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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO _________
Commission file number: 0-22605
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GENESYS TELECOMMUNICATIONS
LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
California 94-3120525
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1155 Market Street, San Francisco, California 94103
(Address of principal executive office, including Zip Code)
(415) 437-1100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (no par value)
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ___
The aggregate market value of voting stock held by non-affiliates of the
Registrant, as of September 24, 1999 was approximately $773 million (based on
the closing price for shares of the Registrant's Common Stock as reported by the
Nasdaq National Market System for that date). Shares of Common Stock held by
each executive officer, director, and holder of 5% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
On September 24, 1999 approximately 25,374,145 shares of the Registrant's
Common Stock were outstanding.
Documents Incorporated by Reference:
Portions of the Proxy Statement for Registrant's Annual Meeting of
Stockholders, which will be filed on or about October 19, 1999, are
incorporated herein by reference into Part III.
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PART I
Certain statements contained in this report on Form 10-K 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. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in Part I, Item 1 under the heading "Risk Factors." Given
these risks and uncertainties, readers are cautioned not to place undue reliance
on such forward-looking statements.
Item 1. Business
Genesys Telecommunications Laboratories, Inc ("Genesys" or the
"Company") is a leading provider of enterprise-wide interaction management
solutions for both traditional brick and mortar organizations and e-Businesses.
The Company's products are designed to 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 company
believes that successful, long term customer relationships are the result of
managing and optimizing the individual interactions that transpire between an
organization and its customers. To accomplish this, Genesys' software
solutions, rooted in computer telephony integration technology, extend the
capabilities of an organization's internet, computer, telecommunications and
database systems, bringing together what were once disparate technologies. The
Company anticipates that as customer interactions are increasingly viewed as
strategic to an organization's mission, contact center capabilities will be
extended beyond traditional agent, site and switch boundaries, transforming the
entire enterprise into a customer interaction center.
The Genesys Suite is made up of two integrated elements: an open,
scalable, standards-based framework, and a broad integrated suite of
applications, which enable Internet and telephony-based interactions, enterprise
routing, network routing, outbound dialing and workforce management
capabilities. With the ability to integrate multiple communications media, the
Genesys Suite supports customer interactions via e-mail, the Internet and
traditional voice thereby enabling consistent customer contact regardless of the
communications channel. The open, standards-based nature of the Company's
framework product allows an organization to leverage its investments in its
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 software
products with a range of professional service offerings, including
implementation, training and support services. To date, the Company has licensed
its products to approximately 650 end-users worldwide.
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. To provide higher quality
customer interactions and optimize communications with employees, organizations
need to integrate critical business information and computing resources with
telephony and other communications media.
Organizations today communicate, both internally and externally, through a
variety of media, including voice, e-mail and the Internet. Traditionally, each
of these media and their associated databases and information retrieval systems
has been developed as a point solution and treated as an independent
environment. This has limited productivity, increased costs and restricted the
ability of organizations to improve customer satisfaction and loyalty.
Recognizing the limitations of these "silos" and the inherent value of their
information assets to enhance customer interactions, organizations are seeking a
flexible means to integrate communications media and computing platforms in
order to optimize flows of information to the call/contact center, and across
the enterprise. It has now become a requirement that organizations blend media
to more optimally manage their global customer management strategies. To be most
effective, organizations 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.
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A number of general business trends are also contributing to the
increasing importance of integrating communications media and computing
platforms. They include:
. The increasingly global nature of business operations, which has
significantly complicated the task of managing information and
providing expertise in a real-time, cost-effective manner.
. The proliferation of distributed computing environments, which 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--and increased the complexity of
accessing this information.
. The deregulation of major industries, specifically telecommunications,
banking, health care and utilities, which has resulted in increased
competition, new business opportunities, and a drive to deliver new and
enhanced services as a means of competitive differentiation.
. The increase in merger/acquisition and partnering activity, which has
forced organizations to integrate complex, disparate telecommunications
and computing systems, while maintaining high-quality customer service
without disrupting or delaying access to critical business information.
. The convergence of traditional (brick and mortar) and new (e-Business)
business models, whereby established brick and mortar companies are
recognizing the need to interact with customers via the Internet and e-
Businesses are recognizing the need to add voice capabilities.
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 was the establishment of formal voice-based call
centers, where hundreds of customer service representatives 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") and
interactive voice response ("IVR") systems. In the face of competitive
pressures, the stand-alone nature of these systems is becoming increasingly
burdensome to organizations. The appropriate person to handle certain customer
interactions or employee inquiries may no longer be a call center representative
with limited, generic training, but might instead be a more experienced or
specialized employee either in the call center or located elsewhere within the
enterprise. Providing intelligent access to these employees and furnishing them
with pertinent information at the time of the customer inquiry requires a level
of sophistication and flexibility beyond the reach of traditional ACD, IVR and
call center solutions.
Shortcomings in the traditional method that 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 computer telephony and sophisticated
interaction management solutions with the following characteristics:
. 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;
. a suite of comprehensive integrated 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 channels and
throughout the organization; and
. a consistent level of functionality based on the underlying
infrastructure.
The Company believes that solutions with these characteristics will allow
most organizations 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.
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The Genesys Solution
Genesys believes that its solutions offer an innovative approach to
computer telephony and interaction management that addresses many of the
limitations inherent in traditional call centers. The Company's solutions
provide the following features and 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. With the ability to integrate
multiple communications media, the Company's platform supports customer
interactions via e-mail and the Internet, as well as traditional voice calls. 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 communications standards.
This open systems approach is designed to enable an organization to leverage its
investments in its existing infrastructure, software applications and employee
training.
Broad Portfolio of Interaction Management Solutions
Genesys offers a broad array of integrated business applications that
provide a wide range of interaction management capabilities for both traditional
(brick and mortar) organizations and new e-Businesses. These applications
include network and enterprise call routing, Internet-based interaction
management, workforce management, outbound/blended dialing, and real-time and
historical reporting. These applications are designed to integrate with an
organization's existing telecommunications and computing infrastructure. Genesys
also offers a sophisticated computer telephony integration ("CTI") 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 solutions enable an organization to improve its interactions with
its customers, resulting in increased customer satisfaction and loyalty. For
example, the Genesys enterprise routing solution 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 interactions 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. This becomes more important as
knowledge worker personnel are expected to become a larger portion of the
overall market.
Increased Efficiency and Productivity
Genesys' products are designed to enable organizations to improve the
efficiency of customer interactions, as well as optimize the distribution of
information across the enterprise. The Company's products are designed to
automate the interaction routing function to minimize agents' idle time and more
fully leverage their skill sets. The real-time availability of relevant customer
information enables agents to process calls more quickly and efficiently,
resulting in significant cost savings through greater agent productivity and
decreased toll charges. Making sure that an interaction is presented to the most
qualified, available agent results in improved agent morale, reduced turnover
and more focused, cost-effective training. An extensive suite of reporting
tools enables managers to monitor and analyze 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
creates an environment conducive to 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 interaction management solutions that can be
quickly deployed. Additionally, customers have the flexibility to add new
applications, whether developed internally, by Genesys or by third parties, as
market requirements change. The rapid deployment and
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flexibility of the Company's software allow customers to more quickly benefit
from the efficiency and productivity gains that the software delivers.
The Genesys Strategy
Genesys seeks to be the leading provider worldwide of customer interaction
management and computer telephony software solutions. The Company's strategy
includes the following key elements:
Establish the Genesys Framework as an Open Market Standard
The Company's objective is to establish its framework as an open market,
de facto standard for CTI. To achieve this goal, the Company's products are
designed to interoperate across most major telecommunications and computing
platforms, allowing organizations to leverage most of their existing
infrastructure investments. In addition, Genesys focuses on licensing its
products to industry leaders in targeted strategic markets to extend the
Company's market penetration. The Company has developed, and will continue to
develop, strategic relationships with major telecommunications equipment and
computer hardware vendors, systems integrators, value added resellers, software
vendors and network service providers.
Provide Industry-Leading, Technologically Advanced Products
The Company offers a broad array of products that provide comprehensive
computer telephony-based customer interaction management solutions. Genesys has
developed an industry-leading platform and suite of highly integrated
applications and continues to invest significant resources to enhance the
Company's products and to incorporate new technologies and standards.
Recognizing that customers will want to interact with organizations through a
variety of media (voice, web, e-mail, etc.), Genesys continues to strengthen its
position by offering multiple media solutions. In addition, Genesys offers a
sophisticated CTI 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 with a strong need to manage external
and/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 experiencing deregulation or significant mergers and acquisitions
activity. Examples include the telecommunications and financial services, where
deregulation has substantially increased the competitive pressures to provide
new or enhanced products and service offerings. In addition, mergers and
acquisitions have created the need to integrate heterogeneous communications and
computing environments without any disruption to customer service or employee
communication.
The Company initially targeted formal call/contact centers as important
entry points for its products. Formal call centers derive particularly strong
benefits from the integration of the communications and computing environments,
in particular, the ability to offer more personalized service, increased
productivity and enhanced revenue opportunities. As this market evolves, the
Company believes it will be able to leverage its market presence to offer a
range of solutions for the informal call center and knowledge worker
environments.
As the e-Business marketplace matures and increased attention is placed on
customer retention, the Company anticipates an increasing need for integrated
Internet, web and voice interaction management solutions. The Company is well
positioned to meet the needs of traditional organizations wanting to add
Internet interaction management capabilities and the needs of e-Business wanting
a fully integrated version Internet/voice-based solution.
Develop And Leverage Strategic Business Relationships
The sale, installation and implementation of advanced CTI and interaction
management solutions requires significant expenditures of time and resources. In
order to supplement the Company's direct sales organization and rapidly take
advantage of the significant market opportunities, Genesys has focused on
developing strategic third-party relationships with network service providers
("NSPs"), telecommunications equipment and computer hardware vendors, systems
integrators ("SIS"), value added resellers ("VARs"), and independent software
vendors ("ISVs"). These relationships enable Genesys to leverage the
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technical expertise of its partners and to access additional sales and marketing
channels, while enhancing its efforts to establish the Genesys platform as an
open market standard.
Enable Managed Services
The Company believes that it can make its products available to a broader
customer base than would otherwise be possible by working with carriers,
internet service providers and application service providers ("ASPs") to offer
call/contact center capabilities as a managed service offering. Genesys product
functionality would be available to the service provider's clientele via their
network or the world wide web. For end users it means enjoying the benefits of
Genesys' products without making an up front capital investment and being able
to economically extend call center capabilities to small or branch offices and
knowledge workers, groups that have generally been denied access to advanced
computer telephony solutions.
Software Architecture
The Genesys architecture consists of a CTI/multimedia 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 interaction management solution that interoperates across most
major telecommunications, internet and computing platforms. As a result, the
Genesys architecture provides robust scalability, from small call centers to
globally dispersed, multi-site enterprises, and can be readily adapted to
support most organization's existing infrastructure. The Company's solutions are
designed to scale with an increase in the size of the organization, and to
quickly accommodate changes in the level or nature of customer interactions and
employee communications.
The Genesys architecture consists of four layers. Three layers--Media
Control Services, Common Application Services and Management Applications--
comprise the Genesys framework. 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. The Common Application Services layer contains a rich set of services
that are used to create powerful Interaction Management client/server
applications, whether by the Company, third parties or an organization's own
information technology departments. The Management Applications layer contains
all the facilities required to install, configure, maintain and secure the
Company's solutions.
The fourth layer--Real-Time Business Applications sits on top of the
Genesys framework and includes inbound, outbound, reporting, work force
management, network routing and internet contact center applications.
Genesys Suite of Interaction Management Solutions
The Genesys Suite consists of two integrated elements -- an open,
scalable, standards-based framework and a broad portfolio of interaction
management solutions -- which enable organizations to manage customer
interactions and employee communications to increase productivity, lower costs
and achieve greater customer satisfaction. The Company's typical order size
ranges from $200,000 to $400,000.
In the second half of fiscal 1999, Genesys introduced to the market place
its integrated Internet Suite and workforce management solutions extending the
product line to meet new and existing challenges within the enterprise. These
new products are described below.
Framework
Genesys T-Server Framework. The Genesys framework is based upon T-Server
Framework, the Company's platform product, which provides an open, scalable base
for interaction management solutions. T-Server Framework integrates diverse
telephony systems, enterprise databases, agent desktop applications, call center
applications and multiple communications media (e.g. e-mail, Web-based
interactions, fax, etc.) into a unified customer interaction foundation. It is
compatible with most major PBXs, IVRs and ACDs and most major computing
platforms, operating systems and databases. T-Server Framework is designed to
scale with increases in the volume of customer inquiries, growth in the number
of customer service representatives and expansion to multiple sites in multiple
geographies. Additional features include the ability to transfer voice and data
across
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sites regardless of the switch type and the immediate presentation of
customer data on the agent's screen (known as a "screen pop"). Other features
include a dynamic call center configuration management feature which provides a
single point of configuration for the entire call center in real time, and the
inclusion of a Desktop Toolkit feature, which enables integration of desktop
applications on top of the Genesys platform.
Solutions Offerings
Genesys' Internet Contact Center Solution: The Genesys Internet contact center
solution provides a means to handle both Internet-based and voice interactions
to create a consistent customer interface irregardless of the media channel
chosen by the customers. The solution routes incoming interactions through a
"universal queue," which treats all media interactions moving through the
contact center as manageable "events," so that the various media gateways -
ACDs, IVRs, and media servers for e-mail, chat and VOIP -- interface and speak a
common language. The Genesys Internet contact center solution supports the
following Internet-based customer communication channels:
Genesys E-Mail allows contact center agents to respond to customer e-mail
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inquiries with the same personalized care as traditional voice interactions.
Genesys E-mail can automatically respond and/or suggest responses to incoming
e-mail based on business rules defined by contact center managers.
Genesys Chat enables real-time text communication through a Web browser. Web
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users can enter questions or comments into their browsers and view responses
from an agent in real time.
Genesys Web Call Back makes it possible for customers visiting a company's Web
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site to request a telephone call back from a contact center agent either
immediately or at a more convenient time.
Genesys Web Call Through (voice over IP) allows Web users to speak to customer
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representatives via their computer, using standard Internet phone software.
Genesys Web Collaboration allows contact center agents and customers to
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automatically synchronize Internet browsers and simultaneously surf the
Internet. Agents can assist customers in learning how to find solutions or use
features on the Internet site.
Genesys' Network Routing Solutions. The Genesys network routing solution
enables customer or employee inquiries to be routed from the carrier's network
to a company's multiple call center sites. The Genesys solution allows contact
center managers to manage agents located at geographically dispersed sites as if
they were in one virtual contact center. When an interaction arrives at the
carrier's network, Genesys' network routing solution applies basic customer-
defined criteria to identify, segment, and route the interaction. Routing
criteria are unique for each business and can be based upon real-time
statistics, customer-stored data, or customer-defined business rules and
situations. Calls are routed dynamically to balance the load of calls across
multiple sites. The network routing solution achieves this load balancing by
continuously tracking real-time statistics, such as length of queues, call
volumes, availability of agent skill sets, etc., throughout the virtual call
center in order to match an incoming call with the best resource for that
specific moment in time. Balancing interaction volume across multiple sites
smoothes out the peaks and valleys at individual contact center sites, reducing
customer "on hold" times, along with the associated telecommunications costs.
Genesys' Enterprise Routing Solution. The Genesys enterprise routing
solution is an intelligent, data driven routing application. Using an
enterprise's business rules and objectives, the solution can route and transfer
inbound voice calls, e-mails, Web-based interactions and other forms of
communications based on a wide variety of criteria and conditions, (i)
including: call information such as caller ID, automatic number identification
(ANI), dialed number identification service (DNIS), caller-entered digits (CED)
or IVR data; (ii) customer information from enterprise databases, enterprise
resource planning applications, and customer interaction software; agent or
group skill sets and skill levels; (iii) telephony statistics for agents,
groups, routing points, or queues; (iv) particular conditions, dates or times;
and (v) pre-defined service level objectives for different categories of
callers; and pre-defined disaster recovery scenarios. The Genesys solution
includes a graphical Strategy Builder that allows call centers to design
customized routing strategies. The Strategy Builder features a drag-and-drop
interface, compiler and debugger that tests and simulates strategies before
loading, flexible scheduling for strategy loading, and the ability to redesign
and load new strategies during real-time call center operations.
Genesys' Workforce Management Solution: Genesys' workforce management
solution allows contact center managers to analyze historical customer
interaction statistics, accurately forecast customer service demands, and create
appropriate staffing schedules to optimize the desired quality of service in the
contact center. Traditional solutions are stand alone and only focused on
voice interactions. The Genesys workforce management solution is integrated to
the Genesys framework and
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leverages the configuration of staffing and skills being used to manage the
Interaction environment, but more importantly, a multi-switch, -call center, -
media environment of today's complex enterprise. This new solution offers
advanced capabilities to improve customer service and minimize payroll and
telecommunications expenses. The Genesys workforce management solution also
tracks adherence to staffing schedules and forecasted customer contact volumes
in real time, giving contact center managers flexibility to make immediate,
intra-day scheduling adjustments should customer contact volumes suddenly
fluctuate.
Genesys' Outbound Dialing Solution. Genesys' outbound dialing solution
is an advanced, predictive dialing application that manages outbound campaigns
and blends inbound and outbound calling. The solution allows contact center
managers to design flexible, cost-effective outbound campaigns that increase
sales, improve customer interactions and reduce costs. For blended campaigns,
the Genesys solution is able to regulate the volume of outbound calls based on
traffic to inbound services in order to optimize agent productivity and
streamline staffing. Other features include: call-result detection, which
enables customers to undertake large-scale, high-volume outbound call campaigns
while minimizing agent downtime between calls; automated call-back management,
which initiates outbound calls in response to customer requests generated by the
Internet, IVR, ANI/DNIS, or even abandoned calls; an Outbound Scripting option
that guides agents through pre-determined sales dialog; and displays of agent
and campaign performance statistics in real time to help supervisors evaluate
campaign success.
Genesys' Historical Reporting Solution. Genesys historical reporting
solution tracks and stores data related to call center activity. It creates a
historical record for each call, tracing its path from the moment the call
enters the call center, through transfers and conferencing, to the call's final
termination. In addition to voice calls, the Genesys solution tracks e-mail and
Web-based interactions, providing a comprehensive analysis of customer
interactions. The solution integrates with major databases such as Oracle,
Sybase, Informix, DB2, and Microsoft SQL Server. Managers can produce standard
reports or create customized reports using a Genesys tool or any third-party
reporting tool. Additional features include: the ability to analyze the entire
call center operation across multiple platforms and sites, and accessibility
from virtually any desktop with Netscape Navigator or Microsoft Internet
Explorer.
Genesys' Real-Time Reporting Solution. Designed to give call center
managers a measure of contact center effectiveness and efficiency, Genesys'
real-time reporting solution monitors real-time activities across the contact
center and provides a graphical display of these activities by agent, group or
queue. The solution provides a unified, real-time view of a company's call
centers across multiple sites, PBXs, platforms, and databases. The real-time
reporting solution offers customizable views of interaction objects (agents,
agent groups, queues, virtual queues, routing points and virtual routing
points). A contact center supervisor can monitor the current state or status of
the objects throughout the contact center to help make decisions about staffing,
schedules and call/interaction routing strategies. Administrators can create
business filters to separate statistics by customer segmentation and non-call
properties and can apply filters to statistics as needed. A new feature of the
real-time reporting suite improves reporting on business data by allowing
contact center administrators to create statistics with formulas to calculate
values specific to the contact center needs, i.e. revenue generated by a group
of agents over a specific time period. Sample statistics include: number of
inbound and outbound calls; number of calls handled; average time spent on the
phone, compared to the total time required to handle the call; number of agents
in each agent state; estimated number of calls that agents or groups can handle
in an hour; number of agents logged on and available; average speed of answer;
average time to abandon; and percentage of answered calls and percentage of
abandoned calls. The real-time reporting solution also features flexible viewing
options with customizable time profiles for calculating statistics, and object-
based views of agents, groups, and call centers, which allow supervisors to
monitor one or more agents or predetermined groups.
Genesys' real-time reporting solution also provides each contact center
agent with a real-time measure of his or her own performance. Agents can access
current status information and cumulative statistics of key performance
measures, by hour and by day. This tool allows each agent to review performance
data elements throughout a shift, and make adjustments to more effectively
allocate the agent's time and maximize his or her contribution to the call
center. The Genesys solution also allows each agent to compare his or her
performance to a group, and allows managers to set thresholds and statistical
alarms to enforce specific parameters for agents.
Customers
As of June 30 1999, Genesys had, directly or indirectly through VARs,
systems integrators and resellers, licensed its products to approximately 650
end-users worldwide. In fiscal 1999, no customer accounted for more than 10% of
total revenues. In fiscal 1998 and 1997, MCI Telecommunications accounted for
14.1% and 11.1%, respectively, of total revenues. See "Risk Factors--Customer
Concentration".
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Sales and Marketing
The Company's sales 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's worldwide sales headquarters is located in
San Francisco, California. Domestic sales offices are located in California,
Colorado, Florida, Georgia, Illinois, Kansas, Maryland, Massachusetts,
Minnesota, New Jersey, New York, North Carolina, Oregon, Rhode Island, Texas,
Virginia and Washington. Internationally, the Company has sales offices or other
representation in Argentina, Australia, Brazil, Canada, France, Germany, Italy,
Israel, Japan, Mexico, the Netherlands, Singapore, South Africa, South Korea,
Spain, Sweden and the United Kingdom.
Direct Sales
The Company employs a direct sales force to market is products and
services worldwide. As of June 30, 1999, the Company's sales and marketing staff
consisted of 246 employees. Sales representatives are assigned quotas and
compensated for all revenues generated within their assigned territories and/or
accounts. 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, VARs, telecommunications equipment and computer hardware vendors,
NSPs and ISVs. While the majority of the Company's U.S. sales were direct, the
percentage of reseller sales is increasing in the U.S. market. Internationally,
large proportions of sales are executed via the indirect channel. See "Risk
Factors--Dependence on Third-Party Resellers".
. VARs and systems integrators such as Ameritech, BT, Bell Atlantic Call
Center Solutions, Cambridge Technology Partners, CapGemini, Deloitte &
Touche LLP, PWC, SAIC, SEMA and TSC 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
Alcatel, Compaq, NCR, Rockwell, Siemens and Unisys market and distribute
Genesys products as part of a packaged solution with their own products.
. ISV partners such as Clarify, SAP, Siebel Systems 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 BT, MCI, NBTel and Telsstra have entered into a broad range
of relationships with the Company, including the resale of the Company's
products and the provision of services utilizing the Company's products.
International Sales
Revenues outside of the United States accounted for 49.9%, 44.7% and 33.4%
for the fiscal years ended June 30, 1999, 1998, and 1997 respectively. The
Company has international sales offices or other representation in 18 countries
and intends to continue broadening 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
the T-Server Framework. See "Risk Factors--Risks Associated with International
Sales and Operations".
Support Services
Support services, including maintenance, implementation, consulting,
installation and training, are an important element of the overall Genesys
solution. 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
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will be successful in its efforts to provide sufficient resources to expand its
customer support capabilities. See "Risk Factors--Lengthy Sales Cycle" and "--
Dependence on Third-Party Resellers".
Professional Services
Consulting and systems integration services are provided directly by the
Company's Professional Services group, as well as through alliances with major
systems integrators, VARs and mid-tier consulting firms. The Genesys
Professional Services group offers a range of services designed to support the
customer's deployment of the Genesys Suite of products, working either directly
with the customer or in conjunction with Genesys certified partners to provide
the following types of services: scope and design, installation, development,
testing and rollout. Genesys certified partners offer a broader range of
services including business planning, business process reengineering, call
center operations, as well as integration, implementation, and support of
Genesys products.
Technical Support
Genesys Technical Support provides expert-level support to augment
customers' technical resources. Currently, Genesys technical support personnel
deliver services world-wide from locations in Wokingham, United Kingdom; St.
John, New Brunswick, Canada; and San Francisco, CA. Support is provided on a
8:00 a.m. to 5:00 p.m. or 7 by 24 basis, utilizing a combination of live support
and pager notification. Genesys utilizes a tracking and reporting process that
is integrated to all Genesys support locations to provide a proactive monitoring
of customer environments and events.
Educational Services
Genesys University offers curriculum that addresses the entire Genesys
product suite and a rigorous certification program to ensure the transfer of
knowledge to the attendee and skills development to be able to implement the
Genesys product suite. The certification program is offered to Genesys
customers and end-users, as well as a requirement of Genesys employees and
partners implementing Genesys products. Today, Genesys currently offers three
certification programs: a Certified Genesys Engineer (CGE) program intended for
those who will install, configure, maintain and troubleshoot enterprise-wide or
single site contact center solutions; a Certified Genesys Developer (CGD)
program intended for software developers who will develop applications supported
by the Genesys framework; and a Certified Genesys Routing Professional (CGRP)
program intended for professionals who design and implement complex business-
rules-based routing strategies for the enterprise. In addition, Genesys offers a
selection of sales and marketing courses intended for its partners and designed
to provide tools and techniques for use in the selling and marketing of Genesys
products in conjunction with partners' products or services.
Research and Development
Rapid technological change, frequent new product introductions, and
changes in customer requirements and emerging industry standards characterize
the market for the Company's products. 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.
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.
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Research and development expenses were $24.4 million, $15.3 million, and
$9.4 million for the fiscal years ended June 30, 1999, 1998, and 1997. In
addition, the Company capitalized software development costs totaling $4.8
million and $1.9 million in fiscal 1999 and 1998, respectively. The Company's
total research and development staff consisted of 217 employees as of June 30,
1999. 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, new releases of many of the Company's
applications, and new products designed to enhance the overall strength of the
Genesys Suite. 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 "Business--Solutions" and "Risk Factors--Dependence on New
Products; Rapid Technological Change".
Competition
The market for the Company's software products is highly competitive and
subject to rapid technological change, and is significantly affected by new
product introductions and other market activities of industry participants. To
date, the Company experienced significant competition and 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, Cisco Systems, Inc., Davox Corporation, Dialogic
Corporation, Hewlett-Packard, IBM Corporation, IEX Corporation, Kana
Communications, Lucent Technologies, Melita International, Northern Telecom,
Quintus Corporation and Siebel Systems. 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 market for the Company's products
develops, a number of companies with significantly greater resources than the
Company could attempt to increase their presence in the 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. Increased competition is
likely to result in price reductions, reduced margins and loss of market share,
any of which could have a material adverse effect on 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 have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors-Competition".
Intellectual Property
The Company's success is heavily dependent upon its 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
has 16 U.S. patents issued, and 13 for which the issue fee is paid and the
patents will soon issue. In addition, Genesys has 111 U.S. patent applications,
41 PCT International applications, and 14 National applications in countries
foreign to the U.S. (five in Japan, six in Europe, two in Canada, and one in
Australia). See "Risk Factors-Protection of Intellectual Property."
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Employees
At June 30, 1999, the Company had 730 employees worldwide, of which 217
were primarily engaged in research and development, 172 in customer service, 246
in sales and marketing and 95 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
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--Governmental Regulation of
Immigration" and "--Management of Growth".
RISK FACTORS
In addition to the other information contained in this Annual Report, the
following additional risk factors should be considered carefully in evaluating
the Company and its business. Certain statements contained in this Annual
Report, including, without limitation, statements containing the words
"believes," "anticipates," "estimates," "expects" and words of similar
import, constitute "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934. 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, readers are cautioned not to place undue reliance on such
forward-looking statements.
Potential Fluctuations in Quarterly Operating Results
The Company's quarterly operating results have varied significantly in the
past. The company's quarterly revenues and operating results may fluctuate
significantly in the future as a result of a variety of factors, many of which
are outside the Company's control. These factors include:
. market acceptance of Genesys' products;
. competition;
. the size, timing and recognition of revenue from significant orders;
. the ability to develop and market new products and product enhancements;
. new product releases by the Company and its competitors and the timing of
such releases;
. the length of sales and implementation cycles;
. the ability to integrate acquired businesses;
. 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 delay or deferral of significant revenues until acceptance of
software required by any specific license transaction;
. the deferral of customer orders in anticipation of new products and
product enhancements;
. 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;
. seasonal fluctuations in our sales cycles;
. changes in relationships with strategic partners;
. personnel changes;
. foreign currency exchange rate fluctuations;
. the ability to control its costs; and
. general economic factors.
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The Company has a limited backlog of orders and total revenues for any
future quarter are difficult to predict. The Company's revenues and operating
results depend upon the amount and timing of customer orders that it receives in
a given quarter. In the past, Genesys has recognized a substantial portion of
its revenues in the last month of a quarter. If this trend continues, any
failure or delay to fulfill orders by the end of a particular quarter will harm
its business, financial condition and results of operations. As a result of
these and other factors, the Company believes that period-to-period comparisons
of its historical results or operations are not a good predictor of its future
performance. If the Company's future operating results are below the
expectations of stock market analysts, its stock price may decline. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Lengthy Sales Cycle
The long sales and implementation cycles for the Company's products may
cause revenues and operating results to vary significantly from quarter to
quarter. A customer's decision to purchase the Company's products involves a
significant commitment of its resources and a lengthy evaluation process.
Throughout the sales cycle, Genesys often spends considerable time educating and
providing information to prospective customers regarding the use and benefits of
the Company's products. 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 overall solution. As a result,
the Company's sales cycle may be lengthy. Although it varies substantially from
customer to customer, Genesys' sales cycle generally lasts from three to nine
months or more. Even after making the decision to purchase the Company's
products, its customers tend to deploy them slowly. Deployment of the Company's
products extends from a few weeks to several months depending on the complexity
of a customer's telecommunications and computing infrastructure. Deployment
also may involve a pilot implementation phase, the successful completion of
which is typically a prerequisite for full-scale deployment. This deployment
may present significant technical challenges, particularly as large numbers of
employees of a customer attempt to use the Company's products concurrently.
Because of their complexity, larger implementations, especially multi-site or
enterprise-wide implementations, can take several quarters. Genesys generally
relies upon internal resources or third-party consultants to assist in the
implementation of the Company's products. The Company has experienced
difficulty implementing customer orders on a timely basis in the past due to the
limited personnel resources available to the Company. The Company cannot
guarantee that it will not experience delays in the implementation of orders in
the future, or that third-party consultants will be available as needed by the
Company. As a result of this lengthy sales and deployment cycle, the Company
may experience a delay in the recognition of applicable license revenue. In
addition, the delays inherent in such a lengthy sales and deployment cycle raise
the risks that the Company's customers may decide to cancel or change their
orders, which could result in the loss of anticipated revenue. The Company's
business, financial condition and results of operations would suffer if the
customers reduce or delay their orders or choose not to release products using
our technology. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Sales and Marketing".
Customer Concentration
A significant portion of the Company's revenues has been recognized from a
limited number of customers. For example, in fiscal 1999, no customer accounted
for more than 10% of total revenues. In fiscal 1998 and 1997, MCI
Telecommunications accounted for 14.1% and 11.1%, respectively, of total
revenues. The Company expects that a majority of its revenues will continue to
depend on sales of products to a small number of customers. The Company also
expects that customers will vary from period-to-period. In general, the
Company's customers have acquired fully paid licenses to the installed product
and are not contractually obligated to license or purchase additional products
or services from us. If the Company fails to successfully sell its products to
one or more targeted customers in any particular period, or one or more
customers defer or cancel their orders, the Company's revenues and results of
operations could be harmed. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Sales and
Marketing".
Competition
If the Company were unable to maintain its market share in the intensely
competitive software market, its financial condition and results of operations
would be harmed. Genesys' competitors include companies such as:
. computer telephony platform developers;
. computer telephony applications software developers; and
. telecommunications equipment vendors.
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These competitors include Aspect Communications, Cisco Systems, Davox
Corporation, Dialogic Corporation, Hewlett-Packard, IBM Corporation, IEX
Corporation, Kana Communications, Lucent Technologies, Melita International
Corporation, Nortel Networks, Quintus Corporation and Siebel Systems. Several
of these competitors have longer operating histories, significantly greater
resources, greater name recognition and a larger customer base than the Company.
Genesys expects to continue to encounter significant competition from these and
other sources. In addition, as the market for the Company's products develops,
companies with greater resources may attempt to increase their presence in the
market by acquiring or forming strategic alliances with the Company's
competitors. If new competitors or alliances among current competitors emerge
and acquire significant market share, the Company's business and results of
operations could be seriously harmed.
Dependence on New Products; Rapid Technological Change
Rapid technological change, frequent new product introductions, changes in
customer requirements and evolving industry standards characterize the market
for the Company's products. The introduction by competitors of products
embodying new technologies and the emergence of new industry standards could
render the Company's existing products obsolete. Genesys' future success also
will depend upon its ability to develop and manage key customer relationships in
order to introduce a variety of new products and product enhancements that
address the increasingly sophisticated needs of its customers. The Company's
failure to establish and maintain these customer relationships may adversely
affect the ability to develop new product and product enhancements. In
addition, the Company may experience delays in releasing new products and
product enhancements in the future. Material delays in introducing new products
and enhancements or the Company's inability to introduce competitive new
products may cause customers to forego purchases of the Company's products and
purchase those of competitors. Due to the complexity of Genesys' software and
the difficulty in gauging the engineering effort required to produce new
products and product enhancements, these planned products and product
enhancements can require long development and testing periods. As a result,
significant delays in the general availability of such new releases or
significant problems in the installation or implementation of such new releases
could have a material adverse effect on the Company's business, operating
results and financial condition. The Company has experienced delays in the past
releasing new products and new product enhancements. The Company cannot
guarantee that it will be successful in the future in:
. developing and marketing, on a timely and cost-effective basis, new
products or new product enhancements that respond to technological
change, evolving industry standards or customer requirements;
. avoiding difficulties that could delay or prevent the successful
development, introduction or marketing of these products; or
. achieving market acceptance for the Company's new products and product
enhancements.
Software products, like those offered by the Company, might contain errors
or defects, which are sometimes called "bugs". These bugs are particularly
common when new products are first introduced or as new versions or enhancements
to old products are released. In the past, the Company has discovered software
errors in certain of its new products after their introduction. Despite
testing, current versions, new versions or enhancements may still have defects
and errors after they are shipped to customers. The presence of such bugs could
lead to lost revenues or delays in market acceptance, which could harm the
Company's business and operating results.
Integration of Acquired Businesses into the Company; Risks Associated with
Acquisitions
The Company continually evaluates strategic acquisitions of businesses and
technologies that would complement its products or enhance its market coverage
or technological capabilities. In December 1998, Genesys acquired Plato
Software Corporation and in June 1999 it acquired Next Age Technology, Inc. The
Company may continue to make such acquisitions and investments in the future and
there are a number of risks that future transactions could entail. These risks
include the following:
. inability to successfully integrate or commercialize acquired
technologies or otherwise realize anticipated synergies or economies of
scale on a timely basis;
. the diversion of management's attention;
. the disruption of the Company's ongoing business;
. inability to retain technical and managerial personnel for both
companies;
. inability to establish and maintain uniform standards, controls,
procedures and processes;
. negative response by the government or our competitors to the proposed
transactions; and
. the impairment of our relationships with employees, vendors, and/or
customers.
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In addition, the Company could affect future acquisitions without shareholder
approval. Acquisitions could dilute shareholder equity, or cause the Company to
incur debt and contingent liabilities and amortize acquisition expenses related
to goodwill and other intangible assets. The occurrence of any of the foregoing
risks could have a material adverse effect on the Company's business, financial
condition and results of operations.
Management of Growth
The Company has experienced a period of rapid growth and expansion that
has placed and will continue to place a significant strain on its resources.
During this period, the Company has experienced revenue growth, an increase in
the number of employees, an expansion in the scope of its operating and
financial systems and an expansion in the geographic area of its operations. As
of June 30, 1999, the Company had approximately 730 employees, as compared to
approximately 538 on June 30, 1998 and 370 on June 30, 1997. The Company
anticipates that it will expand further to address potential growth in its
customer base and market opportunities. The Company expects to add additional
key personnel in the near future. To manage this anticipated growth, the
Company will be required to successfully do the following things:
. improve and enhance its operational, financial and management
information controls, reporting systems and procedures;
. hire, train and manage additional qualified personnel;
. expand and upgrade its core technologies; and
. effectively manage multiple relationships with customers, suppliers and
other third parties.
The Company's systems, procedures and controls may not be adequate to
support its operations. If the Company fails to improve its operational,
financial and management information systems, or to hire, train, motivate or
manage its employees, the business, financial condition and results of
operations could suffer. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Sales, Marketing and
Support".
Dependence on Third-Party Resellers
The Company's success depends on its ability to continue to develop
channels with third-party resellers such as original equipment manufacturers,
systems integrators and telecommunications switch vendors. The Company has
entered into reseller agreements with some of the telecommunications switch
vendors, including those that compete with Genesys. Genesys is also seeking to
establish strategic relationships with independent software vendors. Genesys
does not have a substantial direct sales force and derives a significant portion
of its revenue from its third-party resellers. 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. These sales channels could be
affected by a number of additional factors including:
. pressures placed on third-party resellers to sell competing products;
. competing product lines offered by certain third-party resellers;
. failure to adequately support the third-party resellers;
. failure of current third-party resellers to provide the level of services
and technical support required by Genesys' customers;
. loss of a significant number of third-party resellers; and
. failure to attract and retain third-party resellers who have the
expertise necessary to successfully sell the Company's products.
Even if Genesys is able to increase its sales through third-party
reseller's, those sales may be at more discounted rates. This would result in
lower revenues to the Company than what it would generate by licensing the same
products to customers directly.
The Company is also seeking to incorporate its products into the products
offered by telecommunications switch vendors and local and long distance network
carriers. In the near term, the Company is focused on enabling network service
providers to offer computer telephony integration services to their business
customers. The Company cannot guarantee that it will be able to establish
relationships with network service providers or telecommunication switch vendors
or that they will successfully incorporate Genesys' products into theirs. The
Company also cannot guarantee that its corporate partners or its business
customers will be interested in purchasing products that incorporate Genesys
software and are offered by network
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service providers or telecommunications switch vendors. If the Company fails to
develop this sales channel, its business and results of operations could be
harmed.
Dependence on Emerging Market
The market for customer interaction software, particularly across multiple
media channels, is an emerging market that is extremely competitive and highly
fragmented. This market is currently evolving and subject to rapid
technological change. The Company's success will depend in large part on
continued growth in the number of organizations adopting customer interaction
solutions across multiple media channels. The market for Genesys' products is
relatively new and undeveloped, and recent customers and prospective customers
have little experience with deploying, maintaining or managing customer
interaction solutions. If this market demand fails to develop, or develops more
slowly than the Company currently anticipates, 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, 1999, 1998 and 1997, the Company
derived 49.9%, 44.7% and 33.4% of its total revenues, respectively, from sales
outside the United States. The Company anticipates that a significant portion of
its revenues will continue to be concentrated in international markets for the
foreseeable future. The Company intends to expand operations in its existing
international markets and to enter new international markets, which will require
management attention and resources. The Company may not be successful in
expanding its international operations. In addition, a successful international
expansion of Genesys' software solutions will be limited to those countries
where there is regulatory approval of the third-party telephony hardware
supported by Genesys' 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.
Furthermore, to increase revenues in international markets, Genesys will need to
continue to establish foreign operations, to hire additional personnel to run
such operations and to maintain good relations with the Company's foreign
systems integrators and distributors. To the extent that Genesys is unable to
successfully do so, its growth in international sales will be limited. The
failure to expand international sales could have a material adverse effect on
the Company's business, operating results and financial condition.
A majority of the Company's international sales to date have been
denominated in U.S. dollars. The company does not currently engage in any
foreign currency hedging transactions. A decrease in the value of foreign
currencies relative to the United States dollar would make the Company's
products more expensive in international markets. In addition to currency
fluctuation risks, international operations involve a number of risks not
typically present in domestic operations. Such risks include:
. changes in regulatory requirements;
. costs and risks of deploying systems in foreign countries;
. timing and availability of export licenses;
. tariffs and other trade barriers;
. political and economic instability;
. difficulties in staffing and managing foreign operations;
. potentially adverse tax consequences;
. difficulties in obtaining governmental approvals for products
. the burden of complying with a wide variety of complex foreign laws and
treaties;
. the possibility of difficult accounts receivable collections; and
. difficulties in managing distributors.
Foreign laws that may differ significantly from laws of the United States
may govern distributors' customers purchase agreements. The Company is also
subject to the risks associated with the imposition of legislation and
regulations relating to the import or export of high technology products. The
Company cannot predict whether quotas, duties, taxes or other charges or
restrictions upon the importation or exportation of its products will be
implemented by the United States or other countries, leading to a reduction in
sales and profitability in that country. Future international activity may
result in sales dominated by foreign currencies. Gains and losses on the
conversion to United States dollars of accounts receivables, accounts payable
and other monetary assets and liabilities arising from international operations
may contribute to fluctuations in the Company's
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operating results. Any of these factors could materially affect the Company's
business, operating results and financial condition.
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 45% of total revenues in fiscal 1999. Genesys' platform
and related applications software and services are currently expected to account
for substantially all of the Company's revenues for the foreseeable future.
Consequently, a decline in pricing or demand for, or failure to achieve broad
market acceptance of, Genesys' 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, other than the
Adante e-mail and Next Age Work Force Management 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--Solutions".
Government Regulation of Immigration
As of June 30, 1999, over 26% of the Company's employees, including
approximately 57% 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. If the H-1 Visa holder has not become a Lawful Permanent United
States Resident obtained some other legal status permitting continued employment
before expiration of this six-year period, the 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
The Company's products currently integrate with most major telephony
systems and interoperate across most major computing platforms, operating
systems and databases. If the Company's platform did not 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. The Company cannot guarantee that it
would be able to redesign its products or that any redesign would achieve market
acceptance. If the Company's platform products did not integrate with third-
party technology, there would be a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Architecture" and "--Solutions".
Year 2000
Many computer systems experience problems handling dates beyond the year
1999. The Company has designed and tested current versions of its products for
use in the year 2000 and beyond, and believes that they are year 2000 compliant.
However, some of Genesys' customers might be running older versions of the
Company's products that might not be year 2000 compliant. It is possible that
Genesys may experience increased expenses in addressing mitigation issues for
these customers. In addition, the Company's products frequently are integrated
into larger networks involving sophisticated hardware and software products
supplied by other vendors. Each of the Company's customers' networks involves
different combinations of third party products. The Company cannot evaluate
whether all of their products are year 2000 compliant. Genesys may face claims
based on year 2000 problems in other companies' products or based on issues
arising from the integration of multiple products within the overall network.
Although no such claims have been made, the Company may in the future be
required to defend its products in legal proceedings, which could be expensive
regardless of the merits of such claims.
17
<PAGE>
If the Company's suppliers, vendors, major distributors, partners,
customers and service providers fail to correct their year 2000 problems, these
facilities could result in an interruption in, or a failure of, the Company's
normal business activities of operations. If a year 2000 problem occurs, it may
be difficult to determine which party's products have caused the problem. These
failures could interrupt the Company's operations and damage its relationships
with its customers. Due to the general uncertain inherent in the year 2000
problem resulting from the readiness of third party suppliers and vendors, the
Company is unable to determine at this time whether year 2000 failure could harm
its business and financial results.
Genesys' customers' purchasing plans could be affected by year 2000 issues
if they need to expend significant resources to fix their existing systems to
become year 2000 compliant. This situation may reduce funds available to
purchase products until after the year 2000, which may reduce the Company's
revenue.
Protection of Intellectual Property
The Company's success depends heavily on its ability to protect its
software and other 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. Genesys currently holds four issued patents and has a number
of United States and foreign patent applications pending. 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, others may independently develop similar or superior
products, duplicate the Company's products or, if patents are issued to the
Company, design around the patents issued to the Company. If third parties were
successful in using their patents to challenge or compete with Genesys, its
business could be seriously harmed.
As part of its confidentiality procedures, Genesys generally enters into
nondisclosure agreements with its employees, consultants and other third parties
who provide technical services to the Company 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.
The Company also relies in part on "shrink-wrap" and "click-wrap" licenses,
although these licenses are not signed by the end user and, therefore, may be
unenforceable under the laws of certain jurisdictions.
The measures described above however, afford Genesys only limited
protection. 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.
Although 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 foreign countries in which the Company currently sells
products and countries Genesys 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. Although
the Company is not aware that any of its products or proprietary rights
infringes upon the proprietary rights of third parties, the Company may be
subject to infringement claims in the future. Furthermore, there can be no
assurance that former employers of Genesys' present and future employees will
not assert claims that such employees have improperly disclosed confidential or
proprietary information to the Company. Any such claims, with or without merit,
could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays, cause the
Company to lose or defer sales or require the Company to pay money damages or
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to Genesys or
at all, which could have a material adverse effect on Genesys' business,
financial condition and results of operations.
18
<PAGE>
Item 2. Properties
The Company's headquarters are located in approximately 82,000 square feet
of office space in San Francisco, California under a lease, which expires on
September 30, 2002. The Company also leases space for its sales and support
offices in California, Colorado, Florida, Georgia, Illinois, Kansas, Maryland,
Massachusetts, Minnesota, New Jersey, New York, North Carolina, Oregon, Rhode
Island, Texas, Washington and Virginia, as well as for offices in 18 foreign
countries. The Company believes that its existing facilities are adequate for
its current needs and that additional space will be available as needed.
Item 3. Legal Proceedings
The Company is a party to routine litigation incident to its business.
Management believes that none of these legal proceedings will have a material
adverse effect on the Company's consolidated financial statements taken as a
whole or results of operations of the Company.
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"). On November 20, 1998, the Company
and GeoTel entered into a settlement agreement concerning the patent dispute on
terms that neither company believes are material to its financial results.
Pursuant to the settlement, GeoTel will receive a pre-determined license fee,
paid over a fixed period of time, for certain products in exchange for a
nonexclusive, irrevocable license to use the technology covered by GeoTel's 452
Patent or any related patent in all present and future Genesys products which
incorporate such technology. The license fee is expensed in the period in which
it is paid, which approximates the useful life of the licensed technology.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on May 21, 1999 (the "May
Stockholders Meeting"), the stockholders of the Company voted on and approved
the following proposals:
Proposal 1. To elect five directors to the Board of Directors to serve until
the next Annual Meeting;
Proposal 2. To ratify the selection of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending June 30,
1999; and
Proposal 3. To approve an amendment to the Company's 1997 Stock Incentive Plan
(the "1997 Plan") to increase the number of shares of Common Stock
authorized for issuance under the 1997 Plan by 2,500,000 shares.
Information on the Board of Directors.
The following directors were elected at the May Stockholders Meeting to
serve until the next Annual Meeting, which is currently scheduled for November
19, 1999:
. Gregory Shenkman, Chairman
. Alec Miloslavsky, Vice Chairman
. Ori Sasson
. Bruce Dunlevie
. Paul Levy
19
<PAGE>
May Stockholders Meeting Results.
Proposal 1. Election of Directors
<TABLE>
<CAPTION>
Director In favor Withheld Broker non-votes
-------- -------- -------- ----------------
<S> <C> <C> <C>
Gregory Shenkman 17,301,348 109,250 n/a
Alec Miloslavsky 17,303,287 107,311 n/a
Ori Sasson 17,303,867 106,731 n/a
Bruce Dunlevie 17,252,159 158,439 n/a
Paul Levy 17,252,159 158,439 n/a
</TABLE>
Proposal 2. Ratification of Independent Public Accountants
<TABLE>
<CAPTION>
For Against Abstain Broker non-votes
--- ------- ------- ----------------
<S> <C> <C> <C>
17,382,080 25,971 2,547 0
Proposal 3. Amendment to the 1997 Stock Incentive Plan
<CAPTION>
For Against Abstain Broker non-votes
--- ------- ------- ----------------
8,239,666 4,136,658 9,296 5,024,978
</TABLE>
20
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their respective position and
age as of August 31, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Ori Sasson 37 President and Chief Executive Officer
Alec Miloslavsky 36 Vice Chairman of the Board and Chief
Technical Officer
Christopher D. Brennan 42 Chief Financial Officer and Senior Vice
President, Finance & Administration
Richard C. DeGolia 49 Senior Vice President, Business
Development and Strategic Planning, Acting
General Counsel and Corporate Secretary
Donald W. Hunt 43 Senior Vice President, Field Operations,
Americas and Asia Pacific
Noelle Leca 42 Senior Vice President, Worldwide Marketing
Ad P. Nederlof 52 Senior Vice President, Field Operations,
EMEA
Yuri Shtivelman 43 Senior Vice President, Product Development
</TABLE>
Mr. Sasson joined the Company in December 1998 as its President and Chief
Executive Officer. Prior to joining the Company, Mr. Sasson was Chief Executive
Officer and President of Scopus Technology, Inc. from March 1991 until July
1998, when Siebel Systems, Inc acquired Scopus.
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. Brennan joined the Company in April 1999 as its Chief Financial
Officer and Senior Vice President, Finance & Administration. Prior to joining
the Company, Mr. Brennan was Chief Financial Officer and Corporate Secretary of
Diamond Lane Communications from September 1997 to April 1999. Prior to that,
he was with UB Networks, a wholly owned subsidiary of Newbridge Networks, having
been acquired from Tandem Computers, most recently as President and Chief
Operating Officer, from April 1994 to July 1997.
Mr. DeGolia joined the Company in September 1996 as Vice President,
Business Development. In February 1999, Mr. DeGolia was promoted to Vice
President, Business Development and Strategic Planning and Corporate Secretary.
In July 1999, Mr. DeGolia was promoted to Senior Vice President, Business
Development and Strategic Planning; Corporate Secretary and Acting General
Counsel. 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.
Mr. Hunt joined the Company in January 1999 as its Senior Vice President,
Field Operations, Americas and Asia Pacific. Before joining the Company, Mr.
Hunt was Vice President, North America Sales of Informix Software, Inc. from
February 1997 to January 1999. Prior to that, Mr. Hunt was with Open Market as
Vice President Sales for the Americas (North America and Latin America) from
April 1996 to February 1997. Mr. Hunt was North American ISV Sales Director of
Sun Microsystems, Inc. from October 1989 to April 1996.
Ms. Leca joined the Company in July 1999 as Senior Vice President,
Worldwide Marketing. Prior to joining the Company, Ms. Leca was Vice President
of Engineering at Commerce One from August 1997 to December 1999. From March
21
<PAGE>
1996 to August 1997, she was Vice President and General Manager with
International Network Services. Prior to March 1996, she was employed at
Sybase Inc. from October 1989 to January 1996 in a variety of management roles,
most recently as Vice President, Office of the COO.
Mr. Nederlof joined the Company in April 1999 as its Senior Vice
President, Field Operations, EMEA. Prior to joining the Company, Mr. Nederlof
was President and COO of Richter Systems from December 1996 to February 1999.
Before that he was Vice President, Northern Europe for Oracle Corporation from
August 1991 to December 1996.
Mr. Shtivelman joined the Company in July 1996 as Vice President, Product
Development. In July 1999, Mr. Shtivelman was promoted to Senior 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.
22
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's Common Stock commenced trading on the Nasdaq National Market
on June 16, 1997 and is traded under the symbol "GCTI". As of August 31, 1999,
there were approximately 290 holders of record of the Common Stock. The
following table sets forth for the periods indicated the high and low closing
sale prices for the Common Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
- ----------------------------------------------
High Low
-------------------------
Fiscal 1998
<S> <C> <C>
First Quarter $39.625 $24.250
Second Quarter $36.875 $24.375
Third Quarter $38.125 $24.000
Fourth Quarter $39.750 $26.375
Fiscal 1999
First Quarter $35.000 $16.250
Second Quarter $30.125 $ 9.125
Third Quarter $28.000 $10.688
Fourth Quarter $25.000 $11.500
- ----------------------------------------------
</TABLE>
The Company has never paid cash dividends on its capital stock. The
Company currently anticipates that it will retain all available funds for use in
its business and does not anticipate paying any cash dividends.
23
<PAGE>
Item 6. 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 Annual Report on Form 10-K. The
consolidated statement of operations data for the three years in the period
ended June 30, 1999 and the consolidated balance sheet data at June 30, 1999 and
1998 are derived from, and are qualified by reference to, the consolidated
financial statements included elsewhere in this Annual Report on Form 10-K 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,
1997, 1996 and 1995, and the consolidated statement of operations data for
fiscal 1996 and 1995 are derived from audited consolidated financial statements
not included herein.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year ended June 30,
1999 1998 1997 1996 1995
--------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenues:
License $113,620 $68,973 $31,919 $ 8,567 $3,077
Service 25,488 15,695 5,619 3,462 1,403
--------------------------------------------------------------
Total revenues 139,108 84,668 37,538 12,029 4,480
--------------------------------------------------------------
Cost of revenues:
License 4,980 3,342 1,615 548 123
Service 18,761 10,554 3,881 2,568 1,190
--------------------------------------------------------------
Total cost of revenues 23,741 13,896 5,496 3,116 1,313
--------------------------------------------------------------
Gross margin 115,367 70,772 32,042 8,913 3,167
--------------------------------------------------------------
Operating expenses:
Research and development 24,378 15,308 9,382 4,511 959
Sales and marketing 51,177 35,705 16,042 3,998 705
General and administrative 11,587 8,462 5,432 4,397 1,343
Non-recurring charges 15,488 905 -- -- --
Purchased in process R&D 6,600 -- -- -- --
--------------------------------------------------------------
Total operating expenses 109,230 60,380 30,856 12,906 3,007
--------------------------------------------------------------
Income (loss) from operations 6,137 10,392 1,186 (3,993) 160
Interest and other income (expense), net 1,182 1,552 237 (115) (6)
--------------------------------------------------------------
Income before provision for income taxes 7,319 11,944 1,423 (4,108) 154
Provision for income taxes 9,942 4,010 649 -- --
--------------------------------------------------------------
Net income (loss) $ (2,623) $ 7,934 $ 774 $(4,108) $ 154
--------------------------------------------------------------
Basic net income (loss) per share/(1)/ $ (0.11) $ 0.37 $ 0.05 $ (0.39) $ 0.03
--------------------------------------------------------------
Diluted net income (loss) per share/(1)/ $ (0.11) $ 0.30 $ 0.04 $ (0.39) $ 0.03
--------------------------------------------------------------
Basic weighted average common 23,328 21,590 14,148 10,484 4,668
shares/(1)/ --------------------------------------------------------------
Diluted weighted average common 23,328 26,747 20,299 10,484 4,668
shares/(1)/
- ---------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year ended June 30,
1999 1998 1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data (In
thousands):
Cash and cash equivalents $ 44,271 $ 30,256 $47,160 $ 5,900 $ 213
Short-term investments 17,426 16,985 -- -- --
Working capital (deficiency) 77,255 52,585 47,028 2,251 (1,990)
Total assets 147,507 104,700 79,945 12,632 2,931
Long-term obligations 66 102 875 367 955
Shareholders' equity (deficit) 109,968 73,621 56,761 2,624 (2,504)
- ----------------------------------------------------------------------------------------------
</TABLE>
/(1)/ See Note 2 of Notes to Consolidated Financial Statements for an
explanation of the method of calculation.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company was incorporated in California on October 11, 1990 and is
involved in the design, development, marketing and support of a suite of
Computer Telephony Integration ("CTI") products, including platform and
applications software that enable organizations to integrate critical business
information and computing resources with telephony and other telecommunications
media. Prior to shipping its first product, the Company generated revenues
primarily from one-time consulting projects. In 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. Since 1994 the Company has
significantly expanded through the establishment of wholly owned subsidiaries
and the acquisition of other businesses, products and services.
Most of the Company's revenues to date have been derived from 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 on a per
user basis. The Company's license revenues represented 81.7%, 81.5% and 85.0% of
total revenues in fiscal 1999, 1998 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 foreseeable future. The
remainder of revenues is expected to be primarily attributable to maintenance
and other service 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. Revenues from the license of the Company's platform products accounted
for 45% of total license revenues in fiscal 1999. 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.
License revenues are recognized upon shipment if there is persuasive
evidence of an agreement, the fee is fixed or determinable, collection is
probable and vendor specific objective evidence exists to allocate the total
arrangement fee between all elements. 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. If a software license
agreement provides for the delivery of software products and significant
customization and modification services, product and service revenue is
recognized on a percentage of completion basis in relation to costs incurred in
the arrangement. 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
license fees, and are recognized ratably over the term of the
25
<PAGE>
maintenance contracts, which to date have typically ranged from 12 to 24 months.
In its first fiscal quarter of 1999, the Company adopted the provisions of
Statement of Position 97-2 "Software Revenue Recognition" ("97-2"), accordingly,
in fiscal 1999 the Company recognized revenue in accordance with 97-2. Prior to
fiscal year 1999 and the adoption of 97-2, the Company recognized revenues in
accordance with Statement of Position 91-1, "Software Revenue Recognition". The
adoption of SOP 97-2, as amended, did not have a material impact on the
Company's business practices or revenue recognition. See Note 2 of Notes to
Consolidated Financial Statements.
A relatively small number of customers have in the past and can in the
future account for a significant percentage of the Company's revenues in a given
fiscal year. In fiscal 1999, no customer accounted for more than 10% of total
revenues. In fiscal 1998 and 1997, one customer accounted for 14.1% and 11.1%,
respectively, of total revenues. Licensing of the Company's products to a
limited number of customers may 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 a CTI 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 and internationally
through VARs and through its direct sales force. International revenues
accounted for 49.9%, 44.7% and 33.4% of total revenues in fiscal 1999, 1998 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 that international revenues will continue to account for a significant
portion of total revenues in the future.
The Company's revenues have increased in each of the last twelve quarters,
although given its 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 market for the Company's
products, and technological changes in the market for the Company's products.
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.
In June 1999, the Company acquired all of the outstanding common stock of
Next Age Technologies, Inc., a California corporation ("Next Age"). Next Age
software products are designed to optimize the management, staffing, scheduling
and productivity of contact center employees. Pursuant to the Merger Agreement,
the Company issued 556,557 shares of its Common Stock in exchange for all
outstanding shares of Next Age Common Stock, and issued options to purchase
25,068 shares of the Company's Common Stock in exchange for all outstanding Next
Age Stock options. A total of 97,918 shares have been placed into an escrow
subject to the satisfaction of all representations and warranties under the
terms and conditions of the Merger Agreement. The merger was accounted for as a
purchase; accordingly, the Company allocated the purchase price based upon the
estimated fair value of the assets and liabilities assumed. The valuation was
based on accepted appraisal methodologies used at the time of the allocation.
The results of operations of Next Age are included in the Company's financial
statements from the date of acquisition forward.
The total purchase price was $14.6 million. Management estimates that
$6.6 million of the purchase price represents acquired in-process technology
that has not yet reached technological feasibility and has no alternative future
use. Accordingly, this amount was immediately charged to expense upon
consummation of the acquisition (see Note 2 of Notes to Consolidated Financial
Statements). Additionally, the Company allocated $2.2 million, $0.9 million, and
$4.9 million of the purchase price to acquired software, workforce and trade
names, and goodwill, respectively. These intangible assets are being amortized
on a straight-line basis over three to seven years.
26
<PAGE>
In December 1998, the Company hired Ori Sasson as its Chief Executive
Officer and elected him as a member of the Board of Directors of Genesys. In
connection with the hiring of Mr. Sasson, the Company also completed the
acquisition of Plato Software Corporation, a Delaware corporation ("Plato"), a
company in which Mr. Sasson was a principal shareholder. The merger was
completed pursuant to an Agreement and Plan of Reorganization ("Merger
Agreement") dated as of December 9, 1998. As Plato did not have significant
operations or revenue prior to the acquisition, the Company has treated the
purchase as the acquisition of an asset.
Pursuant to the Merger Agreement, the Company issued 202,500 shares of its
Common Stock in exchange for all outstanding shares of Plato Common Stock, and
issued options to purchase 47,500 shares of Genesys Common Stock in exchange for
all outstanding Plato Stock options. A total of 50,000 shares have been placed
into an escrow subject to the satisfaction of all representations and warranties
under the terms and conditions of the Merger Agreement. The Company recorded the
fair value of net assets purchased from Plato, which consisted of certain
technology to be incorporated into the Genesys products, totaling $382,000 as of
December 31, 1998.
As the acquisition of Plato was consummated in connection with the
election of Ori Sasson as Chief Executive Officer and a member of the Board of
Directors of the Company, in December 1998 the Company recorded as expense the
portion of the shares and options issued that represented compensation to Mr.
Sasson and other Plato employees. Deferred compensation totaling $800,000
related to unvested options will be amortized over the remaining vesting period
of the options of approximately four years. In addition, the Company recorded as
expense its reimbursement to Mr. Sasson of the tax liabilities associated with
this compensation. The total amount of compensation expense and related tax
reimbursements associated with this transaction was approximately $12.4 million,
and was reflected as part of a non-recurring charge in the Company's financial
statements.
In December 1997, the Company acquired all of the outstanding common stock
of Forte Advanced Management Software, Inc. ("Forte") in exchange for
approximately 667,099 shares of the Company's common stock. The Company also
assumed Forte's outstanding options, which were converted to options to purchase
90,349 shares of the Company's common stock. The merger was accounted for as a
pooling of interests and, accordingly, the accompanying consolidated financial
statements have been restated to reflect the acquisition on a pooling of
interests basis.
27
<PAGE>
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 indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Year Ended June 30,
1999 1998 1997
------------------------------
<S> <C> <C> <C>
Revenues:
License 81.7% 81.5% 85.0%
Service 18.3 18.5 15.0
------------------------------
Total revenues 100.0 100.0 100.0
Cost of revenues: ------------------------------
License 3.6 3.9 4.3
Service 13.5 12.5 10.3
------------------------------
Total cost of revenues 17.1 16.4 14.6
------------------------------
Gross margin 82.9 83.6 85.4
Operating expenses: ------------------------------
Research and development 17.5 18.1 25.0
Sales and marketing 36.8 42.2 42.7
General and administrative 8.3 10.0 14.5
Merger costs -- 1.0 --
Non-recurring charges 11.1 -- --
Purchased in process R&D 4.7 -- --
------------------------------
Total operating expenses 78.4 71.3 82.2
------------------------------
Income from operations 4.5 12.3 3.2
Interest and other income (expense), net 0.8 1.8 0.6
------------------------------
Income before provision for income 5.2 14.1 3.8
taxes
Provision for income taxes 7.1 4.7 1.7
------------------------------
Net income (loss) (1.9)% 9.4% 2.1%
------------------------------
- -------------------------------------------------------------------------
</TABLE>
Revenues
License. License revenues were $113.6 million, $69.0 million and $31.9
million in fiscal 1999, 1998 and 1997, respectively, representing increases of
65% from fiscal 1998 to fiscal 1999, and 116% from fiscal 1997 to fiscal 1998.
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. 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 training services. Service revenues were $25.5 million,
$15.7 million and $5.6 million, in fiscal 1999, 1998 and 1997, respectively,
representing increases of 62% from fiscal 1998 to fiscal 1999 and 179% from
fiscal 1997 to fiscal 1998. The Company's 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 are largely dependent upon the extent to which product
implementation services are performed by the Company's internal professional
services personnel versus third party organizations such as systems integrators.
To the extent that the Company utilizes more internal resources to perform
product implementations, service revenues could increase as a percentage of
total revenues. Conversely, if the Company utilizes to a greater extent third-
party organizations such as systems integrators to implement the Company's
products, service revenues may decrease as a percentage of total revenues.
Maintenance revenues as a percentage of total revenues are expected to increase
due to continued expansion of the Company's installed base. The Company does not
believe that the historical growth rates of service revenues will be sustainable
or are indicative of future results.
28
<PAGE>
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 $5.0 million, $3.3 million and $1.6 million in fiscal 1999, 1998
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 consist of employee-related
costs incurred in providing consulting, post-contract support and training
services. Cost of service revenues were $18.8 million, $10.6 million and $3.9
million in fiscal 1999, 1998 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 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 $109.2 million, $60.4 million and
$30.9 million, or 78.5%, 71.3% and 82.2% of total revenues in fiscal 1999, 1998
and 1997, respectively. Excluding the impact of $15.5 million of non-recurring
charges and $6.6 million of purchased in process R&D expensed in fiscal 1999,
operating expenses would have been $87.1 million, or 63.0% of total revenues in
fiscal 1999. The Company expects that it will continue to invest in its Research
and Development and Sales and Marketing organizations, as well as strengthen its
infra-structure, accordingly, the Company expects operating expenditures will
increase in absolute dollars.
Research and Development. Research and development expenses were $24.4
million, $15.3 million and $9.4 million, or 17.5%, 18.1% and 25.0% of total
revenues in fiscal 1999, 1998 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 it will
continue to devote substantial resources to research and development,
accordingly, the Company expects that research and development expenditures will
continue to increase in absolute dollars but remain at similar percentages of
total revenues as in fiscal 1999 and 1998.
Research and development expenses are generally charged to operations as
incurred. In accordance with Statement of Financial Accounting Standards No. 86,
the Company capitalized approximately $4.8 million of software development costs
incurred during fiscal 1999. The fiscal 1999 costs related primarily to the
purchase of $2.2 million of existing technology in connection with the Next Age
acquisition, as well as the release of products included in the Company's
product suite. The Company capitalized approximately $1.9 million of software
development costs incurred during fiscal 1998, primarily related to the release
of new products included in its 5.0 and 5.1 product suites, and approximately
$450,000 of software development costs incurred during fiscal 1997 related to
the initial release of its 5.0 product suite. Prior to fiscal 1997, costs that
were eligible for capitalization were insignificant, and accordingly the Company
charged all software development costs to research and development expense in
the period in which it was incurred.
Sales and Marketing. Sales and marketing expenses were $51.2 million,
$35.7 million and $16.0 million, representing 36.8%, 42.2% and 42.7% of total
revenues in 1999, 1998 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 in Europe. From July 1, 1997 to June 30, 1999,
the Company increased the number of its sales and marketing personnel from
approximately 130 to 246 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 continue to invest in
its 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
$11.6 million, $8.5 million and $5.4 million, or 8.3%, 10.0% and 14.5% of total
revenues in fiscal 1999, 1998 and 1997, 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. The Company expects to continue to increase its
general and administrative
29
<PAGE>
staff and to incur other costs necessary to manage a growing organization.
Accordingly, the Company expects general and administrative expenses to continue
to increase in absolute dollars.
Purchased In-Process Research and Development ("IPR&D"). Purchased IPR&D
expenses were $6.6 million, representing 4.7% of total revenues, in fiscal 1999.
In connection with the Next Age acquisition, the Company immediately charged to
expense $6.6 million representing purchased IPR&D that had not yet reached
technological feasibility and had no alternative future use. See "Notes to
Consolidated Financial Statements." The allocation of the IPR&D was evaluated
based on the SEC's current views regarding valuation methodologies. The value
was determined by estimating the costs to develop the purchased IPR&D into
commercially viable products, estimating the resulting net cash flows from each
project, excluding the cash flows related to the portion of each project that
was incomplete at the acquisition date, and discounting the net cash flows back
to their present value. Each of the project forecasts were based upon future
discounted cash flows, taking into account the stage of development of each in-
process project, the cost to develop that project, the expected income stream,
the life cycle of the product ultimately developed, and the associated risks.
In each case, the selection of the applicable discount rate was based on
consideration of the Company's weighted average costs of capital, as well as
other factors including the useful life of each technology, profitability levels
of each technology, the uncertainty of technology advances that were known at
the time, and the stage of completion of each technology. If the projects are
not successfully developed, the sales and profitability of the Company may be
adversely affected in future periods. Additionally, the value of other
intangible assets may be impaired.
Non-Recurring Charges. Non-recurring charges were $15.5 million,
representing 11.1% of total revenues, in fiscal 1999. In connection with the
hiring of its Chief Executive Officer, Ori Sasson, and the acquisition of Plato
in December 1998, the Company recorded non-recurring charges totaling $11.6
million related to compensation, consisting of common stock valued at $6.0
million and $5.6 million of tax reimbursements paid or accrued to Mr. Sasson and
an additional $0.8 million of compensation paid or accrued to other Plato
employees. In addition, the Company recorded $3.1 million of the non-recurring
charges related to an employment and severance agreement dated December 11, 1998
with the Company's former President and Chief Financial Officer. Non-recurring
charges, related to the acquisition of Forte in December 1997, were $1.0
million, representing 1% of total revenues, in fiscal 1998.
Provision for Income Taxes
The Company's effective tax rate for the year ended June 30, 1999 was 136%
which reflects the utilization of research tax credits as well as the non-
deductibility for income tax purposes of both non-recurring compensation charges
and the purchased in-process research and development costs. Excluding the
impact of the non-deductible, non-recurring charges and purchased in-process
research and development costs, the Company's effective tax rate for fiscal 1999
was 35%. In the quarter ended December 31, 1998, the Company incurred certain
non-recurring compensation charges related to the hiring of its Chief Executive
Officer and the acquisition of Plato Software Corporation. In the quarter ended
June 30, 1999, the Company expensed certain non-deductible in-process research
and development costs related to the purchase of Next Age. The provision for
income taxes for the year ended June 30, 1998 is based on an effective tax rate
of approximately 34%. In the quarter ended December 31, 1997, the Company
recorded a one-time credit relating to the benefit of deferred tax assets
assumed in the acquisition of Forte, which was an S-Corporation prior to the
merger. The provision for income taxes for the year ended June 30, 1997 is based
on an effective tax rate of approximately 28% that reflects the estimated
realization of deferred tax assets, primarily net operating loss carry forwards
and research and development tax credit carry forwards. The Company has net
deferred tax assets of approximately $1.6 million and $2.0 million as of June
30, 1999 and 1998, respectively.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires companies to
record derivative financial instruments on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The key criterion
for hedge accounting is that the hedging relationship must be highly effective
in achieving offsetting changes in fair value or cash flows. In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
Amendment of FASB Statement No. 133." SFAS No. 137 defers the effective date of
SFAS No. 133, such that SFAS No. 133 shall be
30
<PAGE>
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. This Statement will not have a material impact on the financial condition
or results of the operations of the Company.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-4, "Deferral of the Effective Date
of a Provision of SOP 97-2, 'Software Revenue Recognition,'" which defers for
one year the application of certain provisions of SOP 97-2, which limits what is
considered vendor-specific objective evidence of the fair value of the various
elements in a multiple element arrangement. All other provisions of SOP 97-2
remain in effect. This SOP was effective as of March 31, 1998. In December 1998,
the AICPA issued SOP 98-9, "Modification of SOP 97-2, 'Software Revenue
Recognition' With Respect to Certain Transactions," which amends SOP 97-2,
"Software Revenue Recognition," to require recognition of revenue using the
"residual value method" under certain conditions. Effective December 15, 1998,
SOP 98-9 amends SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, 'Software Revenue Recognition,'" to extend the deferral of the application
of certain passages of SOP 97-2 provided by SOP 98-4 through fiscal years
beginning on or before March 15, 1999. All other provisions of this SOP are
effective for transactions entered into in fiscal years beginning after March
15, 1999. The Company has adopted SOP 97-2, as amended. The adoption of SOP 97-2
did not have a material impact on the Company's business practices or revenue
recognition.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. SOP 98-1 applies to all non-governmental entities and is
effective for financial statements for fiscal years beginning after December 15,
1998. SOP 98-1 will not have a material impact on the financial condition or
results of the operations of the Company.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." For purposes of this SOP, start-up activities are defined
broadly as those one-time activities related to opening a new facility,
introducing a new product or service, conducting business in a new territory,
conducting business with a new class of customer or beneficiary, initiating a
new process in an existing facility, or commencing some new operation. Start-up
activities include activities related to organizing a new entity (commonly
referred to as organization costs). This SOP provides guidance on accounting for
the costs of start-up activities. SOP 98-5 is effective for financial statements
for fiscal years beginning after December 15, 1998. SOP 98-5 will not have a
material impact on the financial condition or results of the operations of the
Company.
Year 2000
Many computer systems experience problems handling dates beyond the year
1999. The Company has designed and tested current versions of its products for
use in the year 2000 and beyond, and believes that they are year 2000 compliant.
However, some of Genesys' customers might be running older versions of the
Company's products that might not be year 2000 compliant. It is possible that
Genesys may experience increased expenses in addressing mitigation issues for
these customers. In addition, the Company's products frequently are integrated
into larger networks involving sophisticated hardware and software products
supplied by other vendors. Each of the Company's customers' networks involves
different combinations of third party products. The Company cannot evaluate
whether all of their products are year 2000 compliant. Genesys may face claims
based on year 2000 problems in other companies' products or based on issues
arising from the integration of multiple products within the overall network.
Although no such claims have been made, the Company may in the future be
required to defend its products in legal proceedings, which could be expensive
regardless of the merits of such claims.
If the Company's suppliers, vendors, major distributors, partners,
customers and service providers fail to correct their year 2000 problems, these
facilities could result in an interruption in, or a failure of, the Company's
normal business activities of operations. If a year 2000 problem occurs, it may
be difficult to determine which party's products have caused the problem. These
failures could interrupt the Company's operations and damage its relationships
with its customers. Due to the general uncertain inherent in the year 2000
problem resulting from the readiness of third party suppliers and vendors, the
Company is unable to determine at this time whether year 2000 failure could harm
its business and financial results.
Genesys' customers' purchasing plans could be affected by year 2000 issues
if they need to expend significant resources to fix their existing systems to
become year 2000 compliant. This situation may reduce funds available to
purchase products until after the year 2000, which may reduce the Company's
revenue.
31
<PAGE>
Liquidity and Capital Resources
In June 1997, the Company completed its initial public offering in which
it raised approximately $41.2 million from the sale of 2,375,000 shares of
common stock and the exercise of certain Warrants. Prior to its initial public
offering, the Company 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. Prior to its initial public offering, the
Company had raised $17.2 million from the sale of Preferred Stock. At June 30,
1999, the Company's primary sources of liquidity included cash and cash
equivalents of $44.3 million and short-term investments of $17.4 million.
The Company generated cash from operating activities of $18.6 million in
fiscal 1999 and $14.0 million in fiscal 1998 related primarily to income from
operations and increases in deferred revenues and accrued liabilities. The
Company used cash from operating activities of $175,000 in fiscal 1997. The
increased use of cash for operating activities in fiscal 1997 was attributable
primarily to an increase in accounts receivable of approximately $13.4 million,
offset in part by an increase in deferred revenues of approximately $7.7
million.
The Company used cash for the purchase of property and equipment totaling
$9.3 million, $12.6 million and $7.2 million in fiscal 1999, 1998 and 1997,
respectively.
The Company generated cash of $9.0 million and $3.4 million from financing
activities in fiscal 1999 and 1998, respectively, related to proceeds from the
exercise of stock options and the sale of stock under the Employee Stock
Purchase Plan. The Company generated cash of $49.9 million from financing
activities in fiscal 1997 primarily related to its initial public offering and
the sale of Series C Preferred Stock.
The Company has established subsidiaries in foreign countries, including
Australia, Canada, France, Germany, Italy, Japan, the Netherlands, Singapore,
South Africa, Spain, Sweden and the United Kingdom, 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.
The Company believes that its existing sources of liquidity will satisfy
the Company's projected working capital and capital requirements for at least
the next twelve months.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Disclosures about Market Risk
Interest Rate Risk. The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's investment portfolio. The
Company's investments consist primarily of tax-exempt debt securities, are
classified as available for sale and are stated at fair value. The Company is
averse to principal loss and seeks to preserve its invested funds by limiting
default risk, market risk and reinvestment risk.
Table of Investment Securities:
<TABLE>
<CAPTION>
(in thousands) Principal Average
Amount Interest Rate
<S> <C> <C>
----------------------------------
Cash and cash equivalents $44,271 3.0%
Short-term investments 17,426 3.12%
----------------------------------
Total cash and investment securities $61,697
</TABLE>
Currency Rate Risk. The Company's subsidiaries primarily operate in
foreign markets and predominantly have their local currencies as their
functional currencies. These subsidiaries do not have third party borrowings in
currencies other than their local currencies, and therefore there are no
appropriate quantitative disclosures.
32
<PAGE>
The Company's primary currency rate risk exposures relates to:
. The Company's decentralized operations, whereby approximately 50% of
the Company's revenues are derived from operations outside the United
States, denominated in currencies other than the U.S. dollar.
. The Company's investments in foreign subsidiaries being primarily
directly from the U.S. parent, resulting in U.S. dollar investments in
foreign currency functional companies, and
. The location of the Company's operating subsidiaries in a number of
countries that have seen significant exchange rate changes against the
U.S. dollar.
Currency rate risks are managed primarily through the Company's financial
management of operations on a decentralized basis; individual markets are not
necessarily impacted by changes in currency exchange rates. Subsidiaries
operating in high or hyper-inflationary environments protect margins by
adjusting prices based on U.S. pricing conversion methods. The Company does
not use forward contracts. All foreign currency transactions are marked to
market at the end of the period with unrealized gains and losses included in
other income (expense). The unrealized cumulative translation loss was $384,000
and $312,000 for fiscal years 1999 and 1998, respectively.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements:
<TABLE>
<CAPTION>
Page Description
- --------------------------------------------------------------------------------
<S> <C>
34 Report of Independent Public Accountants
35 Consolidated Balance Sheets--June 30, 1999 and 1998
36 Consolidated Statements of Operations for the years ended
June 30, 1999, 1998 and 1997
37 Consolidated Statements of Shareholders' Equity for the years ended
June 30, 1999, 1998 and 1997
39 Consolidated Statements of Cash Flows for the years ended
June 30, 1999, 1998 and 1997
41 Notes to Consolidated Financial Statements
</TABLE>
33
<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, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended June 30, 1999. These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1999, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a)2 is
presented for purposes of complying with the Securities and Exchange
Commission's 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
July 20, 1999
34
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30,
1999 1998
-----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 44,271 $ 30,256
Short-term investments 17,426 16,985
Accounts receivable, net of allowance for
doubtful accounts of $875 and $789, respectively 44,802 28,007
Prepaid expenses and other 8,229 8,314
---------------------
Total current assets 114,728 83,562
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization 17,026 14,675
INTANGIBLES, net 8,190 1,694
OTHER ASSETS 7,563 4,769
---------------------
$147,507 $104,700
=====================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ -- $ 243
Current portion of long-term obligations 65 33
Accounts payable 3,328 4,520
Accrued payroll and related benefits 5,585 3,702
Other accrued liabilities 7,236 5,674
Deferred revenues 21,259 16,805
---------------------
Total current liabilities 37,473 30,977
---------------------
LONG-TERM OBLIGATIONS, net of current portion 66 102
---------------------
SHAREHOLDERS' EQUITY:
Common stock, no par value:
Authorized--120,000,000 shares
Issued and outstanding-- 24,844,309 shares
in 1999 and 22,415,222 shares in 1998 112,920 73,576
Shareholder notes receivable (686) (440)
Accumulated comprehensive loss (572) (188)
Deferred stock compensation (964) (1,220)
Retained earnings (accumulated deficit) (730) 1,893
---------------------
Total shareholders' equity 109,968 73,621
---------------------
$147,507 $104,700
=====================
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE>
?????????
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended June 30,
1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
License $113,620 $68,973 $31,919
Service 25,488 15,695 5,619
----------------------------------------
Total revenues 139,108 84,668 37,538
----------------------------------------
COST OF REVENUES:
License 4,980 3,342 1,615
Service 18,761 10,554 3,881
----------------------------------------
Total cost of 23,741 13,896 5,496
revenues
----------------------------------------
GROSS MARGIN 115,367 70,772 32,042
OPERATING EXPENSES: ----------------------------------------
Research and development 24,378 15,308 9,382
Sales and marketing 51,177 35,705 16,042
General and administrative 11,587 8,462 5,432
Non-recurring charges 15,488 905 --
Purchased in process 6,600 -- --
research and development
Total operating 109,230 60,380 30,856
expenses ----------------------------------------
INCOME FROM OPERATIONS 6,137 10,392 1,186
OTHER INCOME (EXPENSE): ----------------------------------------
Interest income (expense), 1,678 1,552 --
net
Other, net (496) -- 237
-----------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 7,319 11,944 1,423
PROVISION FOR INCOME TAXES 9,942 4,010 649
----------------------------------------
NET INCOME (LOSS) $ (2,623) $ 7,934 $ 774
-----------------------------------------
BASIC NET INCOME (LOSS) PER SHARE $(0.11) $0.37 $0.05
-----------------------------------------
DILUTED NET INCOME (LOSS) PER SHARE $(0.11) $0.30 $0.04
-----------------------------------------
BASIC WEIGHTED AVERAGE COMMON SHARES 23,328 21,590 14,148
-----------------------------------------
DILUTED WEIGHTED AVERAGE COMMON SHARES 23,328 26,747 20,299
-----------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Shareholder Accumulated Deferred
Notes Comprehensive Stock Accumulated
Preferred Stock Common Stock Receivable Income (Loss) Compensation Deficit
Shares Amount Shares Amount
- ----------------------------- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JUNE 30, 1996 2,797,878 $ 8,995 11,986,099 $ 628 $ (112) -- $ (73) (6,815)
Exercise of stock options -- -- 895,561 347 (108) -- -- --
Issuance of Common Stock -- -- 608,500 466 (234) -- -- --
Issuance of Common Stock in
connection with
initial public offering -- -- 2,375,000 38,268 -- -- -- --
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 -- -- -- -- -- --
Exercise of Warrants
Conversion of -- -- 420,282 2,500 -- -- -- --
Preferred Stock into
Common Stock (3,652,241) (18,096) 3,652,241 18,096 -- -- -- --
Issuance of Common
Stock Warrants -- -- -- 650 -- -- -- --
Repurchase of Common
Stock -- -- (112,500) (9) -- -- -- --
Cumulative Translation
Adjustment -- -- -- -- -- 124 -- --
Payment on shareholder
notes receivable -- -- -- -- 20 -- -- --
Deferred stock compensation -- -- -- 1,838 -- -- (1,838) --
Amortization of deferred stock
compensation -- -- -- -- -- -- 214 --
Net income -- -- -- -- -- -- -- 774
-------------------------------------------------------------------------------------------------------
BALANCES, JUNE 30, 1997 -- -- 20,500,183 64,809 (434) 124 (1,697) (6,041)
Exercise of stock
options -- -- 1,844,466 3,501 (90) -- -- --
Common stock issued under employee
stock purchase plan -- -- 70,573 1,081 -- -- -- --
Cumulative Translation
Adjustment -- -- -- -- -- (312) -- --
Payment on shareholder
notes receivable -- -- -- -- 84 -- -- --
Amortization of
deferred stock compensation -- -- -- -- -- -- 477 --
Income tax benefit of
disqualifying dispositions -- -- -- 4,185 -- -- -- --
Net income -- -- -- -- -- -- -- 7,934
-------------------------------------------------------------------------------------------------------
BALANCES, JUNE 30, 1998 -- -- 22,415,222 73,576 (440) (188) (1,220) 1,893
Exercise of stock
options -- -- 1,794,854 7,729 (686) -- -- --
Common stock issued under employee
stock purchase plan -- -- 140,176 2,265
Issuance of Common Stock in
connection with hiring CEO and Plato
Acquisition -- -- 202,500 5,963 -- -- -- 5,963
Issuance of Common Stock in
connection
with Next Age acquisition -- -- 556,557 12,998 -- -- --
Repurchase of Common
Stock -- -- (265,000) (24) -- -- -- --
Valuation of stock
options accelerated -- -- -- 3,370 -- -- --
Cumulative Translation
Adjustment -- -- -- -- -- (384) --
Payment on shareholder
notes receivable -- -- -- -- 440 -- --
Amortization of
deferred stock
compensation -- -- -- -- -- -- 256 --
<CAPTION>
Total
Share- Compre-
holders' hensive
Equity Income
(Deficit) (Loss)
--------------------------
<S> <C> <C>
BALANCES, JUNE 30, 1996 2,623
Exercise of stock options 239
Issuance of Common Stock 232
Issuance of Common Stock in
connection with
initial public offering 38,268
Issuance of Common Stock in
connection with the
Acquisition of a subsidiary 2,025
Issuance of Series C
Preferred Stock 9,101
Exercise of Warrants
Conversion of 2,500
Preferred Stock into
Common Stock --
Issuance of Common
Stock Warrants 650
Repurchase of Common
Stock (9)
Cumulative Translation
Adjustment 124 $ 124
Payment on shareholder
notes receivable 20
Deferred stock compensation --
Amortization of deferred stock
compensation 214
Net income 774 774
---------------------------
BALANCES, JUNE 30, 1997 56,761 $ 898
========
Exercise of stock
options 3,411
Common stock issued under employ
stock purchase plan 1,081
Cumulative Translation
Adjustment (312) $ (312)
Payment on shareholder
notes receivable 84
Amortization of
deferred stock
compensation 477
Income tax benefit of
disqualifying
dispositions 4,185
Net income 7,934 7,934
---------------------------
BALANCES, JUNE 30, 1998 73,621 $7,622
========
Exercise of stock
options 7,043
Common stock issued under employ
stock purchase plan 2,265
Issuance of Common Stock in
connection with hiring CEO
and Plato Acquisition 5,963
Issuance of Common Stock in
connection with Next Age
acquisition 12,998
Repurchase of Common
Stock (24)
Valuation of stock
options accelerated 3,370
Cumulative Translation
Adjustment (384) $ (384)
Payment on shareholder
notes receivable 440
Amortization of
deferred stock
compensation 256
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income tax benefit of
disqualifying dispositions -- -- -- 7,043 -- -- -- -- 7,043
Net loss -- -- -- -- -- -- -- (2,623) (2,623) (2,623)
----------------------------------------------------------------------------------------------
BALANCES, JUNE 30, 1999 -- $ -- 24,844,309 $112,920 $(686) $(572) $ (964) $ (730) $109,968 $(3,007)
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
38
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended
June 30,
1999 1998 1997
----------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,623) $ 7,934 $ 774
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of deferred stock compensation 256 477 214
Depreciation and amortization 8,780 6,405 1,423
Provision for doubtful accounts 622 889 212
Valuation of stock options accelerated 3,370 -- --
Non-cash portion of non-recurring charges related to hiring CEO and acquisition of Plato 5,963 -- --
Write-off of in-process research and development 6,600 -- --
Changes in operating assets and liabilities, net of acquisitions accounted for as a purchase
(See Note 4):
Accounts receivable (17,304) (10,599) (13,366)
Prepaid expenses and other (55) (4,434) (2,442)
Accounts payable (1,209) 1,813 1,198
Accounts payable to related parties -- -- (268)
Accrued payroll and related benefits 1,748 1,954 879
Other accrued liabilities 7,763 4,874 3,513
Deferred revenues 4,341 4,653 7,688
----------------------------
Net cash provided by (used in) operating activities 18,252 13,966 (175)
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (35,514) (45,509) --
Sale of short-term investments 35,073 28,523 --
Purchases of property and equipment (9,056) (12,551) (7,162)
Increase in other assets (3,414) (4,384) (1,055)
Cost to acquire subsidiary -- -- (100)
----------------------------
Net cash used in investing activities (12,911) (33,921) (8,317)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit -- 2 4,536
Loan to related party (390) -- --
Repayment of bank line of credit -- -- (4,592)
Principal payments on long-term obligations (33) (1,216) (151)
Repayments of advances from related parties -- -- (25)
Repayment of convertible debt to related parties -- -- (367)
Repayment of promissory note (243) -- --
Payment of shareholder notes receivable, net 440 84 20
Repurchases of Common Stock (24) -- (9)
Proceeds from sales of preferred stock -- -- 9,101
Proceeds from sales of common stock 9,308 4,492 41,239
----------------------------
Net cash provided by financing activities 9,058 3,362 49,752
----------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (384) (311) --
----------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,015 (16,904) 41,260
CASH AND CASH EQUIVALENTS:
Beginning of Year 30,256 47,160 5,900
----------------------------
End of Year $ 44,271 $ 30,256 $ 47,160
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 71 $ 48 $ 42
------------------------------
Cash paid for taxes $ 772 $ 2,366 $ 194
------------------------------
ADDITIONAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Equipment capital lease $ -- $ -- $ 175
Prepaid insurance financing -- -- 588
Common Stock issued to acquire subsidiary -- -- 2,193
Fair market value of warrants issued -- -- 650
Conversion of preferred stock into common stock -- -- 18,096
Issuance of Common Stock for shareholder notes receivable 685 90 342
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C> <C>
Income tax benefit of 7,042 4,185 --
disqualifying dispositions
Common Stock issued to acquire 5,963 -- --
Plato
Common Stock issued to acquire 12,998 -- --
Next Age
Valuation of stock options 3,370 -- --
accelerated
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
40
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
1. THE COMPANY
Genesys Telecommunications Laboratories, Inc. (formerly Enhanced Voice
Processing, Inc.), was incorporated in California on October 11, 1990. Genesys
Telecommunications Laboratories, Inc. and subsidiaries (the "Company") are
involved in the design, development, marketing and support of a suite of
Computer Telephony Integration ("CTI") 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.
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 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.
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 June 30, 1999, 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 ("VARs"). 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 and returns
reserves from software license agreements with end users and VARs according to
the provisions of Statement of Position ("SOP") No. 97-2, "Software Revenue
Recognition," as amended, which superseded SOP No. 91-1. License revenues are
recognized upon shipment if there is persuasive evidence of an agreement, the
fee is fixed or determinable, collection is probable and vendor specific
objective evidence exists to allocate the total arrangement fee between all
elements. If a software license agreement provides for
41
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. If a software license
agreement provides for the delivery of software products and significant
customization and modification services, product and service revenue is
recognized on a percentage of completion basis in relation to costs incurred in
the arrangement.
Customers who purchase post-contract customer support services under
maintenance agreements have the right to receive unspecified product updates,
upgrades and enhancements. Customers that do not purchase post-contract customer
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 customer support services are recognized
ratably over the term of the support period. If post-contract customer 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 customer 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 consulting and training services are recognized as
services are performed.
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 consist of tax-exempt debt securities and certificates
of deposit with original maturities of three months or less and money market
accounts.
Short-term Investments
The Company's investments, which consist primarily of tax-exempt debt
securities, are classified as available-for-sale and stated at fair value. The
difference between cost and fair value of all of the Company's short-term
investments is insignificant. Such investments are recorded at fair value and
unrealized gains and losses, if material, are recorded as a separate component
of equity until realized. Interest income is recorded using an effective
interest rate, with associated premium or discount amortized to "investment
income." The cost of securities sold is based upon the specific identification
method. All available-for-sale securities are classified as current assets and
mature within 12 months.
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 internally generated software development costs in
compliance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed." Capitalization of computer software development costs
begins upon the establishment of technological feasibility for the product. The
Company capitalized approximately $4.8 million of software development in fiscal
1999, $1.9 in fiscal
42
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1998 and $450,000 in fiscal 1997. The $4.8 million capitalized in fiscal 1999
includes the $2.2 million of purchased software recorded as a result of the Next
Age acquisition (See Note 4). Net software development costs are included in
other assets.
Amortization of capitalized software development costs begins when the
products are available for general release to customers, and is computed on a
product-by-product basis as the greater of: (a) the ratio of current gross
revenues for a product to the total of current and anticipated future gross
revenues for the product; or (b) the straight-line method over the remaining
estimated economic life of the product (generally three years). The Company
amortized $995,000 of capitalized software development costs in fiscal 1999 and
$256,000 in fiscal 1998. No amortization was recorded in fiscal 1997 as these
costs were incurred and capitalized near the end of the fiscal year.
Research and development costs, not capitalized under SFAS 86, are
expensed as incurred.
Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income," requires companies to
report an additional measure of income on the income statement or to create a
new financial statement that shows the new measure of income. Comprehensive
income includes foreign currency translation gains and losses and unrealized
gains and losses on equity securities that have been previously excluded from
net income and reflected instead in stockholders' equity. The Company has
integrated the presentation of comprehensive income (loss) with the Consolidated
Statement of Shareholders' Equity.
Intangibles
Intangibles include goodwill, which represents the amount of purchase
price in excess of the fair value of the tangible net assets in acquisitions
completed by the Company and are amortized on a straight-line basis over a
period of five to seven years. Goodwill is evaluated quarterly for impairment
and written down to net realizable value if necessary. No impairment has been
recorded to date. Intangible assets also include tradenames and assembled work
forces that are amortized on a straight-line basis over a period of five to
seven years. Intangible assets consist of the following at June 30 (in
thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1999 1998
-----------------
<S> <C> <C>
Goodwill $7,953 $2,093
Work force and trade names 934 --
-----------------
8,887 2,093
Less: Accumulated amortization (697) (399)
-----------------
$8,190 $1,694
=================
</TABLE>
Non-Recurring Charges
In connection with the hiring of the Company's Chief Executive Officer,
Ori Sasson, and the acquisition of Plato in December 1998 (see Note 4), the
Company recorded non-recurring charges totaling $11.6 million related to
compensation, consisting of common stock valued at $6.0 million and $5.6 million
of tax reimbursements paid or accrued to Mr. Sasson and an additional $0.8
million of compensation paid or accrued to other Plato employees. In addition,
the Company recorded $3.1 million related to an employment and severance
agreement with the Company's former President and Chief Financial Officer as a
result of acceleration of unvested stock options. As of June 30, 1999 the
Company had paid all tax reimbursements to Ori Sasson.
Additionally, during fiscal 1999, the Company recorded $300,000 related to
other employment and severance agreements that called for the acceleration of
unvested stock options.
43
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Purchased In-Process Research and Development ("IPR&D")
In connection with the acquisition of Next Age Technologies, Inc. ("Next
Age"), the Company allocated $6.6 million to purchase IPR&D for the year ended
June 30, 1999 (see Note 4). This amount was expensed because the IPR&D projects
identified had not yet reached technological feasibility and had no alternative
future use.
The allocation to IPR&D during the year ended June 30, 1999 was evaluated
based on the SEC's current views regarding valuation methodologies. The value
allocated to IPR&D was determined by estimating the costs to develop the
purchased technology into commercially viable products, estimating the resulting
net cash flows from each project, excluding the cash flows related to the
portion of each project that was incomplete at the acquisition date, and
discounting the net cash flows back to their present value. Each of the project
forecasts were based upon future discounted cash flows, taking into account the
stage of development of each in-process project, the cost to develop that
project, the expected income stream, the life cycle of the product ultimately
developed, and the associated risks. In each case, the selection of the
applicable discount rate was based on consideration of the Company's weighted
average costs of capital, as well as other factors including the useful life of
each technology, profitability levels of each technology, the uncertainty of
technology advances that were known at the time, and the stage of completion of
each technology. If the projects are not successfully developed, the sales and
profitability of the Company may be adversely affected in future periods.
Additionally, the value of other intangible assets may be impaired. Following
is a discussion of the allocation to IPR&D during the year ended June 30, 1999.
At the acquisition date, Next Age was conducting development, engineering,
and testing activities associated with the following future versions and
products (collectively, "the Products"); a) Single-site Workforce Manager, b)
Multi-site Workforce Manager, c) Multi-site/Multimedia Workforce Manager and d)
Next Generation Workforce Manager. Next Age products are designed to optimize
the management, staffing, scheduling and productivity of contact center
employees. Upon completion, Single-site and Multi-site Workforce Manager will
be made available to customers with an SQL server database. Multi-
site/Multimedia Workforce Manager is expected to provide users with additional
functionality and the ability to transfer information data through web-based and
e-mail-based channels. Next Generation Workforce Manager is expected to allow
users to channel the flow of data through Internet based platforms. At the
acquisition date, Next Age was approximately 70%, 60%, 80% and 25% complete with
development of the Single-site Workforce Manager, Multi-site Workforce Manager,
Multi-site/Multimedia Workforce Manager and Next Generation Workforce Manager,
respectively. The Company expects that the Products will be completed in fiscal
2000, after which the Company expects to begin generating economic benefits from
the value of the completed IPR&D. Revenues attributable to the Products were
estimated to be $10.4 million in fiscal 2000 and $23.9 million in fiscal 2001.
IPR&D revenue, as a percentage of total projected Company revenue, was expected
to peak in fiscal 2002 and decline thereafter as new product technologies were
expected to be introduced by the Company. Operating expenses average 65% over
the projection period. The costs to complete the IPR&D were expected to be
$2.3 million in fiscal 2000 and $4.5 million in fiscal 2001. Risk-adjusted
discount rates of 26% to 30% were utilized to discount projected cashflows.
Net Income (Loss) Per Share
Basic net income (loss) per share is calculated based on the weighted
average number of common share outstanding during the period. Diluted net income
per share is computed using the weighted average number of common and potential
common shares outstanding during the period. Potential common shares consist of
preferred stock (using the "if converted" method) and stock options and
warrants (using the treasury stock method). Potential common shares are excluded
from the computation of dilutive net loss per share as their effect is anti-
dilutive.
44
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Basic and Diluted Weighted Average Common and Potential Common Shares
presented in the accompanying statements of operations (as rounded) are
comprised of the following (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Year Ended June 30,
1999 1998 1997
----------------------------
<S> <C> <C> <C>
Weighted average common shares outstanding 23,328 20,923 13,481
Shares issued in acquisition of Forte -- 667 667
----------------------------
BASIC WEIGHTED AVERAGE COMMON SHARES 23,328 21,590 14,148
----------------------------
Convertible Preferred Stock -- -- 3,090
Weighted average options and warrants for common stock -- 5,157 3,061
----------------------------
DILUTED WEIGHTED AVERAGE COMMON SHARES 23,328 26,747 20,299
----------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
Approximately 3,226,000 common stock equivalents were excluded from diluted
weighted average common shares for the year ended June 30, 1999 as their effect
would have been anti-dilutive.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
which requires companies to record derivative financial instruments on the
balance sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133-an Amendment of FASB Statement No. 133." SFAS No. 137
defers the effective date of SFAS No. 133, such that SFAS No. 133 shall be
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. This statement will not have a material impact on the financial condition
or results of the operations of the Company.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, 'Software Revenue Recognition,'" which defers for one year the application
of provisions SOP 97-2, which limits what is considered vendor-specific
objective evidence of the fair value of the various elements in a multiple
element arrangement. All other provisions of SOP 97-2 remain in effect. This SOP
was effective as of March 31, 1998. In December 1998, the AICPA issued SOP 98-9,
"Modification of SOP 97-2, 'Software Revenue Recognition' With Respect to
Certain Transactions," which amends paragraphs 11 and 12 of SOP 97-2, "Software
Revenue Recognition," to require recognition of revenue using the "residual
value method" under certain conditions. Effective December 15, 1998, SOP 98-9
amends SOP 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2,
'Software Revenue Recognition,'" to extend the deferral of the application of
certain passages of SOP 97-2 provided by SOP 98-4 through fiscal years beginning
on or before March 15, 1999. All other provisions of this SOP are effective for
transactions entered into in fiscal years beginning after March 15, 1999. The
Company has adopted SOP 97-2, as amended. The adoption of SOP 97-2 did not have
a material impact on the Company's business practices or revenue recognition.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. SOP 98-1 applies to all non-governmental entities and is
effective for financial statements for fiscal years beginning after December 15,
1998. SOP 98-1 will not have a material impact on the financial condition or
results of the operations of the Company.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." For purposes of this SOP, start-up activities are defined
broadly as those one-time activities related to opening a new facility,
introducing a new product or service, conducting business in a new territory,
conducting business with a new class of customer or beneficiary, initiating a
new process in an existing facility, or commencing some new operation. Start-up
activities include
45
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
activities related to organizing a new entity (commonly referred to as
organization costs). This SOP provides guidance on accounting for the costs of
start-up activities. SOP 98-5 is effective for financial statements for fiscal
years beginning after December 15, 1998. SOP 98-5 will not have a material
impact on the financial condition or results of the operations of the Company.
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, 1999, approximately 17% of accounts receivable were concentrated with
two customers and as of June 30, 1998, approximately 15% of accounts receivable
were concentrated with two customers. 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. ACQUISITIONS
In June 1999, the Company acquired all of the outstanding common stock of
Next Age Technologies, Inc., a California corporation ("Next Age"). Next Age
software products are designed to optimize the management, staffing, scheduling
and productivity of contact center employees. Pursuant to the terms of the
acquisition, the Company issued 556,557 shares of its Common Stock in exchange
for all outstanding shares of Next Age Common Stock, and issued options to
purchase 25,068 shares of the Company's Common Stock in exchange for all
outstanding Next Age Stock options. A total of 97,918 shares have been placed
into an escrow subject to the satisfaction of all representations and warranties
under the terms and conditions of the Merger Agreement. The merger was accounted
for as a purchase; accordingly, the Company allocated the purchase price based
upon the estimated fair value of the assets and liabilities assumed. The
valuation was based on accepted appraisal methodologies used at the time of the
allocation.
The total purchase price was $14.6 million. Management estimates that
$6.6 million of the purchase price represents acquired in-process technology
that has not yet reached technological feasibility and has no alternative future
use. Accordingly, this amount was immediately charged to expense upon
consummation of the acquisition (see Note 2). Additionally, the Company
allocated $2.2 million, $0.9 million, and $4.9 million of the purchase price to
acquired software, workforce and trade names, and goodwill, respectively. These
intangible assets are being amortized on a straight-line basis over four to
seven years.
The results of operations of Next Age are included in the Company's
financial statements from the date of acquisition forward. Comparative pro forma
financial information has not been presented, as the operations of Next Age were
not material to the Company's consolidated financial statements.
In December 1998, the Company hired Ori Sasson as its Chief Executive
Officer and elected him as a member of the Board of Directors of Genesys. In
connection with the hiring of Mr. Sasson, the Company also completed the
acquisition of Plato Software Corporation, a Delaware corporation ("Plato"), a
company in which Mr. Sasson was a principal shareholder. The merger was
completed pursuant to an Agreement and Plan of Reorganization ("Merger
Agreement") dated as of December 9, 1998. As Plato did not have significant
operations or revenue prior to the acquisition, the Company has treated the
purchase as the acquisition of an asset.
Pursuant to the Merger Agreement, the Company issued 202,500 shares of its
Common Stock in exchange for all outstanding shares of Plato Common Stock, and
issued options to purchase 47,500 shares of Genesys Common Stock in exchange for
all outstanding Plato Stock options. A total of 50,000 shares have been placed
into an escrow subject to the
46
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
satisfaction of all representations and warranties under the terms and
conditions of the Merger Agreement. The Company recorded the fair value of net
assets purchased from Plato, which consisted of certain technology to be
incorporated into the Genesys products, totaling $382,000 as of December 31,
1998.
As the acquisition of Plato was consummated in connection with the
election of Ori Sasson as Chief Executive Officer and a member of the Board of
Directors of the Company, in December 1998 the Company recorded as expense the
portion of the shares and options issued that represented compensation to Mr.
Sasson and other Plato employees. Deferred compensation totaling $800,000
related to unvested options will be amortized over the remaining vesting period
of the options of approximately four years. In addition, the Company recorded as
expense its reimbursement to Mr. Sasson of the tax liabilities associated with
this compensation. The total amount of compensation expense and related tax
reimbursements associated with this transaction was approximately $12.4 million,
and was reflected as part of a non-recurring charge in the Company's financial
statements in fiscal 1999. (See Note 2)
In December 1997, the Company acquired all of the outstanding common stock
of Forte Advanced Management Software, Inc. ("Forte") in exchange for
approximately 667,099 shares of the Company's common stock. The Company also
assumed Forte's outstanding options, which were converted to options to purchase
90,349 shares of the Company's common stock. The merger was accounted for as a
pooling of interests and, accordingly, the consolidated financial statements
have been restated to reflect the acquisition on a pooling of interests basis.
Net revenue and income of the separate companies, accounted for as a
pooling of interests, for the years ended June 30, 1998 and 1997 were (in
thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Genesys Forte Advanced
Telecommunications Management
Laboratories, Inc. Software, Inc. Combined
------------------ -------------- --------
<S> <C> <C> <C>
Year Ended June 30, 1998:
Total Revenue $81,516 $3,152 $84,668
Net Income (Loss) 8,485 (551) 7,934
Year Ended June 30, 1997:
Total Revenue $34,889 $2,649 $37,538
Net Income (Loss) 1,616 (842) 774
- ------------------------------------------------------------------------------------
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
June 30,
1999 1998
---- ----
<S> <C> <C>
Computer and office equipment $ 16,576 $13,048
Furniture and fixtures 2,306 2,056
Leasehold improvements and other 11,731 6,411
-------- -------
30,613 21,515
Less: accumulated depreciation and amortization (13,587) (6,840)
-------- -------
$ 17,026 $14,675
======== =======
- ------------------------------------------------------------------------------------
</TABLE>
Included in property and equipment are assets acquired under capital
lease obligations with an original cost of approximately $282,000 as of both
June 30, 1999 and 1998, respectively. Accumulated amortization on the leased
assets was approximately $135,000 and $176,500 at June 30, 1999 and 1998,
respectively.
47
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. COMMITMENTS AND LONG-TERM OBLIGATIONS
In June 1997, the Company entered into a long-term note payable with a
vendor. The note is unsecured and bears interest at 6.74% per annum. The note
was paid in full during fiscal 1999.
The Company leases its facilities under noncancellable operating lease
agreements, which expire on various dates through September 2003.
Minimum future payments under noncancellable capital and operating leases
as of June 30, 1999 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Fiscal Year Leases Leases
------- ---------
<S> <C> <C>
2000 $ 59 $ 3,873
2001 58 2,788
2002 29 2,594
2003 -- 1,044
2004 and thereafter -- 2,731
---- -------
Total minimum payments 146 $13,030
=======
Less: Amount representing
interest at 6.74% to 19% (15)
----
Present value of minimum payments 131
Less: Current portion (65)
Long-term portion $ 66
====
</TABLE>
Rent expense was approximately $4,099,000, $3,574,000 and $1,155,000 in
fiscal 1999, 1998 and 1997, respectively.
7. 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"). On November 20, 1998, the Company and GeoTel entered into a
settlement agreement concerning the patent dispute on terms that neither company
believes are material to its financial results. Pursuant to the settlement,
GeoTel will receive a pre-determined license fee for certain products paid over
a fixed period of time in exchange for a nonexclusive, irrevocable license to
use the technology covered by the GeoTel Patent or any related patent in all
present and future Genesys products which incorporate such technology. The
license fee is expensed in the period in which it is paid, which approximates
the useful life of the licensed technology.
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business. As of
June 30, 1999, the Company was not a party of any legal proceedings that, if
decided adversely to the Company, would, individually or in the aggregate, have
a material adverse effect on the Company's business, financial condition or
results of operations.
48
<PAGE>
8. RELATED PARTY TRANSACTIONS
In April 1999, the Company provided Next Age with a loan to borrow up to
$1.5 million, of which $390,000 was outstanding at the time of the acquisition
of Next Age (see Note 4). In connection with the acquisition, the $390,000
outstanding loan was forgiven and taken into consideration as part of the Next
Age acquisition purchase price.
9. COMMON STOCK AND PREFERRED STOCK
In June 1997, the Company completed its initial public offering of
2,375,000 shares of Common Stock at $18.00 per share. In connection with the
initial public offering, all outstanding shares of Preferred Stock automatically
converted into Common Stock. In addition, the Company issued 420,282 shares of
Common Stock in connection with the exercise of certain warrants prior to the
closing of the offering.
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 June 30, 1999, an aggregate of 773,500 shares of
Common Stock have been repurchased under these agreements, and 372,312 shares
are subject to the Company's repurchase right at prices ranging from $0.0167 to
$0.375 per share.
Stock Plans
In March 1997, the Board adopted the 1997 Stock Incentive Plan (the "1997
Plan"), which serves as a successor to the Company's 1995 Stock Option Plan
(the "1995 Plan"). All shares issued under the 1995 Plan were transferred to
the 1997 Plan upon the effectiveness of the Company's initial public offering.
The Company has reserved shares of Common Stock for issuance under the 1997 Plan
equal to the sum of (i) the shares which remained available for issuance under
the 1995 Plan, including the shares subject to outstanding options thereunder,
and (ii) an additional increase of 2,400,000 shares. During 1999, the Company's
shareholders approved an additional increase of 2,500,000 shares. In addition,
upon the completion 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 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. Accordingly, on July 1, 1998,
the share reserve was automatically increased by 1,120,761 shares.
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 the 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 the 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
49
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
periodic intervals to eligible non-employee Board members to purchase shares of
Common Stock at an exercise price equal to the fair market value on the grant
date.
Under the Company's 1997 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 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 on
the date of grant. Options granted under the Option Plan generally expire ten
years after the date of grant and vesting generally occurs 25% on the first
anniversary date of employment or engagement and monthly thereafter over the
following 36 months. As of June 30, 1999, a total of 14,313,595 shares of
Common Stock have been authorized for grant under the 1997 Plan.
On October 13, 1998, the Company simultaneously cancelled and re-issued
2,418,769 options to purchase shares of the Company's Common Stock issued under
its 1997 Plan during a re-pricing of employee stock options, excluding stock
options issued to executive officers and directors. Stock options that were re-
priced had a weighted average exercise price of $26.47 per share and were re-
issued at $12.50 per share.
In June 1999, the Company acquired Next Age and assumed Next Age's
outstanding options granted under its stock option plan ("Next Age Plan"), which
were converted to options to purchase 25,068 shares of the Company's Common
Stock. In December 1998, the Company acquired Plato and assumed Plato's
outstanding options granted under its stock option Plan ("Plato Plan"), which
were converted to options to purchase 42,500 shares of the Company's Common
Stock. On December 31, 1997, the Company acquired Forte and assumed Forte's
outstanding options granted under its stock option plan ("Forte Plan"), which
were converted to options to purchase 90,349 shares of the Company's Common
Stock. No further options are available for future grant under the Next Age,
Plato or Forte stock option plans, and the Company has reserved for issuance
shares of its Common Stock for the exercise of these stock options.
In addition to stock option grants made under the plans described above,
during fiscal 1999, the Company's Board of Directors' Compensation Committee
made discretionary stock option grants to certain of its executive officers and
key employees that were outside of any plan. The number of discretionary stock
option grants issued as of June 30, 1999 was 3,080,000. Vesting generally occurs
25% on the first anniversary date of employment or engagement and monthly
thereafter over the following 36 months. Future discretionary grants may be
made if the Compensation Committee deems it necessary to attract the services of
key individuals essential to the Company's long-term growth and success.
50
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Details of option activity under the 1997 Plan (including activity under
the 1995 Plan); Forte Plan; Next Age Plan; Plato Plan; and the discretionary
grants (collectively, the "Plans") are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Options Outstanding
Shares
Available Number of Weighted
For Grant Shares Price Per Share Average
----------- --------- ------------------- --------
<S> <C> <C> <C> <C>
Balances, June 30, 1996 676,334 2,636,500 $0.02 -$ .23 $ 0.04
Authorized 7,380,000 -- -- -- --
Granted (5,695,500) 5,695,500 $0.38 -$18.00 $ 5.66
Exercised -- (895,561) $0.02 -$ 7.50 $ 0.39
Canceled 212,436 (212,436) $0.02 -$10.00 $ 0.66
-----------------------------------------------------------------
Balances, June 30, 1997 2,573,270 7,224,003 $0.02 -$18.00 $ 4.41
Authorized -- -- -- -- --
Granted outside of 1997 Plan -- 90,349 $12.00 -$12.00 $12.00
Granted under 1997 Plan (2,166,100) 2,166,100 $26.38 -$31.25 $28.11
Exercised -- (1,844,466) $0.02 -$18.00 $ 1.58
Canceled 517,041 (517,041) $0.02 -$30.00 $ 9.24
-----------------------------------------------------------------
Balances, June 30, 1998 924,21 7,118,945 $0.02 -$18.00 $12.05
Authorized 3,620,761 -- -- --
Granted outside of
1997 Plan 7,140,369 3,148,108 $0.40 -$21.75 $12.89
Granted under 1997 Plan (7,139,829) 7,139,829 $0.40 -$31.13 $14.23
Exercised -- (1,794,854) $0.02 -$15.00 $ 4.30
Canceled 4,473,717 (4,473,717) $0.02 -$31.25 $19.84
-----------------------------------------------------------------
Balances, June 30, 1999 1,878,860 11,138,311 $0.02 -$29.75 $12.17
-----------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
Shares granted outside of the 1997 Plan include the Forte Plan, Next Age Plan,
Plato Plan and the discretionary grants.
For fiscal 1999, the price per share information for options canceled reflect
exercise prices prior to the October 1998 repricing of non-executive employee
stock options.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
Number Weighted Weighted Number Weighted
Outstanding Average Average Exercisable Average
Exer at June 30, Remaining Exercise June 30, Exercise
Prices 1999 Life Price 1999 Price
- ------------------------------------------------------------ ---------------------------
<S> <C> <C> <C> <C> <C>
$ 0.0167 - $ 10.0000 1,846,143 7.34 $ 3.1452 842,774 $ 3.0954
$ 11.4375 - $ 11.4375 2,845,750 9.73 $11.4375 75,000 $11.4375
$ 12.0000 - $ 12.0000 696,892 9.74 $12.0000 52,884 $12.0000
$ 12.5000 - $ 12.5000 2,818,959 9.25 $12.5000 247,942 $12.5000
$ 14.0000 - $ 29.7500 2,930,567 7.75 $18.2925 261,405 $15.1398
- ----------------------------------------------------------------------------------------
$ 0.0167 - $ 29.7500 11,138,311 8.69 $12.1744 1,480,005 $ 7.5357
- ----------------------------------------------------------------------------------------
</TABLE>
51
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The weighted average fair values of options granted during fiscal 1999,
1998 and 1997 was $14.34, $12.00 and $12.00, respectively.
<TABLE>
<CAPTION>
------------------------------------------------------------
Shares Subject to Repurchase
------------------------------------------------------------
Number Subject to
Repurchase at Weighted Average
Purchase Price June 30,1999 Repurchase Price
----------------- ----------------- ----------------
<S> <C> <C>
$ 0.0167 296,062 $0.0167
$ 0.2250 65,000 $0.2250
$ 0.3750 11,250 $0.3750
------------------------------------------------------------
$ 0.0167-$ 0.3750 372,312 $0.0807
------------------------------------------------------------
</TABLE>
As of June 30, 1999, 263,339 shares were vested and exercisable under the
stock purchase provisions of the Plans.
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 1999, 1998 and 1997,
amortization expense was approximately $532,000, $477,000 and $176,000,
respectively.
Had compensation cost been determined under a fair value method described
below, the Company's net income (loss) and net income (loss) per share would
have resulted in the following pro forma amounts (in thousands except per share
amounts):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Year Ended June 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income (loss):
As reported $ (2,624) $ 7,934 $ 774
Pro forma $(27,643) $(3,271) $ (747)
Basic net income (loss) per share:
As reported $ (0.11) $ 0.37 $ 0.05
Pro forma $ (1.19) $ (0.15) $(0.05)
Diluted net income (loss) per share:
As reported $ (0.11) $ 0.30 $ 0.04
Pro forma $ (1.19) $ (0.15) $(0.05)
-----------------------------------------------------------------------
</TABLE>
The fair value of each option grant under the 1997 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 77%, 56% and 115% in fiscal 1999,
1998 and 1997, respectively.
1997 Employee Stock Purchase Plan
In March 1997, the Board adopted the 1997 Employee Stock Purchase Plan
(the "Purchase Plan"). The Company has reserved 500,000 shares of Common Stock
for issuance under the Purchase Plan. The Purchase Plan enables 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. As of June 30, 1999, 210,749 shares had been purchased under the
Purchase Plan.
52
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Issuance of Warrants
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 $35.00 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 at the time, 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. Amortization expense recorded in fiscal
1999 and 1998 was approximately $162,500 and $203,000, respectively.
Shares Reserved for Issuance
As of June 30, 1999, the Company has reserved shares of Common Stock for
future issuance as follows:
<TABLE>
<CAPTION>
------------------------------------------------
Number of
Shares
------------
<S> <C>
Employee stock purchase plan. 289,251
Exercise of stock options 13,017,171
Exercise of warrants 494,629
----------
13,801,051
==========
------------------------------------------------
</TABLE>
10. INCOME TAXES
The provision for income taxes consisted of the following
(in thousands):
<TABLE>
<CAPTION>
------------------------------------------------
Year Ended June 30,
1999 1998 1997
----------------------------
<S> <C> <C> <C>
Current:
Federal $6,704 $3,738 $ 1,106
State 1,108 544 150
Foreign 1,785 68 461
----------------------------
Total 9,597 4,350 1,717
----------------------------
Deferred:
Federal 397 (350) (1,107)
State (51) 10 39
----------------------------
Total 346 (340) (1,068)
----------------------------
Total Provision $9,943 $4,010 $ 649
============================
------------------------------------------------
</TABLE>
53
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The actual provision for income taxes differs from the statutory income
tax provision as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax $2,562 $4,180 $ 793
State tax, net of federal benefit 302 528 124
Change in valuation allowance -- (278) (868)
Foreign taxes 70 68 460
Tax exempt interest income (469) (560) --
Non-deductible compensation 6,061 -- --
In-process research & development 2,576 -- --
Research & development credits (917) -- --
Other (242) 72 140
------ ------ -----
$9,943 $4,010 $ 649
====== ====== =====
</TABLE>
The components of the net deferred tax asset are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30,
1999 1998
---- ----
<S> <C> <C>
Reserves and accruals not currently deductible $1,288 $1,343
Tax credit carryforwards 342 633
------ ------
Net deferred tax asset $1,630 $1,976
====== ======
</TABLE>
The net deferred tax asset is included in other current assets in the
accompanying consolidated balance sheet.
11. MAJOR CUSTOMERS
The following customers accounted for 10% or more of total revenues in the
periods indicated:
<TABLE>
<CAPTION>
For the Years
Ended June 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Customer A * 14.1% 11.1%
</TABLE>
* Less than 10% of total revenues
12. SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131
("SFAS No. 131"), "Disclosures about Segments of an Enterprise and Related
Information", in fiscal 1999. SFAS No. 131 established standards for reporting
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports
issued to stockholders. It also established standards for related disclosures
about products and services and geographic areas. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision makers, or decision making group,
13. SUBSEQUENT EVENTS (UNAUDITED)
On Wednesday September 28, 1999, a press release was issued announcing
that Alcatel has entered into a definitive agreement to acquire Genesys. The
planned stock-for-stock transaction values Genesys at approximately $1.5
billion, on the basis of the current ten day average Alcatel American Depositary
Shares (ADS) stock price of $28.
This acquisition will be made by a merger under which shareholders of
Genesys will be given 1.667 Alcatel ADS in exchange for one Genesys share. There
is a "collar" on the deal so that the value for each given Genesys share will
not exceed $55 or be less than $45. The Alcatel ADS is a US security that
represents one-fifth of an Alcatel share and is listed on the NYSE. Completion
of the acquisition is subject to the expiration or termination of applicable
waiting periods under appropriate antitrust laws and approval by Genesys
shareholders. The deal is expected to be completed in January 2000.
54
<PAGE>
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
in deciding how to allocate resources and in assessing performance. The
Company's chief operating decision making group is the Executive Committee,
which is comprised of the Chief Executive Officer, the Chief Financial Officer
and various Vice Presidents of the Company. The Company is organized
geographically and by line of business. The Company has two major line of
business operating segments: license and service. The Company also evaluates
certain subsets of business segments by service categories. While the Executive
Committee evaluates results in a number of different ways, the line of business
management structure is the primary basis for which it assesses financial
performance and allocates resources. The Company does not track assets by
operating segments. Consequently, it is not practical to show assets by
operating segments.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
For the Years Ended June 30,
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
License $ 113,620 $ 68,973 $ 31,919
Service revenue
Professional service 13,603 7,360 2,817
Maintenance service 11,885 8,335 2,802
---------------------------------------------------
Total service revenue 25,488 15,695 5,619
---------------------------------------------------
$ 139,108 $ 84,668 $ 37,538
===================================================
Cost of revenue:
License 4,980 3,342 1,615
Service 18,761 10,554 3,881
---------------------------------------------------
$ 23,741 $ 13,896 $ 5,496
===================================================
Geographic information:
- ----------------------------------------------------------------------------------------------------------
Year ended June 30 (in thousands):
1999 1998 1997
----------------------------------------------------------------------------
Long Lived Long Lived Long Lived
Revenues Assets Revenues Assets Revenues Assets
----------------------------------------------------------------------------
United States $ 69,628 $104,925 $ 47,295 $ 82,959 $ 25,107 $ 69,847
United Kingdom 29,416 22,039 17,835 12,341 6,902 6,780
France 8,407 8,739 6,683 3,467 -- --
Germany 5,744 4,136 -- -- -- --
Canada 7,954 4,323 7,196 4,312 3,559 2,710
Japan 2,647 1,797 1,580 1,230 -- --
Other Foreign Countries 15,312 1,548 4,079 391 1,970 608
----------------------------------------------------------------------------
Total $139,108 $147,500 $ 84,668 $104,700 $ 37,538 $ 79,945
----------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
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 49.9%, 44.7% and 33.4% of total revenues in fiscal 1999,
1998 and 1997, respectively.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
55
<PAGE>
PART III
Item 10. Directors and Officers of the Registrant
The information required by this item is incorporated herein by reference
to the section entitled (i) "Executive Officers of the Registrant" at the end of
Part I of this report; (ii) "Information Regarding Nominees and Incumbent
Directors" of the Genesys Proxy Statement for the Annual Meeting of Stockholders
to be held on Friday, November 19, 1999 (the "Proxy Statement"); and (iii)
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
Statement.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference
to the sections of the Proxy Statement entitled (i) "Compensation Committee
Interlocks and Insider Participation"; (ii) "Compensation of Directors"; (iii)
"Employment Contracts, Termination of Employment and Change-in-Control
Arrangements"; and (iv) the following tables and their footnotes, Summary
Compensation, Option Grants in Last Fiscal Year and Aggregated Option Exercises
and Year-End Values.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by reference
to the section of the Proxy Statement entitled "Stock Ownership of Certain
Beneficial Owners and Management."
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference
to the sections of the Proxy Statement entitled (i) "Compensation of Directors"
and (ii) "Certain Transactions".
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) List of Documents filed as part of this Annual Report on Form 10-K.
1. The following consolidated financial statements of the Company are
filed in Part II, Item 8 of this Report on Form 10-K:
Report of Independent Public Accountants
Consolidated Balance Sheets--June 30, 1998 and 1997
Consolidated Statements of Operations for the years ended June 30,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the years
ended June 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended June 30,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
The following financial statement schedule of the Company is filed in Part
IV, Item 14(d) of this Annual Report on Form 10-K:
56
<PAGE>
Schedule II--Valuation and Qualifying Accounts
All other schedules have been omitted since the required information is
not present in amounts sufficient to require submission of the schedule or
because the information required is included in the consolidated financial
statements or notes thereto.
3. Exhibits.
3.1 Restated Articles of Incorporations, filed with the
California Secretary of State on June 27, 1997
3.2/(2)/ Amended and Restated Bylaws
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2/(1)/ Specimen Common Stock certificate
4.3/(1)/ Series A Preferred Stock Purchase Agreement, dated March 29,
1996 among Genesys and the investors named therein.
4.4/(1)/ Common Stock Purchase Warrant, dated April 26, 1996 between
Genesys and Benchmark Capital Partners, L.P.
4.5/(1)/ Series B Preferred Stock Purchase Agreement, dated June 13,
1996 among Genesys and the investors named therein.
4.6/(1)/ Securities Purchase Agreement, dated February 26, 1997,
between Genesys and MCI Telecommunications Corporation
("MCI").
4.7/(1)(4)/ Warrant to Purchase Share of Series C Preferred Stock, dated
February 26, 1997, between Genesys and MCI.
4.8/(1)/ Series C Preferred Stock and Warrant Purchase Agreement,
dated February 26, 1997, between Genesys and Intel
Corporation ("Intel").
4.9/(1)(4)/ Warrant to Purchase Shares of Series Preferred Stock, dated
February 26,1997, between Genesys and Intel.
4.10/(1)/ Stock Exchange Agreement, dated February 26, 1997, between
Genesys and Bruncor, Inc. ("Bruncor").
4.11/(1)/ Registration Rights Agreement, dated February 26, 1997, among
Genesys and the investors named therein.
10.1/(1)/ Credit Line with Imperial Bank, dated October 28, 1996.
10.2/(1)/ Facilities Lease, dated July 1, 1996, between Genesys and
1155 Market Partners, with modifications, dated January 21,
1997 and January 30, 1997.
10.3/(1)(4)/ 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 Genesys and MCI.
10.4/(1)(4)/ Software Maintenance Agreement, dated January 31, 1996, as
amended on February 26, 1997 by and between Genesys and MCI.
MANAGEMENT CONTRACT, COMPENSATORY PLAN, CONTRACT OR
ARRANGEMENT (Exhibits 10.5 -- 10.21)
10.5/(1)/ Form of Indemnification Agreement entered into between
Genesys and its directors and officers.
57
<PAGE>
10.6/(1)/ 1995 Stock Option Plan, as amended.
10.7/(1)/ Form of Registrant's Restricted Stock Purchase Agreement.
10.8/(1)/ 1997 Stock Incentive Plan and underlying agreements.
10.9/(1)/ Employee Stock Purchase Plan and underlying agreements.
10.10/(3)/ Form of Written Compensation Agreement, Notice of Grant and
Option Agreement.
10.11/(3)/ Plato Software Corporation 1998 Share Option Plan and
underlying agreements.
10.12/(3)/ Next Age Technologies, Inc. 1998 Equity Incentive Plan and
underlying agreements.
10.13/(2)/ Mutual Executive Separation and Independent Consulting
Agreement by and between Genesys and Gregory Shenkman, dated
October 27, 1998.
10.14/(2)/ Employment and Severance and Independent Consulting Agreement
by and between Genesys and Michael McCloskey, dated December
11, 1998.
10.15/(2)/ Employment Offer Letter by and between Genesys and Ori
Sasson, dated December 9, 1998.
10.16 Employment Offer Letter by and between Genesys and Richard
DeGolia, dated March 5, 1996.
10.17 Employment Offer Letter by and between Genesys and Yuri
Shtivelman, dated June 6, 1996.
10.18 Employment Offer Letter by and between Genesys and Donald
Hunt, executed December 12, 1998.
10.19 Employment Offer Letter by and between Genesys and
Christopher Brennan, dated April 8, 1999.
10.20 Employment Offer Letter by and between Genesys and Ad P.
Nederlof, dated February 5, 1999.
21.1 Subsidiaries of Genesys.
23.1 Consent of Independent Public Accountants.
27 Financial Date Schedule (submitted for SEC use only).
- ---------------------
(1) Incorporated by reference to Genesys' Registration Statement on Form S-1
filed on April 3, 1997 (File No. 333-24479).
(2) Incorporated by reference herein to Genesys' Form 10-Q for the quarter
ended December 31, 1998 and filed on February 16, 1999.
(3) Incorporated by reference herein to Genesys' Form S-8 filed on
July 12, 1999.
(4) Confidential treatment requested as to certain portions of these exhibits
(b) Reports on Form 8-K.
None.
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on September 27, 1999.
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
By: /s/Ori Sasson
------------------------------------
Ori Sasson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/Ori Sasson President, Chief Executive September 27, 1999
- ----------------------- Officer and
Ori Sasson Director
/s/Alec Miloslavsky Chief Technical Officer and September 27, 1999
- ----------------------- Vice Chairman of the Board
Alec Miloslavsky
/s/Christopher Brennan Chief Financial Officer and September 27, 1999
- ----------------------- Principal Financial Officer
Christopher Brennan
/s/Stacey M. Wilhelmsen Corporate Controller and September 27, 1999
- ----------------------- Principal Accounting Officer
Stacey M. Wilhelmsen
/s/Gregory Shenkman Chairman of the Board September 27, 1999
- -----------------------
Gregory Shenkman
/s/Bruce Dunlevie Director September 21, 1999
- -----------------------
Bruce Dunlevie
/s/Paul Levy Director September 27, 1999
- -----------------------
Paul Levy
</TABLE>
59
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Allowance for Balance at Additions Balance at
Doubtful Accounts Beginning of Charged to End of
Year ended June 30 Period Expense Write-Offs Other Period
------------------ ------------ ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
1999 $789,000 $621,944 ($566,430) $30,366 $874,880
1998 $377,000 $889,000 $ (477,000) -- $789,000
1997 $426,000 $212,000 $ (261,000) -- $377,000
</TABLE>
60
<PAGE>
EXHIBIT 3.1
RESTATED
ARTICLES OF INCORPORATION
OF GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
a California Corporation
The undersigned, Gregory Shenkman and Michael J. McCloskey, hereby
certify that:
ONE: They are the duly elected and acting President and Secretary
respectively, of said corporation.
TWO: The Articles of Incorporation of said corporation shall be
amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Genesys Telecommunications
Laboratories, Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
A. Classes of Stock. This corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares that this corporation is authorized to issue is One
Hundred Twenty Five Million (125,000,000) shares. One Hundred Twenty Million
(120,000,000) shares shall be Common Stock and Five Million (5,000,000) shares
shall be Preferred Stock.
B. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by these Restated Articles of Incorporation may be
issued from time to time in one or more series. The Board of Directors is
hereby authorized to fix or alter the rights, preferences, privileges and
restrictions granted to or imposed upon additional series of Preferred Stock,
and the number of shares constituting any such series and the designation
thereof, or of any of them. Subject to compliance with applicable protective
voting rights that have been or may be granted to the Preferred Stock or series
thereof in this corporation's Articles of Incorporation ("Protective
Provisions"), but notwithstanding any other rights of the Preferred Stock or any
series thereof, the rights, privileges, preferences
<PAGE>
and restrictions of any such additional series may be subordinated to, pari
----
passu with (including, without limitation, inclusion in provisions with respect
- -----
to liquidation and acquisition preferences, redemption and/or approval of
matters by vote or written consent), or senior to any of those of any present or
future class or series of Preferred or Common Stock. Subject to compliance with
applicable Protective Provisions, the Board of Directors is also authorized to
increase or decrease the number of shares of any series, prior or subsequent to
the issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
1. Repurchase of Shares. In connection with repurchases by this
--------------------
Corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporations Law
shall not apply in whole or in part with respect to such repurchases.
C. Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of this corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. Liquidation Rights. Subject to the prior rights of holders of all
------------------
classes of stock at the time outstanding having prior rights as to liquidation,
upon the liquidation, dissolution or winding up of this corporation, the assets
of this corporation shall be distributed to the holders of Common Stock.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall have
-------------
the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE IV
Section 1. The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permitted under California
law.
Section 2. This corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code) through
bylaw provisions, agreements with the agents, vote of shareholders or
disinterested directors, or otherwise in excess of the indemnification otherwise
permitted by Section 317 of the California
2
<PAGE>
Corporations Code, subject only to applicable limits set forth in Section 204 of
the California Corporations Code with respect to actions for breach of duty to
this corporation and its shareholders.
* * *
THREE: The foregoing amendment has been approved by the Board of Directors
of said corporation.
FOUR: All of the outstanding Series A, Series B and Series C Preferred
Stock, including any options, warrants or rights to purchase such shares of
Series A, Series B or Series C Preferred Stock, (specifically warrants to
purchase 548,886 shares of Series C Preferred Stock) have been converted into
Common Stock, or options, warrants or rights to purchase such shares of Common
Stock, of the corporation pursuant to Section 4.(b) of Article III of the
present Articles of Incorporation.
FIVE: The present Articles of Incorporation of the corporation provide in
Section 6 of Article III that in the event shares of Series A, Series B or
Series C Preferred Stock shall be converted pursuant to Section 4 thereof, the
shares so converted shall be cancelled and shall not be issuable by the
corporation. Therefore upon such conversion and cancellation, and after giving
effect to the increase in the authorized number of shares of Preferred Stock,
the total authorized number of shares of the corporation became 125,000,000 and
the authorized number of shares of Preferred Stock of the corporation became
5,000,000.
SIX: The foregoing amendments and restatement of the Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Sections 902 and 903 of the California Corporations Code. The
total number of outstanding shares of the Corporation entitled to approve this
amendment and restatement of the Articles of Incorporation was 13,642,161 shares
of Common Stock, 900,000 shares of Series A Preferred Stock, 1,897,878 shares of
Series B Preferred Stock and 1,348,992 shares of Series C Preferred Stock. The
number of shares voting in favor of the amendment and restatement of the
Articles of Incorporation equaled or exceeded the vote required. The percentage
of vote required was (i) more than 50% of the outstanding shares of Common
Stock; (ii) more than 50% of the outstanding shares of Series A Preferred Stock
and the Series B Preferred Stock, voting together as a separate class, and (iii)
at least 75% of the outstanding shares of Series C Preferred Stock.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate on June
20, 1997.
/s/ Gregory Shenkman
-----------------------
Gregory Shenkman
President
/s/ Michael J. McCloskey
------------------------
Michael J. McCloskey
Secretary
Each of the undersigned declares under penalty of perjury that the
statements contained in the foregoing certificate are true and correct of his
knowledge, and that this declaration was executed on June 20, 1997, at San
Francisco, California.
/s/ Gregory Shenkman
-----------------------
Gregory Shenkman
President
/s/ Michael J. McCloskey
------------------------
Michael J. McCloskey
Secretary
4
<PAGE>
EXHIBIT 10.16
-------------
March 5, 1996
Richard C. DeGolia
309 Eleanor Avenue
Los Altos, CA 94022
Dear Rick:
On behalf of Genesys Telecommunications Laboratories (the "Company"), I am
pleased to extend this offer of employment with the Company on the following
terms:
1. You will be employed as Executive Vice President, Business Development and
Acting Chief Financial Officer. You will report directly to me as Chief
Executive Officer. This offer and your employment is contingent on your
agreement to devote your full time efforts to your responsibilities at the
Company (beginning September 15, 1996) and not to engage in any other activities
which would conflict with the best interests of the Company.
2. You will initially receive a base salary of $15,000 per month, paid in
accordance with the Company's normal payroll practice.
3. You will be eligible to receive as a bonus such amount as is determined by
the Company's Board of Directors in connection with any general executive
officer bonus plan.
4. I will recommend to the Board of Directors that it approve at its next
meeting the sale to you of 146,780 shares of the Company's Common Stock at a
purchase price equal to the fair market value of such shares on the date of
issuance, as determined in good faith by the Board. The shares of Common Stock
will be sold to you pursuant to Restricted Stock Purchase Agreement the ("RSA")
will vest over a period of ten (10) years beginning March 1, 1996, at a rate of
10% of the shares at the end of the first year and 1/120th of the shares at the
end of each month.
5. You shall be entitled to the Company's standard package of employee
benefits.
6. Your employment with the Company is on an "at-will" basis, which means that
your employment relationship with the Company may be terminated at any time by
either you or the Company, without prior notice, for any reason.
7. As a condition of employment, you will be required to sign the Company's
form of standard confidential information and invention assignment agreement.
8. In the event of any dispute or claim relating to or arising out of your
employment relationship with the Company, you and the Company agree that all
such disputes shall
<PAGE>
Richard C. DeGolia
March 5, 1996
Page 2
be fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in Santa Clara County, California. However, we agree
that this arbitration provision shall not apply to any disputes or claims
relating to or arising out of a misuse or misappropriation of the Company's
trade secrets or proprietary information.
9. This Agreement reflects the full and complete understanding and agreement
between you and the Company regarding your employment relationship with the
Company, and it shall supersede any prior written or oral negotiation, offer or
agreement regarding your employment relationship with the Company.
To indicate your acceptance of the Company's offer, please sign and date
this letter in the space provided below and return it to me. This offer will
remain in effect for five calendar days from the date of receipt. A duplicate
original is enclosed for your records. This letter may not be modified or
amended except by a written agreement, signed by an authorized representative of
the Company and by you.
Rick, let me take this opportunity to personally welcome you to Genesys. I
look forward to working with you.
Sincerely,
GENESYS TELECOMMUNICATIONS
LABORATORIES
/s/ Gregory Shenkman
Chief Executive Officer
AGREED AND ACCEPTED:
/s/ Richard C. DeGolia
Richard C. DeGolia
Dated: March 10, 1996
<PAGE>
EXHIBIT 10.17
-------------
June 6, 1996
Yuri Shtivelman
2811 Monte Cresta Dr.
Belmont, CA 94002
Dear Yuri:
On behalf of Genesys Telecommunications Laboratories (the "Company"), I am
pleased to extend this offer of employment with the Company on the following
terms:
1. You will be employed as Vice President, Corporate Strategy. You will report
directly to Alec Miloslavsky, Chief Technical Officer. Your employment start
date will be a mutually agreed upon date, as early as possible, in
accordance with your availability. This offer and your employment will be
contingent on your agreement to devote your full time efforts to your
responsibilities at the Company and not to engage in any other activities
which would conflict with the best interests of the Company.
2. You will initially receive a base salary of $10,833.33 per month, paid in
accordance with the Company's normal semi-monthly payroll practice. In
addition you will be eligible to receive a performance bonus of up to 20%.
The amount of the bonus payment will depend on both meeting your performance
goals and the Company's financial performance and condition. We will need to
define your performance goals within the first 90 days of your employment
with the Company.
3. You shall be entitled to the Company's standard package of employee
benefits.
4. I have recommended that the Board approve the sale to you of 40,000 shares
of the Company's Common Stock at a purchase price equal to the fair market
value of such shares on the date of Board approval, as determined in good
faith by the Board. In connection with the issuance of the shares, you will
enter into a Restricted Stock Purchase Agreement (the "RSPA") with the
Company. The shares of Common Stock subject to the RSPA will vest of over a
period of four (4) years beginning on your fist date of employment with the
Company, at a rate of 25% of the shares at the end of the first year and
1/48th of the shares at the end of each month thereafter. Additionally, as
an incentive and based on your realization of performance goals determined
within the first 90 days of your employment with the Company, you will
receive, on your one year anniversary with the Company, 15,000 shares of the
Company's Common Stock at a purchase price equal to the fair market value of
such shares on the date of issuance, as determined in good faith by the
Board. In connection with the issuance of the option, you will enter into a
standard form of option agreement with the Company. These 15,000 shares of
Common Stock subject to the option will vest over a period of two (2) years
beginning with your date of employment, at a rate of 50% of the shares
<PAGE>
Letter to Yuri Shtivelman
6/6/96
Page 2 of 3
at the end of the first year and 50% of the shares at the end of the second
year. In addition, in the event (i) of a sale of substantially all of the
assets of the Company or a merger that involves a change of control,
(collectively, and "Acquisition") and (ii) the acquiror fails to provide you
with both cash compensation and operational responsibility that is at least
equal in terms of salary and benefits and operating duties, respectively, to
that which you have with Genesys at the time of the Acquisition, then any
shares of stock purchased by you in accordance with this letter that are
unvested as of the closing date of the Acquisition shall fully become vested
as of such closing date.
5. Your employment with the Company is on an "at-will" basis, which means that
your employment relationship with the Company may be terminated at any time
by either you or the Company, without prior notice, for any reason.
6. As a condition of employment, you will be required to sign the Company's
form of confidential information and invention assignment agreement.
7. In the event of any dispute or claim relating to or arising out of your
employment relationship with the Company, you and the Company agree that all
such disputes shall be fully and finally resolved by binding arbitration
conducted by the Americal Arbitration Association of Santa Clara County,
California. However, we agree that this arbitration provision shall not
apply to any disputes of claims relating to or arising out of a misuse or
misappropriation of the Company's trade secrets or proprietary information.
8. This Agreement reflects the full and complete understanding and agreement
between you and the Company regarding your employment relationship with the
Company, and it shall supersede any prior written or oral negotiation, offer
or agreement regarding your employment relationship with the Company.
To indicate your acceptance of the Company's offer, after you are eligible to be
employed in the United States, please sign and date this letter in the space
provided below and return it to me. This offer will remain in effect for 5
calendar days from the date of this letter. A duplicate original is enclosed
for your records. This letter may not be modified or amended except by a
written agreement, signed by an authorized representative of the Company and by
you.
Yuri, I look forward to a long and mutually enjoyable working relationship.
Very truly yours
Alec Miloslavsky
Chief Technical Officer
<PAGE>
Letter to Yuri Shtivelman
6/6/96
Page 3 of 3
Agreed and accepted:
/s/ Yuri Shtivelman
Yuri Shtivelman
Date:
<PAGE>
EXHIIBT 10.18
-------------
_____________, 1998
Don Hunt
Address
Dear Don:
On behalf of Genesys Telecommunications Laboratories, Inc. (the "Company"), I am
pleased to offer employment with the Company on the following terms:
1. You will be employed as Senior Vice President of Worldwide Field Operations
reporting to the President with an anticipated start date of January 4,
1999. This offer and your employment is contingent upon:
A. Satisfactory results of background and reference checks.
B. Receipt, within three days of employment, of proof, provided by you, of
your legal right to work in the United States
C. Receipt of an executed copy of the Company's form of confidential
information and invention assignment agreement (which is attached)
D. Your agreement to devote, during your employment, your full time efforts
to your responsibilities at the Company and not to engage in any other
activities which would conflict with the best interests of the Company.
2. Your base compensation will be $230,000 annualized salary ("Base Salary"),
plus commission/bonus potential of up to $120,000 in accordance with the
Company's bonus plan in effect, if any.
3. We will propose to the Board that you be granted two (2) options to purchase
shares of the Company's Common Stock under the Company's 1997 Stock
Incentive Plan at a purchase price equal to the fair market value of such
shares on the date the options are approved by the Board. The first option
will be for 300,000 share and will vest of over a period of four years
beginning with your date of employment, at a rate of 25% of the shares at
the end of the first year and 1/48th of the shares at the end of each month
thereafter. The second option will be for 50,000 shares and will vest
immediately upon the satisfaction of certain milestones that must be defined
to prior to the grant of such option. [This is the language we need, we will
make the milestone Jan 15th putting a sales plan together.]
Both options will provide for certain acceleration upon a constructive
termination in the event of a change of control, and such provision will be
consistent with those provided in the option agreements with similar
officers of the Company, a copy of such language is attached hereto as
Schedule A.
4. You will be eligible to participate in the company's standard package of
employee benefits, which includes medical, dental, life and disability
insurance, a flexible spending program, and Employee Stock Purchase Plan
(ESPP), and a 401(k) plan.
<PAGE>
Letter to Mr. Hunt
_____________, 1998
Page 2
5. At all times, your employment with the Company is "at-will", which means
that employment with the Company may be terminated at any time by either you
or the Company with or without cause or justification, subject only to the
entitlements, liabilities and obligations set forth in 5(a)-(e), below; and
upon any termination of your employment, you agrees to immediately resign as
an officer of Company. Although other terms and conditions of employment,
including job duties and title, compensation and benefits, may be changed by
the company at any time, the at-will nature of an employment relationship
shall not change.
(a) Termination for Cause.
---------------------
(i) In the event that Company terminates your employment for "cause,"
Company's total liability under this Agreement shall be that
described in 5(b)(i) below. "Cause" shall mean:
(1) gross negligence or your repeated failure to perform your duties
and responsibilities to the reasonable satisfaction of the CEO,
President or other appropriate officer or any breach by you of
your fiduciary duties to the Company (including the meeting of
any agreed to milestone or plans). For purposes of this letter,
any act or acts or omission or omissions by you that may have a
material adverse effect on the Company's operations or business
shall be deemed to be a breach of you duties and
responsibilities to the Company; or
(2) the commission of any criminal acts, act of fraud, embezzlement
or actual dishonesty by you, any unauthorized use or disclosure
by you of confidential information or trade secrets of Company
(or any Parent or Subsidiary).
(ii) In the event that Company terminates your employment other than for
"Cause," Company's total liability under this Agreement shall be
that described in 5(b)(ii) below.
(b) Entitlements and Liabilities Upon Termination. Your entitlements and the
---------------------------------------------
Company's liabilities upon any termination of your employment shall be
one of the following, depending upon the circumstances of the
termination, as specified in 5(a) above; and you shall not be entitled
to any further compensation, any benefits or stock vesting except as
specified below:
(i) In the event of termination for cause, you shall be entitled to,
and Company shall pay to you, your Base Salary earned through the
date of termination, and your participation in all employee
benefits shall cease as of the date of termination except as you
may be eligible and elect to continue pursuant to COBRA.
(ii) In the event of termination by Company other than for cause, and
provided that during the period after termination for which Company
is obligated to pay you, you comply with the obligations of 5(c)
below, you shall be entitled to, and Company shall continue to pay
to you, your Base Salary
<PAGE>
Letter to Mr. Hunt
_____________, 1998
Page 3
and COBRA continuation premiums for six (6) months after the date
of termination.
(c) Your Obligations.
----------------
(i) As a condition of receiving any severance payments under this
Section 5, above, you shall be required to execute in favor of the
Company and deliver a waiver and general release of any and all
claims, known and unknown, in such form as the President or any
designee shall specify.
(ii) During any period of time for which Company is making, or is
obligated to make, any payment to you pursuant to 5(b), you shall
hold yourself available to consult with Company in a manner
requested by the CEO, President or any designee and shall not
(without limiting any other obligations you may have to the
Company):
(1) own, engage in, have any substantial interest in, advise or
provide any services or labor to any person or entity engaged
in any business that is in any material way directly
competitive with the business that is conducted by Company; or
(2) solicit, accept or receive any compensation from any person or
entity engaged in any business that is in any material way
directly competitive with the business that is conducted by
Company; or
(3) contact, solicit or call upon any customer or supplier of
Company on behalf of any person or entity other than Company
for the purpose of selling, providing or performing any
products or services directly competitive with those provided
or performed by Company; or
(4) induce or attempt to induce any person or entity to curtail or
cancel any business or contracts which such person or entity
has or is in the process of having with Company; or
(5) induce or attempt to induce any person or entity to terminate,
cancel or breach any contract which such person or entity has
with Company, to terminate any person's employment relationship
with Company, or to receive or accept any benefits in the event
of such termination, cancellation or breach.
You agree to enter into such additional documents or agreements
reflecting the foregoing Section as the Company may reasonably
request.
<PAGE>
Letter to Mr. Hunt
_____________, 1998
Page 4
6. You represent and warrant that you are not breaching any contractual
relationship or obligation toward any other person or entity by entering
into an employment relationship with the Company, by executing this
Agreement or by complying with the terms and conditions of the same.
Furthermore, you understand that Company is hiring you solely for the
purpose of engaging your skill and expertise, and not to acquire any trade
secret, proprietary or confidential information belonging to any other
person or entity; and that in performing under this Agreement, you are
prohibited by Company from disclosing any such trade secret and proprietary
or confidential information to Company.
7. Dispute Resolution; Arbitration in Lieu of Civil Litigation.
(a) You and the Company (hereafter "the Parties") hereby agree that any and
all controversies, claims or disputes that Company may have with you or
that you may have with Company, or any of its employees, officers,
directors, agents or assigns, which arise out of your employment with
Company, shall be resolved through final and binding arbitration in
accordance with National Rules for the Resolution of Employment Disputes
of the American Arbitration Association. The arbitration shall be
conducted in San Francisco, California before a single arbitrator
mutually agreed by Company and you; provided that if they are unable to
agree on a single arbitrator within 30 days of the demand by either
party for arbitration, an arbitrator shall be designated by the San
Francisco Office of the American Arbitration Association.
(b) Such controversies, claims and disputes include, without limitation, any
controversy, claim or dispute relating to your employment or the
termination thereof, claims for breach of contract or breach of the
covenant of good faith and fair dealing, infliction of emotional
distress, defamation and any claims of discrimination, harassment or
other claims under the California Fair Employment and Housing Act, Title
VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans With Disabilities Act, the Employee
Retirement Income Securities Act, the Family Care and Medical leave Act,
and any other federal, state or local law or regulation now in existence
or hereinafter enacted and as amended from time to time regarding
employment, termination of employment and the terms and conditions of
employment, including the California Labor Code.
(c) The only controversies, claims or disputes not covered by this covenant
to arbitrate, are those regarding your entitlement to benefits under the
unemployment insurance or workers' compensation laws.
(d) The Parties will share equally the cost of the arbitration filing and
hearing fees and the cost of the arbitrator. Each party will bear its
own attorneys' fees, and the arbitrator will not have authority to award
attorneys' fees unless a statutory section at issue in the dispute
authorizes the award of attorneys' fees to the prevailing party, in
which case the arbitrator shall have the authority to make such award as
permitted by the statute in question.
(e) The Parties understand and agree that arbitration shall be instead of
any civil litigation. This means that each party is waiving any right to
a jury trail, and that the arbitrator's decision shall be final and
binding to the fullest extent permitted by law and enforceable by any
court having jurisdiction thereof.
8. This Agreement reflects the full and complete understanding and agreement
between you and the Company regarding your employment relationship with the
Company, and it shall
<PAGE>
Letter to Mr. Hunt
_____________, 1998
Page 5
supersede any and all prior written or oral negotiation, offer or agreement
regarding your employment relationship with the Company.
To indicate your acceptance of the Company's offer, please sign and date this
letter in the space provided below and return it to me. This offer will remain
in effect for 5 calendar days from the date of this letter. A duplicate
original is enclosed for your records.
Don, we very much look forward to working with you.
Very truly yours,
Darlene Jordan-Fontaine
Manager of Human Resources
================================================================================
Agreed and accepted:
/s/ Donald W. Hunt 1-04-99
- --------------------------- -------------------------------
Donald W. Hunt Anticipated Start Date
Please fax your letter of acceptance back to Human Resources at the confidential
fax number of 415/437-1287. No cover is needed.
<PAGE>
Letter to Mr. Hunt
_____________, 1998
Page 6
Schedule A to Offer Letter
Acceleration for Key Officers Language
13. Change in Control. Unless expressly waived by Optionee, in the event
of (A) the sale of all or substantially all of the Company's assets or the
merger or consolidation of the Company (or series of transactions which
results in such a merger or consolidation) with or into another company
pursuant to which the shareholders of the Company immediately prior to the
closing of such merger or consolidation (or series of transactions) own
less than 50% of the voting securities of the surviving company immediately
following the closing of such merger or consolidation (a "Merger" and
collectively with sale of assets an "Acquisition"), and (B) the acquiror
fails to provide Optionee with both cash compensation and operational
responsibility that is at least equal in terms of salary and benefits and
operating duties, respectively, to that which Optionee was receiving from
the Company at the time of the Acquisition, then all of the unvested shares
will be accelerated as of the closing date of the Acquisition and become
fully vested immediately prior to the closing of the Acquisition.
<PAGE>
EXHIBIT 10.19
-------------
April 8, 1999
Mr. Christopher D. Brennan
19 Brightwood Circle
Danville, CA 94506
Dear Christopher,
On behalf of Genesys Telecommunications Laboratories, Inc. (the "Company"), I am
pleased to offer employment with the Company on the following terms:
1. You will be employed as the Chief Financial Officer and Sr. Vice President
of Finance and Administration reporting to the CEO, with an anticipated
start date of April 8, 1999. This offer and your employment is contingent
upon:
A. Satisfactory results of background and reference checks.
B. Receipt, within three days of employment, of proof, provided by you, of
your legal right to work in the United States
C. Receipt of an executed copy of the Company's form of confidential
information and invention assignment agreement (which is attached)
D. Your agreement to devote, during your employment, your full time efforts
to your responsibilities at the Company and not to engage in any other
activities which would conflict with the best interests of the Company.
2. Your base compensation will be $300,000 annualized salary ("Base Salary"),
plus commission/bonus of 40% of Base Salary at target and 80% of Base Salary
at maximum in accordance with the Company's bonus plan.
We will propose to the Board that you be granted two (2) options to purchase
shares of the Company's Common Stock under the Company's 1997 Stock
Incentive Plan at a purchase price equal to the fair market value of such
shares on the date the options are approved by the Board. The first option
will be for 300,000 shares and will vest over a period of four years
beginning with your date of employment, at a rate of 25% of the shares at
the end of the first year and 1/48th of the shares at the end of each month
thereafter. The second option will be for 50,000 shares and will vest
immediately.
The first option, referred to above, will provide for certain acceleration
upon a constructive termination in the event of a change of control, the
conditions of which are outlined in Schedule A to this offer letter, and
upon a "Not for Cause Termination", the conditions of which are outlined in
Article 4,b,(ii) below.
<PAGE>
Letter to Mr. Brennan
April 8, 1999
Page 2
3. You will be eligible to participate in the company's standard package of
employee benefits, which includes medical, dental, life and disability
insurance, a flexible spending program, and Employee Stock Purchase Plan
(ESPP), and 401(k) plan.
4. At all times, your employment with the Company is "at-will", which means
that employment with the Company may be terminated at any time by either you
or the Company with or without cause or justification, subject only to the
entitlements, liabilities and obligations set forth in 4(a)-(c), below; and
upon any termination of your employment, you agree to immediately resign as
an officer of the Company. The at-will nature of this employment
relationship shall not change.
(a) Termination for Cause.
----------------------
(i) In the event that Company terminates your employment for "cause,"
Company's total liability under this Agreement shall be that
described in 4(b)(i) below. "Cause" shall mean:
(1) gross negligence or your repeated failure to perform your
duties and responsibilities to the reasonable satisfaction of
the CEO, President, or any other appropriate officer or any
breach by you of your fiduciary duties to the Company. For
purposes of this letter, any act or acts or omission or
omissions known by or within the control of the employee that
have a material adverse effect on the Company's operations or
business shall be deemed to be a breach of your duties and
responsibilities to the Company; or
(2) the commission of any criminal acts, act of fraud, embezzlement
or actual dishonesty by you, any unauthorized use or disclosure
by you of confidential information or trade secrets of Company
(or any Parent or Subsidiary).
(ii) In the event that Company terminates your employment other than for
"Cause," Company's total liability under this Agreement shall be
that described in 4(b)(ii) below.
(b) Entitlements and Liabilities Upon Termination. Your entitlements and the
---------------------------------------------
Company's liabilities upon any termination of your employment shall be
one of the following, depending upon circumstances of the termination,
as specified in 4(a) above; and you shall not be entitled to any further
compensation, any benefits or stock vesting except as specified below:
(i) In the event of termination for cause, you shall be entitled to,
and Company shall pay to you, your Base Salary earned through the
date of termination, and your participation in all employee
benefits shall cease as of the date of termination except as you
may be eligible and elect to continue pursuant to COBRA.
(ii) In the event of termination by Company other than for cause, and
provided that during the period after termination for which Company
is obligated to pay you, you comply with obligations of 4(c) below,
you shall be entitled to and Company shall continue to pay you,
your Base Salary, bonus at target and COBRA continuation premiums
for twelve (12) months after the date of termination. In addition,
upon a not for cause termination, the total acceleration of options
shall be equal to 50% of the remaining unvested options, at the
time of the termination, as if the original two grants were based
upon the four year vesting schedule.
<PAGE>
Letter to Mr. Brennan
April 8, 1999
Page 3
(c) Your Obligations.
----------------
(i) As a condition of receiving any severance payments under this
Section 4, above, you shall be required to execute in favor of the
Company and deliver a waiver and general release of any and all
claims, known and unknown, in such form as the President or any
designee shall specify.
(ii) During any period of time for which Company is making, or is
obligated to make, any payment to you pursuant to 4(b) above, you
shall hold yourself available to consult with Company in a manner
requested by the CEO, President or any designee and shall not
(without limiting any other obligations you may have to the
Company):
(1) own, engage in, have any substantial interest in, advise or
provide any services or labor to any person or entity engaged
in any business that is in any material way directly
competitive with the business that is conducted by Company; or
(2) solicit, accept or receive any compensation from any person or
entity engaged in any business that is in any material way
directly competitive with the business that is conducted by
Company; or
(3) contact, solicit or call upon any customer or supplier of
Company on behalf of any person or entity other than Company
for the purpose of selling, providing or performing any
products or services directly competitive with those provided
or performed by Company; or
(4) induce or attempt to induce any person or entity to curtail or
cancel any business or contracts which such person or entity
has or is in the process of having with Company; or
(5) induce or attempt to induce any person or entity to terminate,
cancel or breach any contract which such person or entity has
with Company, to terminate any person's employment relationship
with Company, or to receive or accept any benefits in the event
of such termination, cancellation or breach.
You agree to enter into such additional documents or agreements
reflecting the foregoing Section as the Company may reasonably
request.
5. You represent and warrant that you are not breaching any contractual
relationship or obligation toward any other person or entity by entering
into an employment relationship with the Company, by executing this
Agreement or by complying with the terms and conditions of the same.
Furthermore, you understand that Company is hiring you solely for the
purpose of engaging your skill and expertise, and not to acquire any trade
secret, proprietary or confidential information belonging to any other
person or entity; and that in performing under this Agreement, you are
prohibited by Company from disclosing any such trade secret and proprietary
or confidential information to Company.
6. Dispute Resolution; Arbitration in Lieu of Civil Litigation.
(a) You and the Company (hereafter "the Parties") hereby agree that any and
all controversies, claims or disputes that Company may have with you or
that you may have with Company, or any of its employees, officers,
directors, agents or assigns, which arise out of your employment with
Company, shall be resolved through final and binding arbitration in
accordance with National Rules for the Resolution of Employment Disputes
of the American Arbitration Association. The arbitration shall be
conducted in San Francisco, California before a single arbitrator
mutually agreed by Company and you; provided that if they are unable to
agree on a single arbitrator within 30 days of the demand by either
party for arbitration, an arbitrator shall be designated by the San
Francisco Office of the American Arbitration Association.
<PAGE>
Letter to Mr. Brennan
April 8, 1999
Page 4
(b) Such controversies, claims and disputes include, without limitation, any
controversy, claim or dispute relating to your employment or the
termination thereof, claims for breach of contract or breach of the
covenant of good faith and fair dealing, infliction of emotional
distress, defamation and any claims of discrimination, harassment or
other claims under the California Fair Employment and Housing Act, Title
VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans With Disabilities Act, the Employee
Retirement Income Securities Act, the Family Care and Medical leave Act,
and any other federal, state or local law or regulation now in existence
or hereinafter enacted and as amended from time to time regarding
employment, termination of employment and the terms and conditions of
employment, including the California Labor Code.
(c) The only controversies, claims or disputes not covered by this covenant
to arbitrate, are those regarding your entitlement to benefits under the
unemployment insurance or workers' compensation laws.
(d) The Parties will share equally the cost of the arbitration filing and
hearing fees and the cost of the arbitrator. Each party will bear its
own attorneys' fees and the arbitrator will not have the authority to
award attorney's fees unless a statutory section at issue in the dispute
authorizes the award of attorneys' fees to the prevailing party, in
which case the arbitrator shall have the authority to make such award as
permitted by the statute in question.
(e) The Parties understand and agree that arbitration shall be instead of
any civil litigation. This means that each party is waiving any right to
a jury trail, and that the arbitrator's decision shall be final and
binding to the fullest extent permitted by law and enforceable by any
court having jurisdiction thereof.
7. This Agreement reflects the full and complete understanding and agreement
between you and the Company regarding your employment relationship with the
Company, and it shall supersede any and all prior written or oral
negotiation, offer or agreement regarding your employment relationship with
the Company.
To indicate your acceptance of the Company's offer, please sign and date this
letter in the space provided below and return it to me. This offer will remain
in effect for 5 calendar days from the date of this letter. A duplicate
original is enclosed for your records.
Chris, we very much look forward to working with you.
Very truly yours,
/s/ Ori Sasson
Ori Sasson
================================================================================
Agreed and accepted:
/s/ Christopher Brennan 4/8/99
- ---------------------------- ---------------------------------
Name Anticipated Start Date
<PAGE>
Letter to Mr. Brennan
April 8, 1999
Page 5
Schedule A to Offer Letter
Acceleration for Key Officers Language
13. Change in Control. Unless expressly waived by Optionee, in the event
of (A) the sale of all or substantially all of the Company's assets or the
merger or consolidation of the Company (or series of transactions which
results in such a merger or consolidation) with or into another company
pursuant to which the shareholders of the Company immediately prior to the
closing of such merger or consolidation (or series of transactions) own
less than 50% of the voting securities of the surviving company immediately
following the closing of such merger or consolidation (a "Merger" and
collectively with sale of assets an "Acquisition"), and (B) the acquirer
fails to provide Optionee with essentially equivalent operational
responsibilities, scope of authority, compensation and reporting, to that
which Optionee was receiving from the Company at the time of the
Acquisition, then all of the unvested shares will be accelerated as of the
closing date of the Acquisition and become fully vested immediately prior
to the closing of the Acquisition.
<PAGE>
EXHIBIT 10.20
-------------
February 5, 1998
Ad Nederlof
970 Peachtree Battle Avenue, NW
Atlanta, Georgia 90327
Dear Ad:
On behalf of Genesys Telecommunications Laboratories, Inc. (the "Company"), I am
pleased to offer employment with the Company on the following terms:
1. You will be employed as Managing Director EMEA and member of the executive
committee reporting to the CEO with an anticipated start date of February
15, 1999. This offer and your employment is contingent upon:
A. Satisfactory results of background and reference checks.
B. Receipt of an executed copy of the Company's form of confidential
information and invention assignment agreement (which is attached)
C. Your agreement to devote, during your employment, your full time efforts
to your responsibilities at the Company and not to engage in any other
activities which would conflict with the best interests of the Company.
2. Your base compensation will be $230,000 annualized salary ("Base Salary"),
plus commission/bonus potential of up to $150,000 in accordance with the
Company's bonus plan in effect, if any.
3. We will propose to the Board that you be granted options to purchase shares
of the Company's Common Stock under the Company's 1997 Stock Incentive Plan
at a purchase price equal to the fair market value of such shares on the
date the options are approved by the Board. The option will be for 300,000
share and will vest of over a period of four years beginning with your date
of employment, at a rate of 25% of the shares at the end of the first year
and 1/48th of the shares at the end of each month thereafter.
4. The options will provide for certain acceleration upon a constructive
termination in the event of a change of control, and such provision will be
consistent with those provided in the option agreements with similar
officers of the Company, a copy of such language is attached hereto as
Schedule A.
5. You will be eligible to participate in the company's standard package of
employee benefits, which includes medical, dental, life and disability
insurance, a flexible spending program, and Employee Stock Purchase Plan
(ESPP).
6. At all times, your employment with the Company is "at-will", which means
that employment with the Company may be terminated at any time by either you
or the Company with or without cause or justification, subject only to the
entitlements, liabilities and obligations set forth in 5(a)-(e), below; and
upon any termination of
<PAGE>
Letter to Mr. Nederlof
_____________, 1998
Page 2
your employment, you agrees to immediately resign as an officer of Company.
Although other terms and conditions of employment, including job duties and
title, compensation and benefits, may be changed by the company at any time,
the at-will nature of an employment relationship shall not change.
(a) Termination for Cause.
---------------------
(i) In the event that Company terminates your employment for "cause,"
Company's total liability under this Agreement shall be that
described in 5(b)(i) below. "Cause" shall mean:
(1) gross negligence or your repeated failure to perform your
duties and responsibilities to the reasonable satisfaction of
the CEO, President or other appropriate officer or any breach
by you of your fiduciary duties to the Company (including the
meeting of any agreed to milestone or plans). For purposes of
this letter, any act or acts or omission or omissions by you
that may have a material adverse effect on the Company's
operations or business shall be deemed to be a breach of you
duties and responsibilities to the Company; or
(2) the commission of any criminal acts, act of fraud, embezzlement
or actual dishonesty by you, any unauthorized use or disclosure
by you of confidential information or trade secrets of Company
(or any Parent or Subsidiary).
(ii) In the event that Company terminates your employment other than for
"Cause," Company's total liability under this Agreement shall be
that described in 5(b)(ii) below.
(b) Entitlements and Liabilities Upon Termination. Your entitlements and the
---------------------------------------------
Company's liabilities upon any termination of your employment shall be
one of the following, depending upon the circumstances of the
termination, as specified in 5(a) above; and you shall not be entitled
to any further compensation, any benefits or stock vesting except as
specified below:
(i) In the event of termination for cause, you shall be entitled to,
and Company shall pay to you, your Base Salary earned through the
date of termination, and your participation in all employee
benefits shall cease as of the date of termination except as you
may be eligible and elect to continue pursuant to COBRA.
(ii) In the event of termination by Company other than for cause, and
provided that during the period after termination for which Company
is obligated to pay you, you comply with the obligations of 5(c)
below, you shall be entitled to, and Company shall continue to pay
to you, your Base Salary and COBRA continuation premiums for six
(6) months after the date of termination.
(c) Your Obligations.
----------------
(i) As a condition of receiving any severance payments under this
Section 5, above, you shall be required to execute in favor of the
Company and deliver a waiver and general release of any and all
claims, known and unknown, in such form as the President or any
designee shall specify.
<PAGE>
Letter to Mr. Nederlof
_____________, 1998
Page 3
(ii) During any period of time for which Company is making, or is
obligated to make, any payment to you pursuant to 5(b), you shall
hold yourself available to consult with Company in a manner
requested by the CEO, President or any designee and shall not
(without limiting any other obligations you may have to the
Company):
(1) own, engage in, have any substantial interest in, advise or
provide any services or labor to any person or entity engaged
in any business that is in any material way directly
competitive with the business that is conducted by Company; or
(2) solicit, accept or receive any compensation from any person or
entity engaged in any business that is in any material way
directly competitive with the business that is conducted by
Company; or
(3) contact, solicit or call upon any customer or supplier of
Company on behalf of any person or entity other than Company
for the purpose of selling, providing or performing any
products or services directly competitive with those provided
or performed by Company; or
(4) induce or attempt to induce any person or entity to curtail or
cancel any business or contracts which such person or entity
has or is in the process of having with Company; or
(5) induce or attempt to induce any person or entity to terminate,
cancel or breach any contract which such person or entity has
with Company, to terminate any person's employment relationship
with Company, or to receive or accept any benefits in the event
of such termination, cancellation or breach.
You agree to enter into such additional documents or agreements
reflecting the foregoing Section as the Company may reasonably
request.
6. You represent and warrant that you are not breaching any contractual
relationship or obligation toward any other person or entity by entering
into an employment relationship with the Company, by executing this
Agreement or by complying with the terms and conditions of the same.
Furthermore, you understand that Company is hiring you solely for the
purpose of engaging your skill and expertise, and not to acquire any trade
secret, proprietary or confidential information belonging to any other
person or entity; and that in performing under this Agreement, you are
prohibited by Company from disclosing any such trade secret and proprietary
or confidential information to Company.
7. Dispute Resolution; Arbitration in Lieu of Civil Litigation.
(a) You and the Company (hereafter "the Parties") hereby agree that any and
all controversies, claims or disputes that Company may have with you or
that you may have with Company, or any of its employees, officers,
directors, agents or assigns, which arise out of your employment with
Company, shall be resolved through final and binding arbitration in
accordance with National Rules for the Resolution of Employment Disputes
of the American Arbitration Association. The arbitration shall be
conducted in San Francisco, California before a single arbitrator
mutually agreed by Company and you; provided that if they are unable to
agree on a single arbitrator within 30 days of the demand by either
party for arbitration, an arbitrator shall be designated by the San
Francisco Office of the American Arbitration Association.
(b) Such controversies, claims and disputes include, without limitation, any
controversy, claim or dispute relating to your employment or the
termination thereof, claims for
<PAGE>
Letter to Mr. Nederlof
_____________, 1998
Page 4
breach of contract or breach of the covenant of good faith and fair
dealing, infliction of emotional distress, defamation and any claims of
discrimination, harassment or other claims under the California Fair
Employment and Housing Act, Title VII of the Civil Rights Act of 1964,
the Age Discrimination in Employment Act, the Americans With
Disabilities Act, the Employee Retirement Income Securities Act, the
Family Care and Medical leave Act, and any other federal, state or local
law or regulation now in existence or hereinafter enacted and as amended
from time to time regarding employment, termination of employment and
the terms and conditions of employment, including the California Labor
Code.
(c) The only controversies, claims or disputes not covered by this covenant
to arbitrate, are those regarding your entitlement to benefits under the
unemployment insurance or workers' compensation laws.
(d) The Parties will share equally the cost of the arbitration filing and
hearing fees and the cost of the arbitrator. Each party will bear its
own attorneys' fees, and the arbitrator will not have authority to award
attorneys' fees unless a statutory section at issue in the dispute
authorizes the award of attorneys' fees to the prevailing party, in
which case the arbitrator shall have the authority to make such award as
permitted by the statute in question.
(e) The Parties understand and agree that arbitration shall be instead of
any civil litigation. This means that each party is waiving any right to
a jury trail, and that the arbitrator's decision shall be final and
binding to the fullest extent permitted by law and enforceable by any
court having jurisdiction thereof.
8. This Agreement reflects the full and complete understanding and agreement
between you and the Company regarding your employment relationship with the
Company, and it shall supersede any and all prior written or oral
negotiation, offer or agreement regarding your employment relationship with
the Company.
To indicate your acceptance of the Company's offer, please sign and date this
letter in the space provided below and return it to me. This offer will remain
in effect for 5 calendar days from the date of this letter. A duplicate
original is enclosed for your records.
Ad, we very much look forward to working with you.
Very truly yours,
/s/ Ori Sasson
Ori Sasson
================================================================================
Agreed and accepted: Feb. 6, 1999
/s/ Ad Nederlof Feb 15, 1999
- ------------------------ -------------------------------
Name Anticipated Start Date
<PAGE>
Letter to Mr. Nederlof
_____________, 1998
Page 5
Schedule A to Offer Letter
Acceleration for Key Officers Language
13. Change in Control. Unless expressly waived by Optionee, in the event
of (A) the sale of all or substantially all of the Company's assets or the
merger or consolidation of the Company (or series of transactions which
results in such a merger or consolidation) with or into another company
pursuant to which the shareholders of the Company immediately prior to the
closing of such merger or consolidation (or series of transactions) own
less than 50% of the voting securities of the surviving company immediately
following the closing of such merger or consolidation (a "Merger" and
collectively with sale of assets an "Acquisition"), and (B) the acquiror
fails to provide Optionee with both cash compensation and operational
responsibility that is at least equal in terms of salary and benefits and
operating duties, respectively, to that which Optionee was receiving from
the Company at the time of the Acquisition, then all of the unvested shares
will be accelerated as of the closing date of the Acquisition and become
fully vested immediately prior to the closing of the Acquisition.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
Forte Advanced Management Software, Inc.
California
GCTI Telecommunications Laboratories GmbH
Germany
GTF Sarl
France
Genesys Australasia Pty Ltd.
Australia
Genesys Japan
Japan
Genesys Laboratories Canada, Inc.
Canada
Genesys Telecommunications Laboratories AB
Sweden
Genesys Telecommunications Laboratories Asia Pte Ltd
Singapore
Genesys Telecommunications Laboratories B.V.
Netherlands
Genesys Telecommunications Laboratories--Europe, Ltd.
United Kingdom
Genesys Telecommunications Laboratories (PTY) Ltd.
South Africa
Genesys Telecommunications Laboratories S.L.
Spain
Genesys Telecommunications Laboratories S.r.l.
Italy
Next Age Technologies, Inc.
California
Plato Software, Ltd.
Israel
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we hereby consent to the incorporation of our
report dated July 20,1999 with respect to the consolidated financial statements
and schedule included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File No. 333-33773, File No. 333-47609 and
File No. 333-82655) and on Form S-3 (File No. 333-80881).
ARTHUR ANDERSEN LLP
San Jose, California
September 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF EARNINGS FOR THE TWELVE
MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 44,271
<SECURITIES> 17,426
<RECEIVABLES> 44,802
<ALLOWANCES> 875
<INVENTORY> 0
<CURRENT-ASSETS> 114,728
<PP&E> 30,613
<DEPRECIATION> 13,587
<TOTAL-ASSETS> 147,507
<CURRENT-LIABILITIES> 37,473
<BONDS> 0
0
0
<COMMON> 112,920
<OTHER-SE> 2,952
<TOTAL-LIABILITY-AND-EQUITY> 147,507
<SALES> 0
<TOTAL-REVENUES> 139,108
<CGS> 23,741
<TOTAL-COSTS> 23,741
<OTHER-EXPENSES> 109,230
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,182
<INCOME-PRETAX> 7,319
<INCOME-TAX> 9,942
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,623)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
