-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CjQIPWbxTQdC6KeIezjL0uuDkMqhpq5fQyNWdTI2mnccjKgN8nfBFgmE598QLImX +Alrlodq0zi9V+zQswSOmA== 0000929624-97-000384.txt : 19970404 0000929624-97-000384.hdr.sgml : 19970404 ACCESSION NUMBER: 0000929624-97-000384 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 27 FILED AS OF DATE: 19970403 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENESYS TELECOMMUNICATIONS LABORATORIES INC CENTRAL INDEX KEY: 0001036436 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 943120525 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-24479 FILM NUMBER: 97574385 BUSINESS ADDRESS: STREET 1: 1153 MARKET STREET, 11TH FLOOR CITY: SAN FRANCISCO STATE: CA ZIP: 94103 BUSINESS PHONE: 4154371100 MAIL ADDRESS: STREET 1: 1155 MARKET STREET,11TH FLOOR CITY: SAN FRANCISCO STATE: CA ZIP: 94103 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1997. REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- GENESYS TELECOMMUNICATIONS LABORATORIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 7372 94-3120525 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
1155 MARKET STREET SAN FRANCISCO, CALIFORNIA 94103 (415) 437-1100 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------- GREGORY SHENKMAN ALEC MILOSLAVSKY PRESIDENT AND CHIEF EXECUTIVE OFFICER VICE CHAIRMAN OF THE BOARD AND CHIEF TECHNICAL OFFICER
GENESYS TELECOMMUNICATIONS LABORATORIES, INC. 1155 MARKET STREET SAN FRANCISCO, CALIFORNIA 94103 (415) 437-1100 (NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- COPIES TO: EDWARD M. LEONARD, ESQ. ROBERT V. GUNDERSON, JR., ESQ. SCOTT D. LESTER, ESQ. DANIEL E. O'CONNOR, ESQ. JACQUELINE E. COWDEN, ESQ. GUNDERSON DETTMER STOUGH VILLENEUVE BROBECK, PHLEGER & HARRISON LLP FRANKLIN & HACHIGIAN, LLP TWO EMBARCADERO PLACE 155 CONSTITUTION DRIVE 2200 GENG ROAD MENLO PARK, CALIFORNIA 94025 PALO ALTO, CALIFORNIA 94303 (415) 321-2400 (415) 424-0160
--------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] --------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED MAXIMUM TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE - ---------------------------------------------------------------------------------------- Common Stock, no par value.................. 2,300,000 shares $16.00 $36,800,000 $11,152
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Includes shares that the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a). THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED APRIL 3, 1997 2,000,000 SHARES [LOGO] GENESYS TELECOMMUNICATIONS LABORATORIES, INC. COMMON STOCK (NO PAR VALUE) ----------- All of the 2,000,000 shares of Common Stock offered hereby are being sold by the Company. Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $14.00 and $16.00 per share. For factors to be considered in determining the initial public offering price, see "Underwriting". SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK. The Company has applied for quotation of the Common Stock on the Nasdaq National Market under the symbol "GCTI". ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -----------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO OFFERING PRICE DISCOUNT(1) COMPANY(2) -------------- ------------ ----------- Per Share.............................. $ $ $ Total(3)............................... $ $ $
- ----- (1) The Company and, if the underwriters' over-allotment option is exercised, the Selling Shareholders, have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (2) Before deducting estimated expenses of $1,100,000 payable by the Company. (3) The Company and the Selling Shareholders have granted the Underwriters an option for 30 days to purchase up to an additional 300,000 shares at the initial public offering price per share, less the underwriting discount, solely to cover over-allotments. If such option is exercised in full, the total initial public offering price, underwriting discount, proceeds to Company and proceeds to Sellling Shareholders will be $ , $ , $ and $ , respectively. See "Underwriting". ----------- The shares offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that certificates for the shares will be ready for delivery in New York, New York, on or about , 1997, against payment therefor in immediately available funds. GOLDMAN, SACHS & CO. LEHMAN BROTHERS ROBERTSON, STEPHENS & COMPANY ----------- The date of this Prospectus is , 1997. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THIS OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING". PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and consolidated financial data appearing elsewhere in this Prospectus, including information under "Risk Factors". Except as set forth in the Consolidated Financial Statements and the Notes thereto, and unless otherwise indicated, all information contained in this Prospectus (i) reflects the conversion of all outstanding shares of Preferred Stock of the Company into shares of Common Stock of the Company on a one-to-one basis and (ii) assumes no exercise of the Underwriters' over-allotment option. See "Description of Capital Stock" and "Underwriting". Unless otherwise referenced herein, references to Consolidated Financial Statements shall mean references to the Consolidated Financial Statements of Genesys Telecommunications Laboratories, Inc. and its subsidiaries. THE COMPANY Genesys is a leading provider of enterprise-wide platform and applications software that enables organizations to integrate critical business information and computing resources with telephony and other telecommunications media. The Company's products allow an organization to optimally manage its customer interactions and employee communications to increase productivity, lower costs and achieve greater customer satisfaction and loyalty. In addition, the Company's products enable organizations to develop and offer new or enhanced revenue-generating products and services. Genesys believes that it is the first company to offer a suite of open, scaleable, enterprise-wide platform and applications software solutions to address the evolving needs of organizations for intelligent communications, a new market paradigm known as Enterprise Computer Telephony Integration ("ECTI"). The Company's platform and applications software products allow organizations to integrate disparate telecommunications media with heterogeneous computing environments. These products integrate with most major telephone systems and interoperate across most major computing platforms, operating systems and databases, enabling organizations to manage their desktop and media resources throughout the enterprise. Together with the Company's platform software, Genesys offers a range of applications that provide advanced ECTI solutions, such as intelligent call routing, outbound/blended dialing and campaign management, real-time and historical management reporting and Web-based telephony fulfillment. The open, standards-based nature of the Company's products allows an organization to leverage its investments in existing telecommunications and computing infrastructure, software applications and employee training. The Company's products also support the integration of internally developed or commercially available business applications, such as help desk or sales force automation. In order to assist customers in realizing the maximum benefit from its solutions, the Company augments its products with a range of implementation, training and support services. The Company has targeted formal call centers within key industries as important entry points for its products. To date, the Company has licensed its products to more than 125 end-users worldwide, including: Ameritech, Bank of America, BT, Charles Schwab, FedEx, Gateway 2000, MCI, NationsBanc, NB Tel, The SABRE Group and Sprint/United Management. An organization's ability to manage the increasingly complex information requirements of customers and employees in a cost-effective manner is an important competitive advantage. Modern organizations communicate, both internally and externally, through a variety of different communications media, including telephony, voice mail, e-mail, the Internet/intranets and video. Traditionally, each of these media and its associated databases and information retrieval systems have been treated as a unique and separate environment within which specialized applications have been developed, resulting in the creation of "silos" of information that are not intelligently utilized across the enterprise. This lack of 3 interoperability has prevented organizations from optimally managing customer interactions and employee communications and has, in turn, limited productivity, increased costs and restricted the ability of organizations to generate greater customer satisfaction and loyalty. To be most effective, organizations now need to make information available at any time it is needed, anywhere it may be located and in any way that it may be requested. The shortcomings in the traditional means by which organizations have managed customer interactions and employee communications, in combination with general business trends such as the increasingly global nature of business operations, the proliferation of distributed computing environments, the deregulation of major industries and the increase in merger and acquisition and partnering activity, have created what the Company believes to be a significant market opportunity for open, scaleable, standards-based ECTI solutions. The Company's objective is to be the leading provider worldwide of open, scaleable ECTI platform and applications software. In order to meet this goal, the Company's strategy is to establish the Genesys framework as a de facto ECTI standard, provide industry-leading, technologically advanced products, target strategic markets, develop and leverage strategic business relationships and penetrate the network services market. The Company's sales and marketing strategy is to target large organizations through its worldwide direct sales force and through a broad range of indirect channels, including telecommunications equipment vendors, systems integrators, VARs, ISVs and NSPs. THE OFFERING Common Stock to be offered by the Company........... 2,000,000 shares Common Stock to be outstanding after this offering.. 16,799,812 shares(1) Proposed Nasdaq National Market symbol.............. GCTI Use of Proceeds..................................... Working capital and general corporate purposes
- -------- (1) Based on the number of shares outstanding as of December 31, 1996. Excludes 5,059,191 shares of Common Stock issuable upon exercise of stock options and 420,282 shares of Common Stock underlying warrants to purchase Common Stock, which options and warrants were outstanding as of December 31, 1996. Also excludes 1,612,000 shares of Common Stock issuable upon exercise of stock options granted during the period commencing on January 1, 1997 and ending on March 31, 1997. Also excludes 854,363 shares of Common Stock issuable upon conversion of Series C Preferred Stock, 675,000 shares of Common Stock and 494,629 shares of Common Stock underlying warrants to purchase Series C Preferred Stock, which Series C Preferred Stock, Common Stock and warrants were issued on February 26, 1997. Assumes no exercise of stock options or warrants after December 31, 1996. See "Management--Stock Plans", "Description of Capital Stock--Warrants" and Notes 9 and 10 of Notes to Consolidated Financial Statements. 4 SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------------------------ ------------------ 1993 1994 1995 1996 1995 1996 ----- ------ ------ ------- -------- -------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: License.................. $ -- $ 460 $3,077 $ 7,369 $ 2,839 $ 10,233 Service.................. 956 1,272 1,403 1,950 600 1,571 ----- ------ ------ ------- -------- -------- Total revenues........... 956 1,732 4,480 9,319 3,439 11,804 Cost of revenues: License.................. -- 23 123 308 122 465 Service.................. 352 595 1,190 2,568 819 1,572 ----- ------ ------ ------- -------- -------- Total cost of revenues... 352 618 1,313 2,876 941 2,037 ----- ------ ------ ------- -------- -------- Gross margin.............. 604 1,114 3,167 6,443 2,498 9,767 Operating expenses: Research and development. 357 578 959 3,673 1,562 3,527 Sales and marketing...... -- 162 705 3,030 911 5,038 General and administrative.......... 503 534 1,343 2,979 1,500 1,440 ----- ------ ------ ------- -------- -------- Total operating expenses. 860 1,274 3,007 9,682 3,973 10,005 ----- ------ ------ ------- -------- -------- Income (loss) from operations............... (256) (160) 160 (3,239) (1,475) (238) Interest and other income (expense), net........... (8) 23 (6) (88) (50) 215 ----- ------ ------ ------- -------- -------- Net income (loss) (1)..... $(264) $ (137) $ 154 $(3,327) $ (1,525) $ (23) ===== ====== ====== ======= ======== ======== Pro forma net income $ (loss) per share (1)..... $ (.18) $ (.09) -- ======= ======== ======== Pro forma weighted average common shares and equivalents.............. 18,644 17,760 20,154 ======= ======== ========
DECEMBER 31, 1996 ----------------------------- PRO PRO FORMA AS ACTUAL FORMA(2) ADJUSTED(3) ------- -------- ------------ CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents......................... $ 1,816 $ 4,316 $31,116 Working capital................................... 3,133 5,633 32,433 Total assets...................................... 16,201 18,701 45,501 Long-term obligations............................. 747 747 747 Total shareholders' equity........................ 5,542 8,042 34,842
- -------- (1) See Note 2 of Notes to Consolidated Financial Statements for an explanation of the method of calculation. (2) Pro forma as of December 31, 1996, to give effect to the exercise of outstanding warrants to purchase 420,282 shares of Common Stock on a cash basis prior to the closing of this offering and the conversion of the Company's Preferred Stock into Common Stock. See Note 2 of Notes to Consolidated Financial Statements. (3) Pro forma as provided in footnote (2), and as adjusted to reflect the sale of 2,000,000 shares of Common Stock by the Company at an assumed initial public offering price of $15.00 per share and the application of the estimated net proceeds therefrom. See "Use of Proceeds" and "Capitalization". ---------------- Design (COIL), NetVector, NetVectoring and VIDEOACD are registered trademarks of the Company, and Call Center Pulse, Campaign Manager, DART, ICD, ICIS, InterActive-T, T-Server and VIDEOICD are trademarks of the Company. This Prospectus also includes trade names and trademarks of other companies. 5 RISK FACTORS In addition to the other information contained in this Prospectus, the following risk factors should be considered carefully in evaluating an investment in the Common Stock offered hereby. Certain statements contained in this Prospectus constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act, Section 21E of the Securities Exchange Act, and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. See "Special Note Regarding Forward-Looking Statements". LIMITED OPERATING HISTORY The Company was founded in October 1990 and began shipment of its principal product, T-Server, in 1991. As of December 31, 1996, the Company had an accumulated deficit of approximately $3.6 million. The Company achieved profitability in the quarter ended December 31, 1996, but there can be no assurance that the Company will remain profitable on a quarterly basis or achieve profitability on an annual basis. The Company's limited operating history makes the prediction of future operating results unreliable. Although the Company has experienced significant growth in revenues in recent periods, the Company does not believe prior growth rates are sustainable or indicative of future revenue growth rates or operating results. The Company's prospects must be considered in light of the risks encountered by companies in an early stage of development, particularly companies in new and rapidly evolving markets. Future operating results will depend on many factors, including demand for and market acceptance of the Company's products, the level of product and price competition, the ability of the Company to develop, market and deploy new, high-quality products and to control costs, the ability of the Company to expand its direct sales force and indirect distribution channels, the Company's success in attracting and retaining key personnel, the uncertainty, recent emergence and acceptance of the ECTI market, and technological changes in the ECTI market. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS The Company's quarterly operating results have in the past fluctuated and may in the future fluctuate significantly, depending on a number of factors, many of which are beyond the Company's control, including: market acceptance of the Company products; the Company's ability to develop and market new products and product enhancements; the size, timing and recognition of revenue from significant orders; the length of sales and implementation cycles; competition; the Company's success in establishing indirect sales channels and expanding its direct sales force; the Company's success in retaining and training third-party support personnel; the timing of new product releases by the Company and its competitors; the delay or deferral of significant revenues until acceptance of software required by an individual license transaction; technological changes in the ECTI market; the deferral of customer orders in anticipation of new products and product enhancements; purchasing patterns of indirect channel partners and customers; changes in pricing policies by the Company and its competitors; the mix of revenues derived from the Company's direct sales force and various indirect distribution and marketing channels; the mix of revenues derived from domestic and international customers; seasonality; changes in operating expenses; changes in relationships with strategic partners; changes in Company strategy; personnel changes; foreign currency exchange rate fluctuations; the ability of the Company to control its costs and general economic factors. The Company currently operates with limited backlog. The Company derives substantially all of its revenues from licenses of the Company's platform and related applications software and services. 6 The Company believes that the purchase of its products is relatively discretionary and generally involves a significant commitment of capital and other resources by a customer. The Company's typical order size per site ranges from $150,000 to $300,000. The timing of the receipt and shipment of a single order can have a significant impact on the Company's revenues and results of operations for a particular quarter. In situations requiring customer acceptance of implementation, the Company does not recognize license revenues until installations are complete and does not recognize the consulting component of service revenues until the services are rendered. As a result, revenue recognition may be delayed in many instances. Historically, the Company has often recognized a substantial portion of its revenues in the last month of a quarter, with these revenues frequently concentrated in the last two weeks of a quarter. As a result, product revenues in any quarter are substantially dependent on orders booked and shipped in that quarter, and revenues for any future quarter are not predictable with any significant degree of certainty. Product revenues are also difficult to forecast because the market for ECTI software products is rapidly evolving, and the Company's sales cycle, which may last from three to nine months or more, varies substantially from customer to customer. The Company's quarterly revenues are also subject to seasonal fluctuations, particularly in the quarter ending in September when reduced activity outside North America during the summer months can adversely affect the Company's revenues. The Company's expenses are relatively fixed and are based, in part, on its expectations as to future revenues. Consequently, if revenue levels are below expectations, net income would be disproportionately affected because a proportionately smaller amount of the Company's expenses varies with its revenues. In addition, the Company expects that sales derived through indirect channels, which are more difficult to forecast and may have lower gross margins than direct sales, will increase as a percentage of total revenues. Due to all of the foregoing factors, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. It is likely that in some future quarter the Company's operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". LENGTHY SALES CYCLE Because of the mission-critical nature of the Company's products, the purchase of such products is typically a strategic decision that requires approval at senior levels of customers' organizations. In addition, the purchase of the Company's products involves a significant commitment of customers' personnel and financial and other resources. Furthermore, the cost of the Company's products is typically only a small portion of the related hardware, software, development, training and integration costs of implementing an ECTI solution. For these and other reasons, the sales cycle associated with the purchase of the Company's products is typically complex, lengthy and subject to a number of significant risks, including changes in customers' budgetary constraints and approval at senior levels of customers' organizations, over which the Company has no control. The Company's sales cycle can range from three to nine months or more and varies substantially from customer to customer. Because of the lengthy sales cycle and the dependence of the Company's quarterly revenues upon a small number of orders that represent large dollar amounts, the loss or delay of a single order could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Sales, Marketing and Support". LENGTHY IMPLEMENTATION CYCLE; DEPENDENCE ON THIRD PARTY CONSULTANTS The time required to deploy the Company's products can vary significantly with the needs of its customers and the complexity of a customer's telecommunications and computing infrastructure. Accordingly, deployment of the Company's products is generally a process that extends for several months and may involve a pilot implementation, successful completion of which is typically a prerequisite for full-scale deployment. Because of their complexity, larger implementations, especially 7 multi-site or enterprise-wide implementations, can take several quarters. The Company generally relies upon internal resources or third-party consultants to implement its products. The Company has experienced difficulty implementing customer orders on a timely basis in the past due to the limited resources available to the Company. There can be no assurance that the Company will not experience delays in the implementation of orders in the future, that third- party consultants will be available as needed by the Company to implement orders on a timely basis or that consultants will be able to successfully install the Company's products. Any delays in the implementation of orders could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, any significant delay in the implementation of a customer order could cause a customer to reject the Company's software, which could impair the Company's reputation. The rejection of the Company's software by customers could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Sales, Marketing and Support". DEPENDENCE ON NEW PRODUCTS; RAPID TECHNOLOGICAL CHANGE The market for the Company's products is characterized by rapid technological change, frequent new product introductions, changes in customer requirements and emerging industry standards. The introduction of products embodying new technologies and the emergence of new industry standards could render the Company's existing products obsolete and unmarketable. The life cycles of the Company's products are difficult to estimate. The Company's future success will depend upon its ability to develop and introduce new products and product enhancements on a timely basis that keep pace with technological developments and emerging industry standards and address increasingly sophisticated requirements of its customers. There can be no assurance that the Company will be successful in developing and marketing new products or product enhancements that respond to technological changes or evolving industry standards, that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of these new products or product enhancements, or that its new products or product enhancements will adequately meet the requirements of the marketplace and achieve market acceptance. If the Company is unable, for technological or other reasons to develop and market new products or product enhancements on a timely and cost-effective basis, the Company's business, financial condition and results of operations would be materially adversely affected. As part of the Company's ongoing development process, in March 1997, the Company announced the availability of version 5.0 of its T-Server platform software and the potential future release of several new application products and certain enhancements to existing application products, which the Company currently plans to make available at various times during 1997. Certain of the Company's competitors currently offer products with features and functionality similar to these planned products and product enhancements. Due to the complexity of ECTI software and the difficulty in gauging the engineering effort required to produce these planned products and product enhancements, such planned products and product enhancements are subject to significant technological risks. There can be no assurance that such planned products and product enhancements will be introduced and deployed on a timely basis or at all. In the past, the Company has experienced significant delays in the commencement of commercial shipments of its new and enhanced products. If any new products or product enhancements are delayed or do not achieve market acceptance, this may result in the cancellation or delay of customer orders which could materially adversely affect the Company's business, financial condition and results of operations. The Company has also, in the past, experienced delays in purchases of its products by customers anticipating the launch of new products by the Company. There can be no assurance there will not be significant cancellations of orders received in anticipation of new product introductions in the future. The Company's products may contain undetected errors or failures when first introduced or as new versions are released. The Company has in the past discovered software errors in its new products and product enhancements after their introduction and has experienced delays or lost revenues during those periods required to correct these errors. There can be no assurance that, 8 despite testing by the Company and by current and potential customers, errors will not be found in new products and product enhancements after commencement of commercial shipments, resulting in loss of or delay in market acceptance, which could have a material adverse effect upon the Company's business, results of operations and financial condition. See "Business--Products" and "--Research and Development". COMPETITION The market for the Company's software products is highly competitive and subject to rapid technological change. The Company expects competition to increase significantly in the future. The Company's principal competition currently comes from different market segments including computer telephony platform developers, computer telephony applications software developers and telecommunications equipment vendors. These competitors include Aspect Telecommunications, Dialogic Corporation, GeoTel Communications Corporation, Hewlett-Packard, IBM Corporation, IEX Corporation, Lucent Technologies, Northern Telecom and Tandem Computers Incorporated. The Company also competes to a lesser extent with new or recent entrants to the marketplace. The Company's competitors vary in size and in the scope and breadth of the products and services offered. Many of the Company's current and potential competitors have longer operating histories, significantly greater financial, technical, marketing, customer service and other resources, greater name recognition and a larger installed base of customers than the Company. As a result, such competitors may be able to respond to new or emerging technologies and changes in customer requirements more expediently than the Company, or to devote greater resources to the development, promotion and sale of products than can the Company. Current and potential competitors have established and may in the future establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of the Company's current or prospective customers. In addition, as the ECTI market develops, a number of companies with significantly greater resources than the Company could attempt to increase their presence in the ECTI market by acquiring or forming strategic alliances with competitors of the Company. Accordingly, it is likely that new competitors or alliances among competitors will emerge and may rapidly acquire significant market share, which would have a material adverse effect on the Company's business, financial condition and results of operations. In addition, because there are relatively low barriers to entry in the software market, the Company expects additional competition from other established and emerging companies if the ECTI market continues to develop and expand. Increased competition is likely to result in price reductions, reduced margins and loss of market share, any of which could materially adversely affect the Company's business, financial condition and results of operations. In order to be successful in the future, the Company must respond promptly and effectively to the challenges of technological change, changing customer requirements and competitors' innovations. There can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures faced by the Company will not materially adversely affect its business, and financial condition and results of operations. PRODUCT CONCENTRATION Substantially all of the Company's revenues to date have been attributable to the license of the Company's platform and related applications software and services. These products 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 their ability to utilize the 9 Company's application products. The Company's future financial performance will depend in part on the successful development, introduction and customer acceptance of new and enhanced versions of its platform and related applications software products. There can be no assurance that the Company will continue to be successful in marketing its platform products, related applications software or any new or enhanced products. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Products". MANAGEMENT OF GROWTH The Company has recently experienced a period of significant expansion of its operations, including substantial growth in its number of employees, that has placed a strain upon its management, information systems and operations. As of February 28, 1997, the Company had a total of 293 employees, as compared to 159 on June 30, 1996. The failure of the Company to manage its internal expansion effectively could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's ability to compete effectively and to manage future growth, if any, will require the Company to continue to improve its financial and management controls, reporting systems and procedures on a timely basis and expand, train and manage its employee workforce. Six of the Company's nine executive officers joined the Company within the past year, including its Chief Financial Officer, Vice President of Sales, Vice President of Channels, Vice President of Business Development, Vice President of Product Development and Vice President of Network Services. In addition, the Company is currently attempting to recruit a Vice President of Marketing. The Company's ability to compete effectively and to successfully implement its strategies will depend in part upon its ability to integrate these and future new managers into its operations. Competition for such personnel is intense, and the failure to attract, train and retain such personnel in the future on a timely basis could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's future operating results will also depend on its ability to expand its sales and marketing organizations, further develop its channels to penetrate different and broader markets and expand its support organization to accommodate the rapid growth in its installed base. There can be no assurance that the Company will be able to do so successfully. The Company's failure to do so could have a material adverse effect upon the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business-- Sales, Marketing and Support". DEPENDENCE ON THIRD-PARTY RESELLERS An integral part of the Company's strategy is to develop multiple distribution channels, to increase the proportion of its revenue obtained from third-party resellers and to enhance the Company's installation and deployment capabilities. The Company intends to continue to expend significant resources to develop third-party reseller channels, such as value-added resellers ("VARs"), original equipment manufacturers ("OEMs"), systems integrators and independent software vendors ("ISVs"). Many of these third-party resellers do not have minimum purchase or resale requirements and can cease marketing the Company's products at any time. Certain of these third-party resellers also offer competing products that they produce or that are produced by third parties. There can be no assurance that the Company's existing third-party resellers will continue to provide the level of services and technical support required by the Company's customers or that they will not emphasize their own or third-party products to the detriment of the Company's products. The loss of a significant number of the Company's third-party resellers, the failure of such parties to sell the Company's products, or the inability of the Company to attract and retain new third-party resellers with the technical, industry and application expertise required to market and deploy the Company's products successfully in the future could have a material adverse effect on the Company's business, financial condition and results of operations. To the extent that the Company is successful in increasing its sales through third- party resellers, those sales may be at more discounted rates, and revenue to the Company for each such sale may be less than if the Company had licensed the same products to the customer directly. See "Business--Sales, Marketing and Support". 10 The Company is also seeking to establish strategic relationships with telecommunications switch vendors. Certain of these vendors' products offer functionality provided by the Company's products. In addition, certain of these vendors offer competing products that are produced by third parties. The Company has entered into reseller agreements with certain of the telecommunications switch vendors, including those that compete with the Company. Such switch vendors often attempt to sell their products or third party products, rather than the Company's products, to prospective customers. Many of these switch vendors do not have minimum purchase or resale requirements and can cease marketing the Company's products at any time. There can be no assurance that the telecommunications switch vendors that currently resell the Company's products or partner with the Company will continue to do so in the future. There can also be no assurance that the Company will be able to develop relationships with other switch vendors in the future. The loss of a significant number of the switch vendors or failure of such parties to sell the Company's products or the inability of the Company to attract and retain new switch vendor resellers in the future could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Sales, Marketing and Support" and "--Competition". A key element of the Company's strategy is to incorporate its products into local and long distance network carriers' product offerings. In the near term, the Company is focused on enabling Network Service Providers ("NSPs") to offer ECTI services to their corporate customers. There can be no assurance that the Company will be able to establish relationships with NSPs, that NSPs will successfully incorporate the Company's products into their product offerings, or that corporate or other customers will be interested in purchasing the Company's products through the NSPs. Failure of the Company to develop this channel for any of the foregoing or other reasons could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Sales, Marketing and Support". GEOTEL LITIGATION On December 17, 1996, GeoTel Communications Corporation ("GeoTel") filed a lawsuit in the United States District Court for the District of Massachusetts naming the Company as defendant, and alleging infringement of a patent issued to GeoTel entitled "Communications System Using a Central Controller to Control at Least One Network and Agent System". On February 10, 1997, the Company filed an answer in response to the complaint filed by GeoTel, asserting that the GeoTel patent is invalid, denying the alleged patent infringement and seeking dismissal of the complaint with prejudice. The Company believes that it has meritorious defenses to the asserted claims and intends to defend the litigation vigorously. However, the outcome of litigation is inherently unpredictable, and there can be no assurance that the results of these proceedings will be favorable to the Company or that they will not have a material adverse effect on the Company's business, financial condition or results of operations. Regardless of the ultimate outcome, the GeoTel litigation could result in substantial expense to the Company and significant diversion of effort by the Company's technical and managerial personnel. If the Court determines that the Company infringes GeoTel's patent and that the GeoTel patent is valid and enforceable, it could issue an injunction against the use or sale of certain of the Company's products and it could assess significant damages against the Company. Accordingly, an adverse determination in the proceeding could subject the Company to significant liabilities and require the Company to seek a license from GeoTel. Although patent and intellectual property disputes in the software area have sometimes been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial, and there can be no assurance that a license from GeoTel, if required, would be available to the Company on acceptable terms or at all. Accordingly, an adverse determination in the GeoTel litigation could prevent the Company from licensing certain of its software products, which would have a material adverse effect on the Company's business, financial condition and results of operations. 11 CUSTOMER CONCENTRATION A relatively small number of customers have accounted for a significant percentage of the Company's revenues. In fiscal 1994, one customer accounted for 26.5% of total revenues; in fiscal 1995, three other customers accounted for 11.1%, 11.2% and 12.8% of total revenues, respectively; and in fiscal 1996, one of these customers and two other customers accounted for approximately 10.2%, 10.0% and 10.8% of total revenues, respectively. No individual customer accounted for 10.0% or more of total revenues in the six months ended December 31, 1996. The Company expects that it will continue to be dependent upon a limited number of customers for a significant portion of its revenues in future periods, and such customers are expected to vary from period-to-period. In general, the Company's customers are not contractually obligated to license or purchase additional products or services from the Company, and these customers generally have acquired fully-paid licenses to the installed product. As a result, the failure by the Company to successfully sell its products to one or more targeted customers in any particular period, or the deferral or cancellation of orders by one or more customers, could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that any customer will continue to purchase the Company's products. The loss of a major customer or any reduction in orders by such customer, including reductions due to market or competitive conditions, would have a material adverse effect on the Company's business, financial condition and results of operations. The Company's operating results may in the future be subject to substantial period-to-period fluctuations as a consequence of such customer concentration. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Sales, Marketing and Support". DEPENDENCE ON EMERGING ECTI MARKET The market for ECTI software is an emerging market that is extremely competitive, rapidly evolving and subject to rapid technological change. The Company's future financial performance will depend in large part on continued growth in the number of organizations adopting ECTI solutions. The market for the Company's products is relatively new and undeveloped, and if the demand for ECTI software fails to develop, or develops more slowly than the Company currently anticipates, it could have a material adverse effect on the demand for the Company's products and on its business, financial condition and results of operations. RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS For the fiscal years ended June 30 1994, 1995 and 1996, and the six months ended December 31, 1996, the Company derived 40.6%, 30.9%, 36.2% and 46.7% of its total revenues, respectively, from sales outside the United States. The Company anticipates that a significant portion of its revenues for the foreseeable future will be derived from sources outside the United States. The Company intends to continue to expand its sales and support operations outside the United States and to enter additional international markets. This will require significant management attention and resources, which could have a material adverse effect on the Company's business, financial condition and results of operations. To successfully expand international sales, the Company must establish additional foreign operations, hire additional personnel, establish a foreign direct sales force and recruit additional international resellers. To the extent that the Company is unable to do so in a timely manner, the Company's growth in international sales, if any, will be limited, and the Company's business, financial condition and results of operations could be materially adversely affected. The Company's ability to expand its ECTI platform and applications software internationally is limited to those countries where there is regulatory approval of the third-party telephony hardware supported by the Company's products. The Company expects to commit additional development resources to customizing its products for selected international markets and to developing international sales and support channels. There can be no assurance that the Company will be successful in expanding its operations outside the United States, entering additional international markets or expanding its international sales. See "Business-- Customers" and "--Sales, Marketing and Support". 12 International operations are generally subject to a number of risks, including costs of customizing products for foreign countries, protectionist laws and business practices that support local competition to the Company's detriment, dependence on local resellers, multiple, conflicting and changing government regulations regarding communications, use of data and control of Internet access, longer payment cycles, unexpected changes in regulatory requirements, import and export restrictions and tariffs, difficulties in staffing and managing foreign operations, greater difficulty or delay in accounts receivable collection, potentially adverse tax consequences, the burdens of complying with a variety of foreign laws, the impact of possible recessionary environments in economies outside the United States and political and economic instability. The Company's international sales are currently denominated in both U.S. dollars and foreign currencies. The Company believes that an increasing portion of the Company's revenues, cost of revenues and operating expenses will be denominated in foreign currencies. Although it is impossible to predict future exchange rate movements between the U.S. dollar and other currencies, it can be anticipated that to the extent the U.S. dollar strengthens or weakens against other currencies, a substantial portion of the Company's revenues and operating expenses will be proportionally lower or higher than would be the case in a more stable foreign currency environment. Although the Company may from time to time undertake foreign exchange hedging transactions to cover a portion of its foreign currency transaction exposure, the Company does not currently attempt to cover potential foreign currency exposure. In the event the Company increases its international sales, its total revenue may also fluctuate to a greater extent due to the seasonality of European sales during the summer months. See "Management's Discussion and Analysis of Financial Condition and Results of Operation" and "Business-- Sales, Marketing and Support". DEPENDENCE ON KEY PERSONNEL The Company's future performance will depend significantly upon the continued contributions of its executive officers and of its technical, sales, marketing, customer service and finance personnel. The Company does not have an employment agreement with any of its employees or maintain key person life insurance with respect to any employee. The loss of any of the Company's executive officers, in particular, Gregory Shenkman, President and Chief Executive Officer, Alec Miloslavsky, Vice Chairman of the Board and Chief Technical Officer or Michael J. McCloskey, Vice President of Finance and International and Chief Financial Officer, or other key personnel could have a material adverse effect on the Company's business, results of operations and financial condition. The Company's future performance also depends on its continuing ability to attract, train and retain highly qualified technical, sales, marketing, customer service and finance personnel. The Company continues to require additional personnel due to its recent growth and occasional delays in filling key positions have placed additional burdens on existing personnel. See "Business--Employees" and "Management". GOVERNMENT REGULATION OF IMMIGRATION Over 35% of the Company's employees, including approximately 75% of the Company's technical staff, are foreign citizens. Accordingly, the Company must comply with the immigration laws of the United States. Most of the Company's foreign employees are working in the United States under H-1 temporary work visas ("H-1 Visas"). An H-1 Visa allows the holder to work in the United States for three years and, thereafter, to apply for a three-year extension. Upon the expiration of such period, unless the holder thereof has become a Lawful Permanent U.S. Resident or has obtained some other legal status permitting continued employment, that holder must spend at least one year abroad before reapplying for an H-1 Visa. Furthermore, Congress and 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. 13 DEPENDENCE ON ABILITY TO INTEGRATE WITH THIRD-PARTY TECHNOLOGY A key element of the Company's strategy is to establish the Genesys framework as an industry standard for the development of ECTI applications and solutions. The Company's products currently integrate with most major telephone systems and interoperate across most major computing platforms, operating systems and databases. In the event that the Company's platform is no longer able to readily integrate with major telephone systems and computing platforms, operating systems or databases, the Company could be required to redesign its platform product to ensure compatibility with such systems. There can be no assurance that the Company would be able to redesign its products or that any redesign would achieve market acceptance. The inability of the Company's platform product to integrate with third-party technology would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Architecture" and "--Products". PRODUCT LIABILITY The Company's license agreements with its customers typically contain provisions designed to limit the Company's exposure to potential liability claims. However, it is possible that the limitation of liability provisions contained in the Company's license agreements may not be effective under the laws of certain jurisdictions, and that liability limitations may be negotiated in certain contractual agreements on a less favorable basis. Although the Company has not experienced any product liability claims to date, the sale and support of products by the Company and the incorporation of products from other companies may entail the risk of such claims. The Company does not currently have insurance against product liability risks, and, if the Company were to elect to obtain such insurance, there can be no assurance that such insurance will be available to the Company on commercially reasonable terms or at all. A successful product liability claim brought against the Company could have a material adverse effect upon the Company's business, financial condition and results of operations. See "Business--Architecture" and "--Products". PROTECTION OF INTELLECTUAL PROPERTY The Company's success is heavily dependent upon proprietary technology. The Company relies primarily on a combination of copyright, trademark and trade secret laws, as well as nondisclosure agreements and other contractual provisions to protect its proprietary rights. The Company presently holds no patents, and as of March 31, 1997, had filed sixteen United States patent applications and one corresponding foreign patent application. There can be no assurance that any of the Company's patent applications will be approved, that the Company will develop additional proprietary products or technologies that are patentable, that any issued patent will provide the Company with any competitive advantages or will not be challenged by third parties or that the patents of others will not have an adverse effect on the Company's ability to do business. Furthermore, there can be no assurance that others will not independently develop similar products, duplicate the Company's products or, if patents are issued to the Company, design around the patents issued to the Company. As part of its confidentiality procedures, the Company generally enters into nondisclosure agreements with its employees, consultants and other third-party providers who serve the Company in any technical capacity or who have access to confidential information of the Company. In addition, the Company limits access to and distribution of its software, documentation and other proprietary information. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's products or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company's products is difficult, and while the Company is unable to determine the extent to which piracy of its software products exists, software piracy may become a problem. In addition, effective protection of intellectual property rights may be unavailable or limited in certain countries in which the Company currently sells products and countries the Company may target to expand its sales efforts. Accordingly, there can be no assurance that the Company's means of protecting its proprietary rights will be adequate or that the Company's competitors will not independently develop similar technology. 14 There has also been a substantial amount of litigation in the software industry regarding intellectual property rights. The Company has from time to time received claims that it is infringing third parties' intellectual property rights, and there can be no assurance that third parties will not in the future claim infringement by the Company with respect to current or future products, trademarks or other proprietary rights. The Company expects that software product developers will increasingly be subject to infringement claims as the number of products and competitors in the Company's industry segment grows and the functionality of products in different industry segments overlaps. Any such claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require the Company to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company or at all, which could have a material adverse effect on the Company's business, financial condition and results of operations. CONCENTRATION OF STOCK OWNERSHIP Upon completion of this offering, the present directors, executive officers and principal shareholders of the Company and their affiliates will beneficially own approximately 65.0% of the outstanding Common Stock. Upon the anticipated elimination of cumulative voting rights currently held by the Company's shareholders, the foregoing shareholders will be able to control all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. Under the General Corporations Law of California, the Company's shareholders are currently entitled to cumulate their votes for the election of directors so long as at least one shareholder has given notice at the shareholder meeting prior to the voting of that shareholder's desire to cumulate his or her votes. The Bylaws, in accordance with the General Corporations Law of California, however, provide that cumulative voting will no longer be permitted at such time as (i) the Company's shares of Common Stock are listed on the Nasdaq National Market and the Company has at least 800 holders of its equity securities as of the record date of the Company's most recent annual meeting of shareholders or (ii) the Company's shares of Common Stock are listed on the New York Stock Exchange or the American Stock Exchange. The Company expects to have its shares listed on the Nasdaq National Market and to have at least 800 holders of its equity securities by the record date for its next annual meeting of shareholders. This provision of the Bylaws, along with certain other provisions of the Bylaws pertaining to the elimination of shareholder action by written consent and the requirement that shareholders may only call a special meeting of shareholders upon a request of shareholders owning at least 50% of the Company's Common Stock, could delay or make more difficult a proxy contest involving the Company, which could adversely affect the market price of the Company's Common Stock. See "Principal and Selling Shareholders" and "Description of Capital Stock--Anti-takeover Effects of Provisions of the Bylaws". NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to this offering, there has been no public market for the Common Stock of the Company, and there can be no assurance that an active public market will develop or will be sustained after this offering or that investors will be able to sell the Common Stock should they desire to do so. The initial public offering price will be determined by negotiations among the Company, the Selling Shareholders and the representatives of the Underwriters based upon several factors. The trading price of the Company's Common Stock could be subject to wide fluctuations in response to quarterly variations in operating results, announcements of technological innovations or new products by the Company or its competitors, as well as other events or factors. In addition, the stock market has from time to time experienced extreme price and volume fluctuations, which have particularly affected the market price of many technology companies and which often have been unrelated to the operating performance of these companies. These broad market fluctuations may adversely affect the market price of the Company's Common Stock. See "Underwriting" for a discussion of factors to be considered in determining the initial public offering price. 15 SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS Sales of a substantial number of shares of Common Stock in the public market following this offering could adversely affect the market price for the Company's Common Stock. The number of shares of Common Stock available for sale in the public market is limited by restrictions under the Securities Act of 1933, as amended (the "Securities Act"), and lock-up agreements under which the holders of such shares have agreed not to sell or otherwise dispose of any of their shares for a period of 180 days after the date of this Prospectus without the prior written consent of the Representatives of the Underwriters. However, such Representatives may, in their sole discretion and at any time without notice, release all or any portion of the securities subject to lock- up agreements. As a result of these restrictions, based on shares outstanding and options granted as of December 31, 1996, the following shares of Common Stock will be eligible for future sale. On the date of this Prospectus, no shares other than the 2,000,000 shares offered hereby will be eligible for sale. Upon the expiration of the lock-up period 180 days after the date of this Prospectus, an additional 14,739,812 shares will become available for sale. In addition, 1,529,363 shares which were issued in February 1997 will become eligible for sale in February 1998. Furthermore, the Company intends to register on a registration statement on Form S-8, approximately 30 days after the effective date of this offering, a total of approximately 10,315,957 shares of Common Stock subject to outstanding options or reserved for issuance under the Company's 1997 Stock Incentive Plan, and a total of 500,000 shares of Common Stock reserved for issuance under the Company's Employee Stock Purchase Plan. Upon expiration of the lock-up agreements referred to above, holders of approximately 2,797,878 shares of Common Stock (excluding the following shares issued on February 26, 1997, the holders of which are entitled to such registration rights, (i) 854,363 shares of Common Stock issuable upon conversion of Series C Preferred Stock, (ii) 675,000 shares of Common Stock and (iii) 494,629 shares of Common Stock underlying warrants to purchase Series C Preferred Stock) will be entitled to certain rights with respect to the registration of such shares under the Securities Act . If such holders, by exercising their registration rights, cause a large number of shares to be registered and sold in the public market, such sales could have a material adverse effect on the market price for the Company's Common Stock. See "Description of Capital Stock--Registration Rights" and "Shares Eligible for Future Sale". EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE BYLAWS Immediately after the closing of this offering, the Company's Board of Directors will have the authority to issue up to 5,000,000 shares of Preferred Stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the shareholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. Further, certain provisions of the Company's Bylaws pertaining to the future elimination of cumulative voting and shareholder action by written consent, and the requirement that shareholders may call a special meeting of shareholders only upon a request of shareholders owning at least 50% of the Company's Common Stock, could delay or make more difficult a proxy contest involving the Company, which could adversely affect the market price of the Company's Common Stock. See "Description of Capital Stock--Preferred Stock" and "--Anti-takeover Effects of Provisions of the Bylaws". DILUTION The initial public offering price is substantially higher than the net tangible book value per share of Common Stock. Investors participating in this offering will incur immediate, substantial dilution. To the extent outstanding options and warrants to purchase the Company's Common Stock are exercised, there will be further dilution. See "Dilution". 16 THE COMPANY Genesys is a leading provider of enterprise-wide platform and applications software that enables organizations to integrate critical business information and computing resources with telephony and other telecommunications media. The Company's products allow an organization to optimally manage its customer interactions and employee communications to increase productivity, lower costs and achieve greater customer satisfaction and loyalty. In addition, the Company's products enable organizations to develop and offer new or enhanced revenue-generating products and services. Genesys believes that it is the first company to offer a suite of open, scaleable, enterprise-wide platform and applications software solutions to address the evolving needs of organizations for intelligent communications, a new market paradigm known as Enterprise Computer Telephony Integration ("ECTI"). Genesys Telecommunications Laboratories, Inc. was incorporated in California in October 1990. As used in this Prospectus, unless the context otherwise indicates, references to "Genesys" or the "Company" refer to Genesys Telecommunications Laboratories, Inc. and its subsidiaries. The Company's principal executive offices are at 1155 Market Street, San Francisco, California 94103 and its telephone number is (415) 437-1100. USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,000,000 shares of Common Stock offered by the Company hereby are estimated to be $26.8 million ($ if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $15.00 per share and after deducting estimated underwriting discounts and estimated offering expenses. The primary purposes of this offering are to create a public market for the Common Stock, to facilitate future access to public markets and to obtain additional equity capital. The Company expects to use the net proceeds for general corporate purposes, including working capital. A portion of the net proceeds may also be used for the acquisition of businesses, products and technologies that are complementary to those of the Company. Although the Company has no present plans, agreements or commitments and is not currently engaged in any negotiations with respect to any such transaction, the Company may from time-to-time evaluate such opportunities. Pending such uses, the net proceeds of this offering will be invested in investment grade, interest- bearing securities. DIVIDEND POLICY The Company has not paid any cash dividends on its capital stock since its inception and does not intend to pay any cash dividends on its Common Stock in the foreseeable future. Pursuant to the Company's bank line of credit agreement, the Company may not pay cash dividends on its capital stock without the bank's prior approval. See Note 7 to Notes to Consolidated Financial Statements. 17 DILUTION The pro forma net tangible book value of the Company's Common Stock as of December 31, 1996 was $8,042,000, or approximately $0.53 per share. Net tangible book value per share represents the amount of the Company's shareholders' equity, less intangible assets, divided by 15,220,094 shares of Common Stock outstanding after giving effect to the conversion of all outstanding shares of Preferred Stock into 2,797,878 shares of Common Stock and the exercise of an outstanding warrant to purchase 420,282 shares of Common Stock at a price of $5.9483 per share upon completion of this offering and excluding 854,363 shares of Common Stock issuable upon conversion of Series C Preferred Stock, 675,000 shares of Common Stock and 494,629 shares of Common Stock underlying warrants to purchase Series C Preferred Stock, all of which were issued on February 26, 1997. Net tangible book value dilution per share represents the difference between the amount per share paid by purchasers of shares of Common Stock in this offering made hereby and the pro forma net tangible book value per share of Common Stock immediately after completion of this offering. After giving effect to the sale by the Company of 2,000,000 shares of Common Stock in this offering at an assumed initial public offering price of $15.00 per share and the application of the estimated net proceeds therefrom, the pro forma net tangible book value of the Company as of December 31, 1996 would have been $34,842,000 or $2.02 per share. This represents an immediate increase in net tangible book value of $1.49 per share to existing shareholders and an immediate dilution in net tangible book value of $12.98 per share to purchasers of Common Stock in this offering, as illustrated in the following table: Assumed initial public offering price per share................ $15.00 Net tangible book value per share as of December 31, 1996.... $0.53 Increase in net tangible book value per share attributable to new investors............................................... 1.49 ----- Pro forma net tangible book value per share after this offering...................................................... 2.02 ------ Dilution per share to new investors............................ $12.98 ======
The following table sets forth as of December 31, 1996, after giving effect to the conversion of all outstanding shares of Preferred Stock into Common Stock upon completion of this offering and excluding all issuances subsequent to December 31, 1996, of Common Stock and securities convertible, exchangeable or exercisable for Common Stock, the difference between the existing shareholders and the purchasers of shares in this offering (at an assumed initial public offering price of $15.00 per share) with respect to the number of shares purchased from the Company, the total consideration paid and the average price per share paid:
AVERAGE SHARES PURCHASED TOTAL CONSIDERATION PRICE ------------------ ------------------- PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- ------- ----------- ------- ------- Existing shareholders......... 15,220,094 88% $11,847,000 28% $ 0.78 New shareholders.............. 2,000,000 12 30,000,000 72 15.00 ---------- --- ----------- --- ------ Totals.................... 17,220,094 100% $41,847,000 100% ========== === =========== ===
As of December 31, 1996, there were options outstanding to purchase a total of 5,059,191 shares of Common Stock at a weighted average exercise price of $0.25 per share under the Company's 1995 Stock Option Plan. To the extent outstanding options are exercised, there will be further dilution to new investors. See "Management--Stock Plans" and Note 10 of Notes to Consolidated Financial Statements. 18 CAPITALIZATION The following table sets forth the capitalization of the Company as of December 31, 1996, (i) on an actual basis, (ii) on a pro forma basis after giving effect to the conversion of all outstanding shares of Preferred Stock into Common Stock upon the closing of this offering, the filing of Amended and Restated Articles of Incorporation upon the closing of this offering and the assumed exercise of warrants to purchase 420,282 shares of Common Stock on a cash basis for an aggregate of $2.5 million prior to the closing of this offering, and (iii) on an as adjusted basis to reflect the receipt of the estimated net proceeds from the sale by the Company of 2,000,000 shares of Common Stock pursuant to this offering at an assumed initial public offering price of $15.00 per share:
DECEMBER 31, 1996 -------------------------- PRO PRO FORMA AS ACTUAL FORMA ADJUSTED ------- ------- -------- (IN THOUSANDS) Long-term debt, less current portion(1)............. $ 747 $ 747 $ 747 Shareholders' equity: Preferred Stock, 3,300,000 shares authorized, 2,797,878 shares outstanding at actual, 5,000,000 shares authorized pro forma and as adjusted; no shares outstanding pro forma and as adjusted..... 8,995 -- -- Common Stock, 120,000,000 shares authorized; 12,001,934 shares outstanding at actual, 15,220,094 shares outstanding pro forma and 17,220,094 shares outstanding as adjusted(2)..... 352 11,847 38,647 Notes receivable.................................. (297) (297) (297) Accumulated deficit............................... (3,508) (3,508) (3,508) ------- ------- ------- Total shareholders' equity...................... 5,542 8,042 34,842 ------- ------- ------- Total capitalization............................ $ 6,289 $ 8,789 $35,589 ======= ======= =======
- -------- (1) See Notes 5 and 8 of Notes to Consolidated Financial Statements. (2) Excludes 854,363 shares of Series C Preferred Stock, 675,000 shares of Common Stock and 494,629 shares of Common Stock underlying warrants to purchase Series C Preferred Stock, all of which were issued on February 26, 1997. Also excludes 5,059,191 shares of Common Stock issuable upon exercise of stock options, at a weighted average exercise price of $0.25 per share, which were outstanding as of December 31, 1996, and 42,709 shares of Common Stock reserved for grant of future options or direct issuances under the Company's 1995 Stock Option Plan. Further excludes 1,612,000 shares of Common Stock issuable upon exercise of stock options granted during the period commencing on January 1, 1997 and ending on March 31, 1997. Subsequent to December 31, 1996, the Company adopted, subject to shareholder approval, (i) on January 30, 1997, a 1,000,000- share increase in the number of shares issuable under the 1995 Stock Option Plan, (ii) on February 28, 1997, a 2,000,000-share increase in the number of shares issuable under the 1995 Stock Option Plan, (iii) on March 27, 1997, the 1997 Stock Incentive Plan to replace the 1995 Stock Option Plan, with an increase in the number of shares available for issuance thereunder of 2,400,000 shares and (iv) on March 27, 1997, the Employee Stock Purchase Plan and reserved 500,000 shares of Common Stock for issuance thereunder. See "Management--Stock Plans", and Note 13 of Notes to Consolidated Financial Statements. 19 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and the notes thereto included elsewhere in this Prospectus. The consolidated statement of operations data for the years ended June 30, 1994, 1995 and 1996, and the consolidated balance sheet data at June 30, 1995 and 1996, are derived from, and are qualified by reference to, the consolidated financial statements included elsewhere in this Prospectus that have been audited by and reported on by Arthur Andersen, LLP, independent public accountants, and should be read in conjunction with those consolidated financial statements and notes thereto. The consolidated balance sheet data at June 30, 1994, is derived from audited consolidated financial statements not included herein. The consolidated statement of operations data for the year-ended June 30, 1993 and the six- month periods ended December 31, 1995 and 1996, and the consolidated balance sheet data at June 30, 1993 and December 31, 1996, are derived from unaudited consolidated financial statements that include, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information set forth therein. The operating results of the Company for the six month period ended December 31, 1996 are not necessarily indicative of results to be expected for any future period.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------------------------ ------------------ 1993 1994 1995 1996 1995 1996 ----- ------ ------ ------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: License.................. $ -- $ 460 $3,077 $ 7,369 $ 2,839 $ 10,233 Service.................. 956 1,272 1,403 1,950 600 1,571 ----- ------ ------ ------- -------- -------- Total revenues........... 956 1,732 4,480 9,319 3,439 11,804 Cost of revenues: License.................. -- 23 123 308 122 465 Service.................. 352 595 1,190 2,568 819 1,572 ----- ------ ------ ------- -------- -------- Total cost of revenues... 352 618 1,313 2,876 941 2,037 ----- ------ ------ ------- -------- -------- Gross margin.............. 604 1,114 3,167 6,443 2,498 9,767 Operating expenses: Research and development. 357 578 959 3,673 1,562 3,527 Sales and marketing...... -- 162 705 3,030 911 5,038 General and administrative.......... 503 534 1,343 2,979 1,500 1,440 ----- ------ ------ ------- -------- -------- Total operating expenses. 860 1,274 3,007 9,682 3,973 10,005 ----- ------ ------ ------- -------- -------- Income (loss) from operations............... (256) (160) 160 (3,239) (1,475) (238) Interest and other income (expense), net........... (8) 23 (6) (88) (50) 215 ----- ------ ------ ------- -------- -------- Net income (loss)......... $(264) $ (137) $ 154 $(3,327) $ (1,525) $ (23) ===== ====== ====== ======= ======== ======== Pro forma net income $ (loss) per share(1)...... $ (.18) $ (.09) -- ======= ======== ======== Pro forma weighted average common shares and equivalents(1)........... 18,644 17,760 20,154 ======= ======== ========
JUNE 30, ----------------------------- DECEMBER 31, 1993 1994 1995 1996 1996 ----- ----- ------ ------- ------------ CONSOLIDATED BALANCE SHEET DATA (IN THOUSANDS): Cash and cash equivalents.......... $ 37 $ 253 $ 203 $ 5,926 $ 1,816 Working capital (deficiency)....... (131) (476) (188) 4,609 3,133 Total assets....................... 151 689 2,256 11,961 16,201 Long-term obligations.............. 2 -- 57 404 747 Shareholders' equity (deficit)..... (265) (404) (245) 5,460 5,542
- -------- (1) See Note 2 of Notes to Consolidated Financial Statements for an explanation of the method of calculation. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with "Selected Consolidated Financial Data" and the Company's Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus. This Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Prospectus contain "forward-looking statements" within the meaning of Section 27A of the Securities Act, Section 21E of the Securities Exchange Act and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. See "Special Note Regarding Forward- Looking Statements". OVERVIEW The Company was incorporated in October 1990 and was principally engaged in product development. Prior to shipping its first product, the Company generated revenues primarily from one-time consulting projects. In fiscal 1991, the Company shipped its first software product, T-Server. From 1991 to 1994, the Company transitioned from a consulting services company to a product company. During this transition, the Company has added several applications to its platform product. Most of the Company's revenues to date have been derived from one-time license fees from customers who have received a perpetual license to the Company's products. License fees are generally based on the specific products licensed and are determined on either a per site or per user basis. The Company's license revenues have increased as a percentage of total revenues, representing 26.5%, 68.7% and 79.1% of total revenues in fiscal 1994, 1995 and 1996, respectively, and 69.5% and 86.7% in the six months ended December 31, 1995 and 1996, respectively. The Company currently expects that license revenues will continue to account for a substantial majority of the Company's revenues for the remainder of fiscal 1997 and for the foreseeable future. The remainder of revenues are expected to be primarily attributable to maintenance and other revenues, including consulting and training revenues. As a result, factors adversely affecting the pricing of or demand for the Company's licensed software products would have a material adverse effect on the Company's business, financial condition and results of operations. Substantially all of the Company's revenues to date have been attributable to the license of the Company's platform and related applications software and services. These products 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 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. 21 License revenues are recognized upon execution of a license agreement by the parties and shipment of the product if no significant obligations remain and collection of the resulting receivable is probable. Revenues from consulting and training services are generally charged separately from the Company's software products and are recognized as the services are performed. Maintenance revenues primarily consist of fees for ongoing support and product updates, are generally determined as a percentage of list price, and are recognized ratably over the terms of the contracts, which to date have typically ranged from 12 to 24 months. For all periods presented, the Company has recognized revenues in accordance with Statement of Position 91-1, "Software Revenue Recognition". See Note 2 of Notes to Consolidated Financial Statements. A relatively small number of customers have accounted for a significant percentage of the Company's revenues in any fiscal year. In fiscal 1994, one customer accounted for 26.5% of total revenues; in fiscal 1995, three other customers accounted for 11.1%, 11.2% and 12.8% of total revenues, respectively; and in fiscal 1996, one of these customers and two other customers accounted for approximately 10.2%, 10.0% and 10.8% of total revenues, respectively. No individual customer accounted for 10.0% or more of total revenues in the six months ended December 31, 1996. The Company expects that licenses of its products to a limited number of customers will continue to account for a large percentage of revenues for the foreseeable future. The license of the Company's software products is typically an enterprise-wide decision by prospective customers and generally requires the Company to provide a significant level of education to prospective customers regarding the use and benefits of the Company's products. In addition, the implementation of the Company's products involves a significant commitment of resources by prospective customers and typically involves substantial integration efforts, which may be performed by the Company, the customer or third-party vendors. The cost of the Company's product is typically only a small portion of the related hardware, software, development, training and integration costs of implementing an ECTI solution. For these and other reasons, the sales and implementation cycles associated with the license of the Company's products is often lengthy and is subject to a number of significant delays over which the Company has little or no control. Given these factors and the expected customer concentration, the loss of a major customer or any reduction or delay in sales to or implementations by such customers could have a material adverse effect on the Company's business, financial condition and results of operations. The Company markets its products in North America primarily through its direct sales force and internationally through its direct sales force and VARs. International revenues accounted for 40.6%, 30.9%, and 36.2% of total revenues in fiscal 1994, 1995 and 1996, respectively, and 30.5% and 46.7% in the six months ended December 31, 1995 and 1996, respectively. The Company is increasing its international sales force, primarily in Europe and the Asia Pacific region, and is seeking to establish distribution relationships with appropriate strategic partners. As a result, failure to increase international sales could have a material adverse effect on the Company's business, operating results and financial condition. The Company expects international revenues to account for an increasing portion of total revenues in the future. The Company's revenues have increased in each of the last six quarters, and the Company achieved profitability in the quarter ended December 31, 1996. The Company's limited operating history, however, makes the prediction of future operating results unreliable. Prior growth rates in the Company's revenues should not be considered indicative of future revenue growth rates or operating results. Future operating results will depend upon many factors, including the demand for and market acceptance of the Company's products, the level of product and price competition, the ability of the Company to develop, market and deploy new, high-quality products and control costs, the ability of the Company to expand its direct sales force and indirect distribution channels, the Company's success in attracting and retaining key personnel, the uncertainty, recent emergence and acceptance of the ECTI market and technological changes in the ECTI market. There can be no assurance that any of the Company's business or strategies will be successful or that the Company will be able to achieve or sustain profitability on a quarterly or annual basis. 22 RESULTS OF OPERATIONS The following table sets forth statement of operations data of the Company expressed as a percentage of total revenues for the years and periods indicated.
SIX MONTHS YEAR ENDED JUNE ENDED 30, DECEMBER 31, --------------------- --------------- 1994 1995 1996 1995 1996 ----- ----- ----- ------ ------ Revenues: License............................. 26.6 % 68.7 % 79.1 % 82.6 % 86.7 % Service............................. 73.4 31.3 20.9 17.4 13.3 ----- ----- ----- ------ ------ Total revenues..................... 100.0 100.0 100.0 100.0 100.0 Cost of revenues: License............................. 1.3 2.7 3.3 3.5 3.9 Service............................. 34.4 26.6 27.6 23.8 13.3 ----- ----- ----- ------ ------ Total cost of revenues............. 35.7 29.3 30.9 27.4 17.2 ----- ----- ----- ------ ------ Gross margin......................... 64.3 70.7 69.1 72.6 82.8 Operating expenses: Research and development............ 33.4 21.4 39.4 45.4 29.9 Sales and marketing................. 9.4 15.7 30.4 26.5 42.7 General and administrative.......... 30.8 30.0 34.1 43.6 12.2 ----- ----- ----- ------ ------ Total operating expenses........... 73.6 67.1 103.9 115.5 84.8 ----- ----- ----- ------ ------ Income (loss) from operations........ (9.3) 3.6 (34.8) (42.9) (2.0) Interest and other income (expense), net................................. 1.3 (0.1) (0.9) (1.5) 1.8 ----- ----- ----- ------ ------ Net income (loss).................... (8.0)% 3.5 % (35.7)% (44.4)% (0.2)% ===== ===== ===== ====== ======
REVENUES LICENSE. License revenues were $460,000, $3.1 million and $7.4 million in fiscal 1994, 1995 and 1996, respectively, representing increases of 569% from fiscal 1994 to fiscal 1995, and 140% from fiscal 1995 to fiscal 1996. License revenues were $2.8 million and $10.2 million in the six months ended December 31, 1995 and 1996, respectively, an increase of 260%. These increases were due to the market's growing acceptance of the Company's products and underlying technology, an expansion of the Company's product offerings, and a significant increase in the Company's sales, marketing and customer service organizations. License fees as a percentage of total annual revenues have increased consistently since fiscal 1994 as the Company has expanded its software product suite and has engaged in fewer consulting service engagements, which were a more significant part of its business from inception through fiscal 1994. The Company does not believe that the historical growth rates of license revenues will be sustainable or are indicative of future results. SERVICE. Service revenues primarily comprise fees from consulting, post- contract support and, to a lesser extent, training services. Service revenues were $1.3 million, $1.4 million and $2.0 million, in fiscal 1994, 1995 and 1996, respectively, representing increases of 10% from fiscal 1994 to fiscal 1995 and 39% from fiscal 1995 to fiscal 1996. Service revenues were $600,000 and $1.6 million in the six months ended December 31, 1995 and 1996, respectively, an increase of 162%. 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 have decreased as a percentage of total revenues from fiscal 1994 through the six months ended December 31, 1996 due principally to a significant increase in licensing of the 23 Company's products. If the Company is successful in implementing its strategy of encouraging third party organizations such as systems integrators to undertake a greater percentage of implementation of the Company's products, service revenues may decrease as a percentage of total revenues, while maintenance as a percentage of sales will increase. The Company does not believe that the historical growth rates of service revenues will be sustainable or are indicative of future results. COST OF REVENUES LICENSE. Cost of license revenues includes the costs of product media, product duplication and manuals, as well as allocated labor and overhead costs associated with the preparation and shipment of products. Cost of license revenues were $23,000, $123,000 and $308,000 in fiscal 1994, 1995 and 1996, respectively. Cost of license revenues were $122,000 and $465,000 in the six months ended December 31, 1995 and 1996, respectively. These increases in absolute dollar amounts relate primarily to increases in the volume of products shipped by the Company, and the resulting increases in documentation material costs and personnel necessary to assemble and ship the products. SERVICE. Cost of service revenues primarily comprise employee-related costs incurred in providing consulting, post-contract support and training services. Cost of service revenues were $595,000, $1.2 million and $2.6 million in fiscal 1994, 1995 and 1996, respectively. Cost of service revenues were $819,000 and $1.6 million in the six months ended December 31, 1995 and 1996, respectively. These increases in absolute dollars were due primarily to increases in consulting, support and training personnel, and increases in overhead costs associated with travel, computer equipment and facilities. The Company increased the number of consulting, maintenance, training and shipping personnel significantly during fiscal 1996 from 7 employees to 33 employees in anticipation of higher sales activity, and, as a result, in fiscal 1996 the Company incurred a negative gross margin from service revenues. The cost of service revenues as a percentage of service revenues may vary between periods due to the mix of services provided by the Company and the resources used to provide these services. OPERATING EXPENSES The Company's operating expenses were $1.3 million, $3.0 million and $9.7 million, or 73.6%, 67.1% and 103.9% of total revenues in fiscal 1994, 1995 and 1996, respectively. For the six months ended December 31, 1995 and 1996, the Company's operating expenses were $4.0 million and $10.0 million, or 115.5% and 84.8% of total revenues, respectively. RESEARCH AND DEVELOPMENT. Research and development expenses were $578,000, $959,000 and $3.7 million, or 33.4%, 21.4% and 39.4% of total revenues in fiscal 1994, 1995 and 1996, respectively. Research and development expenses were $1.6 million and $3.5 million, or 45.4% and 29.9% of total revenues, in the six months ended December 31, 1995 and 1996, respectively. These expenses increased in absolute dollars primarily as a result of an increase in personnel to support the Company's product development activities. The Company expects that research and development expenditures will continue to increase in absolute dollars. Research and development expenses are generally charged to operations as incurred. In accordance with Statement of Financial Accounting Standards No. 86, costs that were eligible for capitalization for these periods were insignificant, and the Company charged all software development costs to research and development expense. SALES AND MARKETING. Sales and marketing expenses were $162,000, $705,000 and $3.0 million, representing 9.4%, 15.7% and 30.4% of total revenues in fiscal 1994, 1995 and 1996, respectively. Sales and marketing expenses were $911,000 and $5.0 million, representing 26.5% and 42.7% of total revenues, in the six months ended December 31, 1995 and 1996, respectively. These expenses 24 increased in absolute dollars primarily due to the Company's investment in building a direct sales force in North America and, to a lesser extent, in Europe. From July 1, 1995 to December 31, 1996, the Company increased the number of its sales and marketing personnel from 7 to 71 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, therefore, anticipates sales and marketing expenditures will continue to increase in absolute dollars. GENERAL AND ADMINISTRATIVE. General and administrative expenses were $534,000, $1.3 million and $3.0 million, or 30.8%, 30.0% and 34.1% of total revenues in fiscal 1994, 1995 and 1996, respectively. These expenses increased in absolute dollars during these periods principally due to the addition of staff and information system investments to support the growth of the Company's business during these periods. In addition, during fiscal 1996 the Company recorded a provision for bad debts totaling approximately $300,000 related to the increased sales activity and related receivables, and incurred higher legal costs associated primarily with general corporate matters, trademark matters and patent filings. General and administrative expenses were $1.5 million and $1.4 million, representing 43.6% and 12.2% of total revenues, in the six months ended December 31, 1995 and 1996, respectively. During fiscal 1996, the Company incurred higher consulting expenses related primarily to the engagement of temporary financial personnel, which expenses were reduced in fiscal 1997 upon the hiring of the Company's Chief Financial Officer and other finance personnel. The Company expects to continue to increase its general and administrative staff and to incur other costs necessary to manage a growing organization, and, accordingly, it expects general and administrative expenses to continue to increase in absolute dollars. PROVISION FOR INCOME TAXES The Company did not incur state or federal income taxes in fiscal 1994, 1995 or 1996 due to operating losses incurred during those periods. As of June 30, 1996, the Company had net operating loss carryforwards for federal and state tax reporting purposes of approximately $685,000 million and $464,000 million, respectively, available to offset future taxable income, which expire at various dates through 2010 if not utilized. In addition, the Tax Reform Act of 1986 contains certain provisions that may limit the net operating loss carryforwards available for use in any given period upon the occurrence of certain events, including a significant change in ownership interests. The Company has net deferred tax assets, including its net operating loss carryforwards, totaling $1.1 million as of June 30,1996. The Company has recorded a valuation allowance to the full extent of its net deferred tax assets as a result of significant uncertainties regarding the realization of the assets, including the limited operating history of the Company, a recent history of losses and the variability of operating results. See Note 11 of Notes to Consolidated Financial Statements. 25 QUARTERLY RESULTS OF OPERATIONS The following tables set forth certain consolidated statement of operations data for each of the six quarters in the period ended December 31, 1996, as well as the percentage of the Company's total revenues represented by each item. This information has been derived from the Company's unaudited consolidated financial statements. The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements contained herein and include all adjustments, consisting only of normal recurring adjustments, that the Company considers necessary for a fair presentation of such information when read in conjunction with the Company's annual audited consolidated financial statements and notes thereto appearing elsewhere in this Prospectus. The results of operations for any quarter are not necessarily indicative of the results to be expected for any future period.
QUARTER ENDED ------------------------------------------------------- SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, 1995 1995 1996 1996 1996 1996 --------- -------- -------- -------- --------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: License................ $ 613 $2,226 $1,849 $2,681 $3,525 $6,708 Service................ 393 207 587 763 711 860 ------- ------ ------ ------ ------ ------ Total revenues......... 1,006 2,433 2,436 3,444 4,236 7,568 Cost of revenues: License................ 53 69 61 125 153 312 Service................ 300 519 668 1,081 682 890 ------- ------ ------ ------ ------ ------ Total cost of revenues. 353 588 729 1,206 835 1,202 ------- ------ ------ ------ ------ ------ Gross margin............ 653 1,845 1,707 2,238 3,401 6,366 Operating expenses: Research and development........... 710 852 913 1,198 1,571 1,956 Sales and marketing.... 303 608 820 1,299 1,909 3,129 General and administrative........ 675 825 796 683 684 756 ------- ------ ------ ------ ------ ------ Total operating expenses.............. 1,688 2,285 2,529 3,180 4,164 5,841 ------- ------ ------ ------ ------ ------ Income (loss) from operations............. (1,035) (440) (822) (942) (763) 525 Interest and other income (expense), net. (25) (25) (38) -- 143 72 ------- ------ ------ ------ ------ ------ Net income (loss)....... $(1,060) $ (465) $ (860) $ (942) $ (620) $ 597 ======= ====== ====== ====== ====== ====== Pro forma net income (loss) per share....... $ (0.06) $(0.03) $(0.05) $(0.05) $(0.03) $ 0.03 ======= ====== ====== ====== ====== ====== Pro forma weighted average common and common equivalent shares................. 17,300 18,400 18,900 20,500 20,200 22,400 ======= ====== ====== ====== ====== ======
QUARTER ENDED ----------------------------------------------------------- SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, 1995 1995 1996 1996 1996 1996 --------- -------- -------- -------- --------- -------- PERCENT OF TOTAL REVENUES: Revenues: License................ 60.9 % 91.5 % 75.9 % 77.8 % 83.2 % 88.6% Service................ 39.1 8.5 24.1 22.2 16.8 11.4 ------ ----- ----- ----- ----- ----- Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 Cost of revenues: License................ 5.3 2.8 2.5 3.6 3.6 4.1 Service................ 29.8 21.3 27.4 31.4 16.1 11.8 ------ ----- ----- ----- ----- ----- Total cost of revenues. 35.1 24.1 29.9 35.0 19.7 15.9 ------ ----- ----- ----- ----- ----- Gross margin............ 64.9 75.9 70.1 65.0 80.3 84.1 Operating expenses: Research and development........... 70.6 35.0 37.5 34.8 37.1 25.8 Sales and marketing.... 30.1 25.0 33.7 37.7 45.1 41.3 General and administrative........ 67.1 33.9 32.7 19.8 16.1 10.0 ------ ----- ----- ----- ----- ----- Total operating expenses.............. 167.8 93.9 103.9 92.3 98.3 77.1 ------ ----- ----- ----- ----- ----- Income (loss) from operations............. (102.9) (18.0) (33.8) (27.3) (18.0) 7.0 Interest and other income (expense), net. (2.5) (1.0) (1.6) 0.0 3.4 1.0 ------ ----- ----- ----- ----- ----- Net income (loss)....... (105.4)% (19.0)% (35.4)% (27.3)% (14.6)% 8.0% ====== ===== ===== ===== ===== =====
26 The Company's quarterly operating results have in the past fluctuated and may in the future fluctuate significantly, depending on a number of factors, many of which are beyond the Company's control, including: market acceptance of the Company products; the Company's ability to develop and market new products and product enhancements; the size, timing and recognition of revenue from significant orders; the length of sales and implementation cycles; competition; the Company's success in establishing indirect sales channels and expanding its direct sales force; the Company's success in retaining and training third-party support personnel; the timing of new product releases by the Company and its competitors; the delay or deferral of significant revenues until acceptance of software required by an individual license transaction; technological changes in the ECTI market; the deferral of customer orders in anticipation of new products and product enhancements; purchasing patterns of indirect channel partners and customers; changes in pricing policies by the Company and its competitors; the mix of revenues derived from the Company's direct sales force and various indirect distribution and marketing channels; the mix of revenues derived from domestic and international customers; seasonality; changes in operating expenses; changes in relationships with strategic partners; changes in Company strategy; personnel changes; foreign currency exchange rate fluctuations; the ability of the Company to control its costs and general economic factors. The Company currently operates with limited backlog. The Company derives substantially all of its revenues from licenses of the Company's platform and related applications software and services. The Company believes that the purchase of its products is relatively discretionary and generally involves a significant commitment of capital resources by a customer. The timing of the receipt and shipment of a single order can have a significant impact on the Company's revenues and results of operations for a particular quarter. In situations requiring customer acceptance of implementation, the Company does not recognize license revenues until installations are complete and does not recognize the consulting component of service revenues until the services are rendered. As a result, revenue recognition may be delayed in many instances. Historically, the Company has often recognized a substantial portion of its revenues in the last month of a quarter, with these revenues frequently concentrated in the last two weeks of a quarter. As a result, product revenues in any quarter are substantially dependent on orders booked and shipped in that quarter, and revenues for any future quarter are not predictable with any significant degree of certainty. Product revenues are also difficult to forecast because the market for ECTI software products is rapidly evolving, and the Company's sales cycle, which may last from three to nine months or more, varies substantially from customer to customer. The Company's quarterly revenues are also subject to seasonal fluctuations, particularly in the quarter ending in September when reduced activity outside North America during the summer months can adversely affect the Company's revenues. The Company's expenses are relatively fixed and are based, in part, on its expectations as to future revenues. Consequently, if revenue levels are below expectations, net income would be disproportionately affected because a proportionately smaller amount of the Company's expenses varies with its revenues. In addition, the Company expects that sales derived through indirect channels, which are more difficult to forecast and may have lower gross margins than direct sales, will increase as a percentage of total revenues. Due to all of the foregoing factors, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. It is likely that in some future quarter the Company's operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affected. Because of these factors, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and that such comparisons should not be relied upon as indications of future performance. 27 LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has financed its operations and met its capital expenditure requirements primarily from proceeds from related party advances, a $1.5 million term note (of which $900,000 was converted into Series A Preferred Stock) and the private sale of Preferred Stock. Through December 31, 1996, the Company had raised $9.0 million from the sale of Preferred Stock, and in February 1997, the Company raised an additional $9.5 million of financing through the sale of Series C Preferred Stock. At December 31, 1996, the Company's principal sources of liquidity included cash and cash equivalents of $1.8 million and a $3.0 million line of credit agreement. Under the terms of the agreement, the Company may borrow up to $3.0 million under a revolving line of credit, which includes sublimits of $500,000 for equipment purchases and $500,000 for letters of credit. As of December 31, 1996, the Company had borrowed $500,000 under the line of credit. The line of credit is secured by substantially all of the Company's assets. Advances under the line of credit are limited to 80% of eligible accounts receivable. Borrowings accrue interest at the bank's prime rate plus 0.5% for line of credit borrowings and 1.0% for borrowings under the equipment sublimit. The line of credit contains provisions that prohibit the payment of cash dividends and require the maintenance of certain financial covenants, with which the Company is in compliance. See Note 7 of Notes to Consolidated Financial Statements. The Company generated cash from operating activities of $242,000 and $295,000 in fiscal 1994 and 1995, respectively, and used cash for operating activities of $2.4 million, in fiscal 1996. The Company also used cash of $293,000 and $2.8 million in the six months ended December 31, 1995 and 1996, respectively. The increased use of cash for operating activities in the six months ended December 31, 1996 is attributable primarily to an increase in accounts receivable of approximately $6.1 million, offset in part by an increase in deferred revenues of approximately $2.5 million. The Company used cash for the purchase of property and equipment totaling $83,000, $227,000 and $1.2 million in fiscal 1994, 1995 and 1996, respectively. The Company used cash for the purchase of property and equipment totaling $311,000 and $1.9 million in the six months ended December 31, 1995 and 1996, respectively. The Company generated $57,000 of cash from financing activities in fiscal 1994, used cash of $118,000 for financing activities in fiscal 1995 related to the repayment of related party loans, and generated cash of $9.3 million from financing activities in fiscal 1996, primarily related to the sales of Series A and Series B Preferred Stock. The Company currently has no significant capital commitments other than commitments under capital leases. The Company believes that the proceeds from the sale of the Common Stock offered hereby, together with its existing sources of liquidity, will satisfy the Company's projected working capital and capital requirements for at least the next twelve months. 28 BUSINESS Genesys is a leading provider of enterprise-wide platform and applications software that enables organizations to integrate critical business information and computing resources with telephony and other telecommunications media. The Company's products allow an organization to optimally manage its customer interactions and employee communications to increase productivity, lower costs and achieve greater customer satisfaction and loyalty. In addition, the Company's products enable organizations to develop and offer new or enhanced revenue-generating products and services. Genesys believes that it is the first company to offer a suite of open, scaleable, enterprise-wide platform and applications software solutions to address the evolving needs of organizations for intelligent communications, a new market paradigm known as Enterprise Computer Telephony Integration ("ECTI"). The Company's platform and applications software products allow organizations to integrate disparate telecommunications media with heterogeneous computing environments. These products integrate with most major telephone systems and interoperate across most major computing platforms, operating systems and databases, enabling organizations to manage their desktop and media resources throughout the enterprise. Together with the Company's platform software, Genesys offers a range of applications that provide advanced ECTI solutions, such as intelligent call routing, outbound/blended dialing and campaign management, real-time and historical management reporting and Web-based telephony fulfillment. The open, standards- based nature of the Company's products allows an organization to leverage its investments in existing telecommunications and computing infrastructure, software applications and employee training. The Company's products also support the integration of internally developed or commercially available business applications, such as help desk or sales force automation. In order to assist customers in realizing the maximum benefit from its solutions, the Company augments its products with a range of implementation, training and support services. The Company has targeted formal call centers within key industries as important entry points for its products. To date, Genesys has licensed its products to more than 125 end-users worldwide, including: Ameritech, Bank of America, BT, Charles Schwab, FedEx, Gateway 2000, MCI, NationsBanc, NB Tel, The SABRE Group and Sprint/United Management Company. As of February 28, 1997, the Company had 293 employees. BACKGROUND In the increasingly complex global business environment, an organization's ability to manage the increased information demands of customers and employees in a cost-effective manner is an important competitive advantage. In response to these competitive pressures, the delivery of high-quality, cost-effective services has become critical in differentiating an organization's product or service offerings and expanding its market share. In order to provide these services and optimally manage interactions with customers and communications with employees, organizations need to integrate critical business information and computing resources with telephony and other telecommunications media. Modern organizations communicate, both internally and externally, through a variety of different communications media, including telephony, voice mail, e- mail, the Internet/intranets and video. Traditionally, each of these media and its associated databases and information retrieval systems have been treated as a unique and separate environment within which specialized applications have been developed. The point solution nature of these systems has created "silos" of information that are not intelligently utilized across the enterprise. This lack of interoperability has prevented organizations from optimally managing customer interactions and employee communications. This has limited productivity, increased costs and restricted the ability of organizations to generate greater customer satisfaction and loyalty. To be most effective, organizations now need to make information available at any time it is needed, anywhere it may be located and in any way that it may be requested. 29 A number of general business trends are also contributing to the increasing importance of flexible and sophisticated means of integrating telecommunications media and computing platforms: THE INCREASINGLY GLOBAL NATURE OF BUSINESS OPERATIONS has significantly complicated the task of managing information and providing expertise in a real-time cost-effective manner. THE PROLIFERATION OF DISTRIBUTED COMPUTING ENVIRONMENTS has resulted in the broader dissemination of information, particularly through enterprise software applications that address key business functions such as finance, human resources, sales and marketing and supply chain management. Consequently, the task of efficiently accessing this information has become increasingly complex and difficult. THE DEREGULATION OF MAJOR INDUSTRIES, specifically telecommunications, banking and health care, has resulted in increased competition and new business opportunities. Many companies within these industries are turning to new and enhanced services as a means of competitive differentiation. THE INCREASE IN MERGER AND ACQUISITION AND PARTNERING ACTIVITY has forced organizations to integrate complex, disparate telecommunications and computer systems. This integration must be accomplished while maintaining high-quality customer service and without disrupting or delaying employees' access to critical business information. Organizations have confronted a variety of complex business and technological issues associated with intelligently accessing customer information in a real-time, automated and cost-effective manner. The initial response to these issues has been the establishment of formal call centers, where hundreds of customer service representatives may occupy a dedicated facility with systems designed specifically to address high levels of customer inquiry. Typically, these call centers have been automated at the hardware level (i.e., the telephone switch) through automated call distribution ("ACD") or interactive voice response ("IVR") systems. In the face of competitive pressures, the stand-alone nature of these systems is becoming increasingly burdensome to organizations, as the appropriate person to handle many customer interactions is no longer just a call center representative with limited, generic training, but is instead a more experienced or specialized employee located elsewhere within the organization. Providing intelligent access to these employees and furnishing them with pertinent information requires a level of sophistication and flexibility beyond the reach of traditional solutions. The shortcomings in the traditional means by which organizations have managed customer interactions and employee communications, in combination with the general business trends noted above, have created what the Company believes to be a significant market opportunity for ECTI solutions with the following characteristics: . open, standards-based frameworks within which ECTI and other enterprise business applications, whether developed by Genesys, ISVs or in-house IT departments, may be incorporated; . a suite of comprehensive business applications that address a wide variety of customer needs; . intelligent, real-time integration of and access to information matched to customer and employee needs across different media and throughout the organization; . a high-performance, scaleable and flexible platform that can readily integrate with existing computer architectures and business applications, thereby preserving an organization's investment in its infrastructure and applications; and . a consistent level of functionality regardless of the underlying infrastructure. 30 The Company believes that ECTI solutions with these characteristics will allow organizations of all sizes to increase productivity, lower costs and achieve greater customer satisfaction and loyalty, as well as enable organizations to develop and offer new or enhanced revenue-generating services. THE GENESYS SOLUTION Genesys is a leading provider of enterprise-wide platform and applications software that enables organizations to integrate critical business information and computing resources with telephony and other telecommunications media. Genesys believes that its products represent a fundamentally new approach to CTI that addresses many of the limitations inherent in traditional call center approaches. The Company's products provide the following benefits: OPEN, SCALEABLE AND MEDIA-INDEPENDENT PLATFORM The Company's open platform intelligently manages the convergence of disparate telecommunications media and heterogeneous computing environments. The Company's platform is designed to scale with increases in the volume of customer inquiries and growth in the number of customer service representatives and geographic locations. The Company's platform readily integrates with a broad range of proprietary telephone switching platforms, IVRs and major computing platforms, operating systems and databases. In addition, the Genesys platform is designed to integrate with products developed by third parties and customers' internal development teams. The Genesys platform also supports many software development and network communication standards. This open systems approach enables an organization to leverage its investments in existing infrastructure, software applications and employee training. BROAD SUITE OF INTEGRATED BUSINESS APPLICATIONS Genesys offers a broad array of integrated business applications that provide a wide range of ECTI solutions. These applications include intelligent call routing, outbound/blended dialing, real-time and historical reporting and Web-based telephony fulfillment. These applications are designed to integrate with an organization's existing telecommunications and computing infrastructure. Genesys also offers a sophisticated ECTI development environment to enable an organization to develop its own applications and integrate applications from other vendors into the Genesys framework. ENHANCED CUSTOMER INTERACTIONS The Company's products enable organizations to enhance interactions with customers, resulting in increased customer satisfaction and loyalty. For example, the Genesys Call Router product may be utilized for the real-time analysis of critical information, including a customer's account profile, financial position and the nature of past interactions, in order to direct incoming calls to the representative with the skills, attributes and experience necessary to best address the customer's needs. In addition, the Company's products extend the boundaries of the call center to enable a customer inquiry to be routed to more specialized personnel located throughout the organization, regardless of their location. INCREASED EFFICIENCY AND PRODUCTIVITY The Company's products enable organizations to improve the efficiency of customer interactions, as well as optimize the distribution of information across the enterprise. The Company's products automate the call routing and placement function to minimize agents' idle time. The real-time availability of relevant customer information enables agents to more quickly process calls, resulting in significant cost savings through the more efficient use of valuable customer service personnel and decreased toll charges. An extensive suite of reporting tools enables managers to monitor and analyze 31 the nature of inbound calls and the effectiveness of outbound campaigns in real-time and on a historical basis. In addition, by providing agents with increased access to pertinent information and improving the overall efficiency of customer interactions, the Company's products create opportunities for cross-selling and other revenue-generating activities. IMPROVED TIME TO BENEFIT The Company's platform and applications software are designed to provide customers with comprehensive ECTI solutions that can be readily deployed. Additionally, customers retain the flexibility to add new applications, whether developed internally, by Genesys or by third parties, as market requirements change. The deployability and flexibility of the Company's software allow its customers to more quickly begin to benefit from the efficiency and productivity gains that the software delivers. THE GENESYS STRATEGY Genesys seeks to be the leading provider worldwide of open, scaleable ECTI platform and applications software. The Company's strategy includes the following key elements: ESTABLISH THE GENESYS FRAMEWORK AS A DE FACTO ECTI STANDARD The Company's objective is to establish the Genesys framework as a de facto ECTI standard. To achieve this goal, the Company's products are designed to interoperate across major telecommunications and computing platforms. In addition, Genesys focuses on licensing its products to industry leaders in targeted strategic markets. The Company has developed, and will continue to develop, strategic relationships with major telecommunications equipment and computer hardware vendors, systems integrators, VARs, ISVs and NSPs. PROVIDE INDUSTRY-LEADING, TECHNOLOGICALLY ADVANCED PRODUCTS The Company offers a broad array of products that provide comprehensive ECTI solutions. Genesys has developed an industry-leading platform and suite of applications and continues to invest significant resources to enhance the Company's products and to incorporate new technologies and standards as they evolve. In addition, Genesys offers a sophisticated ECTI development environment to enable an organization to develop its own applications and integrate third-party applications into the Genesys framework. TARGET STRATEGIC MARKETS The Company targets organizations in industries with a strong need for external or internal communications, a heavy transaction orientation or significant requirements for managing customer information and providing customer service. The Company also focuses on specific industries undergoing structural changes, such as deregulation or significant mergers and acquisitions activity, that create the need for ECTI solutions. Examples include the telecommunications, financial services and health care industries, where deregulation has substantially increased the competitive pressures to provide new or enhanced products and services and mergers and acquisitions have created the need to integrate heterogeneous communications and computing environments without any disruption in customer service or employee communications. The Company has initially targeted formal call centers within these key industries as important entry points for its products. The Company's framework and applications software are well-suited to meeting the needs of formal call centers. As the ECTI market evolves and moves beyond the boundaries of the formal call center, the Company believes it will be able to leverage its market presence to offer a range of solutions for the informal call center, small office/home office ("SOHO") and, eventually, consumer markets. 32 DEVELOP AND LEVERAGE STRATEGIC BUSINESS RELATIONSHIPS The sale, installation and implementation of advanced ECTI solutions require significant expenditures of time and resources. In order to supplement the Company's direct sales organization and more rapidly take advantage of the significant ECTI market opportunity, Genesys has focused on developing strategic third-party relationships with telecommunications equipment and computer hardware vendors, systems integrators, VARs, ISVs and NSPs. These relationships enable Genesys to leverage the technical expertise of its partners and to access additional sales and marketing channels, while further enhancing its efforts to establish the Genesys platform as a de facto ECTI standard. PENETRATE NETWORK SERVICES MARKET By incorporating the Company's products into local and long distance network carriers' offerings, Genesys believes that it can make its products available to a broader customer base than would otherwise be possible. The Company is focused on enabling NSPs to offer ECTI services to their corporate customers. These services would also provide the functionality of formal call centers without the need to assemble personnel in a single location or purchase specialized equipment or software. These so-called "virtual" call centers could subsequently be extended to the SOHO market, where cost considerations have generally precluded the utilization of ECTI services. ARCHITECTURE The Genesys architecture consists of an ECTI framework and a suite of integrated applications that are open, scaleable and standards-based. Whereas traditional telecommunications applications are often embedded within hardware such as ACDs and IVRs, the Genesys architecture supports a complete software- based ECTI solution that interoperates across major telecommunications and computing platforms, independent of the underlying infrastructure. As a result, this architecture provides robust scaleability from small premise call centers to multi-site global enterprises and can be readily adapted to an organization's existing infrastructure. Thus, the Company's solutions can scale with the increase in the size of the organization as well as be quickly and easily adapted to accommodate changes in the level or nature of customer interactions and employee communications. The Company believes that its emphasis on, and investment in, this architecture is the key to Genesys' ECTI technological leadership. The following diagram illustrates the Genesys architecture: [DIAGRAM DEPICTING THE COMPANY'S THREE LAYER ARCHITECTURE AND FRAMEWORK AS THEY INTERFACE WITH VARIOUS HARDWARE EQUIPMENT AND THIRD PARTY APPLICATIONS.] The Genesys architecture consists of four layers: The top layer--Real-Time Business Applications--includes inbound, outbound, reporting and multimedia applications and will incorporate future network services applications when they become available. The remaining three layers--Media Control Services, Common Applications Services and Management Applications--comprise the Genesys framework. MEDIA CONTROL SERVICES The Media Control Services layer contains the interfaces to various telecommunications equipment and computing hardware, such as PBXs, ACDs, IVRs, outbound dialers, SS7 gateways and Internet and video servers. This layer incorporates a unified call control and event model that insulates the rest of the software from the complexities of interfacing with particular types of hardware. Media Control Services include a variety of device drivers for major ACD/PBX and central office switch manufacturers. The capabilities and behavior of different switches can vary widely and the unified call control and event model creates a superset of these capabilities to handle the interface. With the introduction of Genesys T-Server 5.0, applications are able to query the capabilities of the underlying 33 equipment and appropriately adjust their behavior in real time, which enables applications to interoperate across different ACD/PBX environments. The Company's outbound solutions can utilize the capabilities of the ACD/PBX equipment, where available, or a stand-alone server equipped with voice- processing hardware. Currently, the outbound capabilities of Lucent Technologies, Inc., Rockwell and Aspect Telecommunications switches are supported. Genesys also supports a variety of IVR equipment from vendors such as Lucent Technologies, Inc., Northern Telecom, Inc., Periphonics Corporation, Syntellect, Inc., Voicetek, Inc., Edify Corporation, Brite Voice Systems, Intervoice, Inc. and IBM Corporation. In order to enable network services, the Media Control Services layer contains drivers for the Public Switched Telephone Network. The Company's software is fully certified on MCI's network as a Customer Access Point solution provider, interfacing to MCI's Gateway 800, as well as the AT&T network as the solution provider for AT&T's Intelligent Call Processing Service (SS7). Genesys has completed the development of the Sprint interface and is currently awaiting certification. COMMON APPLICATION SERVICES The Common Application services layer contains a rich set of services that are used to create powerful ECTI client/server applications, whether by the Company, third parties or internal IT departments. The following services are available: STAT SERVER. Stat Server keeps track of vital call center statistics that describe call traffic and agent activities. This service is used for making real-time call routing decisions, as well as for real-time reporting. DB SERVER. DB Server serves as the gateway to different databases. This service is essential for integration with the enterprise computing environment and is used by various applications for call routing, historical reporting and outbound campaign management. LIST MANAGER. List Manager provides the interface to customer contact information used in outbound campaign management. CLIENT SERVICES. Client Services consists of a broad array of services for creating desktop applications and integrating with enterprise business applications such as help desk or sales force automation. Genesys provides the means for integrating different platforms such as Windows 95, Windows NT, Mac O/S, OS/2 and UNIX. Client Services conforms with many standards, including ActiveX, Java, TAPI and CORBA, as well as the Genesys API, T-Lib. MANAGEMENT APPLICATIONS The Management Applications layer contains all the facilities required to install, configure, maintain and secure the Company's solutions. As more mission-critical applications depend upon ECTI, this layer facilitates the management of the Genesys solution. A Service Creation Environment is provided to enable customers to configure the Genesys ECTI framework. Genesys T-Server 5.0 includes significant new capabilities, such as the Configuration Server, that are responsible for informing the software of any changes in customer configurations. This capability allows services to be reconfigured without service interruption. Another new capability is provided through the addition of Simple Network Management Protocol ("SNMP") support to all Genesys servers. Through SNMP, the Company's platform can integrate with all industry standard network management solutions. Genesys T-Server 5.0 incorporates the Secure Socket Layer ("SSL") security protocol, which enables the Company to deploy applications over the Internet while meeting the industry standard for secure electronic commerce transactions. 34 PRODUCTS The Company's products allow an organization to optimally manage its customer interactions and employee communications to increase productivity, lower costs and achieve greater customer satisfaction and loyalty. The average selling price for the Genesys platform products ranges from $15,000 to $70,000 per site, plus additional fees based on the number of seats. The average selling price for an application product ranges from $25,000 to $75,000 per site. The Company's typical order size per site ranges from $150,000 to $300,000. In March 1997, the Company announced an enhanced version of its entire product line and renamed certain of these products as described below. [DIAGRAM DEPICTING THE COMPANY'S PLATFORM PRODUCT AND ITS VARIOUS SOFTWARE APPLICATIONS AS THEY INTERFACE WITH MULTIPLE COMPUTER LANGUAGES, TELECOMMUNICATIONS HARDWARE EQUIPMENT, DATABASES AND CALL CENTERS.] PLATFORM GENESYS T-SERVER. Genesys T-Server, the Company's platform product, is the basis of the Company's software framework. T-Server consists of the Company's ECTI software implemented on industry standard hardware, integrates with most major PBXs, IVRs and ACDs and interoperates with most major computing platforms, operating systems and databases. The Company's platform is designed to scale with increases in the volume of customer inquiries and growth in the number of customer service representatives and geographic locations. T-Server creates a bridge between client/server applications and telephony devices. Features include the ability to transfer voice and data across sites regardless of the switch type, providing the immediate appearance of customer data on the agent's screen (known as a "screen pop"). In March 1997, the Company announced the availability of version 5.0 of T-Server, with unified call model and SNMP support. GENESYS INTERACTIVE-T SOFTWARE TOOLKIT. Genesys InterActive-T Software Toolkit is a set of standards-based tools for integration and development of client/server applications on top of the Genesys platform. The Toolkit is compliant with TAPI, CORBA, DCOM, JAVA and ActiveX. In addition, it enables integration with applications from leading enterprise software vendors, such as Clarify, Scopus, Siebel and Vantive. APPLICATIONS--INBOUND GENESYS CALL ROUTER. Genesys Call Router is an intelligent, skills-based call routing application. Using the ECTI capabilities embodied within T- Server, calls are routed to the most appropriate agent based on a variety of criteria including Caller ID, ANI (automatic number identification), DNIS (dialed number identification service), customer account information, customer importance, customer preferences, service desired and other business rules and relevant database information. Call Router's client/server architecture allows agent-level routing of call distribution over a multi-site environment. Features include an easy-to-use graphical strategy builder to customize the routing strategy, ability to track each agent in the system based on ECTI events to enable performance monitoring, screen pops and routing capability between multiple sites with different kinds of switches. APPLICATIONS--OUTBOUND GENESYS CAMPAIGN MANAGER. Genesys Campaign Manager is an advanced and robust predictive dialing application for outbound call management. Campaign Manager is a scaleable software application that is fully integrated with Genesys inbound and reporting call center applications, 35 providing a truly blended and integrated environment that enables multiple campaigns to be run simultaneously. The call result detection feature of Campaign Manager enables customers to undertake large-scale, high-volume outbound call campaigns while minimizing agent downtime between calls. APPLICATIONS--REPORTING GENESYS CALL CENTER MANAGER. Genesys Call Center Manager monitors real-time activities across the call center and provides a graphical display of these activities. The product collects data in real time and enables supervisors from their desktops to monitor call activities for the enterprise across a distributed network and observe statistics such as total calls handled by each agent and average call duration. Call Center Manager is the current real-time reporting product offered by Genesys and is expected to be replaced by Call Center Pulse 5.0, which is expected to be generally available by mid-1997. Call Center Pulse 5.0 is described below in "Products Under Development". GENESYS CALL CONCENTRATOR. Genesys Call Concentrator is a historical reporting package that tracks and stores data related to call center activity. The product enables a call to be followed throughout the enterprise from initiation through termination, even if the call is transferred or conferenced. Call Concentrator operates with major databases such as Oracle, Sybase, Informix, DB2 and SQL Server. Reports can be developed by the customer using standard, off-the-shelf reporting packages. Call Concentrator is expected to be replaced by Genesys DART, which is described below in "Products Under Development" and expected to be generally available by mid-1997. PRODUCTS UNDER DEVELOPMENT The Company has various products that are currently in development and plans to complete testing and introduce these products in mid-1997. Software products as complex as those currently under development by the Company are subject to frequent delays, and there can be no assurance that the Company will not encounter difficulties that could delay or prevent the successful and timely development, introduction and marketing of these potential new products. Moreover, even if such potential new products are developed and introduced, there can be no assurance that they will achieve any significant degree of market acceptance. Failure to release these or any other potential new products on a timely basis, or failure of these or any other potential new products, if and when released, to achieve any significant degree of market acceptance, could have a material adverse effect upon the Company's business, financial condition and results of operations. GENESYS CALL CENTER PULSE. Genesys Call Center Pulse is being designed as a real-time reporting application for the call center environment and is expected to be a redesign of the Genesys Call Center Manager. Call Center Pulse is being designed to include an improved GUI and to incorporate object- based views of agents, groups, and call centers, allowing supervisors to monitor one or more agents. Call Center Pulse is being designed to allow supervisors to visually monitor various information regarding agent activity. This information should enable managers to make real-time activity and resource decisions. GENESYS DART (DATA ANALYSIS AND REPORTING TOOL). Genesys DART is being designed to be a historical call center reporting package to replace the Call Concentrator product. Features being designed include built-in reports of call center activity such as reports on agent, group, queue, routing and switch activity. DART is also being designed to enable reporting on business information derived from applications accessed as a result of a customer inquiry. DART is expected to incorporate browser-based administration and be accessible from virtually any UNIX, NT, Windows, Macintosh, or OS/2 based machine. DART is being designed to include SNMP support. 36 GENESYS VIDEO ICD. Genesys Video ICD is being designed to enable a customer with video capability to place a video-call to a call center and be routed, like any other incoming call, to an agent or agent group with video capability. Traditional video-conferencing requires that a call be placed from one predetermined number to another and does not allow calls to be routed. GENESYS NET VECTOR. Genesys Net Vector is being designed to integrate the Internet with the call center. An earlier, pre-release of the product won the Call Center Magazine Product of The Year award for 1996. Net Vector is being designed to allow a customer to click on a Web page and initiate an automatic return call. The call center would then be able to utilize the Company's other ECTI products to intelligently interact with the customer. CUSTOMERS As of December 31, 1996, Genesys had, directly or indirectly through VARs, systems integrators and resellers, licensed its products to more than 125 end- users worldwide. The following is a representative list of end-users that accounted for more than $75,000 in license revenue to Genesys since July 1, 1995: FINANCIAL SERVICES ABN AMRO Services Co. TELECOMMUNICATIONS TECHNOLOGY Bank of America National Airtouch Cellular Frame Technologies Trust and Savings Ameritech Services, Inc. Gateway 2000, Inc. Association Bell Mobility Cellular, (U.K.) Charles Schwab & Co., Inc. Inc. Hewlett Packard Hibernia National Bank BT NationsBanc Services, Inc. MCI Telecommunications OTHER Old Kent Bank NB Tel Blue Cross/Blue Swinton Insurance (U.K.) Page Net Shield T. Rowe Price Associates, Sprint/United Management FedEx Inc. Company The SABRE Group USAA Information Services Telia (Sweden) The Vanguard Group U S West Communications Wells Fargo & Company Vartec Telecom, Inc. Westpac Banking Corporation (NZ) SALES, MARKETING AND SUPPORT The Company's sales and marketing strategy is to target large organizations through its worldwide direct sales force as well as through a broad range of indirect channels, including telecommunications equipment vendors, systems integrators, VARs, ISVs and NSPs. The Company has its sales headquarters in San Francisco, California, and has domestic sales offices located in Boston, Colorado, Georgia, Illinois, Massachusetts, New Jersey, New York and Texas and international sales offices or other representation in Canada, the United Kingdom, Japan, France and Australia. DIRECT SALES The Company employs a direct sales force to market is products and services worldwide. As of December 31, 1996, the sales force consisted of 24 sales representatives worldwide, of whom 22 were in the U.S. The sales force focuses primarily on large accounts. Sales representatives are assigned quotas and compensated for all license revenues, direct and indirect, generated within their assigned territories. The Company intends to expand its sales capabilities in the future. Many initial sales include a pilot implementation of the Company's products, successful completion of which is typically a prerequisite to full-scale deployment. While the sales cycle varies from customer to customer, it typically ranges from three to nine months. See "Risk Factors--Lengthy Sales Cycle". 37 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 telecommunications equipment vendors, systems integrators, VARs, ISVs and NSPs. While the substantial majority of the Company's U.S. sales are direct, a large proportion of international sales are executed via the indirect channel. . VARs and systems integrators such as Broadway & Seymour, CMP, Pragmatix and Wiltel market, distribute and implement the Company's products. The VARs and systems integrators represent a critical product delivery and implementation channel for the Company. . Telecommunications equipment and computer hardware vendors such as NCR, Nortel, Periphonics, Rockwell and Unisys market and distribute Genesys products as part of a packaged solution with their own products. . ISV partners such as Scopus 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 MCI, British Telecom, Ameritech and NBTel have entered into a broad range of relationships with the Company, including resale of the Company's products and the provision of services utilizing the Company's products. INTERNATIONAL Revenues outside of the United States accounted for 40.6%, 30.9%, 36.2% and 46.7% for the fiscal years ended June 30, 1994, 1995 and 1996 and the six months ended December 31, 1996, respectively. The Company currently has sales offices in Canada, the United Kingdom, Japan, France and Australia, and intends to broaden its international presence. A significant portion of international sales is currently conducted through indirect sales channels. The Company believes that international revenues will continue to represent a significant portion of its total revenues. The ability of the Company to expand internationally, however, is limited to those countries where there is regulatory approval of the third party telephony hardware supported by T- Server. See "Risk Factors--Risks Associated with International Sales and Operations". SUPPORT SERVICES Support services, which include maintenance, implementation, installation, training and sales support, are an important element of the Genesys solution. Consulting and systems integration services are provided directly by the Company's systems integration group, as well as through alliances with major systems integrators and VARs. The Company intends to devote additional resources to supporting its customers and providing training to indirect channels as the Genesys platform becomes more widely adopted. There can be no assurance the Company will be successful in its efforts to provide sufficient resources to expand its customer support capabilities. RESEARCH AND DEVELOPMENT The market for the Company's products is characterized by rapid technological change, frequent new product introductions, changes in customer requirements and emerging industry standards. The introduction of products embodying new technologies and the emergence of new industry standards 38 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 on a timely and cost-effective basis, the Company's business, financial condition and results of operations would be materially adversely affected. Genesys believes that strong product development capabilities are essential to its strategy of building an industry standard platform, maintaining the competitiveness of its current product suite and adding new features and functionality to the Genesys platform and applications. The Company's product development team consists of professionals with expertise in software, telecommunications and computer hardware. From its founding, the Company has believed that this combination of diverse technical and communications expertise contributes to the highly integrated functionality of its software products and thereby provides the Company with a significant competitive advantage. Research and development expenses were $578,000, $959,000, $3.7 million and $3.5 million for the fiscal years ended June 30, 1994, 1995 and 1996, and the six-months ended December 31, 1996, respectively. The Company's total research and development staff consisted of 94 employees as of June 30, 1996 and 102 employees as of December 31, 1996. The Company expects that it will continue to increase research and development expenditures in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company's current product development efforts are focused on enhancements to the Genesys platform and on new releases of many of the Company's applications. The Company is also developing a network-based call center solution that is intended to be offered as a service by local and long- distance telephone service providers, and an application that is intended to perform intelligent, skills-based routing across multiple customer sites. There can be no assurance that these development efforts will be completed within the Company's anticipated schedules or that, if completed, they will have the features necessary to make them successful in the marketplace. Moreover, products as complex as the Company's may contain undetected errors or failures when first introduced or as new versions are released. Errors in new products may be found after commencement of commercial shipments, resulting in loss of or delay in market acceptance. Future delays in the development or marketing of product enhancements or new products could result in a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors--Dependence on New Products; Rapid Technological Change" and "Business--Products". COMPETITION The market for the Company's software products is highly competitive and subject to rapid technological change. The Company expects competition to increase significantly in the future. The Company's principal competition currently comes from different market segments including computer telephony platform developers, computer telephony applications software developers and telecommunications equipment vendors. These competitors include Aspect, Dialogic, GeoTel, Hewlett-Packard, IBM, IEX, Lucent, Northern Telecom and Tandem. The Company also competes to a lesser extent with new or recent entrants to the marketplace. The Company's competitors vary in size and in 39 the scope and breadth of the products and services offered. Many of the Company's current and potential competitors have longer operating histories, significantly greater financial, technical, marketing, customer service and other resources, greater name recognition and a larger installed base of customers than the Company. As a result, such competitors may be able to respond to new or emerging technologies and changes in customer requirements more expediently than the Company, or to devote greater resources to the development, promotion and sale of products than can the Company. Current and potential competitors have established and may in the future establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of the Company's current or prospective customers. In addition, as the ECTI market develops, a number of companies with significantly greater resources than the Company could attempt to increase their presence in the ECTI market by acquiring or forming strategic alliances with competitors of the Company. Accordingly, it is likely that new competitors or alliances among competitors will emerge and may rapidly acquire significant market share, which would have a material adverse effect on the Company's business, financial condition and results of operations. In addition, because there are relatively low barriers to entry in the software market, the Company expects additional competition from other established and emerging companies if the ECTI market continues to develop and expand. Increased competition is likely to result in price reductions, reduced margins and loss of market share, any of which could materially adversely affect the Company's business, financial condition and results of operations. In order to be successful in the future, the Company must respond promptly and effectively to the challenges of technological change, changing customer requirements and competitors' innovations. There can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures faced by the Company will not materially adversely affect its business, financial condition and results of operations. INTELLECTUAL PROPERTY The Company's success is heavily dependent upon proprietary technology. The Company relies primarily on a combination of copyright, trademark and trade secret laws, as well as nondisclosure agreements and other contractual provisions to protect its proprietary rights. The Company presently holds no patents, and as of March 31, 1997, had filed sixteen United States patent applications and one corresponding foreign patent application. There can be no assurance that any of the Company's patent applications will be approved, that the Company will develop additional proprietary products or technologies that are patentable, that any issued patent will provide the Company with any competitive advantages or will not be challenged by third parties or that the patents of others will not have an adverse effect on the Company's ability to do business. Furthermore, there can be no assurance that others will not independently develop similar products, duplicate the Company's products or, if patents are issued to the Company, design around the patents issued to the Company. As part of its confidentiality procedures, the Company generally enters into nondisclosure agreements with its employees, consultants and other third-party providers who serve the Company in any technical capacity or who have access to confidential information of the Company. In addition, the Company limits access to, and distribution of, its software, documentation and other proprietary information. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's products or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company's products is difficult, and while the Company is unable to determine the extent to which piracy of its software products exists, software piracy may become a problem. In addition, effective protection of intellectual property rights may be unavailable or limited in certain countries in which the Company currently sells products and countries the Company may target to expand its sales efforts. Accordingly, there can be no assurance that the Company's means of protecting its proprietary rights will be adequate or that the Company's competitors will not independently develop similar technology. 40 There has also been a substantial amount of litigation in the software industry regarding intellectual property rights. The Company has from time to time received claims that it is infringing third parties' intellectual property rights, and there can be no assurance that third parties will not in the future claim infringement by the Company with respect to current or future products, trademarks or other proprietary rights. The Company expects that software product developers will increasingly be subject to infringement claims as the number of products and competitors in the Company's industry segment grows and the functionality of products in different industry segments overlaps. Any such claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require the Company to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company or at all, which could have a material adverse effect on the Company's business, financial condition and results of operations. GEOTEL LITIGATION On December 17, 1996, GeoTel filed a lawsuit in the United States District Court for the District of Massachusetts naming the Company as defendant, and alleging infringement of a patent issued to GeoTel entitled "Communications System Using a Central Controller to Control at Least One Network and Agent System". On February 10, 1997, the Company filed an answer in response to the complaint filed by GeoTel, asserting that the GeoTel patent is invalid, denying the alleged patent infringement and seeking dismissal of the complaint with prejudice. The Company believes that it has meritorious defenses to the asserted claims and intends to defend the litigation vigorously. However, the outcome of litigation is inherently unpredictable and there can be no assurance that the results of these proceedings will be favorable to the Company or that they will not have a material adverse effect on the Company's business financial condition or results of connections. Regardless of the ultimate outcome, the GeoTel litigation could result in substantial expense to the Company and significant diversion of effort by the Company's technical and managerial personnel. If the Court determines that the Company infringes GeoTel's patent and that the GeoTel patent is valid and enforceable, it could issue an injunction against the use or sale of certain of the Company's products and it could assess significant damages against the Company. Accordingly, an adverse determination in the proceeding could subject the Company to significant liabilities and require the Company to seek a license from GeoTel. Although patent and intellectual property disputes in the software area have sometimes been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial, and there can be no assurance that a license from GeoTel, if required, would be available to the Company on acceptable terms or at all. Accordingly, an adverse determination in the GeoTel litigation could prevent the Company from licensing certain of its software products, which would have a material adverse effect on the Company's business, financial condition and results of operations. EMPLOYEES At February 28, 1997, the Company had 293 employees worldwide, of which 106 were primarily engaged in research and development, 47 in customer service, 94 in sales and marketing and 46 in finance and administration. The Company's future performance will depend significantly upon the continued contributions of its executive officers, technical, marketing, sales and customer service and financial personnel and its continuing ability to attract, train and retain highly qualified personnel. Competition for such personnel is intense, and the failure to attract, train and retain such personnel in the future on a timely basis could have a material adverse effect on the Company's business, financial condition and results of operations. None of the Company's employees is represented by a collective bargaining agreement and the Company has never experienced any work stoppages. See "Risk Factors--Dependence on Key Personnel" and "--Management of Growth". 41 Over 35% of the Company's employees, including approximately 75% of the Company's technical staff, are foreign citizens. Accordingly, the Company must comply with the immigration laws of the United States. Most of the Company's foreign employees are working in the United States under H-1 temporary work visas ("H-1 Visas"). An H-1 Visa allows the holder to work in the United States for three years and, thereafter, to apply for a three-year extension. Upon the expiration of such period, unless the holder thereof has become a Lawful Permanent U.S. Resident or has obtained some other legal status permitting continued employment, that holder must spend at least one year abroad before reapplying for an H-1 Visa. Furthermore, Congress and the administrative agencies with jurisdiction over immigration matters have periodically expressed concerns over the level of immigration into the United States. The inability of the Company to utilize the continued services of such employees would have a material adverse effect on the Company's business, financial condition and results of operations. FACILITIES The Company's headquarters are located in approximately 48,000 square feet of office space in San Francisco, California under a lease, which expires on September 30, 2000. The Company also leases space for its sales and support offices in Colorado, Georgia, Illinois, Massachusetts, New Jersey, New York and Texas, as well as for offices in Canada, the United Kingdom, Japan and Australia. The Company believes that its existing facilities are adequate for its current needs and that additional space will be available as needed. 42 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company and their respective ages and positions as of March 31, 1997 are as follows:
NAME AGE POSITION ---- --- -------- Gregory Shenkman..... 35 President, Chief Executive Officer and Director Alec Miloslavsky..... 33 Vice Chairman of the Board, Chief Technical Officer and Director Michael J. McCloskey. 41 Vice President, Finance and International, Chief Financial Officer and Secretary Richard DeGolia...... 46 Vice President, Business Development Seth Homayoon........ 49 Vice President, Network Services John McNulty......... 50 Vice President, Channels Igor Neyman.......... 39 Vice President, Advanced Development Yuri Shtivelman...... 41 Vice President, Product Development William Wesemann..... 40 Vice President, Sales James Jordan(1)(2)... 57 Chairman of the Board and Director Bruce Dunlevie(1)(2). 40 Director Paul D. Levy(1)(2)... 41 Director
- -------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. Mr. Shenkman co-founded the Company and has served as its President and Chief Executive Officer since the Company's formation in October 1990 and as a director since January 1993. Mr. Miloslavsky co-founded the Company and has served as its Chief Technical Officer since the Company's formation in October 1990, as a director since January 1993 and as Vice Chairman of the Board since March 1997. Prior to co- founding the Company, Mr. Miloslavsky worked as an independent software consultant. Mr. McCloskey joined the Company in September 1996 as its Vice President, Finance and International, Chief Financial Officer and Secretary. From May 1995 to September 1996, Mr. McCloskey served as Vice President, Finance, Chief Financial Officer and Vice President, Operations at Network Appliance, Inc., a network data storage device company. From September 1993 to May 1995, he served as Executive Vice President, Chief Financial Officer at Digital Microwave, a telecommunications company. From September 1991 to September 1993, Mr. McCloskey was the Chief Operating Officer and a member of the Board of Directors of Wavefront Technologies, a 3-D graphics visualization software development company. From September 1986 to September 1991, he served as Chief Financial Officer at Everex Systems, Inc., a computer equipment company. Mr. McCloskey holds a B.S. in business administration from Santa Clara University. Mr. DeGolia joined the Company in September 1996 as Vice President, Business Development. From August 1985 to September 1996, Mr. DeGolia was an attorney with Wilson, Sonsini, Goodrich & Rosati, PC, a law firm located in Silicon Valley. Mr. DeGolia holds a B.A. in American Studies from the University of California at Berkeley and a J.D. from Harvard University. 43 Mr. Homayoon joined the Company in June 1996 as Vice President, Marketing and became Vice President, Network Services in March 1997. From 1976 to 1996, Mr. Homayoon was employed by Northern Telecom Limited ("Northern Telecom"), a telecommunications company, in various capacities, including General Manager of CTI and Desktop Applications, as well as Vice President, Marketing of the FiberWorld products division. Mr. Homayoon holds a B.S. in engineering from McGill University. Mr. McNulty joined the Company in February 1997 as Vice President, Channels. Prior to joining the Company, from July 1993 to February 1997, Mr. McNulty served as Director of Enterprise Programs at Intel Corporation, a semiconductor company. From July 1989 to June 1993, Mr. McNulty served as President and Chief Executive Officer of Rose Communications, Inc., a wireless telephone company. Prior to that, he served as President and Chief Executive Officer for Integrated Solutions, Inc., a real-time systems company. Mr. McNulty holds an associate's degree from RCA Technical Institute. Mr. Neyman joined the Company in December 1990 and has served as Vice President, Advanced Development since October 1993. Prior to joining the Company, Mr. Neyman served as Director of Engineering for the Academy of Science Research Institute in Moscow. Mr. Neyman holds an M.S. in computer science from Moscow University. Mr. Shtivelman joined the Company in July 1996 as Vice President, Product Development. From 1986 to 1996, Mr. Shtivelman was employed in various capacities by Northern Telecom, most recently as Assistant Vice President, Meridian 1 Advanced Technology. Mr. Shtivelman holds an M.S. in mathematics from Moscow University. Mr. Wesemann joined the Company in May 1996 as Vice President, Sales. Prior to joining the Company, Mr. Wesemann served as Vice President, Sales and Professional Services at ParkPlace Systems, Inc., a software development tools company, from December 1995 to May 1996. From May 1994 to December 1995, Mr. Wesemann served as Vice President, Sales at NeXT Computer Inc., a software development tools company, and from March 1989 to May 1993, he served as Vice President, Sales and Marketing and as a member of the Board of Directors of Viewpoint Systems, Inc., a software development tools company. Mr. Wesemann holds a B.A. in marketing from Glassboro State College. Mr. Jordan has served as director of the Company since November 1995 and as Chairman of the Board since March 1997. Mr. Jordan is Chairman of the Board, President and Chief Executive Officer of Kalpana, Inc., a provider of Ethernet switches. Prior to joining Kalpana in July 1992, Mr. Jordan served as President of Telebit Corporation, a provider of remote access solutions for computer networks. Prior to this time, Mr. Jordan was a founder and Executive Vice President of Ungermann-Bass, Inc., a network software company. Mr. Jordan holds a B.S. in business and marketing from the University of Utah. Mr. Dunlevie has served as director of the Company since July 1996. Mr. Dunlevie is a General Partner of Benchmark Capital LLC, a venture capital firm founded by Mr. Dunlevie in May 1995. Mr. Dunlevie is also a General Partner of Merrill, Pickard, Anderson & Eyre. Mr. Dunlevie has also served as Vice President and General Manager of the Personal Computer Division of Everex Systems, Inc., a personal computer manufacturer, and as an investment banker with Goldman, Sachs & Co. He is also a director of Geoworks, Inc. and Rambus, Inc. Mr. Dunlevie holds an M.B.A. from Stanford Graduate School of Business and a B.A. from Rice University. Mr. Levy has served as director of the Company since February 1997. In 1981, Mr. Levy co-founded Rational Software Corporation, a software company providing products that automate component-based development of software. He is currently Chairman of the Board and Chief Executive Officer of Rational. Prior to September 1996, Mr. Levy served as President and Chief Executive Officer of Rational. Since August 1996, he has served as a director of Peerless Systems Corporation, a provider of software-based imaging systems for the digital document product marketplace. Mr. Levy holds a B.S. degree in economics from the United States Air Force Academy and an M.S. degree in engineering-economic systems from Stanford University. 44 The Company currently has authorized five directors. Each director holds office until the next annual meeting of shareholders and until his successor is duly elected and qualified. The officers serve at the discretion of the Board. Except for grants of stock options, directors of the Company generally do not receive compensation for services rendered as a director. The Company also does not pay compensation for committee participation or special assignments of the Board of Directors. Non-employee Board members will receive option grants at periodic intervals under the Automatic Option Grant Program of the 1997 Stock Incentive Plan and will also be eligible to receive discretionary option grants under the Discretionary Option Grant Program of such plan. See "Management--Stock Plans". On January 18, 1996, Mr. Jordan purchased 528,000 shares of Common Stock at a purchase price of $0.0167 per share, the fair market value of the Common Stock on such date. The shares are unvested and subject to repurchase by the Company, at the purchase price paid per share, upon Mr. Jordan's termination of service as a Board member prior to vesting in the shares. The Company's repurchase right shall lapse with respect to, and Mr. Jordan shall acquire a vested interest in, 25% of the shares on November 27, 1996, and the balance in a series of 36 equal monthly installments thereafter. On February 28, 1997, the Company granted to each of Messrs. Dunlevie, Jordan and Levy an option to purchase 30,000 shares of Common Stock and an option to purchase 20,000 shares of Common Stock, each at an exercise price of $7.50 per share. The options are immediately exercisable for all of the option shares. However, the shares purchasable upon exercise of the options are unvested and subject to repurchase, at the option exercise price paid per share, upon the optionee's early termination of Board service. The shares subject to each 30,000-share grant will vest as to 25% of the option shares upon the optionee's completion of each of the four years of Board service after the grant date. The shares subject to each 20,000-share grant will vest as to 25% of the option shares on each of the fifth, sixth, seventh and eighth anniversaries of the option grant date. However, vesting of the 20,000 shares will be subject to acceleration after the close of each fiscal year, beginning with the 1998 fiscal year, in the event that the optionee has served on a committee of the Board of Directors in such fiscal year. Vesting of 2,500 shares will accelerate with respect to each committee of the Board of Directors on which the optionee has served, up to a maximum of two committees, and will be conditioned on the optionee having attended at least 75% of the meetings held by such committee during the fiscal year. The shares to be accelerated will be those shares that would otherwise have been the first shares to vest in accordance with the vesting schedule described above. The options have a maximum term of 10 years measured from the grant date, subject to earlier termination following the optionee's cessation of Board service. The options will immediately vest in the event that the Company is acquired by merger or asset sale, unless such options are assumed by the successor corporation. In addition, on February 28, 1997, Mr. Levy purchased 30,000 vested shares of Common Stock at a purchase price of $7.50 per share, the fair market value of the Common Stock on such date. COMMITTEES OF THE BOARD OF DIRECTORS In February 1997, the Board of Directors established a Compensation Committee and an Audit Committee. The Compensation Committee recommends compensation levels of senior management and works with senior management on benefit and compensation programs for the Company's employees. In addition, the Compensation Committee will administer the Company's 1997 Stock Incentive Plan and Employee Stock Purchase Plan. The Audit Committee's is responsible for reviewing the scope and results of audits and other services provided by the Company's independent public accountants. 45 EXECUTIVE COMPENSATION The following Summary Compensation Table sets forth the compensation earned by the Company's Chief Executive Officer and Chief Technical Officer for the 1996 fiscal year for services rendered in all capacities to the Company and its subsidiaries for that fiscal year. No executive officer of the Company earned salary and bonus in such fiscal year in excess of $100,000. SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM COMPENSATION COMPENSATION NAME AND PRESENT ------------ ------------ PRINCIPAL POSITION SALARY AWARDS(1) ------------------ ------------ ------------ Gregory Shenkman President and Chief Executive Officer............ $83,786 1,206,000 Alec Miloslavsky Vice Chairman and Chief Technical Officer........ $83,786 1,206,000
- -------- (1) The shares were sold to Mr. Shenkman and Mr. Miloslavsky on August 8, 1995, at a purchase price of $0.0167 per share, the fair market value of the Common Stock on such date. Payment of the purchase price was made with promissory notes, secured by the purchased shares. The shares are unvested and subject to repurchase, at the purchase price paid per share, upon Mr. Shenkman and Mr. Miloslavsky's termination of service with the Company prior to vesting in the shares. The Company's repurchase right lapses with respect to, and each of Mr. Shenkman and Mr. Miloslavsky vest in, 25% of their respective shares on October 15, 1995, and the balance in a series of 36 equal monthly installments thereafter. As of the end of the 1996 fiscal year, the aggregate value of the 1,206,000 shares held by each of Mr. Shenkman and Mr. Miloslavsky pursuant to the stock awards described above was $251,210 (the excess of the fair market value of the shares as of the end of the 1996 fiscal year, as determined by the Board of Directors ($0.225 per share), less the purchase price paid by Mr. Shenkman and Mr. Miloslavsky). OPTION GRANTS IN LAST FISCAL YEAR No stock options or stock appreciation rights were granted to Mr. Shenkman or Mr. Miloslavsky during the fiscal year ended June 30, 1996. In addition to the information provided above, the Company's current executive officers received the following stock options and stock awards during the period from the end of the 1996 fiscal year to March 31, 1997. On September 17, 1996, Mr. McCloskey was awarded 480,000 shares of Common Stock at $0.375 per share, which shares were purchased by him in November 1996 and January 1997 through the issuance of promissory notes in an aggregate principal amount of $180,000, secured by the purchased shares. The shares are unvested and subject to repurchase by the Company, at the purchase price paid per share, upon Mr. McCloskey's termination of service with the Company prior to vesting in the shares. The Company's repurchase right lapses with respect to, and Mr. McCloskey vests in, 25% of the shares on July 17, 1997, and the balance in a series of 36 equal monthly installments thereafter. On November 30, 1996, Mr. McNulty was awarded an option under the 1995 Stock Option Plan to purchase 240,000 shares of Common Stock at an exercise price of $0.375 per share, the fair market value of the Common Stock on such date. On February 24, 1997, Mr. McNulty exercised this option. Payment of the option exercise price was made with a promissory note, secured by the purchased shares. The shares are unvested and subject to repurchase, at the option exercise price paid per 46 share, upon Mr. McNulty's termination of service with the Company prior to vesting in the shares. The Company's repurchase right lapses with respect to, and Mr. McNulty vests in, 25% of the shares on the first anniversary of the option grant date and the balance in a series of 36 equal monthly installments thereafter. On November 30, 1996, Mr. Shtivelman was awarded an option under the 1995 Stock Option Plan to purchase 90,000 shares of Common Stock at an exercise price of $0.375 per share, the fair market value of the Common Stock on such date. On January 30, 1997, Mr. Neyman was awarded an option under the 1995 Stock Option Plan to purchase 20,000 shares of Common Stock at an exercise price of $3.50 per share, the fair market value of the Common Stock on such date. On February 28, 1997, Mr. Shenkman and Mr. Miloslavsky were each awarded an option under the 1995 Stock Option Plan to purchase 150,000 shares of Common Stock at an exercise price of $7.50 per share, the fair market value of the Common Stock on such date. Each option has a maximum term of 10 years measured from the grant date, subject to earlier termination upon the optionee's cessation of service with the Company. Each option becomes exercisable as to 25% of the option shares on the first anniversary of the option grant date and the balance in a series of 36 equal monthly installments thereafter. However, Mr. Shtivelman's option is subject to acceleration as to 50% of the option shares on each of June 30, 1997 and July 31, 1997, in the event that certain performance milestones are attained prior to each such date. In the event of an acquisition of the Company by merger or asset sale, the options will terminate unless assumed by the acquiring corporation. OPTION EXERCISES AND FISCAL YEAR-END VALUES No stock options or stock appreciation rights were exercised by Mr. Shenkman during the 1996 fiscal year and Mr. Shenkman held no such outstanding options or rights at the end of such fiscal year. STOCK PLANS 1997 STOCK INCENTIVE PLAN The Company's 1997 Stock Incentive Plan (the "1997 Plan") is intended to serve as the successor equity incentive program to the Company's 1995 Stock Option Plan (the "Predecessor Plan"). The 1997 Plan was adopted by the Board of Directors on March 27, 1997, subject to approval by the shareholders. 10,327,270 shares of Common Stock have been authorized for issuance under the 1997 Plan. This share reserve is comprised of (i) the shares that remained available for issuance under the Predecessor Plan as of March 27, 1997, including the shares subject to outstanding options thereunder, plus (ii) an additional increase of 2,400,000 shares. In addition, upon the commencement of each fiscal year of the Company, beginning with the 1999 fiscal year, the share reserve will automatically be increased on the first trading day of such year by a number of shares equal to five percent (5%) of the total number of shares of Common Stock outstanding on the last trading day of the immediately preceding fiscal year. However, in no event may any one participant in the 1997 Plan receive option grants or direct stock issuances for more than 750,000 shares per calendar year. The 1997 Plan is divided into four separate components: (i) the Discretionary Option Grant Program, under which eligible individuals in the Company's employ or service (including officers and other employees, non- employee Board members and independent consultants) may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock at an exercise price not less than their fair market value on the grant date, (ii) the Stock Issuance Program, under which such individuals may, in the Plan Administrator's discretion, be issued shares of Common Stock directly, either through the purchase of such shares at a price not less than their fair market value at the time of issuance or as a fully-vested bonus for services rendered the Company, (iii) the Salary Investment Option Grant Program, under which executive officers and other highly compensated employees may elect to apply a portion of their base salary to the acquisition of special below-market 47 stock option grants, and (iv) the Automatic Option Grant Program, under which option grants will automatically be made at periodic intervals to eligible non-employee Board members to purchase shares of Common Stock at an exercise price equal to their fair market value on the grant date. The Discretionary Option Grant and Stock Issuance Programs will be administered by the Compensation Committee. A secondary committee of the Board may be granted separate but concurrent jurisdiction to administer those programs with respect to all individuals other than the Company's executive officers and non-employee Board members. Each Plan Administrator will have complete discretion, within the scope of its administrative jurisdiction under the 1997 Plan, to determine which eligible individuals are to receive option grants or stock issuances, the time or times when such option grants or stock issuances are to be made, the number of shares subject to each such grant or issuance, the vesting schedule to be in effect for the option grant or stock issuance, the maximum term for which any granted option is to remain outstanding and the status of any granted option as either an incentive stock option or a non-statutory stock option under the Federal tax laws. The Compensation Committee will have the discretion to determine the calendar years in which the Salary Investment Option Grant Program is to be in effect, the individuals who may participate in such program and the specific date on which the option grants thereunder are to be awarded. The administration of the Automatic Option Grant Program will be self-executing in accordance with the express provisions of such program. The exercise price for outstanding option grants under the 1997 Plan may be paid in cash or in shares of Common Stock valued at fair market value on the exercise date. The option may also be exercised through a same-day sale program without any cash outlay by the optionee. In addition, the Plan Administrator may provide financial assistance to one or more optionees in the exercise of their outstanding options by allowing such individuals to deliver a full-recourse, interest-bearing promissory note in payment of the exercise price and any associated withholding taxes incurred in connection with such exercise. In the event that the Company is acquired by merger or asset sale, each outstanding option under the Discretionary Option Grant Program granted to an optionee that has been employed with or providing services to the Company for at least one year that is not to be assumed by the successor corporation will automatically accelerate in full and all unvested shares under the Stock Issuance Program will automatically vest in full except to the extent the Company's repurchase rights with respect to those shares are to be assigned to the successor corporation. The Plan Administrator will have the authority under the Discretionary Option Grant and Stock Issuance Programs to grant options and to structure repurchase rights so that the shares subject to those options or repurchase rights will automatically vest in the event the individual's service is terminated, whether involuntarily or through a resignation for good reason, within a specified period (not to exceed 18 months) following (i) a merger or asset sale in which those options are assumed or those repurchase rights are assigned or (ii) the completion of a successful tender offer for more than 50% of the Company's outstanding voting stock or a change in the majority of the Board through one or more contested elections for Board membership. Finally, the Plan Administrator will have the authority under the Discretionary Option Grant Program to grant options that will automatically vest upon an acquisition of the Company by merger or asset sale, whether or not those options are to be assumed by the acquiring entity. Options currently outstanding under the Predecessor Plan will terminate upon an acquisition of the Company by merger or asset sale, unless those options are assumed by the acquiring entity. However, the Plan Administrator will have the discretion to extend the acceleration provisions of the 1997 Plan to such outstanding options. Stock appreciation rights may be issued in tandem with option grants made under the Discretionary Option Grant Program. The holders of such rights will have the opportunity to elect between the exercise of their outstanding stock options for shares of Common Stock or the surrender of those options for an appreciation distribution from the Company equal to the excess of (i) the fair market value of the vested shares of Common Stock subject to the surrendered option over (ii) the 48 aggregate exercise price payable for those shares. Such appreciation distribution may be made in cash or in shares of Common Stock. The Plan Administrator has the authority to effect the cancellation of outstanding options under the Discretionary Option Grant Program in return for the grant of new options for the same or different number of option shares with an exercise price per share based upon the fair market value of the Common Stock on the new grant date. In the event the Compensation Committee elects to activate the Salary Investment Option Grant Program for one or more calendar years, each executive officer and other highly compensated employee of the Company selected for participation may elect, prior to the start of the calendar year, to reduce his or her base salary for that calendar year by a specified dollar amount not less than $10,000 nor more than $150,000. In return, the officer will automatically be granted, on or prior to the last trading day in January of the calendar year for which the salary reduction is to be in effect, a non- statutory option to purchase that number of shares of Common Stock determined by dividing the salary reduction amount by two-thirds of the fair market value per share of Common Stock on the grant date. The option will be exercisable at a price per share equal to one-third of the fair market value of the option shares on the grant date. As a result, the total spread on the option shares at the time of grant will be equal to the salary reduction amount. The option will vest in a series of 12 equal monthly installments over the calendar year for which the salary reduction is in effect and will be subject to full and immediate vesting upon certain changes in the ownership or control of the Company. Under the Automatic Option Grant Program, each individual who first becomes a non-employee Board member after the date the underwriting agreement for this offering is executed will receive two option grants at the time of his or her commencement of Board service, provided such individual has not otherwise been in the prior employ of the Company. One such option grant will be for 30,000 shares of Common Stock and the other for 20,000 shares of Common Stock. In addition, at each Annual Shareholders Meeting, beginning with the 1998 Annual Meeting, each individual who is to continue to serve as a non-employee Board member will receive an option grant to purchase 7,500 shares of Common Stock, whether or not such individual has been in the prior employ of the Company. Each automatic grant will have an exercise price equal to the fair market value per share of Common Stock on the grant date and will have a maximum term of 10 years, subject to earlier termination following the optionee's cessation of Board service. Each automatic option will be immediately exercisable for all the option shares; however, any shares purchased upon exercise of the option will be subject to repurchase, at the option exercise price paid per share, should the optionee's service as a non-employee Board member cease prior to vesting in those shares. The shares subject to each 30,000-share grant will vest as to 25% of the option shares upon the optionee's completion of each of the four (4) years of Board service after the grant date. The shares subject to each 20,000-share option grant will vest as to 25% of the option shares on each of the fifth, sixth, seventh and eighth anniversaries of the option grant date. However, vesting of the shares will be subject to acceleration after the close of each fiscal year, beginning with the 1998 fiscal year, in the event that the optionee has served on a committee of the Board of Directors in such fiscal year. Vesting of 2,500 shares will accelerate with respect to each committee of the Board of Directors on which the optionee has served, up to a maximum of two committees, and will be conditioned on the optionee having attended at least 75% of the meetings held by such committee during the fiscal year. The shares to be accelerated will be those shares which would otherwise have been the first shares to vest in accordance with the vesting schedule described above. The shares subject to each annual 7,500-share grant will vest upon the optionee's completion of one year of Board service measured from the grant date. However, each outstanding option will immediately vest upon (i) certain changes in the ownership or control of the Company or (ii) the death or disability of the optionee while serving as a Board member. In the event of a hostile tender offer for more than 50% of the Company's outstanding voting stock, the holders of outstanding options under the Automatic Option Grant Program will have the right surrender those options, whether or not those options are otherwise at 49 the time exercisable for vested shares, in return for a cash distribution from the Company in an amount equal to the excess of (i) the take-over price of the shares of Common Stock at the time subject to each surrendered option over (ii) the aggregate exercise price payable for those shares. The take-over price in clause (i) will be the greater of (a) the fair market value per share of Common Stock on the date the option is surrendered to the Company in connection with the hostile tender offer or (b) the highest reported price per share of Common Stock paid by the tender offeror in effecting such hostile take-over. The Board may amend or modify the 1997 Plan at any time. The 1997 Plan will terminate on March 26, 2007, unless sooner terminated by the Board. EMPLOYEE STOCK PURCHASE PLAN The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors on March 27, 1997, subject to approval by the shareholders. The Purchase Plan is designed to allow eligible employees of the Company and participating subsidiaries to purchase shares of Common Stock, at semi-annual intervals, through their periodic payroll deductions under the Purchase Plan, and a reserve of 500,000 shares of Common Stock has been established for this purpose. The Purchase Plan will be divided into two separate components: the U.S. Employee Stock Purchase Plan, in which the Company's employees in the United States will participate, and the International Employee Stock Purchase Plan, in which the Company's employees located outside the United States will participate. The Purchase Plan will be implemented in a series of successive offering periods, each with a maximum duration of 24 months. However, the initial offering period will begin on the day the Underwriting Agreement is executed in connection with this Offering and will end on the last business day in July 1999. Individuals who are eligible employees on the start date of any offering period may enter the Purchase Plan on that start date or on any subsequent semi-annual entry date (the first business day of February or August each year). Individuals who become eligible employees after the start date of this offering period may join the Purchase Plan on any subsequent semi-annual entry date within that period. At the beginning of each offering period, the Compensation Committee, acting as Plan Administrator, will designate the maximum percentage of the participant's base salary that may be applied to the Purchase Plan for each semi-annual period of participation, such percentage not to exceed 10% in any offering period. The accumulated payroll deductions will be applied to the purchase of shares on the participant's behalf on each semi-annual purchase date (the last business day of January and July each year, with the first such purchase date to occur on January 31, 1998) at a purchase price per share equal to 85% of the lower of (i) the fair market value of the Common Stock on the participant's entry date into the offering period or (ii) the fair market value on the semi-annual purchase date. In no event, however, may any participant purchase more than 1,000 shares on any one semi-annual purchase date. Should the fair market value of the Common Stock on any semi-annual purchase date be less than the fair market value of the Common Stock on the first day of the offering period, then the current offering period will automatically end and a new 24-month offering period will begin, based on the lower fair market value. EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS The Company has not entered into an employment contract with any of its current executive officers. Should the Company be acquired by merger or asset sale, all outstanding options granted to the Chief Executive Officer and the other executive officers under the 1997 Plan will automatically accelerate, except to the extent those options are to be assumed by the successor corporation. In 50 addition, the Compensation Committee as Plan Administrator of the 1997 Plan will have the authority to provide for the accelerated vesting of the shares of Common Stock subject to outstanding options held by the Chief Executive Officer or any other executive officer or any unvested shares of Common Stock subject to direct issuances held by such individual, in connection with the termination of the officer's employment following: (i) a merger or asset sale in which those options are assumed or the Company's repurchase rights with respect to the unvested shares are assigned, (ii) the successful completion of a tender offer for more than 50% of the Company's outstanding voting stock or (iii) certain hostile changes in control of the Company. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee of the Company's Board was formed in February 1997, and the members of the Compensation Committee are Messrs. Dunlevie, Jordan and Levy. None of these individuals was at any time during the fiscal year ended June 30, 1996, or at any other time, an officer or employee of the Company. No executive officer of the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee. 51 CERTAIN TRANSACTIONS On March 29, 1996, James Jordan, a director of the Company, purchased 67,668 shares of the Company's Series A Preferred Stock at a price of $2.2167 per share. On March 29, 1996, entities affiliated with Benchmark Capital LLC ("Benchmark"), a greater than 5% shareholder of the Company, purchased shares of the Company's Series A Preferred Stock at a price of $2.2167 per share in the following amounts: Benchmark Capital Partners, L.P. (199,812 shares); and Benchmark Founders' Fund, L.P. (23,274 shares). On April 26, 1996, the Company granted Benchmark a warrant to purchase 420,282 shares of Common Stock at an exercise price of $5.9483 per share (subject to adjustment upon occurrence of certain events) which is exercisable upon the earlier of April 26, 1997 or the filing of the Company's initial public offering with proceeds of not less than $10,000,000. This warrant was issued in exchange for consulting services provided to the Company by Bruce Dunlevie, a director of the Company and an affiliate of Benchmark. On June 13, 1996, Benchmark purchased shares of the Company's Series B Preferred Stock at a price of $3.6883 per share in the following amounts: Benchmark Capital Partners, L.P. (957,084); and Benchmark Founders' Fund, L.P. (127,416 shares). On June 13, 1996, entities affiliated with Weiss Peck & Greer Venture Associates III, L.P., a greater than 5% shareholder of the Company at such time, purchased 813,378 shares of the Company's Series B Preferred Stock at a price of $3.6883 per share. In connection with the acceptance of an employment offer, on September 17, 1996, Michael McCloskey, the Company's Vice President, Finance and International, Chief Financial Officer and Secretary, was granted 480,000 shares of the Company's Common Stock at $0.375 per share, which shares were purchased by him in November 1996 and January 1997 through the delivery of promissory notes payable to the Company in the aggregate principal amount of $180,000 at an interest rate of 6.5% per annum, compounded annually. Principal and interest on such notes is due and payable on the earlier of (i) five years from the date of issuance, (ii) the sale of such shares of the Company's Common Stock by such purchaser and (iii) 90 days following the date of such purchaser's termination of employment with the Company. On November 30, 1996, John McNulty, the Company's Vice President, Channels, was granted an option to purchase 240,000 shares of the Company's Common Stock at $0.375 per share, which shares were purchased by him in February 1997 through the delivery of a promissory note payable to the Company in the aggregate principal amount of $90,000 at an interest rate of 6.1% per annum, compounded annually. Principal and interest on such notes are due and payable on the earlier of (i) five years from the date of issuance, (ii) the sale of such shares of the Company's Common Stock by such purchaser and (iii) 90 days following the date of such purchaser's termination of employment with the Company. During fiscal 1995 and 1996, the Company borrowed an aggregate of $104,500 and $720,000, respectively, from officers, shareholders and their affiliates. Of these amounts $39,000 and $25,000 was outstanding as of June 30, 1995 and 1996, respectively. Certain of these related party loans were non-interest bearing, however, the computed interest related to the borrowings was immaterial. During fiscal 1995 and 1996, the Company received $394,000 and $50,000 of revenue, respectively, from sales to a company in which Gregory Shenkman, the Company's President and Chief Executive Officer and a director of the Company, and Alec Miloslavsky, the Company's Vice Chairman of the Board and Chief Technical Officer and a director of the Company, held an ownership interest. The Company has also granted options to certain of its directors and executive officers. See "Management--Executive Compensation" and "Principal and Selling Shareholders". 52 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of December 31, 1996, and as adjusted to reflect the sale of the shares of Common Stock offered hereby, by (i) each person who is known by the Company to own beneficially more than five percent of the Company's Common Stock, (ii) each of the Company's directors and Named Officers, (iii) all executive officers and directors as a group and (iv) each of the other Selling Shareholders.
PERCENTAGE OF SHARES NUMBER OF BENEFICIALLY OWNED SHARES BEING NUMBER OF SHARES --------------------------------- OFFERED NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING(2) FOR SALE(3) - ------------------------ --------------------- --------------- ----------------- ------------ Gregory Shenkman(4)..... 3,570,000 24.1% 21.3% 1155 Market Street San Francisco, CA 94103 Alec Miloslavsky(5)..... 3,570,000 24.1 21.3 1155 Market Street San Francisco, CA 94103 Entities affiliated with Benchmark Capital LLC(6)......... 1,307,586 8.8 7.8 2480 Sand Hill Rd., Suite 200 Menlo Park, CA 94025 Bruce Dunlevie(6)....... 1,307,586 8.8 7.8 Entities affiliated with Weiss, Peck & Greer ... 813,378 5.5 4.8 555 California Street, Suite 4760 San Francisco, CA 94104 James Jordan(7)......... 595,668 4.0 3.5 Paul Levy(8)............ -- * * All directors and officers as a group (11 persons)(9)........ 11,111,754 73.6 65.0 OTHER SELLING SHAREHOLDERS
- -------- * Less than 1%. (1) Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned. Shares of Common Stock subject to options that are currently exercisable or exercisable within 60 days of December 31, 1996 are deemed to be outstanding and to be beneficially owned by the person holding such options for the purpose of computing the percentage ownership of such person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. (2) Assumes no exercise of the Underwriters' over-allotment option. If the Underwriters exercise the over-allotment option, the Company and the Selling Shareholders will sell up to an aggregate of 300,000 additional shares in this offering. (3) Represents shares that the Selling Shareholders have agreed to sell to the Underwriters if the Underwriters exercise the over-allotment option. (4) Includes 36,000 shares held by Norm and Maya Shendon and 180,000 shares held by Dmitri and Maria Shenkman, of which Mr. Shenkman disclaims beneficial ownership. Includes 360,000 shares held by Dmitri Shenkman, Trustee of the Michelle Shenkman 1996 Trust u/t/a dated March 18, 1996, 360,000 shares held by Dmitri Shenkman, Trustee of the Nikita Anthony Shenkman 1996 Trust u/t/a dated March 18, 1996, and 1,428,000 shares held by Gregory and Yelena Shenkman, Trustees of the Shenkman Family Trust u/t/a dated March 7, 1996. (5) Includes 180,000 shares held by Anatoly and Zhanna Elkinbard and 180,000 shares held by Larry and Lidia Miloslavsky, of which Mr. Miloslavsky disclaims beneficial ownership. Includes 360,000 shares held by Larry Miloslavsky and Anatoly Elkinbard, Trustees of the Miloslavsky 1996 Irrevocable Trust u/t/a dated March 13, 1996 and 120,000 shares held by Larry and Lidia Miloslavsky, Trustees of the Joshua Trobnikov Miloslavsky 1996 Trust u/t/a dated March 15, 1996. 53 (6) Consists of 150,690 shares held by Benchmark Founders' Fund, L.P., and 1,156,896 shares held by Benchmark Capital Partners, L.P. Mr. Dunlevie, a director of the Company, is an affiliate of the foregoing entities and may be deemed to share voting and investment power with respect to such shares. Mr. Dunlevie disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest in such shares arising from his interests in the entities referred to above. Excludes (i) 420,282 shares issuable to Benchmark Capital Partners, L.P., upon exercise of an outstanding warrant, which warrant became exercisable upon the filing of the Registration Statement to which this Prospectus is a part, and (ii) options exercisable by Mr. Dunlevie to purchase a total of 50,000 shares of Common Stock, which options were issued and became exercisable on February 28, 1997. (7) Excludes options exercisable by Mr. Jordan to purchase a total of 50,000 shares of Common Stock, which options were issued and became exercisable on February 28, 1997. (8) Excludes (i) 30,000 shares of Common Stock purchased by Mr. Levy on February 28, 1997, and (ii) options exercisable by Mr. Levy to purchase a total of 50,000 shares of Common Stock, which options were issued and became exercisable on February 28, 1997. Mr. Levy was elected as a director of the Company in February 1997. (9) Includes 292,500 shares of Common Stock issuable upon exercise of stock options exercisable within 60 days of December 31, 1996. Includes Mr. Levy, who was elected as a director of the Company in February 1997. 54 DESCRIPTION OF CAPITAL STOCK Immediately following the closing of this offering, the authorized capital stock of the Company will consist of 120,000,000 shares of Common Stock, no par value, and 5,000,000 shares of Preferred Stock, no par value, after giving effect to the amendment to the Company's Articles of Incorporation to delete references to Series A, Series B and Series C Preferred Stock, which will occur upon conversion of such Preferred Stock into Common Stock upon the closing of this offering, and the subsequent authorization of shares of undesignated Preferred Stock, as described below. COMMON STOCK As of December 31, 1996, there were 14,799,812 shares of Common Stock outstanding that were held of record by 55 shareholders. There will be 16,799,812 shares of Common Stock outstanding (assuming (i) no exercise of the Underwriters' over-allotment option, (ii) no exercise after December 31, 1996 of outstanding options, (iii) no exercise of a warrant to purchase 420,282 shares of Common Stock, (iv) no exercise of warrants to purchase 494,629 shares of Series C Preferred Stock issued on February 26, 1997, and (v) the exclusion of 854,363 shares of Series C Preferred Stock and 675,000 shares of Common Stock issued on February 26, 1997) after giving effect to the sale of the shares of Common Stock to the public offered hereby and the conversion of the Company's Series A and Series B Preferred Stock into Common Stock at a one-to-one ratio. The holders of Common Stock are entitled to one vote per share on all matters to be voted upon by the shareholders. Subject to preferences that may be applicable to any outstanding Preferred Stock, the holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. See "Dividend Policy". In the event of the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are fully paid and nonassessable, and the shares of Common Stock to be issued upon completion of this offering will be fully paid and nonassessable. PREFERRED STOCK Upon the closing of this offering, the Company's Articles of Incorporation will authorize 5,000,000 shares of Preferred Stock. The Board of Directors will have the authority to issue the Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the shareholders. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company without further action by the shareholders and may adversely affect the voting and other rights of the holders of Common Stock. The issuance of Preferred Stock with voting and conversion rights may adversely affect the voting power of the holders of Common Stock, including the loss of voting control to others. The Company has no current plans to issue any of the Preferred Stock. WARRANTS As of February 26, 1997, the Company had warrants outstanding to purchase an aggregate of (i) 44,965 shares of Series C Preferred Stock at an exercise price per share equal to 110% of the current fair value on the date such shares vest pursuant to the vesting schedule, which warrants expire 55 on February 26, 2000, (ii) 449,664 shares of Series C Preferred Stock at an exercise price per share equal to 110% of the current market price on December 31, 1997 (subject to certain adjustments) if the Company has completed an initial public offering of its Common Stock otherwise $13.34, which warrants expire on February 26, 2004, and (iii) 420,282 shares of Common Stock at a price per share equal to $5.9483, which warrant expires on the earlier of the closing of this offering or April 26, 2001. The Company anticipates that the warrant to purchase 420,282 shares of Common Stock will be exercised prior to the completion of this offering. Upon consummation of this offering, the outstanding warrants to purchase shares of the Company's Series C Preferred Stock will become exercisable for shares of Common Stock only at the same respective exercise prices per share as noted above. The holders of shares acquired upon the exercise of the warrants to purchase Series C Preferred Stock are entitled to certain registration rights. See "--Registration Rights". ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE BYLAWS Upon the closing of this offering, the Bylaws will provide that all shareholder actions must be effected at a duly called meeting and not by a consent in writing. The Bylaws will also provide that the Company's shareholders may call a special meeting of shareholders only upon a request of shareholders owning at least 50% of the Company's capital stock. Furthermore, the Company's shareholders are currently entitled to cumulate their votes for the election of directors so long as at least one shareholder has given notice at the shareholder meeting prior to the voting of that shareholder's desire to cumulate his or her votes. Cumulative voting will no longer be permitted at such time as (1) the Company's shares of Common Stock are listed on the Nasdaq National Market and the Company has at least 800 holders of its equity securities as of the record date of the Company's most recent annual meeting of shareholders or (ii) the Company's shares of Common Stock are listed on the New York Stock Exchange or the American Stock Exchange. The Company expects to have its shares listed on the Nasdaq National Market and to have at least 800 holders of its equity securities by the record date for its next annual meeting of shareholders. These provisions of the Bylaws and the existence of authorized, but undesignated, Preferred Stock could discourage potential acquisition proposals and could delay or prevent a change in control of the Company. These provisions are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and in the policies formulated by the Board of Directors and to discourage certain types of transactions that may involve an actual or threatened change of control of the Company. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for the Company's shares and, as a consequence, they also may inhibit fluctuations in the market price of the Company's shares that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in the management of the Company. See "Risk Factors--Effect of Certain Charter Provisions; Anti-takeover Effects of Provisions of the Bylaws". REGISTRATION RIGHTS After this offering, the holders of approximately 2,797,878 shares of Common Stock (excluding the following shares issued on February 26, 1997, the holders of which are entitled to such registration rights, (i) 854,363 shares of Common Stock issuable upon conversion of Series C Preferred Stock, (ii) 675,000 shares of Common Stock and (iii) 494,629 shares of Common Stock underlying warrants to purchase Series C Preferred Stock) will be entitled to certain rights with respect to the registration of such shares under the Securities Act. Under the terms of the agreements between the Company and the holders of such registrable securities, if the Company proposes to register any of its securities under the Securities Act, either for its own account or for the account of other security holders exercising registration rights, such holders are entitled to notice of such registration and are entitled to include shares of such Common Stock therein. Certain of such shareholders benefitting from these rights may also require the Company to file a registration statement under the Securities Act at the Company's expense with respect to their 56 shares of Common Stock, and the Company is required to use its diligent reasonable efforts to effect such registration. Further, holders may require the Company at the Company's expense to file additional registration statements on Form S-3 when such form becomes available to the Company. These rights are subject to certain conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares included in such registration in certain circumstances. See "Risk Factors--Shares Eligible for Future Sale; Registration Rights". TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is . SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have 16,799,812 shares of Common Stock outstanding (assuming (i) no exercise of the Underwriters' over- allotment option, (ii) no exercise after December 31, 1996 of outstanding options, (iii) no exercise of a warrant to purchase 420,282 shares of Common Stock, (iv) no exercise of warrants to purchase 494,629 shares of Series C Preferred Stock issued on February 26, 1997, and (v) the exclusion of 854,363 shares of Series C Preferred Stock and 675,000 shares of Common Stock issued on February 26, 1997). Of these shares, the 2,000,000 shares sold in this offering will be freely tradeable without restriction or further registration under the Securities Act, except that any shares purchased by "affiliates" of the Company, as that term is defined under the Securities Act ("Affiliates"), may generally only be sold in compliance with the limitations of Rule 144 described below. SALES OF RESTRICTED SHARES The remaining 14,799,812 shares of Common Stock are deemed "Restricted Shares" under Rule 144. The number of shares of Common Stock available for sale in the public market is limited by restrictions under the Securities Act and lock-up agreements under which the holders of such shares have agreed not to sell or otherwise dispose of any of their shares for a period of 180 days after the date of this Prospectus without the prior written consent of the Representatives of the Underwriters. However, such Representatives may, in their sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements. As a result of these restrictions, based on shares outstanding and options granted as of December 31, 1996, the following shares of Common Stock will be eligible for future sale. On the date of this Prospectus, no shares other than the 2,000,000 shares offered hereby will be eligible for sale. Upon the expiration of the lock-up period 180 days after the date of this Prospectus, an additional 14,739,812 shares will become available for sale. In addition, 1,529,363 shares, which were issued in February 1997, will become eligible for sale in February 1998. In general, under Rule 144 of the Securities Act as currently in effect, beginning 90 days after this offering, a person (or persons whose shares are aggregated) who has beneficially owned "restricted" shares for at least one year, including a person who may be deemed an Affiliate of the Company, is entitled to sell within any three-month period a number of shares of Common Stock that does not exceed the greater of 1% of the then-outstanding shares of Common Stock of the Company (approximately 167,998 shares after giving effect to this offering) and the average weekly trading volume of the Common Stock on Nasdaq during the four calendar weeks preceding such sale. Sales under Rule 144 of the Securities Act are subject to certain restrictions relating to manner of sale, notice and the availability of current public information about the Company. A person who is not an Affiliate of the Company at any time during the ninety days preceding a sale, and who has beneficially owned shares for at least two years, would be entitled to sell such shares immediately following this offering without regard to the volume limitations, manner of sale provisions or notice or other requirements of Rule 144 of the Securities Act. However, the transfer agent may require an opinion of counsel that a 57 proposed sale of shares comes within the terms of Rule 144 of the Securities Act prior to effecting a transfer of such shares. Such opinion would be provided by and at the cost of the transferor. Rule 701 under the Securities Act permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions, including the holding period requirement, of Rule 144. Any employee, officer or director of or consultant to the Company who purchased his or her shares pursuant to a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell such shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares are required to wait until 90 days after the date of this Prospectus before selling such shares. The Company intends to register on a registration statement on Form S-8, approximately 30 days after the effective date of this offering, a total of approximately 10,315,957 shares of Common Stock subject to outstanding options or reserved for issuance under the Company's 1997 Stock Incentive Plan and a total of 500,000 shares of Common Stock reserved for issuance under the Company's Employee Stock Purchase Plan. Such registration statement will automatically become effective upon filing. Accordingly, shares registered under such registration statement will, subject to Rule 144 volume limitations applicable to Affiliates of the Company, be available for sale in the open market immediately after the 180-day lock-up agreements expire. Also, beginning six months after the date of this Prospectus, the holders of 2,797,878 Restricted Shares will be entitled to certain rights with respect to registration of such shares for sale in the public market. See "Description of Capital Stock--Registration Rights". Prior to this offering, there has been no public market for the Common Stock of the Company and no predictions can be made of the effect, if any, that the sale or availability for sale of shares of additional Common Stock will have on the market price of the Common Stock. Nevertheless, sales of substantial amounts of such shares in the public market, or the perception that such sales could occur, could adversely affect the market price of the Common Stock and could impair the Company's future ability to raise capital through an offering of its equity securities. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company and the Selling Shareholders by Brobeck, Phleger & Harrison LLP, Palo Alto, California. Certain legal matters in connection with this offering will be passed upon for the Underwriters by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park, California. EXPERTS The financial statements and schedule included in this Prospectus have been audited by Arthur Andersen LLP, independent public accountants, to the extent and for the periods indicated in their reports and are included herein in reliance upon the authority of said firm as experts in giving said reports. The statements in the Prospectus under the captions "Risk Factors--GeoTel Litigation" and "Business--GeoTel Litigation" have been reviewed and approved by Blakely Sokoloff Taylor & Zafman as experts in such matters, and are included herein in reliance upon such review and approval. 58 CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS In February 1997, the Company's Board of Directors retained Arthur Andersen LLP as its independent public accountants and dismissed the Company's former public accountants, Coopers and Lybrand LLP. The decision to change independent public accountants was approved by resolution of the Board of Directors. The former independent public accountants' report on the Company's financial statements at and for the years ended June 30, 1994 and 1995 did not contain an adverse opinion, a disclaimer of opinion or any qualifications or modifications related to uncertainty, limitation of audit scope or application of accounting principles. The former independent public accountants' report does not cover any of the consolidated financial statements of the Company included in this Prospectus. Coopers & Lybrand LLP did not issue an audit report on the Company's financial statements for any other period. There were no disagreements with the former public accountants on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure with respect to the Company's consolidated financial statements up through the time of dismissal that, if not resolved to the former public accountants' satisfaction, would have caused them to make reference to the subject matter of the disagreement in connection with their report. Prior to retaining Arthur Andersen LLP, the Company had not consulted with Arthur Andersen LLP regarding accounting principles. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission, Washington, D.C. 20549, a Registration Statement on Form S-1 under the Act with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules to the Registration Statement. For further information with respect to the Company and such Common Stock offered hereby, reference is made to the Registration Statement and the exhibits and schedules filed as a part of the Registration Statement. Statements contained in this Prospectus concerning the contents of any contract or any other document referred to are not necessarily complete; reference is made in each instance to the copy of such contract or document filed as an exhibit to the Registration Statement. Each such statement is qualified in all respects by such reference to such exhibit. The Registration Statement, including exhibits and schedules thereto, may be inspected without charge at the Commission's principal office in Washington, D.C., and copies of all or any part thereof may be obtained from such office after payment of fees prescribed by the Commission. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this Prospectus, including, without limitation, statements containing the words "believes", "anticipates", "estimates", "expects" and words of similar import, constitute "forward- looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: the limited operating history of the Company; the potential fluctuations in quarterly operating results; the lengthy sales cycle; the lengthy implementation cycle and dependence on third party consultants; the risks related to dependence on new products and rapid technological change; competition; product concentration; the management of growth; the dependence on third-party resellers; the GeoTel litigation; customer concentration; the dependence on the emerging ECTI market; the risks associated with international sales and operations; the dependence on key personnel; government regulation of immigration; the dependence on ability to integrate with third-party technology; risks related to product liability; the risks related to protection of intellectual property; the 59 concentration of stock ownership; the lack of a prior public market and the possible volatility of stock price; the shares eligible for future sale and the registration rights of certain shareholders; the effect of certain charter provisions and the anti-takeover effects of provisions of the bylaws; dilution; and other factors referenced in this Prospectus. Certain of these factors are discussed in more detail elsewhere in this Prospectus, including, "Risk Factors", "Capitalization", "Selected Consolidated Financial Data", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Business" and "Principal and Selling Shareholders". Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect any events or developments. 60 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Public Accountants.................................... F-2 Consolidated Balance Sheets................................................. F-3 Consolidated Statements of Operations....................................... F-4 Consolidated Statements of Shareholders' Equity (Deficit)................... F-5 Consolidated Statements of Cash Flows....................................... F-6 Notes to Consolidated Financial Statements.................................. F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Genesys Telecommunications Laboratories, Inc.: We have audited the accompanying consolidated balance sheets of Genesys Telecommunications Laboratories, Inc. (a California Corporation) and subsidiaries as of June 30, 1995 and 1996, and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for each of the three years in the period ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Genesys Telecommunications Laboratories, Inc. and subsidiaries as of June 30, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP San Jose, California April 2, 1997 F-2 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, 1996 JUNE 30, PRO FORMA ----------------- DECEMBER 31, SHAREHOLDERS' 1995 1996 1996 EQUITY (DEFICIT) ----------------- ------------ ----------------- (UNAUDITED) (UNAUDITED) ASSETS (NOTE 9) CURRENT ASSETS: Cash and cash equivalents...... $ 203 $ 5,926 $ 1,816 Accounts receivable, net of allowance for doubtful accounts of $16, $426, and $366, respectively............ 1,675 4,607 10,905 Prepaid expenses and other..... 51 173 324 ------- -------- ------- Total current assets......... 1,929 10,706 13,045 PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation and amortization............... 327 1,224 2,807 OTHER ASSETS.................... -- 31 349 ------- -------- ------- $ 2,256 $ 11,961 $16,201 ======= ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Bank line of credit............ $ -- $ -- $ 500 Advances from related parties.. 39 25 50 Current portion of capital lease obligations............. 23 37 40 Accounts payable............... 835 1,113 1,327 Accounts payable to related parties....................... -- 268 100 Accrued payroll and related benefits...................... 126 625 1,141 Other accrued liabilities...... 334 948 1,147 Deferred revenues.............. 1,087 3,081 5,607 ------- -------- ------- Total current liabilities.... 2,444 6,097 9,912 ------- -------- ------- CAPITAL LEASE OBLIGATIONS, net of current portion............. 57 37 16 ------- -------- ------- CONVERTIBLE DEBT TO RELATED PARTY.......................... -- 367 731 ------- -------- ------- COMMITMENTS AND CONTINGENCIES (Notes 5 and 6) SHAREHOLDERS' EQUITY (DEFICIT): Convertible preferred stock, no par value: Series A: Authorized-900,000 shares Issued and outstanding-none in 1995, and 900,000 shares in 1996 and at December 31, 1996 and none on a pro forma basis Liquidation value-$1,995... -- 1,995 1,995 -- Series B: Authorized-2,400,000 shares Issued and outstanding-none in 1995, 1,897,878 shares in 1996 and at December 31, 1996 and none on a pro forma basis Liquidation value-$7,000... -- 7,000 7,000 -- Common stock, no par value: Authorized-120,000,000 shares Issued and outstanding- 6,801,000 shares in 1995, 11,319,000 shares in 1996, 12,001,934 shares at December 31, 1996 and 15,220,094 shares on a pro forma basis............... 23 154 352 11,847 Shareholder notes receivable... (18) (112) (297) (297) Cumulative translation adjustment.................... -- -- 92 92 Accumulated deficit............ (250) (3,577) (3,600) (3,600) ------- -------- ------- -------- Total shareholders' equity (deficit)................... (245) 5,460 5,542 $ 8,042 ------- -------- ------- ======== $ 2,256 $ 11,961 $16,201 ======= ======== =======
The accompanying notes are an integral part of these consolidated financial statements. F-3 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED FOR THE SIX MONTHS JUNE 30, ENDED DECEMBER 31, ----------------------- -------------------- 1994 1995 1996 1995 1996 ------ ------ ------- --------- --------- (UNAUDITED) REVENUES: License........................ $ 460 $3,077 $ 7,369 $ 2,839 $ 10,233 Service........................ 1,272 1,403 1,950 600 1,571 ------ ------ ------- --------- -------- Total revenues............... 1,732 4,480 9,319 3,439 11,804 ------ ------ ------- --------- -------- COST OF REVENUES: License........................ 23 123 308 122 465 Service........................ 595 1,190 2,568 819 1,572 ------ ------ ------- --------- -------- Total cost of revenues....... 618 1,313 2,876 941 2,037 ------ ------ ------- --------- -------- GROSS MARGIN..................... 1,114 3,167 6,443 2,498 9,767 ------ ------ ------- --------- -------- OPERATING EXPENSES: Research and development....... 578 959 3,673 1,562 3,527 Sales and marketing............ 162 705 3,030 911 5,038 General and administrative..... 534 1,343 2,979 1,500 1,440 ------ ------ ------- --------- -------- Total operating expenses..... 1,274 3,007 9,682 3,973 10,005 ------ ------ ------- --------- -------- INCOME (LOSS) FROM OPERATIONS.... (160) 160 (3,239) (1,475) (238) OTHER INCOME (EXPENSE): Interest income (expense), net. (7) (17) (78) -- 202 Other, net..................... 30 11 (10) (50) 13 ------ ------ ------- --------- -------- NET INCOME (LOSS)................ $ (137) $ 154 $(3,327) $ (1,525) $ (23) ====== ====== ======= ========= ======== PRO FORMA NET INCOME (LOSS) PER SHARE........................... $ (0.18) $ (0.09) $ -- ======= ========= ======== PRO FORMA WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES.... 18,644 17,760 20,154 ======= ========= ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CONVERTIBLE PREFERRED STOCK ------------------------------- SERIES A SERIES B COMMON STOCK SHAREHOLDER CUMULATIVE TOTAL -------------- ---------------- ------------------ NOTES TRANSLATION ACCUMULATED SHAREHOLDERS' SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT RECEIVABLE ADJUSTMENT DEFICIT EQUITY (DEFICIT) ------- ------ --------- ------ ---------- ------- ----------- ----------- ----------- ---------------- BALANCES, JULY 1, 1993............. -- $ -- -- $-- 1,200,000 $ 2 $ (2) $-- $ (267) $ (267) Net loss........ -- -- -- -- -- -- -- -- (137) (137) ------- ------ --------- ------ ---------- ------- ----- ---- ------- ------- BALANCES, JUNE 30, 1994.... -- -- -- -- 1,200,000 2 (2) -- (404) (404) Issuances of Common Stock.... -- -- -- -- 5,601,000 21 (16) -- -- 5 Net income...... -- -- -- -- -- -- -- -- 154 154 ------- ------ --------- ------ ---------- ------- ----- ---- ------- ------- BALANCES, JUNE 30, 1995.... -- -- -- -- 6,801,000 23 (18) -- (250) (245) Issuance of Common Stock.... -- -- -- -- 4,518,000 129 (102) -- -- 27 Issuance of Series A Preferred Stock. 900,000 1,995 -- -- -- -- -- -- -- 1,995 Issuance of Series B Preferred Stock. -- -- 1,897,878 7,000 -- -- -- -- -- 7,000 Payments on shareholder notes receivable...... -- -- -- -- -- -- 8 -- -- 8 Deferred Compensation Charge.......... -- -- -- -- -- 2 -- -- -- 2 Net loss........ -- -- -- -- -- -- -- -- (3,327) (3,327) ------- ------ --------- ------ ---------- ------- ----- ---- ------- ------- BALANCES, JUNE 30, 1996.... 900,000 1,995 1,897,878 7,000 11,319,000 154 (112) -- (3,577) 5,460 Exercise of stock options... -- -- -- -- 190,934 4 -- -- -- 4 Issuances of Common Stock.... -- -- -- -- 888,000 192 (185) -- -- 7 Repurchase of Common Stock.... -- -- -- -- (396,000) (7) -- -- -- (7) Cumulative translation adjustment...... -- -- -- -- -- -- -- 92 -- 92 Deferred Compensation Charge.......... -- -- -- -- -- 9 -- -- -- 9 Net loss........ -- -- -- -- -- -- -- -- (23) (23) ------- ------ --------- ------ ---------- ------- ----- ---- ------- ------- BALANCES, DECEMBER 31, 1996 (Unaudited)...... 900,000 $1,995 1,897,878 $7,000 12,001,934 $ 352 $(297) $ 92 $(3,600) $ 5,542 ======= ====== ========= ====== ========== ======= ===== ==== ======= ======= PRO FORMA BALANCES, DECEMBER 31, 1996 (Unaudited)...... -- $ -- -- $ -- 15,220,094 $11,847 $(297) $ 92 $(3,600) $ 8,042 ======= ====== ========= ====== ========== ======= ===== ==== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-5 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE FOR THE YEARS SIX MONTHS ENDED ENDED JUNE 30, DECEMBER 31, ------------------------ ------------------ 1994 1995 1996 1995 1996 ------ ------- ------- -------- -------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss).............. $ (137) $ 154 $(3,327) $ (1,525) $ (23) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Common stock issued for services rendered............ -- 1 -- -- -- Deferred Compensation expense...................... -- -- 2 -- 9 Depreciation and amortization................. 11 56 264 77 317 Provision for doubtful accounts..................... 51 4 410 -- 10 Changes in operating assets and liabilities: Accounts receivable......... (297) (1,324) (3,342) (86) (6,308) Prepaid expenses and other.. (3) (43) (122) (83) (151) Accounts payable............ 257 631 278 (141) 214 Accounts payable to related parties.................... -- -- 268 -- (168) Accrued payroll and related benefits................... -- 126 499 236 516 Other accrued liabilities... 88 2 614 184 291 Deferred revenues........... 272 688 1,994 1,045 2,526 ------ ------- ------- -------- -------- Net cash provided by (used in) operating activities. 242 295 (2,462) (293) (2,767) ------ ------- ------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment..................... (83) (227) (1,161) (311) (1,900) Increase in other assets....... -- -- (31) (19) (318) ------ ------- ------- -------- -------- Net cash used in investing activities............... (83) (227) (1,192) (330) (2,218) ------ ------- ------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from bank line of credit........................ -- -- -- -- 500 Principal payments on capital lease obligations............. -- (4) (34) (5) (18) Proceeds from advances from related parties............... 202 102 771 -- 25 Repayments of advances from related parties............... (145) (221) (757) (22) -- Proceeds from convertible debt to related parties............ -- -- 367 -- 364 Proceeds from promissory note.. -- -- 1,500 500 -- Repayment of promissory note... -- -- (600) -- -- Repayment of shareholder notes receivable.................... -- -- 8 -- -- Repurchases of Common Stock.... -- -- -- -- (7) Proceeds from sales of preferred stock............... -- -- 8,095 -- -- Proceeds from sales of common stock......................... -- 5 27 34 11 ------ ------- ------- -------- -------- Net cash provided by (used in) financing activities. 57 (118) 9,377 507 875 ------ ------- ------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 216 (50) 5,723 (116) (4,110) CASH AND CASH EQUIVALENTS: Beginning of Period............ 37 253 203 203 5,926 ------ ------- ------- -------- -------- End of Period.................. $ 253 $ 203 $ 5,926 $ 87 $ 1,816 ====== ======= ======= ======== ======== ADDITIONAL DISCLOSURES OF NON- CASH TRANSACTIONS: Repayment of convertible debt with issuance of preferred stock......................... $ 900 =======
The accompanying notes are an integral part of these consolidated financial statements. F-6 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 (INFORMATION RELATING TO THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED) 1. THE COMPANY: Genesys Telecommunications Laboratories, Inc. (formerly Enhanced Voice Processing, Inc.), was incorporated in California on October 11, 1990. During fiscal 1995, Genesys Telecommunications Laboratories, Inc. established a wholly-owned subsidiary in the United Kingdom, and in fiscal 1996 it established a wholly-owned subsidiary in Russia. Also in fiscal 1996, Genesys Telecommunications Laboratories, Inc. entered into a joint venture in Canada through which it owned 51% of a Canadian corporation, Genesys Laboratories Canada, Inc. In February 1997, Genesys Telecommunications Laboratories, Inc. acquired the remaining 49% of Genesys Laboratories Canada, Inc. Genesys Telecommunications Laboratories, Inc. and subsidiaries (the "Company") operate in a single industry segment and are involved in the design, development, marketing and support of a suite of Enterprise Computer Telephony Integration ("ECTI") products, including platform and applications software that enable organizations to integrate critical business information and computing resources with telephony and other telecommunications media. The Company's products are marketed primarily in North America, Europe and Asia. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Genesys Telecommunications Laboratories, Inc. and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. UNAUDITED INTERIM FINANCIAL DATA The unaudited financial statements as of December 31, 1996 and for the six months ended December 31, 1995 and 1996 have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, include all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial information set forth therein, in accordance with generally accepted accounting principles. The data disclosed in the notes to the consolidated financial statements for these periods are unaudited. The Company believes the results of operations for the interim periods are not necessarily indicative of the results to be expected for any future period. FOREIGN CURRENCY TRANSLATION The functional currency of the Company's subsidiaries is the local currency. Accordingly, the Company applies the current rate method to translate the subsidiaries' financial statements into U.S. dollars. Translation adjustments are included as a separate component of shareholders' equity (deficit) in the accompanying consolidated financial statements. Foreign exchange gains and losses resulting from foreign currency transactions are recorded in other income (expense) in the accompanying consolidated financial statements and were not material in any of the periods presented. F-7 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) STOCK-BASED COMPENSATION The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") in October 1995. This accounting standard permits the use of either a fair value based method or the method defined in Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25") to account for stock-based compensation arrangements. Companies that elect to employ the valuation method provided in APB 25 are required to disclose the pro forma net income (loss) and net income (loss) per share that would have resulted from the use of the fair value based method. The Company has elected to continue to determine the value of stock-based compensation arrangements under the provisions of APB 25, and accordingly, it has included the pro forma disclosures required under SFAS 123 in its consolidated financial statements. USE OF ESTIMATES The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. REVENUE RECOGNITION The Company generates revenues from licensing the rights to use its software products directly to end users and indirectly through value-added resellers. The Company also generates revenues from sales of post-contract support, consulting and training services performed for customers who license the Company's products. Revenues from software license agreements are recognized upon shipment of the software if there are no significant post-delivery obligations and if collection is probable. If a software license agreement provides for acceptance criteria that extend beyond the published specifications of the applicable product, then revenues are recognized upon the earlier of customer acceptance or the expiration of the acceptance period. Revenues from post-contract support services are recognized ratably over the term of the support period. If post-contract support services are included free or at a discount in a license agreement, such amounts are allocated out of the license fee at their fair market value based on the value established by independent sale of such post-contract support services to customers. Consulting revenues are primarily related to implementation services performed on a time and materials basis under separate service arrangements related to the installation of the Company's software products. Revenues from consulting and training services are recognized as services are performed. If a transaction includes both license and service elements, license fee revenue is recognized upon shipment of the software, provided services do not include significant customization or modification of the base product and the payment terms for licenses are not subject to acceptance criteria. In cases where license fee payments are contingent upon the acceptance of services, revenues from both the license and the service elements are deferred until the acceptance criteria are met. Cost of license revenues includes the costs of product media, product duplication and manuals, as well as allocated labor and overhead costs related to preparation and shipment of the product. Cost F-8 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of service revenues consists primarily of salaries, benefits and allocated overhead costs related to consulting personnel and the customer service department. Deferred revenues include software license fees and services that have been invoiced to the customer for which the revenue earnings process has not been completed. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. The Company's investments have consisted of certificates of deposit with original maturities of three months or less and money market accounts. PROPERTY AND EQUIPMENT Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets (or over the lease term if it is shorter for leasehold improvements), which range from 3 to 5 years. Property and equipment leased under capital leases is amortized over the lesser of its useful life or the lease term. SOFTWARE DEVELOPMENT COSTS The Company capitalizes eligible computer software development costs upon the establishment of technological feasibility, which the Company has defined as completion of a working model. For fiscal 1994, 1995 and 1996, and the six months ended December 31, 1995 and 1996, costs that were eligible for capitalization were insignificant and, thus, the Company has charged all software development costs to research and development expense in the accompanying consolidated statements of operations. PRO FORMA NET INCOME (LOSS) PER SHARE Pro forma net income (loss) per share is computed using the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of Preferred Stock (using the "if converted" method) and stock options and warrants (using the treasury stock method). Common equivalent shares are excluded from the computation if their effect is anti-dilutive except that, pursuant to the Securities and Exchange Commission Staff Accounting Bulletins and staff policy, such computations include all common and common equivalent shares issued within the 12 months preceding the initial filing date as if they were outstanding for all periods presented (using the treasury stock method and an assumed initial public offering price of $15.00 per share). In addition, Preferred Stock is included in the computation (using the "if converted" method) even when the effect of their inclusion is anti-dilutive. Pro forma net loss per share data prior to fiscal 1996 have not been presented since such amounts are not deemed meaningful due to the significant change in the Company's capital structure that will occur in connection with the proposed offering. STOCK SPLITS In August 1996, the Company effected a 3:1 stock split of its Common Stock, and in November 1996 the Company effected a 2:1 stock split of its Common Stock. In February 1997, the Company effected a 6:1 stock split of its Series A and Series B Preferred Stock. F-9 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) All share and per share data in the accompanying consolidated financial statements have been retroactively restated to reflect the stock splits, including the reflection of all preferred share and per share data on an "as converted" basis. 3. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK: Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of accounts receivable. As of June 30, 1995, approximately 30% of accounts receivable were concentrated with three customers. As of June 30, 1996, approximately 43% of accounts receivable were concentrated with three different customers. As of December 31, 1996, approximately 30% of accounts receivable were concentrated with three different 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. PROPERTY AND EQUIPMENT: Property and equipment consist of the following (in thousands):
JUNE 30, ------------- DECEMBER 31, 1995 1996 1996 ----- ------ ------------ Computer and office equipment.................... $ 227 $1,326 $2,260 Furniture and fixtures........................... 86 104 488 Leasehold improvements and other................. 82 120 707 ----- ------ ------ 395 1,550 3,455 Less accumulated depreciation and amortization... (68) (326) (648) ----- ------ ------ $ 327 $1,224 $2,807 ===== ====== ======
Included in property and equipment are assets acquired under capital lease obligations with an original cost of approximately $84,000, $108,000 and $108,000 as of June 30, 1995 and 1996 and December 31, 1996, respectively. Accumulated amortization on the leased assets was approximately $3,000, $31,000 and $43,000 as of June 30, 1995 and 1996 and December 31, 1996, respectively. 5. COMMITMENTS AND CAPITAL LEASE OBLIGATIONS The Company leases its facilities under noncancellable operating lease agreements, which expire on various dates through September 2000. F-10 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Minimum future lease payments under noncancellable capital and operating leases as of December 31, 1996 are summarized as follows (in thousands):
CAPITAL OPERATING FISCAL YEAR LEASES LEASES ----------- ------- --------- 1997 (six months).......................................... $ 24 $ 353 1998....................................................... 40 700 1999....................................................... -- 566 2000....................................................... -- 519 2001....................................................... -- 129 ---- ------ Total minimum lease payments............................. 64 $2,267 ====== Less: Amount representing interest at 14% to 19%........... (8) ---- Present value of minimum lease payments.................... 56 Less: Current portion...................................... (40) ---- Long-term portion.......................................... $ 16 ====
Rent expense was approximately $61,000, $98,000 and $341,000 in fiscal 1994, 1995 and 1996, respectively, and $134,000 and $378,000 for the six months ended December 31, 1995 and 1996, respectively. 6. LITIGATION On December 17, 1996, GeoTel Communications Corporation ("GeoTel") filed a lawsuit in the United States District Court for the District of Massachusetts naming the Company as defendant, and alleging infringement of a patent issued to GeoTel. On February 10, 1997, the Company filed an answer in response to the complaint filed by GeoTel, asserting that the GeoTel patent is invalid, denying the alleged patent infringement and seeking dismissal of the complaint with prejudice. The Company believes that it has meritorious defenses to the asserted claims and intends to defend the litigation vigorously. The Company does not believe that any of its current products infringe any valid claims of GeoTel's patent. However, the outcome of litigation is inherently unpredictable, and there can be no assurance that the results of these proceedings will be favorable to the Company or that they will not have a material adverse effect on the Company's business, financial condition or results of operations. Regardless of the ultimate outcome, the GeoTel litigation could result in substantial expense to the Company and significant diversion of effort by the Company's technical and managerial personnel. If the Court determines that the Company infringes GeoTel's patent and that the GeoTel patent is valid and enforceable, it could issue an injunction against the use or sale of certain of the Company's products and it could assess significant damages against the Company. Accordingly, an adverse determination in the proceeding could subject the Company to significant liabilities and require the Company to seek a license from GeoTel. Although patent and intellectual property disputes in the software area have sometimes been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial, and there can be no assurance that a license from GeoTel, if required, would be available to the Company on acceptable terms or at all. Accordingly, an adverse determination in the GeoTel litigation could prevent the Company from licensing certain of its software products, which would have a material adverse effect on the Company's business, financial condition and results of operations. F-11 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. BANK LINE OF CREDIT In October 1996, the Company entered into a line of credit agreement that has no expiration terms. Under the terms of the agreement, the Company may borrow up to $3.0 million under a revolving line of credit, which includes sublimits of $500,000 for equipment purchases and $500,000 for letters of credit. The line of credit is secured by substantially all of the Company's assets and advances are limited to 80% of eligible accounts receivable. Advances under the line accrue interest at the bank's prime rate plus 0.5% (8.75% at December 31, 1996) for line of credit borrowings and 1.0% for equipment loans. The line of credit contains provisions that prohibit the payment of cash dividends, and require the maintenance of specified levels of tangible net worth and certain financial ratios. The Company was in compliance with these financial covenants as of December 31, 1996. As of December 31, 1996, $500,000 was outstanding under this line of credit, and none of this balance related to the equipment sublimit. 8. RELATED PARTY TRANSACTIONS LOANS FROM OFFICERS, SHAREHOLDERS AND THEIR AFFILIATES During fiscal 1995 and 1996, the Company borrowed an aggregate of $104,500 and $720,000, respectively, from officers, shareholders and their affiliates. Of these borrowings, $39,000 and $25,000 was outstanding as of June 30, 1995 and 1996, respectively. Certain of these related party loans were non-interest bearing; however, the imputed interest related to the borrowings was immaterial. In July 1995, the Company issued a $1.5 million promissory note to a business associate of the Company's founders. The promissory note bore interest at a rate of 8% per annum. In May 1996, the principal and accrued interest of $50,499 was converted into 428,796 shares of Series A Preferred Stock, and the balance of the note was repaid. In February 1996, the minority interest shareholder of the Company's Canadian subsidiary provided the subsidiary with a convertible revolving line of credit for CDN $2.0 million (US $1,462,000 as of December 31, 1996), of which US $367,000 and US $731,100 were outstanding as of June 30,1996 and December 31, 1996, respectively. Loan amounts are due on December 31, 1997 and bear interest at a rate charged by the Royal Bank of Canada for 30 day Bankers Acceptances plus approximately 42 basis points. Borrowings under this facility are secured by all of the assets of the subsidiary. In March 1997, subsequent to the Company's acquisition of the minority shareholders' shares in the Canadian subsidiary (Note 12), all amounts outstanding under this facility were repaid, and the facility was canceled. OTHER RELATED PARTY TRANSACTIONS During fiscal 1995 and 1996, the Company recognized $394,000 and $50,000 of revenue, respectively, from a contract with a company in which two of the Company's significant shareholders held an ownership interest. As of June 30, 1995, $200,000 of accounts receivable related to this transaction were outstanding, and as of June 30, 1996 all amounts due from this related party had been paid. F-12 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. PREFERRED STOCK In March 1996, the Company issued 900,000 shares of Series A Preferred Stock at a price of $2.2167 per share. In June 1996, the Company issued 1,897,878 shares of Series B Preferred Stock at a price of $3.6883 per share. In February 1997, the Company issued 854,363 shares of Series C Preferred Stock at a price of $11.12 per share. The rights, preferences, privileges and restrictions granted to the preferred shareholders are as follows: Dividends The holders of Series A, Series B and Series C preferred stock are entitled, when and as declared by the Board of Directors, to annual dividends at a rate of $0.1333, $0.225 and $0.6672 per share, respectively, prior to the declaration, setting aside or payment of any dividend to the holders of Common Stock. Dividends are not cumulative. To date, no dividends have been declared. Liquidation Preference In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the assets and funds of the Company available for distribution will be distributed as follows: The holders of Series C Preferred Stock are entitled to receive, prior and in preference to any distribution to the holders of Series A and Series B Preferred Stock and Common Stock, an amount equal to $11.12 per share, plus any declared but unpaid dividends with respect to such share. Thereafter, the holders of Series A and Series B Preferred Stock are entitled to receive, prior and in preference to any distribution to the holders of Common Stock, an amount equal to $2.2167 and 3.6883 per share, respectively, plus any declared but unpaid dividends with respect to such shares. After payment to the holders of Series A, Series B and Series C Preferred Stock as described above, the holders of Common Stock of the Company receive any remaining assets of the Company. Conversion The holders of Series A, Series B and Series C Preferred Stock have the following conversion rights: Each share is convertible into Common Stock at the option of the holder at any time after the date of issuance. Each share is initially convertible into one share of Common Stock, subject to adjustment for dilution, as defined in the Articles of Incorporation. Each share of Preferred Stock will be automatically converted into Common Stock upon the consummation of a public offering of the Company's Common Stock if the public offering price is not less than $11.12 per share and if the aggregate proceeds are more than $15,000,000. Series A and Series B Preferred Stock will be converted into Common Stock upon the written consent of holders of more than 50% of such series (voting together as a class). F-13 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Voting Rights The holder of each share of Preferred Stock has the right to one vote for each share of Common Stock into which such share of Preferred Stock is convertible. Protective Provisions The Company cannot take certain actions, as defined in the Company's Articles of Incorporation, without obtaining the affirmative vote or written consent of (i) the holders of a majority of the outstanding shares of Series A and Series B Preferred Stock (voting together as a class), and (ii) the holders of at least seventy-five percent of the outstanding shares of Series C Preferred Stock. Registration Rights The holders of Preferred Stock and certain other security holders of the Company have certain demand and piggyback registration rights as defined in the Company's Registration Rights Agreement dated February 26, 1997. PRO FORMA SHAREHOLDERS' EQUITY (DEFICIT) In connection with the initial public offering of the Company's Common Stock, all outstanding Preferred Stock will automatically convert into Common Stock upon the closing of the offering. The pro forma effects on shareholders' equity (deficit) of the conversion of Series A and B Preferred Stock and the assumed issuance of 420,282 shares of Common Stock upon the exercise of certain warrants prior to the closing of the offering have been reflected in the accompanying consolidated balance sheet as of December 31, 1996. 10. COMMON STOCK: RESTRICTED STOCK PURCHASE AGREEMENTS Since inception, the Company has sold an aggregate of 6,165,000 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 December 31, 1996, an aggregate of 396,000 shares of Common Stock have been repurchased under these agreements, and 4,068,800 shares are subject to the Company's repurchase right at prices ranging from $0.01667 to $0.375 per share. STOCK OPTION PLAN Under the Company's 1995 Stock Option Plan (the "Option Plan"), the Board of Directors may grant incentive and nonqualified stock options to employees, directors and consultants. The exercise price per share for an incentive stock option cannot be less than the fair market value, as determined by the Board of Directors, on the date of grant. The exercise price per share for a nonqualified stock option cannot be less than 85% of the fair market value, as determined by the Board of Directors, on the date of grant. Options granted under the Option Plan generally expire ten years after the date of F-14 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) grant and generally vest over a four year period. As of December 31, 1996, a total of 5,292,834 shares of Common Stock have been authorized for grant under the Option Plan. Details of option activity under the Option Plan are as follows:
OPTIONS OUTSTANDING SHARES ------------------------------ AVAILABLE NUMBER PRICE WEIGHTED FOR GRANT OF SHARES PER SHARE AVERAGE ---------- --------- ---------- -------- Inception of Option Plan......... 2,875,500 -- -- -- ---------- --------- Balances, June 30, 1995.......... 2,875,500 -- -- -- Authorized..................... 437,334 -- -- -- Granted........................ (2,622,000) 2,622,000 $.02-$ .23 $.04 ---------- --------- Balances, June 30, 1996.......... 690,834 2,622,000 $.02-$ .23 $.04 Authorized..................... 1,980,000 Granted........................ (2,718,500) 2,718,500 $.38-$1.25 $.43 Exercised...................... -- (190,934) $.02 $.02 Canceled....................... 90,375 (90,375) $.02-$ .23 $.03 ---------- --------- Balances, December 31, 1996 (unaudited)..................... 42,709 5,059,191 $.02-$1.25 $.25 ========== =========
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - --------------------------------------------------- ------------------------ NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED OUTSTANDING AT AVERAGE AVERAGE EXERCISABLE AVERAGE EXERCISE DECEMBER 31, REMAINING EXERCISE DECEMBER 31, EXERCISE PRICES 1996 LIFE PRICE 1996 PRICE -------- -------------- --------- -------- ------------ -------- $0.02 2,109,691 8.80 $0.02 530,325 $0.02 $0.23 231,000 9.43 $0.23 -- $0.23 $0.38 2,552,500 9.78 $0.38 20,396 $0.38 $1.25 166,000 10.00 $1.25 20,000 $1.25 - ----------- --------- ----- ----- ------- ----- $0.02-$1.25 5,059,191 9.36 $0.25 570,721 $0.07
As of December 31, 1996, 570,721 shares were vested and exercisable under the Option Plan. The weighted average of fair values of options granted during fiscal 1996 and the six months ended December 31, 1996 was $0.01 and $0.06, respectively. The Company accounts for options granted under the Option Plan under APB 25, and accordingly, records compensation expense for any option grants for which the exercise price is below the fair market value of the underlying Common Stock on the date of grant. Had compensation cost been determined under a fair value method consistent with SFAS 123, the Company's net loss and net loss per share would have increased to the following pro forma amounts:
YEAR ENDED SIX MONTHS ENDED JUNE 30, 1996 DECEMBER 31, 1996 ------------- ----------------- Net loss (In thousands): As reported................................ $(3,327) $(23) Pro forma.................................. $(3,331) $(70) Net loss per share: As reported................................ $ (0.18) $-- Pro forma.................................. $ (0.18) $--
F-15 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The fair value of each option grant under the Option Plan is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants: risk-free rates ranging from 5-7% and corresponding to government securities with original maturities similar to the vesting periods; expected dividend yield of 0%; expected lives of 3 years beyond vest dates; and expected volatility of 0%. ISSUANCE OF WARRANTS Warrants Issued to Consultant In connection with a services consulting agreement, in April 1996, the Company issued a warrant to a shareholder for the purchase of 420,282 shares of Common Stock at an exercise price of $5.95 per share. The warrant is first exercisable on the earlier of April 26, 1997 or upon the filing of a registration statement for an initial public offering of the Company's Common Stock with aggregate proceeds of not less than $10,000,000. The warrant expires on the earlier of the closing of an initial public offering or April 26, 2001. The fair value of the warrant at the date of grant was not material. Warrants Issued to Series C Shareholders Concurrent with the closing of the sale of Series C Preferred Stock to two corporate investors, the Company issued warrants for the purchase of 449,664 shares of Common Stock to one investor (exercisable at a price of 110% of the market price of Common Stock on December 31, 1997, subject to certain adjustments, if the Company has completed an initial public offering; otherwise $13.34 per share), and 44,965 shares of Common Stock to the other investor (exercisable at a price of 110% of the fair market value of Common Stock on the date such shares vest). The warrants expire in February 2004 and February 2000, respectively. Each of these warrants becomes exercisable upon the achievement of certain sales and development objectives specified in the warrant agreements. In accordance with SFAS 123 and related interpretations, the Company recorded the aggregate estimated fair value of the warrants of $650,000 in February 1997, and will amortize the value of the warrants to cost of license revenues as the sales and development milestones are achieved. SHARES RESERVED FOR ISSUANCE As of December 31, 1996, the Company has shares of Common Stock for future issuance as follows:
NUMBER OF SHARES --------- Conversion of Series A Preferred Stock............................. 900,000 Conversion of Series B Preferred Stock............................. 1,897,878 Conversion of Series C Preferred Stock............................. 854,363 Exercise of stock options.......................................... 5,059,191 Exercise of warrants............................................... 914,911 --------- 9,626,343 =========
F-16 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11. INCOME TAXES: The components of the net deferred tax asset are as follows (in thousands):
JUNE 30, ------------- 1995 1996 ---- ------- Net operating loss carryforwards.............................. $ -- $ 261 Reserves and accruals not currently deductible................ 49 856 Tax credit carryforwards...................................... 28 51 Other......................................................... 6 (22) ---- ------- 83 1,146 Valuation allowance........................................... (83) (1,146) ---- ------- Net deferred tax asset...................................... $-- $ -- ==== =======
A valuation allowance has been record for the entire deferred tax asset as a result of uncertainties regarding the realization of the asset including the limited operating history of the Company, the lack of profitability to date and the variability of operating results. As of June 30, 1996, the Company had federal and state net operating loss carryforwards of approximately $685,000 and $464,000, respectively. In addition, as of June 30, 1996, the Company had research and development tax credit carryforwards of approximately $51,000. These carryforwards expire in various periods from 2010 to 2011. The Tax Reform Act of 1986 contains provisions that may limit the net operating loss and research and development credit carryforwards to be used in any given year upon the occurrence of certain events, including a significant change in ownership interest. 12. ACQUISITION OF MINORITY INTEREST IN CANADIAN SUBSIDIARY In February 1996, the Company entered into a joint venture in Canada through which it owned 51% of a Canadian corporation, Genesys Laboratories Canada, Inc. ("GenCan"). In January 1997, the respective Boards of Directors of the Company and the minority shareholder of GenCan reached agreement on the terms and conditions of and signed a memorandum of understanding for the purchase by the Company of the 49% minority shares of GenCan in exchange for 675,000 shares of Common Stock of the Company. In February 1997, the Company issued 675,000 shares of Common Stock to the minority shareholder in accordance with the terms of the January agreement. In connection with this acquisition, which will be accounted for as a purchase, the Company will allocate the purchase price based upon the estimated fair value of the assets acquired and liabilities assumed. The Company estimates that intangible assets acquired will total approximately $2,000,000. F-17 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 13. INTERNATIONAL OPERATIONS AND MAJOR CUSTOMERS Major Customers The following customers accounted for 10% or more of total revenues in the periods indicated:
FOR THE SIX MONTHS FOR THE YEARS ENDED ENDED JUNE 30, DECEMBER 31, ---------------------- ------------- 1994 1995 1996 1995 1996 ------ ------ ------ ------ ------ Customer A............................. 26.5% * * * * Customer B............................. * 11.2% * * * Customer C............................. * 12.8% * * * Customer D............................. * 11.1% 10.2% * * Customer E............................. * * 10.8% * * Customer F............................. * * 10.0% * *
- -------- *Less than 10% of total revenues International Operations A summary of the Company's operations by geographic area is presented below (in thousands):
FOR THE FOR THE FISCAL YEARS ENDED SIX MONTHS ENDED JUNE 30, DECEMBER 31, ----------------------------- ------------------ 1994 1995 1996 1995 1996 -------- -------- --------- -------- -------- Revenues from unaffiliated customers: North America............ $ 1,732 $ 4,212 $ 6,654 $ 3,092 $ 8,559 Europe................... -- 268 2,665 347 3,245 -------- -------- --------- -------- -------- $ 1,732 $ 4,480 $ 9,319 $ 3,439 $ 11,804 Intercompany revenues between geographic areas: North America............ $ -- $ -- $ 1,013 $ -- $ 1,841 Europe................... -- -- -- -- -- Eliminations............. -- -- (1,013) -- (1,841) -------- -------- --------- -------- -------- $ -- $ -- $ -- $ -- $ -- Operating income (loss): North America............ $ (160) $ 158 $ (3,263) $ (1,327) $ 63 Europe................... -- 20 21 (148) (257) Eliminations............. -- (18) 3 -- (44) -------- -------- --------- -------- -------- $ (160) $ 160 $ (3,239) $ (1,475) $ (238) Identifiable assets: North America............ $ 689 $ 2,184 $ 12,524 $ 2,506 $ 16,198 Europe................... -- 431 2,960 818 3,722 Eliminations............. -- (360) (3,523) (814) (3,719) -------- -------- --------- -------- -------- $ 689 $ 2,255 $ 11,961 $ 2,510 $ 16,201
The information presented above may not be indicative of results if the geographic areas were independent organizations. Intercompany transactions are made at established transfer prices. Revenues generated from international sales of the Company's products, which includes export shipments originating in the United States to unaffiliated customers and sales to unaffiliated customers from the Company's foreign offices, represented 40.6%, 30.9% and 36.2% of total revenues in fiscal 1994, 1995 and 1996, respectively, and represented 28.3% and 46.7% of total revenues in the six months ended December 31, 1995 and 1996, respectively. F-18 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 14. SUBSEQUENT EVENTS 1997 Employee Stock Purchase Plan In March 1997, the Board adopted the 1997 Employee Stock Purchase Plan (the "Purchase Plan") subject to shareholder approval. The Company has reserved 500,000 shares of Common Stock for issuance under the Purchase Plan. The Purchase Plan will enable eligible employees to purchase common stock at 85% of the lower of the fair market value of the Company's common stock on the first or the last day of each offering period. 1997 Stock Incentive Plan In March 1997, the Board adopted the 1997 Stock Incentive Plan (the "1997 Plan"), subject to shareholder approval, which will serve as a successor to the Company's 1995 Stock Option Plan (the "Predecessor Plan"). The Company will reserve shares of Common Stock for issuance under the 1997 Plan equal to the sum of (i) the shares which remain available for issuance under the Predecessor Plan, including the shares subject to outstanding options thereunder, and (ii) an additional increase of 2,400,000 shares. In addition, upon the completion of each fiscal year of the Company, beginning with the 1998 fiscal year, the share reserve will automatically be increased on the first trading day of July each year by a number of shares equal to five percent (5%) of the total number of shares of Common Stock outstanding on the last trading day of the immediately preceding calendar month. The 1997 Plan is divided into four separate components: (i) the Discretionary Option Grant Program, under which eligible individuals in the Company's employ or service (including officers and other employees, non- employee Board members and independent consultants) may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock at an exercise price not less than their fair market value on the grant date, (ii) the Stock Issuance Program, under which such individuals may, in the Plan Administrator's discretion, be issued shares of Common Stock directly, either through the purchase of such shares at a price not less than their fair market value at the time of issuance or as a fully-vested bonus for services rendered the Company, (iii) the Salary Investment Option Grant Program, under which executive officers and other highly compensated employees may elect to apply a portion of their base salary to the acquisition of special below-market stock option grants, and (iv) the Automatic Option Grant Program, under which option grants will automatically be made at periodic intervals to eligible non- employee Board members to purchase shares of Common Stock at an exercise price equal to their fair market value on the grant date. F-19 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Company has agreed to sell to each of the Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs & Co., Lehman Brothers Inc. and Robertson, Stephens & Company LLC are acting as representatives, have severally agreed to purchase from the Company, the respective number of shares of Common Stock set forth opposite its name below:
NUMBER OF SHARES UNDERWRITER OF COMMON STOCK ----------- ---------------- Goldman, Sachs & Co......................................... Lehman Brothers Inc......................................... Robertson, Stephens & Company LLC........................... --------- Total................................................... 2,000,000 =========
Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all of the shares offered hereby, if any are taken. The Underwriters propose to offer the shares of Common Stock in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus and in part to certain securities dealers at such price less a concession of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain brokers and dealers. After the shares of Common Stock are released for sale to the public, this offering price and other selling terms may from time to time be varied by the representatives. The Company and the Selling Shareholders have granted the Underwriters an option exercisable for 30 days after the date of this Prospectus to purchase up to an aggregate of 300,000 additional shares of Common Stock to cover over- allotments, if any. If the Underwriters exercise their over-allotment option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares to be purchased by each of them, as shown in the foregoing table, bears to the 2,000,000 shares of Common Stock offered. The Company and its officers, directors and shareholders have agreed that, during the period beginning from the date of this Prospectus and continuing to and including the date 180 days after the date of the Prospectus, they will not, subject to certain exceptions, offer, sell, contract to sell, grant an option to sell, transfer or otherwise dispose of any securities of the Company without the prior written consent of the representatives of the Underwriters. The representatives of the Underwriters have informed the Company that they do not expect sales to accounts over which the Underwriters exercise discretionary authority to exceed five percent of the total number of shares of Common Stock offered by them. Prior to this offering, there has been no public market for the Common Stock. The initial public offering price will be negotiated between the Company and the representatives of the Underwriters. Among the factors to be considered in determining the initial public offering price of the Common Stock, in addition to prevailing market conditions, will be the Company's historical performance, estimates of the business potential and earnings prospects of the Company, an assessment of the U-1 Company's management and the consideration of the above factors in relation to market valuations of companies in related businesses. The Company has applied for quotation of the Common Stock on the Nasdaq National Market under the symbol "GCTI". The Company and, if the Underwriters' over-allotment option is exercised, the Selling Shareholders, have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act. Lehman Brothers Inc., one of the Representatives of the Underwriters, performed certain consulting services to the Company in connection with the Company's Series C Preferred Stock financing. In connection with this offering, the Underwriters may purchase and sell the Common Stock in the open market. These transactions may include over-allotment and stabilizing transactions and purchases to cover syndicate short positions created in connection with this offering. Stabilizing transactions consist of certain bids or purchases for the purpose of preventing or retarding a decline in the market price of the Common Stock; and syndicate short positions involve the sale by the Underwriters of a greater number of shares of Common Stock than they are required to purchase from the Company in this offering. The Underwriters also may impose a penalty bid, whereby selling concessions allowed to syndicate members or other broker-dealers in respect of the securities sold in this offering for their account may be reclaimed by the syndicate if such securities are repurchased by the syndicate in stabilizing or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the securities, which may be higher than the price that might otherwise prevail in the open market; and these activities, if commenced, may be discontinued at any time. These transactions may be effected on the Nasdaq Stock Market, in the over-the-counter market or otherwise. U-2 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE- SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR- MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 3 Risk Factors.............................................................. 6 The Company............................................................... 17 Use of Proceeds........................................................... 17 Dividend Policy........................................................... 17 Dilution.................................................................. 18 Capitalization............................................................ 19 Selected Consolidated Financial Data...................................... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 21 Business.................................................................. 29 Management................................................................ 43 Certain Transactions...................................................... 52 Principal and Selling Shareholders........................................ 53 Description of Capital Stock.............................................. 55 Shares Eligible for Future Sale........................................... 57 Legal Matters............................................................. 58 Experts................................................................... 58 Change in Independent Public Accountants.................................. 59 Additional Information.................................................... 59 Special Note Regarding Forward-Looking Statements......................... 59 Financial Statements...................................................... F-1 Underwriting.............................................................. U-1
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO- SPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2,000,000 SHARES GENESYS TELECOMMUNICATIONS LABORATORIES, INC. COMMON STOCK (NO PAR VALUE) ------------ [LOGO] ------------ GOLDMAN, SACHS & CO. LEHMAN BROTHERS ROBERTSON, STEPHENS & COMPANY REPRESENTATIVES OF THE UNDERWRITERS - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with the sale of Common Stock being registered. All amounts are estimates, except the SEC registration fee and the NASD filing fees. SEC registration fee............................................. $ 11,152 NASD fee ........................................................ 4,180 Nasdaq National Market listing fee .............................. Printing and engraving expenses.................................. * Legal fees and expenses.......................................... * Accounting fees and expenses..................................... * Officers' and directors' liability insurance..................... * Blue sky fees and expenses....................................... 5,000 Transfer agent fees.............................................. * Miscellaneous fees and expenses.................................. * ---------- Total.......................................................... $1,100,000 ==========
- -------- * To be filed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS As allowed by the California General Corporation Law, the Company's Articles of Incorporation provide that the liability of the directors of the Company for monetary damages shall be eliminated to the fullest extent permissible under California law. This is intended to eliminate the personal liability of a director for monetary damages in an action brought by or in the right of the Company for breach of a director's duties to the Company or its shareholders, except for liability: (1) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law; (2) for acts or omissions that a director believes to be contrary to the best interests of the Company or its shareholders or that involve the absence of good faith on the part of the director; (3) for any transaction from which a director derived an improper personal benefit; (4) for acts or omissions that show a reckless disregard for the director's duty to the Company or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the Company or its shareholders; (5) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the Company or its shareholders; (6) with respect to certain transactions, or the approval of transactions, in which a director has a material financial interest; and (7) with respect to approval of certain improper distributions to shareholders or certain loans or guarantees. This provision does not eliminate or limit the liability of an officer for any act or omission as an officer, notwithstanding that the officer is also a director or that his actions, if negligent or improper, have been ratified, by the Board of Directors. Further, the provision has no effect on claims arising under federal or state securities laws and does not affect the availability of injunctions and other equitable remedies available to the Company's shareholders for any violation of a director's fiduciary duty to the Company or its shareholders. Although the validity and scope of the legislation underlying the provision have not yet been interpreted to any significant extent by the California courts, the provision may relieve directors of monetary liability to the Company for grossly negligent conduct, including conduct in situations involving attempted takeovers of the Company. The Company's Bylaws permit it to indemnify its officers and directors to the fullest extent permitted by law. In addition, the Company's Articles of Incorporation expressly authorize the use of II-1 indemnification agreements, and the Company has entered into separate indemnification agreements with each of its directors and its executive officers. These agreements required the Company to indemnify its officer and directors to the fullest extent permitted by law, including circumstances in which indemnification would otherwise be discretionary. Among other things the agreements require the Company to indemnify directors and officers against certain liabilities that may arise by reason of their status or service as directors and officers and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. The Underwriting Agreement provides for indemnification of the Company by the Underwriters for certain liabilities, including liabilities arising under the Securities Act of 1933, as amended. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since January 1, 1993, the Registrant has issued and sold the following securities: 1. As of December 31, 1996, the Registrant issued and sold 5,811,000 shares (net of repurchases) of its Common Stock to employees at prices ranging from $.0167 to $.225 pursuant to direct issuances under Restricted Stock Purchase Agreements (Exhibit 10.3). 2. As of December 31, 1996, the Registrant issued and sold 190,934 shares of its Common Stock to employees at a price of $.0167 pursuant to exercises of options under its 1995 Stock Option Plan (Exhibit 10.2). 3. On January 20, 1993 and October 15, 1994, the Registrant issued and sold 6,000,000 shares of Common Stock for an aggregate purchase price of $10,000 to the five founders of the Registrant. 4. On March 29, 1996, the Registrant issued and sold 900,000 shares of Series A Preferred Stock for an aggregate purchase price of approximately $1,995,000 to a group of seven investors and a director of the Registrant. 5. On April 26, 1996, the Registrant issued and sold warrants to purchase 420,282 shares of Common Stock with an aggregate exercise price of approximately $2,500,000 for advisory services provided by one investor. 6. On June 13, 1996, the Registrant issued and sold 1,897,878 shares of Series B Preferred Stock for an aggregate purchase price of approximately $7,000,000 to a group of four investors. 7. On February 26, 1997, the Registrant issued and sold 854,363 shares of Series C Preferred Stock for an aggregate purchase price of approximately $9,500,517 to two investors and warrants to purchase 44,965 and 449,664 shares of Series C Preferred Stock, respectively, with an exercise price per share of 110% of the current fair value on the date such shares vest pursuant to the vesting schedule, which expire on February 26, 2000, and at an exercise price per share of 110% of the current market price on December 31, 1997 (subject to certain adjustments) if the Company has completed an initial public offering of its Common Stock; otherwise $13.34, which expire on February 26, 2004. 8. On February 26, 1997, the Registrant issued and sold 675,000 shares of Common Stock in exchange for a 49% equity interest in Genesys Laboratories Canada, Inc. to one investor. The issuances described in Items 15(a)(1) and 15(a)(2) were deemed exempt from registration under the Act in reliance upon Rule 701 promulgated under the Act. The issuances of the securities described in Items 15(a)(3) through 15(a)(8) were deemed to be exempt from registration under the Act in reliance on Section 4(2) of such Act as transactions by an issuer not involving any public offering. In addition, the recipients of securities in each such transaction represented their intentions to II-2 acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and warrants issued in such transactions. All recipients had adequate access, through their relationships with the Registrant, to information about the Registrant. ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES (a) Exhibits
EXHIBIT NO. DESCRIPTION ----------- ----------- 1.1* Form of Underwriting Agreement (preliminary form). 3.1 Amended and Restated Articles of Incorporation of the Registrant, as amended to date. 3.2 Form of Restated Articles of Incorporation to be filed after the closing of this offering made pursuant to this Registration Statement. 3.3 Bylaws of the Registrant, as amended. 3.4 Form of Bylaws to be effective upon the effectiveness of this Registration Statement. 4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4. 4.2* Specimen Common Stock certificate. 4.3 Series A Preferred Stock Purchase Agreement, dated March 29, 1996 among the Registrant and the investors named therein. 4.4 Common Stock Purchase Warrant, dated April 26, 1996 between the Registrant and Benchmark Capital Partners, L.P. 4.5 Series B Preferred Stock Purchase Agreement, dated June 13, 1996 among the Registrant and the investors named therein. 4.6 Securities Purchase Agreement, dated February 26, 1997 between the Registrant and MCI Telecommunications Corporation ("MCI"). 4.7+ Warrant to Purchase Shares of Series C Preferred Stock, dated February 26, 1997 between the Registrant and MCI. 4.8 Series C Preferred Stock and Warrant Purchase Agreement, dated February 26, 1997 between the Registrant and Intel Corporation ("Intel"). 4.9+ Warrant to Purchase Shares of Series C Preferred Stock, dated February 26, 1997 between the Registrant and Intel. 4.10 Stock Exchange Agreement, dated February 26, 1997 between the Registrant and Bruncor, Inc. ("Bruncor"). 4.11 Registration Rights Agreement, dated February 26, 1997, among the Registrant and the investors named therein. 5.1 Opinion of Brobeck, Phleger & Harrison LLP. 10.1 Form of Indemnification Agreement entered into between the Registrant and its directors and officers. 10.2 The Registrant's 1995 Stock Option Plan, as amended. 10.3 Form of the Registrant's Restricted Stock Purchase Agreement. 10.4* The Registrant's 1997 Stock Incentive Plan. 10.5* The Registrant's Employee Stock Purchase Plan. 10.6 [Intentionally left blank] 10.7 Credit Line with Imperial Bank, dated October 28, 1996. 10.8 Facilities Lease dated July 1, 1996 between the Registrant and 1155 Market Partners, with modifications dated January 21, 1997 and January 30, 1997. 10.9+ Master Software License Agreement dated January 31, 1996, including Addendum to Master License Agreement dated February 1, 1996, as amended on February 26, 1997 by and between the Registrant and MCI. 10.10+ Software Maintenance Agreement dated January 31, 1996, as amended on February 26, 1997 by and between the Registrant and MCI. 11.1 Computation of Pro Forma Net Loss Per Share. 16.1 Change in Independent Auditor's Letter.
II-3
EXHIBIT NO. DESCRIPTION ----------- ----------- 21.1 Subsidiaries of the Registrant. 23.1 Consent of Independent Public Accountants (see page II-6) 23.2 Consent of Counsel. Reference is made to Exhibit 5.1. 23.3 Consent of Counsel. 24.1 Power of Attorney (see page II-5) 27 Financial Data Schedule.
- -------- * To be supplied by amendment. +Confidential treatment requested as to certain portions of these exhibits. (b) Consolidated Financial Statement Schedules SCHEDULE II--VALUATION OF QUALIFYING SECURITIES Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS The Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the California General Corporation Law, the Articles of Incorporation or the Bylaws of the Registrant, Indemnification Agreements entered into between the Registrant and its officers and directors, the Underwriting Agreement, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The Registrant hereby undertakes that: (1) For purposes of determining any liability under the Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Act, each post- effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN FRANCISCO, STATE OF CALIFORNIA, ON THIS 2 DAY OF APRIL, 1997. Genesys Telecommunications Laboratories, Inc. By: /s/ Gregory Shenkman ---------------------------------------- Gregory Shenkman President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints jointly and severally, Gregory Shenkman and Michael J. McCloskey, and each one of them, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement (including post effective amendments), and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE --------- ----- ---- /s/ Gregory Shenkman President, Chief Executive Officer April 2, 1997 ________________________________ (Principal Executive Officer), Gregory Shenkman Director /s/ Alec Miloslavsky Vice Chairman, Chief Technical Officer, April 2, 1997 ________________________________ Director Alec Miloslavsky /s/ Michael J. McCloskey Vice President, Finance and April 2, 1997 ________________________________ International, Chief Financial Officer Michael J. McCloskey and Secretary /s/ James Jordan Chairman of the Board and Director April 2, 1997 ________________________________ James Jordan /s/ Bruce Dunlevie Director April 2, 1997 ________________________________ Bruce Dunlevie /s/ Paul Levy Director April 2, 1997 ________________________________ Paul Levy
II-5 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports and to all references to our firm included in or made a part of this registration statement. ARTHUR ANDERSEN LLP San Jose, California April 2, 1997 ---------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To Genesys Telecommunications Laboratories, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of Genesys Telecommunications Laboratories, Inc. and subsidiaries included in this registration statement and have issued our report thereon dated April 2, 1997. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index is presented for purposes of complying with the Securities and Exchange Commissions rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP San Jose, California April 2, 1997 II-6 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ADDITIONS BALANCE BEGINNING OF CHARGED TO WRITE- AT END OF PERIOD EXPENSE OFFS PERIOD ------------ ---------- -------- --------- Allowance for doubtful accounts Year ended June 30, 1994......... -- $ 51,500 -- $ 51,500 Year ended June 30, 1995......... $51,500 $ 4,000 $(40,000) $ 15,500 Year ended June 30, 1996......... $15,500 $410,500 -- $426,000
EXHIBIT INDEX
SEQUENTIALLY NUMBERED EXHIBIT NO. DESCRIPTION PAGE ----------- ----------- ------------ 1.1* Form of Underwriting Agreement (preliminary form). 3.1 Amended and Restated Articles of Incorporation of the Registrant, as amended to date. 3.2 Form of Restated Articles of Incorporation to be filed after the closing of this offering made pursuant to this Registration Statement. 3.3 Bylaws of the Registrant, as amended. 3.4 Form of Bylaws to be effective upon the effectiveness of this Registration Statement. 4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4. 4.2* Specimen Common Stock certificate. 4.3 Series A Preferred Stock Purchase Agreement, dated March 29, 1996 among the Registrant and the investors named therein. 4.4 Common Stock Purchase Warrant, dated April 26, 1996 between the Registrant and Benchmark Capital Partners, L.P. 4.5 Series B Preferred Stock Purchase Agreement, dated June 13, 1996 among the Registrant and the investors named therein. 4.6 Securities Purchase Agreement, dated February 26, 1997 between the Registrant and MCI Telecommunications Corporation ("MCI"). 4.7+ Warrant to Purchase Shares of Series C Preferred Stock, dated February 26, 1997 between the Registrant and MCI. 4.8 Series C Preferred Stock and Warrant Purchase Agreement, dated February 26, 1997 between the Registrant and Intel Corporation ("Intel"). 4.9+ Warrant to Purchase Shares of Series C Preferred Stock, dated February 26, 1997 between the Registrant and Intel. 4.10 Stock Exchange Agreement, dated February 26, 1997 between the Registrant and Bruncor, Inc. ("Bruncor"). 4.11 Registration Rights Agreement, dated February 26, 1997, among the Registrant and the investors named therein. 5.1 Opinion of Brobeck, Phleger & Harrison LLP. 10.1 Form of Indemnification Agreement entered into between the Registrant and its directors and officers. 10.2 The Registrant's 1995 Stock Option Plan, as amended. 10.3 Form of the Registrant's Restricted Stock Purchase Agreement. 10.4* The Registrant's 1997 Stock Incentive Plan. 10.5* The Registrant's Employee Stock Purchase Plan. 10.6 [Intentionally left blank] 10.7 Credit Line with Imperial Bank, dated October 28, 1996. 10.8 Facilities Lease dated July 1, 1996 between the Registrant and 1155 Market Partners, with modifications dated January 21, 1997 and January 30, 1997. 10.9+ Master Software License Agreement dated January 31, 1996, including Addendum to Master License Agreement dated February 1, 1996, as amended on February 26, 1997 by and between the Registrant and MCI. 10.10+ Software Maintenance Agreement dated January 31, 1996, as amended on February 26, 1997 by and between the Registrant and MCI. 11.1 Computation of Pro Forma Net Loss Per Share. 16.1 Change in Independent Auditor's Letter. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Independent Public Accountants (see page II-6)
SEQUENTIALLY NUMBERED EXHIBIT NO. DESCRIPTION PAGE ----------- ----------- ------------ 23.2 Consent of Counsel. Reference is made to Exhibit 5.1. 23.3 Consent of Counsel. 24.1 Power of Attorney (see page II-5) 27 Financial Data Schedule.
- -------- * To be supplied by amendment. +Confidential treatment requested as to certain portions of these exhibits. EX-3.1 2 AMENDED & RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION ---------------------------------------------- OF -- GENESYS TELECOMMUNICATIONS LABORATORIES --------------------------------------- Michael McCloskey and Richard C. DeGolia certify that: 1. They are the Vice President and the Secretary, respectively, of Genesys Telecommunications Laboratories, a California corporation (the "CORPORATION"). 2. The Articles of Incorporation of this Corporation are amended and restated to read 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 This Corporation is authorized to issue two classes of shares to be designated respectively Common Stock ("COMMON STOCK") and Preferred Stock ("PREFERRED STOCK"). The total number of shares of Common Stock this Corporation shall have authority to issue is 120,000,000 shares, and the total number of shares of Preferred Stock this Corporation shall have authority to issue is 4,146,870 shares. Of the shares of Preferred Stock, 900,000 shares are hereby designated as Series A Preferred Stock ("SERIES A PREFERRED"), 1,897,878 shares are hereby designated as Series B Preferred Stock ("SERIES B PREFERRED") and 1,348,992 shares are hereby designated as Series C Preferred Stock ("SERIES C PREFERRED"). Upon the effective date of these Amended and Restated Articles of Incorporation, (i) every one (1) outstanding share of Series A Preferred Stock shall be converted 1 into six (6) shares of Series A Preferred Stock of this Corporation and (ii) every one (1) outstanding share of Series B Preferred Stock shall be converted into six (6) shares of Series B Preferred Stock of this Corporation. The Corporation shall from time to time in accordance with the laws of the State of California increase the authorized amount of its Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall not be sufficient to permit conversion of the Preferred Stock. The relative rights, preferences, privileges and restrictions granted to or imposed on the Preferred Stock and the holders thereof are as set forth below. Section 1. Dividends. The holders of the Series A Preferred shall be --------- entitled to receive, when and as declared by the Board of Directors, out of funds legally available therefor, dividends at the rate of $.1333 per share per annum. The holders of the Series B Preferred shall be entitled to receive, when and as declared by the Board by Directors, out of funds legally available therefor, dividends at the rate of $.225 per share per annum. The holders of the Series C Preferred shall be entitled to receive, when and as declared by the Board of Directors, out of funds legally available therefor, dividends at the rate of $.6672 per share per annum. Such dividends shall not be cumulative and no right to such dividends shall accrue to holders of Series A Preferred, Series B Preferred and Series C Preferred unless declared by the Board of Directors. No dividends shall be declared on the Series A Preferred, Series B Preferred or Common Stock until dividends at the rate specified above calculated for each year the Series C Preferred has been outstanding have been declared with respect to the Series C Preferred. No dividends or other distributions shall be made with respect to the Series A Preferred, the Series B Preferred or Common Stock, other than dividends payable solely in Common Stock, until all declared dividends on the Series C Preferred have been paid or set apart. No dividends or other distributions shall be made with respect to the Common Stock, other than dividends payable solely in Common Stock, until all declared dividends on the Preferred Stock have been paid or set apart. Section 2. Liquidation Preference. In the event of any liquidation, ---------------------- dissolution, or winding up of the Corporation, either voluntary or involuntary (a "LIQUIDATION"), distributions to the shareholders of the Corporation shall be made in the following manner: (a) Series C Preferred. In the event of a Liquidation, the holders of ------------------ Series C Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Series A Preferred, Series B Preferred and Common Stock by reason of their ownership of such stock, an amount equal to $11.12 per share for each share of Series C Preferred then held by them, adjusted for any combinations, consolidations, or stock distributions or dividends with respect to such shares and, in addition, an amount equal to all declared but unpaid dividends on the Series C Preferred (the 2 "SERIES C LIQUIDATION PREFERENCE"), to be paid out of the Corporation's assets legally available for distribution to its shareholders (the "LIQUIDATION ASSETS"). If upon a Liquidation, the Liquidation Assets to be distributed among the holders of Series C Preferred shall be insufficient to permit the payment to such holders of the full aforesaid Series C Liquidation Preference, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of Series C Preferred in a manner such that the amount to be distributed to each holder of Series C Preferred shall equal the amount obtained by multiplying the Liquidation Assets hereunder by a fraction, the numerator of which shall be equal to the number of shares of Series C Preferred then held by such holder multiplied by the Series C Liquidation Preference, and the denominator of which shall be equal to the total number of shares of Series C Preferred then outstanding multiplied by the Series C Liquidation Preference. (b) Series A and Series B Preferred. After payment has been made to the ------------------------------- holders of the Series C Preferred of the full amounts to which they shall be entitled as aforesaid in subparagraph (a), the holders of Series A Preferred and Series B Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, an amount equal to (i) $2.2167 per share for each share of Series A Preferred then held by them, adjusted for any combinations, consolidations, or stock distributions or dividends with respect to such shares and, in addition, an amount equal to all declared but unpaid dividends on the Series A Preferred (the "SERIES A LIQUIDATION PREFERENCE"), and (ii) $3.6883 per share for each share of Series B Preferred then held by them, adjusted for any combinations, consolidations, or stock distributions or dividends with respect to such shares and, in addition, an amount equal to all declared but unpaid dividends on the Series B Preferred (the "SERIES B LIQUIDATION PREFERENCE"), to be paid out of the remaining Liquidation Assets. If upon a Liquidation, such remaining Liquidation Assets to be distributed among the holders of Series A Preferred and Series B Preferred shall be insufficient to permit the payment to such holders of the full aforesaid Series A Liquidation Preference and Series B Liquidation Preference, then the entire assets and funds of the Corporation legally available for distribution to the holders of Series A Preferred and Series B Preferred shall be distributed ratably among such holders in a manner such that the amount to be distributed to each holder of Series A Preferred and Series B Preferred shall equal the amount obtained by multiplying the remaining Liquidation Assets hereunder by a fraction, the numerator of which shall be equal to the sum of (a) the number of shares of Series A Preferred then held by such holder multiplied by the Series A Liquidation Preference and (b) the number of shares of Series B Preferred then held by such holder multiplied by the Series B Liquidation Preference, and the denominator of which shall be equal to the sum of (A) the total number of shares of Series A Preferred then outstanding multiplied by the Series A Liquidation Preference and (B) the total number of shares of Series B Preferred then outstanding multiplied by the Series B Liquidation Preference. 3 (c) Common Stock. After payment has been made to the holders of the Series ------------ A Preferred, Series B Preferred and Series C Preferred of the full amounts to which they shall be entitled as aforesaid in subparagraphs (a) and (b), all remaining Liquidation Assets shall be distributed ratably among the holders of the Common Stock in a manner such that the remaining amount distributed to each holder of Common Stock shall equal the amount obtained by multiplying the entire assets and funds of the Corporation legally available for distribution hereunder by a fraction, the numerator of which shall be the number of shares of Common Stock then held by such holder, and the denominator of which shall be the total number of shares of Common Stock then outstanding. (d) Deemed Liquidation. For purposes of this Section 2, a merger or ------------------ consolidation of the Corporation with or into any other corporation or corporations (except where a majority of the outstanding equity securities of the surviving corporation immediately after the merger or consolidation is held by persons who were shareholders of this Corporation immediately prior to the merger or consolidation), or a sale or other transfer of all or substantially all of the assets of the Corporation (or any series of related transactions resulting in the sale or other transfer of all or substantially all of the assets of the Corporation), shall be treated as a Liquidation. (e) Consent. Each holder of an outstanding share of Preferred Stock shall ------- be deemed to have consented, for purposes of Sections 502, 503 and 506 of the General Corporation Law of California, to distributions made by the Corporation in connection with the repurchase of shares of Common Stock issued to or held by employees or consultants upon termination of their employment or services pursuant to agreements between the Corporation and such persons providing for the Corporation's right of said repurchase. Section 3. Voting Rights. Except as otherwise required by law or by ------------- Section 5 hereof, the holder of each share of Common Stock issued and outstanding shall have one vote and the holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Preferred Stock could be converted at the record date for determination of the shareholders entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited, such votes to be counted together with all other shares of stock of the Corporation having general voting power and not separately as a class. Holders of Common Stock and Preferred Stock shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes by the holders of Preferred Stock shall not, however, be permitted and any fractional voting rights shall (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) be rounded to the nearest whole number. Section 4. Conversion. The holders of the Preferred Stock shall have ---------- conversion rights as follows (the "CONVERSION RIGHTS"): 4 (a) Right to Convert. Each share of Preferred Stock shall be convertible, ---------------- without the payment of any additional consideration by the holder thereof and at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for the Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (i) for the Series A Preferred, $2.2167 by the Series A Conversion Price for each share of Series A Preferred to be converted, (ii) for the Series B Preferred, $3.6883 by the Series B Conversion Price for each share of Series B Preferred to be converted, and (iii) for the Series C Preferred, $11.12 by the Series C Conversion Price for each share of Series C Preferred to be converted, with each such Conversion Price determined as hereinafter provided and as in effect at the time of conversion for such series of Preferred Stock. The prices at which shares of Common Stock shall be deliverable upon conversion of Series A Preferred, Series B Preferred and Series C Preferred without the payment of any additional consideration by the holders thereof shall initially be (A) $2.2167 per share of Common Stock in the case of the Series A Preferred (the "SERIES A CONVERSION PRICE"), (B) $3.6883 per share of Common Stock in the case of the Series B Preferred (the "SERIES B CONVERSION PRICE"), and (C) $11.12 per share of Common Stock in the case of the Series C Preferred (the "SERIES C CONVERSION PRICE"). Such initial Conversion Prices shall be subject to adjustment, in order to adjust the number of shares of Common Stock into which the respective series of Preferred Stock is convertible, as hereinafter provided. Upon conversion, all declared and unpaid dividends on the Series A Preferred, Series B Preferred and Series C Preferred shall be paid either in cash or in shares of Common Stock of the Corporation, at the election of the Corporation, wherein the shares of Common Stock shall be valued at the fair market value at the time of such conversion, as determined by the Board of Directors of the Corporation. (b) Automatic Conversion. -------------------- (i) Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price upon the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Corporation to the public with aggregate offering price to the public of not less than $15,000,000, and at a price per share (prior to underwriter commissions and offering expenses) of not less than $11.12 per share (appropriately adjusted for any recapitalization, stock split or like event). (ii) The Series A Preferred Stock and the Series B Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price upon the date upon which the Corporation obtains the consent of the holders of a majority of the Series A Preferred and Series B Preferred then outstanding, voting together as a class. In the event of the automatic conversion of the Preferred Stock upon a public offering as aforesaid, the person(s) entitled to receive the Common Stock issuable upon such conversion of 5 Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities. (c) Mechanics of Conversion. No fractional shares of Common Stock shall be ----------------------- issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation at its election shall either (i) pay cash equal to such fraction multiplied by the then effective Conversion Price or (ii) issue one whole share of Common Stock for each fractional share to which the holder would otherwise be entitled. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock and to receive certificates therefor, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same; provided, however, that in the event of an automatic conversion pursuant to Section 4(b), the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, and provided further that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Preferred Stock are either delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, or in the case of automatic conversion on the date of closing of the offering or the effective date of such written consent, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (d) Adjustments to Conversion Price for Diluting Issues. --------------------------------------------------- (i) Special Definitions. For purposes of this subsection 4(d), the ------------------- following definitions shall apply: (1) "Option" shall mean rights, options or warrants to subscribe for, ------ purchase or otherwise acquire either Common Stock or Convertible Securities. 6 (2) "Original Issue Date" shall mean the date on which the first share ------------------- of Series C Preferred was issued. (3) "Convertible Securities" shall mean any evidences of indebtedness, ---------------------- shares or other securities convertible into or exchangeable for Common Stock. (4) "Additional Shares of Common" shall mean all shares of Common --------------------------- Stock issued (or, pursuant to Section 4(d)(iii), deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable: (A) upon conversion of shares of Preferred Stock (i) outstanding as of the Original Issue Date or (ii) acquired upon exercise of any Preferred Stock warrants outstanding as of the Original Issue Date; (B) as a dividend or distribution on Preferred Stock or as a result of any event for which adjustment is made pursuant to subparagraph (d)(vi) hereof; (C) to officers, directors and employees of, and consultants to, the Corporation pursuant to the Corporation's 1995 Stock Option Plan or such other arrangement approved by the Corporation's Board of Directors (up to an additional 2,300,000 shares after the Original Issue Date, with such 2,300,000 limitation not applicable to any shares of Common Stock issued or issuable upon exercise of any option, warrant or other right issued, granted or outstanding on or prior to the Original Issue Date); (D) upon exercise of any option, warrant or other right issued, granted or outstanding on or prior to the Original Issue Date; (E) by way of dividend or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common by the foregoing clause(s) (A), (B), (C) and (D). (ii) No Adjustment of Conversion Price. Notwithstanding anything to --------------------------------- the contrary, no adjustment in the number of shares of Common Stock into which any series of Preferred Stock is convertible shall be made, by adjustment in the Conversion Price of such series of Preferred Stock in respect of the issuance of Additional Shares of Common or otherwise, unless the consideration per share for an Additional Share of Common issued or deemed to be issued by the Corporation is less than the Conversion Price of such series in effect on the date of, and immediately prior to, the issue of such Additional Share of Common. 7 (iii) Deemed Issuances of Additional Shares of Common. ----------------------------------------------- (1) Options and Convertible Securities. In the event the Corporation ---------------------------------- at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common issued as of the time of such issue or, in the case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common shall not be deemed to have been issued with respect to an adjustment of the Conversion Price for a series of Preferred Stock unless the consideration per share (determined pursuant to subsection 4(d)(v) hereof) of such Additional Shares of Common would be less than the Conversion Price of such series of Preferred Stock in effect on the date of and immediately prior to such issue or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common are deemed to be issued: (A) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation, or decrease or increase in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease in consideration or increase or decrease in the number of shares issuable becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (C) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon shall, upon such expiration, be recomputed as if: (a) in the case of Convertible Securities or Options for Common Stock the only Additional Shares of Common issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or 8 exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of such exercised Options plus the consideration actually received by the Corporation upon such exercise or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and (b) in the case of Options for Convertible Securities, the only Additional Shares of Common deemed to have been issued were the Convertible Securities, if any, that were actually issued upon the exercise of such Options, and the consideration received by the Corporation for the Additional Shares of Common deemed to have been then issued was the consideration actually received by the Corporation for the issue of such exercised Options, plus the consideration deemed to have been received by the Corporation (determined pursuant to subsection 4(d)(v)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (D) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (i) the Conversion Price as it existed on the original adjustment date, or (ii) the Conversion Price that would have resulted from any issuance of Additional Shares of Common between the original adjustment date and such readjustment date; (E) in the case of any Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options issued on the same date, whereupon such adjustment shall be made in the same manner provided in clause (C) above; and (F) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this subsection 4(d)(iii) as of the actual date of their issuance. (2) Stock Dividends, Stock Distributions and Subdivisions. In the ----------------------------------------------------- event the Corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend or make any other distribution on the Common Stock payable in Common Stock, or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common shall be deemed to have been issued: 9 (A) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or distribution, or (B) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which such corporate action becomes effective. If such record date shall have been fixed and such dividend shall not have been paid on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this subsection 4(d)(iii) as of the time of actual payment of such dividend. (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares ----------------------------------------------------------------- of Common. In the event the Corporation shall issue Additional Shares of Common - --------- (including Additional Shares of Common deemed to be issued pursuant to subsection 4(d)(iii), but excluding Additional Shares of Common issued pursuant to subsection 4(d)(iii)(2), which event is dealt with in subsection 4(d)(vi) hereof), without consideration or for a consideration per share less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, the applicable Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying the Conversion Price by a fraction (x) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue, plus (2) the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common so issued would purchase at the Conversion Price, and (y) the denominator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue plus (2) the number of such Additional Shares of Common so issued; provided that for the purposes of this subsection (iv), all shares of Common - -------- Stock issuable upon exercise, conversion or exchange of outstanding Options or Convertible Securities, as the case may be, shall be deemed to be outstanding, and immediately after any Additional Shares of Common are deemed issued pursuant to subsection (iii) above, such Additional Shares of Common shall be deemed to be outstanding, and provided further that the Conversion Price shall not be so reduced at such time if the amount of such reduction would be an amount less than $0.05, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.05 or more. (v) Determination of Consideration. For purposes of this subsection ------------------------------ 4(d), the consideration received by the Corporation for the issue of any Additional Shares of Common shall be computed as follows: 10 (1) Cash and Property. Such consideration shall: ----------------- (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends; (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (C) in the event Additional Shares of Common are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors. (2) Options and Convertible Securities. The consideration per share ---------------------------------- received by the Corporation for Additional Shares of Common deemed to have been issued pursuant to subsection 4(d)(iii)(1), relating to Options and Convertible Securities, shall be determined by dividing (x) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (vi) Adjustments for Subdivisions, Combinations, Consolidations or ------------------------------------------ ----------------- Stock Dividends. In the event the outstanding shares of Common Stock shall be - --------------- subdivided (by stock split or otherwise), into a greater number of shares of Common Stock, or shares of Common Stock shall have been issued by stock dividend, the Conversion Price then in effect shall, concurrently with the effectiveness of such subdivision or stock dividend, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined or consolidated by reclassification or otherwise, into a lesser number of shares of Common Stock, 11 the Conversion Price then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (vii) Adjustments for Other Distributions. In the event the ----------------------------------- Corporation at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive any distribution payable in securities of the Corporation other than shares of Common Stock and other than as otherwise adjusted in this Section 4, then and in each such event provision shall be made so that the holders of Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation which they would have received had their Preferred Stock been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the date of conversion, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 4 with respect to the rights of the holders of the Preferred Stock. In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends), or options or rights not referred to in subsection 4(d)(iii), then, in each such case for the purpose of this subsection 4(d), the holders of the Series A Preferred shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Series A Preferred are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. (viii) Adjustments for Reclassification, Exchange and Substitution. ----------------------------------------------------------- If the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), the Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that the Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Preferred Stock immediately before that change. (e) No Impairment. Except as provided in Section 5, the Corporation ------------- will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or 12 appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment. (f) Certificate as to Adjustments. Upon the occurrence of each ----------------------------- adjustment or readjustment of the Conversion Price pursuant to this Section 4, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Preferred Stock. (g) Notices of Record Date. In the event that this Corporation shall ---------------------- propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge or consolidate with or into any other corporation or entity, or sell, lease or convey all or substantially all of its property or business, or to liquidate, dissolve or wind up; then, in connection with each such event, this Corporation shall send to the holders of the Preferred Stock: (1) at least 10 days prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (iii) and (iv) above; and (2) in the case of the matters referred to in (iii) and (iv) above, at least 10 days prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event). 13 Each such written notice shall be delivered personally or given by registered, certified or first class mail, postage prepaid, addressed to the holders of the Preferred Stock at the address for each such holder as shown on the books of this Corporation. Section 5. Covenants. --------- (a) In addition to any other rights provided by law, so long as any shares of Series A Preferred or Series B Preferred are outstanding, this Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of a majority of such outstanding shares of Series A Preferred and Series B Preferred, voting together as a single class: (i) amend or repeal any provision of, or add any provision to, this Corporation's Articles of Incorporation if such action would adversely alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series A Preferred or Series B Preferred; (ii) authorize shares of any class of stock having any preference or priority as to dividends or assets superior to or on a parity with any such preference or priority of the Series A Preferred or Series B Preferred; (iii) reclassify any shares of Common Stock and any other shares of this Corporation into shares having any preference or priority as to dividends or assets superior to or on a parity with any such preference or priority of the Series A Preferred or Series B Preferred; or (iv) authorize a merger, sale of substantially all the assets, recapitalization, or reorganization of the Corporation (except where a majority of the outstanding equity securities of the Corporation after the merger, sale, recapitalization or reorganization is held by persons who were shareholders of this Corporation immediately prior to the merger or consolidation). (b) In addition to any other rights provided by law, so long as any shares of Series C Preferred is outstanding, this Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of at least seventy-five percent (75%) of such outstanding shares of Series C Preferred: (i) amend or repeal any provision of, or add any provision to, this Corporation's Articles of Incorporation if such action would adversely alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series C Preferred; 14 (ii) authorize shares of any class of stock having any preference or priority as to dividends or assets superior to or on a parity with any such preference or priority of the Series C Preferred; (iii) reclassify any shares of Common Stock and any other shares of this Corporation into shares having any preference or priority as to dividends or assets superior to or on a parity with any such preference or priority of the Series C Preferred; (iv) declare the payment of any dividends on or redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any share or shares of Series A Preferred, Series B Preferred or Common Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from (A) employees, officers, directors, consultants or other persons performing services for the Company or any subsidiary pursuant to agreements under which the Company has the option to repurchase such shares at cost upon the occurrence of certain events, such as the termination of employment, or (B) the repurchase of shares pursuant to repurchase or similar rights outstanding as of the Original Issue Date. (v) authorize a merger, sale of substantially all the assets, recapitalization, or reorganization of the Corporation (except where a majority of the outstanding equity securities of the Corporation after the merger, sale, recapitalization or reorganization is held by persons who were shareholders of this Corporation immediately prior to the merger or consolidation). Section 6. No Reissuance of Preferred Shares. No share or shares of --------------------------------- Preferred Stock which are converted, redeemed, purchased or otherwise acquired by the Corporation shall be reissued, and all such shares of Preferred Stock shall be cancelled and eliminated from the shares which the Corporation shall be authorized to issue. Section 7. Residual Rights. All rights accruing to the outstanding --------------- shares of this Corporation not expressly provided for to the contrary herein shall be vested in the Common Stock. ARTICLE IV Section 1. Limitation of Directors' Liability. The liability of the ---------------------------------- directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. Section 2. Indemnification of Corporate Agents. This corporation is ----------------------------------- authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) to the fullest extent permissible under California law. 15 Section 3. Repeal or Modification. Any repeal or modification of the ---------------------- foregoing provisions of this Article IV by the shareholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification." * * * 3. The foregoing amendment and restatement of the Articles of Incorporation has been duly approved by the Board of Directors of this Corporation. 4. The foregoing amendment 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 Common Stock of the Corporation is 12,069,086 shares. The total number of outstanding shares of Series A Preferred Stock of the Corporation is 150,000. The total number of outstanding shares of Series B Preferred Stock of the Corporation is 316,313. 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 vote required was (i) more than 50% of the outstanding shares of Common Stock and, (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. 16 We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Executed at San Francisco, California on January 31, 1997. /s/ Michael J. McCloskey ------------------------------------------- Michael J. McCloskey, Vice President, Chief Financial Officer /s/ Richard C. DeGolia ------------------------------------------- Richard C. DeGolia, Secretary 17 EX-3.2 3 FORM OF RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.2 AMENDED AND 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 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 Corporation 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 permissible 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 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 amendment 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 Common Stock of the Corporation is ___________________ shares. The total number of outstanding shares of Series A Preferred Stock of the Corporation is 150,000. The total number of outstanding shares of Series B Preferred Stock of the Corporation is 316,313. The total number of outstanding shares of Series C Preferred Stock of the Corporation is 854,363. 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 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. IN WITNESS WHEREOF, the undersigned have executed this certificate on ________________, 1997. ------------------------------------------- Gregory Shenkman President ------------------------------------------- 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 ____________, 1997, at San Francisco, California. ------------------------------------------- Gregory Shenkman President ------------------------------------------- Michael J. McCloskey Secretary EX-3.3 4 BYLAWS OF THE REGISTRANT AMENDED BYLAWS EXHIBIT 3.3 OF GENESYS TELECOMMUNICATIONS LABORATORIES TABLE OF CONTENTS ----------------- (CONTINUED) ----------- PAGE ---- PAGE ---- TABLE OF CONTENTS
PAGE ---- ARTICLE I - OFFICES 1 ARTICLE II - SHAREHOLDERS' MEETINGS 1 Section 1. Annual Meetings 1 Section 2. Special Meetings 1 Section 3. Place 2 Section 4. Notice 2 Section 5. Adjourned Meetings 3 Section 6. Quorum 3 Section 7. Consent to Shareholder Action 3 Section 8. Waiver of Notice 4 Section 9. Voting 4 Section 10. Record Dates 4 Section 11. Cumulative Voting for Election of Directors 5 ARTICLE III - BOARD OF DIRECTORS 6 Section 1. Powers 6 Section 2. Number, Tenure and Qualifications 6 Section 3. Regular Meetings 7 Section 4. Special Meetings 7 Section 5. Place of Meetings 7 Section 6. Participation by Telephone 7 Section 7. Quorum 8 Section 8. Action at Meeting 8 Section 9. Waiver of Notice 8 Section 10. Action Without Meeting 8 Section 11. Removal 9 Section 12. Resignations 9 Section 13. Vacancies 9 Section 14. Compensation 10 Section 15. Committees 10 ARTICLE IV - OFFICERS 11 Section 1. Number and Term 11 Section 2. Inability to Act 11 Section 3. Removal and Resignation 11
-i- TABLE OF CONTENTS ----------------- (CONTINUED) --------- PAGE ---- Section 4. Vacancies 12 Section 5. Chairman of the Board 12 Section 6. President 12 Section 7. Vice President 12 Section 8. Secretary 12 Section 9. Chief Financial Officer 13 Section 10. Salaries 13 Section 11. Officers Holding More than One Office 13 Section 12. Approval of Loans to Officers 13 ARTICLE V - MISCELLANEOUS 14 Section 1. Record Date and Closing of Stock Books 14 Section 2. Certificates 15 Section 3. Representation of Shares in Other Corporations 15 Section 4. Fiscal Year 15 Section 5. Annual Reports 15 Section 6. Amendments 15 Section 7. Indemnification of Corporate Agents 16
-ii- AMENDED BYLAWS -------------- OF -- GENESYS TELECOMMUNICATIONS LABORATORIES --------------------------------------- ARTICLE -------- OFFICES ------- Section The principal executive offices of Genesys Telecommunications Laboratories (the "Corporation") shall be at such place inside or outside the State of California as the Board of Directors may determine from time to time. Section The Corporation may also have offices at such other places as the Board of Directors may from time to time designate, or as the business of the Corporation may require. ARTICLE SHAREHOLDERS' MEETINGS ---------------------- A. Section Annual Meetings. The annual meeting of the shareholders of --------------- the Corporation for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting shall be held at such place and at such time as may be fixed from time to time by the Board of Directors and stated in the notice of the meeting. If the annual meeting of the shareholders be not held as herein prescribed, the election of directors may be held at any meeting thereafter called pursuant to these Bylaws. B. Section Special Meetings. Special meetings of the shareholders, ----------------- for any purpose whatsoever, unless otherwise prescribed by statute, may be called at any time by the Chairman of the Board, the President, or by the Board of Directors, or by one or more shareholders holding not less than ten percent (l0%) of the voting power of the Corporation. 3 Section Place. All meetings of the shareholders shall be at any ----- place within or without the State of California designated either by the Board of Directors or by written consent of the holders of a majority of the shares entitled to vote thereat, given either before or after the meeting. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the Corporation. Section Notice. Notice of meetings of the shareholders of the ------ Corporation shall be given in writing to each shareholder entitled to vote, either personally or by first-class mail (unless the Corporation has 500 or more shareholders determined as provided by the California Corporations Code on the record date for the meeting, in which case notice may be sent by third-class mail) or other means of written communication, charges prepaid, addressed to the shareholder at his address appearing on the books of the Corporation or given by the shareholder to the Corporation for the purpose of notice. Notice of any such meeting of shareholders shall be sent to each shareholder entitled thereto not less than ten (10) (or, if sent by third-class mail, thirty (30) days) nor more than sixty (60) days before the meeting. Said notice shall state the place, date and hour of the meeting and, (1) in the case of special meetings, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of annual meetings, those matters which the Board of Directors, at the time of the mailing of the notice, intends to present for action by the shareholders, but subject to Section 601(f) of the California Corporations Code any proper matter may be presented at the meeting for shareholder action, and (3) in the case of any meeting at which directors are to be elected, the names of the nominees intended at the time of the mailing of the notice to be presented by management for election. Section Adjourned Meetings. Any shareholders' meeting may be adjourned ------------------ from time to time by the vote of the holders of a majority of the voting shares present at the meeting either in person or by proxy. Notice of any adjourned meeting need not be given unless a meeting is adjourned for forty-five (45) days or more from the date set for the original meeting. Section Quorum. The presence in person or by proxy of the persons ------ entitled to vote a majority of the shares entitled to vote at any meeting constitutes a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares, the holders of which are either present in person or represented by proxy thereat, but no other business may be transacted, except as provided above. Section Consent to Shareholder Action. Any action which may be taken at ----------------------------- any meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take each action at a meeting at which all shares entitled to vote thereon were present and voted; provided, however, that (1) unless the consents of all shareholders entitled to vote have been solicited in writing, notice of any shareholder approval without a meeting by less than unanimous written consent shall be given as required by the California Corporations Code, and (2) directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. Any written consent may be revoked by a writing received by the Secretary of the Corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary. Section Waiver of Notice. The transactions of any meeting of ---------------- shareholders, however called and noticed, and whenever held, shall be as valid as though a meeting had been duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of the meeting, or an approval of the minutes thereof. All such waivers, consents, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section Voting. The voting at all meetings of shareholders need not be ------ by ballot, but any qualified shareholder before the voting begins may demand a stock vote whereupon such stock vote shall be taken by ballot, each of which shall state the name of the shareholder voting and the number of shares voted by such shareholder, and if such ballot be cast by a proxy, it shall also state the name of such proxy. At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person, or by proxy appointed in a writing subscribed by such shareholder and bearing a date not more than eleven (Il) months prior to said meeting, unless the writing states that it is irrevocable and satisfies Section 705(e) of the California Corporations Code, in which event it is irrevocable for the period specified in said writing and said Section 705(e). Section Record Dates. In the event the Board of Directors fixes a day ------------ for the determination of shareholders of record entitled to vote as provided in Section 1 of Article V of these Bylaws, then, subject to the provisions of the General Corporation Law of the State of California, only persons in whose name shares entitled to vote stand on the stock records of the Corporation at the close of business on such day shall be entitled to vote. If no record date is fixed: The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is given; and The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days. Section Cumulative Voting for Election of Directors. Provided the ------------------------------------------- candidate's name has been placed in nomination prior to the voting and one or more shareholders has given notice at the meeting prior to the voting of the shareholder's intent to cumulate the shareholder's votes, every shareholder entitled to vote at any election for directors shall have the right to cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder's shares are normally entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder shall think fit. The candidates receiving the highest number of votes of the shares entitled to be voted for them up to the number of directors to be elected by such shares are elected. ARTICLE BOARD OF DIRECTORS ------------------ Section Powers. Subject to any limitations in the Articles of ------ Incorporation or these Bylaws and to any provision of the California Corporations Code requiring shareholder authorization or approval for a particular action, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by, or under the direction of, the Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the Corporation to a management company or other person provided that the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised, under the ultimate direction of the Board of Directors. Section Number, Tenure and Qualifications. The authorized number of --------------------------------- directors of this corporation shall be not less than three (3) nor more than five (5), the exact number of directors to be fixed from time to time within such limit by a duly adopted resolution of the Board of Directors or shareholders, the exact number of directors presently authorized shall be three (3) until changed within the limits specified above by a duly adopted resolution of the Board of Directors or shareholders. Directors shall hold office until the next annual meeting of shareholders and until their respective successors are elected. If any such annual meeting is not held, or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose. Directors need not be shareholders. Section Regular Meetings. A regular annual meeting of the Board of ---------------- Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide for other regular meetings from time to time by resolution. Section Special Meetings. Special meetings of the Board of Directors ---------------- may be called at any time by the Chairman of the Board, or the President or any Vice President, or the Secretary or any two (2) directors. Written notice of the time and place of all special meetings of the Board of Directors shall be delivered personally or by telephone or telegraph to each director at least forty-eight (48) hours before the meeting, or sent to each director by first- class mail, postage prepaid, at least four (4) days before the meeting. Such notice need not specify the purpose of the meeting. Notice of any meeting of the Board of Directors need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting prior thereto or at its commencement, the lack of notice to such director. Section Place of Meetings. Meetings of the Board of Directors may be ----------------- held at any place within or without the State of California, which has been designated in the notice, or if not stated in the notice or there is no notice, the principal executive office of the Corporation or as designated by the resolution duly adopted by the Board of Directors. Section Participation by Telephone. Members of the Board of Directors -------------------------- may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Section Quorum. A majority of the Board of Directors shall constitute a ------ quorum at all meetings. In the absence of a quorum a majority of the directors present may adjourn any meeting to another time and place. If a meeting is adjourned for more than twenty-four (24) hours, notice of any adjournment to another time or place shall be given prior to the time of the reconvened meeting to the directors who were not present at the time of adjournment. Section Action at Meeting. Every act or decision done or made by a ----------------- majority of the directors present at a meeting duly held at which a quorum is present is the act of the Board of Directors. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. Section Waiver of Notice. The transactions of any meeting of the Board ---------------- of Directors, however called and noticed or wherever held, are as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or' made a part of the minutes of the meeting. Section Action Without Meeting. Any action required or permitted to be ---------------------- taken by the Board of Directors may be taken without a meeting, if all members of the Board individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. Section Removal. The Board of Directors may declare vacant the office ------- of a director who has been declared of unsound mind by an order of court or who has been convicted of a felony. The entire Board of Directors or any individual director may be removed from office without cause by a vote of shareholders holding a majority of the outstanding shares entitled to vote at an election of directors; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes cast were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director's most recent election were then being elected. In the event an office of a director is so declared vacant or in case the Board or any one or more directors be so removed, new directors may be elected at the same meeting. Section Resignations. Any director may resign effective upon giving ------------ written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the Corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. Section Vacancies. Except for a vacancy created by the removal of a --------- director, all vacancies in the Board of Directors, whether caused by resignation, death or otherwise, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at an annual, regular or special meeting of the shareholders. Vacancies created by the removal of a director may be filled only by approval of the shareholders. The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Any such election by written consent requires the consent of a majority of the outstanding shares entitled to vote. Section Compensation. No stated salary shall be paid directors, as ------------ such, for their services, but, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of such Board; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section Committees. The Board of Directors may, by resolution adopted ---------- by a majority of the authorized number of directors, designate one or more committees, each consisting of two (2) or more directors, to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have all the authority of the Board of Directors in the management of the business and affairs of the Corporation, except with respect to (a) the approval of any action requiring shareholder approval or approval of the outstanding shares, (b) the filling of vacancies on the Board or any committee, (c) the fixing of compensation of directors for serving on the Board or a committee, (d) the adoption, amendment or repeal of Bylaws, (e) the amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable, (f) a distribution to shareholders, except at a rate or in a periodic amount or within a price range determined by the Board, and (g) the appointment of other committees of the Board or the members thereof. ARTICLE OFFICERS -------- Section Number and Term. The officers of the Corporation shall be a --------------- President, a Vice President, a Chief Financial Officer and a Secretary all of which shall be chosen by the Board of Directors. In addition, the Board of Directors may appoint such other officers as may be deemed expedient for the proper conduct of the business of the Corporation, each of whom shall have such authority and perform such duties as the Board of Directors may from time to time determine. The officers to be appointed by the Board of Directors shall be chosen annually at the regular meeting of the Board of Directors held after the annual meeting of shareholders and shall serve at the pleasure of the Board of Directors. If officers are not chosen at such meeting of the Board of Directors, they shall be chosen as soon thereafter as shall be convenient. Each officer shall hold office until his successor shall have been duly chosen or until his removal or resignation. Section Inability to Act. In the case of absence or inability to act of ---------------- any officer of the Corporation and of any person herein authorized to act in his place, the Board of Directors may from time to time delegate the powers or duties of such officer to any other officer, or any director or other person whom it may select. Section Removal and Resignation. Any officer chosen by the Board of ----------------------- Directors may be removed at any time, with or without cause, by the affirmative vote of a majority of all the members of the Board of Directors. Any officer chosen by the Board of Directors may resign at any time by giving written notice of said resignation to the Corporation. Unless a different time is specified therein, such resignation shall be effective upon its receipt by the Chairman of the Board, the President, the Secretary or the Board of Directors. A. Section Vacancies. A vacancy in any office because of any cause --------- may be filled by the Board of Directors for the unexpired portion of the term. B. Section Chairman of the Board. The Chairman of the Board shall --------------------- preside at all meetings of the Board. C. Section President. The President shall be the general manager and --------- chief executive officer of the Corporation, subject to the control of the Board of Directors, and as such shall beside at all meetings of shareholders, shall have general supervision of the affairs of the Corporation, shall sign or countersign or authorize another officer to sign all certificates, contracts, and other instruments of the Corporation as authorized by the Board of Directors, shall make reports to the Board of Directors and shareholders, and shall perform all such other duties as are incident to such office or are properly required by the Board of Directors. Section Vice President. In the absence of the President, or in the -------------- event of such officer's death, disability or refusal to act, the Vice President, or in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their selection, or in the absence of any such designation, then in the order of their selection, shall perform the duties of President, and when so acting, shall have all the powers and be subject to all restrictions upon the President. Each Vice President shall have such powers and discharge such duties as may be assigned from time to time by the President or by the Board of Directors. A. Section Secretary. The Secretary shall see that notices for all --------- meetings are given in accordance with the provisions of these Bylaws and as required by law, shall keep minutes of all meetings, shall have charge of the seal and the corporate books, and shall make such reports and perform such other duties as are incident to such office, or as are properly required by the President or by the Board of Directors. B. Section Chief Financial Officer. The Chief Financial Officer may ----------------------- also be designated by the alternate title of "Treasurer." The Chief Financial Officer shall have custody of all moneys and securities of the Corporation and shall keep regular books of account. Such officer shall disburse the funds of the Corporation in payment of the just demands against the Corporation, or as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Board of Directors from time to time as may be required of such officer, an account of all transactions as Chief Financial Officer and of the financial condition of the Corporation. Such officer shall perform all duties incident to such office or which are properly required by the President or by the Board of Directors. Section Salaries. The salaries of the officers shall be fixed from time -------- to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that such officer is also a director of the Corporation. Section Officers Holding More than One Office. Any two or more offices ------------------------------------- may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. Section Approval of Loans to Officers. */The Corporation may, upon ----------------------------- the approval of the Board of Directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the Corporation or its parent or subsidiary, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that (i) the Board of Directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the Corporation, (ii) the Corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the California Corporations Code) on the date of approval by the Board of Directors, and (iii) the approval of the Board of Directors is by a vote sufficient without counting the vote of any interested director or directors. ARTICLE MISCELLANEOUS ------------- Section Record Date and Closing of Stock Books. The Board of Directors -------------------------------------- may fix a time in the future as a record date for the determination of the shareholders entitled to notice of and to vote at any meeting of shareholders or entitled to receive payment of any dividend or distribution, or any allotment of rights, or to exercise - ----------------------- * This section is effective only if it has been approved by the shareholders -------------------------------------------------------------------------- in accordance with Sections 315(b) and 152 of the California Corporations Code. - ------------------------------------------------------------------------------ rights in respect to any other lawful action. The record date so fixed shall not be more than sixty (60) nor less than ten (10) days prior to the date of the meeting or event for the purposes of which it is fixed. When a record date is so fixed, only shareholders of record at the close of business on that date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution, or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date. The Board of Directors may close the books of the Corporation against transfers of shares during the whole or any part of a period of not more than sixty (60) days prior to the date of a shareholders' meeting, the date when the right to any dividend, distribution, or allotment of rights vests, or the effective date of any change, conversion or exchange of shares. Section Certificates. Certificates of stock shall be issued in ------------ numerical order and each shareholder shall be entitled to a certificate signed in the name of the Corporation by the Chairman of the Board or the President or a Vice President, and the Chief Financial Officer, the Secretary or an Assistant Secretary, certifying to the number of shares owned by such shareholder. Any or all of the signatures on the certificate may be facsimile. Prior to the due presentment for registration of transfer in the stock transfer book of the Corporation, the registered owner shall be treated as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner, except as expressly provided otherwise by the laws of the State of California. Section Representation of Shares in Other Corporations. Shares of other ---------------------------------------------- corporations standing in the name of this Corporation may be voted or represented and all incidents thereto may be exercised on behalf of the Corporation by the Chairman of the Board, the President or any Vice President and the Chief Financial Officer or the Secretary or an Assistant Secretary. Section Fiscal Year. The fiscal year of the Corporation shall end on ----------- June 30 of each year. Section Annual Reports. The Annual Report to shareholders, described in -------------- the California Corporations Code, is expressly waived and dispensed with. Section Amendments. Bylaws may be adopted, amended, or repealed by the ---------- vote or the written consent of shareholders entitled to exercise a majority of the voting power of the Corporation. Subject to the right of shareholders to adopt, amend, or repeal Bylaws, Bylaws may be adopted, amended, or repealed by the Board of Directors, except that a Bylaw amendment thereof changing the authorized number of directors may be adopted by the Board of Directors only if these Bylaws permit an indefinite number of directors and the Bylaw or amendment thereof adopted by the Board of Directors changes the authorized number of directors within the limits specified in these Bylaws. Section Indemnification of Corporate Agents. The Corporation shall ----------------------------------- indemnify each of its agents against expenses, judgments, fines, settlements and other amounts, actually and reasonably incurred by such person by reason of such person's having been made or having threatened to be made a party to a proceeding to the fullest extent permissible under California law and the Corporation shall advance the expenses reasonably expected to be incurred by such agent in defending any such proceeding upon receipt of the undertaking required by subdivision (f) of Section 317 of the California Corporations Code. The terms "agent", "proceeding" and "expenses" made in this Section 7 shall have the same meaning as such terms in said Section 317. CERTIFICATE OF AMENDED BYLAWS OF GENESYS TELECOMMUNICATIONS LABORATORIES Certificate by Secretary ------------------------ The undersigned hereby certifies that he is the duly elected, qualified, and acting Secretary of Genesys Telecommunications Laboratories and that the foregoing Bylaws, comprising 17 pages, were adopted as the amended Bylaws of the corporation on April 15, 1995 by the corporation. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the corporate seal this 15th day of April, 1995. /s/ Richard C. DeGolia _______________________________ Richard C. DeGolia, Secretary CERTIFICATE OF AMENDMENT OF BYLAWS OF GENESYS TELECOMMUNICATIONS LABORATORIES, INC. The undersigned, being the Secretary of Genesys Telecommunications Laboratories, Inc., hereby certifies that Article III, Section 2 of the Bylaws of this Corporation was amended effective February 28, 1997 by the Board of Directors of the Corporation to change the paragraph to read as follows: "The number of directors of the corporation shall be not less than three (3) nor more than five (5). The exact number of directors shall be five (5) until changed, within the limits specified above, by a bylaw amending this Section 2 duly adopted by the Board of Directors or by the shareholders. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the fixed number of the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two (2) times the stated minimum numbers of directors minus one (1)." Dated: February 28, 1997 /s/ Michael McCloskey ---------------------------- Michael McCloskey Secretary CERTIFICATE OF AMENDMENT ------------------------ OF BYLAWS OF ------------ GENESYS TELECOMMUNICATIONS LABORATORIES, INC. --------------------------------------------- The undersigned, being the Secretary of Genesys Telecommunications ------------------------------------------------------------------ Laboratories, Inc., hereby certifies that Article III, Section 2 of the Bylaws - ------------------------------------------------------------------------------ of this Corporation was amended effective November 27, 1995 by the Board of - --------------------------------------------------------------------------- Directors of the Corporation to change the paragraph to read as follows: - ------------------------------------------------------------------------ "The number of directors of the corporation shall be not less than ------------------------------------------------------------------ three (3) nor more than five (5). The exact number of directors shall be ------------------------------------------------------------------------- three (3) until changed, within the limits specified above, by a bylaw ---------------------------------------------------------------------- amending this Section 2 duly adopted by the Board of Directors or by the ------------------------------------------------------------------------ shareholders. The indefinite number of directors may be changed, or a ---------------------------------------------------------------------- definite number may be fixed without provision for an indefinite number, by --------------------------------------------------------------------------- a duly adopted amendment to the articles of incorporation or by an ------------------------------------------------------------------ amendment to this bylaw duly adopted by the vote or written consent of ---------------------------------------------------------------------- holders of a majority of the outstanding shares entitled to vote; provided, --------------------------------------------------------------------------- however, that an amendment reducing the fixed number of the minimum number -------------------------------------------------------------------------- of directors to a number less than three (3) cannot be adopted if the votes --------------------------------------------------------------------------- cast against its adoption at a meeting, or the shares not consenting in the --------------------------------------------------------------------------- case of an action by written consent, are equal to more than sixteen and ------------------------------------------------------------------------ two-thirds percent (16-2/3%) of the outstanding shares entitled to vote ----------------------------------------------------------------------- thereon. No amendment may change the stated maximum number of authorized ------------------------------------------------------------------------- directors to a number greater than two (2) times the stated minimum number -------------------------------------------------------------------------- of directors minus one (1)." ---------------------------- Dated: November 27, 1995 - ------ ----------------- Richard C. DeGolia Secretary CERTIFICATE OF AMENDMENT ------------------------ OF BYLAWS OF ------------ GENESYS TELECOMMUNICATIONS LABORATORIES, INC. --------------------------------------------- The undersigned, being the Secretary of Genesys Telecommunications ------------------------------------------------------------------ Laboratories, Inc., hereby certifies that Article III, Section 2 of the Bylaws - ------------------------------------------------------------------------------ of this Corporation was amended effective July 5, 1996 by the Board of Directors - -------------------------------------------------------------------------------- of the Corporation to change the paragraph to read as follows: - -------------------------------------------------------------- "The number of directors of the corporation shall be not less than ------------------------------------------------------------------ three (3) nor more than five (5). The exact number of directors shall be ------------------------------------------------------------------------- four (4) until changed, within the limits specified above, by a bylaw --------------------------------------------------------------------- amending this Section 2 duly adopted by the Board of Directors or by the ------------------------------------------------------------------------ shareholders. The indefinite number of directors may be changed, or a ---------------------------------------------------------------------- definite number may be fixed without provision for an indefinite number, by --------------------------------------------------------------------------- a duly adopted amendment to the articles of incorporation or by an ------------------------------------------------------------------ amendment to this bylaw duly adopted by the vote or written consent of ---------------------------------------------------------------------- holders of a majority of the outstanding shares entitled to vote; provided, --------------------------------------------------------------------------- however, that an amendment reducing the fixed number of the minimum number -------------------------------------------------------------------------- of directors to a number less than four (4) cannot be adopted if the votes -------------------------------------------------------------------------- cast against its adoption at a meeting, or the shares not consenting in the --------------------------------------------------------------------------- case of an action by written consent, are equal to more than sixteen and ------------------------------------------------------------------------ two-thirds percent (16-2/3%) of the outstanding shares entitled to vote ----------------------------------------------------------------------- thereon. No amendment may change the stated maximum number of authorized ------------------------------------------------------------------------- directors to a number greater than two (2) times the stated minimum number -------------------------------------------------------------------------- of directors minus one (1)." ---------------------------- Dated: July 5, 1996 - ------ ------------ Richard C. DeGolia Secretary 23 EX-3.4 5 FORM OF BYLAWS TO BE EFFECTIVE EXHIBIT 3.4 BYLAWS OF GENESYS TELECOMMUNICATIONS LABORATORIES, INC. ARTICLE I OFFICES ------- Section 1. PRINCIPAL OFFICES. The Board of Directors shall fix ----------------- the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside this state, and the corporation has one or more business offices in this state, the Board of Directors shall fix and designate a principal business office in the State of California. Section 2. OTHER OFFICES. The Board of Directors may at any time ------------- establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF SHAREHOLDERS ------------------------ Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be ----------------- held at any place within or outside the State of California designated by the Board of Directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. Section 2. ANNUAL MEETING. The annual meeting of shareholders -------------- shall be held each year on such date and at a time designated by the Board of Directors. At each annual meeting Directors shall be elected, and any other proper business may be transacted. Section 3. SPECIAL MEETING. A special meeting of the shareholders --------------- may be called at any time by the Board of Directors, or by the chairman of the Board, or by the president, or by one or more shareholders holding shares in the aggregate entitled to cast not less than fifty percent (50%) of the votes at that meeting. If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the Board, the president, any vice president, or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote, in accordance with the provisions of Sections 4 and 5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the Board of Directors may be held. Section 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of -------------------------------- meetings of shareholders shall be sent or otherwise given in accordance with Section 5 of this Article II not less than ten (10) (or, if sent by third-class mail, thirty (30) days) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, or (ii) in the case of the annual meeting, those matters which the Board of Directors, at the time of giving the notice, intends to present for action by the shareholders. The notice of any meeting at which Directors are to be elected shall include the name of any nominee or nominees whom, at the time of notice, management intends to present for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a Director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California, (ii) an amendment of the Articles of Incorporation, pursuant to Section 902 of that Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of that Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of that Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of that Code, the notice shall also state the general nature of that proposal. Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice -------------------------------------------- of any meeting of shareholders shall be given either personally or by first- class mail (unless the corporation has 500 or more shareholders determined as provided by the California Corporations Code on the record date for the meeting, in which case notice may be sent by third-class mail) or telegraph or other written communication, charges prepaid, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if these shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice. Any affidavit of the mailing or other means of giving any notice of any shareholders' meeting shall be executed by the secretary, assistant secretary, or any transfer agent of the corporation giving the notice, and shall be filed and maintained in the minute book of the corporation. Section 6. QUORUM. The presence in person or by proxy of the ------ holders of a majority of the shares entitled to vote at any meeting of shareholders shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting, ------------------------- annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy, but in the absence of a quorum, no other business may be transacted at that meeting, except as provided in Section 6 of this Article II. When any meeting of shareholders, either annual or special, is adjourned to another time or place; notice need not be given of the adjourned meeting if the time and place are announced at a meeting at which the adjournment is taken, unless a new record date for the adjourned meeting is fixed, or unless the adjournment is for more than forty-five (45) days from the date set for the original meeting, in which case the Board of Directors shall set a new record date. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 4 and 5 of this Article II. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. Section 8. VOTING. The shareholders entitled to vote at any ------ meeting of shareholders shall be determined in accordance with the provisions of Section 11 of this Article II, subject to the provisions of Sections 702 to 704, inclusive, of the Corporations Code of California (relating to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership). The voting at all meetings of shareholders need not be by ballot, but any qualified shareholder before the voting begins may demand a stock vote whereupon such stock vote shall be taken by ballot, each of which shall state the name of the shareholder voting and the number of shares voted by such shareholder, and if such ballot be cast by a proxy, it shall also state the name of such proxy. At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person, or by proxy appointed in a writing subscribed by such share holder and bearing a date not more than eleven (11) months prior to said meeting, unless the writing states that it is irrevocable and is held by a person specified in Section 705(e) of the Cali fornia Corporations Code, in which event it is irrevocable for the period specified in said writing. Except as otherwise provided in the Articles of Incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of shareholders. No shareholder shall be entitled to cumulate such shareholder's votes for any Director. The preceding sentence of this provision shall become effective only when the Corporation becomes a listed corporation within the meaning of Section 301.5 of the California Corporations Code. Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. -------------------------------------------------- The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though a meeting had been duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to a holding of the meeting, or an approval of the minutes. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 4 of this Article II, the waiver of notice or consent shall state the general nature of the proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice of the meeting if that objection is expressly made at the meeting. Section 10. SHAREHOLDER ACTION. Any action required or permitted ------------------ to be taken by the holders of the Common Stock or Preferred Stock of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing. Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING ------------------------------------------------------ CONSENTS. For purposes of determining the shareholders entitled to give consent - -------- to corporate action without a meeting, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting, and in this event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in California General Corporations Law. If the Board of Directors does not so fix a record date: (a) The record date for determining shareholders entitled to notice of or to a vote at a meeting of shareholders shall be at the close of business on the business date next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (b) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day before the date of such other action, whichever is later. Section 12. PROXIES. Every person entitled to vote for Directors ------- or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, or otherwise) by the shareholder or the shareholder's attorney in fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, before the vote pursuant to that proxy, by a writing delivered to the corporation stating that the proxy is revoked, or by a subsequent proxy executed by, or attendance at the meeting and voting in person by, the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Corporations Code of California. Section 13. INSPECTORS OF ELECTION. Before any meeting of ---------------------- shareholders, the Board of Directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. These inspectors shall: (a) Determine the number of shares outstanding and the voting power of each, the shares' represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) Receive votes, ballots, or consents; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) Count and tabulate all votes or consents; (e) Determine when the polls shall close; (f) Determine the result; and (g) Do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III DIRECTORS --------- Section 1. POWERS. Subject to the provisions of the California ------ General Corporation Law and any limitation in the Articles of Incorporation and these Bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. Without prejudice to these general powers, and subject to the same limitations, the Directors shall have the power to: (a) Select and remove all officers, agents, and employees of the corporation; prescribe any powers and duties for them that are consistent with law, with the Articles of Incorporation, and with these Bylaws; fix their compensation; and require from them security for faithful service. (b) Change the principal executive office or the principal business office in the State of California from one location to another; cause the corporation to be qualified to do business in any other state, territory, dependency, or country an conduct business within or without the State of California; and designate any place within or without the State of California for the holding of any shareholders' meeting, or meetings, including annual meetings. (c) Adopt, make, and use a corporate seal; prescribe the forms of certificates of stock; and alter the form of the seal and certificates. (d) Authorize the issuance of shares of stock of the corporation on any lawful terms, in consideration of money paid, labor done, services actually rendered, debts or securities cancelled, or tangible or intangible property actually received. (e) Borrow money and incur indebtedness on behalf of the corporation, and cause to be executed and delivered for the corporation' s purposes, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, and other evidences of debt and securities. Section 2. NUMBER OF DIRECTORS. The number of Directors of the ------------------- corporation shall be no less than four (4) nor more than six (6), the exact number of Directors to be fixed from time to time within such limit by a duly adopted resolution of the Board of Directors or shareholders. The exact number of Directors presently authorized shall be five (5) until changed within the limits specified above by a duly adopted resolution of the Board of Directors or shareholders. Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors ---------------------------------------- shall be elected at each annual meeting of the shareholders to hold office until the next annual meeting. Each Director, including a Director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been qualified and elected. Section 4. VACANCIES. Vacancies in the Board of Directors may be --------- filled by a majority of the remaining Directors, though less than a quorum, or by a sole remaining Director, except that a vacancy created by the removal of a Director by the vote of the shareholders or by court order may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present. Each Director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected or qualified. A vacancy or vacancies in the Board of Directors shall be deemed to exist in the event of death or resignation or removal of any Director, of if the Board of Directors by resolution declares vacant the office of a Director who has been declared of unsound mind, by an order of Court or convicted of a felony, or if the authorized number of Directors is increased, or if the shareholders fail, at any meeting of shareholders at which any Director or Directors are elected, to elect the number of Directors to be voted for at that meeting. Any Director may resign effective on giving written notice to the chairman of the board, the president, the secretary, or the Board of Directors, unless the notice specifies a later time for the resignation to become effective. If the resignation of a Director is effective at a future time, the Board of Directors may elect a successor to take office when the resignation becomes effective. No reduction of the authorized number of Directors shall have the effect of removing any Director before that Director's term of office expires. Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular ------------------------------------------- meetings of the Board of Directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the Board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the Board shall be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all Directors participating in the meeting can hear one another, and all such Directors shall be deemed to be present in person at the meeting. Section 6. ANNUAL MEETING. Immediately following each annual -------------- meeting of shareholders, the Board of Directors shall hold a regular meeting for the purpose of organization, any desired election of officers, and the transaction of other business. Notice of this meeting shall not be required. Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the ---------------------- Board of Directors shall be held without call at such time as shall from time to time be fixed by the Board of Directors. Such regular meetings may be held without notice. Section 8. SPECIAL MEETINGS. Special meetings of the Board of ---------------- Directors for any purpose or purposes may be called at any time by the chairman of the Board or the president or any vice president or the secretary or any two Directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each Director or sent by first class mail or telegram, charges prepaid, addressed to each Director at that Director's address as it is shown on the records of the corporation. In case the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. In case the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. In case the notice is delivered personally, or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty- eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the Director or to a person at the office of the Director who the person giving the notice has reason to believe will promptly communicate it to the Director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation. Section 9. QUORUM. A majority of the authorized number of ------ Directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 11 of this Article III. Every act or decision done or made by a majority of the Directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, subject to the provisions of Section 310 of the Corporations Code of California (as to approval of contracts or transactions in which a Director has direct or indirect material financial interest), Section 311 of that Code (as to appointment of committee), and Section 317(e) of that Code (as to indemnification of Directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of Directors, if any action taken is approved by at least a majority of the required quorum for that meeting. Section 10. WAIVER OF NOTICE. The transactions of any meeting of ---------------- the Board of Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the Directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any Director who attends the meeting without protesting before or at its commencement, the lack of notice to that Director. Section 11. ADJOURNMENT. A majority of the Directors present, ----------- whether or not constituting a quorum, may adjourn any meeting to another time and place. Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of --------------------- holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four hours, in which case notice of the adjourned meeting, in the manner specified in Section 8 of this Article II, to the Directors who were not present at the time of the adjournment. Section 13. ACTION WITHOUT MEETING. Any action required or ---------------------- permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the Board of Directors. Such written consents shall be filed with the minutes of the proceedings of the Board. Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and ---------------------------------- members of committees may receive such compensation, if any, for their services, and such reimbursement of expenses, as may be fixed or determined by resolution of the Board of Directors. This Section 14 shall not be construed to preclude any Director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for those services. ARTICLE IV COMMITTEES ---------- Section 1. COMMITTEES OF DIRECTORS. The Board of Directors may, ----------------------- by resolution adopted by a majority of the authorized number of Directors, designate one or more committees, each consisting of two or more Directors, to serve at the pleasure of the Board. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Any committee, to the extent provided in the resolution of the Board, shall have all the authority of the Board, except with respect to: (a) the approval of any action which, under the General Corporation Law of California, also requires shareholders' approval or approval of the outstanding shares; (b) the filling of vacancies on the Board of Directors or in any committee; (c) the fixing of compensation of the Directors for sewing on the Board or any committee; (d) the amendment or repeal of Bylaws or the adoption of new Bylaws; (e) the amendment or repeal of Bylaws or the adoption of new Bylaws; (f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the Board of Directors; or (g) the appointment of any other committees of the Board of Directors or the members of these committees. Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action --------------------------------- of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these Bylaws, Sections 5 (place of meetings), 7 (regular meetings), 8 (special meetings and notice), 9 (quorum), 10 (waiver of notice), 11 (adjournment), 12 (notice of adjournment), and 13 (action without meeting), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members, except that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee; special meetings of committees may also be called by resolution of the Board of Directors; and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. ARTICLE V OFFICERS -------- Section 1. OFFICERS. The officers of the corporation shall be a -------- president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the Board of Directors, a chairman of the Board, one or more vice presidents, one or more assistant secretaries, one or more chief financial officers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V. Any number of offices may be held by the same person. Section 2. ELECTION OF OFFICERS. The officers of the corporation, -------------------- except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article V, shall be chosen by the Board of Directors, and each shall serve at the pleasure of the Board, subject to the rights, if any, of an officer under any contract of employment. Section 3. SUBORDINATE OFFICERS. The Board of Directors may -------------------- appoint, and may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the Bylaws or as the Board of Directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the ----------------------------------- rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board of Directors, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Section 5. VACANCIES IN OFFICES. A vacancy in any office because -------------------- of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to that office. Section 6. CHAIRMAN OF THE BOARD. The chairman of the Board, if --------------------- such an officer is elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the Bylaws. If there is no president, the chairman of the Board shall in addition be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article V. Section 7. PRESIDENT. Subject to such supervisory powers, if any, --------- as may be given by the Board of Directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. he shall preside at all meetings of the shareholders and, in the absence of the chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the Bylaws. Section 8. VICE PRESIDENTS. In the absence or disability of the --------------- president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the Bylaws, and the president, or the chairman of the Board. Section 9. SECRETARY. The secretary shall keep or cause to be --------- kept, at the principal executive office or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of Directors, committees or Directors, and shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice given, the names of those present at the Directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings. The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors required by the Bylaws or Bylaw to be given, and he shall keep the seal of the corporation if one be adopted, in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the Bylaws. Section 10. CHIEF FINANCIAL OFFICER. The chief financial officer ----------------------- shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transaction of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any Director. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the president and Directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation, and shall have other power and perform such other duties as may be prescribed by the Board of Directors of the Bylaws. Section 11. APPROVAL OF LOANS TO OFFICERS. */ The Corporation may, ----------------------------- - upon the approval of the Board of Directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the Corporation or its parent or subsidiary, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that (i) the Board of Directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the Corporation, (ii) the Corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the California Corporations Code) on the date of approval by the Board of Directors, and (iii) the approval of the Board of Directors is by a vote sufficient without counting the vote of any interested director or directors. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, --------------------------------------- EMPLOYEES, AND OTHER AGENTS --------------------------- Section 1. AGENTS, PROCEEDINGS, AND EXPENSES. For the purposes of --------------------------------- this Article, "agent" means any person who is or was a Director, officer, employee, or other agent of this corporation, or is or was serving at the request of this corporation as a Director, - ----------------- */ This section is effective only if it has been approved by the shareholders - - in accordance with Sections 315(b) and 152 of the California Corporations Code. officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a Director, officer, employee, or agent of a foreign or domestic corporation which was a predecessor corporation of this corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative, or investigative; and "expenses" includes, without limitation, attorneys' fees and any expenses of establishing a right to indemnification under subdivision (d) or paragraph (4) of subdivision (e) of Section 317 of the California Corporations Code. Section 2. INDEMNIFICATION. The corporation is authorized to --------------- indemnify each of its agents (and shall indemnify each agent who is a Director of the corporation) against expenses, judgments, fines, settlements and other amounts, actually and reasonably incurred by such person by reason of such person's having been made or having threatened to be made a party to any proceeding in excess of the indemnification otherwise permitted by the provisions of Section 317 of the California General Corporation Law and to the fullest extent permissible under the laws of the Sate of California, as those laws may be amended and supplemented from time to time. Section 3. ADVANCE OF EXPENSES. Expenses incurred in defending ------------------- any proceeding may be advanced by this corporation before the final disposition of the proceeding on receipt of an undertaking by or on behalf of the agent to repay the amount of the advance unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this Article. Section 4. OTHER CONTRACTUAL RIGHTS. The indemnification ------------------------ provided by this Article shall not be deemed exclusive of any rights to which those seeking indemnification may be entitled under any agreement, vote of shareholders or disinterested Directors or otherwise, both as to action in another capacity while holding such office, to the extent such additional rights to indemnification are authorized in the articles of the corporation. The rights to indemnity hereunder shall continue as to a person who has ceased to be an agent and shall inure to the benefit of the heirs, executors, and administrators of the person. Section 5. INSURANCE. Upon and in the event of a determination by --------- the Board of Directors of this corporation to purchase such insurance, this corporation shall purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such whether or not this corporation would have the power to indemnify the agent against that liability under the provisions of this section. ARTICLE VII GENERAL CORPORATE MATTERS ------------------------- Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. ----------------------------------------------------- For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action, and in that case only shareholders of record on the date so fixed are entitled to receive the dividends, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the California General Corporation Law. If the Board of Directors does not so fix a record date, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the Board adopts the applicable resolutions or the sixtieth (60th) day before the date of that action, whichever is later. Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, ----------------------------------------- drafts, or other orders for payment of money, notes, or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors. Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The ------------------------------------------------- Board of Directors, except as otherwise provided in the Bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and this authority may be general or confined to specific instances; and unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to tender it liable for any purpose or for any amount. Section 4. CERTIFICATES FOR SHARES. A certificate or certificates ----------------------- for shares of the capital stock of the corporation shall be issued to each shareholder when any of these shares are fully paid, and the Board of Directors may authorize the issuance of certificates or shares as partly paid provided that these certificates shall state the amount of the consideration to be paid for them and the amount paid. All certificates shall be signed in the name of the corporation by the chairman of the Board or vice chairman of the Board or the president or vice president and by the chief financial officer or an assistant treasurer or the secretary of any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent, or registrar who has signed or show facsimile signature has been placed on a certificate shall have ceased to be that officer, transfer agent, or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent, or registrar at the date of issuance. Section 5. LOST CERTIFICATES. Except as provided in this ----------------- Section 5, no new certificates for shares shall be issued to replace an old certificate unless the latter is surrendered to the corporation and cancelled at the same time. The Board of Directors may, in case any share certificate or certificate for any other security is lost, stolen, or destroyed, authorize the issuance of a replacement certificate on such terms and conditions as the Board may require, including provision for indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft, or destruction of the certificate or the issuance of the replacement certificate. Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The ---------------------------------------------- chairman of the Board, the president, or any vice president, or any other person authorized by resolution of the Board of Directors or by any of the foregoing designated officers, is authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation. The authority granted to these officers to vote or represent on behalf of the corporation any and all shares held by the corporation in any other corporation or corporations may be exercised by any of these officers in person or by any person authorized to do so by a proxy duly executed by these officers. Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context ---------------------------- requires otherwise, the general provisions, rules of construction, and definitions in the California General Corporations Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. ARTICLE VIII AMENDMENTS ---------- Section 1. AMENDMENT BY SHAREHOLDERS. New Bylaws may be adopted ------------------------- or these Bylaws may be amended or repealed by the vote of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the Articles of Incorporation of the corporation set forth the number of authorized Directors of the corporation, the authorized number of Directors may be changed only by an amendment of the Articles of Incorporation. Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the ---------------------- shareholders as provided in Section 1 of this Article X, Bylaws, other than a Bylaw or an amendment of a Bylaw changing the authorized number of Directors, may be adopted, amended, or repealed by the Board of Directors. EX-4.3 6 SERIES A PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT 4.3 GENESYS TELECOMMUNICATIONS LABORATORIES 1100 Grundy Lane, Suite 125 San Bruno, California 94066 --------------------- SERIES A PREFERRED STOCK PURCHASE AGREEMENT March 29, 1996 --------------------- TABLE OF CONTENTS
Page SECTION 1 - Authorization and Sale of Preferred Stock....................... 1 1.1 Authorization.................................................. 1 1.2 Sale of Preferred.............................................. 1 SECTION 2 - Closing Dates; Delivery......................................... 1 2.1 Closing Date................................................... 1 2.2 Delivery....................................................... 1 SECTION 3 - Representations and Warranties of the Company................... 2 3.1 Organization and Standing; Articles and Bylaws................. 2 3.2 Corporate Power................................................ 2 3.3 Subsidiaries................................................... 2 3.4 Capitalization................................................. 2 3.5 Authorization.................................................. 3 3.6 Material Contracts and Other Commitments....................... 3 3.7 Title to Properties and Assets; Liens, etc..................... 4 3.8 Compliance with Other Instruments, None Burdensome, etc........ 4 3.9 Litigation, etc................................................ 4 3.10 Employees...................................................... 4 3.11 Franchises, Licenses, Trademarks, Patent and Other Rights...... 4 3.12 Governmental Consent, etc...................................... 5 3.13 Offering....................................................... 5 3.14 Brokers or Finders; Other Offers............................... 5 SECTION 4 - Representations and Warranties of the Purchasers................ 5 4.1 Experience..................................................... 6 4.2 Investment..................................................... 6 4.3 Rule 144....................................................... 6 4.4 No Public Market............................................... 6 4.5 Access to Data................................................. 6 4.6 Authorization.................................................. 6 4.7 Brokers or Finders............................................. 7 4.8 Investor Counsel............................................... 7
i TABLE OF CONTENTS (continued) 4.9 Tax Liability.................................................. 7 4.10 Additional Representations of Foreign Investors................ 7 SECTION 5 - Conditions to Closing of Purchasers............................. 8 5.1 Representations and Warranties Correct......................... 8 5.2 Covenants...................................................... 9 5.3 Opinion of Company's Counsel................................... 9 5.4 Compliance Certificate......................................... 9 5.5 Blue Sky....................................................... 9 5.6 Restated Articles of Incorporation............................. 9 5.7 Legal Matters.................................................. 9 5.8 Registration Rights Agreement.................................. 9 SECTION 6 - Conditions to Closing of Company................................ 9 6.1 Representations................................................ 9 6.2 Blue Sky....................................................... 9 6.3 Restated Articles of Incorporation............................. 10 6.4 Legal Matters.................................................. 10 6.5 Payment of Purchase Price...................................... 10 6.6 Registration Rights Agreement.................................. 10 SECTION 7 - Covenants of the Company and the Purchasers..................... 10 7.1 Financial Information.......................................... 10 7.2 Additional Information......................................... 10 7.3 Confidentiality................................................ 11 7.4 Availability of Common Stock for Conversion.................... 11 7.5 Confidential Information and Invention Assignment Agreement.... 11 7.6 Termination of Covenants....................................... 11 SECTION 8 - Miscellaneous................................................... 11 8.1 Governing Law.................................................. 11 8.2 Survival....................................................... 12 8.3 Successors and Assigns......................................... 12 8.4 Entire Agreement; Amendment.................................... 12 8.5 Notices, etc................................................... 12 8.6 Delays or Omissions............................................ 12 8.7 California Corporate Securities Law............................ 13
ii TABLE OF CONTENTS (continued) 8.8 Expenses....................................................... 13 8.9 Counterparts................................................... 13 8.10 Severability................................................... 13 8.11 Titles and Subtitles........................................... 13
iii TABLE OF CONTENTS (continued) EXHIBITS A. Schedule of Purchasers B. Amended and Restated Articles of Incorporation C. Schedule of Exceptions D. Registration Rights Agreement E. Form of Legal Opinion of Wilson Sonsini Goodrich & Rosati, P.C. F. Form of Compliance Certificate G. Form of Confidential Information and Inventions Assignment Agreement iv GENESYS TELECOMMUNICATIONS LABORATORIES SERIES A PREFERRED STOCK PURCHASE AGREEMENT This Agreement is made as of March 29, 1996 among Genesys Telecommunications Laboratories, a California corporation (the "COMPANY"), and the persons and entities listed on the Schedule of Purchasers attached hereto as Exhibit A (the "PURCHASERS"). - --------- SECTION 1 AUTHORIZATION AND SALE OF PREFERRED STOCK ----------------------------------------- 1.1 AUTHORIZATION. The Company has authorized the sale and issuance of up ------------- to 150,000 shares (the "SHARES") of its Series A Preferred Stock ("PREFERRED"), having the rights, privileges and preferences as set forth in the Company's Amended and Restated Articles of Incorporation (the "ARTICLES") in the form attached to this Agreement as Exhibit B. --------- 1.2 SALE OF PREFERRED. Subject to the terms and conditions hereof, the ----------------- Company hereby severally issues and sells to each Purchaser and each Purchaser hereby severally buys from the Company the total number of Shares specified opposite such Purchaser's name on the Schedule of Purchasers, at a purchase price of Thirteen Dollars and Thirty Cents ($13.30) per Share. The Company's agreement with each Purchaser is a separate agreement, and the sales of the Preferred to each Purchaser is a separate sale. SECTION 2 CLOSING DATES; DELIVERY ----------------------- 2.1 CLOSING DATE. The first closing of the purchase and sale of the ------------ Preferred hereunder shall be held at the offices of Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, California 94304 at 2:00 p.m., local time, on March 29, 1996 (the "CLOSING") or at such other time and place as shall be mutually agreed upon by the Company and Purchasers who propose to purchase a majority of the Shares proposed to be sold at the Closing (the date of the Closing is hereinafter referred to as the "CLOSING DATE"). One or more additional closings may occur within thirty (30) days following the Closing Date, so long as the sale of Shares at such closings is pursuant to the terms of this Agreement and at the price per share set forth in Section 1.2. 2.2 DELIVERY. At the Closing, the Company will deliver to each Purchaser -------- a certificate or certificates, registered in such Purchaser's name, representing the number of Shares listed opposite such Purchaser's name on the Schedule of Purchasers, against 1 (a) delivery to the Company of payment of the purchase price therefor, by check payable to the Company or wire transfer per the Company's instructions or (b) cancellation of indebtedness owed to Purchaser in the amount indicated on the Schedule of Purchasers. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY --------------------------------------------- Except as set forth on the Schedule of Exceptions attached hereto as Exhibit C, the Company represents and warrants to the Purchasers, as of the - --------- Closing Date as follows: 3.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. The Company is a ---------------------------------------------- corporation duly organized and existing under, and by virtue of, the laws of the State of California and is in good standing under such laws. The Company has requisite corporate power and authority to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is presently qualified to do business as a foreign corporation in any jurisdiction, in which the failure to be so qualified would have a material adverse affect on the Company's operations or conditions, financial or otherwise. The Company has furnished the Purchasers with true, correct and complete copies of its Articles and Bylaws (the "BYLAWS"), as presently in effect. 3.2 CORPORATE POWER. The Company has or will have at the Closing Date all --------------- requisite legal and corporate power and authority to execute and deliver this Agreement, to sell and issue the Shares hereunder, to issue the common stock issuable upon conversion of the Preferred and to carry out and perform its obligations under the terms of this Agreement. 3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated companies ------------ and does not otherwise own or control, directly or indirectly, any equity interest in any corporation, association or business entity. 3.4 CAPITALIZATION. The authorized capital stock of the Company consists -------------- or, upon the filing of the Articles with the California Secretary of State will consist of 20,000,000 shares of Common Stock (the "COMMON STOCK"), of which 1,689,500 shares are issued and outstanding as of the Closing Date and 150,000 shares of Preferred Stock, all of which have been designated "SERIES A PREFERRED" and none of which is issued and outstanding prior to the Closing. The outstanding shares have been duly authorized and validly issued, and are fully paid and nonassessable. The Company has reserved 150,000 shares of Preferred for issuance hereunder, 150,000 shares of Common Stock for issuance upon conversion of the Preferred and 479,250 shares of Common Stock for issuance by the Board of Directors to employees, consultants, or directors pursuant to the Company's 1995 Stock Option Plan, of which stock options to purchase 316,500 2 shares are outstanding as of the Closing Date. Except as set forth above, there are no options, warrants or other rights to purchase any of the Company's authorized and unissued capital stock. 3.5 AUTHORIZATION. All corporate action on the part of the Company, its ------------- directors and shareholders necessary for the authorization, execution, delivery and performance of this Agreement by the Company, the authorization, sale, issuance and delivery of the Preferred (and the Common Stock issuable upon conversion of the Preferred) and the performance of all of the Company's obligations hereunder has been taken or will be taken prior to the Closing. This Agreement, when executed and delivered by the Company, shall constitute a valid and binding obligation of the Company, enforceable in accordance with its terms, except as subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies and limitations of public policy as applied to Section 10 of the Registration Rights Agreement, attached hereto as Exhibit D (the "REGISTRATION RIGHTS AGREEMENT"). The Shares, when issued in compliance with the provisions of this Agreement and upon the filing of the Articles with the office of the California Secretary of State, will be validly issued, will be fully paid and nonassessable, and will have the rights, preferences and privileges described in the Articles; the Common Stock issuable upon conversion of the Shares has been duly and validly reserved and, when issued in compliance with the provisions of this Agreement and the Articles, will be validly issued, and will be fully paid and nonassessable; and the Shares and such Common Stock will be free of any liens or encumbrances, assuming the Purchasers take the Shares with no notice thereof, other than any liens or encumbrances created by or imposed upon the Purchasers; provided, however, that the Shares (and the Common Stock issuable upon conversion thereof) may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein. The Shares are not subject to any preemptive rights or rights of first refusal. 3.6 MATERIAL CONTRACTS AND OTHER COMMITMENTS. The Company does not have ---------------------------------------- any contract, agreement, lease, or other commitment, written or oral, absolute or contingent, other than (i) contracts for the purchase of supplies and services that were entered into in the ordinary course of business and that do not, as of the date hereof, involve more than $25,000 each; (ii) sales contracts entered into in the ordinary course of business; (iii) license agreements entered into in the ordinary course of business; and (iv) contracts terminable at will by the Company on no more than sixty (60) days' notice without cost or liability to the Company. For purposes of this Section 3.6, employment contracts and contracts with labor unions and agreements pursuant to which the Company licenses any of its Proprietary Information (as defined herein) to third parties shall not be considered to be contracts entered into in the usual and ordinary course of business. 3 3.7 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good and ------------------------------------------ marketable title to its properties and assets, and has good title to all its leasehold interests, in each case subject to no mortgage, pledge, lien or encumbrance, other than (i) the lien of current taxes not yet due and payable, and (ii) possible minor liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company, and which have not arisen otherwise than in the ordinary course of business. 3.8 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The Company ------------------------------------------------------- is not in violation of any term of its Articles or Bylaws, or in any material respect of any term or provision of any material mortgage, indebtedness, indenture, contract, agreement, instrument, judgment or decree, and to the best of its knowledge is not in violation of any order, statute, rule or regulation applicable to the Company where such violation would materially and adversely affect the Company. The execution, delivery and performance of and compliance with this Agreement, and the issuance of the Preferred and the Common Stock issuable upon conversion of the Preferred, have not resulted and will not result in any material violation of, or conflict with, or constitute a material default under, the Company's Articles or Bylaws or any of its material agreements or result in the creation of, any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company, and there is no such violation or default which materially and adversely affects the business of the Company or any of its properties or assets. 3.9 LITIGATION, ETC. There are no actions, suits, proceedings or --------------- investigations pending against the Company or its properties before any court or governmental agency (nor, to the best of the Company's knowledge, is there any reasonable basis therefor or threat thereof). 3.10 EMPLOYEES. To the best of the Company's knowledge, no employee of the --------- Company is in violation of any term of any employment contract, patent disclosure agreement or any other contract or agreement relating to the relationship of such employee with the Company or any other party because of the nature of the business conducted or to be conducted by the Company. There is, to the Company's knowledge and belief, no pending nor threatened actions suits, proceedings or claims, or to its knowledge any basis therefor or threat thereof with respect to any contract, agreement, covenant or obligation referred to in the preceding sentence. 3.11 FRANCHISES, LICENSES, TRADEMARKS, PATENT AND OTHER RIGHTS. The --------------------------------------------------------- Company has all franchises, permits, licenses and other similar authority necessary for the conduct of its business, the lack of which could materially and adversely affect the operations or condition, financial or otherwise, of the Company, and it is not in default in any material respect under any of such franchises, permits, liens or other similar authority. To the best of the Company's knowledge, the Company possesses all patents, patent rights, trademarks, trademark rights, trade names, trade name rights and 4 copyrights necessary to conduct its business without conflict with or infringement upon any valid rights of others and the lack of which could materially and adversely affect the operations or condition, financial or otherwise, of the Company, and the Company has not received any notice of infringement upon or conflict with the asserted rights of others. The Company has a valuable body of trade secrets, including know-how, concepts, computer programs and other technical data (the "PROPRIETARY INFORMATION") for the development, manufacture and sale of its products. To the Company's knowledge, the Company has the right to use the Proprietary Information, free and clear of any rights, liens, encumbrances or claims of others, except that the possibility exists that other persons may have independently developed trade secrets or technical information similar or identical to those of the Company. Reasonable security measures have been taken by the Company to protect the secrecy, confidentiality and value of the Proprietary Information referred to in this Section 3.11. 3.12 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of ------------------------- or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of this Agreement, or the offer, sale or issuance of the Preferred (and the Common Stock issuable upon conversion of the Preferred), or the consummation of any other transaction contemplated hereby, except (a) filing of the Articles with the office of the California Secretary of State (b) qualification (or taking such action as may be necessary to secure an exemption from qualification, if available) of the offer and sale of the Preferred (and the Common Stock issuable upon conversion of the Preferred) under the California Corporate Securities Law of 1968, as amended and other applicable Blue Sky laws, which filings and qualifications, if required, will be accomplished in a timely manner. 3.13 OFFERING. Subject to the accuracy of the Purchasers' representations -------- in Section 4 hereof, the offer, sale and issuance of the Preferred to be issued in conformity with the terms of this Agreement, and the issuance of the Common Stock to be issued upon conversion of the Preferred, constitute transactions exempt from the registration requirements of the Securities Act. 3.14 BROKERS OR FINDERS; OTHER OFFERS. The Company has not incurred, and -------------------------------- will not incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS ------------------------------------------------ Each Purchaser hereby severally represents and warrants to the Company with respect to the purchase of the Shares as follows: 5 4.1 EXPERIENCE. By reason of his business or financial experience, or ---------- that of his professional advisor, Purchaser has the capacity to protect his own interests in connection with the purchase of the Shares hereunder and has the ability to bear the economic risk (including the risk of total loss) of his investment. 4.2 INVESTMENT. Purchaser is acquiring the Preferred and the underlying ---------- Common Stock for investment for his own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. Purchaser understands that the Preferred to be purchased (and the Common Stock issuable upon conversion thereof) have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of such Purchaser's representations as expressed herein. 4.3 RULE 144. Purchaser acknowledges that the Preferred (and the Common -------- Stock issuable upon conversion thereof) must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than two years after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" and the number of shares being sold during any three-month period not exceeding specified limitations. 4.4 NO PUBLIC MARKET. Purchaser understands that no public market now ---------------- exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company's securities. 4.5 ACCESS TO DATA. Purchaser has had an opportunity to discuss the -------------- Company's business, management and financial affairs with its management and the opportunity to review the Company's facilities. Purchaser has also had an opportunity to ask questions of officers of the Company, which questions were answered to his satisfaction. Purchaser understands that such discussions, as well as any written information issued by the Company, were intended to describe certain aspects of the Company's business and prospects but were not a thorough or exhaustive description. 4.6 AUTHORIZATION. This Agreement when executed and delivered by such ------------- Purchaser will constitute a valid and legally binding obligation of the Purchaser, enforceable in accordance with its terms, except as subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing 6 specific performance, injunctive relief or other equitable remedies and limitations of public policy as applied in Section 10 of the Registration Rights Agreement. 4.7 BROKERS OR FINDERS. The Company has not, and will not, incur, ------------------ directly or indirectly, as a result of any action taken by such Purchaser, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement. 4.8 INVESTOR COUNSEL. Bach Purchaser acknowledges that it has had the ---------------- opportunity to review this Agreement, the exhibits and the schedules attached hereto and the transactions contemplated by this Agreement with its own legal counsel. Each Purchaser is relying solely on such counsel and not on any statements or representations of the Company or any of its agents for legal advice with respect to this investment or the transactions contemplated by this Agreement. 4.9 TAX LIABILITY. Purchaser has reviewed with its own tax advisors the ------------- federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. Purchaser relies solely on such advisors and not on any statements or representations of the Company or any of its agents. Purchaser understands that he (and not the Company) shall be responsible for his own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. 4.10 ADDITIONAL REPRESENTATIONS OF FOREIGN INVESTORS. If the Purchaser ----------------------------------------------- does not reside in and is not a citizen of the United States, for the purpose of this Section 4 the Purchaser shall be deemed a "FOREIGN INVESTOR." Such Foreign Investor hereby represents, warrants and covenants to the Company, in addition to the other representations, warranties and covenants set forth in this Section 4, the following: (a) Neither the Foreign Investor nor any person for the account of whom such Foreign Investor is acting, including the estate of any such person, a trust of which any such person is a beneficiary, or a corporation, partnership, trust or other entity organized under the laws of the United States of America, its territories and possessions and all areas under the jurisdiction of the United States of America, is a citizen or resident of the United States of America (a "U.S. PERSON"). (b) Such Foreign Investor will not sell, transfer or otherwise dispose of the Shares for a period of at least ninety (90) days after the closing, and such Foreign Investor will not thereafter sell or otherwise transfer the Shares to a U.S. Person unless the Company has received an unqualified written opinion of legal counsel, who shall be and whose legal opinion shall be reasonably satisfactory to the Company, addressed to the Company, to the effect that such transfer may be effected without any violation of the Securities Act or any applicable state securities laws. 7 (c) The Foreign Investor understands and acknowledges that the Company will not allow any transfer or other disposition of the Shares unless the proposed transferee shall have executed an instrument containing the representations set forth in the foregoing paragraphs (a) and (b) of this Section 4. 10 or the Company shall have received an unqualified written legal opinion of counsel, who shall be and whose legal opinion shall be reasonably satisfactory to the Company to the effect that such proposed transfer may be effected without any violation of the Securities Act or any applicable state securities law. (d) The share certificate(s) of a Foreign Investor evidencing the Shares shall bear the following legend in addition to any other legend required under this Agreement: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES ("STATE ACT") AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF FOR A PERIOD OF NINETY (90) DAYS AFTER THE DATE ON THE FACE HEREOF, AND THEREAFTER MAY NOT BE TRANSFERRED TO A CITIZEN OR RESIDENT OF THE UNITED STATES OF AMERICA, INCLUDING THE ESTATE OF ANY SUCH PERSON, A TRUST OF WHICH ANY SUCH PERSON IS A BENEFICIARY, OR A CORPORATION, PARTNERSHIP, TRUST OR OTHER ENTITY ORGANIZED UNDER THE LAWS OF THE UNITED STATES OF AMERICA, ITS TERRITORIES AND POSSESSIONS AND ALL AREAS UNDER THE JURISDICTION OF THE UNITED STATES OF AMERICA, UNLESS THE ISSUER HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER, THAT SUCH TRANSFER WILL NOT BE IN VIOLATION OF THE ACT OR ANY APPLICABLE STATE ACT. SECTION 5 CONDITIONS TO CLOSING OF PURCHASERS ----------------------------------- The Purchasers' obligations to purchase the Shares at the Closing are, at the option of the Purchasers, subject to the fulfillment of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and -------------------------------------- warranties made by the Company in Section 3 hereof shall be true and correct in all material respects as of the Closing Date. 8 5.2 COVENANTS. All covenants, agreements and conditions contained in this --------- Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects. 5.3 OPINION OF COMPANY'S COUNSEL. The Purchasers shall have received from ---------------------------- Wilson Sonsini Goodrich & Rosati, P.C., counsel to the Company, an opinion addressed to them, dated the Closing Date, in substantially the form attached hereto as Exhibit E. --------- 5.4 COMPLIANCE CERTIFICATE. The Company shall have delivered to the ---------------------- Purchasers a certificate of the Company in the form of Exhibit F hereto, --------- executed by the President of the Company, dated the Closing Date, and certifying, among other things, to the fulfillment of the conditions specified in Sections 5.1 and 5.2 of this Agreement. 5.5 BLUE SKY. The Company shall have obtained all necessary Blue Sky law -------- permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Preferred and the Common Stock issuable upon conversion of the Preferred. 5.6 RESTATED ARTICLES OF INCORPORATION. The Articles shall have been ---------------------------------- filed with the California Secretary of State. 5.7 LEGAL MATTERS. All material matters of a legal nature which pertain ------------- to this Agreement and the transactions contemplated hereby, shall have been reasonably approved by counsel to the Purchasers. 5.8 REGISTRATION RIGHTS AGREEMENT. The Company and the Purchasers shall ----------------------------- have entered into the Registration Rights Agreement. SECTION 6 CONDITIONS TO CLOSING OF COMPANY -------------------------------- The Company's obligation to sell and issue the Shares at the Closing Date is, at the option of the Company, subject to the fulfillment as of the Closing Date of the following conditions: 6.1 REPRESENTATIONS. The representations made by the Purchasers in --------------- Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date. 6.2 BLUE SKY. The Company shall have obtained all necessary Blue Sky law -------- permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Preferred and the Common Stock issuable upon conversion of the Preferred. 9 6.3 RESTATED ARTICLES OF INCORPORATION. The Articles shall have been ---------------------------------- filed with the California Secretary of State. 6.4 LEGAL MATTERS. All material matters of a legal nature which pertain ------------- to this Agreement, and the transactions contemplated hereby, shall have been reasonably approved by counsel to the Company. 6.5 PAYMENT OF PURCHASE PRICE. Each Purchaser (i) shall have delivered to ------------------------- the Company the purchase price for such Purchaser's Shares, or (ii) shall have cancelled indebtedness owed by the Company to such Purchaser, in either case in the amount set forth opposite such Purchaser's name on the Schedule of Purchasers. 6.6 REGISTRATION RIGHTS AGREEMENT. The Company and the Purchasers shall ----------------------------- have entered into the Registration Rights Agreement. SECTION 7 COVENANTS OF THE COMPANY AND THE PURCHASERS ------------------------------------------- The Company hereby covenants and agrees as follows: 7.1 FINANCIAL INFORMATION. As soon as practicable after the end of each --------------------- fiscal year, and in any event within 90 days thereafter, the Company will mail to each Purchaser consolidated balance sheets of the Company and its subsidiaries, if any, as of the end of such fiscal year, consolidated statements of income and consolidated statements of changes in financial position of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles and setting forth in each case in comparative form the figures for the previous fiscal year (or, at the election of the Company, setting forth in comparative form the budgeted figures for the fiscal year then reported), all in reasonable detail and audited by independent public accountants of national standing selected by the Company. 7.2 ADDITIONAL INFORMATION. As long as a Purchaser holds not less than ---------------------- 15,000 shares of Preferred and/or Common Stock issued upon conversion of the Preferred, as adjusted for recapitalizations, stock splits, stock dividends and the like ("RECAPITALIZATIONS"), the Company will deliver or provide to such Purchaser (i) as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company and in any event within 45 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period, and consolidated statements of income and consolidated statements of changes in financial condition of the Company and its subsidiaries for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles (other than for accompanying notes), subject to changes resulting from year-end audit adjustments, all in reasonable detail and signed by the 10 principal financial or accounting officer of the Company, (ii) an annual budget for the Company as soon as it is available and (iii) visitation rights to attend Board of Directors meetings including advance notice thereof; provided, however, that the Company shall not be obligated to provide any information that it considers in good faith to be a trade secret or to contain confidential or classified information. 7.3 CONFIDENTIALITY. Each Purchaser agrees that any information obtained --------------- by such Purchaser pursuant to this Section 7 which may be proprietary to the Company or otherwise confidential will not be disclosed without the prior written consent of the Company. If a Purchaser requests in writing, the Company will identify in writing all information obtained by such Purchaser under this Section 7 which the Company considers confidential and which a Purchaser may not disclose without the Company's prior written consent. Purchaser further acknowledges and understands that any information so obtained which may be considered "inside" non-public information will not be utilized by such Purchaser in connection with purchases and/or sales of the Company's securities except in compliance with applicable state and federal anti-fraud statutes. The provisions of this Section 7.3 shall not be in limitation of any rights which Purchaser may have with respect to the books and records of the Company, or to inspect its properties or discuss its affairs, finances and accounts, under the laws of the jurisdictions in which it is incorporated. 7.4 AVAILABILITY OF COMMON STOCK FOR CONVERSION. The Company will from ------------------------------------------- time to time, in accordance with the laws of the State of California, increase the authorized amount of Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall be insufficient to permit conversion of all the then outstanding shares of Preferred. 7.5 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. The ----------------------------------------------------------- Company and each person now or hereafter employed in any technical capacity by it or any subsidiary with access to confidential information will enter into a Confidential Information and Invention Assignment Agreement in substantially the form of Exhibit G hereto. --------- 7.6 TERMINATION OF COVENANTS. The covenants of the Company set forth in ------------------------ this Section 7 shall terminate in all respects on the date of the closing of an initial firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act, covering the offer and sale of the Company's Common Stock. SECTION 8 MISCELLANEOUS ------------- 8.1 GOVERNING LAW. This Agreement shall be governed in all respects by ------------- the internal laws of the State of California. The parties expressly stipulate that any litigation 11 under this Agreement shall be brought in the state courts of the Counties of Santa Clara, California and in the United States District Court for the Northern District of California. The parties agree to submit to the jurisdiction and venue of those courts. 8.2 SURVIVAL. The representations, warranties, covenants and agreements -------- made herein shall survive any investigation made by any Purchaser and the closing of the transactions contemplated hereby. 8.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the ---------------------- provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto, provided, however, that the rights of a Purchaser to purchase the Preferred shall not be assignable without the consent of the Company. 8.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents --------------------------- delivered pursuant hereto at the Closing constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought; provided, however, that holders of a majority of the Preferred (or the Common Stock issued or issuable upon conversion of the Preferred) may, with the Company's prior written consent, waive, modify or amend on behalf of all holders, any provisions hereof. 8.5 NOTICES, ETC. All notices and other communications required or ------------ permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to the Purchaser, at the Purchaser's address as set forth in Exhibit A and (ii) if to the Company, at the address of its principal corporate - --------- offices (attention: Secretary), or at such other address as a party may designate by ten days' advance written notice to the other party pursuant to the provisions above. 8.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or ------------------- omission to exercise any right, power or remedy accruing to any holder of any Shares, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any 12 such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 8.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ----------------------------------- ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 8.8 EXPENSES. The Company and each Purchaser shall bear its own expenses -------- incurred on its behalf with respect to this Agreement and the transactions contemplated hereby. 8.9 COUNTERPARTS. This Agreement may be executed in any number of ------------ counterparts, each of which may be executed by less than all of the Purchasers, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 8.10 SEVERABILITY. In the event that any provision of this Agreement ------------ becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 8.11 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement -------------------- are used for convenience only and are not considered in construing or interpreting this Agreement. 13 The foregoing agreement is hereby executed as of the date first above written. "COMPANY" GENESYS TELECOMMUNICATIONS LABORATORIES a California corporation By: /s/ Gregory Shenkman ------------------------------------- Gregory Shenkman, President and Chief Executive Officer "PURCHASERS" ---------------------------------------- By: ------------------------------------- Title: ---------------------------------- 14 EX-4.4 7 COMMON STOCK PURCHASE WARRANT Exhibit 4.4 COMMON STOCK PURCHASE WARRANT THIS WARRANT AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED UPON THE EXERCISE OF THIS WARRANT HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH SALE, OFFER OR PLEDGE IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS UNLESS SOLD PURSUANT TO RULE 144 OF THE ACT. Void after April 26, 2001 GENESYS TELECOMMUNICATIONS LABORATORIES WARRANT TO PURCHASE 70,047 SHARES OF COMMON STOCK --------------- THIS CERTIFIES THAT, for value received, Benchmark Capital Partners, L.P. (the "Holder") is entitled to subscribe for and purchase 70,047 shares (as adjusted pursuant to Section 3 hereof) of fully paid and nonassessable Common Stock (the "Shares") of Genesys Telecommunications Laboratories, a California corporation (the "Company"), at the price of $35.69 per share (the "Exercise Price") (as adjusted pursuant to Section 3 hereof), subject to the provisions and upon the terms and conditions hereinafter set forth. 1. Exercise; Payment. ----------------- (a) Time of Exercise. This Warrant shall become exercisable upon the ---------------- earlier to occur of: (i) April 26, 1997, or (ii) the filing of an initial public offering of the Company's Common Stock pursuant to a registration statement in which the Company expects to receive aggregate proceeds of not less than $10,000,000 (an "IPO"). (b) Method of Exercise. ------------------ (i) Cash Exercise. The purchase rights represented by this ------------- Warrant may be exercised by the Holder, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A duly --------- executed) at the principal office of the Company, and by the payment to the Company, by certified, cashier's or other check acceptable to the Company, of an amount equal to the aggregate Exercise Price of the Shares being purchased. (ii) Net Issue Exercise. In lieu of exercising this Warrant, ------------------ the Holder may elect to receive Shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of shares of the Company's Common Stock computed using the following formula:
X = Y (A-B) ------ A Where X = the number of Shares to be issued to the Holder. Y = the number of Shares purchasable under this Warrant. A = the fair market value of one share of the Company's Common Stock. B = the Exercise Price (as adjusted to the date of such calculation).
(iii) Fair Market Value. For purposes of this Section ----------------- 1, the fair market value of the Company's Common Stock shall mean: A. The closing ask price of the Company's Common Stock quoted in the NASDAQ Over-the-Counter Market Summary or the closing price quoted on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for ----------------------- the ten trading days prior to the date of determination of fair market value (provided, however, if this Warrant is exercised as of the closing of the IPO, the number of trading days shall be the actual number of days traded, if less than ten); B. If the Company's Common Stock is not traded Over-The- Counter or on an exchange, the per share fair market value of the Common Stock shall be the fair market value price per share as determined in good faith by the Company's Board of Directors. 2 (c) Stock Certificates. In the event of any exercise of the rights ------------------ represented by this Warrant, certificates for the shares of Common Stock so purchased shall be delivered to the Holder within a reasonable time and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the shares with respect to which this Warrant shall not have been exercised shall also be issued to the Holder within such time. 2. Stock Fully Paid; Reservation of Shares. All of the Shares issuable --------------------------------------- upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of the Exercise Price therefor, be fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. During the period within which the rights represented by this Warrant may be exercised, the Company shall at all times have authorized and reserved for issuance sufficient shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. 3. Adjustment of Exercise Price and Number of Shares. Subject to the ------------------------------------------------- provisions of Section 11 hereof, the number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price therefor shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) Reclassification, Consolidation or Merger. In case of any ----------------------------------------- reclassification or change of the Common Stock (other than a change in par value, or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation as the case may be, shall in connection with such transaction execute a new Warrant, providing that the holder of this Warrant shall have the right to exercise such new Warrant, and procure upon such exercise and payment of the same aggregate Exercise Price, in lieu of the shares of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, consolidation, sale of all or substantially all of the Company's assets or merger by a holder of an equivalent number of shares of Common Stock. Such new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3. The provisions of this subsection (a), subject to Section 11 hereof, shall similarly apply to successive reclassifications, changes, consolidations, mergers, transfers and the sale of all or substantially all of the Company's assets. (b) Stock Splits, Dividends and Combinations. In the event that the ---------------------------------------- Company shall at any time subdivide the outstanding shares of Common Stock or shall issue a stock dividend on its outstanding shares of Common Stock the number of Shares 3 issuable upon exercise of this Warrant immediately prior to such subdivision or to the issuance of such stock dividend shall be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the Company shall at any time combine the outstanding shares of Common Stock the number of Shares issuable upon exercise of this Warrant immediately prior to such combination shall be proportionately decreased, and the Exercise Price shall be proportionately increased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be. 4. Notice of Adjustments. Whenever the number of Shares purchasable --------------------- hereunder or the Exercise Price thereof shall be adjusted pursuant to Section 3 hereof, the Company shall provide notice by first class mail to the holder of this Warrant setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the number of Shares which may be purchased and the Exercise Price therefor after giving effect to such adjustment. 5. Fractional Shares. No fractional shares of Common Stock will be ----------------- issued in connection with any exercise hereunder. In lieu of such fractional shares the Company shall make a cash payment therefor based upon the Exercise Price then in effect. 6. Representations of the Company. The Company represents that all ------------------------------ corporate actions on the part of the Company, its officers, directors and shareholders necessary for the sale and issuance of the Shares pursuant hereto and the performance of the Company's obligations hereunder were taken prior to and are effective as of the effective date of this Warrant. 7. Representations and Warranties by the Holder. The Holder represents -------------------------------------------- and warrants to the Company as follows: (a) This Warrant and the Shares issuable upon exercise thereof are being acquired for its own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act of 1933, as amended (the "Act"). Upon exercise of this Warrant, the Holder shall, if so requested by the Company, confirm in writing, in a form satisfactory to the Company, that the securities issuable upon exercise of this Warrant are being acquired for investment and not with a view toward distribution or resale. (b) The Holder understands that the Warrant and the Shares have not been registered under the Act by reason of their issuance in a transaction exempt from the registration and prospectus delivery requirements of the Act pursuant to Section 4(2) thereof, and that they must be held by the Holder indefinitely, and that the Holder must therefore bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the Act or is exempted from such registration. 4 The Holder further understands that the Shares have not been qualified under the California Securities Law of 1968 (the "California Law") by reason of their issuance in a transaction exempt from the qualification requirements of the California Law pursuant to Section 25102(f) thereof, which exemption depends upon, among other things, the bona fide nature of the Holder's investment intent expressed above. (c) The Holder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of this Warrant and the Shares purchasable pursuant to the terms of this Warrant and of protecting its interests in connection therewith. (d) The Holder is able to bear the economic risk of the purchase of the Shares pursuant to the terms of this Warrant. 8. Restrictive Legend. ------------------ The Shares issuable upon exercise of this Warrant (unless registered under the Act) shall be stamped or imprinted with a legend in substantially the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT. COPIES OF THE INSTRUMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION. 9. Restrictions Upon Transfer and Removal of Legend. ------------------------------------------------ (a) The Company need not register a transfer of Shares bearing the restrictive legend set forth in Section 8 hereof, unless the conditions specified in such legend are satisfied. The Company may also instruct its transfer agent not to register the 5 transfer of the Shares, unless one of the conditions specified in the legend referred to in Section 8 hereof is satisfied. (b) Notwithstanding the provisions of paragraph (a) above, no opinion of counsel or "no-action" letter shall be necessary for a transfer without consideration by any holder (i) to an affiliate of the holder, (ii) if such holder is a partnership, to a partner or retired partner of such partnership who retires after the date hereof or to the estate of any such partner or retired partner, (iii) if such holder is a corporation, to a shareholder of such corporation, or to any other corporation under common control, direct or indirect, with such holder, or (iv) by gift, will or intestate succession of any individual holder to his spouse or siblings, or to the lineal descendants or ancestors of such holder or his spouse, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if such transferee were the original holder hereunder. 10. Rights of Shareholders. No holder of this Warrant shall be entitled, ---------------------- as a Warrant holder, to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. 11. Expiration of Warrant. This Warrant shall expire and shall no longer --------------------- be exercisable upon the earlier to occur of: (a) 5:00 p.m., California local time, on April 26, 2001. (b) The closing of a merger or consolidation of the Company into a third party pursuant to which the Company's shareholders immediately prior to such merger or consolidation own less than fifty percent (50%) of the outstanding voting securities of the surviving entity; (c) The closing of a sale of all or substantially all of the assets of the Company; or (d) The closing of an IPO. 6 12. Notices, Etc. All notices and other communications from the Company ------------ to the Holder shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by the Holder. 13. Governing Law, Headings. This Warrant is being delivered in the State ----------------------- of California and shall be construed and enforced in accordance with and governed by the laws of such State. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof Issued this 26th day of April, 1996. GENESYS TELECOMMUNICATIONS LABORATORIES By: /s/ Gregory Shenkman ----------------------- Gregory Shenkman Chief Executive Officer and President 7 EXHIBIT A --------- NOTICE OF EXERCISE ------------------ TO: GENESYS TELECOMMUNICATIONS LABORATORIES 1100 Grundy Lane, Suite 125 San Bruno, CA 94066 Attention: President 1. The undersigned hereby elects to purchase ______________________ shares of Common Stock of GENESYS TELECOMMUNICATIONS LABORATORIES pursuant to the terms of the attached Warrant. 2. Method of Exercise (Please mark the applicable blank): ____ The undersigned elects to exercise the attached Warrant by means of a cash payment, and tenders herewith payment in full for the purchase price of the shares being purchased, together with all applicable transfer taxes, if any. ____ The undersigned elects to exercise the attached Warrant by means of the net exercise provisions of Section 1 (b)(ii) of the Warrant. 3. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: ------------------------------ (Name) ------------------------------ ------------------------------ (Address) 4. The undersigned hereby represents and warrants that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale, in connection with the distribution thereof, and that the undersigned has no present intention of distributing or reselling such shares and all representations and warranties of the undersigned set forth in Section 7 of the attached Warrant are true and correct as of the date hereof. In support thereof, the undersigned hereby delivers an Investment Representation Statement in a form substantially similar to the form attached to the Warrant as Exhibit B. --------- ------------------------------- (Signature) Title: - ----------------------- ------------------------------- (Date) EXHIBIT B --------- INVESTMENT REPRESENTATION STATEMENT PURCHASER : ----------------- SELLER : GENESYS TELECOMMUNICATIONS LABORATORIES COMPANY : GENESYS TELECOMMUNICATIONS LABORATORIES SECURITY : COMMON STOCK ISSUED UPON EXERCISE OF THE STOCK PURCHASE WARRANT ISSUED ON April 26,1996 AMOUNT : SHARES ----------------- DATE : _________________ In connection with the purchase of the above-listed Securities, the Purchaser represents to the Seller and to the Company the following: (a) Purchaser is aware of the Company's business affairs and financial condition, and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Purchaser is purchasing these Securities for its own account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof for purposes of the Securities Act of 1933, as amended (the "Securities Act"). (b) Purchaser understands that the Securities have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of its investment intent as expressed herein. In this connection, Purchaser understands that, in the view of the Securities and Exchange Commission (the "SEC"), the statutory basis for such exemption may be unavailable if its representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. (c) Purchaser further understands that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from registration is otherwise available. Moreover, Purchaser understands that the Company is under no obligation to register the Securities. In addition, Purchaser understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel for the Company. (d) Purchaser is familiar with the provisions of Rule 144, promulgated under the Securities Act, which, in substance, permits limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. The Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires among other things: (1) the availability of certain public information about the Company, (2) the resale occurring not less than two years after the party has purchased, and made full payment for, within the meaning of Rule 144, the securities to be sold; and, in the case of an affiliate, or of a non-affiliate who has held the securities less than three years, (3) the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934) and the amount of securities being sold during any three month period not exceeding the specified limitations stated therein, if applicable. (e) Purchaser agrees, in connection with the Company's initial underwritten public offering of the Company's securities, (1) not to sell, make short sale of, loan, grant any options for the purchase of, or otherwise dispose of any shares of Common Stock of the Company held by the undersigned (other than those shares included in the registration) without the prior written consent of the Company or the underwriters managing such initial underwritten public offering of the Company's securities for one hundred eighty (180) days from the effective date of such registration, and (2) Purchaser further agrees to execute any agreement reflecting (1) above as may be requested by the underwriters at the time of the public offering. (f) Purchaser further understands that in the event all of the applicable requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 are not exclusive, the Staff of the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. PURCHASER By: ------------------------ Title: --------------------- Date: ---------------------- 2. EXHIBIT C --------- FORM OF TRANSFER (To be signed only upon transfer of Warrant) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto __________________________ the right represented by the attached Warrant to purchase ______________________ * shares of Common Stock of GENESYS TELECOMMUNICATIONS LABORATORIES, to which the attached Warrant relates, and appoints ________________ Attorney to transfer such right on the books of GENESYS TELECOMMUNICATIONS LABORATORIES, with full power of substitution in the premises. Dated: ----------------- BENCHMARK CAPITAL PARTNERS, L.P. By: -------------------------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) ------------------------------------------- (Address) Signed in the presence of: - --------------------------- ___________________________ * Insert here the number of shares without making any adjustment for additional shares of Common Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant, may be deliverable upon exercise. EX-4.5 8 SERIES B PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT 4.5 GENESYS TELECOMMUNICATIONS LABORATORIES 1100 Grundy Lane, Suite 125 San Bruno, California 94066 ----------------------------------------------- SERIES B PREFERRED STOCK PURCHASE AGREEMENT June 13, 1996 ----------------------------------------------- TABLE OF CONTENTS
Page SECTION 1 Authorization and Sale of Preferred Stock...................... 1 1.1 Authorization.................................................. 1 1.2 Sale of Series B Preferred..................................... 1 SECTION 2 Closing Dates; Delivery........................................ 1 2.1 Closing Date................................................... 1 2.2 Delivery....................................................... 1 SECTION 3 Representations and Warranties of the Company.................. 2 3.1 Organization and Standing; Articles and Bylaws................. 2 3.2 Corporate Power................................................ 2 3.3 Subsidiaries................................................... 2 3.4 Capitalization................................................. 2 3.5 Authorization.................................................. 3 3.6 Financial Statements........................................... 3 3.7 Material Contracts and Other Commitments....................... 3 3.8 Title to Properties and Assets; Liens, etc..................... 4 3.9 Compliance with Other Instruments, None Burdensome, etc........ 4 3.10 Litigation, etc................................................ 4 3.11 Employees...................................................... 4 3.12 Franchises, Licenses, Trademarks, Patents and Other Rights..... 4 3.13 Governmental Consent, etc...................................... 5 3.14 Offering....................................................... 5 3.15 Brokers or Finders; Other Offers............................... 5 3.16 Shareholders, Directors and Officers; Indebtedness............. 5 3.17 Disclosure..................................................... 5 SECTION 4 Representations and Warranties of the Purchasers............... 6 4.1 Experience..................................................... 6 4.2 Investment..................................................... 6 4.3 Rule 144....................................................... 6 4.4 No Public Market............................................... 6 4.5 Access to Data................................................. 7 4.6 Authorization.................................................. 7 4.7 Brokers or Finders............................................. 7 4.8 Investor Counsel............................................... 7 4.9 Tax Liability.................................................. 7 SECTION 5 Conditions to Closing of Purchasers............................ 7 5.1 Representations and Warranties Correct......................... 7 5.2 Covenants...................................................... 8 5.3 Opinion of Company's Counsel................................... 8 5.4 Compliance Certificate......................................... 8 5.5 Blue Sky....................................................... 8
-i- 5.6 Amended and Restated Articles of Incorporation................. 8 5.7 Legal Matters.................................................. 8 5.8 Registration Rights Agreement.................................. 8 SECTION 6 Conditions to Closing of Company............................... 8 6.1 Representations................................................ 8 6.2 Blue Sky....................................................... 8 6.3 Amended and Restated Articles of Incorporation................. 9 6.4 Legal Matters.................................................. 9 6.5 Payment of Purchase Price...................................... 9 6.6 Registration Rights Agreement.................................. 9 SECTION 7 Covenants of the Company and the Purchasers.................... 9 7.1 Financial Information.......................................... 9 7.2 Additional Information......................................... 9 7.3 Confidentiality................................................ 10 7.4 Availability of Common Stock for Conversion.................... 10 7.5 Confidential Information and Invention Assignment Agreement.... 10 7.6 Termination of Covenants....................................... 10 SECTION 8 Miscellaneous.................................................. 11 8.1 Governing Law.................................................. 11 8.2 Survival....................................................... 11 8.3 Successors and Assigns......................................... 11 8.4 Entire Agreement; Amendment.................................... 11 8.5 Notices, etc................................................... 11 8.6 Delays or Omissions............................................ 12 8.7 California Corporate Securities Law............................ 12 8.8 Expenses....................................................... 12 8.9 Counterparts................................................... 12 8.10 Severability................................................... 12 8.11 Titles and Subtitles........................................... 12
-ii- TABLE OF CONTENTS (continued)
EXHIBITS A. Schedule of Purchasers B. Amended and Restated Articles of Incorporation C. Schedule of Exceptions D. Registration Rights Agreement E. Form of Legal Opinion of Wilson Sonsini Goodrich & Rosati, P.C. F. Form of Compliance Certificate G. Form of Confidential Information and Inventions Assignment Agreement
-iii- GENESYS TELECOMMUNICATIONS LABORATORIES SERIES B PREFERRED STOCK PURCHASE AGREEMENT This Agreement is made as of June 13, 1996 among Genesys Telecommunications Laboratories, a California corporation (the "COMPANY"), and the persons and entities listed on the Schedule of Purchasers attached hereto as Exhibit A (the --------- "PURCHASERS"). SECTION 1 AUTHORIZATION AND SALE OF PREFERRED STOCK ----------------------------------------- 1.1 AUTHORIZATION. The Company has authorized the sale and issuance of up ------------- to 400,000 shares (the "SHARES") of its Series B Preferred Stock ("SERIES B PREFERRED"), having the rights, privileges and preferences as set forth in the Company's Amended and Restated Articles of Incorporation (the "ARTICLES") in the form attached to this Agreement as Exhibit B. --------- 1.2 SALE OF SERIES B PREFERRED. Subject to the terms and conditions -------------------------- hereof, the Company hereby severally issues and sells to each Purchaser and each Purchaser hereby severally buys from the Company the total number of Shares specified opposite such Purchaser's name on the Schedule of Purchasers, at a purchase price of Twenty Two Dollars and Thirteen Cents ($22.13) per Share. The Company's agreement with each Purchaser is a separate agreement, and the sales of the Series B Preferred to each Purchaser is a separate sale. SECTION 2 CLOSING DATES; DELIVERY ----------------------- 2.1 CLOSING DATE. The first closing of the purchase and sale of the ------------ Series B Preferred hereunder shall be held at the offices of Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, California 94304 at 2:00 p.m., local time, on June 13, 1996 (the "CLOSING") or at such other time and place as shall be mutually agreed upon by the Company and Purchasers who propose to purchase a majority of the Shares proposed to be sold at the Closing (the date of the Closing is hereinafter referred to as the "CLOSING DATE"). One or more additional closings may occur within thirty (30) days following the Closing Date, so long as the sale of Shares at such closings is pursuant to the terms of this Agreement and at the price per share set forth in Section 1.2. 2.2 DELIVERY. At the Closing, the Company will deliver to each Purchaser -------- a certificate or certificates, registered in such Purchaser's name, representing the number of Shares listed opposite such Purchaser's name on the Schedule of Purchasers, against (a) delivery to the Company of payment of the purchase price therefor, by check payable to the Company or wire transfer per the Company's instructions or (b) cancellation of indebtedness owed to Purchaser in the amount indicated on the Schedule of Purchasers. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY --------------------------------------------- Except as set forth on the Schedule of Exceptions attached hereto as Exhibit C, the Company represents and warrants to the Purchasers, as of the - --------- Closing Date as follows: 3.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. The Company is a ---------------------------------------------- corporation duly organized and existing under, and by virtue of, the laws of the State of California and is in good standing under such laws. The Company has requisite corporate power and authority to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is presently qualified to do business as a foreign corporation in any jurisdiction, in which the failure to be so qualified would have a material adverse affect on the Company's operations or conditions, financial or otherwise. The Company has furnished the Purchasers with true, correct and complete copies of its Articles and Bylaws (the "BYLAWS"), as presently in effect. 3.2 CORPORATE POWER. The Company has or will have at the Closing Date all --------------- requisite legal and corporate power and authority to execute and deliver this Agreement, to sell and issue the Shares hereunder, to issue the Common Stock issuable upon conversion of the Series B Preferred and to carry out and perform its obligations under the terms of this Agreement. 3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated companies ------------ and does not otherwise own or control, directly or indirectly, any equity interest in any corporation, association or business entity. 3.4 CAPITALIZATION. The authorized capital stock of the Company consists -------------- or, upon the filing of the Articles with the California Secretary of State will consist of 20,000,000 shares of Common Stock (the "COMMON STOCK"), of which 1,886,500 shares are issued and outstanding as of the Closing Date and 550,000 shares of Preferred Stock, 150,000 shares of which have been designated "SERIES A PREFERRED", all of which are issued and outstanding, and 400,000 shares of which have been designated "SERIES B PREFERRED", none of which is issued and outstanding prior to the Closing. The outstanding shares have been duly authorized and validly issued, and are fully paid and nonassessable. The Company has reserved 400,000 shares of Series B Preferred for issuance hereunder, 150,000 shares of Common Stock for issuance upon conversion of the Series A Preferred, 400,000 shares of Common Stock for issuance upon conversion of the Series B Preferred and 552,139 shares of Common Stock for issuance by the Board of Directors to employees, consultants, or directors pursuant to the Company's 1995 Stock Option Plan, of which stock options to purchase 437,000 shares are outstanding as of the Closing Date. The Company has issued a warrant to purchase 70,047 shares of Common Stock at a exercise price of $35.69 per share (subject to -2- adjustment upon occurrence of certain events) which is exercisable upon the earlier of April 26, 1997 or the filing of the Company's initial public offering with proceeds of not less than $10,000,000. Except as set forth above, there are no options, warrants or other rights to purchase any of the Company's authorized and unissued capital stock. 3.5 AUTHORIZATION. All corporate action on the part of the Company, its ------------- directors and shareholders necessary for the authorization, execution, delivery and performance of this Agreement by the Company, the authorization, sale, issuance and delivery of the Series B Preferred (and the Common Stock issuable upon conversion of the Series B Preferred) and the performance of all of the Company's obligations hereunder has been taken or will be taken prior to the Closing. This Agreement, when executed and delivered by the Company, shall constitute a valid and binding obligation of the Company, enforceable in accordance with its terms, except as subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies and limitations of public policy as applied to Section 10 of the Registration Rights Agreement, attached hereto as Exhibit D (the "REGISTRATION RIGHTS AGREEMENT"). The Shares, when issued in compliance with the provisions of this Agreement and upon the filing of the Articles with the office of the California Secretary of State, will be validly issued, will be fully paid and nonassessable, and will have the rights, preferences and privileges described in the Articles; the Common Stock issuable upon conversion of the Shares has been duly and validly reserved and, when issued in compliance with the provisions of this Agreement and the Articles, will be validly issued, and will be fully paid and nonassessable; and the Shares and such Common Stock will be free of any liens or encumbrances, assuming the Purchasers take the Shares with no notice thereof, other than any liens or encumbrances created by or imposed upon the Purchasers; provided, however, that the Shares (and the Common Stock issuable upon conversion thereof) may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein. The Shares are not subject to any preemptive rights or rights of first refusal. 3.6 FINANCIAL STATEMENTS. The Company has delivered to each Purchaser its -------------------- unaudited financial statements as of and for the years ended June 30, 1995 and June 30, 1994 (the "FINANCIAL STATEMENTS"). The Financial Statements are complete and correct in all material respects and accurately set out and describe the financial condition and operating results of the Company as of the dates, and during the periods, indicated therein. Since June 30, 1995 there has not been any change in the assets, liabilities, financial condition or operations of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business which have not been, either in any case or in the aggregate, materially adverse. 3.7 MATERIAL CONTRACTS AND OTHER COMMITMENTS. The Company does not have ---------------------------------------- any contract, agreement, lease, or other commitment, written or oral, absolute or contingent, other than (i) contracts for the purchase of supplies and services that were entered into in the ordinary course of business and that do not, as of the date hereof, involve more than $25,000 each; (ii) sales contracts entered into in the ordinary course of business; (iii) license agreements entered into in the ordinary course of business; and (iv) contracts terminable at will by the Company on no more than sixty (60) -3- days notice without cost or liability to the Company. For purposes of this Section 3.7, employment contracts and contracts with labor unions and agreements pursuant to which the Company licenses any of its Proprietary Information (as defined herein) to third parties shall not be considered to be contracts entered into in the usual and ordinary course of business. 3.8 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good and ------------------------------------------ marketable title to its properties and assets, and has good title to all its leasehold interests, in each case subject to no mortgage, pledge, lien or encumbrance, other than (i) the lien of current taxes not yet due and payable, and (ii) possible minor liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company, and which have not arisen otherwise than in the ordinary course of business. 3.9 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The Company ------------------------------------------------------- is not in violation of any term of its Articles or Bylaws, or in any material respect of any term or provision of any material mortgage, indebtedness, indenture, contract, agreement, instrument, judgment or decree, and to the best of its knowledge is not in violation of any order, statute, rule or regulation applicable to the Company where such violation would materially and adversely affect the Company. The execution, delivery and performance of and compliance with this Agreement, and the issuance of the Series B Preferred and the Common Stock issuable upon conversion of the Series B Preferred, have not resulted and will not result in any material violation of, or conflict with, or constitute a material default under, the Company's Articles or Bylaws or any of its material agreements or result in the creation of, any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company; and there is no such violation or default which materially and adversely affects the business of the Company or any of its properties or assets. 3.10 LITIGATION, ETC. There are no actions, suits, proceedings or --------------- investigations pending against the Company or its properties before any court or governmental agency (nor, to the best of the Company's knowledge, is there any reasonable basis therefor or threat thereof). 3.11 EMPLOYEES. To the best of the Company's knowledge, no employee of the --------- Company is in violation of any term of any employment contract, patent disclosure agreement or any other contract or agreement relating to the relationship of such employee with the Company or any other party because of the nature of the business conducted or to be conducted by the Company. There is, to the Company's knowledge and belief, no pending nor threatened action, suit, proceeding or claim, or to its knowledge any basis therefor or threat thereof with respect to any contract, agreement, covenant or obligation referred to in the preceding sentence. The Company and each employee of the Company and any subsidiary of the Company employed in any technical capacity or with access to confidential information of the Company has entered into a Confidential Information and Invention Assignment Agreement substantially in the form of Exhibit G hereto. - --------- 3.12 FRANCHISES, LICENSES, TRADEMARKS, PATENTS AND OTHER RIGHTS. The ---------------------------------------------------------- Company has all franchises, permits, licenses and other similar authority necessary for the conduct of its business, the lack of which could materially and adversely affect the operations or condition, financial or -4- otherwise, of the Company, and it is not in default in any material respect under any of such franchises, permits, liens or other similar authority. To the best of the Company's knowledge, the Company possesses all patents, patent rights, trademarks, trademark rights, trade names, trade name rights and copyrights necessary to conduct its business without conflict with or infringement upon any valid rights of others and the lack of which could materially and adversely affect the operations or condition, financial or otherwise, of the Company, and the Company has not received any notice of infringement upon or conflict with the asserted rights of others. The Company has a valuable body of trade secrets, including know-how, concepts, computer programs and other technical data (the "PROPRIETARY INFORMATION") for the development, manufacture and sale of its products. To the Company's knowledge, the Company has the right to use the Proprietary Information, free and clear of any rights, liens, encumbrances or claims of others, except that the possibility exists that other persons may have independently developed trade secrets or technical information similar or identical to those of the Company. Reasonable security measures have been taken by the Company to protect the secrecy, confidentiality and value of the Proprietary Information referred to in this Section 3.12. 3.13 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of ------------------------- or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of this Agreement, or the offer, sale or issuance of the Series B Preferred (and the Common Stock issuable upon conversion of the Series B Preferred), or the consummation of any other transaction contemplated hereby, except (a) filing of the Articles with the office of the California Secretary of State (b) qualification (or taking such action as may be necessary to secure an exemption from qualification, if available) of the offer and sale of the Series B Preferred (and the Common Stock issuable upon conversion of the Series B Preferred) under the California Corporate Securities Law of 1968, as amended and other applicable Blue Sky laws, which filings and qualifications, if required, will be accomplished in a timely manner. 3.14 OFFERING. Subject to the accuracy of the Purchasers' representations -------- in Section 4 hereof, the offer, sale and issuance of the Series B Preferred to be issued in conformity with the terms of this Agreement, and the issuance of the Common Stock to be issued upon conversion of the Series B Preferred, constitute transactions exempt from the registration requirements of the Securities Act. 3.15 BROKERS OR FINDERS; OTHER OFFERS. The Company has not incurred, and -------------------------------- will not incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement. 3.16 SHAREHOLDERS, DIRECTORS AND OFFICERS; INDEBTEDNESS. The Company is -------------------------------------------------- not indebted, directly or indirectly, to any of its officers, directors or shareholders or any of their respective relatives or affiliates. No officer, director or shareholder of the Company, or any of their relatives or affiliates, is indebted to the Company. To the knowledge of the Company, none of the officers or directors or significant employees or advisors of the Company, or their respective -5- spouses, or relatives, (i) owns directly or indirectly, individually or collectively, a material interest in any entity which is a competitor, customer or supplier of or (ii) has any existing contractual relationship with the Company involving an amount in excess of $50,000. 3.17 DISCLOSURE. Neither this Agreement nor any of the documents furnished ---------- to the Purchasers by the Company in connection with the transactions contemplated hereby contains or will contain any untrue statement of material fact, or omits or will omit to state any material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they are made, not misleading. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS ------------------------------------------------ Each Purchaser hereby severally represents and warrants to the Company with respect to the purchase of the Shares as follows: 4.1 EXPERIENCE. By reason of his business or financial experience, or ---------- that of his professional advisor, Purchaser has the capacity to protect his own interests in connection with the purchase of the Shares hereunder and has the ability to bear the economic risk (including the risk of total loss) of his investment. 4.2 INVESTMENT. Purchaser is acquiring the Series B Preferred and the ---------- underlying Common Stock for investment for his own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. Purchaser understands that the Series B Preferred to be purchased (and the Common Stock issuable upon conversion thereof) have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of such Purchaser's representations as expressed herein. 4.3 RULE 144. Purchaser acknowledges that the Series B Preferred (and the -------- Common Stock issuable upon conversion thereof) must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than two years after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" and the number of shares being sold during any three-month period not exceeding specified limitations. -6- 4.4 NO PUBLIC MARKET. Purchaser understands that no public market now ---------------- exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company's securities. 4.5 ACCESS TO DATA. Purchaser has had an opportunity to discuss the -------------- Company's business, management and financial affairs with its management and the opportunity to review the Company's facilities. Purchaser has also had an opportunity to ask questions of officers of the Company, which questions were answered to his satisfaction. Purchaser understands that such discussions, as well as any written information issued by the Company, were intended to describe certain aspects of the Company's business and prospects but were not a thorough or exhaustive description. 4.6 AUTHORIZATION. This Agreement when executed and delivered by such ------------- Purchaser will constitute a valid and legally binding obligation of the Purchaser, enforceable in accordance with its terms, except as subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies and limitations of public policy as applied in Section 10 of the Registration Rights Agreement. 4.7 BROKERS OR FINDERS. The Company has not, and will not, incur, ------------------ directly or indirectly, as a result of any action taken by such Purchaser, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement. 4.8 INVESTOR COUNSEL. Each Purchaser acknowledges that it has had the ---------------- opportunity to review this Agreement, the exhibits and the schedules attached hereto and the transactions contemplated by this Agreement with its own legal counsel. Each Purchaser is relying solely on such counsel and not on any statements or representations of the Company or any of its agents for legal advice with respect to this investment or the transactions contemplated by this Agreement. 4.9 TAX LIABILITY. Purchaser has reviewed with its own tax advisors the ------------- federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. Purchaser relies solely on such advisors and not on any statements or representations of the Company or any of its agents. Purchaser understands that he (and not the Company) shall be responsible for his own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. SECTION 5 CONDITIONS TO CLOSING OF PURCHASERS ----------------------------------- The Purchasers' obligations to purchase the Shares at the Closing are, at the option of the Purchasers, subject to the fulfillment of the following conditions: -7- 5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and -------------------------------------- warranties made by the Company in Section 3 hereof shall be true and correct in all material respects as of the Closing Date. 5.2 COVENANTS. All covenants, agreements and conditions contained in this --------- Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects. 5.3 OPINION OF COMPANY'S COUNSEL. The Purchasers shall have received from ---------------------------- Wilson Sonsini Goodrich & Rosati, P.C., counsel to the Company, an opinion addressed to them, dated the Closing Date, in substantially the form attached hereto as Exhibit E. --------- 5.4 COMPLIANCE CERTIFICATE. The Company shall have delivered to the ---------------------- Purchasers a certificate of the Company in the form of Exhibit F hereto, --------- executed by the President of the Company, dated the Closing Date, and certifying, among other things, to the fulfillment of the conditions specified in Sections 5.1 and 5.2 of this Agreement. 5.5 BLUE SKY. The Company shall have obtained all necessary Blue Sky law -------- permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Series B Preferred and the Common Stock issuable upon conversion of the Series B Preferred. 5.6 AMENDED AND RESTATED ARTICLES OF INCORPORATION. The Articles shall ---------------------------------------------- have been filed with the California Secretary of State. 5.7 LEGAL MATTERS. All material matters of a legal nature which pertain ------------- to this Agreement and the transactions contemplated hereby, shall have been reasonably approved by counsel to the Purchasers. 5.8 REGISTRATION RIGHTS AGREEMENT. The Company and the Purchasers shall ----------------------------- have entered into the Registration Rights Agreement. SECTION 6 CONDITIONS TO CLOSING OF COMPANY -------------------------------- The Company's obligation to sell and issue the Shares at the Closing Date is, at the option of the Company, subject to the fulfillment as of the Closing Date of the following conditions: 6.1 REPRESENTATIONS. The representations made by the Purchasers in --------------- Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date. -8- 6.2 BLUE SKY. The Company shall have obtained all necessary Blue Sky law -------- permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Series B Preferred and the Common Stock issuable upon conversion of the Series B Preferred. 6.3 AMENDED AND RESTATED ARTICLES OF INCORPORATION. The Articles shall ---------------------------------------------- have been filed with the California Secretary of State. 6.4 LEGAL MATTERS. All material matters of a legal nature which pertain ------------- to this Agreement, and the transactions contemplated hereby, shall have been reasonably approved by counsel to the Company. 6.5 PAYMENT OF PURCHASE PRICE. Each Purchaser (i) shall have delivered to ------------------------- the Company the purchase price for such Purchaser's Shares, or (ii) shall have canceled indebtedness owed by the Company to such Purchaser, in either case in the amount set forth opposite such Purchaser's name on the Schedule of Purchasers. 6.6 REGISTRATION RIGHTS AGREEMENT. The Company and the Purchasers shall ----------------------------- have entered into the Registration Rights Agreement. SECTION 7 COVENANTS OF THE COMPANY AND THE PURCHASERS ------------------------------------------- The Company hereby covenants and agrees as follows: 7.1 FINANCIAL INFORMATION. As soon as practicable after the end of each --------------------- fiscal year, and in any event within 90 days thereafter, the Company will deliver to each Purchaser consolidated balance sheets of the Company and its subsidiaries, if any, as of the end of such fiscal year, consolidated statements of income and consolidated statements of changes in financial position of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles and setting forth in each case in comparative form the figures for the previous fiscal year (or, at the election of the Company, setting forth in comparative form the budgeted figures for the fiscal year then reported), all in reasonable detail and audited by independent public accountants of national standing selected by the Company. 7.2 ADDITIONAL INFORMATION. As long as a Purchaser holds not less than ---------------------- 15,000 shares of Series B Preferred and/or Common Stock issued upon conversion of the Series B Preferred, as adjusted for recapitalizations, stock splits, stock dividends and the like, the Company will deliver or provide to such Purchaser (i) as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company and in any event within 45 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of -9- each such quarterly period, and consolidated statements of income and consolidated statements of changes in financial condition of the Company and its subsidiaries for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles (other than for accompanying notes), subject to changes resulting from year-end audit adjustments, all in reasonable detail and signed by the principal financial or accounting officer of the Company, (ii) an annual budget for the Company as soon as it is available and (iii) visitation rights to attend Board of Directors meetings including advance notice thereof; provided, however, that the Company shall not be obligated to provide any information that it considers in good faith to be a trade secret or to contain confidential or classified information; and provided further, the Company may, at the discretion of the Board of Directors, exclude any non-Board member from executive sessions of its Board of Directors. 7.3 CONFIDENTIALITY. Each Purchaser agrees that any information obtained --------------- by such Purchaser pursuant to this Section 7 which may be proprietary to the Company or otherwise confidential will not be disclosed without the prior written consent of the Company. If a Purchaser requests in writing, the Company will identify in writing all information obtained by such Purchaser under this Section 7 which the Company considers confidential and which a Purchaser may not disclose without the Company's prior written consent. Purchaser further acknowledges and understands that any information so obtained which may be considered "inside" non-public information will not be utilized by such Purchaser in connection with purchases and/or sales of the Company's securities except in compliance with applicable state and federal anti-fraud statutes. The provisions of this Section 7.3 shall not be in limitation of any rights which Purchaser may have with respect to the books and records of the Company, or to inspect its properties or discuss its affairs, finances and accounts, under the laws of the jurisdictions in which it is incorporated. 7.4 AVAILABILITY OF COMMON STOCK FOR CONVERSION. The Company will from ------------------------------------------- time to time, in accordance with the laws of the State of California, increase the authorized amount of Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall be insufficient to permit conversion of all the then outstanding shares of Series B Preferred. 7.5 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. The ----------------------------------------------------------- Company and each person now or hereafter employed in any technical capacity by it or any subsidiary with access to confidential information will enter into a Confidential Information and Invention Assignment Agreement in substantially the form of Exhibit G hereto, and the Company shall use its best efforts to cause --------- any consultant retained by it that has access to confidential information to enter into a form of Consulting Agreement with substantially similar confidentiality and non-solicitation provisions. 7.6 TERMINATION OF COVENANTS. The covenants of the Company set forth in ------------------------ this Section 7 shall terminate in all respects on the date of the closing of an initial firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act, covering the offer and sale of the Company's Common Stock. -10- SECTION 8 MISCELLANEOUS ------------- 8.1 GOVERNING LAW. This Agreement shall be governed in all respects by ------------- the internal laws of the State of California. The parties expressly stipulate that any litigation under this Agreement shall be brought in the state courts of the Counties of Santa Clara, California and in the United States District Court for the Northern District of California. The parties agree to submit to the jurisdiction and venue of those courts. 8.2 SURVIVAL. The representations, warranties, covenants and agreements -------- made herein shall survive any investigation made by any Purchaser and the closing of the transactions contemplated hereby. 8.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the ---------------------- provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto, provided, however, that the rights of a Purchaser to purchase the Series B Preferred shall not be assignable without the consent of the Company. 8.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents --------------------------- delivered pursuant hereto at the Closing constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought; provided, however, that holders of at least sixty (60) percent of the Series B Preferred (or the Common Stock issued or issuable upon conversion of the Series B Preferred) may, with the Company's prior written consent, waive, modify or amend on behalf of all holders, any provisions hereof. 8.5 NOTICES, ETC. All notices and other communications required or ------------ permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to the Purchaser, at the Purchaser's address as set forth in Exhibit A and (ii) if to the Company, at the address of its principal corporate - --------- offices (attention: Secretary), or at such other address as a party may designate by ten days' advance written notice to the other party -11- pursuant to the provisions above. 8.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or ------------------- omission to exercise any right, power or remedy accruing to any holder of any Shares, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 8.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ----------------------------------- ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 8.8 EXPENSES. The Company and each Purchaser shall bear its own expenses -------- incurred on its behalf with respect to this Agreement and the transactions contemplated hereby. 8.9 COUNTERPARTS. This Agreement may be executed in any number of ------------ counterparts, each of which may be executed by less than all of the Purchasers, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 8.10 SEVERABILITY. In the event that any provision of this Agreement ------------ becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 8.11 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement -------------------- are used for convenience only and are not considered in construing or interpreting this Agreement. The foregoing agreement is hereby executed as of the date first above written. -12- "COMPANY" GENESYS TELECOMMUNICATIONS LABORATORIES a California corporation By: /s/ Gregory Shenkman ----------------------------------------- Gregory Shenkman, President and Chief Executive Officer "PURCHASERS" By: ----------------------------------------- Title: -------------------------------------- -13- EXHIBIT A --------- SCHEDULE OF PURCHASERS
TOTAL NUMBER TOTAL OF SERIES B PURCHASE NAME AND ADDRESS PREFERRED SHARES PRICE Benchmark Capital Partners, L.P. 159,514 $3,530,044.82 2480 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Benchmark Founders' Fund, L.P. 21,236 $ 469,952.68 2480 Sand Hill Road, Suite 200 Menlo Park, CA 94025 WPG Enterprise Fund II, L.P. 74,017 $1,637,996.21 c/o Weiss Peck & Greer 555 California Street, Suite 4760 San Francisco, CA 94104 Weiss Peck & Greer Venture Associates III, L.P. 61,546 $1,362,012.98 c/o Weiss Peck & Greer 555 California Street, Suite 4760 San Francisco, CA 94104 Total: 316,313 $7,000,006.69
EX-4.6 9 SECURITIES PURCHASE AGREEMENT EXHIBIT 4.6 SECURITIES PURCHASE AGREEMENT BY AND BETWEEN MCI TELECOMMUNICATIONS CORPORATION AND GENESYS TELECOMMUNICATIONS LABORATORIES, INC. FEBRUARY 26, 1997 MCI CONFIDENTIAL TABLE OF CONTENTS ARTICLE 1 -- DEFINITIONS; PURCHASE AND SALE............................................ 1 1.1 Definitions............................................................... 1 ----------- (A) "Affiliate"........................................................ 1 (B) "Business Intellectual Property Rights"............................ 1 (C) "CERCLA"........................................................... 2 (D) "Closing"........................................................... 2 (E) "Closing Date"..................................................... 2 (F) "Code"............................................................. 2 (G) "Commercial Documents".............................................. 2 (H) "Company Financial Statements"..................................... 2 (I) "Company Interim Financial Statements"............................. 2 (J) "Environmental Laws"............................................... 2 (K) "ERISA"............................................................ 2 (L) "Fully Diluted Basis".............................................. 2 (M) "GAAP"............................................................. 2 (N) "Hazardous Material"............................................... 2 (O) "IRS".............................................................. 2 (P) "Leased Improvements".............................................. 2 (Q) "Leased Property".................................................. 2 (R) "Material Adverse Effect".......................................... 3 (S) "Pension Plans".................................................... 3 (T) "Person"........................................................... 3 (U) "Plans"............................................................ 3 (V) "Purchase Price"................................................... 3 (W) "Securities Act"................................................... 3 (X) "Stock"............................................................ 3 (Y) "Tax".............................................................. 3 (Z) "Taxing Authority"................................................. 3 (AA) "Tax Return"...................................................... 3 (BB) "Warrant"......................................................... 3 1.2 Interpretive Rules........................................................ 3 ------------------ 1.3 Purchase and Sale......................................................... 4 ----------------- ARTICLE 2 -- PURCHASE PRICE............................................................ 4 2.1 Purchase Price............................................................ 4 -------------- 2.2 Payment of Purchase Price................................................. 4 ------------------------- ARTICLE 3 -- CLOSING................................................................... 4
i - ARTICLE 4 -- ADDITIONAL AGREEMENTS...................................................... 4 4.1 Registration Rights Agreement............................................... 4 ----------------------------- 4.2 Commercial Documents........................................................ 4 -------------------- ARTICLE 5 -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................... 4 5.1 Corporate Organization...................................................... 5 ---------------------- 5.2 Valid and Binding Agreement................................................. 5 --------------------------- 5.3 No Violation................................................................ 6 ------------ 5.4 Consents and Approvals...................................................... 6 ---------------------- 5.5 Capitalization.............................................................. 6 -------------- 5.6 Subsidiaries and Affiliates................................................. 7 --------------------------- 5.7 Financial Statements........................................................ 7 -------------------- 5.8 Absence of Undisclosed Liabilities.......................................... 7 ---------------------------------- 5.9 Interim Operations and Absence of Certain Changes........................... 8 ------------------------------------------------- 5.10 Taxes...................................................................... 9 ----- 5.11 Employee Benefit Plans..................................................... 10 ---------------------- 5.12 Compliance with Law........................................................ 12 ------------------- 5.13 Litigation; Claims......................................................... 12 ------------------ 5.14 Contracts and Commitments.................................................. 12 ------------------------- 5.15 Intellectual Property Rights............................................... 12 ---------------------------- 5.16 Liens...................................................................... 14 ----- 5.17 Insurance.................................................................. 14 --------- 5.18 Property................................................................... 14 -------- 5.19 Environmental Matters...................................................... 15 --------------------- 5.20 Governmental Authorizations................................................ 15 --------------------------- 5.21 Employee Relations......................................................... 16 ------------------ 5.22 Employees.................................................................. 16 --------- 5.23 Broker's or Finder's Fees.................................................. 16 ------------------------- 5.24 Disclosure................................................................. 17 ---------- 5.25 Certain Transactions....................................................... 17 -------------------- 5.26 Offering................................................................... 17 -------- ARTICLE 6 -- REPRESENTATIONS AND WARRANTIES OF THE BUYER................................. 17 6.1 Corporate Organization...................................................... 17 ---------------------- 6.2 Valid and Binding Agreements................................................ 17 ---------------------------- 6.3 No Violation................................................................ 18 ------------ 6.4 Consents and Approvals...................................................... 18 ---------------------- 6.5 Broker's or Finder's Fees................................................... 18 ------------------------- 6.6 Investment Representations.................................................. 18 -------------------------- ARTICLE 7 -- CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER............................ 19 7.1 Representations and Warranties.............................................. 19 ------------------------------ 7.2 Covenants, Agreements and Conditions........................................ 19 -----------------------------------
ii -- 7.3 Proceedings................................................................. 19 ----------- 7.4 Corporate Proceedings....................................................... 19 --------------------- 7.5 Governmental Approvals...................................................... 20 ---------------------- 7.6 Amendment to Articles of Incorporation...................................... 20 -------------------------------------- 7.7 Insurance................................................................... 20 --------- 7.8 Deliveries.................................................................. 20 ---------- 7.9 Opinion of Counsel.......................................................... 20 ------------------ ARTICLE 8 -- CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS.......................... 20 8.1 Representations and Warranties.............................................. 21 ------------------------------ 8.2 Covenants, Agreements and Conditions........................................ 21 ------------------------------------ 8.3 Proceedings................................................................. 21 ----------- 8.4 Corporate Proceedings....................................................... 21 --------------------- 8.5 Governmental Approvals...................................................... 21 ---------------------- 8.6 Deliveries.................................................................. 21 ---------- ARTICLE 9 -- AFFIRMATIVE COVENANTS AND AGREEMENTS OF THE COMPANY......................... 21 9.1 Financial Reporting......................................................... 21 ------------------- 9.2 Reservation of Conversion Shares............................................ 22 -------------------------------- 9.3 Confidential Information and Invention Assignment Agreement................. 22 ----------------------------------------------------------- 9.4 Repurchase.................................................................. 22 ---------- ARTICLE 10 -- OTHER MATTERS.............................................................. 22 10.1 Indemnification............................................................ 22 --------------- 10.2 Indemnification Procedures................................................. 24 -------------------------- 10.3 Confidentiality............................................................ 25 --------------- 10.4 Further Assurances......................................................... 26 ------------------ ARTICLE 11 -- MISCELLANEOUS.............................................................. 26 11.1 Survival of Representations, Warranties and Agreements..................... 26 ------------------------------------------------------ 11.2 Service of Process......................................................... 26 ------------------ 11.3 Notices.................................................................... 26 ------- 11.4 Governing Law.............................................................. 27 ------------- 11.5 Modification; Waiver....................................................... 27 -------------------- 11.6 Entire Agreement........................................................... 27 ---------------- 11.7 Assignment; Successors and Assigns......................................... 27 ---------------------------------- 11.8 Public Announcements....................................................... 27 -------------------- 11.9 Severability............................................................... 28 ------------ 11.10 No Third Party Beneficiary................................................ 28 -------------------------- 11.11 Expenses.................................................................. 28 -------- 11.12 Execution in Counterpart.................................................. 28 ------------------------
iii --- SECURITIES PURCHASE AGREEMENT ----------------------------- This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated February 26, 1997, by and between MCI Telecommunications Corporation, a Delaware corporation (the "Buyer"), and Genesys Telecommunications Laboratories, Inc., a California corporation (the "Company"). W I T N E S S E T H: WHEREAS, concurrently with the execution of the Commercial Documents (as hereinafter defined) and the issuance of the Warrant (as hereinafter defined), the Company desires to sell to the Buyer, and the Buyer desires to purchase from the Company, the Stock (as hereinafter defined) upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties and covenants which are to be made and performed by the respective parties, it is hereby agreed as follows: ARTICLE 1 -- DEFINITIONS; PURCHASE AND SALE 2.1 Definitions. The following terms when used in this Agreement have the ----------- meanings set forth below: (A) "Affiliate" means any Person now or hereafter controlling, controlled by or under common control with another Person. (B) "Business Intellectual Property Rights" means any and all inventions, Marks (including trademarks, service marks, certification marks, collective marks, and collective membership marks whether word, logo, or other forms of marks, all of the foregoing collectively referred to as "Marks"), trade names, copyrights, applications therefor, patents thereon, patent applications therefor, continuations, divisions and continuations in part, registrations thereof and licenses thereof, royalty rights, any and all goodwill associated with the business or represented by the assets of the Company, trade secrets, secret processes and procedures, engineering, production, assembly design and installation encompassed in any and all embodiments including, but not limited to technical drawings and specifications, working notes and memos, market studies, consultants' reports, technical and laboratory data, competitive samples, engineering prototypes, and confidential information, know-how, and all similar property of any nature, tangible or intangible. MCI CONFIDENTIAL (C) "CERCLA" has the meaning set forth in Section 5.19(A). (D) "Closing" has the meaning set forth in Article III. (E) "Closing Date" has the meaning set forth in Article III. (F) "Code" means the United States Internal Revenue Code of 1986, as amended. (G) "Commercial Documents" means, collectively, the Amendment to Master Software License Agreement, the Amendment to Maintenance Agreement and the Master Consulting Agreement to be entered into between the Buyer and the Company on the Closing Date. (H) "Company Financial Statements" has the meaning set forth in Section 5.7. (I) "Company Interim Financial Statements" has the meaning set forth in Section 5.7. (J) "Environmental Laws" has the meaning set forth in Section 5.19(C). (K) "ERISA" means the Employment Retirement Income Security Act of 1974, as amended. (L) "Fully Diluted Basis" means, at any date as of which the number of shares thereof of any Person is to be determined, (a) all shares of capital stock of such Person outstanding at such date, and (b) the maximum number of shares of capital stock of such Person issuable pursuant to warrants, options or other rights to purchase or acquire (whether or not such warrants, options or other rights are then exercisable), or pursuant to securities convertible into or exchangeable (whether or not such securities are then convertible or exchangeable) for, shares of capital stock of such Person, outstanding on such date (including any warrants being issued on such date). (M) "GAAP" means generally accepted accounting principles of the United States applied in a manner consistent with past practice of the Company. (N) "Hazardous Material" has the meaning set forth in Section 5.19(A). (O) "IRS" means the United States Internal Revenue Service. (P) "Leased Improvements" has the meaning set forth in Section 5.18(A). (Q) "Leased Property" has the meaning set forth in Section 5.18(A). MCI CONFIDENTIAL (R) "Material Adverse Effect" means, with respect to any Person, any event, fact, condition, occurrence or effect which is materially adverse to the following, taken as a whole: the business, properties, assets, liabilities, capitalization, stockholders equity, financial condition, operations, licenses or other franchises or results of operations of such Person. (S) "Pension Plans" has the meaning set forth in Section 5.11(B)(1). (T) "Person" means and includes an individual, a partnership, a joint venture, a corporation or trust, an unincorporated organization, a group or a government or other department or agency thereof. (U) "Plans" has the meaning set forth in Section 5.11(A). (V) "Purchase Price" has the meaning set forth in Section 2.1. (W) "Securities Act" shall mean the Securities Act of 1933, as amended. (X) "Stock" means the 674,496 shares of Series C Preferred Stock of the Company, no par value, to be purchased by the Buyer at the Closing, which shares shall represent three percent (3.0%) of the equity of the Company on a Fully Diluted Basis as of the Closing Date (after giving effect to the sale of the Stock and the issuance of the Warrant). (Y) "Tax" has the meaning set forth in Section 5.10(C). (Z) "Taxing Authority" has the meaning set forth in Section 5.10(A). (AA) "Tax Return" has the meaning set forth in Section 5.10(D). (AB) "Warrant" shall mean that certain Warrant dated as of the Closing Date to purchase 449,664 shares of Series C Preferred Stock of the Company which shares shall represent two percent (2.0%) of the equity of the Company on a Fully Diluted Basis as of the Closing Date (after giving effect to the sale of the Stock and the issuance of the Warrant), in the form attached as Exhibit A hereto. --------- 3.1 Interpretive Rules. For purposes of this Agreement, except as ------------------ otherwise expressly provided herein or unless the context otherwise requires: (i) defined terms include the plural as well as the singular and the use of any gender shall be deemed to include the other gender; (ii) references to "Articles," "Sections" and other subdivisions and to "Schedules" and "Exhibits" without reference to a document, are to designated Articles, Sections and other subdivisions of, and to Schedules and Exhibits to, this Agreement; (iii) the use of the term "including" means "including but not limited to"; and (iv) the words "herein," "hereof," "hereunder" and other MCI CONFIDENTIAL 3 words of similar import refer to this Agreement as a whole and not to any particular provision. 4.1 Purchase and Sale. Upon the terms and subject to all of the ----------------- conditions set forth herein, on the Closing Date, the Company agrees to (i) sell to the Buyer and the Buyer agrees to purchase from the Company, free and clear of all liens, pledges, security interests, claims, options, charges, rights of first refusal or encumbrances whatsoever, the Stock and (ii) issue to the Buyer, free and clear of all liens, pledges, security interests, claims, options, charges, rights of first refusal or encumbrances whatsoever, the Warrant. ARTICLE 5 -- PURCHASE PRICE 6.1 Purchase Price. The aggregate purchase price for the Stock (the -------------- "Purchase Price") shall be Seven Million Five Hundred Thousand Three Hundred Ninety-five Dollars and Fifty Cents ($7,500,395.50). The exercise price of the Warrant shall be as set forth therein. 7.1 Payment of Purchase Price. At the Closing, the Buyer shall pay the ------------------------- Company the Purchase Price by wire transfer, in immediately available funds, to an account of the Company, which account shall be designated by the Company at least three (3) business days prior to the date of the required payment. ARTICLE 8 -- CLOSING The closing of the transactions contemplated hereby (the "Closing") shall take place at the offices of Buyer, 1133 19th Street, N.W., Washington, D.C. 20036 at 10:00 a.m. local time, on February 26, 1997, or at such other time or date as may be agreed upon by the parties hereto (the "Closing Date"). ARTICLE 9 -- ADDITIONAL AGREEMENTS 10.1 Registration Rights Agreement. At the Closing, the Company and Buyer ----------------------------- will enter into the Registration Rights Agreement in the form attached as Exhibit B, pursuant to which the Company shall grant certain registration rights - --------- for the Stock and the shares of stock covered by the Warrant to Buyer. 11.1 Commercial Documents. At the Closing, the Company and Buyer will -------------------- enter into the Commercial Documents. ARTICLE 12 -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants, subject to the Schedule of Exceptions attached hereto as Exhibit C, to the Buyer as follows, and the Buyer --------- in agreeing to consummate MCI CONFIDENTIAL 4 the transactions contemplated by this Agreement has relied upon such representations and warranties, subject to such Schedule of Exceptions, that: 13.1 Corporate Organization. ---------------------- (A) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has the requisite power and authority (corporate and other) to own, lease and operate its properties and to carry on its business as now being conducted. (B) The Company is duly qualified or licensed to do business as a foreign corporation and is in good standing in each of the jurisdictions listed on Schedule 5.1. The Company is not qualified or licensed to do ------------ business as a foreign corporation in any other jurisdiction and there are no other jurisdictions in which the failure to be qualified or licensed as a foreign corporation would have a Material Adverse Effect on the Company. (C) The copies of the articles of incorporation and all amendments thereto of the Company, as certified by the Secretary of State of California, and the by-laws, as amended to date, of the Company, as certified by its secretary, which have heretofore been delivered to the Buyer, are true, complete and correct copies of the articles of incorporation and by-laws of the Company, as amended and in effect on the date hereof, and will be true, complete and correct as of the Closing Date. (D) The minute books and records of the Company, copies of which have been furnished to the Buyer prior to the date hereof, are the original minute books and records of the Company, contain all proceedings of the stockholders, the Board of Directors and any committees thereof with respect to the Company, and are true, correct and complete in all material respects. There have been no changes, alterations or additions to the minute books and records which have not been furnished to the Buyer prior to the date hereof. 14.1 Valid and Binding Agreement. The Company has all requisite corporate --------------------------- power and authority to enter into this Agreement. All necessary action on the part of the Company has been taken to authorize the execution and delivery of this Agreement, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby (which includes, without limitation, the issuance, sale, and delivery of the Stock, the Warrant and the common stock issuable upon conversion of the Series C Preferred Stock). This Agreement has been duly and validly executed and delivered by the Company, and constitutes the valid and binding agreement of the Company, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general application relating to or affecting creditors' rights generally and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). MCI CONFIDENTIAL 5 15.1 No Violation. Neither the execution and delivery of this Agreement ------------ nor the consummation of the transactions contemplated hereby nor compliance by the Company with any of the provisions hereof will (i) violate or conflict with any provision of the articles of incorporation or by-laws of the Company, or to the Company's knowledge, any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to the Company, or (ii) (a) violate, or (b) conflict with, or (c) result in a breach of any provision of, or (d) constitute a default (or any event which, with or without due notice or lapse of time, or both, would constitute a default) under, or (e) result in the termination of, or (f) accelerate the performance required by, or (g) result in the creation of any lien, security interest, charge or other encumbrance upon the Stock, the Warrant or any of the properties or assets of the Company ( (a) through (g) are collectively, "Defaults") under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation of which the Company is currently a party or by which the Company or any of its assets are bound where such Default would have a Material Adverse Effect. 16.1 Consents and Approvals. No permit, consent, approval or ---------------------- authorization of, or declaration, filing or registration with, any governmental or regulatory authority or third party is required to be made or obtained by the Company in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby. 17.1 Capitalization. -------------- (A) The authorized capital stock of the Company consists solely of (i) 120,000,000 shares of common stock, of which 12,744,086 shares are issued and outstanding; (ii) 900,000 shares of Series A Preferred Stock, of which 900,000 shares are issued and outstanding; (iii) 1,897,878 shares of Series B Preferred Stock, of which 1,897,878 shares are issued and outstanding; and (iv) 1,348,992 shares of Series C Preferred Stock of which 854,363 shares are issued and outstanding (including the Stock). The issued and outstanding capital stock is duly authorized, validly issued, fully paid and nonassessable, and none of the issued and outstanding shares of capital stock were issued in violation of the preemptive rights of any present or former stockholder of the Company. (B) Schedule 5.5 contains a true, complete and correct listing of all ------------ of the holders of issued and outstanding shares of capital stock of the Company and the number and type of shares held by each of them. (C) Except as set forth in Section 5.5(A) and (B), (i) there are no shares of capital stock or other equity securities (as the term "equity security" is defined in the Securities Exchange Act of 1934, as amended) of the Company outstanding, (ii) there are no outstanding subscriptions, options, warrants or rights to purchase or acquire any MCI CONFIDENTIAL 6 equity securities of the Company, (iii) no equity securities of the Company are reserved for issuance for any purpose, (iv) there are no contracts, commitments, agreements, understandings, arrangements or restrictions to which the Company is a party or by which the Company is bound relating to any shares of the capital stock or other equity securities of the Company (including the Stock), whether or not outstanding, (v) and there is no other instrument, certificate, document or other right, whether or not represented by a certificate or other document or instrument, convertible (with or without consideration) into the capital stock of the Company. (D) There are no repurchase rights except as set forth in Section 9.4 hereof. 18.1 Subsidiaries and Affiliates. The Company owns no capital stock or --------------------------- other equity securities of any other corporation and has no other type of interest (whether ownership or other) in any other corporation, partnership, joint venture or other business organization or entity. The interests of the Company in any Person are owned by the Company free and clear of all liens, options, claims or encumbrances (including without limitation, rights of first refusal or similar rights) with respect to the ownership thereof. The Company is not subject to any obligation or requirement to provide funds for, or to make any investment (in the form of a loan, capital contribution or otherwise) to or in, any Person. 19.1 Financial Statements. The audited consolidated financial statements -------------------- of the Company for each of the two (2) years ended June 30, 1994 and 1995, attached as Schedule 5.7 hereto (the "Company Financial Statements") (i) present ------------ fairly the financial position, results of operations, shareholders' equity and cash flows of the Company in accordance with GAAP, as of the statement dates and for the periods indicated, and (ii) have been prepared in accordance with the Company's customary procedures for the preparation of financial statements consistently applied throughout and among the periods indicated. The unaudited interim consolidated financial statements of the Company for the year ended June 30, 1996 attached as Schedule 5.7A hereto (the "Company 1996 Financial ------------- Statements") and the unaudited condensed consolidated financial statements for the six (6) months ended December 31, 1996, attached as Schedule 5.7B hereto ------------- (the "Company Interim Financial Statements") (x) present fairly the financial position, results of operations, shareholder's equity and cash flows of the Company, as of the statement date and for the period indicated, and (y) have been prepared in accordance with the Company's customary procedures for the preparation of annual and interim financial statements, respectively, consistently applied throughout and among the periods indicated and are consistent with the Company Financial Statements subject to year-end audit and other normal or recurring year-end adjustments (made in accordance with GAAP, in the ordinary course of business and consistent with prior year-end accounting principles and adjustments), except that the Company Interim Financial Statements do not contain any footnotes required by GAAP, are presented in a condensed format and do not include a statement of shareholders' equity or a statement of cash flows. 20.1 Absence of Undisclosed Liabilities. The Company has no material ---------------------------------- liability or obligation (absolute, accrued, contingent or otherwise), including any guaranty with respect to MCI CONFIDENTIAL 7 any obligation, except (a) such liabilities or obligations as are fully reflected, reserved against or disclosed in the Company Financial Statements, the Company 1996 Financial Statements or the Company Interim Financial Statements and (b) such liabilities or obligations as have been incurred in the ordinary course of business, consistent with past practice, since June 30, 1995. 21.1 Interim Operations and Absence of Certain Changes. ------------------------------------------------- Since December 31, 1996, the Company has conducted its business in the ordinary course and consistent with past practice, and the Company has not: (A) incurred any indebtedness or other liabilities (whether absolute, accrued, contingent or otherwise) or guaranteed any such indebtedness, except in the usual and ordinary course of its business, consistent with past practice; (B) suffered any damage, destruction or loss of tangible assets, whether or not covered by insurance, in excess of $50,000; (C) suffered any change in its financial condition, assets, liabilities or business or suffered any other event or condition of any character which individually or in the aggregate had or has a Material Adverse Effect on the Company or materially diminishes the value of the assets of the Company; (D) paid, discharged or satisfied any claims, liabilities or obligations (absolute, accrued, contingent or otherwise) except in each case in the ordinary course of business; (E) canceled any debts or waived any claims or rights of substantial value, except in each case in the ordinary course of business; (F) pledged or permitted the imposition of any lien on or sold, assigned, transferred or otherwise disposed of any of its tangible assets, except the sale of inventory in the ordinary course of business; (G) sold, assigned, encumbered, licensed, pledged, abandoned or otherwise transferred any patents, applications for patents, Marks, trade names, copyrights, licenses or other intangible assets other than in the ordinary course of its business; (H) made any change in any method of accounting or accounting principle or practice; (I) written up or down the value of the inventory or determined as collectible any notes or accounts receivable that were previously considered to be uncollectible, except for write-ups or write-downs and other determinations in accordance with GAAP and in the ordinary course of business and consistent with past practice; (J) declared, paid or set aside for payment any dividend or other distribution on any shares of its capital stock; MCI CONFIDENTIAL 8 (K) made any loans which in the aggregate exceed $10,000 to any employee or made any loans to any stockholder, officer, director or Affiliate; (L) made capital expenditures or commitments for same in excess of $100,000 in the aggregate; (M) agreed, whether in writing or otherwise, to take any action described in this Section 5.9. 22.1 Taxes. ----- (A) The Company has duly and timely filed with each appropriate federal, state, local and foreign governmental entity or other authority (individually or collectively, "Taxing Authority") all Tax Returns required to be filed. All such Tax Returns were true, correct and complete in all material respects. The Company has timely paid all material Taxes which have become due and payable (whether or not shown on any Tax Return). The Company is not currently, and has not been in the past, delinquent in the payment of any Tax, governmental charge or deposit for which any such failure would have a Material Adverse Effect. Adequate reserves and accruals in accordance with generally accepted accounting principles have been established by the Company to provide for the payment of all Taxes which are not yet due and payable with respect to the Company for taxable periods or portions thereof ending on or before the Closing Date. There are no liens for Taxes upon the Company or its assets except liens for current Taxes not yet due. There are no liens on any property of the Company that arose in connection with the failure (or alleged failure) to pay any Taxes. No audit, examination, investigation, proceeding, action or claim with respect to the Company's Taxes is pending, proposed or threatened, and there is no basis for the assessment or collection of additional Taxes against the Company. To the Company's knowledge, there has never been an examination or notice of a potential examination of the Tax Returns of the Company by any Taxing Authority. No extension is in effect with respect to the filing of any Tax Return, the payment of any Taxes, or any limitation period regarding the assessment or collection of any Taxes. (B) All material Taxes that are required to have been withheld or collected by the Company have been duly withheld or collected and, to the extent required, have been paid to the proper governmental authorities or properly deposited as required by applicable laws. (C) As used in this Agreement, "Tax" means any of the Taxes and "Taxes" means, with respect to the Company, all income taxes (including any tax on or based upon net income, or gross income, or income as specially defined, or earnings, or profits, or selected items of income, earnings or profits) and all gross receipts, capital gains, sales, use, ad valorem, transfer, franchise, license, withholding, payroll, employment, workers compensation, excise, severance, stamp, occupation, premium, property or windfall profit taxes, environmental (including taxes under Code Section 59A, social security or similar taxes), unemployment, disability, registration, value-added, alternative or add-on minimum taxes, custom duties or other taxes, fees, MCI CONFIDENTIAL 9 assessments or charges of any kind whatsoever, together with any interest, penalties, additions to tax or additional amounts imposed by any Taxing Authority whether disputed or not. (D) As used in this Agreement, "Tax Return" means any return, report, information return or other document (including any related or supporting information) filed or required to be filed with any Taxing Authority or other authority in connection with the determination, assessment or collection of any Tax paid or payable by the Company or the administration of any laws, regulations or administrative requirements relating to any such Tax. (E) No claim which could have a Material Adverse Effect has ever been made by any Taxing Authority in a jurisdiction where the Company does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. 23.1 Employee Benefit Plans. ---------------------- (A) Except as set forth on the Schedule of Exceptions, the Company is not a party to any employee agreement, understanding, plan, policy, procedure, pattern or practice, or other arrangement, whether written or oral, which provides compensation or fringe benefits to its employees, and the Company is in material compliance with all its obligations under all annuity, bonus, cafeteria, stock option, stock purchase, profit sharing, savings, pension, retirement, incentive, group insurance, disability, employee welfare, prepaid legal, nonqualified deferred compensation (including without limitation, excess benefit plans, top-hat plans, deferred bonuses, rabbi trusts, secular trusts, nonqualified annuity contracts, insurance arrangements, nonqualified stock options, phantom stock plans, or golden parachute payments) and other similar fringe benefit plans, and all other employee benefit funds or programs (within the meaning of Section 3(3) of ERISA), covering employees, former employees or directors of the Company (the "Plans"). Except as required by applicable law, there are no negotiations, demands, commitments or proposals that are pending or that have been made that concern matters now covered, or that would be covered by the type of agreements described on the Schedule of Exceptions or in this Section 5.11(A). (B) With respect to the Plans which are subject to ERISA: (1) The Plans are in material compliance with the applicable provisions of ERISA and each of the employee pension benefit plans, within the meaning of Section 3(2) of ERISA (the "Pension Plans"), which are intended to be qualified under Section 401(a) of the Code have received a favorable determination letter from the IRS or a request for such determination has been timely filed with the IRS (and to the knowledge of the Company, nothing has occurred to cause the IRS to revoke such determination and the IRS has not indicated any disapproval MCI CONFIDENTIAL 10 of any request for such a determination); (2) Each Plan has been materially operated in accordance with its terms and all required filings that are due prior to the date hereof, including without limitation, the Forms 5500, for all Plans have been timely made; (3) No prohibited transactions, as defined by Section 406 of ERISA or Section 4975 of the Code, have occurred with respect to any of the Plans which would have a Material Adverse Effect; (4) The Company has not engaged in any transaction in connection with which the Company could be subjected to a criminal or civil penalty under ERISA; (5) None of the Plans, nor any trust which serves as a funding medium for any of such Plans, nor any issue relating thereto is currently under examination by or pending before the IRS, the Department of Labor, the PBGC or any court, other than applications for determinations pending before the IRS; (6) None of the Pension Plans is a defined benefit plan within the meaning of Section 414(j) of the Code; (7) None of the Plans is a "multiemployer plan" as that term is defined in Section 3(37) of ERISA, nor a plan maintained by more than one employer (hereinafter referred to as an "multiple employer plan"), nor a single employer plan under a multiple controlled group within the meaning of Section 4063 of ERISA, and neither the Company nor any entity required to be aggregated with the Company under Section 414(b), (c), (m), or (o) of the Code has incurred any withdrawal liability with respect to any single plan, multiemployer or multiple employer plan; (8) No benefit claims (except those submitted in the ordinary course of administration of such Plan) are currently pending against any Plan; (9) No Plan provides for retiree medical or retiree life insurance benefits for former employees of the Company, except as required pursuant to the Consolidated Omnibus Reconciliation Act of 1985, as amended, and there is no liability for taxes with respect to disqualified benefits under Section 4976 of the Code; and (10) No Pension Plan has been terminated by the Company, and there is no liability for taxes with respect to a reversion of qualified plan assets under Section 4980 of the Code. (C) There have been no failures to comply with the continuation coverage MCI CONFIDENTIAL 11 provisions required by Sections 601-608 of ERISA and Section 4980B of the Code under any Plan which would have a Material Adverse Effect. (D) All excess contributions, if any (together with any income allocable thereto), have been distributed (or, if forfeitable, forfeited) before the close of the first two and one half (2 1/2) months of the following plan year; and there is no liability for excise tax under Section 4979 of the Code with respect to such excess contributions, if any, for any Plan. (E) There is no liability for taxes with respect to: (i) an accumulated funding deficiency under Section 4971 of the Code and/or (ii) a nondeductible contribution under Section 4792 of the Code. 24.1 Compliance with Law. The Company is in compliance with all ------------------- applicable laws (including duties imposed by common law), rules, regulations, orders, ordinances, judgments and decrees of all governmental authorities (federal, state, local and foreign) and all requirements imposed under building, zoning, occupational safety and health, pension, environmental control, toxic waste, fair employment, equal opportunity or similar laws, rules, regulations and ordinances, in each case the noncompliance with which would be likely to have a Material Adverse Effect on the Company. 25.1 Litigation; Claims. There are no (a) claims, actions, suits, ------------------ proceedings or investigations pending or (to the knowledge of the Company) threatened by or against the Company in relation to the Company or its business, or (b) judgments, decrees, arbitration awards, agreements or orders binding upon the Company in relation to the Company or its business. No material claims, including without limitation, product liability claims, have been asserted against the Company in relation to the Company or its business since the Company's inception, and, to the knowledge of the Company, there is no reasonable basis for any material action, proceeding or investigation involving the Company in relation to the Company or its business. 26.1 Contracts and Commitments. The Company does not have any contract, ------------------------- agreement, lease, or other commitment, written or oral, absolute or contingent, other than (i) contracts for the purchase of supplies and services that were entered into in the ordinary course of business and that do not, as of the date hereof, involve more than $75,000 each; (ii) sales contracts entered into in the ordinary course of business; (iii) license agreements entered into in the ordinary course of business; and (iv) contracts terminable at will by the Company on no more than sixty (60) days notice without cost or liability to the Company. 27.1 Intellectual Property Rights. ---------------------------- (A) Schedule 5.15 sets forth an accurate and complete description of ------------- (i) all patents, trademarks and copyrights of the Company which are registered or issued or for which registration or issuance is pending with any governmental authority specifying as to each such item, as applicable the jurisdiction(s) by or in which such patent, trademark MCI CONFIDENTIAL 12 or copyright has been issued or registered or in which an application for such issuance or registration has been filed, including the registration or application number; (ii) except as set forth in Section 5.14 (iii), all franchises, licenses, sublicenses, contracts and agreements pursuant to which any Person other than the Company is authorized to use any Business Intellectual Property Right owned by the Company; and (iii) the franchises, licenses, sublicenses, contracts and agreements pursuant to which the Company is authorized to use any such Business Intellectual Property Right not owned by the Company, including with respect to (ii) or (iii), the identity of all parties thereto, a description of the nature and subject matter thereof, the royalty provided and the term thereof. (B) Except as set forth on the Schedule of Exceptions, the Company owns or has the right to use pursuant to franchise, license, sublicense, contract, agreement, or permission, all of the Business Intellectual Property Rights necessary for the conduct of its business (as currently conducted). All applicable fees, royalties and other amounts due and payable by by the Company to any Person or to the Company by any Person in respect of such Business Intellectual Property Rights have been paid. The Company has taken all reasonably necessary and desirable action to maintain and protect each Business Intellectual Property Right that it owns or has the right to use. (C) Except for third party licenses listed on the Schedule of Exceptions, the Company is the sole and exclusive owner of its Business Intellectual Property Rights including, but not limited to, those listed or described on the Schedule of Exceptions, or has the right to the use thereof for the material covered thereby in connection with the services or products in respect to which they have been or are now being used. (D) Except as set forth on the Schedule of Exceptions, the Company (i) is not the subject of any pending litigation or, to the Company's knowledge, any claim regarding infringement of or misappropriation or misuse of any Business Intellectual Property Right of the Company or other tangible right of any other Person, (ii) has no knowledge of any such infringement, whether or not claimed by any other Person, which infringement might have a Material Adverse Effect, (iii) has no knowledge of any infringement by any other Person of any of the Business Intellectual Property Rights of the Company, and (iv) has no knowledge of any facts or circumstances which would reasonably be anticipated to result in any such litigation or claim or which would reasonably lead the Company to conclude that the continued operation and conduct of any aspect of its business would result in any such litigation or claim. To the knowledge of the Company, except as set forth on the Schedule of Exceptions, there is no other Person that is operating under or otherwise using any name confusingly similar with any trade names, trademarks, service names, service marks or logos included in the Company's Business Intellectual Property Rights. To the best of the Company's knowledge, no Business Intellectual Property licensed by the Company from a third party is subject to any outstanding order, judgment, decree, stipulation or agreement restricting the use thereof by the Company. Except as set forth on the Schedule of Exceptions, no Business Intellectual Property Right of the Company is subject to any outstanding order, judgment, decree, stipulation or agreement restricting the use thereof by the Company. Except as MCI CONFIDENTIAL 13 set forth on the Schedule of Exceptions, the Company has not entered into any written agreement to indemnify any other Person against any charge of infringement by any Business Intellectual Property Rights. (E) Except as set forth on the Schedule of Exceptions, to the best of the Company's knowledge after reasonable inquiry, no material trade secrets included in the Company's Business Intellectual Property Rights have been disclosed by the Company to any Person other than employees, agents and representatives of the Company and its Affiliates or the Buyer. The Company has taken such reasonable measures as is appropriate to protect all of its trade secrets. (F) Except for obligations that arise under the common law of the appropriate jurisdiction, to the best of the Company's knowledge, neither the Company, nor any of its employees, has, other than confidentiality and other agreements assigning inventions made prior to their employment with the Company, any written agreements or arrangements with former employers of such employees relating to trade secrets of such employers, the assignment of inventions of such employers, or such employee's engagement in activities competitive with such employers. Except for obligations that arise under the common law of the appropriate jurisdiction, to the best of the Company's knowledge, the activities of such employees on behalf of the Company do not violate any agreements or arrangements known to the Company which any such employees have with former employers. 28.1 Liens. None of the properties or assets, whether real, personal or ----- mixed, or tangible or intangible, owned or leased by the Company is subject to any mortgage, lien, encumbrance or other security interest or restrictions on or conditions to transfer or assignment, except for (a) liens for taxes and assessments or governmental charges or levies not at the time due; (b) liens in respect of pledges or deposits under workmen's compensation laws or similar legislation, carriers', warehousemen's, mechanics', laborers' and materialmen's and similar liens, if the obligations secured by such liens are not then delinquent or are being contested in good faith by appropriate proceedings; and (c) liens incidental to the conduct of the business. 29.1 Insurance. Schedule 5.17 contains a list of all insurance policies --------- ------------- and fidelity bonds relating to the assets of the Company, including summary descriptions and the termination dates thereof. The Company has not had coverage denied or limited by any insurance carrier to which it has applied for insurance or with which it has carried insurance, during the last two (2) years. The Company is not in material default with respect to any provision contained in any insurance policy and has not failed to give any notice or present any claim thereunder in timely fashion. 30.1 Property. -------- (A) Schedule 5.18 identifies all of the real property that the ------------- Company leases (as lessee), has agreed to lease or has an obligation to lease in connection with the Business. Such leased real property, the loss of which would have a Material Adverse Effect, is hereinafter referred to as the "Leased Property," and the improvements and fixtures MCI CONFIDENTIAL 14 thereon are hereinafter referred to as the "Leased Improvements." The Company does not own any real property. (B) There are no adverse or other parties in possession of the Leased Property, the Leased Improvements or any portion or portions thereof, and the leasehold interest in the Leased Property and the Leased Improvements is free and clear of any and all leases, licensees, occupants or tenants. To the knowledge of the Company, there are no pending or threatened condemnation, eminent domain or similar proceedings, or litigation or other proceedings affecting the Leased Property, the Leased Improvements or any portion or portions thereof. To the knowledge of the Company, there are no pending requests, applications or proceedings to alter or restrict any zoning or other use restrictions applicable to the Leased Property or the Leased Improvements that would interfere with the conduct of its business, which interference would have a Material Adverse Effect. The Leased Property have access, in accordance with past practice, to and from a public right of way or road dedicated for public use and no notice has been received by the Company relating to the termination or impairment of such access (including applicable parking requirements). 31.1 Environmental Matters. --------------------- (A) As used in this Agreement "Hazardous Material" shall mean: (i) any "hazardous substance" as now defined pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. (S) 9601(14), or any substance listed or identified by any characteristic in any regulation adopted pursuant to any statute referred to or incorporated into such definition, all as in effect on the date hereof; (ii) any petroleum, including crude oil and any fraction thereof; (iii) natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel; (iv) any "hazardous chemical" as defined pursuant to 29 C.F.R. Part 1910; and (v) any asbestos, polychlorinated biphenyl, or isomer of dioxin. (B) To the Company's knowledge, the Company has not used, generated, manufactured, stored, disposed of, on, or about any of the real property leased or used by any the Company any Hazardous Materials in violation of any Environmental Laws. The Company has not received any notice of, or to the knowledge of the Company is subject to, any actual or potential liability, fixed or contingent, under any Environmental Laws. (C) To the Company's knowledge, neither the Company nor any of its predecessors in interest has any liability, matured or not matured, absolute or contingent, assessed or unassessed, imposed or based upon any provision under any foreign, federal, state or local law, rule, or regulation or common law, or under any code, order, decree, judgment or injunction applicable to the Company or its predecessors in interest, nor has the Company received any notice, or request for information issued, promulgated, approved or entered thereunder, or under the common law, or any tort, nuisance or MCI CONFIDENTIAL 15 absolute liability theory, relating to public health or safety, worker health or safety, or pollution, damage to or protection of the environment including without limitation, laws relating to emissions, discharges, releases or threatened releases of Hazardous Material into the environment (including without limitation, ambient air, surface water, groundwater, land surface or subsurface), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, generation, disposal, transport or handling of any Hazardous Material (collectively referred to as "Environmental Laws"). 32.1 Governmental Authorizations. The Company possesses all licenses, --------------------------- franchises, permits, certificates, orders, approvals, exemptions, registrations or other authorizations (collectively, the "Permits") from governmental, regulatory or administrative agencies or authorities required for the ownership of its properties and assets and operation of its business in the manner presently conducted (including those required pursuant to laws or regulations relating to the protection of the environment), each of which is in full force and effect, the absence of which would have a Material Adverse Effect. No registrations, filings, applications, notices, transfers, consents, approvals, orders, qualifications, waivers or other actions of any kind are required by virtue of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby to enable the Company to continue the possession and operation of its properties and assets and the business of the Company as presently conducted in all material respects. 33.1 Employee Relations. The Company has not at any time during the past ------------------ five years had, nor is there now threatened, any labor disputes or any strike, picket, work stoppage, work slowdowns or other job action due to labor disagreements. The Company is (a) in material compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including the terms and provisions of any collective bargaining agreement or other contract with a labor union representing any employees of the Company and is not engaged in any unfair labor practice; (b) there is no unfair labor practice charge or complaint against the Company, or (to the knowledge of the Company) threatened before the National Labor Relations Board or any foreign authority; (c) no question concerning representation has been raised to the Company or is (to the knowledge of the Company) threatened respecting the employees of the Company; (d) no grievance that might have a Material Adverse Effect on the Company, nor any arbitration proceeding arising out of or under any collective bargaining agreement, is pending and, to the Company's knowledge, no claims therefor exist; and (e) no collective bargaining agreement that is binding on the Company restricts it from relocating, closing or contracting any of its operations. 34.1 Employees. To the knowledge of the Company, no employee of the --------- Company is in violation of any term of any employment contract, patent disclosure agreement or any other contract or agreement relating to the relationship of such employee with the Company or to the Company's knowledge any other party because of the nature of the business conducted or to be conducted by the Company. There is no pending nor, to the Company's knowledge, threatened action, suit, proceeding or claim, or to its knowledge any basis therefor or threat thereof with respect to any contract, agreement, covenant or obligation referred to in the preceding sentence. MCI CONFIDENTIAL 16 The Company and each employee of the Company and any subsidiary of the Company employed in any technical capacity or with access to confidential information of the Company has entered into a Confidential Information and Invention Assignment Agreement substantially in the form of Exhibit D hereto. --------- 35.1 Broker's or Finder's Fees. No agent, broker, investment banker, ------------------------- Person or firm acting on behalf of the Company or under the authority of the Company is or will be entitled to any broker's or finder's fee or any other commission or similar fee directly or indirectly from any of the parties hereto in connection with any of the transactions contemplated hereby. 36.1 Disclosure. No representation or warranty by the Company to the ---------- Buyer contained in this Agreement, and no statement contained in the Schedules hereto or any certificate furnished to the Buyer pursuant to the provisions hereof, taken as a whole, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein not misleading. 37.1 Certain Transactions. None of the directors or officers of the -------------------- Company is currently a party to any material transaction with the Company (other than for services as employees, officers and directors), including without limitation, any material contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from, any such Person, or to or from any corporation, partnership, trust or other entity in which any such Person owns in excess of five percent (5%) of the outstanding equity interest. 38.1 Offering. Subject to the accuracy of the Buyer's representations in -------- Article VI hereof, the offer, sale and issuance of the Stock and Warrant to be issued in accordance with the terms of this Agreement, and the issuance of the common stock to be issued upon conversion of the Stock and shares issuable pursuant to the Warrant, constitute transactions exempt from the registration requirements of the Securities Act. ARTICLE 39 -- REPRESENTATIONS AND WARRANTIES OF THE BUYER The Buyer represents and warrants to the Company, and the Company in agreeing to consummate the transactions contemplated by this Agreement have relied upon such representations and warranties, that: 40.1 Corporate Organization. The Buyer is a corporation duly organized, ---------------------- validly existing and in good standing under the laws of the State of Delaware and has the requisite power and authority (corporate and other) to own, lease and operate its properties and to carry on its business as now being conducted. MCI CONFIDENTIAL 17 41.1 Valid and Binding Agreements. The Buyer has all requisite corporate ---------------------------- power and authority to enter into this Agreement. All necessary action on the part of the Buyer has been taken to authorize the execution and delivery of this Agreement, the performance of its obligations hereunder and the consummation of the transaction contemplated hereby. This Agreement has been duly and validly executed and delivered by the Buyer, and will constitute the valid and binding agreement of the Buyer, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general application relating to or affecting creditors' rights generally and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 42.1 No Violation. Neither the execution and delivery of this Agreement ------------ nor the consummation of the transactions contemplated hereby or thereby nor compliance by the Buyer with any of the provisions hereof or thereof will (i) violate or conflict with any provision of the certificate of incorporation or by-laws of the Buyer or any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to the Buyer, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or any event which, with or without due notice or lapse of time, or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in the creation of any lien, security interest, charge or other encumbrance upon the stock or any of the properties or assets of the Buyer under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument of the Buyer. 43.1 Consents and Approvals. No permit, consent, approval or ---------------------- authorization of, or declaration, filing or registration with, any governmental or regulatory authority or third party is required to be made or obtained by the Buyer in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby or thereby. 44.1 Broker's or Finder's Fees. No agent, broker, investment banker, ------------------------- Person or firm acting on behalf of the Buyer, or under the authority of the Buyer, is or will be entitled to any broker's or finder's fee or any other commission or similar fee directly or indirectly from the Buyer in connection with any of the transactions contemplated hereby. 45.1 Investment Representations. -------------------------- (A) By reason of its business and financial experience, Buyer has the capacity to protect its own interests in connection with the purchase of the Stock and Warrant hereunder and has the ability to bear the economic risk of this investment. (B) Buyer is acquiring the Stock and the Warrant and the common stock underlying the Stock and Warrant for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution MCI CONFIDENTIAL 18 thereof. Buyer understands that the Stock and Warrant to be purchased (and the common stock issuable upon conversion of the Stock and Warrant) have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Buyer's representations as expressed herein. (C) Buyer acknowledges that the Stock and Warrant (and the common stock issuable upon conversion of the Stock and Warrant) must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. Buyer is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than two years after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" and the number of shares being sold during any three-month period not exceeding specified limitations. (D) Buyer understands that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company's securities. (E) Buyer has had an opportunity to discuss business, management and financial affairs of the Company with its management. ARTICLE 46 -- CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER All obligations of the Buyer that are to be discharged under this Agreement at the Closing are subject to the Company's fulfillment, at the Closing or effective as of the Closing Date, of each of the following conditions (unless expressly waived in writing by the Buyer at any time at or prior to the Closing) and the Company shall use its reasonable efforts to cause each of such conditions to be satisfied: 47.1 Representations and Warranties. On the Closing Date, the ------------------------------ representations and warranties of the Company set forth in Article V of this Agreement shall be true and correct in all respects as though such representations and warranties had been made by the Company on and as of the Closing Date and the Buyer shall have received at the Closing a certificate, dated the Closing Date, signed by the President or a Vice President of the Company to such effect. 48.1 Covenants, Agreements and Conditions. The Company shall have ------------------------------------ performed and complied in all respects with all covenants, agreements and conditions contained in this Agreement required to be performed by the Company on or prior to the Closing Date, and the MCI CONFIDENTIAL 19 Buyer shall have received at the Closing a certificate, dated the Closing Date, signed by the President or a Vice President of the Company to such effect. 49.1 Proceedings. No action or proceeding shall be pending or threatened ----------- to restrain or prevent the consummation of the transactions contemplated hereby. 50.1 Corporate Proceedings. All corporate and other proceedings to be --------------------- taken and all consents to be obtained in connection with the transactions contemplated by this Agreement and all documents incident thereto shall be reasonably satisfactory in form and substance to the Buyer and its counsel, both of whom shall have received all such originals or certified or other copies of such documents as either may reasonably request. 51.1 Governmental Approvals. There shall have been received all necessary ---------------------- governmental consents or authorizations required in connection with the transactions contemplated hereby including all necessary Blue Sky law permits and qualification. 52.1 Amendment to Articles of Incorporation. The Company shall have filed -------------------------------------- its Amended and Restated Articles of Incorporation in the form attached hereto as Exhibit E. --------- 53.1 Insurance. The Company shall have maintained in full force and --------- effect the insurance coverage described on Schedule 5.17 hereto or policies ------------- providing substantially equivalent coverage. 54.1 Deliveries. The Company shall have delivered to the Buyer the ---------- following items: (A) certificates representing the shares of Stock, duly endorsed or accompanied by stock powers duly executed in blank (with signatures guaranteed by any national bank or trust company) and otherwise in form acceptable for transfer on the books of the Company, with all requisite stock transfer tax stamps attached; (B) the executed Warrant; (C) the executed Commercial Documents and Registration Rights Agreement; (D) a certificate dated as of or about the Closing Date, as to the good standing of the Company from the Secretary of State of California; (E) a certificate of the Secretary or Assistant Secretary of the Company, certifying as to the Articles of Incorporation, By-laws, resolutions of the Board of Directors, and incumbency and signatures of officers of the Company; and (F) all other previously undelivered items required to be delivered by the Company to the Buyer at or prior to the Closing pursuant to this Agreement or otherwise required in connection herewith unless waived in writing by the Buyer. MCI CONFIDENTIAL 20 55.1 Opinion of Counsel. The Buyer shall have received a written opinion ------------------ dated as of the Closing Date from Brobeck Phleger & Harrison LLP, counsel to the Company, in the form attached hereto as Exhibit F. --------- ARTICLE 56 -- CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS All obligations of the Company that are to be discharged under this Agreement at the Closing are subject to Buyer's fulfillment at the Closing or effective as of the Closing Date of each of the following conditions (unless expressly waived in writing by the Company at any time at or prior to the Closing) and the Buyer shall use its reasonable efforts to cause each of such conditions to be satisfied: 57.1 Representations and Warranties. On the Closing Date, the ------------------------------ representations and warranties of the Buyer set forth in Article VI of this Agreement shall be true and correct in all respects as though such representations and warranties had been made on and as of the Closing Date, and the Company shall have received at the Closing a certificate, dated the Closing Date, signed by the President or a Vice President of the Buyer to such effect. 58.1 Covenants, Agreements and Conditions. The Buyer shall have performed ------------------------------------ and complied in all respects with all covenants, agreements and conditions contained in this Agreement required to be performed by it on or prior to the Closing Date, and the Company shall have received at the Closing a certificate, dated the Closing Date, signed by the President or a Vice President of the Buyer to such effect. 59.1 Proceedings. No action or proceeding shall be pending or threatened ----------- to restrain or prevent the consummation of the transactions contemplated hereby. 60.1 Corporate Proceedings. All corporate and other proceedings to be --------------------- taken and all consents to be obtained in connection with the transactions contemplated by this Agreement and all documents incident thereto shall be reasonably satisfactory in form and substance to the Company and its counsel, Brobeck Phleger & Harrison LLP, each of whom shall have received all such originals or certified or other copies of such documents as either may reasonably request. 61.1 Governmental Approvals. There shall have been received all necessary ---------------------- governmental consents or authorizations required in connection with the transactions contemplated hereby including all necessary Blue Sky law permits and qualities. 62.1 Deliveries. The Buyer shall have delivered to the Company the ---------- following items: (A) the payment as required by Section 2.2; (B) the Commercial Documents executed by it; and MCI CONFIDENTIAL 21 (C) all other previously undelivered items required to be delivered by the Buyer at or prior to the Closing pursuant to this Agreement or otherwise required in connection herewith unless waived in writing by the Company and the Stockholders. ARTICLE 63 -- AFFIRMATIVE COVENANTS AND AGREEMENTS OF THE COMPANY 64.1 Financial Reporting. The Company hereby covenants and agrees with ------------------- the Buyer that from and after the Closing, so long as any of the Series C Preferred Stock is outstanding, the Company will deliver to the Buyer (i) within forty-five (45) days after the end of each quarter, quarterly unaudited financial statements; (ii) within one hundred twenty (120) days after the end of each fiscal year, audited financial statements for such period; and (iii) within ninety (90) days after the end of the fiscal year, an annual financial plan for the Company. The Company also agrees to provide Buyer the opportunity for its representative who is approved by the Company to attend Board of Directors meetings including the receipt of advance notice thereof; provided, however, that the Company shall not be obligated to provide any information that it considers in good faith to be a trade secret or to contain confidential or classified information and provided further that the Company may at the discretion of the Board of Directors exclude any non-board member from its executive sessions of its Board of Directors. 65.1 Reservation of Conversion Shares. The Company shall at all times -------------------------------- reserve and keep available out of its authorized but unissued shares of common stock, for the purposes of effecting the conversion of the Stock and the issuance of shares issuable pursuant to the Warrant and otherwise complying with the terms of this Agreement, such number of its duly authorized shares of common stock as shall be sufficient to effect the conversion of the Stock and the issuance of shares issuable pursuant to the Warrant, as from time to time outstanding. If at any time the number of authorized but unissued shares of common stock shall not be sufficient to effect the conversion of the Stock and the issuance of shares issuable pursuant to the Warrant, the Company will forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of common stock as shall be sufficient for such purposes. 66.1 Confidential Information and Invention Assignment Agreement. The ----------------------------------------------------------- Company and each person now or hereafter employed in any technical capacity by it or any subsidiary with access to confidential information will enter into a Confidential Information and Invention Assignment Agreement in substantially the form of Exhibit E hereto, and the Company shall use its best efforts to cause --------- any consultant retained by it that has access to confidential information to enter into a form of Consulting Agreement with substantially similar confidentiality and non-solicitation provisions. 67.1 Repurchase. Upon and only at the written request of Buyer, so long ---------- as any of the Series C Preferred Stock is outstanding, in the event of (a) a material breach of any of the Company's representations, warranties or covenants contained herein, or (b) a termination of any of the Commercial Documents as a result of the Company's material breach of any of its MCI CONFIDENTIAL 22 representations, warranties or covenants contained in such documents, the Company shall repurchase the Stock for the liquidation value thereof as specified in the Company's articles of incorporation. ARTICLE 68 -- OTHER MATTERS 69.1 Indemnification. --------------- (A) Subject to the limitations hereinafter set forth in this Section 10.1, the Company shall protect, defend, hold harmless and indemnify the Buyer, its officers, directors, employees and agents, and their respective successors and assigns from, against and in respect of any and all losses, liabilities, deficiencies, penalties, fines, costs, damages and expenses whatsoever (including without limitation, reasonable professional fees and costs of investigation, litigation, settlement, and judgment and interest) (collectively, "Losses") that is suffered or incurred by any of them arising from or by reason of any of the following: (1) Any breach of any representation, warranty, covenant or agreement made by the Company in this Agreement or contained in any certificate executed by the Company and delivered to the Buyer in connection with this Agreement; (2) Any claims of any broker, investment banker, Person or firm acting on behalf of the Company for a broker's or finder's fee or any other commission or similar fee arising in connection with the transactions contemplated hereby; (3) Any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs and expenses (including without limitation, interest, penalties, reasonable legal fees and accounting fees) incident to the foregoing and the enforcement of the provisions of this Section 10.1. (B) Subject to the limitations hereinafter set forth in this Section 10.1, the Buyer shall protect, defend, hold harmless and indemnify the Company, its officers, directors, employees and agents, and its respective successors and assigns, from, against and in respect of any and all Losses that is suffered or incurred by any of them arising from or by reason of any of the following: (1) Any breach of any representation, warranty, covenant or agreement made by the Buyer in this Agreement or contained in any certificate executed by the Buyer and delivered to the Company in connection with this Agreement; (2) Any claims of any broker, investment banker, Person or firm acting on behalf of the Buyer for a broker's or finder's fee or any other commission or similar fee arising in connection with the transactions contemplated hereby; and (3) Any and all actions, suits, proceedings, claims, demands, assessments, MCI CONFIDENTIAL 23 judgments, costs and expenses (including without limitation, interest, penalties, reasonable legal fees and accounting fees) incident to the foregoing and the enforcement of the provisions of this Section 10.1. (C) Each of the Buyer and the Company shall be liable to the other for any Losses arising under this Agreement or caused by any breach of a representation or warranty made by such party as to which the Buyer or Company is otherwise entitled to indemnity under this Agreement only up to the amount of the Purchase Price. (D) For purposes of this Section 10.1, any assertion of fact and/or law by a third party that, if true, would constitute a breach of a representation or warranty made by a party to this Agreement or make operational an indemnification obligation hereunder, shall, on the date that such assertion is made, immediately invoke that party's obligation to protect, defend, hold harmless and indemnify the other party to this Agreement pursuant to this Section 10.1. 70.1 Indemnification Procedures. All claims for indemnification under -------------------------- this Agreement shall be asserted and resolved as follows: (A) A party claiming indemnification under this Agreement (an "Indemnified Party") shall promptly (i) notify the party from whom indemnification is sought (the "Indemnifying Party") of any third-party claim ("Third Party Claim") asserted against the Indemnified Party which could give rise to a right of indemnification under this Agreement and (ii) transmit to the Indemnifying Party a written notice ("Claim Notice") describing in reasonable detail the nature of the Third Party Claim, a copy of all papers served with respect to such claim (if any), an estimate of the amount of damages attributable to the Third Party Claim, if reasonably possible, and the basis of the Indemnified Party's request for indemnification under this Agreement. (B) Within thirty (30) days after receipt of any Claim Notice (the "Election Period"), the Indemnifying Party shall notify the Indemnified Party (i) whether the Indemnifying Party disputes its potential liability to the Indemnified Party under this Article X with respect to such Third Party Claim and (ii) whether the Indemnifying Party desires, at the sole cost and expense of the Indemnifying Party, to defend the Indemnified Party against such Third Party Claim. (C) If the Indemnifying Party notifies the Indemnified Party within the Election Period that the Indemnifying Party does not dispute its potential liability to the Indemnified Party under this Article X and that the Indemnifying Party elects to assume the defense of the Third Party Claim, then the Indemnifying Party shall have the right to defend, at its sole cost and expense, such Third Party Claim by all appropriate proceedings, which proceedings shall be prosecuted diligently by the Indemnifying Party to a final conclusion or settled at the discretion of the Indemnifying Party in accordance with this Section 10.2. The Indemnifying Party shall have full control of such defense and proceedings including any compromise or settlement thereof; provided that any MCI CONFIDENTIAL 24 non-monetary aspect of any settlement shall require the consent of the Buyer, which consent shall not be unreasonably withheld or delayed. The Indemnified Party is hereby authorized, at the sole cost and expense of the Indemnifying Party (but only if the Indemnified Party consents, which consent shall not be unreasonably withheld), to file, during the Election Period, any motion, answer or other pleadings which the Indemnified Party shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party. If requested by the Indemnifying Party, the Indemnified Party shall, at the sole cost and expense of the Indemnifying Party, cooperate with the Indemnifying Party and its counsel in contesting any Third Party Claim which the Indemnifying Party elects to contest. The Indemnified Party may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this Section 10.2 and, except as permitted above, shall bear its own costs and expenses with respect to such participation. (D) If the Indemnifying Party fails to notify the Indemnified Party within the Election Period that the Indemnifying Party elects to defend the Indemnified Party pursuant to this Section 10.2, or if the Indemnifying Party elects to defend the Indemnified Party pursuant to this Section 10.2 but fails to diligently prosecute or settle the Third Party Claim, then the Indemnified Party shall have the right to defend, at the sole cost and expense of the Indemnifying Party, the Third Party Claim by all appropriate proceedings. The Indemnified Party shall have full control of such defense and proceedings; provided, however, that the Indemnified Party may not enter into, without the Indemnifying Party's consent, which shall not be unreasonably withheld or delayed, any compromise or settlement of such Third Party Claim. The Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this Section 10.2, and the Indemnifying Party shall bear its own costs and expenses with respect to such participation. (E) In the event an Indemnified Party should have a claim against an Indemnifying Party hereunder which does not involve a Third Party Claim, the Indemnified Party shall transmit to the Indemnifying Party a written notice (the "Indemnity Notice") describing in reasonable detail the nature of the claim, an estimate of the amount of damages attributable to such claim and the basis of the Indemnified Party's request for indemnification under this Agreement. If the Indemnifying Party does not notify the Indemnified Party within sixty (60) days from its receipt of the Indemnity Notice that the Indemnifying Party disputes such claim, the claim specified by the Indemnified Party in the Indemnity Notice shall be deemed a liability of the Indemnifying Party hereunder. If the Indemnifying Party has timely disputed such claim, as provided above, such dispute shall be resolved by litigation in an appropriate court of competent jurisdiction. (F) Payments of all amounts owing by the Indemnifying Party pursuant to Sections 10.2(C) and (D) shall be made within thirty (30) days after the latest of (i) the MCI CONFIDENTIAL 25 settlement of the Third Party Claim, (ii) the expiration of the period for appeal of a final adjudication of such Third Party Claim or (iii) the expiration of the period for appeal of a final adjudication of the Indemnifying Party's liability to the Indemnified Party under this Agreement. Payments of all amounts owing by the Indemnifying Party pursuant to Section 10.2(E) shall be made within thirty (30) days after the later of (i) the expiration of the sixty-day Indemnity Notice period or (ii) the expiration of the period for appeal of a final adjudication of the Indemnifying Party's liability to the Indemnified Party under this Agreement. (G) The failure to provide notice as provided in this Section 10.2 shall not excuse any party from its continuing obligations hereunder; however, any claim shall be reduced by the damages resulting from such party's delay or failure to provide notice as provided in this Section 10.2. 71.1 Confidentiality. Notwithstanding the termination of this Agreement, --------------- each party hereto and its respective accountants, attorneys, employees and other agents, will keep confidential all information, oral and written, obtained from any other party hereto or its Affiliates and refrain from using in any manner all information set forth above in accordance with that certain Nondisclosure Agreement between the Company and the Buyer dated October 29, 1996. 72.1 Further Assurances. Each party hereto shall cooperate with the ------------------ others, and execute and deliver, or cause to be executed and delivered, all such other instruments, including instruments of conveyance, assignment and transfer, and take all such other actions as may be reasonably requested by the other parties hereto from time to time, consistent with the terms of this Agreement, to effectuate the purposes and provisions of this Agreement. ARTICLE 73 -- MISCELLANEOUS 74.1 Survival of Representations, Warranties and Agreements. All ------------------------------------------------------ representations and warranties of the Buyer and the Company contained in Articles V and VI herein and in any certificate executed and delivered by either the Buyer or the Company in connection with this Agreement shall survive the Closing Date and shall terminate and expire one (1) year from the Closing Date. All agreements of the parties contemplating performance after the Closing Date shall survive the Closing Date for a period equal to ninety (90) days after the expiration of the applicable statute of limitations for any claim relating thereto. 75.1 Service of Process. Service of process on the Company or the Buyer ------------------ for any claim, legal action or proceeding under this Agreement may be made in the manner set forth in Section 11.3. 76.1 Notices. All notices, requests, consents and other communications ------- hereunder shall be deemed given if delivered personally (including by courier), telecopied (which is confirmed) or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses or to other such addresses as may be furnished in writing by one party to the others: MCI CONFIDENTIAL 26 (A) if to the Company: Genesys Telecommunications Laboratories, Inc. 1155 Market Street, 11th Floor San Francisco, California 94103 Attention: Gregory Shenkman and Richard C. DeGolia with a copy to: Brobeck Phleger & Harrison LLP Two Embarcadero Place 2200 Geng Road Palo Alto, California 94303 Attention: Edward M. Leonard, Esq. (B) If to the Buyer: MCI Telecommunications Corporation 1801 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Attention: President, networkMCI Services with a copy to: MCI Communications Corporation 1801 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Attention: General Counsel 77.1 Governing Law. This Agreement shall be governed by, and construed in ------------- accordance with, the laws of the State of California, without regard to such jurisdiction's conflicts of law principles. The parties agree that venue or any suit, action, proceeding or litigation arising out of or in relation to this Agreement shall be in any federal or state court in the State of California having subject matter jurisdiction. 78.1 Modification; Waiver. This Agreement shall not be altered or -------------------- otherwise amended except pursuant to an instrument in writing signed by the Buyer and the Company. Any party may waive any misrepresentation by any other party, or any breach of warranty by, or failure to perform any covenant, obligation or agreement of, any other party, provided that mere inaction or -------- failure to exercise any right, remedy or option under this Agreement, or delaying in exercising the same, will not operate as nor shall be construed as a waiver, and no waiver will be effective MCI CONFIDENTIAL 27 unless set forth in writing and only to the extent specifically stated therein. 79.1 Entire Agreement. This Agreement, the Schedules and Exhibits hereto, ---------------- and any other agreements or certificates delivered pursuant hereto constitute the entire agreement of the parties hereto with respect to the matters contemplated hereby and supersede all previous written or oral negotiations, commitments, representations and agreements (provided however that the Nondisclosure Agreement between the parties dated October 29, 1996 shall remain in full force and effect). 80.1 Assignment; Successors and Assigns. This Agreement may not be ---------------------------------- assigned by either Party without the prior written consent of the other Party, except that Buyer may assign this Agreement to its subsidiaries or affiliates. All covenants, representations, warranties and agreements of the parties contained herein shall be binding upon and inure to the benefit of their respective successors and permitted assigns. 81.1 Public Announcements. No public announcement of the transactions -------------------- contemplated hereby or of the terms hereof shall be made by the parties to this Agreement without the written consent, such consent not to be unreasonably withheld or delayed, of the Buyer and the Company, except to the extent required by law. The parties expressly agree that a public announcement shall be deemed to include a description of the transactions contemplated hereby contained in any registration statement filed by the Company with the Securities and Exchange Commission. 82.1 Severability. The provisions of this Agreement are severable, and in ------------ the event that any one or more provisions are deemed illegal or unenforceable, the remaining provisions shall remain in full force and effect, provided that no such severability shall be effective if it materially changes the economic benefits of this Agreement to either party. 83.1 No Third Party Beneficiary. This Agreement is intended and agreed to -------------------------- be solely for the benefit of the parties hereto and their stockholders, and no other party shall accrue any benefit, claim or right of any kind whatsoever pursuant to, under, by or through this Agreement. 84.1 Expenses. Except as otherwise expressly provided herein, each party -------- to this Agreement will pay its own expenses in connection with the negotiation of this Agreement, the performance of its obligations hereunder, and the consummation of the transactions contemplated herein. 85.1 Execution in Counterpart. This Agreement may be executed in one or ------------------------ more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK MCI CONFIDENTIAL 28 IN WITNESS WHEREOF, the parties have executed this Securities Purchase Agreement as of the date first written above. MCI TELECOMMUNICATIONS CORPORATION By: /s/ John W. Gerdelman --------------------------------- Name: John W. Gerdelman Title: Executive Vice President GENESYS TELECOMMUNICATIONS LABORATORIES, INC. By: /s/ Richard C. DeGolia ---------------------------------- Name: Richard C. DeGolia Title: Vice President CONFIDENTIAL EX-4.7 10 WARRANT TO PURCHASE SHARES OF SERIES C EXHIBIT 4.7 NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THIS WARRANT AND SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT THEREFOR OR AN APPLICABLE EXEMPTION FROM REGISTRATION. VOID AFTER FEBRUARY 26, 2004 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. Warrant for the Purchase of 449,664 Shares of Series C Preferred Stock FOR VALUE RECEIVED and subject to the terms and conditions contained herein, Genesys Telecommunications Laboratories, Inc. hereby certifies that MCI Telecommunications Corporation or its assigns, are entitled to purchase from the Company (as defined below) at any time or from time to time during the Exercise Period (as defined below) any or all of the Warrant Shares (as defined below) for the Exercise Price (as defined below). The Exercise Price shall not be subject to adjustment, except as set forth in paragraph 3 hereof. 1. Definitions. ----------- As used in this Warrant, the following terms have the respective meanings set forth below: "AFFILIATE" of a Person shall mean any Person who, directly or indirectly, controls, is controlled by or is under common control with such other Person. "BUSINESS DAY" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in New York City. "CLOSING DATE" shall mean the date upon which this Warrant is originally issued. "COMMON STOCK" is a collective reference to the common stock and any capital stock into which such common stock is or may thereafter be changed and any class of capital stock of the Company (regardless of how denominated) which is not preferred as to dividends or assets over any other class and which is not subject to redemption, and shall also include shares of common stock of any successor or acquiring corporation referred to in paragraph 3(d) received by or distributed to the holders of such capital stock in the circumstances contemplated by paragraph 3(d). * Confidential Treatment Requested. Confidential portion has been filed separately with the Securities and Exchange Commission. "COMPANY" shall mean Genesys Telecommunications Laboratories, Inc., a California corporation, or any successor corporation by merger or consolidation or otherwise. "CURRENT MARKET PRICE" shall mean, in respect of any share of Common Stock on any date herein specified, the average of the daily market prices for the ten (10) previous consecutive Business Days (or the actual number of days traded if the stock has been publicly traded for less than ten (10) Business Days). The daily market price for each such Business Day shall be (i) the last sale price on such day on the principal stock exchange on which such Common Stock is then listed or admitted to trading, (ii) if no sale takes place on such day on any such exchange, the average of the last reported closing bid and asked prices on such day as officially quoted on any such exchange or, if there is no such bid and asked prices on such day, on the next preceding date when such bid and asked prices occurred, (iii) if the Common Stock is not then listed or admitted to trading on any stock exchange, the average of the last reported closing bid and asked prices on such day in the over-the-counter market, as furnished by the National Association of Securities Dealers Automatic Quotation System or any similar firm then engaged in such business, or (iv) if there is no such firm, as furnished by any member of the National Association of Securities Dealers selected by the Company. "EARNED DATE" shall mean either (i) with respect to the number of Warrant Shares set forth below, the date on which the Company receives from MCI, its subsidiaries or their respective successors or assigns a payment such that the sum of that payment and all previous payments from and after the Closing Date to the Company by all such parties for products and/or services purchased for their own use or for sale to their customers or affiliates shall equal the following:
Number of Warrant Shares Payment ------------------------ ------- Threshold - --------- [*] [*] [*] [*] [*] [*]
or (ii) with respect to all Warrant Shares, the date of a consolidation, merger, sale or conveyance of the Company, as set forth in paragraph 3(d) hereof, which occurs on or prior to the fourth anniversary of the Closing Date. "EXERCISE DATE" shall mean the date on which the Holder exercises this Warrant, in whole or in part. "EXERCISE PERIOD" shall mean the period commencing on the Earned Date and ending at 5:00 p.m., San Francisco time, on the Termination Date. "EXERCISE PRICE" shall mean a price for each Warrant Share equal to (i) one hundred twenty percent (120%) of the Purchase Price Per Share of Series C Preferred Stock, if the Company has not completed an initial public offering of its Common Stock on or prior to December 31, 1997 or (ii) if the Company has completed an initial public offering of its Common Stock, one hundred ten percent (110%) of the Current Market 2 * Confidential Treatment Requested Price on December 31, 1997; subject to adjustment thereafter pursuant only to the provisions of paragraph 3 of this Warrant. "FULLY DILUTED OUTSTANDING" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock Outstanding at such date and all shares of Common Stock issuable pursuant to options, warrants or other rights to purchase or acquire, or securities convertible into, shares of Common Stock, outstanding on such date (including any Warrant Shares issuable pursuant to this Warrant). "GAAP" shall mean generally accepted accounting principles in the United States of America as from time to time in effect. "HOLDER" shall mean MCI or any transferee of this Warrant. "MCI" shall mean MCI Telecommunications Corporation, a Delaware corporation, and any successor corporation by merger or consolidation or otherwise. "OUTSTANDING" shall mean, when used with reference to Common Stock, at any time as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held by or for the account of the Company or any majority-owned subsidiary of the Company, and shall include all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Common Stock. "PERSON" shall mean any individual, sole proprietorship, partnership, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "PURCHASE PRICE PER SHARE" shall mean $11.12. "SERIES C PREFERRED STOCK" shall mean the Series C Preferred Stock of the Company and any Common Stock into which the Series C Preferred Stock is converted. "TERMINATION DATE" shall mean the later of (i) four (4) years following the Closing Date or (ii) three (3) years following the Earned Date. "WARRANT SHARES" shall mean any of the shares of Series C Preferred Stock (or any Common Stock into which the Series C Preferred Stock is converted) issuable upon exercise of this Warrant. The number of Warrant Shares shall initially be 449,664 shares of Series C Preferred Stock, subject to adjustment thereafter pursuant only to the provisions of paragraph 3 of this Warrant; provided that the total number of shares of Series C Preferred Stock issuable pursuant hereto shall not in any event be less than two percent (2.0%) of the Fully Diluted Outstanding capital stock as of the date hereof (after giving effect to the issuance of this Warrant and related transactions). 3 2. Exercise of Warrant. (a) This Warrant may be exercised, in whole at any ------------------- time or in part from time to time, during the Exercise Period, by the Holder by the surrender of this Warrant (with the subscription duly executed) at the address set forth in paragraph 11(a) hereof, together with proper payment of the Exercise Price. Payment for the Warrant Shares to be purchased shall be made by certified, official bank check or other check acceptable to the Company payable to the order of the Company. (b) In lieu of exercising the Warrant pursuant to paragraph 2(a), the Holder may elect to receive Warrant Shares equal to the value of the Warrant (or the portion thereof being canceled) by surrender of the Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of shares of the Company's Series C Preferred Stock computed using the following formula:
X = Y (A-B) ------- A Where X = the number of shares to be issued to the Holder. Y = the number of shares purchasable under this Warrant. A = the fair market value of one share of the Company's Series C Preferred Stock. B = the Exercise Price (as adjusted to the date of such calculation).
(c) If this Warrant is exercised in part, this Warrant must be exercised for a whole number of shares of the Series C Preferred Stock, and the Holder is entitled to receive a new Warrant covering the number of Warrant Shares in respect of which this Warrant has not been exercised. Upon such surrender of this Warrant, the Company will promptly issue a certificate or certificates in the name of the Holder for the number of shares of the Series C Preferred Stock to which the Holder shall be entitled. The Company shall not be required to issue a fractional share of stock upon any exercise of this Warrant. 3. Certain Adjustments. The Exercise Price and the kind and number of shares ------------------- of Series C Preferred Stock issuable upon exercise of this Warrant shall be subject to adjustment as set forth below in this paragraph 3. The Company shall give the registered Holder notice of any event described below which requires an adjustment pursuant to this paragraph 3 in accordance with the provisions of paragraph 4. (a) Adjustment of Exercise Price. From and after the Closing Date (and ---------------------------- subject to such further adjustments, from time to time, pursuant to the other provisions of this paragraph 3) the Exercise Price shall be subject to adjustment as follows: (b) Stock Dividends, Subdivisions and Combinations. If at any time the ---------------------------------------------- Company shall: 4 (i) fix a record date for the purpose of determining the holders of its Series C Preferred Stock entitled to receive a dividend payable in, or other distribution of, Series C Preferred Stock; (ii) subdivide its outstanding shares of Series C Preferred Stock into a larger number of shares of Series C Preferred Stock; (iii) combine its outstanding shares of Series C Preferred Stock into a smaller number of shares of Series C Preferred Stock; or (iv) issue any shares of its capital stock or other securities by reclassification of the Series C Preferred Stock (other than pursuant to paragraph 3(d) below); then the Exercise Price shall be proportionately decreased in the case of such a dividend or distribution of shares of Series C Preferred Stock or such a subdivision, or proportionately increased in the case of such a combination, or the kind of capital stock or other securities of the Company which may be purchased shall be adjusted in the case of such a reclassification of the Series C Preferred Stock, each on the record date for such dividend or distribution or effective date of such subdivision, combination or reclassification, as the case may be, such that the Holder shall be entitled to receive, upon exercise of this Warrant, the aggregate number and kind of shares of Series C Preferred Stock which, if the Warrant had been fully exercised immediately prior to such date, it would have owned upon such exercise and been entitled to receive by virtue of such dividend, distribution, subdivision, combination or reclassification. (c) Certain Other Dividends and Distributions. If at any time the Company ----------------------------------------- shall fix a record date for the purpose of determining the holders of its Series C Preferred Stock entitled to receive any dividend or other distribution (including any such distribution made in connection with a consolidation or merger, but excluding any distribution referred to in subparagraph (b) above) of: (i) any evidences of indebtedness, any shares of its capital stock (excluding Series C Preferred Stock) or any other securities or property of any nature whatsoever; or (ii) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its capital stock or any other of its securities or its property of any nature whatsoever (other than normal cash dividends or cash distributions permitted under applicable law); then the Exercise Price shall be adjusted to equal the Exercise Price in effect prior to such distribution or dividend multiplied by a fraction, (1) the numerator of which shall be (A) the fair market value per share of the Series C Preferred Stock on such record date minus (B) the amount allocable to one share of Series C Preferred Stock of the fair market value (as determined in good faith by the Board of Directors of the Company and, unless waived by the Holder, supported by an opinion from an investment banking firm of nationally recognized standing approved by the Holder, which approval shall not be unreasonably withheld) of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so 5 distributable, and (2) the denominator of which shall be such fair market value per share of Series C Preferred Stock. Such adjustments shall be made whenever such a record date is fixed. A reclassification of the Series C Preferred Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock or shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Series C Preferred Stock of such shares of such other class of stock within the meaning of this subparagraph (c) and, if the outstanding shares of Series C Preferred Stock shall be changed into a larger or smaller number of shares of Series C Preferred Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Series C Preferred Stock within the meaning of subparagraph (b). (d) Consolidation or Merger. In the case of any consolidation of the ----------------------- Company with or merger of the Company into another corporation or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the Company or such successor or purchasing corporation, as the case may be, shall execute with the Holder an agreement that the Holder shall have the right thereafter upon payment of the Exercise Price in effect immediately prior to such action to purchase upon exercise of the Warrant the kind and amount of shares and other securities and property that it would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had such Warrant been exercised immediately prior to such action. Such agreement shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this paragraph 3. The provisions of this subparagraph (d) shall similarly apply to successive consolidations, mergers, sales or conveyances. (e) Adjustment of Number of Warrant Shares. Upon each adjustment as the -------------------------------------- case may be, pursuant to subparagraph (a), (b), (c) or (d) of this paragraph 3, this Warrant shall be deemed to evidence the right to purchase, at the adjusted Exercise Price, that number of shares of Series C Preferred Stock obtained by multiplying the number of shares of Series C Preferred Stock covered by the Warrant immediately prior to such adjustment by the Exercise Price in effect prior to such adjustment and dividing the product so obtained by the Exercise Price in effect after such adjustment. (g) When Adjustments to be Made. No adjustment in the Exercise Price shall --------------------------- be required by this paragraph 3 if such adjustment either by itself or with other adjustments not previously made would require an increase or decrease of less than 1% in such price. Any adjustment representing a change of less than such minimum amount which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this paragraph 3 and not previously made, would result in a minimum adjustment. Notwithstanding the foregoing, any adjustment carried forward shall be made no later than ten (10) Business Days prior to the Termination Date. All calculations under this subparagraph (g) shall be made to the nearest cent. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (h) Fractional Interests. In computing adjustments under this paragraph 3, -------------------- fractional interests in Series C Preferred Stock shall be taken into account to the nearest whole share. 6 (i) When Adjustments Not Required. If the Company shall fix a record date ----------------------------- for the purpose of determining the holders of its Series C Preferred Stock entitled to receive a dividend or distribution and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan or deliver such dividend or distribution, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (j) Certain Limitations. Subject to the provisions of paragraph 6, there ------------------- shall be no adjustment of the Exercise Price hereunder to the extent that such adjustment would cause the Exercise Price to be less than the par value per share of the Series C Preferred Stock, which par value shall not at any time while this Warrant is outstanding exceed $.01. 4. Notices of Adjustments. Whenever the Exercise Price or the number of ---------------------- Warrant Shares shall be adjusted pursuant to paragraph 3, the Company shall forthwith deliver to the Holder a certificate prepared by the Company, setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which the Board of Directors of the Company determined the fair value of any evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights), specifying the number of Warrant Shares then issuable hereunder, the Exercise Price after giving effect to such adjustment and (if such adjustment was made pursuant to paragraph 3(c)) describing the number and kind of any other shares of stock for which the Warrant is exercisable. In the event that the Holder shall disagree with any such adjustment or with the terms of any new agreement to be entered into pursuant to paragraph 3(d), it shall notify the Company thereof and any disagreement shall be resolved by an investment banking firm of nationally recognized standing mutually agreeable to the Company and the Holder, or if the Company and the Holder are unable to agree upon an investment banking firm, an investment banking firm selected by an investment banking firm chosen by the Company and an investment banking firm chosen by the Holder. 5. Reservation of Warrant Shares. The Company agrees that, from and after the ----------------------------- Earned Date and through to the expiration of this Warrant, the Company will at all times have authorized and in reserve, and will keep available, solely for issuance or delivery upon the exercise of this Warrant, the shares of the Series C Preferred Stock and other securities and properties as from time to time shall be receivable upon the exercise of this Warrant, free and clear of all restrictions on sale or transfer and free and clear of all preemptive rights. 6. Fully Paid Stock; Taxes. The shares of Series C Preferred Stock ----------------------- represented by each and every certificate for Warrant Shares delivered on the exercise of this Warrant shall, at the time of such delivery, be validly issued and outstanding, fully paid and nonassessable, and not subject to preemptive rights, and the Company will take all such actions as may be necessary to assure that the par value or stated value, if any, per share of the Series C Preferred Stock is at all times equal to or less than the then Exercise Price. The Company further covenants and agrees that it will pay, when due and payable, any and all federal and state stamp, original issue or similar taxes which may be payable in respect of the issuance of any Warrant Shares or certificate therefor. 7. Transferability. This Warrant is fully transferable and assignable by the --------------- Holder, provided, however, that any such transfer or assignment may only be effected in accordance with 7 applicable securities laws or pursuant to exemptions therefrom. The Company may treat the registered holder of this Warrant as it appears on the Company's books at any time as the Holder for all purposes. 8. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the --------------------- Company of the loss, theft, destruction or mutilation of this Warrant, and of indemnity or bond reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver to the Holder a new Warrant of like date, tenor and denomination. 9. Holder Not Shareholder. This Warrant does not confer upon the Holder any ---------------------- right to vote or to consent to or receive notice as a shareholder of the Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a shareholder, prior to the exercise hereof. 10. Surrender. The Holder may at any time surrender all or a portion of this --------- Warrant for cancellation by transmitting the same to the Company at its address set forth elsewhere herein accompanied by a written notice setting forth the Holder's intention to surrender the Warrant (or such portion) for cancellation and upon such transmittal by the Holder, this Warrant (or such portion) shall become null and void and of no further force and effect. 11. Notices. Any notice, demand, request, consent, approval, declaration, ------- delivery or other communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) to the Company at: 1155 Market Street, 11th Floor San Francisco, California 94103 Attention: Gregory Shenkman Richard C. DeGolia and a copy to: Brobeck Phleger & Harrison LLP Two Embarcadero Place 2200 Geng Road Palo Alto, California 94303 Attention: Edward M. Leonard, Esq. or (b) to the Holder at: 1801 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Attention: John W. Gerdelman 8 and a copy to: MCI Law and Public Policy 1801 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Attention: General Counsel or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been deposited in the United States mail. Failure or delay in delivering copies of any notice, demand, request, approval, declaration, delivery or other communication to the person designated above to receive a copy shall in no way adversely affect the effectiveness of such notice, demand, request, approval, declaration, delivery or other communication. 12. Certain Agreements. MCI and the Company have entered into a Securities ------------------ Purchase Agreement, a Registration Rights Agreement and certain Commercial Documents (as defined in the Securities Purchase Agreement), each dated as of the Closing Date, which include certain provisions with respect to this Warrant and the Warrant Shares. 13. Miscellaneous. ------------- (a) Remedies. The Company agrees that monetary damages would not be -------- adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. Accordingly, it is agreed that the Holder shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of the terms of this Warrant and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof. Such remedies shall be cumulative and non- exclusive and shall be in addition to any other rights and remedies the parties may have hereunder. (b) No Inconsistent Agreements. The Company will not on or after the date -------------------------- of this Warrant enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holder in this Warrant or otherwise conflicts with the provisions hereof. The rights granted to the Holder hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any such agreements. (c) Successors and Assigns. Subject to the provisions of paragraph 7 ---------------------- hereof, this Warrant shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Warrant Shares. (d) Severability. In the event that any one or more of the provisions ------------ contained herein, or the application thereof in any circumstances, is held invalid, illegal or 9 unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (e) Amendments and Waivers. The provisions of this Warrant, including the ---------------------- provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of the Holder. (f) Entire Agreement. Subject to paragraph 12 hereto, the provisions of ---------------- this Warrant are intended by the parties as a final expression of their agreement and are intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, agreements, warranties or undertakings, other than those set forth or referred to herein. (g) Headings. The headings of this Warrant have been inserted as a matter -------- of convenience and shall not affect the construction hereof. (h) Applicable Law. This Warrant shall be governed by and construed in -------------- accordance with the laws of the State of California. Each party hereto agrees to submit to the non-exclusive jurisdiction of the courts of the State of California in any action or proceeding arising out of or relating to this Agreement. 10 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name by its President or a Vice President thereunto duly authorized. DATED: February 26, 1997 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. By: /s/ Gregory Shenkman ----------------------------------------- Name: Gregory Shenkman Title: President and Chief Executive Officer ACCEPTED BY: MCI TELECOMMUNICATIONS CORPORATION By: /s/ John W. Gerdelman ------------------------------ Name: John W. Gerdelman Title: Executive Vice President 11 SUBSCRIPTION The undersigned, _______________________, pursuant to the provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase ___________ shares of the Series C Preferred Common Stock of GENESYS TELECOMMUNICATIONS LABORATORIES, INC., covered by said Warrant, and makes payment therefor in full at the price per share provided by said Warrant. Dated: ____________________, _____ __________________________ (Signature) __________________________ (Address) __________________________ ASSIGNMENT FOR VALUE RECEIVED, ___________________ hereby sells, assigns and transfers unto ____________________ the foregoing Warrant and all rights evidenced thereby and does irrevocably constitute and appoint ________________, attorney, to transfer said Warrant on the books of GENESYS TELECOMMUNICATIONS LABORATORIES, INC. Dated: ____________________, ______ __________________________ (Signature) __________________________ (Address) __________________________ PARTIAL ASSIGNMENT FOR VALUE RECEIVED, _____________________ hereby assigns and transfers unto ___________________ the right to purchase _______ shares of the Series C Preferred Stock of GENESYS TELECOMMUNICATIONS LABORATORIES, INC. by the foregoing Warrant and the rights evidenced thereby, and does irrevocably constitute and appoint ________________, attorney, to transfer said Warrant on the books of GENESYS TELECOMMUNICATIONS LABORATORIES, INC. Dated: ____________________, _____ __________________________ (Signature) __________________________ (Address) __________________________ 12 EX-4.8 11 SERIES C PREFERRED STOCK & WARRANT PURCHASE AGREEMENT EXHIBIT 4.8 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT This Agreement is made as of February 26, 1997 among Genesys Telecommunications Laboratories, Inc., a California corporation (the "Company"), and Intel Corporation, a California corporation (the "Purchaser"). SECTION 1 Authorization and Sale of Preferred Stock and Warrants ------------------------------------------------------ 1.1 Sale and Issuance of Series C Preferred Stock and Series C ---------------------------------------------------------- Warrants. - -------- (a) The Company shall adopt and file with the Secretary of State of California on or before the Closing (as defined below) the Amended and Restated Articles of Incorporation in the form attached hereto as Exhibit A (the "Articles"): (b) Subject to the terms and conditions of this Agreement, the Purchaser agrees to purchase at the Closing and the Company agrees to sell and issue to Purchaser for an aggregate purchase price of $2,000,121.04 at the Closing the following: (i) 179,867 shares of the Company's Series C Preferred Stock at $11.12 per share and (ii) a warrant for the purchase of 44,965 shares of the Company's Series C Preferred Stock. (c) The shares of the Company's Series C Preferred Stock to be sold hereunder are sometimes referred to herein as the "Shares". The warrants to be sold hereunder are referred to herein collectively as the "Warrants" and individually as a "Warrant". The shares of the Company's Series C Preferred Stock underlying the Warrants are referred to herein as the "Warrant Shares". (d) Simultaneously with this Closing, the Company is expected to sell and issue to MCI Telecommunications Corporation the following: (i) 674,496 shares of the Company's Series C Preferred Stock at $11.12 per share and (ii) a warrant for the purchase of 449,664 shares of the Company's Series C Preferred Stock (the "MCI Transaction"). SECTION 2 Closing Dates; Delivery ----------------------- 2.1 Closing Date. The closing of the purchase and sale of the Shares ------------ and Warrants hereunder shall be held at the offices of Brobeck, Phleger & Harrison, 2 Embarcadero Place, 2200 Geng Road, Palo Alto, California 94303 at 10:00 A.M., local time, on February 26, 1997 (the "Closing") or at such other time and place as shall be mutually agreed upon by the Company and Purchaser who propose to purchase a majority of the Shares proposed to be sold at the Closing (the date of the Closing is hereinafter referred to as the "Closing Date"). At the Closing, the Company shall deliver to Purchaser (i) a certificate representing the Shares and (ii) a Warrant in the form attached hereto as Exhibit B, which Purchaser is purchasing against delivery to the Company by Purchaser of the purchase price therefor, by check, wire or cancellation of indebtedness. SECTION 3 Representations and Warranties of the Company --------------------------------------------- Except as set forth on the Schedule of Exceptions attached hereto as Exhibit C, the Company represents and warrants to Purchaser, as of the Closing Date as follows: 3.1 Organization and Standing; Articles and Bylaws. The Company is a ---------------------------------------------- corporation duly organized and existing under, and by virtue of, the laws of the State of California and is in good standing under such laws. The Company has requisite corporate power and authority to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is presently qualified to do business as a foreign corporation in any jurisdiction, in which the failure to be so qualified would have a material adverse effect on the Company's operations or conditions, financial or otherwise. The Company has furnished the Purchaser with true, correct and complete copies of its Articles and Bylaws (the "Bylaws"), as presently in effect. 3.2 Corporate Power. The Company has or will have at the Closing --------------- Date all requisite legal and corporate power and authority to execute and deliver this Agreement, to sell and issue the Shares and Warrants hereunder, to issue the Common Stock issuable upon conversion of the Series C Preferred and to carry out and perform its obligations under the terms of this Agreement. 3.3 Subsidiaries. The Company has no subsidiaries or affiliated ------------ companies and does not otherwise own or control, directly or indirectly, any equity interest in any corporation, association or business entity. 3.4 Capitalization. The authorized capital stock of the Company -------------- consists or, upon the filing of the Articles with the California Secretary of State will consist, of 120,000,000 shares of Common Stock (the "Common Stock"), of which shares 12,744,086 are issued and outstanding as of the Closing Date (including 675,000 shares of Common Stock issued to Bruncor Inc. pursuant to that certain Stock Exchange Agreement) and 4,146,870 shares of Preferred Stock, 900,000 shares of which have been designated "Series A Preferred", all of which are issued and outstanding, and 1,897,878 shares of which have been designated "Series B Preferred", all of which are issued and outstanding and 1,348,992 shares of which have been designated "Series C Preferred," none of which is issued and outstanding prior to Closing. The outstanding shares have 2 been duly authorized and validly issued, and are fully paid and nonassessable. The Company has reserved 900,000 shares of Common Stock for issuance upon conversion of the Series A Preferred, 1,897,878 shares of Common Stock for issuance upon conversion of the Series B Preferred, 1,348,992 shares of Common Stock for issuance upon conversion of the Series C Preferred (including shares of Series C Preferred issuable upon exercise of the Warrants), and 6,292,834 shares of Common Stock for issuance by the Board of Directors to employees, consultants, or directors pursuant to the Company's 1995 Stock Option Plan, of which stock options to purchase 5,171,940 shares are outstanding as of the Closing Date. The Company also has outstanding a warrant to purchase 420,282 shares of Common Stock at a exercise price of $5.9483 per share (subject to adjustment upon occurrence of certain events) which is exercisable upon the earlier of April 26, 1997 or the filing of the Company's initial public offering with proceeds of not less than $10,000,000. In addition, concurrently with this Closing, the Company expects to close the MCI Transaction. Except as set forth above, there are no options, warrants or other rights to purchase any of the Company's authorized and unissued capital stock. 3.5 Authorization. All corporate action on the part of the Company, ------------- its directors and shareholders necessary for the authorization, execution, delivery and performance of this Agreement by the Company, the authorization, sale, issuance and delivery of the Shares and Warrants (and the Common Stock issuable upon conversion of the Shares and Warrant Shares) and the performance of all of the Company's obligations hereunder has been taken or will be taken prior to the Closing. This Agreement, when executed and delivered by the Company, shall constitute a valid and binding obligation of the Company, enforceable in accordance with its terms, except as subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies and limitations of public policy. The Shares, when issued in compliance with the provisions of this Agreement and upon the filing of the Articles with the office of the California Secretary of State, will be validly issued, will be fully paid and nonassessable, and will have the rights, preferences and privileges described in the Articles; the Common Stock issuable upon conversion of the Shares and Warrant Shares has been duly and validly reserved and, when issued in compliance with the provisions of this Agreement and the Articles, will be validly issued, and will be fully paid and nonassessable; and the Shares, the Warrant Shares and such Common Stock will be free of any liens or encumbrances, assuming the Purchaser take the Shares and Warrant Shares with no notice thereof, other than any liens or encumbrances created by or imposed upon the Purchaser; provided, however, that the Shares and Warrant Shares (and the Common Stock issuable upon conversion thereof) may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein. The Shares are not subject to any preemptive rights or rights of first refusal. 3.6 Financial Statements. The Company has delivered to Purchaser its -------------------- unaudited financial statements as of and for the years ended June 30, 1996 and the six 3 month period ended December 31, 1996 (the "Financial Statements"). The Financial Statements are complete and correct in all material respects and accurately set out and describe the financial condition and operating results of the Company as of the dates, and during the periods, indicated therein. Since December 31, 1996 there has not been any change in the assets, liabilities, financial condition or operations of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business which have not been, either individually or in the aggregate, materially adverse. 3.7 Material Contracts and Other Commitments. The Company does not ---------------------------------------- have any contract, agreement, lease, or other commitment, written or oral, absolute or contingent, other than (i) contracts for the purchase of supplies and services that were entered into in the ordinary course of business and that do not, as of the date hereof, involve more than $25,000 each; (ii) sales contracts entered into in the ordinary course of business; (iii) license agreements entered into in the ordinary course of business; and (iv) contracts terminable at will by the Company on no more than sixty (60) days notice without cost or liability to the Company. For purposes of this Section 3.7, employment contracts and contracts with labor unions and agreements pursuant to which the Company licenses any of its Proprietary Information (as defined herein) to third parties shall not be considered to be contracts entered into in the usual and ordinary course of business. 3.8 Title to Properties and Assets; Liens, etc. The Company has good ------------------------------------------ and marketable title to its properties and assets, and has good title to all its leasehold interests, in each case subject to no mortgage, pledge, lien or encumbrance, other than (i) the lien of current taxes not yet due and payable, and (ii) possible minor liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company, and which have not arisen otherwise than in the ordinary course of business. 3.9 Compliance with Other Instruments, None Burdensome, etc. The ------------------------------------------------------- Company is not in violation of any term of its Articles or Bylaws, or in any material respect of any term or provision of any material mortgage, indebtedness, indenture, contract, agreement, instrument, judgment or decree, and to the best of its knowledge is not in violation of any order, statute, rule or regulation applicable to the Company where such violation would materially and adversely affect the Company. The execution, delivery and performance of and compliance with this Agreement, and the issuance of the Shares and Warrants and the Common Stock issuable upon conversion of the Shares and Warrants, have not resulted and will not result in any material violation of, or conflict with, or constitute a material default under, the Company's Articles or Bylaws or any of its material agreements or result in the creation of, any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company; and there is no such violation or default which materially and adversely affects the business of the Company or any of its properties or assets. 4 3.10 Litigation, etc. There are no actions, suits, proceedings or --------------- investigations pending against the Company or its properties before any court or governmental agency (nor, to the best of the Company's knowledge, is there any reasonable basis therefor or threat thereof). 3.11 Employees. To the best of the Company's knowledge, no employee --------- of the Company is in violation of any term of any employment contract, patent disclosure agreement or any other contract or agreement relating to the relationship of such employee with the Company or any other party because of the nature of the business conducted or to be conducted by the Company. There is, to the Company's knowledge, no pending nor threatened action, suit, proceeding or claim, or to its knowledge any basis therefor or threat thereof with respect to any contract, agreement, covenant or obligation referred to in the preceding sentence. The Company and each employee of the Company and any subsidiary of the Company employed in any technical capacity or with access to confidential information of the Company has entered into a Confidential Information and Invention Assignment Agreement substantially in the form of Exhibit D hereto. 3.12 Franchises, Licenses, Trademarks, Patents and Other Rights. The ---------------------------------------------------------- Company has all franchises, permits, licenses and other similar authority necessary for the conduct of its business, the lack of which could materially and adversely affect the operations or condition, financial or otherwise, of the Company, and it is not in default in any material respect under any of such franchises, permits, liens or other similar authority. To the best of the Company's knowledge, the Company possesses all patents, patent rights, trademarks, trademark rights, trade names, trade name rights and copyrights necessary to conduct its business without conflict with or infringement upon any valid rights of others and the lack of which could materially and adversely affect the operations or condition, financial or otherwise, of the Company, and the Company has not received any notice of infringement upon or conflict with the asserted rights of others. The Company has a body of trade secrets, including know-how, concepts, computer programs and other technical data (the "Proprietary Information") for the development, manufacture and sale of its products. To the Company's knowledge, the Company has the right to use the Proprietary Information, free and clear of any rights, liens, encumbrances or claims of others, except that the possibility exists that other persons may have independently developed trade secrets or technical information similar or identical to those of the Company. Reasonable security measures have been taken by the Company to protect the secrecy, confidentiality and value of the Proprietary Information referred to in this Section 3.12. 3.13 Governmental Consent, etc. No consent, approval or ------------------------- authorization of or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of this Agreement, or the offer, sale or issuance of the Shares and Warrants (and the Common Stock issuable upon conversion of the Shares and Warrant Shares), or the consummation 5 of any other transaction contemplated hereby, except (a) filing of the Articles with the office of the California Secretary of State (b) qualification (or taking such action as may be necessary to secure an exemption from qualification, if available) of the offer and sale of Shares and Warrants (and the Common Stock issuable upon conversion of the Shares and Warrant Shares) under the California Corporate Securities Law of 1968, as amended and other applicable Blue Sky laws, which filings and qualifications, if required, will be accomplished in a timely manner. 3.14 Offering. Subject to the accuracy of the Purchaser's -------- representations in Section 4 hereof, the offer, sale and issuance of the Shares and Warrants to be issued in conformity with the terms of this Agreement, and the issuance of the Common Stock to be issued upon conversion of the Shares and Warrant Shares, constitute transactions exempt from the registration requirements of the Securities Act. 3.15 Brokers or Finders; Other Offers. The Company has not incurred, -------------------------------- and will not incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement. 3.16 Shareholders, Directors and Officers; Indebtedness. The Company -------------------------------------------------- is not indebted, directly or indirectly, to any of its officers, directors or shareholders or any of their respective relatives or affiliates. No officer, director or shareholder of the Company, or any of their relatives or affiliates, is indebted to the Company for an amount individually or in the aggregate in excess of $50,000. To the knowledge of the Company, none of the officers or directors or significant employees or advisors of the Company, or their respective spouses, or relatives, (i) owns directly or indirectly, individually or collectively, a material interest in any entity which is a competitor, customer or supplier of the Company or (ii) has any existing contractual relationship with the Company involving an amount in excess of $50,000. 3.17 Disclosure. Neither this Agreement nor any of the documents ---------- furnished to the Purchaser by the Company in connection with the transactions contemplated hereby contains or will contain any untrue statement of material fact, or omits or will omit to state any material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they are made, not misleading. SECTION 4 Representations and Warranties of the Purchaser ----------------------------------------------- Purchaser hereby represents and warrants to the Company with respect to the purchase of the Shares as follows: 4.1 Experience. By reason of its business or financial experience, ---------- or that of its professional advisor, Purchaser has the capacity to protect its own interests in 6 connection with the purchase of the Shares and Warrants hereunder and has the ability to bear the economic risk (including the risk of total loss) of his investment. 4.2 Investment. Purchaser is acquiring the Shares and Warrants and ---------- the Common Stock underlying the Shares and Warrant Shares for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. Purchaser understands that the Shares and Warrants to be purchased (and the Common Stock issuable upon conversion of the Shares and Warrant Shares) have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Purchaser's representations as expressed herein. 4.3 Rule 144. Purchaser acknowledges that the Shares and Warrants -------- (and the Common Stock issuable upon conversion of the Shares and Warrant Shares) must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than two years after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" and the number of shares being sold during any three-month period not exceeding specified limitations. 4.4 No Public Market. Purchaser understands that no public market ---------------- now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company's securities. 4.5 Access to Data. Purchaser has had an opportunity to discuss the -------------- Company's business, management and financial affairs with its management and the opportunity to review the Company's facilities. Purchaser has also had an opportunity to ask questions of officers of the Company, which questions were answered to his satisfaction. Purchaser understands that such discussions, as well as any written information issued by the Company, were intended to describe certain aspects of the Company's business and prospects but were not a thorough or exhaustive description. 4.6 Authorization. This Agreement when executed and delivered by ------------- Purchaser will constitute a valid and legally binding obligation of the Purchaser, enforceable in accordance with its terms, except as subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies and limitations of public policy. 7 4.7 Brokers or Finders. The Company has not, and will not, incur, ------------------ directly or indirectly, as a result of any action taken by Purchaser, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement. 4.8 Investor Counsel. Purchaser acknowledges that it has had the ---------------- opportunity to review this Agreement, the exhibits and the schedules attached hereto and the transactions contemplated by this Agreement with its own legal counsel. Purchaser is relying solely on such counsel and not on any statements or representations of the Company or any of its agents for legal advice with respect to this investment or the transactions contemplated by this Agreement. 4.9 Tax Liability. Purchaser has reviewed with its own tax advisors ------------- the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. Purchaser relies solely on such advisors and not on any statements or representations of the Company or any of its agents. Purchaser understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. SECTION 5 Conditions to Closing of Purchaser ---------------------------------- The Purchaser's obligations to purchase the Shares and Warrants at the Closing are, at the option of the Purchaser, subject to the fulfillment of the following conditions: 5.1 Representations and Warranties Correct. The representations and -------------------------------------- warranties made by the Company in Section 3 hereof shall be true and correct in all material respects as of the Closing Date. 5.2 Covenants. All covenants, agreements and conditions contained in --------- this Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects. 5.3 Compliance Certificate. The Company shall have delivered to the ---------------------- Purchaser a certificate of the Company reasonably satisfactory to Purchaser, executed by the President of the Company, dated the Closing Date, and certifying, among other things, to the fulfillment of the conditions specified in Sections 5.1 and 5.2 of this Agreement. 5.4 Blue Sky. The Company shall have obtained all necessary Blue Sky -------- law permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Shares and Warrants and the Common Stock issuable upon conversion of the Shares and Warrant Shares. 8 5.5 Amended and Restated Articles of Incorporation. The Articles ---------------------------------------------- shall have been filed with the California Secretary of State. 5.6 Legal Matters. All material matters of a legal nature which ------------- pertain to this Agreement and the transactions contemplated hereby, shall have been reasonably approved by counsel to the Purchaser. 5.7 Registration Rights Agreement. The Company and the Purchaser ----------------------------- shall have entered into the Registration Rights Agreement attached hereto as Exhibit E (the "Registration Rights Agreement"). SECTION 6 Conditions to Closing of Company -------------------------------- The Company's obligation to sell and issue the Shares and Warrants at the Closing Date is, at the option of the Company, subject to the fulfillment as of the Closing Date of the following conditions: 6.1 Representations. The representations made by the Purchaser in --------------- Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date. 6.2 Blue Sky. The Company shall have obtained all necessary Blue Sky -------- law permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Shares and Warrants and the Common Stock issuable upon conversion of the Shares and Warrant Shares. 6.3 Amended and Restated Articles of Incorporation. The Articles ---------------------------------------------- shall have been filed with the California Secretary of State. 6.4 Legal Matters. All material matters of a legal nature which ------------- pertain to this Agreement, and the transactions contemplated hereby, shall have been reasonably approved by counsel to the Company. 6.5 Payment of Purchase Price. Purchaser (i) shall have delivered to ------------------------- the Company the purchase price for Purchaser's Shares and Warrants, or (ii) shall have canceled indebtedness owed by the Company to Purchaser, in either case in the amount set forth above. 6.6 Registration Rights Agreement. The Company and the Purchaser ----------------------------- shall have entered into the Registration Rights Agreement. SECTION 7 Covenants of the Company and the Purchaser ------------------------------------------ The Company hereby covenants and agrees as follows: 9 7.1 Financial Information. As soon as practicable after the end of --------------------- each fiscal year, and in any event within 90 days thereafter, the Company will deliver to Purchaser consolidated balance sheets of the Company and its subsidiaries, if any, as of the end of such fiscal year, consolidated statements of income and consolidated statements of changes in financial position of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles and setting forth in each case in comparative form the figures for the previous fiscal year (or, at the election of the Company, setting forth in comparative form the budgeted figures for the fiscal year then reported), all in reasonable detail and audited by independent public accountants of national standing selected by the Company. 7.2 Additional Information. As long as Purchaser holds shares of ---------------------- Series C Preferred and/or Common Stock issued upon conversion of the Series C Preferred, as adjusted for recapitalizations, stock splits, stock dividends and the like, the Company will deliver or provide to Purchaser (i) as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company and in any event within 45 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period, and consolidated statements of income and consolidated statements of changes in financial condition of the Company and its subsidiaries for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles (other than for accompanying notes), subject to changes resulting from year-end audit adjustments, all in reasonable detail and signed by the principal financial or accounting officer of the Company, (ii) an annual budget for the Company as soon as it is available, (iii) copies of all publicly filed documents as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, and (iv) the opportunity for a representative of Purchaser who is approved by the Company to attend Board of Directors meetings including the receipt of advance notice thereof; provided, however, that the Company shall not be obligated to provide any information that it considers in good faith to be a trade secret or to contain confidential or classified information; and provided further, the Company may, at the discretion of the Board of Directors, exclude any non-Board member from executive sessions of its Board of Directors. The rights provided for in this subsection 7.2(iv) are terminable by either party in the event such party makes a determination that the strategic rationale for the relationship no longer exists. 7.3 Confidentiality. Purchaser agrees that any information obtained --------------- by Purchaser pursuant to this Section 7 which may be proprietary to the Company or otherwise confidential will not be disclosed without the prior written consent of the Company. If Purchaser requests in writing, the Company will identify in writing all information obtained by Purchaser under this Section 7 which the Company considers confidential and which Purchaser may not disclose without the Company's prior written consent. Purchaser further acknowledges and understands that any information so obtained which may be considered "inside" non-public information will not be utilized by 10 Purchaser in connection with purchases and/or sales of the Company's securities except in compliance with applicable state and federal anti-fraud statutes. The provisions of this Section 7.3 shall not be in limitation of any rights which Purchaser may have with respect to the books and records of the Company, or to inspect its properties or discuss its affairs, finances and accounts, under the laws of the jurisdictions in which it is incorporated. Purchaser and the Company further agrees that the terms and conditions of Purchaser's equity investment in the Company shall be deemed confidential information and shall not be disclosed to any third party; provided, however, that if any party determines, in its sole discretion, that it is required do so under applicable law, including, without limitation, any disclosure with respect to any governmental filing, including filings with the Securities and Exchange Commission, then such disclosure or filing may be made; provided, further, that the disclosing party shall consult with the other party regarding such disclosure or filing and seek confidential treatment for such portions of the disclosure or filing as may be reasonably requested by the other party. This paragraph shall not apply to disclosures made by either party to its (1) existing and potential customers that enter into a non-disclosure agreement regarding the subject of this agreement and (2) potential investors. 7.4 Availability of Common Stock for Conversion. The Company will ------------------------------------------- from time to time, in accordance with the laws of the State of California, increase the authorized amount of Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall be insufficient to permit conversion of all the then outstanding shares of the Shares and Warrant Shares. 7.5 Confidential Information and Invention Assignment Agreement. The ----------------------------------------------------------- Company and each person now or hereafter employed in any technical capacity by it or any subsidiary with access to confidential information will enter into a Confidential Information and Invention Assignment Agreement in substantially the form of Exhibit D hereto, and the Company shall use its best efforts to cause any consultant retained by it that has access to confidential information to enter into a form of Consulting Agreement with substantially similar confidentiality and non-solicitation provisions. 7.6 Use of Proceeds. The Company agrees to direct approximately --------------- fifty percent (50%) of the net proceeds of the investment by Purchaser (the "Dedicated Funds") to fund development of an Intel technology-based Internet Call Center Application. This project will be undertaken on a best efforts basis (but in no event shall best efforts be deemed to require expenditures in excess of the Dedicated Funds) by the Company; provided that the Company may cancel this project and direct residual funds to other projects in the event unforeseen technical obstacles or business challenges arise. 11 7.7 Termination of Covenants. The covenants of the Company set forth ------------------------ in this Section 7 shall terminate in all respects on the date of the closing of an initial firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act, covering the offer and sale of the Company's Common Stock. SECTION 8 Miscellaneous ------------- 8.1 Governing Law. This Agreement shall be governed in all respects ------------- by the internal laws of the State of California. The parties expressly stipulate that any litigation under this Agreement shall be brought in the state courts of the Counties of Santa Clara, California and in the United States District Court for the Northern District of California. The parties agree to submit to the jurisdiction and venue of those courts. 8.2 Survival. The representations, warranties, covenants and -------- agreements made herein shall survive any investigation made by Purchaser and the closing of the transactions contemplated hereby. 8.3 Successors and Assigns. Except as otherwise provided herein, the ---------------------- provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto, provided, however, that the rights of Purchaser to purchase the Shares and Warrants shall not be assignable without the consent of the Company. 8.4 Entire Agreement; Amendment. This Agreement and the other --------------------------- documents delivered pursuant hereto at the Closing constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought; provided, however, that holders of at least sixty (60) percent of the Shares (or the Common Stock issued or issuable upon conversion of the Shares) may, with the Company's prior written consent, waive, modify or amend on behalf of all holders, any provisions hereof. 8.5 Notices, etc. All notices and other communications required or ------------ permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one business day after the business day of facsimile transmission, if 12 delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to the Purchaser, at the Purchaser's address as set forth on the signature page and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or at such other address as a party may designate by ten days' advance written notice to the other party pursuant to the provisions above. 8.6 Delays or Omissions. Except as expressly provided herein, no ------------------- delay or omission to exercise any right, power or remedy accruing to any holder of any Shares, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 8.7 California Corporate Securities Law. THE SALE OF THE SECURITIES ----------------------------------- WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 8.8 Expenses. The Company and Purchaser shall bear its own expenses -------- incurred on its behalf with respect to this Agreement and the transactions contemplated hereby. 8.9 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 8.10 Severability. In the event that any provision of this Agreement ------------ becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; 13 provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 8.11 Titles and Subtitles. The titles and subtitles used in this -------------------- Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. [intentionally blank] 14 IN WITNESS WHEREOF, the parties have executed this Series C Preferred Stock and Warrant Purchase Agreement as of the date first above written. "COMPANY" GENESYS TELECOMMUNICATIONS LABORATORIES a California corporation By: /s/ Gregory Shenkman ------------------------------------- Print: Gregory Shenkman ------------------------------------- Title: President and Chief Executive Officer ------------------------------------- 1155 Market Street, 11th Floor San Francisco, CA 94103 "PURCHASER" INTEL CORPORATION By: /s/ Arvind Sodhani ------------------------------------- Print: Arvind Sodhani ------------------------------------- Title: Treasurer ------------------------------------- 2625 Walsh Avenue Santa Clara, CA 95052 15 EXHIBIT A --------- FORM OF ARTICLES OF INCORPORATION 16 EXHIBIT B --------- FORM OF WARRANT 17 EXHIBIT C --------- SCHEDULE OF EXCEPTIONS 18 EXHIBIT D --------- FORM OF CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT 19 EXHIBIT E --------- FORM OF REGISTRATION RIGHTS AGREEMENT 20 EX-4.9 12 WARRANT TO PURCHASE SHARES OF SERIES C EXHIBIT 4.9 WC-2 WARRANT TO PURCHASE SHARES OF SERIES C PREFERRED STOCK THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. GENESYS TELECOMMUNICATIONS LABORATORIES, INC. THIS CERTIFIES THAT, for value received, Intel Corporation (the "Investor") is entitled to purchase, on the terms hereof, 44,965 shares of Series C Preferred Stock of Genesys Telecommunications Laboratories, Inc., a California corporation (the "Company"), with the designations, powers, preferences, rights, qualifications, limitations and restrictions set forth in the Amended and Restated Articles of Incorporation attached as Exhibit A to the Series C Preferred Stock and Warrant Purchase Agreement dated February ___, 1997 (the "Agreement"), at a price per share set forth in Section 1.2 below, subject to adjustment as provided herein. This Warrant is issued pursuant to the provisions of the Agreement and shall be subject to, and the Investor shall be bound by, all the terms, conditions and provisions of the Agreement. Additionally, the following terms shall apply to this Warrant: 1. Exercise of Warrant. ------------------- The terms and conditions upon which this Warrant may be exercised, and the Series C Preferred Stock covered hereby (the "Warrant Stock") may be purchased, are as follows: 1.1 Vesting. This Warrant may only be exercised for that number of ------- shares of Series C Preferred Stock which have vested pursuant to the vesting schedule below, but in no case may this Warrant be exercised later than the close of business on * Confidential Treatment Requested. Confidential portion has been filed separately with the Securities and Exchange Commission. February 26, 2000 (the "Termination Date"), after which time this Warrant shall terminate and shall be void and of no further force or effect.
Number of Shares of Milestone Series C Preferred Stock Vesting Event - ------------------------ ------------- * * * * * * * *
1.2 Purchase Price. The per share purchase price for the shares of -------------- Series C Preferred Stock to be issued upon exercise of this Warrant shall be equal to 110% of the fair market value of such shares on the date that such shares vest pursuant to the vesting schedule set forth in Section 1.1 above, subject to adjustment as provided herein. 1.3 Method of Exercise. ------------------ a. The exercise of the purchase rights evidenced by this Warrant shall be effected by (a) the surrender of the Warrant, together with a duly executed copy of the form of subscription attached hereto, to the Company at its principal offices and (b) the delivery of the purchase price by check or bank draft payable to the Company's order or by wire transfer to the Company's account for the number of shares for which the purchase rights hereunder are being exercised or any other form of consideration approved by the Company's Board of Directors. b. Net Issue Exercise. In lieu of exercising this Warrant, the ------------------ Investor may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election in which event the Company shall issue to the Investor a number of shares of Series C Preferred Stock computed using the following formula: 2. * Confidential Treatment Requested X = Y(A - B) -------- A Where: X = The number of shares to be issued to the Investor. Y = The number of Shares purchasable under this Warrant at the time of such exercise. A = The fair market value of one share of Series C Preferred Stock at the time of such exercise. B = The Warrant Price (as adjusted to the date of such calculation). For purposes of this Paragraph 3(b), fair market value of the Preferred Stock shall be determined by the Company's Board of Directors, acting in good faith upon a review of all factors it deems appropriate. The foregoing shall be subject to any applicable adjustments made pursuant to Section 2 hereof. 1.4 Issuance of Shares. Upon the exercise of the purchase rights ------------------ evidenced by this Warrant, a certificate or certificates for the purchased shares shall be issued to the Investor as soon as practicable. 2. Certain Adjustments. ------------------- 2.1 Conversion of Series C Preferred Stock. Should all of the -------------------------------------- Company's outstanding Series C Preferred Stock be, at any time prior to the expiration of this Warrant, converted into shares of the Company's Common Stock in accordance with the Company's Articles of Incorporation, as amended and/or restated and effective immediately prior to the conversion of all of the Company's Series C Preferred Stock (the "Articles"), then this Warrant shall immediately become exercisable for that number of shares of the Company's Common Stock equal to the number of shares of Common Stock which would have been received if this Warrant had been exercised in full and the Series C Preferred Stock received thereupon had been simultaneously converted into Common Stock immediately prior to such event. The per share purchase price shall be immediately adjusted to equal the quotient obtained by dividing (x) the aggregate purchase price of the number of shares of Series C Preferred Stock for which this Warrant was exercisable immediately prior to such conversion by (y) the number of shares of Common Stock for which this Warrant is exercisable immediately after such conversion. 2.2 Common Stock Dividends. If at any time following the conversion ---------------------- of all the outstanding Series C Preferred Stock and prior to the expiration of this Warrant, there shall be an event with respect to the Common Stock of a type referred to 3. in Section 2.4 or 2.5, then the provisions of such Sections with respect to Series C Preferred Stock shall apply mutatis mutandis to the Common Stock ------- -------- issuable upon the exercise of this Warrant and the Purchase Price thereof. 2.3 Mergers, Consolidations or Sale of Assets. If at any time there ----------------------------------------- shall be a capital reorganization (other than a combination or subdivision of Warrant Stock otherwise provided for herein), or a merger or consolidation of the Company with or into another corporation, or the sale of the Company's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation or sale, lawful provision shall be made so that the Investor shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified in this Warrant and upon payment of the purchase price, the number of shares of stock or other securities or property of the Company or the successor corporation resulting from such reorganization, merger, consolidation or sale, to which a holder of the Series C Preferred Stock (or Common Stock issuable upon conversion thereof) deliverable upon exercise of this Warrant would have been entitled under the provisions of the agreement in such reorganization, merger, consolidation or sale if this Warrant had been exercised immediately before that reorganization, merger, consolidation or sale. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Investor after the reorganization, merger, consolidation or sale to the end that the provisions of this Warrant (including adjustment of the purchase price then in effect and the number of shares of Warrant Stock) shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant. 2.4 Splits and Subdivisions. In the event the Company should at any ----------------------- time or from time to time fix a record date for the effectuation of a split or subdivision of the outstanding shares of Series C Preferred Stock or the determination of the holders of Series C Preferred Stock entitled to receive a dividend or other distribution payable in additional shares of Series C Preferred Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Series C Preferred Stock (hereinafter referred to as the "Series C Equivalents") without payment of any consideration by such holder for the additional shares of Series C Preferred Stock or Series C Equivalents (including the additional shares of Series C Preferred Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such distribution, split or subdivision if no record date is fixed), the purchase price shall be appropriately decreased and the number of shares of Warrant Stock shall be appropriately increased in proportion to such increase of outstanding shares. 2.5 Combination of Shares. If the number of shares of Series C --------------------- Preferred Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Series C Preferred Stock, the purchase price 4. shall be appropriately increased and the number of shares of Warrant Stock shall be appropriately decreased in proportion to such decrease in outstanding shares. 2.6 Adjustments for Other Distributions. In the event the Company ----------------------------------- shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Company or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 2.4, then, in each such case for the purpose of this subsection 2.6, upon exercise of this Warrant the holder hereof shall be entitled to a proportionate share of any such distribution as though such holder was the holder of the number of shares of Series C Preferred Stock of the Company into which this Warrant may be exercised as of the record date fixed for the determination of the holders of Series C Preferred Stock of the Company entitled to receive such distribution. 2.7 Certificate as to Adjustments. In the case of each adjustment or ----------------------------- readjustment of the purchase price pursuant to this Section 2, the Company will promptly compute such adjustment or readjustment in accordance with the terms hereof and cause a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based to be delivered to the holder of this Warrant. The Company will, upon the written request at any time of the holder of this Warrant, furnish or cause to be furnished to such holder a certificate setting forth: (a) Such adjustments and readjustments; (b) The purchase price at the time in effect; and (c) The number of shares of Warrant Stock and the amount, if any, of other property at the time receivable upon the exercise of the Warrant. 2.8 Notices of Record Date, etc. In the event of: --------------------------- (a) Any taking by the Company of a record of the holders of any class of securities of the Company for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend payable out of earned surplus at the same rate as that of the last such cash dividend theretofore paid) or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right; or (b) Any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all of the assets of the Company to any other person or any consolidation or merger involving the Company; or 5. (c) Any voluntary or involuntary dissolution, liquidation or winding- up of the Company, the Company will mail to the holder of this Warrant at least twenty (20) days prior to the earliest date specified therein, a notice specifying: (i) The date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right; and (ii) The date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding-up is expected to become effective and the record date for determining stockholders entitled to vote thereon. 3. Fractional Shares. No fractional shares shall be issued in ----------------- connection with any exercise of this Warrant. In lieu of the issuance of such fractional share, the Company shall make a cash payment equal to the then fair market value of such fractional share as determined in good faith by the Company's Board of Directors. 4. Reservation of Series C Preferred Stock and Common Stock. The -------------------------------------------------------- Company shall at all times reserve and keep available out of its authorized but unissued shares of Preferred Stock and Common Stock, solely for the purpose of effecting the exercise of this Warrant such number of its shares of Series C Preferred Stock (and Common Stock upon conversion of the Series C Preferred Stock) as shall from time to time be sufficient to effect the exercise of this Warrant; and if at any time the number of authorized but unissued shares of Series C Preferred Stock or Common Stock shall not be sufficient to effect the exercise of the entire Warrant and the conversion of the Series C Preferred Stock thereafter, in addition to such other remedies as shall be available to the holder of this Warrant, the Company will use its reasonable best efforts to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Series C Preferred Stock or Common Stock to such number of shares as shall be sufficient for such purposes. 5. Privilege of Stock Ownership. Prior to the exercise of this ---------------------------- Warrant, the Investor shall not be entitled, by virtue of holding this Warrant, to any rights of a stockholder of the Company. Nothing in this Section 5, however, shall limit the right of the Investor to participate in distributions described in Section 2 hereof if the Investor later exercises this Warrant. 6. Limitation of Liability. Except as otherwise provided herein, in ----------------------- the absence of affirmative action by the holder hereof to purchase the Warrant Stock, no mere enumeration herein of the rights or privileges of the holder hereof shall give rise to any liability of such holder for the purchase price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 6. 7. Transfers and Exchanges. ----------------------- 7.1 Except to the extent otherwise provided in the Agreement and subject to compliance with applicable federal and state securities laws, this Warrant and all rights hereunder are transferable in whole or in part by the Investor to any person or entity reasonably acceptable to the Company, which acceptance shall not be unreasonably withheld. The Investor will provide written notice of such transfer to the Company, and if no written objection is received by the Investor within ten (10) days after the date of notice, then such transfer shall be deemed accepted by the Company. The transfer shall be recorded on the books of the Company upon the surrender of this Warrant, properly endorsed, to the Company at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. In the event of a partial transfer, the Company shall issue to the several holders one or more appropriate new warrants. 7.2 In the event of a partial exercise of this Warrant, the Company shall issue an appropriate new warrant to the Investor. 7.3 All new warrants issued in connection with transfers, exchanges or partial exercises shall be identical in form and provision to this Warrant except as to the number of shares. 8. Successors and Assigns. The terms and provisions of this Warrant ---------------------- shall be binding upon the Company and the Investor and their respective successors and assigns, subject at all times to the restrictions set forth in the Agreement. 9. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt ------------------------------------------------- by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to the Company, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new warrant of like tenor and dated as of such cancellation, in lieu of this Warrant. 10. Amendment. This Warrant together with other warrants of like --------- form and terms (collectively, the "Warrants") issued in connection with the Agreement may be amended with the consent of the Company by the written consent of holders of Warrants exercisable for a majority of the securities issuable upon exercise of the then outstanding Warrants. 7. 11. Saturdays, Sundays, Holidays, etc. If the last or appointed day ---------------------------------- for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or Sunday or shall be a legal holiday, then such action may be taken or such right may be exercised, except as to the purchase price, on the next succeeding day not a legal holiday. Dated: February 26, 1997 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. By: /s/ Gregory Shenkman ----------------------------------------- Name: Gregory Shenkman ----------------------------------------- Title: President and Chief Executive Officer ----------------------------------------- [SIGNATURE PAGE TO WARRANT] SUBSCRIPTION Genesys Telecommunications Laboratories, Inc. 1155 Market Street, 11th Floor San Francisco, CA 94103 Ladies and Gentlemen: The undersigned, Intel Corporation, hereby elects to purchase, pursuant to the provisions of the Warrant dated February ___, 1997, held by the undersigned, ____________ shares of the Series C Preferred Stock of Genesys Telecommunications Laboratories, Inc., a California corporation. The undersigned hereby represents and warrants that the undersigned is acquiring such stock for its own account and not for resale or with a view to distribute of any part thereof or of any of the Common Stock issuable upon conversion thereof, and accepts such shares subject to the restrictions of the Series C Preferred Stock and Warrant Purchase Agreement dated February ___, 1997. Dated: _____________ Intel Corporation By: ----------------------------------------- Print: ----------------------------------------- Title: ----------------------------------------- Address: ----------------------------------------- ----------------------------------------- 9. EX-4.10 13 STOCK EXCHANGE AGREEMENT WITH BRUNCOR EXHIBIT 4.10 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. STOCK EXCHANGE AGREEMENT FEBRUARY 26, 1997 TABLE OF CONTENTS
Page 1. Purchase and Sale of Stock.................................. 1 1.1 Sale and Exchange of Common Stock..................... 1 1.2 Closing............................................... 1 2. Representations and Warranties of the Company............... 1 2.1 Organization, Good Standing and Qualification......... 1 2.2 Capitalization and Voting Rights...................... 1 2.3 Authorization......................................... 2 2.4 Valid Issuance of Common Stock........................ 2 2.5 Stock Options......................................... 2 2.6 Permits............................................... 3 2.7 Compliance with Other Instruments..................... 3 2.8 Financial Statements.................................. 3 2.9 Tax Returns, Payments and Elections................... 3 2.10 Patents and Trademarks............................... 4 2.11 Material Contracts and Other Commitments............. 4 2.12 MCI Communications Corporation....................... 4 3. Representations and Warranties of the Investor.............. 4 3.1 Authorization......................................... 4 3.2 Purchase Entirely for Own Account..................... 4 3.3 Disclosure of Information............................. 5 3.4 Investment Experience................................. 5 3.5 Accredited Investor................................... 5 3.6 Legends............................................... 5 3.7 Title to Stock........................................ 5 3.8 Foreign Investor...................................... 6 3.9 Resales Subject to U.S. Securities Law................ 6 3.10 Offshore Execution................................... 6 4. Additional Agreements....................................... 6 4.1 Investor's Call Option................................ 6 4.2 Investor's Put Option................................. 7 4.3 Unanimous Shareholders Agreement...................... 7 4.4 Revival of Agreements................................. 8 4.5 Participation Right................................... 8 4.6 Further Limitations on Disposition.................... 9 5. California Commissioner of Corporations...................... 9 5.1 Corporate Securities Law............................... 9
i. 6. Conditions of Investor's Obligations at Closing............ 9 6.1 Representations and Warranties....................... 10 6.2 Performance.......................................... 10 6.3 Qualifications....................................... 10 6.4 Joint Venture Agreement.............................. 10 6.5 Co-Sale Agreement.................................... 10 6.6 Agreement with MCI Communications Corporation........ 10 7. Conditions of the Company's Obligations at Closing......... 10 7.1 Representations and Warranties....................... 10 7.2 Payment of Purchase Price............................ 10 7.3 Qualifications....................................... 10 7.4 Joint Venture Agreement.............................. 11 8. Miscellaneous.............................................. 11 8.1 Termination of Warranties............................ 11 8.2 Successors and Assigns............................... 11 8.3 Governing Law........................................ 11 8.4 Counterparts......................................... 11 8.5 Titles and Subtitles................................. 11 8.6 Notices.............................................. 11 8.7 Expenses............................................. 11 8.8 Amendments and Waivers............................... 12 8.9 Severability......................................... 12 8.10 Entire Agreement..................................... 12 EXHIBIT A - Unanimous Shareholders Agreement EXHIBIT B - Joint Venture Agreement EXHIBIT C - Co-Sale Agreement
ii. STOCK EXCHANGE AGREEMENT ------------------------ THIS STOCK EXCHANGE AGREEMENT is made as of the 26 day of February 1997, by and among Genesys Telecommunications Laboratories, Inc., a California corporation (the "Company"), and Bruncor Inc., a New Brunswick business corporation (the "Investor"). THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Stock. -------------------------- 1.1 Sale and Exchange of Common Stock. Subject to the terms and -------------------------------- conditions of this Agreement, the Company agrees to sell to Investor and Investor agrees to purchase 675,000 shares of Common Stock of the Company (as adjusted for stock splits, stock dividends, recapitalizations or similar events) (the "Company Shares") in exchange for all outstanding common shares of Genesys Laboratories Canada Inc. ("GenCan") presently owned by Investor, which consists of 49 common shares (the "Exchanged Shares"). 1.2 Closing. The purchase and sale of the Common Stock shall take ------- place simultaneously at the offices of Brobeck, Phleger & Harrison, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California, and the offices of Clark, Drummie & Company, 40 Wellington Row, Saint John, New Brunswick, Canada, at 10:00 a.m. California time (2:00 p.m. New Brunswick time) on February ___, 1997 or at such other time and place as the Company and the Investor mutually agree upon orally or in writing (which time and places are designated as the "Closing"). At the Closing the Company shall deliver to the Investor a certificate representing the Company Shares against payment of the purchase price by a certificate representing the Exchanged Shares. 2. Representations and Warranties of the Company. Except as set --------------------------------------------- forth on the Schedule of Exceptions attached hereto, the Company hereby represents and warrants to the Investor that: 2.1 Organization, Good Standing and Qualification. The Company is a --------------------------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of California and has all requisite corporate power and authority to carry on its business as now conducted. 2.2 Capitalization and Voting Rights. The authorized capital of the -------------------------------- Company consists, or will consist immediately prior to the Closing, of: 1. (i) Preferred Stock. 4,146,870 shares of Preferred Stock, of which --------------- (A) 900,000 shares have been designated Series A Preferred Stock (the "Series A Preferred Stock"), of which 900,000 shares are outstanding, (B) 1,897,878 shares have been designated Series B Preferred Stock (the "Series B Preferred Stock"), of which 1,897,878 shares are outstanding, and (C) 1,348,992 shares have been designated Series C Preferred Stock (the "Series C Preferred Stock"), all of which shares are expected to be either issued or subject to warrants outstanding on or about the date hereof. (ii) Common Stock. 120,000,000 shares of Common Stock (the ------------ "Common Stock"), of which 12,069,086 are outstanding. (iii) Options and Warrants. (A) 5,171,940 shares of Common Stock -------------------- subject to options granted under the Company's 1995 Stock Option Plan (with a total of 834,272 shares available for future grants), (B) 420,282 shares of Common Stock subject to outstanding warrants, and (C) warrants to purchase Series C Preferred Stock as described in Section 2.2(i) above. 2.3 Authorization. All corporate action on the part of the Company, ------------- its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder, and the authorization, issuance, sale and delivery of the Common Stock being sold hereunder has been taken or will be taken prior to the Closing, and this Agreement constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. 2.4 Valid Issuance of Common Stock. The Common Stock that is being ------------------------------ purchased by the Investor hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and under applicable state and federal securities laws. 2.5 Stock Options. Except as set forth in the Schedule of ------------- Exceptions, options outstanding under the Company's 1995 Stock Option Plan are subject to the following vesting schedule: four-year vesting, with 25% vesting after one year of completion of service and the remaining 75% in 36 equal monthly installments thereafter. The number of stock options to be granted over the next twelve months is not currently expected to represent greater than 15% of the total capitalization of the Company. 2. 2.6 Permits. The Company has all franchises, permits, licenses, and ------- any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects, or financial condition of the Company. 2.7 Compliance with Other Instruments. The Company is not in --------------------------------- violation or default in any material respect of any provision of its Articles of Incorporation or Bylaws, or in any material respect of any material instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or, to the best of its knowledge, of any provision of any federal or state statute, rule or regulation applicable to the Company. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event that results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company, its business or operations or any of its assets or properties. 2.8 Financial Statements. The Company has delivered to the Investor -------------------- its audited financial statements (balance sheets and profit and loss statements) for the fiscal years ending June 30, 1994 and 1995 as well as the unaudited financial statements for the fiscal year ending June 30, 1996 and the 6-month period ending December 31, 1996 (the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated and with each other, except that the Financial Statements may not contain all footnotes required by generally accepted accounting principles. Except as set forth in the Financial Statements, the Company has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to December 31, 1996 and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, in both cases, individually or in the aggregate, are not material to the financial condition or operating results of the Company. 2.9 Tax Returns, Payments and Elections. The Company has filed all ----------------------------------- tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due, except those contested by it in good faith that are listed in the Schedule of Exceptions. Since the date of the Financial Statements, the Company has made adequate provisions on its books of account for all taxes, assessments and governmental charges with respect to its business, properties and operations for such period. The Company has withheld or collected from each payment made to each of its employees, 3. the amount of all taxes (including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositaries. 2.10 Patents and Trademarks. To the best of its knowledge (but ---------------------- without having conducted any special investigation or patent search), the Company has sufficient title and ownership of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted without any conflict with or infringement of the rights of others. The Company has not received any communications alleging, nor does the Company have any reason to believe that the Company has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity. 2.11 Material Contracts and Other Commitments. The Company does not ---------------------------------------- have any contract, agreement, lease, or other commitment, written or oral, absolute or contingent, other than (i) contracts entered into in the ordinary course of business, including without limitations, sales contracts and license agreements; and (ii) contracts terminable at will by the Company on no more than sixty (60) days notice without cost or liability to the Company. 2.12 MCI Communications Corporation. The Company is currently ------------------------------- negotiating the sale of not less than 674,475 shares of Series C Preferred Stock of the Company at a per share price of $11.12 to MCI Communications Corporation ("MCI"). Based upon current negotiations, upon issuance of such stock and absent the occurrence of any events that would result in an adjustment in the conversion price of such stock (as determined by the Company's Articles of Incorporation), each share of such series of Preferred Stock is expected to be convertible into one share of Common Stock of the Company. 2.13 Litigation; Claims. There are no (a) claims, actions, suits, ------------------- proceedings or investigations pending or (to the knowledge of the Company) threatened by or against the Company in relation to the Company or its business, or (b) judgments, decrees, arbitration awards, agreements or orders binding upon the Company in relation to the Company or its business. No material claims, including without limitation, product liability claims, have been asserted against the Company in relation to the Company or its business during the past ten (10) years, and, to the knowledge of the Company, there is no reasonable basis for any material action, proceeding or investigation involving the Company in relation to the Company or its business. 3. Representations and Warranties of the Investor. Except as set ---------------------------------------------- forth on the Schedule of Exceptions attached hereto, Investor hereby represents and warrants that: 4. 3.1 Authorization. Such Investor has full power and authority to ------------- enter into this Agreement, and this Agreement constitutes its valid and legally binding obligation, enforceable in accordance with its terms. 3.2 Purchase Entirely for Own Account. This Agreement is made with --------------------------------- such Investor in reliance upon such Investor's representation to the Company, which by such Investor's execution of this Agreement such Investor hereby confirms, that the Company Shares to be received by such Investor (the "Securities") will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Investor further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Securities. 3.3 Disclosure of Information. Such Investor believes it has ------------------------- received all the information it considers necessary or appropriate for deciding whether to purchase the Company Shares. Such Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Company Shares and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Investor to rely thereon. 3.4 Investment Experience. Such Investor is an investor in --------------------- securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Company Shares. 3.5 Accredited Investor. Such Investor is an "accredited investor" ------------------- within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D, as presently in effect. 3.6 Legends. It is understood that the certificates evidencing the ------- Securities will bear a legend substantially similar to the legend as set forth in the Registration Rights Agreement, dated as of even date herewith, by and among the Company and certain other parties named therein (the "Rights Agreement"). 3.7 Title to Stock. The Investor has good title to the Exchanged -------------- Shares to be transferred by such Investor to the Company under this Agreement, free and clear of any lien, pledge, security interest or other encumbrance (other than restrictions on transfer arising under applicable securities laws) and, upon delivery of the Company 5. Shares at the Closing as provided for in this Agreement, and assuming the Company receives the Exchanged Shares in good faith and without notice of any adverse claim, the Company will receive good title thereto, free and clear of any lien, pledge, security interest or encumbrance (other than restrictions on transfer arising under applicable securities laws.) 3.8 Foreign Investor. The Investor certifies that it is not a U.S. ---------------- person and that it is not acquiring the Securities for the account or benefit of any U.S. person, as those terms are defined in Regulation S under the Act. 3.9 Resales Subject to U.S. Securities Law. The Investor -------------------------------------- acknowledges that the Securities have not been registered under the Act, and agrees to resell the Securities only in accordance with the provisions of Regulation S under the Act, pursuant to registration under the Act, or pursuant to an available exemption from such registration. 3.10 Offshore Execution. The document effecting this purchase and ------------------ transfer will be executed by the Investor outside the United States. 4. Additional Agreements. --------------------- 4.1 Investor's Call Option. ---------------------- (a) Subject to the provisions set forth below and compliance with applicable federal and state securities laws of the United States and other applicable laws, Investor shall have the right, at its election, for a period of six months commencing January 1, 1999, to exchange all, but not less than all, of the Company Shares received by Investor as specified in Section 1.1 above into common shares in the capital of GenCan carrying 49% of the Actual Voting Power of GenCan. "Actual Voting Power" shall mean the total number of votes that may be cast in the election of directors of GenCan at any meeting of stockholders of GenCan if all shares of Common Stock and other securities of GenCan entitled to vote generally in the election of Directors were present and voted at such meeting. This right will terminate at the IPO Filing or upon the execution of an agreement for the acquisition of the Company (which shall include a merger or a purchase of substantially all of the assets of the Company). "IPO Filing" shall mean the initial filing of a Registration Statement under the Securities Act of 1933, as amended, with the Securities and Exchange Commission for the sale of equity securities of the Company. (b) The option set forth in Section 4.1(a) (the "Call Option") shall be exercisable by delivering written notice to the Company (the "Call Notice") together with a certificate or certificates representing the Company Shares received by Investor pursuant to Section 1.1 above (the "Certificate") to the Company. 6. (c) Within 30 days of receipt of the Call Notice and the Certificate, the Company will deliver to Investor a certificate representing common shares in the capital of GenCan carrying 49% of the Actual Voting Power of GenCan. 4.2 Investor's Put Option. --------------------- (a) Subject to the provisions set forth below and compliance with applicable federal and state securities laws of the United States and other applicable laws, in the event the Company: (i) consummates the sale of substantially all of the assets of the Company to a party other than Bruncor (the "Sale of Assets") and (ii) the Board of Directors of the Company does not within 180 days either: (A) adopt a plan to liquidate the Company within a reasonable time period; or (B) adopt a plan to invest the proceeds from the Sale of Assets in a business activity that contemplates engaging in the business opportunities set forth in Sections 1.1 and 1.2 of that certain Joint Venture Agreement to be entered into by the parties on or prior to the Closing Date, then the Investor shall have the right, at its election, during the period of 30 days thereafter to require the Company to purchase all, but not less than all, of the Company Shares received by Investor as specified in Section 1.1 above for such amount as the holder of such shares of Common Stock would have been entitled to receive under the Company's Articles of Incorporation if Board of Directors of the Company had elected to liquidate the Company. This right will terminate at the IPO Filing or upon the execution of an agreement for the acquisition of the Company (which shall include a merger or a purchase of substantially all of the assets of the Company in which the foregoing right does not apply or has expired). (b) The option set forth in Section 4.2(a) (the "Put Option") shall be exercisable by delivering written notice to the Company (the "Put Notice") together with the Certificate endorsed to the Company. (c) After receipt of the Put Notice, the Company will promptly deliver to Investor the payment set forth above; provided that to the extent the Sale of Assets proceeds is subject to payment in installments or other manner, then the timing of the payment provided for hereunder shall be adjusted in a manner consistent with the timing of the receipt of the Sale of Assets proceeds. 7. 4.3 Unanimous Shareholders Agreement. Effective upon the Closing the -------------------------------- Unanimous Shareholders Agreement attached hereto as Exhibit A shall terminate in its entirety. 4.4 Revival of Agreements. In the event that Investor notifies the --------------------- Company of its intention to exercise its rights in Section 4.1(a) above to reacquire an interest in GenCan, the parties agree that they will in good faith negotiate and enter into a new Unanimous Shareholders Agreement and Joint Venture Agreement with the understanding that the parties will be placed in substantially the same position as they were prior to the Closing Date; however, the parties shall consider the transactions effected herein and other new transactions that may be entered into by the parties. 4.5 Participation Right. Subject to the terms and conditions ------------------- specified in this paragraph 4.5, the Company hereby grants to Investor a participation right with respect to future sales by the Company of its Shares (as hereinafter defined). Each time the Company proposes to issue any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock ("Shares"), the Company shall first make an offering of such Shares to Investor in accordance with the following provisions: (a) the Company shall deliver a notice by certified mail ("Notice") to Investor stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares. (b) By written notification received by the Company within 10 calendar days after giving of the Notice, Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, that portion of the Shares which equals Investor's percentage ownership of the Company's capital stock on a fully-diluted basis. If Investor fails to exercise its rights to purchase its pro-rata portion of the Shares, the Company may enter into an agreement for the sale thereof on terms substantially the same as those described in the Notice. If the Company does not enter into an agreement for the sale of the Shares within 60 days from the date of the Notice, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to Investor in accordance herewith. (c) The participation right in this paragraph 4.5 shall not be applicable (i) to the issuance or sale of shares of common stock (or options therefor) to employees for the primary purpose of soliciting or retaining their employment, (ii) to or after consummation of a bona fide, firmly underwritten public offering of shares of common stock of the Company, registered under the Securities Act of 1933, as amended, pursuant to a registration statement on Form S-1, (iii) the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities, (iv) the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise 8. or (v) the issuance of stock, warrants or other securities or rights to persons or entities with which the Company has business relationships provided such issuances are for other than primarily equity financing purposes. (d) The participation right set forth in this Section 4.5 may not be assigned or transferred. (e) The participation right set forth in this Section 4.5 shall terminate upon the filing of a Registration Statement under the Securities Act of 1933 with the Securities and Exchange Commission. (f) The participation right set forth in this Section 4.5 is in lieu of the right of first refusal as set forth in the Rights Agreement. 4.6 Transferability of Securities. Notwithstanding Sections 3 and 4 ----------------------------- of the Rights Agreement, the parties agree that they will use their good faith, commercially reasonable efforts to remove the restrictions on the disposition of the Securities as early as permissible under Rule 144 or Regulation S of the Securities Act. 4.7 Financial Reporting. The Company hereby covenants and agrees ------------------- with Investor that from and after the Closing, so long as any shares of Series C Preferred Stock is outstanding, the Company will deliver to Investor (i) within thirty (30) days after the end of each quarter, quarterly unaudited financial statements; (ii) within one hundred twenty (120) days after the end of each fiscal year, audited financial statements for such period; and (iii) within ninety (90) days after the end of the fiscal year, an annual financial plan for the Company. 5. California Commissioner of Corporations. --------------------------------------- 5.1 Corporate Securities Law. THE SALE OF THE SECURITIES THAT ARE ------------------------ THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 6. Conditions of Investor's Obligations at Closing. The obligations ----------------------------------------------- of the Investor under Section 1.1 of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions: 9. 6.1 Representations and Warranties. The representations and ------------------------------ warranties of the Company contained in Section 2 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing. 6.2 Performance. The Company shall have performed and complied with ----------- all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 6.3 Qualifications. All authorizations, approvals, or permits, if -------------- any, of any governmental authority or regulatory body of the United States, Canada or of any state or province that are required in connection with the lawful issuance and sale of the Securities and the transfer of the Exchanged Shares pursuant to this Agreement shall be duly obtained and effective as of the Closing. 6.4 Joint Venture Agreement. The Company shall have entered into the ----------------------- Joint Venture Agreement with Investor, substantially in the form attached hereto as Exhibit B, on or prior to the Closing. 6.5 Co-Sale Agreement. Greg Shenkman and Alec Miloslavsky shall have ----------------- entered into the Co-Sale Agreement with the Investor, substantially in the form attached hereto as Exhibit C, on or prior to the Closing. 6.6 Agreement with MCI Communications Corporation. The Company shall --------------------------------------------- have closed on or prior to the Closing Date the purchase by MCI Communications Corporation of an aggregate of at least 674,475 shares of Series C Preferred Stock of the Company at a per share price of $11.12 each of which shares is, as of the Closing Date, convertible into common stock on a one-to-one basis. 7. Conditions of the Company's Obligations at Closing. The -------------------------------------------------- obligations of the Company to the Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by such Investor: 7.1 Representations and Warranties. The representations and ------------------------------ warranties of the Investor contained in Section 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 7.2 Payment of Purchase Price. The Investor shall have delivered the ------------------------- consideration specified in Section 1.1. 7.3 Qualifications. All authorizations, approvals, or permits, if -------------- any, of any governmental authority or regulatory body of the United States, Canada or of any state or province that are required in connection with the lawful issuance and sale of the 10. Securities and the transfer of the Exchanged Shares pursuant to this Agreement shall be duly obtained and effective as of the Closing. 7.4 Joint Venture Agreement. The Investor shall have entered into ----------------------- the Joint Venture Agreement with the Company, substantially in the form attached hereto as Exhibit B, on or prior to the Closing. 8. Miscellaneous. ------------- 8.1 Termination of Warranties. Notwithstanding any investigation ------------------------- conducted at any time with regard thereto by or on behalf of any party, all of the warranties and representations of the Company and the Investor contained in Section 2 and 3 shall survive the execution, delivery and performance of this Agreement and shall survive until the second anniversary of the date of this Agreement. 8.2 Successors and Assigns. Except as otherwise provided herein, the ---------------------- terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 8.3 Governing Law. This Agreement shall be governed by and construed ------------- under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 8.4 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.5 Titles and Subtitles. The titles and subtitles used in this -------------------- Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 8.6 Notices. Unless otherwise provided, any notice required or ------- permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 8.7 Expenses. Irrespective of whether the Closing is effected, each -------- party shall pay all costs and expenses that it incurs with respect to the negotiation, execution, 11. delivery and performance of this Agreement. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 8.8 Amendments and Waivers. Any term of this Agreement may be ---------------------- amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investor. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding, each future holder of all such securities, and the Company. 8.9 Severability. If one or more provisions of this Agreement are ------------ held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 8.10 Entire Agreement. This Agreement and the documents referred to ---------------- herein (including the Joint Venture Agreement and all documents referred to therein) constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof, and supersede any and all prior agreements and understandings among the parties. 12. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. GENESYS TELECOMMUNICATIONS LABORATORIES, INC. By: /s/ Gregory Shenkman -------------------------------------- Print: Gregory Shenkman -------------------------------------- Title: President and Chief Executive Officer -------------------------------------- 1155 Market Street, 11th Floor San Francisco, CA 94103 BRUNCOR, INC.: By: /s/ G. L. Pond -------------------------------------- Print: G. L. Pond -------------------------------------- Title: President -------------------------------------- By: /s/ G. R. Parker -------------------------------------- Print: G. R. Parker -------------------------------------- Title: Treasurer -------------------------------------- One Brunswick Square Saint John, New Brunswick Canada E2L 41A [signature page to Stock Exchange Agreement] 13. EX-4.11 14 REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.11 REGISTRATION RIGHTS AGREEMENT ----------------------------- This Registration Rights Agreement (the "AGREEMENT"), dated as of February 26, 1997, is entered into by and among Genesys Telecommunications Laboratories, a California corporation (the "COMPANY"), the holders of Series A Preferred Stock of the Company (the "SERIES A HOLDERS"), the holders of Series B Preferred Stock of the Company (the "SERIES B HOLDERS"), the purchasers of Series C Preferred Stock of the Company (the "SERIES C HOLDERS") pursuant to a Series C Preferred Stock and Warrant Purchase Agreement and a Securities Purchase Agreement (the "SERIES C AGREEMENTS") approved by the Company's Board of Directors, and the purchaser of Common Stock of the Company (the "COMMON HOLDER") pursuant to a Stock Exchange Agreement (the "STOCK EXCHANGE AGREEMENT") approved by the Company's Board of Directors. Such Series A Holders, Series B Holders, Series C Holders and Common Holder (the "Purchasers") are listed on Exhibit A attached hereto. R E C I T A L S --------------- A. All of the Series A Holders and the Company are parties to the Series A Preferred Stock Purchase Agreement dated March 29, 1996 (the "SERIES A AGREEMENT"). B. All of the Series B Holders and the Company are parties to the Series B Preferred Stock Purchase Agreement dated June 13, 1996 (the "SERIES B AGREEMENT"). C. The Company and certain of the Purchasers are parties to the Registration Rights and Modification Agreement dated June 13, 1996 (the "PRIOR AGREEMENT"). D. The Company and certain of the Purchasers are parties to the Series C Agreements. E. The Company and the Common Holder are parties to the Stock Exchange Agreement. F. In order to induce the Company and certain Purchasers to enter into the Series C Agreements and the Stock Exchange Agreement, the Purchasers and the Company desire to terminate the Prior Agreement and to enter into this Agreement which shall govern the rights of the Purchasers to cause the Company to register shares of Common Stock issuable to the Purchasers and certain other matters as set forth herein, and replace and supersede the Prior Agreement. NOW THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, the parties hereto agree as follows: 1. Certain Definitions. As used in this Agreement, the following ------------------- terms shall have the following respective meanings: "COMMISSION" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "COMMON STOCK" shall mean the common stock of the Company. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "HOLDER" shall mean any holder, or an assignee under Section 14 hereof, of outstanding Registrable Securities. "INITIATING HOLDERS" shall mean any Holders who in the aggregate are Holders of fifty percent (50%) or more of the outstanding Registrable Securities (except that for the purposes of this Agreement, Bruncor Inc. shall not be an Initiating Holder). The terms "REGISTER", "REGISTERED" and "REGISTRATION" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and the declaration or ordering of the effectiveness of such registration statement. "PURCHASERS" shall mean the purchasers of Series A Preferred, Series B Preferred, Series C Preferred and Common Stock pursuant to the Series A Agreement, Series B Agreement, Series C Agreements, and Stock Exchange Agreement, respectively. "REGISTRABLE SECURITIES" shall mean shares of Common Stock (i) issued or issuable pursuant to the conversion of the Shares or exercise of warrants to purchase the Series C Shares, and (ii) issued in respect of securities issued pursuant to the conversion of the Shares upon any stock split, stock dividend, recapitalization, substitution, or similar event; provided, however, that Registrable Securities shall not include any (a) shares of Common Stock which have previously been registered, (b) shares of Common Stock which have previously been sold to the public, or (c) securities which would otherwise be Registrable Securities held by a Holder who is then permitted to sell all of such securities within any three (3) month period following the Company's initial public offering pursuant to Rule 144. "REGISTRABLE SERIES C SECURITIES" shall mean shares of Common Stock (i) issued or issuable pursuant to the conversion of Series C Shares or exercise of warrants to purchase the Series C Shares and (ii) issued in respect of securities issued pursuant to the conversion of the Series C Shares upon any stock split, stock dividend, recapitalization, substitution, or similar event; provided, however, that Registrable Series C Securities shall not include any (a) shares of Common Stock which have previously been registered, (b) shares of Common Stock which have previously been sold to the public, or (c) securities which would otherwise be Registrable Securities held by a Holder who is then permitted to sell all of such securities within any three (3) month period following the Company's initial public offering pursuant to Rule 144. 2 "REGISTRATION EXPENSES" shall mean all expenses (excluding underwriting discounts and selling commissions) incurred in connection with a registration under Section 5 and Section 6 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration, and the reasonable fees and expenses of one counsel for the selling Purchasers (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company). "RESTRICTED SECURITIES" shall mean the securities of the Company required to bear or bearing the legend set forth in Section 3 hereof. "RULE 144" shall mean Rule 144 as promulgated under the Securities Act. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "SELLING EXPENSES" shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities. "SERIES C SHARES" shall mean shares of the Company's Series C Preferred Stock and any shares of Series C Preferred Stock upon exercise of warrants therefor outstanding as of the date of this Agreement. "SHARES" shall mean (i) shares of the Company's Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, (ii) any shares of Series C Preferred Stock upon exercise of warrants therefor outstanding as of the date of this Agreement and (iii) any shares of Common Stock held by the Common Holder acquired through the Stock Exchange Agreement. 2. Restrictions on Transferability. The Restricted Securities held ------------------------------- by the Purchasers shall not be transferred except upon the conditions specified in this Agreement, which conditions are intended to insure compliance with the provisions of the Securities Act and to assist in an orderly distribution. Each Purchaser will cause any proposed transferee of Restricted Securities held by that Purchaser to agree to take and hold those securities subject to the provisions and upon the conditions specified in this Agreement. 3. Restrictive Legend. Each certificate representing (i) the Shares, ------------------ and (ii) shares of the Company's Common Stock issued upon conversion of the Shares, and (iii) any other securities issued in respect of the Shares, or the Common Stock issued upon conversion of the Shares, upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted or unless the securities evidenced by such certificate shall have been registered under the Securities Act) be stamped or otherwise imprinted 3 with a legend substantially in the following form (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT") OR ANY STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICE OF THE CORPORATION. Upon request of a holder of such a certificate, the Company shall remove the foregoing legend from the certificate and issue to such holder a new certificate therefor free of any transfer legend, if, with such request, the Company shall have received either the opinion referred to in Section 4(i) or the "no-action" letter referred to in Section 4(ii) to the effect that any transfer by such holder of the securities evidenced by such certificate will not violate the Securities Act and applicable state securities laws, unless any such transfer legend may be removed pursuant to Rule 144(k), in which case no such opinion or "no-action" letter shall be required, and provided that the Company shall not be obligated to remove any such legends prior to the date of the initial public offering of the Company's Common Stock under the Securities Act. 4. Notice of Proposed Transfers. The holder of each certificate ---------------------------- representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 4. Prior to any proposed transfer of any Restricted Securities (other than under circumstances described in Sections 5, 6 and 8 hereof), the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall be accompanied (except in transactions in compliance with Rule 144 promulgated under the Securities Act or for a transfer to a holder's spouse, ancestors, descendants or a trust for any of their benefit, or in transactions involving the distribution without consideration of Restricted Securities by a holder to any of its partners or retired partners or to the estate of any of its partners or retired partners) by either (i) a written opinion of legal counsel to the holder who shall be reasonably satisfactory to the Company, addressed to the Company and reasonably satisfactory in form and substance to the Company's counsel, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act or (ii) a "no-action" letter from the Commission to the effect that the distribution of such securities without registration will not result in a recommendation by the staff of the Commission 4 that action be taken with respect thereto, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by such holder to the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear the restrictive legend set forth in Section 3 above, except that such certificate shall not bear such restrictive legend after the date of the Company's initial public offering under the Securities Act if the opinion of counsel or "no-action" letter referred to above expressly indicates that such legend is not required in order to establish compliance with the Act or if such legend is no longer required pursuant to Rule 144(k). 5. Requested Registration. ---------------------- (a) Request for Registration. If the Company shall receive from: ------------------------ (1) Initiating Holders a written request that the Company effect any registration with respect to the lesser of at least thirty percent (30%) of the Registrable Securities or that number of Registrable Securities which would result in an aggregate offering of at least $10,000,000, or (2) Holders of 50% of the Registrable Series C Securities (who, for the purposes of the remainder of this Agreement, shall also be deemed to be Initiating Holders), the Company will: (i) promptly give written notice of the proposed registration to all other Holders; and (ii) as soon as practicable, use its diligent best efforts to effect such registration (including, without limitation, the execution of an undertaking to file post effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request delivered to the Company within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to -------- effect, or to take any action to effect, any such registration pursuant to this Section 5: (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; or (B) More than three (3) years following the closing of the initial offering to the public of the Company's stock pursuant to a firm commitment 5 registered underwriting for the account of the Company in which the aggregate gross proceeds received by the Company exceed $15,000,000 (the "PUBLIC OFFERING"); provided, however, that with respect to the right set forth in Section 5(a)(2) only, in the event that the Company does not qualify for registration on Form S-3 in accordance with Section 8 of this Agreement and the right to request registration pursuant to Section 5(a)(2) has not been effected, than such right to request registration pursuant to Section 5(a)(2) shall continue to remain outstanding notwithstanding the forgoing three (3) year limitation; and provided further, however, that in no event shall the Company be obligated to effect, or take any action to effect, any such registration pursuant to Section 5(a)(2) more than seven (7) years following the Public Offering, or (C) Prior to six (6) months following the closing of the Public Offering; provided further, that the Company shall not be obligated to effect, or to take - ---------------- any action to effect, any such registration pursuant to: (D) (i) Section 5(a)(1) after the Company has effected two (2) such registrations pursuant to Section 5(a)(1) and such registrations have been declared or ordered effective and the sales of such Registrable Securities have closed; or (ii) Section 5(a)(2) after the Company has effected one (1) such registration pursuant to Section 5(a)(2) and such registrations have been declared or ordered effective and the sales of such Registrable Securities have closed. Subject to the foregoing clauses (A), (B), (C) and (D) the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable, after receipt of the request or requests of the Initiating Holders; provided, however, that if the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed on or before the time filing would be required and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing (but not more than once during any twelve month period) for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders. The registration statement filed pursuant to the request of the Initiating Holders, may, subject to the provisions of Section 5(b) below, include other securities of the Company which are held by officers or directors of the Company or which are held by persons who, by virtue of agreements with the Company, are entitled to include their securities in any such registration, but the Company shall have no right to include any of its securities in any such registration except as provided in Section 5(b) below. (b) Underwriting. If the Initiating Holders intend to distribute the ------------ Registrable Securities covered by their request by means of an underwriting, they shall so advise 6 the Company as a part of their request made pursuant to Section 5(a), and the Company shall include such information in the written notice referred to in Section 5(a) above. The right of any Holder to registration pursuant to Section 5(a) shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder with respect to such participation and inclusion) to the extent provided herein. A Holder may elect to include in such underwriting all or a part of the Registrable Securities he holds. If officers or directors of the Company shall request inclusion of securities of the Company other than Registrable Securities in any registration pursuant to Section 5(a)(1), or if holders of securities of the Company who are entitled by contract with the Company to have securities included in such a registration (such officers, directors, and other shareholders being collectively referred to as the "OTHER PURCHASERS") request such inclusion, the Initiating Holders shall, on behalf of all Holders, offer to include the securities of such Other Purchasers in the underwriting and may condition such offer on their acceptance of the further applicable provisions of this Agreement. The Company shall (together with all Holders and Other Purchasers proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters (the "UNDERWRITER") selected for such underwriting by the Initiating Holders holding at least fifty percent (50%) of the Shares held by the Initiating Holders and reasonably acceptable to the Company. Notwithstanding any other provision of this Section 5, if the Underwriter determines that marketing factors require a limitation on the number of shares to be underwritten, the Underwriter may (subject to the allocation priority set forth below) limit the number of Registrable Securities to be included in the registration and underwriting. The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated in the following priority: (i) with respect to a request for registration pursuant to Section 5(a)(1): first, among all Holders of Registrable Securities to the extent of not less than fifty percent (50%) of the Registrable Securities offered for sale in such offering (and pro rata among such holders on the basis of all Registrable Securities then held by such holders), provided that if the Underwriter determines that marketing factors require the sale of less than such amount, then the entire offering shall be composed of such Registrable Securities; and second, among all Other Purchasers in proportion, as nearly as practicable, to the respective amounts of securities which they had requested to be included in such registration at the time of filing the registration statement; or (ii) with respect to a request for registration pursuant to Section 5(a)(2): first, among all Holders of Series C Registrable Securities to the fullest extent (and pro rata among such holders on the basis of such Series C Registrable Securities then held by such holders), provided that if the Underwriter determines that marketing factors require the sale of less than such amount, then the entire offering shall be 7 composed of such Registrable Securities; and second, among all Other Purchasers in proportion, as nearly as practicable, to the respective amounts of securities which they had requested to be included in such registration at the time of filing the registration statement. If any Holder or Other Purchaser disapproves of the terms of any such underwriting, such holder may elect to withdraw therefrom by written notice to the Company and the Underwriter. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. If the Underwriter has not limited the number of Registrable Securities or other securities to be underwritten, the Company may include its securities for its own account in such registration if the underwriter so agrees and if the number of Registrable Securities and other securities which would otherwise have been included in such registration and underwriting will not thereby be limited. 6. Company Registration. -------------------- (a) If the Company shall determine to register any of its securities either for its own account or for the account of a security holder or holders exercising their respective demand registration rights, other than a registration relating solely to employee benefit plans or a registration relating solely to a Commission Rule 145 transaction or a registration on any registration form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities, the Company will: (i) promptly give to each Holder written notice thereof (which, to the extent then known, shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all of the Registrable Securities specified in a written request or requests made by any Holder within fifteen (15) days after receipt of the written notice from the Company described in clause (b) above, except as set forth in Section 6(b) below. Such written request may specify all or a part of a Holder's Registrable Securities. (b) Underwriting. If the registration of which the Company gives ------------ notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 6(a)(i). In such event the right of any Holder to registration pursuant to Section 6 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the Other Purchasers distributing their securities through such underwriting) enter into an underwriting agreement in 8 customary form with the Underwriter selected for underwriting by the Company. Notwith standing any other provision of this Section 6, if the Underwriter determines that marketing factors require a limitation on the number of shares to be underwritten, and (a) if such registration is the first registered offering of the Company's securities to the public, the Underwriter may (subject to the allocation priority set forth below) exclude from such registration and underwriting some or all of the Registrable Securities which would otherwise be underwritten pursuant hereto, and (b) if such registration is other than the first registered offering of the sale of the Company's securities to the public, the Underwriter may (subject to the allocation priority set forth below) limit the number of Registrable Securities to be included in the secondary portion of the registration and underwriting to not less than fifty percent (50%) of the securities to be included therein. The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting by persons other than the Company shall be allocated in the following priority: first, to Holders of Registrable Securities to the extent of fifty percent (50%) of the securities to be included therein (and pro rata among such Holders on the basis of all Registrable Securities then held by such Holders); and second, among all Other Purchasers and Holders in proportion, as nearly as practicable, to the respective amounts of securities, including Registrable Securities, which they had requested to be included in such registration at the time of filing the registration statement. If any Holder or Other Purchaser disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the Underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. 7. Expenses of Registration. All Registration Expenses incurred in ------------------------ connection with any three (3) registrations or qualifications pursuant to Section 5 of this Agreement and any registrations or qualifications pursuant to Sections 6 and 8 of this Agreement shall be borne by the Company, and all Selling Expenses shall be borne by the holders of the securities so registered pro rata on the basis of the number of their shares so registered; provided, however, that the Company shall not be required to pay any Registration Expenses if, as a result of the withdrawal of a request for registration by Initiating Holders, the registration statement does not become effective, unless such withdrawal is caused by a material adverse change in the business or operations of the Company after such request for registration, or unless the Initiating Holders agree to have such registration considered a registration pursuant to Section 5(a)(1)(ii)(D) or Section 5(a)(2)(ii)(D), as applicable. If the Company is not required to pay any Registration Expenses, then the Holders and Other Purchasers requesting registration shall bear such Registration Expenses pro rata on the basis of the number of their shares so included in the registration request, and such registration shall not be considered a registration for purposes of Section 5(a)(1)(ii)(D) or 5(a)(2)(ii)(D), as applicable. 8. Registration on Form S-3. The Company shall use its best efforts ------------------------ to qualify for registration on Form S-3, and to that end, the Company shall comply with the reporting requirements of the Exchange Act following the effective date of the first registration of any securities of the Company for a registered public offering. After the Company has qualified for the use of Form S-3, each holder of Registrable Securities shall have the right to 9 request an unlimited number of registrations on Form S-3 (such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended method of disposition of such shares by each such holder), subject only to the following limitations: (a) The Company shall not be obligated to cause a registration on Form S-3 to become effective prior to one hundred eighty (180) days following the effective date of a Company-initiated registration (other than a registration effected solely to qualify an employee benefit plan or to effect a business combination pursuant to Rule 145), provided that notice of such Company- initiated registration is given to Holders prior to receipt of a request from a holder of Registrable Securities for registration on Form S-3, and provided that the Company shall use its best efforts to achieve such effectiveness promptly following such one hundred eighty (180) day period; (b) The Company shall not be obligated to cause a registration on Form S-3 to become effective prior to expiration of one hundred eighty (180) days following the effective date of the most recent registration pursuant to a request by a holder of Registrable Securities under this Agreement or pursuant to a request by a holder of registration rights under any other agreement of the Company granting Form S-3 demand registration rights; provided, however, that the Company shall use its best efforts to achieve such effectiveness promptly following such one hundred eighty (180) day period; (c) The Company shall not be required to effect a registration pursuant to this Section 8 unless the Holder or Holders requesting registration represent at least twenty-five percent (25%) or more of the outstanding Registrable Securities and propose to dispose of shares of Registrable Securities having an aggregate disposition price (before deduction of underwriting discounts and expenses of sale) of at least $2,000,000; (d) The Company shall not be required to file more than one (1) such registration statement on Form S-3 during any 12-month period; and (e) The Company shall not be required to maintain and keep any such registration on Form S-3 effective for a period exceeding thirty (30) days from the effective date thereof. The Company shall give notice to all Holders and all holders of registration rights under any other agreement of the Company granting Form S-3 or similar demand registration rights of the receipt of a request for registration pursuant to this Section 8 and shall provide a reasonable opportunity for all such other holders to participate in the registration. Subject to the foregoing, the Company will use its best efforts to effect promptly the registration of all shares of Registrable Securities on Form S-3 to the extent requested by the Holder or Holders thereof for purposes of disposition. In the event the Underwriter determines that market factors require a limitation on the number of shares to be underwritten, then shares shall be excluded from such registration and underwritten pursuant to the method described in Section 6(b). 10 9. Registration Procedures. In the case of each registration ----------------------- effected by the Company pursuant to this Agreement, the Company will keep each Holder advised in writing as to the initiation of such registration and as to the completion thereof. At its expense, the Company will: (a) Keep such registration effective for a period of thirty (30) days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; and (b) Furnish such number of prospectuses and other documents incident thereto as a Holder from time to time may reasonably request; and (c) In connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 5 hereof, the Company will enter into any underwriting agreement reasonably necessary to effect the offer and sale of Common Stock, provided such underwriting agreement contains customary underwriting provisions, and provided further that if the underwriter so requests the underwriting agreement will contain customary indemnification and contribution provisions, and provided further that the Underwriter is reasonably acceptable to the Company. 10. Indemnification. --------------- (a) The Company will indemnify each Holder, each of its officers, directors and partners, and each person controlling such Holder, if Registrable Securities held by such Holder are included in the securities with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act including any rule or regulation thereunder applicable to the Company relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers, directors and partners, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement (or alleged untrue statement) or omission (or alleged omission) based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. 11 (b) Each Holder and Other Purchaser will, if Registrable Securities or other securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors, officers and agents and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of the Securities Act and the rules and regulations thereunder, each other such Holder and Other Purchaser and each of their officers, directors and partners, and each person controlling such Holder or Other Purchaser, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, and will reimburse the Company and such Holders, Other Purchasers, directors, officers, agents, partners, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating of defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder or Other Purchaser and stated to be specifically for use therein; provided, however, that the obligations of such Holders and Other Purchasers hereunder shall be limited to an amount equal to the proceeds received by each such Holder or Other Purchaser for securities sold as contemplated herein. (c) Each party entitled to indemnification under this Section 10 (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement. No Indemnifying Party in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. 11. Information by Holder. Each Holder and each Other Purchaser --------------------- holding securities included in any registration shall furnish to the Company such information regarding 12 such Holder or Other Purchaser as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement. 12. Rule 144 Reporting. With a view to making available the benefits ------------------ of certain rules and regulations of the Commission which may permit the sale of the Restricted Securities to the public without registration, the Company agrees to: (a) Make and keep public information available as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after ninety (90) days following the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; (b) Use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; (c) So long as a Purchaser owns any Restricted Securities, furnish to the Purchaser forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety (90) days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as a Purchaser may reasonably request in availing itself of any rule or regulation of the Commission allowing a Purchaser to sell any such securities without registration. 13. No-Action Letter or Opinion of Counsel in Lieu of Registration. -------------------------------------------------------------- Notwithstanding anything in this Agreement to the contrary, if at any time after the date of the Company's initial public offering of its securities under the Securities Act the Company shall have obtained from the Commission a "no- action" letter in which the Commission has indicated that it will take no action if, without registration under the Securities Act, any Holder disposes of Registrable Securities covered by any request for registration made under this Agreement in the manner in which such Holder proposes to dispose of the Registrable Securities included in such request, or if in the opinion of counsel for the Company concurred in by counsel for such Holder no registration under the Securities Act is required in connection with such disposition, the Registrable Securities included in such request shall not be eligible for registration under this Agreement; provided, however, with respect to any Holder who may deemed to be an "affiliate," as that term is defined under Rule 144, if, notwithstanding the opinion of such counsel, the Holder is unable to dispose of all of the Registrable Securities included in his request in the manner in which such Holder so proposes without registration, the Registrable Securities included in such request shall be eligible for registration under this Agreement. 13 14. Transfer or Assignment of Registration Rights. The rights to --------------------------------------------- cause the Company to register Purchaser's securities granted to Purchaser by the Company under Sections 5, 6 and 8 hereof may be transferred or assigned by Purchaser to a transferee or assignee of any of the Restricted Securities; provided that the Company is given written notice by Purchaser at the time of said transfer or assignment, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned; and provided further that the transferee or assignee of such rights is not deemed by the Board of Directors of the Company, in its reasonable judgment, to be a competitor of the Company; and provided further that the transferee or assignee of such rights assumes the obligations of a Purchaser under this Agreement; and provided further that the transferee or assignee of such rights is transferred at least twenty percent (20%) of the Registrable Securities originally issued to Purchaser. 15. Subsequent Grant of Registration Rights. The Company shall not --------------------------------------- grant rights to have securities other than the Registrable Securities registered under the Securities Act that are pari passu or superior to the registration ---------- rights granted herein without the written consent of the holders of at least a majority of the outstanding Registrable Securities. 16. "Market Stand-off" Agreement. Each Purchaser agrees, if ---------------------------- requested by the Company and an underwriter of Common Stock (or other securities) of the Company, not to sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by Purchaser during a period of time determined by the Company and its underwriters (not to exceed 180 days) following the effective date of a registration statement of the Company filed under the Securities Act, provided that all officers and directors of the Company who then hold Common Stock (or other securities) of the Company enter into similar agreements. Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. The Company may impose stop- transfer instructions with respect to the Shares (or securities) subject to the foregoing restriction until the end of said period. 17. Right of First Refusal. ---------------------- (a) New Issuances. The Company hereby grants to the Holders the right ------------- of first refusal (the "RIGHT OF FIRST REFUSAL") to purchase, pro rata, all (or any part) of "NEW SECURITIES" (as defined in this Section 17) that the Company may, from time to time propose to sell and issue. Such pro rata share, for purposes of this right of first refusal, is the ratio of (X) the sum of the number of shares of Common Stock then owned by such Holder and the number of shares of Common Stock issuable upon the conversion of the Shares then owned by such Holder, to (Y) the sum of the total number of shares of Common Stock then outstanding and the total number of shares of Common Stock issuable upon the conversion of the total number of shares then outstanding. This right of first refusal shall be subject to the following provisions: (i) "NEW SECURITIES" shall mean any Common Stock and Preferred Stock -------------- of the Company whether or not authorized on the date hereof, and rights, options, or 14 warrants to purchase Common Stock or Preferred Stock and securities of any type whatsoever that are, or may become, convertible into Common Stock or Preferred Stock; provided, however, that "NEW SECURITIES" does not include the shares of Common Stock and Preferred Stock issued or issuable: (A) upon conversion of shares of Preferred Stock (i) outstanding as of the date hereof or (ii) acquired upon exercise of any warrants to Preferred Stock outstanding as of the date hereof; (B) as a dividend or distribution on Preferred Stock or as a result of any event for which adjustment is made pursuant to any antidilution adjustments made pursuant the Company's Articles of Incorporation; (C) to officers, directors and employees of, and consultants to, the Company pursuant to the Company's 1995 Stock Option Plan or such other arrangement approved by the Company's Board of Directors (up to an additional 2,300,000 shares after the date hereof, with such 2,300,000 limitation not applicable to any shares of Common Stock issued or issuable upon exercise of any option, warrant or other right issued, granted or outstanding on or prior to the date hereof); (D) upon exercise of any option, warrant or other right issued, granted or outstanding on or prior to the date hereof; or (E) shares of Common Stock or Preferred Stock issued in connection with any stock split, stock dividend, or recapitalization by the Company. (F) by way of dividend or other distribution on shares of Common Stock excluded by the foregoing clause(s) (A), (B), (C), (D) and (F). (ii) In the event that the Company proposes to undertake an issuance of New Securities, it shall give each Holder written notice of its intention, describing the type of New Securities, the price, and the general terms upon which the Company proposes to issue the same. Each Holder shall have twenty (20) business days after receipt of such notice to agree to purchase its pro rata share of such New Securities at the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. If any Holder fails to agree to purchase its full pro rata share within such twenty (20) business day period, the Company will give the Holders who did so agree (the "ELECTING HOLDERS") notice of the number of shares which were not subscribed for. Such notice may be by telephone if followed by written confirmation within two days. The Electing Holders shall have ten (10) business days from the date of such notice to agree to purchase pro rata all of the New Securities not purchased by such non-purchasing Holders. (iii) In the event that the Holders fail to exercise in full the right of first refusal within the twenty (20) business plus ten (10) business day period specified above, the 15 Company shall have one hundred twenty (120) days thereafter to sell (or enter into an agreement pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within sixty (60) days from the date of said agreement) the New Securities respecting which the rights of the Holders were not exercised at a price and upon terms no more favorable to the purchasers thereof than specified in the Company's notice. In the event the Company has not sold the New Securities within such one hundred twenty (120) day period (or sold and issued New Securities in accordance with the foregoing within sixty (60) days from the date of such agreement) the Company shall not thereafter issue or sell any New Securities, without first offering such New Securities to the Holders in the manner provided above. (iv) The Right of First Refusal granted under this Section 17 shall expire immediately prior to the Public Offering. (v) This Right of First Refusal is nonassignable except to any transferee to whom registration rights may be transferred pursuant to Section 15 of this Agreement. (vi) This Right of First Refusal shall terminate as to any Holder (or any transferee or assignee of such Holder) at such time as such Shareholder ceases to own any Shares or Common Stock issuable upon conversion of the Shares. 18. Governing Law. This Agreement and the legal relations between ------------- the parties arising hereunder shall be governed by and interpreted in accordance with the laws of the State of California. The parties hereto agree to submit to the jurisdiction of the federal and state courts of the State of California with respect to the breach or interpretation of this Agreement or the enforcement of any and all rights, duties, liabilities, obligations, powers, and other relations between the parties arising under this Agreement. 19. Entire Agreement. This Agreement constitutes the full and entire ---------------- understanding and agreement between the parties regarding rights to registration and terminates the Prior Agreement. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 20. Notices, Etc. All notices and other communications required or ------------- permitted hereunder shall be in writing and shall be mailed by first-class mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a Purchaser, at the address set forth on Exhibit A attached hereto, or at --------- such other address as the Purchaser shall have furnished to the other parties hereto in writing, or (b) if to any other holder of any securities, at such address as such holder shall have furnished the other parties hereto in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Shares who has so furnished an address to the Company, or (c) if to the Company, at the address of its principal offices set forth on the signature page of this Agreement, or at such other address as the Company shall have furnished to the other parties hereto in writing. 16 21. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 22. Amendments. Any provision of this Agreement may be amended, ---------- waived or modified upon the written consent of the Company, and the Purchasers (or their assignees to whom Purchasers have expressly assigned their rights in compliance with Section 14 hereof) who then hold (a) at least fifty percent (50%) of the Registrable Securities then held by persons entitled to registration rights hereunder, and (b) at least seventy-five percent (75%) of the Series C Registrable Securities then held by persons entitled to registration rights hereunder, (except with respect to Section 15, as to which any amendment, waiver or modification shall require the approval of not less than a majority of such Registrable Securities); provided any such amendment, -------- waiver or modification applies by its terms to each applicable Purchaser and each such assignee of a Purchaser and that Purchaser or such assignee of Purchaser may waive any of such Holder's rights or the Company's obligations hereunder without obtaining the consent of any other Purchaser or assignee; provided further, that Exhibit A hereto shall be automatically amended to add - ---------------- --------- thereto (i) any Purchaser that executes this Agreement subsequent to the date hereof with the consent of the Company's Board of Directors, and (ii) any warrant holder who receives a warrant to purchase the Company's equity securities in connection with an equipment lease or debt transaction unanimously offered by the Company's Board of Directors. [intentionally blank] 17 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first above written. GENESYS TELECOMMUNICATIONS LABORATORIES By: /s/ Gregory Shenkman ------------------------------------------ Gregory Shenkman, Chief Executive Officer Address: 1155 Market Street San Francisco, CA 94103 PURCHASER MCI Telecommunications Corporation ----------------------------------------------- (Print Name of Purchaser) /s/ John W. Gerdelman ----------------------------------------------- (Signature of Purchaser or Authorized Signatory) John W. Gerdelman, Executive Vice President ----------------------------------------------- (Print Name and Title of Authorized Signatory) Address: 1801 Pennsylvania Ave., N.W. ----------------------------------------------- Washington, D.C. 20006 ----------------------------------------------- 18 EXHIBIT A --------- Series A Holders - ---------------- Benchmark Capital Partners, L.P. 2480 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Benchmark Founders' Fund, L.P. 2480 Sand Hill Road, Suite 200 Menlo Park, CA 94025 John Chambers Cisco Systems, Inc. 255 West Tasman Drive San Jose, CA 95134-1706 Denware, Warren Handelgesellschaft MBH TSD Schillerstrasse 7 45964 Gladbeck Germany James Jordan 2507 Sixteenth Avenue Carmel, CA 93923 RJ Family Trust 309 Eleanor Avenue Los Altos, CA 94022 Ori S. Sasson 2 Irving Court Orinda, CA 94563 WS Investments 96A c/o Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304-1050 Series B Holders - ---------------- Benchmark Capital Partners, L.P. 2480 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Benchmark Founders' Fund, L.P. 2480 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Weiss Peck & Greer Venture Associates III, L.P. c/o Weiss Peck & Greer 555 California Street, Suite 4760 San Francisco, CA 94104 WPG Enterprise Fund II, L.P. c/o Weiss Peck & Greer 555 California Street, Suite 4760 San Francisco, CA 94104 Series C Holders - ---------------- MCI Communications Corporation 1801 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Attn: John W. Gerdelman Intel Corporation 2625 Walsh Avenue Santa Clara, CA 95052 Attn: Guy Anthony Common Holder - ------------- Bruncor Inc. One Brunswick Square Saint John, New Brunswick Canada E2L 41 A Attn: C. Reid Parker EX-5.1 15 OPINION OF BROBECK, PHLEGER & HARRISON LLP EXHIBIT 5.1 April 3, 1997 Genesys Telecommunications Laboratories, Inc. 1155 Market Street San Francisco, CA 94103 Re: Registration Statement on Form S-1 ---------------------------------- Ladies and Gentlemen: We have examined the Registration Statement on Form S-1 to be filed by you with the Securities and Exchange Commission (the "Commission") on April 3, 1997 (the "Registration Statement"), in connection with the registration under the Securities Act of 1933, as amended, of 2,300,000 shares of your Common Stock (the "Shares"). The Shares include an over-allotment option to purchase 300,000 shares granted to the Underwriters. As your counsel in connection with this transaction, we have examined the proccedings taken and are familiar with the proceedings proposed to be taken by you in connection with the sale and issuance of the Shares. It is our opinion that, upon conclusion of the proceedings being taken or contemplated by us, as your counsel, to be taken prior to the issuance of the Shares, such Shares, when issued and sold in the manner described in the Registration Statement, will be legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to such Registration Statement, and further consent to the use of our name wherever appearing in such Registration Statement, including the prospectus constituting a part thereof, and any amendment thereto. Very truly yours, BROBECK, PHLEGER & HARRISON LLP EX-10.1 16 FORM OF INDEMNIFICATION AGREEMENT EXHIBIT 10.1 INDEMNIFICATION AGREEMENT ------------------------- This Indemnification Agreement ("AGREEMENT") is made as of this ___ day of ______________, 199__, by and between Genesys Telecommunications Laboratories, a California corporation (the "COMPANY"), and ______________ ("INDEMNITEE"). WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining directors' and officers' liability insurance, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other officers and directors of the Company may not be willing to continue to serve as officers and directors without additional protection; and WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as officers and directors of the Company and to indemnify its officers and directors so as to provide them with the maximum protection permitted by law. NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: INDEMNIFICATION. --------------- Third Party Proceedings. The Company shall indemnify Indemnitee if ----------------------- Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, --------------- shall not, of itself, create a presumption that (i) Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or (ii) with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. Proceedings By or in the Right of the Company. The Company shall --------------------------------------------- indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its shareholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court orders or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine. EXPENSES; INDEMNIFICATION PROCEDURE. ----------------------------------- Advancement of Expenses. The Company shall advance all expenses ----------------------- incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action or proceeding referenced in Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any such action or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company. 2 Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition -------------------------------- precedent to his right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or will be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agree ment (or such other address as the Company shall designate in writing to Indemnitee). Notice shall be deemed received three business days after the date postmarked if sent by domestic certified or registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. Procedure. Any indemnification and advances provided for in Section 1 --------- and this Section 2 shall be made no later than forty-five (45) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Articles of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within forty-five (45) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 12 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Subsection 2(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. Notice to Insurers. If, at the time of the receipt of a notice of a ------------------ claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, 3 on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. Selection of Counsel. In the event the Company shall be obligated -------------------- under Section 2(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, which approval shall not be reasonably withheld, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ his counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY. Scope. Notwithstanding any other provision of this Agreement, the ----- Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provi sions of this Agreement, the Company's Articles of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule which expands the right of a California corporation to indemnify a member of its Board of Directors, an officer or other corporate agent, such changes shall be ipso facto, within the preview of Indemnitee's rights and Company's obligations, under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its Board of Directors, an officer or other corporate agent, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. Nonexclusivity. The indemnification provided by this Agreement shall -------------- not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any agreement, any vote of shareholders or disinterested Directors, the Corporation Law of the State of California, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action, suit or other covered proceeding. 4 PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of ----------------------- this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge that ---------------------- in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time to ---------------------------------------- time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company. SEVERABILITY. Nothing in this Agreement is intended to require or shall be ------------ construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 5 EXCEPTIONS. Any other provision herein to the contrary notwithstanding, ----------- the Company shall not be obligated pursuant to the terms of this Agreement: Excluded Acts. To indemnify Indemnitee for any acts or omissions or ------------- transactions from which a director may not be relieved of liability under the California General Corporation Law. Claims Initiated by Indemnitee. To indemnify or advance expenses to ------------------------------ Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; or Lack of Good Faith. To indemnify Indemnitee for any expenses incurred ------------------ by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; or Insured Claims. To indemnify Indemnitee for expenses or liabilities -------------- of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company. Claims Under Section 16(b). To indemnify Indemnitee for expenses and -------------------------- the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. CONSTRUCTION OF CERTAIN PHRASES. ------------------------------- For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as 6 Indemnitee would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. COUNTERPARTS. This Agreement may be executed in one or more counterparts, ------------ each of which shall constitute an original. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company ---------------------- and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee --------------- under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. NOTICE. All notices, requests, demands and other communications under this ------- Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby ------------------------ irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement 7 and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California. CHOICE OF LAW. This Agreement shall be governed by and its provisions ------------- construed in accordance with the laws of the State of California, as applied to contracts between California residents entered into and to be performed entirely within California. SUBROGATION. In the event of payment under this Agreement, the Company ----------- shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable to corporation effectively to bring suit to enforce such rights. CONTINUATION OF INDEMNIFICATION. All agreements and obligations of the ------------------------------- Company contained herein shall continue during the period that Indemnitee is a director, officer or agent of the Company and shall continue thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative, by reason of the fact that Indemnitee was serving in the capacity referred to herein. AMENDMENT AND TERMINATION. Subject to Section 17, no amendment, ------------------------- modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. GENESYS TELECOMMUNICATIONS LABORATORIES By: -------------------------------- Title: -------------------------------- Address: 1155 Market Street, 11th Floor San Francisco, CA 94103 AGREED TO AND ACCEPTED: INDEMNITEE: - ---------------------------------------- - ---------------------------------------- ADDRESS: - ---------------------------------------- - ---------------------------------------- 9 EX-10.2 17 THE REGISTRANT'S 1995 STOCK PLAN EXHIBIT 10.2 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. 1995 STOCK OPTION PLAN (as amended January 30, 1997) Purposes of the Plan. The purposes of this Stock Option Plan are to attract -------------------- and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or nonstatutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. Definitions. As used herein, the following definitions shall apply: ----------- "Administrator" means the Board or any of its Committees appointed pursuant ------------- to Section 4 of the Plan. "Board" means the Board of Directors of the Company. ----- "Code" means the Internal Revenue Code of 1986, as amended. ---- "Committee" means a Committee appointed by the Board of Directors in --------- accordance with Section 4 of the Plan. "Common Stock" means the Common Stock of the Company. ------------ "Company" means Genesys Telecommunications Laboratories, Inc., a California ------- corporation. "Consultant" means any person who is engaged by the Company or any Parent ---------- or Subsidiary to render consulting or advisory services and is compensated for such services, and any director of the Company whether compensated for such services or not. If and in the event the Company registers any class of any equity security pursuant to the Exchange Act, the term Consultant shall thereafter not include directors who are not compensated for their services or are paid only a director's fee by the Company. "Continuous Status as an Employee or Consultant" means that the employment ---------------------------------------------- or consulting relationship with the Company, any Parent or Subsidiary is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave. For purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract, including Company policies. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 91st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. "Employee" means any person, including officers and directors, -------- employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ "Fair Market Value" means, as of any date, the value of Common Stock ----------------- determined as follows: If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; If the Common Stock is quoted on the NASDAQ System but not on the Nasdaq National Market thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, or; In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. "Incentive Stock Option" means an Option intended to qualify as an ---------------------- incentive stock option within the meaning of Section 422 of the Code. "Nonstatutory Stock Option" means an Option not intended to qualify as ------------------------- an Incentive Stock Option. "Officer" means a person who is an officer of the Company within the ------- meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. "Option" means a stock option granted pursuant to the Plan. ------ -2- "Optioned Stock" means the Common Stock subject to an Option. -------------- "Optionee" means an Employee or Consultant who receives an Option. -------- "Parent" means a "parent corporation", whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. "Plan" means this 1995 Stock Option Plan. ---- "Share" means a share of the Common Stock, as adjusted in accordance ----- with Section 11 below. "Subsidiary" means a "subsidiary corporation", whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code. Stock Subject to the Plan. Subject to the provisions of Section 11 of the ------------------------- Plan, the maximum aggregate number of shares which may be optioned and sold under the Plan is 6,292,834 shares of Common Stock. The shares may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. Administration of the Plan. --------------------------- Initial Plan Procedure. Prior to the date, if any, upon which the ---------------------- Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or a committee appointed by the Board. Plan Procedure after the Date, if any, upon Which the Company becomes --------------------------------------------------------------------- Subject to the Exchange Act. - ---------------------------- Administration with Respect to Directors and Officers. With respect to ----------------------------------------------------- grants of Options to Employees who are also officers or directors of the Company, the Plan shall be administered by (A) the Board if the Board may administer the Plan in compliance with Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") with respect to a plan intended to qualify thereunder as a discretionary plan, or (13) a committee designated by the Board to administer the Plan, which committee shall be constituted in such a manner as to permit the Plan to comply with Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer -3- the Plan, all to the extent permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan. Multiple Administrative Bodies. If permitted by Rule 16b-3, the Plan may be ------------------------------ administered by different bodies with respect to directors, non-director officers and Employees who are neither directors nor officers. Administration With Respect to Consultants and Other Employees. With -------------------------------------------------------------- respect to grants of Options to Employees or Consultants who are neither directors nor officers of the Company, the Plan shall be administered by (A) the Board or (13) a committee designated by the Board, which committee shall be constituted in such a manner as to satisfy the legal requirements relating to the administration of incentive stock option plans, if any, of California corporate and securities laws, of the Code, and of any applicable stock exchange (the "Applicable Laws"). Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws. Powers of the Administrator. Subject to the provisions of the Plan and, in --------------------------- the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange upon which the Common Stock is listed, the Administrator shall have the authority, in its discretion: to determine the Fair Market Value of the Common Stock, in accordance with Section 2(k) of the Plan; to select the Consultants and Employees to whom Options may from time to time be granted hereunder; to determine whether and to what extent Options are granted hereunder; to determine the number of shares of Common Stock to be covered by each such award granted hereunder; to approve forms of agreement for use under the Plan; to determine the terms and conditions of any award granted hereunder; to determine whether and under what circumstances an Option may be settled in cash under subsection 9(f) instead of Common Stock; -4- to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; and to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. Effect of Administrator's Decision. All decisions, determinations and ---------------------------------- interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options. Eligibility. ----------- Nonstatutory Stock Options may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if otherwise eligible, be granted additional Options. Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value: of Shares subject to an Optionee's Incentive Stock Options granted by the Company, any Parent or Subsidiary, which become exercisable for the first time during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. Upon the Company or a successor corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act or upon the Plan being assumed by a corporation having a class of common equity securities required to be registered under Section 12 of the Exchange Act, the following limitations shall apply to grants of Options to Employees: No Employee shall be granted, in any fiscal year of the Company, Options to purchase more than 100,000 Shares. -5- The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 11. If an Option is canceled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 11), the canceled Option will be counted against the limit set forth in Section 5(d)(i). For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. Term of Plan. The Plan shall become effective upon the earlier to ------------ occur of its adoption by the Board of Directors or its approval by the shareholders of the Company, as described in Section 17 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan. Term of Option. The term of each Option shall be the term stated in -------------- the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. Option Exercise Price and Consideration. --------------------------------------- The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board, but shall be subject to the following: In the case of an Incentive Stock Option granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. In the case of a Nonstatutory Stock Option granted to a person who, at the time of the grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant. -6- granted to any person, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option have been owned by the Optionee for more than six months on the date of surrender and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Board shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. Exercise of Option. ------------------- Procedure for Exercise: Rights as a Shareholder. Any Option granted ----------------------------------------------- hereunder shall be exercisable at such times and under such conditions as determined by the Board, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. Termination of Employment or Consulting Relationship. In the ---------------------------------------------------- event that an Optionee's Continuous Status as an Employee or Consultant terminates but not in the event of -7- a change of status from Employee to Consultant (in which case an Employee's Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the ninety-first (91st) day following such change of status) or from Consultant to Employee), other than upon the Optionee's death or disability, the Optionee may exercise his or her Option, but only within such period of time but not less than thirty (30) days, as is determined by the Administrator, and only to the extent that the Optionee was entitled to exercise it at the date of termination but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant). If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. Disability of Optionee. In the event of termination of an Optionee's ---------------------- consulting relationship or Continuous Status as an Employee as a result of his or her disability, Optionee may, but only within six (6) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the day three months and one day following such termination. To the extent that Optionee is not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. Death of Optionee. In the event of the death of an Optionee, the Option ----------------- may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. Rule 16b-3. Options granted to persons subject to Section 16(b) of the ---------- Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. Buyout Provisions. The Administrator may at any time offer to buy out ----------------- for a payment in cash or Shares, an Option previously granted, based on such terms and conditions -8- as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. Non-Transferability of Options. Options may not be sold, pledged, ------------------------------ assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. Adjustments Upon Changes in Capitalization or Merger. ----------------------------------------------------- Changes in Capitalization. Subject to any required action by the ------------------------- shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of con sideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. Dissolution or Liquidation. In the event of the proposed dissolution -------------------------- or liquidation of the Company, the Board shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed action. Merger. In the event of a merger of the Company with or into another ------ corporation, the Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation. If, in such event, the Option is not assumed or substituted, the Option shall terminate as of the date of the closing of the merger. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger, the option confers the right to purchase, for each Share of Optioned Stock subject to the Option immediately prior to the merger, the consideration (whether stock, cash, or other securities or property) received in the merger by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the -9- exercise of the Option for each Share of Optioned Stock subject to the Option to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger. Time of Granting Options. The date of grant of an Option shall, for all ------------------------ purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Board. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. Amendment and Termination of the Plan. ------------------------------------- Amendment and Termination. The Board may at any time amend, alter, ------------------------- suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of the NASD or an established stock exchange), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. Effect of Amendment or Termination. Any such amendment or termination ---------------------------------- of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to ---------------------------------- the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. Reservation of Shares. The Company, during the term of this Plan, will --------------------- at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. -10- The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. Agreements. Options shall be evidenced by written agreements in such ---------- form as the Board shall approve from time to time. Shareholder Approval. Continuance of the Plan shall be subject to -------------------- approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange upon which the Common Stock is listed. Information to Optionees and Purchasers. The Company shall provide to --------------------------------------- each Optionee, not less frequently than annually, copies of annual financial statements. The Company shall also provide such statements to each individual who acquires Shares pursuant to the Plan while such individual owns such Shares. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. -11- EX-10.3 18 FORM OF REGISTANT'S RESTRICTED STOCK PURCHASE AGREEMENT EXHIBIT 10.3 GENESYS TELECOMMUNICATIONS LABORATORIES --------------------------------------- RESTRICTED STOCK PURCHASE AGREEMENT ----------------------------------- This Agreement is made as of the 22nd day of January, 1997 by and between Genesys Telecommunications Laboratories, a California corporation (the "COMPANY"), and ______________ (the "PURCHASER"). In consideration of the mutual covenants and representations herein set forth, the Company and Purchaser agree as follows: 1. Purchase and Sale of the Shares. Subject to the terms and ------------------------------- conditions of this Agreement, the Company hereby agrees to sell to Purchaser and Purchaser agrees to purchase from the Company at the Closing 42,000 shares of the Company's Common Stock (the "SHARES") at a price of $0.75 per share (the "PURCHASE PRICE"), for an aggregate purchase price of $31,500 (the "AGGREGATE PURCHASE PRICE"). 2. Closing. The purchase and sale of the Shares shall occur at a ------- closing (the "CLOSING") to be held at a time to be mutually agreed upon by the Company and Purchaser. The Closing will take place at the principal office of the Company or at such other place as shall be designated by the Company. At the Closing, Purchaser shall deliver to the Company the Aggregate Purchase Price payable upon delivery to the Company, at the election of Purchaser, of (i) a check in the amount of $31,500 made payable to the Company, (ii) Purchaser's promissory note (the "NOTE") with a face principal amount of $31,500, substantially in the form attached hereto as Exhibit A, or a combination of --------- check and Note. The Note shall be secured by a pledge of all of the Shares purchased hereunder, pursuant to a security agreement of even date herewith to be entered into between Purchaser and the Company (the "SECURITY AGREEMENT"), in the form attached hereto as Exhibit B. The Company will, promptly after execution of this Agreement, issue a stock certificate representing the Shares registered in the name of the Purchaser. 3. Repurchase Option. ----------------- (a) In the event that Purchaser's continuous status as an employee or consultant of the Company (including a parent or subsidiary of the Company) terminates for any or no reason, including resignation, involuntary termination, death or disability (collectively, a "TERMINATION"), the Company shall upon the date of such Termination (as reasonably fixed and determined by the Company) (the "TERMINATION DATE") have an irrevocable right for a period of ninety (90) days from such Termination Date to repurchase any or all of the Unreleased Shares (as defined in Section 4 hereof) (the "REPURCHASE OPTION"), at the Purchase Price for the Unreleased Shares being repurchased (subject to adjustment as set forth in Section 11 hereof) (the "REPURCHASE PRICE"). (b) The Repurchase Option shall be exercised by the Company within ninety (90) days following the Termination Date by delivering or mailing to Purchaser or Purchaser's executor, (i) written notice in the manner provided for in Section 15 hereof, and (ii) a check in the amount of the aggregate Repurchase Price. Upon delivery of such notice and the payment of the aggregate Repurchase Price as described above, the Company shall become the legal and beneficial owner of the Shares being repurchased and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Shares being repurchased by the Company. (c) Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a parent or subsidiary of the Company, or their respective shareholders from removing or otherwise terminating Purchaser's status as an employee or consultant of the Company. (d) The Company may assign its rights and delegate its duties under this Agreement, including the Repurchase Option. Accordingly, whenever the Company shall have the right to repurchase Shares hereunder, the Company may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations to exercise all or a part of the Company's Repurchase Option under this Agreement. If the Repurchase Option is assigned by the Company and the fair market value (as of the Termination Date) of the Unreleased Shares being repurchased, as determined in good faith by the Board of Directors of the Company, exceeds the aggregate Repurchase Price, and such assignee exercises the Repurchase Option, then the assignee shall pay to the Company the difference between the fair market value of the Unreleased Shares that are repurchased and the aggregate Repurchase Price. 4. Release of Shares From Repurchase Option. ---------------------------------------- (a) Provided in each case that Purchaser's continuous status as an employee or consultant of the Company has not terminated prior to such date: the Shares subject to this Agreement shall be released from the Repurchase Option to the extent of twenty-five percent (25%) of the Shares subject to this Agreement as of July 17, 1997 and one-forty-eighth (1/48th) of the Shares subject to the Agreement at the end of each month thereafter; in addition to the foregoing, unless expressly waived by Purchaser, 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 any 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 the sale of assets an "ACQUISITION"), and (B) the acquiror fails --- 2 to provide Purchaser 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 Purchaser was receiving from the Company at the time of the Acquisition, then all of the Unreleased Shares will be released from the Repurchase Option as of the closing date of the Acquisition and become fully vested immediately prior to the closing of the Acquisition. (b) Any of the Shares which have not yet been released from the Company's Repurchase Option are referred to herein as "Unreleased Shares." 5. Representations of Purchaser. In connection with Purchaser's ---------------------------- purchase of the Shares, Purchaser hereby represents and warrants to the Company as follows: (a) Investment Intent, Capacity to Protect Interests. Purchaser is ------------------------------------------------ purchasing the Shares solely for his own account for investment and not with a view to or for sale in connection with any distribution of the Shares or any portion thereof and not with any present intention of selling, offering to sell or otherwise disposing of or distributing the Shares or any portion thereof in any transaction other than a transaction exempt from registration under the Securities Act of 1933, as amended (the "SECURITIES ACT"). Purchaser also represents that the entire legal and beneficial interest of the Shares is being purchased, and will be held, for Purchaser's account only, and neither in whole or in part for any other person. Purchaser either has a pre-existing business or personal relationship with the Company or one or more of its officers, directors or controlling persons or by reason of Purchaser's business or financial experience or the business or financial experience of Purchaser's professional advisors who are unaffiliated with and who are not compensated by the Company or any affiliate or selling agent of the Company, directly or indirectly, could be reasonably assumed to have the capacity to evaluate the merits and risks of an investment in the Company and to protect Purchaser's own interests in connection with this transaction. (b) Resident. Purchaser's principal residence is as set forth on the -------- signature page hereof. (c) Information Concerning Company. Purchaser has heretofore ------------------------------ discussed the Company and its plans, operations and financial condition with the Company's officers, knows that the Company is a highly speculative business and has heretofore received all such information as Purchaser has deemed necessary and appropriate to enable Purchaser to evaluate the financial risk inherent in making an investment in the Shares, and Purchaser has received satisfactory and complete information concerning the business and financial condition of the Company in response to all inquiries in respect thereof. (d) Economic Risk. Purchaser realizes that the purchase of the Shares ------------- will be a highly speculative investment and involves a high degree of risk, and Purchaser is able, without impairing his financial condition, to hold the Shares for an indefinite period of time and to suffer a complete loss on Purchaser's investment. 3 (e) Restricted Securities. Purchaser understands and acknowledges --------------------- that: (i) The sale of the Shares has not been registered under the Securities Act, and the Shares must be held indefinitely unless subsequently --- registered under the Securities Act or an exemption from such registration is available (such as Rule 144 or the resale provisions of Rule 701 under the Securities Act) and the Company is under no obligation to register the Shares; (ii) The share certificate representing the Shares will be stamped with the legends specified in Section 9 hereof; and (iii) The Company will make a notation in its records of the aforementioned restrictions on transfer and legends. (f) Disposition under the Securities Act. Purchaser understands that ------------------------------------ the Shares are restricted securities within the meaning of Rule 144 promulgated under the Securities Act; that the exemption from registration under Rule 144 will not be available in any event for at least two years from the date of purchase and payment of the Shares (unless Rule 701 promulgated under the Securities Act is available), and even then will not be available unless (i) a public trading market then exists for the Common Stock of the Company, (ii) adequate information concerning the Company is then available to the public, and (iii) other terms and conditions of Rule 144 are complied with; and that any sale of the Shares may be made only in limited amounts in accordance with such terms and conditions. Purchaser further understands that the resale provisions of Rule 701, if available, will not apply until 90 days after the Company becomes subject to the reporting obligations under the Securities Exchange Act of 1934 (the "EXCHANGE ACT"). There can be no assurance that the requirements of Rule 144 or Rule 701 will be met, or that the stock will ever be saleable. (g) Further Limitations on Disposition. Without in any way limiting ---------------------------------- the representations set forth above, Purchaser further agrees that he shall in no event make any disposition of all or any portion of the Shares unless and until: (i) (A) There is then in effect a Registration Statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said Registration Statement; (B) the resale provisions of Rule 701 or Rule 144 are available in the opinion of counsel to the Company; or (C)(1) Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, (2) Purchaser shall have furnished the Company with an opinion of Purchaser's counsel to the effect that such disposition will not require registration of such Shares under the Securities Act, and (3) such opinion of Purchaser's counsel shall have been 4 concurred with by counsel for the Company and the Company shall have advised Purchaser of such concurrence; and, --- (ii) The Shares proposed to be transferred shall no longer be subject to the Repurchase Option set forth in Section 3 hereof and Purchaser shall have complied with the right of first refusal set forth in Section 6 hereof and the "lock-up" provisions set forth in Section 10 hereof. (h) Valuation of Common Stock. Purchaser understands that the Shares ------------------------- have been valued by the Board of Directors and that the Company believes this valuation represents a fair attempt at reaching an accurate appraisal of their worth; Purchaser understands, however, that the Company can give no assurances that such price is in fact the fair market value of the Shares and that it is possible that, with the benefit of hindsight, the Internal Revenue Service would successfully assert that the value of the Shares on the date of purchase is substantially greater than so determined. If the Internal Revenue Service were to succeed in a tax determination that the Shares received had value greater than that upon which the transaction was based, the additional value would constitute ordinary income as of the date of his receipt. The additional taxes (and interest) due would be payable by Purchaser, and there is no provision for the Company to reimburse him for that tax liability, and Purchaser assumes all responsibility for such potential tax liability. In the event that such additional value would represent more than 25 percent of Purchaser's gross income for the year in which the value of the Shares was taxable, the Internal Revenue Service would have six years from the due date for filing the return (or the actual filing date of the return if filed thereafter) within which to assess Purchaser the additional tax and interest which would then be due. The Company would have the benefit, in any such transaction, if a determination was made prior to the three year statute of limitations period affecting the Company, of an increase in its deduction for compensation paid, which would offset its operating profits, or, if not profitable, would create net operating loss carry forward arising from operations in that year. (i) Section 83(b) Election. Purchaser understands that Section 83 of ---------------------- the Internal Revenue Code of 1986 (the "CODE"), taxes as ordinary income the difference between the amount paid for the Shares and the fair market value of the Shares as of the date any restrictions on the Shares lapse. In this context, "restriction" means the right of the Company to buy back the Shares pursuant to the Repurchase Option. Purchaser understands that he may elect to be taxed at the time the Shares are purchased rather than when and as the Repurchase Option expires by filing an election under Section 83(b) of the Code with the Internal Revenue Service within 30 days from the date of purchase. Even if the fair market value of the Shares equals the amount paid for the Shares, the election must be made to avoid adverse tax consequences in the future. The form for making this election is attached as Exhibit C hereto. --------- Purchaser understands that failure to make this 5 filing timely will result in the recognition of ordinary income by Purchaser, as the Repurchase Option lapses, on the difference between the purchase price and the fair market value of the Shares at the time such restrictions lapse. (j) PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON PURCHASER'S BEHALF. 6. Company's Right of First Refusal. Before any Shares held by -------------------------------- Purchaser or any transferee (either being sometimes referred to herein as the "HOLDER") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 6 (the "RIGHT OF FIRST REFUSAL"). (a) Notice of Proposed Transfer. The Holder of the Shares shall --------------------------- deliver to the Company a written notice (the "NOTICE") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee (a "PROPOSED TRANSFEREE"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price per share or other consideration for which the Holder proposes to transfer the Shares (the "OFFERED PRICE"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). (b) Exercise of Right of First Refusal. At any time within 30 days ---------------------------------- after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all or any portion of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. (c) Purchase Price. The purchase price for the Shares purchased by -------------- the Company or its assignee(s) shall be the Offered Price, or such other amount agreed to in writing by the Company and the Purchaser (the "COMPANY PURCHASE PRICE"). If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (d) Payment. Payment of the Company Purchase Price shall be made in ------- cash (or such other form of consideration mutually agreed to by the parties) within thirty (30) days after receipt of the Notice. (e) Holder's Right to Transfer. If all of the Shares proposed in the -------------------------- Notice to be transferred are not purchased by the Company and/or its assignee(s) as provided in this Section 6, then the Holder may sell or otherwise transfer such Shares to the 6 Proposed Transferee(s) at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within ninety (90) days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of Sections 5 and 6 of this Agreement shall continue to apply to the Shares that are transferred to such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee(s) within such ninety (90) day period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (f) Exception for Certain Family Transfers. Anything to the contrary -------------------------------------- contained in this Section 6 notwithstanding, the transfer of any or all of the Shares during Purchaser's lifetime or on Purchaser's death by will or intestacy to Purchaser's immediate family or a trust for the benefit of Purchaser or Purchaser's immediate family shall be exempt from the provisions of this Section 6. "Immediate family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section 6, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 6. (g) Termination of Right of First Refusal. The Right of First Refusal ------------------------------------- shall terminate upon the earlier of the closing of (i) the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act, (ii) a sale of all or substantially all the assets of the Company and (iii) a Merger. (h) Application of Repurchase Option. Nothing contained in this -------------------------------- Section 6 shall serve to allow the transfer by Purchaser of any Unreleased Shares. 7. Rights as Shareholder. Subject to the terms and conditions of --------------------- this Agreement, Purchaser shall have all of the rights of a shareholder of the Company with respect to the Shares from and after the date that Purchaser delivers full payment for the Shares until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercises the Repurchase Option hereunder. Upon such exercise, Purchaser shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Purchaser shall forthwith cause the certificate(s) evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation. 8. Escrow. As security for the faithful performance of this ------ Agreement, Purchaser agrees, immediately upon receipt of the certificate(s) evidencing the Shares, to deliver such certificate(s), together with a stock power in the form of Exhibit D attached hereto, executed by Purchaser and by --------- Purchaser's spouse, if any (with the date and number 7 of Shares left blank), to the Secretary of the Company or its designee ("ESCROW AGENT"); said documents are to be held by the Escrow Agent pursuant to the Joint Escrow Instructions of the Company and Purchaser set forth in Exhibit E attached --------- hereto and incorporated by this reference, which instructions shall also be delivered to the Escrow Agent after the Closing. 9. Restrictive Legends and Stop-Transfer Orders. -------------------------------------------- (a) Legends. Purchaser understands and agrees that the Company shall ------- cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, A MARKET STANDOFF PROVISION AND A RIGHT OF REPURCHASE HELD BY THE ISSUER OR ITS ASSIGNEE(S), AS SET FORTH IN THE RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND MARKET STANDOFF PROVISION ARE BINDING ON TRANSFEREES OF THESE SHARES. (b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure --------------------- compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) Refusal to Transfer. The Company shall not be required (i) to ------------------- transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 8 10. Market Standoff Agreement. Purchaser hereby agrees that if so ------------------------- requested by the Company or any representative of the underwriters in connection with any registration of the offering of any equity securities of the Company under the Securities Act, Purchaser shall not sell or otherwise transfer any Shares or other securities of the Company during the period of time following the effective date of a registration statement of the Company filed under the Securities Act that is agreed to by the Company and such representatives of the underwriters as the lock-up period for the holders of the Company's Common Stock. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period of time. 11. Adjustment for Stock Split. All references to the number of -------------------------- Shares and the Purchase Price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Shares which may be made by the Company after the date of this Agreement. 12. Successors and Assigns. The Company may assign any of its rights ---------------------- under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Purchaser and its heirs, executors, administrators, successors and assigns. 13. Interpretation. Any dispute regarding the interpretation of this -------------- Agreement shall be submitted by Purchaser or by the Company forthwith to the Company's Board of Directors which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board shall be final and binding on the Company and on Purchaser. 14. Governing Law; Severability. This Agreement shall be governed by --------------------------- and construed in accordance with the laws of the State of California, excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable. 15. Notices. All notices and other communications required or ------- permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given (a) five (5) days after deposit with the U.S. Postal Service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, or (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, and shall be addressed (i) if to Purchaser, at Purchaser's address as set forth beneath Purchaser's signature to this Agreement, or at such other address as Purchaser shall have furnished to the Company in writing, (ii) if to the Company, to Genesys Telecommunications Laboratories, with copy to Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California 94303-0913, Attention: Jacqueline E. Cowden, or at such other address as the Company shall have furnished to 9 Purchaser, or (iii) if to the Escrow Agent, to Jacqueline E. Cowden, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California 94303-0913. 16. Further Instruments. The parties agree to execute such further ------------------- instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement. 17. Entire Agreement. This Agreement constitutes the entire ---------------- agreement of the parties and supersedes in its entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof. 18. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which will be deemed an original, but all of which together will constitute one and the same agreement. PURCHASER ---------------------------------------------- ------------------------- Address: GENESYS TELECOMMUNICATIONS LABORATORIES, a California corporation By: ------------------------------------------- Gregory Shenkman, President Address: 1155 Market Street, 11th Floor San Francisco, California 94103 10 CONSENT OF SPOUSE ----------------- The undersigned, ______________, spouse of ___________, has read and hereby approves the foregoing Agreement. In consideration of the Company's granting my spouse the right to purchase the Shares as set forth in the Agreement, the undersigned hereby agrees to be irrevocably bound by the Agreement and further agrees that any community property interest shall be similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in- fact with respect to any amendment or exercise of any right under the Agreement. ------------------------------------------- ------------------------ 11 FULL RECOURSE, SECURED PROMISSORY NOTE $31,500.00 San Francisco, California January 22, 1997 FOR VALUE RECEIVED, _____________ promises to pay to Genesys Telecommunications Laboratories, a California corporation (the "Corporation"), ----------- or order, the principal sum of Thirty-One Thousand Five Hundred Dollars ($31,500.00), together with interest on the unpaid principal balance from the date hereof at the rate of six and one-half percent (6.5%) per annum, compounded annually. Principal and accrued interest hereunder shall be payable in lawful money of the United States of America. The unpaid balance of principal and interest subject to this Note shall be due and payable upon the earlier of (i) January 22, 2002 and (ii) the sale of shares of Common Stock of the Corporation by the Purchaser; provided, however, in the event that the undersigned's continuous status as an employee or consultant should terminate for any reason, this Note shall, at the option of the Company, be accelerated, and the whole unpaid balance of principal and accrued interest subject to this Note shall be due and payable within ninety (90) days of the date of such termination. Should any action be instituted for the collection of this Note, the reasonable costs of collection of the holder, including attorneys' fees and expenses, shall be paid by the undersigned. The Corporation may at any time prepay all or any portion of the principal or interest owing hereunder. This Note is subject to the terms of (i) a Restricted Stock Purchase Agreement dated January 22, 1997 (the "Purchase Agreement") and (ii) a Security ------------------ Agreement of even date January 22, 1997, each between the Corporation and the Purchaser. Capitalized terms used herein, unless otherwise defined, shall have the meanings assigned to them in the Purchase Agreement. This Note is secured by a pledge of Common Stock under the terms of the Security Agreement and is subject to all the provisions thereof. This Note shall be with full recourse against the undersigned. In the event of default, the initial recourse of the holder of the note for payment of the undersigned's obligations hereunder (including principal, interest and costs of collection) shall be to proceed against the collateral securing the Note pursuant to the Security Agreement. The undersigned waives notice of default, presentation or demand for payment and protest and notice of nonpayment or dishonor. 12 This Note shall be governed by the laws of the State of California as they apply to contracts entered into and wholly to be performed within such state. PURCHASER --------------------------------------- -------------------- 13 EXHIBIT B --------- SECURITY AGREEMENT This Security Agreement is made as of January 22, 1997 among Genesys Telecommunications Laboratories, a California corporation ("Pledgee"), ------- ________________ ("Pledgor") and _____________________ of Brobeck, Phleger & ------- Harrison LLP (the "Escrow Agent"). ------------ WHEREAS, Pledgor has elected to purchase a total of 42,000 Shares of Common Stock of Pledgee (the "Shares") pursuant to a Restricted Stock Purchase ------ Agreement dated January 22, 1997 (the "Purchase Agreement") for an aggregate ------------------ purchaser price of $31,500 (the "Purchase Price"). Under the terms of such -------------- Purchase Agreement, Pledgor has further elected to pay $31,500 of the Purchase Price with Pledgor's promissory note dated January 22, 1997 (the "Note"). Capitalized terms used herein, unless otherwise defined, shall have the meanings assigned to them in the Purchase Agreement. NOW, THEREFORE, the parties hereto agree as follows: 1. Creation and Description of Security Interest. In consideration --------------------------------------------- of the transfer of the Shares to Pledgor under the Purchase Agreement, Pledgor, pursuant to the California Commercial Code, hereby pledges the Shares (herein sometimes referred to as the "Collateral"). The Shares are represented by ---------- certificate number __________, duly endorsed in blank or with executed Stock powers, and Pledgor herewith delivers said certificate of the Escrow Agent pursuant to the Purchase Agreement, who shall hold said certificate subject to the terms and conditions of this Security Agreement. (a) The pledged Stock (together with an executed blank Stock assignment for use in transferring all or a portion of the Shares to Pledgee if, as and when required pursuant to this Security Agreement) shall be held by the Escrow Agent as security for the repayment of the Note, and any extensions or renewals thereof, to be executed by Pledgor pursuant to the terms of the Purchase Agreement, and the Escrow Agent shall not encumber or dispose of such Shares except in accordance with the provisions of this Security Agreement. 2. Pledgor's Representations and Covenants. To induce Pledgee to --------------------------------------- enter into this Security Agreement, Pledgor represents and covenants to Pledgee, his successors and assigns, as follows: (a) Payment of Indebtedness. Pledgor will pay the principal sum of ----------------------- the Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. 14 (b) Encumbrances. The Shares are free of all other encumbrances, ------------ defenses and liens, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. (c) Margin Regulations. In the event that Pledgee's Common Stock is ------------------ now or later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to ------------ cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 3. Voting Rights. During the term of this pledge and so long as all ------------- payments of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 4. Options and Rights. In the event that, during the term of this ------------------ pledge, subscription options or other rights or options shall be issued in connection with the pledged Shares, such rights, options and options shall be the property of Pledgor and, if exercised by Pledgor, all new Stock or other securities so acquired by Pledgor in connection with the pledged Shares then held by the Escrow Agent shall be immediately delivered to Escrow Agent to be held under the terms of this Security Agreement in the same manner as the pledged Shares. 5. Default. Pledgor shall be deemed to be in default of the Note ------- and of this Security Agreement in the event: (a) Payment of principal or interest on the Note shall be delinquent for a period of 30 days or more; or (b) Pledgor fails to perform any of the covenants set forth in the Purchase Agreement, or contained in this Security Agreement, for a period of 30 days after written notice thereof from Pledgee. (c) In the case of an event of default, as set forth above, Pledgee shall have the right to accelerate payment of the Note upon notice to Pledgor. Pledgee's initial recourse in such an event, shall be to proceed against the Collateral held pursuant to this Security Agreement, but shall not be limited to such Collateral. 6. Release of Collateral. Subject to any applicable contrary rules --------------------- under Regulation G, there shall be released from this pledge a portion of the pledged Shares held by the Escrow Agent hereunder upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial number of Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note. 15 7. Withdrawal or Substitution of Collateral. Pledgor shall not sell, ---------------------------------------- withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. 8. Term. The within pledge of Shares shall continue until the ---- payment of all indebtedness secured hereby, at which time the remaining pledged Stock shall be promptly delivered to Pledgor, subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 6 above. 9. Insolvency. Pledgor agrees that if a bankruptcy or insolvency ---------- proceeding is instituted by or against him, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default. 10. Escrow Agent Liability. In the absence of willful negligence, ---------------------- the Escrow Agent shall not be liable to any party for any of his acts, or omissions to act, as the Escrow Agent. 11. Invalidity of Particular Provisions. The parties hereto agree ----------------------------------- that the enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 12. Successors or Assigns. The parties hereto agree that all of the --------------------- terms of this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein ------- ------- shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators. 13. Notices. All notices and other communications required or ------- permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given (a) four (4) days after deposit with the U.S. Postal Service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, or (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, and shall be addressed (i) if to Pledgor, at Pledgor's address as set forth beneath Pledgor's signature to this Security Agreement, or at such other address as Pledgor shall have furnished to Pledgee in writing, (ii) if to Pledgee, to Genesys Telecommunications Laboratories, 1155 Market Street, 11th Floor, San Francisco, California 94103, Attention: President and with copy to Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, CA 94303, Attention: Jacqueline E. Cowden, Esq., or at such other address as Pledgee shall have furnished to Pledgor or (iii) if to the Escrow Agent, to Jacqueline E. Cowden, c/o Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, CA 94303. 16 14. Governing Law. This Security Agreement shall be interpreted and ------------- governed under the laws of the State of California as they apply to contracts entered into and wholly to be performed within such state. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "PLEDGOR" ----------------------------------------- --------------------- Address: "PLEDGEE" GENESYS TELECOMMUNICATION LABORATORIES, a California corporation By: -------------------------------------- Gregory Shenkman, President "ESCROW AGENT" ----------------------------------------- Jackie E. Cowden 17 EXHIBIT D --------- STOCK POWER AND ASSIGNMENT -------------------------- SEPARATE FROM CERTIFICATE ------------------------- FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase Agreement dated as of January 22, 1997, the undersigned hereby sells, assigns and transfers unto ____________________, ____________________ (____________________) shares of Common Stock of Genesys Telecommunications Laboratories, a California corporation, standing in the undersigned's name on the books of said corporation represented by certificate number ____________________ delivered herewith, and does hereby irrevocably constitute and appoint ____________________ as attorney-in-fact, with full power of substitution, to transfer said stock on the books of said corporation. Dated: ____________________, 19__ ------------------------------------------- (Signature) ------------------------------------------- (Please Print Name) ------------------------------------------- (Spouse's Signature, if any) ------------------------------------------- (Please Print Name) This Assignment Separate From Certificate was executed in conjunction with the terms of a Restricted Stock Purchase Agreement between the above assignor and Genesys Telecommunications Laboratories dated as of January 22, 1997. INSTRUCTION: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE. 18 EXHIBIT D --------- STOCK POWER AND ASSIGNMENT -------------------------- SEPARATE FROM CERTIFICATE ------------------------- FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase Agreement dated as of January 22, 1997, the undersigned hereby sells, assigns and transfers unto ____________________, ____________________ (____________________) shares of Common Stock of Genesys Telecommunications Laboratories, a California corporation, standing in the undersigned's name on the books of said corporation represented by certificate number __________ delivered herewith, and does hereby irrevocably constitute and appoint Wilson Sonsini Goodrich & Rosati as attorney-in-fact, with full power of substitution, to transfer said stock on the books of said corporation. Dated: ____________________, 19__ ------------------------------------------- (Signature) ------------------------------------------- (Please Print Name) ------------------------------------------- (Spouse's Signature, if any) ------------------------------------------- (Please Print Name) This Assignment Separate From Certificate was executed in conjunction with the terms of a Restricted Stock Purchase Agreement between the above assignor and Genesys Telecommunications Laboratories dated as of January 22, 1997. INSTRUCTION: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE. 19 EXHIBIT E --------- JOINT ESCROW INSTRUCTIONS ------------------------- January 22, 1997 Jacqueline E. Cowden c/o Brobeck, Phleger & Harrison LLP Two Embarcadero Place 2200 Geng Road Palo Alto, CA 94303 Dear Ms. Cowden: As Escrow Agent for both Genesys Telecommunications Laboratories, a California corporation (the "COMPANY"), and Michael McCloskey ("PURCHASER"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement (the "AGREEMENT"), dated as of January 22, 1997, to which a copy of these Joint Escrow Instructions is attached, in accordance with the following instructions: 1. In the event that the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "COMPANY") exercises the Repurchase Option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. 2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company against the simultaneous delivery to you of the purchase price (by check or such other form of consideration mutually agreed to by the parties) for the number of shares of stock being purchased pursuant to the exercise of the Repurchase Option. 3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as his attorney-in- fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with the Department of Corporations of the State of California of an 20 Application for Consent to Transfer Securities Subject to Legend or Escrow Condition Pursuant to Section 25151 of the California Corporate Securities Law of 1968. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a shareholder of the Company while the stock is held by you. 4. Upon written request of Purchaser after each successive one-year period from the date of the Agreement, unless the Repurchase Option has been exercised, you will deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Repurchase Option. Ninety days after cessation of Purchaser's service as an employee or consultant of the Company, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares sold and issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Repurchase Option. 5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of same to Purchaser and shall be discharged of all further obligations hereunder. 6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. 7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and in the exercise of your own good judgment, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. 8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. 21 10. You shall not be liable for the outlawing of any rights under the Statute of Limitations with respect to these Joint Escrow Instructions or any documents deposited with you. 11. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. 12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent. 13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. 15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or four (4) days following deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses, or at such other addresses as a party may designate by written notice to each of the other parties hereto. COMPANY: Genesys Telecommunications Laboratories 1155 Market Street, 11th Floor San Francisco, California 94103 PURCHASER: 22 ESCROW AGENT: Jacqueline E. Cowden c/o Brobeck, Phleger & Harrison LLP Two Embarcadero Place 2200 Geng Road Palo Alto, CA 94303 16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement. 17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. Very truly yours, GENESYS TELECOMMUNICATIONS LABORATORIES a California corporation By: ---------------------------------------- Gregory Shenkman, President PURCHASER: ------------------------------------------- ESCROW AGENT: - ---------------------------------------- Jacqueline E. Cowden 23 EX-10.7 19 CREDIT LINE WITH IMPERIAL BANK Exhibit 10.7 [LOGO] IMPERIAL BANK Member FDIC CORPORATE RESOLUTION REGARDING CREDIT Office: Santa Clara Valley Regional ADDRESS: 226 Airport Parkway San Jose, California 95110 Resolved, that GENESYS TELECOMMUNICATIONS LABORATORIES borrow from IMPERIAL BANK, hereinafter referred to as "Bank", from time to time, such sums of money as, in the judgement of the officer or officers hereinafter authorized, this corporation may require; provided that the aggregate amount of such borrowing, pursuant to this resolution, shall not at any one time exceed the principal sum of Three Million and No/100 DOLLARS ($3,000,000.00), in addition to such amount as may be otherwise authorized; RESOLVED FURTHER, that any 1 of the following named officers ---------------- (Specify Number) Greg Shenkman the President - ---------------------------------- ------------------------------------ Seth Homayoon the COO - ---------------------------------- ------------------------------------ Alec Miloslavsky the VP Engineering - ---------------------------------- ------------------------------------ Michael McCloskey the CFO - ---------------------------------- ------------------------------------ the - ---------------------------------- ------------------------------------ of this corporation (the officer or officers acting in combination, authorized to act pursuant hereto being hereinafter designated as "authorized officers"), be and they are hereby authorized, directed and empowered, for and on behalf and in the name of this corporation (1) to execute and deliver to the Bank such notes or other evidences of indebtedness of this corporation for the monies so borrowed, with interest thereon, as the Bank may require, and to execute and deliver, from time to time, renewals or extensions of such notes or other evidences of indebtedness; (2) to grant a security interest in, transfer, or otherwise hypothecate or deed in trust for Bank's benefit and deliver by such instruments in writing or otherwise as may be demanded by the Bank, any of the property of this corporation as may be required by the Bank to secure the payment of any notes or other indebtedness of this corporation or third parties to the Bank, whether arising pursuant to this resolution or otherwise; and (3) to perform all acts and execute and deliver all instruments which the Bank may deem necessary to carry out the purposes of this resolution; RESOLVED FURTHER, that said authorized officers be and they are hereby authorized and empowered, and that any one of said authorized officers be and he/she is hereby authorized and empowered (1) to discount with or sell to the Bank conditional sales contracts, notes, acceptances, drafts, bailment agreements, leases, receivables and evidences of indebtedness payable to this corporation, upon such terms as may be agreed upon by them and the Bank, and to endorse in the name of this corporation said notes, acceptances, drafts, bailment agreements, leases, receivables and evidences of indebtedness so discounted, and to guarantee the payment of the same to the Bank, and (2) to apply for and obtain from the Bank letters of credit and in connection therewith to execute such agreement, applications, guarantees, indemnities and other financial undertakings as Bank may require; RESOLVED FURTHER, that said authorized officers are also authorized to direct the disposition of the proceeds of any such obligation, and to accept or direct delivery from the Bank of any property of this corporation at any time held by the Bank; RESOLVED FURTHER, that the authority given hereunder shall be deemed retroactive and any and all acts authorized hereunder performed prior to the passage of this resolution are hereby ratified and affirmed; RESOLVED FURTHER, that this resolution will continue in full force and effect until the Bank shall receive official notice in writing from this corporation of the revocation thereof by a resolution duly adopted by the Board of Directors of this corporation, and that the certification of the Secretary of this corporation as the signatures of the above named persons shall be binding on this corporation. I, Richard DeGolia, Secretary of the above named corporation, duly organized and existing under the laws of the State of California, do hereby certify that the foregoing is a full, true and correct copy of a resolution of the Board of Directors of said corporation, duly and regularly passed and adopted by the Board of Directors of said corporation. I further certify that said resolution is still in full force and effect and has not been amended or revoked, and that the specimen signatures appearing below are the signatures of the officers authorized to sign for this corporation by virtue of said resolution. EXECUTED ON 10/28/96 AUTHORIZED SIGNATURES Signature: /s/ Greg Shenkman ---------------------------- Greg Shenkman Signature: /s/ Seth Homayoon /s/ Richard C. DeGolia ---------------------------- ------------------------------- Seth Homayoon (Secretary) Richard DeGolia Signature: /s/ Alec Miloslavsky ---------------------------- Alec Miloslavsky Signature: /s/ Michael McCloskey ---------------------------- Michael McCloskey Signature: ---------------------------- [LOGO] IMPERIAL BANK Member FDIC 226 Airport Parkway San Jose, California October 28, 1996 Subject: Credit Terms and Conditions ("Agreement") Borrower: Genesys Telecommunications Laboratories Gentlemen: To induce you to make loans to the undersigned (herein called "Borrower"), and in consideration of any loan or loans to you, in your sole discretion, may make to Borrower, Borrower warrants and agrees as follows: A. Borrower represents and warrants that: 1. EXISTENCE AND RIGHTS. Company is a corporation Borrower is duly organized and existing and in good standing under the laws of the State of California and is authorized and in good standing to do business in the State of California. Borrower has powers and adequate authority, rights and franchises to own its property and to carry on its business as now conducted, and is duly qualified and in good standing in each State in which the character of the properties owned by it therein or the conduct of its business makes such qualification necessary, and Borrower has the power and adequate authority to make and carry out this Agreement, Borrower has no investment in any other business entity, except as previously disclosed to Bank. 2. AGREEMENT AUTHORIZED. The execution, delivery and performance of this Agreement are duly authorized and do not require the consent or approval of any governmental body or other regulatory authority; are not in contravention of or in conflict with any law or regulation or any term or provision of Borrower's articles of incorporation, by-laws, or Articles of Association, as the case may be, and this Agreement is the valid, binding and legally enforceable obligation of Borrower in accordance with its terms. 3. NO CONFLICT. The execution, delivery and performance of this Agreement are not in contravention of or in conflict with any agreement, indenture or undertaking to which Borrower is a party or by which it or any of its property may be bound or affected, and do not cause any lien, charge or other encumbrance to be created or imposed upon any such property by reason thereof. 4. LITIGATION. There is no litigation or other proceeding pending or threatened against or affecting Borrower, and Borrower is not in default with respect to any order, writ, injunction, decree or demand of any court or other governmental or regulatory authority. 5. FINANCIAL CONDITION. The balance sheet of Borrower as of 6/30/96, and the related profit and loss statement for the year ended on that date, a copy of which has heretofore been delivered to you by Borrower, and all other statements and data submitted in writing by Borrower to you in connection with this request for credit are true and correct, and said balance sheet and profit and loss statement truly present the financial condition of Borrower as of the date thereof and the results of the operations of Borrower for the period covered thereby, and have been prepared in accordance with generally accepted accounting principles on a basis consistently maintained. Since such date there have been no materially adverse changes in the financial condition or business of Borrower. Borrower has no knowledge of any liabilities, contingent or otherwise, at such date not reflected in said balance sheet, and Borrower has not entered into any special commitments or substantial contracts which are not reflected in said balance sheet, other than in the ordinary and normal course of its business, which may have a materially adverse effect upon its financial condition, operations or business as now conducted. 6. TITLE TO ASSETS. Borrower has good title to its assets and the same are not subject to any liens or encumbrances other than those permitted by Section C.3 hereof. 7. TAX STATUS. Borrower has no liability for any delinquent state, local or federal taxes, and if Borrower has contracted with any government agency, Borrower has no liability for renegotiation of profits. 8. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all necessary trademarks, trade names, copyrights, patents, patent rights, and licenses to conduct its business as now operated, without any known conflict with the valid trademarks, trade names, copyrights, patents and license rights of others. 9. REGULATION U. The proceeds of this loan shall not be used to purchase or carry margin stock (as defined with Regulation U of the Board of Governors of the Federal Reserve System). B. Borrower agrees that so long as it is indebted to you, it will, unless you shall otherwise consent in writing: 1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and other authority adequate for the conduct of its business; maintain its properties, equipment and facilities in good order and repair; conduct its business in an orderly manner without voluntary interruption and, if a corporation or partnership, maintain and preserve its existence. 2. INSURANCE. Maintain public liability, property damage and workers' compensation insurance and insurance on all its insurable property against fire and other hazards with responsible insurance carriers to the extent usually maintained by similar businesses. 3. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become delinquent and before penalties accrue thereon, all taxes, assessments and governmental charges upon or against it or any of its properties, and all its other liabilities at any time existing, except to the extent and so long as: (a) The same are being contested in good faith and by appropriate proceedings in such manners as not to cause any materially adverse effect upon its financial condition or the loss of any right of redemption from any sale thereunder, and (b) it shall have set aside on its books reserves (segregated to the extent required by generally accepted accounting practice) deemed by it adequate with respect thereto. 4. RECORDS AND REPORTS. Maintain a standard and modern system of accounting in accordance with generally accepted accounting principles on a basis consistently maintained; permit your representatives to have access to, and to examine its properties, books and records at all reasonable times; and furnish you: (a) As soon as available, and in any event within 30 days after the close of each month of each fiscal year of Borrower, commencing with the month next ending, a balance sheet, profit and loss statement and reconciliation of Borrower's capital accounts as of the close of such period and covering operations for the portion of Borrower's fiscal year ending on the last day of such period, all in reasonable detail and stating in comparative form the figures for the corresponding date and period in the previous fiscal year, prepared in accordance with generally accepted accounting principles on a basis consistently maintained by Borrower and certified by an appropriate officer of Borrower, subject, however, to year-end audit adjustments; (b) As soon as available, and in any event within 150 days after the close of each fiscal year of Borrower, a report of audit of Company as of the close of and for such fiscal year, all in reasonable detail and stating in comparative form the figures as of the close of and for the previous fiscal year, with the unqualified opinion of accountants satisfactory to you. (c) Within 30 days after the close of each month of each fiscal month of Borrower, a certificate by chief financial officer or partner of Borrower, stating that Borrower has performed and observed each and every covenant contained in this Letter of Inducement to be performed by it and that no event has occurred and no condition then exists which constitutes an event of default hereunder or would constitute such an event of default upon the lapse of time or upon the giving of notice and the lapse of time specified herein or, if any such event has occurred or any such condition exists, specifying the nature thereof; (d) Promptly after the receipt thereof by Borrower, copies of any detailed audit reports submitted to Borrower by independent accountants in connection with each annual or interim audit of the accounts of Borrower made by such accountants; (e) Promptly after the same are available, copies of all such proxy statements, financial statements and reports as Borrower shall send to its stockholders, if any, and copies of all reports which Borrower may file with the Securities and Exchange Commission or any governmental authority at any time substituted therefor; and (f) Such other information relating to the affairs of Borrower as you reasonably may request from time to time. (g) Notice of Default. Promptly notify the Bank in writing of the occurrence of any event of default hereunder or any event which upon notice and lapse of time would be an event of default. C. Borrower agrees that so long as it is indebted to you, it will not, without your written consent: 1. TYPE OF BUSINESS; MANAGEMENT. Make any substantial change in the character of its business; 2. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness for borrowed moneys other than loans from you except: (a) Obligations now existing as shown in financial statement dated 6/30/96, excluding those being refinanced by your bank (b) Indebtedness subordinated to the indebtedness to you on terms and conditions reasonably satisfactory to you; (c) Indebtedness of Borrower to any of its subsidiaries; (d) Indebtedness secured by Permitted Liens (as defined in the Security and Loan Agreement; and (e) Other Indebtedness in an amount not exceeding $100,000 in the aggregate outstanding at any time; or sell or transfer, either with or without recourse, any accounts or notes receivable or any moneys due to become due. 3. LIENS AND ENCUMBRANCES. Create, incur, or assume any mortgage, pledge encumbrance, lien or charge of any kind (including the charge upon property at any time purchased or acquired under conditional sale or other title retention agreement) upon any asset now owned or hereafter acquired by it, other than liens for taxes not delinquent and liens in your favor and other than Permitted Liens. 4. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances to any person or other entity other than in the ordinary and normal course of its business as now conducted or make any investment in the securities of any person or other entity other than the United States Government; or guarantee or otherwise become liable upon the obligation of any person or other entity, except: (a) By endorsement of negotiable instruments for deposit or collection in the ordinary and normal course of its business (b) (i) Marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than 270 days from the date of creation thereof and currently having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank, and (iv) any Investments permitted by Borrower's investment policy, a amended from time to time, provided that such investment policy (and any such amendment thereto) has been approved by the Bank, which approval shall not be unreasonably withheld; (c) Investments (whether consisting of the purchase of securities, loans, capital contributions or otherwise) of Borrower in or to subsidiaries and investments by Borrower in or to companies which simultaneously with such investments become subsidiaries, provided that the sum of (i) all such investments by Borrower in or to Subsidiaries, plus (ii) guarantees by Borrower outstanding at any time with respect to the obligations of subsidiaries, minus the sum of (x) investments by Subsidiaries in or to Borrower, plus (y) payments to Borrower on account of investments of Borrower in or to Subsidiaries, plus (z) distributions or dividends by Subsidiaries to Borrower, in each case, made, incurred or arising on or after the date hereof does not exceed $750,000. (d) Receivables owing to Borrower or its subsidiaries and advances to customers or suppliers, in each case, if created, acquired or made in the ordinary course of business; (e) Loans and advances consisting (i) travel advances, employee relocation loans and other employee loans and advances in the ordinary course of business, (ii) loans to employees, officers or directors. relating to the purchase of equity securities of Borrower, (iii) other loans to officers and employees approved by the Board of Directors in an aggregate amount not in excess of $250,000 outstanding at any time; (f) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business; (g) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions to, customers and suppliers who are not Affiliates in the ordinary course of business; (h) Investments constituting acquisitions permitted hereunder; (i) Deposit accounts of Borrower maintained in the ordinary course of business; and (j) Other Investments aggregating not in excess of $250,000 at any time. 5. ACQUISITION OR SALE OF BUSINESS: MERGER OR CONSOLIDATION. Purchase or otherwise acquire the assets of business of any person or other entity; or liquidate, dissolve, merge or consolidate, or commence any proceedings therefor; or sell any assets except in the ordinary and normal course of its business as now conducted; or sell, lease, assign, or transfer any substantial part of its business or fixed assets, or any property or other assets necessary for the continuance of its business as now conducted including without limitation the selling of any property or other asset accompanied by the leasing back of the same; provided, that: --------- (a) Borrower may sell and leaseback equipment within 90 days of its original purchase; (b) Borrower may sell other assets for cash outside the ordinary course of business in an amount not exceeding $500,000 in any fiscal year; (c) Borrower may purchase the assets or business of other entities for cash in an amount not exceeding $500,000 in any fiscal year or for stock in a transaction valued at not more than $5,000,000; and (d) Borrower may merge with any subsidiary so long as it is the surviving corporation. 6. DIVIDENDS, STOCK PAYMENTS. If a corporation, declare or pay any dividend (other than dividends payable in common stock of Borrower) or make any other distribution on any of its capital stock now outstanding or hereafter issued or purchase, redeem or retire any of such stock, provided, that: -------- (a) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange therefor, and (b) Borrower may redeem or repurchase its in connection with any agreement between Borrower and any officer, director, employee or consultant of Borrower entered into in the ordinary course of business wherein Borrower is obligated or entitled to repurchase from such officer, director, employee or consultant shares of equity securities of Borrower upon such person's termination of employment or services or other event. D. The occurrence of any one of the following events of default shall, at your option, terminate the commitment to lend and make all sums of principal and interest then remaining unpaid on all Borrower's indebtedness to you immediately due and payable, all without demand, presentment or notice, all of which are hereby expressly waived: 1. FAILURE TO PAY NOTE. Failure to pay any installment of principal or of interest on any indebtedness of Borrower to you and such failure shall continue for three (3) business days after receipt of notice thereof 2. BREACH OF COVENANT. Failure of Borrower to perform any other term or condition of this Agreement binding upon Borrower and such failure shall continue for fifteen (15) days after an officer of Borrower becomes aware thereof 3. BREACH OF WARRANTY. Any of Borrower's representations or warranties made herein or any statement or certificate at any time given in writing pursuant hereto or in connection herewith shall be false or misleading in any respect. 4. INSOLVENCY: RECEIVER OR TRUSTEE. Borrower shall become insolvent; or admit its inability to pay its debts as they mature; or make an assignment for the benefit of creditors; or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business. 5. JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of attachment, or similar process shall be entered or filed against Borrower or any of its assets and shall remain unvacated, unbonded or unstayed for a period of 10 days or in any event later than five days prior to the date of any proposed sale thereunder. 6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against Borrower and, if instituted against it, shall be consented to. E. MISCELLANEOUS PROVISIONS. 1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of your Bank or any holder of Notes issued hereunder, in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this agreement or any note issued in connection with a loan that your Bank may make hereunder, are cumulative to, and not exclusive of, any rights or remedies otherwise available. See addendum dated October 28, 1996, and Inserts attached hereto and incorporated herein by this reference for additional terms. In the event of a conflict between this Agreement and the Addendum and/or Inserts, the terms in the Addendum and/or Inserts prevail. Genesys Telecommunications Laboratories By /s/ Michael McCloskey ---------------------------------------- (Authorized Signature and Title) GENESYS TELECOMMUNICATIONS LABORATORIES ADDENDUM TO CREDIT TERMS & CONDITIONS DATED OCTOBER 28, 1996 BORROWING BASE - -------------- A) In accordance with the attached loan documents, advances under the line of credit ("Line") will be limited to the lesser of: (i) 80% (subject to audit results) of Eligible Accounts receivable (as hereinafter defined), or (ii) $2,500,000. Line to include a $500,000 sublimit for the issuance of trade- related standby and commercial letters of credit. As used herein, "Eligible Accounts" shall be defined as: Borrower's accounts receivable which are outstanding less than 90 days from invoice, with certain exclusions for foreign (unless approved in writing by Bank), government, contra, and inter-company accounts. Any account which alone exceeds more than 25% of Borrower's total accounts receivable will have the amount in excess of 25% excluded, and any account with more than 25% of the account outstanding more than 90 days from invoice will be excluded. B) In accordance with the attached loan documents, advances under the equipment loan ("Term Loan") will be limited to a maximum of 90% of submitted invoices less tax and freight. Term Loan includes an interest only drawdown period ending 3/31/97 (in accordance with the terms and conditions of the Note dated October 28, 1996). After 3/31/97, the outstanding balance will be amortized on a thirty-six month basis with principal and interest to be paid on a monthly basis. FINANCIAL COVENANTS - ------------------- Borrower to maintain on a fiscal monthly basis unless otherwise noted (covenants apply to all loans): 1) A minimum Tangible Net Worth (defined as the financial statement net worth of the Borrower prepared according to generally accepted accounting principles less intangible assets, plus indebtedness fully subordinated to the debt due to the Bank) greater than $6,000,000. Beginning with the month ending 4/30/97, Borrower to maintain on a fiscal monthly basis unless otherwise noted (covenants apply to all loans): 1) A minimum Quick Ratio (defined as cash and cash equivalents plus trade accounts receivable to current liabilities) of 1.0:1. 2) A minimum Tangible Net Worth (defined as the financial statement net worth of the Borrower prepared according to generally accepted accounting principles less intangible assets, plus indebtedness fully subordinated to the debt due to the Bank) greater than $6,500,000. 3) A maximum ratio of Total Liabilities (defined as all of the Borrower's liabilities except for indebtedness fully subordinated to the debt due to the Bank) less Deferred Revenues to Tangible Net Worth of 1.0:1. 4) Quarterly profitability required beginning with the quarter ending 9/30/97. REPORTING - --------- Borrower to provide: 1) Unqualified audited financial statements within 150 days of fiscal year end. 2) Beginning the earlier of: (i) 12/31/96, or (ii) five days prior to any borrowing under the Line or Term Loan, Company prepared monthly financial statements and Compliance Certificate within 30 days of each month end. GENESYS TELECOMMUNICATIONS LABORATORIES Addendum to Credit Terms & Conditions Dated October 28, 1996 Page Two 3) As a condition to any borrowing by Borrower, and at least 30 days prior to the initial advance by Bank, monthly aged listings of accounts receivable (to include customer addresses and telephone numbers) and accounts payable along with a Borrowing Base Certificate in form and substance acceptable to Bank within 20 days of each month end. 4) Budgets, sales projections, operating plans, or other financial exhibits which Bank may reasonably request within five (5) business days after Bank's request. OTHER CONDITIONS - ---------------- 1) Borrower's primary banking relationship and accounts to be maintained at Imperial Bank, including the operating account. 2) Borrower to notify Bank in writing of any legal action commenced against it which, in the opinion of Borrower's counsel is reasonably likely to result in damages over $50,000. Bank to be notified within fifteen (15) business days after receipt by Borrower of written notice of the commencement of such action. 3) As a condition to any borrowing by Borrower, Borrower to provide Bank proof of insurance adequately covering all tangible corporate assets and a Lender's Loss Payable Clause with Bank as beneficiary with respect to Bank's collateral. 4) At its option and prior to any borrowing by Borrower, Bank may require an annual accounts receivable audit by Bank's asset-based lending group at Borrower's expense, with results satisfactory to Bank. 5) Prior to loan closing, Borrower shall execute and deliver to Bank any and all documents required by Bank. Borrower to pay to Bank all reasonable fees for loan documentation preparation, due at closing. 6) If any installment payment, interest payment, principal payment or principal balance payment due hereunder is delinquent ten or more days, Obligor agrees to pay Bank a late charge in the amount of 5% of the payment so due and unpaid, in addition to the payment; but nothing in this paragraph is to be construed as any obligation on the part of the holder of this note to accept payment of any payment past due or less than the total unpaid principal balance after maturity. All payments shall be applied first to any late charges owing, then to interest and the remainder, if any, to principal. GENESYS TELECOMMUNICATIONS LABORATORIES By: /s/ Michael McCloskey ---------------------------------- Title: C.F.O. -------------------------------- Date: 10/28/96 -------------------------------- IMPERIAL BANK Member FDIC SECURITY AND LOAN AGREEMENT (ACCOUNTS RECEIVABLE) This Agreement is entered into between GENESYS TELECOMMUNICATIONS LABORATORIES , a Corporation (herein called "Borrower") and IMPERIAL BANK (herein called "Bank"). 1. Bank hereby commits, subject to all the terms and conditions of this Agreement and prior to the termination of its commitment as hereinafter provided, to make loans to Borrower from time to time in such amounts as may be determined by Bank up to, but not exceeding in the aggregate unpaid principal balance, the following Borrowing Base: 80% of Eligible Accounts and in no event more than $2,500,000. 2. The amount of each loan made by Bank to Borrower hereunder shall be debited to the loan ledger account of Borrower maintained by Bank (herein called "Loan Account") and Bank shall credit the Loan Account with all loan repayments made by Borrower. Borrower promises to pay Bank (a) the unpaid balance of Borrower's Loan Account on demand and (b) on or before the tenth day of each month, interest on the average daily unpaid balance of the Loan Account during the immediately preceding month at the rate of No & 500/1000ths percent (0.500%) per annum in excess of the rate of interest which Bank has announced as its prime lending rate ("Prime Rate") which shall vary concurrently with any change in such Prime Rate. Interest shall be computed at the above rate on the basis of the actual number of days during which the principal balance of the loan account is outstanding divided by 360, which shall for interest computation purposes be considered one year. Bank at its option may demand payment of any or all of the amount due under the Loan Account including accrued but unpaid interest in the event of default. Such notice may be given verbally or in writing and should be effective upon receipt by Borrower. The amount of interest payable each month by Borrower shall not be less than a minimum monthly charge of $250.00. Bank is hereby authorized to charge Borrower's deposit account(s) with Bank for all sums due Bank under this Agreement. 3. Requests for loans hereunder shall be in writing duly executed by Borrower in a form satisfactory to Bank and shall contain a certification setting forth the matters referred to in Section 1, which shall disclose that Borrower is entitled to the amount of loan being requested. 4. As used in this Agreement, the following terms shall have the following meanings: A. "Accounts" means any right to payment for goods sold or leased, or to be sold or to be leased, or for services rendered or to be rendered no matter how evidenced, including accounts receivable, contract rights, chattel paper, instruments, purchase orders, notes, drafts, acceptances, general intangibles and other forms of obligations and receivables, B. "Collateral" means any and all personal property of Borrower which is assigned or hereafter is assigned to Bank as security or in which Bank now has or hereafter acquires a security interest. C. "Eligible Accounts" means all of Borrower's Accounts excluding, however, (1) all Accounts under which payment is not received within 90 days from any invoice date, (2) all Accounts against which the account debtor or any other person obligated to make payment thereon asserts any defense, offset, counterclaim or other right to avoid or reduce the liability represented by the Account and (3) any Accounts if the account debtor or any other person liable in connection therewith is insolvent, subject to bankruptcy or receivership proceedings or has made an assignment for the benefit of creditors or whose credit standing is unacceptable to Bank and Bank has so notified Borrower. Eligible Accounts shall only include such accounts as Bank in its sole discretion shall determine are eligible from time to time. D. "Permitted Liens" means any of the following: (a) liens arising from judgments, attachments or similar proceedings not constituting an Event of Default under Section D.5 of the Credit Terms and Conditions; (b) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other social security or similar obligations; (d) liens of carriers, mechanics and materialmen and other like liens in respect of obligations not overdue; (e) such minor defects, irregularities, encumbrances, easements, rights of way, and clouds on title as normally exist with respect to similar properties which do not, individually or in the aggregate, materially impair the property affected thereby for the purpose of which it was acquired; (f) liens of landlords or lessors under leases arising by contract or operation of law; (g) liens arising from purchase money obligations for tangible personal property used in Borrower's business, and rights of lessors under capital leases; provided that no such liens shall extend to any assets of Borrower other than those financed by such a purchase money obligation or capital lease (and accessions and additions thereto and replacements thereof and the proceeds thereof); (h) licenses granted to third parties the granting of which does not result in a material adverse effect on the business of Borrower; (i) liens in favor of customs and revenue authorities which secure payment of customs duties in connection with the importation of goods; (j) liens securing reimbursement obligations of Borrower under documentary letters of credit; provided that such liens shall attach -------- only to documents relating to such letters of credit, goods covered thereby and products and proceeds thereof; (k) liens which constitute rights of set-off of a customary nature or bankers' liens on amounts on deposit, whether arising by contract or by operation of law, in connection with arrangements entered into with depository institutions in the ordinary course of business; and (l) liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any -------- of Bank's security interests; (m) liens in favor of Bank. 5. Borrower hereby assigns to Bank all Borrower's present and future Accounts, including all proceeds due thereunder, all guaranties and security therefor, and hereby grants to Bank a continuing security interest in all moneys in the Collateral Account referred to in Section 6 hereof as security for any and all obligations of Borrower to Bank, whether now owing or hereafter incurred and whether direct, indirect, absolute or contingent. So long as Borrower is indebted to Bank or Bank is committed to extend credit to Borrower, Borrower will execute and deliver to Bank such assignments, including Bank's standard forms of Specific or General Assignment covering individual Accounts, notices, financing statements, and other documents and papers as Bank may require in order to affirm, effectuate or further assure the assignment to Bank of the Collateral or to give any third party, including the account debtors obligated on the Accounts, notice of Bank's interest in the Collateral. 6. Until Bank exercises its rights to collect the Accounts pursuant to paragraph 10. Borrower will collect with diligence all Borrower's Accounts. Any collection of Accounts by Borrower, whether in the form of cash, checks, notes, or other instruments for the payment of money (properly endorsed or assigned where required to enable Bank to collect same), shall be in trust for Bank. If an Event of Default has occurred, Borrower shall keep all such collections separate and apart from all other funds and property so as to be capable of identification as the property of Bank and deliver said collections daily to Bank in the identical form received. The proceeds of such collections when received by Bank may be applied by Bank directly to the payment of Borrower's Loan Account or any other obligation secured hereby. Any credit given by Bank upon receipt of said proceeds shall be conditional credit subject to collection. Returned items collected by Bank after an Event of Default may, at Bank's option, be charged to Borrower's general account. All collections of the Accounts shall be set forth on an itemized schedule, showing the name of the account debtor, the amount of each payment and such other information as Bank may request. 7. Until Bank exercises its rights to collect the Accounts pursuant to paragraph 10, Borrower may continue its present policies with respect to returned merchandise and adjustments. However, Borrower shall immediately notify Bank of all cases involving returns, repossessions, and loss or damage of or to merchandise represented by the Accounts and of any credits, adjustments or disputes arising in connection with the goods or services represented by the Accounts and, in any of such events, Borrower will immediately pay to Bank from its own funds (and not from the proceeds of Accounts or Inventory) for application to Borrower's Loan Account or any other obligation secured hereby the amount of any credit for such returned or repossessed merchandise and adjustments made to any of the Accounts. 8. Borrower represents and warrants to Bank: (i) If Borrower is a corporation, that Borrower is duly organized and existing in the State of its incorporation and the execution, delivery and performance hereof are within Borrower's corporate powers, have been duly authorized and are not in conflict with law or the terms of any charter, by-law or other incorporation papers, or of any indenture, agreement or undertaking to which Borrower is a party or by which Borrower is found or affected; (ii) Borrower is, or at the time the collateral becomes subject to Bank's security interest will be, the true and lawful owner of and has, or at the time the Collateral becomes subject to Bank's security interest will have, good and clear title to the Collateral, subject only to Bank's rights therein; (iii) Each Account is, or at the time the Account comes into existence will be, a true and correct statement of a bona fide indebtedness incurred by the debtor named therein in the amount of the Account for either merchandise sold or delivered (or being held subject to Borrower's delivery instructions) to, or services rendered, performed and accepted by, the account debtor; (iv) that there are or will be no defenses, counterclaims, or setoffs which may be asserted against the Accounts; and (v) any and all financial information, including information relating to the Collateral, submitted by Borrower to Bank, whether previously or in the future, is or will be true and correct. 9. Borrower will: (i) Furnish Bank from time to time such financial statements and information as Bank may reasonably request and inform Bank immediately upon the occurrence of a material adverse change therein; (ii) Furnish Bank periodically, in such form and detail and at such times as Bank may require, statements showing aging and reconciliation of the Accounts and collections thereon; (iii) Permit representatives of Bank to inspect the Borrower's books and records relating to the Collateral and make extracts therefrom at any reasonable time and to arrange for verification of the Accounts, under reasonable procedures, acceptable to Bank, directly with the account debtors or otherwise at Borrower's expense; (iv) Promptly notify Bank of any attachment or other legal process levied against any of the Collateral and any information received by Borrower relative to the Collateral, including the Accounts, the account debtors or other persons obligated in connection therewith, which may in any way affect the value of the Collateral or the rights and remedies of Bank in respect thereto; (v) Reimburse Bank upon demand for any and all legal costs, including reasonable attorneys' fees, and other expense incurred in collecting any sums payable by Borrower under Borrower's Loan Account or any other obligation secured hereby, enforcing any term or provision of this Security Agreement or otherwise or in the checking, handling and collection of the Collateral and the preparation and enforcement of any agreement relating thereto; (vi) Notify Bank of each location and of each office of Borrower at which records of Borrower relating to the Accounts are kept; (vii) Provide, maintain and deliver to Bank policies insuring the Collateral against loss or damage by such risks and in such amounts, forms and companies as Bank may require and with loss payable solely to Bank, and, in the event Bank takes possession of the Collateral, the insurance policy or policies and any unearned or returned premium thereon shall at the option of Bank become the sole property of Bank, such policies and the proceeds of any other Insurance covering or in any way relating to the Collateral, whether now in existence or hereafter obtained, being hereby assigned to Bank; and (viii) In the event the unpaid balance of Borrower's Loan Account shall exceed the maximum amount of outstanding loans to which Borrower is entitled under Section 1 hereof, Borrower shall immediately pay to Bank, from its own funds and not from the proceeds of Collateral, for credit to Borrower's Loan Account the amount of such excess. 10. After and during the continuance of an Event of Default Bank may, without prior notice to Borrower, collect the Accounts and may give notice of assignment to any and all account debtors, and Borrower does hereby make, constitute and appoint Bank its irrevocable, true and lawful attorney with power to receive, open and dispose of all mail addressed to Borrower, to endorse the name of Borrower upon any checks or other evidences of payment that may come into the possession of Bank upon the Accounts to endorse the name of the undersigned upon any document or instrument relating to the Collateral; in its name or otherwise, to demand, sue for, collect and give acquittances for any and all moneys due or to become due upon the Accounts; to compromise, prosecute or defend any action, claim or proceeding with respect thereto; and to do any and all things necessary and proper to carry out the purpose herein contemplated. 11. Until Borrower's Loan Account and all other obligations secured hereby shall have been repaid in full, Borrower shall not sell, dispose of or grant a security interest in any of the Collateral other than to Bank, or execute any financing statements covering the Collateral in favor of any secured party or person other than Bank. 12. Upon the occurrence, and during the continuance, of an Event of Default (as defined in the Credit Terms and Conditions) Bank may, at its option and without demand first made and without notice to Borrower, do any one or more of the following: (a) Terminate its obligation to make loans to Borrower as provided in Section 1 hereof; (b) Declare all sums secured hereby immediately due and payable; (c) Immediately take possession of the Collateral wherever it may be found, using all necessary force so to do, or require Borrower to assemble the Collateral and make it available to Bank at a place designated by Bank which is reasonably convenient to Borrower and Bank, and Borrower waives all claims for damages due to or arising from or connected with any such taking; (d) Proceed in the foreclosure of Bank's security interest and sale of the Collateral in any manner permitted by law, or provided for herein; (e) Sell, lease or otherwise dispose of the Collateral at public or private sale, with or without having the Collateral at the place of sale, and upon terms and in such manner as Bank may determine, and Bank may purchase same at any such sale; (f) Retain the Collateral in full satisfaction of the obligations secured thereby; (g) Exercise any remedies of a secured party under the Uniform Commercial Code. Prior to any such disposition, Bank may, at its option, cause any of the Collateral to be repaired or reconditioned in such manner and to such extent as Bank may deem advisable, and any sums expanded therefor by Bank shall be repaid by Borrower and secured hereby. Bank shall have the right to enforce one or more remedies hereunder successively or concurrently, and any such action shall not estop or prevent Bank from pursuing any further remedy which it may have hereunder or by law. If a sufficient sum is not realized from any such disposition of Collateral to pay all obligations secured by this Security Agreement, Borrower hereby promises and agrees to pay Bank any deficiency. 14. Borrower authorizes Bank to destroy all invoices, delivery receipts, reports and other types of documents and records submitted to Bank in connection with the transactions contemplated herein at any time subsequent to four months from the time such items are delivered to Bank. 15. Nothing herein shall in any way limit the effect of the conditions set forth in any other security or other agreement executed by Borrower, but each and every condition hereof shall be in addition thereto. 16. Additional Provisions: Subject to conditions and limitations contained in the Credit Terms and Conditions dated October 28, 1996. Executed this 28th day of October, 1996 GENESYS TELECOMMUNICATIONS LABORATORIES ----------------------------------------- (Name of Borrower) By: /s/ Michael McCloskey ____________________________________ IMPERIAL BANK (Authorized Signature and Title) By: By: - ----------------------------- ------------------------------------ (Authorized Signature and Title) SECURITY AGREEMENT (CONTINUED) Obligor represents, warrants and agrees: 1. Obligor will immediately pay (a) any Debt when due, (b) Bank's costs of collecting the Debt, of protecting, insuring or realizing on Collateral, and any expenditure of Bank pursuant hereto, including attorneys' fees and expenses, with interest at the rate of 24% per year, or the rate applicable to the Debt, whichever is less, from the date of expenditure, and (c) any deficiency after realization of Collateral. 2. Obligor will use the proceeds of any loan that becomes Debt hereunder for the purpose indicated on the application therefore, and will promptly contract to purchase and pay the purchase price of any property which becomes Collateral hereunder from the proceeds of any loan made for that purpose. 3. As to all Collateral in Obligor's possession (unless specifically otherwise agreed to by Bank in writing), Obligor will: (a) Have, or has, possession of the Collateral at the location disclosed to Bank and will not remove the Collateral from the location. (b) Keep the Collateral separate and identifiable. (c) Maintain the Collateral in good and saleable condition, repair it if necessary, clean, feed, shelter, water, medicate, fertilize, cultivate, irrigate, prune and otherwise deal with the Collateral in all such ways as are considered good practice by owners of like property, use it lawfully and only as permitted by insurance policies, and permit Bank to inspect the Collateral at any reasonable time. (d) Not sell, contract to sell, lease, encumber or transfer the Collateral (other than inventory Collateral) until the Debt has been paid, even though Bank has a security interest in proceeds of such Collateral. 4. As to Collateral which is inventory and accounts, Obligor: (a) May, until notice from Bank, sell, lease or otherwise dispose of inventory Collateral in the ordinary course of business only, and collect the cash proceeds thereof. (b) Will, upon notice from Bank, deposit all cash proceeds as received in a demand deposit account with Bank, containing only such proceeds and deliver statements identifying units of inventory disposed of, accounts which gave rise to proceeds, and all acquisitions and returns of inventory as required by Bank (c) Will receive in trust, schedule on forms satisfactory to the Bank and deliver to Bank all non-cash proceeds other than inventory received in trade. (d) If not in default, may obtain release of Bank's interest in individual units of inventory upon request, therefore, payment to Bank of the release price of such units shown on any Collateral schedule supplementary hereto, and compliance herewith as to proceeds thereof. 5. As to Collateral which are accounts, chattel paper, general intangibles and proceeds described in 4(c) above, Obligor warrants, represents and agrees: (a) All such Collateral is genuine, enforceable in accordance with its terms, free from default, prepayment, defense and conditions precedent (except as disclosed to and accepted by Bank in writing), and is supported by consecutively numbered invoices to, or rights against, the debtors thereon. Obligor will supply bank with duplicate invoices or other evidence of Obligor's rights on Bank's request; (b) All persons appearing to be obligated on such Collateral have authority and capacity to contract; (c) All chattel paper is in compliance with law as to form, content and manner of preparation and execution and has been properly registered, recorded, and/or filed to protect Obligor's interest thereunder; (d) If an account debtor shall also be indebted to Obligor on another obligation, any payment made by him not specifically designated to be applied on any particular obligation shall be considered to be a payment on the account in which Bank has a security interest. Should any remittance include a payment not on an account, it shall be delivered to Bank and, if no event of default has occurred, Bank shall pay Obligor the amount of such payment; (e) Obligor agrees not to compromise, settle or adjust any account or renew or extend the time of payment thereof without Bank's prior written consent. 6. Obligor owns all Collateral absolutely, and no other person has or claims any interest in any Collateral, except as disclosed to and accepted by Bank in writing. Obligor will defend any proceeding which may affect title to or Bank's security interest in any Collateral, and will indemnify and hold Bank free and harmless from all costs and expenses of Bank's defense. 7. Obligor will pay when due all existing or future charges, liens or encumbrances on and all taxes and assessments now or hereafter imposed on or affecting the Collateral and, if the Collateral is in Obligor's possession, the realty on which the Collateral is located. 8. Obligor will insure the Collateral with Bank as loss payee in form and amounts with companies, and against risks and liability satisfactorily to Bank, and hereby assigns such policies to Bank, agrees to deliver them to Bank at Bank's request, and authorizes Bank to make any claim thereunder, to cancel the insurance on Obligor's default, and to receive payment of and endorse any instrument in payment of any loss or return premium. If Obligor should fail to deliver the required policy or policies to the Bank, Bank may, at Obligor's cost and expense, without any duty to do so, get and pay for insurance naming as the insured, at Bank's option, either both Obligor and Bank, or only Bank, and the cost thereof shall be secured by this Security Agreement, and shall be repayable as provided in Paragraph 1 above. 9. Obligor will give Bank any information it requires. All information at any time supplied to Bank by Obligor (including, but not limited to, the value and condition of Collateral, financial statements, financing statements, and statements made in documentary Collateral) is correct and complete, and Obligor will notify Bank of any adverse change in such information. Obligor will promptly notify Bank of any change of Obligor's residence, chief executive office or mailing address. 10. Bank is irrevocably appointed Obligor's attorney-in-fact to do any act which Obligor is obligated hereby to do, to exercise such rights as Obligor may exercise, to use such equipment as Obligor might use, to enter Obligor's premises to give notice of Bank's security interest, and to collect Collateral and proceeds and to execute and file in Obligor's name any financing statements and amendments thereto required to perfect Bank's security interest hereunder, all to protect and preserve the Collateral and Bank's rights hereunder. Bank may: (a) Endorse, collect and receive delivery or payment of instruments and documents constituting Collateral; (b) Make extension agreements with respect to or affecting Collateral, exchange it for other Collateral, release persons liable thereon or take security for the payment thereof, and compromise disputes in connection therewith; (c) Use or operate Collateral for the purpose of preserving Collateral or its value and for preserving or liquidating Collateral. 11. If more than one Obligor signs this Agreement, their liability is joint and several. Any Obligor who is married agrees that recourse may be had against separate property for the Debt. Discharge of any Obligor except for full payment, or any extension, forbearance, change of rate of interest, or acceptance, release or substitution of Collateral or any impairment or suspension of Bank's rights against an Obligor, or any transfer of an Obligor's interest to another shall not affect the liability of any other Obligor. Until the Debt shall have been paid or performed in full, Bank's rights shall continue even if the Debt is outlawed. All Obligors waive: (a) any right to require Bank to proceed against any Obligor before any other, or to pursue any other remedy; (b) presentment, protest and notice of protest, demand and notice of nonpayment, demand or performance, notice of sale, and advertisement of sale; (c) any right to the benefit of or to direct the application of any Collateral until the Debt shall have been paid; (d) and any right of subrogation to Bank until Debt shall have been paid or performed in full. 12. Upon default, at Bank's option, without demand or notice, all or any part of the Debt shall immediately become due. Bank shall have all rights given by law, and may sell, in one or more sales, Collateral in any county where Bank has an office. Bank may purchase at such sale. Sales for cash or on credit to a wholesaler, retailer or user of the Collateral, or at public or private auction, are all to be considered commercially reasonable. Bank may require Obligor to assemble the Collateral and make it available to Bank at the entrance to the location of the Collateral, or a place designated by Bank. Defaults shall include: (a) Obligor's failure to pay or perform this or any agreement with Bank or breach of any warranty herein, or Borrower's failure to pay or perform any agreement with Bank. (b) Any change in Obligor's or Borrower's financial condition which in Bank's judgment impairs the prospect of Borrower's payment or performance. (c) Any actual or reasonably anticipated deterioration of the Collateral or in the market price thereof which causes it, in Bank's judgment, to become unsatisfactory as security. (d) Any levy or seizure against Borrower or any of the Collateral. (e) Death, termination of business, assignment for creditors, insolvency, appointment of receiver, or the filing of any petition under bankruptcy or debtor's relief laws of, by or against Obligor or Borrower or any guarantor of the Debt. (f) Any warranty or representation which is false or is believed in good faith by Bank to be false. 13. Bank's acceptance of partial or delinquent payments or the failure of Bank to exercise any right or remedy shall not waive any obligation of Obligor or Borrower or right of Bank to modify this Agreement, or waive any other similar default. 14. On transfer of all or any part of the Debt, Bank may transfer all or any part of the Collateral. Bank may deliver all or any part of the Collateral to any Obligor at any time. Any such transfer or delivery shall discharge Bank from all liability and responsibility with respect to such Collateral transferred or delivered. This Agreement benefits Bank's successors and assigns and binds Obligor's heirs, legatees, personal representatives, successors and assigns. Obligor agrees not to assert against any assignee of Bank any claim or defense that may exist against Bank. Time is of the essence. This Agreement and supplementary schedules hereto contain the entire security agreement between Bank and Obligor. Obligor will execute any additional agreements, assignments or documents reasonably required by Bank to carry this Agreement into effect. 15. This Agreement shall be governed by and construed in accordance with the laws of the State of California, to the jurisdiction of whose courts the Obligor hereby agrees to submit. Obligor agrees that service of process may be accomplished by any means authorized by California law. All words used herein in the singular shall be considered to have been used in the plural where the context and construction so require. [LOGO] IMPERIAL BANK MEMBER FDIC GENERAL SECURITY AGREEMENT (TANGIBLE AND INTANGIBLE PERSONAL PROPERTY) This Agreement is executed on October 28, 1996, by GENESYS TELECOMMUNICATIONS LABORATORIES (hereinafter called "Obligor"). In consideration of financial accommodations given, to be given or continued, the Obligor grants to IMPERIAL BANK (hereinafter called "Bank") a security interest in (a) all property (i) delivered to Bank by Obligor, (ii) which shall be in Bank's possession or control in any matter or for any purpose, (iii) described below, (iv) now owned or hereafter acquired by Obligor of the type or class described below and/or in any supplementary schedule hereto, or in any financing statement filed by Bank and executed by or on behalf of Obligor; (b) the proceeds, increase and products of such property, all accessions thereto, and all property which Obligor may receive on account of such collateral which Obligor will immediately deliver to Bank (collectively referred to as "Collateral") to secure payment and performance of all of Obligor's present or future debts or obligations to Bank, whether absolute or contingent (hereafter referred to as "Debt"). Unless otherwise defined, words used herein have the meanings given them in the California Uniform Commercial Code. Collateral: A. VEHICLE, VESSEL, AIRCRAFT: - -------------------------------------------------------------------------------- Identification License or Year Make/Manufacturer Model and Serial No. Registration No. New or Used - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Engine or other equipment: ------------------------------------------------------ (For aircraft - original ink signature on copy to FAA) B. DEPOSIT ACCOUNTS: Type _________________ Account Number _______________ Amount $ _________________ In name of___________________________ Depository _______________________________ AND ALL EXTENSIONS OR RENEWALS THEREOF C. ACCOUNTS, INTANGIBLES AND OTHER: (Describe) All personal property, whether presently existing or hereafter created or acquired, including but not limited to: All accounts, chattel paper, documents, instruments, money, deposit accounts and general intangibles including returns, repossessions, books and records relating thereto, and equipment containing said books and records. All goods including equipment and inventory. All proceeds including, without limitation, insurance proceeds. All guarantees and other security therefor. The collateral not in Bank's possession will be located at: 1155 Market St., 10th Fl., San Francisco, CA 94103 [_] If checked, the Obligor is executing this Agreement as an Accommodation Debtor only and the Obligor's liability is limited to the security interest granted In the Collateral described herein. The party being accommodated is ("Borrower"). All the terms and provisions on the reverse side hereof are incorporated herein as though set forth in full, and constitute a part of this Agreement.
Signature Name (indicate title, if applicable) Address GENESYS /s/ Michael McCloskey BY /s/ Michael McCloskey 1155 Market St., 10th - ---------------------------------- ------------------------------ ------------------------------ TELECOMMUNICATIONS LABORATORIES C.F.O. Fl. San Francisco, CA - ---------------------------------- ------------------------------ ------------------------------ 94103 - ---------------------------------- ------------------------------ ------------------------------
[LOGO OF IMPERIAL BANK] MEMBER FDIC ITEMIZATION OF AMOUNT FINANCED DISBURSEMENT INSTRUCTIONS Name(s): GENESYS TELECOMMUNICATIONS LABORATORIES Date: October 28, 1996 $ paid to you directly by Cashiers Check No. $2,500,000.00 credited to deposit account No. 20-001-232 when advances are $ paid on Loan(s) No. requested $ 500,000.00 amounts paid to Bank for: Letters of Credit issuance sublimit* Amounts paid to others on your behalf: $ to Title Insurance Company $ to Public Officials $ to Sublimit within total credit amount of $2,500,000.00 $ to $ to $ to $2,500,000.00 SUBTOTAL (NOTE AMOUNT) Less $ 0.00 Prepaid Finance Charge (Loan fee(s)) $2,500,000.00 TOTAL (AMOUNT FINANCED) Upon consummation of this transaction, this document will also serve as the authorization for Imperial Bank to disburse the loan proceeds as stated above. GENESYS TELECOMMUNICATIONS LABORATORIES BY /s/ Michael McCloskey - ---------------------------------- ------------------------------------ Signature Signature - ---------------------------------- ------------------------------------ Signature Signature - -------------------------------------------------------------------------------- [LOGO OF IMPERIAL BANK] AUTOMATIC DEBIT AUTHORIZATION California's Business Bank(SM) MEMBER FDIC ================================================================================ TO: IMPERIAL BANK RE: LOAN #__________________ $2,500,000.00 You are hereby authorized and instructed to charge account No. 20-00l-232 in ---------- the name of GENESYS TELECOMMUNICATIONS LABORATORIES for principal and interest --------------------------------------- payments due on above referenced loan as set forth below and credit the loan referenced above. [X] Debit each interest payment as it becomes due according to the terms of the note and any renewals or amendments thereof. [_] Debit each principal payment as it becomes due according to the terms of the note and any renewals or amendments thereof. This Authorization is to remain in full force and effect until revoked in writing. ================================================================================ Borrower Signature Date GENESYS TELECOMMUNICATIONS LABORATORIES 10/28/96 - ------------------------------------------------- -------------------------- BY /s/ Michael McCloskey - ------------------------------------------------- -------------------------- - -------------------------------------------------------------------------------- [LOGO OF IMPERIAL BANK] MEMBER FDIC NOTE $ 500,000.00 San Jose ; California October 28, 1996 On March 31, 2000, and as hereinafter provided, for value received, the undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking corporation, or order, at its Santa Clara Valley Regional office, the principal sum of $500,000.00 or such sums up to the maximum if so stated, as the Bank may now or hereafter advance to or for the benefit of the undersigned in accordance with the terms hereof, together with interest from date of disbursement or N/A, whichever is later, on the unpaid principal balance [_] at the rate of % per year [X] at the rate of 1.000% per year in excess of the rate of interest which Bank has announced as its prime lending rate (the "Prime Rate"), which shall vary concurrently with any change in such Prime Rate, or $ 250.00, whichever is greater. Interest shall be computed at the above rate on the basis of the actual number of days during which the principal balance is outstanding, divided by 360, which shall, for interest computation purposes, be considered one year. Interest shall be payable [X] monthly [_] quarterly [_] included with principal [X] in addition to principal [_] beginning November 30, 1996, and if not so paid shall become a part of the principal. All payments shall be applied first to interest, and the remainder, if any, on principal. [X] (If checked), Principal shall be payable in installments of $ **, or more, each installment on the last day of each month, beginning April 30, 1997. Advances not to exceed any unpaid balance owing at any one time equal to the maximum amount specified above, may be made at the option of Bank. Any partial prepayment shall be applied to the installments, if any, in inverse order of maturity. Should default be made in the payment of principal or interest when due, or in the performance or observance, when due, of any item, covenant or condition of any deed of trust, security agreement or other agreement (including amendments or extensions thereof) securing or pertaining to this note, at the option of the holder hereof and without notice or demand, the entire balance of principal and accrued interest then remaining unpaid shall (a) become immediately due and payable, and (b) thereafter bear interest, until paid in full, at the increased rate of 5% per year in excess of the rate provided for above, as it may vary from time to time. Defaults shall include, but not be limited to, the failure of the maker(s) to pay principal or interest when due; the filing as to each person obligated hereon, whether as maker, co-maker, endorser or guarantor (individually or collectively referred to as the "Obligor") of a voluntary or involuntary petition under the provisions of the Federal Bankruptcy Act; the issuance of any attachment or execution against any asset of any Obligor; the death of any Obligor; or any deterioration of the financial condition of any Obligor which results in the holder hereof considering itself, in good faith, insecure. [X] If any installment payment or principal balance payment due hereunder is delinquent ten or more days, Obligor agrees to pay a late charge in the amount of 5% of the payment so due and unpaid, in addition to the payment; but nothing in this paragraph is to be construed as any obligation on the part of the holder of this note to accept payment of any installment past due or less than the total unpaid principal balance after maturity. If this note is not paid when due, each Obligor promises to pay all costs and expenses of collection and reasonable attorney's fees incurred by the holder hereof on account of such collection, plus interest at the rate applicable to principal, whether or not suit is filed hereon. Each Obligor shall be jointly and severally liable hereon and consents to renewals, replacements and extensions of time for payment hereof, before, at, or after maturity; consents to the acceptance, release or substitution of security for this note; and waives demand and protest and the right to assert any statute of limitations. Any married person who signs this note agrees that recourse may be had against separate property for any obligations hereunder. The indebtedness evidenced hereby shall be payable in lawful money of the United States. In any action brought under or arising out of this note, each Obligor, including successor(s) or assign(s) hereby consents to the application of California law, to the jurisdiction of any competent court within the State of California, and to service of process by any means authorized by California law. No single or partial exercise of any power hereunder, or under any deed of trust, security agreement or other agreement in connection herewith shall preclude other or further exercises thereof or the exercise of any other such power. The holder hereof shall at all times have the right to proceed against any portion of the security for this note in such order and in such manner as such holder may consider appropriate, without waiving any rights with respect to any of the security. Any delay or omission on the part of the holder hereof in exercising any right hereunder, or under any deed of trust, security agreement or other agreement, shall not operate as a waiver of such right, or of any other right, under this note or any deed of trust, security agreement or other agreement in connection herewith. ** See Addendum attached GENESYS TELECOMMUNICATIONS LABORATORIES - ---------------------------------- ----------------------------------------- BY /s/ Michael McCloskey - ---------------------------------- ----------------------------------------- - ---------------------------------- ----------------------------------------- [LOGO IMPERIAL BANK] MEMBER FDIC ITEMIZATION OF AMOUNT FINANCED DISBURSEMENT INSTRUCTIONS Name(s): GENESYS TELECOMMUNICATIONS LABORATORIES Date: October 28, 1996 $ paid to you directly by Cashiers Check No. $500,000.00 credited to deposit account No. 20-001-232 from undispersed $ paid on Loan(s) No. loan proceeds when requested $ amounts paid to Bank for: Amounts paid to others on your behalf: $ to Title Insurance Company $ to Public Officials $ to $ to $ to $ to $500,000.00 SUBTOTAL (NOTE AMOUNT) LESS $ 0.00 Prepaid Finance Charge (Loan fee(s)) $500,000.00 TOTAL (AMOUNT FINANCED) Upon consummation of this transaction, this document will also serve as the authorization for Imperial Bank to disburse the loan proceeds as stated above. GENESYS TELECOMMUNICATIONS LABORATORIES BY /s/ Michael McCloskey - ---------------------------------------- ------------------------------- Signature Signature - ---------------------------------------- ------------------------------- Signature Signature - -------------------------------------------------------------------------------- [LOGO OF IMPERIAL BANK] AUTOMATIC DEBIT AUTHORIZATION CALIFORNIA'S BUSINESS BANK(SM) MEMBER FDIC ================================================================================ TO: IMPERIAL BANK RE: LOAN #__________________ $500,000.00 You are hereby authorized and instructed to charge account No. 20-00l-232 in the ---------- name of GENESYS TELECOMMUNICATIONS LABORATORIES for principal and interest --------------------------------------- payments due on above referenced loan as set forth below and credit the loan referenced above. [X] Debit each interest payment as it becomes due according to the terms of the note and any renewals or amendments thereof. [X] Debit each principal payment as it becomes due according to the terms of the note and any renewals or amendments thereof. This Authorization is to remain in full force and effect until revoked in writing. ================================================================================ Borrower Signature Date GENESYS TELECOMMUNICATIONS LABORATORIES 10/28/96 - ------------------------------------------------- -------------------------- BY Michael McCloskey - ------------------------------------------------- -------------------------- - -------------------------------------------------------------------------------- This FINANCING STATEMENT is presented for filing and will remain effective, with certain exceptions, for five years from the date of filing, pursuant to Section 9403 of the California Uniform Commercial Code. - ----------------------------------------------------------------------------------------------------------------------- 1. DEBTOR (LAST NAME FIRST - IF AN INDIVIDUAL 1A. SOCIAL SECURITY OR FEDERAL TAX NO. GENESYS TELECOMMUNICATIONS LABORATORIES 94-3120525 - ----------------------------------------------------------------------------------------------------------------------- 1B. MAILING ADDRESS 1C. CITY, STATE 1D. ZIP CODE 1155 Market St., 10th Fl. San Francisco, CA 94103 - ----------------------------------------------------------------------------------------------------------------------- 2. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST - IF AN INDIVIDUAL 2A. SOCIAL SECURITY OR FEDERAL TAX NO. - ----------------------------------------------------------------------------------------------------------------------- 2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE - ----------------------------------------------------------------------------------------------------------------------- 3. DEBTOR'S TRADE NAMES OR STYLES 3A. FEDERAL TAX NUMBER ======================================================================================================================= 4. SECURED PARTY 4A. SOCIAL SECURITY NO., FEDERAL TAX NO. IMPERIAL BANK OR BANK TRANSIT AND A.B.A. NO. NAME 226 Airport Parkway MAILING ADDRESS San Jose, California 95110 16-144/1222 CITY STATE ZIP CODE - ----------------------------------------------------------------------------------------------------------------------- 5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO., FEDERAL TAX NO. OR BANK TRANSIT AND A.B.A. NO. NAME MAILING ADDRESS CITY STATE ZIP CODE - ----------------------------------------------------------------------------------------------------------------------- 6. This FINANCING STATEMENT covers the following types or items of property (include description of real property on which located and owner of record when required by instruction 4).
All personal property, whether presently existing or hereafter created or acquired, including but not limited to: All accounts, chattel paper, documents, instruments, money, deposit accounts and general intangibles including returns, repossessions, books and records relating thereto, and equipment containing said books and records. All goods including equipment and inventory. All proceeds including, without limitation, insurance proceeds. All guarantees and other security therefor. - ----------------------------------------------------------------------------------------------------------------------- 7. CHECK [X] 7A. PRODUCTS OF 7B. DEBTOR(S) SIGNATURE NOT REQUIRED IN ACCORDANCE WITH IF APPLICABLE [X] COLLATERAL ARE ALSO INSTRUCTION 5 (a) ITEM: COVERED [_](1) [_](2) [_](3) [_](4) - ----------------------------------------------------------------------------------------------------------------------- 8. CHECK [X] IF APPLICABLE [_] DEBTOR IS A `TRANSMITTING UTILITY' IN ACCORDANCE WITH UCC SECTION 9105 (1) (n) - ----------------------------------------------------------------------------------------------------------------------- 9. DATE: 10/28/96 C 10. THIS SPACE FOR USE OF FILING OFFICER BY /s/ Michael McCloskey O (DATE, TIME, FILE NUMBER AND SIGNATURE(S) OF DEBTORS D FILING OFFICER) E - ----------------------------------------------------------------------------------------------------------------------- GENESYS TELECOMMUNICATIONS LABORATORIES 1 TYPE OR PRINT NAME(S) OF DEBTOR(S) - --------------------------------------------------------------------- 2 BY /s/ Michael McCloskey 3 SIGNATURE(S) 0F SECURED PARTY(IES) - --------------------------------------------------------------------- 4 IMPERIAL BANK 5 TYPE OR PRINT NAME(S) OF SECURED PARTY(IES) - --------------------------------------------------------------------- 6 11. Return copy to: 7 NAME IMPERIAL BANK ADDRESS 9920 La Cienega Blvd. 8 CITY Inglewood, California 90301 STATE Att: Note Center 9 ZIP CODE 0
[LOGO OF IMPERIAL BANK] MEMBER FDIC AGREEMENT TO PROVIDE INSURANCE (REAL OR PERSONAL PROPERTY) TO: IMPERIAL BANK Date: October 28, 1996 226 Airport Parkway Borrower: San Jose, California 95110 GENESYS TELECOMMUNICATIONS LABORATORIES In consideration of a loan in the amount of $3,000,000.00, secured by All tangible personal property including inventory and equipment. I/We agree to obtain adequate insurance coverage to remain in force during the term of the loan. I/We also agree to advise the below named agent to add Imperial Bank as loss payee on the new or existing insurance policy, and to furnish Bank at above address with a copy of said policy/endorsements and any subsequent renewal policies. I/We understand that the policy must contain: 1. Fire and extended coverage in an amount sufficient to cover: a) The amount of the loan, OR b) All existing encumbrances, whichever is greater, But not in excess of the replacement value of the improvements on the real property. 2. Lender's "Loss Payable" Endorsement Form 438 BFU in favor of Imperial Bank, or any other form acceptable to Bank. INSURANCE INFORMATION Insurance Co./Agent: Aon Risk Services Telephone No.: (408) 535-2817 Agent's Address: 100 Park Center Plaza, Ste. 506 San Jose, CA 95113 GENESYS TELECOMMUNICATIONS LABORATORIES Signature of Obligor: BY /s/ Michael McCloskey ----------------------------------- Signature of Obligor: ----------------------------------- ================================================================================ - ----------------------------------------------------------- FOR BANK USE ONLY INSURANCE VERIFICATION: Date: _________________ Person Spoken to: ___________________________________ Policy Number: ________________________________________ Effective From: _________________ To: _________________ Verified By: ____________________________________ - ----------------------------------------------------------- EX-10.8 20 FACILITIES LEASE WITH 1155 MARKET PARTNERS Exhibit 10.8 LEASE Dated as of July 1, 1996 Between 1155 Market Partners As The Landlord And Genesys Telecommunications Laboratories, Inc. As The Tenant City and County of San Francisco TABLE OF CONTENTS 1. Premises............................................ 1 2. Use of Premises..................................... 1 3. Initial Term........................................ 1 4. Possession.......................................... 1 5.1 Minimum Rent........................................ 2 5.2 Additional Rent..................................... 2 5.3 Prepaid Rent........................................ 4 5.4 Security Deposit.................................... 4 5.5 Payment of Rent..................................... 5 5.6 Option to Renew..................................... 5 6. Common Areas........................................ 6 7. Uses Prohibited..................................... 7 8. Compliance with Law................................. 7 9. Certificates of Occupancy........................... 7 10. Improvements and Alterations........................ 8 11. Repair.............................................. 9 12. Abandonment......................................... 10 13. Liens............................................... 10 14. Assignment and Subletting........................... 10 15. Indemnification..................................... 12 16. Insurance........................................... 13 17. Mutual Waiver of Subrogation........................ 14 18. Services and Utilities.............................. 14 19. Inability to Perform................................ 16 20. Disruption of Services for Repair or Maintenance.... 17 21. Life-Safety System.................................. 17 22. Personal Property and Other Taxes and Assessments... 17 23. Rules and Regulations............................... 17 24. Holding Over........................................ 18 25. Subordination of Lease.............................. 18 26. Entry by the Landlord............................... 18 27. Insolvency or Bankruptcy............................ 19 28. Default............................................. 19 29. Damage or Destruction of Premises................... 20 30. Eminent Domain...................................... 21 31. Plats and Riders.................................... 21 32. Sale by the Landlord................................ 21 33. Estoppel Certificates............................... 22 34. Right of the Landlord to Perform.................... 22 35. Attorney Fees....................................... 22 36. Surrender of Premises............................... 22 37. End of Term......................................... 22 38. Quiet Possession.................................... 23 39. Brokerage........................................... 23 40. No Waiver........................................... 23 41. Notices............................................. 24 42. Defined Terms and Marginal Headings................. 24 43. Time and Applicable Law............................. 24 44. Successors.......................................... 24 45. Late Charge......................................... 24 46. Authority........................................... 24 47. Name of Building.................................... 25 48. Entire Agreement.................................... 25 49. No Offer............................................ 25 50. Exhibits & Additional Provisions.................... 25 RULES AND REGULATIONS..................................... 29 This LEASE (the "Lease") is made and entered into as of this 3rd day of July, 1996, by and between 1155 Market Partners, a California general partnership (the "Landlord") and Genesys Telecommunications Laboratories, Inc. (the "Tenant"). WITNESSETH: ----------- 1. Premises. The Landlord, in reliance upon and in consideration of -------- the rents hereinafter reserved and of the covenants and agreements hereinafter mentioned to be kept and performed by the Tenant, does by these presents lease and let unto the Tenant, and the Tenant does hereby hire and take from the Landlord, approximately 36,198 square feet on the 9 , 10 , and 11th floors as outlined in red on Exhibit A attached hereto and made a part hereof (the "Premises" or "Leased Premises") of a certain building located at 1155 Market Street in the city and County of San Francisco, State of California (the "Building") located on the real property more particularly described in Exhibit B attached hereto and made a part hereof (the "Property"). On or before the Commencement Date with respect to each floor, Landlord shall have each such floor measured in accordance with BOMA standards. If any measurement discloses that the number of rentable square feet in the Premises is not, in fact, 36,198 square feet, then this Lease shall be amended to reflect the true square footage of the space with appropriate adjustments to Minimum Rent and the definition of Tenant's Share. 2. Use of Premises. The Premises shall be used for offices and --------------- training and for no other use or purpose without the prior written consent of Landlord. 3. Initial Term. (A) This Lease shall commence and the payment of ------------ rent shall start: (i) with respect to the tenth floor, on August 1, 1996, (the "Tenth Floor Commencement Date"), (ii) with respect to the eleventh floor, on September 1, 1996 ("Eleventh Floor Commencement Date") and (iii) with respect to the ninth floor, the later of December 1, 1996 or sixty (60) days after the Landlord obtains possession of the ninth floor from the existing tenant ("Ninth Floor Commencement Date"). The term of this lease shall expire on September 30, 2000 (the "Expiration Date"). (B) The Rent Commencement Date for the 9th and 11th floors shall not occur until the work has been substantially completed. The term "substantially complete" shall mean the date that all of the following shall have occurred: (a) Tenant' s architect shall have certified to Landlord and Tenant that the Tenant Improvements are substantially complete in accordance with the final plans and specifications therefor, and (b) there remains no incomplete or defective item of Tenant Improvements that would adversely affect or interfere with Tenant's occupancy of the floor in question for Tenant's intended use thereof. Landlord promises to use diligent good faith efforts to substantially complete the improvements required by Tenant to be constructed on the tenth floor by August 1, 1996. Tenant shall submit to Landlord the architectural drawings for the work on the 11th floor on or before July 24, 1996 and for the 9th floor on or before September 17, 1996. If for any reason the Tenant does not deliver its complete architectural plans on or before the above-referenced date, then rent payment shall commence on the dates set forth in paragraph 3(A)hereof regardless of when the work is completed. 4. Possession. Possession of the Premises shall be delivered to the ---------- Tenant as soon as the Tenant Improvement Work ordered by the Tenant is substantially completed. If the Landlord for any reason does not use its best efforts to complete the work timely and properly, then the Tenant shall not pay rent until possession of the Premises is actually turned over to the Tenant. Landlord warrants and represents that as of the Commencement Date 1 for each floor, such floor shall be broom clean, in good condition and repair and the electrical, mechanical, HVAC, plumbing, elevator, fire safety, security and other systems serving such floor will be in good condition and repair. If a non-compliance with said warranty exists as of the applicable Commencement Date, Landlord shall, promptly after receipt of notice from Tenant (even if such notice is received after the applicable Commencement Date, but in no event more than 90 days after the Commencement Date), rectify the same at Landlord' 5 expense. As of the applicable Commencement Date, each floor of the Premises and the Building shall comply with all underwriter' 5 requirements and all rules, regulations, statutes, ordinances, laws and building codes applicable thereto. None of the provisions of the preceding sentence shall affect the Commencement Date for the payment of rent as set forth above. 5.1 Minimum Rent. Tenant agrees to pay to Landlord, without demand, a ------------ minimum monthly rental (the "Minimum Rent") for the Premises, for each and every month, payable in advance the first day of each month, based on the following schedule: 08/1/96 - 08/31/96 $20,110.00 09/1/96 - 11/30/96 $40,220.00 12/1/96 - 07/31/98 $60,330.00 08/1/98 - 07/31/00 $63,346.50 Should for any reason as set forth herein, the commencement date for a floor not be the first day of the month, the rent for that month shall be pro-rated for the number of days in the shortened month. Notwithstanding the above, Tenant shall have a ten (10) day grace period from the 1st of the month to the 10th of the month to pay rent to Landlord three times in each twelve-month period beginning on the Tenth Floor Commencement Date. (a) As Additional Rent, Tenant shall pay to Landlord at the times hereinafter set forth, an amount equal to (a) Tenant's Share specified hereinbelow of any increase in "operating expenses" (defined below in this paragraph 5.2) paid or incurred by Landlord on account of the operation or maintenance of the Building above such operating expenses paid or incurred by Landlord during the Base Year specified hereinbelow, and (b) Tenant's share of any increase in "direct taxes" (defined below in this paragraph 5.2) paid or incurred by Landlord in any calendar year in excess of those paid or incurred in the Base Year specified hereinbelow. Notwithstanding the foregoing to the contrary, Tenant shall not be responsible for any increase in "operating" expenses or increase in "direct taxes" attributable to any period of time commencing on the Tenth Floor Commencement Date and ending on the first anniversary of the Tenth Floor Commencement Date. If at any time during the term of the Lease, less than ninety-five percent (95%) of the total leasable area of the Building is occupied, the operating expenses and direct taxes shall be adjusted by Landlord to reasonably approximate the operating expenses and direct taxes which would have been incurred if the Building had been at least ninety-five percent (95%) occupied. At or after the commencement of any calendar year subsequent to the Base Year Landlord may, but shall not be required to, notify Tenant of Landlord's estimate of the amount of any increase in operating expenses for such calendar year over operating expenses for the Base Year, the amount of any increase in direct taxes over those paid or incurred in the Base Year and of the amount of such estimated increases payable by Tenant. Tenant shall pay to Landlord on the first day of each calendar month during such calendar year one-twelfth (1/12) of the amount of such estimated increases in operating expenses and direct taxes payable by Tenant hereunder; provided, however, that Tenant shall not be responsible for any increases in operating expenses or direct taxes allocable to the first twelve (12) months of the term of this Lease. Statements of the amount of actual operating expenses for the preceding calendar year and the Base Year, 2 of direct taxes for the appropriateyear and the Base Year and of the amount of such increases payable by Tenant shall be given to Tenant on such date as Landlord shall from time to time determine during each calendar year subsequent to the calendar year immediately next succeeding the Base Year. All amounts payable by Tenant as shown on said statement, less any amounts theretofore paid by Tenant on account of Landlord' 5 estimate of increases in operating expenses and direct taxes made pursuant to this paragraph 5.2, shall be paid by Tenant upon delivery of said statement to Tenant. In the event that the Tenant has paid in any given year estimated increases beyond those later determined from actual reconciliation, then such overpayment shall be applied toward the Rent for the following year or, if the Lease has terminated and not been renewed as provided herein, such overpayment shall be promptly refunded to Tenant. (b) The amount of any increase in operating expenses and direct taxes payable by Tenant for the first calendar year of the term and the calendar year in which this Lease terminates shall be prorated on the basis in which the number of days from and including the commencement of said calendar year to and including the date on which this Lease terminates bears to 365 and shall be due and payable when rendered notwithstanding termination of this Lease. (c) The term "operating expenses" as used herein shall include all direct costs of operation, maintenance and management of the Building, including the Premises, as determined by generally accepted accounting practices, except those costs which are the exclusive responsibility of the Tenant or any other tenant of the Building under this lease or other applicable leases. By way of illustration, but not limitation, operating expenses shall include the cost or charges for the following items: heat, light, water, sewer, power, steam, and other utilities (including without limitation any temporary or permanent utility surcharge or other exaction, whether now or hereafter imposed), waste disposal, janitorial services, guard services, window cleaning, air conditioning, materials and supplies, equipment and tools, service agreements on equipment, insurance premiums, licenses, permits and inspections, wages and salaries, employee benefits and payroll taxes, accounting and legal expenses, management fees, and the reasonable cost of contesting the validity or applicability of any governmental enactments which may affect operating expenses, not to exceed the cost savings realized. Notwithstanding anything to the contrary in this Lease Tenant shall not be obligated to perform or to pay or reimburse Landlord for any of the following: (i) costs occasioned by fire, acts of God, or other casualties or by the exercise of the power of eminent domain, (ii) costs which would properly be capitalized under generally accepted accounting principles ("GAAP") except to the extent that (a) the foregoing reduces the expenses otherwise payable by Tenant under this Lease and (b) Tenant's share of such cost during any twelve- month period of the Lease is amortized over the useful life of the capital item in question determined in accordance with GAAP, (iii) costs for which Landlord has a right of reimbursement from others, (iv) costs to comply with any Law applicable to the Premises or the building on the Tenth Floor Commencement Date, (v) costs arising from the disproportionate use of any utility or service supplied by Landlord to any other occupant of the building, (vi) depreciation or expense reserves, (vii) interest, charges and fees incurred on debt, payments on mortgages and rent under ground leases, (viii) insurance premiums for coverage not customarily paid by tenants of similar projects in the vicinity of the Premises or that are not commercially reasonable, insurance deductibles, and co- insurance payments, (ix) a management fee in excess of 5% of all actual operating expenses, and (x) costs for maintenance, repair or replacement to or of the structural elements of the building. The term "direct taxes" as used herein shall include all real property taxes and assessments on the Building, the land on which the Building is situated, and the various estates in the Building and the land. Direct taxes shall also include all personal property taxes levied on the property used in the 3 operation of the Building; taxes of every kind and naturewhatsoever levied and assessed in lieu of, in substitution for, or in addition to, existing or additional real or personal property taxes on said Building, land or personal property, whether or not now customary or within the contemplation of the parties hereto, other than taxes covered by paragraph 22 to the extent that Landlord is reimbursed therefor by Tenant or by any other tenant of the Building; taxes upon the gross or net rental income of Landlord derived from the Building and land (excluding, however, state and federal gift, inheritance, personal or corporate income taxes measured by the income of Landlord from all sources) and the reasonable cost of Landlord of contesting the amount or validity or applicability of any of the aforementioned taxes not to exceed the cost savings realized. Net recoveries through protest, appeals or other actions taken by Landlord in its discretion, after deduction of all costs and expenses, including counsel and other fees, shall be deducted from direct taxes for the year of receipt. (d) The annual determination and statement of operating expenses and direct taxes shall be made by an accounting or auditing officer designated by Landlord. A copy of said determination shall be made available to Tenant upon demand. If the Tenant contests such statement in writing within thirty (30) days after receipt thereof, the Tenant shall have the right to have the statement audited, at Tenant's cost, in conformity with generally accepted accounting procedures, by an accounting firm mutually acceptable to Landlord and Tenant. The audit shall be binding on the parties; if the audit determines an overpayment by the Tenant, the Landlord shall promptly refund the amount of such overpayment to Tenant. (e) The Base Year referred to hereinabove is defined as the calendar year 1996. The Base Tax Year referred hereinabove is defined as the fiscal year ending 1996. Tenant's Share, as referred to hereinabove, is 27.45% which amount is subject to adjustment pursuant to paragraph 1. Tenant's Share is calculated by dividing the number of rentable square feet in the Premises by the number of rentable square feet in the building which has been determined to be 131,862. When all three floors are entirely delivered, Tenant's Share shall be 27.45%. Until that time, Tenant Share shall be the resulting quotient determined in accordance with the formula set forth above. (f) The Minimum Rent and the Additional Rent are hereinafter sometimes individually or collectively referred to as the Rent, as applicable. 5.3 Prepaid Rent. On execution of this Lease, Tenant shall pay ------------ $40,220 to Landlord, which shall be credited to Tenant's payment of the Minimum Rent for the first two months of the initial term for which Tenant must pay the Minimum Rent. Landlord shall not be required to pay Tenant interest on the prepaid rent. 5.4 Security Deposit. Prior to the expiration of the Letter of Credit ---------------- as described in paragraph of Rider No. 1, Tenant shall deposit with Landlord the greater of $60,330.00 or an amount equal to one month's base rent for the Premises as a security deposit for the performance by Tenant of the provisions of this Lease. If Tenant is in default, Landlord can use the security deposit, or any portion of it, to cure the default or to compensate Landlord for all damage sustained by Landlord resulting from Tenant's default. Tenant shall immediately on demand pay to Landlord a sum equal to the portion of the security deposit expended or applied by Landlord as provided in this paragraph so as to maintain the security deposit in the sum initially deposited with Landlord. If Tenant is not in default at the expiration or termination of this Lease, Landlord shall return the security deposit to Tenant. Landlord's obligations with respect to the security deposit are those of a debtor and not a trustee. Landlord can 4 maintain the security depositseparate and apart from Landlord's general funds or can commingle the security deposit with Landlord's general and other funds. At the termination of the Lease and provided the Tenant is not in default, the portion of the security deposit to which the Tenant is entitled, shall be returned to the Tenant together with interest computed at 3% per annum simple interest. 5.5 Payment of Rent. The Tenant agrees to pay said Rent to the --------------- Landlord, without deduction, demand or offset, in lawful money of the United States of America, at the office of the Landlord at 2101 Market Street, San Francisco, CA 94114, or to such other person or at such other place as the Landlord may from time to time designate in writing. No security or guaranty, which may now or hereafter be furnished to the Landlord for the payment of the Rent herein reserved or for performance by the Tenant of the other covenants or conditions of this Lease, shall in any way be a bar or defense to any action in unlawful detainer, or for the recovery of the Premises, or to any action which the Landlord may at any time commence for a breach of any of the covenants or conditions of this Lease. 5.6 Option to Renew. ---------------- (a) Provided that Tenant is not in material default hereunder and that the Tenant named herein (and not a sublessee or assignee, except a Permitted Transferee as defined herein) is then occupying at least one-third of the entire Premises demised hereunder, Tenant shall have the option to renew this Lease for one additional term of, at Tenant's option, six (6) months minimum to twenty four (24) months maximum commencing upon expiration of the initial term of the Lease. (b) If Tenant wishes to exercise said option, Tenant must do so by written notice given to Landlord not less than six (6) months prior to expiration of the initial term. (c) If the Tenant exercises said option, the renewal lease shall be on all the same terms and conditions as set forth herein as applicable to the initial term (as the initial term is defined in paragraph 3.1 hereof), excepting as follows: (i) the option so exercised shall not itself be renewed; (ii) the Landlord shall have no obligation to pay for any alterations or improvements to the Premises (as the Premises may then be constituted); (iii) the Base Year shall be the calendar year in which such renewal term commences; and (iv) the Minimum Rent payable by Tenant for and during the applicable renewal period shall be an amount which is equal to 100% of the prevailing fair market rent for the Premises for the option period as of the date of commencement of the applicable extended term, as shall be mutually agreed upon in writing by Landlord and Tenant within thirty (30) days after exercise of option; the prevailing fair market value shall be net of leasing commissions and Tenant shall be solely responsible for leasing commissions should he retain the services of an agent. In no event shall the Minimum Rent for any extended term be less than the Minimum Rent in effect during the last year of the preceding term. Landlord represents that Landlord is not obligated to pay to Stubbs/Collenette any commissions on account of the option to renew. If the parties are unable to agree on the Minimum Rent for the extended term within such thirty (30) day period, then within ten (10) days after the expiration of such thirty (30) day period, each party, at its cost and by giving notice to the other party, shall appoint a real estate appraiser with at least five (5) years full time commercial appraisal experience in the area in which the Premises are located to appraise and set the Minimum Rent. If a party does not appoint an appraiser, the single appraiser appointed shall be the sole appraiser and shall set the Minimum Rent for the extended term. If the two appraisers are appointed by the parties as stated in this paragraph, they shall 5 meet within thirty (30) days after the last appraiser isappointed and if, within ten (10) business day. after such first meeting, the two appraisers are unable to agree promptly upon the amount of the Minimum Rent for the extended term, they, themselves, shall within ten (10) business days thereafter appoint a third appraiser meeting the qualifications stated in this paragraph; in the event that the two appraisers are unable to agree upon the appointment of a third appraiser within such ten (10) business days, either of the parties to this Lease, by given ten (10) days notice to the other party, can apply to the then president of the county real estate board of the county in which the Premises are located, or to the presiding judge of the Superior Court of that county, for the selection of a third appraiser who meets the qualifications stated in this paragraph. Each of the parties shall bear one-half of the cost of appointing the third appraiser and paying the third appraiser's fee. The third appraiser, however selected, shall be a person who has not previously acted in any capacity for either party. In the event of the failure, refusal or inability of any appraiser to act, his successor shall be appointed by him within a period of ten (10) days but, in the case of the third appraiser, his successor shall be appointed as hereinabove provided. Within thirty (30) days after the selection of the third appraiser, a majority of the appraisers shall set the Minimum Rent for the extended term. If a majority. of the appraisers are unable to set the Minimum Rent within the stipulated period of time, the three appraisals shall be added together and their total divided by three; the resulting quotient shall be the Minimum Rent for the Premises during the extended term. If, however, the low appraisal and/or the high appraisal are/is more than 10% lower and/or higher than the middle appraisal, the low appraisal and/or the high appraisal shall be disregarded. If only one appraisal is disregarded, the remaining two appraisals shall be added together and their total divided by two; the resulting quotient shall be the Minimum Rent for the Premises during the extended term. If both the low appraisal and the high appraisal are disregarded as stated in this paragraph, the middle appraisal shall be the Minimum Rent for the Premises during the extended term. 6. Common Areas. Tenant, its employees and invitees may, except as ------------ otherwise specifically provided in this Lease, use the common areas of the Building as such common areas may be designated from time to time by Landlord (the "Common Areas"), in common with other persons for ingress and egress and open-space purposes and for other purposes specifically designated by Landlord during the term of this Lease, which use shall be subject to the restrictions set forth in this Lease (including, without limitation, the Rules and Regulations) and any further reasonable restrictions promulgated by Landlord from time to time. Landlord shall at all times have the right and privilege of determining the nature and extent of the Common Areas and of making such changes therein and thereto from time to time which, in its reasonable opinion, are deemed to be desirable and for the best interests of all persons using the Common Areas and of Landlord, including, without limitation, the withdrawal of any portion thereof and the relocation of driveways, entrances, exits, corridors, automobile parking spaces (if any), the direction and flow of traffic, installation of prohibited areas, landscaped areas, and all other facilities thereof. Nothing contained herein shall be deemed to create any liability upon Landlord for any injury to or death of persons or for damage to or destruction of property, including, without limitation, for any damage to motor vehicles of Tenant, its customers or employees, or for loss of property from within such motor vehicles, unless caused by the negligence of Landlord, its agents, contractors, servants or employees. Landlord shall at all times during the term of this Lease have the sole and exclusive control of the Common Areas and may at any time and from time to time during the term hereof exclude and restrain any person from use or occupancy thereof excepting, however, bona fide invitees of Tenant and other tenants of Landlord who make use of said Common Areas in accordance with the Rules and Regulations pertaining thereto. The rights of Tenant hereunder in and to the 6 Common Areas shall at all times be subject to the rights of Landlord and other tenants of Landlord who use the same in common with Tenant, and it shall be the duty of Tenant to keep all the Common Areas free and clear of any obstructions created or permitted by Tenant or resulting from Tenant's operation, and to permit the use of any of the Common Areas only for ingress and egress by the invitees of Tenant to and from the Building. If, in the opinion of Landlord, unauthorized persons are using the Common Areas by reason of the presence of Tenant in the Leased Premises, Tenant, upon demand of Landlord, shall correct such situation by appropriate action or proceedings against all such unauthorized persons. Nothing herein shall affect the right of Landlord at any time to remove any such unauthorized persons from said areas or to prevent the use of any of said areas by unauthorized persons. 7. Uses Prohibited. The Tenant shall not do or permit anything to be --------------- anything therein, which will in any way increase the rate of or affect any fire or other insurance upon the Building or any of its contents, or cause a cancellation of any insurance policy covering the Building or its contents. The Tenant shall, at its sole cost and expense, comply with any and all requirements pertaining to the Premises of any insurance organization or company necessary for the maintenance of the fire and public liability insurance covering the Premises. The Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or injure or annoy them, or use or allow the Premises to be used for any immoral, unlawful, hazardous or objectionable purposes, and the Tenant shall not cause, maintain or permit any nuisance in, on or about the Premises. The Tenant shall not change the use of the Premises in any way that will result in a conflict with any other lease of premises in the Building; provided, however, that Tenant shall always have the right to use the Premises for offices and training. No loudspeakers or other similar device, system or apparatus which can be heard or experienced outside the Premises shall, without the prior written approval of the Landlord, be used in or at the Premises. The Tenant shall not commit or suffer to be committed any waste in or upon the Premises. The Tenant agrees immediately upon the discovery of any such unlawful, illegal, disreputable or extra hazardous use, to take all necessary steps, legal and equitable, to compel the discontinuance of such use and to oust and remove any subtenants, occupants or other persons guilty of such unlawful, illegal, disreputable or extra hazardous use. The Tenant shall indemnify and save harmless the Landlord against and from all costs, expenses, liabilities, losses, damages, injunctions, suits, fines, penalties, claims and demands, including reasonable counsel fees, arising out of, by reason of, or on account of, any violation of or default in the covenants of this paragraph. The provisions of this paragraph are for the benefit of the Landlord only and are not nor shall they be construed to be for the benefit of any tenant or occupant of the Building. 8. Compliance with Law. The Tenant shall not use or permit anything to ------------------- be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated. The Tenant, at its sole cost and expense, shall promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force (collectively, "Laws") and with the requirements of any board of fire underwriters or other similar body now or hereafter constituted regulating the Tenant's improvements, acts or omissions. The judgment of any court of competent jurisdiction or the admission of the Tenant in an action against the Tenant (whether the Landlord be a party thereto or not) that the Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement shall be conclusive of that fact as between the Landlord and the Tenant. 9. Certificates of Occupancy. Tenant shall not at any time use or ------------------------- 7 occupy the Leased Premises in violation of the certificates of occupancy or of any present or future governmental orders or directives issued for the Building. In the event that any department of the City or County in which the Building is located, or of the State of California, shall hereafter at any time contend or declare that the Premises are used for a purpose which is in violation of such certificate or certificates of occupancy, Tenant shall, upon five (5) days notice from Landlord or any governmental agency, immediately discontinue such use of the Premises. Failure by Tenant to discontinue such use after such notice shall be considered a default under this Lease and Landlord shall have the right to terminate this Lease immediately, and in addition thereto shall have the right to exercise any and all rights and privileges and remedies given to Landlord by and pursuant to the provisions of paragraph 28 hereof. The statement in this Lease of the nature of the business to be conducted by Tenant in the Premises shall not be deemed or construed to constitute a representation or guaranty by Landlord that such business is lawful or permissible or will continue to be lawful or permissible under any certificate of occupancy issued for the Building, or otherwise permitted by law. 10. Improvements and Alterations. Except to the extent provided to the ---------------------------- contrary herein, the Tenant shall take the Premises in their "ASIS" condition. The Tenant shall not make or suffer to be made any alterations, additions or improvements to or of the Premises or any part thereof, except as expressly provided in this paragraph 10. Tenant may cause such alterations, additions or improvements to be made only upon the following conditions: (a) By a contractor reasonably approved in writing by the Landlord in advance; (b) Tenant submits plans, specifications and cost estimates of such work prepared by a competent architect in accordance with existing building ordinances of federal, state or local laws or orders to the Landlord for the Landlord's approval which Landlord shall not unreasonably withhold. Default by the Tenant in the payment of any sums agreed to be paid by the Tenant to Landlord for or in connection with alterations, additions or improvements to the Premises shall entitle the Landlord to all the same remedies as for nonpayment of Rent hereunder. Any alterations, additions or improvements to or of the Premises shall at once become the property of the Landlord. Movable furniture, equipment and trade fixtures shall remain the property of the Tenant. The Landlord shall indicate to the Tenant when Landlord's approval of the above plans and specifications is sought which alterations, additions or improvements made for or by the Tenant will be required to be removed from the Premises at the termination of this Lease. If the Landlord so elects, the Tenant shall restore the Premises to the condition of same prior to the making of such alterations, additions or improvements which are so required to be removed at the termination of this lease; said work of removal and restoration shall be performed, at the Landlord's sole election, either (i) by the Tenant, at the Tenant's sole cost and expense, or (ii) by the Landlord at the expense of the Tenant and, in the latter election, the Tenant shall pay to the Landlord, promptly upon the Landlord's demand, the amount of the Landlord's reasonable cost of such removal and restoration. Prior to the commencement of Landlord' 5 removal and or restoration work, Landlord shall submit the cost estimate to Tenant and Tenant shall have the right to reasonably approve such estimate and any amendments thereto. In the event that, as a result of any such alterations, additions or improvements, it shall be necessary for the Landlord to make other improvements (including, but not limited to, upgrading of installations of life safety systems or compliance with standards for handicapped persons) in the Building, whether within or without the Premises, then the Tenant agrees to pay the cost of such other improvements if they are a condition of the building permit; provided however, that Tenant shall not be responsible for any costs or improvements (i) made necessary as a result of the failure of Landlord or any occupant of the Building to obtain building permits, where required and/or 8 (ii) to comply with any Laws (a) applicable thePremises as of the date the construction of Tenant's tenant improvements are completed by Landlord and/or (b) applicable to the Building as of the Tenth floor Commencement Date. Landlord shall be responsible for those costs and improvements that are not the responsibility of Tenant. (c) Upon request, Tenant shall procure and deliver to Landlord evidence of compliance with all applicable laws, ordinances, rules, regulations and requirements for permits and approvals. Sufficient evidence will be deemed to be normal approvals, permits and certificates required or provided by entities with jurisdiction over the performance of the construction at the Premises; (d) Tenant shall deliver to Landlord evidence that Tenant has procured or caused procurement of (i) "builder's risk" insurance, (ii) workers' compensation insurance covering all persons employed in connection with the work for whom death or bodily injury claims could be asserted against Landlord or the Premises, and (iii) the policies of insurance required to be obtained by Tenant under paragraph 16 of this Lease. Tenant or its contractor shall pay all premiums required to maintain the insurance hereinabove described at all times during the performance of the work and shall, immediately upon receipt, deliver to Landlord copies of insurance certificates for the policies required. Such certificates shall include an additional named insured endorsement in favor of Landlord and a provision that in the event of cancellation, nonrenewal or change in coverage, the insurance carrier will send Landlord a notice thereof at least thirty (30) days preceding the effective date of cancellation, nonrenewal or change in coverage; (e) Tenant shall give Landlord ten (10) days advance written notice of Tenant's intention to commence work or delivery of building materials. The notice shall specify the nature of the work. Landlord shall have the right to post and maintain on the Premises any notices of nonresponsibility provided for under applicable law, and to enter the Premises upon twentyfour (24) hour notice, except in the case of emergency, where no notice shall be required, and inspect the construction at all reasonable times; (f) If Tenant installs any electrical equipment that overloads the lines of the Premises or the Building, Landlord may require Tenant to make whatever changes to the lines as may be necessary to render same in good order and repair, and in compliance with all insurance requirements and applicable legal requirements; (g) Tenant shall construct all work in a good and workmanlike manner, in compliance with the plans and specifications approved by Landlord and with all applicable laws, ordinances, rules, regulations and requirements for permits and approvals; (h) Within 30 days after completion of the work, Tenant shall record a notice of completion; and (i) On completion of any work, Tenant shall supply Landlord with the final plans obtained by Tenant, including "asbuilt" drawings, if obtained, which shall accurately reflect all such work as completed. 11. Repair. Except as otherwise provided herein, by entry upon ------ commencement of the term hereof, the Tenant acknowledges and accepts the Premises as being in good, sanitary order, condition and repair. Except to the extent provided to the contrary in paragraph 17, the Tenant, at the Tenant's sole cost and expense, agrees to keep the Premises and every part thereof (including its own trade fixtures and personal property) in good condition and repair. Tenant hereby waives all rights to make repairs at the expense of the Landlord as provided by law, statute or ordinance now or hereafter in effect, or to offset the cost thereof against Rent. Except as otherwise provided in this Lease, it is 9 specifically understood and agreed that the Landlord has no obligation and has made no promises to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof and, except as expressly set forth in this Lease, no representations respecting the condition of the Premises or the Building have been made by the Landlord to the Tenant. If, in an emergency, it shall become necessary to make promptly any repairs or replacements required to be made by Tenant, Landlord may reenter the Premises and proceed forthwith to have the repairs or replacements made and pay the cost thereof. Within thirty (30) days after Landlord renders a bill therefor, Tenant shall reimburse Landlord for the cost of making the repairs. Notwithstanding anything to the contrary in this Lease, Landlord, and not Tenant, shall perform and construct, any repair, maintenance or improvement (i) required as a consequence of any violation of Law or construction defect in the Premises as of the applicable Commencement Date, (ii) for which Landlord has a right of reimbursement from others, (iii) which would be treated as a "capital expenditure" under generally accepted accounting principles, and (iv) to the heating, ventilating, air conditioning, electrical, water, sewer, and plumbing systems serving the Premises. Tenant' s obligation, if any, to reimburse Landlord for the costs of such repairs, maintenance and improvements shall be governed by the other provisions of this Lease. 12. Abandonment. The Tenant shall not abandon the Premises at any time ----------- during the term hereof and, if the Tenant shall abandon or surrender the Premises, or be dispossessed by process of law, or otherwise, any personal property belonging to the Tenant and left on the Premises shall be deemed to be abandoned at the option of the Landlord, except such property as may be security for a debt to the Landlord. 13. Liens. Tenant agrees to keep the Premises, and every part ----- thereof, at all times during the term of this Lease, free and clear of mechanics' liens and other liens for labor, services, supplies, equipment or material, furnished to the Premises on account of work performed by Tenant or anyone claiming on behalf of Tenant or through Tenant and that it will at all times fully and promptly pay and discharge and wholly protect and save harmless, by bond or otherwise, the Landlord, and all and every part of the estate, right, title and interest of the Landlord in and to all and every part of the Premises, against any and all such demands or claims which may or could ripen into such liens or claims therefore; the Tenant agrees to give the Landlord not less than ten (10) days notice in writing in advance of the commencement of any construction, alteration, addition or repair of the Premises in order that the Landlord may post an appropriate notice of Landlord's nonresponsibility therefor. 14. Assignment and Subletting. ------------------------- (a) In entering this Lease for the term and of the provisions of this Lease, Landlord has relied upon Tenant's business reputation and experience. Accordingly, Tenant agrees that it will not mortgage or hypothecate this Lease or any interest therein. Tenant may not assign this Lease or sublet the Premises without first having obtained the written consent of the Landlord. Such consent by Landlord shall not be unreasonably withheld. Tenant agrees that should Tenant assign this Lease or sublet all or a portion of the Premises, Tenant will remain fully liable on and responsible for payment of the Rent and the other terms, conditions, covenants and duties of this Lease. Tenant shall not sublet all or portion of the Premises for any period of time extending beyond the period of this Lease or any renewal thereof. The Tenant agrees that reasonable grounds for the Landlord's refusal to consent shall include, but not be limited to: (1) financial instability of the proposed subtenant, and (2) credit rating of the subtenant, if any. No permitted subtenant shall assign, mortgage, pledge, encumber, transfer, modify, extend or renew its sublease or further sublet all or any portion of its sublet space, or otherwise permit any portion of the sublet space to be used or occupied by others, without the prior written consent of Landlord 10 first had and obtained in each instance, which consent may be withheld in Landlord's sole and absolute discretion, except that the Landlord may flat unreasonably withhold its consent in the case of an assignee or sublessee of this entire Lease, and each proposed sublease shall contain appropriate restrictions in furtherance of the foregoing. Any mortgage, pledge, hypothecation, encumbrance or transfer or any such assignment, subletting, occupation or use without the consent of Landlord as aforesaid shall be void and, at the option of Landlord, constitute a default entitling Landlord to terminate this Lease and give rise to all other remedies available to Landlord for breach of this Lease. For purposes of this paragraph 14, the following events shall be deemed an assignment of this Lease or a sublease, as appropriate: (i) the issuance of equity interests in Tenant or any subtenant (whether stock or partnership interests or otherwise) to any person or group of related persons, in a single transaction or a series of related or unrelated transactions, such that, following such issuance, such person or group shall have control of Tenant or such subtenant; or (ii) a transfer of control of Tenant or of any subtenant in a single transaction or a series of related or unrelated transactions (including, without limitation, by consolidation, merger or reorganization), except that the transfer of the outstanding capital stock of any corporate Tenant or subtenant (by persons or parties other than "insiders" within the meaning of the Securities Exchange Act of 1934, as amended) through the "overthe counter" market or any recognized national or international securities exchange shall not be included in the determination of whether control has been transferred. "Control" shall mean ownership of not less than 51% of all of the voting stock of such corporation or not less than 51% of all of the legal and equitable interest in any other business entity. If this Lease is assigned, whether or not in violation of the terms of this Lease, Landlord may collect rent from the assignee. If the Premises or any part thereof is sublet or is used or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from such subtenant or occupant. In either event, Landlord may apply the next amount collected to the rents herein reserved. The consent by Landlord to an assignment, transfer, encumbering or subletting pursuant to any provision of this Lease shall not relieve Tenant or any assignee or subtenant from obtaining the express prior written consent of Landlord to any other or further assignment, transfer, encumbering or subletting. Neither any assignment of this Lease or any interest created hereby or any interest of Tenant in any sublease, nor any subletting, occupancy or use of the Premises or any part thereof by any person other than Tenant, nor any collection of rent by Landlord from any person other than Tenant, nor any application of any such rent as provided in this subparagraph (a) shall be deemed a waiver of any of the provisions of this subparagraph, or (b) relieve, impair, release or discharge Tenant of its obligation fully to perform the terms of this Lease on Tenant ' s part to be performed, and Tenant shall remain fully and primarily liable hereunder. (b) The Tenant agrees to pay to the Landlord the amount of the Landlord's reasonable cost of processing every proposed subletting, (including, without limitation, the costs of attorneys' and other professional fees and administrative, accounting and clerical time of the Landlord), and the reasonable amount of all direct and indirect expenses incurred by the Landlord arising from any sublessee taking occupancy (including, without limitation, freight elevator operation for moving of furnishings and trade fixtures, security service, janitorial and cleaning service and rubbish removal service). Notwithstanding anything herein to the contrary, the Landlord shall have no obligation to process any request for such consent prior to the Landlord's receipt of payment by the Tenant of the amount of the Landlord's estimate of the processing costs and expenses and all other direct and indirect costs and expenses of the Landlord and its agents arising from such proposed subletting. (c) In no event shall the Tenant assign this Lease or sublet the Premises or any portion thereof to any then existing or prospective tenant of the Building. However, Tenant shall have the right to assign this Lease orsublet the Premises or any portion thereof to an existing tenant of the Building if (i) the 12 sublease or the assignment is for less than the entire balance of the term or extended term of the Lease and the Tenant will reoccupy the subleased or assigned space once the sublease or the assignment is over, or (ii) only part of the Premises is to be sublet or assigned and no dividing walls are to be built between the space retained by Tenant and the sublet or assigned space. (d) In the event of (i) any permitted subletting at a greater rental rate than the Rent payable by the Tenant hereunder or (ii) any permitted subletting providing for payment of any consideration (including, without limitation, payment for leasehold improvements) by the sublessee to the Tenant, the amount of all such sublease rental and/or consideration which is in excess of the Rent payable by the Tenant hereunder shall be paid to Landlord to the extent consistent with paragraph 5 of Rider 1. (e) Notwithstanding anything to the contrary in this paragraph 14, and provided Tenant remains liable under this Lease and is not released thereby, Tenant may, without Landlord' 5 prior written consent and without being subject to any of the provisions of this paragraph 14 including without limitation, Landlord's right to participate in assignment and subletting proceeds, sublet the Premises or assign the Lease to (collectively hereafter referred to as the "permitted transferees"): (i) a subsidiary, affiliate, division or corporation controlling, controlled by or under common control with Tenant; (ii) a successor corporation related to Tenant by merger, consolidation or nonbankruptcy reorganization; or (iii) a purchaser of substantially all of Tenant's assets. Notwithstanding anything to the contrary in this paragraph 14, the sale or transfer of Tenant's capital stock in connection with the merger, consolidation or nonbankruptcy reorganization of Tenant shall not be deemed an assignment, subletting, or any other transfer of the Lease or the Premises. 15. Indemnification. --------------- (a) Except for claims resulting from the negligence or willful misconduct of the Landlord or the holders of any Superior Interests, Landlord and the holders of any Superior Interests (as defined in paragraph 25 hereof) shall not be liable to Tenant and Tenant hereby waives all claims against such parties for any loss, cost, damage, injury, illness or death suffered by any person or damage to any property in or about the Premises or the real property of which the Premises are a part by or from any cause whatsoever and, without limiting the generality of the foregoing, whether caused by water leakage of any character from the roof, walls, basement or other portion of the Premises or said real property or caused by gas, fire, electricity or any cause whatsoever, in, on or about the Premises or said real property or any part thereof. (b) Tenant shall hold Landlord and the holders of any Superior Interests, the respective individual partners therein and the respective shareholders thereof (as applicable), and all of their agents, contractors, servants, officers, directors, employees and licensees (hereinafter collectively called the "Indemnitees") harmless from and against any and all loss, cost, liability, claim, damage and expense including, without limitation, penalties, fines and reasonable attorneys' fees and expenses, incurred in connection with or arising from any default by Tenant hereunder or from any loss, cost, damage, injury, illness or death suffered by any person or damage to any property or from any other cause whatsoever: (i) occurring in or on the Premises or any part thereof arising at any time during the term of this Lease and from any cause whatsoever other than by reason of the negligence or willful misconduct of any of the Indemnitees or (ii) arising at any time and occurring in, on or about any part of said real property other than the Premises (including, without limitation, any facilities of said real property, such as elevators, stairways, passageways, hallways, plaza areas or adjacent sidewalks the use of which Tenant may have in common with other tenants of the building), to the extent such injury, illness, death or damage shall be caused by any act, neglect or default or omission of any duty with respect to the same by Tenant, its agents, 12 employees, invitees or licensees except to the extent caused by the negligence or willful misconduct of any of the Indemnities. The provisions of this paragraph 15(b) shall survive the termination of this Lease with respect to any injury, illness, death or damage occurring prior to such termination. In case any action or proceeding be brought against any of the Indemnitees by reason of any such claim or liability, Tenant upon notice from Landlord covenants to resist and defend such action or proceeding by counsel reasonably satisfactory to Landlord, with the cost to be shared between Tenant and Landlord in accordance with their respective responsibility. Except for damages caused by the negligence or willful misconduct of the Indemnitees, Tenant, as a material part of the consideration to Landlord for this Lease, hereby assumes all risks of damage to property (to whomever belonging) in, upon or about the Premises from any source, and Tenant hereby waives all claims in respect thereof against the Indemnitees. In the event of any inconsistency between the terms of this Paragraph 15 and the terms of paragraph 17, the terms of paragraph 17 shall prevail. 16. Insurance. --------- (a) The Tenant agrees to keep in force during the term hereof, at the Tenant's expense, comprehensive general liability insurance, including contractual liability insurance, with a minimum combined single limit of liability of One Million dollars and no/100 ($1,000,000.00) per occurrence for injuries to or death of persons and damage to property occurring in or about the Premises and its appurtenances. Said policy shall name the Landlord and any other parties designated by the Landlord as additional insureds and the policy shall contain cross liability endorsements; shall insure the Landlord's and such other parties' contingent liability as respects acts or omissions of the Tenant; shall be issued by an insurance company licensed to do business in the State of California and approved by the Landlord, which approval Landlord shall not unreasonably withhold; shall specifically include the liability assumed by the Tenant under this Lease (provided, however, that such contractual liability coverage shall not satisfy the Tenant's indemnity obligations under this Lease); shall provide that said insurance shall not be canceled or coverage thereof changed unless thirty (30) days prior written notice from the insurer to the Landlord is given first. The Landlord reserves the right to increase the foregoing amount of insurance from time to time as the Landlord's insurance broker reasonably determines is required to adequately protect the Landlord and the other parties designated by the Landlord from the matters insured against, provided that such amounts are customary in the vicinity of the Premises. (b) Said policy or a certificate thereof shall be delivered to the Landlord by the Tenant upon commencement of the term, and thereafter there shall be delivered to the Landlord by the Tenant renewal policies or certificates at least thirty (30) days in advance of the expiration dates of expiring policies. In the event the Tenant shall fail to procure such insurance, or to deliver such policies or certificates, the Landlord may, at its option, and without obligation to do so, procure the same for the account of the Tenant, and the cost thereof shall be paid to the Landlord by the Tenant upon demand. (c) The Tenant agrees additionally to keep in force during the entire term hereof, at the Tenant' 5 expense, Property Insurance, including Special Form coverage on any and all improvements and alterations installed in the Premises by or for the Tenant and all the Tenant's furnishings and equipment, and personal property in the Premises, which insurance shall be in an amount of not less than their full replacement value naming the Landlord as additional insured. The Landlord agrees to use the proceeds from any such policy to replace personal property and restore improvements or alterations. (d) The Tenant shall, throughout the term of this Lease, procure and effect Workers' Compensation insurance as required by law. (e) Lessor shall obtain and keep in force during the term of this 13 Lease a policy or policies of insurance covering loss or damage to theBuilding, but not Lessee's personal property, fixtures, equipment, or tenant improvements, in the amount of full replacement cost thereof, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, and such other perils as Lessor deems advisable or may be required by any lender having a lien on the Building; Lessor shall not be required to carry earthquake insurance. 17. Mutual Waiver of Subrogation. Landlord waives any and all rights ---------------------------- of recovery against Tenant for or arising out of damage to or destruction of the Building, or Leased Premises, or any other property of Landlord from causes then included under standard fire and extended coverage insurance policies or endorsements, whether or not such damage or destruction shall have been caused by the negligence of Tenant, its agents, servants, employees, contractors, visitors or licensees, but only to the extent that Landlord's insurance policies then in force permit such waiver and only to the extent of actual recovery from the insurance company. Tenant also waives any and all rights of recovery against Landlord for or arising out of damage to or destruction of any property of Tenant, from causes then included under standard fire and extended coverage insurance policies or endorsements, whether or not caused by the negligence of Landlord, its agents, servants, employees, contractors, visitors or licensees, but only to the extent that Tenant's insurance policies then in force permit such waiver and only to the extent of actual recovery from the insurance company. Landlord and Tenant represent that their present insurance policies now in force permit such waiver. If, at any time during the term of this Lease, either party shall give no less than fifteen (15) days prior notice to the other certifying that any insurance carrier which shall have issued any such policy covering any of the property above mentioned shall refuse to consent to the aforesaid waiver of subrogation, or such carrier shall revoke a consent previously given or shall cancel or threaten to cancel any policy previously issued and then in force and effect, because of such waiver of subrogation, then, in any of such events, the waiver in this paragraph shall thereupon be of no further force or effect as to the loss, damage or destruction covered by such policy; provided however, that if at any time thereafter such consent shall be obtained therefor, the waiver hereinabove provided for shall again become effective. 18. Services and Utilities. ---------------------- (a) The Landlord shall furnish to the Premises, during the period from 6:00 A.M. to 6:00 P.M. on business days Monday through Friday, excepting federal and state holidays, and subject to the Rules and Regulations of the Building and to federal, state and local codes and directives of governmental agencies or the public utility company furnishing the service, or as otherwise determined by the Landlord, the following: (i) electricity for lighting and power suitable for the use of the Premises for general office purposes, which shall be available at all times; provided, however, that Tenant shall not at any time have a connected electrical load for lighting purposes in excess of one (1) watt per square foot of net rentable area of the Premises as determined by Landlord or a connected load for all other power requirements in excess of two (2) watts per square foot of net rentable area of the Premises as determined by Landlord, and the electricity so provided for lighting and power shall not exceed such limits; (ii) heat and air conditioning required in the Landlord's judgment for the comfortable use and occupancy of the Premises for such purposes; (iii) water for restroom and drinking purposes; (iv) elevator service by nonattended automatic elevators for general office pedestrian usage, which shall be available at all times; and (v) janitorial services limited to emptying and removal of general office refuse, light vacuuming of floors as needed and window washing as determined by the Landlord. (b) The Landlord shall not be liable for any loss or damage suffered 14 by the Tenant or others by reason of the Landlord's failure to furnish any of the services or utilities referred to in paragraph 18 (a) when such failure is caused by acts of God, accidents, breakage, repairs, strikes, lockouts or other labor disputes, the making of repairs, alterations or improvements to the Premises or the Building, the inability to obtain an adequate supply of fuel, water, electricity, labor or other supplies for any other condition beyond the Landlord's reasonable control including, without limitation, any governmental energy conservation program, and any such failure shall not constitute or be construed as a constructive or other eviction of the Tenant. If Tenant's access to the Premises or use thereof is prevented for more than five (5) working days as a result of any of the above occurrences, then the Rent shall abate beginning upon the 6th working day until Tenant's access to the Premises is restored. The Landlord shall not be liable under any circumstances for loss of business or injury to property however occurring, through or in connection with or incidental to failure to furnish any of the services or utilities referred to in paragraph 18(a). In the event any governmental entity promulgates or revises any statute, ordinance or building, fire or other code, or establishes mandatory or voluntary controls or guidelines applicable to the Property or the Premises or any part thereof or appurtenances thereto, relating to the use or conservation of energy, water, gas, light or electricity, or the reduction of automobile or other emissions, or the provision of any other utility or service provided with respect to this Lease, or in the event the Landlord is required or elects to make alterations to the Building or any other part of the Property in order to comply with such mandatory or voluntary controls or guidelines, or make such alterations to the Building or any other part or said property related thereto, such compliance and the making of such alterations shall in no event entitle the Tenant to any damages, relieve the Tenant of the obligation to pay the full monthly Rent reserved hereunder, or constitute or be construed as a constructive or other eviction of the Tenant. Landlord shall not be obligated to provide or maintain any security patrol or security system. Should Landlord elect to provide such patrol or system, Landlord shall not be responsible for the quality of any such patrol or system which may be provided hereunder, or for damage or injury to Tenant, its employees, invitees or others due to failure, action or inaction of such patrol or system. (c) Without the prior written consent of the Landlord, which consent may not be unreasonably withheld, the Tenant will not use any apparatus or device in the Premises (including, without limitation, air conditioning equipment, condenser pumps and condenser water, electronic data processing machines, punch card machines, CRT (cathode ray tubes) and related equipment, supplementary heating equipment, coffee makers, microwave ovens, fans or copy machines) which will in any way cause the amount of electricity, water, heating, air conditioning or ventilation furnished to the Premises to exceed the amount thereof required for use of the Premises for general office purposes or to exceed any limits established in paragraph 18(a), or connect with electric current (except through existing outlets in the Premises) or water pipes any apparatus or device for the purpose of using electric current or water. Landlord acknowledges that Tenant's electrical requirement for the Premises will exceed the amounts set forth in paragraph 18(a). Tenant agrees to either (a) meter and bill Landlord for up to 3 watts per square foot, or (b) pay to Landlord any electrical cost above 3 watts per square foot to be calculated based on Tenant's current average consumption and use basis. Landlord and Tenant agree to visit each other after three (3) months to discuss Tenant's electrical usage if any major change in electrical usage occurs. (d) The Tenant shall pay for all services and utilities not required to be furnished by the Landlord pursuant to paragraph 18 (a). If the Tenant shall require water, heat, air conditioning, electric current, elevator or janitorial service in excess of that required to be furnished by the Landlord as specified in paragraph 18(a), the Tenant must first obtain the written consent of the Landlord to the use thereof, which the Landlord cannot unreasonably withhold. If 15 the Landlord consents to an excess use of electriccurrent or water, the Landlord, at its election, may cause an electric current or water meter (including, without limitation, any additional wiring, conduit or panel required therefor) to be installed in the Premises in order to measure the amount of excess electric current or water consumed by the Tenant. The Tenant agrees to pay to the Landlord upon demand, in addition to the amounts set forth in paragraphs 5.1 through 5.4 of this Lease, the following: the cost of any and all water, heat, air conditioning, electric current, janitorial, elevator or other services or utilities required by and furnished to the Tenant in excess of the services and utilities required to be furnished by the Landlord as provided in paragraph 18(a); the cost of any meter installed in the Premises and the cost of the installation, maintenance and repair thereof; and any cost incurred by the Landlord in keeping account of or determining such excess utilities or services furnished to the Tenant. The cost of the foregoing shall be determined by methods (which may or may not include installation of separate meters as allowed above) and in accordance with rates not in excess of that charged by the applicable utility company. (e) The Landlord makes no representation with respect to the adequacy or fitness of the heating, air conditioning or ventilation equipment in the Building to maintain temperatures which may be required for, or because of, any equipment of the Tenant other than normal fractional horsepower office equipment, and the Landlord shall have no liability for loss or damage suffered by the Tenant or others in connection therewith. If the temperature otherwise maintained in any portion of the Premises by the heating, air conditioning or ventilation systems is affected as a result of (i) any lights, machines or equipment (including, without limitation, electronic data processing machines) used by the Tenant in the Premises, (ii) the occupancy of the Premises by more than one person per one hundred (100) square feet of net rentable area therein or (iii) an electrical load for lighting and power in excess of that required for general office purposes, the Landlord shall have the right to install any machinery and equipment which the Landlord deems reasonably necessary to restore temperature balance, including, without limitation, modification to the standard air conditioning equipment, and the cost thereof including, without limitation, the cost of installation and any additional cost of operation, maintenance or repair incurred thereby, shall be paid by the Tenant to the Landlord upon demand. Prior to the commencement of such work, Landlord shall submit the cost estimate to Tenant and Tenant shall have the right to approve such estimate and any amendments thereto. Tenant's approval shall not be unreasonably withheld. 19. Inability to Perform. This Lease and the obligation of Tenant to -------------------- pay Rent hereunder and to keep, observe and perform all of the other terms, covenants, conditions, provisions and agreements of this Lease on the part of Tenant to be kept, observed or performed shall in no way be affected, impaired or excused because Landlord is unable to fulfill any of its obligations under this Lease or to supply, or is delayed or curtailed in supplying, any service expressly or impliedly to be supplied, or is unable to make or is delayed or curtailed in making repairs, alterations, decorations, additions or improvements, or is unable to supply, or is delayed or curtailed in supplying, any equipment or fixtures, if Landlord is prevented, delayed or curtailed from so doing by reason of any cause beyond Landlord's reasonable control, including, but not limited to, acts of God, strike or labor troubles, fuel or energy shortages, governmental preemption or curtailment in connection with a national emergency or in connection with any rule, order, guideline or regulation of any department or governmental agency, or by reason of the conditions of supply and demand which have been or are affected by a war or other emergency. Any such prevention, delay or curtailment shall be deemed excused and Landlord shall not be subject to any liability resulting therefrom. However, if the Tenant's access to the Premises or use thereof is prevented for more than five (5) working days as a result of any of the above occurrences, then the Rent shall abate beginning upon the 6th working day until Tenant's access to the Premises is restored. 16 20. Disruption of Services for Repair or Maintenance. Landlord shall ------------------------------------------------ repair and maintain or cause to be repaired and maintained those portions of the Building outside of the Premises and the structural portions of the Building, but only those portions of the Building which are not required to be maintained by Tenant hereunder. Landlord reserves the right to stop service of the elevator, plumbing, heating, ventilating, air conditioning and electric or other mechanical systems, or cleaning services, when necessary, by reason of accident or emergency or for inspection, repairs, alterations, decorations, additions or improvements which, in the reasonable judgment of Landlord, are desirable or necessary to be made, until same shall have been completed, and shall further have no responsibility or liability for failure to supply any of such services in such instance. Landlord shall use all reasonable efforts to minimize the inconvenience to Tenant from such disruptions or interruptions of services. 21. Life Safety System. If there now is or shall be installed in the ------------------ Building a sprinkler system, heat or smoke detection system, or any other so called life safety system, and any such system or any of its appliances shall be damaged or injured or not in proper working order by reason of any act or omission of Tenant, Tenant's agents, servants, employees, contractors, visitors or licensees, Tenant shall forthwith restore the same to good working condition. If the Insurance Services Offices or any other similar body or any bureau, department or official of the state, county or city government, or any governmental authority having jurisdiction, require that any changes, modifications, alterations or additional equipment be made or supplied in or to any such system by reason of Tenant's particular business, or the location of partitions, trade fixtures, or other contents of the Premises, or if any such changes, modifications, alterations or additional equipment required by reason of Tenant's particular business or the location of partitions, trade fixtures, or other contents of the Premises, become necessary to prevent the imposition of a penalty or charge against the full allowance for any such system in the insurance rate as fixed by said Office, or by any insurance company, Tenant shall, at Tenant's expense, promptly make and supply such changes, modifications, alterations or additional equipment, provided that Tenant's obligations shall be limited to expenses for such damages, modifications, alterations or additional equipment made or located within the Premises. 22. Personal Property and Other Taxes and Assessments. The Tenant ------------------------------------------------- shall pay, before delinquency, any and all taxes levied or assessed and which become payable during the term hereof upon the Tenant's equipment, furniture, fixtures and other personal property located in the Premises, including any carpeting installed by the Tenant, even though said carpeting has become a part of the Premises. In the event said taxes are charged to or paid or payable by the Landlord, the Tenant, forthwith upon demand therefor, shall reimburse the Landlord for all of such taxes paid by the Landlord. 23. Rules and Regulations. The Tenant agrees faithfully to observe --------------------- and comply with the Rules and Regulations printed on or annexed to this Lease and all modifications of and additions thereto which the Landlord imposes and communicates to all tenants of the Building from time to time. The Landlord shall not be responsible to the Tenant for the nonperformance by any other tenant or occupant of the Building of any of said Rules and Regulations. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, or prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all tenants of the Building. Landlord reserves the right to adopt other reasonable rules and regulations as may in its judgment be needed from time to time for safety and security, for care and cleanliness of the Building and for the preservation of good order therein. Tenant agrees to abide by such Rules and Regulations and any additional rules and regulations which are 17 adopted. 24. Holding Over. If the Tenant shall retain possession of the ------------ Premises or part thereof after expiration of the term hereof, by lapse of time or otherwise, then the Tenant agrees to pay the Landlord for each month of such retention a Minimum Rent equal to one and onehalf (11/2) times the Minimum Rent payable under this Lease for the last full month period prior to the date of such expiration, and agrees to indemnify the Landlord against all losses, costs, claims, liabilities and expenses (including, without limitation, reasonable attorneys' fees and expenses) sustained by the Landlord by reason of such retention (including, without limitation, claims for damages by any other person to wham the Landlord may have leased all or any part of the Premises effective upon the expiration of the term of this Lease). This provision is in addition to, and does not affect or waive the Landlord's right of reentry or any other right or remedy available to the Landlord on account of such holding over. 25. Subordination of Lease. This Lease shall be subject and subordinate ---------------------- at all times to all ground or underlying leases which may now exist or hereafter be executed affecting the Property, or any part thereof, and to the lien of any mortgages or deeds of trust in any amount or amounts whatsoever now or hereafter placed on or against the Property, or any part thereof, or on or against the Landlord's interest or estate therein, or on or against any ground or underlying lease (any of the foregoing being a "Superior Interest"), without the necessity of having further instruments on the part of the Tenant to effectuate such subordination. Notwithstanding the foregoing, the Tenant covenants and agrees to execute and deliver, upon demand, without charge, such further instruments in form reasonably acceptable to Tenant evidencing such subordination of this Lease to such ground or underlying leases and to the lien of any such mortgages or deeds of trust as may be requested by the Landlord. In the event of foreclosure or exercise of any power of sale under any mortgage or deed of trust superior to this Lease or to which this Lease is subject or subordinate, the Tenant shall upon demand attorn to the lessor under said ground or underlying lease, or to the purchaser at any foreclosure sale or sale pursuant to the exercise of any power of sale under any mortgage or deed of trust, in which event this Lease shall not terminate and the Tenant shall automatically be and become the tenant of said lessor under said ground or underlying lease or of said purchaser, whichever shall make demand therefor. This Lease shall not be subject or subordinate to any ground or underlying lease or to any lien, mortgage, deed of trust, or security interest hereafter affecting the Premises, nor shall Tenant be required to execute any documents subordinating this Lease, unless the ground lessor, lender, or other holder of the interest to which this Lease would be subordinated executes a recognition and nondisturbance agreement which (i) provides that this Lease shall not be terminated so long as Tenant is not in material default under this Lease and (ii) recognizes all of Tenant's rights hereunder. 26. Entry by the Landlord. Upon 24 hour notice to Tenant (except in --------------------- the case of an emergency where no notice shall be required), the Landlord reserves and shall at any and all reasonable times have the right to enter the Premises to inspect the same, to show the Premises to prospective brokers, agents, purchasers or, during the last six (6) months of the term, tenants, to post notices of nonresponsibility, sale or other notices, and to alter, improve or repair the Premises and any portion of the Building without abatement of rent, and may for those purposes erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, always providing the entrance to the Premises shall not be blocked thereby and further providing that the business of the Tenant shall not be interfered with unreasonably. Landlord's entry shall be subject to Tenant's reasonable security precautions and Tenant's right to accompany Landlord at all times. The Tenant hereby waives any claim for damages for any injury, nuisance or other inconvenience to or interference with the Tenant's business, any loss of occupancy, business or quiet enjoyment of the Premises, and other loss occasioned by such entry. For each of the aforesaid purposes, the Tenant agrees that the 18 Landlord shall at all times have and retain a keywith which to unlock all of the doors in, upon and about the Premises, excluding the Tenant's vaults and safes, and the Landlord shall have the right to use any and all means which the Landlord may deem proper to open said doors in an emergency in order to obtain entry to the Premises, and any entry to the Premises obtained by the Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises, or an eviction of the Tenant from the Premises or any portion thereof. 27. Insolvency or Bankruptcy. The Tenant hereby agrees that neither ------------------------ this Lease or any interest herein shall be assignable or transferable by operation of law, pursuant to any proceedings under the Bankruptcy Code. It is hereby mutually agreed, covenanted and understood by and between the parties hereto that in the event any proceedings under the Bankruptcy Code or any amendment thereto, whether commenced by or against the Tenant (provided that if such proceeding be involuntary, the Tenant shall have thirty (30) days to dismiss the same), or in the event the Tenant be adjudged insolvent, or if the Tenant makes an assignment for the benefit of its creditors, or if a writ of attachment or execution be levied on the leasehold estate created hereby or the business of the Tenant operated upon the Premises or the assets of the Tenant situate thereon and be not released or satisfied within ten (10) days thereafter, or if any receiver be appointed in any proceeding or action to which the Tenant is a party, with authority to take possession or control of the Premises or the business conducted thereon by the Tenant and such receiver not be dismissed within thirty (30) days after his appointment, this Lease, at the option of the Landlord (a) shall continue in existence as long as (i) the payment of all Rent agreed to herein is assured, and (ii) that in the event the Lease is assigned or assumed, no covenants in the Lease will be breached, or (b) shall immediately end and terminate and shall in no way be treated as an asset of the Tenant after the exercise of the aforesaid option; and the Landlord shall have the right, after the exercise of said option, to forthwith re enter the Premises as its original estate. 28. Default. The occurrence of any of the following shall constitute a ------- default by Tenant: 1. Failure to pay Rent when due; 2. Abandonment of the Premises; and 3. Failure to perform any other provision of this Lease. Notwithstanding anything to the contrary in this Lease, (i) Tenant shall not be deemed to be in default on account of Tenant' s failure to pay money to Landlord, unless Tenant's failure to pay continues for five (5) days after Tenant's receipt of written notice of the delinquency and (ii) Tenant shall not be in default for failing to perform any covenant of this Lease (other than a covenant to pay money to Landlord) unless Tenant's failure to perform such covenant continues for a period of fifteen (15) days after Tenant's receipt of written notice of such failure, or such longer time as may reasonably be required to cure the default so long as Tenant commences to cure such failure within such fifteen (15) day period and diligently prosecutes such cure to completion. In the event of any breach or default of this Lease by the Tenant, then the Landlord, in addition to any other rights and remedies of the Landlord at law or equity, shall have the right either to terminate the Tenant's right to possession of the Premises and thereby terminate this Lease or to have this Lease continue in full force and effect with the Tenant at all times having the right to possession of the Premises. Should the Landlord elect to terminate the Tenant's right to possession of the Premises and terminate this Lease, the Landlord shall have the immediate right of entry and may remove all persons and property from the Premises. The Tenant agrees that such property so removed may be stored in a public warehouse 19 or elsewhere at the cost and for the account of the Tenant.Upon such termination, the Landlord shall have all the rights and remedies of a landlord provided by Article 1951.2 of the Civil Code of the State of California, which provides that Landlord may recover from Tenant the following: (i) the worth at the time of the award of the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of the award of the amount by which the unpaid Rent which would have been earned after termination until the time of the award exceeds the amount of such Rent loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform Tenant's obligations under the Lease or which in the ordinary course of things would be likely to result therefrom. The "worth at the time of award" of the amounts referred to in (i) and (ii) of this subsection shall be computed by allowing interest at the interest rate set forth in paragraph 45 of this Lease. The "worth at the time of the award" of the amount referred to in (iii) above shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one percent (1%). As used herein, the term "time of award" shall mean either the date upon which the Tenant pays to the Landlord the amount recoverable by the Landlord as hereinabove set forth or the date of entry of any determination, order or judgment of any court or other legally constituted body, whichever first occurs. No act by the Landlord other than giving written notice to the Tenant shall terminate this Lease; acts of maintenance, efforts to relet the Premises or the Landlord's appointment of a receiver to protect the Landlord's interest shall not constitute a termination of the Tenant's right to possession. Should the Landlord, following any breach or default of this Lease by the Tenant, elect to keep this Lease in full force and effect, with the Tenant retaining the right to possession of the Premises (notwithstanding the fact the Tenant may have abandoned the Premises), then the Landlord, in addition to all other rights and remedies the Landlord may have at law or equity, shall have the right to enforce all of the Landlord's rights and remedies under this Lease including, but not limited to, the right to recover the installments of Rent as they become due under this Lease. Notwithstanding any such election to have this Lease remain in full force and effect, the Landlord may at any time thereafter elect to terminate the Tenant's right to possession of the Premises and thereby terminate this Lease for any previous breach or default which remains uncured, or for any subsequent breach or default. Any and all sums in addition to the Rent payable by the Tenant to the Landlord pursuant to the provisions of this Lease or arising from the Tenant's use and occupancy of the Premises shall be deemed additional rent under this Lease and default by the Tenant in the payment of any such sums (beyond the applicable cure period) shall entitle the Landlord to all the same remedies as would be applicable in the case of nonpayment of Rent hereunder. 29. Damage or Destruction of Premises. If, during the term, the --------------------------------- Premises or the Building and other improvements in which the Premises are located are totally or partially destroyed from any cause, rendering the Premises totally or partially inaccessible or unusable, and at least one (1) year of the Lease term remains (or, if Tenant exercises its option to extend the term of this Lease for the full two (2)year period within fifteen (15) days after the date of the damage), Landlord shall restore the Premises or the Building and other improvements in which the Premises are located to substantially the same condition as they were in immediately before destruction, if the restoration can be made under the existing laws and can be completed within 120 working days 20 after the date of the destruction and if thecost of such repairs does not exceed the amount of insurance proceeds received by Landlord on account of such damages (or, if Tenant elects to pay the portion of the cost not covered by insurance proceeds). Such destruction shall not terminate this Lease. If the restoration cannot be made in the time stated in this paragraph, then within 15 days after the Landlord determines that the restoration cannot be made in the time stated in this paragraph, Tenant can terminate this Lease immediately] by giving notice to Landlord. If Tenant fails to terminate this Lease and if restoration is permitted under the existing laws, Landlord, at its election, can either terminate this Lease or restore the Premises or the Building and other improvements in which the Premises are located within a reasonable time and this Lease shall continue in full force and effect. If the existing laws do not permit the restoration, either party can terminate this Lease immediately by giving notice to the other party. In the event of the giving of such notice of termination by the Landlord or the Tenant as provided herein, this Lease and all interest of the Tenant in the Premises shall terminate fifteen (15) days after receipt of such notice by the other party. Except if Landlord receives insurance proceeds from Tenant's insurance as provided in paragraph 16(c) hereof, the Landlord shall not be required to repair any injury or damage, by fire or other cause to the property of the Tenant, or to make repairs or replacements of any panelings, decorations, railings, floor coverings or any improvements installed on the Premises by or for the Tenant. In case of destruction, there shall be an abatement or reduction of Rent, between the date of destruction and the date of completion of restoration if restoration takes place, based on the extent to which the destruction interferes with Tenant's use of the Premises. The Tenant hereby waives the provisions of Section 1932, Subdivision 2, and 1933, Subdivision 4, of the Civil Code of California. 30. Eminent Domain. If all or any part of the Building of which the -------------- Premises are a part shall be taken or appropriated by any public or quasipublic authority under any power of eminent domain, the Landlord may terminate this Lease. In such event, the Landlord shall be entitled to, and the Tenant upon demand of the Landlord shall assign to the Landlord any rights of the Tenant to any and all income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such public or quasipublic use or purpose except to the extent attributable to Tenant' s trade fixtures and moving expenses, and the Tenant shall have no claim against the Landlord for the value of any unexpired term of this Lease. If a part of the Premises shall be so taken or appropriated and the Landlord does not elect to terminate this Lease, the Rent thereafter to be paid shall be reduced on a pro rata square footage basis. Tenant shall have the right to terminate this Lease if all or any part of the Premises is taken such that such taking renders the Premises unsuitable for Tenant's use, in Tenant's reasonable opinion. 31. Plats and Riders. Clauses, plats and riders, if any, signed by the ---------------- Landlord and the Tenant and endorsed on or affixed to this Lease are a part hereof and, in the event of variation or discrepancy, the duplicate original hereof, including such clauses, plats and riders, if any, held by the Landlord shall control. 32. Sale by the Landlord. In the event of a sale or conveyance by the -------------------- Landlord of the Building and provided that Landlord delivers the Letter of Credit or the cash security deposit, as applicable, to the transferee, the same shall operate to release the Landlord from any future liability upon any of the covenants or conditions, express or implied, herein contained in favor of the 21 Tenant, and in such event the Tenant agrees to look solely to theresponsibility of the successor in interest of the Landlord in and to this Lease. If any security is given by the Tenant to secure the faithful performance of all or any of the covenants of this Lease on the part of the Tenant, the Landlord may transfer and/or deliver the security, as such, to the successor in interest of the Landlord, and thereupon the Tenant agrees that the Landlord shall be discharged from any further liability in reference thereto. Except as set forth in this paragraph 32, this Lease shall not be affected by any such sale or conveyance. 33. Estoppel Certificates. At any time and from time to time, upon the --------------------- request by the Landlord, the Tenant agrees to execute, acknowledge and deliver to the Landlord a statement certifying the date of commencement of this Lease, stating that this Lease is unmodified and in full force and effect (or if there have been modifications) and the dates to which the Rent has been paid, and setting forth such other matters as may be reasonably requested by the Landlord. The Landlord and the Tenant intend that any such statement delivered pursuant to this paragraph may be relied upon by any mortgagee or the beneficiary of any deed of trust or by any purchaser or prospective purchaser of the Building. 34. Right of the Landlord to Perform. All covenants and agreements to -------------------------------- be kept or performed by the Tenant under any of the terms of this Lease shall be performed by the Tenant at the Tenant's sole cost and expense and without any abatement of Rent. If the Tenant shall fail to pay any sum of money, other than Rent required to be paid by it hereunder, or shall fail to perform any other act on its part to be performed hereunder, and such failure shall continue for five (5) days after notice thereof by the Landlord, the Landlord may, but shall not be obligated to, and without waiving any default of the Tenant or releasing the Tenant from any obligations of the Tenant hereunder, make any such payment or perform any such other act on the Tenant's part to be made or performed as in this Lease provided. All sums so paid or incurred by the Landlord and all necessary incidental costs, together with interest thereon at the highest rate allowed by law from the date of such payment by the Landlord, shall be paid to the Landlord forthwith on demand, and the Landlord shall have (in addition to any other right or remedy of the Landlord) the same rights and remedies in the event of nonpayment thereof by the Tenant as in the case of default by the Tenant in the payment of Rent. 35. Attorney Fees. If either the Landlord or the Tenant shall obtain ------------- legal counsel or bring an action against the other by reason of the breach of any covenant, warranty or condition hereof, or otherwise arising out of this Lease, the unsuccessful party shall pay to the prevailing party reasonable attorneys' fees, which shall be payable whether or not any action is prosecuted to judgment. The term "prevailing party" shall include, without limitation, a party who obtains legal counsel or brings an action against the other by reason of the other's breach or default and obtains substantially the relief sought, whether by compromise, settlement or judgment. 36. Surrender of Premises. The voluntary or other surrender of this --------------------- Lease by the Tenant or a mutual cancellation thereof shall not work a merger and, at the option of the Landlord, shall terminate all or any existing subleases or subtenancies or, at the option of the Landlord, may operate as an assignment to the Landlord of any or all such subleases of subtenancies. 37. End of Term. Upon the expiration or other termination of the term ----------- of this Lease, Tenant shall quit and surrender to Landlord the Leased Premises, broom clean, in as good order, condition and repair as it now is or may hereafter be placed, ordinary wear and tear and casualty excepted. Tenant shall remove all property of Tenant, as directed by Landlord. Any property left on Leased Premises at the expiration or other termination of this Lease, or after the happening of any of the events of default may, at the option of Landlord, either be deemed abandoned or be placed in storage at a public warehouse in the name of and for 22 the account of and at the expense and risk ofTenant, or otherwise disposed of by Landlord in the manner provided by law. Tenant expressly releases Landlord of and from any and all claims and liability for damage to or destruction or loss of property left by Tenant upon the Premises at the expiration or other termination of this Lease and Tenant hereby indemnifies Landlord against any and all claims and liability with respect thereto. If Tenant holds over after the said term with the consent of Landlord, express or implied, such tenancy shall be from month to month only and shall not be a renewal hereof, and Tenant shall pay the Rent and all the other charges at one time and one quarter (1 1/4) the rate provided in the Lease for such period of holding over and also comply with all of the terms, covenants, conditions, provisions and agreements of this Lease for the time during which Tenant holds over. However, Tenant's obligation to observe or perform all of the terms, covenants, conditions, provisions and agreements of this paragraph shall survive the expiration or other termination of this Lease. 38. Quiet Possession. Landlord covenants and agrees with Tenant that, ---------------- upon Tenant's paying said Rent and observing and performing all of the terms, covenants, conditions, provisions and agreements of this Lease on Tenant ' 5 part to be observed or performed, Tenant shall have quiet possession of the Premises hereby Leased for the term aforesaid, subject, however, to the terms of this Lease and of any ground leases, underlying leases, mortgages and deeds of trust affecting all or any portion of the Building or any of the areas used in connection with the operation of the Building. 39. Brokerage. Each party warrants and represents to the other that --------- such party has not retained the services of any real estate broker, finder or any other person whose services would form the basis for any claim for any commission or fee in connection with this Lease or the transaction contemplated hereby except for real estate brokerage services rendered to Landlord by Stubbs, Collenette and Associates, Inc. ("SCA") and to Tenant by Tory Corporate Real Estate Advisors, Inc. (dba) The Staubach Company ("Staubach"). The commissions earned by SCA and Staubach shall be paid by Landlord pursuant to separate agreement ("Exclusive Listing Agreement") between Landlord and SCA. The commission owed by Landlord for Tenant leasing the proposed Premises is $253,386.00. Upon SCA receipt of said commissions from Landlord, SCA shall pay Staubach pursuant to separate agreement ("Registration Agreement Letter") between SCA and Staubach for which the commission amount paid to Staubach shall not exceed $144,792.00. Tenant and Landlord warrant and represent to each other that Landlord is to have no liability for any such real estate brokerage services as may have been rendered to Tenant by any other broker or 3rd party. Each party agrees to save, defend, indemnify and hold the other party free and harmless from any breach of its warranty and representation as set forth in the preceding sentence, including the other party's attorneys fees. 40. No Waiver. No delay or omission in the exercise of any right or --------- remedy of Landlord on any default by Tenant shall impair such a right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent Rent shall not constitute a waiver of any other default; it shall constitute only a waiver of timely payment for the particular Rent payment involved. No act or conduct of Landlord, including, without limitation, the acceptance of the keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the term. only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of the Lease. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval must be in writing and such consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant. 23 Any waiver by Landlord of any default must also be in writing and shall not be a waiver of any other default concerning the same or any other provision of the Lease. 41. Notices. All notices and demands which may or are required to be ------- given by Landlord to the Tenant hereunder shall be delivered personally or sent by United States certified or registered mail, postage prepaid, addressed to the Tenant at the Premises, Attn: Bruce Runyan, V.P. Operations, or to such other place as the Tenant may from time to time by like notice designate. All notices and demands by the Tenant to the Landlord shall be sent by United States certified or registered mail, postage prepaid, addressed to the Landlord at 2101 Market Street, San Francisco, California, 94114 or to such other place as the Landlord may from time to time by like notice designate, with a copy sent by United States registered or certified mail to Bernard J. Schoenberg, Esq., One California Street, Suite 2424, San Francisco, California, 94111. 42. Defined Terms and Marginal Headings. The words "Landlord" and ----------------------------------- "Tenant" as used herein shall include the plural as well as the singular. Words used in masculine gender include the feminine and neuter. If there is more than one Tenant, the obligations hereunder imposed upon the Tenant shall be joint and several. The marginal headings and titles to the paragraphs of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. 43. Time and Applicable Law. Time is of the essence of this Lease and ----------------------- each and all of its provisions. This Lease shall in all respects be governed by the laws of the State of California. 44. Successors. Except as otherwise provided herein, the covenants ---------- and conditions herein contained shall be binding upon and inure to the benefit of the heirs, successors, executors, administrators and assigns of the parties hereto. 45. Late Charge. The Tenant acknowledges that late payment by Tenant ----------- to Landlord of Rent or other payment required to be made by Tenant to Landlord under this Lease will cause the Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impracticable to fix. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on the Landlord by the terms of any encumbrance or note secured by any encumbrance covering the Premises or Property. Therefore, if any installment of Rent due from the Tenant or other payment required to be made by Tenant to Landlord is not received by Landlord when due, the Tenant agrees to pay to Landlord interest at the rate of 10% per annum from the date the Rent or any other payment is due until receipt by Landlord of the Rent or other payment. The parties agree that this late charge represents a fair and reasonable estimate of the costs that the Landlord will incur by reason of late payment by the Tenant. Acceptance of any late charge shall not constitute a waiver of the Tenant's default with respect to the overdue amount, nor prevent the Landlord from exercising any of the other rights and remedies available to the Landlord. 46. Authority. If Tenant is a corporation, partnership, trust, --------- association or other entity, Tenant and each person executing this Lease on behalf of Tenant does hereby covenant and warrant that (a) Tenant is duly incorporated or otherwise established or formed and validly existing under the laws of its state of incorporation, establishment or formation, (b) Tenant has and is duly qualified to do business in California, (c) Tenant has full corporate, partnership, trust, association or other appropriate power and authority to enter into this Lease and to perform all Tenant's obligations hereunder, and (d) each person (and all of the persons if more than one signs) signing this Lease on behalf of Tenant is duly and validly authorized to do so. 24 47. Name of Building. Tenant shall not use the name of the Building ---------------- without the Landlord's consent. Tenant shall not have or acquire any property right or interest in the name of the Building. 48. Entire Agreement. This Lease constitutes the entire agreement ---------------- between the Landlord and the Tenant, and no promises or representations, express or implied, either written or oral, not herein set forth shall be binding upon or inure to the benefit of the Landlord or the Tenant. This Lease shall not be modified by any oral agreement, either express or implied, and all modifications hereof shall be in writing and signed by both the Landlord and the Tenant. 49. No Offer. Submission of this instrument for examination or -------- signature by Tenant does not constitute a reservation of or option for lease and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant. 50. Exhibits and Additional Provisions. The Exhibits designated as A ---------------------------------- ("Premises"), B ("Legal Description"), C ("Letter of Credit") & D ("Tenant Improvement Inventory"), and Rider(s) designated as No. 1 which are attached hereto and have been signed or initialed by Landlord and Tenant are a part of this Lease, and are incorporated herein as if set forth in full. IN WITNESS WHEREOF, the Landlord and the Tenant have executed this Lease the day and year first above written. LANDLORD: 1155 Market Partners, a California general partnership By: /s/ Walter Lembi --------------------------- Its: Managing Partner -------------------------- General Partner TENANT: Genesys Telecommunications Laboratories, Inc. By: /s/ Bruce M. Runyan --------------------------- Its: VP & GM Consulting Services Division ------------------------------------- 25 RIDER NO. 1 DATED JUNE 20, 1996 BY AND BETWEEN 1155 MARKET STREET PARTNERS ("LANDLORD") AND GENESYS TELECOMMUNICATIONS LABORATORIES ("TENANT") The following paragraphs are made a part of this Lease, and in the event of any inconsistency between the following paragraphs and any other terms of this Lease, the following paragraphs shall control: 1. Temporary Space. Commencing on August 1, 1996, Landlord will --------------- provide tenant with approximately 4,500 rentable square feet of temporary space on the 6th floor and 1,700 rentable square feet of temporary space on the ground floor (the "Temporary Space") in the Building. Landlord and Tenant agree that Tenant may occupy the Temporary Space at no cost to Tenant until the commencement date for the 11th floor Premises. Tenant shall accept the Temporary Space broom clean but otherwise in asis condition. 2. Tenant Improvement Allowance. Landlord shall provide Tenant with ---------------------------- an allowance of $1l.25 per rentable square foot for tenant improvement costs ("Allowance") excluding all costs associated with ADA compliance. All costs, including construction and architectural fees, in excess of the Allowance shall be paid directly by Tenant prior to commencement of the term of the Lease. Tenant reserves the right, but not the requirement, to install its own cabling and related equipment. Such Allowance may be applied to the Temporary Space. Landlord shall construct the Premises in accordance with the tenant improvement plans and specifications provided by Tenant for the Premises. Landlord shall construct the Premises in accordance with the tenant improvement plans and specifications provided by Tenant for the Premises. Landlord shall provide its own construction management. Landlord in its role as general contractor would be entitled to a markup equal to 9% of hard costs to cover supervision, general conditions and fees. Landlord shall not be entitled to any additional management fee in connection wit the construction of the Tenant Improvements. Landlord shall be required to competitively bid to three subcontractors in each trade. Landlord shall assume responsibility of ensuring that all construction work is in compliance with applicable building codes, legal and insurance requirements. Landlord and Tenant agree that Landlord shall maintain complete control of the construction of tenant improvements in the Premises and that upon completion of the preliminary space plans and final working drawings, Landlord shall provide Tenant a line item cost for review and approval. Landlord represents that an inventory of reusable building materials exists as shown on Exhibit D hereto on the 11th floor and that such material shall be made available to Tenant for use in the Premises at no charge. Tenant shall provide Landlord with architectural plans and working drawings by Friday, July 12, 1996 for the 11th floor and September 17, 1996 for the 9th floor. Landlord warrants to Tenant that the Tenant Improvement shall beconstructed in a good and workmanlike manner and in compliance with the plans and specifications approved by Tenant. Landlord further warrants to Tenant 26 that the Tenant Improvement will be constructed free of defects in materials and construction. Tenant shall have the benefit of any construction or equipment warranties existing in favor of Landlord that would assist Tenant in correcting any defect in the Premises and in discharging its obligation regarding the repair and maintenance of the Premises. 3. Parking. Landlord shall provide Tenant with five (5) parking stalls in the ------- Building during the term of the Lease as it may be extended. Tenant agrees to pay Landlord as additional monthly rent $625.00 per month for the parking stalls 4. Option to Expand. Provided this Lease is in full force and effect and no ---------------- default by Tenant has occurred hereunder, if contiguous office space is or becomes available and vacant on the 7th or 8th floors ("Expansion Space") in the Building, following such notice which shall not be given by Landlord to Tenant prior to November 1, 1996, Tenant shall have a one time option to lease the Expansion Space with the provisions set forth below. Landlord shall provide written notice to Tenant that Expansion Space is available. Tenant shall have until December 31, 1996, to exercise such option. If Tenant does not deliver its written exercise of this option prior to December 31, 1996, this option shall disappear. The term of the expansion space shall commence on the date specified in Landlord's notice and expire on September 30, 2000. Monthly rent for the Expansion Space shall be equal on a square foot basis to the rent for the 9th, 10 or 11th floors, including a provision for tenant improvements and a new base year for operating expenses and taxes. All other terms and conditions of the Lease shall remain in full force and effect. Notwithstanding the above, if space becomes available and vacant in the building on floors 6, 7 and 8, the Landlord will notify Tenant and Landlord will make Tenant a 100% of fair market value proposal to lease. Such aforementioned notice shall not be required for the 6th floor if Landlord leases the 6th floor for its own use. Tenant will have five (5) business days to respond to Landlord's proposal. 5. Subleasing and Assignment. Notwithstanding paragraph 14 of the Lease, ------------------------- Tenant shall have the right to sublease or assign all or part of the Premises. Tenant shall retain all profits after any and all subleasing commissions and tenant improvement expenses incurred by Tenant which may arise out of sublet or assignment of up to 30% of the Premises. If Tenant sublets or assigns more than 30% of the Premises, than all profits after any and all subleasing expenses received from that time forward attributable to such portion of the Premises would be shared in a ratio of 50% to Tenant and 50% to Landlord. Landlords approval of assignment or subletting to Tenant affiliated or wholly owned companies shall not be unreasonably withheld. 6. Letter of Credit. Tenant shall provide to Landlord an irrevocable Letter ---------------- of Credit ("LOC"), in a form similar to that attached as Exhibit C and from a federally insured bank acceptable to Landlord in the principal amount equal to $500,000. The LOC shall be held by Landlord as Lease security during the term of the Lease months 1 through 30. Notwithstanding the foregoing, after the 12th month of the Lease term, the LOC shall be reduced to $250,000 and shall be held by the Landlord through the 30th month. If at any time during the term of the Lease Tenant becomes a publicly traded company or is acquired by a publicly traded company such LOC shall not be required, subject to Landlord approval, which approval shall not be withheld if the publicly traded company shows a positive net worth in excess of $30 million and has a history of positive earnings during the past three (3) years. Prior to the expiration of the LOC term, Tenant shall be required to deposit a security deposit with the Landlord in accordance with paragraph 5.4 of the Lease. 7. Building Directory Board Signage. Prior to the Commencement Date, Landlord -------------------------------- shall provide Tenant one (1) designated name strip con the Building main lobby directory per 2,000 rentable square feet leased by Tenant. Landlord shall also provide building standard signage in Tenant's elevator lobby. 8. Non-Disturbance Agreement. Tenant agrees to subordinate its lease to the ------------------------- existing mortgage on the Building in return for the Nondisturbance Agreement in such form as may be reasonably required by the mortgagor. Any successor to Landlord shall be bound by such Nondisturbance Agreement or a form similar thereto. 27 9. Lease Commencement. Tenant acknowledges that the 9th floor is currently ------------------ occupied by the City and County of San Francisco ("City").. Landlord shall deliver possession of the 9th floor as soon as the. City vacates the floor. Upon execution of this Lease, Landlord agrees to use its best efforts to get the City to vacate the 9th floor. 10. Notwithstanding anything mentioned in this Rider No. 1 and Lease, this proposed lease shall become null and void if Tenant does not deliver to Landlord the Minimum Rent check for $40,220 and the LOC from Imperial Bank by 5:00 p.m., Friday, July 5, 1996. LANDLORD: 1155 Market Partners, a California general partnership By: /s/ Walter Lembi --------------------------- Its: Managing Partner -------------------------- General Partner TENANT: Genesys Telecommunications Laboratories, Inc. By: /s/ Bruce M. Runyan --------------------------- Its: VP & GM Consulting Services Division ------------------------------------- 28 RULES AND REGULATIONS FOR 1155 Market Street ATTACHED TO AND MADE A PART OF THIS LEASE 1. Except as provided, required or permitted by Landlord in accordance with the building standards, no sign, placard, picture, advertisement, name or notice shall be inscribed, displayed, printed, painted or affixed by Tenant on or to any part of the building or exterior of the premises leased to tenants or to the door or doors thereof without the written consent of Landlord first obtained as to dimensions, material, content, location and design, and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant. 2. Except as provided, required or permitted by Landlord in accordance with building standards, no draperies, curtains, blinds, shades, screens or other devices shall be hung at or used in connection with any window or exterior door or doors of the premises. 3. The bulletin board or directory of the building, if any, shall be used primarily for display of the name and location of tenants and Landlord reserves the right to exclude any other names therefrom, to limit the number of names associated with tenants to be placed thereon and to charge for names associated with tenants to be placed thereon at rates applicable to all tenants. 4. The sidewalks, halls, passages, exits, entrances, elevators and stairways of the building shall not be obstructed by tenants or used by them for any purpose other than for ingress to and egress from their respective premises. Landlord in all cases reserves the right to control the halls, passages, exits, entrances, elevators, stairways and balconies of the building and prevent access thereto by all persons whose presence, in the judgment of Landlord, is or may be prejudicial to the safety, character, reputation or interests of the building and its tenants; provided, however, that Landlord shall not prevent such access to such persons with whom tenants deal in the ordinary course of business, unless such persons are engaged in illegal activities. No person shall go upon the roof of the building unless expressly so authorized by Landlord. 5. Tenants shall not alter any lock nor install any new or additional locks or any bolts on any interior or exterior door of any premises leased to tenants, except for interior locks which (i) do not interfere with the security system of the Building, if any, (ii) have been approved by Landlord and a key thereof has been provided to Landlord, and (iii) comply with all fire and other governmental requirements. 6. The doors, windows, light fixtures and any lights or skylights that reflect or admit light into the halls or other places of the building shall not be covered or obstructed. The toilet rooms, toilets, urinals, wash bowls and other plumbing facilities shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown or placed therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, cause such expense. 7. Tenants shall not mark, drive nails, screw or drill into the walls, woodwork or plaster of or in any way deface the building or any premises leased to tenants, except that within their respective premises tenants may affix to nonsupporting partitions pictures, paintings and other similar solely decorative items. 8. Furniture, freight, equipment or merchandise of every kind shall be moved into or out of the building only at such times and in such manner as Landlord shall designate. Landlord may prescribe and limit the weight, size and position of all equipment to be used by tenants. Tenant shall not place a load on any floor exceeding the floor load per square foot which such floor was designed to carry. Tenant shall not install, operate or maintain any heavy item or equipment in the Premises, except in such manner as to achieve a proper distribution of weight. All damage to the building or premises occupied by tenants caused by moving or maintaining any property of a tenant shall be repaired at the expense of such tenant. 29 9. No tenant shall employ any person, other than the janitor provided by Landlord, for the purpose of cleaning the premises occupied by such tenant unless otherwise agreed to by Landlord. Except with the written consent of Landlord, no person shall be permitted to enter the building for the purpose of cleaning the same. Tenants shall not cause any unnecessary labor by carelessness or indifference in the preservation of good order and cleanliness. Landlord shall not be responsible to any tenant for loss of property on the premises, however occurring, of for any damage to the property of any tenant caused by the employees or independent contractors of Landlord or by any other person. Janitor service shall not include shampooing of carpets or rugs, moving of furniture or other special services. Janitor service will not be furnished when rooms are occupied during the regular hours when the janitor service is provided. Window cleaning shall be done only at the regular and customary times determined by Landlord for such services. 10. No tenant shall sweep or throw or permit to be swept or thrown any dirt or other substance into any of the corridors, halls or elevators or out of the doors or stairways of the building; use or keep or permit to be used or kept any foul or noxious gas or substance; permit or suffer the premises occupied by such tenant to be occupied or used in a manner offensive or objectionable to Landlord, other tenants or guests of the Building by reason of noise, odors or vibrations; use any advertising medium which may be heard or experienced outside the Premises; interfere in any way with other tenants or persons having business in the building; or bring or keep or permit to be brought or kept in the building any animal life form, other than human, except seeingeye dogs when in the company of their masters. 11. Tenant shall keep the Premises (including interior portions of all windows, doors and all other glass) in a neat and clean condition, free and clear from vermin. Tenant shall not permit the accumulation (unless in concealed metal containers) or burning of any rubbish or garbage in, on or about any part of the Premises or the Building. Further, Tenant shall permit supplies and equipment required to operate the Premises and any rubbish or other waste to be disposed of from the Premises to be transported only through the rear door to the Premises and to the area designated by the Landlord for trash disposal service. The designated area is subject to change by the Landlord. 12. No coinor tokenoperated vending machine or similar device for the sale of any merchandise or services (including, without limitation, pay lockers, pay toilets, scales, amusement devices and machines for the sale of beverages, foods, candy, cigarettes or other commodities) may be operated in the Premises. 13. With the exception of coffee pots and one microwave oven, no cooking or preparation of food shall be done or permitted by tenants in their respective premises, nor shall premises occupied by tenants be used for the storage of merchandise, washing clothes, lodging, or any improper, objectionable or immoral purposes. Tenant shall not conduct any restaurant, luncheonette or cafeteria for the sale or service of food or beverages to its employees or to others. 14. No tenant shall use or keep in the building any kerosene, gasoline or inflammable or combustible fluid or material. 15. No boring or cutting for telephone, telegraph or electric wires shall be allowed without the consent of Landlord and any such wires permitted shall be introduced at the place and in the manner described by Landlord. The location of telephones, utilities outlets, speakers, fire extinguishers and all other equipment affixed to premises occupied by tenants shall be subject to the approval of Landlord. Each tenant shall pay all expenses incurred in connection with the installation of its equipment, including any telephone, telegraph and electricity distribution equipment. 16. Upon termination of occupancy of the building, each tenant shall deliver to Landlord all keys furnished by Landlord, and any reproductions thereof made by or at the direction of such tenant, and in the event of loss of any keys so furnished shall pay Landlord therefor. 17. No tenant shall affix any floor covering in any manner except as approved by the Landlord. The expense of repairing any damage caused by removal of any such floor covering shall be borne by the tenant by whom, or by whose 30 contractors, employees or invitees, the damage shall have been caused. 18. No mail, furniture, packages, supplies, equipment, merchandise or deliveries of any kind will be received in the building or carried up or down in the elevators except between such hours and in such elevators as shall be designated by Landlord. 19. Landlord reserves the right to close and keep locked all entrances and existing doors of the building during hours Landlord may deem advisable for the adequate protection of the property. Use of the building daily between 6:00 P.M. and 8:00 A.M. or at any time during Saturdays, Sundays and legal holidays shall be permissive and subject to the rules and regulations Landlord may prescribe, including but not limited to issuance of security cards and requiring a deposit therefore necessary to operate a locking system employed throughout the building. Tenant, Tenant's employees, agents or associates, or other persons entering or leaving the building at any time, when it is so locked, may be required to sign the building register, and the watchman or Landlord's agent in charge shall have the right to refuse admittance to any person into the building without satisfactory identification showing such person's right to access to the building at such time. Landlord assumes no responsibility and shall not be liable for any loss or damage resulting from the granting or refusing of admission to any authorized or unauthorized person to the building. Tenant shall be responsible for the cost of any false discharge of building security alarm system caused by Tenant, it agents, employees or invitees. 20. Each tenant shall see that the exterior doors of its premises are closed and securely locked on Saturdays, Sundays, legal holidays and after 6:00 P.M. daily. Each tenant shall exercise care and caution that all water faucets or water apparatus are entirely shut off each day before its premises are left unoccupied and that all electricity or gas shall likewise be carefully shut off so as to prevent waste or damage to Landlord or to other tenants of the building. 21. Landlord may exclude or expel from the building any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the building. 22. The requirements of tenants will be attended to only upon application to Landlord. Employees of Landlord shall not perform any work outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord shall be required to admit any person (tenant or otherwise) to any premises in the building. 23. Landlord, without notice and without liability to any tenant, at any time may change the name or the street address of the building. 24. The word "building" as used in these rules and regulations means the building of which are a part the premises leased pursuant to the Lease to which these rules and regulations are attached. Each tenant shall be liable to Landlord and to each other tenant of the building for any loss, cost, expense, damage or liability, including attorneys fees, caused or occasioned by the failure of such first named tenant to comply with these rules, but Landlord shall have no liability for such failure or for failing or being unable to enforce compliance therewith by any tenant and such failure by Landlord or non compliance therewith by any other tenant shall not be a ground for termination of the lease to which these rules and regulations are attached by the tenant thereunder. 31 EXHIBIT B Commencing at a point on the southeasterly line of Market Street, distant thereon southwesterly 418 feet and 23/4 inches from the southwesterly line of 7th street; running thence southwesterly along southeasterly line of Market Street 88 feet to a point distant northeasterly thereon 319 feet from the northeasterly line of 8th street; thence at a right angle southeasterly 165 feet and 1 inch to the northwesterly line of Stevenson Street; thence northeasterly along the northwesterly line of Stevenson Street 88 feet to the intersection of a line drawn from the point of commencement and perpendicularly to the southeasterly line of Market Street; thence at a right angle northwesterly 165 feet and 1 inch to the point of commencement. Being a portion of 100 Vara Block 406. Block 3702; Lot 54 32 LETTER OF CREDIT Date: __________________ Letter of Credit Number: _______________ _____________________ Bank _____________________ Address _____________________ Address Gentlemen: We hereby establish in your favor this credit available with Imperial Bank N.A., San Francisco, CA by payment of your draft(s) at sight drawn on Imperial Bank N.A., San Francisco, CA accompanied by: 1. Beneficiary's signed and dated statement worded as follows: "The undersigned, an authorized representative of 1155 Market Partners, hereby certifies that there has been a default in periodic lease rental payments under the terms of the lease between Genesys Telecommunications Laboratories, Inc. and 1155 Market Partners, with respect to the period from August 1, 1996 to January 31, 1999 entitling 1155 Market Partners to draw the amount of the accompanying draft under Imperial Bank. Letter of Credit Number _________. Partial Drawings are permitted. It is a condition of this Letter of Credit that drafts presented to us on or after August 1, 1997 may not, in the aggregate, exceed $250,000. If any instructions accompanying a drawing under this Letter of Credit request that payment is to be made by transfer to an account with us or at another Bank, we and/or such other Bank may rely on an account number specified in such instructions even if the number identifies a person or entity different from the intended payee. Documents must be presented to us no later than 5:00 P.M. this is an integral part of Letter of Credit Number ______. Draft(s) must indicate the number and date of this credit. Each draft presented hereunder must be accompanied by this original credit for our endorsement thereon of the amount of such draft. Documents must be forwarded to us in one parcel and may be mailed to Imperial Bank, San Francisco, CA 94105-2733. This Letter of Credit is fully transferable . This credit is subject to the uniform customs and practice for documentary credits (1993 revision), International Chamber of Commerce, Publication number __, and engages us in accordance with the terms thereof. -------------------- Authorized Signature Please contact ______________ by telephone at ______________ or by Fax at _____________ regarding any inquiries. 33 [NINTH FLOOR FLOORPLAN APPEARS HERE] 34 [TENTH FLOOR FLOORPLAN APPEARS HERE] 35 [ELEVENTH FLOOR FLOORPLAN APPEARS HERE] - -------------------------------------------------------------------------------- 1155 Market Street - 11th Floor Existing Space Layout For Leasing Information, Please call: Michael Kraszulyak Stubbs, Collenette and Associates Phone: 415-439-5012 36 MODIFICATION OF LEASE This Modification of Lease is made on January 30, 1997 between 1155 ---------- Market Partners, a California general partnership ("Landlord") and Genesys Telecommunications Laboratories, Inc. ("Tenant"), who agree as follows: RECITALS: This Modification of Lease is made with reference to the -------- following facts and objectives: a. Landlord and Tenant entered into a written Lease and Rider No. 1 dated July 3, 1996 and a Modification of Lease dated January 21, 1997 (collectively the "Lease"), in which Landlord leased to Tenant, and Tenant leased from Landlord, approximately 36,198 square feet on Floors 9, 10 and 11 at 1155 Market Street, City and County of San Francisco, California ("Premises"). b. The parties desire to modify the Lease as set forth herein. c. It is to the benefit of Landlord and Tenant that Landlord agree to make such modifications and, therefore, Tenant has executed and delivered this Modification of Lease. NOW, THEREFORE, IN CONSIDERATION OF the foregoing facts, Tenant hereby agrees as follows: 1. Additional Space on Sixth Floor: Commencing on February 1, ------------------------------- 1997, Tenant shall also lease from landlord approximately 12,180 square feet on the 6th floor at 1155 Market Street, City and County of San Francisco, California ("Additional Premises"). 2. Rent: Rent for the Additional Premises will begin April 1, 1997 and ---- will be $12,180 for April, 1997; and beginning May 1, 1997, for the balance of the term of this Lease, will be $21.00 per square foot ($21,315) per month. 3. Term: The term of the Lease for the 6th Floor will be the same as the ---- term of the existing Lease. 4. Deposit: A security deposit of $21,315 will be due on the execution of ------- this Modification, and will be applied to the last month's rent hereunder for the Additional Premises. 5. Tenant Improvements: Tenant shall serve as general contractor for the ------------------- tenant improvements for the 6th floor. Tenant will receive an allowance of $11.25 per rentable square foot (or $137,025) for tenant improvement costs for the 6th Floor. 6. Entire Agreement: This Modification contains the complete and exclusive ---------------- expression of the terms provided herein, which terms shall not be contradicted by proof of prior agreements or contemporaneous oral agreements, nor shall they explained or supplemented by evidence of consistent additional terms. 7. Counterparts: This Modification may be executed in one or more ------------- counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8. Modification: The parties to this Modification hereby acknowledge ------------- that all agreements (and the exhibits thereto) between them are in writing and that no oral amendment or modification thereto shall be effective unless in writing and duly executed by the party being bound thereby. 9. Effectiveness of Lease: Except as set forth in this Modification of ---------------------- Lease, all the provisions of the Lease (including Rider No. 1 and the Modification of Lease dated January 21, 1997) shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the parties have caused this Modification of Lease to be duly executed and delivered as of the date first written above. LANDLORD: 1155 Market Partners, a California general partnership By: /s/ Frank E. Lembi ----------------------- Frank E. Lembi, General Partner TENANT: Genesys Telecommunications Laboratories, Inc. By: /s/ Michael McCloskey ----------------------- Michael McCloskey C.F.O. MODIFICATION OF LEASE This Modification of Lease is made on January 21, 1997 between 1155 Market Partners, a California general partnership ("Landlord") and Genesys Telecommunications Laboratories, Inc. ("Tenant"), who agree as follows: RECITALS: This Modification of Lease is made with reference to the following - -------- facts and objectives: a. Landlord and Tenant entered into a written Lease and Rider No. 1 dated July 3, 1996 ("Lease"), in which Landlord leased to Tenant, and Tenant leased from Landlord, approximately 36,198 square feet on Floors 9, 10 and 11 at 1155 Market Street, City and County of San Francisco) California ("Premises"). b. The parties desire to modify the Lease as set forth herein. c. It is to the benefit of Landlord and Tenant that Landlord agree to make such modifications and, therefore, Tenant has executed and delivered this Modification of Lease. NOW, THEREFORE, IN CONSIDERATION OF the foregoing facts, Tenant hereby agrees as follows; 1. Tenant Improvements: Rider No. 1 to the Lease provided that Landlord ------------------- was to serve as general contractor as set forth therein for the tenant improvements on floors 9, 10 and 11 of the Premises. Landlord has so served and the tenant improvements for the 11th floor are now being completed. The parties hereby agree that Landlord will no longer serve as general contractor and Tenant shall hereafter serve as general contractor for the tenant improvements for floors 9 and 10. Tenant will receive an allowance of $11.25 per rentable square foot for tenant improvements costs for floors 9 and 10. 2. Entire Agreement: This Modification contains the complete and exclusive ---------------- expression of the terms provided herein, which terms shall not be contradicted by proof of prior agreements or contemporaneous oral agreements, nor shall they explained or supplemented by evidence of consistent additional terms. 3 Counterparts: This Modification may be executed in one or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 4. Modification: The parties to this Modification hereby acknowledge ------------ that all agreements (and the exhibits thereto) between them are in writing and that no oral amendment or modification thereto shall be effective unless in writing and duly executed by the party being bound thereby. 5. Effectiveness of lease: Except as set forth in this Modification ---------------------- of Lease, all the provision of the Lease (including rider No. 1 thereto) shall remain unchanged and full force and effect. IN WITNESS WHEREOF, the parties have caused this Modification of Lease to be duly executed and delivered as of the date first written above. LANDLORD; 1155 Market Partners, a California general partnership By: /s/ Frank E. Lembi ------------------- Frank E. Lembi, General Partner TENANT: Genesys Telecommunications Laboratories, Inc. By: /s/ Michael Sheridan ---------------------- Michael Sheridan Corporate Controller EX-10.9 21 MASTER SOFTWARE LICENSE AGREEMENT EXHIBIT 10.9 MASTER SOFTWARE LICENSE AGREEMENT BETWEEN GENESYS TELECOMMUNICATIONS LABORATORIES AND MCI TELECOMMUNICATIONS CORPORATION January 31, 1996 * Confidential Treatment Requested. Confidential portion has been filed separately with the Securities and Exchange Commission. TABLE OF CONTENTS
Page ---- ARTICLE 1 -- DEFINITIONS.............................. 1 ARTICLE 2 -- APPLICABILITY OF AGREEMENT............... 2 ARTICLE 3 - LICENSE................................... 3 ARTICLE 4 -- PRICE AND PAYMENT........................ 5 ARTICLE 5 -- LIMITED WARRANTY......................... 5 ARTICLE 6 -- DISCLAIMER............................... 6 ARTICLE 7 -- MAINTENANCE SERVICES..................... 7 ARTICLE 8 -- PROPRIETARY RIGHTS....................... 7 ARTICLE 9 -- CONFIDENTIALITY.......................... 7 ARTICLE 10 -- INTELLECTUAL PROPERTY RIGHT INDEMNITY... 9 ARTICLE 11 -- LIMITATION OF LIABILITY AND REMEDIES.... 11 ARTICLE 12 -- SOURCE CODE ESCROW...................... 11 ARTICLE 13 -- TERM AND TERMINATION.................... 12 ARTICLE 14 -- GENERAL................................. 13
i This MASTER SOFTWARE LICENSE AGREEMENT ("Agreement"), dated as of January 31, 1996 ("Effective Date"), is made and entered into by and between GENESYS TELECOMMUNICATIONS LABORATORIES, a California corporation with offices at 1111 Bayhill Drive, Suite 180, San Bruno, CA 94066 ("Genesys") and MCI TELECOMMUNICATIONS CORPORATION, a Delaware corporation with offices at 1801 Pennsylvania Ave., N.W., Washington, D.C. 20006 ("MCI"). ARTICLE 1 -- DEFINITIONS 1.1 "Affiliate" means, with respect to a named party, any corporation, partnership, joint venture or other entity controlling, controlled by or under common control with such party. 1.2 "Applicable Specification" means the functional and operational characteristics of the Licensed Software as described in Licensor's current Documentation, published product description and technical manuals, together with such other performance, scaleability or other operational requirements and standards agreed to between the parties and set forth in an attachment hereto or as a part of MCI's purchase order, either of which shall be deemed to be incorporated as a part hereof. 1.3 "Confidential Information" means information of a party (the "Owner") which relates, respectively, to the matters contemplated by this Agreement, including trade secrets, business and technical information and data, or which, although not related to matters, is nevertheless disclosed to the other party (the "Recipient") as a result of the relationship between the parties established by this Agreement and which, in any case, (i) is disclosed by the Owner to the Recipient in document, electronic media, or other form bearing an appropriate legend indicating its confidential or proprietary nature, (ii) which, if initially disclosed orally or visually is identified as confidential at the time of disclosure and a written summary thereof, also marked with such a legend, is provided to the Recipient within fifteen (15) days of the initial disclosure, or (iii) is by its very nature, in the ordinary course of business, customarily understood to be confidential or proprietary information, including, but not limited to the object code of the Licensed Software and related Documentation, product development plans, internal hardware and software systems architecture, and unannounced business plans. 1.4 "Designated CPU" means a central processing unit or file server machine as identified by the serial number and location in the Purchase Order under which a license to Licensed Software is being obtained by MCI: 1.5 "Documentation" means manuals and other documentation which are generally made available to licensees of the Licensed Software together with such other documentation specifically made available to MCI by Genesys with the Licensed Software. 1.6 "Licensed Software" means the software programs described in Exhibit A attached hereto, in object code format, including any accompanying Documentation, and including all corrections, modifications, enhancements and upgrades to such software which may be provided to MCI by Genesys hereunder pursuant to the terms of Article 7 below. 1.7 "Simultaneous Users" means the number of end-users permitted to concurrently access and use, at the same time, the Licensed Software. ARTICLE 2 -- APPLICABILITY OF AGREEMENT 2.1 This Agreement establishes the general terms and conditions under which MCI and its Affiliates (collectively, and individually, "MCI") shall now or in the future acquire from Genesys its services and a license to use Genesys's proprietary computer software systems or programs and related documentation, all of which are referred to in this Agreement as a "Licensed Software" (whether singular or plural). 2.2 Genesys's current product listing of all Licensed Software is attached hereto as Exhibit A. Genesys shall, from time to time during the Term, at the request of MCI, provide MCI with new listing Licensed Software as the same may come available. 2.3 Genesys shall not be obligated to provide any Licensed Software to MCI and MCI shall not be obligated to pay for or accept any Licensed Software by virtue of this Agreement alone without the issuance of a purchase order (herein, "Purchase Order") by MCI and the written acceptance thereof by Genesys. Any such Purchase Order shall specifically reference this Agreement. The specified Licensed Software, term (period of usage) and effective date of the license, Applicable Specifications, shipping and billing information, payment terms, delivery date of the Licensed Software, eligible computer site(s), Designated CPU(s), Simultaneous User restrictions, operating system, license fee, maintenance services or charges, as may be relevant, and any other matter not provided for herein, shall be specified in such Purchase Order. The terms and conditions of this Agreement shall control over any pre-printed words on a Purchase Order. In the event of any conflict or inconsistency between the terms and conditions of this Agreement and the terms on any Purchase Order, the terms of this Agreement shall control unless such Purchase Order terms are approved in writing by the parties' legal counsel. 2 ARTICLE 3 -- LICENSE 3.1 Software License. Subject to the terms and conditions of this ---------------- Agreement, for each Purchase Order issued by MCI and accepted by Genesys, Genesys shall grant MCI a [*] (except as otherwise provided in Section 14.1), [*] license to use the applicable Licensed Software in [*] solely on the Designated CPU, [*] for the use by the number of Simultaneous Users for such Designated CPU specified in the Purchase Order for the purposes of MCI's business and the business(es) of its Affiliates. 3.2 Delivery and Acceptance. ----------------------- (A) Upon final acceptance by Genesys of a Purchase Order, MCI shall pay the license fee referenced and in accordance with the payment schedule specified in the Purchase Order or an exhibit or schedule thereto ("License Fee"). The initial installation for the Licensed Software will be performed by Genesys during MCI's normal working hours and will include the products and services listed in the Purchase Order, to be provided according to the schedule specified therein. Genesys will notify MCI when installation of the Licensed Software has been completed. Genesys agrees to deliver, at the time of such installation, Documentation in form and substance reasonably satisfactory to MCI. Following installation, unless otherwise specified in the Purchase Order, MCI shall have a period of [*] days for inspection and testing of the Licensed Software to determine conformance with the Applicable Specifications for the Licensed Software (the "Acceptance Criteria"). The designation in any Purchase Order of an acceptance period of less than [*] days shall not be effective unless such Purchase Order is countersigned by an MCI representative of Director level. If any feature or module of the Licensed Software is found not to conform, MCI shall, within the inspection period, notify Genesys and provide a detailed description of such defects. Following confirmation by Genesys of such defects, Genesys will provide MCI with a corrected version of the Licensed Software, and if Genesys fails to deliver such corrected version within a reasonable time (not to exceed [*] days from MCI's notification to Genesys), MCI will have the option of canceling the Purchase Order within the next [*] business days. In the event MCI exercises such option, MCI shall return all copies of the Licensed Software and the Documentation to Genesys; Genesys shall promptly refund to MCI all amounts paid by MCI to Genesys pursuant to the applicable Purchase Order, and neither party shall have any future obligations or liability under that Purchase Order with respect to the relevant Licensed Software. Such full refund and cancellation shall be MCI's sole and exclusive remedy for rejection of the Licensed Software. (B) Upon acceptance by MCI of the Licensed Software pursuant to Section 3.2(A) or if MCI fails to notify Genesys of any defects within the inspection period specified therein, the Licensed Software shall be deemed accepted. MCI's sole remedy for correction of problems after acceptance shall be under the Limited Warranty set forth in Article 5 below. 3 * Confidential Treatment Requested 3.3 Archival Copies. MCI may make a reasonable number of copies of --------------- the Licensed Software for archival purposes; provided, however, that MCI may make a reasonable number of copies of Documentation for the use of MCI's employees in their use of the Software. MCI agrees to reproduce and include any copyright or proprietary notices of Genesys on all copies, in whole or in Part, of the Licensed Software or Documentation. 3.4 Back-Up Hardware. A single back-up or replacement CPU or file ---------------- server may be used as a substitute for a Designated CPU at any time; provided, however, that MCI provides Genesys with written notice of such hardware substitution, including information regarding the replacement hardware as required for the Designated CPU in Exhibit A, within seven (7) days of such replacement. 3.5 No Other Rights. This Agreement transfers to MCI neither title --------------- nor any proprietary or intellectual property rights to the Licensed Software, Documentation or any copyrights, patents or trademarks embodied or used in connection therewith, and except for the rights expressly granted herein, MCI receives no other rights in or to the Licensed Software, Documentation and intellectual property, either by implication, estoppel or otherwise. Accordingly, MCI shall have no other rights with respect to the Licensed Software other than the license expressly set forth herein. 3.6 License Restriction. MCI agrees that it will not itself, or ------------------- through any parent, subsidiary, Affiliate, agent or other third party: (A) sell, lease, license or sublicense the Licensed Software or Documentation (except as otherwise provided in Section 14.1); (B) decompile, disassemble or reverse engineer the Licensed Software, in whole or in part, or otherwise attempt to derive source code therefrom; (C) allow access to the Licensed Software by any Simultaneous User other than MCI's employees, employees of MCI's customers, dealer and distributors who use such Licensed Software solely for the purpose of conducting business with MCI, and independent contractors and consultants who have a need to access the Licensed Software for the purpose of performing services for or on behalf of MCI and in accordance with the use restrictions contained herein; or (D) write or develop any derivative works based upon the Licensed Software (except as otherwise permitted by Section 12.3) or upon any Confidential Information of Genesys. ARTICLE 4 -- PRICE AND PAYMENT 4.1 Price. In consideration for the rights granted MCI hereunder, ----- MCI 4 agrees that it shall, upon acceptance by Genesys of an MCI Purchase Order, pay Genesys the [*], and the [*], if applicable, in accordance with the payment schedule set forth in the Purchase Order. If the Purchase Order fails to specify a payment schedule, the [*] shall be due and payable as follows: [*] percent ([*]%) [*] of the [*] and [*] percent ([*]%) [*] of the relevant [*]; and, [*] fees shall be payable, [*], within [*] business days of [*] for the [*], which [*] shall submit at the [*] for the relevant [*]. 4.2 Payment Terms. Except for the [*] and the [*], all amounts due ------------- Genesys shall be paid within forty-five (45) days of MCI's receipt of the relevant invoice from Genesys. 4.3 Taxes. Unless otherwise agreed in writing, MCI shall be ----- responsible for all taxes, duties or charges of any kind (including withholding or value added taxes) imposed by any federal, state, or local governmental entity for products or services provided under this Agreement, excluding only taxes based solely on Genesys's net income. When Genesys has the legal obligation to collect such taxes, the appropriate amount shall be invoiced to MCI unless MCI provides Genesys with a valid tax exemption certificate authorized by the appropriate taxing authority. MCI shall hold Genesys harmless from all claims and liability arising from MCI's failure to pay any such taxes, duties, or charges. ARTICLE 5 -- LIMITED WARRANTY 5.1 Software Media Warranty. Genesys warrants that the media in ----------------------- which the Licensed Software is embodied and the media on which any Update (as defined in the Software Maintenance Agreement entered into between the parties as of even date herewith ("Maintenance Agreement")) is delivered will be free from material defects for a period of [*] days from the delivery date of the Licensed Software or the Update to MCI. [*] and [*] under this warranty will be to [*] on which such Licensed Software or Update was delivered. Genesys shall have [*] any [*] media which is not [*] to Genesys within the warranty period or which has [*] or [*]. 5.2 Software Warranty. Genesys warrants that for a period of [*] ----------------- days from the delivery of the Licensed Software or any subsequent Update, the Licensed Software and such Update, if used by MCI in accordance with the then- current Documentation therefor, shall operate in conformity with the Applicable Specifications. Genesys [*], however, that the Licensed Software will [*] or that the [*] will be [*] or [*]. 5 * Confidential Treatment Requested [*], and [*], and [*] and [*], under this limited Software Warranty shall be, at [*], to [*] to attempt, through reasonable efforts, (i) to [*] any material nonconformities discovered within the relevant [*]-day warranty period or (ii) to [*] the nonconforming Licensed Software or subsequent Update [*] which [*]. If Genesys is unable to achieve (i) or (ii) within a reasonable time (not to exceed [*] days from MCI's notification to Genesys of a material nonconformity), Genesys shall [*] to MCI all [*] by [*] to [*] pursuant to the relevant Purchase Order, MCI shall [*] all relevant copies of the Licensed Software and the Documentation to Genesys, and [*] with respect to such Licensed Software. The above remedies are available [*] if Genesys is [*], upon discovery of the nonconformities by MCI, and that the Licensed Software has not been used, adjusted or installed other than in accordance with this Agreement and the most recent version of Documentation provided to MCI by Genesys. 5.3 Warranty of Title. Genesys warrants that it owns all rights and ----------------- interest in and has the marketing and distributing rights to the Licensed Software as is necessary to provide MCI with the license rights set forth herein. 5.4 Warranty Regarding Software Viruses. Genesys warrants that it or ----------------------------------- its employees shall not negligently or knowingly introduce a virus into MCI's operating environment during the performance of services under this Agreement or through the provision of Licensed Software. For the purposes of this Agreement, a "virus" shall mean a computer code which may provide functions outside those identified for the Licensed Software in the latest Documentation provided by Genesys to MCI. ARTICLE 6 -- DISCLAIMER 6.1 EXCEPT FOR THESE EXPRESS LIMITED WARRANTIES, NEITHER GENESYS NOR ANY OF ITS SUPPLIERS MAKE ANY WARRANTIES EXPRESS, IMPLIED OR STATUTORY WITH RESPECT TO THE LICENSED SOFTWARE, AND GENESYS AND ITS SUPPLIERS EXPRESSLY DISCLAIM ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ARTICLE 7 -- MAINTENANCE SERVICES 7.1 Genesys agrees to offer maintenance and support for the Licensed Software subject to the terms and conditions for such services as described in the Maintenance Agreement. ARTICLE 8 -- PROPRIETARY RIGHTS 6 * Confidential Treatment Requested 8.1 MCI acknowledges that Genesys and its suppliers retain all right, title and interest in and to the original, and any copies, of the Licensed Software or Documentation, and ownership of all patent, copyright, trade secret and other intellectual property rights pertaining thereto, shall be and remain the sole property of Genesys. MCI shall not be an owner of any copies of, or any interest in, the Licensed Software, but rather, is licensed pursuant to this Agreement to use such copies. Genesys represents that it has the authority to enter into this Agreement and to grant the licenses provided herein. ARTICLE 9 -- CONFIDENTIALITY 9.1 General. Recipient may use Confidential Information of Owner ------- only for the purpose of fulfilling its obligations as set forth in this Agreement and for no other purpose. Recipient shall protect such Confidential Information from disclosure to others using the same degree of care used to protect its own confidential or proprietary information of like importance, but in any case using no less than a reasonable degree of care. Recipient may disclose Confidential Information received hereunder to (i) its Affiliates who agree, in advance, in writing, to be bound by this Agreement, and (ii) to its employees and consultants, and its Affiliates' employees and consultants, who have a need to know, for the purpose of this Agreement, and who are bound to protect the received Confidential Information from unauthorized use and disclosure under the terms of a written agreement no less restrictive than the terms herein. Confidential Information shall not otherwise be disclosed to any third party without the prior written consent of the Owner. 9.2 Exceptions. ---------- (A) The restrictions of this Agreement on use and disclosure of Confidential Information shall not apply to information that: (1) Was publicly known at the time of Owner's communication thereof to Recipient; (2) Becomes publicly known through no fault of Recipient subsequent to the time of Owner's communication thereof to Recipient; (3) Was in Recipient's possession free of any obligation of confidence at the time of Owner's communication thereof to Recipient; (4) Is developed by Recipient independently of and without reference to any of Owner's Confidential Information or other information that Owner disclosed in confidence to any third party; (5) Is rightfully obtained by Recipient from third parties 7 authorized to make such disclosure without restriction; or (6) Is identified by Owner as no longer proprietary or confidential. (B) In the event Recipient is required by law, regulation or court order to disclose any of Owners Confidential Information, Recipient will promptly notify Owner in writing prior to making any such disclosure in order to facilitate Owner seeking a protective order or other appropriate remedy from the proper authority. Recipient agrees to cooperate with Owner in seeking such order or other remedy. Recipient further agrees that if Owner is not successful in precluding the requesting legal body from requiring the disclosure of the Confidential Information, it will furnish only that portion of the Confidential Information which is legally required and will exercise all reasonable efforts to obtain reliable assurances that confidential treatment will be accorded the Confidential Information. 9.3 Return of Confidential Information. All Confidential Information ---------------------------------- disclosed under this Agreement (including information in computer software or held in electronic storage media) shall be and remain the property of Owner. All such information in tangible form shall be returned to Owner promptly upon written request or the termination or expiration of this Agreement, and shall not thereafter be retained or used in any form by Recipient. 9.4 Terms. The parties agree that the terms and conditions of this ----- Agreement shall be treated by each party as the Confidential Information of the other party, and that neither party shall disclose the contents of this Agreement without the prior written consent of the other party; provided, however, that the general existence of this Agreement shall not be treated as Confidential Information and that either party may disclose the terms and conditions of this Agreement (A) under the circumstances and subject to the conditions set forth in Section 9.2; (B) in confidence, to such party's legal counsel; (C) in confidence, to such party's accountants; or (D) in confidence, in connection with the enforcement of this Agreement or rights under this Agreement. Notwithstanding the foregoing, either party may, without the other party's prior consent, disclose the aggregate dollar amounts associated with this Agreement (but no other terms and conditions), in confidence to its banks, proposed investors and financing sources. 8 9.5 Remedies. Each party acknowledges that the breach of any of its -------- obligations under this Article 9 is likely to cause or threaten irreparable harm to the other party and, accordingly, each party agrees that in such event, the other party shall be entitled to equitable relief to protect its interests therein, including but not limited to preliminary and permanent injunctive relief, as well as money damages. ARTICLE 10 -- INTELLECTUAL PROPERTY RIGHT INDEMNITY 10.1 Indemnity. [*] agrees, [*], to [*] or, [*], to [*] any --------- claim or action brought against [*] based on an allegation that [*] of the Licensed Software within the scope of the license granted hereunder (a) [*] under the laws of [*] (or, in the event of the expiration or termination of the treaty, the countries signatory at the time of such expiration or termination), or (b) [*] of a third party or constitutes [*] of a [*] under the laws of any country (a claim under either (a) or (b) herein, an "[*]"), and to [*] against all [*] which may be assessed against [*] under any such claim or action. Promptly after receipt [*] of notice of any claim or the commencement of any claim for which indemnification or reimbursement may be sought hereunder, [*] shall give written notice to [*] thereof, but the failure to so notify [*] shall [*] it may have [*] hereunder [*] shall be obligated to [*] of such claim, [*], and shall have [*] and [*] over the [*] or [*] of such claim, provided that [*] will be required to the extent (i) any such [*] or [*] will impose any obligation whatsoever [*] that is [*] or [*], or [*] other than the payment of monies that are readily measurable for purposes of determining the monetary indemnification or reimbursement obligations [*], or (ii) [*] will not be [*] of [*] pursuant to such [*] or [*], including the [*] to pay when due [*] to pay pursuant to such [*] or [*]. [*] shall have the right, [*], to [*] in the investigation [*] of such claim, [*]. [*] shall otherwise provide reasonable [*] with respect to such claim, provided that [*] for its [*] with respect thereto. Moreover, should any of the Licensed Software become, or, in [*], be likely to become, the subject of a claim of [*], or should [*] use thereof be finally [*], [*] and [*]: (A) [*] the right to [*] such material; or (B) [*] or [*] such material to make it [*] provided 9 * Confidential Treatment Requested such [*] or [*] is the functional equivalent of the Licensed Software in light of the Applicable Specifications, and [*] for any additional [*], and [*] and caused by any such [*] or [*]; or (C) If neither of the foregoing can be suitably accomplished, [*] for all [*] of the [*] paid for the Licensed Software pursuant to this Agreement, provided that such amounts shall be [*] beginning with the [*] of the Licensed Software (i.e., a change from version A.x to version B.0) was received [*]. 10.2 Exceptions. ---------- (A) Notwithstanding the provisions of Section 10.1 above, [*] for [*] claims to the extent arising from (i) the [*] of the Licensed Software with other products [*] and not within the [*] given the use for which the Licensed Software was designed; (ii) any [*] to the Licensed Software unless such [*] was made or otherwise authorized [*]; or (iii) any [*] held by [*] derived through [*] issued by the countries other than [*] . (B) Notwithstanding anything in Section 10.1 to the contrary, [*] for [*] or [*] as a [*] (but not including the [*], pursuit of [*], and any other legal and related [*] claims of [*]), shall be limited to [*] times the amount of the license fees paid [*] for the [*] Licensed Software for any [*] claim with respect to [*] of the Licensed Software in a [*], to the extent arising from (a) the [*] of the Licensed Software with any other product [*], even if [*] such [*] or, (b) a [*] to the Licensed Software made or [*] for the [*]. It is understood and acknowledged that the foregoing [*] for certain [*] claims shall [*], for all such claims in all proceedings in accordance with Section 10.1, subject to the limitations of Section 10.2(A). 10.3 [*] --- 10.4 Limitation. THE FOREGOING PROVISIONS OF THIS ARTICLE 10 STATE ---------- THE ENTIRE LIABILITY AND OBLIGATIONS OF 10 * Confidential Treatment Requested GENESYS, AND THE EXCLUSIVE REMEDY OF MCI, WITH RESPECT TO ANY ACTUAL OR ALLEGED INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHT BY THE LICENSED SOFTWARE OR ANY PART THEREOF. ARTICLE 11 -- LIMITATION OF LIABILITY AND REMEDIES 11.1 THE PARTIES AGREE, [*] UNDER SECTION 5.4, AND 10, AND BOTH PARTIES CONFIDENTIALITY OBLIGATIONS UNDER SECTION 9 ABOVE, [*] FOR EACH CLAIM [*] OR THE [*] OF ANY LICENSED SOFTWARE [*] UNDER THE RELEVANT PURCHASE ORDER AND [*], ARISING IN ANY WAY OUT THIS AGREEMENT UNDER ANY CAUSE OF ACTION, [*]. ARTICLE 12 -- SOURCE CODE ESCROW 12.1 Within thirty days of the signing of this Agreement and from time to time thereafter, but not more than sixty days following any subsequent Update of the Licensed Software, to secure MCI's rights hereunder Genesys shall place copies of its then current source code and documentation (the "Escrow Materials") for all the Licensed Software with Data Securities International, Fort Knox Escrow Services, Inc. or another independent escrow agent mutually satisfactory to MCI and Genesys on the standard terms and conditions of such agent and in accordance with the following provisions of this Article 12. 12.2 Release of the Escrow Materials to MCI shall be on terms and conditions (including notice, redeposit and other provisions) to be agreed in the escrow agreement, but such release shall be granted whenever: (A) Genesys is unable or unwilling to perform its maintenance and/or support obligations under this Agreement or any separate agreement between the Parties with respect to maintenance and support; or (B) Genesys applies for or consents to the appointment of or the taking of possession by a receiver, custodian, trustee, or liquidator of itself or of all or a substantial part of its property; makes a general assignment for the benefit of creditors; 11 * Confidential Treatment Requested commences a voluntary case under the Federal Bankruptcy Code (as now or hereafter in effect); or fails to contest in a timely or appropriate manner or acquiesces in writing to any petition filed against it in an involuntary case under such Bankruptcy Code or any application for the appointment of a receiver, custodian, trustee or liquidation of itself or of all or a substantial part of its property, or its liquidation, reorganization or dissolution. 12.3 MCI is hereby granted a license to use such Materials upon their release to MCI only to perform and authorize the performance of such maintenance and/or support, and for no other purpose. Such escrow shall be established and maintained at the expense and for the sole benefit of MCI. Genesys warrants that the Escrow Materials will accurately reflect the then current version of the Licensed Software and will be sufficiently detailed and documented so as to permit a reasonably competent computer professional conversant in the languages(s) used by the Licensed Software to understand, maintain and modify the Licensed Software. 12.4 Any dispute or disagreement between the Parties arising out of this Article 12 shall be resolved by arbitration in accordance with Section 14.4, provided that if the arbitrator(s) are unable to render an award within sixty (60) days of the demand for arbitration, through no fault or act of delay by MCI, the Escrow Materials shall be released to MCI notwithstanding the pendency of any such arbitration. At all time, the parties shall use their best efforts to expedite the arbitration proceedings. If the arbitrator(s) ultimately find that under the terms of this Agreement release of the Escrow Materials to MCI should not have occurred, MCI shall return the Escrow Materials to the Escrow Agent. 12.5 The obligations of Genesys under this Article 12 shall remain in effect until the termination of the maintenance and support obligations of Genesys. ARTICLE 13 -- TERM AND TERMINATION 13.1 Term and Termination. MCI may terminate this Agreement or any -------------------- license obtained hereunder upon ninety (90) days' prior written notice to Genesys. 13.2 Return of Materials. Upon termination of any license for any ------------------- reason, MCI shall immediately discontinue use of the relevant Licensed Software and Documentation and within ten (10) days certify in writing to Genesys that all copies of the Licensed Software and Documentation, in whole or in part, in any form, have either been returned to Genesys or destroyed in accordance with Genesys's instructions. Upon such termination Genesys shall immediately refund to MCI any related unamortized prepayments made by MCI for maintenance and support. 13.3 Termination by Genesys. Genesys may terminate a license granted ---------------------- hereunder with respect to any one or more Purchase Orders if MCI commits any material breach of the license grant set forth in Section 3 or the confidentiality 12 obligations in Section 9 above and fails to remedy such breach within thirty (30) days after written notice by Genesys of such breach and such material breach causes irreparable damage to Licensor or cannot adequately be remedied by the payment of monetary damages by Genesys. 13.4 Effect of Termination. Notwithstanding any termination of this --------------------- Agreement, the following provisions shall survive: Articles 3 (except to the extent Genesys terminates this Agreement as a result of MCI's material breach of the license granted by such Article), 4 (to the extent of any amounts due and owing as of such termination), 5, 7, 8, 9, 10, 11, 12 and 14. All other rights and licenses granted hereunder will cease upon termination. ARTICLE 14 -- GENERAL 14.1 Assignment. Neither party shall have the right to transfer, ---------- assign or otherwise dispose of its rights or obligations hereunder, by operation of law or otherwise, without the prior written consent of the other party. Notwithstanding the foregoing, (i) MCI may transfer or assign its rights and obligations, in whole or in part, to an Affiliate, provided that MCI shall, however, notify Genesys of such transfer or assignment, and (ii) Genesys may assign this Agreement as part of the sale of all or substantially all of its assets or as part of any transaction resulting in a change in control of Genesys, provided that Genesys shall notify MCI of such assignment and that MCI shall have the option of terminating (without prejudice to other provisions of this Agreement) any development obligations then in effect. 14.2 Captions. The captions used in this Agreement are included for -------- convenience only and shall not be considered part of this Agreement for any purpose. 14.3 Governing Law. This Agreement shall be governed, construed and ------------- enforced in accordance with the laws of the state of New York, without reference to conflict of laws principles. 14.4 Dispute Resolution. Any dispute arising out of or related to ------------------ this Agreement, which cannot be resolved by negotiation, shall be settled by binding arbitration in accordance with the J.A.M.S/ENDISPUTE arbitration Rules and Procedures ("Endispute Rules"), as amended by this Agreement. The costs of arbitration, including the fees and expenses of the arbitrator, shall be shared equally by the parties unless the arbitration award provides otherwise. Each party shall bear the cost of preparing and presenting its case. The parties agree that this provision and the arbitrator's authority to grant relief shall be subject to the United States Arbitration Act, 9 U.S.C. 1-16 et seq. ("USAA"), the provisions of the Agreement, and the ABA-AAA Code of Ethics for Arbitrators in Commercial Disputes. The parties agree that the arbitrator shall have no power or authority to make awards or issue orders of any kind except as expressly permitted by this Agreement, and in no event shall the arbitrator 13 have the authority to make any award that provides for punitive or exemplary damages. The arbitrator's decision shall follow the plain meaning of the relevant documents, and shall be final and binding. The award may be confirmed and enforced in any court of competent jurisdiction. All post-award proceedings shall be governed by the USAA. The location of such a proceeding shall be mutually agreed by the parties or if agreement cannot be reached, then the location chosen by the arbitrator. This provision shall not preclude either party seeking injunctive relief as permitted hereunder in any court of competent jurisdiction. Unless the parties otherwise agree, all arbitration proceedings shall take place in San Francisco, California. 14.5 Jurisdiction. The federal and state courts within San Francisco, ------------ California, shall have exclusive jurisdiction with respect to any action sought by either party to enforce Section 14.4 above. Each party hereto expressly consents to the personal jurisdiction of, and venue in, such courts and service of process being effected upon it by registered mail and sent to the address set forth at the beginning of this Agreement. 14.6 Independent Contractors. The relationship of Genesys and MCI ----------------------- established by this Agreement is that of independent contractors, and nothing contained in this Agreement shall be construed (i) to give either party the power to direct or control the day-to-day activities of the other or (ii) to constitute the parties as partners, joint venturers, co-owners or otherwise as participants in a joint or common undertaking. 14.7 Severability. If any provision of this Agreement is held to be ------------ invalid by a court of competent jurisdiction, then the remaining provisions shall nevertheless remain in full force and effect. The parties further agree to negotiate in good faith a substitute, valid and enforceable provision that most nearly effects the parties' intent and to be bound by mutually agreed substitute provision. 14.8 No Waiver. The failure of either party to enforce at any time --------- any of the provisions of this Agreement shall not be deemed to be a waiver of the right of such party thereafter to enforce any such provisions. 14.9 Force Majeure. Except for the obligation to make payments, ------------- nonperformance of either party shall be excused to the extent that performance is rendered impossible by strike, fire, flood, governmental acts or orders or restrictions, failure of suppliers, or any other reason where failure to perform is beyond the reasonable control of the nonperforming party. 14.10 Notices. Any required notices hereunder shall be given in ------- writing at the address of each party set forth above, or to such other in the manner contemplated herein, and shall be deemed served when delivered or, if delivery is not accomplished by reason or some fault of the addressee, when tendered. 14 14.11 U.S. Government Licensees. Any use of the Licensed Software by ------------------------- the U.S. Government is conditioned upon the Government agreeing that the Licensed Software is subject to Restricted Rights as provided under the provisions set forth in subdivision (c)(1)(ii) of Clause 252.227-7013 of the Defense Federal Acquisition Regulations Supplement, or the similar acquisition regulations of other applicable U.S. Government organizations. 14.12 Entire Agreement. This Agreement and Exhibits attached hereto ---------------- and incorporated herein constitute the entire, final, complete and exclusive agreement between the parties and supersede all previous agreements or representations, oral or written, relating to this Agreement. This Agreement may not be modified or amended except in a writing signed by a duly authorized representative of each party. Both parties acknowledge having read the terms and conditions set forth in this Agreement and Exhibits attached hereto, understand all terms and conditions, and agree to be bound thereby. IN WITNESS WHEREOF, the parties by their duly authorized representatives have executed this Agreement as of the Effective Date set forth above. GENESYS TELECOMMUNICATIONS MCI TELECOMMUNICATIONS LABORATORIES CORPORATION /s/ Gregory Shenkman /s/ H.A. Shartel - --------------------------- ------------------------------------- Signature Signature Gregory Shenkman, President H.A. Shartel, Sr. Manager Procurement - --------------------------- ------------------------------------- Printed Name and Title Printed Name and Title January 31, 1996 February 7, 1996 - --------------------------- ------------------------------------- Date Date 15 EXHIBIT A --------- LICENSED SOFTWARE 16 EXHIBIT A [*] *Confidential Treatment Requested ADDENDUM TO MASTER LICENSE AGREEMENT This ADDENDUM ("Addendum") is entered into this 1st day of February, 1996 ("Effective Date"), by and between Genesys Telecommunications Laboratories ("Genesys"), a California corporation with offices at 1111 Bayhill Drive, Suite 180, San Bruno, CA 94066 and MCI Telecommunications Corporation ("MCI"), a Delaware corporation with offices at 1801 Pennsylvania Avenue, N.W., Washington, D.C. 20006. In consideration of the promises and conditions of this Addendum, the parties agree as follows: BACKGROUND A. Genesys and MCI have entered into a Master Software License Agreement dated January 31, 1996 (the "Agreement"). B. The parties desire to amend the Agreement as set forth in this Addendum. AMENDMENT 1. AMENDMENT OF AGREEMENT. This Addendum hereby amends and revises the Agreement to incorporate the terms and conditions set forth in this Addendum. The relationship of the parties shall continue to be governed by the terms of the Agreement as amended. 2. DEFINITIONS. A used in this Addendum, all capitalized terms shall have the meanings assigned to such terms in this Addendum, or, if not specified in this Addendum, the meanings defined elsewhere in the Agreement. 3. ACCEPTANCE OF EXISTING SYSTEMS. MCI agrees to accept prior to December 31, 1995, the Software Licenses provided for the following projects: (i) The MCI Diamond Center (ii) The MCI-ICSD Compaq Project (iii) The MCI NILE Project 4. MODIFICATIONS TO THE AGREEMENT. 4.1 Section 10 of the Agreement is amended by adding the following subsection. 10.5 Indemnity Contingent on Purchase of Maintenance. ----------------------------------------------- [*] contained in this section 10, [*] of any kind with respect [*] for [*] of any Licensed Software for which [*] at the time such [*]. 5. ENTIRE AGREEMENT. This Addendum and the Agreement constitute the entire Agreement between the parties in connection with the subject matter of this Addendum and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties. IN WITNESS WHEREOF, Genesys and MCI have caused this Addendum to be executed by their duly authorized representatives, effective as of the Effective Date set forth above. AGREED TO AND ACCEPTED BY: GENESYS TELECOMMUNICATIONS MCI TELECOMMUNICATIONS LABORATORIES CORPORATION /s/ Gregory Shenkman /s/ H.A. Shartel - ------------------------------ -------------------------------- Signature Signature Gregory Shenkman, President H.A. Shartel Sr Mgr--Procurement - ------------------------------ -------------------------------- Printed Name and Title Printed Name and Title February 1, 1996 February 7, 1996 - ------------------------------ -------------------------------- Date Date *Confidential Treatment Requested 2 AMENDMENT NUMBER ONE TO MASTER LICENSE AGREEMENT This AMENDMENT NUMBER ONE (the "Amendment") is entered into this 26th day of February, 1997 ("Effective Date"), by and between Genesys Telecommunications Laboratories, Inc. ("Genesys"), a California corporation with a principal place of business at 1155 Market Street, 11th Floor, San Francisco, CA 94103 and MCI Telecommunications Corporation ("MCI"), a Delaware corporation with offices at 1801 Pennsylvania Avenue, N.W., Washington, D.C. 20006. In consideration of the promises and conditions of this Amendment, the parties agree as follows: BACKGROUND A. Genesys and MCI have entered into a Master Software License Agreement dated January 31, 1996 (the "Agreement"); and B. Genesys and MCI have entered into a Master Consulting Agreement as of even date herewith, pursuant to which Genesys has undertaken to incorporate certain functionality in the development of an intelligent network call router software product that will be developed through enhancements and modifications to certain of Genesys' products; and C. Genesys and MCI desire to amend the Agreement to reflect agreed upon terms and conditions under which MCI will license such call router software product and other Genesys products; and D. The parties desire to amend the Agreement as set forth in this Amendment Number One. AMENDMENT 1. AMENDMENT OF AGREEMENT. This Amendment hereby amends and revises the Agreement to incorporate the terms and conditions set forth in this Amendment. The relationship of the parties with respect to the subject matter hereof shall continue to be governed by the terms of the Agreement as amended. 2. EXHIBITS. a. Licensed Software and Pricing. Exhibit A to the Agreement is hereby deleted in its entirety and replaced by a new Exhibit A attached hereto as Schedule A. b. MCI Minimum Purchase Guarantee. A new Exhibit B to the Agreement attached hereto as Schedule B is hereby incorporated by reference. 3. DEFINITIONS. As used in this Amendment, all capitalized terms shall have the meanings assigned to such terms in this Amendment, or, if not specified in this Amendment, the meanings defined elsewhere in the Agreement. a. Section 1.2 is modified, in part, to read as follows: " . . . of the Licensed Software as (i) accepted by MCI pursuant to the MCA, if applicable, or (ii) described in Genesys' current Documentation, published product description and technical manuals, together in either case with such other performance . . . part of MCI's Purchase Order, either . . ." b. Section 1.4 is modified, in part, to read as follows: ". . . the serial number and location on which the Licensed Software is deployed as to which MCI shall notify Genesys in a written quarterly report within thirty (30) days following the end of the calendar quarter during which the Licensed Software was deployed." c. The following new sentence is added to the end of Section 1.6: "The software programs set forth on Exhibit A attached hereto may be modified by Genesys from time to time; provided, however, that the Licensed Software designated as Genesys Network Applications in Exhibit A hereto shall at all times comply with the specifications set forth in Exhibit A-SOW-1 to the MCA which shall constitute the Applicable Specifications for such Network Applications unless otherwise mutually agreed to by the parties." d. Section 1.7 is modified, in part, to read as follows: " . . . the Licensed Software; provided, however, that this Section 1.7 shall have no application to Network Applications." e. The following new definitions are added to Article 1 "DEFINITIONS." "1.8 "Advanced T-Server Functionality" shall have the meaning specified in Section 4.7(C)." "1.9 "Basic T-Server Functionality" shall have the meaning specified in Section 4.7(B)." -2- "1.10 "Customer" shall mean a third party end-user of the Premises Software and network-based call routing and other related services provided directly by MCI or an MCI Affiliate which utilize the Licensed Software within the scope of the licenses granted hereunder." "1.11 "Eligible Fees" shall mean the aggregate of (i) all [*], but not including the [*] and [*], and (ii) [*] dollars [*] in fees for (x) [*] provided under this Agreement and (y) [*] (as defined in the MCA) to the extent such [*] are provided to ensure that [*], and as to any of the foregoing [*] or by such [*] in interest [*] of this Amendment." "1.12 "Initial Network Applications Software" shall mean [*] and [*] of the Network Applications, provided that if such [*] upon their [*], then [*] of Network Applications shall be included in the Initial Network Applications Software until the earlier of (i) [*] of Network Applications are [*] or (ii) [*] of Network Applications are [*]." "1.13 "License Fee" shall mean such amount as results from a [*] percent ([*]) [*] from the [*] for any Licensed Software as set forth on Exhibit A attached hereto, but subject to the provisions of Section 4.4." "1.14 "Network License Fee" shall mean the [*] dollar ([*]) payment paid [*] pursuant to Section 4.6 hereof." "1.15 "MCA" shall mean the Master Consulting Agreement entered into by the Parties as of even date herewith." "1.16 "MCI Competitor" shall have the meaning set forth in the MCA." "1.17 "Network Applications" shall mean that portion of the Licensed Software that is identified as Network Applications on Exhibit A hereto and that is designed to be deployed in a telecommunications carrier's network in order to provide network-based call routing and related services." "1.18 "Operating Environment" shall mean a configuration of substantially similar computer hardware platform(s), computer operating system(s) and external interfaces to a PBX, IVR and other similar critical network components." "1.19 "Premises Software" shall mean Licensed Software that a Customer obtains in order to benefit from Basic T-Server Functionality and/or Advanced T-Server Functionality." -3- * Confidential Treatment Requested "1.20 "SMA" shall mean the Software Maintenance Agreement, as amended, between Genesys and MCI dated January 31, 1996." "1.21 "TPS" shall mean the number of transactions per second that can be supported by Network Applications assuming that the Network Applications routing strategies are allocated as follows: (i) [*] percent [*] to [*], (ii) [*] percent [*] to [*], (iii) [*] percent [*] to [*] and (iv) [*] percent [*] to [*]." "1.22 "Transaction Fees" shall mean the fees that are payable to Genesys pursuant to Section 4.7." 4. APPLICABILITY OF AGREEMENT. a. Section 2.1 is deleted in its entirety and replaced with the following: "This Agreement establishes the general terms and conditions under which MCI and its Affiliates shall now or in the future acquire from Genesys certain services and a license to use the Licensed Software." b. The first sentence in Section 2.3 is modified, in part, to read as follows: ". . . issuance of a purchase order by MCI and the written acceptance thereof by Genesys (herein referred to as a "Purchase Order"); provided, however, that a Purchase Order issued hereunder by an MCI Affiliate shall contain a provision stating that such Purchase Order shall be subject to the terms and conditions of the Agreement and incorporating this Agreement by reference modified so as to be made applicable between Genesys and such MCI Affiliate." c. The fourth sentence in Section 2.3 is deleted in its entirety and replaced with the following: "The pre-printed provisions on or attached to Purchase Orders, Genesys acknowledgment forms or other similar forms shall be deemed deleted with respect to the Purchase Orders placed hereunder and of no legal effect." d. The last sentence in Section 2.3 is modified, in part, to read as follows: ". . . and the terms (other than pre-printed terms) on any Purchase Order . . . in writing by Genesys' Chief Financial Officer or his designee and an MCI Vice President." 5. LICENSE. a. The following two new sentences are added to the end of Section 3.1 of the Agreement: -4- *Confidential Treatment Requested "Genesys hereby grants to MCI the right to grant sublicenses of the foregoing rights (as well as the rights granted to MCI under Sections 3.3 and 3.4 below) to Customers to use the Premises Software, including without limitation the use of Documentation related thereto; provided, however, that such sublicenses shall be granted solely in connection with a Customer's use of products and/or services that utilize the Network Applications and are provided by MCI or MCI's Affiliates. Genesys further hereby grants to MCI the right to reproduce the Network Applications, Premises Software and related Documentation solely for the purposes of MCI's business and the businesses of its Affiliates; provided, however, that MCI shall within thirty (30) days following the end of each calendar quarter provide a quarterly report to Genesys which shall include, among other things, the Serial number, CPU type and location on which each new copy of the Network Applications and Premises Software is deployed." b. The first sentence in Section 3.2(A) is modified, in part, to read as follows: ". . . of a Purchase Order, Genesys will deliver to MCI an invoice for the License Fee and MCI shall pay the License Fee in accordance with the payment schedule specified in the Purchase Order or an exhibit or schedule thereto." c. The second sentence in Section 3.2(A) is modified, in part, to read as follows: "If an applicable Purchase Order provides for installation services to be performed by Genesys, unless otherwise provided for in such Purchase Order, the initial installation . . ." d. The following new sentence is added between the second and third sentences of Section 3.2 (A): "Unless otherwise provided in a Purchase Order ordering such services, MCI agrees to pay to Genesys its then standard rate for installation and implementation services." e. The following new sentence is added to the end of Section 3.2(A): "Notwithstanding anything to the contrary herein, upon acceptance of the first copy of a specific release of any Licensed Software by MCI or any MCI Affiliate pursuant to this Section 3.2(A) or to Section 3.2(C) below, additional copies of the same release of such Licensed Software intended for a substantially similar Operating Environment shall be deemed accepted upon delivery to MCI or an MCI Affiliate. Furthermore, in the event any Licensed Software is deemed not to be accepted upon delivery to MCI pursuant to the preceding sentence or an applicable Purchase Order, then Section 4.1(ii) shall provide that [*] percent [*] of the [*] for such [*] shall be payable to Genesys [*] of such [*]." f. The following new subsection (C) is added to Section 3.2: -5- *Confidential Treatment Requested "(C) Where Work (as that term is defined in the MCA) has been accepted by MCI pursuant to the MCA and is subsequently licensed hereunder as Licensed Software without being materially modified, such acceptance shall constitute acceptance of such Licensed Software pursuant to Section 3.2A above. However, where Work has been accepted by MCI pursuant to the MCA and is subsequently licensed hereunder as Licensed Software and has been materially modified prior to being so licensed, such Licensed Software shall be subject to Section 3.2(A) of this Agreement." g. Section 3.4 is modified in part to read as follows: " . . . hardware substitution within thirty (30) days following the end of each calendar quarter as part of a quarterly report to Genesys which shall include, among other things, the serial number, CPU type and location on which each copy of the Licensed Software is deployed." h. The following new sentence is inserted at the beginning of Section 3.5: "Genesys acknowledges that to the extent the Licensed Software may, pursuant to a specific Statement of Work, contain the intellectual property of MCI or its third party licensors licensed to Genesys pursuant to Section 9.1B(3) or jointly owned by MCI and Genesys pursuant to Section 9.1C of the MCA and that except as expressly provided therein, incorporation of such intellectual property in the Licensed Software shall not limit the ownership rights of MCI or such licensors in such intellectual property." i. The last sentence of Section 3.5 is deleted and replaced in its entirety to read as follows: "Except as to the underlying rights of MCI or its third party licensors as referred to in the first sentence of this Section 3.5, MCI shall have no other rights with respect to the Licensed Software other than the license expressly set forth herein." j. Section 3.6(A) is modified, in part, to read as follows: ". . . or Documentation (except as otherwise provided in Sections 3.1 or 14.1);" k. Section 3.6(C) is modified, in part, to read as follows: ". . . employees of MCI's Customers, dealers and distributors who use such Licensed Software solely for purposes of conducting business with MCI, and independent contractors and consultants who have a need to access the Licensed Software for the purpose of performing services for or on behalf of MCI and in accordance with the use restrictions contained herein; provided, however, Customers shall have access to the Premises Software pursuant to MCI's right to grant and authorize sublicenses under Section 3.1 hereof; or" -6- l. The following new Section 3.7 is added: "3.7 Enterprise License. Upon the written request of either Party ------------------ after December 31, 1997, the Parties agree to conduct good faith negotiations to discuss the possibility of entering into an "enterprise license" agreement." m. The following new Section 3.8 is added: "3.8 Value Added Reseller Agreement. The parties agree to conduct ------------------------------ good faith negotiations to enter into a value added reseller agreement which would enable MCI to purchase for value added resale Licensed Software at the License Fee." 6. PRICE AND PAYMENT; PURCHASE COMMITMENTS. a. The heading of Article 4 is relabeled to read as follows: "ARTICLE-4 PRICE AND PAYMENT; PURCHASE COMMITMENTS" b. The first sentence of Section 4.1 is modified, in part, to read as follows: ". . . [*], if applicable, unless otherwise agreed to in writing by the parties hereto, in accordance . . ." c. The second sentence in Section 4.1 is modified, in part, to read as follows: "If the Purchase Order fails to specify a payment schedule, subject to Section 3.2(A) hereof, the License Fee shall be due and payable as follows: (i) [*] percent [*] [*] of the [*] and (ii) [*] percent [*] [*] of the relevant [*]; and, [*] fees shall be payable [*] unless otherwise agreed to in writing by the parties hereto, within [*] days . . ." d. Section 4.2 is modified, in part, to read as follows: "Except for [*] and . . . shall be paid within thirty (30) days . . ." e. The following new Section 4.4 is added: "4.4 Increases in Licensed Software Prices. The prices set forth on ------------------------------------- Exhibit A hereto may be [*] from time to time, upon [*] days [*], to [*] for the [*]. The parties agree that the prices set forth on Exhibit A shall be [*] of each year [*] for the [*], provided, further, that the prices to be set forth in Exhibit A for -7- *Confidential Treatment Requested [*] that [*] during the calendar year shall [*] of such [*]. Notwithstanding the foregoing, in the event that [*] and [*] dollars [*] during any calendar year, then the prices set forth on Exhibit A as of [*] of that calendar year (as [*] pursuant to this Section 4.4) as well as the [*] to Exhibit A during such calendar year shall remain in effect for the entire calendar year. In the event that [*] during a calendar year in which [*] and [*] dollars [*] and [*] such [*] subject to such [*], then [*] equal to the [*] for such [*] as of [*] of such calendar year [*] to Exhibit A during such calendar year) and the [*]." f. The following new Section 4.5 is added: "4.5 Minimum Purchase Guarantee. -------------------------- (A) Commitment. [*] agrees to (i) issue to Genesys no later than [*], ---------- Purchase Orders for Licensed Software which provide for the payment of License Fees that are [*] a total of [*] dollars [*] and (ii) [*] in accordance with the [*] and [*] set forth in Schedule B ("Minimum Purchase Commitment"). In the event that [*] as set forth in Schedule B hereto, then [*] an amount equal to the [*] and the [*] as of such date (a "[*]") within [*] days after such date. Any [*] paid to [*] shall be [*] future Purchase Orders for Licensed Software or services, to the extent of the [*] set forth in Section 1.11(ii). In consideration of the foregoing minimum purchase guarantee, [*] Licensed Software at the [*]. (B) Limitations. MCI's obligations under Section 4.5(A) are subject to the ----------- following limitations: (i) If [*] Licensed Software pursuant to Section 3.2(A), its obligations under Section 4.5(A) shall be [*] of the Purchase Order to which such [*] Licensed Software relates. -8- *Confidential Treatment Requested (ii) If [*] pursuant to Section 5.2 or 10.1(D) of the Agreement, the [*] Purchase Order to which such [*] relates will nonetheless be [*] under Section 4.5(A). (iii) If [*] this Agreement to an [*] under Section 4.5(A). (iv) If [*] this Agreement pursuant to Section 13.1 hereof [*] under Section 4.5(A)." g. The following new Section 4.6 is added: "4.6 Network Applications Software Licenses. On the Effective Date of -------------------------------------- Amendment Number One to this Agreement, MCI shall issue a Purchase Order to Genesys in the amount of [*] dollars ("[*]") (the "[*]") and to pay to Genesys the Network License Fee within thirty (30) days of receipt of an invoice from Genesys for such Network License Fee, and Genesys agrees to license hereunder to MCI in consideration for such Network License Fee the Initial Network Applications Software. [*]. h. The following new Section 4.7 is added: "4.7 Transactional Pricing. For the first [*] receiving services from --------------------- [*] as set forth in the following pricing model; provided, however, that such model shall be [*] to the extent necessary for [*] that includes the [*]; provided, further, that such pricing shall continue to apply [*] unless one party notifies the other Party in writing within [*] days following [*] of the applicable [*]. (A) Consultation Regarding Pricing of Services. [*] concerning the [*] or ------------------------------------------ [*] to be paid by [*] for [*] and related services offered by [*] that utilize Premises Software; provided, however, that such [*] shall in [*] be interpreted to grant to [*] or otherwise [*] for such services. (B) Sites Employing Basic T-Server Functionality. Where a site employs -------------------------------------------- [*] to support Network Applications [*] only ("[*]"), in consideration for such use, [*] the following amounts: -9- * Confidential Treatment Requested (i) [*] percent ([*]%) of the [*] received by [*] as a result of offering network-based [*] and related services that utilize [*] over the [*] a given Customer for its [*], including charges for queuing calls in the network. For example, [*] per call for network-based [*] and related services utilizing [*] over the [*] to such Customer for its [*], including charges for queuing calls in the network, then [*]; (ii) notwithstanding the foregoing, [*] any Customer an [*] per call for network-based [*] and related services that utilize [*] over the [*] that [*] a given Customer for its [*], including charges for queuing calls in the network, [*] and an [*] that employs [*] to support [*]; provided, however, that if the Customer at such site has [*] and [*] and has continuously maintained such products by [*] at least up to the date that [*] (C) Sites Employing Advanced T-Server Functionality. Where a site ----------------------------------------------- employs [*] to support Network Applications [*], in consideration for such use, [*] the following amounts: (i) [*] percent ([*]%) of the [*] received by [*] as a result of offering network-based [*] and related services that utilize [*] over the [*] a given Customer for its [*], including charges for queuing calls in the network. For example, [*] per call for network-based [*] and related services utilizing [*] over the [*] to such Customer for its [*], including charges for queuing calls in the network, then [*] (ii) notwithstanding the foregoing, if [*] an [*] per call, for network-based [*] and related services that utilize [*] over the [*] -10- * Confidential Treatment Requested that [*] a given Customer for its [*], including charges for queuing calls in the network, [*] and an [*] that employs [*]; provided, however, that if the Customer at such site has [*] and [*] and continuously maintained such products by [*] at least up to the date that [*]. (D) Statements and Payment. Within [*] days after of the end of each ---------------------- calendar [*] a statement calculating the [*] pursuant to Sections 4.6(B) and (C) above along with [*] of such [*]. (E) Books and Records; Audit Rights. MCI and its Affiliates agree to make ------------------------------- and maintain for a period of [*] years after the applicable payment under Section 4.6(D) is due, such books, records and accounts regarding MCI's and its Affiliates' network-based call routing or related services that utilize either Basic or Advanced T-Server Functionality as reasonably required in order to calculate and confirm MCI's payment obligations hereunder. [*] If any such examination discloses a shortfall in payment to Genesys, [*] such amounts to Genesys ([*]), and, in addition, where such examination discloses a shortfall of [*] for any calendar year, [*]. -11- *Confidential Treatment Requested 7. WARRANTY. a. The third sentence in Section 5.2 is modified, in part, to read as follows: ". . . and [*] and [*] under this limited Software Warranty (including Sections 5.5 and 5.6) shall be, at [*], (i) to [*] to attempt, through reasonable efforts, to [*] any material nonconformities discovered during the relevant [*] day warranty period (or at any time with respect to material nonconformities under Sections 5.5 and 5.6) or (ii) . . . the [*] or otherwise complies with the warranties in Sections 5.5 and 5.6, as applicable." b. The fourth sentence in Section 5.2 is modified, in part, to read as follows: ". . . nonconformity), upon receipt by Genesys of a written request from MCI, Genesys shall . . ." c. The fifth sentence in Section 5.2 is modified, in part, to read as follows: ". . . of the nonconformities by MCI and that in Genesys' reasonable judgment such nonconformities do not result from the Licensed Software having been used, adjusted . . ." d. The second sentence in Section 5.4 is modified, in part, to read as follows: ". . . a "virus" shall mean Object Code (as defined in the MCA) that is designed to cause and does cause Licensed Software to fail to comply with the Applicable Specifications." e. The following new Section 5.5 is added: "5.5 Warranty Regarding Processing of Dates/Data Dependent Data. The ---------------------------------------------------------- Licensed Software will provide [*] (including, but not limited to, [*] and otherwise [*] and that upon request [*] through adequate testing of the Licensed Software or otherwise [*] with this warranty." f. The following new Section 5.6 is added: "5.6 Warranty Regarding Time Bombs. No material portion of the Work is or ----------------------------- will be intended, other than under the documented control of MCI: (i) at some specific time or on a specific instruction or occurrence of a given event, to stop, limit or interfere with the operation of the Licensed Software in conformity with the Applicable Specifications; -12- *Confidential Treatment Requested (ii) to damage or materially alter or render inaccessible the Licensed Software, or any other hardware, software or data which the Licensed Software is designed to process or use, or any other hardware, programs or data attached to, resident on, or accessible to the system on which the Licensed Software may be executed or stored; (iii) to contain any feature which would impair in any way the operation of the Licensed Software including, but not limited to, software locks or drop-dead devices, date/time expiration codes, or serial number dependent passwords; or (iv) to otherwise be impaired in its operation now or in the future in any way by Genesys. Genesys shall be responsible for, indemnify and hold MCI harmless from any damages, costs, liabilities, and/or expenses (including without limitation reasonable attorneys' fees), arising out of the breach of this Section 5.6." 8. PROPRIETARY RIGHTS. a. The following new sentence is inserted at the beginning of Section 8.1: "Genesys acknowledges that to the extent the Licensed Software may, pursuant to a specific Statement of Work, contain the intellectual property of MCI or its third party licensors licensed to Genesys pursuant to Section 9.1B(3) or jointly owned by MCI and Genesys pursuant to Section 9.1C of the MCA and that except as expressly provided therein, incorporation of such intellectual property in the Licensed Software shall not limit the ownership rights of MCI or such licensors in such intellectual property." b. The second sentence of Section 8.1 is modified, in part, to read as follows: "Subject to the foregoing sentence, MCI acknowledges that Genesys and its licensors . . . remain the sole property of Genesys and its licensors." c. The third sentence in Section 8.1 is modified, in part, to read as follows: "Subject to the provisions of this Section 8.1, MCI shall not be an owner . . ." 9. INTELLECTUAL PROPERTY RIGHT INDEMNITY. a. Section 10.1 is deleted in its entirety and replaced with the following: "10.1 Indemnity for Infringement of Intellectual Property Rights. [*] ---------------------------------------------------------- agrees, [*] to [*] or, [*], to [*], any claim or action brought against [*], or [*], or [*] (collectively, the "Indemnified Parties" and individually an -13- *Confidential Treatment Requested "Indemnified Party") based on an allegation that the [*] of the Licensed Software within the scope of the license granted hereunder, which includes use of the Licensed Software as a part of a service, (a) [*] under the laws of the [*] (the "Indemnified Countries") or (b) [*] of a third party (other than [*]), or constitutes [*] of a [*] under the laws of any country (a claim under either (a) or (b) herein, an "[*]"), and [*] against all [*] which may be assessed against or incurred by any of such [*] under any such claim or action. Promptly after receipt [*], as applicable, of notice of any claim or action or the commencement of any claim or action for which indemnification or reimbursement may be sought hereunder, [*] shall give written notice to [*] thereof, but the failure to so notify [*] shall [*] of any liability it may have to [*] hereunder [*] shall be obligated to [*] of such claim or action, [*], and shall have the [*] and [*] over the [*] or [*] of such claim or action, provided that the [*] will be required to the extent any such [*] or [*] will impose any obligation whatsoever on [*] that is [*] or, [*] or [*], other than the payment of monies that are readily measurable for purposes of determining the monetary indemnification or reimbursement obligations [*]. The [*] shall have the right, [*] to [*] in the investigation [*] of such claim or action; [*]; provided, however, that notwithstanding the foregoing, [*] to a complaint for equitable relief in connection with a claim of [*] and upon notification [*] shall be [*] for its [*] until such time as [*]. The [*] shall otherwise provide reasonable [*] with respect to such claim or action, provided that [*] for its [*] with respect thereto. Moreover, should the Licensed Software, or any use of the Licensed Software within the reasonable scope of its intended use, become, or in [*], be likely to become, the subject of a claim or action of [*], or should [*] use thereof be finally enjoined, [*]: (A) [*] the right to [*] such Licensed Software; or (B) [*] or [*] such Licensed Software to make it [*] provided such [*] or [*] is the functional equivalent of the Licensed Software in light of the Applicable Specifications, and [*] for any additional [*] and caused by any such [*] or [*]; or -14- *Confidential Treatment Requested (C) If neither of the foregoing Subitems (A) and (B) can be reasonably accomplished, [*], to undertake to [*] or [*] the Licensed Software provided that (i) such [*] or [*] shall be treated as [*] as defined in the Master Consulting Agreement, (ii) [*] of such [*] or [*], and (iii) the undertaking of such [*] shall [*] of this Agreement; or (D) [*] its right to act under Subsection (C) above or if [*] (C) can not be reasonably accomplished, [*], as applicable, for all [*] of the [*] for the Licensed Software, provided that such amounts shall be [*] beginning with the [*] of the Licensed Software (i.e., a change from version A.x to version B.0) was delivered to [*]." b. Section 10.2 is deleted in its entirety and replaced with the following: "10.2. Exceptions. ---------- (A) Notwithstanding the provisions of Section 10.1 above, [*] for [*] claims to the extent (i) the Licensed Software is not or ceases to be an element of the alleged [*], (ii) the alleged [*] is based upon a [*] to the Licensed Software [*], or (iii) the alleged [*] results from the [*] of the Licensed Software with any products not [*] (a "Combination") where the Combination is [*] of the Licensed Software. If an alleged [*] is based upon a Combination and at the time of such claim or thereafter products are [*] that could result in a [*] Combination, then the Parties will meet to discuss the option of [*]. (B) Notwithstanding anything in Section 10.1 to the contrary, where the Licensed Software is being [*] in its [*] or [*] as a [*] (but not including the [*], pursuit of [*], and any other legal and related expenses [*] claims of [*]), shall be limited to [*] times the amount of the License Fees paid [*] for the [*] Licensed Software for any [*] claim with respect to [*] of the Licensed Software in a [*], to the extent arising from (a) the [*] of the Licensed Software with any other product [*], even if [*] such [*] or, (b) a [*] to the Licensed Software made or [*] for the [*]. -15- * Confidential Treatment Requested It is understood and acknowledged that the foregoing [*] for certain [*] claims shall [*], for all such claims in all proceedings in accordance with Section 10.1, subject to the limitation of Section 10.2 (A). (C) Notwithstanding anything in Section 10.1 or 10.2 B to the contrary, where the Network Applications and Premises Software is being utilized to provide [*] to Customers, [*], including without limitation [*] or [*] as a [*] (collectively, "Liability") for any [*] claim with respect to such use of the Licensed Software in a [*], to the extent such Liability arose out of or resulted from a [*], shall [*] percent ([*]%) of such Liability. It is understood and acknowledged that the foregoing [*] claims shall [*] in all proceedings in accordance with Section 10.1 [*] but subject to the [*] of this Section 10.2(C). At such time as [*] under Section 10.1 as to a claim subject to this Section 10.2 C, then the [*] of this Section and the [*]." c. Section 10.4 is deleted in its entirety and replaced with the following: "10.4 Limitation. THE FOREGOING PROVISIONS OF THIS ARTICLE 10 STATE THE ---------- ENTIRE LIABILITY AND OBLIGATIONS OF GENESYS, AND THE EXCLUSIVE REMEDY OF ALL INDEMNIFIED PARTIES, WITH RESPECT TO ANY ACTUAL OR ALLEGED INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHT BY THE LICENSED SOFTWARE OR ANY PART THEREOF OR ANY WARRANTY OR REPRESENTATION RELATED THERETO." d. The following new Section 10.6 is added: "10.6 Licensed Software. "Licensed Software" for purposes of this Article ----------------- 10 only, shall include, without limitation, [*] pursuant to the MCA to the extent [*] are used within the scope specified in Section 14.1 thereof, even if any of [*] are intended to be subsequently licensed by MCI or such MCI Affiliate pursuant to this Agreement as Licensed Software." -16- * Confidential Treatment Requested 10. LIMITATION OF LIABILITY AND REMEDIES. a. Section 11.1 is modified, in part, to read as follows: ". . . UNDER THE RELEVANT PURCHASE ORDER. [*] . . . " 11. TERM AND TERMINATION. Section 13.1 is modified, in part, to read as follows: ". . . upon one hundred eighty (180) days prior written . . ." 12. ASSIGNMENT. a. The first sentence in Section 14.1 is modified, in part, to read as follows: ". . . consent of the other party, which consent shall not be unreasonably withheld or delayed." b. The second sentence in Section 14.1 is modified, in part, to read as follows: ". . . transfer or assignment, and (ii) either party may assign this Agreement as part of the sale of all or substantially all of the business assets to which this Agreement relates or as part of any transaction resulting in a merger, consolidation or other change in control of the assigning party, provided that the assigning party shall notify the non-assigning party of such assignment." 13. DISPUTE RESOLUTION. The sixth sentence in Section 14.4 is modified, in part, to read as follows: "The arbitrator's decision shall be final and binding." 14. ENTIRE AGREEMENT. This Amendment and the Agreement, and to the extent referenced herein or in the Agreement, the MCA, constitute the entire Agreement between the parties in connection with the subject matter of this Amendment and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties. -17- * Confidential Treatment Requested IN WITNESS WHEREOF, Genesys and MCI have caused this Amendment Number One to be executed by their duly authorized representatives, effective as of the Effective Date set forth above. AGREED TO AND ACCEPTED BY: GENESYS TELECOMMUNICATIONS MCI TELECOMMUNICATIONS LABORATORIES, INC. CORPORATION /s/ Gregory Shenkman /s/ John W. Gerdelman - -------------------------- ----------------------------- Signature Signature Gregory Shenkman John W. Gerdelman President and Chief Executive Officer - -------------------------- ----------------------------- Printed Name and Title Printed Name and Title February 26, 1997 February 26, 1997 - -------------------------- ----------------------------- Date Date -18- SCHEDULE A EXHIBIT A LICENSED SOFTWARE AND PRICING ----------------------------- [*] * Confidential Treatment Requested SCHEDULE B EXHIBIT B MINIMUM PURCHASE COMMITMENT --------------------------- [*] * Confidential Treatment Requested EX-10.10 22 SOFTWARE MAINTENANCE AGREEMENT EXHIBIT 10.10 SOFTWARE MAINTENANCE AGREEMENT THIS AGREEMENT, dated and effective as of January 31, 1996, is entered into by and between Genesys Telecommunications Laboratories, Inc. ("Genesys"), a California corporation with principle offices at 1111 Bayhill Drive, Suite 180, San Bruno, California 94066 and MCI Telecommunications Corporation ("MCI"), a Delaware corporation with offices at 1801 Pennsylvania Avenue, N.W., Washington, D.C. 20006. NOW THEREFORE, in consideration of the foregoing and mutual covenants and consideration set forth herein, the parties hereby agree as follows: ARTICLE 1 - DEFINITIONS 1.1 Any capitalized term used in this Agreement and not herein defined shall have the meaning set forth in the License Agreement (as hereinafter defined). 1.2 "Extended Hours" means telephone assistance service twenty-four (24) hours a day, seven (7) days a week. 1.3 "License Agreement" means the agreement dated January 31, 1996, pursuant to which the Licensed Software was licensed to MCI and all terms and conditions contained therein. 1.4 "Maintenance and Support" means the services described in Article 2 hereof. 1.5 "Standard Hours" means Monday through Friday, 9:00 a.m. to 5:00 p.m. California time, excluding holidays. 1.6 "Updates" means a release or version of the Licensed Software containing functional enhancements, modifications, extensions, error corrections or bug fixes. The content of all Updates shall be decided upon by Genesys in its sole discretion and will generally include changes that correct defects as well as upgrade the Licensed Software to the most current release or version of the Licensed Software then being generally marketed by Genesys. ARTICLE 2 - MAINTENANCE AND SUPPORT PROVIDED BY GENESYS 2.1 For so long as MCI is current in the payment of all fees set forth in Article 6 of this Agreement, MCI is entitled to Maintenance and Support as specified in this Article 2. 2.2 Maintenance and Support Services. "Maintenance and Support" -------------------------------- means that Genesys will provide: * Confidential Treatment Requested. Confidential portion has been filed separately with the Securities and Exchange Commission. (A) Updates, if any, and appropriate Documentation; (B) telephone assistance with respect to the Licensed Software within the hours of service as elected by MCI, such assistance to be provided in accordance with the escalation, procedures and response time targets set forth in Schedule B attached hereto and to otherwise include (i) clarification of functions and features of the Licensed Software, (ii) clarification of Documentation pertaining to the Licensed Software, (iii) guidance in the operation of the Licensed Software, and (iv) error verification, analysis and code corrections, as necessary, to cause the Licensed Software to perform in accordance with the Applicable Specifications and the most current Documentation as updated by Licensor from time to time, to the extent possible (except for code corrections) by telephone; (C) access to an electronic bulletin board on which MCI may leave messages for Genesys support engineers and receive Updates notifications and other end-user information, and from which MCI may download Updates; and (D) remote dial-in diagnosis of and assistance in connection with a reported error or bug by Genesys directly to the Designated CPU upon which the Licensed Software is operating. During the term of this Agreement, Genesys shall use its reasonable efforts to correct any reproducible programming error in the Licensed Software attributable to Genesys with a level of effort commensurate with the severity of the error, provided that Genesys shall have no obligation to correct all errors in the Licensed Software. Upon identification of any programming error, MCI shall notify Genesys of such error and provide Genesys with enough information to locate the error. MCI may obtain Updates either through delivery of a machine readable copy pursuant to instructions contained in the Update notification or by downloading the Update from Genesys' electronic customer service bulletin board. 2.3 Hours of Telephone Assistance. Telephone assistance shall be ----------------------------- provided to MCI by Genesys during Genesys' Standard Hours or, as MCI may elect under each purchase order with respect to ordered Licensed Software, such services may be provided for Extended Hours. Fees for Maintenance and Support under this Agreement shall depend on the election by Customer between either Standard Hours or Extended Hours of telephone assistance as set forth in Section 6 hereof. 2.4 Annual Account Review. Genesys shall provide MCI with one (1) --------------------- day of free consulting at MCI's facility each year to review the status of the Licensed Software, assess MCI's ongoing and future use of the Licensed Software, solicit input from MCI on future development and direction of the Licensed Software, and to make recommendations regarding MCI's use of the Licensed Software. 2.5 Social Services. Genesys agrees to use reasonable efforts to --------------- respond 2 to any requests by MCI for maintenance and support services not specifically provided for above. MCI acknowledges that all such services provided by Genesys shall be at Genesys' then current terms and conditions for such services. ARTICLE 3 - ADDITIONS 3.1 The annual Maintenance and Support fees shall be adjusted to reflect any increases in MCI's license fee that are attributable to MCI's licensing, from time to time, additional software from Genesys pursuant to the License Agreement. Such adjustment shall be equal to the percentage of the full purchase price of such additional software corresponding to the maintenance plan selected by MCI under the Purchase Order. Additionally, notwithstanding anything herein to the contrary, continuation of Maintenance and Support to MCI after any such increase in the license fee shall be subject to payment of a fee equal to the difference between the Annual Maintenance Fee before and after increase such adjustment, prorated for the remaining term of the then current twelve (12) month term of this Agreement, as measured from the date of such change. ARTICLE 4 - EXCLUSIONS 4.1 Eligible Software. Genesys shall not be responsible for ----------------- correcting any errors not attributable to Genesys. Genesys is not required to provide any Maintenance or Support services relating to problems arising out of (i) MCI's failure to implement all Updates which are issued under this Agreement; (ii) changes to the operating system or environment which adversely affect the Licensed Software; (iii) any alterations of or additions to the Licensed Software performed by parties other than Genesys or not at the direction of Genesys; (iv) use of the Licensed Software in a manner for which it was not designed; (v) operation outside of environmental specifications; (vi) interconnection of the Licensed Software with other software products not supported by Genesys unless the intended interconnection with such other software was known to or reasonably should have been anticipated by Genesys given the use for which the Licensed Software was designed, or (vii) use of the Licensed Software on equipment other than the equipment for which such software was designed for and licensed for use on. 4.2 Prior Software Versions. Except as otherwise provided in Section ----------------------- 6.1 (A) Maintenance and Support is provided with respect to versions of the Licensed Software that, in accordance with Genesys policy, are then being supported by Genesys; and (B) Genesys shall only be obligated to support the then current production version of the Licensed Software and the immediately prior release for a period of twelve (12) months after the release of the then current production version, provided that MCI has received and had sufficient time to implement Updates upgrading its Licensed Software to the then current production version 3 thereof. 4.3 Additional Services. Support for any earlier versions or for ------------------- other problems not covered under this Agreement may be obtained at Genesys' then current rates for special technical services, subject to the reasonable availability of Genesys staff. ARTICLE 5 - MCI RESPONSIBILITIES 5.1 Responsibility. In consideration for Genesys' obligations to -------------- provide Maintenance and Support, MCI agrees to the following: (A) MCI shall, during normal business hours, provide Genesys with reasonable access either telephonically or on a remote basis to MCI's personnel and equipment upon which the Licensed Software is loaded or operating. This access shall include, when applicable, the ability to dial-in to equipment on which the Licensed Software is operating when applicable and subject to Licensee's security requirements. Genesys will inform MCI of the specifications of the modem equipment needed, and MCI will be responsible for the costs and use of said equipment at the MCI's location. (B) MCI shall provide supervision, control and management of the use of the Licensed Software. In addition, MCI shall implement procedures for the protection of information and the implementation of backup procedures in the event of errors or malfunction of the Licensed Software or equipment upon which the Licensed Software is loaded or operating. (C) MCI shall document and promptly report all errors or malfunctions of the Licensed Software to Genesys. MCI shall take all steps necessary to carry out procedures for the rectification of such errors or malfunctions within a reasonable time after such procedures have been provided by Genesys. (D) MCI shall maintain a current backup copy of all programs and data. (E) MCI shall properly train its personnel in the use and application of the Licensed Software and the equipment on which the Licensed Software is loaded or operating. 5.2 Contact People. For each major department or organization -------------- issuing a purchase order for Licensed Software, MCI shall appoint up to two (2) individuals within MCI's organization to serve as primary contacts between MCI and Genesys and to receive support through Genesys' telephone support center. All of MCI's support inquiries for the relevant Licensed Software shall be initiated through these contacts. 4 ARTICLE 6 - FEES AND PAYMENT 6.1 Fees. Maintenance and Support are offered on an annual basis. The initial Maintenance and Support period shall begin upon the Effective Date and end one year from such date. For the initial year of this Agreement, if [*] under a Purchase Order to acquire [*] Maintenance and Support Services, the price of maintenance shall be equal to [*]% of the [*] for the relevant software; if [*] under a Purchase Order to acquire [*] Maintenance and Support Services, the price of maintenance shall be equal to a [*]% of the [*] for the relevant software ([*]). The fees shall be paid as provided in Section 3.1 of the License Agreement. For each subsequent year, [*] the Maintenance and Support fee rates; provided, however, that [*] of this Agreement, [*] shall the Maintenance and Support fees [*] over the Base Maintenance Rates (i.e., an [*] on average, for the [*]), excluding increases attributable to the license of additional software, as further provided in Section 3.1. Notwithstanding anything herein contained to the contrary, [*] and [*] of the Licensed Software, and appropriate Documentation ("New Version Support") will be provided as part of Maintenance and Support, [*], through the [*]. If [*] additional licenses for any of the Licensed Software, and, if, as a result of [*] is required to pay additional license fees, then the Maintenance and Support fee for the [*] as appropriate. Beginning with the [*], Maintenance and Support fees and New Version Support fees shall be separately priced as follows: The [*] Maintenance and Support fee shall be [*] under the Purchase Order; and the [*] New Version Support fee shall be [*] New Version Support fee that [*]. Notwithstanding the foregoing, if, at any time, Genesys offers New Version Support on a [*] to a [*], then [*] to receive such support at the [*]. [*] that if a Maintenance and Support fee and/or New Version Support fee [*], or, [*], then [*] in writing, and the fees stated herein shall be [*] by written amendment. Notwithstanding anything herein contained to the contrary, if at anytime after the [*] New Version Support then [*] to provide Maintenance and Support for the latest version of the Licensed Software delivered to [*] for a period of [*] from the date of [*]. [*] Maintenance and Support upon [*] days prior written notice. Annual Maintenance and Support Fees shall be invoiced [*]. 6.2 Time of Payment. Except as otherwise provided in this Agreement --------------- all amounts due Genesys shall be paid within forty-five (45) days of MCI's receipt of the 5 * Confidential Treatment Requested relevant invoice from Genesys. 6.3 Taxes. Unless otherwise agreed in writing, all charges under ----- this Agreement do not include any taxes, duties or charges of any kind (including withholding or value added taxes) imposed by any federal, state, or local governmental entity for products or services provided under this Agreement, excluding only taxes based solely on Genesys's net income. When Genesys has the legal obligation to collect such taxes, the appropriate amount shall be invoiced to MCI unless MCI provides Genesys with a valid tax exemption certificate authorized by the appropriate taxing authority. MCI shall hold Genesys harmless from all claims and liability arising from MCI's failure to pay any such taxes, duties, or charges. ARTICLE 7 - TERM AND TERMINATION 7.1 Term. This Agreement shall take effect on the Effective Date and ---- shall remain in effect for an initial term of one (1) year. This Agreement shall automatically renew at the end of the initial term and each subsequent term for a renewal term of one (1) year. Notwithstanding the foregoing, any MCI organization obtaining Support and Maintenance services hereunder may, without penalty to MCI, terminate the services being provided under this Agreement in whole or in part upon forty-five (45) days' written notice to Genesys. In the event of such termination, Genesys, within fortyfive (45) days of its receipt of such notice, shall deliver to MCI a pro-rated refund of the Maintenance and Support fee for the then current Maintenance Year. 7.2 Termination. This Agreement shall terminate upon (i) termination ----------- of the License Agreement or (ii) with respect to any MCI organization acquiring support hereunder, upon thirty (30) days notice of material breach of a party's obligations hereunder if such breach, if capable of being cured, is not cured within thirty (30) days of notice of such breach. Upon such termination, all earned and unpaid fees and other charges payable under this Agreement shall become immediately due and payable. 7.3 Survival. Termination of Maintenance and Support upon failure to -------- renew will not affect the license of the Licensed Software. The provisions of Articles 8, 9 and 10 shall survive any termination or expiration of this Agreement. ARTICLE 8 - OWNERSHIP AND USE 8.1 Title. All Updates and other changes, improvements, bug fixes or ----- other modifications to the Licensed Software provided under this Agreement shall be deemed to be included within the Licensed Software and will be subject to the terms and conditions of the License Agreement. ARTICLE 9 - WARRANTY DISCLAIMER 6 Nothing in this Agreement shall be construed as expanding or adding to any warranty in the License Agreement. Genesys will use all reasonable commercial efforts to provide the support requested by MCI under this Agreement in a professional and workmanlike manner, but Genesys cannot guaranty that every question or problem raised by MCI will be resolved. GENESYS MAKES, AND MCI RECEIVES, NO WARRANTIES OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, ARISING IN ANY WAY OUT OF, RELATED TO, OR UNDER THIS AGREEMENT OR THE PROVISION OF MATERIALS OR SERVICES THEREUNDER, AND GENESYS SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ARTICLE 10 - LIMITATION OF LIABILITY [*] that, other than for any [*] with respect to software viruses, which is incorporated by reference herein from the License Agreement, [*] under this Agreement is [*] the [*]. [*] HAVE ANY [*] FOR ANY [*] INCLUDING, [*] OR SERVICES, ARISING IN ANY WAY OUT OF THIS AGREEMENT UNDER ANY CAUSE OF ACTION, [*]. ARTICLE 11 - GENERAL PROVISIONS 11.1 Confidentiality. The parties agree that the terms and --------------- conditions of this Agreement shall be treated by each party as the Confidential Information of the other party, and that neither party shall disclose the contents of this Agreement without the prior written consent of the other party; provided, however, that the general existence of this Agreement shall not be treated as Confidential Information and that either party may disclose the terms and conditions of this Agreement (A) under the circumstances and subject to the conditions set forth in Section ? of the License Agreement; (B) in confidence, to such party's legal counsel; (C) in confidence, to such party's accountants; or (D) in confidence, in connection with the enforcement of this Agreement or rights under this Agreement. Notwithstanding the foregoing, either party may, without the other party's prior consent 7 * Confidential Treatment Requested disclose the aggregate dollar amounts associated with this Agreement (but no other terms and conditions), in confidence to its banks, proposed investors and financing sources. 11.2 Assignment. Neither party shall have the right to transfer, ---------- assign or otherwise dispose of its rights or obligations hereunder, by operation of law or otherwise, without the prior written consent of the other party. Notwithstanding the foregoing, (i) MCI may transfer or assign its rights and obligations, in whole or in part, to an Affiliate, provided that MCI shall, however, notify Genesys of such transfer or assignment, and (ii) Genesys may assign this Agreement as part of the sale of all or substantially all of its assets or as part of any transaction resulting in a change in control of Genesys, provided that Genesys shall notify MCI of such assignment and that MCI shall have the option of terminating (without prejudice to other provisions of this Agreement) any development obligations then in effect. 11.3 Captions. The captions used in this Agreement are included for -------- convenience only and shall not be considered part of this Agreement for any purpose. 11.4 Governing Law. This Agreement shall be governed, construed and ------------- enforced in accordance with the laws of the state of New York, without reference to conflict of laws principles. 11.5 Dispute Resolution and Jurisdiction. Any dispute arising out of ----------------------------------- or related to this Agreement, which cannot be resolved by negotiation, shall be settled in accordance with the provisions set forth for dispute resolution and jurisdiction in the License Agreement. 11.6 Independent Contractors. The relationship of Genesys and ----------------------- Contractor established by this Agreement is that of independent contractors, and nothing contained in this Agreement shall be construed (i) to give either party the power to direct or control the day-to-day activities of the other or (ii) to constitute the parties as partners, joint venturers, co-owners or otherwise as participants in a joint or common undertaking. 11.7 Severability. If any provision of this Agreement is held to be ------------ invalid by a court of competent jurisdiction, then the remaining provisions shall nevertheless remain in full force and effect. The parties further agree to negotiate in good faith a substitute, valid and enforceable provision that most nearly effects the parties' intent and to be bound by mutually agreed substitute provision. 11.8 No Waiver. The failure of either party to enforce at any time --------- any of the provisions of this Agreement shall not be deemed to be a waiver of the right of such party thereafter to enforce any such provisions. 11.9 Force Majeure. Except for the obligation to make payments, ------------- nonperformance of either party shall be excused to the extent that performance is rendered 8 impossible by strike, fire, flood, governmental acts or orders or restrictions, failure of suppliers, or any other reason where failure to perform is beyond the reasonable control of the non-performing party. 11.10 Notices. Any required notices hereunder shall be given in ------- writing at the address of each party set forth above, or to such other in the manner contemplated herein, and shall be deemed served when delivered or, if delivery is not accomplished by reason or some fault of the addressee, when tendered. 11.11 Entire Agreement. This Agreement and Schedules attached hereto ---------------- and incorporated herein constitute the entire, final, complete and exclusive agreement between the parties and supersede all previous agreements or representations, oral or written, relating to this Agreement. This Agreement may not be modified or amended except in a writing signed by a duly authorized representative of each party. Both parties acknowledge having read the terms and conditions set forth in this Agreement and Schedules attached hereto, understand all terms and conditions, and agree to be bound thereby. This Agreement is accepted and made effective as of the date first written above. Genesys Telecommunications MCI Telecommunications Laboratories Corporation By: /s/ Gregory Shenkman By: /s/ H. A. Shartel ---------------------------- ------------------------- Name: Gregory Shenkman Name: H. A. Shartel -------------------------- ----------------------- Title: President Title: Sr. Manager ------------------------- ---------------------- Date: January 31, 1996 Date: January 31, 1996 -------------------------- ----------------------- 9 SCHEDULE B ---------- Escalation Procedures and Response Time Targets 1. Technical Support Availability: ------------------------------ Genesys will provide [*]. [*] may be achieved through [*]. 2. Problem Severity Identification: ------------------------------- [*] Severity 1 - [*] Severity 2 - [*] Severity 3 - [*] Severity 4 - [*] 3. Problem Acknowledgment: ---------------------- Severity 1 - Genesys shall [*] and [*]. Weekend and holiday status updates will be provided [*], unless the End-User, MCI and Genesys have agreed to [*] until the [*] . Severity 2 - Genesys shall [*] and provide [*]. Severity 3 - Genesys shall [*] and provide [*]. Severity 4 - Genesys shall [*] and provide [*]. * Confidential Treatment Requested 4. Problem Resolution Targets (applicable to both workstation and host ------------------------------------------------------------------- software problems): ------------------
Severity 1 Severity 2 Severity 3 [*] of Problems Resolved In: [*] [*] [*] [*] of Problems Resolved In: [*] [*] [*] [*] of Problems Resolved In: [*] [*] [*] [*] of Problems Resolved In: [*] [*] [*] [*] of Problems Resolved In: [*] [*] [*]
2. * Confidential Treatment Requested AMENDMENT NUMBER ONE TO SOFTWARE MAINTENANCE AGREEMENT THIS AMENDMENT NUMBER ONE (the "Amendment") to the Software Maintenance Agreement by and between Genesys Telecommunications Laboratories, Inc. ("Genesys"), a California corporation with a principal place of business at 1155 Market Street, 11th Floor, San Francisco, Ca 94103 and MCI Telecommunications Corporation ("MCI"), a Delaware corporation with offices at 1801 Pennsylvania Avenue, N.W., Washington, D.C. 20006 dated January 31, 1996 (the "Agreement") is entered into this 26th day of February, 1997 (the "Effective Date"). In consideration of the promises and conditions set forth below, the parties agree as follows: BACKGROUND A. Genesys and MCI have entered into a Master Consulting Agreement as of even date herewith pursuant to which Genesys has undertaken, among other things, the development of an intelligent network call router software product which Genesys intends to productize as a new software product; B. Genesys and MCI have previously entered into a Master Software License Agreement dated January 31, 1996 (the "License Agreement"), and have entered into an amendment to the License Agreement as of even date herewith pursuant to which, among other things, MCI is licensing such intelligent network call router software product; C. Genesys and MCI desire to amend the Agreement as set forth in this Amendment Number One to reflect the licensing by MCI of such new software product as Licensed Software pursuant to the License Agreement and to make other mutually agreed to amendments to the Agreement; AMENDMENT 1. AMENDMENT OF AGREEMENT. This Amendment hereby amends and revises the Agreement to incorporate the terms and conditions set forth in this Amendment. The relationship of the parties shall continue to be governed by the terms of the Agreement as amended. 2. DEFINITIONS. As used in this Amendment, all capitalized terms shall have the meanings assigned to such terms in this Amendment, or, if not specified in this Amendment, the meanings defined elsewhere in the Agreement. 3. ARTICLE 1 - DEFINITIONS. a. Section 1.5 is modified by replacing "9:00 a.m. to 5:00 p.m." with "9:00 a.m. to 5:30 p.m." b. The following definitions are added to this article 1: 1.7 "CUSTOMER" shall have the meaning set forth in Section 1.10 of the MSLA. 1.8 "EFFECTIVE DATE" means the effective date of Amendment Number One to this Software Maintenance Agreement. 1.9 "LICENSE FEE" shall have the meaning set forth in Section 1.13 of the MSLA. 1.10 "NETWORK APPLICATIONS" shall have the meaning set forth in Section 1.17 of the MSLA." 4. ARTICLE 2 - MAINTENANCE AND SUPPORT PROVIDED BY GENESYS. a. Section 2.1 is deleted and replaced with the following: "For so long as MCI or a specific MCI Affiliate is current in the payment of all fees set forth in Article 6 of this Agreement, then MCI or such specific MCI Affiliate, as applicable, is entitled to Maintenance and Support as specified in this Article 2." b. Subsection D. of Section 2.2 ("Maintenance and Support Services") is modified, in part, to read as follows: "...upon which the Licensed Software is operating; provided, however, that such access shall be subject to MCI's prior consent and will be provided by MCI solely for the purpose of, and only during such time as required for, such diagnosis and assistance in connection with the reported error or bug." c. In the first sentence of the last paragraph of Section 2.2, such sentence commencing with the words "During the term of this Agreement...", the clause "provided that Genesys shall have no obligation to correct all errors in the Licensed Software" is deleted. d. The following sentences are added to the last paragraph of Section 2.2 at the end of the second sentence. "In such event, Genesys shall together with other applicable participants use its commercially reasonable efforts to isolate the error and determine whether or not it is attributable to the Licensed Software. Once any such problem is identified not to be attributable to the Licensed Software, MCI agrees to pay for any additional Genesys support services under Section 2.5." -2- 5. ARTICLE 3 ADDITIONS. This Article is deleted in its entirety. 6. ARTICLE 5 - MCI RESPONSIBILITIES a. The second sentence of Subsection (A) of Section 5.1 ("Responsibilities of MCI"), such second sentence commencing with the words "This access shall include..." is modified, in part, to read as follows: "...subject to Licensee's security requirements; provided, however, that such dial-in access, including as referred to in the immediately preceding sentence, shall be subject to MCI's prior consent and will be provided by MCI solely for the purpose of, and only during such time as required for, the particular specified Genesys maintenance activity." 7. ARTICLE 6 - FEES AND PAYMENT a. Subsection 6.1 is deleted and replaced in its entirety, as follows: "6.1 Fees. ---- (A) Maintenance and Support are offered on an annual basis. The cost of [*] Maintenance and Support for [*] shall be equal to [*] of the [*] of the applicable Licensed Software effective as of the date of the Purchase Order for such Maintenance and Support; and the cost of [*] Maintenance and Support Services for [*] shall be equal to [*] of the License Fees for the applicable Licensed Software effective as of the date of the Purchase Order for such Maintenance and Support (such foregoing applicable Maintenance and Support fees are referred to herein collectively as "[*]"). Notwithstanding the foregoing, (i) maintenance fees [*] of Network Applications [*] under the MSLA shall be [*] dollars [*] during the [*] and [*] dollars (following such [*], the maintenance fees for Network Applications shall be the [*] and (ii) all maintenance fees for Premises Software shall be [*] (B) The [*] maintenance fees for Licensed Software (other than the [*], shall be payable, one year in advance, within thirty (30) days following [*] of an invoice [*] for such maintenance fees or, for Network Applications, the [*] or (ii) the [*] for the relevant Licensed Software. The maintenance fees for Network Applications [*] shall be payable within thirty (30) days following [*] of an invoice [*] for such fees or (y) [*] -3- *Confidential Treatment Requested [*] of the Network Applications. For each year [*] the applicable maintenance fees for the applicable Licensed Software, the [*] shall be the [*], payable, one year in advance, within thirty (30) days following [*] of an invoice [*] for such [*]. To the extent [*] Licensed Software, [*], the Maintenance Rates for such [*] Licensed Software may be [*] for [*] or [*] a full year to cause the [*] maintenance periods for such [*] Licensed Software to have [*] with previously Licensed Software licensed hereunder. [*] maintenance fees shall be invoiced each year [*]." b. SECTION 6.2. ("TIME OF PAYMENT") is modified, in part, to read as follows: "...shall be paid within thirty (30) days..." 8. ARTICLE 7 - TERM AND TERMINATION. a. The first sentence of Section 7.1 ("Term") is deleted and replaced with the following: "This Agreement shall take effect on the Effective Date of this Amendment Number One and shall remain in effect for an initial term of two (2) years." b. The second sentence of Section 7.3 is modified, in part, to read as follows: "...Articles 8, 9, 10 and 11 shall survive any termination..." 9. ARTICLE 9 - WARRANTY DISCLAIMER. The first sentence of Article 9 is modified, in part, to read as follows: "...shall be construed to modify any warranty..." 10. ARTICLE 11 - GENERAL PROVISIONS a. Subsection A of Section 11.1 ("Confidentiality"), is modified to read, in part, as follows: "...the conditions set forth in Section 9.2 of the MSLA." b. The following new paragraph is added to the end of Section 11.1: "Information disclosed by one Party to the other or otherwise obtained by one Party in the performance of this Agreement shall be subject to the provisions of Article 9 of the MSLA modified so as to be applicable to this Agreement." -4- *Confidential Treatment Requested c. The first sentence of Section 11.2 is modified, in part, to read as follows: "... consent of the other party, which consent shall not be unreasonably withheld or delayed." d. The second sentence in Section 11.2 is modified, in part, to read as follows: "... transfer or assignment, and (ii) either party may assign this Agreement as part of the sale of all or substantially all of the business assets to which this Agreement relates or as part of any transaction resulting in a merger, consolidation or other change in control of the assigning party, provided that the assigning party shall notify the non-assigning party of such assignment." e. The first sentence of Section 11.11 ("Entire Agreement") is modified to read, in part, as follows: "This Agreement and the Schedules attached hereto and incorporated herein, along with any provisions of the MSLA expressly incorporated herein by reference, constitute the entire..." 11. SCHEDULE B ("ESCALATION PROCEDURES AND RESPONSE TIMES TARGETS") 1. TECHNICAL SUPPORT AVAILABILITY. This section is deleted and replaced in its entirety with the following: "Genesys will provide [*] for both [*]. [*] may be [*] through [*]." 3. PROBLEM ACKNOWLEDGMENT. This section is deleted and replaced in its entirety with the following: "Unless otherwise [*] to by [*] on a [*], the currently stated [*] for [*], are modified to the following: SEVERITY 1 - Genesys shall [*] of notice thereof and [*], including on [*] unless for such [*] have agreed to [*] until the [*]. SEVERITY 2 - Genesys shall [*] of notice thereof and [*], including on [*] unless for such [*] have agreed to [*] until the next [*]. SEVERITY 3 - Genesys shall [*] of notice thereof and [*], excluding [*]. SEVERITY 4 - Genesys shall [*] of receipt of notice thereof and [*]. -5- *Confidential Treatment Requested 4. PROBLEMS RESOLUTION TARGETS. The current section is deleted and replaced, in is entirety, with the following: "The following problem resolution targets are applicable to both workstation and host software problems:
SEVERITY 1 SEVERITY 2 SEVERITY 3 ---------- ---------- ---------- [*] of problems [*] [*] [*] resolved in: [*] of problems [*] [*] [*] resolved in: [*] of problems [*] [*] [*] resolved in: [*] of problems [*] [*] [*] resolved in: [*] of problems [*] [*] [*] solved in:
12. ENTIRE AGREEMENT. This Amendment and the Agreement, and the MSLA to the extent incorporated herein by reference, constitute the entire Agreement between the parties in connection with the subject matter of this Amendment and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties. -6- * Confidential Treatment Requested IN WITNESS WHEREOF, Genesys and MCI have caused this Amendment Number One to the Software Maintenance Agreement to be executed by their duly authorized representatives, effective as of the Effective Date set forth above. AGREED AND ACCEPTED BY: Genesys Telecommunications MCI Telecommunications Laboratories, Inc. Corporation /s/ Gregory Shenkman /s/ John W. Gerdelman ----------------------------- ------------------------------ Signature Signature Gregory Shenkman John W. Gerdelman ----------------------------- ------------------------------ Print Name Print Name President and Chief Executive Officer Executive Vice President ----------------------------- ------------------------------ Title Title February 26, 1997 February 26, 1997 ----------------------------- ------------------------------ Date Date -7- EX-11.1 23 COMPUTATION OF PRO FORMA NET LOSS PER SHARE EXHIBIT 11.1 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. COMPUTATION OF PRO FORMA NET LOSS PER SHARE (IN THOUSANDS)
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED ------------------ JUNE 30, 1996 1995 1996 ------------- -------- -------- Net loss.................................... $(3,327) $ (1,525) $ (23) ======= ======== ======== PRO FORMA NET LOSS PER SHARE Shares used in calculating pro forma net loss per share: Weighted average common shares outstanding.. 9,969 9,032 11,496 SAB 83 shares-- Convertible preferred stock............... 2,752 2,752 2,752 Common stock issuances.................... 1,989 1,989 1,989 Options for common stock.................. 3,630 3,683 3,613 Warrants.................................. 304 304 304 ------- -------- -------- Total................................... 18,644 17,760 20,154 ======= ======== ======== Pro forma net loss per share................ $ (0.18) $ (0.09) $ -- ======= ======== ========
EX-16.1 24 CHANGE IN INDEPENDENT AUDITOR'S CONSENT Exhibit 16.1 [LETTERHEAD OF COOPERS & LYBRAND] March 31, 1997 Mr. Michael J. Sheridan Corporate Controller Genesys Telecommunications Laboratories 1155 Market Street 11th Floor San Francisco, CA 94103 Re: "Change in Independent Auditor's" paragraph for S-1 filing Dear Mr. Sheridan: We have read the wording of the "Change in Independent Auditors" paragraph for the Genesys Telecommunications Laboratories filing on Form S-1. We agree with all statements made therein with respect to Coopers & Lybrand L.L.P. in its capacity as the predecessor auditors for the Company. Please contact us if we can be of further assistance. Very truly your, /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. EX-21.1 25 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 Subsidiaries and Affiliates. - --------------------------- 1. The Company has the following subsidiaries and affiliates: a. Genesys Telecommunications Laboratories - Europe Limited, a UK corporation; b. Genesys Russia, Inc., a California corporation; and c. Genesys Laboratories Canada Inc., a New Brunswick business corporation d. Genesys Vladivostok, a Russian corporation. e. Genesys Moscow (status of entity undetermined); f. Genesys Telecommunications France (registration in process); and g. Genesys Laboratories Australasia PTY Limited. EX-23.3 26 CONSENT OF BLAKELY SOKELOFF TAYLOR & ZAFMAN EXHIBIT 23.3 CONSENT OF COUNSEL We consent to the use of our name in the paragraph under "Experts" (and elsewhere in the Registration Statement, as described in "Experts") in the Registration Statement on Form S-1 originally filed by Genesys Telecommunications Laboratories, Inc. with the Securities and Exchange Commission on April 3, 1997, as thereafter amended or supplemented (the "Registration Statement"), including the prospectus constituting a part thereof, and in any amendment and supplement thereto. Blakely Sokoloff Taylor & Zafman Sunnyvale, California April 3, 1997 EX-27 27 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR AND SIX MONTHS ENDED JUNE 30, 1996 AND DECEMBER 31, 1996, RESPECTIVELY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR 6-MOS JUN-30-1996 JUN-30-1997 JUL-01-1995 JUL-01-1996 JUN-30-1996 DEC-31-1996 5,926 1,816 0 0 4,607 10,905 0 0 0 0 173 324 1,550 3,455 (326) (648) 11,961 16,201 6,101 9,934 0 0 0 0 8,995 8,995 150 330 (3,689) (3,508) 11,961 16,201 9,319 11,804 9,319 11,804 2,876 2,037 2,876 2,037 9,682 10,005 0 0 0 0 (3,327) (23) 0 0 0 0 0 0 0 0 0 0 (3,327) (23) 0 0 $(0.18) $ (0)
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