadian corporation, Genesys Laboratories Canada,
Inc. ("GenCan"). While the Company owned a majority of this joint venture in
fiscal 1996, certain provisions of the February 1996 joint venture agreement
provided for shared control of the entity, and accordingly the entity should
have been accounted for under the equity method of accounting. However, the
Company has consolidated the entity in the accompanying fiscal 1996 financial
statements for presentation purposes as the effect of using the consolidation
method is not material. In January 1997, the respective Boards of Directors of
the Company and the minority shareholder of GenCan reached agreement on the
terms and conditions of and signed a memorandum of understanding for the
purchase by the Company of the 49% minority shares of GenCan in exchange for
675,000 shares of Common Stock of the Company (valued at approximately $3.25
per share). In February 1997, the Company issued 675,000 shares of Common
Stock to the minority shareholder in accordance with the terms of the January
agreement. In connection with this acquisition, which has been accounted for
as a purchase, the Company has allocated the excess purchase price over the
fair value of the net assets acquired, approximately $2 million, to goodwill.
The Company will amortize this intangible asset on a straight-line basis over
84 months, which is its estimated expected useful life. On the basis of a pro
forma consolidation as if the acquisition had taken place in February 1996,
revenue would not have changed, net income and net income per share would have
been $469,000 and $0.02, respectively, for the nine month period ended March
31, 1997 and net loss and net loss per share would have been $3.5 million and
$0.19, respectively, for the year ended June 30, 1996.
13. INTERNATIONAL OPERATIONS AND MAJOR CUSTOMERS
Major Customers
The following customers accounted for 10% or more of total revenues in the
periods indicated:
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
FOR THE YEARS ENDED ENDED
JUNE 30, MARCH 31,
---------------------- ------------
1994 1995 1996 1996 1997
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Customer A.............................. 26.5% * * * *
Customer B.............................. * 11.2% * * *
Customer C.............................. * 12.8% * * *
Customer D.............................. * 11.1% 10.2% * *
Customer E.............................. * * 10.8% * *
Customer F.............................. * * 10.0% 16.6% *
Customer G.............................. * * * 11.7% 16.3%
</TABLE>
- --------
*Less than 10% of total revenues
F-19
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
International Operations
A summary of the Company's operations by geographic area is presented below
(in thousands):
<TABLE>
<CAPTION>
FOR THE
FOR THE FISCAL YEARS ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
----------------------------- ------------------
1994 1995 1996 1996 1997
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated
customers:
United States............ $ 1,598 $ 3,664 $ 6,475 $ 3,372 $ 15,090
Canada................... 134 548 955 281 2,404
Europe................... -- 268 1,889 1,963 4,497
-------- -------- --------- -------- --------
$ 1,732 $ 4,480 $ 9,319 $ 5,616 $ 21,991
Intercompany revenues
between geographic areas:
United States............ $ -- $ -- $ 1,013 $ -- $ 1,922
Canada................... -- -- -- -- --
Europe................... -- -- -- -- --
Eliminations............. -- -- (1,013) -- (1,922)
-------- -------- --------- -------- --------
$ -- $ -- $ -- $ -- $ --
Operating income (loss):
United States............ $ (160) $ 158 $ (3,011) $ (3,274) $ 985
Canada................... -- -- (252) (118) (372)
Europe................... -- 20 21 836 598
Eliminations............. -- (18) 3 -- (556)
-------- -------- --------- -------- --------
$ (160) $ 160 $ (3,239) $ (2,556) $ 655
Identifiable assets:
United States............ $ 689 $ 2,184 $ 11,898 $ 1,279 $ 29,880
Canada................... -- -- 627 440 2,458
Europe................... -- 432 2,959 2,107 3,593
Eliminations............. -- (360) (3,523) (1,148) (4,916)
-------- -------- --------- -------- --------
$ 689 $ 2,256 $ 11,961 $ 2,678 $ 31,015
</TABLE>
The information presented above may not be indicative of results if the
geographic areas were independent organizations. Intercompany transactions are
made at established transfer prices.
Revenues generated from international sales of the Company's products, which
includes export shipments originating in the United States to unaffiliated
customers and sales to unaffiliated customers from the Company's foreign
offices, represented 40.6%, 30.9% and 36.2% of total revenues in fiscal 1994,
1995 and 1996, respectively, and represented 48.6% and 36.0% of total revenues
in the nine months ended March 31, 1996 and 1997, respectively.
F-20
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman,
Sachs & Co., Lehman Brothers Inc. and Robertson, Stephens & Company LLC are
acting as representatives, has severally agreed to purchase from the Company
and the Selling Shareholders, the respective number of shares of Common Stock
set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
----------- ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Lehman Brothers Inc.........................................
Robertson, Stephens & Company LLC...........................
---------
Total................................................... 2,500,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share
to certain brokers and dealers. After the shares of Common Stock are released
for sale to the public, this offering price and other selling terms may from
time to time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 375,000
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 2,500,000 shares of Common
Stock offered.
The Company and its officers, directors and certain shareholders have agreed
that, during the period beginning from the date of this Prospectus and
continuing to and including the date 180 days after the date of the
Prospectus, they will not, subject to certain exceptions, offer, sell,
contract to sell, grant an option to sell, transfer or otherwise dispose of
any securities of the Company without the prior written consent of the
representatives of the Underwriters.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares
of Common Stock offered by them.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated between the
Company and the representatives of the Underwriters. Among the factors to be
considered in determining the initial public offering price of the Common
Stock, in addition to prevailing market conditions, will be the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the
U-1
<PAGE>
Company's management and the consideration of the above factors in relation to
market valuations of companies in related businesses.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "GCTI".
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
Lehman Brothers Inc., one of the Representatives of the Underwriters,
performed certain consulting services for the Company in connection with the
Company's Series C Preferred Stock financing.
In connection with this offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with this offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock
than they are required to purchase from the Company in this offering. The
Underwriters also may impose a penalty bid, whereby selling concessions
allowed to syndicate members or other broker-dealers in respect of the
securities sold in this offering for their account may be reclaimed by the
syndicate if such securities are repurchased by the syndicate in stabilizing
or covering transactions. These activities may stabilize, maintain or
otherwise affect the market price of the securities, which may be higher than
the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq Stock Market, in the over-the-counter market or
otherwise.
U-2
<PAGE>
GLOSSARY
<TABLE>
<C> <S>
ACD Automatic Call Distributor. Telephone equipment that can
perform various functions related to call management
operations, such as call prioritization, call distribution,
agent management and reporting.
ANI Automatic Number Identification. A service provided by
telephone companies that provides information about the
caller, such as the calling party's telephone number.
Call center A place (physical or virtual) where calls are received and
placed. A traditional call center is comprised of customer
service representatives, agents and operators that handle
incoming calls from customers and other outside parties, as
well as outgoing call programs for tele-marketing and other
purposes. For many organizations, the call center is a
primary point of contact for customers into the
organization.
Caller ID The identity of a call, typically by telephone number, as
transmitted by the telephone network. May also include other
call data such as the name of the caller. This is performed
differently than ANI.
DNIS Dialed Number Identification Service. DNIS is a feature of
800 and 900 lines that provides the telephone number that
the caller dialed to reach the attached telephone system.
inbound/outbound/ Inbound call management refers to the management of calls
blended call coming into an organization. Outbound call management refers
management to the management of calls originating from the organization
(such as a tele-marketing campaign or survey). Blended call
management refers to the combination of both inbound and
outbound call management.
ISV Independent Software Vendor.
IVR Interactive Voice Response. An IVR system is telephone
equipment that interprets commands from touchtone telephones
and communicates through digitized voice to the caller.
NSP Network service provider. A telephone carrier such as AT&T,
BT, MCI or Sprint.
OEM Original Equipment Manufacturer.
PBX Private Branch Exchange. An in-house telephone switch that
is privately owned by an organization rather than by the
telephone company.
SNMP Simple Network Management Protocol. A network management
protocol for handling faults and configurations of devices
attached to a network.
SOHO Small office/home office.
SS7 Signaling System 7. An international standard protocol for
signaling within a telephone network.
SSL Secure Socket Layer. An SSL protocol enables the use of
certain security measures for the transmission of data.
TCP/IP Transmission Control Protocol/Internet Program. A set of
protocols designed to link dissimilar computers across many
kinds of networks. Consists of several layers, including
TCP, which governs the exchange of sequential data, and IP
(Internet Protocol), which governs Internet addressing
protocols.
VAR Value Added Reseller.
</TABLE>
G-1
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
The Company............................................................... 18
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Dilution.................................................................. 19
Capitalization............................................................ 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 30
Management................................................................ 46
Certain Transactions...................................................... 55
Principal and Selling Shareholders........................................ 56
Description of Capital Stock.............................................. 58
Shares Eligible for Future Sale........................................... 60
Legal Matters............................................................. 61
Experts................................................................... 61
Change in Independent Public Accountants.................................. 61
Additional Information.................................................... 62
Special Note Regarding Forward-Looking Statements......................... 62
Financial Statements...................................................... F-1
Underwriting.............................................................. U-1
Glossary.................................................................. G-1
</TABLE>
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO-
SPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,500,000 SHARES
GENESYS
TELECOMMUNICATIONS
LABORATORIES, INC.
COMMON STOCK
(NO PAR VALUE)
-----------
[LOGO OF GENESYS
TELECOMMUNICATIONS
LABORATORIES, INC.]
-----------
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
ROBERTSON, STEPHENS & COMPANY
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates,
except the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 13,940
NASD fee ........................................................ 5,100
Nasdaq National Market listing fee .............................. 50,000
Printing and engraving expenses.................................. *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Officers' and directors' liability insurance..................... *
Blue sky fees and expenses....................................... 5,000
Transfer agent fees.............................................. *
Miscellaneous fees and expenses.................................. *
----------
Total.......................................................... $1,100,000
==========
</TABLE>
- --------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As allowed by the California General Corporation Law, the Company's Articles
of Incorporation provide that the liability of the directors of the Company
for monetary damages shall be eliminated to the fullest extent permissible
under California law. This is intended to eliminate the personal liability of
a director for monetary damages in an action brought by or in the right of the
Company for breach of a director's duties to the Company or its shareholders,
except for liability: (1) for acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law; (2) for acts or
omissions that a director believes to be contrary to the best interests of the
Company or its shareholders or that involve the absence of good faith on the
part of the director; (3) for any transaction from which a director derived an
improper personal benefit; (4) for acts or omissions that show a reckless
disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in
the ordinary course of performing a director's duties, of a risk of serious
injury to the Company or its shareholders; (5) for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication
of the director's duty to the Company or its shareholders; (6) with respect to
certain transactions, or the approval of transactions, in which a director has
a material financial interest; and (7) with respect to approval of certain
improper distributions to shareholders or certain loans or guarantees. This
provision does not eliminate or limit the liability of an officer for any act
or omission as an officer, notwithstanding that the officer is also a director
or that his actions, if negligent or improper, have been ratified, by the
Board of Directors. Further, the provision has no effect on claims arising
under federal or state securities laws and does not affect the availability of
injunctions and other equitable remedies available to the Company's
shareholders for any violation of a director's fiduciary duty to the Company
or its shareholders. Although the validity and scope of the legislation
underlying the provision have not yet been interpreted to any significant
extent by the California courts, the provision may relieve directors of
monetary liability to the Company for grossly negligent conduct, including
conduct in situations involving attempted takeovers of the Company.
The Company's Bylaws permit it to indemnify its officers and directors to
the fullest extent permitted by law. In addition, the Company's Articles of
Incorporation expressly authorize the use of
II-1
<PAGE>
indemnification agreements, and the Company has entered into separate
indemnification agreements with each of its directors and its executive
officers. These agreements required the Company to indemnify its officer and
directors to the fullest extent permitted by law, including circumstances in
which indemnification would otherwise be discretionary. Among other things the
agreements require the Company to indemnify directors and officers against
certain liabilities that may arise by reason of their status or service as
directors and officers and to advance their expenses incurred as a result of
any proceeding against them as to which they could be indemnified.
The Underwriting Agreement provides for indemnification of the Company by
the Underwriters for certain liabilities, including liabilities arising under
the Securities Act of 1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1993, the Registrant has issued and sold the following
securities:
1. As of March 31, 1997, the Registrant issued and sold 5,925,000 shares
(net of repurchases) of its Common Stock to employees at prices ranging from
$.0167 to $7.50 pursuant to direct issuances under Restricted Stock Purchase
Agreements (Exhibit 10.3).
2. As of March 31, 1997, the Registrant issued and sold 190,934 shares of
its Common Stock to employees, directors and consultants at prices ranging
from $.0167 to $.375 pursuant to exercises of options under its 1995 Stock
Option Plan (Exhibit 10.2).
3. On January 20, 1993 and October 15, 1994, the Registrant issued and sold
6,000,000 shares of Common Stock for an aggregate purchase price of $10,000 to
the five founders of the Registrant.
4. On March 29, 1996, the Registrant issued and sold 900,000 shares of
Series A Preferred Stock for an aggregate purchase price of approximately
$1,995,000 to a group of seven investors and a director of the Registrant.
5. On April 26, 1996, the Registrant issued and sold warrants to purchase
420,282 shares of Common Stock with an aggregate exercise price of
approximately $2,500,000 for advisory services provided by one investor.
6. On June 13, 1996, the Registrant issued and sold 1,897,878 shares of
Series B Preferred Stock for an aggregate purchase price of approximately
$7,000,000 to a group of four investors.
7. On February 26, 1997, the Registrant issued and sold 854,363 shares of
Series C Preferred Stock for an aggregate purchase price of approximately
$9,500,517 to two investors and warrants to purchase 44,965 and 449,664 shares
of Series C Preferred Stock, respectively, with an exercise price per share of
110% of the current fair value on the date such shares vest pursuant to the
vesting schedule, which expire on February 26, 2000, and at an exercise price
per share of 110% of the current market price on December 31, 1997 (subject to
certain adjustments) if the Company has completed an initial public offering
of its Common Stock; otherwise $13.34, which expire on February 26, 2004.
8. On February 26, 1997, the Registrant issued and sold 675,000 shares of
Common Stock in exchange for a 49% equity interest in Genesys Laboratories
Canada, Inc. to one investor.
The issuances described in Items 15(a)(1) and 15(a)(2) were made to
employees of the Registrant pursuant to compensatory arrangements and were
deemed exempt from registration under the Act in reliance upon Rule 701
promulgated under the Act. The issuances of the securities described in Items
15(a)(3) through 15(a)(8) were deemed to be exempt from registration under the
Act in reliance on Section 4(2) of such Act as transactions by an issuer not
involving any public offering. In addition, the recipients of securities in
each such transaction represented their intentions to acquire the securities
for investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. All
II-2
<PAGE>
recipients had adequate access, through their relationships with the
Registrant, to information about the Registrant.
ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement (preliminary form).
3.1(1) Amended and Restated Articles of Incorporation of the Registrant,
as amended to date.
3.2(1) Form of Restated Articles of Incorporation to be filed after the
closing of this offering made pursuant to this Registration
Statement.
3.3(1) Bylaws of the Registrant, as amended.
3.4(1) Form of Bylaws to be effective upon the effectiveness of this
Registration Statement.
4.1(1) Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2(1) Specimen Common Stock certificate.
4.3(1) Series A Preferred Stock Purchase Agreement, dated March 29, 1996
among the Registrant and the investors named therein.
4.4(1) Common Stock Purchase Warrant, dated April 26, 1996 between the
Registrant and Benchmark Capital Partners, L.P.
4.5(1) Series B Preferred Stock Purchase Agreement, dated June 13, 1996
among the Registrant and the investors named therein.
4.6(1) Securities Purchase Agreement, dated February 26, 1997 between the
Registrant and MCI Telecommunications Corporation ("MCI").
4.7(1)(2) Warrant to Purchase Shares of Series C Preferred Stock, dated
February 26, 1997 between the Registrant and MCI.
4.8(1) Series C Preferred Stock and Warrant Purchase Agreement, dated
February 26, 1997 between the Registrant and Intel Corporation
("Intel").
4.9(2) Warrant to Purchase Shares of Series C Preferred Stock, dated
February 26, 1997 between the Registrant and Intel.
4.10(1) Stock Exchange Agreement, dated February 26, 1997 between the
Registrant and Bruncor, Inc. ("Bruncor").
4.11(1) Registration Rights Agreement, dated February 26, 1997, among the
Registrant and the investors named therein.
5.1(1) Opinion of Brobeck, Phleger & Harrison LLP.
10.1(1) Form of Indemnification Agreement entered into between the
Registrant and its directors and officers.
10.2(1) The Registrant's 1995 Stock Option Plan, as amended.
10.3(1) Form of the Registrant's Restricted Stock Purchase Agreement.
10.4(1) The Registrant's 1997 Stock Incentive Plan.
10.5(1) The Registrant's Employee Stock Purchase Plan.
10.6 [Intentionally left blank]
10.7(1) Credit Line with Imperial Bank, dated October 28, 1996.
10.8(1) Facilities Lease dated July 1, 1996 between the Registrant and
1155 Market Partners, with modifications dated January 21, 1997
and January 30, 1997.
10.9(2) Master Software License Agreement dated January 31, 1996,
including Addendum to Master License Agreement dated February 1,
1996, as amended on February 26, 1997 by and between the
Registrant and MCI.
10.10(1)(2) Software Maintenance Agreement dated January 31, 1996, as amended
on February 26, 1997 by and between the Registrant and MCI.
11.1(1) Computation of Pro Forma Net Loss Per Share.
16.1(1) Change in Independent Auditor's Letter.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
21.1(1) Subsidiaries of the Registrant.
23.1 Consent of Independent Public Accountants (see page II-6)
23.2(1) Consent of Counsel. Reference is made to Exhibit 5.1.
23.3(1) Consent of Counsel.
24.1(1) Power of Attorney (see page II-5)
27 Financial Data Schedule.
</TABLE>
- --------
(1) Previously provided.
(2) Confidential treatment requested as to certain portions of these exhibits.
(b) Consolidated Financial Statement Schedules
SCHEDULE II--VALUATION OF QUALIFYING SECURITIES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the California General Corporation Law, the Articles of
Incorporation or the Bylaws of the Registrant, Indemnification Agreements
entered into between the Registrant and its officers and directors, the
Underwriting Agreement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered hereunder, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the information
omitted from the form of Prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in a form of Prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Act shall be deemed to be part of this Registration Statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of Prospectus shall be deemed to be a
new Registration Statement relating to the securities offered therein, and
this offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF SAN FRANCISCO, STATE OF CALIFORNIA, ON THIS 12TH DAY OF JUNE, 1997.
Genesys Telecommunications Laboratories,
Inc.
By: /s/ Gregory Shenkman
----------------------------------------
Gregory Shenkman
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Gregory Shenkman President, Chief Executive Officer June 12, 1997
________________________________ (Principal Executive Officer)
Gregory Shenkman and Director
Alec Miloslavsky* Vice Chairman, Chief Technical Officer June 12, 1997
________________________________ and Director
Alec Miloslavsky
/s/ Michael J. McCloskey Vice President, Finance and June 12, 1997
________________________________ International, Chief Financial
Michael J. McCloskey Officer and Secretary
James Jordan* Chairman of the Board and Director June 12, 1997
________________________________
James Jordan
Bruce Dunlevie* Director June 12, 1997
________________________________
Bruce Dunlevie
Paul Levy* Director June 12, 1997
________________________________
Paul Levy
</TABLE>
*By: /s/ Michael J. McCloskey
------------------------------
Michael J. McCloskey
(Attorney-in-Fact)
II-5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
San Jose, California
June 12 , 1997
----------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Genesys Telecommunications Laboratories, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Genesys Telecommunications Laboratories,
Inc. and subsidiaries included in this registration statement and have issued
our report thereon dated May 1, 1997. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the index is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
San Jose, California
May 1, 1997
II-6
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING OF CHARGED TO WRITE- AT END OF
PERIOD EXPENSE OFFS PERIOD
------------ ---------- -------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts
Year ended June 30,
1994................... -- $ 51,500 -- $ 51,500
Year ended June 30,
1995................... $ 51,500 $ 4,000 $(40,000) $ 15,500
Year ended June 30,
1996................... $ 15,500 $410,500 -- $426,000
Nine months ended March
31, 1997............... $426,000 $ 45,000 $(80,000) $391,000
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement (preliminary form).
3.1(1) Amended and Restated Articles of Incorporation of
the Registrant, as amended to date.
3.2(1) Form of Restated Articles of Incorporation to be
filed after the closing of this offering made
pursuant to this Registration Statement.
3.3(1) Bylaws of the Registrant, as amended.
3.4(1) Form of Bylaws to be effective upon the
effectiveness of this Registration Statement.
4.1(1) Reference is made to Exhibits 3.1, 3.2, 3.3 and
3.4.
4.2(1) Specimen Common Stock certificate.
4.3(1) Series A Preferred Stock Purchase Agreement, dated
March 29, 1996 among the Registrant and the
investors named therein.
4.4(1) Common Stock Purchase Warrant, dated April 26, 1996
between the Registrant and Benchmark Capital
Partners, L.P.
4.5(1) Series B Preferred Stock Purchase Agreement, dated
June 13, 1996 among the Registrant and the
investors named therein.
4.6(1) Securities Purchase Agreement, dated February 26,
1997 between the Registrant and MCI
Telecommunications Corporation ("MCI").
4.7(1)(2) Warrant to Purchase Shares of Series C Preferred
Stock, dated February 26, 1997 between the
Registrant and MCI.
4.8(1) Series C Preferred Stock and Warrant Purchase
Agreement, dated February 26, 1997 between the
Registrant and Intel Corporation ("Intel").
4.9(2) Warrant to Purchase Shares of Series C Preferred
Stock, dated February 26, 1997 between the
Registrant and Intel.
4.10(1) Stock Exchange Agreement, dated February 26, 1997
between the Registrant and Bruncor, Inc.
("Bruncor").
4.11(1) Registration Rights Agreement, dated February 26,
1997, among the Registrant and the investors named
therein.
5.1(1) Opinion of Brobeck, Phleger & Harrison LLP.
10.1(1) Form of Indemnification Agreement entered into
between the Registrant and its directors and
officers.
10.2(1) The Registrant's 1995 Stock Option Plan, as
amended.
10.3(1) Form of the Registrant's Restricted Stock Purchase
Agreement.
10.4(1) The Registrant's 1997 Stock Incentive Plan.
10.5(1) The Registrant's Employee Stock Purchase Plan.
10.6 [Intentionally left blank]
10.7(1) Credit Line with Imperial Bank, dated October 28,
1996.
10.8(1) Facilities Lease dated July 1, 1996 between the
Registrant and 1155 Market Partners, with
modifications dated January 21, 1997 and January
30, 1997.
10.9(2) Master Software License Agreement dated January 31,
1996, including Addendum to Master License
Agreement dated February 1, 1996, as amended on
February 26, 1997 by and between the Registrant and
MCI.
10.10(1)(2) Software Maintenance Agreement dated January 31,
1996, as amended on February 26, 1997 by and
between the Registrant and MCI.
11.1(1) Computation of Pro Forma Net Loss Per Share.
16.1(1) Change in Independent Auditor's Letter.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
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21.1(1) Subsidiaries of the Registrant.
23.1 Consent of Independent Public Accountants (see
page II-6)
23.2(1) Consent of Counsel. Reference is made to Exhibit
5.1.
23.3(1) Consent of Counsel.
24.1(1) Power of Attorney (see page II-5)
27 Financial Data Schedule.
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(1) Previously provided.
(2) Confidential treatment requested as to certain portions of these exhibits.
<PAGE>
EXHIBIT 1.1
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
COMMON STOCK
(NO PAR VALUE)
___________________
AGREEMENT AMONG UNDERWRITERS
INCLUDING
UNDERWRITING AGREEMENT
_______________, 1997
<PAGE>
<TABLE>
<S> <C> <C>
GOLDMAN, SACHS & CO. LEHMAN BROTHERS INC. ROBERTSON STEPHENS &
85 BROAD STREET 200 VESEY STREET COMPANY LLC
NEW YORK, NEW YORK 10004 THREE WORLD FINANCIAL CENTER 555 CALIFORNIA STREET
NEW YORK, NEW YORK 10285 SAN FRANCISCO, CALIFORNIA 94104
</TABLE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
COMMON STOCK
(NO PAR VALUE)
___________________
AGREEMENT AMONG UNDERWRITERS
_______________, 1997
To each of the Underwriters named in Schedule I
to the attached Underwriting Agreement
Ladies and Gentlemen:
This is to confirm that the Underwriters agree among themselves as follows
with reference to their proposed purchases severally of an aggregate of
2,400,000 shares (the "Firm Shares") and up to an aggregate of 360,000
additional shares (the "Optional Shares") of Common Stock, no par value
("Stock"), of Genesys Telecommunications Laboratories, Inc. (the "Company") (the
Firm Shares and any Optional Shares that the Underwriters elect to purchase
pursuant to the Underwriting Agreement (as hereinafter defined) being
collectively referred to as the "Shares").
1. Each Underwriter agrees that it will purchase, on the terms and
subject to the conditions of an underwriting agreement in substantially the form
attached hereto (the "Underwriting Agreement"), the number of Shares provided
therein to be purchased by it (such number of Shares, including any Shares to be
so purchased by such Underwriter pursuant to Section 9 of the Underwriting
Agreement, being herein referred to as the "underwriting obligation" of such
Underwriter). Each Underwriter authorizes us as its representatives to execute
and deliver the Underwriting Agreement and to exercise in our discretion all of
the authority vested in us therein. We are also authorized to take all action
that we may believe desirable in carrying out the provisions of the Underwriting
Agreement and this Agreement, including authority to agree to changes in those
who are to be Underwriters and, subject to the following paragraph, in the
number of Firm Shares and Optional Shares to be set forth opposite the name of
such Underwriter in Schedule I to the Underwriting Agreement, and to agree to
any variation in the terms of performance of the Underwriting Agreement and this
Agreement that, in our judgment, will not have a material adverse effect upon
the interests of the Underwriters.
Notwithstanding the provisions of the preceding paragraph, the consent of
an Underwriter shall be required for any increase in the number of Shares to be
purchased by such Underwriter under the Underwriting Agreement, except in the
following cases: (a) an increase in the number of Shares to be purchased by such
Underwriter that is caused by the failure of another Underwriter or Underwriters
to perform its or their obligations under the Underwriting Agreement; or (b) an
increase in the number of
<PAGE>
such Shares, as a result of (i) an increase in the aggregate number of Shares
proposed to be purchased by the Underwriters as a whole; (ii) a reallotment of
Shares among the Underwriters; or (iii) any other cause, which in any such case
(i) through (iii) results in an aggregate net change of 25% or less in the
number of Shares to be purchased by such Underwriter.
2. The Firm Shares shall be released for sale to the public at the
initial public offering price as soon after the execution and delivery of the
Underwriting Agreement as in our judgment is advisable, but (except with the
consent of such of the Underwriters whose underwriting obligations aggregate 50%
or more of the Firm Shares under the Underwriting Agreement) not later than the
seventh full business day after the execution and delivery of the Underwriting
Agreement.
Each Underwriter authorizes us, for its account, to exercise all or such
portion of any overallotment option to purchase Optional Shares under the
Underwriting Agreement as we in our discretion shall determine.
3. Each Underwriter authorizes us to reserve for sale, and to sell and
deliver to securities dealers selected by us, who may include any of the
Underwriters, such number as we may determine of the Shares that such
Underwriter agrees to purchase under the Underwriting Agreement. Such sales
shall be made for the respective accounts of the Underwriters in such
proportions as we may determine. Such sales shall be made at the initial public
offering price, less a concession initially of not in excess of $______ per
share with respect to the Shares so sold. Underwriters and such dealers may
allow a portion of such concession (the "reallowance") initially of not in
excess of $____ per share of the Shares so sold to any member of the National
Association of Securities Dealers, Inc. (the "NASD"), acting as principal or as
buyer's agent, provided such member agrees that the reallowance is to be
retained and not reallowed in whole or in part and also agrees in writing to
comply with NASD Rule 2740. In light of the restrictions imposed by Section 4
hereof, Underwriters and such dealers may not allow the reallowance to any
foreign dealer.
Each Underwriter also authorizes us to reserve for sale, and authorizes us
or any Underwriter designated by us to sell and deliver to such retail
purchasers as we may select, at the initial public offering price, such number
as we may determine of the Shares that such Underwriter agrees to purchase under
the Underwriting Agreement. Such reservations and sales to retail purchasers
shall be made for the respective accounts of the Underwriters in such
proportions as we may determine.
At or before the time the Firm Shares are released for sale to the public,
we will advise each Underwriter as to the number of Firm Shares initially
reserved for sale for its account pursuant to this Section. Each Underwriter
authorizes us from time to time to add to the reserved Shares any Shares of such
Underwriter then remaining unsold and to release to it any reserved Shares of
such Underwriter then remaining unsold.
Each Underwriter authorizes us, on its behalf and as its representatives,
to take all such actions as we may deem advisable in respect of all matters
pertaining to sales of reserved Shares to dealers and to retail purchasers,
including the right to make variations in the selling arrangements, and, after
the Firm Shares are released for sale to the public, to vary from time to time
the offering price, concessions and reallowances to dealers, and other terms of
sale of the Shares hereunder and under such selling arrangements.
4. Sales of Shares by Underwriters, except as otherwise set forth herein,
shall be on the terms specified under the selling arrangements then in effect.
Each Underwriter represents that in connection with the offering it has
complied, and agrees that it will comply, with the provisions of Regulation M
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with
regard, among other things, to trading by underwriters. In addition, if the
exception for actively-traded securities set forth in Rule 101(c)(1) of
Regulation M is available to this offering, you agree that, on the day of
pricing as notified to you by us and until notification from us
2
<PAGE>
to the contrary, you will nonetheless (i) observe the restrictions of Rule 101
of Regulation M as if such exception were not available and (ii) in the case of
any principal transaction, observe the restrictions set forth in Rule 103(b)(1),
(3) and (4) of Regulation M, except that for purposes of the proviso of Rule
103(b)(3) your ability to continue to bid and effect purchases shall be limited
to 5,000 shares (in each case excluding transactions effected pursuant to the
SOES system).
5. Except as provided in the next sentence, we may, in our discretion,
charge the account of any Underwriter with an amount equal to the concession
allowed to dealers in respect of each Share sold by such Underwriter or sold by
us for such Underwriter (and each Share that we believe has been substituted
therefor), which may be delivered against a purchase contract made by us for the
account of any Underwriter prior to the later of (a) the termination of all of
the provisions referred to in Section 10 hereof or (b) the covering by Goldman,
Sachs & Co. of any short position created by Goldman, Sachs & Co. for the
account of any Underwriter pursuant to Section 9 hereof, or in lieu of such
charge, require such Underwriter to repurchase on demand at the total cost
thereof (including commissions), plus transfer taxes, any such Share so
delivered. In the case of any such Share sold by us, the amount of such charge
may not exceed the amount of any selling concession that such Underwriter is
designated to receive with respect to such Share.
6. Upon our request each Underwriter will deliver to Goldman, Sachs & Co.
payment for the Shares purchased or to be purchased by such Underwriter under
the Underwriting Agreement in an amount equal to the initial public offering
price for such Shares less the concession to dealers. Such payment shall be
made in such form and at such times and places as may be specified in such
request, and each Underwriter authorizes Goldman, Sachs & Co. to make payment
for such Shares against their delivery for its account hereunder.
7. We shall remit to each Underwriter, as promptly as practicable, the
amounts received by us from retail purchasers and dealers as payment in respect
of Shares sold by us for the account of such Underwriter pursuant to the
provisions of Section 3 hereof for which payment has been received, less the
concession to dealers (a) in the case of amounts received from retail purchasers
and (b) in the case where amounts received from dealers are equal to the initial
public offering price. Shares purchased by each Underwriter under the
Underwriting Agreement and not reserved or sold by us for its account pursuant
to the provisions of Section 3 hereof shall be delivered to such Underwriter as
promptly as practicable after their receipt by us. Any Shares so purchased by
any Underwriter and so reserved that remain unsold at any time prior to the
settlement of accounts hereunder may, in our discretion, and shall, upon the
request of such Underwriter, be delivered to such Underwriter, but, until the
termination of all of the provisions referred to in Section 10 hereof, for
carrying purposes only.
Each Underwriter that is a member of The Depository Trust Company
authorizes us, in our discretion, to arrange for delivery of Shares to such
Underwriter and for payment therefor by and to such Underwriter through the
facilities of The Depository Trust Company.
Each Underwriter, however, authorizes Goldman, Sachs & Co., in their
discretion, as agent for such Underwriter, to advance funds, charging current
interest rates, or arrange loans for such Underwriter's account in connection
with the purchase or carrying of its Shares held for its account under this
Agreement and for any other of the purposes of this Agreement, to execute and
deliver any notes or other instruments evidencing such advances or loans, to
hold or pledge as security therefor any or all of its Shares and to give all
instructions to the lenders with respect to any such loans and the proceeds
thereof, which instructions the lenders are hereby authorized to accept. In the
event of any such advance or loan, repayment thereof shall, in the discretion of
Goldman, Sachs & Co., be effected prior to the making of any remittance or
delivery pursuant to this Section 7.
Each Underwriter agrees that, from time to time prior to the settlement of
accounts hereunder, it will furnish to us such information as we may request in
order to determine the number of Shares purchased by it under the Underwriting
Agreement that then remains unsold, and such Underwriter will
3
<PAGE>
upon our request sell to us for the account of any Underwriter as many of such
unsold Shares as we may designate at the public offering price, less all or any
part of the concession to dealers as we may determine.
8. In the event of failure of any Underwriter to tender payment for
Shares as provided under the Underwriting Agreement, we shall have the right
under the provisions thereof to arrange for other persons, who may include
ourselves and any other Underwriters, to purchase the Shares that such
defaulting Underwriter agreed to purchase, and we shall also have the right,
subject to Section 1 hereof, to increase pro rata the original underwriting
obligations of the non-defaulting Underwriters to provide for the purchase of
the Shares that such defaulting Underwriter agreed to purchase, but in neither
case will such arrangements relieve such defaulting Underwriter from liability
for its default.
9. Each Underwriter authorizes Goldman, Sachs & Co., in their discretion
and for the account of such Underwriter, to overallot Firm Shares, and to
purchase and sell shares of Stock, for long or short account, in such amounts,
at such prices and times, on such terms and in such manner as Goldman, Sachs &
Co. may determine; provided, however, that at no time (except as set forth below
in the event of default of any Underwriter in carrying out its commitment under
this Section 9) shall (i) the net commitment of any Underwriter, for either long
or short account, resulting from such overallotments, and (ii) such purchases
and sales pursuant to this Section 9, exceed 20% of the number of Firm Shares
that such Underwriter agrees to purchase under the Underwriting Agreement (it
being agreed that for the purposes of such calculation the net commitment for
short account of any Underwriter shall be deemed to be reduced by the maximum
number of Optional Shares that such Underwriter is entitled to purchase under
the Underwriting Agreement). It is understood that the representatives may have
made purchases of securities of the Company for stabilizing purposes prior to
the time this Agreement became binding upon the Underwriters or any particular
Underwriter with respect to the offering of the Shares, and each Underwriter
agrees that any securities so purchased shall be treated as having been
purchased for the respective accounts of the Underwriters pursuant to the
foregoing authorization. Each Underwriter authorizes Goldman, Sachs & Co., in
their discretion and for the account of such Underwriter, to cover any short
position, or sell any long position, created by Goldman, Sachs & Co. for the
account of such Underwriter pursuant to this Section 9, in such amounts, at such
prices, on such terms and in such manner as Goldman, Sachs & Co. may determine.
Such purchases and sales, through overallotments or otherwise, shall be for the
respective accounts of the Underwriters in the same proportions, as nearly as
may be practicable, as the respective underwriting obligations of the
Underwriters; provided, however, that, if any Underwriter defaults in carrying
out its commitment under this Section, the other Underwriters not so defaulting
shall assume its commitment in the same proportions as the respective
underwriting obligations of such other Underwriters, without, however, relieving
such defaulting Underwriter from its liability therefor. Each Underwriter
agrees that it will, upon the request of Goldman, Sachs & Co., take up at cost
(but, in the discretion of Goldman, Sachs & Co., until the termination of all of
the provisions referred to in Section 10 hereof, for carrying purposes only)
shares of Stock so purchased by Goldman, Sachs & Co. for the account of such
Underwriter, and deliver to Goldman, Sachs & Co. shares of Stock so sold for the
account of such Underwriter, through overallotment or otherwise. Goldman, Sachs
& Co. shall have full discretionary power to pay such commissions in connection
with such purchases and sales as they may deem proper and to charge such
commissions on purchases and sales effected by them.
In the event that Goldman, Sachs & Co. effect any stabilizing purchases
pursuant to this Section, they will notify each Underwriter promptly of the date
and time when the first stabilizing purchase is effected and the date and time
when stabilizing is terminated. Each Underwriter agrees that, without the prior
permission of Goldman, Sachs & Co., it will not effect any stabilizing
purchases. Each Underwriter agrees that, if stabilizing is effected, it will
provide Goldman, Sachs & Co. with such information and reports as are required
in relation to such stabilization pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission") under the Exchange Act.
4
<PAGE>
10. The provisions of the first paragraph of Section 4 hereof and of the
first sentence of Section 9 hereof will terminate at the close of business on
the thirtieth full business day after the Firm Shares are released by us for
sale to the public, unless any of such provisions are terminated at such earlier
time as we may determine by notice to that effect sent to each Underwriter.
11. We may charge against the account of each Underwriter any and all
expenses incurred by us on its behalf and as its representatives in connection
with the purchase and sale of the Shares or preparations therefor. All expenses
of a general nature incurred by us shall be borne by the Underwriters in the
same proportions as the respective underwriting obligations of the Underwriters.
In the event that Goldman, Sachs & Co., in order to facilitate a secondary
offering, agree to pay any stock transfer tax, subject to the reimbursement by
the Selling Stockholders of associated carrying costs if such tax payment is not
rebated on the day of payment and of any portion of such tax payment not rebated
(which each Underwriter agrees Goldman, Sachs & Co. may agree to do), and in the
event such tax payment, pending such reimbursement, results in any expense to
Goldman, Sachs & Co., such expense shall be deemed an expense of a general
nature for purposes of the foregoing sentence. In the event of the failure of
any Underwriter to fulfill its obligations hereunder, the expenses chargeable to
such Underwriter pursuant to this Agreement and not paid, as well as any
additional expenses arising from such default, may be charged against the other
Underwriters not so defaulting in the same proportions as the respective
underwriting obligations of such other Underwriters, without, however, relieving
such defaulting Underwriter from its liability therefor. Our ascertainment of
all expenses and apportionment thereof shall be conclusive.
We shall not be accountable for interest on funds of any of the
Underwriters at any time in our hands, and any such funds may be held by us
unsegregated from our general funds.
12. As compensation for our services to each of the Underwriters in
connection herewith, each Underwriter agrees to pay us an amount equal to $_____
per share in respect of the underwriting obligation of such Underwriter and
authorizes us, at our election, to charge its account therefor.
13. Each of the Underwriters acknowledges that it has received copies of
the documents stated in Section 1(a) of the Underwriting Agreement to have been
filed with the Commission prior to the date of the Underwriting Agreement and
delivered to us for it. The registration statement and prospectus may be
further amended or changed, but no such amendment or change not disapproved by
us shall release any Underwriter hereunder or under the Underwriting Agreement.
14. Each Underwriter represents that it is a registered dealer or broker
under the Exchange Act and that it is a member in good standing of the NASD and
that in making sales of Shares it will comply with the Conduct Rules of the
NASD, Rule 2740. We will file on behalf of the several Underwriters with the
NASD such required documents and information, if any, which have been furnished
to us for filing pursuant to applicable rules, statements and interpretations of
the NASD.
15. In taking all actions hereunder, except in the performance of our own
obligations hereunder and under the Underwriting Agreement, we shall act only as
representatives of each of the Underwriters. Our authority as representatives
hereunder and under the Underwriting Agreement may be exercised by us jointly or
by Goldman, Sachs & Co. on behalf of us as representatives, provided that our
authority under Section 17 hereof may be exercised only by Goldman, Sachs & Co.
Nothing contained herein shall constitute the Underwriters partners or render
any of them liable to make payments otherwise than as herein provided. If for
Federal income tax purposes the Underwriters should be deemed to constitute a
partnership, then each Underwriter elects to be excluded from the application of
Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code, as amended.
Each Underwriter authorizes Goldman, Sachs & Co., in their discretion, on behalf
of such Underwriter, to execute such evidence of such election as may be
required by the Internal Revenue Service.
16. We shall be under no liability (except for our own want of good faith
and for obligations expressly assumed by us hereunder) for or in respect of the
validity or value of, or title to, any shares of
5
<PAGE>
Stock; the form of, or the statements contained in or omitted from, or the
validity of, the registration statement, any preliminary prospectus, the
prospectus, any amendment or supplement thereto, any document that may be
incorporated by reference therein or any letters or instruments executed by or
on behalf of the Company, any of the Selling Stockholders or others; the form or
validity of the Underwriting Agreement or this Agreement; the delivery of the
Shares; the performance by the Company, any of the Selling Stockholders or
others of any agreement on its or their part; the qualification for sale of the
Shares under the laws of any jurisdiction; or any matter in connection with any
of the foregoing; provided, however, that nothing in this Section 16 shall be
deemed to relieve us from any liability imposed by the Securities Act of 1933,
as amended (the "Act").
17. (a) Each Underwriter agrees to indemnify, hold harmless and reimburse
each other Underwriter, and each person, if any, who controls such other
Underwriter within the meaning of Section 15 of the Act, to the extent, and upon
the terms, that such Underwriter agrees to indemnify, hold harmless and
reimburse the Company, the Selling Stockholders and certain other persons
pursuant to the provisions of Section 8 of the Underwriting Agreement. This
indemnity agreement shall remain in full force and effect regardless of any
investigation made by or on behalf of such other Underwriter or controlling
person or any statement made to the Commission as to the results thereof.
(b) Each Underwriter agrees to pay upon our request, as contribution,
its proportionate share, based upon the respective underwriting obligations of
the Underwriters, of any losses, claims, damages or liabilities, joint or
several, under the Act or otherwise, paid or incurred by any Underwriter
(including us, individually or as representatives of the Underwriters) to any
person other than an Underwriter (including amounts paid by an Underwriter as
contribution), arising out of or based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the registration statement,
any preliminary prospectus, the prospectus, any amendment or supplement thereto,
any document that may be incorporated by reference therein or any other selling
or advertising material used with the consent of Goldman, Sachs & Co. by the
Underwriters in connection with the sale of the Shares, or arising out of or
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (ii) any act or omission to act or any alleged act or omission
to act by us, individually or as representatives of the Underwriters, or by the
Underwriters, as a group but not individually, in connection with any
transaction contemplated by this Agreement or undertaken in preparing for the
purchase, sale and delivery of the Shares; and each Underwriter will pay such
proportionate share of any legal or other expenses reasonably incurred by us or
with our consent, in connection with investigating or defending any such loss,
claim, damage or liability, or any action in respect thereof. In determining the
amount of any Underwriter's obligation under this paragraph, appropriate
adjustment may be made by us to reflect any amounts received by any one or more
Underwriters, pursuant to Section 8 of the Underwriting Agreement or otherwise,
in respect of the claim upon which such obligation is based. In respect of any
claim there shall be credited against the amount of any Underwriter's obligation
under this paragraph any loss, damage, liability or expense that is paid or
incurred by such Underwriter as a result of any such claim being asserted
against it, and, if such loss, damage, liability or expense is paid or incurred
by such Underwriter subsequent to any payment by it pursuant to this paragraph,
appropriate provision shall be made to effect such credit, by refund or
otherwise. If any claim to which the provisions of this paragraph would be
applicable is asserted, we may take such action in connection therewith as we
deem necessary or desirable, including retention of counsel for the
Underwriters, and in our discretion separate counsel for any particular
Underwriter or group of Underwriters, and the fees and disbursements of any
counsel so retained by us shall be included in the amounts of the Underwriters'
obligations under this paragraph. At our discretion, we may consent to being
named as the representatives of a defendant class of underwriters. Any
Underwriter may elect to retain at its own expense its own counsel and, on
advice of such counsel and with our consent, may settle or consent to the
settlement of any such claim. We may settle or consent to the settlement of any
such claim, on advice of counsel retained by us, with the approval of a majority
in interest of the Underwriters. Whenever any Underwriter receives notice of the
6
<PAGE>
assertion of any claim to which the provisions of this paragraph would be
applicable, such Underwriter will give prompt notice thereof to us. Whenever we
receive notice of the assertion of any such claim, we will give prompt notice
thereof to each Underwriter. We also will furnish each Underwriter with periodic
reports, at such times as we deem appropriate, as to the status of any such
claim and the action taken by us in connection therewith. In the event of the
failure of any Underwriter to fulfill its obligations under this paragraph, such
obligations may be charged against the other Underwriters not so defaulting in
the same proportions as the respective underwriting obligations of such other
Underwriters, without, however, relieving such defaulting Underwriter from its
liability therefor. In determining amounts payable pursuant to this paragraph,
any loss, claim, damage, liability or expense paid or incurred, and any amount
received, by any person controlling any Underwriter within the meaning of
Section 15 of the Act that has been paid or incurred or received by reason of
such control relationship shall be deemed to have been paid or incurred or
received by such Underwriter. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
18. As promptly as may be practicable after termination of all of the
provisions referred to in Section 10 hereof and completion of transactions under
Section 9 hereof, any shares of Stock held by us for the account of any
Underwriter shall be delivered by us to such Underwriter, and the net credit or
debit balance of each Underwriter shall be paid to it or collected from it by
us, but we may establish such reserves as we may deem advisable against any
expenses or claims not then ascertained. If at such termination the aggregate
number of shares of Stock so held by us does not exceed 20% of the aggregate
underwriting obligation of the Underwriters, we may in our discretion sell such
securities for the accounts of the several Underwriters at such prices and
times, on such terms and in such manner as we may determine. Any Shares that
are held by us for the account of any Underwriter by reason of a default by a
dealer or other purchaser in respect of the purchase thereof pursuant to a sale
under Section 3 hereof shall, in our discretion, be purchased from time to time
by the Underwriters in the same proportions, as nearly as may be practicable, as
the respective numbers of Shares theretofore contracted for sale thereunder to
dealers or other purchasers, as the case may be, for the respective accounts of
the Underwriters, at the net price at which such Shares were contracted for sale
to such dealer or other purchaser, and we are authorized to make appropriate
charges and credits to the respective accounts of the Underwriters for this
purpose. Notwithstanding any distribution and settlement of accounts hereunder,
each Underwriter shall remain liable for its proper proportion of any transfer
tax or any other liability that may be asserted against us or any one or more of
the Underwriters in respect of this Agreement or the Underwriting Agreement
based upon the claim that the Underwriters constitute a partnership, an
association, an unincorporated business or other separate entity.
19. Any notice to any Underwriter shall be deemed to have been duly given
if mailed, sent by telex or facsimile transmission or delivered in person to
such Underwriter at the address set forth in its Underwriters' Questionnaire or
telex constituting such Questionnaire. Any such notice shall take effect upon
receipt thereof.
20. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
21. This Agreement may be signed in any number of counterparts, each of
which shall be deemed an original, which taken together shall constitute one and
the same instrument.
7
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Please confirm that the foregoing is in accordance with your understanding
by signing a counterpart hereof as indicated below.
Very truly yours,
Goldman, Sachs & Co.
Lehman Brothers Inc.
Robertson, Stephens & Company LLC
By:
--------------------------------
(Goldman, Sachs & Co.)
Confirmed as of the date hereof:
- -----------------------------------
Attorney-in-fact for each of the
several Underwriters named in
Schedule I to the attached
Underwriting Agreement
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
COMMON STOCK
(NO PAR VALUE)
___________________
UNDERWRITING AGREEMENT
_________, 1997
Goldman, Sachs & Co.,
Lehman Brothers Inc.
Robertson, Stephens & Company LLC
As representatives of the several Underwriters
named in Schedule I hereto
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Genesys Telecommunications Laboratories, Inc., a California corporation
(the "Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to the Underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of 2,000,000 shares (the "Company Firm Shares")
and, at the election of the Underwriters, up to 360,000 additional shares (the
"Optional Shares") of Common Stock, no par value ("Stock") of the Company, and
the shareholders of the Company named in Schedule II hereto (the "Selling
Shareholders") propose, subject to the terms and conditions stated herein, to
sell to the Underwriters an aggregate of 400,000 shares (the "Shareholder
Shares") of Stock. The Company Firm Shares and the Optional Shares are herein
collectively called the "Company Shares". The Company Firm Shares and the
Shareholder Shares are herein collectively called the "Firm Shares". The Firm
Shares and the Optional Shares that the Underwriters elect to purchase pursuant
to Section 2 hereof are herein collectively called the "Shares".
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-24479) in
respect of the Shares has been filed with the Securities and Exchange
Commission (the "Commission"); such registration statement and any
post-effective amendment thereto, each in the form heretofore
delivered to you, and, excluding exhibits thereto, to you for each of
the other Underwriters, have been declared effective by the Commission
in such form; no other document with respect to such registration
statement has heretofore been filed with the Commission; and no stop
order suspending the effectiveness of such registration statement has
been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in
such registration statement or filed with the Commission pursuant to
Rule 424(a) of the rules and regulations of the Commission under the
Securities Act of 1933, as amended (the "Act"), is hereinafter called
a "Preliminary Prospectus"; the various parts of such registration
statement, including all
<PAGE>
exhibits thereto and including the information contained in the form
of final prospectus filed with the Commission pursuant to Rule 424(b)
under the Act in accordance with Section 5(a) hereof and deemed by
virtue of Rule 430A under the Act to be part of the registration
statement at the time it was declared effective, each as amended at
the time such part of the registration statement became effective, are
hereinafter collectively called the "Registration Statement"; and such
final prospectus, in the form first filed pursuant to Rule 424(b)
under the Act, is hereinafter called the "Prospectus";
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations
of the Commission thereunder, and the Preliminary Prospectus dated May
27, 1997 did not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. expressly for use therein or by a Selling
Shareholder expressly for use in the preparation of the answers
therein to Items 7 and 11(l) of Form S-1;
(iii) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration
Statement or the Prospectus will conform, in all material respects to
the requirements of the Act and the rules and regulations of the
Commission thereunder and do not and will not, as of the applicable
effective date as to the Registration Statement and any amendment
thereto and as of the applicable filing date as to the Prospectus and
any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein or
by a Selling Shareholder expressly for use in the preparation of the
answers therein to Items 7 and 11(l) of Form S-1;
(iv) Neither the Company nor any of its Subsidiaries (as defined
in Rule 405 of the Act) (the Company's Subsidiaries are collectively
referred to herein as the "Subsidiaries") has sustained since the date
of the latest audited financial statements included in the Prospectus
any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any change in the capital stock or long-term debt of the Company
or any of its Subsidiaries on a consolidated basis or any material
adverse change, or any development involving a prospective material
adverse change, in or affecting the general affairs, management,
financial position, shareholders' equity or results of operations of
the Company and its Subsidiaries on a consolidated basis, otherwise
than as set forth or contemplated in the Prospectus;
(v) Neither the Company nor any of its Subsidiaries owns any
real property. The Company and its Subsidiaries have good and
marketable title to all personal property
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owned by them, in each case free and clear of all liens, encumbrances
and defects, except such as are described in the Prospectus or such as
do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property
by the Company and its Subsidiaries; and any real property and
buildings held under lease by the Company and its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company
and its Subsidiaries;
(vi) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
California, with power and authority (corporate and other) to own or
lease its properties and conduct its business as described in the
Prospectus, and has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of
each other jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification, or is
subject to no material liability or disability by reason of the
failure to be so qualified in any such jurisdiction; the Company has
all necessary authorizations, licenses, certificates, consents, orders
and permits from state, federal and other regulatory authorities to
conduct its business in the manner described in the Prospectus, except
to the extent that the failure to obtain such would not have a
material adverse effect on the Company and its Subsidiaries taken as a
whole;
(vii) Each Subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation; with power and authority
(corporate and other) to own or lease its properties and conduct its
business as described in the Prospectus, and has been duly qualified
as a foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to require
such qualification, or is subject to no material liability or
disability by reason of the failure to be so qualified in any such
jurisdiction; each Subsidiary has all necessary authorizations,
licenses, certificates, consents, orders and permits from state,
federal and other regulatory authorities to conduct its business in
the manner described in the Prospectus, except to the extent that the
failure to obtain such would not have a material adverse effect on the
Company and its Subsidiaries taken as a whole;
(viii) The Company has full legal right, corporate power and
authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed
and delivered by the Company;
(ix) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description of the
Stock contained in the Prospectus; and all of the issued shares of
capital stock of each Subsidiary of the Company have been duly and
validly authorized and issued, are fully paid and non-assessable; the
Company owns all of the shares of capital stock of each Subsidiary of
the Company;
(x) The unissued Company Shares to be issued and sold to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued and fully paid and
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non-assessable; and no preemptive right, co-sale right, registration
right, right of first refusal or other similar right of shareholders
exists with respect to any of the Company Shares or the issuance and
sale thereof other than those that have been expressly waived prior to
the date hereof and those that will automatically expire upon the
consummation of the transactions contemplated by this Agreement, and
will conform to the description of the Stock contained in the
Prospectus;
(xi) The issue and sale of the Company Shares hereunder and the
compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its Subsidiaries is a party
or by which the Company or any of its Subsidiaries is bound or to
which any of the property or assets of the Company or any of its
Subsidiaries is subject (in either case that is material to the
Company and its Subsidiaries, taken as a whole), nor will such action
result in any violation of the provisions of the Articles of
Incorporation or By-laws of the Company or any of its Subsidiaries or
any statute or any order, rule or regulation applicable to the Company
or its Subsidiaries of any court or governmental agency or body having
jurisdiction over the Company or any of its Subsidiaries or any of
their properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Company Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under the Act
of the Company Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state or
foreign securities or Blue Sky laws in connection with the purchase
and distribution of the Company Shares by the Underwriters;
(xii) Neither the Company nor any of its Subsidiaries is in
violation of its Articles of Incorporation or By-laws or in default in
the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound;
(xiii) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, under the caption
"Underwriting", insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate, complete and
fair;
(xiv) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its Subsidiaries is a party or of which any property of the Company
or any of its Subsidiaries is the subject that, if determined
adversely to the Company or any of its Subsidiaries, would
individually or in the aggregate have a material adverse effect on the
current or future consolidated financial position, shareholders'
equity or results of operations of the Company and its Subsidiaries;
and, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened
by others;
(xv) The Company is not and, after giving effect to the offering
and sale of the Company Shares, will not be an "investment company" or
an entity "controlled" by an
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"investment company", as such terms are defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act");
(xvi) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes;
(xvii) Arthur Andersen LLP, who have certified certain financial
statements of the Company and its Subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of
the Commission thereunder;
(xviii) The Company owns or possesses adequate rights to use all
patents, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names, copyrights and other
intellectual property rights that are necessary to conduct its
business as described in the Prospectus; the expiration of any
patents, patent rights, trade secrets, trademarks, service marks,
trade names, copyrights or other intellectual property rights would
not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of
the Company; the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of
the Company by others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade
names, copyrights or other intellectual property rights; and the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with
respect to any patent, patent rights, inventions, trade secrets, know-
how, trademarks, service marks, trade names, copyrights or other
intellectual property rights that, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a
material adverse effect upon the Company's business, financial
condition or results of operations;
(xix) Except as provided below, each director, officer and
shareholder and other security holder of the Company has entered into
a lock-up agreement pursuant to which such person has agreed as
follows:
For a period of 180 days after the date of the Prospectus for the
public offering (the "Lock-Up Period"), not to offer, sell,
contract to sell or otherwise dispose of, loan, pledge or grant
any rights with respect to (collectively, a "Disposition") any
securities of the Company that are substantially similar to the
Common Stock including, but not limited to, any securities that
are convertible into or exchangeable for, or that represent the
right to receive, shares of Common Stock or any such substantially
similar securities (collectively, "Securities"), now owned or
hereafter acquired directly by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of
disposition, otherwise than (i) as a bona fide gift or gifts in
private transactions, by will or by intestacy, provided the donee
or donees thereof agree in writing to be bound by the terms of the
Lock-Up Agreement, (ii) as a distribution to partners, retired
partners or the estates of such partners or retired partners or
shareholders of such security holder, provided that the
distributees thereof agree in writing to be bound by the terms of
the Lock-Up Agreement or (iii) with the prior written consent of
the Representatives. The foregoing restriction is expressly agreed
to
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<PAGE>
preclude the holder of the Securities from engaging in any hedging
or other transaction that is designed to or reasonably expected to
lead to or result in a Disposition of Securities during the Lock-
Up Period even if such Securities would be disposed of by someone
other than the security holder. Such prohibited hedging or other
transactions would include, without limitation, any short sale
(whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option)
with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from
Securities.
Each director, officer, shareholder or other security holder
(including each holder of an option to purchase capital stock) of the
Company that has not entered into a lock-up agreement as described
above is a party to a market stand-off agreement with the Company (a
"Market Stand-Off Agreement");
(xx) Except as provided in the Registration Rights Agreement,
dated February 26, 1997, among the Company and the parties listed on
Exhibit A attached thereto, the Company has not granted or agreed to
grant any registration rights, including "piggyback rights", to any
person or entity; and
(xxi) The Shares have been approved for quotation on the National
Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ").
(b) Each of the Selling Shareholders severally and not jointly
represents and warrants to, and agrees with, each of the Underwriters and
the Company that:
(i) All consents, approvals, authorizations and orders
necessary for the execution and delivery by such Selling Shareholder
of this Agreement, the Power of Attorney and the Custody Agreement
hereinafter referred to, and for the sale and delivery of the Shares
to be sold by such Selling Shareholder hereunder, have been obtained;
and such Selling Shareholder has full right, power and authority to
enter into this Agreement, the Power of Attorney and the Custody
Agreement and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Shareholder hereunder;
(ii) The sale of the Shareholder Shares to be sold by such
Selling Shareholder hereunder and the compliance by such Selling
Shareholder with all of the provisions of this Agreement, the Power of
Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of,
or constitute a default under, to such Selling Shareholder's
knowledge, any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which such Selling Shareholder is a
party or by which such Selling Shareholder is bound, or to which any
of the property or assets of such Selling Shareholder is subject, nor
will such action result in any violation of the provisions of the
Articles of Incorporation or By-laws of such Selling Shareholder if
such Selling Shareholder is a corporation, the Partnership Agreement
of such Selling Shareholder if such Selling Shareholder is a
partnership, or any statute or any order, rule or regulation
applicable to such Selling Shareholder of any court or governmental
agency or body having jurisdiction over such Selling Shareholder or
the property of such Selling Shareholder; and no consent, approval,
authorization, order, registration or qualification of or with any
court
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<PAGE>
or governmental agency or body is required for the sale of the
Shareholder Shares or the consummation by the Selling Shareholders of
the transactions contemplated by this Agreement, except the
registration under the Act of the Shareholder Shares and such
consents, approvals, authorizations, registrations or qualifications
as may be required under state or foreign securities or Blue Sky laws
in connection with the purchase and distribution of the Shareholder
Shares by the Underwriters;
(iii) Such Selling Shareholder has, and immediately prior to
each Time of Delivery (as defined in Section 4 hereof) such Selling
Shareholder will have, good and valid title to the Shareholder Shares
to be sold by such Selling Shareholder hereunder, free and clear of
all liens, encumbrances, equities or claims; and, upon delivery of
such Shareholder Shares and payment therefor pursuant hereto and
thereto, good and valid title to such Shares, free and clear of all
liens, encumbrances, equities or claims, will pass to the several
Underwriters;
(iv) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, such selling shareholder will not offer, sell, contract to
sell or otherwise dispose of, except as provided hereunder, any
securities of the Company that are substantially similar to the
Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other
than pursuant to employee stock option plans existing on, or upon the
conversion or exchange of convertible or exchangeable securities
outstanding as of, the date of this Agreement), without the prior
written consent of Goldman, Sachs & Co., on behalf of the
Representatives;
(v) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action that is designed to or that has
constituted or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the
Registration Statement, the Preliminary Prospectus dated May 27, 1997,
the Prospectus or any amendment or supplement thereto are made in
reliance upon and in conformity with written information furnished to
the Company by such Selling Shareholder expressly for use therein,
such Preliminary Prospectus and the Registration Statement did, and
the Prospectus and any further amendments or supplements to the
Registration Statement and the Prospectus, when they become effective
or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder and will not, insofar as it
related to such Selling Shareholder, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Shareholder will deliver to you prior to or
at the first Time of Delivery (as hereinafter defined) a properly
completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department
regulations in lieu thereof);
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<PAGE>
(viii) Certificates in negotiable form representing all of the
Shares to be sold by such Selling Shareholder hereunder have been
placed in custody under a Custody Agreement, in the form heretofore
furnished to you (the "Custody Agreement"), duly executed and
delivered by such Selling Shareholder to Boston Equiserve L.P., as
custodian (the "Custodian"), and such Selling Shareholder has duly
executed and delivered a Power of Attorney, in the form heretofore
furnished to you (the "Power of Attorney"), appointing the persons
indicated in Schedule II hereto, and each of them, as such Selling
Shareholder's attorneys-in-fact (the "Attorneys-in-Fact") with
authority to execute and deliver this Agreement on behalf of such
Selling Shareholder, to determine the purchase price to be paid by the
Underwriters to the Selling Shareholders as provided in Section 2
hereof, to authorize the delivery of the Shares to be sold by such
Selling Shareholder hereunder and otherwise to act on behalf of such
Selling Shareholder in connection with the transactions contemplated
by this Agreement and the Custody Agreement; and
(ix) The Shareholder Shares represented by the certificates held
in custody for such Selling Shareholder under the Custody Agreement
are subject to the interests of the Underwriters hereunder; the
arrangements made by such Selling Shareholder for such custody, and
the appointment by such Selling Shareholder of the Attorneys-in-Fact
by the Power of Attorney, are to that extent irrevocable; the
obligations of the Selling Shareholders hereunder shall not be
terminated by operation of law, whether by the death or incapacity of
any individual Selling Shareholder or, in the case of an estate or
trust, by the death or incapacity of any executor or trustee or the
termination of such estate or trust, or in the case of a partnership
or corporation, by the dissolution of such partnership or corporation,
or by the occurrence of any other event; if any individual Selling
Shareholder or any such executor or trustee should die or become
incapacitated, or if any such estate or trust should be terminated, or
if any such partnership or corporation should be dissolved, or if any
other such event should occur, before the delivery of the Shares
hereunder, certificates representing the Shares shall be delivered by
or on behalf of the Selling Shareholders in accordance with the terms
and conditions of this Agreement and of the Custody Agreements; and
actions taken by the Attorneys-in-Fact pursuant to the Powers of
Attorney shall be as valid as if such death, incapacity, termination,
dissolution or other event had not occurred, regardless of whether or
not the Custodian, the Attorneys-in-Fact, or any of them, shall have
received notice of such death, incapacity, termination, dissolution or
other event.
2. Subject to the terms and conditions herein set forth, (a) the Company
and each of the Selling Shareholders agree, severally and not jointly, to sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company and each of the Selling Shareholders,
at a purchase price per share of $____, the number of Firm Shares (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
the aggregate number of Firm Shares to be sold by the Company and each of the
Selling Shareholders as set forth opposite their respective names in Schedule II
hereto by a fraction, the numerator of which is the aggregate number of Firm
Shares to be purchased by such Underwriter as set forth opposite the name of
such Underwriter in Schedule I hereto and the denominator of which is the
aggregate number of Firm Shares to be purchased by all of the Underwriters from
the Company and all of the Selling Shareholders hereunder, and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at the purchase price per share set forth in clause
(a) of this Section 2, that portion of the number of Optional Shares as to which
such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of Optional
Shares by a fraction the numerator of which is the maximum number of Optional
Shares that such Underwriter is entitled to
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<PAGE>
purchase as set forth opposite the name of such Underwriter in Schedule I hereto
and the denominator of which is the maximum number of Optional Shares that all
of the Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 360,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement and
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in
such names as Goldman, Sachs & Co. may request upon at least forty-eight
hours' prior notice to the Company and the Selling Shareholders shall be
delivered by or on behalf of the Company and the Selling Shareholders to
Goldman, Sachs & Co., through the facilities of The Depository Trust
Company ("DTC"), for the account of such Underwriter, against payment by or
on behalf of such Underwriter of the purchase price therefor by wire
transfer to the Company and the Custodian, as their interests may appear,
in immediately available funds. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at
least twenty-four hours prior to the Time of Delivery (as defined below)
with respect thereto at the office of DTC or its designated custodian (the
"Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 9:30 a.m., New York City time, on
________, 1997 on such other time and date as Goldman, Sachs & Co., the
Company and the Selling Shareholders may agree upon in writing, and, with
respect to the Optional Shares, 9:30 a.m., New York City time, on the date
specified by Goldman, Sachs & Co. in the written notice given by Goldman,
Sachs & Co. of the Underwriters' election to purchase such Optional Shares,
or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares
is herein called the "First Time of Delivery", such time and date for
delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date
for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(j) hereof, will be delivered at the
offices of Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200
Geng Road, Palo Alto, California 94303 (the "Closing Location"), and the
Shares will be delivered at the Designated Office, all at each Time of
Delivery. A meeting will be held at the Closing Location at 3:00 p.m., New
York City time, on the New York Business Day next preceding each Time of
Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review
by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in New York are
generally authorized or obligated by law or executive order to close.
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5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus that shall be reasonably disapproved by you promptly after
reasonable notice thereof; to advise you, promptly after it receives notice
thereof, of the time when any amendment to the Registration Statement has
been filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish you copies thereof; to
advise you, promptly after it receives notice thereof, of the issuance by
the Commission of any stop order or of any order preventing or suspending
the use of any Preliminary Prospectus or prospectus, of the suspension of
the qualification of the Shares for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such purpose, or
of any request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information; and, in
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to
obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) To furnish the Underwriters with copies of the Prospectus in such
quantities as you may from time to time reasonably request, and, if the
delivery of a prospectus is required by law at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time any
events shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary during such period to amend or
supplement the Prospectus in order to comply with the Act, to notify you
and upon your request to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as you may from
time to time reasonably request of an amended Prospectus or a supplement to
the Prospectus that will correct such statement or omission or effect such
compliance, and in case any Underwriter is required by law to deliver a
prospectus in connection with sales of any of the Shares at any time nine
months or more after the time of issue of the Prospectus, upon your request
but at the expense of such Underwriter, to prepare and deliver to such
Underwriter as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its security holders as soon as
practicable, but in any event not later than the 45th day following the
end of the fiscal quarter first occurring after the first anniversary of
the effective date of the Registration Statement, an earnings statement of
the Company and its subsidiaries (which need not be audited) complying with
Section 11(a) of the Act
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and the rules and regulations of the Commission thereunder (including, at
the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell, register with the Commission (other than on
Form S-8 or any successor form), or otherwise dispose of, directly or
indirectly, except as provided hereunder, any securities of the Company
that are substantially similar to the Shares, including but not limited to
any securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than pursuant to employee stock option plans or employee
stock purchase plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement, and the issuance of securities in connection with mergers,
acquisitions of assets, reclassifications and other transactions not
primarily for equity financing purposes, provided that the number of shares
or other securities issued in connection with such mergers, acquisitions of
assets, reclassifications and other transactions shall not exceed ten
percent (10%) of the number of shares of Common Stock of the Company
outstanding on the date of issuance and, provided further, that all persons
that are issued such shares or other securities shall enter a lock-up
agreement in the form described Section 1(a)(xix) of this Agreement),
without the prior written consent of Goldman, Sachs & Co., on behalf of the
Representatives (which consent shall not be unreasonably withheld);
(f) To furnish to its shareholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, shareholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, for a period of three years after the effective date of
the Registration Statement, as soon as practicable after the end of each of
the first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you at your request copies of all
periodic and special reports furnished to shareholders of the Company, and
to furnish to you at your request (i) copies of any reports and financial
statements furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company is
listed; and (ii) such additional publicly available information concerning
the business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its shareholders generally or to the
Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under
the caption "Use of Proceeds";
(i) To file with the Commission such reports on Form SR as may be
required by Rule 463 under the Act; and
(j) To not waive its rights under any Market Stand-Off Agreements
without the prior written consent of Goldman Sachs & Co., on behalf of the
Representatives;
6. The Company and each of the Selling Shareholders covenant and agree
with one another and with the several Underwriters that (a) the Company will pay
or cause to be paid the following: (i) the
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fees, disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
the Agreement among Underwriters, this Agreement, the Selling Agreements, the
Blue Sky Memorandum, closing documents (including any compilations thereof) and
any other documents in connection with the offering, purchase, sale and delivery
of the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
5(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky surveys; (iv) all fees and expenses in connection with listing the
Shares on the NASDAQ; (v) the filing fees incident to, and the reasonable fees
and disbursements of counsel for the Underwriters in connection with, securing
any required review by the National Association of Securities Dealers, Inc. of
the terms of the sale of the Shares; (vi) the cost of preparing stock
certificates; (vii) the cost and charges of any transfer agent or registrar; and
(viii) all other costs and expenses incident to the performance of its
obligations hereunder that are not otherwise specifically provided for in this
Section; and (b) such Selling Shareholder will pay or cause to be paid all costs
and expenses incident to the performance of such Selling Shareholder's
obligations hereunder that are not otherwise specifically provided for in this
Section, including (i) any fees and expenses of counsel for such Selling
Shareholder, (ii) such Selling Shareholder's pro rata share of the fees and
expenses of the Attorneys-in-Fact and the Custodian and (iii) all expenses and
taxes incident to the sale and delivery of the Shares to be sold by such Selling
Shareholder to the Underwriters hereunder. Except as provided in this Section,
and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs
and expenses, including the fees of their counsel, stock transfer taxes on
resale of any of the Shares by them, and any advertising expenses connected with
any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Shareholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Shareholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the Commission; and
all requests for additional information on the part of the Commission shall
have been complied with to your reasonable satisfaction;
(b) Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
counsel for the Underwriters, shall have furnished to you such opinion or
opinions, dated such Time of Delivery, with respect to the matters covered
in paragraphs (i), (ii), (vi), (x) and (xii) of subsection (c) below, as
well as such other related matters as you may reasonably request, and such
counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(c) Brobeck, Phleger & Harrison LLP, counsel for the Company, shall
have furnished to you their written opinion, dated such Time of Delivery,
in form and substance satisfactory to you, to the effect that:
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(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the state
of California, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth
under the caption "Capitalization" in the Prospectus, and all of the
issued shares of capital stock of the Company (including the Shares
being delivered at such Time of Delivery) have been duly and validly
authorized and issued and are fully paid and non-assessable; and the
Shares conform in all material respects to the description of the
Stock contained in the Prospectus;
(iii) To our knowledge, the Company has been duly qualified as a
foreign corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of failure to be so qualified in any such jurisdiction (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of
fact upon certificates of officers of the Company, provided that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(iv) Each Significant Subsidiary of the Company as set forth on
Schedule IV hereto has been duly incorporated and is validly existing
as a corporation in good standing under the laws of its jurisdiction
of incorporation; and all of the issued shares of capital stock of
each such subsidiary have been duly and validly authorized and issued,
are fully paid and non-assessable, and are owned by the Company, free
and clear of all liens, encumbrances, equities or claims (such counsel
being entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact upon
certificates of officers of the Company or its subsidiaries, provided
that such counsel shall state that they believe that both you and they
are justified in relying upon such opinions and certificates);
(v) To such counsel's knowledge and other than as set forth in
the Prospectus, there are no legal or governmental proceedings pending
to which the Company or any of its subsidiaries is a party or of which
any property of the Company or any of its subsidiaries is the subject
that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the current or future consolidated financial
position, shareholders' equity or results of operations of the Company
and its subsidiaries; and, to such counsel's knowledge, no such
proceedings are threatened or contemplated by governmental authorities
or threatened by others;
(vi) This Agreement has been duly authorized, executed and
delivered by the Company;
(vii) The issue and sale of the Shares being delivered at such
Time of Delivery to be sold by the Company and the compliance by the
Company with all of the provisions of this Agreement and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a material breach or violation of any
of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is
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bound or to which any of the property or assets of the Company or any
of its subsidiaries is subject and which is material to the Company
and its subsidiaries, nor will such action result in any violation of
the provisions of the Articles of Incorporation or By-laws of the
Company or, to such counsel's knowledge, any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties;
(viii) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
is required for the issue and sale of the Shares or the consummation
by the Company of the transactions contemplated by this Agreement,
except the registration under the Act of the Shares, and such
consents, approvals, authorizations, registrations or qualifications
as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters;
(ix) Neither the Company nor any of its Significant Subsidiaries
is in violation of its Articles of Incorporation or By-laws or, to
such counsel's knowledge, in default in the performance or observance
of any material obligation, agreement, covenant or condition contained
in any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it or
any of its properties may be bound;
(x) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, fairly summarize in
all material respects the information called for;
(xi) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act;
(xii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements,
including the notes thereto, and other financial and accounting data
and schedules therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder; and
they do not know of any contracts or other documents of a character
required to be filed as an exhibit to the Registration Statement or
required to be described in the Registration Statement or the
Prospectus that are not filed or described as required. In addition
to the matters set forth above, such opinion shall also include a
statement to the effect that (i) such counsel believes that the
Registration Statement and the Prospectus (except for financial
statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion), as of the Time of
Delivery, complied as to form in all material respects with the
requirements of the Act and the applicable rules and regulations of
the Commission thereunder; and (ii) such counsel has no reason to
believe that (except for financial statements and
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<PAGE>
schedules and other financial data contained in the Registration
Statement, as to which such counsel need express no opinion or belief)
the Registration Statement, as of the Time of Delivery, contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading or that (except for financial statements and
schedules and other financial data contained in the Prospectus, as to
which such counsel need express no opinion or belief) the Prospectus,
as of its date or at the date hereof, contained or contains any untrue
statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. With
respect to such statement, Brobeck, Phleger & Harrison LLP may state
that their belief is based upon the procedures set forth therein, but
is without independent check and verification.
(d) The respective counsel for each of the Selling Shareholders, as
indicated in Schedule II hereto, each shall have furnished to you their
written opinion with respect to each of the Selling Shareholders for whom
they are acting as counsel, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) A Power of Attorney and a Custody Agreement have been duly
executed and delivered by such Selling Shareholder and constitute
valid and binding agreements of such Selling Shareholder in accordance
with their terms;
(ii) This Agreement has been duly executed and delivered by or
on behalf of such Selling Shareholder; and the sale of the Shares to
be sold by such Selling Shareholder hereunder and thereunder and the
compliance by such Selling Shareholder with all of the provisions of
this Agreement, the Power of Attorney and the Custody Agreement and
the consummation of the transactions herein and therein contemplated
will not conflict with or result in a breach or violation of any terms
or provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel to which such Selling Shareholder
is a party or by which such Selling Shareholder is bound, or to which
any of the property or assets of such Selling Shareholder is subject,
nor will such action result in any violation of the provisions of the
Articles of Incorporation or By-laws of such Selling Shareholder if
such Selling Shareholder is a corporation, the Partnership Agreement
of such Selling Shareholder if such Selling Shareholder is a
partnership, or, to such counsel's knowledge, any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over such Selling Shareholder or the property of such
Selling Shareholder;
(iii) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement in connection with the
Shares to be sold by such Selling Shareholder hereunder, except such
as have been obtained under the Act and such as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of such Shares by the Underwriters;
(iv) Immediately prior to such Time of Delivery, such Selling
Shareholder had good and valid title to the Shares to be sold at such
Time of Delivery by such Selling Shareholder under this Agreement,
free and clear of all liens, encumbrances, equities or claims, and
full right, power and authority to sell, assign, transfer and deliver
the Shares to be sold by such Selling Shareholder hereunder and
thereunder; and
(v) Good and valid title to such Shares, free and clear of all
liens, encumbrances, equities or claims, has been transferred to each
of the several Underwriters
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who have purchased such Shares in good faith and without notice of any
such lien, encumbrance, equity or claim or any other adverse claim
within the meaning of the Uniform Commercial Code.
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction outside the
United States and in rendering the opinion in subparagraph (iv) such
counsel may rely upon a certificate of such Selling Shareholder in
respect of matters of fact as to ownership of, and liens,
encumbrances, equities or claims on the Shares sold by such Selling
Shareholder, provided that such counsel shall state that they believe
that both you and they are justified in relying upon such certificate;
(e) Blakely Sokoloff Taylor & Zafman shall have furnished to you their
written opinion, dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) such counsel represents the Company in connection with
advising regarding U.S. Patent Number 5,546,452 (the "Geotel Patent")
and in connection with review of patent applications filed on behalf
of the Company by other firms;
(ii) such counsel is familiar with the technology used by the
Company in its business and the manner of its use and has read the
portions of the Registration Statement and the Prospectus entitled
"Risk Factors--GeoTel Litigation", "Risk Factors--Protection of
Intellectual Property", "Business--Intellectual Property" and
"Business--GeoTel Litigation" (collectively, the "Intellectual
Property Portion");
(iii) the Intellectual Property Portion contains accurate
descriptions of the Company's patent applications, issued and allowed,
and fairly summarizes the legal matters, documents and proceedings
related thereto;
(iv) such counsel has reviewed the Company's patent applications
filed in the United States and outside the United States (the
"Applications"); the Applications have been prepared and filed on
behalf of the Company in a workmanlike manner and in accordance with
all applicable patent laws and regulations, and all pending
Applications are being diligently pursued by the Company; the
inventions described in the Applications and any patents issuing
therefrom are properly assigned to the Company by an instrument in
writing, duly executed by the true inventors; any applicable annuities
or maintenance fees have been timely paid; to such counsel's
knowledge, no other entity or individual has any right or claim in any
of the Company's inventions, Applications or patents issuing
therefrom; and in such counsel's opinion each of the Applications
describes subject matter appropriate for a patent application under 35
U.S.C. 101; however, counsel has not undertaken any review of prior
art related to the patent and applications and, therefore, has not
offered any opinion regarding patentability of the technology
described therein under any other section of Title 35 of the Patent
Laws;
(v) such counsel is now aware of: (i) any pending or threatened
judicial or governmental proceeding relating to the Company's patent
rights, or (ii) any pending or threatened action, suit or claim by
others that the Company is infringing or otherwise violating any
patent rights except as disclosed in the Prospectus and, in addition,
counsel is aware the Company has received one communication from a
third-party during 1995. Counsel understands that the third-party did
not follow-up on this communication and the Company considers this
matter to be closed; and
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(vi) such counsel has no reason to believe that the information
contained in the Intellectual Property Portion of the Registration
Statement or the Prospectus, at the time it became effective,
contained any untrue statement of a material fact or omitted to state
any material fact necessary to make the statements therein not
misleading or that, at the Closing Date, the information in the
Intellectual Property Portion of the Prospectus contains any untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(f) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery, Arthur
Andersen LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory to
you, to the effect set forth in Annex I hereto;
(g) (i) Neither the Company nor any of its Subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its Subsidiaries or any change, or
any development involving a prospective change, in or affecting the general
affairs, management, financial position, shareholders' equity or results of
operations of the Company and its Subsidiaries, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in any such case
described in Clause (i) or (ii), is in the judgment of the Representatives
so material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares being
delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on NASDAQ; (ii) a
suspension or material limitation in trading in the Company's securities on
NASDAQ; (iii) a general moratorium on commercial banking activities
declared by either Federal or New York or California State authorities; or
(iv) the outbreak or escalation of hostilities involving the United States
or the declaration by the United States of a national emergency or war, if
the effect of any such event specified in this Clause (iv) in the judgment
of the Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered at
such Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(i) The Shares to be sold by the Company and the Selling Shareholders
at such Time of Delivery shall have been duly listed for quotation on
NASDAQ; and
(j) The Company and the Selling Shareholders shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of
officers of the Company and of the Selling Shareholders, respectively,
satisfactory to you as to the accuracy of the representations and
warranties of the Company and the Selling Shareholders, respectively,
herein at and as of such Time of Delivery, as to the performance by the
Company and the Selling Shareholders of all of their
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respective obligations hereunder to be performed at or prior to such Time
of Delivery, and as to such other matters as you may reasonably request,
and the Company shall have furnished or caused to be furnished certificates
as to the matters set forth in subsections (a), (g), (h) and (i) of this
Section, and as to such other matters as you may reasonably request.
8. (a) The Company and each of the Selling Shareholders listed on the
attached Schedule III and identified as Affiliate Shareholders (the
"Affiliate Shareholders"), jointly and severally, will indemnify and hold
harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal
or other expenses reasonably incurred by such Underwriter in connection
with investigating or defending any such action or claim as such expenses
are incurred; provided, however, that the Company and the Affiliate
Shareholders shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through Goldman, Sachs & Co. expressly for use therein; and
provided, further, that the Company shall not be liable to any Underwriter
under the indemnity agreement in this subsection (a) with respect to any
Preliminary Prospectus to the extent that any such loss, claim, damage or
liability of such Underwriter results from the fact that such Underwriter
sold Shares to a person as to whom it shall be established that there was
not sent or given, at or prior to the written confirmation of such sale, a
copy of the Prospectus or of the Prospectus as then amended or supplemented
in any case where such delivery is required by the Act if the Company had
previously furnished copies thereof in sufficient quantity to such
Underwriter and the loss, claim, damage or liability of such Underwriter
results from an untrue statement or omission of a material fact contained
in the Preliminary Prospectus that was identified in writing at such time
to such Underwriter and corrected in the Prospectus or in the Prospectus as
then amended or supplemented.
(b) Each of the Selling Shareholders listed on the attached Schedule
III and identified as Non-Affiliate Shareholders (the "Non-Affiliate
Shareholders"), will indemnify and hold harmless each Underwriter against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Selling Shareholder expressly
for use therein; and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred;
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provided, however, that such Non-Affiliate Shareholder shall not be liable
in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman,
Sachs & Co. expressly for use therein; and provided, further, that the
Company shall not be liable to any Underwriter under the indemnity
agreement in this subsection (b) with respect to any Preliminary Prospectus
to the extent that any such loss, claim, damage or liability of such
Underwriter results from the fact that such Underwriter sold Shares to a
person as to whom it shall be established that there was not sent or given,
at or prior to the written confirmation of such sale, a copy of the
Prospectus or of the Prospectus as then amended or supplemented in any case
where such delivery is required by the Act if the Company had previously
furnished copies thereof in sufficient quantity to such Underwriter and the
loss, claim, damage or liability of such Underwriter results from an untrue
statement or omission of a material fact contained in the Preliminary
Prospectus that was identified in writing at such time to such Underwriter
and corrected in the Prospectus or in the Prospectus as then amended or
supplemented.
(c) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company and each Selling Shareholder against any losses,
claims, damages or liabilities to which the Company or such Selling
Shareholder may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman,
Sachs & Co. expressly for use therein; and will reimburse the Company and
each Selling Shareholder for any legal or other expenses reasonably
incurred by the Company or such Selling Shareholder in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party shall not relieve it from any liability
that it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party (which shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses,
in each case subsequently incurred by such indemnified party, in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified
party, effect the settlement or compromise of, or
19
<PAGE>
consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party
is an actual or potential party to such action or claim) unless such
settlement, compromise or judgment (i) includes an unconditional release of
the indemnified party from all liability arising out of such action or
claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages
or liabilities (or actions in respect thereof) referred to therein, then
each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company and
the Selling Shareholders on the one hand and the Underwriters on the other
from the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law or if
the indemnified party failed to give the notice required under subsection
(d) above, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the
relative fault of the Company and the Selling Shareholders on the one hand
and the Underwriters on the other in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total net proceeds from
the offering of the Shares purchased under this Agreement (before deducting
expenses) received by the Company and the Selling Shareholders bear to the
total underwriting discounts and commissions received by the Underwriters
with respect to the Shares purchased under this Agreement, in each case as
set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied
by the Company or the Selling Shareholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The Company, each of the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (e) were determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or
by any other method of allocation that does not take account of the
equitable considerations referred to above in this subsection (e). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to
above in this subsection (e) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Underwriters' obligations in this
subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
20
<PAGE>
(f) The liability of each Selling Shareholder under the indemnity and
reimbursement agreements contained in the provisions of Sections 8 and 11
hereof shall be limited to an amount equal to the net proceeds of the
public offering of the Shares sold by such Selling Shareholder to the
Underwriters. The Company and the Selling Shareholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they
each shall be responsible, including, without limitation, allocating
between the Company and the Selling Shareholders the liability resulting in
a breach of the representations and warranties of the Company and the
Selling Shareholders hereunder.
(g) The obligations of the Company and the Selling Shareholders under
this Section 8 shall be in addition to any liability that the Company and
the respective Selling Shareholders may otherwise have and shall extend,
upon the same terms and conditions, to each officer and employee of, and
each person, if any, who controls any Underwriter within the meaning of the
Act; and the obligations of the Underwriters under this Section 8 shall be
in addition to any liability that the respective Underwriters may otherwise
have and shall extend, upon the same terms and conditions, to each officer
and director of the Company (including any person who, with his or her
consent, is named in the Registration Statement as about to become a
director of the Company) and to each person, if any, who controls the
Company or any Selling Shareholder within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares that it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six
hours after such default by any Underwriter you do not arrange for the
purchase of such Shares, then the Company and the Selling Shareholders
shall be entitled to a further period of thirty-six hours within which to
procure another party or other parties satisfactory to you to purchase such
Shares on such terms. In the event that, within the respective prescribed
periods, you notify the Company and the Selling Shareholders that you have
so arranged for the purchase of such Shares, or the Company and the Selling
Shareholders notify you that they have so arranged for the purchase of such
Shares, you or the Company and the Selling Shareholders shall have the
right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in
the Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus that in your opinion may thereby
be made necessary. The term "Underwriter" as used in this Agreement shall
include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to
such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company and the Selling Shareholders as provided in subsection (a) above,
the aggregate number of such Shares that remains unpurchased does not
exceed one-eleventh of the aggregate number of all of the Shares to be
purchased at such Time of Delivery, then the Company and the Selling
Shareholders shall have the right to require each non-defaulting
Underwriter to purchase the number of Shares that such Underwriter agreed
to purchase hereunder at such Time of Delivery and, in addition, to require
each non-defaulting Underwriter to purchase its pro rata share (based on
the number of Shares that such Underwriter agreed to purchase hereunder) of
the Shares of such defaulting Underwriter or Underwriters for which such
arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
21
<PAGE>
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company and the Selling Shareholders as provided in subsection (a) above,
the aggregate number of such Shares that remains unpurchased exceeds one-
eleventh of the aggregate number of all of the Shares to be purchased at
such Time of Delivery, or if the Company and the Selling Shareholders shall
not exercise the right described in subsection (b) above to require non-
defaulting Underwriters to purchase Shares of a defaulting Underwriter or
Underwriters, then this Agreement (or, with respect to the Second Time of
Delivery, the obligations of the Underwriters to purchase and of the
Company and the Selling Shareholders to sell the Optional Shares) shall
thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company or the Selling Shareholders, except for the
expenses to be borne by the Company and the Selling Shareholders and the
Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall
relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Shareholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Shareholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Shareholder, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Shareholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company and the Selling Shareholders as provided herein, the Company and each of
the Selling Shareholders pro rata (based on the number of Shares to be sold by
the Company and such Selling Shareholder hereunder) will reimburse the
Underwriters through you for all out-of-pocket expenses approved in writing by
you, including fees and disbursements of counsel, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and delivery of the
Shares not so delivered, but the Company and the Selling Shareholders shall then
be under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Shareholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Shareholder made or given by any
or all of the Attorneys-in-Fact for such Selling Shareholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to any Selling Shareholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Shareholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 8 (d) hereof
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire or telex
constituting such
22
<PAGE>
Questionnaire, which address will be supplied to the Company or the Selling
Shareholders by you upon request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Shareholders and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and each person who controls the Company, any Selling Shareholder or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters, the Company and
each of the Selling Shareholders. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in a form of Agreement among Underwriters (U.S. Version), the form of
which shall be submitted to the Company and the Selling Shareholders for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
23
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Shareholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Shareholder pursuant to a validly existing and
binding Power of Attorney that authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
Genesys Telecommunications Laboratories, Inc.
By:
---------------------------------
Name:
Title:
Gregory Shenkman
Alec Miloslavsky
Bruncor, Inc.
By:
---------------------------------
Name:
Title:
As Attorney-in-Fact acting on behalf of each of
the Selling Shareholders named in Schedule II to
this Agreement.
Accepted as of the date hereof:
Goldman, Sachs & Co.
Lehman Brothers Inc.
Robertson, Stephens & Company LLC
By:
-------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares to be Maximum Option
Underwriter Purchased Exercised
- ----------- ----------------- --------------
<S> <C> <C>
Goldman, Sachs & Co.
Lehman Brothers Inc.
Robertson, Stephens & Company LLC
--------- -------
Total 2,400,000 360,000
========= =======
</TABLE>
<PAGE>
SCHEDULE II
-----------
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number Sold if
of Firm Shares Maximum Option
Underwriter to be Sold Exercised
- ----------- -------------- ------------------
<S> <C> <C>
The Company
The Selling Shareholders/1/: 2,000,000 360,000
Bruncor, Inc. 200,000 --
Gregory Shenkman 100,000 --
Alec Miloslavsky 100,000 --
--------- -------
Total 2,400,000 360,000
========= =======
</TABLE>
- ----------------------
/1/ Each Selling Shareholder is represented by Brobeck, Phleger & Harrison LLP,
Two Embarcadero Place, 2200 Geng Road, Palo Alto, 94303, and has appointed
Gregory Shenkman and Michael J. McClosky, and each of them, as the
Attorneys-in-Fact for such Selling Shareholder.
<PAGE>
SCHEDULE III
------------
Affiliate Shareholders
- ----------------------
Gregory Shenkman
Alec Miloslavsky
Non-Affiliate Shareholders
- --------------------------
Bruncor, Inc.
<PAGE>
SCHEDULE IV
-----------
Significant Subsidiaries
- ------------------------
Genesys Telecommunications Laboratories - Europe Limited, a UK corporation
Genesys Laboratories Canada Inc., a New Brunswick business corporation
<PAGE>
ANNEX I
DESCRIPTION OF COMFORT LETTER
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants shall
furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to the
Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to
form in all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim
financial statements, selected financial data, pro forma financial
information and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have
been separately furnished to the representatives of the Underwriters
(the "Representatives");
(iii) They have made a review in accordance with standards established by
the American Institute of Certified Public Accountants of the
unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in
the Prospectus as indicated in their reports thereon copies of which
have been separately furnished to the Representatives; and on the
basis of specified procedures including inquiries of officials of the
Company who have responsibility for financial and accounting matters
regarding whether the unaudited condensed consolidated financial
statements referred to in paragraph (v)(A)(i) below comply as to form
in all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations, nothing
came to their attention that caused them to believe that the unaudited
condensed consolidated financial statements do not comply as to form
in all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations;
(iv) They have compared the information in the Prospectus under selected
captions with the disclosure requirements of Regulation S-K and on the
basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all material
respects with the disclosure requirements of Items 301, 302, 402 and
503(d), respectively, of Regulation S-K;
(v) On the basis of limited procedures, not constituting an examination in
accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus,
inquiries of officials of the Company and its subsidiaries responsible
for financial and accounting matters and such other inquiries and
A-1
<PAGE>
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of
the Act and the related published rules and regulations, or
(ii) any material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included in the
Prospectus for them to be in conformity with generally accepted
accounting principles;
(B) any other unaudited income statement data and balance sheet items
included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from
which such data and items were derived, and any such unaudited
data and items were not determined on a basis substantially
consistent with the basis for the corresponding amounts in the
audited consolidated financial statements included in the
Prospectus;
(C) the unaudited financial statements that were not included in the
Prospectus but from which were derived any unaudited condensed
financial statements referred to in Clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in
all material respects with the applicable accounting requirements
of the Act and the published rules and regulations thereunder or
the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the date
of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon
exercise of options and stock appreciation rights, upon earn-outs
of performance shares and upon conversions of convertible
securities, in each case that were outstanding on the date of the
latest financial statements included in the Prospectus) or any
increase in the consolidated long-term debt of the Company and
its subsidiaries, or any decreases in consolidated net current
assets or shareholders' equity or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in
the latest balance sheet included in the Prospectus, except in
each case for changes, increases or decreases that the Prospectus
discloses have occurred or may occur or that are described in
such letter; and
(F) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in
Clause (E) there were any decreases in consolidated net revenues
or operating profit or the total or per share amounts of
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives,
A-2
<PAGE>
in each case as compared with the comparable period of the
preceding year and with any other period of corresponding length
specified by the Representatives, except in each case for
decreases or increases that the Prospectus discloses have
occurred or may occur or that are described in such letter; and
(vi) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in
paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives, which are derived from the general accounting
records of the Company and its subsidiaries, which appear in the
Prospectus, or in Part II of, or in exhibits and schedules to, the
Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial
information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
A-3
<PAGE>
EXHIBIT 4.9
WC-2
WARRANT TO PURCHASE
SHARES OF SERIES C PREFERRED STOCK
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
THIS CERTIFIES THAT, for value received, Intel Corporation (the
"Investor") is entitled to purchase, on the terms hereof, 44,965 shares of
Series C Preferred Stock of Genesys Telecommunications Laboratories, Inc., a
California corporation (the "Company"), with the designations, powers,
preferences, rights, qualifications, limitations and restrictions set forth in
the Amended and Restated Articles of Incorporation attached as Exhibit A to the
Series C Preferred Stock and Warrant Purchase Agreement dated February ___, 1997
(the "Agreement"), at a price per share set forth in Section 1.2 below, subject
to adjustment as provided herein.
This Warrant is issued pursuant to the provisions of the Agreement and
shall be subject to, and the Investor shall be bound by, all the terms,
conditions and provisions of the Agreement. Additionally, the following terms
shall apply to this Warrant:
1. Exercise of Warrant.
-------------------
The terms and conditions upon which this Warrant may be exercised, and
the Series C Preferred Stock covered hereby (the "Warrant Stock") may be
purchased, are as follows:
1.1 Vesting. This Warrant may only be exercised for that number of
-------
shares of Series C Preferred Stock which have vested pursuant to the vesting
schedule below, but in no case may this Warrant be exercised later than the
close of business on
* Confidential Treatment Requested. Confidential portion has been filed
separately with the Securities and Exchange Commission.
<PAGE>
February 26, 2000 (the "Termination Date"), after which time this Warrant shall
terminate and shall be void and of no further force or effect.
<TABLE>
<CAPTION>
Number of Shares of Milestone
Series C Preferred Stock Vesting Event
- ------------------------ -------------
<S> <C>
* *
* *
* *
* *
44,965 *
</TABLE>
1.2 Purchase Price. The per share purchase price for the shares of
--------------
Series C Preferred Stock to be issued upon exercise of this Warrant shall be
equal to 110% of the fair market value of such shares on the date that such
shares vest pursuant to the vesting schedule set forth in Section 1.1 above,
subject to adjustment as provided herein.
1.3 Method of Exercise.
------------------
a. The exercise of the purchase rights evidenced by this
Warrant shall be effected by (a) the surrender of the Warrant, together with a
duly executed copy of the form of subscription attached hereto, to the Company
at its principal offices and (b) the delivery of the purchase price by check or
bank draft payable to the Company's order or by wire transfer to the Company's
account for the number of shares for which the purchase rights hereunder are
being exercised or any other form of consideration approved by the Company's
Board of Directors.
b. Net Issue Exercise. In lieu of exercising this Warrant, the
------------------
Investor may elect to receive shares equal to the value of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with notice of such election in which event the
Company shall issue to the Investor a number of shares of Series C Preferred
Stock computed using the following formula:
2.
* Confidential Treatment Requested
<PAGE>
X = Y(A - B)
--------
A
Where: X = The number of shares to be issued to the Investor.
Y = The number of Shares purchasable under this Warrant at
the time of such exercise.
A = The fair market value of one share of Series C
Preferred Stock at the time of such exercise.
B = The Warrant Price (as adjusted to the date of such
calculation).
For purposes of this Paragraph 3(b), fair market value of the Preferred Stock
shall be determined by the Company's Board of Directors, acting in good faith
upon a review of all factors it deems appropriate. The foregoing shall be
subject to any applicable adjustments made pursuant to Section 2 hereof.
1.4 Issuance of Shares. Upon the exercise of the purchase rights
------------------
evidenced by this Warrant, a certificate or certificates for the purchased
shares shall be issued to the Investor as soon as practicable.
2. Certain Adjustments.
-------------------
2.1 Conversion of Series C Preferred Stock. Should all of the
--------------------------------------
Company's outstanding Series C Preferred Stock be, at any time prior to the
expiration of this Warrant, converted into shares of the Company's Common Stock
in accordance with the Company's Articles of Incorporation, as amended and/or
restated and effective immediately prior to the conversion of all of the
Company's Series C Preferred Stock (the "Articles"), then this Warrant shall
immediately become exercisable for that number of shares of the Company's Common
Stock equal to the number of shares of Common Stock which would have been
received if this Warrant had been exercised in full and the Series C Preferred
Stock received thereupon had been simultaneously converted into Common Stock
immediately prior to such event. The per share purchase price shall be
immediately adjusted to equal the quotient obtained by dividing (x) the
aggregate purchase price of the number of shares of Series C Preferred Stock for
which this Warrant was exercisable immediately prior to such conversion by (y)
the number of shares of Common Stock for which this Warrant is exercisable
immediately after such conversion.
2.2 Common Stock Dividends. If at any time following the conversion
----------------------
of all the outstanding Series C Preferred Stock and prior to the expiration of
this Warrant, there shall be an event with respect to the Common Stock of a type
referred to
3.
<PAGE>
in Section 2.4 or 2.5, then the provisions of such Sections with respect to
Series C Preferred Stock shall apply mutatis mutandis to the Common Stock
------- --------
issuable upon the exercise of this Warrant and the Purchase Price thereof.
2.3 Mergers, Consolidations or Sale of Assets. If at any time there
-----------------------------------------
shall be a capital reorganization (other than a combination or subdivision of
Warrant Stock otherwise provided for herein), or a merger or consolidation of
the Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such reorganization, merger, consolidation or sale, lawful
provision shall be made so that the Investor shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified in this
Warrant and upon payment of the purchase price, the number of shares of stock or
other securities or property of the Company or the successor corporation
resulting from such reorganization, merger, consolidation or sale, to which a
holder of the Series C Preferred Stock (or Common Stock issuable upon conversion
thereof) deliverable upon exercise of this Warrant would have been entitled
under the provisions of the agreement in such reorganization, merger,
consolidation or sale if this Warrant had been exercised immediately before that
reorganization, merger, consolidation or sale. In any such case, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Investor after the reorganization, merger,
consolidation or sale to the end that the provisions of this Warrant (including
adjustment of the purchase price then in effect and the number of shares of
Warrant Stock) shall be applicable after that event, as near as reasonably may
be, in relation to any shares or other property deliverable after that event
upon exercise of this Warrant.
2.4 Splits and Subdivisions. In the event the Company should at any
-----------------------
time or from time to time fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Series C Preferred Stock or the
determination of the holders of Series C Preferred Stock entitled to receive a
dividend or other distribution payable in additional shares of Series C
Preferred Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Series C
Preferred Stock (hereinafter referred to as the "Series C Equivalents") without
payment of any consideration by such holder for the additional shares of Series
C Preferred Stock or Series C Equivalents (including the additional shares of
Series C Preferred Stock issuable upon conversion or exercise thereof), then, as
of such record date (or the date of such distribution, split or subdivision if
no record date is fixed), the purchase price shall be appropriately decreased
and the number of shares of Warrant Stock shall be appropriately increased in
proportion to such increase of outstanding shares.
2.5 Combination of Shares. If the number of shares of Series C
---------------------
Preferred Stock outstanding at any time after the date hereof is decreased by a
combination of the outstanding shares of Series C Preferred Stock, the purchase
price
4.
<PAGE>
shall be appropriately increased and the number of shares of Warrant Stock shall
be appropriately decreased in proportion to such decrease in outstanding shares.
2.6 Adjustments for Other Distributions. In the event the Company
-----------------------------------
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 2.4, then, in each
such case for the purpose of this subsection 2.6, upon exercise of this Warrant
the holder hereof shall be entitled to a proportionate share of any such
distribution as though such holder was the holder of the number of shares of
Series C Preferred Stock of the Company into which this Warrant may be exercised
as of the record date fixed for the determination of the holders of Series C
Preferred Stock of the Company entitled to receive such distribution.
2.7 Certificate as to Adjustments. In the case of each adjustment or
-----------------------------
readjustment of the purchase price pursuant to this Section 2, the Company will
promptly compute such adjustment or readjustment in accordance with the terms
hereof and cause a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based
to be delivered to the holder of this Warrant. The Company will, upon the
written request at any time of the holder of this Warrant, furnish or cause to
be furnished to such holder a certificate setting forth:
(a) Such adjustments and readjustments;
(b) The purchase price at the time in effect; and
(c) The number of shares of Warrant Stock and the amount, if any,
of other property at the time receivable upon the exercise of the Warrant.
2.8 Notices of Record Date, etc. In the event of:
---------------------------
(a) Any taking by the Company of a record of the holders of any
class of securities of the Company for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a cash dividend
payable out of earned surplus at the same rate as that of the last such cash
dividend theretofore paid) or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right; or
(b) Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all of the assets of the Company to any other
person or any consolidation or merger involving the Company; or
5.
<PAGE>
(c) Any voluntary or involuntary dissolution, liquidation or winding-
up of the Company, the Company will mail to the holder of this Warrant at least
twenty (20) days prior to the earliest date specified therein, a notice
specifying:
(i) The date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right; and
(ii) The date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding-up is
expected to become effective and the record date for determining stockholders
entitled to vote thereon.
3. Fractional Shares. No fractional shares shall be issued in
-----------------
connection with any exercise of this Warrant. In lieu of the issuance of such
fractional share, the Company shall make a cash payment equal to the then fair
market value of such fractional share as determined in good faith by the
Company's Board of Directors.
4. Reservation of Series C Preferred Stock and Common Stock. The
--------------------------------------------------------
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Preferred Stock and Common Stock, solely for the purpose of
effecting the exercise of this Warrant such number of its shares of Series C
Preferred Stock (and Common Stock upon conversion of the Series C Preferred
Stock) as shall from time to time be sufficient to effect the exercise of this
Warrant; and if at any time the number of authorized but unissued shares of
Series C Preferred Stock or Common Stock shall not be sufficient to effect the
exercise of the entire Warrant and the conversion of the Series C Preferred
Stock thereafter, in addition to such other remedies as shall be available to
the holder of this Warrant, the Company will use its reasonable best efforts to
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Series C Preferred Stock or
Common Stock to such number of shares as shall be sufficient for such purposes.
5. Privilege of Stock Ownership. Prior to the exercise of this
----------------------------
Warrant, the Investor shall not be entitled, by virtue of holding this Warrant,
to any rights of a stockholder of the Company. Nothing in this Section 5,
however, shall limit the right of the Investor to participate in distributions
described in Section 2 hereof if the Investor later exercises this Warrant.
6. Limitation of Liability. Except as otherwise provided herein, in
-----------------------
the absence of affirmative action by the holder hereof to purchase the Warrant
Stock, no mere enumeration herein of the rights or privileges of the holder
hereof shall give rise to any liability of such holder for the purchase price or
as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
6.
<PAGE>
7. Transfers and Exchanges.
-----------------------
7.1 Except to the extent otherwise provided in the Agreement and
subject to compliance with applicable federal and state securities laws, this
Warrant and all rights hereunder are transferable in whole or in part by the
Investor to any person or entity reasonably acceptable to the Company, which
acceptance shall not be unreasonably withheld. The Investor will provide
written notice of such transfer to the Company, and if no written objection is
received by the Investor within ten (10) days after the date of notice, then
such transfer shall be deemed accepted by the Company. The transfer shall be
recorded on the books of the Company upon the surrender of this Warrant,
properly endorsed, to the Company at its principal offices and the payment to
the Company of all transfer taxes and other governmental charges imposed on such
transfer. In the event of a partial transfer, the Company shall issue to the
several holders one or more appropriate new warrants.
7.2 In the event of a partial exercise of this Warrant, the Company
shall issue an appropriate new warrant to the Investor.
7.3 All new warrants issued in connection with transfers, exchanges
or partial exercises shall be identical in form and provision to this Warrant
except as to the number of shares.
8. Successors and Assigns. The terms and provisions of this Warrant
----------------------
shall be binding upon the Company and the Investor and their respective
successors and assigns, subject at all times to the restrictions set forth in
the Agreement.
9. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt
-------------------------------------------------
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new warrant of like tenor and dated as of such
cancellation, in lieu of this Warrant.
10. Amendment. This Warrant together with other warrants of like
---------
form and terms (collectively, the "Warrants") issued in connection with the
Agreement may be amended with the consent of the Company by the written consent
of holders of Warrants exercisable for a majority of the securities issuable
upon exercise of the then outstanding Warrants.
7.
<PAGE>
11. Saturdays, Sundays, Holidays, etc. If the last or appointed day
----------------------------------
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised, except as to the purchase
price, on the next succeeding day not a legal holiday.
Dated: February 26, 1997 GENESYS TELECOMMUNICATIONS
LABORATORIES, INC.
By: /s/ Gregory Shenkman
-----------------------------------------
Name: Gregory Shenkman
-----------------------------------------
Title: President and Chief Executive Officer
-----------------------------------------
[SIGNATURE PAGE TO WARRANT]
<PAGE>
SUBSCRIPTION
Genesys Telecommunications Laboratories, Inc.
1155 Market Street, 11th Floor
San Francisco, CA 94103
Ladies and Gentlemen:
The undersigned, Intel Corporation, hereby elects to purchase, pursuant to the
provisions of the Warrant dated February ___, 1997, held by the undersigned,
____________ shares of the Series C Preferred Stock of Genesys
Telecommunications Laboratories, Inc., a California corporation.
The undersigned hereby represents and warrants that the undersigned is acquiring
such stock for its own account and not for resale or with a view to distribute
of any part thereof or of any of the Common Stock issuable upon conversion
thereof, and accepts such shares subject to the restrictions of the Series C
Preferred Stock and Warrant Purchase Agreement dated February ___, 1997.
Dated: _____________ Intel Corporation
By:
-----------------------------------------
Print:
-----------------------------------------
Title:
-----------------------------------------
Address:
-----------------------------------------
-----------------------------------------
9.
<PAGE>
EXHIBIT 10.9
MASTER SOFTWARE LICENSE AGREEMENT
BETWEEN
GENESYS TELECOMMUNICATIONS LABORATORIES
AND
MCI TELECOMMUNICATIONS CORPORATION
January 31, 1996
* Confidential Treatment Requested. Confidential portion has been filed
separately with the Securities and Exchange Commission.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 -- DEFINITIONS.............................. 1
ARTICLE 2 -- APPLICABILITY OF AGREEMENT............... 2
ARTICLE 3 - LICENSE................................... 3
ARTICLE 4 -- PRICE AND PAYMENT........................ 5
ARTICLE 5 -- LIMITED WARRANTY......................... 5
ARTICLE 6 -- DISCLAIMER............................... 6
ARTICLE 7 -- MAINTENANCE SERVICES..................... 7
ARTICLE 8 -- PROPRIETARY RIGHTS....................... 7
ARTICLE 9 -- CONFIDENTIALITY.......................... 7
ARTICLE 10 -- INTELLECTUAL PROPERTY RIGHT INDEMNITY... 9
ARTICLE 11 -- LIMITATION OF LIABILITY AND REMEDIES.... 11
ARTICLE 12 -- SOURCE CODE ESCROW...................... 11
ARTICLE 13 -- TERM AND TERMINATION.................... 12
ARTICLE 14 -- GENERAL................................. 13
</TABLE>
i
<PAGE>
This MASTER SOFTWARE LICENSE AGREEMENT ("Agreement"), dated as of
January 31, 1996 ("Effective Date"), is made and entered into by and between
GENESYS TELECOMMUNICATIONS LABORATORIES, a California corporation with offices
at 1111 Bayhill Drive, Suite 180, San Bruno, CA 94066 ("Genesys") and MCI
TELECOMMUNICATIONS CORPORATION, a Delaware corporation with offices at 1801
Pennsylvania Ave., N.W., Washington, D.C. 20006 ("MCI").
ARTICLE 1 -- DEFINITIONS
1.1 "Affiliate" means, with respect to a named party, any corporation,
partnership, joint venture or other entity controlling, controlled by or under
common control with such party.
1.2 "Applicable Specification" means the functional and operational
characteristics of the Licensed Software as described in Licensor's current
Documentation, published product description and technical manuals, together
with such other performance, scaleability or other operational requirements and
standards agreed to between the parties and set forth in an attachment hereto or
as a part of MCI's purchase order, either of which shall be deemed to be
incorporated as a part hereof.
1.3 "Confidential Information" means information of a party (the "Owner")
which relates, respectively, to the matters contemplated by this Agreement,
including trade secrets, business and technical information and data, or which,
although not related to matters, is nevertheless disclosed to the other party
(the "Recipient") as a result of the relationship between the parties
established by this Agreement and which, in any case, (i) is disclosed by the
Owner to the Recipient in document, electronic media, or other form bearing an
appropriate legend indicating its confidential or proprietary nature, (ii)
which, if initially disclosed orally or visually is identified as confidential
at the time of disclosure and a written summary thereof, also marked with such a
legend, is provided to the Recipient within fifteen (15) days of the initial
disclosure, or (iii) is by its very nature, in the ordinary course of business,
customarily understood to be confidential or proprietary information, including,
but not limited to the object code of the Licensed Software and related
Documentation, product development plans, internal hardware and software systems
architecture, and unannounced business plans.
1.4 "Designated CPU" means a central processing unit or file server
machine as identified by the serial number and location in the Purchase Order
under which a license to Licensed Software is being obtained by MCI:
1.5 "Documentation" means manuals and other documentation which are
generally made available to licensees of the Licensed Software together with
such
<PAGE>
other documentation specifically made available to MCI by Genesys with the
Licensed Software.
1.6 "Licensed Software" means the software programs described in Exhibit A
attached hereto, in object code format, including any accompanying
Documentation, and including all corrections, modifications, enhancements and
upgrades to such software which may be provided to MCI by Genesys hereunder
pursuant to the terms of Article 7 below.
1.7 "Simultaneous Users" means the number of end-users permitted to
concurrently access and use, at the same time, the Licensed Software.
ARTICLE 2 -- APPLICABILITY OF AGREEMENT
2.1 This Agreement establishes the general terms and conditions under
which MCI and its Affiliates (collectively, and individually, "MCI") shall now
or in the future acquire from Genesys its services and a license to use
Genesys's proprietary computer software systems or programs and related
documentation, all of which are referred to in this Agreement as a "Licensed
Software" (whether singular or plural).
2.2 Genesys's current product listing of all Licensed Software is attached
hereto as Exhibit A. Genesys shall, from time to time during the Term, at the
request of MCI, provide MCI with new listing Licensed Software as the same may
come available.
2.3 Genesys shall not be obligated to provide any Licensed Software to MCI
and MCI shall not be obligated to pay for or accept any Licensed Software by
virtue of this Agreement alone without the issuance of a purchase order (herein,
"Purchase Order") by MCI and the written acceptance thereof by Genesys. Any such
Purchase Order shall specifically reference this Agreement. The specified
Licensed Software, term (period of usage) and effective date of the license,
Applicable Specifications, shipping and billing information, payment terms,
delivery date of the Licensed Software, eligible computer site(s), Designated
CPU(s), Simultaneous User restrictions, operating system, license fee,
maintenance services or charges, as may be relevant, and any other matter not
provided for herein, shall be specified in such Purchase Order. The terms and
conditions of this Agreement shall control over any pre-printed words on a
Purchase Order. In the event of any conflict or inconsistency between the terms
and conditions of this Agreement and the terms on any Purchase Order, the terms
of this Agreement shall control unless such Purchase Order terms are approved in
writing by the parties' legal counsel.
2
<PAGE>
ARTICLE 3 -- LICENSE
3.1 Software License. Subject to the terms and conditions of this
----------------
Agreement, for each Purchase Order issued by MCI and accepted by Genesys,
Genesys shall grant MCI a [*] (except as otherwise provided in Section 14.1),
[*] license to use the applicable Licensed Software in [*] solely on the
Designated CPU, [*] for the use by the number of Simultaneous Users for such
Designated CPU specified in the Purchase Order for the purposes of MCI's
business and the business(es) of its Affiliates.
3.2 Delivery and Acceptance.
-----------------------
(A) Upon final acceptance by Genesys of a Purchase Order, MCI shall
pay the license fee referenced and in accordance with the payment schedule
specified in the Purchase Order or an exhibit or schedule thereto ("License
Fee"). The initial installation for the Licensed Software will be performed by
Genesys during MCI's normal working hours and will include the products and
services listed in the Purchase Order, to be provided according to the schedule
specified therein. Genesys will notify MCI when installation of the Licensed
Software has been completed. Genesys agrees to deliver, at the time of such
installation, Documentation in form and substance reasonably satisfactory to
MCI. Following installation, unless otherwise specified in the Purchase Order,
MCI shall have a period of [*] days for inspection and testing of the Licensed
Software to determine conformance with the Applicable Specifications for the
Licensed Software (the "Acceptance Criteria"). The designation in any Purchase
Order of an acceptance period of less than [*] days shall not be effective
unless such Purchase Order is countersigned by an MCI representative of Director
level. If any feature or module of the Licensed Software is found not to
conform, MCI shall, within the inspection period, notify Genesys and provide a
detailed description of such defects. Following confirmation by Genesys of such
defects, Genesys will provide MCI with a corrected version of the Licensed
Software, and if Genesys fails to deliver such corrected version within a
reasonable time (not to exceed [*] days from MCI's notification to Genesys), MCI
will have the option of canceling the Purchase Order within the next [*]
business days. In the event MCI exercises such option, MCI shall return all
copies of the Licensed Software and the Documentation to Genesys; Genesys shall
promptly refund to MCI all amounts paid by MCI to Genesys pursuant to the
applicable Purchase Order, and neither party shall have any future obligations
or liability under that Purchase Order with respect to the relevant Licensed
Software. Such full refund and cancellation shall be MCI's sole and exclusive
remedy for rejection of the Licensed Software.
(B) Upon acceptance by MCI of the Licensed Software pursuant to
Section 3.2(A) or if MCI fails to notify Genesys of any defects within the
inspection period specified therein, the Licensed Software shall be deemed
accepted. MCI's sole remedy for correction of problems after acceptance shall
be under the Limited Warranty set forth in Article 5 below.
3
* Confidential Treatment Requested
<PAGE>
3.3 Archival Copies. MCI may make a reasonable number of copies of
---------------
the Licensed Software for archival purposes; provided, however, that MCI may
make a reasonable number of copies of Documentation for the use of MCI's
employees in their use of the Software. MCI agrees to reproduce and include any
copyright or proprietary notices of Genesys on all copies, in whole or in Part,
of the Licensed Software or Documentation.
3.4 Back-Up Hardware. A single back-up or replacement CPU or file
----------------
server may be used as a substitute for a Designated CPU at any time; provided,
however, that MCI provides Genesys with written notice of such hardware
substitution, including information regarding the replacement hardware as
required for the Designated CPU in Exhibit A, within seven (7) days of such
replacement.
3.5 No Other Rights. This Agreement transfers to MCI neither title
---------------
nor any proprietary or intellectual property rights to the Licensed Software,
Documentation or any copyrights, patents or trademarks embodied or used in
connection therewith, and except for the rights expressly granted herein, MCI
receives no other rights in or to the Licensed Software, Documentation and
intellectual property, either by implication, estoppel or otherwise.
Accordingly, MCI shall have no other rights with respect to the Licensed
Software other than the license expressly set forth herein.
3.6 License Restriction. MCI agrees that it will not itself, or
-------------------
through any parent, subsidiary, Affiliate, agent or other third party:
(A) sell, lease, license or sublicense the Licensed Software or
Documentation (except as otherwise provided in Section 14.1);
(B) decompile, disassemble or reverse engineer the Licensed Software,
in whole or in part, or otherwise attempt to derive source code therefrom;
(C) allow access to the Licensed Software by any Simultaneous User
other than MCI's employees, employees of MCI's customers, dealer and
distributors who use such Licensed Software solely for the purpose of conducting
business with MCI, and independent contractors and consultants who have a need
to access the Licensed Software for the purpose of performing services for or on
behalf of MCI and in accordance with the use restrictions contained herein; or
(D) write or develop any derivative works based upon the Licensed
Software (except as otherwise permitted by Section 12.3) or upon any
Confidential Information of Genesys.
ARTICLE 4 -- PRICE AND PAYMENT
4.1 Price. In consideration for the rights granted MCI hereunder,
-----
MCI
4
<PAGE>
agrees that it shall, upon acceptance by Genesys of an MCI Purchase Order, pay
Genesys the [*], and the [*], if applicable, in accordance with the payment
schedule set forth in the Purchase Order. If the Purchase Order fails to specify
a payment schedule, the [*] shall be due and payable as follows: [*] percent
([*]%) [*] of the [*] and [*] percent ([*]%) [*] of the relevant [*]; and, [*]
fees shall be payable, [*], within [*] business days of [*] for the [*], which
[*] shall submit at the [*] for the relevant [*].
4.2 Payment Terms. Except for the [*] and the [*], all amounts due
-------------
Genesys shall be paid within forty-five (45) days of MCI's
receipt of the relevant invoice from Genesys.
4.3 Taxes. Unless otherwise agreed in writing, MCI shall be
-----
responsible for all taxes, duties or charges of any kind (including withholding
or value added taxes) imposed by any federal, state, or local governmental
entity for products or services provided under this Agreement, excluding only
taxes based solely on Genesys's net income. When Genesys has the legal
obligation to collect such taxes, the appropriate amount shall be invoiced to
MCI unless MCI provides Genesys with a valid tax exemption certificate
authorized by the appropriate taxing authority. MCI shall hold Genesys harmless
from all claims and liability arising from MCI's failure to pay any such taxes,
duties, or charges.
ARTICLE 5 -- LIMITED WARRANTY
5.1 Software Media Warranty. Genesys warrants that the media in
-----------------------
which the Licensed Software is embodied and the media on which any Update (as
defined in the Software Maintenance Agreement entered into between the parties
as of even date herewith ("Maintenance Agreement")) is delivered will be free
from material defects for a period of [*] days from the delivery date of the
Licensed Software or the Update to MCI. [*] and [*] under this warranty will be
to [*] on which such Licensed Software or Update was delivered. Genesys shall
have [*] any [*] media which is not [*] to Genesys within the warranty period or
which has [*] or [*].
5.2 Software Warranty. Genesys warrants that for a period of [*]
-----------------
days from the delivery of the Licensed Software or any subsequent Update, the
Licensed Software and such Update, if used by MCI in accordance with the then-
current Documentation therefor, shall operate in conformity with the Applicable
Specifications. Genesys [*], however, that the Licensed Software will [*] or
that the [*] will be [*] or [*].
5
* Confidential Treatment Requested
<PAGE>
[*], and [*], and [*] and [*], under this limited Software Warranty shall be, at
[*], to [*] to attempt, through reasonable efforts, (i) to [*] any material
nonconformities discovered within the relevant [*]-day warranty period or (ii)
to [*] the nonconforming Licensed Software or subsequent Update [*] which [*].
If Genesys is unable to achieve (i) or (ii) within a reasonable time (not to
exceed [*] days from MCI's notification to Genesys of a material nonconformity),
Genesys shall [*] to MCI all [*] by [*] to [*] pursuant to the relevant Purchase
Order, MCI shall [*] all relevant copies of the Licensed Software and the
Documentation to Genesys, and [*] with respect to such Licensed Software. The
above remedies are available [*] if Genesys is [*], upon discovery of the
nonconformities by MCI, and that the Licensed Software has not been used,
adjusted or installed other than in accordance with this Agreement and the most
recent version of Documentation provided to MCI by Genesys.
5.3 Warranty of Title. Genesys warrants that it owns all rights and
-----------------
interest in and has the marketing and distributing rights to the Licensed
Software as is necessary to provide MCI with the license rights set forth
herein.
5.4 Warranty Regarding Software Viruses. Genesys warrants that it or
-----------------------------------
its employees shall not negligently or knowingly introduce a virus into MCI's
operating environment during the performance of services under this Agreement or
through the provision of Licensed Software. For the purposes of this Agreement,
a "virus" shall mean a computer code which may provide functions outside those
identified for the Licensed Software in the latest Documentation provided by
Genesys to MCI.
ARTICLE 6 -- DISCLAIMER
6.1 EXCEPT FOR THESE EXPRESS LIMITED WARRANTIES, NEITHER GENESYS NOR
ANY OF ITS SUPPLIERS MAKE ANY WARRANTIES EXPRESS, IMPLIED OR STATUTORY WITH
RESPECT TO THE LICENSED SOFTWARE, AND GENESYS AND ITS SUPPLIERS EXPRESSLY
DISCLAIM ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
ARTICLE 7 -- MAINTENANCE SERVICES
7.1 Genesys agrees to offer maintenance and support for the Licensed
Software subject to the terms and conditions for such services as described in
the Maintenance Agreement.
ARTICLE 8 -- PROPRIETARY RIGHTS
6
* Confidential Treatment Requested
<PAGE>
8.1 MCI acknowledges that Genesys and its suppliers retain all right,
title and interest in and to the original, and any copies, of the Licensed
Software or Documentation, and ownership of all patent, copyright, trade secret
and other intellectual property rights pertaining thereto, shall be and remain
the sole property of Genesys. MCI shall not be an owner of any copies of, or
any interest in, the Licensed Software, but rather, is licensed pursuant to this
Agreement to use such copies. Genesys represents that it has the authority to
enter into this Agreement and to grant the licenses provided herein.
ARTICLE 9 -- CONFIDENTIALITY
9.1 General. Recipient may use Confidential Information of Owner
-------
only for the purpose of fulfilling its obligations as set forth in this
Agreement and for no other purpose. Recipient shall protect such Confidential
Information from disclosure to others using the same degree of care used to
protect its own confidential or proprietary information of like importance, but
in any case using no less than a reasonable degree of care. Recipient may
disclose Confidential Information received hereunder to (i) its Affiliates who
agree, in advance, in writing, to be bound by this Agreement, and (ii) to its
employees and consultants, and its Affiliates' employees and consultants, who
have a need to know, for the purpose of this Agreement, and who are bound to
protect the received Confidential Information from unauthorized use and
disclosure under the terms of a written agreement no less restrictive than the
terms herein. Confidential Information shall not otherwise be disclosed to any
third party without the prior written consent of the Owner.
9.2 Exceptions.
----------
(A) The restrictions of this Agreement on use and disclosure of
Confidential Information shall not apply to information that:
(1) Was publicly known at the time of Owner's communication
thereof to Recipient;
(2) Becomes publicly known through no fault of Recipient
subsequent to the time of Owner's communication thereof to Recipient;
(3) Was in Recipient's possession free of any obligation of
confidence at the time of Owner's communication thereof to Recipient;
(4) Is developed by Recipient independently of and without
reference to any of Owner's Confidential Information or other
information that Owner disclosed in confidence to any third party;
(5) Is rightfully obtained by Recipient from third parties
7
<PAGE>
authorized to make such disclosure without restriction; or
(6) Is identified by Owner as no longer proprietary or
confidential.
(B) In the event Recipient is required by law, regulation or court
order to disclose any of Owners Confidential Information, Recipient will
promptly notify Owner in writing prior to making any such disclosure in order to
facilitate Owner seeking a protective order or other appropriate remedy from the
proper authority. Recipient agrees to cooperate with Owner in seeking such
order or other remedy. Recipient further agrees that if Owner is not successful
in precluding the requesting legal body from requiring the disclosure of the
Confidential Information, it will furnish only that portion of the Confidential
Information which is legally required and will exercise all reasonable efforts
to obtain reliable assurances that confidential treatment will be accorded the
Confidential Information.
9.3 Return of Confidential Information. All Confidential Information
----------------------------------
disclosed under this Agreement (including information in computer software or
held in electronic storage media) shall be and remain the property of Owner.
All such information in tangible form shall be returned to Owner promptly upon
written request or the termination or expiration of this Agreement, and shall
not thereafter be retained or used in any form by Recipient.
9.4 Terms. The parties agree that the terms and conditions of this
-----
Agreement shall be treated by each party as the Confidential Information of the
other party, and that neither party shall disclose the contents of this
Agreement without the prior written consent of the other party; provided,
however, that the general existence of this Agreement shall not be treated as
Confidential Information and that either party may disclose the terms and
conditions of this Agreement
(A) under the circumstances and subject to the conditions set forth in
Section 9.2;
(B) in confidence, to such party's legal counsel;
(C) in confidence, to such party's accountants; or
(D) in confidence, in connection with the enforcement of this
Agreement or rights under this Agreement.
Notwithstanding the foregoing, either party may, without the other party's prior
consent, disclose the aggregate dollar amounts associated with this Agreement
(but no other terms and conditions), in confidence to its banks, proposed
investors and financing sources.
8
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9.5 Remedies. Each party acknowledges that the breach of any of its
--------
obligations under this Article 9 is likely to cause or threaten irreparable harm
to the other party and, accordingly, each party agrees that in such event, the
other party shall be entitled to equitable relief to protect its interests
therein, including but not limited to preliminary and permanent injunctive
relief, as well as money damages.
ARTICLE 10 -- INTELLECTUAL PROPERTY RIGHT INDEMNITY
10.1 Indemnity. Genesys agrees, at its own expense, to defend or, at
---------
its option, to settle any claim or action brought against MCI [*] based on an
allegation that MCI's [*] of the Licensed Software within the scope of the
license granted hereunder (a) infringes a patent under the laws of [*] (or, in
the event of the expiration or termination of the treaty, the countries
signatory at the time of such expiration or termination), or (b) infringes a
copyright, trademark, or other intellectual property right of a third party or
constitutes misuse or misappropriation of a trade secret under the laws of any
country (a claim under either (a) or (b) herein, an "Infringement"), and to
indemnify MCI against all [*] which may be assessed against MCI under any such
claim or action. Promptly after receipt [*] of notice of any claim or the
commencement of any claim for which indemnification or reimbursement may be
sought hereunder, [*] shall give written notice to [*] thereof, but the failure
to so notify [*] shall [*] it may have [*] hereunder [*] shall be obligated to
[*] of such claim, [*], and shall have [*] and [*] over the [*] or [*] of such
claim, provided that [*] will be required to the extent (i) any such [*] or [*]
will impose any obligation whatsoever [*] that is [*] or [*], or [*] other than
the payment of monies that are readily measurable for purposes of determining
the monetary indemnification or reimbursement obligations [*], or (ii) [*] will
not be [*] of [*] pursuant to such [*] or [*], including the [*] to pay when due
[*] to pay pursuant to such [*] or [*]. [*] shall have the right, [*], to [*] in
the investigation [*] of such claim, [*]. [*] shall otherwise provide reasonable
[*] with respect to such claim, provided that [*] for its [*] with respect
thereto. Moreover, should any of the Licensed Software become, or, in [*], be
likely to become, the subject of a claim of [*], or should [*] use thereof be
finally [*], [*] and [*]:
(A) [*] the right to [*] such material; or
(B) [*] or [*] such material to make it [*] provided
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such [*] or [*] is the functional equivalent of the Licensed Software in light
of the Applicable Specifications, and [*] for any additional [*], and [*] and
caused by any such [*] or [*]; or
(C) If neither of the foregoing can be suitably accomplished, [*] for
all [*] of the [*] paid for the Licensed Software pursuant to this Agreement,
provided that such amounts shall be [*] beginning with the [*] of the Licensed
Software (i.e., a change from version A.x to version B.0) was received [*].
10.2 Exceptions.
----------
(A) Notwithstanding the provisions of Section 10.1 above, [*] for [*]
claims to the extent arising from (i) the [*] of the Licensed Software with
other products [*] and not within the [*] given the use for which the Licensed
Software was designed; (ii) any [*] to the Licensed Software unless such [*] was
made or otherwise authorized [*]; or (iii) any [*] held by [*] derived through
[*] issued by the countries other than [*] .
(B) Notwithstanding anything in Section 10.1 to the contrary, [*] for
[*] or [*] as a [*] (but not including the [*], pursuit of [*], and any other
legal and related [*] claims of [*]), shall be limited to [*] times the amount
of the license fees paid [*] for the [*] Licensed Software for any [*] claim
with respect to [*] of the Licensed Software in a [*], to the extent arising
from (a) the [*] of the Licensed Software with any other product [*], even if
[*] such [*] or, (b) a [*] to the Licensed Software made or [*] for the [*]. It
is understood and acknowledged that the foregoing [*] for certain [*] claims
shall [*], for all such claims in all proceedings in accordance with Section
10.1, subject to the limitations of Section 10.2(A).
10.3 [*]
---
10.4 Limitation. THE FOREGOING PROVISIONS OF THIS ARTICLE 10 STATE
----------
THE ENTIRE LIABILITY AND OBLIGATIONS OF
10
* Confidential Treatment Requested
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GENESYS, AND THE EXCLUSIVE REMEDY OF MCI, WITH RESPECT TO ANY ACTUAL OR ALLEGED
INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL
PROPERTY RIGHT BY THE LICENSED SOFTWARE OR ANY PART THEREOF.
ARTICLE 11 -- LIMITATION OF LIABILITY AND REMEDIES
11.1 THE PARTIES AGREE, [*] UNDER SECTION 5.4, AND 10, AND BOTH
PARTIES CONFIDENTIALITY OBLIGATIONS UNDER SECTION 9 ABOVE, [*] FOR EACH CLAIM
[*] OR THE [*] OF ANY LICENSED SOFTWARE [*] UNDER THE RELEVANT PURCHASE ORDER
AND [*], ARISING IN ANY WAY OUT THIS AGREEMENT UNDER ANY CAUSE OF ACTION, [*].
ARTICLE 12 -- SOURCE CODE ESCROW
12.1 Within thirty days of the signing of this Agreement and from time
to time thereafter, but not more than sixty days following any subsequent Update
of the Licensed Software, to secure MCI's rights hereunder Genesys shall place
copies of its then current source code and documentation (the "Escrow
Materials") for all the Licensed Software with Data Securities International,
Fort Knox Escrow Services, Inc. or another independent escrow agent mutually
satisfactory to MCI and Genesys on the standard terms and conditions of such
agent and in accordance with the following provisions of this Article 12.
12.2 Release of the Escrow Materials to MCI shall be on terms and
conditions (including notice, redeposit and other provisions) to be agreed in
the escrow agreement, but such release shall be granted whenever:
(A) Genesys is unable or unwilling to perform its maintenance and/or
support obligations under this Agreement or any separate agreement between the
Parties with respect to maintenance and support; or
(B) Genesys applies for or consents to the appointment of or the
taking of possession by a receiver, custodian, trustee, or liquidator of itself
or of all or a substantial part of its property; makes a general assignment for
the benefit of creditors;
11
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commences a voluntary case under the Federal Bankruptcy Code (as now or
hereafter in effect); or fails to contest in a timely or appropriate manner or
acquiesces in writing to any petition filed against it in an involuntary case
under such Bankruptcy Code or any application for the appointment of a receiver,
custodian, trustee or liquidation of itself or of all or a substantial part of
its property, or its liquidation, reorganization or dissolution.
12.3 MCI is hereby granted a license to use such Materials upon their
release to MCI only to perform and authorize the performance of such maintenance
and/or support, and for no other purpose. Such escrow shall be established and
maintained at the expense and for the sole benefit of MCI. Genesys warrants
that the Escrow Materials will accurately reflect the then current version of
the Licensed Software and will be sufficiently detailed and documented so as to
permit a reasonably competent computer professional conversant in the
languages(s) used by the Licensed Software to understand, maintain and modify
the Licensed Software.
12.4 Any dispute or disagreement between the Parties arising out of
this Article 12 shall be resolved by arbitration in accordance with Section
14.4, provided that if the arbitrator(s) are unable to render an award within
sixty (60) days of the demand for arbitration, through no fault or act of delay
by MCI, the Escrow Materials shall be released to MCI notwithstanding the
pendency of any such arbitration. At all time, the parties shall use their best
efforts to expedite the arbitration proceedings. If the arbitrator(s)
ultimately find that under the terms of this Agreement release of the Escrow
Materials to MCI should not have occurred, MCI shall return the Escrow Materials
to the Escrow Agent.
12.5 The obligations of Genesys under this Article 12 shall remain in
effect until the termination of the maintenance and support obligations of
Genesys.
ARTICLE 13 -- TERM AND TERMINATION
13.1 Term and Termination. MCI may terminate this Agreement or any
--------------------
license obtained hereunder upon ninety (90) days' prior written notice to
Genesys.
13.2 Return of Materials. Upon termination of any license for any
-------------------
reason, MCI shall immediately discontinue use of the relevant Licensed Software
and Documentation and within ten (10) days certify in writing to Genesys that
all copies of the Licensed Software and Documentation, in whole or in part, in
any form, have either been returned to Genesys or destroyed in accordance with
Genesys's instructions. Upon such termination Genesys shall immediately refund
to MCI any related unamortized prepayments made by MCI for maintenance and
support.
13.3 Termination by Genesys. Genesys may terminate a license granted
----------------------
hereunder with respect to any one or more Purchase Orders if MCI commits any
material breach of the license grant set forth in Section 3 or the
confidentiality
12
<PAGE>
obligations in Section 9 above and fails to remedy such breach within thirty
(30) days after written notice by Genesys of such breach and such material
breach causes irreparable damage to Licensor or cannot adequately be remedied by
the payment of monetary damages by Genesys.
13.4 Effect of Termination. Notwithstanding any termination of this
---------------------
Agreement, the following provisions shall survive: Articles 3 (except to the
extent Genesys terminates this Agreement as a result of MCI's material breach of
the license granted by such Article), 4 (to the extent of any amounts due and
owing as of such termination), 5, 7, 8, 9, 10, 11, 12 and 14. All other rights
and licenses granted hereunder will cease upon termination.
ARTICLE 14 -- GENERAL
14.1 Assignment. Neither party shall have the right to transfer,
----------
assign or otherwise dispose of its rights or obligations hereunder, by operation
of law or otherwise, without the prior written consent of the other party.
Notwithstanding the foregoing, (i) MCI may transfer or assign its rights and
obligations, in whole or in part, to an Affiliate, provided that MCI shall,
however, notify Genesys of such transfer or assignment, and (ii) Genesys may
assign this Agreement as part of the sale of all or substantially all of its
assets or as part of any transaction resulting in a change in control of
Genesys, provided that Genesys shall notify MCI of such assignment and that MCI
shall have the option of terminating (without prejudice to other provisions of
this Agreement) any development obligations then in effect.
14.2 Captions. The captions used in this Agreement are included for
--------
convenience only and shall not be considered part of this Agreement for any
purpose.
14.3 Governing Law. This Agreement shall be governed, construed and
-------------
enforced in accordance with the laws of the state of New York, without reference
to conflict of laws principles.
14.4 Dispute Resolution. Any dispute arising out of or related to
------------------
this Agreement, which cannot be resolved by negotiation, shall be settled by
binding arbitration in accordance with the J.A.M.S/ENDISPUTE arbitration Rules
and Procedures ("Endispute Rules"), as amended by this Agreement. The costs of
arbitration, including the fees and expenses of the arbitrator, shall be shared
equally by the parties unless the arbitration award provides otherwise. Each
party shall bear the cost of preparing and presenting its case. The parties
agree that this provision and the arbitrator's authority to grant relief shall
be subject to the United States Arbitration Act, 9 U.S.C. 1-16 et seq. ("USAA"),
the provisions of the Agreement, and the ABA-AAA Code of Ethics for Arbitrators
in Commercial Disputes. The parties agree that the arbitrator shall have no
power or authority to make awards or issue orders of any kind except as
expressly permitted by this Agreement, and in no event shall the arbitrator
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have the authority to make any award that provides for punitive or exemplary
damages. The arbitrator's decision shall follow the plain meaning of the
relevant documents, and shall be final and binding. The award may be confirmed
and enforced in any court of competent jurisdiction. All post-award proceedings
shall be governed by the USAA. The location of such a proceeding shall be
mutually agreed by the parties or if agreement cannot be reached, then the
location chosen by the arbitrator. This provision shall not preclude either
party seeking injunctive relief as permitted hereunder in any court of competent
jurisdiction. Unless the parties otherwise agree, all arbitration proceedings
shall take place in San Francisco, California.
14.5 Jurisdiction. The federal and state courts within San Francisco,
------------
California, shall have exclusive jurisdiction with respect to any action sought
by either party to enforce Section 14.4 above. Each party hereto expressly
consents to the personal jurisdiction of, and venue in, such courts and service
of process being effected upon it by registered mail and sent to the address set
forth at the beginning of this Agreement.
14.6 Independent Contractors. The relationship of Genesys and MCI
-----------------------
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed (i) to give either party the
power to direct or control the day-to-day activities of the other or (ii) to
constitute the parties as partners, joint venturers, co-owners or otherwise as
participants in a joint or common undertaking.
14.7 Severability. If any provision of this Agreement is held to be
------------
invalid by a court of competent jurisdiction, then the remaining provisions
shall nevertheless remain in full force and effect. The parties further agree
to negotiate in good faith a substitute, valid and enforceable provision that
most nearly effects the parties' intent and to be bound by mutually agreed
substitute provision.
14.8 No Waiver. The failure of either party to enforce at any time
---------
any of the provisions of this Agreement shall not be deemed to be a waiver of
the right of such party thereafter to enforce any such provisions.
14.9 Force Majeure. Except for the obligation to make payments,
-------------
nonperformance of either party shall be excused to the extent that performance
is rendered impossible by strike, fire, flood, governmental acts or orders or
restrictions, failure of suppliers, or any other reason where failure to perform
is beyond the reasonable control of the nonperforming party.
14.10 Notices. Any required notices hereunder shall be given in
-------
writing at the address of each party set forth above, or to such other in the
manner contemplated herein, and shall be deemed served when delivered or, if
delivery is not accomplished by reason or some fault of the addressee, when
tendered.
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14.11 U.S. Government Licensees. Any use of the Licensed Software by
-------------------------
the U.S. Government is conditioned upon the Government agreeing that the
Licensed Software is subject to Restricted Rights as provided under the
provisions set forth in subdivision (c)(1)(ii) of Clause 252.227-7013 of the
Defense Federal Acquisition Regulations Supplement, or the similar acquisition
regulations of other applicable U.S. Government organizations.
14.12 Entire Agreement. This Agreement and Exhibits attached hereto
----------------
and incorporated herein constitute the entire, final, complete and exclusive
agreement between the parties and supersede all previous agreements or
representations, oral or written, relating to this Agreement. This Agreement may
not be modified or amended except in a writing signed by a duly authorized
representative of each party. Both parties acknowledge having read the terms and
conditions set forth in this Agreement and Exhibits attached hereto, understand
all terms and conditions, and agree to be bound thereby.
IN WITNESS WHEREOF, the parties by their duly authorized
representatives have executed this Agreement as of the Effective Date set forth
above.
GENESYS TELECOMMUNICATIONS MCI TELECOMMUNICATIONS
LABORATORIES CORPORATION
/s/ Gregory Shenkman /s/ H.A. Shartel
- --------------------------- -------------------------------------
Signature Signature
Gregory Shenkman, President H.A. Shartel, Sr. Manager Procurement
- --------------------------- -------------------------------------
Printed Name and Title Printed Name and Title
January 31, 1996 February 7, 1996
- --------------------------- -------------------------------------
Date Date
15
<PAGE>
EXHIBIT A
---------
LICENSED SOFTWARE
16
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EXHIBIT A
[*]
*Confidential Treatment Requested
<PAGE>
ADDENDUM TO MASTER LICENSE AGREEMENT
This ADDENDUM ("Addendum") is entered into this 1st day of February, 1996
("Effective Date"), by and between Genesys Telecommunications Laboratories
("Genesys"), a California corporation with offices at 1111 Bayhill Drive, Suite
180, San Bruno, CA 94066 and MCI Telecommunications Corporation ("MCI"), a
Delaware corporation with offices at 1801 Pennsylvania Avenue, N.W., Washington,
D.C. 20006.
In consideration of the promises and conditions of this Addendum, the parties
agree as follows:
BACKGROUND
A. Genesys and MCI have entered into a Master Software License Agreement dated
January 31, 1996 (the "Agreement").
B. The parties desire to amend the Agreement as set forth in this Addendum.
AMENDMENT
1. AMENDMENT OF AGREEMENT. This Addendum hereby amends and revises the
Agreement to incorporate the terms and conditions set forth in this Addendum.
The relationship of the parties shall continue to be governed by the terms of
the Agreement as amended.
2. DEFINITIONS. A used in this Addendum, all capitalized terms shall have the
meanings assigned to such terms in this Addendum, or, if not specified in this
Addendum, the meanings defined elsewhere in the Agreement.
3. ACCEPTANCE OF EXISTING SYSTEMS. MCI agrees to accept prior to December 31,
1995, the Software Licenses provided for the following projects:
(i) The MCI Diamond Center
(ii) The MCI-ICSD Compaq Project
(iii) The MCI NILE Project
4. MODIFICATIONS TO THE AGREEMENT.
4.1 Section 10 of the Agreement is amended by adding the following
subsection.
<PAGE>
10.5 Indemnity Contingent on Purchase of Maintenance.
-----------------------------------------------
[*] contained in this section 10, [*] of any kind with respect
[*] for [*] of any Licensed Software for which [*] at the time
such [*].
5. ENTIRE AGREEMENT. This Addendum and the Agreement constitute the entire
Agreement between the parties in connection with the subject matter of this
Addendum and supersede all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties.
IN WITNESS WHEREOF, Genesys and MCI have caused this Addendum to be executed by
their duly authorized representatives, effective as of the Effective Date set
forth above.
AGREED TO AND ACCEPTED BY:
GENESYS TELECOMMUNICATIONS MCI TELECOMMUNICATIONS
LABORATORIES CORPORATION
/s/ Gregory Shenkman /s/ H.A. Shartel
- ------------------------------ --------------------------------
Signature Signature
Gregory Shenkman, President H.A. Shartel Sr Mgr--Procurement
- ------------------------------ --------------------------------
Printed Name and Title Printed Name and Title
February 1, 1996 February 7, 1996
- ------------------------------ --------------------------------
Date Date
*Confidential Treatment Requested
2
<PAGE>
AMENDMENT NUMBER ONE TO MASTER LICENSE AGREEMENT
This AMENDMENT NUMBER ONE (the "Amendment") is entered into this 26th day
of February, 1997 ("Effective Date"), by and between Genesys Telecommunications
Laboratories, Inc. ("Genesys"), a California corporation with a principal place
of business at 1155 Market Street, 11th Floor, San Francisco, CA 94103 and MCI
Telecommunications Corporation ("MCI"), a Delaware corporation with offices at
1801 Pennsylvania Avenue, N.W., Washington, D.C. 20006.
In consideration of the promises and conditions of this Amendment, the parties
agree as follows:
BACKGROUND
A. Genesys and MCI have entered into a Master Software License Agreement dated
January 31, 1996 (the "Agreement"); and
B. Genesys and MCI have entered into a Master Consulting Agreement as of even
date herewith, pursuant to which Genesys has undertaken to incorporate certain
functionality in the development of an intelligent network call router software
product that will be developed through enhancements and modifications to certain
of Genesys' products; and
C. Genesys and MCI desire to amend the Agreement to reflect agreed upon terms
and conditions under which MCI will license such call router software product
and other Genesys products; and
D. The parties desire to amend the Agreement as set forth in this Amendment
Number One.
AMENDMENT
1. AMENDMENT OF AGREEMENT. This Amendment hereby amends and revises the
Agreement to incorporate the terms and conditions set forth in this Amendment.
The relationship of the parties with respect to the subject matter hereof shall
continue to be governed by the terms of the Agreement as amended.
2. EXHIBITS.
a. Licensed Software and Pricing. Exhibit A to the Agreement is hereby
deleted in its entirety and replaced by a new Exhibit A attached hereto as
Schedule A.
<PAGE>
b. MCI Minimum Purchase Guarantee. A new Exhibit B to the Agreement
attached hereto as Schedule B is hereby incorporated by reference.
3. DEFINITIONS.
As used in this Amendment, all capitalized terms shall have the meanings
assigned to such terms in this Amendment, or, if not specified in this
Amendment, the meanings defined elsewhere in the Agreement.
a. Section 1.2 is modified, in part, to read as follows:
" . . . of the Licensed Software as (i) accepted by MCI pursuant to
the MCA, if applicable, or (ii) described in Genesys' current Documentation,
published product description and technical manuals, together in either case
with such other performance . . . part of MCI's Purchase Order, either . . ."
b. Section 1.4 is modified, in part, to read as follows:
". . . the serial number and location on which the Licensed Software
is deployed as to which MCI shall notify Genesys in a written quarterly report
within thirty (30) days following the end of the calendar quarter during which
the Licensed Software was deployed."
c. The following new sentence is added to the end of Section 1.6:
"The software programs set forth on Exhibit A attached hereto may be
modified by Genesys from time to time; provided, however, that the Licensed
Software designated as Genesys Network Applications in Exhibit A hereto shall at
all times comply with the specifications set forth in Exhibit A-SOW-1 to the MCA
which shall constitute the Applicable Specifications for such Network
Applications unless otherwise mutually agreed to by the parties."
d. Section 1.7 is modified, in part, to read as follows:
" . . . the Licensed Software; provided, however, that this Section
1.7 shall have no application to Network Applications."
e. The following new definitions are added to Article 1 "DEFINITIONS."
"1.8 "Advanced T-Server Functionality" shall have the meaning
specified in Section 4.7(C)."
"1.9 "Basic T-Server Functionality" shall have the meaning specified
in Section 4.7(B)."
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"1.10 "Customer" shall mean a third party end-user of the Premises
Software and network-based call routing and other related services provided
directly by MCI or an MCI Affiliate which utilize the Licensed Software within
the scope of the licenses granted hereunder."
"1.11 "Eligible Fees" shall mean the aggregate of (i) all [*], but not
including the [*] and [*], and (ii) [*] dollars [*] in fees for (x) [*] provided
under this Agreement and (y) [*] (as defined in the MCA) to the extent such [*]
are provided to ensure that [*], and as to any of the foregoing [*] or by such
[*] in interest [*] of this Amendment."
"1.12 "Initial Network Applications Software" shall mean [*] and [*]
of the Network Applications, provided that if such [*] upon their [*], then [*]
of Network Applications shall be included in the Initial Network Applications
Software until the earlier of (i) [*] of Network Applications are [*] or (ii)
[*] of Network Applications are [*]."
"1.13 "License Fee" shall mean such amount as results from a [*]
percent ([*]) [*] from the [*] for any Licensed Software as set forth on Exhibit
A attached hereto, but subject to the provisions of Section 4.4."
"1.14 "Network License Fee" shall mean the [*] dollar ([*]) payment
paid [*] pursuant to Section 4.6 hereof."
"1.15 "MCA" shall mean the Master Consulting Agreement entered into
by the Parties as of even date herewith."
"1.16 "MCI Competitor" shall have the meaning set forth in the MCA."
"1.17 "Network Applications" shall mean that portion of the Licensed
Software that is identified as Network Applications on Exhibit A hereto and that
is designed to be deployed in a telecommunications carrier's network in order to
provide network-based call routing and related services."
"1.18 "Operating Environment" shall mean a configuration of
substantially similar computer hardware platform(s), computer operating
system(s) and external interfaces to a PBX, IVR and other similar critical
network components."
"1.19 "Premises Software" shall mean Licensed Software that a
Customer obtains in order to benefit from Basic T-Server Functionality and/or
Advanced T-Server Functionality."
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"1.20 "SMA" shall mean the Software Maintenance Agreement, as
amended, between Genesys and MCI dated January 31, 1996."
"1.21 "TPS" shall mean the number of transactions per second that can
be supported by Network Applications assuming that the Network Applications
routing strategies are allocated as follows: (i) [*] percent [*] to [*], (ii)
[*] percent [*] to [*], (iii) [*] percent [*] to [*] and (iv) [*] percent [*] to
[*]."
"1.22 "Transaction Fees" shall mean the fees that are payable to
Genesys pursuant to Section 4.7."
4. APPLICABILITY OF AGREEMENT.
a. Section 2.1 is deleted in its entirety and replaced with the
following:
"This Agreement establishes the general terms and conditions under
which MCI and its Affiliates shall now or in the future acquire from Genesys
certain services and a license to use the Licensed Software."
b. The first sentence in Section 2.3 is modified, in part, to read as
follows:
". . . issuance of a purchase order by MCI and the written acceptance
thereof by Genesys (herein referred to as a "Purchase Order"); provided,
however, that a Purchase Order issued hereunder by an MCI Affiliate shall
contain a provision stating that such Purchase Order shall be subject to the
terms and conditions of the Agreement and incorporating this Agreement by
reference modified so as to be made applicable between Genesys and such MCI
Affiliate."
c. The fourth sentence in Section 2.3 is deleted in its entirety and
replaced with the following:
"The pre-printed provisions on or attached to Purchase Orders, Genesys
acknowledgment forms or other similar forms shall be deemed deleted with respect
to the Purchase Orders placed hereunder and of no legal effect."
d. The last sentence in Section 2.3 is modified, in part, to read as
follows:
". . . and the terms (other than pre-printed terms) on any Purchase
Order . . . in writing by Genesys' Chief Financial Officer or his designee and
an MCI Vice President."
5. LICENSE.
a. The following two new sentences are added to the end of Section 3.1 of
the Agreement:
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*Confidential Treatment Requested
<PAGE>
"Genesys hereby grants to MCI the right to grant sublicenses of the
foregoing rights (as well as the rights granted to MCI under Sections 3.3 and
3.4 below) to Customers to use the Premises Software, including without
limitation the use of Documentation related thereto; provided, however, that
such sublicenses shall be granted solely in connection with a Customer's use of
products and/or services that utilize the Network Applications and are provided
by MCI or MCI's Affiliates. Genesys further hereby grants to MCI the right to
reproduce the Network Applications, Premises Software and related Documentation
solely for the purposes of MCI's business and the businesses of its Affiliates;
provided, however, that MCI shall within thirty (30) days following the end of
each calendar quarter provide a quarterly report to Genesys which shall include,
among other things, the Serial number, CPU type and location on which each new
copy of the Network Applications and Premises Software is deployed."
b. The first sentence in Section 3.2(A) is modified, in part, to read as
follows:
". . . of a Purchase Order, Genesys will deliver to MCI an invoice for
the License Fee and MCI shall pay the License Fee in accordance with the payment
schedule specified in the Purchase Order or an exhibit or schedule thereto."
c. The second sentence in Section 3.2(A) is modified, in part, to read as
follows:
"If an applicable Purchase Order provides for installation services to
be performed by Genesys, unless otherwise provided for in such Purchase Order,
the initial installation . . ."
d. The following new sentence is added between the second and third
sentences of Section 3.2 (A):
"Unless otherwise provided in a Purchase Order ordering such services,
MCI agrees to pay to Genesys its then standard rate for installation and
implementation services."
e. The following new sentence is added to the end of Section 3.2(A):
"Notwithstanding anything to the contrary herein, upon acceptance of
the first copy of a specific release of any Licensed Software by MCI or any MCI
Affiliate pursuant to this Section 3.2(A) or to Section 3.2(C) below, additional
copies of the same release of such Licensed Software intended for a
substantially similar Operating Environment shall be deemed accepted upon
delivery to MCI or an MCI Affiliate. Furthermore, in the event any Licensed
Software is deemed not to be accepted upon delivery to MCI pursuant to the
preceding sentence or an applicable Purchase Order, then Section 4.1(ii) shall
provide that [*] percent [*] of the [*] for such [*] shall be payable to Genesys
[*] of such [*]."
f. The following new subsection (C) is added to Section 3.2:
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*Confidential Treatment Requested
<PAGE>
"(C) Where Work (as that term is defined in the MCA) has been accepted
by MCI pursuant to the MCA and is subsequently licensed hereunder as Licensed
Software without being materially modified, such acceptance shall constitute
acceptance of such Licensed Software pursuant to Section 3.2A above. However,
where Work has been accepted by MCI pursuant to the MCA and is subsequently
licensed hereunder as Licensed Software and has been materially modified prior
to being so licensed, such Licensed Software shall be subject to Section 3.2(A)
of this Agreement."
g. Section 3.4 is modified in part to read as follows:
" . . . hardware substitution within thirty (30) days following the
end of each calendar quarter as part of a quarterly report to Genesys which
shall include, among other things, the serial number, CPU type and location on
which each copy of the Licensed Software is deployed."
h. The following new sentence is inserted at the beginning of Section
3.5:
"Genesys acknowledges that to the extent the Licensed Software may,
pursuant to a specific Statement of Work, contain the intellectual property of
MCI or its third party licensors licensed to Genesys pursuant to Section 9.1B(3)
or jointly owned by MCI and Genesys pursuant to Section 9.1C of the MCA and that
except as expressly provided therein, incorporation of such intellectual
property in the Licensed Software shall not limit the ownership rights of MCI or
such licensors in such intellectual property."
i. The last sentence of Section 3.5 is deleted and replaced in its
entirety to read as follows:
"Except as to the underlying rights of MCI or its third party
licensors as referred to in the first sentence of this Section 3.5, MCI shall
have no other rights with respect to the Licensed Software other than the
license expressly set forth herein."
j. Section 3.6(A) is modified, in part, to read as follows:
". . . or Documentation (except as otherwise provided in Sections 3.1
or 14.1);"
k. Section 3.6(C) is modified, in part, to read as follows:
". . . employees of MCI's Customers, dealers and distributors who use
such Licensed Software solely for purposes of conducting business with MCI, and
independent contractors and consultants who have a need to access the Licensed
Software for the purpose of performing services for or on behalf of MCI and in
accordance with the use restrictions contained herein; provided, however,
Customers shall have access to the Premises Software pursuant to MCI's right to
grant and authorize sublicenses under Section 3.1 hereof; or"
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l. The following new Section 3.7 is added:
"3.7 Enterprise License. Upon the written request of either Party
------------------
after December 31, 1997, the Parties agree to conduct good faith negotiations to
discuss the possibility of entering into an "enterprise license" agreement."
m. The following new Section 3.8 is added:
"3.8 Value Added Reseller Agreement. The parties agree to conduct
------------------------------
good faith negotiations to enter into a value added reseller agreement which
would enable MCI to purchase for value added resale Licensed Software at the
License Fee."
6. PRICE AND PAYMENT; PURCHASE COMMITMENTS.
a. The heading of Article 4 is relabeled to read as follows:
"ARTICLE-4 PRICE AND PAYMENT; PURCHASE COMMITMENTS"
b. The first sentence of Section 4.1 is modified, in part, to read as
follows:
". . . [*], if applicable, unless otherwise agreed to in writing by
the parties hereto, in accordance . . ."
c. The second sentence in Section 4.1 is modified, in part, to read as
follows:
"If the Purchase Order fails to specify a payment schedule, subject to
Section 3.2(A) hereof, the License Fee shall be due and payable as follows: (i)
[*] percent [*] [*] of the [*] and (ii) [*] percent [*] [*] of the relevant [*];
and, [*] fees shall be payable [*] unless otherwise agreed to in writing by the
parties hereto, within [*] days . . ."
d. Section 4.2 is modified, in part, to read as follows:
"Except for [*] and . . . shall be paid within thirty (30) days . . ."
e. The following new Section 4.4 is added:
"4.4 Increases in Licensed Software Prices. The prices set forth on
-------------------------------------
Exhibit A hereto may be [*] from time to time, upon [*] days [*], to [*] for the
[*]. The parties agree that the prices set forth on Exhibit A shall be [*] of
each year [*] for the [*], provided, further, that the prices
to be set forth in Exhibit A for
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[*] that [*] during the calendar year shall [*] of such [*]. Notwithstanding the
foregoing, in the event that [*] and [*] dollars [*] during any calendar year,
then the prices set forth on Exhibit A as of [*] of that calendar year (as [*]
pursuant to this Section 4.4) as well as the [*] to Exhibit A during such
calendar year shall remain in effect for the entire calendar year. In the event
that [*] during a calendar year in which [*] and [*] dollars [*] and [*] such
[*] subject to such [*], then [*] equal to the [*] for such [*] as of [*] of
such calendar year [*] to Exhibit A during such calendar year) and the [*]."
f. The following new Section 4.5 is added:
"4.5 Minimum Purchase Guarantee.
--------------------------
(A) Commitment. [*] agrees to (i) issue to Genesys no later than [*],
----------
Purchase Orders for Licensed Software which provide for the payment of
License Fees that are [*] a total of [*] dollars [*] and (ii) [*] in
accordance with the [*] and [*] set forth in Schedule B ("Minimum Purchase
Commitment"). In the event that [*] as set forth in Schedule B hereto, then
[*] an amount equal to the [*] and the [*] as of such date (a "[*]") within
[*] days after such date. Any [*] paid to [*] shall be [*] future Purchase
Orders for Licensed Software or services, to the extent of the [*] set
forth in Section 1.11(ii). In consideration of the foregoing minimum
purchase guarantee, [*] Licensed Software at the [*].
(B) Limitations. MCI's obligations under Section 4.5(A) are subject to the
-----------
following limitations:
(i) If [*] Licensed Software pursuant to Section 3.2(A), its
obligations under Section 4.5(A) shall be [*] of the Purchase
Order to which such [*] Licensed Software relates.
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(ii) If [*] pursuant to Section 5.2 or 10.1(D) of the Agreement, the
[*] Purchase Order to which such [*] relates will nonetheless be
[*] under Section 4.5(A).
(iii) If [*] this Agreement to an [*] under Section 4.5(A).
(iv) If [*] this Agreement pursuant to Section 13.1 hereof [*] under
Section 4.5(A)."
g. The following new Section 4.6 is added:
"4.6 Network Applications Software Licenses. On the Effective Date of
--------------------------------------
Amendment Number One to this Agreement, MCI shall issue a Purchase Order to
Genesys in the amount of [*] dollars ("[*]") (the "[*]") and to pay to Genesys
the Network License Fee within thirty (30) days of receipt of an invoice from
Genesys for such Network License Fee, and Genesys agrees to license hereunder to
MCI in consideration for such Network License Fee the Initial Network
Applications Software. [*].
h. The following new Section 4.7 is added:
"4.7 Transactional Pricing. For the first [*] receiving services from
---------------------
[*] as set forth in the following pricing model; provided, however, that such
model shall be [*] to the extent necessary for [*] that includes the [*];
provided, further, that such pricing shall continue to apply [*] unless one
party notifies the other Party in writing within [*] days following [*] of the
applicable [*].
(A) Consultation Regarding Pricing of Services. [*] concerning the [*] or
------------------------------------------
[*] to be paid by [*] for [*] and related services offered by [*] that
utilize Premises Software; provided, however, that such [*] shall in [*] be
interpreted to grant to [*] or otherwise [*] for such services.
(B) Sites Employing Basic T-Server Functionality. Where a site employs
--------------------------------------------
[*] to support Network Applications [*] only ("[*]"), in consideration for
such use, [*] the following amounts:
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(i) [*] percent ([*]%) of the [*] received by [*] as a result of
offering network-based [*] and related services that utilize [*]
over the [*] a given Customer for its [*], including charges for
queuing calls in the network. For example, [*] per call for
network-based [*] and related services utilizing [*] over the [*]
to such Customer for its [*], including charges for queuing calls
in the network, then [*];
(ii) notwithstanding the foregoing, [*] any Customer an [*] per call
for network-based [*] and related services that utilize [*] over
the [*] that [*] a given Customer for its [*], including charges
for queuing calls in the network, [*] and an [*] that employs [*]
to support [*]; provided, however, that if the Customer at such
site has [*] and [*] and has continuously maintained such
products by [*] at least up to the date that [*]
(C) Sites Employing Advanced T-Server Functionality. Where a site
-----------------------------------------------
employs [*] to support Network Applications [*], in consideration for such
use, [*] the following amounts:
(i) [*] percent ([*]%) of the [*] received by [*] as a result of
offering network-based [*] and related services that utilize [*]
over the [*] a given Customer for its [*], including charges for
queuing calls in the network. For example, [*] per call for
network-based [*] and related services utilizing [*] over the [*]
to such Customer for its [*], including charges for queuing calls
in the network, then [*]
(ii) notwithstanding the foregoing, if [*] an [*] per call, for
network-based [*] and related services that utilize [*] over the
[*]
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that [*] a given Customer for its [*], including charges for
queuing calls in the network, [*] and an [*] that employs [*];
provided, however, that if the Customer at such site has [*] and
[*] and continuously maintained such products by [*] at least up
to the date that [*].
(D) Statements and Payment. Within [*] days after of the end of each
----------------------
calendar [*] a statement calculating the [*] pursuant to Sections 4.6(B)
and (C) above along with [*] of such [*].
(E) Books and Records; Audit Rights. MCI and its Affiliates agree to make
-------------------------------
and maintain for a period of [*] years after the applicable payment under
Section 4.6(D) is due, such books, records and accounts regarding MCI's and
its Affiliates' network-based call routing or related services that utilize
either Basic or Advanced T-Server Functionality as reasonably required in
order to calculate and confirm MCI's payment obligations hereunder. [*] If
any such examination discloses a shortfall in payment to Genesys, [*] such
amounts to Genesys ([*]), and, in addition, where such examination
discloses a shortfall of [*] for any calendar year, [*].
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7. WARRANTY.
a. The third sentence in Section 5.2 is modified, in part, to read as
follows:
". . . and [*] and [*] under this limited Software Warranty (including
Sections 5.5 and 5.6) shall be, at [*], (i) to [*] to attempt, through
reasonable efforts, to [*] any material nonconformities discovered during the
relevant [*] day warranty period (or at any time with respect to material
nonconformities under Sections 5.5 and 5.6) or (ii) . . . the [*] or otherwise
complies with the warranties in Sections 5.5 and 5.6, as applicable."
b. The fourth sentence in Section 5.2 is modified, in part, to read as
follows:
". . . nonconformity), upon receipt by Genesys of a written request
from MCI, Genesys shall . . ."
c. The fifth sentence in Section 5.2 is modified, in part, to read as
follows:
". . . of the nonconformities by MCI and that in Genesys' reasonable
judgment such nonconformities do not result from the Licensed Software having
been used, adjusted . . ."
d. The second sentence in Section 5.4 is modified, in part, to read as
follows:
". . . a "virus" shall mean Object Code (as defined in the MCA) that
is designed to cause and does cause Licensed Software to fail to comply with the
Applicable Specifications."
e. The following new Section 5.5 is added:
"5.5 Warranty Regarding Processing of Dates/Data Dependent Data. The
----------------------------------------------------------
Licensed Software will provide [*] (including, but not limited to, [*] and
otherwise [*] and that upon request [*] through adequate testing of the Licensed
Software or otherwise [*] with this warranty."
f. The following new Section 5.6 is added:
"5.6 Warranty Regarding Time Bombs. No material portion of the Work is or
-----------------------------
will be intended, other than under the documented control of MCI:
(i) at some specific time or on a specific instruction or occurrence
of a given event, to stop, limit or interfere with the operation of
the Licensed Software in conformity with the Applicable
Specifications;
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(ii) to damage or materially alter or render inaccessible the Licensed
Software, or any other hardware, software or data which the Licensed
Software is designed to process or use, or any other hardware,
programs or data attached to, resident on, or accessible to the system
on which the Licensed Software may be executed or stored;
(iii) to contain any feature which would impair in any way the
operation of the Licensed Software including, but not limited to,
software locks or drop-dead devices, date/time expiration codes, or
serial number dependent passwords; or
(iv) to otherwise be impaired in its operation now or in the future in
any way by Genesys.
Genesys shall be responsible for, indemnify and hold MCI harmless from
any damages, costs, liabilities, and/or expenses (including without
limitation reasonable attorneys' fees), arising out of the breach of
this Section 5.6."
8. PROPRIETARY RIGHTS.
a. The following new sentence is inserted at the beginning of Section
8.1:
"Genesys acknowledges that to the extent the Licensed Software may,
pursuant to a specific Statement of Work, contain the intellectual property of
MCI or its third party licensors licensed to Genesys pursuant to Section 9.1B(3)
or jointly owned by MCI and Genesys pursuant to Section 9.1C of the MCA and that
except as expressly provided therein, incorporation of such intellectual
property in the Licensed Software shall not limit the ownership rights of MCI or
such licensors in such intellectual property."
b. The second sentence of Section 8.1 is modified, in part, to read as
follows:
"Subject to the foregoing sentence, MCI acknowledges that Genesys and
its licensors . . . remain the sole property of Genesys and its licensors."
c. The third sentence in Section 8.1 is modified, in part, to read as
follows:
"Subject to the provisions of this Section 8.1, MCI shall not be an
owner . . ."
9. INTELLECTUAL PROPERTY RIGHT INDEMNITY.
a. Section 10.1 is deleted in its entirety and replaced with the
following:
"10.1 Indemnity for Infringement of Intellectual Property Rights. [*]
----------------------------------------------------------
agrees, [*] to [*] or, [*], to [*], any claim or action brought against [*], or
[*], or [*] (collectively, the "Indemnified Parties" and individually an
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"Indemnified Party") based on an allegation that the [*] of the Licensed
Software within the scope of the license granted hereunder, which includes use
of the Licensed Software as a part of a service, (a) infringes a patent under
the laws of the [*] (the "Indemnified Countries") or (b) infringes a copyright,
trademark or other intellectual property right of a third party (other than
patent rights), or constitutes misuse or misappropriation of a trade secret
under the laws of any country (a claim under either (a) or (b) herein, an
"Infringement"), and to indemnify and hold harmless against all [*] which may be
assessed against or incurred by any of such [*] under any such claim or action.
Promptly after receipt [*], as applicable, of notice of any claim or action or
the commencement of any claim or action for which indemnification or
reimbursement may be sought hereunder, [*] shall give written notice to [*]
thereof, but the failure to so notify [*] shall [*] of any liability it may have
to [*] hereunder [*] shall be obligated to [*] of such claim or action, [*], and
shall have the [*] and [*] over the [*] or [*] of such claim or action, provided
that the [*] will be required to the extent any such [*] or [*] will impose any
obligation whatsoever on [*] that is [*] or, [*] or [*], other than the payment
of monies that are readily measurable for purposes of determining the monetary
indemnification or reimbursement obligations [*]. The [*] shall have the right,
[*] to [*] in the investigation [*] of such claim or action; [*]; provided,
however, that notwithstanding the foregoing, [*] to a complaint for equitable
relief in connection with a claim of [*] and upon notification [*] shall be [*]
for its [*] until such time as [*]. The [*] shall otherwise provide reasonable
[*] with respect to such claim or action, provided that [*] for its [*] with
respect thereto. Moreover, should the Licensed Software, or any use of the
Licensed Software within the reasonable scope of its intended use, become, or in
[*], be likely to become, the subject of a claim or action of [*], or should [*]
use thereof be finally enjoined, [*]:
(A) [*] the right to [*] such Licensed Software; or
(B) [*] or [*] such Licensed Software to make it [*] provided such [*] or [*]
is the functional equivalent of the Licensed Software in light of the
Applicable Specifications, and [*] for any additional [*] and caused by any
such [*] or [*]; or
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(C) If neither of the foregoing Subitems (A) and (B) can be reasonably
accomplished, [*], to undertake to [*] or [*] the Licensed Software
provided that (i) such [*] or [*] shall be treated as [*] as defined in the
Master Consulting Agreement, (ii) [*] of such [*] or [*], and (iii) the
undertaking of such [*] shall [*] of this Agreement; or
(D) [*] its right to act under Subsection (C) above or if [*] (C) can not
be reasonably accomplished, [*], as applicable, for all [*] of the [*] for
the Licensed Software, provided that such amounts shall be [*] beginning
with the [*] of the Licensed Software (i.e., a change from version A.x to
version B.0) was delivered to [*]."
b. Section 10.2 is deleted in its entirety and replaced with the
following:
"10.2. Exceptions.
----------
(A) Notwithstanding the provisions of Section 10.1 above, [*] for [*]
claims to the extent (i) the Licensed Software is not or ceases to be an
element of the alleged [*], (ii) the alleged [*] is based upon a [*] to the
Licensed Software [*], or (iii) the alleged [*] results from the [*] of the
Licensed Software with any products not [*] (a "Combination") where the
Combination is [*] of the Licensed Software. If an alleged [*] is based
upon a Combination and at the time of such claim or thereafter products are
[*] that could result in a [*] Combination, then the Parties will meet to
discuss the option of [*].
(B) Notwithstanding anything in Section 10.1 to the contrary, where the
Licensed Software is being [*] in its [*] or [*] as a [*] (but not
including the [*], pursuit of [*], and any other legal and related expenses
[*] claims of [*]), shall be limited to [*] times the amount of the License
Fees paid [*] for the [*] Licensed Software for any [*] claim with respect
to [*] of the Licensed Software in a [*], to the extent arising from (a)
the [*] of the Licensed Software with any other product [*], even if [*]
such [*] or, (b) a [*] to the Licensed Software made or [*] for the [*].
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It is understood and acknowledged that the foregoing [*] for certain
[*] claims shall [*], for all such claims in all proceedings in
accordance with Section 10.1, subject to the limitation of Section
10.2 (A).
(C) Notwithstanding anything in Section 10.1 or 10.2 B to the
contrary, where the Network Applications and Premises Software is
being utilized to provide [*] to Customers, [*], including without
limitation [*] or [*] as a [*] (collectively, "Liability") for any
[*] claim with respect to such use of the Licensed Software in a [*],
to the extent such Liability arose out of or resulted from a [*],
shall [*] percent ([*]%) of such Liability. It is understood and
acknowledged that the foregoing [*] claims shall [*] in all
proceedings in accordance with Section 10.1 [*] but subject to the
[*] of this Section 10.2(C). At such time as [*] under Section 10.1 as
to a claim subject to this Section 10.2 C, then the [*] of this
Section and the [*]."
c. Section 10.4 is deleted in its entirety and replaced with the
following:
"10.4 Limitation. THE FOREGOING PROVISIONS OF THIS ARTICLE 10 STATE THE
----------
ENTIRE LIABILITY AND OBLIGATIONS OF GENESYS, AND THE EXCLUSIVE REMEDY OF ALL
INDEMNIFIED PARTIES, WITH RESPECT TO ANY ACTUAL OR ALLEGED INFRINGEMENT OF ANY
PATENT, COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHT BY THE
LICENSED SOFTWARE OR ANY PART THEREOF OR ANY WARRANTY OR REPRESENTATION RELATED
THERETO."
d. The following new Section 10.6 is added:
"10.6 Licensed Software. "Licensed Software" for purposes of this Article
-----------------
10 only, shall include, without limitation, [*] pursuant to the MCA to the
extent [*] are used within the scope specified in Section 14.1 thereof, even if
any of [*] are intended to be subsequently licensed by MCI or such MCI Affiliate
pursuant to this Agreement as Licensed Software."
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10. LIMITATION OF LIABILITY AND REMEDIES.
a. Section 11.1 is modified, in part, to read as follows:
". . . UNDER THE RELEVANT PURCHASE ORDER. [*] . . . "
11. TERM AND TERMINATION. Section 13.1 is modified, in part, to read as
follows:
". . . upon one hundred eighty (180) days prior written . . ."
12. ASSIGNMENT.
a. The first sentence in Section 14.1 is modified, in part, to read as
follows:
". . . consent of the other party, which consent shall not be
unreasonably withheld or delayed."
b. The second sentence in Section 14.1 is modified, in part, to read as
follows:
". . . transfer or assignment, and (ii) either party may assign this
Agreement as part of the sale of all or substantially all of the business assets
to which this Agreement relates or as part of any transaction resulting in a
merger, consolidation or other change in control of the assigning party,
provided that the assigning party shall notify the non-assigning party of such
assignment."
13. DISPUTE RESOLUTION. The sixth sentence in Section 14.4 is modified, in
part, to read as follows:
"The arbitrator's decision shall be final and binding."
14. ENTIRE AGREEMENT. This Amendment and the Agreement, and to the extent
referenced herein or in the Agreement, the MCA, constitute the entire Agreement
between the parties in connection with the subject matter of this Amendment and
supersede all prior and contemporaneous agreements, understandings, negotiations
and discussions, whether oral or written, of the parties.
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IN WITNESS WHEREOF, Genesys and MCI have caused this Amendment Number One to be
executed by their duly authorized representatives, effective as of the Effective
Date set forth above.
AGREED TO AND ACCEPTED BY:
GENESYS TELECOMMUNICATIONS MCI TELECOMMUNICATIONS
LABORATORIES, INC. CORPORATION
/s/ Gregory Shenkman /s/ John W. Gerdelman
- -------------------------- -----------------------------
Signature Signature
Gregory Shenkman John W. Gerdelman
President and Chief
Executive Officer
- -------------------------- -----------------------------
Printed Name and Title Printed Name and Title
February 26, 1997 February 26, 1997
- -------------------------- -----------------------------
Date Date
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SCHEDULE A
EXHIBIT A
LICENSED SOFTWARE AND PRICING
-----------------------------
[*]
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<PAGE>
SCHEDULE B
EXHIBIT B
MINIMUM PURCHASE COMMITMENT
---------------------------
[*]
* Confidential Treatment Requested
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE FISCAL YEAR AND NINE MONTHS ENDED JUNE 30, 1996 AND
MARCH 31, 1997, RESPECTIVELY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1997
<PERIOD-START> JUL-01-1995 JUL-01-1996
<PERIOD-END> JUN-30-1996 MAR-31-1997
<CASH> 5,926 9,574
<SECURITIES> 0 0
<RECEIVABLES> 4,607 12,104
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,706 23,061
<PP&E> 1,550 6,055
<DEPRECIATION> (326) (991)
<TOTAL-ASSETS> 11,961 30,966
<CURRENT-LIABILITIES> 6,097 12,629
<BONDS> 0 0
0 0
8,995 18,096
<COMMON> 150 5,297
<OTHER-SE> (3,689) (5,154)
<TOTAL-LIABILITY-AND-EQUITY> 11,961 31,015
<SALES> 9,319 21,991
<TOTAL-REVENUES> 9,319 21,991
<CGS> 2,876 3,500
<TOTAL-COSTS> 2,876 3,500
<OTHER-EXPENSES> 9,682 17,836
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (3,327) 823
<INCOME-TAX> 0 (230)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,327) 593
<EPS-PRIMARY> 0 0
<EPS-DILUTED> $(0.18) $0.03
</TABLE>
