**As filed with the Securities and Exchange Commission on May 18, 2006**

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**Form 20-F**

| **o**      | **REGISTRATION STATEMENT PURSUANT TO  SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934  or**                                                      |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **x**      | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                           |
| ** ** | **For the  fiscal year ended December 31, 2005**                                                                                                                         |
| ** ** | **or**                                                                                                                                                                        |
| **o**      | **TRANSITION REPORT PURSUANT TO  SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                       |
| ** ** | **For the  transition period from                          to** |
| ** ** | **or**                                                                                                                                                                        |
| **o**      | **SHELL COMPANY REPORT PURSUANT  TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                    |
| ** ** | **Date of  event requiring this shell company report**                                                                                                                        |

 

**CommissionFile Number: 001-16451**

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**Genesys S.A.**

***(Exact name of Registrant as specified in its charter)***

| **N/A**                                                 | ** ** | **L’Acropole,  954-980 Avenue Jean Mermoz 34000 Montpellier France** | ** ** | **Republic  of France**                            |
|---------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|----------------------------------------------------|
| *(Translation  of Registrant’s name into English)* | * *   | *(Address  of principal executive offices)*                               | * *   | *(Jurisdiction  of incorporation or organization)* |

 

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**Securitiesregistered or to be registered pursuant to Section 12(b) of theAct: **None

**Securitiesregistered or to be registered pursuant to Section 12(g) of the Act:**

|                                                                                                                 | **Title of each class:** | ** **              | ** ** |  | **Name  of each exchange on which registered:** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|--------------------------|-------------------------|------------|--|-------------------------------------------------|------------|
| Ordinary  shares, nominal value €1 per share*                                                              |                     | Nasdaq  National Market |
| American  Depositary Shares, each representing one half of one ordinary share, nominal  value €1 per share |                     | Nasdaq National  Market |

 

**Securities for which thereis a reporting obligation pursuant to Section 15(d) of the Act: **None

Indicate the number ofoutstanding shares of each of the issuer’s classes of capital or common stockas of the close of the period covered by the annual report **(December 31, 2005)**:

**Ordinary shares, nominal value****€****1 per share:  69,798,286**

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. Yes o   No x

If this report is an annualor transition report, indicate by check mark if the registrant is not requiredto file reports pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934. Yes o   No x

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days:  Yes x   No o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o            Acceleratedfiler o              Non-acceleratedfiler x

Indicate by check markwhich financial statement item the registrant has elected to follow:

Item 17 o               Item18 x

If thisis an annual report, indicate by check mark whether the registrant is a shellcompany (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x

*                      Listed, not for trading or quotationpurposes, but only in connection with the registration of the AmericanDepositary Shares pursuant to the requirements of the Securities and ExchangeCommission.

 

 

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**TABLE OFCONTENTS**

|          | ** ** | ** **                                                            | ** ** | **Page** |
|----------|------------|-----------------------------------------------------------------------|------------|----------|
|     | ** ** | **PART I**                                                       |       |     |
| Item  1. |       | Identity  of Directors, Senior Management and Advisers                |       | 4        |
| Item  2. |       | Offer  Statistics and Expected Timetable                              |       | 4        |
| Item 3.  |       | Key Information                                                       |       | 5        |
|     |       | A. Selected  Financial Data                                           |       | 5        |
|     |       | B. Capitalization  and Indebtedness                                   |       | 8        |
|     |       | C. Reasons for Offer and Use  of Proceeds                             |       | 8        |
|     |       | D. Risk Factors                                                       |       | 9        |
| Item 4.  |       | Information  on the Company                                           |       | 18       |
|     |       | A.  History and Development of the Company                            |       | 18       |
|     |       | B. Business Overview                                                  |       | 18       |
|     |       | C.  Organizational Structure                                          |       | 28       |
|     |       | D.  Property, Plants and Equipment                                    |       | 29       |
| Item  5. |       | Operating  and Financial Review and Prospects                         |       | 30       |
| Item  6. |       | Directors,  Senior Management and Employees                           |       | 51       |
|     |       | A.  Directors and Senior Management                                   |       | 51       |
|     |       | B. Compensation                                                       |       | 53       |
|     |       | C. Board Practices                                                    |       | 54       |
|     |       | D. Employees                                                          |       | 58       |
|     |       | E. Share Ownership                                                    |       | 59       |
| Item  7. |       | Major  Shareholders and Related Party Transactions                    |       | 61       |
|     |       | A. Major  Shareholders                                                |       | 61       |
|     |       | B. Related  Party Transactions                                        |       | 62       |
|     |       | C.  Interests of Experts and Counsel                                  |       | 62       |
| Item 8.  |       | Financial  Information                                                |       | 63       |
|     |       | A.  Consolidated Financial Statements and Other Financial Information |       | 63       |
|     |       | B. Significant  Changes                                               |       | 63       |
| Item 9.  |       | The Offer and  Listing                                                |       | 64       |
|     |       | A. Offer and  Listing Details                                         |       | 64       |
|     |       | B. Plan of  Distribution                                              |       | 64       |
|     |       | C. Markets                                                            |       | 64       |
|     |       | D. Selling  Shareholders                                              |       | 66       |
|     |       | E. Dilution                                                           |       | 66       |
|     |       | F. Expenses of the  Issue                                             |       | 66       |
| Item 10. |       | Additional  Information                                               |       | 67       |
|     |       | A. Share Capital                                                      |       | 67       |
|     |       | B.  Memorandum and Articles of Association                            |       | 69       |
|     |       | C. Material  Contracts                                                |       | 83       |
|     |       | D. Exchange Controls                                                  |       | 83       |
|     |       | E. Taxation                                                           |       | 83       |
|     |       | F. Dividends  and Paying Agents                                       |       | 88       |
|     |       | G. Statement by  Experts                                              |       | 88       |
|     |       | H. Documents on  Display                                              |       | 88       |
|     |       | I. Subsidiary  Information                                            |       | 88       |
| Item 11. |       | Quantitative  and Qualitative Disclosures about Market Risk           |       | 89       |

1

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| Item  12.  |       | Description  of Securities other than Equity Securities                       |       | 91     |
|------------|------------|-------------------------------------------------------------------------------|------------|--------|
|       |       | A. Debt Securities                                                            |       | 91     |
|       |       | B. Warrants and  Rights                                                       |       | 91     |
|       |       | C. Other Securities                                                           |       | 91     |
|       |       | D. American  Depositary Shares                                                |       | 91     |
|       | ** ** | **PART II**                                                              |       |   |
| Item  13.  |       | Defaults,  Dividend Arrearages and Delinquencies                              |       | 97     |
| Item  14.  |       | Material  Modifications to the Rights of Security Holders and Use of Proceeds | ** ** | 97     |
| Item 15.   |       | Controls  and Procedures                                                      |       | 97     |
| Item 16.   |       | [Reserved]                                                                    |       | 97     |
| Item  16A. |       | Audit  Committee Financial Expert                                             |       | 97     |
| Item 16B.  |       | Code of Ethics                                                                |       | 97     |
| Item  16C. |       | Principal  Accountant Fees and Services                                       |       | 98     |
| Item  16D. |       | Exemptions  from the Listing Standards for Audit Committees                   |       | 99     |
| Item  16E. |       | Purchases  of Equity Securities by the Issuer and Affiliated Purchasers       |       | 99     |
|       | ** ** | **PART III**                                                             |       |   |
| Item 17.   |       | Financial  Statements                                                         |       | 99     |
| Item 18.   |       | Financial  Statements                                                         |       | 99     |
| Item 19.   |       | Exhibits                                                                      |       | 99     |

 

2

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**PRESENTATION OFFINANCIAL INFORMATION**

The financial informationin this annual report is presented in accordance with United States GenerallyAccepted Accounting Principles (U.S. GAAP). In France, which is the principaltrading market for our shares, we communicated our results of operations forprior reporting periods in accordance with French Generally Accepted AccountingPrinciples. For the year ended December 31, 2005, we will communicate ourresults in France in accordance with International Financial ReportingStandards (IFRS). As a result, the financial information in this annual reportis different from the financial information that we have communicated inFrance, often in significant respects. We submit English versions of ourmaterial French public communications to the Securities and Exchange Commissionon Form 6-K, but those submissions are not incorporated by referencein this annual report (except for certain submissions containing exhibits).

3

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**PART I**

**Item 1.**                        Identityof Directors, Senior Management and Advisers

Not applicable.

**Item 2.**                        OfferStatistics and Expected Timetable

Not applicable.

4

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**Item 3.**         KeyInformation

**A.   SelectedFinancial Data**

You should read the following selected financial datatogether with Item 5 “Operating and Financial Review and Prospects” and ourfinancial statements included under Item 18. Our financial statements have beenprepared in accordance with U.S. GAAP. Our results of operations have beensignificantly impacted in recent years by business combinations, which make itdifficult to compare our revenues, operating income and net income from oneyear to the next. See Item 5 “Operating and Financial Review and Prospects” fora discussion of business combinations that affect the comparability of theinformation provided below.

For your convenience, wehave translated the 2005 euro amounts into U.S. dollars, using the rate of$1.00 = €0.8445, which was the noon buying rate in NewYork City for cable transfers in foreign currencies as certified for customspurposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”) on December 30,2005. This does not mean that we actually converted such amounts into U.S.dollars. Unless otherwise indicated, U.S. dollar amounts in this annual reportare translated using the December 30, 2005 Noon Buying Rate.

| ** **                                                     | ** ** | **As of and for the year ended December 31,** | ** ** |
|----------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| ** **                                                     | ** ** | **2001**                                                                              | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2005** | ** ** |
| ** **                                                     | ** ** | **(restated)***                                                                       | ** ** | **(restated)*** | ** ** | **(restated)*** | ** ** | **(restated)*** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | **(in thousands, except share data)**                             | ** ** |
| **Consolidated  statement of  operations data:**               |       |                                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Revenue:                                                       |       |                                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Services                                                       |       | €                                                                                | 177,120    |   | € | 199,068 |   | € | 159,155 |   | € | 138,762 |   | € | 141,850 |   | $ | 167,969 |   |
| Products                                                       |       | 1,831                                                                                 |       | 1,595 |   | 345 |   | 276 |   | 79 |   | 94 |   |
| Total revenues                                                 |       | 178,951                                                                               |       | 200,663 |   | 159,500 |   | 139,038 |   | 141,929 |   | 168,063 |   |
| Cost of revenue:                                               |       |                                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Services                                                       |       | 74,774                                                                                |       | 86,193 |   | 56,936 |   | 53,013 |   | 49,927 |   | 59,120 |   |
| Products                                                       |       | 1,402                                                                                 |       | 1,250 |   | 207 |   | 83 |   | 70 |   | 83 |   |
| Total cost of revenues                                         |       | 76,176                                                                                |       | 87,443 |   | 57,143 |   | 53,096 |   | 49,997 |   | 59,203 |   |
| Gross profit                                                   |       | 102,775                                                                               |       | 113,220 |   | 102,357 |   | 85,942 |   | 91,932 |   | 108,860 |   |
| Operating expenses:                                            |       |                                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Research and development                                       |       | 5,366                                                                                 |       | 4,734 |   | 4,183 |   | 3,750 |   | 3,219 |   | 3,812 |   |
| Selling and marketing                                          |       | 42,718                                                                                |       | 49,976 |   | 37,394 |   | 35,839 |   | 40,559 |   | 48,027 |   |
| General and administrative                                     |       | 53,920                                                                                |       | 56,487 |   | 37,729 |   | 34,773 |   | 32,454 |   | 38,430 |   |
| Restructuring charge                                           |       | —                                                                                |       | 4,336 |   | 1,115 |   | 2,242 |   | 256 |   | 303 |   |
| Amortization and impairment of goodwill and other  intangibles |       | 85,295                                                                                | (1)        | 89,420 | (2) | 37,652 | (3) | 80,783 | (4) | 3,580 |   | 4,239 |   |
| Total operating expenses                                       |       | 187,299                                                                               |       | 204,953 |   | 118,073 |   | 157,387 |   | 80,068 |   | 94,811 |   |
| Operating income (loss)                                        |       | (84,524                                                                               | )          | (91,733 | ) | (15,716 | ) | (71,445 | ) | 11,864 |   | 14,049 |   |
| Financial expense, net                                         |       | (6,722                                                                                | )          | (8,987 | ) | (4,501 | ) | (6,994 | ) | (8,326 | ) | (9,859 | ) |
| Equity in income (loss) of affiliated company                  |       | (55                                                                                   | )          | (8 | ) | 22 |   | 71 |   | 68 |   | 80 |   |
| Income (loss) before taxes                                     |       | (91,301                                                                               | )          | (100,728 | ) | (20,195 | ) | (78,368 | ) | 3,606 |   | 4,270 |   |
| Income tax (expense) benefit                                   |       | (993                                                                                  | )          | 4,492 |   | (1,274 | ) | (2,579 | ) | 255 |   | 302 |   |
| Net income (loss)                                              |       | €                                                                                | (92,294    | ) | € | (96,236 | ) | € | (21,469 | ) | € | (80,947 | ) | € | 3,861 |   | $ | 4,572 |   |
| Basic and diluted net income (loss) per share                  |       | €                                                                                | (7.17      | ) | € | (6.19 | ) | € | (1.29 | ) | € | (4.41 | ) | € | 0.21 |   | $ | 0.25 |   |
| Weighted average number of ordinary shares  outstanding        |       | 12,878,594                                                                            |       | 15,541,898 |   | 16,579,986 |   | 18,372,841 |   | 18,350,692 |   | 18,350,692 |   |

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*       See Note 3 to the consolidatedfinancial statements included in this annual report for a description of therestatement.

(1)             In 2001, €54.6 million represents impairment ofgoodwill and other intangible assets in accordance with SFAS No. 121.

(2)             In 2002, €75.5 million represents impairmentcharges, which consists of impairment of goodwill in accordance with SFAS No. 142(€63.6 million) and impairment of identifiableintangible assets in accordance with SFAS No. 144 (€11.9 million).

(3)             In 2003, €28.0 million represents impairmentcharges, which consists of impairment of goodwill in accordance with SFAS No. 142(€3.1 million) and impairment of identifiableintangible assets in accordance with SFAS No. 144 (€24.9 million).

(4)             In 2004, €75.4 million represents impairmentcharges, which consists of impairment of goodwill in accordance with SFAS No. 142(€53.4 million) and impairment of identifiableintangible assets in accordance with SFAS No. 144 (€22.0 million).

5

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| ** **                                             | ** ** | **As of and for the year ended December 31,** | ** ** |
|--------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| ** **                                             | ** ** | **2001**                                                                              | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2005** | ** ** |
| ** **                                             | ** ** | **(restated)***                                                                       | ** ** | **(restated)*** | ** ** | **(restated)*** | ** ** | **(restated)*** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | **(in thousands)**                                                               | ** ** |
| **Consolidated  balance sheet data:**                  |       |                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total current assets                                   |       |                                                                                  | €     | 80,465 |   |   |   | € | 53,113 |   |   |   | € | 60,322 |   |   |   | € | 42,270 |   |   | € | 40,046 |   | $ | 47,420 |   |
| Total assets                                           |       |                                                                                  | 392,323    |   |   |   | 249,733 |   |   |   | 213,837 |   |   |   | 106,112 |   |   | 100,999 |   | 119,596 |   |
| Total current liabilities                              |       |                                                                                  | 72,704     |   |   |   | 46,221 |   |   |   | 58,453 |   |   |   | 44,991 |   |   | 33,739 |   | 39,951 |   |
| Total long-term liabilities                            |       |                                                                                  | 150,518    |   |   |   | 126,958 |   |   |   | 86,094 |   |   |   | 66,017 |   |   | 75,678 |   | 89,613 |   |
| Total shareholders’ equity (deficit)              |       |                                                                                  | 169,101    |   |   |   | 76,554 |   |   |   | 69,290 |   |   |   | (4,896 | ) |   | (8,418 | ) | (9,968 | ) |
| **Cash  flow statement data:**                         |       |                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash flows provided by (used in) operating activities  |       |                                                                                  | (18,299    | ) |   |   | 7,209 |   |   |   | 17,342 |   |   |   | 11,117 |   |   | 16,207 |   | 19,191 |   |
| Cash flows used in investing activities                |       |                                                                                  | (36,057    | ) |   |   | (10,104 | ) |   |   | (9,424 | ) |   |   | (3,833 | ) |   | (6,342 | ) | (7,510 | ) |
| Cash flows  provided by (used in) financing activities |       |                                                                                  | €     | 20,701 |   |   |   | € | (3,310 | ) |   |   | € | (990 | ) |   |   | € | (15,888 | ) |   | € | (12,518 | ) | $ | 14,821 |   |

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*       SeeNote 3 to the consolidated financial statements included in this annualreport for a description of the restatement.

6

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**EXCHANGE RATEINFORMATION**

**Exchange Rates**

Thefollowing table sets forth, for the periods and dates indicated, certaininformation concerning the exchange rates for the euro from 2001 through May 16,2006, expressed in U.S. dollar per euro. The information concerning the U.S.dollar exchange rate is based on the Noon Buying Rate. We provide the exchangerates below solely for your convenience. We do not represent that the euro was,could have been, or could be, converted into U.S. dollars at these rates or atany other rate. For information regarding the effect of currency fluctuationson our results of operations, see Item 5 “Operating and Financial Review andProspects.”

| ** **                            | ** ** | **Period-end  Rate**                    | ** ** | **Average  Rate**(1) | ** ** | **High** | ** ** | **Low** | ** ** |
|---------------------------------------|------------|-----------------------------------------|------------|----------------------|------------|----------|------------|---------|------------|
| ** **                            | ** ** | **U.S. dollar per euro** | ** ** |
| 2001                                  |       |                                    | 0.89       |                 |       |     | 0.89       |    |       | 0.95 |   | 0.84 |   |
| 2002                                  |       |                                    | 1.05       |                 |       |     | 0.95       |    |       | 1.05 |   | 0.86 |   |
| 2003                                  |       |                                    | 1.26       |                 |       |     | 1.14       |    |       | 1.26 |   | 1.04 |   |
| 2004                                  |       |                                    | 1.35       |                 |       |     | 1.24       |    |       | 1.36 |   | 1.18 |   |
| 2005                                  |       |                                    | 1.18       |                 |       |     | 1.24       |    |       | 1.35 |   | 1.17 |   |
| 2006 (through  May 16, 2006)     |       |                                    | 1.28       |                 |       |     | 1.22       |    |       | 1.29 |   | 1.19 |   |
| 2005                                  |       |                                    |       |                 |       |     |       |    |       |   |   |   |   |
| November                              |       |                                    | 1.18       |                 |       |     | 1.18       |    |       | 1.21 |   | 1.17 |   |
| December                              |       |                                    | 1.18       |                 |       |     | 1.18       |    |       | 1.20 |   | 1.17 |   |
| 2006                                  |       |                                    |       |                 |       |     |       |    |       |   |   |   |   |
| January                               |       |                                    | 1.22       |                 |       |     | 1.21       |    |       | 1.23 |   | 1.20 |   |
| February                              |       |                                    | 1.19       |                 |       |     | 1.19       |    |       | 1.21 |   | 1.19 |   |
| March                                 |       |                                    | 1.21       |                 |       |     | 1.20       |    |       | 1.22 |   | 1.19 |   |
| April                                 |       |                                    | 1.26       |                 |       |     | 1.23       |    |       | 1.26 |   | 1.21 |   |
| May (through  May 16, 2006) |       |                                    | 1.28       |                 |       |     | 1.27       |    |       | 1.29 |   | 1.26 |   |

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(1)             The average of the Noon Buying Rates onthe last business day of each month (or portion thereof) during the relevant periodfor year average; on each business day of the month (or portion thereof) formonthly average. On May 16, 2006 the Noon Buying Rate was $1 = €1.28 ($0.78 per €1).

7

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**B.   Capitalizationand Indebtedness**

On February 22, 2006, we successfully completed aU.S. $65 million (approximately €53.6 million) equityoffering, the proceeds of which were used to repay more than half of our totaldebt. On a pro forma basis, adjusting for the net proceeds of the equityoffering, our net debt outstanding as of December 31, 2005 wasapproximately €32.4 millionand our shareholders’ equity was approximately €31.9 million. Under ourexisting and amended credit facility, we will have approximately €1.1 millionof scheduled debt repayments in 2006.

Thetable below summarizes our actual cash, long-term debt and capitalization atDecember 31, 2005, and as adjusted to reflect the issuance of 51,490,530new shares at the offering price of €1.04 per share and theapplication of the net proceeds thereof, before deducting expenses payable byus.

| ** **                                | ** ** | **At December 31, 2005** | ** ** |
|-------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                | ** ** | **Actual**                              | ** ** | **As adjusted **(1) | ** ** |
| ** **                                | ** ** | **(unaudited)**                         | ** ** |
| **Capitalization  summary:**              |       |                                    |       |   |   |
| Cash and cash  equivalents                |       | €                                  | 5,789      |   | € | 5,789 |   |
| Current portion of long-term debt         |       | 13,563                                  |       | 1,096 |   |
| Long-term portion of long-term debt       |       | 62,474                                  |       | 32,495 |   |
| Total shareholders’ equity (deficit) |       | (8,418                                  | )          | 37,176 |   |
| Total capitalization                      |       | €                                  | 54,056     |   | € | 69,671 |   |
| Number of shares issued and outstanding   |       | 18,307,756                              |       | 69,798,286 |   |
| Number of shares to be  issued (2)        |       | 65,067                                  |       | 65,067 |   |

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(1)             $6 million of the net proceeds of the issuance of thenew shares were used to repay a drawdown that was made after December 31,2005. The “as adjusted” figures reflect the repayment of an additional $50million of debt and the new repayment schedule as per the amendment to our  principal credit facility, which was  signed on January 27, 2006.

(2)             Represents convertible notes issued inconnection with the acquisition of Astound in 2001. See Note 9 to theconsolidated financial statements included in this annual report.

**C.**   Reasons for theOffer and Use of Proceeds

Not applicable.

8

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**D.   RiskFactors**

**Risks Relating toOur Operations**

***A significant portion of our sales is made to a relativelylimited number of large customers. The loss of one of these customers or ourinability to obtain new customers would result in lower revenues.***

Historically, orders from a relatively limited numberof customers have accounted for a substantial portion of our sales and weexpect that, for the foreseeable future, this will continue to be the case. Forexample, in 2005 our 10 largest customers accounted for approximately 32.5% ofour revenues, with no single customer accounting for more than 10% of ourrevenues. One of our customers accounted for over 5% of our revenues in 2005,but we expect a significant decrease in revenues from this customer in 2006.This loss or the loss of another of our large customers, if we were unable toattract new customers, would result in a decrease in our revenues. In addition,even if we are successful in attracting new customers, new customers may notuse our services in the volumes of lost customers or may be charged less forour services.

***If we are unable to keep up withrapid changes in technology, our products and services could become difficultto market.***

The market for our products and services is marked byrapid technological change, frequent new product introductions and technologyenhancements, changes in client demands and evolving industry standards. Newproducts and services, based on new or improved technologies or new industrystandards, can render existing products and services outdated and difficult tomarket. To succeed, we will need to enhance our current products and serviceofferings and develop new products and services on a timely basis to keep pacewith developments related to interactive communication technology and tosatisfy the increasingly sophisticated requirements of our clients. If we failto do so, our products and services could become difficult to market, whichwould adversely affect our business, financial condition and results ofoperations. The process of developing our products and services is extremelycomplex and requires significant continuing development efforts. Any delays indeveloping and releasing enhanced or new products and services, or in keepingpace with continuous technological change, could harm our business, financialcondition and results of operations.

In particular, if we are unable to use Voice overInternet Protocol (VoIP) technology effectively, we may be at a competitivedisadvantage. VoIP is the transmission of audio over the Internet and is lessexpensive than traditional telephone service. If our competitors are able totransmit audio utilizing VoIP more efficiently, at a higher sound quality or ona wider basis than ourselves, or if clients perceive that our competitors’audio services are as good as or better in quality than our services and we arenot fully utilizing VoIP, we may lose business to our competitors and be at acompetitive disadvantage in the pricing of our services, which could adverselyaffect our business, financial condition and results of operations.

***Our services may be interruptedby technological problems, physical asset problems, natural disasters orterrorism, which may cause us to lose customers.***

We depend on the performance of our sophisticatedinfrastructure, based on proprietary and non-proprietary systems, to deliverservices to our customers. This dependence will increase as we offer morecomplex data and Web-based services. Heavy usage of the systems ortechnological failures could cause delays or could cause the system to breakdown for a period of time. Although we have redundancy systems and performregular maintenance with a view to minimizing the occurrences of technicalfailures, we cannot eliminate all risk of technical problems, which are likelyto occur from time to time.

We also depend on the performance of physical assets,some of which are not within our control, to deliver services to our customers.Service interruptions due to problems with physical assets, such as thesevering of telephone and other cables controlled by third parties, the impactof natural disasters or acts of 

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terrorism in proximity toour call centers or administrative locations, could cause service delays orcould cause our systems not to function for a period of time. Although we haveredundancy systems and perform a regular review of our redundancy systems witha view to minimizing the potential negative impact of failures of physicalassets, natural disasters and acts of terrorism, we cannot eliminate all risksassociated with such failures and events.

If technological problems or events affecting thephysical assets upon which our services depend occur with regularity or disrupta significant number of customer communications, or if we experiencetechnological or physical problems with greater frequency than our competitors,we may lose customers or incur liability.

***Our services may be affected byhuman error, which may cause us to lose customers.***

In addition to our technology and physical assets, wedepend on operators and other employees in connection with the provision of ournon-automated services. Notwithstanding the existence of strict securityprocedures and operating procedures in our call centers, mistakes can arise. Ifhuman errors occur with regularity or disrupt a significant number of customercommunications, or if we experience security breaches with greater frequencythan our competitors, then we might lose customers or incur liability.

***We depend on the continuedservices of a few key executives, and only a limited number of those keyexecutives have service contracts.***

Our future success depends upon the continued serviceof our executive officers and other key personnel, including our Chairman andChief Executive Officer, François Legros. If we lose the services of one ormore of our executive officers or key employees, or if one or more of themdecide to join a competitor or otherwise compete directly or indirectly withus, we may lose business to competitors or may have difficulty implementing ourstrategy.

***While we have recently achievedprofitability, we have historically incurred net losses, which have adverselyaffected our shareholders’ equity and may require our shareholders to reduceour nominal capital to avoid the liquidation of our company.***

As of December 31, 2005, we had an accumulateddeficit of €238.1 million. To date, we have fundedour operations and acquisitions primarily from the sale of equity securities,convertible bonds and bank borrowings. We expect to continue to incursignificant development, sales and marketing and administrative expenses and,as a result, will need to generate significant revenues to achieve and maintainprofitability. We have also incurred significant charges related to ourorganizational restructuring, consolidation of our call centers and relocationof our administrative offices to Reston, Virginia. Although we have recentlyachieved profitability, we cannot be certain that we will be able to continueto achieve a revenue level sufficient to allow us to sustain or increaseprofitability on a quarterly or annual basis in the future.

As of December 31, 2005, our unconsolidatedshareholders’ equity represented less than one-half of our share capital. Inaccordance with French law, our shareholders approved a resolutionacknowledging our insufficient equity and proposing the continuation of ourcompany’s activities at our extraordinary general meeting of shareholders heldon June 28, 2005. Under French law, we are required to remedy thissituation by December 31, 2007 by either reducing our nominal sharecapital or increasing our equity such that our equity will be at least equal toone-half of our nominal share capital. If we fail to remedy this situation, ourcompany will be subject to liquidation under French law. While we believe thatour February 2006 recapitalization has increased our shareholders’ equityabove the required level, we do not yet have audited financial results thatreflect the recapitalization and we cannot assure you that our equity issufficient under French law.

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***Fluctuationsin currency exchange rates could adversely affect our revenues and results ofoperations.***

Because we conduct our business in 24 differentcountries and territories, our results of operations can be adversely affectedby fluctuations in currency exchange rates. Our results of operations areparticularly sensitive to movements in exchange rates between the euro and theU.S. dollar. Our revenues in the United States (including those of our Canadiansubsidiary, which uses the U.S. dollar) represented approximately 49.8% of our2005 revenues, approximately 51.5% of our total 2004 revenues, andapproximately 58.2% of our total 2003 revenues. Our results of operations arealso sensitive to movements in exchange rates of the euro against the Britishpound.

During the year ended December 31, 2003, andcontinuing through December 31, 2004, the euro strengthened substantiallyagainst the U.S. dollar and the British pound. In 2005, the euro weakenedsomewhat against the U.S. dollar, but remains at relatively high levelscompared to prior periods. As a result of the increase in the value of the euroin recent years, our revenues stated in euro have been lower than they wouldhave otherwise been. Although the impact of exchange rate movements on ourresults of operations is somewhat mitigated by the fact that we incur costs andborrow in the currencies of a number of countries in which we operate andsometimes engage in hedging transactions, currency exchange rate movements cannonetheless have a considerable impact on our results of operations and perceptionsof our business and financial performance, whether as a result of thetranslation of our financial results into euro for purposes of our financialstatement reporting or our unhedged exposure to changes in our costs fromcurrency exchange rate variations. Exchange rate movements can also affect ourcompliance with financial ratios under our principal credit facility.

When deemed appropriate, we enter into transactions tohedge our exposure to foreign exchange risks incurred in connection withborrowings. These efforts, when undertaken, may fail to offset the effect ofadverse currency exchange rate fluctuations on our results of operations. Formore information concerning our exchange rate exposure, see Item 11 “Quantitativeand Qualitative Disclosures About Market Risk.”

***Challenges to our intellectualproperty rights could cause us to incur costly litigation and, if we are notsuccessful, could result in the loss of a valuable asset and market share.***

Our successdepends, in part, upon our technology and other intellectual property rights.To date, we have relied primarily on a combination of copyright, trade secret,nondisclosure and other contractual restrictions on copying and distribution toprotect our proprietary technology. Litigation to enforce intellectual propertyrights or protect our trade secrets could result in substantial costs and maynot be successful. If we are unable to protect our intellectual propertyrights, our business, financial condition and results of operations may suffer.The means available to protect our intellectual property rights in France, theUnited States or any other country in which we operate may not be adequate tofully protect our intellectual property rights. In addition, not all foreigncountries protect intellectual property rights to the same extent as do thelaws of France or the United States. Similarly, if third parties claim that weinfringe on their intellectual property rights, we might be required to incursignificant costs and to devote substantial resources to the defense of suchclaims. If we are not able to defend such claims successfully, we might loserights to technology that we need to develop our business, which may cause usto lose market share, or we might be required to pay significant license feesfor the use of such technology.

***We use third party technology in providing our products and services,and our business would be******harmed if we were not able to continue using this third partytechnology.***

In providing our productsand services, we use third party technology that we license or otherwise obtainthe right to use, including teleconferencing platforms, software packages andsoftware development tools. There are inherent limitations in the use andcapabilities of the technology that we license from third parties. Our businesswould be seriously harmed if the providers from whom we license software andtechnology ceased to deliver and to support reliable products, to enhance theircurrent products in a timely 

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fashionor to respond to emerging industry standards. In addition, third partytechnology may not continue to be available to us on commercially reasonableterms or at all. The loss of, or inability to maintain or obtain, thistechnology could result in significant delays or reductions in services weprovide. Furthermore, we might be forced to limit the features available in ourcurrent or future product and service offerings.

**Risks Relating toOur Financing and Strategic Activities**

***Our debt covenants may limit ouroperating flexibility.***

As of December 31, 2005, we had €76.1 million(U.S. $89.8 million) of debt, the bulk of which was incurred under aU.S. $125 million credit facility agreement that we entered into in April 2001and thereafter amended, including most recently as part of the transactions describedunder Item 5, “Operating and Financial Review and Prospects—Liquidity andCapital Resources.” While we repaid a significant portion of the amountsoutstanding under the credit facility with the net proceeds of our 2006recapitalization transactions, approximately U.S. $38 million(approximately €32million) of debt remains outstanding under the credit facility after suchrepayment, and we have other debts such as overdraft facilities.

This credit facility requires us to comply withcertain covenants, including the maintenance of financial ratios relating toleverage, interest cover and cash coverage. The new amendment requires us touse commercially reasonable efforts to refinance the amounts outstanding,failing which we will be required to pay significantly higher interest rates(we are also effectively required to accept refinancing proposals that do notoriginate with our current lenders at rates that are significantly higher thanthose we currently pay). This credit facility is described in more detail underItem 5 “Operating and Financial Review and Prospects—Liquidity and CapitalResources” and is included as an exhibit to this annual report under Item 19.If we fail to comply with our covenants, our lenders could require us to seekto effect a strategic transaction (such as the sale of our business) or, if weare unsuccessful, to repay the entire amount outstanding under our creditfacility immediately.

Our credit facilitycould have important consequences for our business, such as:

·       limitingour ability to make capital investments in order to expand our business;

·       limitingour ability to borrow additional amounts for working capital, capitalexpenditures, debt service requirements or other purposes;

·       limitingour ability to invest operating cash flow in our business, because we use asubstantial portion of these funds to pay debt service and because ourcovenants restrict the amount of our investments;

·       limitingour ability to withstand business and economic downturns, because of the highpercentage of our operating cash flow that is dedicated to servicing our debt;and

·       limitingour ability to pay dividends.

If we cannot pay our debt service or if we fail tomeet our covenants, we could have substantial liquidity problems. In thosecircumstances, we might have to sell assets, delay planned investments, obtainadditional equity capital or restructure our debt. Depending on thecircumstances at the time, we may not be able to accomplish any of theseactions on favorable terms or at all.

***Principal and interest paymentson our debt will require significant amounts of cash, and we may requireadditional sources of funds if our sources of liquidity are unavailable orinsufficient to fund our operations.***

Our working capitalrequirements and cash flows historically have been, and are expected to continueto be, subject to quarterly and yearly fluctuations, depending on a number offactors. If we are unable to 

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managefluctuations in cash flow, our business, operating results and financialcondition may be materially adversely affected. Factors that could lead us tosuffer cash flow fluctuations include:

·       thelevel of sales;

·       thecollection of receivables; and

·       thetiming and size of capital expenditures.

Payments of principal andinterest on our indebtedness could leave us with insufficient funds to financeour operating activities, such as research and development expenses and capitalexpenditures. In the future, we may need to secure additional sources offunding if our existing facility and borrowings are not available orinsufficient to finance our business. We can provide no assurance that suchfunding will be available on terms satisfactory to us. Currently, our creditfacility prohibits us from incurring additional debt, subject to limitedexceptions. If our creditors authorize us to incur higher levels of debt, andif we are able to do so, this would require a larger portion of our operatingcash flow to be used to pay principal and interest on our indebtedness. If oursources of liquidity became insufficient to meet our debt obligations and fundour operations, this would have a material adverse effect on our business.

**Risks Relating toOur Industry**

***We may not be able to competeeffectively with our competitors, which include some of the largesttelecommunications companies in each country in which we operate.***

The market for conferencing services is rapidlychanging and intensely competitive. We expect competition to increase as theindustry grows. We may not be able to compete successfully against current orfuture competitors.

Our principal competitors include majortelecommunications companies, including France Telecom, Deutsche Telekom and BTand operators such as AT&T, Verizon and Global Crossing, which offerproprietary conferencing services, and, to a lesser degree, regional telecommunicationscompanies that resell conferencing services on a third party basis. Thesecompanies are much larger than us, have greater market presence than us, havesubstantially greater financial, engineering, marketing and other resourcesthan us, and can raise capital at a lower cost than we can. Many of the voiceand data communications customers of these telecommunications companies mayprefer to use companies that provide multiple services for their conferencingneeds, rather than using specialist providers. In order to compete with theselarger companies, we must offer better service, lower prices or both. While webelieve that we successfully do so today, we cannot assure you that we willcontinue to be able to do so, particularly if substantial financial investmentsare required to maintain the highest quality standards.

There are also numerous other independentteleconferencing specialists, such as Premiere Global Services and West Corp.,and the relatively low barriers to entry in the teleconferencing market meansthat there might be additional teleconferencing specialists in the future. Thepresence of other specialists in the market and low barriers to entry mean thatwe must provide superior service to differentiate ourselves from ourcompetitors, expand internationally to win contracts with customers seekinginternational services, and ensure that our prices are competitive.

In addition, Internet based services are beingincreasingly offered by large and well-known technology companies such asMicrosoft, Oracle, Cisco, IBM and WebEx that are larger than us and havegreater financial and other resources than we do. These companies can offerconferencing services as parts of packages that include other business relatedsoftware, including basic operating system software. Certain of thesetechnology companies have also recently entered or expanded their operations inthe Internet conferencing market by making targeted acquisitions and enteringinto joint ventures and strategic alliances.

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***The intense competition in themarket for conferencing and group collaboration services may reduce pricelevels, which could adversely affect our financial results.***

In our market, we compete on the basis of the quality,reliability, security and ease of use of our services. We also face intensecompetition on the basis of technical innovation, brand awareness, customerservice, geographic scope, compatibility and price. We expect that ourcompetitors will continue to improve the design and performance of theirservices and to introduce new services with competitive price and performancecharacteristics. This competition has led to lower selling prices for ourconferencing and group collaboration services. Furthermore, our competitors’financial advantage may give them the ability to reduce their prices for anextended period of time if they so choose. Increased competition in our marketcould potentially lead to further price erosion.

We are also impacted by reduced price levels on theservices that we provide to large enterprises. Due to the significant volume ofconferencing and group collaboration services used by our large enterprisecustomers, they may be charged a lower price for our services. To the extentthat our revenue is derived from services provided to large enterprisecustomers, we may experience a greater degree of price erosion.

Increased automation inproviding services in our industry has also led to significant price erosion.We expect this trend to continue. If this trend does continue, alone and inconjunction with increased sales to large enterprise customers, it couldadversely affect our financial results.

**Risks Relating toOur ADSs and Our Ordinary Shares**

***The market prices of our ordinaryshares and ADSs have been volatile, and may continue to be volatile in thefuture.***

Since our initialpublic offering in October 1998 through May 16, 2006, the closingprice of our ordinary shares ranged from a high of €69.18per share (U.S. $81.63 per share using the December 30, 2005 NoonBuying Rate) to a low of €0.76 per share (U.S. $0.90 per shareusing the December 30, 2005 Noon Buying Rate), and from April 26,2001 through May 16, 2006, the closing price of our ADSs ranged from ahigh of U.S. $15.05 per ADS to a low of U.S. $0.50 per ADS. In recentyears, the stock market in general and the shares of technology andtelecommunications companies in particular have experienced significant pricefluctuations. The market prices of our ordinary shares and ADSs may continue tofluctuate significantly in response to various factors, including:

·       quarterlyvariations in operating results or growth rates;

·       realor perceived changes in our level of indebtedness;

·       stockmarket perceptions about the risk of shareholder dilution from future sales ofour equity securities;

·       theannouncement of technological innovations;

·       theintroduction of new products by us and our competitors;

·       changesin estimates by securities analysts;

·       marketconditions in the industry;

·       announcementsand actions by competitors;

·       regulatoryand judicial actions; and

·       generaleconomic conditions.

In addition, because our market capitalization isrelatively small and our ordinary shares and ADSs are not highly traded, ourordinary shares and ADSs may be or may become relatively illiquid.

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***We may not continue to qualifyfor listing on the Nasdaq National Market, which could materially limit thetrading market for our ADSs.***

To maintain our listing on the Nasdaq National Marketwe are required, among other things, to maintain stockholders’ equity of atleast $10 million or a market value of at least $50 million. We must alsomaintain a closing bid price of at least $1.00 per ADS.

On March 15, 2006, Nasdaq notified us that wewere not in compliance with the $1.00 minimum closing bid price requirement andprovided us their standard grace period of 180 days, or until September 11,2006, to regain compliance with the minimum bid price requirement. To meet theminimum bid price requirement, our ADSs must close at $1.00 or more per shareor more for a minimum of 10 consecutive business days. If we fail to meet theminimum bid price requirement by September 11, 2006, but otherwisecontinue to meet the Nasdaq initial listing requirements, our ADSs will betransferred to the Nasdaq SmallCap Market and we will have an additional 180-dayperiod in which to meet the minimum bid price requirement. We cannot assure youthat the Nasdaq SmallCap Market will provide the same degree of liquidity asour current listing.

If we are unable to meet or maintain compliance withall of the Nasdaq listing requirements, our ADSs may be delisted from Nasdaq.Delisting from Nasdaq could adversely affect the trading price of our ADSs, andcould significantly limit their liquidity. While our listing on Eurolist byEuronext Paris would not be affected, we cannot assure you that the liquidityafforded by that listing would be sufficient to prevent our share price frombeing affected by a Nasdaq delisting. In addition, holders of ADSs would berequired to convert their ADSs to ordinary shares in order to sell them onEurolist by Euronext. See Item 12 “Description of Securities other thanEquity Securities—American Depositary Shares.”

***Our stock option plan and depositagreement include provisions that could have anti-takeover effects or depriveshareholders who do not comply with such provisions of some or all of theirvoting rights.***

Under our stock option plan, if any shareholder orgroup of shareholders acquires ownership of more than 25% of our outstandingshare capital, our board of directors will have the right to accelerate thevesting of employee stock options granted under our stock option plans. As of May 16,2006, options on up to 1,614,751 shares, representing approximately 2.31%of our share capital, are subject to potential accelerated vesting. The abilityof the board of directors to accelerate the vesting of stock options could havethe effect of deterring a potential bidder from making an offer to acquire ourcompany without the approval of our board.

In addition, under the terms of the deposit agreementrelating to our ADSs, if a holder of our ADSs fails to instruct the ADSdepositary in a timely and valid manner how to vote such holder’s ADSs withrespect to a particular matter, the ADS depositary will deem that holder tohave given a proxy to a person designated by us to vote the shares underlyingthe ADSs in favor of resolutions presented or approved by our board ofdirectors and against any other resolution not so presented or approved. Thisprovision of the depositary agreement could deter or delay hostile takeovers,proxy contests and changes in control or management of our company.

***Exchange rate fluctuations mayadversely affect the U.S. dollar value of our ADSs and our dividends (if any).***

As a holder of ADSs, you may face some exchange raterisk. Although we have no current plans to pay dividends, if and when we do paydividends, they would be denominated in euro. Fluctuations in the exchange ratebetween the euro and the U.S. dollar will affect the U.S. dollar amountsreceived by owners of our ADSs on conversion of dividends, if any. Moreover,these fluctuations may affect the dollar price of our ADSs on the NasdaqNational Market, whether or not we pay dividends.

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***We have not yet distributed anydividends to our shareholders, and do not anticipate doing so in the nearfuture.***

We currently intend to use all of our operating cashflow to finance our business and service our debt for the foreseeable future.We have never distributed dividends to our shareholders, and we do notanticipate distributing dividends in the near term. Although we may in thefuture distribute a portion of our earnings as dividends to shareholders, thedetermination of whether to declare dividends and, if so, the amount of suchdividends will be based on facts and circumstances existing at the time ofdetermination. In addition, our credit agreement prohibits us from payingdividends. Accordingly, we cannot assure you that any dividends will be paidfor the foreseeable future.

***We are subject to differentcorporate disclosure standards that may limit the information available toholders of our ADSs.***

As a foreign private issuer, we are not required tocomply with the notice and disclosure requirements under the SecuritiesExchange Act of 1934, as amended, (the “Exchange Act”) relating to thesolicitation of proxies for shareholder meetings. Although we are subject tothe periodic reporting requirements of the Exchange Act, the periodicdisclosure required of non-U.S. issuers under the Exchange Act is more limitedthan the periodic disclosure required of U.S. issuers. Therefore, there may beless publicly available information about us than is regularly published by orabout other public companies in the United States.

***Judgments of U.S. courts,including those predicated on the civil liability provisions of the federalsecurities laws of the United States, may not be enforceable in French courts.***

An investor in theUnited States may find it difficult to:

·       effectservice of process within the United States against us and our non-U.S.resident directors and officers;

·       enforceU.S. court judgments based upon the civil liability provisions of the U.S.federal securities laws against us and our non-U.S. resident directors andofficers in France; or

·       bringan original action in a French court to enforce liabilities based upon the U.S.federal securities laws against us and our non-U.S. resident directors andofficers.

***Pre-emptive rights may not beavailable for U.S. persons.***

Under French law, shareholders have pre-emptive rightsto subscribe for cash issuances of new shares or other securities giving rightsto acquire additional shares on a pro rata basis. U.S. holders of our ADSs orordinary shares may not be able to exercise pre-emptive rights for their sharesunless a registration statement under the Securities Act is effective withrespect to such rights or an exemption from the registration requirementsimposed by the Securities Act is available. We may, from time to time, issuenew shares or other securities giving rights to acquire additional shares (suchas warrants) at a time when no registration statement is in effect and noSecurities Act exemption is available. If so, U.S. holders of our ADSs or ordinaryshares will be unable to exercise their pre-emptive rights.

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**FORWARD-LOOKING STATEMENTS**

This annual report contains forward-lookingstatements. We may also make written or oral forward-looking statements in ourperiodic reports to the Securities and Exchange Commission on Form 6-K,in our annual report to shareholders, in our proxy statements, in our offeringcirculars and prospectuses, in press releases and other written materials andin oral statements made by our officers, directors or employees to thirdparties. Examples of such forward-looking statements include:

·       projections of operatingrevenues, net income, net earnings per share, capital expenditures, dividends,capital structure or other financial items or ratios;

·       statements about the futureperformance of the conferencing industry;

·       statements about our futureeconomic performance or that of France, the United States or any othercountries in which we operate; and

·       statements of assumptionsunderlying such statements.

Wordssuch as “believe,” “anticipate,” “plan,” “expect,” “intend,” “target,” “estimate,”“project,” “predict,” “forecast,” “guideline,” “should” and similar expressionsare intended to identify forward-looking statements but are not the exclusivemeans of identifying such statements.

Forward-looking statements involve inherent risks anduncertainties. We caution you that a number of important factors could causeactual results to differ materially from those contained in any forward-lookingstatements. Such factors, some of which are discussed under Item 3 “KeyInformation—Risk Factors” beginning on page 9 of this annual report,include but are not limited to:

·       uncertainties regarding themarket for data conferencing and Web conferencing, and the pricing for theseservices;

·       the effects oftechnological change;

·       our ability to meet ourdebt service obligations and to obtain adequate sources of liquidity;

·       fluctuations in the valueof our ordinary shares and ADSs;  and

·       competition fromtelecommunications providers.

Wecaution you that the foregoing list of factors is not exclusive and that otherrisks and uncertainties may cause actual results to differ materially fromthose in forward-looking statements.

Forward-looking statements speak only as of the datethey are made. We do not undertake any obligation to update them in light of newinformation or future developments.

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**Item 4.**                        Informationon the Company

**A.   History andDevelopment of the Company**

The legal andcommercial name of our company is Genesys S.A. and we conduct business asGenesys Conferencing. We are a French *sociétéanonyme*, a form of limited liability stock company, organized for aterm of 99 years pursuant to the French Commercial Code. Our corporateheadquarters are located at “L’Acropole,” 954-980 Avenue Jean Mermoz,34967 Montpellier Cedex 2, France and our telephone number is +33 4 99 13 2767. Our ordinary shares of common stock are listed on the Eurolist market ofEuronext Paris and in the form of American Depositary Shares, each representingone half of one ordinary share, on the Nasdaq National Market.

Our company wasestablished in Montpellier, France in 1986. In 1989, we launched our firstmajor service, *TeleMeeting,* whichwe believe was the world’s first fully automated conferencing service.Initially, we concentrated our efforts on establishing a presence in the Frenchmarket, and once achieved, we concentrated on expansion and penetration of theEuropean market. Beginning in 1999, we expanded the geographic scope of ourbusiness to include North America and the Asia Pacific region, largely throughacquisitions. Our largest acquisition occurred in April 2001, when weacquired Vialog Corporation, a provider of conferencing services in NorthAmerica, which doubled our customer base.

In October 2001,we launched *Genesys Meeting Center,*the conferencing industry’s first fully integrated audio and data conferencingplatform. *Genesys Meeting Center*is our primary service and we intend to continue to enhance its functionality.In October 2003, we introduced our *MultimediaMinute* pricing model. We believe this was the industry’s firstflat-rate, per-participant, per-minute pricing for automated audio, Web andvideo conferencing services delivered to the desktop. In January 2004, welaunched *LocalConnect*, whichallows customers in 32 European cities to access *Genesys Meeting Center*, and complements our existing “toll-free”service offered to U.S. participants. We expect to continue to introduceupdated versions of the *Genesys MeetingCenter*platform to keep it state-of-the-art.

In 2005, we further developed our presence in NorthAmerica with the opening of several new sales offices and we expanded inAsia-Pacific, where we entered into service agreements with local providers tosupport our growing operations in that region.

**B.   Business Overview**

**Introduction**

Weare a leading provider of integrated multimedia conferencing and collaborationservices to thousands of companies worldwide, including more than 200 of theGlobal Fortune 500. We believe that our services are designed to meet the fullrange of communication needs within the global enterprise, from small,collaborative team meetings to large, high profile online events. Our flagshipproduct, *Genesys Meeting Center*,provides single-platform multimedia conferencing that is easy to use andavailable on demand. With offices in 24 countries and territories across NorthAmerica, Europe and Asia Pacific, we offer an extensive global presence andlocal support.

Wesell our services primarily through direct channels that allow us to developpersonal relationships with our large enterprise customers and, in addition,through indirect channels based on distribution agreements. These distributionagreements allow us to leverage existing customer relationships of thirdparties so that we may better reach small- and medium-sized organizations andother large enterprises.

Weprice our services primarily on a flat rate, usage basis in order to offerbusinesses a simple means to use our complete suite of multimedia services onan as-needed basis regardless of location and communication interface.

Ourprimary technology platforms that enable us to deliver separate yet fullyintegrated audio, Web and video conferencing services are based on proprietarycapabilities that we have developed and acquired.

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We group our services into three categories:

·       ***Genesys Meeting Center***  is our primary service. It is a fullyintegrated multimedia (audio, Web and video) conferencing platform accessibleon demand through the desktop and the telephone. The *Genesys Meeting Center*platform allows users to conduct aconference while sharing documents and monitoring the call on the desktop. It providesour customers complete access to a virtual conference room 24 hours per day,seven days per week.

·       ***Genesys Event Service***  is a managed, fully integrated multimediasolution that integrates our audio and Web conferencing platform and theservices of a trained event coordinator to manage, monitor and facilitate theevent. This scalable service is designed specifically for large and highprofile events.

·       ***Genesys Video Service***  is a complement to our audio and Webconferencing services. Video conferencing is similar to traditionalconferencing except that participants are viewing the video broadcast fromselect video-point locations equipped with specific ISDN- or IP-based videoconferencing equipment (commonly referred to as “meeting room to meeting room”conferencing).

**Strategy**

We continually aim to improve our market positionamong the world’s leading providers of multimedia conferencing and groupcollaboration services and applications. To achieve this aim, we plan to expandour distribution, continue our leadership in service innovation and improve ouroperating profitability. In pursuing these goals, we intend to:

·       ***Leverage global presence,infrastructure and service offering to meet needs of large and multinationalcustomers.***   We are committed to using our locally based,knowledgeable sales force to market and service customers in one or moreregions. The physical presence of our capabilities in major North American,European and Asian Pacific markets has created a unique geographical coverageand recognized quality of service that is attractive to large enterpriseorganizations seeking multi-location or multi-national conferencing servicesand group collaboration delivered by local means. We leverage these worldwidecapabilities in actively pursuing major new global contract opportunities.

·       ***Optimize sales, marketing andcustomer service capabilities in order to enhance penetration of key customersegments.***   We have targeted our resources and operatingefforts to serve primarily large enterprises through our direct sales force andalso serve large, small and medium enterprises indirectly through wholesalerelationships. We have modified certain of our service offerings to moreeffectively meet the specific needs of each customer segment. We will seek toprovide customers with additional value by focusing the efforts of our largeenterprise sales team and certain service offerings on the specific needs ofcustomers in industries with a high concentration of workers who regularlyshare information and documents, such as financial services, healthcare,computer and technology and business services. We will continue to utilize adirect sales force that is highly trained to serve large enterprises in orderto achieve a more thorough approach to pursuing major new customeropportunities and increasing the utilization and penetration of existingcustomers. We expect the focus on customer segments and industry sectors toenable us to provide increased services to existing customers, increase thenumber of new customers and enhance profitability.

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·       ***Provide a comprehensive suite ofintegrated multimedia conferencing and group collaboration services.***   Weoffer a full range of conferencing and group collaboration services, fromtraditional audio and video conferencing services to the latest in multimediacollaboration over the Internet and Web streaming technology. We believe thatoffering a comprehensive suite of conferencing services and group collaborationapplications is essential to winning the business of large enterprisecustomers, who are increasingly seeking to rationalize and centralize theirprocurement of communication services. Our ability to respond quickly toevolving customer requirements is a result of our technological expertise andinternal product development capabilities. Future product development effortswill continue to focus on our promotion of features that improve ease of use, thegreater integration of our products with other desktop business tools and theestablishment of our multimedia conferencing and collaboration capabilities onan Internet Protocol (IP) network.

·       ***Expand margins and stimulate usageby migrating customers to multimedia conferencing services.***   Wewill continue to migrate customers to our fully integrated, multimediaconferencing solutions. Leveraging our unique multimedia conferencing platform,we introduced the *Multimedia Minute*flat rate, usage based pricing strategy designed to promote adoption and usageby new and existing customers. By utilizing the strong customer educationcapabilities of our sales and marketing team, we are broadening customers’understanding of the cost-effectiveness, ease-of-use, expanded featurefunctionality and straightforward pricing of our fully integrated multimediaconferencing services. We aim to migrate the majority of our customers to the *Multimedia Minute* pricing plan. We intendto continue to introduce innovative applications and pricing models thatrespond to our customers’ needs while also leveraging the cost-effectiveness ofthese less labor-intensive and software based services.

·       ***Utilize proprietary research anddevelopment capabilities to create innovative applications for a globalcustomer base.***   We develop and acquire innovative servicesand systems designed to ensure that our offerings fulfill the expanding needsof customers’ conferencing and group collaboration requirements. We believethat *Genesys Meeting Center* is agood example of our innovation in developing an integrated, “industry first”platform available worldwide in localized versions. Additionally, we seek toeffectively utilize our proprietary knowledge and capabilities in a manner thatresponds to changes in the global marketplace. As we move forward in developingand marketing innovative services that can accommodate the needs of a globalcustomer base, such as *Multimedia Minute*pricing and our *Genesys Meeting Center*services,we intend to utilize open systems incorporating universal standards in order tofacilitate ease of use by a broad customer base.

·       ***Leverage centralized organizationalstructure to improve operating effectiveness and cost efficiency.***   Wehave centralized our major functions and operations, including finance andadministration, customer support, service and billing functions by leveragingour recent implementation of a more unified management information system. As aresult, we have modified our organization structure from one in which operatingfunctions were located in our multiple regional subsidiaries to one in whichoperating functions are more centrally located. We believe this organizationstructure will enhance our cost efficiency and management effectiveness. Wewill seek to continue to maximize the benefits of our operating initiatives inorder to further improve productivity and enhance product and service quality.

**Conferencing and GroupCollaboration Services**

Weenable businesses to conduct real-time, interactive group meetings andpresentations via the telephone and the Internet. Our services are designed toenhance business communications and are particularly beneficial for efficientlyaddressing the needs of disparate audiences located in multiple geographicallocations. Our primary product and core technology platform, *Genesys Meeting Center*, is built 

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to address the principal needs of the world’s largestcorporate users of these services, namely reliability, security, scalability,easy-to-use features that may be customized for each client and costeffectiveness.

Fromsimple conference calls to large-scale Web broadcasts, we provide our customerswith the flexibility of conducting their sessions with services from our threemain product categories: *Genesys MeetingCenter*, *Genesys Event Service*,and *Genesys Video Service*.

***Genesys Meeting Cente***r is our fully integrated multimedia (audio, Web and video) conferencingplatform accessible on demand directly through the telephone viatelecommunications (PSTN) or VoIP networks and through the desktop via theInternet. The GenesysMeeting Centerplatform allows users to conduct a conference while sharing documentsand monitoring the call over the Internet, providing our customers on-demandaccess to a virtual conference room 24 hours per day, seven days per week. Thisservice is highly collaborative allowing Web-enabled users to share informationregardless of the user’s personal application or the Internet enabled computerwhere the data may reside.

End-usersutilize the capabilities offered by *GenesysMeeting Center* in a variety of applications, including training,departmental meetings, project meetings and product demonstrations.

Some of the key features and capabilities of theWeb-based *Genesys Meeting Center*include:

·       *Real-time sharing of desktop applications.*   Presentersmay share any application running on their computers and alternate betweenapplications at any time during the meeting.

·       *Web-based management controls.*   Web interface enablesthe moderator to fully manage the meeting via the Web from start to finish. Onecan view all the participants’ names as well as monitor their status, includingmute, un-mute, ejection from a meeting, waiting rooms and sub-conferencesessions.

·       *Integration with desktop applications.*   *Genesys Meeting Center*features a comprehensiveinvitation wizard with Microsoft Outlook® and MicrosoftExchange integration to leverage Microsoft contacts and to facilitate themanagement of invitations, personal scheduling and calendaring. In addition, *Genesys Meeting Center*is integrated with MSN® Instant Messenger to directly start ad hocmeetings with active members on the contact list. Since 2004, *Genesys Meeting Center* is also integratedwith Lotus Notes®.

·       *Desktop video support.*   We offer multi-point, Webcam-video conferencing capability, enabling a video connection between two ormore sites. The moderator can choose the composition of the images shown oneach screen: all sites, the site speaking or any combination of screens. Thesescreen formats can be changed at any time during the meeting.

*Genesys Meeting Center* represented 78.0% of our revenues in 2005. Inconnection with the industry trend of customers’ greater demand for multimediaconferencing capabilities, we will continue to concentrate our efforts onmigrating customers to our fully integrated, multimedia conferencing solutions.

***Genesys Event Service*** is a scalable, managed multimediasolution designed specifically for large and high profile events that requirethe assistance of a professionally trained conference facilitator. Customershave the benefit of a dedicated event coordinator who takes full control of theevent, allowing the presenter to focus on conveying the desired message to theaudience. Our advanced multimedia Web technologies allow presenters to viewpresentation slides and sort and screen participant questions through aWeb-based interface. Clients also enjoy immediate access to valuableparticipant information. Genesys Event Service is frequently used for investor relations calls, training, new productlaunches or other announcements by top management of our customers. Genesys Event Service represented 19.7% of our revenuesin 2005.

***Genesys Video Service*** is a complement to our audio andWeb conferencing services. Video conferencing is similar to audio conferencingexcept that participants are viewing the video broadcast from selectvideo-point locations equipped with specific ISDN- or IP-based videoconferencing equipment 

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***(commonly referred to as “meeting room tomeeting room” conferencing). We have a full staff of professionally trainedoperators available at all times to help schedule, arrange and manage the videosession.***Genesys Video Center, a Web-based reservation system, enables users to launch and runmeetings without operator assistance. Video conferencing represented 2.3% ofour revenues in 2005.

The following table breaksdown our revenues in euros and as a percentage of total revenue by category ofactivity for each of the years ended December 31, 2003, 2004 and 2005.

| ** **               | ** ** | **Year ended December 31,**  | ** ** |
|--------------------------|------------|---------------------------------------------|------------|
| ** **               | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **               | ** ** | **in thousands  of  **€ | ** ** | **% of  revenue** | ** ** | **in thousands  of  **€ | ** ** | **% of  revenue** | ** ** | **in thousands  of  **€ | ** ** | **% of  revenue** | ** ** |
| *Genesys Meeting Center* |       |                                        | 108,272    |   |   |   | 67.8 | % |   |   | 104,595 |   |   |   | 75.2 | % |   |   | 110,672 |   |   |   | 78.0 | % |   |
| *Genesys Event Service*  |       |                                        | 44,579     |   |   |   | 28.0 | % |   |   | 29,582 |   |   |   | 21.3 | % |   |   | 27,965 |   |   |   | 19.7 | % |   |
| Other                    |       |                                        | 6,649      |   |   |   | 4.2 | % |   |   | 4,861 |   |   |   | 3.5 | % |   |   | 3,292 |   |   |   | 2.3 | % |   |
| Total revenues           |       |                                        | 159,500    |   |   |   | 100.0 | % |   |   | 139,038 |   |   |   | 100.0 | % |   |   | 141,929 |   |   |   | 100.0 | % |   |

 

**Global Sales, Marketingand Customer Service**

We seek to attract and retain our customers throughmultiple means. We maintain sales, marketing and customer service teams in mostof the 24 countries and territories in which we operate, and tailor our salesorganization, marketing and customer service efforts to each individual market.We believe that our presence in the major North American, European and AsianPacific markets creates a unique geographical coverage and recognized qualityof service that is attractive to major multi-national organizations andregionally based organizations seeking coverage delivered by a local means. Weleverage these elements that we believe set our company apart by activelypursuing major new international contracts offered in global requests for proposalsas well as multi-location large enterprise customers. We also distinguish ouroperating efforts among segments, such as large enterprises, wholesalecustomers and small and medium enterprises (which we target indirectly throughour wholesale relationships). We modify certain aspects of our serviceofferings to more effectively meet the specific needs of each customer segment.

***Sales and Distribution***

*Direct Sales*

Oursales force is comprised of high-level field representatives who areresponsible for establishing long-term relationships with the keycommunications services decision makers at major customers and inside salesrepresentatives that work on a day-to-day basis to identify, register and trainnew individual users throughout a customer’s organization and then to increasethe utilization of each existing user.

In each market, we focusour sales and marketing efforts primarily on large multinational companies anddomestic companies with multiple sites, because these are the heaviest users ofconferencing and group collaboration services. To target these accounts, ourhigh-level field representatives focus on the home country, city orheadquarters of these multinationals as a base for developing global businessrelationships. In approaching large accounts, we seek to establish strongrelationships and to position our company as a long-term partner and solutionprovider. Beginning in 2004, our inside sales force, which used to targetmainly small and medium size businesses, has been teamed with our fieldrepresentatives to assist in targeting large accounts. We have made a concertedeffort to win global contracts by emphasizing our global presence.

Atthe end of December 2005, we had a total of 209 sales personnel, including69 based in Europe, 109 based in the North America and 31 based in AsiaPacific. We compensate our sales force with a base salary plus commission.

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*Third-PartyDistribution Channels*

To broaden demand for our services, we actively pursueopportunities to respond to the needs of telecommunications providers,business-to-business exchanges, marketplaces and other distribution partnersthat seek a provider who can offer conferencing and group collaborationservices to their users. These relationships, in which we typically provide ourservices under the brand name of the distributor, broaden our presence in themarket.

***Marketing***

Wecustomize our marketing programs on an industry-by-industry basis (verticalmarketing) as well as on the basis of customer segments (large enterprise andwholesale customers) to specifically address the unique needs and applicationsof the target audience. Many of these initiatives provide extensive trainingand education programs focused directly on the end-user and designed to promoteadoption, increase usage and build end-user loyalty.

We promote our services through both online andoffline media. Our conferencing Website, *www.genesys.com*,provides access to *Genesys Meeting Center*and allows non-customers to sign up to open an account. We also engage incustomer communication programs and run a series of online seminars, invitinghigh profile speakers from key vertical sectors to participate.

***Service Quality and Customer Care***

Westrive to ensure that each call, event and user experience meets the highestquality and reliability standards for business communication services. Inaddition to the highest level of system reliability and security, somecustomers often require personal attention provided locally in real-time. Manyof our customer service and support specialists are dedicated to meet both thetechnical and local needs of our global clientele. We train employees in the principlesof customer care management, which include service quality monitoring and thedevelopment of positive relationships with clients.

Inorder to help our efforts to maintain the highest level of service qualitypossible, we pursue a philosophy of continuous performance improvement. Weregularly measure our performance and endeavor to improve it. We tie the bonusof our non-sales personnel to these measurements of service quality. Weactively manage and analyze all facets of a conference call, includingreservation, call execution, billing and follow up with customer satisfactionsurveys. We also review our performance with our customers on a regular basis,continually set specific performance improvement goals, and modify ouroperations accordingly. The feedback that we have received from our customersindicates that these factors contribute to a high customer retention rate.

In the competition for global customer accounts, webelieve that in addition to price, product features and functionality, servicequality and customer care are increasingly factors of differentiation. Ourcompany is often selected as the provider of choice based on our experiencemanaging the complexities of servicing and supporting large global customers.

***Global Presence***

Asof December 2005, we offer our services in 24 countries and territories inEurope, North America, and the Asia/Pacific Rim region. We offer localizedversions of our services in multiple languages.

The countries andterritories in which we have facilities include:

| Australia |   | France    |   | New Zealand |   | Sweden          |
|-----------|--------|-----------|--------|-------------|--------|-----------------|
| Belgium   |   | Germany   |   | Norway      |   | Switzerland     |
| Canada    |   | Hong Kong |   | Portugal    |   | Taiwan          |
| China     |   | Italy     |   | Singapore   |   | The Netherlands |
| Denmark   |   | Japan     |   | South Korea |   | United Kingdom  |
| Finland   |   | Malaysia  |   | Spain       |   | United States   |

 

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The following table breaksdown our revenue in euros and as a percentage of total revenue by geographicmarket for each of the years ended December 31, 2003, 2004 and 2005.

| ** **     | ** ** | **Year ended December 31,** | ** ** |
|----------------|------------|--------------------------------------------|------------|
| ** **     | ** ** | **2003**                                   | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **     | ** ** | **in thousands**                      | ** ** | **% of** | ** ** | **in thousands** | ** ** | **% of** | ** ** | **in thousands** | ** ** | **% of** | ** ** |
| ** **     | ** ** | **of  **€                   | ** ** | **revenue** | ** ** | **of  **€ | ** ** | **revenue** | ** ** | **of  **€ | ** ** | **revenue** | ** ** |
| North America  |       |                                       | 92,943     |   |   |   | 58.3 | % |   |   | 71,613 |   |   |   | 51.5 | % |   |   | 70,764 |   |   |   | 49.8 | % |   |
| Europe         |       |                                       | 58,289     |   |   |   | 36.5 | % |   |   | 57,329 |   |   |   | 41.2 | % |   |   | 58,851 |   |   |   | 41.5 | % |   |
| Asia-Pacific   |       |                                       | 8,268      |   |   |   | 5.2 | % |   |   | 10,096 |   |   |   | 7.3 | % |   |   | 12,314 |   |   |   | 8.7 | % |   |
| Total revenues |       |                                       | 159,500    |   |   |   | 100.0 | % |   |   | 139,038 |   |   |   | 100.0 | % |   |   | 141,929 |   |   |   | 100.0 | % |   |

 

**Customers**

Wehave thousands of clients worldwide, ranging in size from major multinationalcorporations and Global Fortune 500 companies, to small businesses,professional organizations and public institutions. We focus our sales andmarketing efforts primarily on the major multinational companies that are theworld’s largest users of group conferencing services. No one customer accountedfor more than 10% of our revenues during the year ended December 31, 2005.Our top 10 customers accounted for approximately 32.5% of our revenues duringthe year ended December 31, 2005.

On November 15, 2005 we announced the departureof one of our largest audio conferencing customers in connection with itsmerger with a company that was seeking to further utilize in-house audioconferencing solutions. Revenue and volume from this customer have declinedsignificantly. This customer accounted for over 5% of 2005 revenue.

**Technology and NetworkInfrastructure**

Wedesign the platform that runs our innovative services and systems. Theseproprietary products are designed to ensure that our offerings respond to theexpanding needs of our customers’ multimedia conferencing and collaborationrequirements. We seek to effectively utilize our proprietary knowledge andcapabilities in a manner that responds to changes in the global marketplace.Our technology is essential to delivering the reliability, security,scalability, feature functionality and ease-of-use demanded of our services.

Webelieve that our ability to internally respond to changes in the marketplacegives us the competitive advantage of being able to rapidly develop and deploynew services and modify existing services. For example, our technologicalexpertise has allowed us to offer what we and a number of independent analystsbelieve is one of our industry’s most advanced Internet-based integrations ofaudio, data/document and video functionality. Full integration means that ourplatform combines audio, data and video content without having to utilize threedifferent systems. Further, our *GenesysMeeting Center* platform also integrates well with other popularcollaborative products, such as corporate directory and address books, online calendarsystems, identity management and instant messaging.

Additionally,we utilize these internal capabilities to cost effectively provide keycustomers with customized solutions and then leverage that experience to betteraccommodate mass market adoption of these services. As we move forward indeveloping and marketing innovative services that can accommodate the needs ofa global customer base, we intend to focus on systems based on universalstandards and open systems, in order to facilitate ease of use by a broadcustomer base.

Ourcore audio, Web and video multimedia conferencing technology is hosted anddelivered via our global network with production locations worldwide. Thenetwork infrastructure supporting our services uses a variety of server, bridgingand network management equipment and certain licensed software programs thatare commercially available. Our network access and our long distance, datatransport, 

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Internet and data hosting capabilities are sourcedfrom several incumbent and competitive long distance, data transport, datahosting and local access services providers in each of our regional markets.Our technology team and network architects work closely with these providers toensure our ability to assess and implement new capabilities on a cost effectivebasis.

Thescalability, reliability and security of our services are partly the result ofproprietary software that we developed. This software organizes telephone or IPconnections and automatically interacts with voice and data application serversto control the various conference functions. Additionally, through newtechnologies and dynamic utilization, our capacities in one region can supportanother when needed. We believe that we have sufficient capacity for ouroperations. In order to ensure sufficient capacity, we employ structured andindustry-proven planning methods to determine current and future capacityrequirements. Our global deployment of our multiple technology centers alsoenhances the resilience of our infrastructure. Through consistent investment innew technologies, we aim to continue to minimize and mitigate the risk ofservice outages.

Wehave implemented a network operations center (NOC) that is designed to beproactive in the continued development, enhancement and implementation ofpreventative maintenance programs. The NOC monitors the various systems 24hours a day, 7 days a week and provides instantaneous alerts for individualsystem component failures that enable us to use our redundant capacity tominimize service interruptions.

The use of technology has also allowed us to augmentthe flexibility and capabilities of our entire production systems to meet theneeds of our customers. We have developed proprietary software used in thebilling services provided to long distance service carriers and other telecomresellers that outsource their conferencing function to us. This “back office”system was implemented worldwide in 2004, and supports customer registration,reservations, call record processing and pricing, billing and reporting for allof our services. This common back office system has enhanced our ability torespond to requests from customers for customized billing and reporting and hasthe benefit of providing us real-time visibility.

**Suppliers**

We purchase three maintypes of products and services from outside suppliers:

·       *Infrastructure/networks services.*   A significantportion of our direct costs are attributable to the purchase of local and longdistance telephone services. We purchase telecommunications services frommultiple suppliers in most of our markets and, because of relative size andvolume requirements, we believe that multiple suppliers will continue tocompete for our business. Direct costs also include the cost of hosting some ofour infrastructure in co-location facilities.

·       *Production Platform Technology.*   We purchase equipmentsuch as application servers, session border controllers, media gateways,databases and associated networking equipment (routers, switches and firewalls)from multiple suppliers. We believe that there are a sufficient number of suppliersin this market so that we should be able to find alternative sources if theneed were to arise.

·       *Development and Project Management Tools.*   Webuy hardware and software tools to aid in managing product and servicesrequirements, automating our infrastructure operations and utilization,managing change and modeling to develop our proprietary and innovative audioand Web-based collaboration and streaming services. We have multiple suppliers,or the potential to have multiple suppliers, for these tools.

**Research and Development**

Effectiveresearch and development has been a high priority at our company since we beganour operations and continues to be essential to our success in the rapidlyevolving market for conferencing and collaboration services and applications.We concentrate a considerable amount of staff and other resources 

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upon increasing our ability to develop innovativesoftware, applications such as *GenesysMeeting Center*and technologies for the*Genesys Event Service*software. Our current research anddevelopment efforts are focused on (i) enhancing the features,functionality and ease-of-use of our existing services, (ii) utilizingvarious methodologies for VoIP and (iii) upgrading our technical platformsfor increased scalability and customization to meet the changing needs of ourcustomers.

During2005, our research and development activities included increasing theease-of-use of our systems, and enhancing system integration with multipleapplications such as Microsoft Outlook® andLotus Notes®.Development of and preparation for a new release of *Genesys Meeting Center* planned for 2006 was a major activityin the second half of 2005. Several initiatives with respect to VoIP werefinalized during 2005 and additional efforts are planned in this area 2006.

Inaddition to developing unique features and functionality for our customers, ourresearch and development activities provide internal controls on ourtechnologies that enable us to produce higher quality services quicker and atlower cost than would be possible through third-party vendors and partners. Wealso make selective acquisitions and enter into licensing arrangements toaccelerate our research and development efforts, as required.

Our research and development team is managed by ourPresident, who also oversees all production, system development and serviceprocesses within Genesys.

**Intellectual Property**

Wehave developed proprietary copyrighted software for our service and qualitycontrol functions, and have also developed in-depth technical know-how withrespect to the operation of telecommunications equipment and the coordinationof large volume conference calls. We seek to protect our proprietaryinformation and business practices through a combination of copyrights, tradesecrets, trademarks, and contractual protection.

Wehold three U.S. patents, one of which pertains to the synchronization ofmulti-media events on a computer. Our other two U.S. patents relate to thesynchronization of transmitted and received data and remotely modifyingpresentations in a multimedia conference. We currently have patent applicationspending in the United States, Europe, Japan and China, and one internationalpatent application filed under the Patent Cooperation Treaty of 1970. Onepatent application (filed in the United States and under the Patent CooperationTreaty of 1970) relates to broadcasting applications and a second patentapplication (filed in Europe, Japan and China) relates to remotely modifyingpresentations in a multimedia conference.

Wehave registered the trademark “Genesys” in several countries including France,where we first filed an application to register the trademark “Genesys” in June 1988,and have filed applications to register this and other trademarks in otherjurisdictions. In June 2000, following a trademark application by Genesysto register the trademark “Genesys Conferencing” in France, Alcatel filed anobjection to the claim alleging a risk of confusion with a prior trademarkregistered in the name of a subsidiary of Alcatel, for the name “Genesys.”Alcatel also filed claims opposing our European Union and German applicationsfor “Genesys Conferencing.” On June 27, 2005, we signed an agreement tosettle the dispute with Alcatel. Under the agreement, Alcatel will no longeroppose our applications to register certain trade names, including the name “GenesysConferencing,” or challenge the validity of our existing registered trademarks.We agreed not to use the name “Genesys” alone, except in connection withcertain requirements relating to the use of our legal name, Genesys S.A. Wealso agreed to incorporate a link to the Internet site of an Alcatel subsidiaryonto our homepage. Neither party made a payment in connection with thissettlement. Additionally, at the end of 2001, Veolia Water began marketing “Genesys”as a concept for pre-treatment of industrial water.

We have received proposals from several partieswishing to sell us licenses for certain methods and systems as to which thoseparties claim to hold patents, including patents related to interactive call 

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processing. The partiesthat have made the proposals claim that, in the absence of such licenses,certain aspects of our business might infringe their patents. We are currentlyevaluating the validity and coverage of the patents to determine whether weneed to obtain a license to avoid infringement. If we decide that a license isrequired in any such case, we would hope to be able to negotiate commerciallyreasonable terms for such license, although we cannot assure you that we willbe able to do so.

**Competition**

Themarket for conferencing and group collaboration services is rapidly evolvingand competitive. In almost all of the countries in which we operate, majortelecommunications operators dominate the conferencing and group collaborationservices market. Additionally, large software companies are increasinglyoffering Internet-based services. Each of these companies has greater financialand operating resources than we do and certain of them are owned by thegovernments of the countries in which they operate or, if privatized, havesignificant political and economic importance in their home countries. Despitetheir large share of the conferencing and group collaboration services market,conferencing and group collaboration services account for a small percentage ofthe revenues of most major telecommunications operators, and based on ourexperience marketing conferencing and group collaboration services, we believethey frequently view the activity as non-strategic. We believe this provides anopportunity for specialists that focus entirely on conferencing and groupcollaboration services.

We believe that theprincipal competitive factors affecting the market for our services are:

·       quality,reliability and security of service offerings;

·       innovation;

·       brandawareness;

·       customizationcapabilities;

·       responsivenessand quality of customer service;

·       easeof use of services;

·       geographicscope;

·       compatibilitywith new and existing communication formats and everyday tools; and

·       price.

Our failure to adequately address any of the abovefactors could harm our business.

***Our Principal Competitors***

We divide our principal competitors into three groupsbased on estimated revenues.

·       Companies with conferencingrevenues of over U.S. $300 million per annum: AT&T, Verizon, WebEx,which specializes exclusively in Web-based conferencing, and West Corp.;

·       Companies withconferencing/group collaboration revenues of between U.S. $100  millionand U.S. $300 million per annum: BT, Global Crossing and Premiere GlobalServices; and

·       Companies withconferencing/group collaboration revenues of less than U.S. $100 millionper annum: ACT Teleconferencing, Westel, France Telecom, Arkadin and DeutscheTelekom.

Additionally,major technology corporations that have added group collaborative capabilitiesto their respective software portfolios through acquisitions or organicdevelopments: Microsoft, Cisco, Macromedia and IBM.

Although we compete with each of these groups ofcompetitors, we believe that those companies with large conferencing capacity,a diverse geographic scope and a broad range of services, such as our 

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company, are bestpositioned to successfully bid for large conferencing contracts. We believethat the compatibility, performance and ease of use of our services make themvery competitive.

**Regulation**

Ingeneral, the telecommunications industry is subject to extensive regulation bynational, state and local governments. Although there is little or no directregulation of the core conferencing and group collaboration services offered byus in any of the countries in which we operate, various government agencies,including the U.S. Federal Communications Commission, or FCC, and the French *Autorité de Régulation des Télécommunications,*have jurisdiction over some of our current and potential suppliers oftelecommunications services. Government regulation of those services has adirect effect on the cost of our communications services. We cannot assure youthat the FCC, *Autorité de Régulation desTélécommunications* or any other governmental agencies will not seekto regulate us as a common carrier, or seek to regulate the prices, conditionsor other aspects of the conferencing and group collaboration services that weoffer. Additionally, government regulations in countries other than the UnitedStates and France vary widely and may restrict our ability to offer ourservices in those countries. We believe that we are currently in materialcompliance with all applicable communications laws and regulations.

Inthe United States, telecommunications services providers and resellers oftelecommunications services are required to register with the FCC and theUniversal Service Administrative Company (USAC) and to collect a UniversalService Fund (USF) fee from their end-user customers and remit these fees toUSAC. In 2005, we received a letter from the Enforcement Bureau of theInvestigations and Hearings Division of the FCC regarding an FCC audit ofcompliance with FCC registration requirements and the USF program. The letterrequired that we register as a reseller of telecommunications services orexplain in detail why we believe we are not required to register. We believe,and we have advised the FCC, that when purchasing telecommunications services,we are an end-user and not a reseller. Accordingly, we believe that we are notrequired to register as a reseller of telecommunication services, nor are werequired to collect USF fees from our customers or to pay USF fees directly. Itis possible, however, that the FCC may assert that we are a reseller orotherwise a telecommunications services provider. Although we would contest anysuch assertion, if it were ultimately determined that we are a reseller orotherwise a telecommunications services provider, we could become obligated topay USF fees to USAC with respect to our gross revenues, past and/or future,from providing telecommunications services and to comply with other federal andstate regulatory requirements applicable to telecommunications services providers.

Although we do not pay USF fees directly, registeredtelecommunications carriers from which we purchase telecommunications servicesas an end user do pay such fees and generally pass them through to us in theirinvoices. However, in response to the FCC’s inquiry letter, we have made apreliminary determination that one of the telecommunications carriers fromwhich we previously purchased a significant portion of our telecommunicationsservices failed to pay applicable USF fees and other charges on a substantialportion of the services that we purchased from them. As a result, such USF feesand other charges may be overdue with respect to the services that we purchasedfrom this carrier, and the carrier may attempt retroactively to collect the pastdue USF fees and other charges, including interest and penalties, from us.While we believe we do not have any liability for these amounts, there can beno assurance that we will not be required to reimburse the carrier for theseamounts.

**C.   OrganizationalStructure**

The table below sets forthour significant subsidiaries and affiliates as of December 31, 2005.

| **Significant Subsidiary or Affiliate** | ** ** | ** **    | ** ** | **Country of  Incorporation** | ** ** | **Ownership  Interest** | ** ** |
|--------------------------------------------------------|------------|---------------|------------|------------------------------------|------------|-------------------------|------------|
| Genesys  Conferencing, Inc.                       |       | United States |       |                               | 100        | %                       |       |
| Genesys Conferencing Europe SAS                        |       | France        |       |                               | 100        | %                       |       |

 

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**D.   Property, Plantsand Equipment**

Our development of localfacilities serves the dual purposes of providing local language, localcurrency, and local time zone services to the areas served by each call center,as well as backup and overflow capacity among other call centers in the eventall or part of a conference needs to be re-routed from a call center that is atfull capacity. Our headquarters are located in Montpellier, France. In 2004, inconnection with our overall strategy to enhance operating efficiency andproductivity, we also centralized our global operations and senior managementat our Reston, Virginia operations center near Washington, D.C. At May 16,2006, our principal operational and administrative facilities were thelocations listed in the table below.

| North America           | ** ** | ** ** | ** ** | **Size (m**2)       | ** ** | Europe | ** ** | ** **               | ** ** | **Size (m**2) | ** ** | Asia/Pacific | ** ** | ** ** | ** ** | **Size (m**2) |
|-------------------------|------------|------------|------------|---------------------|------------|--------|------------|--------------------------|------------|---------------|------------|--------------|------------|------------|------------|---------------|
| Administrative location |       |       |       | Headquarters:       |       |   |       | Administrative location: |       |          |
| and Call Center:        |       |       |       | Montpellier, France |       | 3,750  |       | Singapore                |       | 282           |
| Reston, Virginia        |       | 3,809      |       |                |       |   |       |                     |       |          |
|                    |       |       |       | Call Center:        |       |   |       | Call Center:             |       |          |
|                    |       |       |       | Croydon, England    |       | 1,693  |       | Melbourne, Australia     |       | 400           |

 

Alloperations are in office locations close to the city center or in nearbysuburbs. These leases expire or are renegotiable within the next ten years andare adequate for our expansion plans. Forward lease commitments are notsignificant in relation to total ongoing operating expenses and all lease costsare consistent with generally available market rentals. We believe we couldobtain comparable facilities at similar market rates if necessary. Ouroperations centers provide us with a high degree of redundancy. We can rerouteour conferences from one operations center to another if necessary. Bynetworking our operations centers in different time zones, we can use idleevening and nighttime capacity in one center to fulfill daytime demand atanother center.

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**Item 5.**   Operatingand Financial Review and Prospects

**Overview**

***General***

Wewere founded in Montpellier, France in 1986 to develop automated audioconferencing services. Since then, we have expanded through internal growth andacquisitions to become one of the leading specialist providers of interactivegroup collaboration and conferencing services and applications, based on 2005revenues. We have evolved from a regional audio conferencing provider to becomea global company earning 58.5% of our revenues outside Europe in 2005. Overtime, we have also diversified the scope of our products and services.

In2001, we completed two major acquisitions. In March 2001, we acquiredAstound Incorporated, a leading provider of Web conferencing and datacollaboration software. In April 2001, we acquired Vialog Corporation, aleading independent provider of conferencing services in the United States.

Sincethese acquisitions, we have undertaken a major consolidation of our operations,integrating the activities of Vialog and significantly increasing automatedservices as a percentage of our activities. The shift to automated services hasreduced our revenue growth, but increased our gross margin percentage, asautomated services are priced lower than operator-assisted services butcarry higher gross margin percentages. The consolidation resulted in theclosure of four U.S. call centers and one European call center during 2002, andwe completed the closure of an additional U.S. call center at the end of thefirst quarter of 2004. During 2004, we also streamlined, reorganized andcentralized our senior management and finance and administrative departments inReston, Virginia, to implement a more simplified operational structure. Theconsolidation was the main driver in the reduction in the number of ouremployees from 1,530 as of January 1, 2002 to 1,018 as of December 31,2005.

In connection with our acquisition of Vialog, weincurred a significant amount of debt under a $125 million credit facilitythat we signed in April 2001. The credit facility requires us to complywith financial ratios on a quarterly basis and to make principal repayments ona semi-annual basis. This credit facility has been amended several times, mostrecently on January 27, 2006 in connection with a recapitalization inwhich we reduced the debt outstanding under our credit facility toapproximately $38 million (approximately €32million). The recapitalization included an equity offering in which we issuednew shares for $65 million. See “—Liquidity and Capital Resources” below andNote 7 to our consolidated financial statements included in this annualreport for more details.

***Segments***

We have three reportable business segments, aligned bygeographic region (North America, Europe and Asia Pacific). We make keydecisions and evaluate operating performance on the basis of these segments. Inprior annual reports, we included a fourth business segment that separated ourglobal video activities from our other operations. For comparability, resultsfor prior periods have been restated to incorporate the global video divisionresults into the results for our geographic regions. Our results of operations,broken down among our segments, are set forth in Note 16 to ourconsolidated financial statements included in this annual report.

***Key Factors Affecting Results of Operations***

*Revenues*

We generate our revenues primarily from fees chargedto our customers for conferencing and related services. In our geographicsegments, we earn services revenues from our *GenesysMeeting Center* and *Genesys EventService* platforms, as well as video conferencing services andrelated ancillary revenues 

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(which we refer to as “otherrevenues”). The key drivers of our revenues in each of these areas aredescribed below:

·       *Genesys Meeting Center.*This is our platform for automatedservices, providing fully integrated audio, video and Web conferencingaccessible on demand directly through the telephone via traditionaltelecommunications networks and through the desktop via the Internet. We bill servicesassociated with our *Genesys Meeting Center*platform primarily on a per-participant, per-minute basis.

·       *Genesys Event Service.*This platform provides a fullyoperator managed audio conference service with integrated Web-based audio andvideo streaming applications. In connection with our *Genesys Event Service*platform, we bill our attended audioconferencing services on a per-line, per-minute basis, and we charge for Webstreaming services on a per event basis that takes into account the size and complexityof the services requested. We launched Genesys Event Service in September 2003after launching its predecessor, Genesys Events & Managed Services, inMay 2002.

·       *Other.*Other revenue primarily consists of videoconferencing services, which are similar to audio conferencing except thatgenerally one or more participants are viewing the video broadcast from selectvideo-point locations. We bill our video conferencing services on aper-line, per-minute basis. Other revenue also includes sales of equipment,which we offer to those customers that seek to purchase both their conferencingequipment and their conferencing services from a single supplier.

We generally recognize revenue upon completion ofconferencing services or at the time of shipment of equipment, unless we havefuture obligations for installation or have to obtain customer acceptance, inwhich case we defer revenue recognition until these obligations are met. Weinclude amounts billed in excess of revenue recognized as deferred revenue in ourconsolidated balance sheet.

*Cost of Revenue andGross Profit*

Ourcost of revenue consists of long distance telephone and network costs, operatorand technical support wages and benefits, office expenses for operations staff,depreciation and maintenance on our teleconferencing bridges andtelecommunications equipment and equipment product costs.

Of these costs, operator and technical support wagesand benefits is the largest cost in delivering our managed event services andvideo conferencing services. The largest direct costs category related to our *Genesys Meeting Center* service includeslong distance transport and network access costs. The key bridging andconferencing capabilities of our propriety *GenesysMeeting Center* technology are highly cost efficient. Thus, theseservices generate higher gross margin percentages than our labor intensiveattended services. The consolidation of our North American call centers andresulting cost savings has had a positive impact on our gross marginpercentage, beginning in 2003.

*Operating Income*

Our operating income depends on our revenue, our costof revenue, and the level of our other operating expenses, which include thefollowing:

·       Research and developmentcosts, which consist primarily of salaries and benefits for research anddevelopment personnel, depreciation of research and development equipment andrelated expenses. In 2005, some costs relating to the development of our *Genesys Meeting Center* platform were capitalized;

·       Selling and marketingexpenses, which consist primarily of salaries and benefits paid to salespersonnel and the costs of advertising and marketing materials; and

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·       General and administrativeexpenses, which consist primarily of personnel costs and costs for generalcorporate functions, including finance, accounting, facilities andadministration and human resources, and fees for professional services such asconsulting, legal and accounting services. Expenses relating to software andinformation system network maintenance and development are classified asgeneral and administrative expenses rather than research and developmentexpenses. In 2003, 2004 and 2005, some costs relating to development of anintegrated reservation and billing system were capitalized.

In 2003 and 2004, we also incurred variousrestructuring charges relating to the consolidation of our call centers and thecentralization of senior management, finance and administrative functions intoour primary operating center in Reston, Virginia. In 2005, we incurredadditional restructuring charges related to the consolidation of the globalvideo division into the applicable regional segments of North America, Europe,and Asia-Pacific to achieve a more integrated management strategy and gain costefficiencies. These restructuring charges are shown as a separate component ofour operating expenses. In addition, amortization of intangible assets andimpairment of goodwill and other intangible assets are recorded as operatingexpenses.

***Impact of Exchange Rates***

Wehave significant international operations and thus significant exposure toexchange rate fluctuations, and in particular to the U.S. dollar. In 2003, theU.S. dollar declined significantly compared to the euro, and its relative valuefurther declined during 2004, before increasing significantly in the secondhalf of 2005. As a result, the comparability of our revenues and results ofoperations expressed in euros during the past three years was significantlyimpacted.

We prepare ourconsolidated financial statements in euros. In order to demonstrate the impactof the volatility of the U.S. dollar on our revenues from 2003 to 2005, we haverecalculated our revenues as if our functional currency had been the U.S.dollar rather than the euro. For this purpose, we have used the average foreach quarter of the daily euro/U.S. dollar exchange rates for each of 2003,2004 and 2005, respectively, which are the rates we used for translationpurposes in our consolidated income statement. The average rates we have usedare set forth in the table below. The annual U.S. dollar amounts provided inthis section are the sums of the euro amounts for each quarter translated intoU.S. dollars at the applicable euro/U.S. dollar exchange rate for that quarter.

| ** ** | ** ** | ** ** | ** ** | **Average euro/U.S. dollar exchange rate  (expressed in euros per dollar)** | ** ** |
|------------|------------|------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|
| **2003**   |       | Q1         |       |                                                                                                                | 0.931638   |   |   |
|       |       | Q2         |       |                                                                                                                | 0.879966   |   |   |
|       |       | Q3         |       |                                                                                                                | 0.889360   |   |   |
|       |       | Q4         |       |                                                                                                                | 0.840824   |   |   |
| **2004**   |       | Q1         |       |                                                                                                                | 0.799561   |   |   |
|       |       | Q2         |       |                                                                                                                | 0.830314   |   |   |
|       |       | Q3         |       |                                                                                                                | 0.818339   |   |   |
|       |       | Q4         |       |                                                                                                                | 0.771434   |   |   |
| **2005**   |       | Q1         |       |                                                                                                                | 0.762695   |   |   |
|       |       | Q2         |       |                                                                                                                | 0.793719   |   |   |
|       |       | Q3         |       |                                                                                                                | 0.819985   |   |   |
|       |       | Q4         |       |                                                                                                                | 0.841365   |   |   |

 

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We believe that this analysis is useful because themajority of our revenue was actually earned in U.S. dollars. However, thechange in our U.S. dollar revenue also reflects the mechanical impact ofexchange rate differences on the portion of our consolidated revenue earned ineuros. We present our revenue translated into U.S. dollars in the table below,along with a presentation of our revenue in euros, as actually recorded in ourfinancial statements. In the U.S. dollar table set forth below, revenue ineuros translated to U.S. dollars represent 15% of the total in 2003, 19% in2004 and 19% in 2005.

*Revenue in euros*

| ** **               | ** ** | **Year ended December 31,** | ** ** |
|--------------------------|------------|--------------------------------------------|------------|
| ** **               | ** ** | **2003**                                   | ** ** | **2004** | ** ** | ** ** | ** ** | **2005** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **in thousands  of **€      | ** ** | **in thousands  of **€ | ** ** | **% change  2003-2004** | ** ** | **in thousands  of  **€ | ** ** | **% change  2004-2005** | ** ** |
| *Genesys Meeting Center* |       |                                       | 108,272    |   |   |   | 104,595 |   |   |   | (3.4 | )% |   |   | 110,672 |   |   |   | 5.8 | % |   |
| *Genesys Event Service*  |       |                                       | 44,579     |   |   |   | 29,582 |   |   |   | (33.6 | )% |   |   | 27,965 |   |   |   | (5.5 | )% |   |
| Other                    |       |                                       | 6,649      |   |   |   | 4,861 |   |   |   | (26.9 | )% |   |   | 3,292 |   |   |   | (32.2 | )% |   |
| Total revenues           |       |                                       | 159,500    |   |   |   | 139,038 |   |   |   | (12.8 | )% |   |   | 141,929 |   |   |   | 2.1 | % |   |

 

*Revenue in U.S.dollars*

| ** **               | ** ** | **Year ended December 31,** | ** ** |
|--------------------------|------------|--------------------------------------------|------------|
| ** **               | ** ** | **2003**                                   | ** ** | **2004** | ** ** | ** ** | ** ** | **2005** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **in thousands  of $**           | ** ** | **in thousands  of $ ** | ** ** | **% change  2003-2004** | ** ** | **in thousands  of $ ** | ** ** | **% change  2004-2005** | ** ** |
| *Genesys Meeting Center* |       |                                       | 122,254    |   |   |   | 130,046 |   |   |   | 6.4 | % |   |   | 136,817 |   |   |   | 5.2 | % |   |
| *Genesys Event Service*  |       |                                       | 50,069     |   |   |   | 36,739 |   |   |   | (26.6 | )% |   |   | 35,794 |   |   |   | (2.6 | )% |   |
| Other                    |       |                                       | 7,488      |   |   |   | 6,043 |   |   |   | (19.2 | )% |   |   | 3,973 |   |   |   | (34.3 | )% |   |
| Total revenues           |       |                                       | 179,811    |   |   |   | 172,828 |   |   |   | (3.9 | )% |   |   | 176,584 |   |   |   | 2.2 | % |   |

 

In the discussion of our year-over-year results ofoperations set forth below, we discuss more specifically the impact of thevolatility of the U.S. dollar in 2003, 2004 and 2005 on our revenue and resultsof operations in euros, which is our functional currency.

***Seasonality of Business***

Our volume of business is primarily driven by theusage of our services during regular business days. However, our volume levelis impacted by seasonality mainly from decreased use of conferencing servicesby businesses during significant vacation periods, particularly in the monthsof July, August and December.

***Earnings Before Interest, Taxes, Depreciation andAmortization (EBITDA)***

Inthe following discussion of our results of operations set forth below, wehighlight EBITDA. We use EBITDA as an important measure of the operatingperformance of our business. We believe that EBITDA is a meaningful measure ofperformance, because it presents our results of operations without thepotentially volatile impact (which can be substantial) of goodwill impairmentand the impact of depreciation and amortization. We define EBITDA as earnings(loss) before interest, income taxes, depreciation, amortization charges andimpairment of goodwill and other intangibles. Our depreciation charges aredivided among the line items of cost of revenue, research and development,selling and marketing and general and administrative expenses, based on the useof the assets being depreciated. EBITDA is not a measurement of operating performancecalculated in accordance with accounting principles generally accepted in theUnited States, and should not be considered a substitute for operating income(loss), net income (loss), cash flows from operating activities or otherstatement of operations or cash flow statement data prepared in accordance withgenerally accepted accounting principles, or GAAP. Because all companies do notcalculate EBITDA identically, the presentation of EBITDA contained in thisannual report may not be comparable to similarly named measures of othercompanies.

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We believe that the mostdirectly comparable GAAP measure to EBITDA is net income (loss). The followingtable reconciles EBITDA to net income (loss) for the periods indicated.

| ** **                                               | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------|------------|----------|------------|----------|------------|
| ** **                                               | ** ** | **(in thousands of **€) | ** ** |
| **Net income (loss)**                                    |       | (21,469                                     | )          | (80,947  | )          | 3,861    |       |
| Income tax expense  (credit)                             |       | 1,274                                       |       | 2,579    |       | (255     | )          |
| Financial expense, net                                   |       | 4,501                                       |       | 6,994    |       | 8,326    |       |
| Depreciation and  amortization of property and equipment |       | 10,845                                      |       | 9,898    |       | 8,537    |       |
| Amortization of  intangibles                             |       | 9,595                                       |       | 5,382    |       | 3,580    |       |
| Impairment of goodwill  and intangibles                  |       | 28,057                                      |       | 75,401   |       | —   |       |
| **EBITDA**                                               |       | 32,803                                      |       | 19,307   |       | 24,049   |       |

 

Forthe year ended December 31, 2005, EBITDA included restructuring charges of€0.3million mainly related to the consolidation of the Company’s video division.

EBITDAincluded restructuring charges of €2.2 million in 2004as follows: €1.1 millionfor call center consolidation in the United States, €0.9 million for thecentralization of senior management, finance and administrative functions toReston, Virginia and €0.2 m for separation costs and severance.EBITDA also included non-recurring charges of €2.4 million in 2004,as follows: €1.2 millionfor separation costs, €0.7 million for relocation expenses ofsenior management and € 0.5m for the early termination of anoperating lease contract.

EBITDA included charges of €1.1 millionin 2003 relating to restructuring in the United States.

***Restatement***

We have restated ourconsolidated financial statements for the years 2001 through 2004. See Note 3to the consolidated financial statements included in this annual report. Inconjunction with the initial accounting for our 2001 acquisitions of Vialog inthe United States and Astound (renamed Genesys Conferencing Ltd.) in Canada, wedid not appropriately consider the impact of recognized deferred taxliabilities on the required valuation allowance and resulting goodwill. Inaddition, subsequent to these acquisitions, we incurred losses for both bookand tax purposes in each of these countries against which we recorded a fullvaluation allowance without consideration of offsetting deferred taxliabilities in these same countries. The impact of this was to overstate certaingoodwill impairment charges taken in 2001 and 2002, to overstate our valuationallowance against deferred tax assets with the impact of understating netincome on a cumulative basis by €23.7 million throughJanuary 1, 2003 and to understate our tax provision and overstate net incomefor 2003 and 2004 by €10.1 million and €9.2 million, respectively.This resulted in an overstatement of net income per share by €0.60and €0.51for 2003 and 2004, respectively. The consolidated financial statements includedin this annual report have been restated to correct for this error. Unlessotherwise indicated, all figures in the following discussion of our results ofoperations are based on our restated consolidated financial statements.

**Year ended December 31,2005 compared with year ended December 31, 2004**

***Revenue***

Totalrevenue increased 2.1% from €139.0 million in 2004to €141.9 millionin 2005. Operationally, we realized significant volume increases. Our callvolume minutes increased 31% from 1,512 million in 2004 to1,972 million in 2005. The overall increase of €2.9 million was mainly dueto this increase in volume that was partially offset by industry-wide priceerosion and by the impact of the continued and expected shift in our servicerevenue mix from operator-attended services (*GenesysEvent Service*) to our lower-priced, automated services (*Genesys Meeting Center*). Automated services represented92.9% of total call volumes 

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in 2005, compared to 89.9% in 2004. Revenues in 2005were negatively impacted by €0.1 million due to foreignexchange rate fluctuations and by the loss of a significant customer in late2005.

The following table breaksdown our revenue by segments (excluding intercompany sales) for each of 2004and 2005 in euros and expressed as a percentage of total revenue:

| ** **    | ** ** | **Year ended December 31,** | ** ** |
|---------------|------------|--------------------------------------------|------------|
| ** **    | ** ** | **2004**                                   | ** ** | **2005** | ** ** |
| ** **    | ** ** | **in thousands  of **€      | ** ** | **% of  revenue** | ** ** | **in thousands  of **€ | ** ** | **% of  revenue** | ** ** |
| North America |       |                                       | 71,613     |   |   |   | 51.5 | % |   |   | 70,764 |   |   |   | 49.8 | % |   |
| Europe        |       |                                       | 57,329     |   |   |   | 41.2 | % |   |   | 58,851 |   |   |   | 41.5 | % |   |
| Asia-Pacific  |       |                                       | 10,096     |   |   |   | 7.3 | % |   |   | 12,314 |   |   |   | 8.7 | % |   |
| Total revenue |       |                                       | 139,038    |   |   |   | 100.0 | % |   |   | 141,929 |   |   |   | 100.0 | % |   |

 

In North America, our revenue decreased 1.2%,principally due to price erosion, our customers’ increased use of lower-pricedservices and a marginal depreciation of the average value of the U.S. dollaragainst the euro in 2005 compared to 2004. In U.S. dollars, our North Americanrevenue decreased by 1.1% from $89.0 million in 2004 to $88.1 millionin 2005. Our European revenue increased by 2.7%, mainly as a result of volumeincreases. Price erosion in Europe was less significant than anticipated. OurAsia-Pacific revenues increased by 22.0%; this increase principally representsa higher volume of conferencing minutes sold.

Among our services, wecontinue to experience a shift from our operator-assisted services to our*Genesys Meeting Center* services.The following table sets forth our revenue for 2004 and 2005 by servicecategory and expressed as a percentage of total revenues:

| ** **               | ** ** | **Year ended December 31,** | ** ** |
|--------------------------|------------|--------------------------------------------|------------|
| ** **               | ** ** | **2004**                                   | ** ** | **2005** | ** ** |
| ** **               | ** ** | **in thousands  of **€      | ** ** | **% of  revenue** | ** ** | **in thousands  of **€ | ** ** | **% of  revenue** | ** ** |
| *Genesys Meeting Center* |       |                                       | 104,595    |   |   |   | 75.2 | % |   |   | 110,672 |   |   |   | 78.0 | % |   |
| *Genesys Event Service*  |       |                                       | 29,582     |   |   |   | 21.3 | % |   |   | 27,965 |   |   |   | 19.7 | % |   |
| Other                    |       |                                       | 4,861      |   |   |   | 3.5 | % |   |   | 3,292 |   |   |   | 2.3 | % |   |
| Total revenue            |       |                                       | 139,038    |   |   |   | 100.0 | % |   |   | 141,929 |   |   |   | 100.0 | % |   |

 

Revenuefrom our *Genesys Meeting Center*platform increased by 5.8%, from €104.6 million during2004 to €110.7 millionduring 2005. The reason for the increase is the 34.9% growth in call volumefrom 1,356 million minutes during 2004 to 1,829 million minutes during 2005,partially offset by price erosion. This call volume increase was attributableto the continued migration of customers from our assisted services to *Genesys Meeting Center* services in 2005,as well as increased utilization of these services by our existing customersand new customer gains. As in the past, the effects of this volume increasewere partially offset by price erosion associated with intense competition, inparticular in the context of bidding for major client contracts.

Revenuefrom our *Genesys Event Service*platform (or its predecessor) decreased by 5.5%, from €29.6 millionduring 2004 to €28.0 millionduring 2005, primarily due to the decrease in volume, related in part to thecontinued migration of our customers from this operator-attended service to our*Genesys Meeting Center* platform.Consistent with our business plan to migrate customers to our *Genesys Meeting Center*platform, callvolume minutes decreased by 7.8%, from 152 million in 2004 to 140 millionin 2005.

Other revenue decreased by 32.3% from €4.9 millionin 2004 to €3.3 millionin 2005, principally due to the continuing decrease in volume related to themigration of video conferencing to our other services and price erosion. Videoconferencing volume minutes decreased by 16.7%, from 3.6 million in 2004 to 3.0million in 2005.

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***Gross Profit***

Ourgross profit increased by 7.0%, from €85.9 million in 2004to €91.9 millionin 2005. Expressed as a percentage of revenue, gross profit increased from61.8% in 2004 to 64.8% in 2005.

The following table setsforth our gross profit by segment for 2004 and 2005, both as an absolute amountand as a percentage of segment revenue.

| ** **         | ** ** | **Year ended December 31,** | ** ** |
|--------------------|------------|--------------------------------------------|------------|
| ** **         | ** ** | **2004**                                   | ** ** | **2005** | ** ** |
| ** **         | ** ** | **in thousands  of **€      | ** ** | **% of  revenue** | ** ** | **in thousands  of **€ | ** ** | **% of  revenue** | ** ** |
| North America      |       |                                       | 36,111     |   |   |   | 50.4 | % |   |   | 39,813 |   |   |   | 56.3 | % |   |
| Europe             |       |                                       | 43,632     |   |   |   | 76.1 | % |   |   | 44,499 |   |   |   | 75.6 | % |   |
| Asia-Pacific       |       |                                       | 6,199      |   |   |   | 61.4 | % |   |   | 7,620 |   |   |   | 61.9 | % |   |
| Total gross profit |       |                                       | 85,942     |   |   |   | 61.8 | % |   |   | 91,932 |   |   |   | 64.8 | % |   |

 

Theincrease in gross profit is mainly a result of an increased number of conferencingminutes sold across each of our segments and also reflects the relativelyhigher margins of the Genesys Meeting Center technology platform. In NorthAmerica, the increase in gross profit also reflects renegotiated lower longdistance transport rates taking effect in the second quarter of 2005, areduction of personnel charges in the current year due in part to lowerutilization of part-time employees, and the absence in 2005 of an accrual takenin the third quarter of 2004 for a one-time transport provider expense taken inthe prior year. In Europe, the relatively flat margins reflect price erosionand the trend towards higher volume, lower priced large customers, partiallyoffset by more favorable long distance transport costs, renegotiated separatelyfrom the North American transport contracts.

***Operating Income (Loss) and Operating Expenses***

Our operating incomeincreased by €83.3 million, from an operating loss of €(71.4)million in 2004 to operating income of €11.9 million in 2005. Our2004 operating loss was primarily a result of impairment charges recordedfollowing the application of Statement of Financial Accounting Standards No. 142and Statement of Financial Accounting Standards No. 144, as discussedbelow. On a regular basis, we re-evaluate the carrying value of our long-termassets, which consist primarily of goodwill and other intangible assets. As aresult of this assessment, reflecting the industry environment and continuedprice erosion, we recorded an impairment charge of €75.4 million in 2004and no impairment charge in 2005. The impairment charge recorded in 2004included €53.4 millionrelating to North America goodwill and €22.0 million relatingto the carrying value of North America customer lists, which were identifiedduring the acquisition of Vialog in 2001. Excluding the impact of impairment ofgoodwill and other intangibles, our operating income would have been €4.0 millionin 2004 compared to €11.9million in 2005. The increase in 2005 is largely due to our higher grossprofit, the restructuring charge and the non-recurring items in 2004 describedabove, as well as lower amortization charges due to the impairment charge takenin 2004, partially offset by higher selling and marketing expenses. Thefollowing table breaks down our operating costs and expenses that are notincluded in cost of revenue for 2004 and 2005 by major category.

| ** **                                    | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                    | ** ** | **2004**                                   | ** ** | **2005** | ** ** |
| ** **                                    | ** ** | **in thousands  of **€      | ** ** | **% of  revenue** | ** ** | **in thousands  of **€ | ** ** | **% of  revenue** | ** ** |
| Research and  development                     |       |                                       | 3,750      |   |   |   | 2.7 | % |   |   | 3,219 |   |   |   | 2.2 | % |   |
| Selling and  marketing                        |       |                                       | 35,839     |   |   |   | 25.8 | % |   |   | 40,559 |   |   |   | 28.6 | % |   |
| General and  administrative                   |       |                                       | 34,773     |   |   |   | 25.0 | % |   |   | 32,454 |   |   |   | 22.9 | % |   |
| Restructuring  charge                         |       |                                       | 2,242      |   |   |   | 1.6 | % |   |   | 256 |   |   |   | 0.2 | % |   |
| Impairment of  goodwill and other intangibles |       |                                       | 75,401     |   |   |   | 54.2 | % |   |   | — |   |   |   | — | % |   |
| Amortization of  other intangibles            |       |                                       | 5,382      |   |   |   | 3.9 | % |   |   | 3,580 |   |   |   | 2.5 | % |   |
| Total operating expenses                      |       |                                       | 157,387    |   |   |   | 113.2 | % |   |   | 80,068 |   |   |   | 56.4 | % |   |

 

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*Research and Development*

Research and development expenses in 2005 declined by €0.5million, or 14.2%, as compared to 2004. In 2005, our major research anddevelopment activities were the continued development of enhancements to ourGenesys Meeting Center and Genesys Event Service platforms. The decrease inresearch and development reflects a €1.4 million increasecompared to the prior year in costs qualifying for capitalization related tointernal-use software development projects. These costs represent assets on ourbalance sheet that are generally amortized over a three-year period commencingwhen the internal-use software is ready for use.

*Selling andMarketing*

Selling and marketing expenses increased by €4.7million, or 13.2%, from €35.8 million in 2004, to €40.6million in 2005. As a percentage of total revenue, selling and marketingexpenses increased from 25.8% in 2004 to 28.6% in 2005. The absolute increaseand increase as a percentage of total revenue were planned and come mainly asthe result of our efforts to focus a greater amount of corporate resources onsales and marketing activities, particularly to large enterprises, as well asour efforts to stabilize general and administrative expenses related to backoffice, finance and administrative operating groups.

*General andAdministrative*

General and administrative expenses decreased by €2.3million from €34.8million in 2004, to €32.5million in 2005. As a percentage of total revenue, general and administrativeexpenses decreased from 25.0% in 2004 to 22.9% in 2005. The decrease in generaland administrative expenses as a percentage of total revenue is due to theabsence in 2005 of non-recurring charges that totaled €2.3million in 2004 (in addition to therestructuring charge described in the paragraph below). These 2004 charges wereassociated with €1.2million for relocation packages and separation costs associated with therelocation of senior management to Reston, Virginia, €0.6 million forother separation expenses and €0.5 million for early termination of anoperating lease contract. The 2005 savings associated with theconsolidation of senior management and finance, legal and administrativedepartments in Reston, Virginia were partially offset by fees for arbitrationproceedings associated with Genesys Teleconferencia Iberia SA, a Spanish jointventure in which we purchased our partners’ interests in February 2006following a final award in the arbitration proceedings, and, to a lesserextent, costs related to Sarbanes-Oxley compliance.

*RestructuringCharge*

The restructuring charge of €0.3million in 2005 is primarily due to a reorganization of our former Global Videodivision. The restructuring charge of€2.2 millionin 2004 was associated with the consolidation of our senior management and general and administrative departments in Reston,Virginia (€1.1 million),which were previously located in Denver, Colorado and Montpellier, France, theclosing of the Chanhassen, Minnesota call center (€0.9 million) andseparation and severance costs (€0.2 million).

*Impairment ofGoodwill and Other Intangibles*

On a regular basis, we re-evaluate the carrying valueof our long-lived assets, consisting primarily of goodwill and other intangibleassets. As a result of this assessment, reflecting the 2004 industryenvironment and continued price erosion, we recorded a non-cash reduction of €75.4million in the carrying value of goodwill and other intangible assets in thesecond quarter of 2004. We did not record any impairment charge in 2005. The2004 impairment charge included €53.4 million relating toNorth America goodwill and €22.0 million relating to the carrying valueof North America customer lists, which were identified during the acquisitionof Vialog in 2001. For additional information regarding this impairment chargeand, in particular, regarding the facts and circumstances that led to theimpairment charge, see Note 3 to our consolidated financial statements includedin this annual report.

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*Amortization ofIntangibles*

Amortization of intangibles decreased by 33.5%, from €5.4million in 2004 to €3.6million in 2005. As a percentage of total revenues, amortization of intangiblesdecreased from 3.9% in 2004, to 2.5% in 2005. The decrease is due to thereduced level of intangible assets in 2005 as compared to 2004, resulting fromthe impairment of North America customer lists recorded in the second quarterof 2004.

*Operating Income(Loss) by Segment*

The following table breaksdown our operating income (loss) by segment for each of 2004 and 2005.

| ** **                     | ** ** | **Year ended December 31,**  | ** ** |
|--------------------------------|------------|---------------------------------------------|------------|
| ** **                     | ** ** | **2004**                                    | ** ** | **2005** | ** ** |
| ** **                     | ** ** | **(in thousands of **€) | ** ** |
| North America (1)              |       | (68,697                                     | )          | 10,890 |   |
| Europe                         |       | 23,825                                      |       | 24,424 |   |
| Asia-Pacific                   |       | 1,105                                       |       | 2,831 |   |
| Corporate (2)                  |       | (27,678                                     | )          | (26,281 | ) |
| Total operating income  (loss) |       | (71,445                                     | )          | 11,864 |   |

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(1)             North America includes €75.4 million of impairment of goodwilland other intangible assets in 2004.

(2)             Corporate includes primarily non-operatingcharges and expenses and research and development expenses.

***EBITDA***

Our EBITDA increased from €19.3 million,or 13.9% of revenue in 2004, to €24.0 million, or16.9% of revenue in 2005. For a reconciliation of EBITDA to net income (loss),see “Overview—Earnings Before Interest, Taxes, Depreciation and Amortization(EBITDA)” above.

Thefollowing table sets forth our EBITDA by segment for 2004 and 2005, both as anabsolute amount and as a percentage of segment revenue.

| ** **    | ** ** | **Year ended December 31,** | ** ** |
|---------------|------------|--------------------------------------------|------------|
| ** **    | ** ** | **2004**                                   | ** ** | **2005** | ** ** |
| ** **    | ** ** | **in thousands  of **€      | ** ** | **% of segment  revenue** | ** ** | **in thousands  of **€ | ** ** | **% of segment  revenue** | ** ** |
| North America |       |                                       | 14,741     |   |   |   | 20.6 | % |   |   | 16,943 |   |   |   | 23.9 | % |   |
| Europe        |       |                                       | 26,611     |   |   |   | 46.4 | % |   |   | 26,620 |   |   |   | 45.2 | % |   |
| Asia-Pacific  |       |                                       | 1,471      |   |   |   | 14.6 | % |   |   | 3,172 |   |   |   | 25.8 | % |   |
| Corporate     |       |                                       | (23,516    | ) |   |   | n.s. |   |   |   | (22,686 | ) |   |   | n.s. |   |   |
| Total         |       |                                       | 19,307     |   |   |   | 13.9 | % |   |   | 24,049 |   |   |   | 16.9 | % |   |

 

Our EBITDA marginincreased mainly due to charges associated with our restructuring andcentralization that were recorded in 2004 (attributable mainly to North Americaand Corporate). The centralization of senior management and finance, legal andadministrative departments in Reston, Virginia, completed in the second half of2004, has begun to generate savings that have a favorable impact on our 2005EBITDA. In addition, our higher EBITDA margin related to the continued shiftfrom operator-attended services (*Genesys Event Service*)to higher margin automated services (*Genesys Meeting Center*)as well as a reduction in long distance transport due to renegotiated lowerrates. The positive influences on EBITDA were partially offset by increasedinvestment in sales and marketing, as described above.

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***Financial Income(Expense)***

Net financial expenseincreased 19.0%, from €7.0 million in 2004to €8.3 millionin 2005. The increase of €1.3 million is mainly due to an increasein the effective interest rate of Genesys’ debt denominated in U.S. dollars,which was partially offset by the volatility of the U.S. dollar against theeuro. Additionally, we recorded an expense of €1.1 million in 2005 foramendment and waiver fees related to certain financial covenants as required byour principal credit facility. See “—Liquidity and Capital Resources” below foradditional information.

***Income Tax***

We recorded a €0.3million benefit for income taxes in 2005, compared to €2.6million of expense in 2004. The income tax benefit in 2005 includes €2.0million of deferred tax credits partially offset by €1.7 million in current taxprovisions. The €2.6million of expense in 2004 corresponds primarily to the reduction of certaindeferred tax liabilities as a result of the €22.0 million impairmentcharge taken in the second quarter of 2004 against the North American customerlists, partially offset by an income tax provision of €2.5million in 2004.

***Net Income (Loss)***

For the foregoing reasons,we recorded net income of €3.9 million in 2005,compared to a net loss of €80.9 million in 2004. This differencereflects mainly amortization, impairment of intangibles and goodwill andreversal of deferred tax liabilities associated with amortization andimpairment, without which net income would have amounted to €5.4million in 2005, compared to a net loss of €0.2 million in 2004. Thisincrease mainly reflects the €5.8 million increase ingross profit in 2005 compared to 2004, as described above.

**Year ended December 31,2004 compared with year ended December 31, 2003**

***Revenue***

Total revenue decreased 12.8% from €159.5 millionin 2003 to €139.0 million in 2004. The principal reason for the decline in our revenuewas the 9.0% decline in the value of the U.S. dollar against the euro in 2004.Based on 2003 exchange rates, our euro revenue in 2004 would have been 4.0%below our euro revenue in 2003. This decline was also due to the net impact ofthe continued and expected shift in our product mix from operator-attendedservices to our lower-priced, automated services and the declining priceof our products, partially offset by an increase in conferencing minutes sold.

Operationally, we realized significant volumeincreases. Our call volume minutes increased from 1,312 million in 2003,to 1,512 million in 2004. Automated services represented 89.9% of totalcall volumes in 2004, compared to 83.4% in 2003.

Thefollowing table breaks down our revenue by segments (excluding intercompanysales) for each of 2003 and 2004 in euros and expressed as a percentage oftotal revenue:

| ** **     | ** ** | **Year ended December 31,** | ** ** |
|----------------|------------|--------------------------------------------|------------|
| ** **     | ** ** | **2003**                                   | ** ** | **2004** | ** ** |
| ** **     | ** ** | **in thousands  of **€      | ** ** | **% of  revenue** | ** ** | **in thousands  of **€ | ** ** | **% of  revenue** | ** ** |
| North America  |       |                                       | 92,943     |   |   |   | 58.3 | % |   |   | 71,613 |   |   |   | 51.5 | % |   |
| Europe         |       |                                       | 58,289     |   |   |   | 36.5 | % |   |   | 57,329 |   |   |   | 41.2 | % |   |
| Asia-Pacific   |       |                                       | 8,268      |   |   |   | 5.2 | % |   |   | 10,096 |   |   |   | 7.3 | % |   |
| Total revenues |       |                                       | 159,500    |   |   |   | 100.0 | % |   |   | 139,038 |   |   |   | 100.0 | % |   |

 

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In North America, our revenue decreased 23.0%,principally due to price erosion, our customers’ increased use of lower-pricedservices and the 9.7% depreciation of the value of the U.S. dollar against theeuro. In U.S. dollars, our North American revenue decreased by 15.0% from $101.5 millionin 2003 to $86.3 million in 2004. Our European revenue decreased by 1.6%primarily as a result of price erosion. Our Asia-Pacific revenue increased by27.3%; this increase is mainly explained by higher volume.

Amongour services, we continue to experience a shift from our operator-assistedservices to our *Genesys Meeting Center*services. The following table sets forth our revenue for 2003 and 2004 bycategory and expressed as a percentage of total revenue.

| ** **                    | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------|------------|--------------------------------------------|------------|
| ** **                    | ** ** | **2003**                                   | ** ** | **2004** | ** ** |
| ** **                    | ** ** | **in thousands  of **€      | ** ** | **% of  revenue** | ** ** | **in thousands  of **€ | ** ** | **% of  revenue** | ** ** |
| *Genesys  Meeting Centers*    |       |                                       | 108,272    |   |   |   | 67.8 | % |   |   | 104,595 |   |   |   | 75.2 | % |   |
| *Genesys  Event Service**(1)* |       |                                       | 44,579     |   |   |   | 28.0 | % |   |   | 29,582 |   |   |   | 21.3 | % |   |
| Other                         |       |                                       | 6,649      |   |   |   | 4.2 | % |   |   | 4,861 |   |   |   | 3.5 | % |   |
| Total revenue                 |       |                                       | 159,500    |   |   |   | 100.0 | % |   |   | 139,038 |   |   |   | 100.0 | % |   |

----

(1)             For the period from January 2003 to September 2003,revenues set forth under the heading Genesys Event Service relate to GenesysEvents and Managed Services. See “Overview—Key Factors Affecting Results ofOperations—Revenue” above.

Revenue from our *GenesysMeeting Center* platform decreased by 3.4%, from €108.3 millionduring 2003 to €104.6 millionduring 2004. The main reason for the decrease is the depreciation of the valueof the U.S. dollar against the euro. Based on 2003 exchange rates, our *Genesys Meeting Center* revenues in euroswould have increased by 6.4% in 2004 compared to 2003. Call volume minutesincreased, from 1,094 million in 2003 to 1,356 million in 2004. Thiscall volume increase was mainly attributable to the continued migration ofcustomers from our assisted services to *GenesysMeeting Center* services in 2004, as well as increased utilization ofthese services by our existing customers. As in the past, the effects of this volumeincrease were partially offset by price erosion associated with intensecompetition, in particular in the context of bidding for major clientcontracts.

Revenue from our *GenesysEvent Service* platform (or its predecessor) decreased by 33.6%, from€44.6 millionduring 2003 to €29.6 millionduring 2004, primarily due to the decrease in volume, related in part to thecontinued migration of our customers to our automated service, as well as thedepreciation of the value of the U.S. dollar against the euro during thisperiod. Based on 2003 exchange rates, our *GenesysEvent Service* revenues in euros would have decreased by 26.6% in2004 compared to 2003. Call volume minutes also decreased by 30.0%, from213 million in 2003 to 152 million in 2004.

Otherrevenue decreased by 26.9% from €6.6 million in 2003to €4.9 millionin 2004, principally due to the continuing decrease in volume related to themigration to other services, accentuated by the depreciation of the value ofthe U.S. dollar against the euro and price erosion. Based on 2003 exchangerates, Other revenue in euroswould have decreased by 19.7% in 2004 compared to 2003. Conferencing volumeminutes decreased, from 3.9 million in 2003 to 3.6 million in 2004.

***Gross Profit***

Our gross profit decreased by 16.0%, from €102.4 millionin 2003 to €85.9 millionin 2004. This decrease is principally due to price erosion and, to a lesserextent, depreciation of the value of the U.S. dollar against the euro. As apercentage of our revenue, gross profit decreased from 64.2% in 2003 to 61.8%in 2004. The gains in gross margin from the migration to higher-marginautomated services were offset by price erosion due to competitive pressures.

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Thefollowing table sets forth our gross profit by segment for 2003 and 2004, bothas an absolute amount and as a percentage of segment revenue.

| ** **         | ** ** | **Year ended December 31,** | ** ** |
|--------------------|------------|--------------------------------------------|------------|
| ** **         | ** ** | **2003**                                   | ** ** | **2004** | ** ** |
| ** **         | ** ** | **in thousands  of **€      | ** ** | **% of  revenue** | ** ** | **in thousands  of **€ | ** ** | **% of  revenue** | ** ** |
| North America      |       |                                       | 52,312     |   |   |   | 56.3 | % |   |   | 36,111 |   |   |   | 50.4 | % |   |
| Europe             |       |                                       | 45,116     |   |   |   | 77.4 | % |   |   | 43,632 |   |   |   | 76.1 | % |   |
| Asia-Pacific       |       |                                       | 4,929      |   |   |   | 59.6 | % |   |   | 6,199 |   |   |   | 61.4 | % |   |
| Total gross profit |       |                                       | 102,357    |   |   |   | 64.2 | % |   |   | 85,942 |   |   |   | 61.8 | % |   |

 

The 6.5% decrease in ourgross profit, expressed as a percentage of revenue, in North America resultedprincipally from price erosion that was only partially offset by the migrationto higher-margin automated services. In Europe, price erosion alsoexplains the decrease of 1.7% in gross profit expressed as a percentage ofrevenue. The improvement of 1.7% in our gross margin expressed as a percentageof revenue in Asia-Pacific was due primarily to an increase in volumes,particularly higher-margin automated services.

***Operating Loss andOperating Expenses***

Ouroperating loss increased from €15.7 million in 2003to €71.4 million in 2004. The magnitude of our 2003 and 2004 operating losseswas primarily a result of impairment charges recorded following the applicationof Statement of Financial Accounting Standards No. 142 and Statement ofFinancial Accounting Standards No. 144, as discussed below. As a result ofan evaluation of our long-term assets, we recorded impairment charges of €28.1 millionand €75.4 millionin 2003 and 2004, respectively. In 2003, this impairment charge included €3.1 millionrelating to North America goodwill and €24.9 million relatingto the carrying value of North America customer lists, which were identifiedduring the acquisition of Vialog in 2001. The impairment charges recorded in2004 are detailed above. Excluding the impact of impairment of goodwill andother intangibles, our operating income would have been €12.3 million and €4.0 million in 2003 and 2004,respectively. The decrease in 2004 is partly due to the restructuring chargeand non-recurring items described above. The following table breaks down ouroperating costs and expenses that are not included in cost of revenue for 2003and 2004 by major category.

| ** **                                    | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                    | ** ** | **2003**                                   | ** ** | **2004** | ** ** |
| ** **                                    | ** ** | **in thousands  of **€      | ** ** | **% of  revenue** | ** ** | **in thousands  of **€ | ** ** | **% of  revenue** | ** ** |
| Research and  development                     |       |                                       | 4,183      |   |   |   | 2.6 | % |   |   | 3,750 |   |   |   | 2.7 | % |   |
| Selling and  marketing                        |       |                                       | 37,394     |   |   |   | 23.4 | % |   |   | 35,839 |   |   |   | 25.8 | % |   |
| General and  administrative                   |       |                                       | 37,729     |   |   |   | 23.7 | % |   |   | 34,773 |   |   |   | 25.0 | % |   |
| Restructuring  charge                         |       |                                       | 1,115      |   |   |   | 0.7 | % |   |   | 2,242 |   |   |   | 1.6 | % |   |
| Impairment of  goodwill and other intangibles |       |                                       | 28,057     |   |   |   | 17.6 | % |   |   | 75,401 |   |   |   | 54.2 | % |   |
| Amortization of  other intangibles            |       |                                       | 9,595      |   |   |   | 6.0 | % |   |   | 5,382 |   |   |   | 3.9 | % |   |
| Total operating expenses                      |       |                                       | 118,073    |   |   |   | 74.0 | % |   |   | 157,387 |   |   |   | 113.2 | % |   |

 

*R*esearch and Development

Our research anddevelopment expenses decreased, from €4.2 million in 2003to €3.8 millionin 2004. As a percentage of our total revenue, research and developmentexpenses increased slightly from 2.6% in 2003 to 2.7% in 2004. In 2004, ourmajor research and development activities were the continued development ofenhancements of our *Genesys Meeting Center*and *Genesys Event Service*platforms.

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*Selling*and Marketing

Our selling and marketing expenses decreased by €1.6 million,or 4.2%, from €37.4 millionin 2003 to €35.8 millionin 2004. The decrease in our selling and marketing expenses is principally aresult of the favorable effects of the depreciation of the value of the U.S.dollar against the euro. Expressed as a percentage of our total revenue, ourselling and marketing expenses increased from 23.4% in 2003 to 25.8% in 2004.The increase as a percentage of total revenue is mainly due to price erosion,which has had a negative impact on our revenue, and expenses associated with anew outsourcing relationship aimed at maintaining and growing the smallbusiness segment of our customer list. Selling and marketing efforts remainfocused on further penetrating the market, particularly to large enterprises,and increasing global brand awareness.

*General*and Administrative

Our general and administrative expenses decreased by €2.9 million,or 7.8%, from €37.7 millionin 2003 to €34.8 millionin 2004. The decrease in our general and administrative expenses is principallythe result of the favorable effects of the depreciation of the value of theU.S. dollar against the euro. Expressed as a percentage of total revenue, ourgeneral and administrative expenses increased from 23.7% in 2003 to 25.0% in2004. The increase as a percentage of total revenue is mainly due to lowerrevenues and non-recurring expenses in 2004. Excluding the non-recurring items,our general and administrative expenses would have amounted to €32.5 million,or 23.3% of revenues in 2004.

*Restructuring*Charge

The restructuring charge of €2.2 millionin 2004 is associated with the consolidation of our senior management andgeneral and administrative departments in Reston, Virginia (€1.1 million),which were previously located in Denver, Colorado and Montpellier, France, theclosing of the Chanhassen, Minnesota call center (€0.9 million) andseparation and severance costs (€0.2 million). In2003, we recorded a restructuring charge of €1.1 million,associated with separation costs for certain managers in North America (€0.6 million) and the closing of the Chanhassen, Minnesota call center (€0.5 million).

*Impairment*of Goodwill and Other Intangibles

In 2004, we recorded an impairment charge of €75.4 million,including €53.4 millionrelating to North America goodwill and €22.0 million relatingto the carrying value of North America customer lists, which were identifiedduring the acquisition of Vialog in 2001. In 2003, we recorded an impairmentcharge of €28.0 millionrelating primarily to the carrying value of customer lists, which wereintangible assets identified during the acquisition of Vialog. For additionalinformation regarding this impairment charge and, in particular, regarding the factsand circumstances that led to the impairment charge, see Note 3 to ourconsolidated financial statements included in this annual report.

*Amortization*of Intangibles

Amortizationof intangibles decreased 43.9% from €9.6 million in 2003to €5.4 millionin 2004. The decrease of amortization expenses in 2004 is mainly the result ofthe reduction in the intangibles amortization base following impairment chargesrecorded at October 1, 2003 and June 30, 2004.

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*Operating Loss bySegment*

The following table breaksdown our operating loss by segment for each of 2003 and 2004.

| ** **           | ** ** | **Year ended December 31,**  | ** ** |
|----------------------|------------|---------------------------------------------|------------|
| ** **           | ** ** | **2003**                                    | ** ** | **2004** | ** ** |
| ** **           | ** ** | **(in thousands of **€) | ** ** |
| North America (1)    |       | (12,298                                     | )          | (68,697 | ) |
| Europe               |       | 21,658                                      |       | 23,825 |   |
| Asia-Pacific         |       | 1,004                                       |       | 1,105 |   |
| Corporate (2)        |       | (26,080                                     | )          | (27,678 | ) |
| Total operating loss |       | (15,716                                     | )          | (71,445 | ) |

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(1)             North America includes €28.0 million and €75.4 million of impairment ofgoodwill and other intangible assets in 2003 and 2004, respectively.

(2)             Corporate includes primarily non-operatingcharges and expenses and research and development expenses.

***EBITDA***

Our EBITDA decreased from €32.8 million,or 20.6% of revenue in 2003, to €19.3 million, or13.9% of revenue in 2004. For a reconciliation of EBITDA to net loss, see “Overview—EarningsBefore Interest, Taxes, Depreciation and Amortization (EBITDA)” above.

Thefollowing table sets forth our EBITDA by segment for 2003 and 2004, both as anabsolute amount and as a percentage of segment revenues.

| ** **    | ** ** | **Year ended December 31,** | ** ** |
|---------------|------------|--------------------------------------------|------------|
| ** **    | ** ** | **2003**                                   | ** ** | **2004** | ** ** |
| ** **    | ** ** | **in thousands  of **€      | ** ** | **% of segment  revenue** | ** ** | **in thousands  of **€ | ** ** | **% of segment  revenue** | ** ** |
| North America |       |                                       | 28,468     |   |   |   | 30.6 | % |   |   | 14,741 |   |   |   | 20.6 | % |   |
| Europe        |       |                                       | 24,157     |   |   |   | 41.4 | % |   |   | 26,539 |   |   |   | 46.3 | % |   |
| Asia-Pacific  |       |                                       | 1,375      |   |   |   | 16.6 | % |   |   | 1,471 |   |   |   | 14.6 | % |   |
| Corporate     |       |                                       | (21,197    | ) |   |   | n.s. |   |   |   | (23,444 | ) |   |   | n.s. |   |   |
| Total         |       |                                       | 32,803     |   |   |   | 20.6 | % |   |   | 19,307 |   |   |   | 13.9 | % |   |

 

Our EBITDA margindecreased, mainly due to the depreciation of the value of the U.S. dollaragainst the euro, price erosion and charges associated with our restructuringand centralization that were recorded in 2004 (attributable mainly to NorthAmerica and Corporate). The centralization of senior management and finance,legal and administrative departments in Reston, Virginia, completed in thesecond half of 2004, has begun to generate savings that we expect will have afavorable impact on our EBITDA.

***Financial Income (Expense)***

Net financial expenseincreased 55.4% from €4.5 million in 2003to €7.0 millionin 2004. The increase of €2.5 million is mainly due to a foreignexchange loss of €1.6 millionin 2004 (which compared with a foreign exchange gain of €3.7 millionin 2003). This foreign exchange difference was partially offset by the decreasein our interest expense resulting from both the decline in the U.S. dollar (asour obligations under our principal credit agreement are denominated in U.S.dollars) and repayments of U.S. $16.9 million of principal of our U.S.$125 million credit facility.

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***Income Tax***

We recorded €2.6 millionof expense for income taxes in 2004 compared to €1.3 million in 2003. Werecorded income tax provisions of €2.5 million and €2.5million in 2003 and 2004, respectively. The 2003 income tax provision was partiallyoffset by a €1.2million deferred tax credit related to an adjustment to the valuation allowancerecorded against our net deferred tax assets. 

***Net Loss***

For the foregoing reasons,we recorded a net loss of €80.9 million in 2004compared to a net loss of €21.5 million in 2003. Our net loss pershare was €4.41in 2004, compared to €1.29 in 2003, reflecting our increased netloss. Excluding the charges for impairment and amortization of goodwill andother intangible assets, we would have recorded a net loss of €0.1 millionin 2004, compared to net income of €16.2 million in 2003.

**Liquidity and Capital Resources**

***General***

Our liquidity requirementsare driven primarily by our working capital requirements, capital expendituresfor telecommunications and bridging equipment and, to a lesser extent, servers,computers and software, and debt service requirements. To date, we have fundedour liquidity requirements through a combination of equity offerings,borrowings (including bank financings and convertible debt issuances), andoperating cash flow. At December 31, 2005, our principal sources ofliquidity included €4.1 million in net cash(cash and cash equivalents, including restricted cash and net of bankoverdrafts). Under the terms of our U.S. $125 million credit facility,additional indebtedness is limited, which may limit our ability to borrow underour short-term credit facilities. This U.S. $125 million facility, which isdescribed in more detail below, was amended on April 30, 2003, August 6,2004, and December 15, 2005, to reschedule repayments, adjust ourfinancial covenants and, most recently, to increase the revolving loan portionof the credit facility. On September 30, 2005, we obtained prospectivewaivers from our bank lenders for any financial covenant defaults from September 30,2005 through September 30, 2006. On December 15, 2005, thisprospective waiver was extended to cover the period ending December 31,2006.

On February 22, 2006,we completed a planned recapitalization that included the amendment andrestatement of our U.S. $125 million credit facility, a U.S. $65 million equityoffering and certain other transactions relating to our shares. The equityoffering was implemented through the distribution to our shareholders, free ofcharge, of warrants to subscribe to new shares. Shareholders were able to exercisetheir warrants until February 15, 2006, and ADS holders were able toexercise their warrants until February 13, 2006. The warrants exerciseperiod was followed by a private placement to institutional investors outsidethe United States. 51,490,530 new shares were issued as a result of theoffering, representing gross proceeds of $65 million.

The proceeds of theoffering were used primarily to prepay amounts outstanding under our U.S. $125million credit facility, which was amended on January 27, 2006. As aresult, on March 2, 2006, the amount outstanding under our credit facilitywas reduced to approximately U.S. $38 million (approximately  €32million).

We believe that ourcapital resources are sufficient to meet our current working capital and othercash needs for at least the next twelve months.

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***Cash Flows***

Cash and cash equivalentsdecreased from €7.4 million at theend of December 2004 to €5.8 million at theend of December 2005.

We generated cash of €16.2 millionin operating activities in 2005, compared to €11.5 million in 2004.The increase of €4.7million resulted mainly from higher gross profit and EBITDA related to thecontinued shift from operator-attended services (*GenesysEvent Service*) to higher margin automated services (*Genesys Meeting Center*) as well as a reduction in longdistance transport due to renegotiated lower rates. EBITDA increased by €4.7million, from €19.3million in 2004 to €24.0million in 2005.

We used cash of €6.3 millionin investing activities in 2005, compared to €3.9 million in 2004. Ourcapital expenditures as a percentage of revenue were 5.9%, 2.8% and 4.5% ofrevenues in 2003, 2004 and 2005, respectively. Our increased capitalexpenditures in 2005 compared to 2004 reflect the purchase of additionalbridging equipment and servers related to increased volumes as well as plannedinvestment in our *Genesys Meeting Center* platform,VoIP technology and back office systems. Our capital expenditures as apercentage of revenue were also lower in 2004 because accelerated capitalexpenditures of €3.5 millionwere made at the close of 2003 in order to benefit from reduced prices offeredby our providers. We expect to continue our capital investments in research anddevelopment, in particular in connection with the commercial introduction of VoIPfunctionality. We anticipate that capital expenditures in 2006 will incorporatea greater proportion of spending on IP-related network equipment.

We used cash of €12.5 millionin financing activities in 2005, reflecting primarily the payment of €13.0 millionof principal on our debt, including mainly U.S. $12.0 million, or €9.7 million,under our U.S. $125 million credit facility. We also repurchased allof our remaining outstanding convertible notes for an amount of €3.2million. These payments were partially offset by a €0.8 million cash inflowfrom our receivables factoring program (see Note 6 to the consolidatedfinancial statements included in this annual report for further detailsregarding our receivables factoring program).

***Contractual Obligations and Commercial Commitments***

As of December 31,2005, the repayment schedule for all of our contractual obligations andcommercial commitments is as follows:

| ** **                                        | ** ** | **Payments due by period**   | ** ** |
|---------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                        | ** ** | **2006**                                    | ** ** | **2007-  2008** | ** ** | **2009-  2010** | ** ** | **2011 and  thereafter** | ** ** | **Total** | ** ** |
| ** **                                        | ** ** | **(in thousands of **€) | ** ** |
| Term loans,  variable rate                        |       | 13,563                                      |       | 52,598 |   | — |   |   | — |   |   | 66,161 |   |
| Revolving loans,  variable rate                   |       | —                                      |       | 8,477 |   | — |   |   | — |   |   | 8,477 |   |
| Interest free  loan from ANVAR                    |       | 70                                          |       | — |   | — |   |   | — |   |   | 70 |   |
| Capital lease  obligations                        |       | 4                                           |       | 39 |   | — |   |   | — |   |   | 43 |   |
| Total long-term  debt, excluding accrued interest |       | 13,637                                      |       | 61,114 |   | — |   |   | — |   |   | 74,751 |   |
| Operating leases                                  |       | 4,237                                       |       | 5,166 |   | 2,577 |   |   | 736 |   |   | 12,716 |   |
| Other long-term  liabilities(1)                   |       | 627                                         |       | 340 |   | — |   |   | 358 |   |   | 1,325 |   |
| Total contractual cash  obligations               |       | 17,807                                      |       | 64,620 |   | 2,577 |   |   | 1,094 |   |   | 88,792 |   |

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(1)             Other long-term liabilities includeprimarily accrued restructuring expenses associated with consolidation of callcenters.

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***Pro Forma Contractual Obligations and CommercialCommitments (Unaudited)***

As described above, we successfully completed anequity offering and recapitalization in the first quarter of 2006. We usedapproximately $50 million of the proceeds of the offering to repay asignificant portion of our long-term debt. The following table presents ourcontractual obligations and commercial commitments on a pro forma basis,reflecting this debt repayment and amended repayment schedule on the December 31,2005 balances:

| ** **                                        | ** ** | **Pro forma payments due by period  (unaudited)** | ** ** |
|---------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| ** **                                        | ** ** | **2006**                                                                   | ** ** | **2007-  2008** | ** ** | **2009-  2010** | ** ** | **2011 and  thereafter** | ** ** | **Total** | ** ** |
| ** **                                        | ** ** | **(in thousands of **€)                                | ** ** |
| Term loans,  variable rate                        |       | 1,026                                                                      |       | 26,990 |   | — |   |   | — |   |   | 28,016 |   |
| Revolving loans,  variable rate                   |       | —                                                                     |       | 4,238 |   | — |   |   | — |   |   | 4,238 |   |
| Interest free  loan from ANVAR                    |       | 70                                                                         |       | — |   | — |   |   | — |   |   | 70 |   |
| Capital lease  obligations                        |       | 4                                                                          |       | 39 |   | — |   |   | — |   |   | 43 |   |
| Total long-term  debt, excluding accrued interest |       | 1,100                                                                      |       | 31,267 |   | — |   |   | — |   |   | 32,367 |   |
| Operating leases                                  |       | 4,237                                                                      |       | 5,166 |   | 2,577 |   |   | 736 |   |   | 12,716 |   |
| Other long term  liabilities(1)                   |       | 627                                                                        |       | 340 |   | — |   |   | 358 |   |   | 1,325 |   |
| Total contractual cash obligations           |       | 5,964                                                                      |       | 36,773 |   | 2,577 |   |   | 1,094 |   |   | 46,408 |   |

 

***BankFinancing Amendments and Recapitalization***

*U.S. $125 Million Credit Facility*

On April 20, 2001, weand Vialog entered into a U.S. $125 million credit facility agreement withBNP Paribas, CIBC World Markets and Fortis Bank. This credit facility, whichwas amended thereafter, replaced our then outstanding U.S. $35 millionmulti-currency term loan and the long-term debt of Vialog (U.S.$75 million senior notes payable) that existed prior to our acquisition ofVialog. Prior to the signature of certain amendments on April 30, 2003, August 6,2004, December 15, 2005, and January 27, 2006, the U.S.$125 million credit facility included the following terms:

·       A U.S. $50 millionsenior term loan facility granted to Vialog, which was used by Vialog torefinance its existing debt. This facility initially matured on April 28,2006 and bears interest at the rate of Libor USD plus a margin of 2.65% perannum.

·       A U.S. $30 millionsenior term loan facility granted to Vialog, which was used by Vialog torefinance its existing debt. This facility initially matured onOctober 31, 2006 and bears interest at the rate of Libor USD plus a marginof 3.15% per annum.

·       A U.S. $35 millionsenior term loan facility granted to our company, which we used to partiallyrefinance our existing debt. This facility initially matured on April 28,2006 and bears interest at the rate of Libor USD plus a margin of 2.65% perannum.

·       A U.S. $5 millionrevolving loan facility granted to Vialog, to be used by Vialog for workingcapital purposes. This facility bears interest at the rate of Libor USD plus amargin of 2.65% per annum.

·       A U.S. $5 millionrevolving loan facility granted to our company, which we use for workingcapital purposes. This facility bears interest at the rate of Libor USD plus amargin of 2.65% per annum.

OnApril 11, 2003 and August 6, 2004, we signed two separate amendmentsto our U.S. $ 125 million credit facility. Both of these amendments providedfor the rescheduling of principal repayments and adjustments to our financial covenants.

Prior to the amendments,the U.S. $50 million and U.S. $35 million term loans granted toVialog and our company, respectively, were to be repaid in semi-annual installmentsin accordance with the schedule 

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set forth in the credit facility agreement. The U.S.$30 million facility was to be repaid in one payment at maturity.

On December 15,2005, we signed an amendment to the April 2001 U.S. $125 million creditfacility with our lenders. As part of the amendment, the prospective waiversfrom our bank lenders were extended for any financial covenant defaults from September 30,2005 through December 31, 2006. Also under this amendment, the Company’slenders have agreed to increase the variable rate revolving loan portion of thecredit facility by U.S. $6 million. This increase in the credit facility wasintended to finance working capital needs and certain payments in connectionwith the arbitration proceedings with respect to Genesys Teleconferencia IberiaS.A.

On January 27,2006, our principal credit facility was amended as part of a financialrecapitalization. This amendment became effective upon the closing of ourissuance of new shares and the satisfaction of certain conditions. Theamendment requires us to use commercially reasonable efforts to refinance thecredit facility; however, we are not required to enter into a refinancingarrangement if it would provide for interest terms at an average rate greaterthan LIBOR + 4% per annum, or that contains other commercially unreasonableterms. The Company is also not required to refinance with one of the Company’s existinglenders. If we fail to refinance the credit facility in full by October 31,2006, we will pay interest at 1.0% per annum above the rate we currently payfrom November 1, 2006 to April 30, 2007, at 2.0% per annum above therate we currently pay from May 1, 2007 to October 31, 2007, at 3.0%per annum above the rate we currently pay from November 1, 2007 to April 30,2008, and at 4.0% per annum above the rate we currently pay from May 1,2008 to October 31, 2008.

Underthe credit facility, if we fail to meet certain of the covenants imposed by thecredit facility, we will be required to undertake one of several transactions(described below), failing which our debt would be in default and subject toacceleration by our creditors.

Underthe amendment, the principal payment schedule has been amended.

| ** ** | ** ** | **Repayments according to  August 6, 2004 amendment** | ** ** | **Repayments according to  January 27, 2006 amendment** | ** ** | **Difference of  repayments** | ** ** |
|------------|------------|--------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** ** | ** ** | **(in millions of U.S. dollars)**                          | ** ** |
| 2006       |       |                                                                           | $          | 16.0                                                                             |       |                               |       | $ | 1.2 |   |   |   | $ | (14.8 | ) |   |
| 2007       |       |                                                                           | $          | 22.3                                                                             |       |                               |       | $ | 11.9 |   |   |   | $ | (10.4 | ) |   |
| 2008       |       |                                                                           | $          | 49.8                                                                             |       |                               |       | $ | 25.0 |   |   |   | $ | (24.8 | ) |   |
| Total      |       |                                                                           | $          | 88.1                                                                             |       |                               |       | $ | 38.1 |   |   |   | $ | (50.0 | ) |   |

 

Under the amendment, interest will continue to be paidaccording to the original schedule (*i.e.*,semi-annually on April 30 and October 31). We have also agreed toprepay certain amounts of the debt if our excess cash flows exceed certainlevels.

The 2006 Amendment adjusts the level of our existingfinancial covenants and deletes the financial covenants that previouslyrequired us to maintain a minimum level of EBITDA as defined, and prohibited usfrom incurring capital expenditures in excess of certain levels. The financialcovenants in the 2006 Amendment establish threshold levels at which we would beable to implement certain transactions before our bank lenders could declare usin default under the credit agreement. However, if we fall below certain baselevels, our lenders could declare us in default.

The amended thresholdfinancial covenants are as follows:

·       wemust maintain a cash cover ratio (consolidated cash flow over consolidated debtservice) at or above specified levelsvarying from 0.82 to 3.25 for each quarter ending from March 31, 2006 to September 30,2008;

·       wemust maintain an interest cover ratio (consolidated EBITDA over consolidatednet interest expense) of no less than 4.12 as at March 31, 2006,increasing progressively to 17.71 as at September 30, 2008; and

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·       wemust maintain a leverage ratio (outstanding consolidated net indebtedness overconsolidated EBITDA) for each quarter of no more than 1.68 as at March 31,2006, decreasing progressively to 0.04 as at September 30, 2008.

Should we fail to meet oneof these covenants, we may be required to pursue one of the followingtransactions or, if we fail to do so, be declared in default:

·       acapital increase in an amount of not less than €20 million;

·       anew loan of an amount sufficient to repay the sums outstanding under the creditfacility;

·       abond issuance in an amount sufficient to repay the sums outstanding under thecredit facility;

·       theexecution of a merger agreement or sale and purchase agreement, or thelaunching of a tender offer; or

·       anothertransaction that is ratified by our board of directors and accepted by ourlenders.

If we are unable to effect one of these transactions,our lenders will have the right to require immediate repayment in full of ouroutstanding indebtedness. It is likely that we would be unable to make such arepayment.

In addition to thethreshold financial covenants described above, we must respect the followingbase financial covenants:

·       wemust maintain a cash cover ratio at or above certain levels varying from 0.69to 2.74;

·       wemust maintain an interest cover ratio of no less than 3.47 as at March 31,2006, increasing progressively to 14.91 in 2008; and

·       wemust maintain a leverage ratio of no more than 1.92 as at March 31, 2006,decreasing progressively to 0.04 in 2008.

Compliance with the ratios listed above is testedquarterly, at the end of each quarter through September 30, 2008. Allratios are tested under U.S. GAAP.

In addition the 2006 Amendment prohibits our paymentof dividends. We have pledged as security for our credit facility the shares ofour principal subsidiaries, as well as the cash and equivalents and accountsreceivable of our principal U.S. subsidiary. If our financial results do notreach the levels required by our debt covenants and we are unable to obtain awaiver from our lenders, our debt would be in default and subject toacceleration by our lenders.

Underthe credit facility, if we fail to meet certain of the covenants imposed by thecredit facility, we will be required to undertake one of several extraordinarytransactions (described below), failing which our debt would be in default andsubject to acceleration by our creditors.

On February 22, 2006, we completed a financialrecapitalization that included a U.S. $65 million share offering (the “ShareOffering”), the proceeds of which were used to repay more than half of thetotal debt. The Share Offering was made to the Company’s existing shareholders,who received warrants granting the right to subscribe for new shares. As aresult of the Share Offering, 51,490,530 new shares were issued. Through thisrepayment, we have reduced the debt outstanding under our credit facility toapproximately $38.1 million (approximately €32.4 million).

***Rights Offering Completed in 2003***

In August 2003, we raised €6.2 millionin cash, inclusive of the issuance premium, in an equity rights offering, withpreferential subscription rights. We agreed to use the proceeds of the rightsoffering, which were deposited in an escrow account, to repay the principal of,or repurchase, our 3% Convertible Bonds due 2004 and 2005.

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***3% Convertible Bonds***

On August 6, 1999, we issued 1,524,390 3%convertible notes, each with a principal amount of €18.37,for €16.40each. Each note was originally convertible into one share of our common stock,and unless converted, was originally due September 1, 2004. 476,323 noteswere not converted into common stock and have been subsequently repurchased, asdescribed below.

On May 26, 2003, at our request, the bondholdersof the 3% convertible bonds due in 2004 approved the rescheduling of 50% of theprincipal repayment (all of which was previously due September 1, 2004).In February 2004, we repurchased 125,330 convertible notes (with aprincipal amount of €2.3 million) for anamount of €2.2 million,utilizing the escrow account created after the rights offering completed in2003. We repaid 50% of the principal of the outstanding bonds on September 1,2004 and the remaining 50% of the outstanding principal (€3.2million) on October 31, 2005.

***OtherCommitments***

We lease our facilities and some of our equipmentunder long-term operating leases. As of December 31, 2005, our aggregateminimum payments due under non-cancelable operating leases are €4.2 millionin 2006, €2.9 millionin 2007, €2.3 millionin 2008, €1.8 millionin 2009, €0.8 millionin 2010, and €0.7 millionthereafter, for a total of €12.7 million. We also have obligationsunder capital leases that total less than €0.1 million,excluding the interest portion.

On December 11, 2003, we entered into a newfinancial instrument named CAP 6 months 3.00% Knock Out (KO) 5.00% to hedge ourexposure on our outstanding debt denominated in U.S. dollars for the periodbetween May 1, 2004 and October 30, 2008. This new financialinstrument replaced the interest rate swap financial instrument that expired onApril 30, 2004. The full cost of U.S. $354 thousand for this financialinstrument was paid in 2003.

The fair value adjustment of the Knock-Out CAP as aresult of changes in market interest rates is recognized as other financialincome (expenses), as we are not able to apply the special hedge accountingtreatment prescribed under SFAS 133. The fair value adjustment amounted to €568thousand at December 31, 2005.

We do not have any material guarantees outstanding,nor do we have any securitization or other off balance sheet financingarrangements, other than those described in Note 13, Commitments and contingencies,to our consolidated financial statements included in this annual report.

***Shareholders’agreement of Genesys TeleconferenciaIberia S.A.***

On February 10, 2006, we purchased the 80%interest of our partners in our Spanish subsidiary, Genesys TeleconferenciaIberia S.A. which has been renamed Genesys Iberia. We paid the purchase priceof €4.8million in cash using the additional revolving amount under our principalcredit facility prior to our recapitalization. This amount was repaid with aportion of the proceeds of the equity offering completed on February 22,2006. The purchase price allocation has not been finalized.

**Critical AccountingPolicies**

We prepare our consolidated financial statements forour Form 20-F in accordance with U.S. generally accepted accountingprinciples. The preparation of these financial statements requires managementto make estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses and related disclosure of contingent assetsand liabilities.

We believe the following critical accounting policies,among others, represent the more significant judgments and estimates used inthe preparation of our consolidated financial statements.

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***Allowancefor doubtful accounts***

We evaluate our ability to collect outstandingaccounts receivable based on a combination of factors. In circumstances wherewe are aware of a specific customer’s inability to meet our financialobligations to us (*e.g.*,bankruptcy filings, failure to pay amounts due to us or others), we record aspecific reserve for bad debts against amounts due to reduce the net recognizedreceivable to the amount we reasonably believe will be collected. For all othercustomers, we recognize reserves for bad debts based on past write-off history(average percentage of receivables written off historically), and the length oftime the receivables are past due. If circumstances change (*e.g.*, higher than expected defaults or anunexpected material adverse change in a major customer’s ability to meet ourfinancial obligations to us), our estimates of the recoverability of amountsdue us could be reduced by a material amount.

***Impairmentof goodwill and identifiable intangible assets***

In reviewing the recoverability of our goodwill andidentifiable intangible assets, we must make assumptions regarding estimatedfuture cash flows and other factors to determine the fair value of therespective assets. Establishing these assumptions requires us to exercisesignificant judgment, often on a subjective basis. If these estimates or theirrelated assumptions change in the future, we may be required to recordimpairment charges for these assets. During 2003 and 2004, we recorded animpairment charge on these assets of €28.1 million, €75.4 million,respectively. We did not record an impairment charge in 2005.

We follow Statement of Financial Accounting Standards(SFAS) No. 142, *Goodwill and OtherIntangible Assets.* Under SFAS 142, we are required to reviewour goodwill for impairment on an annual basis. Based on the circumstances andunderlying assumptions made when the impairment reviews are performed in thefuture, further impairment charges could be required. For additionalinformation regarding impairment of goodwill and identifiable intangibleassets, see Note 3 to our consolidated financial statements included inthis annual report.

We continue to amortize our identifiable intangibleassets that have determinable lives, but we are required to review therecoverability of these assets whenever events or changes in businesscircumstances indicate that the assets may be impaired. Based on thecircumstances and underlying assumptions made at the time of these reviews,further impairment charges could be required.

***   Development of software for internal use***

We account for the costs of computer softwaredeveloped or obtained for internal use in accordance with Statement of Position("SOP") 98-1, *Accounting for the Costsof Computer Software Developed or Obtained for Internal Use.* We capitalizecosts of materials, consultants and payroll and payroll related costs foremployees incurred in developing internal-use software. We capitalized  €1,585, €1,174,and €2,606during 2003, 2004 and 2005, respectively. These costs are included in softwareand systems and software development in progress as disclosed in Note 4 to ourconsolidated financial statements. The net book value related to internal usesoftware totaled €5,059and €5,663at December 31, 2004 and 2005, respectively. Costs incurred during thepreliminary project and post-implementation stages are charged to expense.

***IncomeTaxes***

We recognize deferred tax assets and liabilities basedon the differences between the financial statement carrying amounts and the taxbases of assets and liabilities. We regularly review our deferred tax assetsfor recoverability and establish a valuation allowance based upon historicallosses, projected future taxable income for each subsidiary and the expectedtiming of the reversals of existing temporary differences. As a result of thisreview, we have recorded a deferred tax asset of €2.4 millionat December 31, 2005, and we have established a full valuation allowanceon the remaining amount of our deferred tax assets.

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**Item 6.**   Directors,Senior Management and Employees

**A.   Directorsand Senior Management**

**Directors**

In accordance with our bylaws (*statuts*), we are managed by our board ofdirectors (*conseil d’administration*),which must be composed of a minimum of 3 and a maximum of 18 members. Our boardof directors is currently composed of five members. Each member of the board ofdirectors is appointed for a term of up to six years and we cannot have morethan one third of our directors be older than 70 years of age. Under Frenchlaw, the board of directors has broad authority to take actions in the name ofour company within the scope of our corporate purpose (subject to the authorityexpressly reserved by law to the shareholders). In accordance with our bylaws,each director must be the direct legal owner of at least one of our sharesthroughout his or her term of office.

Thenames and positions of the current members of our board of directors, theirages, business experience, dates of initial appointment, the year in whichtheir current term expires and information on their principal businessactivities outside our company are as follows: 

| François Legros       |   | Age:                                          |   | 40                                                                                                                                                                                                                                             |
|----------------------------|--------|-----------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Chairman and               |   | First elected:                                |   | June 1997                                                                                                                                                                                                                                 |
| Chief Executive Officer    |   | Term expires:                                 |   | 2008                                                                                                                                                                                                                                           |
|                            |   | Principal occupation:                         |   | Chairman and Chief  Executive Officer, Genesys                                                                                                                                                                                                 |
|                            |   | Other directorships and  business experience: |   | Former Managing Director  and Chief Financial Officer, Genesys                                                                                                                                                                                 |
| Thomas Abbott              |   | Age:                                          |   | 62                                                                                                                                                                                                                                             |
| Director                   |   | First elected:                                |   | June 2003                                                                                                                                                                                                                                 |
|                       |   | Term expires:                                 |   | 2006                                                                                                                                                                                                                                           |
|                       |   | Principal occupation:                         |   | Retired                                                                                                                                                                                                                                        |
|                       |   | Other directorships and  business experience: |   | Former Executive of  Lucent Technologies                                                                                                                                                                                                       |
| David Detert               |   | Age:                                          |   | 68                                                                                                                                                                                                                                             |
| Director                   |   | First elected:                                |   | June 2003                                                                                                                                                                                                                                 |
|                            |   | Term expires:                                 |   | 2006                                                                                                                                                                                                                                           |
|                            |   | Principal occupation:                         |   | Retired                                                                                                                                                                                                                                        |
|                            |   | Other directorships and  business experience: |   | Former Executive Vice  President and Chief Strategy Officer, Genesys; Former President of the  Daretel Group                                                                                                                                   |
| Patrick S. Jones           |   | Age:                                          |   | 61                                                                                                                                                                                                                                             |
| Director                   |   | First elected:                                |   | June 2001                                                                                                                                                                                                                                 |
|                       |   | Term expires:                                 |   | 2007                                                                                                                                                                                                                                           |
|                       |   | Principal occupation:                         |   | Private investor                                                                                                                                                                                                                               |
|                       |   | Other directorships and  business experience: |   | Director of Liberate  Technologies Inc., Smart Trust AB, Trema AB and Lattice Semiconductor; Former  Senior Vice President, Chief Financial Officer, Gemplus S.A.; Former Vice  President Finance and Corporate Controller of Intel Corp.      |
| Frédéric Spagnou |   | Age:                                          |   | 47                                                                                                                                                                                                                                             |
|                            |   | First elected:                                |   | August 2004                                                                                                                                                                                                                               |
|                            |   | Term expires:                                 |   | 2008                                                                                                                                                                                                                                           |
|                            |   | Principal occupation:                         |   | Vice President Marketing,  Amadeus (France)                                                                                                                                                                                                    |
|                            |   | Other directorships and  business experience: |   | Director of* Centre d’Etude et de  Prospective Stratégique*and* Université des Arts et Métiers;*Former  Chief Operating Officer and President of Gemplus France; Former Vice  President of Apple Computer Europe |

 

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Mr. Thomas Abbott’s and Mr. David Detert’sterms of service will expire at our 2006 annual general shareholders’ meeting.We currently plan to propose that the shareholders’ meeting renew Mr. Detert’sappointment for an additional three-year term. Mr. Abbott has requested thathis appointment not be renewed.

At its meeting on May 9,2006, our board of directors decided to propose that our next shareholdersmeeting, scheduled for June 16, 2006, appoint Mr. Bo Dimert as a member of ourboard of directors for a three year term. Mr. Dimert is currently working as a board representative for fivetechnology companies based in Sweden, including Telelogic AB, and is thenon-executive Chairman of four of these boards. He is also a member of theboard of directors of the Sweden-America Foundation and has extensiveleadership experience in IT- and technology companies. From 1995 to 2000, Mr.Dimert worked at Ericsson, where as President and CEO of Ericsson Inc. andExecutive Vice President of the Ericsson Group he was most recently responsiblefor all activities of the Ericsson Group in North America. Prior to Ericsson,he held leadership positions at the Digital Equipment Corporation and at IBMCorporation. Mr. Dimert does not own any ordinary shares or options to acquireshares of our company.

None of our directors, ornominees for director, has any family relationship with any other of ourdirectors or member of our senior management.

**Senior Management**

The names, positions and business experience of oursenior officers are as follows:

*FrançoisLegros, Chairman and Chief Executive Officer.*   Mr. Legroshas been our Chairman and Chief Executive Officer since June 1997, and wasthe first employee to be hired by our company. Mr. Legros started hiscareer at our company as Finance Manager and later became our Financial andAdministrative Director. In 1994, he was appointed Managing Director of GenesysSweden and Genesys Development Director and became Group Managing Director in1996.

*OlivierFourcade, Executive Vice President, Asia Pacific.*   Mr. Fourcade,our Executive Vice President, Asia Pacific, joined our company in 1991, andsince then has held several positions including Executive Vice President,Marketing Manager Europe and Executive Vice President, Video Business Unit.Today, Mr. Fourcade serves as our Executive Vice President, Asia Pacific,a position he has held since October 2000.

*JimHuzell, President.*   Mr. Huzell joined ourcompany as Chief Operating Officer in 2000 and was named President, Group in June 2002.Prior to joining our company, Mr. Huzell spent eight years as ManagingDirector of Scanmarket AB, a consulting business, working on business developmentprojects for mobile telephone companies such as Ericsson and Nokia as well aswith several other technology ventures. Prior to joining Scanmarket, Mr. Huzellserved for four years as Chief Executive Officer of Comvik, the firstindependent mobile telephone operator in Europe.

*MichaelE. Savage, Executive Vice President and Chief Financial Officer.*   Mr. Savagejoined our company as Executive Vice President and Chief Financial Officer in September 2001.Prior to this time, he served as Senior Vice President and Chief FinancialOfficer of Vialog Corporation, a position he held from September 1999.Before joining Vialog, Mr. Savage also served as Chief Financial Officerof America Online/Digital City, and prior to that position, as Chief FinancialOfficer and Vice President of World Corp., the holding company of World Airways, Inc.and InteliData Technologies Corp.

*DenisePersson, Executive Vice President of Marketing.**  *Ms. Persson joined our companyin 1996 as Marketing Manager for our first foreign subsidiary in Sweden. Ms. Perssonlater joined the marketing team in France as product manager and was appointedMarketing Director in 1999, and promoted to Vice President of Marketing in February 2001.She has held her present position since January 2003. Prior to 

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joining our company, Ms. Perssonserved in various sales and marketing positions at Commodore and KuwaitPetroleum in Sweden.

*ShellyRobertson, Executive Vice President and Chief Operating Officer.*   Ms. Robertsonentered the teleconferencing industry with employment at ACCESSTeleconferencing Inc in January 1994 (which later became VialogCorporation in 1998, and which we acquired in 2001). At ACCESS/Vialog herpositions included Operations Director and Director of Operations Integration.Since our acquisition of Vialog, Ms. Robertson has held managementpositions at our company, including Vice President, North America Operationsand Vice President, Global Operations.

*JimLysinger, Executive Vice President, Sales & Marketing North America &Europe.*   Mr. Lysinger joined our company asa result of our 1999 acquisition of Williams Conferencing. He has a combinedeighteen years of telecom industry experience. He has been in his currentposition since October 2004. In prior years, he served as Executive VicePresident and Managing Director Europe from 2002 to 2004, and Vice President ofSales North America from 1999 until 2002. At Williams Conferencing (andpreviously at ITC, which was acquired by Williams Conferencing), he wasresponsible for the Channel Sales Group. Prior to ITC/Williams, Mr. Lysingerspent eight years with Sprint Corporation in various sales and sales managementpositions.

*AndrewLazarus, Executive Vice President, Chief Strategy Officer.*   Mr. Lazaruswas named Chief Strategy Officer of our company in September 2003 and hasacted as an advisor to our company since December 2002. He continues toserve as an outside consultant, and is not employed by our company. From 1997to November 2002, Mr. Lazarus worked in the investment banking groupat CIBC WorldMarkets, where he was most recently an Executive Director withresponsibility for assisting telecommunications companies with equity and debtofferings, mergers and acquisitions and financial restructurings.

None of these individuals has any principal businessactivities outside of our company.

None of these individualshas any family relationship with any director or nominee for director or othermember of our senior management.

**B.   Compensation**

**Compensation**

In2005, the aggregate amount of compensation paid to our directors and seniormanagement (12 persons in total) for services in all capacities, excludingformer directors and senior management who left our company during the year,was €2.8 million.Of this amount €143,000consisted of attendance fees (*jetons deprésence*) paid to members of our board of directors, allocated asset forth below.

| **Director**               | ** ** | ** ** | ** **    | **Attendance  Fees** | ** ** |
|----------------------------|------------|------------|---------------|----------------------|------------|
| François Legros       |       |       | €0       |                 |       |
| Thomas Abbott              |       |       | €35,000  |                 |       |
| David Detert               |       |       | €42,000  |                 |       |
| Patrick Jones              |       |       | €42,000  |                 |       |
| Frédéric Spagnou |       |       | €24,000  |                 |       |
| Total                      |       |       | €143,000 |                 |       |

 

Our Chairman and Chief Executive Officer received €553,564in compensation for services in all capacities to our company and oursubsidiaries in 2005 before taxes and other charges, consisting of a basesalary of €364,564and a €189,000bonus. The variable bonus voted by our board of directors for Mr. Legrosis based on personal achievement and company revenue and EBITDA measures. Hereceived 

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the full bonus amount of €70,000associated with his personal goals and €49,000 and €70,000(of a possible €140,000each) for the revenue and EBITDA measures, respectively.

Those members of seniormanagement who are involved in our commercial activities participate in anincentive plan under which they receive an annual bonus if we meet certainfinancial performance criteria. If these performance criteria are met, allemployees participating in the plan receive bonuses graded according to theirlevel of responsibility. Certain members of our senior management receive a carallowance or use of a car as part of their compensation package.

**Stock Options**

Under French law, directors may not receive optionssolely as compensation for service on the board, thus only those directors whoare also our employees may receive stock options. During 2005, no options weregranted to our directors and senior management.

For additional informationregarding our stock options, see “—Share Ownership” below, Item 10 “AdditionalInformation—Share Capital—Stock Options” and Note 10 to our consolidated financialstatements included in this annual report.

**TerminationPayments**

Our board of directors,upon the recommendation of our Compensation Committee, has approved certainpayments that would be made to our Chairman and Chief Executive Officer, Mr. FrançoisLegros, upon his resignation or the termination of his duties. We have agreedto pay Mr. Legros a termination fee amounting to his annual base salary(on the date of termination or resignation) plus the amount of his annual bonusfor that year. As compensation for the non-compete obligations to which he issubject, we would pay a further one and a half times (1.5 x) his annual basesalary (on the date of termination or resignation) plus the amount of hisannual bonus for that year. The decision of our board of directors waseffective as of June 5, 2003. The terms and conditions of thesetermination payments are described in further detail in Exhibit 4.4 tothis annual report.

**Pension orRetirement Benefits**

The aggregate amount thatwe set aside or accrued to provide pension, retirement or similar benefits fordirectors and members of senior management during 2005 was €0.29 million.

**C.   BoardPractices**

None of the above directors, or nominees for director,other than François Legros, who is also an employee of our company, has enteredinto a service contract with our company or any of our subsidiaries providingfor benefits upon termination of his service as a director.

Our board of directors hasestablished an audit committee, a compensation committee, a strategy committeeand a disclosure committee. The functions of these committees are describedbelow.

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**Audit Committee**

Our audit committeeis responsible for reviewing the propriety and accuracy of our consolidatedfinancial statements. In accordance with the rules of the Nasdaq NationalMarket, all of the members of our audit committee are independent directorswithin the meaning of currently applicable standards of independence and areeach able to read and understand fundamental financial statements. Our auditcommittee has adopted a charter that sets forth its responsibilities, whichinclude:

·       reviewingand reassessing the adequacy of the audit committee charter annually andrecommending any proposed changes to the board of directors for approval;

·       reviewingthe annual audited financial statements and internal controls reports withmanagement, including major issues regarding accounting and auditing principlesand practices, as well as the adequacy of internal controls that couldsignificantly affect our financial statements;

·       reviewingan analysis prepared by our independent auditor of significant financialreporting issues and judgments made in connection with the preparation of ourfinancial statements;

·       reviewingwith management and our independent auditor our annual and interim financialstatements prior to the filing of such financial statements with the U.S. Securitiesand Exchange Commission or the French *Autoritédes marchés financiers*;

·       meetingperiodically with management to review our major financial risk exposures andthe steps management has taken to monitor and control such exposures;

·       reviewingmajor changes to our auditing and accounting principles and practices;

·       receivingperiodic reports from our independent auditor regarding our auditor’sindependence, discussing such reports with our auditor, and if so determined bythe audit committee, taking or recommending that the full board of directorstake appropriate action to oversee the independence of the auditor;

·       reviewingthe appointment and replacement of any senior internal auditing executive;

·       reviewingthe significant reports to management prepared by the internal auditingdepartment and management’s responses;

·       meetingwith our independent auditor prior to our audit to review the scope andstaffing of the audit;

·       reviewingwith our independent auditor any problems or difficulties our auditor may haveencountered in the course of the audit and any management letter provided byour auditor and our response to that letter;

·       advisingour board of directors with respect to our policies and procedures regardingcompliance with applicable laws and regulations;

·       reviewingwith our legal counsel legal matters that may have a material impact on ourfinancial statements, our compliance policies and any material reports orinquiries received from regulators or governmental agencies;

·       establishingprocedures for the receipt, retention and treatment of complaints received byus with regard to accounting, internal accounting controls or auditing mattersand for the confidential anonymous submission by our employees of concernsabout accounting or auditing matters and overseeing implementation of suchprocedures;

·       reviewingwith senior management our overall anti-fraud programs and controls;  and

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·       pre-approvingall audit, review and attest engagements and all engagements for permittednon-audit services provided by our independent registered public accountants(including the fees and other terms thereof).

During 2005, the membersof our audit committee were Mr. Jones, Mr. Spagnou and Mr. Abbott.

**CompensationCommittee**

Our board ofdirectors has established a compensation committee. The compensation committeeis responsible for:

·       reviewingand making recommendations to our board of directors with respect tocompensation (including variable compensation) and benefits for executiveofficers and taking all related actions that are not reserved for our board;

·       proposingrules for allocation of directors’ fees;

·       proposingto our board of directors a global amount for directors’ fees to be proposed toour shareholders’ meeting;

·       providingan opinion on our stock option plan policies and providing proposals regardingthe allocation of stock options;

·       obtaininginformation regarding the compensation policies applicable to senior managementwho are not executive officers; and

·       reviewingany related issue that may be submitted to it, as well as proposed capitalincreases reserved for employees.

The current members of ourcompensation committee are Mr. Detert, Mr. Abbott, Mr. Spagnouand Mr. Jones.

**Strategic Committee**

Our board ofdirectors has established a strategic committee. The strategic committee isresponsible for:

·       expressingopinions, proposals and recommendations relating to the strategic orientationsof our company, its business development and any other strategic transactions;and

·       examiningin detail, and providing opinions, proposals and recommendations to the Boardon, all issues relating to strategic reorganizations or transactions including,but not limited to, capital increases or rights offerings, new financialindebtedness, issuances of bonds or other debt or hybrid securities, mergertransactions or divestitures, or tender offers for shares of our company.

The current members of ourstrategic committee are Mr. Detert, Mr. Abbott, Mr. Spagnou and Mr. Jones.

**DisclosureCommittee**

Our board ofdirectors has established a disclosure committee to review and ensure theaccuracy and completeness of our public communications. The disclosurecommittee is responsible for undertaking or supervising each of the following:

·       checkingcompliance with the information obligations that our company is subject to, inparticular with a view to the requirements of applicable stock exchange andfinancial regulations, and giving its opinion on our compliance with suchobligations;

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·       preparingour publications and communications calendar and their model content;

·       preparingand organizing analysts’ meetings;

·       preparingand organizing press conferences;

·       selectingthe media used to publish information (press releases, electronic supports,etc.);

·       makingsure that the internal collection procedures and procedures for supervision ofinformation to be made public by our company are defined, guaranteeing thereliability of such procedures, and overseeing compliance with such procedures;

·       regularlyassessing, under the supervision of the Chief Executive Officer and the ChiefFinancial Officer, the internal collection procedures and procedures forsupervision of information, recommending modifications to such procedures, ifany, and overseeing the implementation any modifications approved by the ChiefExecutive Officer and the Chief Financial Officer;

·       appointingthe person(s) in charge of preparing and drafting our reports andcommunications, who may be, at the disclosure committee’s discretion, differentpersons depending on the subject of the reports or communications;

·       organizingthe training of the persons involved in the process of communicatinginformation about our company;

·       reviewingeach draft report or communication of our company, examining the informationincluded therein and providing an opinion on the advisability of conductingadditional diligence or investigations to verify such information;

·       providingan opinion on the significance of any event or other information relating to ourcompany;

·       providingan opinion on the advisability of submitting the draft report or communicationto the statutory auditors, to legal counsel or to any other third party expertfor validation of the information included in such report or communication;

·       providingan opinion on the necessity of obtaining approval from our board of directorson the content of the draft report or communication; and

·       approvingthe procedures for publication and distribution of reports or communicationsthat have been approved by the disclosure committee, as well as the terms andconditions of filing or registration thereof with the stock exchangeauthorities.

Our disclosure committee may delegate to one or moreof its members the powers listed above, except for the approval of the finalversion of our annual report (whether under form of a *Document de référence* in France or a Form 20-Fin the United States).

The current members of ourdisclosure committee are: François Legros; Michael E. Savage; Jim Huzell;,Jim Lysinger; Olivier Fourcade; Denise Persson; Andrew Lazarus; ShellyRobertson; Jon Pilon, Vice President of Accounting; Darden Bell, Director ofInternal Control; Patrick Janel, Assistant General Counsel and Marine Pouvreau,Investor Relations Manager.

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**D.    Employees**

We had1,018 employees worldwide as of December 31, 2005. The table below setsforth the breakdown of employees by geographic area and by main category ofactivity as of December 31, 2003, 2004 and 2005.

| ** **    | ** ** | **As of December 31,** | ** ** |
|---------------|------------|---------------------------------------|------------|
| ** **    | ** ** | **2003**                              | ** ** | **%** | ** ** | **2004** | ** ** | **%** | ** ** | **2005** | ** ** | **%** | ** ** |
| Europe        |       | 414                                   |       | 40.1 | % |   | 386 |   |   | 39.3 | % | 381 |   | 37.4 | % |
| North America |       | 535                                   |       | 51.8 | % |   | 499 |   |   | 50.8 | % | 544 |   | 53.5 | % |
| Asia Pacific  |       | 83                                    |       | 8.1 | % |   | 97 |   |   | 9.9 | % | 93 |   | 9.1 | % |
| Total         |       | 1,032                                 |       | 100.0 | % |   | 982 |   |   | 100.0 | % | 1,018 |   | 100.0 | % |

 

| ** **                     | ** ** | **As of December 31,** | ** ** |
|--------------------------------|------------|---------------------------------------|------------|
| ** **                     | ** ** | **2003**                              | ** ** | **%** | ** ** | **2004** | ** ** | **%** | ** ** | **2005** | ** ** | **%** | ** ** |
| Sales &  Marketing    |       | 263                                   |       | 25.5 | % |   | 271 |   |   | 27.6 | % | 289 |   | 28.4 | % |
| Research and  Development      |       | 59                                    |       | 5.7 | % |   | 71 |   |   | 7.2 | % | 62 |   | 6.1 | % |
| Operators and  Reservationists |       | 336                                   |       | 32.5 | % |   | 347 |   |   | 35.3 | % | 348 |   | 34.2 | % |
| Administration  and Managerial |       | 270                                   |       | 26.2 | % |   | 202 |   |   | 20.6 | % | 200 |   | 19.6 | % |
| MIS and  Operations            |       | 104                                   |       | 10.1 | % |   | 91 |   |   | 9.3 | % | 119 |   | 11.7 | % |
| Total                          |       | 1,032                                 |       | 100.0 | % |   | 982 |   |   | 100.0 | % | 1,018 |   | 100.0 | % |

 

Under French law, all employers of more than 20employees in France are required to implement a 35-hour work week.Pursuant to this law, we entered into a collective bargaining agreement withour French employees in March 2000. Although the workweek is shorter onaverage and we have not reduced salaries, the agreement allows us greaterflexibility than before to organize the use of employee time. For example,employees can work more than 35 hours in some weeks, but in exchange we arerequired to reduce the number of hours worked in other weeks to ensure thatthey do not work more than 35 hours per week on an annual basis. We believe thisadded flexibility partly compensates for the reduction in hours and that the 35-hourweek does not have a material adverse effect on our financial condition. We arenot a party to any other collective bargaining agreements.

To date we have notexperienced any labor movements or work stoppages. We believe our relationswith our employees are good.

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**E.   ShareOwnership**

Thefollowing table sets forth information known to us with respect to theownership of our ordinary shares as of February 28, 2006 based on69,798,286 shares outstanding as of such date by each of our directors andnamed senior management (12 persons total).

| **Name**                   | ** ** | ** ** | ** ** | **Shares Owned** | ** ** | **Shares  Beneficially  Owned**(1) | ** ** | **% of  Outstanding  Shares**(2) | ** ** |
|----------------------------|------------|------------|------------|-----------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| François Legros       |       |       | 22,599     |                  |       |                               | 446,756    |                                  |       |   | * |   |   |
| Thomas Abbott              |       |       | 2,952      | (3)                   |       |                               | 0          |                                  |       |   | * |   |   |
| David Detert               |       |       | 766        |                  |       |                               | 40.599     |                                  |       |   | * |   |   |
| Patrick S. Jones           |       |       | 500        | (3)                   |       |                               | 0          |                                  |       |   | * |   |   |
| Frédéric Spagnou |       |       | 10         |                  |       |                               | 0          |                                  |       |   | * |   |   |
| Olivier Fourcade           |       |       | 606        |                  |       |                               | 86,039     |                                  |       |   | * |   |   |
| Jim Huzell                 |       |       | 4,372      |                  |       |                               | 162,500    |                                  |       |   | * |   |   |
| Michael E. Savage          |       |       | 117        |                  |       |                               | 179,959    |                                  |       |   | * |   |   |
| Shelly Robertson           |       |       | 73.5       | (3)                   |       |                               | 86,772     |                                  |       |   | * |   |   |
| Denise Persson             |       |       | 7,800      |                  |       |                               | 49,875     |                                  |       |   | * |   |   |
| Jim Lysinger               |       |       | 0          |                  |       |                               | 95,373     |                                  |       |   | * |   |   |
| Andrew Lazarus             |       |       | 1,500      | (3)                   |       |                               | 0          |                                  |       |   | * |   |   |

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*                     Less than one percent.

(1)             Represents shares that may be obtained through theexercise of stock options that are presently exercisable or that will becomeexercisable within 60 days of the date of this annual report on Form 20-F.

(2)             Calculated on the basis of total shares owned andshares beneficially owned.

(3)             Shares held as ADSs (which represent one-half of oneordinary share).

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The following table sets forth information withrespect to the ownership of options to purchase our ordinary shares as of May 10,2006 by:

·       Eachof our named senior management and directors who own stock options (8 personstotal); and

·       Alldirectors who hold stock options and senior management (8 persons total) as agroup.

Other than Mr. Legrosand Mr. Detert, none of our directors own any stock options.

| Name                                                                                                      | ** ** | ** ** | ** ** | **Number of Shares  underlyingoptions** | ** ** | **Exercise  Price** (7) | ** ** | **Expiration  Date** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------|------------|---------------------------------------------------|------------|------------------------------|------------|----------------------|------------|
| François Legros                                                                                      |       |       | 112,320    | (1)                                               |       |                         | €     | 3.51                 |       |   |   | 06/05/11 |   |   |
|                                                                                                           |       |       | 12,363     | (2)                                               |       |                         | €     | 11.27                |       |   |   | 09/15/07 |   |   |
|                                                                                                           |       |       | 23,900     | (2)                                               |       |                         | €     | 10.52                |       |   |   | 01/07/10 |   |   |
|                                                                                                           |       |       | 137,734    | (3)                                               |       |                         | €     | 3.51                 |       |   |   | 06/05/11 |   |   |
|                                                                                                           |       |       | 133,000    | (4)                                               |       |                         | €     | 3.20                 |       |   |   | 08/08/11 |   |   |
|                                                                                                           |       |       | 203,366    | (5)                                               |       |                         | €     | 3.20                 |       |   |   | 08/08/11 |   |   |
| Michael E. Savage                                                                                         |       |       | 100,000    | (4)                                               |       |                         | €     | 3.44                 |       |   |   | 06/27/11 |   |   |
|                                                                                                      |       |       | 1,676      | (6)                                               |       |                         | €     | 11.93                |       |   |   | 01/26/10 |   |   |
|                                                                                                      |       |       | 8,379      | (6)                                               |       |                         | €     | 14.92                |       |   |   | 02/10/10 |   |   |
|                                                                                                      |       |       | 33,515     | (6)                                               |       |                         | €     | 10.63                |       |   |   | 11/11/09 |   |   |
|                                                                                                      |       |       | 26,390     | (6)                                               |       |                         | €     | 31.33                |       |   |   | 10/02/10 |   |   |
|                                                                                                      |       |       | 25,000     | (5)                                               |       |                         | €     | 2.90                 |       |   |   | 05/06/12 |   |   |
| Denise Persson                                                                                            |       |       | 3,000      | (2)                                               |       |                         | €     | 11.27                |       |   |   | 09/15/07 |   |   |
|                                                                                                           |       |       | 7,000      | (2)                                               |       |                         | €     | 39.12                |       |   |   | 03/08/08 |   |   |
|                                                                                                           |       |       | 3,000      | (3)                                               |       |                         | €     | 3.51                 |       |   |   | 06/05/11 |   |   |
|                                                                                                           |       |       | 20,000     | (4)                                               |       |                         | €     | 3.51                 |       |   |   | 06/05/11 |   |   |
|                                                                                                           |       |       | 27,000     | (5)                                               |       |                         | €     | 3.20                 |       |   |   | 08/08/11 |   |   |
| Olivier Fourcade                                                                                          |       |       | 52,727     | (1)                                               |       |                         | €     | 3.51                 |       |   |   | 06/05/11 |   |   |
|                                                                                                      |       |       | 10,000     | (3)                                               |       |                         | €     | 3.51                 |       |   |   | 06/05/11 |   |   |
|                                                                                                      |       |       | 37,300     | (5)                                               |       |                         | €     | 3.20                 |       |   |   | 08/08/11 |   |   |
| Jim Huzell                                                                                                |       |       | 100,000    | (3)                                               |       |                         | €     | 3.51                 |       |   |   | 06/05/11 |   |   |
|                                                                                                           |       |       | 100,000    | (5)                                               |       |                         | €     | 3.20                 |       |   |   | 08/08/11 |   |   |
| Shelly Robertson                                                                                          |       |       | 15,000     | (4)                                               |       |                         | €     | 3.44                 |       |   |   | 06/27/11 |   |   |
|                                                                                                      |       |       | 85,000     | (5)                                               |       |                         | €     | 3.20                 |       |   |   | 08/08/11 |   |   |
|                                                                                                      |       |       | 3,351      | (6)                                               |       |                         | €     | 10.63                |       |   |   | 11/11/09 |   |   |
|                                                                                                      |       |       | 335        | (6)                                               |       |                         | €     | 23.87                |       |   |   | 04/16/09 |   |   |
|                                                                                                      |       |       | 1,675      | (6)                                               |       |                         | €     | 13.80                |       |   |   | 04/29/09 |   |   |
|                                                                                                      |       |       | 13,194     | (6)                                               |       |                         | €     | 31.33                |       |   |   | 10/02/09 |   |   |
| Jim Lysinger                                                                                              |       |       | 10,140     | (2)                                               |       |                         | €     | 11.27                |       |   |   | 09/15/07 |   |   |
|                                                                                                           |       |       | 3,000      | (2)                                               |       |                         | €     | 39.12                |       |   |   | 03/08/08 |   |   |
|                                                                                                           |       |       | 11,858     | (3)                                               |       |                         | €     | 16.26                |       |   |   | 04/24/09 |   |   |
|                                                                                                           |       |       | 45,000     | (4)                                               |       |                         | €     | 3.44                 |       |   |   | 06/27/11 |   |   |
|                                                                                                           |       |       | 55,000     | (5)                                               |       |                         | €     | 3.20                 |       |   |   | 08/08/11 |   |   |
| David Detert                                                                                              |       |       | 40,559     | (1)                                               |       |                         | €     | 3.51                 |       |   |   | 06/05/11 |   |   |
| All directors who hold stock  options and senior management who are employees as a group  (8 individuals) |       |       | 1,461,782  |                                              |       |                         |       |                 |       |   |   |   |   |

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(1)             Granted pursuant to the 1998 plan.

(2)             Granted pursuant to the 1999 plan.

(3)             Granted pursuant to the 2000 plan.

(4)             Granted pursuant to the 2001 plan.

(5)             Granted pursuant to the 2003 plan.

(6)             Granted pursuant to the Vialog stock plans.

(7)             The Genesys options have been re-priced as a result ofthe February 2006 recapitalization.

Wherecertain of our senior management are ineligible to receive stock options underFrench law, we have attributed share appreciation rights, calling for cashpayments based on the value of our shares, as one element of compensation. Nosuch cash payments were made in 2005. For additional information regarding ourstock options and stock option plans see Item 10 “Additional Information—ShareCapital—Stock Options” and Note 10 to our consolidated financialstatements included in this annual report.

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**Item 7.   MajorShareholders and Related Party Transactions**

**A.   MajorShareholders**

Thetable below shows the beneficial owners of 1% or more of our ordinary sharesand ADSs, based on 69,798,286 ordinary shares and 70,142,075 voting rightsoutstanding as at March 15, 2006.

| **Company**                                            | ** ** | ** ** | ** ** | **Number of  shares** | ** ** | **Number of  voting rights**(1) | ** ** | **% of  share capital** | ** ** | **% of  voting rights**(1) | ** ** |
|--------------------------------------------------------|------------|------------|------------|----------------------------|------------|-------------------------------------------|------------|-----------------------------------|------------|--------------------------------------|------------|
| Denver Investment Advisors(2)                          |       | 8,752,951  |       |                       | 8,752,951  |                                      |       |                              | 12.54      | %                                    |       |   | 12.48 | % |   |
| Trafalgar Asset Managers Limited                       |       | 7,682,645  |       |                       | 7,682,645  |                                      |       |                              | 11.01      | %                                    |       |   | 10.95 | % |   |
| Société Privée de Gestion du Patrimoine |       | 5,781,250  |       |                       | 5,781,250  |                                      |       |                              | 8.28       | %                                    |       |   | 8.24 | % |   |
| Moneta Asset Management                                |       | 1,406,250  |       |                       | 1,406,250  |                                      |       |                              | 2.01       | %                                    |       |   | 2.00 | % |   |
| Jane Street Capital LLC                                |       | 1,381,011  |       |                       | 1,381,011  |                                      |       |                              | 1.98       | %                                    |       |   | 1.97 | % |   |
| BNP Europ Telecom & Media FD II LP            |       | 968,036    |       |                       | 968,036    |                                      |       |                              | 1.39       | %                                    |       |   | 1.38 | % |   |
| JH Whitney & Co                               |       | 871,758    |       |                       | 871,758    |                                      |       |                              | 1.25       | %                                    |       |   | 1.24 | % |   |
| Queensland  Investment Corporation                     |       | 707,100    |       |                       | 707,100    |                                      |       |                              | 1.01       | %                                    |       |   | 1.01 | % |   |

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(1)             Pursuant to our *statuts* (bylaws) shares held in registered form for morethan two years, acquire double voting rights. See Item 10 “AdditionalInformation—Memorandum and Articles of Association.”

(2)             Denver Investment Advisors acquired more than 5% of ourshares and voting rights without filing a beneficial ownership declarationwithin five business days of the acquisition, as required in France. DenverInvestment Advisors made the necessary filing on June 2, 2005. As aresult, it will not be able to exercise its voting rights exceeding 5% of thevoting rights in our shareholders’ meetings until June 2, 2007.

Our major shareholders have changed significantlysince March 3, 2005 (the date as of which we provided major shareholderinformation in our annual report on Form 20-F for the fiscal yearended December 31, 2004), in particular as a result of our February 2006recapitalization. We are not aware of any shareholder agreement with respect toour ordinary shares as of the date of this annual report.

Following our February 2006recapitalization, the following reports were submitted by our shareholders:

·       SociétéPrivée de Gestion du Patrimoine declared that it had increased its holdingsabove the level of 5% of shares and voting rights and held 5,781,250 of ourordinary shares representing the same number of voting rights;

·       TrafalgarAsset Managers Limited declared that it had increased its holding above the 5%and 10% levels of shares and voting rights and held 7,682,645 sharesrepresenting the same number of voting rights. Trafalgar Asset Managers Limitedfurther stated that it was acting on behalf of a fund of funds, that it wasacting alone and that it may acquire further shares in our company but that ithad no intention to take control of our company or to demand representation onour board of directors; and

·       BNPEurop Telecom and Media Fund II, LP declared that it had decreased its holdingsbelow the 5% threshold and held 968,036 of our ordinary shares representing thesame number of voting rights.

In its June 2, 2005 filing, Denver InvestmentAdvisors declared that it did not intend to take control of our company or todemand representation on our board of directors. It stated further that it mayincrease or decrease its holdings of our shares based on market conditions.

In a public filing dated April 6, 2005, Part’ComS.A., a company controlled by the Caisse des Dépôts group, advised that itsholdings of our shares were contributed to an investment fund named FCPR Part’Com,wholly owned by Part’Com S.A. and managed by Iris Capital Management S.A.S. Byletter dated April 7, 2005, the Caisse des Dépôts group informed us that,following this contribution by Part’Com 

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S.A., the Caisse desDépôts entity CDC Entreprise Innovation had decreased its holdings below thethreshold of 5%.

Our *statuts*(bylaws) currently provide for double voting rights. For more informationrelating to our ordinary shares, see Item 10 “Additional Information—Memorandumand Articles of Association.”

As of March 15, 2006,there were 12,321,584 of our ADSs outstanding, representing 6,160,792 of ourordinary shares, or 8.82% of our total shares outstanding as of such date. Asof March 15, 2006, there were 60 record holders of our ADSs, all of whichhave registered addresses in the United States. In addition, as of March 15,2006, 11,414,079 of our ordinary shares were held by 44 record holders withregistered addresses in the United States.

**B.   RelatedParty Transactions**

During 2005 and throughthe date of this annual report, we did not enter into any related partytransactions.

**C.   Interestsof Experts and Counsel**

Not applicable.

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**Item 8.   FinancialInformation**

**A.   ConsolidatedStatements and Other Financial Information**

See “Item 18—FinancialStatements” and pages F-1 through F-44.

**Legal Proceedings**

We are involved in legal proceedings from time to timein the ordinary course of our business. Except as described below, we do notbelieve that any of these claims and proceedings against us is likely to have,individually or in the aggregate, a material adverse effect on our consolidatedfinancial condition or results of operations.

On February 25, 2005, we filed a notice ofarbitration proceedings against Grupo Multitel SA and Almagro Asesoramiento eInversiones SA before the Civil and Mercantile Court of Arbitration in Spain.These two companies were our partners in a Spanish joint venture, GenesysIberia Teleconferencia, SA. Our partners claimed that we were required topurchase their equity interests in the joint venture under the terms of a putoption in a shareholders agreement that we entered into at the time that thejoint venture entity was created and claimedthat the put option price should be approximately €5.3 million. OnJanuary 25, 2006, the arbitrators ruled that our partners’ put optionswere valid and set the purchase price for their equity interests at €4.8 million.We purchased the 80% interest of our partners in the subsidiary on February 10,2006, and paid the purchase price in cash using a financing commitment obtainedin an amendment to our principal credit facility signed on December 15,2005. This amount was repaid with a portion of the proceeds of our equityoffering, which was completed on February 22, 2006. See Item 5 “Operatingand Financial Review and Prospects—Liquidity and Capital Resources—BankFinancing Amendments and Recapitalization.”

Along with our Frenchoperational subsidiary, Genesys Conferencing Europe S.A.S. (formerly GenesysConferencing France S.A.S.), we were sued before the Commercial Court ofCréteil (France) by Demand S.A. The litigation arose from a commercial disputeregarding the early termination of a Rich Media sales contract that was thesubject of a prior settlement agreement. We contested each of these claims andcounterclaimed for damages and legal fees. On February 28, 2006, the Courtdismissed all of the claims made by Demand S.A. and Demand S.A. was ordered topay fees of €10,000 to us and our subsidiary. On April 19,2006 we received notification that Demand S.A. has appealed the decision of theCommercial Court.

**DividendDistribution Policy**

We have never declared or paid any dividends on ourcapital stock. We expect to retain our future earnings, if any, for use in theoperation and expansion of our business and do not anticipate paying anydividends in the foreseeable future.

Our ability to paydividends is also affected by restrictions in existing credit agreements. Ourcredit facility prohibits us from paying dividends.

**B.   SignificantChanges**

There have not been anysignificant changes since the date of our financial statements included underItem 18.

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**Item 9.   TheOffer and Listing**

**A.   Offer andListing Details**

Our ordinary shares are listed on the *Nouveau Marché* of Euronext Paris, and ourADSs trade under the symbol “GNSY” on the Nasdaq National Market.

Thetable below sets forth, for the periods indicated, the high and low closingprices of our ordinary shares on the *NouveauMarché* of Euronext Paris S.A. and the high and low closing prices ofour ADSs on the Nasdaq National Market.

| ** **                                   | ** ** | **Euronext Paris**                                  | ** ** | **Nasdaq**                          | ** ** |
|----------------------------------------------|------------|----------------------------------------------------------|------------|-------------------------------------|------------|
| **Period**                                   | ** ** | ** **                                               | ** ** | **High**                            | ** ** | **Low** | ** ** | **High** | ** ** | **Low** | ** ** |
| ** **                                   | ** ** | **(ordinary share price in **€) | ** ** | **(ADS price in $)** | ** ** |
| 2001 (Nasdaq  beginning April 26, 2001) |       | 47.50                                                    |       | 9.50                                |       | 15.05 |   | 5.13 |   |
| 2002                                         |       | 13.18                                                    |       | 1.69                                |       | 6.50 |   | 0.91 |   |
| 2003                                         |       | 6.70                                                     |       | 1.02                                |       | 3.80 |   | 0.60 |   |
| 2004                                         |       | 5.10                                                     |       | 0.76                                |       | 3.25 |   | 0.50 |   |
| First Quarter                                |       | 5.10                                                     |       | 3.65                                |       | 3.25 |   | 2.42 |   |
| Second Quarter                               |       | 4.05                                                     |       | 1.62                                |       | 2.56 |   | 1.00 |   |
| Third Quarter                                |       | 1.86                                                     |       | 0.76                                |       | 1.21 |   | 0.50 |   |
| Fourth Quarter                               |       | 1.62                                                     |       | 1.06                                |       | 1.11 |   | 0.65 |   |
| 2005                                         |       | 3.30                                                     |       | 1.30                                |       | 2.00 |   | 0.80 |   |
| First Quarter                                |       | 1.91                                                     |       | 1.38                                |       | 1.30 |   | 0.80 |   |
| Second Quarter                               |       | 3.16                                                     |       | 1.30                                |       | 1.98 |   | 0.81 |   |
| Third Quarter                                |       | 3.30                                                     |       | 2.65                                |       | 2.00 |   | 1.60 |   |
| Fourth Quarter                               |       | 3.06                                                     |       | 1.85                                |       | 1.80 |   | 1.05 |   |
| 2006 (through May 16, 2006)             |       | 1.59                                                     |       | 1.14                                |       | 1.28 |   | 0.67 |   |
| First Quarter                                |       | 1.56                                                     |       | 1.14                                |       | 1.28 |   | 0.67 |   |
| Second Quarter  (through May 16, 2006)  |       | 1.59                                                     |       | 1.22                                |       | 1.02 |   | 0.78 |   |
| 2005                                         |       |                                                     |       |                                |       |   |   |   |   |
| November                                     |       | 2.86                                                     |       | 2.18                                |       | 1.67 |   | 1.23 |   |
| December                                     |       | 2.43                                                     |       | 1.85                                |       | 1.49 |   | 1.05 |   |
| 2006                                         |       |                                                     |       |                                |       |   |   |   |   |
| January                                      |       | 1.51                                                     |       | 1.18                                |       | 1.28 |   | 0.97 |   |
| February                                     |       | 1.41                                                     |       | 1.14                                |       | 0.86 |   | 0.67 |   |
| March                                        |       | 1.56                                                     |       | 1.32                                |       | 0.93 |   | 0.79 |   |
| April                                        |       | 1.59                                                     |       | 1.30                                |       | 1.10 |   | 0.78 |   |
| May (through  May 16, 2006)        |       | 1.35                                                     |       | 1.22                                |       | 0.90 |   | 0.79 |   |
|                                              |            |                                                          |            |                                     |            |  |  |  |  |  |  |

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*                     Sources: Euronext Paris and the NasdaqNational Market. Two ADSs represent one ordinary share. Trading of our ADSs onthe Nasdaq National Market began on April 26, 2001.

**B.   Plan ofDistribution**

Not applicable.

**C.   Markets**

Our ordinary shares are listed on the Eurolist marketof Euronext Paris (Compartment C) under the symbol “GNS” and our ADSs arelisted on the Nasdaq National Market under the symbol “GNSY.” At the date ofthis annual report, our ordinary shares are included in the IT.CAC 50 Index(the technology index 

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of Euronext Paris) and inthe NextEconomy Segment of Euronext. This segment was created in 2002 for smalland mid-cap technology companies and aims to provide detailed and regularfinancial information on listed companies and to improve the visibility ofsmall and mid-cap technology companies for investors. Segment members commit tocomply with enhanced financial reporting obligations, in addition to thoseapplicable under local regulations. NextEconomy members agree to publishfinancial documents in English, hold at least two analysts’ meetings per year,publish key financial information on their Website and announce a schedule forpublications and meetings. In addition, from January 1, 2004, NextEconomymembers are required to publish quarterly reports and adopt internationalaccounting standards (IAS) or reconcile information with those standards.

**The Eurolist market**

In February 2005,Euronext Paris overhauled its listing structure by implementing the Eurolistmarket, a new, unified, regulated market, which replaced the regulated marketsformerly operated by Euronext Paris, *i.e.*,the Bourse de Paris (which included the *PremierMarché* and the *Second Marché*)and the *Nouveau Marché*. As partof this process, Euronext Paris transferred all securities listed on the *Premier Marché*, the *Second Marché* and the *Nouveau Marché* to the Eurolist market.

As from February 21, 2005, all securitiesapproved for listing by Euronext Paris are traded on a single market: Eurolistby EuronextÔ. The Eurolistmarket is a regulated market operated and managed by Euronext Paris, a marketoperator (*entreprise de marché*)responsible for the admission of securities and the supervision of trading inlisted securities. Euronext Paris publishes a daily official price list thatincludes price information on listed securities. Securities listed on theEurolist market are classified by alphabetical order. In addition, EuronextParis created the following compartments for classification purposes:Compartment A for issuers with a market capitalization over €1billion, Compartment B for issuers with a market capitalization between €150million and €1 billionand Compartment C (on which our ordinary shares are traded) for issuers with amarket capitalization under €150 million.

**Trading on theEurolist market**

TheEurolist market is an electronic order-driven market. Securities listed on theEurolist market of Euronext Paris are traded through authorized financialinstitutions that are members of Euronext Paris.

EuronextParis places securities listed on the Eurolist market in one of two categories(continuous or “Continu”, or fixing), depending on their inclusion in certainindices or compartments and/or on their trading volume. Our shares trade in thecategory known as Continu, which includes the most actively traded securities.Shares that trade in the Continu category are traded, through financialinstitutions that are members of Euronext Paris, on each trading day from 9:00 a.m.to 5:25 p.m. (Paris time), with a pre-opening session from 7:15 a.m.to 9:00 a.m. and a post-closing session from 5:25 p.m. to 5:30 p.m.(during which pre-opening and post-closing sessions trades are recorded but notexecuted until the opening auction at 9:00 a.m. and the closing auction at5:30 p.m., respectively). In addition, from 5:30 p.m. to 5:40 p.m.,trading can take place at the closing auction price. Trading in a share tradedcontinuously after 5:40 p.m. until the beginning of the pre-openingsession of the following trading day may take place at a price that is within arange of the last auction price plus or minus 1%. Euronext Paris has introducedcontinuous electronic trading during trading hours for most listed securities.

EuronextParis may temporarily suspend trading in a security listed on the Eurolistmarket if the quoted price of the security increases or decreases beyond thespecific price limits defined by applicable regulations (*réservation à la hausse ou à la baisse*).With respect to shares belonging to the *Continu*category, once trading has commenced, suspensions for a reservation period of 4minutes (subject to extension by Euronext Paris) are possible if the pricevaries either by more than 10% from the last price determined in an auction orby more than 2% (with respect to French issuers) from the last traded price.Trading of this share resumes after the reservation period, during which ordersare entered in the central order book but not executed, which ends with anauction. Euronext Paris may also suspend trading of a security listed on theEurolist market in other limited circumstances (*suspension de la cotation*), including 

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the occurrence of unusual trading activities in asecurity. In addition, in exceptional cases, (including, for example, in thecase of a takeover bid) Euronext Paris may also suspend trading of the securityconcerned upon request of the French securities and exchange authority, the *Autorité des marchés financiers*, or “AMF.”

Tradesof securities listed on the Eurolist market are settled on a cash basis on thethird trading day following the trade. For certain securities, marketintermediaries are also permitted to offer investors a deferred settlementservice (*orders stipules àrèglement-livraison différé*) for a fee. The deferred settlementservice is only available for trades in securities that have both a totalmarket capitalization of at least €1 billion and a dailyaverage volume of trades of at least €1 million. Investorscan elect on the determination date (*jour deliquidation*), which is the fifth trading day before the end of themonth, either to settle the trade by the last trading day of the month or topay an additional fee and postpone the settlement decision to the determinationdate of the following month. At the date of this annual report, our ordinaryshares are not eligible for deferred settlement.

Equitysecurities traded on a deferred settlement basis are considered to have beentransferred only after they have been recorded in the purchaser’s account.Under French securities regulations, any sale of a security traded on adeferred settlement basis during the month of a dividend payment is deemed tooccur after the dividend has been paid. If the sale takes place before, butduring the month of, a dividend payment date, the purchaser’s account will becredited with an amount equal to the dividend paid and the seller’s accountwill be debited by the same amount.

Prior to any transfer of securities listed on theEuronext market of Euronext Paris held in registered form on the Eurolistmarket, such securities must be converted into bearer form and recorded in anaccount maintained by an accredited intermediary with Euroclear France S.A., acentral depository. Transactions in securities are initiated by the ownergiving instructions (through an agent, if appropriate) to the relevantaccredited intermediary. Trades of securities listed on the Eurolist market arecleared through LCHClearnet and settled through Euroclear France, using acontinuous net settlement system. A fee or commission is payable to thebroker-dealer or other agent involved in the transaction.

**Trading by theCompany in its Shares**

Under French law, acompany may not issue shares to itself, but it may purchase its own shares inthe limited cases described in Item 10 under “Additional Information—Memorandumand Articles of Association.”

**D.   Selling Shareholders**

Not applicable.

**E.   Dilution**

Not applicable.

**F.**   Expenses of theIssue

Not applicable.

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**Item 10.**   AdditionalInformation

**A.   ShareCapital**

**Share Capital**

At December 31, 2005, our share capital amounted to €18,307,756,divided into 18,307,756 outstanding shares with a nominal value of €1per share. In February 2006, we issued 51,490,530 shares as a result of anoffering of shares through issuing warrants to existing shareholders inconnection with a recapitalization of the Company. The recapitalization isdescribed in more detail under Item 5 “Operating and Financial Review andProspects—Liquidity and Capital Resources.” These issuances increased our sharecapital by €51,490,530.

As of May 16, 2006, our share capital amounted to€69,798,286,divided into 69,798,286 outstanding shares with a nominal value of €1per share.

All of our outstanding shares are of the same classand are fully paid. Our *statuts*providethat shares may be held in registered form or in bearer form, at the option ofthe shareholder. Our *statuts*provide that any fully paid-up shares acquire double voting rights if held inregistered form for at least two years under the name of the same shareholder.

At December 31, 2005, we held, directly andindirectly, 22,131 of our ordinary shares as treasury shares. The book value ofthese shares at December 31, 2005 was €40,189and their face value is €22,131 (based on a nominal value of €1per share).

For additional informationregarding the evolution of our share capital, see Note 9 to our consolidatedfinancial statements, included in this annual report.

**Stock Options**

As of December 31, 2005, we had 2,593,725 stockoptions outstanding under our stock option plans, including both Genesys andVialog option plans, of which 2,006,014 were exercisable as of such date. Eachof these options gives the right to acquire one of our ordinary shares.

During 2005, we cancelled 113,980 options. Of thesecancelled options, 23,669 were options granted to employees who had left ourcompany prior to exercising their options and 90,311 were options (includingboth Genesys and Vialog options) that were forfeited because they were notexercised during the authorized exercise period. Options granted to employeeswho leave our company prior to exercising their options may be reissued.

We also had 513,660 options outstanding as of December 31,2005 that were granted by Vialog under its 1996 and 1999 stock option plans, ofwhich 513,660 were exercisable as of such date. In accordance with the mergeragreement, the Vialog stock options remain outstanding and are on the sameterms and conditions, except the holder now receives a right to receive one ofour ADSs (which represent one-half of one ordinary share) based on the sameexchange ratio used in connection with the merger. We are currently not able tocomply with this exchange requirement because the corporate authorizationrequired under French law has expired. If Vialog option holders were toexercise their options before our shareholders provide us a new authorizationto grant ordinary shares (to be delivered in the form of ADSs to the Vialogoption holders) upon the exercise of Vialog stock options, we would only bepermitted to provide such Vialog option holders the cash difference between theexercise price of their Vialog options and the market price of our ADSs on theexercise date. Because the exercise price of the outstanding Vialog stockoptions is above the current market value of our ADSs, we do not believe thatwe will need to resort to this temporary procedure as we believe that it isunlikely that Vialog stock option holders will exercise their options before wereceive the necessary corporate authorizations from our shareholders at ourupcoming annual shareholders’ meeting.

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At our next extraordinary shareholders’ meeting,scheduled for June 16, 2006, we plan to ask our shareholders to authorizeour board of directors, for a period of twenty-six months, to grantsubscription options and/or purchase options to our employees and our seniormanagement. The proposed resolution would authorize the grant of options givingrights to no more than 2.8 million of our shares. Under the proposedauthorization, the board of directors will set the conditions under which theoptions are granted, and the terms and conditions of their exercise, includingthe exercise price.

For additional detailsregarding our stock option plans, see Note 10 to our consolidated financialstatements included in this annual report.

**Convertible Bondsand Warrants**

On August 6, 1999, we issued 1,524,390 3%convertible bonds, each with a principal amount of €18.37,for €16.40each. As issued, each bond was convertible into one of our ordinary shares and,unless converted, was due September 1, 2004. As of December 31, 2005,none of these 3% convertible bonds remain outstanding. The terms of these bondswere modified in connection with our financial restructuring, which isdescribed in more detail under Item 5 “Operating and Financial Review andProspects—Liquidity and Capital Resources.” In accordance with the modificationof the terms of the bonds, we repaid 50% of the principal of these bonds on September 1,2004 and we repaid the remaining 50% of the outstanding principal on October 31,2005.

In connection with our acquisition of Astound, on March 27,2001, we issued 1,103,200 notes, which are convertible into our ordinaryshares. As issued, each note gave the right to one of our ordinary shares. Inconnection with our 2003 financial restructuring and the recapitalization of February 2006,the terms of the notes were modified and each note now gives the right to 1.30of our shares. Of these notes, 156,109 and 30,700 were issued in exchange forthe future exercise of replacement options and special options, respectively.As of December 31, 2005, 65,067 of the convertible notes remainoutstanding, and 42,613 replacement options and 30,700 special options have yetto be converted.

We have no warrantsoutstanding.

**Share CapitalResolutions**

At an extraordinary general meeting held on June 28,2002, our shareholders authorized our board of directors to increase our sharecapital, through the issuance—with preferential subscription rights—of sharesand/or other securities granting access, immediately or in the future, toshares of the company, by an aggregate maximum nominal amount of €30 millionfor a period ending 26 months from the date of such shareholders’ meeting.This resolution was used in connection with our 2003 subscription rightsoffering as part of our financial restructuring. At our extraordinary generalmeeting held on June 28, 2005, our shareholders renewed thisauthorization, extending it to allow issuances with or without preferentialsubscription rights in a maximum nominal amount of €100 million and increasesof share capital by incorporation of premiums, reserves, profits or by anyother means in a maximum nominal amount of €10 million, each for aperiod of 26 months from the date of that meeting. Including the authorizationto issue shares reserved for employees and the authorization to issue shares inconsideration for contributions in kind described in the following paragraphs,the authorized aggregate maximum nominal amount of share capital increasesunder these resolutions is €213 million.

In addition, at the extraordinary general meeting heldon June 5, 2003, our shareholders authorized our board of directors toincrease our share capital, through the issuance of shares reserved for certainemployees, by an aggregate maximum nominal amount of €1 millionfor a period ending 26 months from the date of such shareholders’ meeting. Atour extraordinary general meeting held on June 28, 2005, our shareholdersrenewed this authorization for an additional five-year period, with an expresswaiver of the 

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preferential subscriptionrights of our shareholders with respect to any shares to be issued under thisauthorization.

In addition, at ourextraordinary general meeting held on June 28, 2005 our shareholdersauthorized our board of directors to issue shares without preferredsubscription rights in consideration for contributions in kind of shares orsecurities up to a maximum of 10% of our share capital. This authorization isvalid for a period of 26 months and allows our board of directors to determinethe terms and conditions of any issue.

**B.   Memorandumand Articles of Association**

**General**

Our company is a *sociétéanonyme*, a form of limited liability company, organized under thelaws of France. Our company is registered with the *Registre du Commerce et Sociétés de Montpellier* (Registry ofCommerce and Companies of Montpellier, France) under No. B339-697-021.

In this section, we summarize material informationconcerning our share capital, together with material provisions of applicableFrench law and our *statuts*, anEnglish translation of which has been filed as an exhibit under Item 19 to thisannual report. For a description of the provisions of our *statuts*relating to our board of directorsand statutory auditors, see Item 6 “Directors, Senior Management and Employees.”You may obtain copies of our *statuts*in French from the *greffe* (Clerk)of the *Registre du Commerce et Sociétés deMontpellier*. Our *statuts*were amended following our June 28, 2005 shareholders’ meeting, whichvoted to authorize the board of directors to issue non-convertible debtsecurities, and to reflect the results of our February 2006recapitalization. A copy of our amended *statuts*is filed as an exhibit to this annual report on Form 20-F.

Our *statuts* specify that our corporate affairsare governed by:

·       applicablelaws and regulations (in particular title II of the French Commercial Code);and

·       the*statuts*themselves.

At our extraordinarygeneral meeting on June 28, 2005, our shareholders voted to amend our *statuts* to take advantage of newprovisions of the French Commercial Code that allow the transfer of corporateauthority for the issuance of non-convertible debt securities from the ordinarymeeting of shareholders to the board of directors. The ordinary meeting ofshareholders remains competent to decide the issue of debt securities on a caseby case basis.

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**CorporateGovernance Exemptions**

Inassociation with our listing on Nasdaq National Market in April 2001, weapplied for and were granted certain exemptions from the corporate governancerequirements of the rules of the Nasdaq National Market, based on NasdaqMarketplace Rule 4350(a). These exemptions were granted on the basis thatcompliance with the rules of the Nasdaq National Market would be contraryto the generally accepted business practices in France and/or would be inviolation of the French Commercial Code. We are required to disclose theexemptions we receive from Nasdaq National Marketplace Rule 4350. Thefollowing table sets forth the exemptions we have received.

| Nasdaq National Market Requirement                                                                                                                                                                                                                                                                                             | ** ** | **Applicable Exemption**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *Distribution of Annual and  Interim Reports** **(Marketplace  Rule 4350(b)(1))*

Issuers are  required to distribute to shareholders and to file with Nasdaq a copy of  their annual report prior to their annual meeting*.*                                                                                        |       | Under the French  Commercial Code, annual and interim reports are not automatically distributed  to shareholders by a company. Instead, we are required to make our annual  report available at our corporate headquarters and to mail it to shareholders  upon request.

We file our  annual reports with the Securities and Exchange Commission by electronic  filing through the EDGAR system. In addition, under the deposit agreement  relating to our ADSs, we have agreed to provide annual reports to the  depositary so that the depositary may arrange for distribution of such  information to holders of our ADSs.                                                                                                                                                                                        |
| *Audit Committee****(Marketplace Rule 4350(d)(1)(C))*

The audit  committee charter is required to specify the outside auditor’s ultimate  responsibility to the board of directors and the audit committee, which  should be empowered to select, evaluate and, where appropriate, replace the  outside auditors*.* |       | Under the French  Commercial Code, a company’s statutory auditor is nominated for a six-year  term by the general shareholders’ meeting and may be replaced by dismissal or  otherwise during such term only by court order and only under certain  enumerated circumstances.

The replacement  by dismissal or otherwise of a statutory auditor by either the board of  directors or the audit committee would violate the French Commercial Code. Our  audit committee has adopted a charter setting forth its responsibilities and  duties, but these do not include selecting, evaluating or replacing the  outside auditors.

For additional  information regarding our audit committee, see Item 6 “Directors, Senior  Management and Employees—Board Practices—Audit Committee.” |

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| *Quorum**(Marketplace  Rule 4350(f))*

Issuers’ by-laws are required to establish a minimum quorum of 331¤3% for any meeting of the holders of common stock.                                                                    |   | The French  Commercial Code requires that the quorum for an ordinary general  shareholders’ meeting consist of the holders of shares constituting 25% of  the voting power of a company’s outstanding shares entitled to vote at the  ordinary meeting.

For additional  information regarding our quorum requirements, see Item 10 “Additional  Information—Memorandum and Articles of Association—Quorum.”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *Solicitation of Proxies****(Marketplace Rule 4350(g))*

Each issuer is  required to solicit proxies and to provide proxy statements for all meetings  of shareholders. Copies of such proxy solicitations are to be provided to  Nasdaq. |   | The French  Commercial Code does not require that we solicit proxies or provide proxy  statements for meetings of shareholders. In accordance with the French  Commercial Code and our statuts,  we inform shareholders of all meetings in a public notice, which notice  states the requirements for admission to the meeting. Meeting the requirement  to solicit proxies and provide proxy statements for shareholder meetings  would be contrary to accepted business practice in France.

Under the deposit  agreement relating to our ADSs, holders of our ADSs receive notices of  shareholders’ meetings, including an agenda describing matters to be decided  at the meeting and instructions on how to vote at the shareholders’ meetings  either in person or through a person having a proxy specifically designated  by the shareholder. A mechanism is in place for beneficial owners of ADSs to  register as shareholders for purposes of voting either in person or through a  designated proxy.

For additional  information regarding proxies and the information we provide to shareholders,  see Item 10 “Additional Information—Memorandum and Articles of  Association—Shareholders’ Meetings and Voting Rights” and “—Proxies and Votes  by Mail.” |

 

**ShareholderIdentification**

Our *statuts* allow us to obtain from EuroclearFrance the name, nationality, address and number of shares held by the holdersof our securities that have, or may in the future have, voting rights. If wehave reason to believe that an individual on any list provided by EuroclearFrance holds for the account of another person, our *statuts* allow us to request such information regardingbeneficial ownership directly of any shareholder named on the list provided byEuroclear France. See “—Form, Holding and Transfer of Shares” below.

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**Shareholders’Meetings and Voting Rights**

***General***

In accordance with the French Commercial Code, thereare three types of shareholders’ meetings, ordinary, extraordinary and special.

Ordinary generalmeetings of shareholders are required for matters such as:

·       electing,replacing and removing directors;

·       appointingindependent auditors;

·       approvingthe annual financial statements;

·       declaringdividends or authorizing dividends to be paid in shares provided the *statuts* contain a provision to thateffect; and

·       approvalsof stock repurchase programs.

Extraordinarygeneral meetings of shareholders are required for approval of matters such asamendments to our *statuts*,including any amendment required in connection with extraordinary corporateactions. Extraordinary corporate actions include:

·       changingour company’s name or corporate purpose;

·       increasingor decreasing our share capital;

·       creatinga new class of equity securities;

·       authorizingthe issuance of securities granting access to our share capital or granting theright to receive debt securities;

·       establishingany other rights to equity securities;

·       sellingor transferring substantially all of our assets; and

·       thevoluntary liquidation of our company.

Special meetings ofshareholders of a certain category of shares (such as, among others, shareswith double voting rights) are required for any modification of the rightsderived from that category of shares. The resolutions of the shareholders’general meeting affecting these rights are effective only after approval by therelevant special meeting.

***Annual Ordinary Meetings***

The FrenchCommercial Code requires our board of directors to convene an annual ordinarygeneral meeting of shareholders for approval of the annual accounts. Thismeeting must be held within six months of the end of each fiscal year. Thisperiod may be extended by an order of the President of the Commercial Court.The board of directors may also convene an ordinary or extraordinary meeting ofshareholders upon proper notice at any time during the year. If the board ofdirectors fails to convene a shareholders’ meeting, our independent auditorsmay call the meeting. In case of bankruptcy, our liquidator or court-appointedagent may also call a shareholders’ meeting in some instances. Any of thefollowing may request the court to appoint an agent for the purpose of callinga shareholders’ meeting:

·       oneor several shareholders holding at least 5% of our share capital;

·       anyinterested party in cases of urgency;

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·       dulyqualified associations of shareholders who have held their shares in registeredform for at least two years and who together hold at least 1% of the votingrights of our company; or

·       the workers’ council incase of emergency.

***Notice of Shareholders’ Meetings***

We must announce general meetings at least 30 days inadvance by means of a preliminary notice, which is published in the *Bulletin des Annonces Légales Obligatoires*,or “BALO.” The preliminary notice must first be sent to the AMF. The AMF alsorecommends that, prior to or simultaneously with the publication of thepreliminary notice, a summary of the notice be published in a newspaper ofnational circulation in France. The preliminary notice must contain, amongother things, the agenda, a draft of the resolutions to be submitted to theshareholders and the procedure for voting by mail.

At least 15 days prior to the date set for a firstcall, and at least 6 days prior to any second call, we must send a final noticecontaining the final agenda, the date, time and place of the meeting and otherinformation for the meeting. Such final notice must be sent by mail to allregistered shareholders who have held shares in registered form for more thanone month prior to the date of the final notice and published in a newspaperauthorized to publish legal announcements in the local administrativedepartment *(département)* in whichour company is registered as well as in the BALO, with prior notice having beengiven to the AMF. If no shareholder has proposed any new resolutions to besubmitted to the vote of the shareholders at the meeting and provided that theboard of directors has not altered the draft resolutions included in thepreliminary notice, we are not required to publish the final notice; publishinga preliminary notice that stipulates that it is equivalent to a final noticewill be deemed sufficient.

In general,shareholders can only take action at shareholders’ meetings on matters listedon the agenda. As an exception to this rule, shareholders may take action withrespect to the dismissal of directors and certain other matters even thoughthese actions have not been included on the agenda. Additional resolutions tobe submitted for approval by the shareholders at the meeting may be proposed tothe board of directors, for recommendation to the shareholders, within ten daysof the publication of the preliminary notice in the BALO by:

·       oneor several shareholders together holding a specified percentage of shares;

·       aduly qualified association of shareholders who have held their shares inregistered form for at least two years and who together hold at least 1% of ourvoting rights; or

·       theworkers’ council.

The board of directors must submit these resolutionsto a vote of the shareholders after having made a recommendation thereon.

Following the publicationof the final notice, a shareholder may submit written questions to the board ofdirectors relating to the agenda for the meeting. The board of directors mustrespond to these questions during the meeting.

**Attendance andVoting at Shareholders’ Meetings**

In general, each shareholder is entitled to one voteper share at any general meeting, except for holders of shares with doublevoting rights (which are described above under “—Share Capital”). Shareholdersmay attend ordinary general meetings and extraordinary general meetings andexercise their voting rights subject to the conditions specified in the FrenchCommercial Code and our *statuts*.There is no requirement that a shareholder have a minimum number of shares inorder to attend or to be represented at an ordinary or extraordinary generalmeeting.

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In order to participate in any general meeting, aholder of registered shares must have its shares registered in its name in ashareholder account maintained by us or on our behalf by an agent appointed byus at least two days prior to the date of the meeting.

Similarly, a holder ofbearer shares must obtain from the accredited financial intermediary (*intermédiaire financier habilité*) withwhom such holder has deposited its shares, a certificate (*certificat d’immobilisation*) indicatingthe number of bearer shares owned by such holder and evidencing the holding ofsuch shares in its account until the date of the meeting. Such certificate mustbe deposited at the place specified in the notice of the meeting at least twodays before the meeting.

**Proxies and Votesby Mail**

In general, all shareholders who have properlyregistered their shares may participate in general meetings. Shareholders mayparticipate in general meetings either in person or by proxy. Shareholders mayvote in person, by proxy or by mail.

Proxies will be sent to any shareholder on request. Inorder to be counted, such proxies must be received at our registered office, orat any other address indicated on the notice convening the meeting, prior tothe date of the meeting (in practice, we request that shareholders returnproxies at least three business days prior to the meeting). A shareholder maygrant proxies only to his or her spouse or to another shareholder. Ashareholder that is a corporation may grant proxies to a legal representative.Alternatively, the shareholder may send us a blank proxy without nominating anyrepresentative. In this case, the chairman of the meeting will vote the blankproxies in favor of all resolutions proposed or approved by the board ofdirectors and against all others.

With respect to votes bymail, we must send shareholders a voting form upon request. The completed formmust be returned to us at least three days prior to the date of theshareholders’ meeting.

**Quorum**

The FrenchCommercial Code requires that shareholders together holding at least 20% of theshares entitled to vote must be present in person, or vote by mail or by proxy,in order to fulfill the quorum requirement for:

·       anordinary general meeting; and

·       anextraordinary general meeting where only an increase in our share capital isproposed through incorporation of reserves, profits or share premium.

The quorum requirement is at least 25% of the sharesentitled to vote, on the same basis, for any other extraordinary generalmeeting.

For a special meeting of holders of a certain categoryof shares, the quorum requirement is one-third of the shares entitled to votein that category, on the same basis.

If a quorum is not presentat a meeting, the meeting is adjourned. When an adjourned meeting is resumed,there is no quorum requirement for an ordinary meeting or for an extraordinarygeneral meeting where only an increase in our share capital is proposed throughincorporation of reserves, profits or share premium. However, only questionsthat were on the agenda of the adjourned meeting may be discussed and votedupon. In the case of any other reconvened extraordinary general meeting orspecial meeting, shareholders having at least 20% of the shares entitled tovote (or voting shares belonging to the relevant category for special meetingsof holders of shares of such specific category) must be present in person orvoting by mail or by proxy for a quorum. If a quorum is not present, thereconvened meeting may be adjourned for a maximum of two months. Nodeliberation by the shareholders may take place without a quorum.

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**Majority**

A simple majority of shareholders may pass aresolution at either an ordinary general meeting or an extraordinary generalmeeting only concerning a capital increase by incorporation of reserves,profits or share premium. At any other extraordinary general meeting and at anyspecial meeting of holders of a specific category of shares, a two-thirdsmajority of the shareholder votes cast is required.

Abstention from voting by those present or thoserepresented by proxy or voting by mail is counted as a vote against theresolution submitted to a shareholder vote.

Under the French CommercialCode, shares of a company held by entities controlled by that company are notentitled to voting rights and do not count for quorum or majority purposes.

**Shareholder Rights**

Under French law, a two-thirds majority vote at theextraordinary shareholders’ meeting is required to change our *statuts*, which set out the rightsattaching to our shares.

The rights of a class of shareholders can be amendedonly after a special meeting of the class of shareholders affected has takenplace. The voting and quorum requirements applicable to this type of specialmeeting are the same as those applicable to an extraordinary general meeting,except that the quorum requirements for a special meeting are 50% of the votingshares, or 25% upon resumption of an adjourned meeting.

As previously noted, our shares currently constituteour only class of capital stock.

A unanimous shareholdervote is required to increase liabilities of shareholders.

**FinancialStatements and Other Communications with Shareholders**

In connection with anyshareholders’ meeting, we must provide a set of documents including our annualreport and a summary of the results of the five previous fiscal years to anyshareholder who so requests.

**Dividends**

We may only distributedividends out of our “distributable profits”, plus any amounts held in ourreserve that the shareholders decide to make available for distribution, otherthan those reserves that are specifically required by law or our *statuts*. “Distributable profits” consistof our unconsolidated net profit in each fiscal year, as increased or reducedby any profit or loss carried forward from prior years, less any contributionsto the reserve accounts pursuant to law or our *statuts*.

***Legal Reserve***

The French Commercial Coderequires us to allocate 5% of our unconsolidated statutory net profit for eachyear to our legal reserve fund before dividends may be paid with respect tothat year. Funds must be allocated until the amount in the legal reserve isequal to 10% of the aggregate nominal value of the issued and outstanding sharecapital. This restriction on the payment of dividends also applies to each ofour French subsidiaries on an unconsolidated basis. At December 31, 2005,our legal reserve was €145,848, representing 0.8%of the aggregate nominal value of our issued and outstanding share capital asof that date. The legal reserve of any company subject to this requirement mayonly be distributed to shareholders upon liquidation of the company.

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***Approval of Dividends***

According to the FrenchCommercial Code, our board of directors may propose a dividend for approval atthe annual general meeting of shareholders. If we have earned distributableprofits since the end of the preceding fiscal year, as reflected in an interimincome statement certified by our auditors, our board of directors maydistribute interim dividends to the extent of the distributable profits for theperiod covered by the interim income statement. Our board of directorsexercises this authority subject to French law and regulations and may do sowithout obtaining shareholder approval.

***Distribution of Dividends***

Dividends are distributed to shareholders pro rataaccording to their respective holdings of shares. In the case of interimdividends, distributions are made to shareholders on the date of our board ofdirectors’ meeting in which the distribution of interim dividends is approved.The actual dividend payment date is decided by the shareholders at an ordinarygeneral meeting or by our board of directors in the absence of such a decisionby the shareholders. Shareholders who own shares on the actual payment date areentitled to the dividend.

Dividends may be paid incash or, if the shareholders’ meeting so decides by ordinary resolution, inkind, provided that all shareholders receive a whole number of assets of thesame nature paid in lieu of cash. Our *statuts*provide that, upon a decision of the shareholders’ meeting taken by ordinaryresolution, each shareholder may be given the choice to receive his dividend incash or in shares.

***Timing of Payment***

According to the FrenchCommercial Code, we must pay any existing dividends within nine months of theend of our fiscal year, unless otherwise authorized by court order. Dividendson shares that are not claimed within five years of the date of declaredpayment revert to the French State.

**Changes in ShareCapital**

***Increasesin Share Capital***

As provided by the French Commercial Code, our sharecapital may be increased only with the shareholders’ approval at anextraordinary general meeting following the recommendation of our board ofdirectors. Increases in our share capital may be effected by:

·       issuing additional shares,

·       increasing the nominalvalue of existing shares,

·       exercise of rights attachedto securities that grant access to our share capital, or

·       creating a new class ofequity securities.

Increases in share capital by issuing additionalsecurities may be effected through one or a combination of the following:

·       in consideration for cash,

·       in consideration for assetscontributed in kind,

·       through an exchange offer,

·       by conversion of debtsecurities previously issued,

·       by capitalization ofprofits, reserves or share premiums, or

·       subject to variousconditions, in satisfaction of debt incurred by our company.

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Decisions to increase theshare capital through the capitalization of reserves, profits and/or sharepremiums require the approval of an extraordinary general meeting, acting underthe quorum and majority requirements applicable to ordinary shareholders’meetings. Increases effected by an increase in the nominal value of sharesrequire unanimous approval of the shareholders, unless effected bycapitalization of reserves, profits or share premiums. All other capitalincreases require the approval of an extraordinary general meeting acting underregular quorum and majority requirements. See “—Quorum” and “—Shareholders’Meetings and Voting Rights” above.

Since the entry into forceof French**order 2004-604 ofJune 24, 2004, our shareholders may delegate to our board of directorseither the general authority (*délégation decompétence*) to conduct any increase in share capital or the power (*délégation de pouvoir*) to conduct aspecified share capital increase. Our board of directors may further delegateto our chief executive officer or, subject to our chief executive officer’sapproval, to a deputy chief executive officer, the power to conduct a specifiedshare capital increase. We have decided not to appoint deputy chief executiveofficers such that, as a matter of law, these powers may only be entrusted toour chief executive officer.

***Decreases in ShareCapital***

According to the FrenchCommercial Code, any decrease in our share capital requires approval by theshareholders entitled to vote at an extraordinary general meeting. The sharecapital may be reduced either by decreasing the nominal value of theoutstanding shares or by reducing the number of outstanding shares. The numberof outstanding shares may be reduced either by an exchange of shares or by therepurchase and cancellation of shares. Holders of each class of shares must betreated equally unless each affected shareholder agrees otherwise.

Our shareholders maydelegate the right to effect a decrease in our share capital to our board ofdirectors provided that our shareholders have previously approved the decrease.

**PreferentialSubscription Rights**

According to the FrenchCommercial Code, if we issue specific kinds of additional securities, currentshareholders will have preferential subscription rights to these securities ona pro rata basis. These preferential rights require us to give prioritytreatment to current shareholders. The rights entitle the individual or entitythat holds them to subscribe to an issue of any securities that may increasethe share capital of our company by means of a cash payment or a set-off ofcash debts. Preferential subscription rights are transferable during thesubscription period relating to a particular offering. These rights may also belisted on the Eurolist market of Euronext Paris.

Preferential subscriptionrights with respect to any particular offering may be waived by a vote ofshareholders holding a two-thirds majority of the shares entitled to vote at anextraordinary general meeting. Our board of directors and our independentauditors are required by French law to present reports that specificallyaddress any proposal to waive preferential subscription rights. In the event ofa waiver, the issue of securities must be completed within the periodprescribed by law.

Shareholders also maynotify us that they wish to waive their own preferential subscription rightswith respect to any particular offering if they so choose.

The shareholders maydecide at an extraordinary general meeting to give the existing shareholders anon-transferable priority right to subscribe to the new securities, during alimited period of time.

In the event of a capital increase withoutpreferential subscription rights to existing shareholders, French law requiresthat the capital increase be made at a price equal to or exceeding the averagemarket price of the shares on the Eurolist market of Euronext Paris during thethree trading days prior to the determination of the subscription price of thecapital increase. Any discount on this price may not be greater than 5%.

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**Form, Holding andTransfer of Shares**

***Form of Shares***

Our *statuts* provide that the shares may beheld in either bearer form or registered form at the option of the holder.

***Holding of Shares***

In accordance with French law relating to thedematerialization of securities, shareholders’ ownership rights are representedby book entries instead of share certificates. We maintain a share account withEuroclear France (a French clearing system, which holds securities for itsparticipants) for all shares in registered form, which is administered byNatexis Banques Populaires. In addition, we maintain separate accounts in thename of each shareholder either directly or, at a shareholder’s request,through the shareholder’s accredited intermediary. Each shareholder accountshows the name of the holder and the number of shares held. Natexis BanquesPopulaires issues confirmations (*attestationsd’inscription en compte*) to each registered shareholder as to sharesregistered in the shareholder’s account, but these confirmations are notdocuments of title.

Shares of a listed company may also be issued inbearer form. Shares held in bearer form are held and registered on theshareholder’s behalf in an account maintained by an accredited financialintermediary and are credited to an account at Euroclear France maintained bysuch intermediary. Each accredited financial intermediary maintains a record ofshares held through it and issues certificates of inscription for the shares itholds. Transfers of shares held in bearer form may only be made throughaccredited financial intermediaries and Euroclear France.

Shares held by persons whoare not domiciled in France may be registered in the name of intermediaries whoact on behalf of one or more investors. Under French law, when shares are soheld, we are entitled to request from such intermediaries the names of theinvestors. Also, we may request any legal person (*personne morale*) who holds more than 2.5% of our shares, todisclose the name of any person who owns, directly or indirectly, more than athird of its share capital or of its voting rights. A person not providing thecomplete requested information in time will be, until provision of the completerequested information, denied the right to vote and suspended the right todividends, and may in addition be deprived by a French court of either itsvoting rights or its dividends or both for a period of up to five years.

***Transfer of Shares***

Our *statuts*do not contain any restrictions relating to the transfer of shares.

Registered shares must beconverted into bearer form before being transferred on the Eurolist market onthe shareholder’s behalf and, accordingly, must be registered in an accountmaintained by an accredited financial intermediary on the shareholder’s behalf.A shareholder may initiate a transfer by giving instructions to the relevantaccredited financial intermediary. For additional information regarding theEurolist market, see Item 9 “The Offer and Listing—Markets.” For dealings onEurolist, a tax assessed on the price at which the securities were traded, or *impôt sur les opérations de bourse*, ispayable at the rate of 0.3% on transactions of up to €153,000and at a rate of 0.15% thereafter. This tax is subject to a rebate of €23per transaction and a maximum assessment of €610 per transaction.However, the tax is not applicable to transactions on shares of a company whoseaverage market capitalization over the last 60 trading days preceding thetransaction does not exceed €150 million andnon-residents of France are not required to pay this tax. A fee or commissionis payable to the broker involved in the transaction, regardless of whether thetransaction occurs within or outside France. No registration duty is normallypayable in France, unless a transfer instrument has been executed in France.

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**Redemption ofShares**

Under French law, ourboard of directors is entitled to redeem a set number of shares as authorizedby the extraordinary shareholders’ meeting. In the case of such anauthorization, the shares redeemed must be cancelled within one month after theend of the offer to purchase such shares from shareholders. However, sharesredeemed on the open market need not be cancelled if the company redeeming theshares grants options on or awards those shares to its employees within oneyear of the acquisition. See also “—Trading in Our Own Shares” below.

**Liquidation Rights**

If we are liquidated, any assets remaining afterpayment of our debts, liquidation expenses and all of our remaining obligationswill be first distributed to repay in full the nominal value of our shares. Anysurplus will be distributed *pro rata*among shareholders in proportion to the nominal value of their shareholdings.

As of December 31,2005, our unconsolidated shareholders’ equity represented less than one half ofour share capital. In accordance with French law, our board of directorssubmitted to our extraordinary general meeting of shareholders, held on June 28,2005, a resolution acknowledging our insufficient equity and proposing thecontinuation of our company’s activities. Our shareholders approved thisresolution. Under French law, we are required to remedy this situation by December 31,2007 by either reducing our nominal share capital or increasing our equity suchthat our equity will be at least equal to one half of our nominal sharecapital. If we fail to remedy this situation, our company will be subject toliquidation under French law.

**Requirements forHoldings Exceeding Certain Percentages**

The French Commercial Code provides that any individualor entity, acting alone or in concert with others, that becomes the owner,directly or indirectly, of more than 5%, 10%, 15%, 20%, 25%, 331¤3%, 50%, 662¤3%, 90% or 95% of the outstanding sharesor voting rights of a listed company in France, such as our company, or thatincreases or decreases its shareholding or voting rights above or below any ofthose percentages, must notify the company, within five trading days of thedate it crosses the threshold, of the number of shares it holds and theirvoting rights. The individual or entity must also notify the AMF within fivetrading days of the date it crosses the threshold. Registered intermediariesholding shares in custody must comply with the preceding obligation wheneverthe aggregate holdings of their clients cross such threshold, notwithstandinghis own and each client’s individual reporting obligations as the proprietaryowner of the shares. The AMF makes the notice public.

French law and AMF regulations impose additionalreporting requirements on persons who acquire more than 10% or 20% of theoutstanding shares or voting rights of a listed company. These persons mustfile a report with the company and the AMF within 10 trading days of the datethey cross the threshold. In the report, the acquirer must specify if it actsalone or in concert with others and specify its intentions for the following 12-monthperiod, including whether or not it intends to continue its purchases, toacquire control of the company in question or to seek nomination to the boardof directors. The AMF makes the report public. The acquirer must also publish apress release stating its intentions in a financial newspaper of nationalcirculation in France. The acquirer may amend its stated intentions, providedthat it does so on the basis of significant changes in its own situation orshareholding. Upon any change of intention, it must file a new report.

In order to permit holders to give the requirednotice, we must publish in the BALO, not later than 15 calendar days after theannual ordinary general meeting of shareholders, information with respect tothe total number of voting rights outstanding as of the date of such meeting.In addition, if the number of outstanding voting rights changes by 5% or morebetween two annual ordinary general meetings, we must 

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publish in the BALO,within 15 calendar days of such change, the number of voting rightsoutstanding. In both cases, we must also provide the AMF with a written noticesetting forth the number of voting rights outstanding. The AMF publishes thetotal number of voting rights so notified by all listed companies in a weeklynotice (*avis*), which sets forththe date each such number was last updated.

If any proprietary owner fails to comply with thelegal notification requirement, the shares or voting rights in excess of therelevant threshold will be deprived of voting rights for all shareholders’meetings until the end of a two-year period following the date on which theowner complies with the notification requirements. In addition, any shareholderwho fails to comply with these requirements may have all or part of its votingrights suspended for up to five years by the Commercial Court at the request ofour Chairman, any shareholder or the AMF, and may be subject to criminal fines.

Under AMF regulations, and subject to limitedexemptions granted by the AMF, any person or persons acting in concert thatcrosses the ownership threshold of 331¤3% of the share capital or voting rightsof a French listed company must initiate a public tender offer for the balanceof the share capital of such company. In addition, our *statuts* provide that any person or entity,acting alone or in concert with others, who holds or ceases to hold, directlyor indirectly, a portion equal to, or greater than, 1% of the share capital ora multiple of such portion up to the threshold of 34% of the share capital,must notify us by certified mail, return receipt requested, within five tradingdays from the day any of such thresholds is crossed, of the total number of sharesand securities granting access to our shares and voting rights it owns directlyand in concert, as well as the number of securities granting access in thefuture to the capital of the company and the voting rights potentially attachedthereto.

Any person or entity thatfails to comply with such notification requirements, upon the request, recordedin the minutes of the shareholders’ meeting, of one or more shareholdersholding at least 5% of our share capital made at the general shareholders’meeting, will be deprived of voting rights with respect to the shares in excessof the relevant threshold for all shareholders’ meetings until the end of atwo-year period following the date on which such person or entity complies withthe notification requirements.

**Purchase of Our OwnShares**

Under French law, our company may not issue shares toitself. However, we may, either directly or through a financial intermediaryacting on our behalf, acquire up to 10% of our share capital within a maximumperiod of 18 months, provided our shares are listed on a regulated market.Prior to acquiring our shares for this purpose, we must publish a descriptionof the share buy-back program (“*descriptifdu programme*”).

If we repurchaseour shares, we have three options. We may:

·       keepthe shares;

·       sellor transfer them, including to our employees under an authorized profit-sharingplan or stock option plan; or

·       cancelthe shares, with our shareholders’ approval at an extraordinary generalmeeting.

We may not cancel more than 10% of our outstandingshare capital over any 24-month period. Our repurchase of shares alsomust not result in our company holding, directly or through a person acting onour behalf, more than 10% of our outstanding share capital, or if we havedifferent classes of shares, 10% of the shares of each class.

We must hold any shares we repurchase in registeredform. These shares also must be fully paid up. Shares repurchased by us aredeemed outstanding under French law but are not entitled to dividends or votingrights, and we may not exercise the preferential subscription rights attachedto them.

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The shareholders, at an extraordinary general meeting,may decide not to take these shares into account in determining thepreferential subscription rights attached to the other shares. However, if theshareholders decide to take them into account, we must either sell the rightsattached to the shares we hold on the market before the end of the subscriptionperiod or distribute them to the other shareholders on a *pro rata* basis.

At our generalshareholder’s meeting held on June 28, 2005, our shareholders authorizedus to purchase and possibly cancel up to 10% of our shares for an 18-monthperiod (*i.e.*, through November 28,2006). Under this authorization, the maximum purchase price for any share couldnot be greater than €19 and the selling priceof any such share could not be lower than €1. This authorization issubject to a maximum amount of €35 million. Sharesrepurchased under this proposal could be used to:

·       respondto market conditions;

·       regulatemarket prices;

·       provideshares to our employees and officers under stock option plans;

·       provideshares to our employees and officers under share purchase plans or companysavings plans;

·       allocatefree shares to our employees;

·       financeexternal growth;

·       grantshares following the exercise of rights attached to securities that give theright to receive shares; or

·       optimizeour capital allocation.

During 2005, we did notacquire any of our own shares.

**Trading in Our OwnShares**

European regulation n°2273/2003, dated December 22,2003 (which we refer to in this section as the Regulation), in application ofEuropean directive 2003/6/CE, dated January 2003, known as the “MarketAbuse Directive” and relating to share repurchase programs and thestabilization of financial instruments, came into effect on October 13,2004.

The entry into force of the Regulation has resulted inchanges in the manner in which share buy-back programs are implemented. Underthe Regulation, an issuer will benefit from a safe harbor for share transactionsthat comply with certain conditions relating in particular to the pricing,volume and timing of transactions (see below) and that are made in connectionwith a share buy-back program the purpose of which is:

·       toreduce the share capital through the cancellation of treasury shares; and/or

·       to meet obligations arisingfrom debt financial instruments exchangeable into equity instruments and/or theimplementation of employee share option programs or other employee shareallocation plans.

Transactions that are carried out for other purposesthan those mentioned above do not qualify for the safe harbor. However, aspermitted by the Directive, which provides for the continuation of existingpractices that do not constitute market manipulation and that conform withcertain criteria set forth in European directive 2004/72, dated April 29,2004, the AMF published exceptions on March 22, 2005 to permit thefollowing existing market practices:

·       transactionspursuant to a liquidity agreement entered into with a financial servicesintermediary that complies with the ethics guidelines (*charte de déontologie*) approved by theAMF; and

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·       the purchase of shares thatare subsequently used as acquisition currency in a business combinationtransaction.

TheAMF confirmed that all transactions directed at maintaining the liquidity of anissuer’s shares must be conducted pursuant to a liquidity agreement with afinancial services intermediary acting independently.

In order to qualify for the safe harbor, the issuermust comply with the following timing, pricing and volume restrictions:

·       ashare purchase must be made at a price no higher than the last independenttransaction or, if higher, the last independent bid price, on the market wherethe share purchase is made;

·       subject to certainexceptions for illiquid securities, the issuer must not purchase more than 25%of the average daily volume of the shares in any one day on the regulatedmarket on which the purchase is carried out. The average daily volume figuremust be based on the average daily volume traded in the month preceding themonth of public disclosure of the share buy-back program and fixed on thatbasis for the authorized period of that program. If the program does not makereference to this volume, the average daily volume figure must be based on theaverage daily volume traded in the 20 trading days preceding the date ofpurchase.

In addition, an issuer must not:

·       resellthe shares acquired pursuant to the buy-back program (without prejudice to theright of the issuer to meet its obligations under employee share optionprograms or other employee share allocation plans or to use shares asacquisition currency as mentioned above); it being further specified that suchprohibition is not applicable if the share buy-back program is implemented by afinancial services intermediary pursuant to a liquidity agreement as mentionedabove;

·       effectany transaction during a “blackout period” imposed by the applicable law of theMember State in which the transaction occurs (i.e., under French law, duringthe period between the date on which the company is aware of insiderinformation and the date on which such information is made public and duringthe 15 day period preceding the date of publication of annual and interimfinancial statements), without prejudice to transactions carried out pursuantto a liquidity agreement as mentioned above; or

·       effect any transaction insecurities with respect to which the issuer has decided to defer disclosure ofany material, non-public information.

For additional information regarding our sharepurchases, see Item 16E “Purchases of Equity Securities by the Issuer andAffiliated Purchasers.”

**Ownership of Shares byNon-French Persons**

The French Commercial Code currently does not limitthe right of non-residents of France or non-French persons to own and voteshares. However, non-residents of France must file an administrative noticewith French authorities in connection with the acquisition of a controllinginterest in our company. Under existing administrative rulings, ownership of 331¤3% or more of our sharecapital or voting rights is regarded as a controlling interest, but a lowerpercentage might be held to be a controlling interest in certain circumstancesdepending upon factors such as:

·       the acquiring party’sintentions,

·       the acquiring party’sability to elect directors, or

·       financialreliance by the company on the acquiring party.

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**Enforceability ofCivil Liabilities**

We are a limited liability company (*société anonyme*) organized under the lawsof France, and many of our directors and officers reside outside the UnitedStates. In addition, a substantial portion of our assets is located in France.As a result, it may be difficult for investors to effect service of processwithin the United States on such persons.

It may also be difficult to enforce against them,either inside or outside the United States, judgments obtained against them inU.S. courts, or to enforce in U.S. courts, judgments obtained against them incourts in jurisdictions outside the United States, in any action based on civilliabilities under the U.S. federal securities laws. There is doubt as to theenforceability against such persons in France, whether in original actions orin actions to enforce judgments of U.S. courts, of liabilities based solely onthe U.S. federal securities laws. Actions for enforcement of foreign judgmentsagainst such persons would require such persons who are of French nationalityto waive their right under Article 15 of the French Civil Code to be suedonly in France. We believe that no such French persons have waived such rightwith respect to actions predicated solely upon U.S. federal securities laws. Inaddition, actions in the United States under the U.S. federal securities lawscould be affected under certain circumstances by the French law of July 26,1968, as amended, which may preclude or restrict the obtaining of evidence inFrance or from French persons in connection with such actions. Additionally,awards of punitive damages in actions brought in the United States or elsewheremay be unenforceable in France.

**C.   MaterialContracts**

On April 20, 2001, we entered into a U.S.$125 million credit facility, and we have amended this credit facility onseveral occasions, the most recent being an amendment and restatement of thefacility on January 27, 2006. We repaid a significant portion of thisfacility following our February 2006 share offering. This credit facilityis described in more detail under Item 5 “Operating and Financial Review andProspects—Liquidity and Capital Resources” and is included (along with the January 2006amendment and restatement) as an exhibit under Item 19.

**D.   ExchangeControls**

**French exchange control regulationscurrently do not limit the amount of payments that we may remit tonon-residents of France. Laws and regulations concerning foreign exchangecontrols do require, however, that all payments or transfers of funds made by aFrench resident to a non-resident be handled by an accredited intermediary. InFrance, all registered banks and most credit establishments are accreditedintermediaries.**

**E.**   Taxation

**French Taxation**

The following generally summarizes the material Frenchtax consequences of purchasing, owning and disposing of our shares or ADSs. Thestatements relating to French tax laws set forth below are based on the laws inforce as of the date hereof, and are subject to any changes in applicable laws andtax treaties after such date.

This discussion is intended only as a descriptivesummary and does not purport to be a complete analysis or listing of allpotential tax effects of the purchase, ownership or disposition of our sharesor ADSs.

Thefollowing summary does not address the treatment of shares or ADSs that areheld by a resident of France (except for purposes of describing related taxconsequences for other holders) or in connection with a permanent establishmentor fixed base through which a holder carries on business or performs personalservices in France, or by a person that owns, directly or indirectly, 5% ormore of the stock of our company. Moreover, the following discussion of the taxtreatment of dividends only deals with distributions made on or afterJanuary 1, 2006.

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There are currently noprocedures available for holders that are not U.S. residents to claim taxtreaty benefits in respect of dividends received on ADSs or shares registeredin the name of a nominee. Such holders should consult their own tax advisor aboutthe consequences of owning and disposing of ADSs.

***Taxation ofDividends on Shares***

***Withholding tax***

In France, dividends arepaid out of after-tax income. Dividends paid to non-residents normally aresubject to a 25% French withholding tax. However, non-resident holders that areentitled to and comply with the procedures for claiming benefits under anapplicable tax treaty may be subject to a reduced rate (generally 15%) ofFrench withholding tax. If a non-resident holder establishes its entitlement totreaty benefits prior to the payment of a dividend, then French tax generallywill be withheld at the reduced rate provided under the treaty.

***New Tax Credit***

As a result of the reforms implemented by the FrenchFinance Law of 2004 and the French Finance Law of 2006, beginningJanuary 1, 2006, French resident individuals will only be taxed on 60% ofthe dividends they receive and, in addition to the annual allowance that isalready applicable, are entitled to a tax credit equal to 50% of all dividendsreceived within one year (the “Tax Credit”). The Tax Credit is capped at €230for married couples and members of a union agreement subject to joint taxationand €115for single persons, widows or widowers, divorcees or married persons subject toseparate taxation.

Dividends paid to non-residents are not normallyeligible for the Tax Credit described above. However, qualifying non-residentindividuals may, pursuant to the provisions of an applicable tax treaty enteredinto between France and their country of residence, benefit from a refund ofthe Tax Credit (net of applicable withholding tax) under certain conditions,subject to compliance with the procedures for claiming benefits under theapplicable treaty. Non-resident holders that are legal entities, pension fundsor other tax-exempt holders are no longer entitled to tax credit payments fromthe French Treasury. The French tax authorities have not yet issued anyguidance with regard to the procedure for the refund of the Tax Credit tonon-resident individuals.

***Taxation on Sale orDisposition of Shares***

Subject to the more favorable provisions of a relevanttax treaty, holders that are not residents of France for tax purposes, do nothold shares or ADSs in connection with the conduct of a business or professionin France, and have not held more than 25% of our dividend rights (*droits aux bénéfices sociaux*), directly orindirectly, at any time during the preceding five years, are not subject toFrench income tax or capital gains tax on the sale or disposition of shares orADSs.

A 1.1% *ad valorem* registration duty (subject to amaximum of €4,000 per transfer) applies to certaintransfers of shares or ADSs in French companies. This duty does not apply totransfers of shares or ADSs in listed companies that are not evidenced by awritten agreement, or if any such agreement is executed outside France.

***Estate and Gift Tax***

France imposes estate andgift tax on shares or ADSs of a French corporation that are acquired byinheritance or gift. The tax applies without regard to the tax residence of thetransferor. However, France has entered into estate and gift tax treaties witha number of countries pursuant to which, assuming certain conditions are met,residents of the treaty country may be exempted from such tax or obtain a taxcredit.

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***Wealth Tax***

Individuals who are notresidents of France for purposes of French taxation are not subject to a wealthtax *(impôt de solidarité sur la fortune)*in France as a result of owning an interest in the share capital of a Frenchcorporation, provided that such ownership interest is less than 10% of thecorporation’s share capital and does not enable the shareholder to exerciseinfluence over the corporation. Double taxation treaties may provide for a morefavorable tax treatment.

**Taxation of U.S.Investors**

The following is asummary, under current law, of the material French and U.S. federal income taxconsequences of an investment in our shares or ADSs to beneficial ownersthereof that are residents of the United States for purposes of the income taxconvention between the United States and France (the “Treaty”) and that arefully eligible for benefits under the Treaty in respect of such investment (a “U.S.holder”). You generally will be entitled to Treaty benefits in respect of ourshares or ADSs if you are:

·       thebeneficial owner of the shares or ADSs (and the dividends paid with respectthereto);

·       forU.S. federal income tax purposes, an individual resident of the United States,a U.S. corporation, or a partnership, estate or trust to the extent its incomeis subject to taxation in the United States in its hands or in the hands of itspartners or beneficiaries;

·       notalso a resident of France for French tax purposes;  and

·       notsubject to an anti-treaty shopping article that applies in limitedcircumstances.

Special rules apply to pension funds and certainother tax-exempt investors.

This summary does not purport to be a comprehensivedescription of all of the tax considerations that may be relevant to anyparticular investor, and does not discuss tax considerations that arise from rules ofgeneral application or that generally are assumed to be known by investors. Inparticular, the summary does not deal with shares that are not held as capitalassets, and does not address the tax treatment of holders that are subject tospecial rules, such as banks, insurance companies, dealers in securities orcurrencies, regulated investment companies, persons that elect mark-to-markettreatment, persons holding shares as a position in a synthetic security,straddle or conversion transaction, persons that own, directly or indirectly,5% or more of our voting stock or 10% or more of our outstanding capital andpersons whose functional currency is not the U.S. dollar. The summary is basedon laws, treaties, regulatory interpretations and judicial decisions in effecton the date hereof, all of which are subject to change.

This summary does not discuss the treatment of sharesor ADSs that are held in connection with a permanent establishment or fixedbase through which a holder carries on business or performs personal servicesin France. Moreover, the following discussion of the tax treatment of dividendsonly deals with distributions made on or after January 1, 2006.

You should consult your own tax advisers regarding thetax consequences of the purchase, ownership and disposition of shares or ADSsin the light of your particular circumstances, including the effect of anystate, local or other national laws.

For U.S. federal incometax purposes, a U.S. holder’s ownership of the company’s ADSs will be treatedas ownership of the company’s underlying shares.

***Dividends***

As discussed in more detail above, the French FinanceLaw of 2004 implemented a reform of the French tax treatment of distributionsand dividends paid by French companies.

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Generally, dividend distributions to non-residents ofFrance are subject to French withholding tax at a 25% rate and are not eligiblefor the benefit of the Tax Credit available to French resident individuals, asdescribed above.

However, under the Treaty, you can claim the benefitof a reduced dividend withholding tax rate of 15%.

In addition, if you are an individual U.S. holder,subject to the discussion of the Tax Credit above, you will be entitled to arefund of the Tax Credit, less a 15% withholding tax, provided that you aresubject to U.S. federal income tax on the Tax Credit and the dividend to whichit relates. The French tax authorities have not yet issued guidance withrespect to the procedure for the refund of the Tax Credit to non-residentindividuals.

French withholding tax will be withheld at the 15%Treaty rate if you have established before the date of payment that you are aresident of the United States under the Treaty by following the simplifiedprocedure described below.

You must include the gross amount of cash dividends and Tax Credits paid in respect ofshares or ADSs, without reduction for French withholding tax, in ordinaryincome on the date that you are treated as having received those payments,translating amounts paid in euro into U.S. dollars using an exchange rate ineffect on that date. Such income generally will be foreign source income forU.S. federal income tax purposes. Subject to certain exceptions for short-termand hedged positions, an individual U.S. holder generally will be subject toU.S. taxation at a maximum rate of 15% in respect of dividends received before 2011if those dividends are “qualified dividends.” Dividends paid in respect ofshares or ADSs generally will be qualified dividends if we were not, in theyear prior to the year in which the dividend was paid, and are not, in the yearin which the dividend is paid, a passive foreign investment company for U.S.federal income tax purposes (a “PFIC”). Based on our audited financialstatements and relevant market and shareholder data, we believe that we were nottreated as a PFIC for U.S. federal income tax purposes with respect to our 2004or 2005 taxable year. In addition, based on our audited financial statementsand current expectations regarding the value and nature of our assets, thesources and nature of our income, and relevant market data, we do notanticipate becoming a PFIC for our 2006 taxable year.

Dividends will not beeligible for the dividends received deduction generally allowed to U.S.corporations. French withholding tax at the 15% Treaty rate will be treated asa foreign income tax that, subject to generally applicable limitations underU.S. law, is eligible for credit against your U.S. federal income tax liabilityor, at your election, may be deducted in computing taxable income. Foreign taxcredits will not be allowed for withholding taxes imposed in respect of certainshort-term or hedged positions in securities. You should consult your own taxadvisers concerning the implications of these rules in the light of yourparticular circumstances.

***Procedures forClaiming Treaty Benefits***

The French tax authorities issued new guidelines inthe *Instruction*n° 4 J-1-05,dated February 25, 2005 that significantly changed the formalities to becomplied with by non-resident shareholders, including U.S. holders, in order toobtain the reduced withholding tax rate on distributions made on or after January 1,2005.

Pursuant to the new guidelines, U.S. holders caneither claim Treaty benefits under a simplified procedure or under the normalprocedure. The procedure to be followed depends on whether the application forTreaty benefits is filed before or after the dividend payment.

In order to benefit from the lower rate of withholdingtax applicable under the Treaty before the payment of the dividend, you must usethe simplified procedure and are no longer allowed to file a Form RF 1 AEU-No. 5052 or a Form RF 1 B EU-No. 5053.

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The simplifiedprocedure entails completing and delivering, as set out in the *Instruction* n° 4 J-1-05, acertificate stating that:

·       youare a U.S. resident within the meaning of the Treaty;

·       thedividend is not derived from a permanent establishment or a fixed base that youown in France;

·       thedividend received is subject to tax in the United States.

In order to be eligible for Treaty benefits, pensionfunds and certain other tax-exempt U.S. holders must comply with the simplifiedprocedure described above, though they may be required to supply additionaldocumentation evidencing their entitlement to those benefits.

If the certificate is not filed prior to the dividendpayment, a withholding tax will be levied at the 25% rate, and you would haveto claim a refund for the excess under the normal procedure by filing anapplication for refund no later than December 31 of the second yearfollowing the year in which the dividend is paid.

The applicable forms to claim a refund under thenormal procedure are currently Form RF 1 A EU-No. 5052 or Form RF1 B EU-No. 5053. These forms will likely be replaced by new forms in thenear future.

Copies of the simplified certificate and of the formsto be used in the normal procedure are available from the U.S. Internal RevenueService and from the *Centre des Impôts desNon-Résidents* (9 rue d’Uzès, 75094 Paris Cedex 2).

Finally, please note that,as mentioned above, the French tax authorities have not yet issued any guidancewith respect to the procedure for the refund of the Tax Credit to non-residentindividuals.

***Capital Gains***

Under the Treaty, you will not be subject to Frenchtax on any gain derived from the sale or exchange of shares or ADSs, unless thegain is effectively connected with a permanent establishment or fixed basemaintained by you in France.

For U.S. federal incometax purposes, gain or loss you realize on the sale or other disposition of the sharesor ADSs will be capital gain or loss, and will be long-term capital gain orloss if the shares were held for more than one year. The net amount oflong-term capital gain recognized by an individual U.S. holder before January 1,2011 generally is subject to taxation at a maximum rate of 15%. Your ability tooffset capital losses against ordinary income is limited.

***French Estate andGift Tax***

Under the estate and gifttax convention between the United States and France, a transfer of shares orADSs by gift or by reason of the death of a U.S. holder entitled to benefitsunder that convention will not be subject to French gift or inheritance tax, solong as the donor or decedent was not domiciled in France at the time of thetransfer, and the shares or ADSs were not used or held for use in the conductof a business or profession through a permanent establishment or fixed base inFrance.

***French Wealth Tax***

The French wealth tax doesnot generally apply to shares or ADSs of a U.S. Holder if the holder is a residentof the United States for purposes of the Treaty.

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**U.S. InformationReporting and Backup Withholding Rules**

Payments of dividends andsales proceeds that are made within the United States or through certainU.S.-related financial intermediaries are subject to information reporting andmay be subject to backup withholding unless the holder (i) is acorporation or other exempt recipient or (ii) provides a taxpayeridentification number and certifies that no loss of exemption from backupwithholding has occurred. Holders that are not U.S. persons generally are notsubject to information reporting or backup withholding. However, such a holdermay be required to provide a certification of its non-U.S. status in connectionwith payments received within the United States or through a U.S.-relatedfinancial intermediary.

**F.   Dividendsand Paying Agents**

Not applicable.

**G.   Statementby Experts**

Not applicable.

**H.   Documentson Display**

We aresubject to the information requirements of the U.S. Securities Exchange Act of1934, as amended, (the “Exchange Act”) and, in accordance therewith, we arerequired to file reports, including annual reports on Form 20-F, andother information with the U.S. Securities and Exchange Commission. Any filingsthat we are required to make electronically, including this annual report andthe exhibits hereto, are available to the public over the Internet at theCommission’s Web site at http://www.sec.gov. All public materials filed withthe Commission, including this annual report and the exhibits hereto, may alsobe inspected and copied at the Commission’s public reference room inWashington, D.C. Please call the Commission at 1-800-SEC-0330for further information on the public reference room.

**I**.   SubsidiaryInformation.

**Not applicable.**

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**Item 11.   Quantitativeand Qualitative Disclosures about Market Risk**

**Foreign CurrencyExchange Rate Risk**

We prepare our financial statements in euros. In 2005,49.8% of our total revenue was recorded in U.S. dollars, 28.5% in euros, 9.8%in British pounds, 2.7% in Swedish crowns and 5.1% in Australian dollars.Purchases and expenses in U.S. dollars, euros, British pounds, Swedish crownsand Australian dollars represented approximately 56.2%, 23.9%, 10.7%, 2.8% and4.9%, respectively, of our cost of revenue and operating expenses in 2005. Adeclining of the euro against the U.S. dollar, the British pound, the Swedishcrown and the Australian dollar and other currencies in which we receiverevenue could increase our reported revenue and reduce our reported operatingand net loss. From early 2002, the euro has increased from U.S. $0.8813 pereuro to U.S. $1.1797 per euro as of December 30, 2005. This augmentationhas decreased the euro value of the U.S. dollar revenue that we have earned inour U.S. activities. The impact on our revenue of the fluctuations of the euroagainst the dollar is described above under Item 5 “Operating and FinancialReview and Prospects—Results of Operations.”

We incurred a net foreignexchange gain of €3,679 thousand in 2003, anet foreign exchange loss of €1,595 thousand in 2004 anda net foreign exchange loss of €366 thousand in 2005. Theimpact of currency exchange movements on our results of operations is typicallymitigated by the fact that we incur expenses in local currency, and that weborrow in local currency, mainly in the United States, although this does noteliminate the entire impact. The extent to which changes in our revenues hashistorically been affected by currency exchange rate movements is describedabove. When deemed appropriate, we have entered into transactions to hedge ourexposure to foreign exchange risks incurred in connection with borrowings,including by entering into forward contracts to purchase U.S. dollars andBritish pounds. The sensitivity corresponding to a change in the exchange rateof the U.S. dollar against the euro of $0.01 on our consolidated revenue andnet income would have been €891 thousand in 2005 (or 0.6% of ourconsolidated revenue) and €98 thousand in 2005 (or 3.4% of ourconsolidated net income), respectively.

**Interest Rate Risk**

We are exposed to interest rate risk in our financinginstruments. At December 31, 2005, we had variable rate debt totaling €74.6million (or U.S. $88.1 million). In order to reduce our exposure tofluctuations in interest rates, we have entered, when deemed appropriate, intotransactions to hedge our exposure to interest rates.

On December 11, 2003, we purchased a newfinancial instrument called CAP 6 months 3.00% Knock-Out (KO) 5.00% to hedgeour exposure on our outstanding debt denominated in U.S. dollars for the periodfrom May 1, 2004 to October 30, 2008, inclusive. We paid a totalprice of U.S. $354 thousand for the full period covered by the Knock-Out CAP.No other amount is payable hereafter for this financial instrument, which ispaid for in full upon purchase. The fair value adjustment of the Knock-Out CAPas a result of changes in market interest rates is recognized as otherfinancial income (expenses). At December 31, 2005, the fair value of theKnock-Out CAP, classified on the line “Other assets” of the consolidatedbalance sheet, amounted to U.S. $670 thousand (€568thousand).

We do not use derivative financial instruments fortrading or other speculative purposes. We do not utilize any financialinstruments other than that mentioned in the preceding paragraph and in thenotes to our consolidated financial statements included in this annual report.

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Thesensitivity corresponding to a change in short term interest rates of 1% on ournet variable debt under our U.S. $125 million credit facility after hedging(U.S. $49.7 million) over 2006 is equal to U.S. $491 thousand, which represents8.4% of the total interest expense we recorded in 2005.

| ** **                                                                               | ** ** | **Less than 1 year*** | ** ** | **1 to 5 years**** | ** ** | **More than 5 years** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------------|------------|--------------------------------------|------------|
| ** **                                                                               | ** ** | **(in thousands)**              | ** ** |
| Variable debt under the U.S. $125 million  credit facility (less revolving portion) |       |                                 | $          | 81,383                            |       |                                 |       | $ | 50,938 |   |   |   | $ | — |   |   |
| Variable debt hedged through use of derivate  instruments                                |       |                                 | (32,250    | )                                 |       |                                 | (13,167    | ) |   |   | — |   |   |
| Net variable debt  under the U.S. $125 million credit facility                           |       |                                 | $          | 49,133                            |       |                                 |       | $ | 37,771 |   |   |   | $ | — |   |   |

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*                     Average amount outstanding in 2006.

**               Average amount outstanding over the next five years.

***Interest Rate Riskafter February 2006 Recapitalization***

In the first quarter of 2006, we completed arecapitalization that included the amendment and restatement of our U.S. $125million credit facility, a U.S. $65 million equity offering and a subsequentprepayment of a portion of the outstanding debt under our U.S. $125 millioncredit facility. See Note 7 to the consolidated financial statements inthis annual report for additional information.

Assumingthe impact of this recapitalization, the sensitivity corresponding to a changein short term interest rates of 1% on our net variable debt under our U.S. $125million credit facility after hedging (U.S.$13.6 million) over 2006 is equal toU.S. $136 thousand, which represents 2.3% of the total interest expense werecorded in 2005.

| ** **                                                      | ** ** | **Less than 1 year*** | ** ** | **1 to 5 years**** | ** ** | **More than 5 years** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------------|------------|--------------------------------------|------------|
| ** **                                                      | ** ** | **(in thousands)**              | ** ** |
| Variable debt under the U.S. $125 million  credit facility |       |                                 | $          | 45,879                            |       |                                 |       | $ | 25,244 |   |   |   | $ | — |   |   |
| Variable debt hedged through use of derivate  instruments       |       |                                 | (32,250    | )                                 |       |                                 | (13,167    | ) |   |   | — |   |   |
| Net variable debt  under the U.S. $125 million  credit facility |       |                                 | $          | 13,629                            |       |                                 |       | $ | 12,077 |   |   |   | $ | — |   |   |

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*                     Average amount outstanding at December 31,2005 reflecting impact of January 27, 2006 amendment to the creditfacility and March prepayment of approximately $50 million.

**               Average amount outstanding over the next five yearsreflecting impact of January 27, 2006 amendment to the credit facility andMarch prepayment of approximately $50 million.

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**Item 12.**   Descriptionof Securities other than Equity Securities

**A.   DebtSecurities**

Not applicable.

**B.   Warrantsand Rights**

Not applicable.

**C.   OtherSecurities**

Not applicable.

**D.   AmericanDepositary Shares**

**American DepositaryReceipts**

The Bank of New York, as depositary, will execute anddeliver ADRs. ADRs are American Depositary Receipts. Each ADR is a certificateevidencing a specific number of ADSs. Each ADS represents one-half of one ofour ordinary shares (or the right to receive one-half of one of our ordinary shares)deposited with the following:

·       SociétéGénérale, 32 Rue Champ de Tir, Nantes, France.

Each ADS will also represent any other securities,cash or other property that may be held by the depositary under the depositagreement. The Bank of New York’s Corporate Trust Office is located at 101Barclay Street, New York, New York 10286. The principal executive office of thedepositary is located at One Wall Street, New York, New York 10286.

You may hold ADSs either directly (by having an ADRregistered in your name) or indirectly through your broker or other financialinstitution. If you hold ADSs directly, you are an ADR holder. This descriptionassumes you hold your ADSs directly. If you hold your ADSs indirectly, you mustrely on the procedures of your broker or other financial institution to assertthe rights of ADR holders described in this section. You should consult withyour broker or financial institution to find out what those procedures are.

As an ADR holder, we will not treat you as one of ourshareholders and you will not have shareholder rights. French law governsshareholder rights. The depositary will be the holder of the shares underlyingyour ADSs. As a holder of ADRs, you will have ADR holder rights. A depositagreement among Genesys S.A., the depositary, you, as an ADR holder, and thebeneficial owners of ADRs sets out ADR holder rights as well as the rights andobligations of the depositary. New York law governs the deposit agreement andthe ADRs.

The following is a summaryof the deposit agreement. For more complete information, you should read theentire deposit agreement and the ADR itself. Directions on how to obtain copiesof these from the Securities and Exchange Commission are provided in thesection entitled “Additional Information.” You may also inspect a copy of thedeposit agreement at the depositary’s Corporate Trust Office.

**Share Dividends andOther Distributions**

***How Will YouReceive Dividends And Other Distributions on the Shares?***

The depositary has agreed to pay to you the cashdividends or other distributions that it or the custodian receives on shares orother deposited securities after deducting its fees and expenses. You willreceive these distributions in proportion to the number of ADSs you hold.

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*Cash.**  *The depositary will convert anycash dividend or other cash distribution paid on the shares into U.S. dollars,if it can do so on a reasonable basis and can transfer the U.S. dollars to theUnited States. Although the deposit agreement requires the depositary toconvert amounts paid into U.S. dollars as promptly as practicable, it does notfix a specific date for the determination of exchange rates for conversionsinto U.S. dollars.

If it is not possible to convert the amounts into U.S.dollars transferable to the United States on a reasonable basis or if anyapproval from a government or government agency is needed and is denied orcannot be obtained, the deposit agreement allows the depositary to distributethe dividends converted into U.S. dollars only to those ADR holders to whom itis possible to do so. It may distribute the dividends it cannot convert intoU.S. dollars to, or hold such dividends for, the account of the ADR holders towhom it does not distribute dividends in U.S. dollars. It will not invest thefunds it holds and it will not be liable for any interest.

Before making a distribution, any withholding taxesthat must be paid under French law will be deducted. The section entitled “Taxation—Taxationof Shareholders—France” explains the relevant French tax rules. The depositarywill distribute only whole U.S. dollars and cents and will round fractionalcents to the nearest whole cent. *If theexchange rates fluctuate during a time when the depositary cannot convert theeuros, you may lose some or all of the value of the distribution.*

*Shares.*   Thedepositary may, and at our request will, distribute new ADRs representing anyshares we distribute as a dividend or free distribution. The depositary willonly distribute whole ADRs. It will sell shares that would require it todeliver a fractional ADR and distribute the net proceeds in the same way as itdistributes cash. If the depositary does not distribute additional ADRs, theoutstanding ADRs will also represent the new shares.

*Rights to Receive Additional Shares.**   If we offer holders of ourshares any rights to subscribe for additional shares or any other rights, thedepositary may make these rights available to you. The depositary must firstconsult with us and we must furnish it with satisfactory evidence that it islegal to do so. If we do not furnish this evidence, and the depositary decidesit is practical to sell the rights, the depositary will sell the rights anddistribute the proceeds, in the same way as it distributes cash. The depositarymay allow rights that are not distributed or sold to lapse.*In thatcase, you will receive no value for them.

If the depositarymakes rights available to you, it will exercise the rights and purchase theshares on your behalf. The depositary will then deposit the shares and deliverADRs to you. It will only exercise rights if you pay it the exercise price andany other charges the rights require you to pay.

U.S. securitieslaws may restrict the sale, deposit, cancellation and transfer of ADRs issuedupon exercise of rights. For example, you may not be able to trade the ADRsfreely in the United States. In this case, the depositary may deliver ADRsunder a separate restricted deposit agreement that will contain the sameprovisions as the deposit agreement, except for changes needed to put therestrictions in place.

*OtherDistributions.*   The depositary will send to youanything else we distribute on deposited securities by any means it thinks islegal, fair and practical. If it cannot make the distribution in that way, thedepositary has a choice. It may decide to sell what we distributed anddistribute the net proceeds in the same way as it distributes cash or it maychoose any method to distribute the property it deems equitable andpracticable.

The depositary is notresponsible if it decides that it is unlawful or impractical to make distributionsavailable to any ADR holders. We have no obligation to register our ADSs,shares, rights or other securities under the Securities Act or to take anyother action to permit the distribution of ADRs, shares, rights or anythingelse to ADR holders. *This means that you maynot receive the distributions we make on our shares or any value for them if itis illegal or impractical for the depositary to make them available to you.*

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**Deposit, Withdrawaland Cancellation**

***How Does theDepositary Deliver ADRs?***

The depositary willdeliver ADRs if you or your broker deposit shares or evidence of rights toreceive shares with the custodian. Upon payment of its fees and expenses andany taxes or charges, such as stamp taxes or stock transfer taxes or fees, thedepositary will register the appropriate number of our ADSs in the names yourequest and will deliver the ADRs at its Corporate Trust Office to the personsyou request.

***How Do ADR HoldersCancel an ADR and Obtain Shares?***

You may turn in your ADRsat the depositary’s Corporate Trust Office. Upon payment of its fees andexpenses and any taxes or charges, such as stamp taxes or stock transfer taxesor fees, The Bank of New York will deliver (1) the underlying shares to anaccount designated by you; and (2) any other deposited securitiesunderlying the ADR at the office of a custodian or, at your request, risk andexpense, the depositary will deliver the deposited securities at its CorporateTrust Office.

**Voting Rights**

***How Do You Vote?***

You may instruct the depositary to vote the sharesunderlying your ADRs, but only if we ask the depositary to ask for yourinstructions. *Otherwise you will not be ableto exercise your right to vote unless you withdraw the shares from the ADRprogram and vote as an ordinary shareholder. However, you may not know aboutthe meeting sufficiently in advance to withdraw the shares*.

If we ask for your instructions, the depositary willnotify you of the upcoming vote and arrange to deliver our voting materials toyou. The materials will (1) describe the matters to be voted on; and (2) explainhow you may instruct the depositary to vote the shares or other depositedsecurities underlying your ADRs as you direct. For instructions to be valid,the depositary must receive them on or before the date specified. Thedepositary will try, as far as practical, subject to French law and theprovisions of our by-laws, to vote or to have its agents vote the shares orother deposited securities as you instruct.

Under a recent amendment to the deposit agreement, ifyou do not provide voting instructions, or if the voting instructions that youprovide are improperly completed, or if you provide a blank proxy, thedepositary will, subject to French law and the provisions of our by-laws, deemyou to have instructed the depositary to give a proxy to a person designated byus to vote the shares or other deposited securities underlying your ADRs infavor of resolutions presented or approved by our board of directors andagainst any other resolution not presented or approved by our board ofdirectors. *This means that if you do notcomplete the voting instructions correctly and return them to the depositary intime, the shares underlying your ADRs will be voted as recommended by our boardof directors.*

We cannot assure you that you will receive the votingmaterials in time to ensure that you can instruct the depositary to vote yourshares. The depositary and its agents are not responsible for failing to carryout voting instructions or for the manner of carrying out voting instructions. *This means that you may not be able to exercise yourright to vote and there may be nothing you can do if your shares are not votedas you requested.*

The deposit agreementallows the depositary and Genesys S.A. to change the voting procedures orrequire additional voting procedures in addition to the ones described above ifnecessary or appropriate to comply with French or United States law or ourby-laws. *For example, you might be requiredto arrange to have your ADSs deposited in a blocked account for a specifiedperiod of time prior to a shareholders’ meeting in order to be allowed to givevoting instructions.*

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**Fees and Expenses**

| *ADR  holders must pay:*                                                                                                                                                                     | * * | *For:*                                                                                                                                                                             |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| $5.00 (or less) per 100 ADSs (or portion thereof)                                                                                                                                            |     | Each issuance of  an ADS, including as a result of a distribution of shares or rights or other  property                                                                           |
|                                                                                                                                                                                         |     | Each cancellation of an  ADS, including if the deposit agreement terminates                                                                                                        |
| $.02 (or less) per ADS (or portion thereof)                                                                                                                                                  |     | Any cash payment                                                                                                                                                                   |
| Registration or Transfer Fees                                                                                                                                                                |     | Transfer and registration  of shares on the share register of the foreign registrar from your name to  the name of the depositary or its agent when you deposit or withdraw shares |
| Expenses of The Bank of New York                                                                                                                                                             |     | Conversion of  foreign currency to U.S. dollars Cable, telex and facsimile transmission  expenses Servicing of shares or deposited securities                                      |
| Taxes and other governmental charges the depositary  or the Custodian have to pay on any ADR or share underlying an ADR, for  example, stock transfer taxes, stamp duty or withholding taxes |     | As necessary                                                                                                                                                                       |

 

**Payment of Taxes**

You will be responsiblefor any taxes or other governmental charges payable on your ADRs or on thedeposited securities underlying your ADSs. The depositary may refuse totransfer your ADRs or allow you to withdraw the deposited securities underlyingyour ADSs until such taxes or other charges are paid. It may apply paymentsowed to you or sell deposited securities underlying your ADSs to pay any taxesowed and you will remain liable for any deficiency. If it sells depositedsecurities, it will, if appropriate, reduce the number of ADSs to reflect thesale and pay to you any proceeds, or send to you any property, remaining afterit has paid the taxes.

**Changes AffectingDeposited Securities**

*We:*

·       Changethe nominal or par value of our shares.

·       Distributesecurities on the deposited shares that are not distributed to you.

·       Reclassify,split up or consolidate any of the deposited securities.

·       Recapitalize,reorganize, merge, liquidate, sell all or substantially all of our assets, ortake any similar action.

*Then either:*

·       Thecash, shares or other securities received by the depositary will becomedeposited securities. Each ADS will automatically represent its equal share ofthe new deposited securities.

·       The depositary may, andwill if we ask it to, distribute some or all of the cash, shares or othersecurities it receives. It may also deliver new ADRs or ask you to surrenderyour outstanding ADRs in exchange for new ADRs identifying the new depositedsecurities.

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**Disclosure of Interests**

The obligation of a holder or other person with aninterest in our ordinary shares to disclose information under French law andunder our by-laws also applies to you and any other persons with an interest inthe ADRs other than the depositary. The consequences for failure to comply withthese provisions will be the same for you and any other persons with aninterest as for a holder of our ordinary shares. For additional informationregarding these obligations, see Item 10 “Additional Information—Memorandum andArticles of Association—Share Capital.”

**Amendment and Termination**

***How May the Deposit Agreement be Amended?***

We may agree with the depositary to amend the depositagreement and the ADRs without your consent for any reason. If the amendmentadds or increases fees or charges, except for taxes and other governmentalcharges or certain registration fees, cable, telex or facsimile transmissioncosts, delivery cots or other such expenses of the depositary, or prejudices asubstantial right of ADR holders, it will only become effective 30 days afterthe depositary notifies you of the amendment. At the time an amendment becomeseffective, you will be considered, by continuing to hold your ADR, to haveagreed to the amendment and to be bound by the ADRs and the deposit agreementas amended.

***How May the Deposit Agreement be Terminated?***

Thedepositary will terminate the agreement if we ask it to do so. The depositarymay also terminate the agreement if the depositary has told us that it wouldlike to resign and we have not appointed a new depositary bank within 60 days.In both cases, the depositary must notify you at least 30 days beforetermination.

After termination, the depositary and its agents willbe required to do only the following under the deposit agreement (1) collectdistributions on the deposited securities; and (2) deliver shares andother deposited securities upon cancellation of ADRs. One year or more aftertermination, the depositary may sell any remaining deposited securities bypublic or private sale. After that the depositary will hold the money itreceived on the sale, as well as any other cash it is holding under theagreement for the pro rata benefit of the ADR holders that have not surrenderedtheir ADRs. It will not invest the money, which it may hold unsegregated, andwill have no liability for interest. The depositary’s only obligations will beto account for the proceeds of the sale and other cash and with respect toindemnification. After termination, our only obligation will be with respect toindemnification and to pay certain amounts to the depositary.

**Limitations on Obligationsand Liability to ADR Holders**

***Limits on Our Obligations and Obligations of theDepositary; Limits on Liability to ADR holders***

The deposit agreementexpressly limits our obligations and the obligations of the depositary and itlimits our liability and the liability of the depositary. We and thedepositary:

·       areobligated only to take the actions specifically set forth in the depositagreement without negligence or bad faith;

·       arenot liable if either is prevented or delayed by law or circumstances beyond itscontrol from performing its obligations under the deposit agreement;

·       arenot liable if either exercises or fails to exercise discretion provided forunder the deposit agreement;

·       haveno obligation to become involved in a lawsuit or other proceeding related tothe ADRs or the deposit agreement on your behalf or on behalf of any otherparty;

·       arenot liable for any acts or omissions in reliance upon the advice of or anyinformation from any person reasonably believed in good faith to be competentto give such advice or information;

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·       mayrely upon any documents it believes in good faith to be genuine and to havebeen signed or presented by the proper party; and

·       arenot liable for any failure to carry out voting instructions or for the mannerin which a vote was cast, provided they act in good faith.

In the deposit agreement, we and the depositary agreeto indemnify each other under certain circumstances.

**Requirements forDepositary Actions**

Before the depositary will deliver or registertransfer of an ADR, make a distribution on an ADR, or process a withdrawal ofshares, the depositary may require:

·       paymentof stock transfer or other taxes or other governmental charges and transfer orregistration fees charged by third parties for the transfer of any shares orother deposited securities;

·       productionof satisfactory proof of the identity and genuineness of any signature or otherinformation it deems necessary;  and

·       compliancewith regulations it may establish, from time to time, consistent with thedeposit agreement, including presentation of transfer documents.

The depositary may refuse to deliver ADRs, registertransfers of ADRs or permit withdrawals of shares when the transfer books ofthe depositary or our transfer books are closed, or at any time if thedepositary or we think it advisable to do so.

**Your Right to Receive theShares Underlying Your ADRs**

You have the right to cancel your ADRs and withdrawthe underlying shares at any time except:

·       whentemporary delays arise when we or the depositary have closed our transfer booksor the deposit of shares is blocked in connection with voting at a shareholders’meeting, or the payment of dividends;

·       whenyou or other ADR holders seeking to withdraw shares owe money to pay fees,taxes and similar charges; or

·       whenit is necessary to prohibit withdrawals in order to comply with any laws orgovernmental regulations that apply to ADRs or to the withdrawal of shares orother deposited securities.

This right of withdrawal may not be limited by anyother provision of the deposit agreement.

**Pre-release of ADRs**

Unlesswe tell the depositary not to, the deposit agreement permits the depositary todeliver ADRs before deposit of the underlying shares. This is called apre-release of the ADRs. The depositary may also deliver shares uponcancellation of pre-released ADRs (even if the ADRs are cancelled before thepre-release transaction has been closed out). A pre-release is closed out assoon as the underlying shares are delivered to the depositary. The depositarymay receive ADRs instead of shares to close out a pre-release. The depositarymay pre-release ADRs only under the following conditions (1) before or atthe time of the pre-release, the person to whom the pre-release is being mademust represent to the depositary in writing that it or its customer owns theshares or ADRs to be deposited; (2) the pre-release must be fully collateralizedwith cash, U.S. government securities or other collateral that the depositaryconsiders appropriate; and (3) the depositary must be able to close outthe pre-release on not more than five business days’ notice. In addition, thedepositary will limit the number of ADSs that may be outstanding at any time asa result of pre-release, although the depositary may disregard the limit fromtime to time, if it thinks it is appropriate to do so. Under the terms of aside letter to the deposit agreement, the depositary has agreed not topre-release ADRs without our prior written consent.

96

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**PART II**

**Item 13.   Defaults,Dividend Arrearages and Delinquencies.**

Not applicable.

**Item 14.   MaterialModifications to the Rights of Security Holders and Use of Proceeds.**

Not applicable.

**Item 15.   Controlsand Procedures**

We have evaluated, withthe participation of our Chief Executive Officer and Chief Financial Officer,the effectiveness of our disclosure controls and procedures as of December 31,2005. There are inherent limitations to the effectiveness of any system ofdisclosure controls and procedures, including the possibility of human errorand the circumvention or overriding of the controls and procedures.Accordingly, even effective disclosure controls and procedures can only providereasonable assurance of achieving their control objectives. Based upon ourevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures were effective to providereasonable assurance that information required to be disclosed by us in thereports we file or submit under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the applicable rules andforms, and that it is accumulated and communicated to our management, includingthe Chief Executive Officer and Chief Financial Officer, as appropriate toallow decisions regarding required disclosure.

***French DescriptiveReport on Internal Controls***

Under French law, we arerequired to publish descriptions of the material elements of our internalcontrol procedures. The French report is not the equivalent of the report wewill be required to file under the Sarbanes-Oxley Act of 2002 beginning withthe annual report to be filed for the year ending December 31, 2006. AnEnglish translation of our French report is filed as an exhibit to this annualreport.

**Item 16.   [Reserved]**

**Item 16A.   AuditCommittee Financial Expert**

Our board of directors hasdetermined that Patrick S. Jones qualifies as an “audit committee financialexpert” within the meaning of this Item 16A. Our board of directors has alsodetermined that Mr. Jones is “independent” within the meaning of theapplicable rules of the Nasdaq National Market.

**Item 16B.   Codeof Ethics**

We have adopted a financial code of ethics, as definedin Item 16B of Form 20-F under the Exchange Act. Our financial codeof ethics applies to our Chief Executive Officer, Chief Financial Officer (whoalso acts as our Chief Accounting Officer) and persons performing similarfunctions, as designated from time to time. Our financial code of ethics is filedas an exhibit to this annual report under Item 19. If we amend the provisionsof our financial code of ethics that apply to our Chief Executive Officer,Chief Financial Officer and persons performing similar functions, or if wegrant any waiver of such provisions, we will disclose such amendment or waiver.

In accordance with the rules of the NasdaqNational Market, we have also adopted codes of business conduct and ethics thatapply to all directors, officers and employees. These codes of conduct provide standardsdesigned to deter wrongdoing and to promote honest and ethical conduct,including ethical handling of conflicts of interest, full and fair disclosurein public communications and compliance with 

97

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applicable governmental rules andregulations. Copies of our codes of business conduct and ethics are filed as anexhibit to this annual report under Item 19.

Our employee code ofbusiness conduct and ethics is currently effective with respect to all of ouremployees. The French labor inspector initially refused to permit theapplication of our code of business conduct and ethics in France. We appealedthis decision, and the decision on the appeal required us to amend the codeprior to its adoption in France. We have adopted an amended form of the code thatis now applicable to our employees in France.

**Item 16C.   PrincipalAccountant Fees and Services**

**Audit and Non-Audit Fees**

The following table sets forth the fees billed to us byour independent auditors, Ernst & Young during the years ended December 31,2004 and 2005:  

| ** **          | ** ** | **Year ended December 31,**  | ** ** |
|---------------------|------------|---------------------------------------------|------------|
| ** **          | ** ** | **2004**                                    | ** ** | **2005** | ** ** |
| ** **          | ** ** | **(in thousands of **€) | ** ** |
| Audit fees          |       |                                        | 413        |   |   | 499 |   |
| Audit-related  fees |       |                                        | 90         |   |   | 338 |   |
| Tax fees            |       |                                        | 275        |   |   | 258 |   |
| Other fees          |       |                                        | 5          |   |   | 0 |   |
| Total fees          |       |                                        | 783        |   |   | 1,095 |   |

 

Audit fees in the above tableare the aggregate fees billed by Ernst & Young in connection with (i) theaudit of our annual financial statements, (ii) the review of our interimfinancial statements, (iii) consultations on audit and accounting mattersthat arise related to the audit, and (iv) other audit services includingthe attendance at audit committee meetings. This information is presented as ofthe latest practicable date for this annual report on Form 20-F.

Audit-related fees in the abovetable are the aggregate fees billed by Ernst & Young for assurance andrelated services that are reasonably related to the performance of the annualaudit or interim reviews. This category primarily includes services relating tostatutory audits and regulatory filings, internal control assessments andreports on internal controls, and accounting consultations on matters notrelated to an audit or review.

Tax fees in the above table arefees billed by Ernst & Young for professional services rendered inconnection with tax compliance (preparation of original and amended taxreturns, claims for refund, etc.), and tax advice (assistance with tax auditsand appeals, technical advice from taxing authorities and tax planning).

Otherfees in the above table are fees billed by Ernst & Young primarilyrelated to human resources matters, and other permissible non-audit servicesnot classifiable under the other categories listed in the table above.

**Audit Committee Pre-Approval Policies and Procedures**

Our audit committee has established certain proceduresfor the approval of audit and permissible non-audit services and for the pre-approval of permissible non-auditservices to be provided by our independentauditors. Our audit committee establishes and approves in advance a list of allanticipated audit and permissible non-audit services, detailed as to the typeof service to be provided and the authorized amount for such service. Thechairperson of the audit committee is further authorized to approve engagementsfor permitted non-audit services up to a certain amount. The full auditcommittee 

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ratifies any authorizationso granted by the chairperson and expressly approves all permitted non-auditservices above such amount on a case-by-case basis.

During 2005, no serviceswere provided to our company by our independent auditors pursuant to the *de minimis* exception to the pre-approvalrequirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 ofRegulation S-X.

**Item 16D.   Exemptionsfrom the Listing Standards for Audit Committees**

Not applicable.

**Item 16E.   Purchasesof Equity Securities bythe Issuer and Affiliated Purchasers**

We do not have any currentpublicly announced share repurchase programs. We were authorized to purchaseand possibly cancel up to 0.5% of our outstanding shares (up to €1.8million) from the date of our May 26, 2004 shareholders’ meeting through November 26,2005. At our general shareholders’ meeting held on June 28, 2005, we wereauthorized to purchase and potentially cancel up to 10% of our shares. Thisauthorization is valid for an eighteen-month period and is subject to a maximumamount of €35million. This authorization will expire on December 27, 2006 and will notbe submitted for renewal at the shareholders’ meeting convened for June 16,2006. We did not acquire any of our own shares pursuant to this resolution orin any other manner during 2005. For additional information regarding our sharerepurchase program, see Item 10 “Additional Information—Memorandum and Articlesof Association—Purchase of Our Own Shares.”

**PART III**

**Item 17.   FinancialStatements**

See Item 18.

**Item 18.   FinancialStatements**

See pages F-1through F-44, incorporated herein by reference.

**Item 19.   Exhibits**

Pursuant to the rules and regulations of the SEC,we have filed certain agreements as exhibits to this Annual Report on Form 20-F.These agreements may contain representations and warranties by the parties.These representations and warranties have been made solely for the benefit ofthe other party or parties to such agreements and (i) may be intended notas statements of fact, but rather as a way of allocating the risk to one of theparties to such agreements if those statements turn out to be inaccurate, (ii) mayhave been qualified by disclosures that were made to such other party orparties and that either have been reflected in the company’s filings or are notrequired to be disclosed in those filings, (iii) may apply materialitystandards different from what may be viewed as material to investors and (iv) weremade only as of the date of such agreements or such other date(s) as maybe specified in such agreements and are subject to more recent developments.Accordingly, these representations and warranties may not describe our actualstate of affairs at the date hereof.

Documents filed as exhibits to this annual report:

| 1.1 |   | Bylaws*(statuts)*of  Genesys (English translation) (as amended by the General Meeting on  June 28, 2005 and to reflect the results of our February 2006  recapitalization). |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1 |   | Form of  Deposit Agreement (incorporated herein by reference to Exhibit A to the  Registration Statement on Form F-6 relating to our American  Depositary Shares).     |

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| 4.1  |   | U.S.  $125 million Credit Facility among Vialog Corporation, Genesys S.A., BNP  Paribas and Others dated April 20, 2001, as amended November 27  2001, as amended June 11, 2002 (incorporated herein by reference to  Exhibit 4.1 of our annual report on Form 20-F for the year  ended December 31, 2001 as filed with the SEC on June 12, 2002).                            |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.2  |   | Excerpt from the  Information Document *(Note d’Information)* of our  company relating to the terms and conditions of our 3% convertible bonds due  September 2004 (incorporated herein by reference to Exhibit 10.2 to  our Registration Statement on Form F-4, File No. 333-55392).                                                                                                        |
| 4.3  |   | Amendment to our  U.S. $125 million Credit Facility dated April 30, 2003  (incorporated herein by reference to Exhibit 4.3 of our annual report on  Form 20-F for the year ended December 31, 2002 as filed with  the SEC on May 15, 2003).                                                                                                                                             |
| 4.4  |   | Excerpt from the  Minutes of Genesys’ Compensation Committee, dated June 5, 2003, relating  to the termination payments to be made to Mr. François Legros in the  event of his termination or resignation (incorporated herein by reference to  Exhibit 4.4 of our annual report on Form 20-F for the year  ended December 31, 2003 as filed with the SEC on April 28, 2004). |
| 4.5  |   | Amendment to our  U.S. $125 million Credit Facility dated August 6, 2004  (incorporated herein by reference to Exhibit 4.5 of our annual report on  Form 20-F for the year ended December 31, 2004 as filed with  the SEC on May 2, 2005).                                                                                                                                              |
| 4.6  |   | Amended and  Restated Credit Facility dated January 27, 2006 (incorporated herein by  reference to Exhibit 99.1 to our Form 6-K filed with the SEC  on January 27, 2006).                                                                                                                                                                                                                         |
| 8.1  |   | For a list of our  significant subsidiaries, see Item 4 “Information on the  Company—Organizational Structure.”                                                                                                                                                                                                                                                                                        |
| 11.1 |   | Financial code of  ethics, required by Item 16B (incorporated herein by reference to  Exhibit 11.1 of our annual report on Form 20-F for the year  ended December 31, 2003 as filed with the SEC on April 28, 2004).                                                                                                                                                                              |
| 12.1 |   | Certifications by  François Legros, Chairman and Chief Executive Officer, and Michael E. Savage,  Chief Financial Officer, required by Section 302 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                                                                                      |
| 13.1 |   | Certifications by  François Legros, Chairman and Chief Executive Officer, and Michael E. Savage,  Chief Financial Officer, required by Section 906 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                                                                                      |
| 99.1 |   | Report of the  Chairman of the Board of Directors for 2003  as required by Art. 117 of the French  Financial Security Law* **(Loi  de Sécurité Financière)*(English Translation).                                                                                                                                                                                                                 |
| 99.2 |   | Codes of Business  Conduct and Ethics (required by Nasdaq Marketplace Rule 4350(n)).                                                                                                                                                                                                                                                                                                                             |

 

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**GENESYSS.A.**

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2005**

**U.S.GAAP**

|                                                                                                                                       | ** ** | **Page** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| Reports  of Independent Registered Public Accounting Firm                                                                             |       | F-2      |
| Consolidated  Balance Sheets at December 31, 2004 and 2005                                                                       |       | F-4      |
| Consolidated  Statements of Operations for the years ended December 31, 2003, 2004 and  2005                                     |       | F-5      |
| Consolidated  Statements of Changes In Shareholders’ Equity (Deficit) for the years ended  December 31, 2003, 2004 and 2005 |       | F-6      |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2003, 2004   and 2005                                    |       | F-7      |
| Notes To Consolidated  Financial Statements                                                                                           |       | F-8      |

 

F-1

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

The Board of Directors andShareholders

GenesysS.A.

Wehave audited the accompanying consolidated balance sheet of Genesys S.A. as of December 31,2005, and the related consolidated statements of operations, changes inshareholders’ equity (deficit) and cash flows for the year then ended. Theseconsolidated financial statements are the responsibility of Genesys’management. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting. Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audit provides a reasonable basisfor our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of Genesys S.A. at December 31, 2005, and the consolidatedresults of its operations and its cash flows for the year then ended, inconformity with accounting principles generally accepted in the United States.

|                   | /s/  ERNST & YOUNG LLP |
|-------------------|---------------------------------|
|              |                            |
|              |                            |
| McLean, Virginia  |                            |
| May 12, 2006 |                            |

 

F-2

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

The Board of Directors and ShareholdersGenesys S.A.

We have audited the accompanying consolidated balancesheet of Genesys S.A. as of December 31, 2004, and the related consolidatedstatements of operations, changes in shareholders' equity (deficit) and cashflows for the years ended December 31, 2003 and 2004. These consolidatedfinancial statements are the responsibility of Genesys' management. Ourresponsibility is to express an opinion on these consolidated financialstatements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. We were not engaged to perform an audit of the Company's internalcontrol over financial reporting. Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company's internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of Genesys S.A. at December 31, 2004, and the consolidated results ofits operations and its cash flows for the years ended December 31, 2003 and2004, in conformity with accounting principles generally accepted in the UnitedStates.

As discussed in Note 3, the consolidated financialstatements for the years ended December 31, 2003 and 2004 have been restated.

ERNST & YOUNG Audit

Represented by ChristineBlanc-Patin

Paris-La Défense, FranceMay 2, 2005,Except for Note 3 and Note 13, as to which the date is May 12, 2006

F-3

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**GENESYS S.A.**

**CONSOLIDATEDBALANCE SHEETS**

**(in thousands, except shareand per share data)**

| ** **                                                                                                            | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                            | ** ** | **2004**              | ** ** | **2005** | ** ** |
| ** **                                                                                                            | ** ** | **(restated)**        | ** ** | ** ** | ** ** |
| **ASSETS**                                                                                                            |       |                  |       |   |   |
| Current assets:                                                                                                       |       |                  |       |   |   |
| Cash and cash equivalents                                                                                             |       | €                | 7,361      |   | € | 5,789 |   |
| Restricted cash                                                                                                       |       | 1,194                 |       | 116 |   |
| Accounts receivable, less allowances of €2,100 and €1,547 at December 31, 2004 and  2005, respectively |       | 21,523                |       | 21,332 |   |
| Unbilled accounts  receivable                                                                                         |       | 6,260                 |       | 6,360 |   |
| Prepaid expenses                                                                                                      |       | 1,622                 |       | 2,862 |   |
| Other current assets                                                                                                  |       | 4,310                 |       | 3,587 |   |
| Total current assets                                                                                                  |       | 42,270                |       | 40,046 |   |
| Property and  equipment, net                                                                                          |       | 22,366                |       | 21,958 |   |
| Goodwill                                                                                                              |       | 21,834                |       | 21,931 |   |
| Customer lists,  net                                                                                                  |       | 15,798                |       | 12,331 |   |
| Technology and  other intangibles, net                                                                                |       | 72                    |       | — |   |
| Investment in  affiliated company                                                                                     |       | 212                   |       | 280 |   |
| Deferred tax  assets                                                                                                  |       | 448                   |       | 2,421 |   |
| Deferred financing  costs, net                                                                                        |       | 1,619                 |       | 139 |   |
| Other assets                                                                                                          |       | 1,493                 |       | 1,893 |   |
| Total assets                                                                                                          |       | €                | 106,112    |   | € | 100,999 |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                                              |       |                  |       |   |   |
| Current liabilities:                                                                                                  |       |                  |       |   |   |
| Current portion of long-term  debt                                                                                    |       | €                | 12,038     |   | € | 1,096 |   |
| Current portion of  capital lease obligations                                                                         |       | 187                   |       | 4 |   |
| Bank overdrafts                                                                                                       |       | 2,173                 |       | 1,851 |   |
| Accounts payable                                                                                                      |       | 9,488                 |       | 8,095 |   |
| Accrued liabilities                                                                                                   |       | 5,004                 |       | 5,079 |   |
| Accrued compensation                                                                                                  |       | 6,479                 |       | 7,054 |   |
| Taxes payable                                                                                                         |       | 6,667                 |       | 5,585 |   |
| Current portion of other  long-term liabilities                                                                       |       | 1,467                 |       | 627 |   |
| Other current liabilities                                                                                             |       | 1,488                 |       | 4,348 |   |
| Total current liabilities                                                                                             |       | 44,991                |       | 33,739 |   |
| Long-term  debt                                                                                                       |       | 64,713                |       | 74,941 |   |
| Capital lease  obligations                                                                                            |       | 60                    |       | 39 |   |
| Other long-term  liabilities                                                                                          |       | 1,244                 |       | 698 |   |
| Commitments and contingencies                                                                                         |       | —                |       | — |   |
| Shareholders’ equity (deficit):                                                                                  |       |                  |       |   |   |
| Ordinary shares: €1.00 nominal value; 18,307,756 shares  authorized,  issued and outstanding                     |       | 18,308                |       | 18,308 |   |
| Ordinary shares to be  issued: €1.00 nominal value; 65,067 shares                                                |       | 65                    |       | 65 |   |
| Additional paid-in  capital                                                                                           |       | 197,129               |       | 197,129 |   |
| Treasury shares at cost:  22,131 shares                                                                               |       | (751                  | )          | (751 | ) |
| Accumulated deficit                                                                                                   |       | (241,940              | )          | (238,079 | ) |
| Accumulated other  comprehensive income                                                                               |       | 22,293                |       | 14,910 |   |
| Total shareholders’  equity (deficit)                                                                            |       | (4,896                | )          | (8,418 | ) |
| Total liabilities and shareholders’ equity (deficit)                                                             |       | €                | 106,112    |   | € | 100,999 |   |

** **

See notes to consolidated financial statements

F-4

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**GENESYS S.A.CONSOLIDATED STATEMENTS OF OPERATIONS**

**(in thousands, except shareand per share data)**

| ** **                                                                         | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                         | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                                                         | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | ** ** | ** ** |
| Revenue:                                                                           |       |                                        |       |   |   |   |   |
| Services                                                                           |       | €                                      | 159,155    |   | € | 138,762 |   | € | 141,850 |   |
| Products                                                                           |       | 345                                         |       | 276 |   | 79 |   |
|                                                                               |       | 159,500                                     |       | 139,038 |   | 141,929 |   |
| Cost of revenue:                                                                   |       |                                        |       |   |   |   |   |
| Services                                                                           |       | 56,936                                      |       | 53,013 |   | 49,927 |   |
| Products                                                                           |       | 207                                         |       | 83 |   | 70 |   |
|                                                                               |       | 57,143                                      |       | 53,096 |   | 49,997 |   |
| Gross profit                                                                       |       | 102,357                                     |       | 85,942 |   | 91,932 |   |
| Operating expenses:                                                                |       |                                        |       |   |   |   |   |
| Research and development                                                           |       | 4,183                                       |       | 3,750 |   | 3,219 |   |
| Selling and marketing                                                              |       | 37,394                                      |       | 35,839 |   | 40,559 |   |
| General and administrative                                                         |       | 37,729                                      |       | 34,773 |   | 32,454 |   |
| Restructuring charge                                                               |       | 1,115                                       |       | 2,242 |   | 256 |   |
| Impairment of goodwill and other intangibles                                       |       | 28,057                                      |       | 75,401 |   | — |   |
| Amortization of intangibles                                                        |       | 9,595                                       |       | 5,382 |   | 3,580 |   |
| Total operating expenses                                                           |       | 118,073                                     |       | 157,387 |   | 80,068 |   |
| Operating (loss)  income                                                           |       | (15,716                                     | )          | (71,445 | ) | 11,864 |   |
| Financial income  (expense), net:                                                  |       |                                        |       |   |   |   |   |
| Interest expense                                                                   |       | (6,818                                      | )          | (4,285 | ) | (6,822 | ) |
| Foreign exchange gain (loss)                                                       |       | 3,679                                       |       | (1,595 | ) | (366 | ) |
| Other financial expense, net                                                       |       | (1,362                                      | )          | (1,114 | ) | (1,138 | ) |
| Financial  expense, net                                                            |       | (4,501                                      | )          | (6,994 | ) | (8,326 | ) |
| Equity in income  of affiliated company                                            |       | 22                                          |       | 71 |   | 68 |   |
| (Loss) income  before taxes                                                        |       | (20,195                                     | )          | (78,368 | ) | 3,606 |   |
| Income tax  benefit (provision)                                                    |       | (1,274                                      | )          | (2,579 | ) | 255 |   |
| Net (loss) income                                                                  |       | €                                      | (21,469    | ) | € | (80,947 | ) | € | 3,861 |   |
| Basic and diluted  net (loss) income per share                                     |       | €                                      | (1.29      | ) | € | (4.41 | ) | € | 0.21 |   |
| Number of shares  used in computing basic and diluted net loss per share |       | 16,579,986                                  |       | 18,350,692 |   | 18,350,692 |   |

 

See notes to consolidated financial statements

F-5

----

**GENESYS S.A.STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)(in thousands, except share and per share data)**

| ** **                                                                    | ** ** | **Ordinary shares** | ** ** | **Ordinary  shares to** | ** ** | **Additional  paid-in** | ** ** | **Treasury** | ** ** | **Deferred stock** | ** ** | **Accumulated**  | ** ** | **Accumulated  other  comprehensive** | ** ** | **Shareholders’  equity** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------|------------|------------------------------|------------|-------------------------|------------|--------------|------------|-------------------------|------------|------------------|------------|---------------------------------------|------------|--------------------------------|------------|
| ** **                                                                    | ** ** | **Shares**               | ** ** | **Amount**                   | ** ** | **be issued**      | ** ** | **capital**  | ** ** | **shares**              | ** ** | **compensation** | ** ** | **deficit**                           | ** ** | **income**                     | ** ** | **(deficit)** | ** ** |
| **Balance  at January 1, 2003 as previously reported**                   |       | 15,409,933               |       | €                       | 77,050     |                    |       | €       | 687        |                    |       |             | €     | 194,217                               |       |                           |       | € | (751 | ) |   |   | € | (220 | ) |   |   | € | (225,172 | ) |   |   | € | 6,980 |   |   |   | € | 52,791 |   |   |
| **Aggregate  impact of restatement adjustment (Note 3)**                      |       | —                   |       | —                       |       |                    | —     |         |       |                    | —     |             |       |                                  | —     |                           |       |   | — |   |   |   | 23,763 |   |   |   | — |   |   |   | 23,763 |   |   |
| **Balance  at January 1, 2003 (restated)**                                    |       | 15,409,933               |       | 77,050                       |       |                    | 687        |         |       |                    | 194,217    |             |       |                                  | (751       | )                              |       |   | (220 | ) |   |   | (201,409 | ) |   |   | 6,980 |   |   |   | (76,554 | ) |   |
| Reduction of nominal  value                                                   |       | —                   |       | (61,885                      | )          |                    | (305       | )            |       |                    | 305        |             |       |                                  | —     |                           |       |   | — |   |   |   | 61,885 |   |   |   | — |   |   |   | — |   |   |
| Issuance of  ordinary shares at price of €2.20, net of offering expenses |       | 2,814,944                |       | 2,815                        |       |                    | —     |         |       |                    | 2,629      |             |       |                                  | —     |                           |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 5,444 |   |   |
| Exercised stock-options                                                       |       | 10,599                   |       | 11                           |       |                    | —     |         |       |                    | 35         |             |       |                                  | —     |                           |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 46 |   |   |
| Converted notes                                                               |       | 72,280                   |       | 317                          |       |                    | (317       | )            |       |                    | —     |             |       |                                  | —     |                           |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Amortization of  deferred stock-based compensation                            |       | —                   |       | —                       |       |                    | —     |         |       |                    | —     |             |       |                                  | —     |                           |       |   | 220 |   |   |   | — |   |   |   | — |   |   |   | 220 |   |   |
| Variable  accounting associated with repricing of stock-options               |       | —                   |       | —                       |       |                    | —     |         |       |                    | 482        |             |       |                                  | —     |                           |       |   | (322 | ) |   |   | — |   |   |   | — |   |   |   | 160 |   |   |
| Other movements on stock-options                                              |       | —                   |       | —                       |       |                    | —     |         |       |                    | (57        | )                |       |                                  | —     |                           |       |   | — |   |   |   | — |   |   |   | — |   |   |   | (57 | ) |   |
| Components of  comprehensive income:                                          |       |                     |       |                         |       |                    |       |         |       |                    |       |             |       |                                  |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss (restated)                                                           |       | —                   |       | —                       |       |                    | —     |         |       |                    | —     |             |       |                                  | —     |                           |       |   | — |   |   |   | (21,469 | ) |   |   | — |   |   |   | (21,469 | ) |   |
| Foreign currency  translation                                                 |       | —                   |       | —                       |       |                    | —     |         |       |                    | —     |             |       |                                  | —     |                           |       |   | — |   |   |   | — |   |   |   | 7,334 |   |   |   | 7,334 |   |   |
| Unrealized gain on cash  flow hedges                                          |       | —                   |       | —                       |       |                    | —     |         |       |                    | —     |             |       |                                  | —     |                           |       |   | — |   |   |   | — |   |   |   | 1,058 |   |   |   | 1,058 |   |   |
| Total comprehensive loss                                                      |       |                     |       |                         |       |                    |       |         |       |                    |       |             |       |                                  |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   | (13,077 | ) |   |
| **Balance  at December 31, 2003 (restated)**                             |       | 18,307,756               |       | €                       | 18,308     |                    |       | €       | 65         |                    |       |             | €     | 197,611                               |       |                           |       | € | (751 | ) |   |   | € | (322 | ) |   |   | € | (160,993 | ) |   |   | € | 15,372 |   |   |   | € | 69,290 |   |   |
| Variable  accounting associated with repricing of stock-options               |       | —                   |       | —                       |       |                    | —     |         |       |                    | (482       | )                |       |                                  | —     |                           |       |   | 322 |   |   |   | — |   |   |   | — |   |   |   | (160 | ) |   |
| Components of comprehensive income:                                           |       |                     |       |                         |       |                    |       |         |       |                    |       |             |       |                                  |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss (restated)                                                           |       | —                   |       | —                       |       |                    | —     |         |       |                    | —     |             |       |                                  | —     |                           |       |   | — |   |   |   | (80,947 | ) |   |   | — |   |   |   | (80,947 | ) |   |
| Foreign currency  translation                                                 |       | —                   |       | —                       |       |                    | —     |         |       |                    | —     |             |       |                                  | —     |                           |       |   | — |   |   |   | — |   |   |   | 6,140 |   |   |   | 6,140 |   |   |
| Unrealized gain on cash  flow hedges                                          |       | —                   |       | —                       |       |                    | —     |         |       |                    | —     |             |       |                                  | —     |                           |       |   | — |   |   |   | — |   |   |   | 781 |   |   |   | 781 |   |   |
| Total comprehensive loss                                                      |       |                     |       |                         |       |                    |       |         |       |                    |       |             |       |                                  |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   | (74,026 | ) |   |
| **Balance  at December 31, 2004 (restated)**                        |       | 18,307,756               |       | €                       | 18,308     |                    |       | €       | 65         |                    |       |             | €     | 197,129                               |       |                           |       | € | (751 | ) |   |   | € | — |   |   |   | € | (241,940 | ) |   |   | € | 22,293 |   |   |   | € | (4,896 | ) |   |
| Components of  comprehensive income:                                          |       |                     |       |                         |       |                    |       |         |       |                    |       |             |       |                                  |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                    |       | —                   |       | —                       |       |                    | —     |         |       |                    | —     |             |       |                                  | —     |                           |       |   | — |   |   |   | 3,861 |   |   |   | — |   |   |   | 3,861 |   |   |
| Foreign currency  translation                                                 |       | —                   |       | —                       |       |                    | —     |         |       |                    | —     |             |       |                                  | —     |                           |       |   | — |   |   |   | — |   |   |   | (7,383 | ) |   |   | (7,383 | ) |   |
| Total comprehensive loss                                                      |       |                     |       |                         |       |                    |       |         |       |                    |       |             |       |                                  |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   | (3,522 | ) |   |
| **Balance at December 31, 2005**                                         |       | 18,307,756               |       | €                       | 18,308     |                    |       | €       | 65         |                    |       |             | €     | 197,129                               |       |                           |       | € | (751 | ) |   |   | € | — |   |   |   | € | (238,079 | ) |   |   | € | 14,910 |   |   |   | € | (8,418 | ) |   |

 

See notes to consolidated financial statements

F-6

----

**GENESYS S.A.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)**

| ** **                                                                                | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                                                                | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | ** ** | ** ** |
| Cash flows from  operating activities:                                                    |       |                                        |       |   |   |   |   |
| Net (loss) income                                                                         |       | €                                      | (21,469    | ) | € | (80,947 | ) | € | 3,861 |   |
| Adjustments to reconcile net (loss) income to net  cash provided by operating activities: |       |                                        |       |   |   |   |   |
| Depreciation and  amortization of property and equipment                                  |       | 10,845                                      |       | 9,898 |   | 8,537 |   |
| Amortization of other  intangibles                                                        |       | 9,595                                       |       | 5,382 |   | 3,580 |   |
| Impairment of goodwill  and other intangibles                                             |       | 28,057                                      |       | 75,401 |   | — |   |
| Amortization of deferred  financing costs and debt issuance discount                      |       | 1,307                                       |       | 403 |   | 1,800 |   |
| Amortization of deferred  charges                                                         |       | 88                                          |       | — |   | — |   |
| Allowance (recovery) for  bad debt                                                        |       | 223                                         |       | (438 | ) | (529 | ) |
| Stock-based  compensation                                                                 |       | 380                                         |       | (160 | ) | — |   |
| Loss on disposal of property  and equipment                                               |       | 150                                         |       | 23 |   | 34 |   |
| Deferred taxes                                                                            |       | (1,256                                      | )          | 72 |   | (1,973 | ) |
| Equity in income of  affiliated company                                                   |       | (22                                         | )          | (71 | ) | (68 | ) |
| Unrealized gain on derivative  instrument                                                 |       | —                                      |       | (62 | ) | (297 | ) |
| Changes in operating assets and liabilities:                                              |       |                                        |       |   |   |   |   |
| Restricted cash                                                                           |       | (649                                        | )          | (358 | ) | 1,189 |   |
| Accounts  receivable                                                                      |       | 2,335                                       |       | 2,221 |   | 2,236 |   |
| Prepaid expenses                                                                          |       | (617                                        | )          | 615 |   | (1,139 | ) |
| Other assets                                                                              |       | (4,704                                      | )          | 4,114 |   | 2,018 |   |
| Accounts payable                                                                          |       | (4,346                                      | )          | (366 | ) | (2,156 | ) |
| Accrued  liabilities                                                                      |       | (147                                        | )          | (1,694 | ) | (121 | ) |
| Accrued  compensation                                                                     |       | 560                                         |       | 215 |   | 128 |   |
| Taxes payable                                                                             |       | 648                                         |       | (2,030 | ) | (1,231 | ) |
| Other liabilities                                                                         |       | (3,636                                      | )          | (1,101 | ) | 338 |   |
| **Net cash  provided by operating activities**                                            |       | 17,342                                      |       | 11,117 |   | 16,207 |   |
| Cash flows from investing activities:                                                     |       |                                        |       |   |   |   |   |
| Purchases of property  and equipment                                                      |       | (9,459                                      | )          | (3,894 | ) | (6,351 | ) |
| Proceeds from  sales of property and equipment                                            |       | 35                                          |       | 61 |   | 9 |   |
| **Net cash  used in investing activities**                                                |       | (9,424                                      | )          | (3,833 | ) | (6,342 | ) |
| Cash flows from financing activities:                                                     |       |                                        |       |   |   |   |   |
| Increase (decrease)  in bank overdrafts                                                   |       | 473                                         |       | (1,689 | ) | (353 | ) |
| Increase in  factored receivables borrowing                                               |       | —                                      |       | — |   | 846 |   |
| Net proceeds from  issuance of common stock                                               |       | 5,490                                       |       | — |   | — |   |
| (Increase)  decrease of restricted cash                                                   |       | (5,444                                      | )          | 5,257 |   | — |   |
| Principal payments  on long-term debt                                                     |       | (1,226                                      | )          | (19,456 | ) | (13,011 | ) |
| Financing costs                                                                           |       | (283                                        | )          | — |   | — |   |
| **Net cash  used in financing activities**                                                |       | (990                                        | )          | (15,888 | ) | (12,518 | ) |
| Effect of foreign  exchange rate changes on cash and cash equivalents                     |       | (1,330                                      | )          | 391 |   | 1,081 |   |
| **Increase  (decrease) in cash and cash equivalents**                                     |       | 5,598                                       |       | (8,213 | ) | (1,572 | ) |
| **Cash and  cash equivalents, beginning of year**                                         |       | 9,976                                       |       | 15,574 |   | 7,361 |   |
| **Cash and  cash equivalents, end of year**                                               |       | €                                      | 15,574     |   | € | 7,361 |   | € | 5,789 |   |
| Supplemental disclosures of cash flow information:                                        |       |                                        |       |   |   |   |   |
| Interest paid                                                                             |       | €                                      | 4,670      |   | € | 5,015 |   | € | 4,604 |   |
| Income taxes paid                                                                         |       | 2,222                                       |       | 2,026 |   | 1,399 |   |
| Non-cash investing and financing transactions:                                            |       |                                        |       |   |   |   |   |
| Fixed assets  acquired under capital leases                                               |       | 22                                          |       | 344 |   | — |   |

 

See notes to consolidated financial statements

F-7

----

**GENESYS S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data when indicated)**

**Note 1. Business**

Genesys S.A., together with its subsidiaries (the “Company”),is a limited liability company organized under the laws of France.

The Company is a global communications specialist,providing practical and innovative real-time collaborative and managed eventservices worldwide.

As of December 31, 2005, the Company had €76.1 millionof debt. The bulk of this debt was incurred under a U.S. $125 millioncredit facility agreement that was entered into in April 2001 andthereafter amended, including most recently on January 27, 2006 (the “2006Amendment”). The 2006 Amendment was signed in connection with arecapitalization in which the Company reduced the debt outstanding under itscredit facility to approximately €32.4 million. The 2006Amendment became effective upon the March 2006 closing of an equityoffering in which the Company issued new shares and raised €46.3million (net of €7.3million in offering costs). The 2006 Amendment requires the Company to usecommercially reasonable efforts to refinance the credit facility; however, theCompany is not required to enter into a refinancing arrangement if it wouldprovide interest terms at an average rate greater than LIBOR + 4.0% per annumor contain other commercially unreasonable terms. The Company is also not requiredto finance with one of the Company’s existing lenders. If the Company fails torefinance the credit facility in full by October 31, 2006, the Companywill pay interest at 1.0% per annum above the rate it currently pays from November 1,2006 to April 30, 2007, at 2.0% per annum above the rate it currently paysfrom May 1, 2007 to October 31, 2007, at 3.0% per annum above therate it currently pays from November 1, 2007 to April 30, 2008, andat 4.0% per annum above the rate it currently pays from May 1, 2008 to October 31,2008. See Notes 7 and 9 for further information.

The existing credit facility prohibits the Company’spayment of dividends. The Company has pledged as security for its creditfacility the shares of its principal subsidiaries, as well as the accountsreceivable of its principal U.S. subsidiary. If its financial results do notreach the levels required by its debt covenants and it is unable to obtain awaiver from its lenders, the Company’s debt would be in default and subject toacceleration by its lenders. Under the credit facility, if the Company fails tomeet certain of the covenants imposed by the credit facility, it will berequired to pursue one of several transactions (see Note 8), failing whichits debt would be in default and subject to acceleration by its creditors.

Adequate liquidity and capital are critical to theability of the Company to continue as a going concern and to fund its customeracquisition and marketing programs. The Company’s current operating assumptionsand projections reflect management’s best estimates of revenue growth andoperating expenses. The Company’s 2006 liquidity requirements are drivenprimarily by working capital needs, capital expenditures on telecommunicationsand bridging equipment, servers and its required debt service levels.Currently, management believes that the Company’s liquidity requirements willbe met through its current capital resources and cash flows generated fromoperations.

The Company’s ability tomeet its projections is subject to numerous uncertainties and there can be noassurance that these projected operating cash flows will be achieved. If theCompany’s cash requirements are more than projected, the Company may requireadditional concessions from its lenders or additional financing in amounts thatmay be material. The type, timing and terms of financing that the Companyselects will be dependent upon its cash needs, the availability of otherfinancing sources and the prevailing conditions in the financial markets. TheCompany cannot guarantee that additional financing sources will be available atany given time or available on favorable terms.

F-8

----

**GENESYS S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

**Note 2. Summaryof significant accounting policies**

***Basis ofpresentation***

As a publicly traded company on the Nouveau Marché ofEuronext Paris since October 1998 (now Eurolist by Euronext), the Companypublishes consolidated financial statements prepared in accordance withInternational Financial Reporting Standards in France. In addition, the Companyhas been listed on the Nasdaq Stock Market since April 26, 2001 andpublishes those consolidated financial statements prepared in accordance withGenerally Accepted Accounting Principles in the United States. InternationalFinancial Reporting Standards in France differ in certain respects fromGenerally Accepted Accounting Principles in the United States.

Effective in 2005, the Company reorganized its GlobalVideo Division, consolidating its activities into the applicable regionalsegments of North America, Europe and Asia-Pacific. The Company no longermanages the Global Video Division separately and has gained cost efficienciesthrough the reorganization. These changes resulted in various reclassificationsin the historical segment information presented in Note 17.

The accompanyingconsolidated financial statements were prepared in accordance with GenerallyAccepted Accounting Principles in the United States. The main consolidationprinciples are as follows:

·       Companiesthat are wholly owned or that the Company controls are consolidated. Inaddition, those entities that are determined to be variable interest entitiespursuant to FASB Interpretation No. 46, *Consolidationof Variable Interest Entities*, and for which the Company is theprimary beneficiary are consolidated;

·       Companiesover which the Company exercises significant influence but does not control areaccounted for under the equity method of accounting; and

·       All significant inter-companytransactions and balances are eliminated.

F-9

----

**GENESYS S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

***Scope of consolidation***

| **Name**                                                  | ** ** | ** **              | ** ** | **Location**    | ** ** | **Interest and  control** |
|-----------------------------------------------------------|------------|-------------------------|------------|-----------------|------------|---------------------------|
| **1. Fully consolidated companies**                       | ** ** | ** **              | ** ** | ** **      |
| **Parent and sub-holdings companies**                     |       |                    |       |            |
| Genesys S.A.                                              |       | Montpellier,  France    |       | Parent  company |
| Geene S.A.S.                                              |       | Paris,  France          |       | 100%            |
| Eesys S.A.S.                                              |       | Paris,  France          |       | 100%            |
| 3054-344  Nova Scotia Ltd.                                |       | Halifax,  Canada        |       | 100%            |
| 3054-345  Nova Scotia Ltd.                                |       | Halifax,  Canada        |       | 100%            |
| **North America**                                         |       |                    |       |            |
| Genesys  Conferencing Inc.                                |       | Reston  (Virginia), USA |       | 100%            |
| Genesys  Conferencing Ltd.                                |       | Toronto,  Canada        |       | 100%            |
| **Europe**                                                |       |                    |       |            |
| Genesys Conferencing  Ltd.                                |       | Croydon,  UK            |       | 100%            |
| Genesys  Conferencing A.B.                                |       | Stockholm,  Sweden      |       | 100%            |
| Genesys  Conferencing Europe S.A.S.                       |       | Ivry,  France           |       | 100%            |
| Genesys  Conferencing S.A.                                |       | Brussels,  Belgium      |       | 100%            |
| Genesys  Conferencing, S.R.L.                             |       | Milan,  Italy           |       | 100%            |
| Darome Teleconferencing  GmbH                             |       | Berlin,  Germany        |       | 100%            |
| **Asia Pacific**                                          |       |                    |       |            |
| Genesys  Conferencing Pty. Ltd.                           |       | Melbourne,  Australia   |       | 100%            |
| Genesys  Conferencing Pte. Ltd.                           |       | Singapore               |       | 100%            |
| Genesys  Conferencing Ltd.                                |       | Hong  Kong              |       | 100%            |
| Genesys  Conferencing Std. Bhd.                           |       | Kuala  Lumpur, Malaysia |       | 100%            |
| Genesys  Conferencing K.K. (*)                            |       | Tokyo,  Japan           |       | 100%            |
| Genesys  Technology Consulting Co., Ltd (**)              |       | Beijing,  China         |       | 100%            |
| Genesys  Conferencing (NZ) Limited (***)                  |       | New  Zealand            |       | 100%            |
| **2. Affiliates accounted for under the equity  method:** |       |                    |       |            |
| Genesys Conferencing  Iberia S.A. (****)                  |       | Madrid, Spain           |       | 20%             |

----

| (*)    |   | On December 12,  2003, Genesys Conferencing Pte. incorporated Genesys Conferencing K.K. in  Japan. The Japanese subsidiary began operations during the first half of  2004.   |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (**)   |   | On October 12, 2004,  the Company incorporated Genesys Technology Consulting Co., Ltd. in  China. The Chinese subsidiary began operations during the first half of 2005. |
| (***)  |   | On June 27, 2005,  the Company incorporated Genesys Conferencing (NZ) Limited in New Zealand.  The New Zealand subsidiary began operations during the second half of 2005.    |
| (****) |   | On February 10,  2006, the Company acquired the remaining 80% ownership of Genesys  Conferencing Iberia S.A. See Note 18 for further information.                             |

 

***Use of estimates***

The preparation of consolidated financial statementsin conformity with accounting principles generally accepted in the UnitedStates requires management to make estimates and assumptions that affect theamounts reported in the consolidated financial statements and the accompanyingnotes. Actual results could differ from these estimates.

F-10

----

**GENESYS S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

***Reclassifications***

Certain 2003 and 2004amounts have been reclassified to conform to the 2005 presentation. Thereclassifications solely relate to the revised reporting segments used in the2005 presentation as well as certain corporate and administrative costsformerly presented within the reporting segments that are now segregated as “Corporate”costs (see Note 17). The reclassifications do not affect the Company’s totalrevenue, expenses, operating income, net income or balance sheet presentation.

***Translation offinancial statements of foreign subsidiaries***

The functional currency ofeach subsidiary is the local currency, except for Genesys Conferencing Ltd.,which is a Canadian company using U.S. dollars. In accordance with Statement ofFinancial Accounting Standards No. 52, *ForeignCurrency Translation*(SFAS 52), assets and liabilities of theCompany and its subsidiaries with functional currencies other than the Euro aretranslated into Euro equivalents at the rate of exchange in effect on thebalance sheet dates. Revenues and expenses are translated at the averageexchange rates for each reporting period. Foreign currency translation gains orlosses are recorded as a separate component of shareholders’ equity (deficit).

***Transactions inforeign currencies***

At year-end, foreigncurrency denominated balances are translated using closing rates of exchange.In accordance with SFAS 52, unrealized gains and losses are recognized inoperations for the period.

***Revenue recognition***

The Company generallyrecognizes revenue upon completion of conferencing services or at the time ofshipment of equipment, assuming that persuasive evidence of an arrangement exists,the sales price is fixed or determinable and collectibility is probable, unlessthe Company has future obligations for installation or must obtain customeracceptance, in which case revenue is deferred until these obligations are met.Amounts billed in excess of revenue recognized are included as other currentliabilities in the accompanying consolidated balance sheets. Unbilled accountsreceivable represents revenue that is earned but not yet billed as of thebalance sheet dates.

***Cost of services***

Cost of services consistsprincipally of telephony costs, equipment product costs, operator andoperations management salaries and office expenses for operations staff, anddepreciation on teleconferencing bridges and telecommunications equipment.

***Cash and cashequivalents***

The Company considers allhighly liquid investments purchased with an original maturity of three monthsor less from the date of purchase to be cash equivalents.

***Accounts receivable***

The allowance for doubtfulaccounts is established for amounts that are considered uncollectible atyear-end, based on a statistical calculation from the invoice date ofoutstanding invoices.

F-11

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**GENESYS S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

***Goodwill***

The purchase price of acquisitions has been allocatedto the fair value of net assets acquired in business combinations accounted forunder the purchase method. The purchase price in excess of the fair value ofidentified assets and liabilities acquired has been recorded as goodwill underSFAS No. 142, *Goodwill and OtherIntangible Assets* (SFAS 142). Goodwill is tested for impairmentat least annually using a fair value based method, and on an interim basis whenan event occurs or circumstances change between annual tests that indicate animpairment may have occurred. The Company determines fair value by utilizingdiscounted cash flows. The fair value test required by SFAS 142 forgoodwill includes a two-step approach. Under the first step, companies mustcompare the fair value of a “reporting unit” to its carrying value. A reportingunit is the level at which goodwill impairment is measured and it is defined asan operating segment or one level below if certain conditions are met. If thefair value of the reporting unit is less than its carrying value, goodwill isimpaired. The Company defines its reporting units as its reportable segments ofNorth America, Europe and Asia-Pacific.

Under step two, the amount of goodwill impairment ismeasured by the amount that the reporting unit’s goodwill carrying valueexceeds the “implied” fair value of goodwill. The implied fair value ofgoodwill can only be determined by deducting the fair value of all tangible andintangible net assets (including unrecognized intangible assets) of thereporting unit from the fair value of the reporting unit (as determined in thefirst step). In this step, the fair value of the reporting unit is allocated toall of the reporting unit’s assets and liabilities (a hypothetical purchaseprice allocation).

The required annual impairment test of goodwill wasperformed as of October 1, 2003, 2004 and 2005. Following the results ofthe first step of the required impairment test, which was not met, the secondstep was required in 2003. Based on the results of this annual impairment test,an impairment charge of €3.2 million wasrecorded in 2003.

Prior to the annualimpairment test as of October 1, 2004, the Company performed an interimimpairment test as of June 30, 2004. The reduced level of expected cashflows for the next several years was the triggering event that led to thissupplementary impairment review. The reduced level of expected cash flows wasmainly attributable to the competitive industry environment, which resulted insignificant price erosion. Following the results of the first step, the secondstep was required and an impairment charge of €53.4 millionwas recorded in June 2004. As of October 1, 2004 and 2005, therequired annual impairment tests were passed.

***Property andequipment***

Propertyand equipment are stated at cost, net of accumulated depreciation. Property andequipment are depreciated using the straight-line method over the estimateduseful lives of the assets. The following table shows estimated useful lives ofproperty and equipment:

| Telecommunications  equipment  |   | 5  years                     |   |
|--------------------------------|--------|------------------------------|--------|
| Software and  systems          |   | 1 to  5 years                |   |
| Office and  computer equipment |   | 3 to  10 years               |   |
| Leasehold improvements         |   | 5 to 10 years |   |

 

F-12

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**GENESYS S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

***Impairment oflong-lived assets***

The Company reviews thecarrying value of its long-lived assets, including property and equipment andidentifiable intangible assets (*i.e.*,customer lists) whenever events or changes in business circumstances indicatethat the carrying amount of the assets may not be fully recoverable. TheCompany tests identifiable intangible assets, excluding goodwill, forimpairment using the two-step process prescribed in SFAS No. 144, *Accounting for the Impairment or Disposal of LongLived Assets* (SFAS 144). In accordance with SFAS 144, animpairment loss is recognized when estimated undiscounted future cash flowsexpected to result from the use of the asset or group of assets are less thanits carrying amount. Impairment, if any, is assessed using the fair value or,if it is not available, discounted cash flows. Based on the results of thisreview in 2003 and 2004, impairment charges of €24.9 millionand €22.0 million,respectively, were recognized.  Therewere no indicators of impairment in 2005.

***Development ofsoftware for internal use***

The Company accounts forthe costs of computer software developed or obtained for internal use inaccordance with Statement of Position (“SOP”) 98-1, *Accountingfor the Costs of Computer Software Developed or Obtained for Internal Use*.The Company capitalizes costs of materials, consultants and payroll and payrollrelated costs for employees incurred in developing internal-use software. TheCompany capitalized €1,585, €1,174,and €2,606during 2003, 2004 and 2005, respectively. These costs are included in softwareand systems and software development in progress as disclosed in Note 4. Thenet book value related to internal use software totaled €5,059and €5,663at December 31, 2004 and 2005, respectively.  Costs incurred during the preliminary projectand post-implementation stages are charged to expense.

***Research anddevelopment***

The Company maintains engineering departments that developfeatures and products for group communications. The Company charges to expense,when incurred, that portion of the costs of these departments that relates toresearch and development activities.

In 2003, 2004 and 2005,research and development expenses amounted to €4,183,€3,750and €3,219,respectively. Expenses relating to software and information system networkmaintenance and development, classified as general and administrative expensesin 2003, 2004 and 2005, amounted to €6,658, €5,896and €4,978,respectively.

***Deferred financingcosts***

Costs to obtain debtfinancing are capitalized and amortized over the life of the related debt usingthe effective interest method.

***Income taxes***

In accordance with SFAS No. 109,*Accounting for Income Taxes*, the Company provides fordeferred taxes using the liability method of accounting. Under this method,deferred tax assets and liabilities are determined based on the temporarydifferences arising between the tax bases of assets and liabilities and theirfinancial reporting amounts and on enacted tax laws and statutory tax ratesapplicable to the periods in which the differences are expected to reverse. Avaluation allowance is recognized if, on the weight of 

F-13

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**GENESYS S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

availableevidence, it is more likely than not that some portion or all of the deferredtax asset will not be realized.

***Stock options***

The Company accounts for stock options granted toemployees in accordance with the provisions of Accounting Principles BoardStatement No. 25, *Accounting for Stockissued to Employees* (APB 25). Under APB 25, no compensation expenseis recognized for stock options issued to employees with an exercise priceequal to the market price of the underlying shares on the measurement date.Stock options issued with an exercise price less than the market price of theunderlying shares on the measurement date result in deferred compensation whichis amortized to expense over the vesting period.

SFAS No. 123, *Accounting for Stock BasedCompensation (SFAS 123), amended by SFAS 148, Accounting for Stock-basedCompensation—Transition and Disclosure: an Amendment of FASB Statement No. 123,*provides an alternative to APB 25 in accounting for stock-basedcompensation issued to employees using the fair value based method. Companiescan elect to continue to apply the provisions of APB 25 but are required bySFAS 123, as amended by SFAS 148, to disclose the pro forma effect onnet income (loss) and net income (loss) per share as if the fair value basismethod had been applied.

Proforma information regarding net loss and loss per share is required bySFAS 123 and SFAS 148, and has been determined as if the Company hadaccounted for its employee stock options under the fair value method ofSFAS 123. The fair value of these options was estimated at the measurementdate using the Black-Scholes option pricing model with the followingassumptions:

| ** **                      | ** ** | **2003**  | ** ** | **2004**  | ** ** | **2005**  | ** ** |
|---------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Expected dividend  yield        |       | 0%        |       | 0%        |       | 0%        |       |
| Expected  volatility            |       | 0.879     |       | 0.847     |       | 0.7528    |       |
| Risk-free  interest rate        |       | 4.18%     |       | 4.10%     |       | 3.02%     |       |
| Weighted average expected  life |       | 4.5 years |       | 4.5 years |       | 4.5 years |       |

 

Forpurposes of pro forma disclosure, the estimated fair value of the options isamortized to expense over the options’ vesting period. The Company’s pro formainformation is as follows:

| ** **                                                                                                                            | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                                            | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                                                                                                            | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | ** ** | ** ** |
| Net (loss)  income, as reported                                                                                                       |       | €                                      | (21,469    | ) | € | (80,947 | ) | € | 3,861 |   |
| Add: Stock-based  employee compensation expense (credit) included in reported net loss                                                |       | 380                                         |       | (160 | ) | — |   |
| Deduct: Stock-based  employee compensation expense determined under fair value method for all  stock option grants (SFAS 123 expense) |       | (7,314                                      | )          | (6,382 | ) | (2,103 | ) |
| Pro forma net loss                                                                                                                    |       | €                                      | (28,403    | ) | € | (87,489 | ) | € | 1,758 |   |
| Basic and diluted  net (loss) income per common share, as reported                                                                    |       | (1.29                                       | )          | (4.41 | ) | 0.21 |   |
| Pro forma basic and  diluted net loss per common share                                                                                |       | (1.71                                       | )          | (4.77 | ) | (0.10 | ) |

 

F-14

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**GENESYS S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

The weighted average fairvalue of options granted during 2003, 2004 and 2005 was €4.48,€3.65,and €0.90,respectively.

***Comprehensive income(loss)***

SFAS No. 130, *Reporting Comprehensive Income*(SFAS 130), establishes rules for the reporting and display ofcomprehensive income (loss) and its components. Accumulated other comprehensiveincome, as set forth in the consolidated statements of changes in shareholders’equity (deficit), consists of (i) foreign currency translation adjustmentsof €16,153,€22,293and €14,910at December 31, 2003, 2004 and 2005, respectively and (ii) unrealizedlosses on cash flow hedges of €(781), €0 and€0at December 31, 2003, 2004 and 2005, respectively.

***Net (loss) incomeper share***

In accordance with SFAS No. 128,*Earnings per Share*(SFAS 128), basic and diluted (loss) income per share have been presented.Basic (loss) income per share excludes the dilutive effects of options andreflects only the actual ordinary shares outstanding. Diluted (loss) income pershare includes the dilutive effects of options as if they had been exercised.Because the potentially issuable shares from the exercise of stock options andconvertible notes would be antidilutive, there are no differences between basicand diluted net (loss) income per share for the Company through December 31,2005. For fiscal years 2003, 2004 and 2005, 2,523,233, 2,514,352, and 2,421,572stock options, respectively, were anti-dilutive and excluded from the (loss)income per share—diluted calculation due to the exercise prices being greaterthan the average fair market price.  Forfiscal years 2003, 2004 and 2005, notes convertible into 75,333, 74,059, and73,313 shares, respectively, were anti-dilutive and excluded from the (loss)income per share—diluted calculation due to the exercise prices of theunderlying stock options being greater than the average fair market price.

***Segment reporting***

Management has concludedthat the Company and its subsidiaries operate currently in three reportablesegments: North America, Europe and Asia-Pacific, as management internallyevaluates and reports the performance of the Company on the basis of thesethree separate business units. See Note 17.

***Advertising expense***

The cost of advertising isexpensed as incurred. The Company’s advertising costs for the years endedDecember 31, 2003, 2004 and 2005 were €2,116, €1,979and €2,219,respectively.

***Derivativeinstruments***

SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities*, requires theCompany to recognize all of its derivative instruments as either assets orliabilities in the balance sheet at fair value. The accounting for changes inthe fair value (*i.e.*, gains orlosses) of a derivative instruments depends on whether it has been designatedand qualifies as part of a hedging relationship and, further, on the type ofhedging relationship. For those derivative instruments that are designated andqualify as hedging instruments, the Company must designate the hedginginstrument, based upon the exposure being hedged, as a fair value hedge, cashflow hedge or a hedge of a net investment in a foreign operation.

F-15

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

For derivative instrumentsthat are designated and qualify as a cash flow hedge (*i.e.*, hedging the exposure to variabilityin expected future cash flows that is attributable to a particular risk), theeffective portion of the gain or loss on the derivative instrument is reportedas a component of other comprehensive income and reclassified into operations inthe same line item associated with the forecasted transaction in the sameperiod during which the hedged transaction affects operations. At December 31,2004 and 2005, the Company does not hold derivative instruments that aredesignated and qualify as a fair value hedge. For derivative instruments notdesignated as hedging instruments, the gain or loss is recognized in current operationsduring the period of change.

***Concentration ofrisk***

Financial instruments that potentially subject theCompany to concentrations of credit risk primarily consist of cash equivalentsand accounts receivable.

The Company has cash investment policies that limitinvestments to short-term low-risk instruments. The Company’s cash is heldprimarily in U.S. dollars, euros and British pounds (GBP) and concentratedmainly in five banks in the United States, France and the United Kingdom.

TheCompany sells its services and products to customers in a variety of countriesin North America, Europe and Asia-Pacific. The Company performs ongoing creditevaluations of its customers and maintains allowances for potential creditlosses. To date, such losses have been within management’s expectations. Asummary of the activity in the allowance for doubtful accounts is as follows:

| ** **                             | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------|------------|---------------------------------------------|------------|
| ** **                             | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| Allowance balance  at January 1   |       | €                                      | 3,502      |   | € | 2,537 |   | € | 2,100 |   |
| Amounts charged  (credited) to expense |       | 223                                         |       | (438 | ) | (529 | ) |
| Amounts written  off                   |       | (968                                        | )          | (8 | ) | (72 | ) |
| Currency  translation adjustment       |       | (220                                        | )          | 9 |   | 48 |   |
| Allowance balance at  December 31 |       | €                                      | 2,537      |   | € | 2,100 |   | € | 1,547 |   |

 

For all periods presented,no customer represented revenue in excess of 10% of the Company’s totalconsolidated revenue.

***Recent accountingpronouncements***

On December 16, 2004, the Financial AccountingStandards Board (FASB) issued SFAS No. 123 (revised 2004), *Share-Based Payment*(SFAS 123R), which is a revision of SFAS 123. SFAS 123Rsupersedes APB 25, and amends SFAS No. 95, *Statement of Cash Flows* (SFAS 95). Generally, the approachin SFAS 123R is similar to the approach described in SFAS 123.However, SFAS 123R requires all share-based payments to employees,including grants of employee stock options, to be recognized in the incomestatement based on their fair values. Pro forma disclosure is no longer analternative.

The Company willadopt SFAS 123R on January 1, 2006. SFAS 123R permits publiccompanies to adopt its requirements using one of two methods:

1.      A “modifiedprospective” method in which compensation cost is recognized beginning with theeffective date (a) based on the requirements of SFAS 123R for allshare-based payments granted 

F-16

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

after the effective dateand (b) based on the requirements of SFAS 123 for all awards grantedto employees prior to the effective date of SFAS 123R that remain unvestedon the effective date.

2.      A “modifiedretrospective” method which includes the requirements of the modifiedprospective method described above, but also permits entities to restate basedon the amounts previously recognized under SFAS 123 for purposes of proforma disclosures either (a) all prior periods presented or (b) priorinterim periods of the year of adoption.

The Company will adopt SFAS 123R using themodified prospective approach, as indicated above.

As permitted bySFAS 123, the Company currently accounts for share-based payments toemployees using APB 25’s intrinsic value method and, as such, generallyrecognizes no compensation cost for employee stock options. Accordingly, theadoption of SFAS 123R’s fair value method will have an impact on itsresult of operations, although it will have no impact on its overall financialposition. The impact of adoption of SFAS 123R cannot be predicted at thistime because it will depend on levels of share-based payments granted inthe future. However, had the Company adopted SFAS 123R in prior periods,the impact of that standard would have approximated the impact of SFAS 123as described in the disclosure of pro forma net (loss) income and net (loss)income per share in *Stock Options,*above.

**Note 3.**   Restatement

**The Company has restated its consolidatedfinancial statements for the years 2001 through 2004. The aggregate impact ofthe restatement at January 1, 2003 is shown in the accompanying consolidatedstatements of stockholders’ equity. In conjunction with the initial accountingfor its 2001 acquisitions of Vialog in the United States and Astound (renamedGenesys Conferencing Ltd.) in Canada, the Company did not appropriatelyconsider the impact of recognized deferred tax liabilities on the requiredvaluation allowance and resulting goodwill. In addition, subsequent to theseacquisitions, the Company incurred losses for both book and tax purposes in eachof these countries against which it recorded a full valuation allowance withoutconsideration of offsetting deferred tax liabilities in these same countries.The impact of this was to overstate certain goodwill impairment charges takenin 2001 and 2002, to overstate the Company’s valuation allowance againstdeferred tax assets with the impact of understating net income on a cumulativebasis by**€23.7 million through January 1, 2003 and to understate the Company’stax provision and overstate net income for 2003 and 2004 by €10.1 million and €9.2 millionrespectively. This resulted in an overstatement of net income per share by €0.60 and €0.51 for 2003 and 2004,respectively. The accompanying consolidated financial statements have beenrestated to correct for this error.

**Note 4.   Goodwilland identifiable intangible assets**

***Goodwill***

The impairment charge of €3,141and €53,401recorded in 2003 and 2004, respectively, is associated with the North Americansegment, and primarily relates to the acquisition of Vialog, which occurred in April 2001.No impairment charge was recorded in 2005.

***Other intangibleassets***

The Company recorded a total impairment charge of €24,916in 2003, which was recorded as a reduction to the carrying value of intangibleassets. The impairment charge of €24,916 recorded in 2003 

F-17

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

relates mainly to thecustomer lists of Vialog acquired in 2001 (€23,000)and, to a lesser extent, to the customer lists of Aloha Conferencing andWilliams Communications, both acquired in 1999 (€1,916), which is part ofthe North American segment.

Due to the triggering event of greater thananticipated price erosion as a result of the competitive environment, the Companyperformed a review of carrying values as of June 30, 2004. Based on theresults of this review, the Company recorded a total impairment charge of €22,000in June 2004 that was recorded as a reduction to the carrying value ofintangible assets. This impairment charge relates to the customer lists ofVialog acquired in 2001, which is part of the North American segment.

Goodwilland other intangible assets consist of the following:

| ** **                        | ** ** | **Weighted Average  Useful lives** | ** ** | **December 31,** | ** ** |
|-----------------------------------|------------|----------------------------------------------|------------|-----------------------|------------|
| ** **                        | ** ** | **(in years)**                          | ** ** | **2004**              | ** ** | **2005** | ** ** |
| Goodwill                          |       | Not  applicable                              |       | €                | 45,329     |   | € | 46,329 |   |
| Less accumulated  amortization    |       |                                         |       | (23,495               | )          | (24,398 | ) |
|                              |       |                                         |       | 21,834                |       | 21,931 |   |
| Customer lists                    |       | 9                                            |       | 50,577                |       | 50,865 |   |
| Less accumulated  amortization    |       |                                         |       | (34,779               | )          | (38,534 | ) |
|                              |       |                                         |       | 15,798                |       | 12,331 |   |
| Technology and  other intangibles |       | 4                                            |       | 10,177                |       | 10,159 |   |
| Less accumulated  amortization    |       |                                         |       | (10,105               | )          | (10,159 | ) |
|                              |       |                                         |       | 72                    |       | — |   |
|                              |       |                                         |       | €                | 37,704     |   | € | 34,262 |   |

 

Theestimated total amortization expenses for the next five years are as follows:

| 2006 |   | 2,937 |   |
|------|--------|-------|--------|
| 2007 |   | 2,532 |   |
| 2008 |   | 2,133 |   |
| 2009 |   | 2,133 |   |
| 2010 |   | 1,968 |   |

 

Thechanges in the carrying amount of goodwill and other intangibles from January 1,2003 through December 31, 2005 are as follows:

| ** **                                                                    | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                    | ** ** | **2003**              | ** ** | **2004** | ** ** | **2005** | ** ** |
| Balances as of  the beginning of the year                                     |       | €                | 158,213    |   | € | 118,173 |   | € | 37,704 |   |
| Less:  amortization of other intangibles                                      |       | (9,595                | )          | (5,382 | ) | (3,580 | ) |
| Less: impairment  of goodwill and other intangibles                      |       | (28,057               | )          | (75,401 | ) | — |   |
| Adjustments of  goodwill and other intangibles for previous year acquisitions |       | 635                   |       | — |   | — |   |
| Impact of foreign  currency fluctuations                                      |       | (3,023                | )          | 314 |   | 138 |   |
| Balances as of the end  of the year                                           |       | €                | 118,173    |   | € | 37,704 |   | € | 34,262 |   |

 

F-18

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

**Note 5.   Propertyand equipment**

Propertyand equipment, net consists of the following:

| ** **                                      | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2004**              | ** ** | **2005** | ** ** |
| Telecommunications  equipment                   |       | €                | 39,743     |   | € | 42,578 |   |
| Software and  systems                           |       | 16,047                |       | 17,899 |   |
| Office and  computer equipment                  |       | 10,387                |       | 10,857 |   |
| Leasehold  improvements                         |       | 3,989                 |       | 3,957 |   |
| Software  development in progress               |       | 111                   |       | 1,753 |   |
|                                            |       | 70,277                |       | 77,044 |   |
| Less accumulated  depreciation and amortization |       | (47,911               | )          | (55,086 | ) |
|                                            |       | €                | 22,366     |   | € | 21,958 |   |

 

The Company leases certain of its equipment undercapital leases. The cost of such equipment included in property and equipmentwas €1,834and €1,720at December 31, 2004 and 2005, respectively. Accumulated amortization ofthis equipment was €1,191and €1,179at December 31, 2004 and 2005, respectively.

Software development inprogress at December 31, 2004 and 2005 consists of enhancements and newdevelopment of the Company’s *Genesys Meeting Center*platform and an integrated reservation and billing system. As developedsoftware is completed and ready for use, it is reclassified into software andsystems, at which time depreciation commences.

**Note 6.   Bankoverdrafts**

The Company maintainsoverdraft facilities with certain of its banks. These facilities allow for amaximum borrowing of €2.5 million. TheCompany utilized €1.9 millionand €2.2 millionof the available facility at December 31, 2005 and 2004, respectively. Theinterest rates at those dates were 5.6% and 5.3%, respectively. The weightedaverage interest rate for the Company’s bank overdraft was 3.4% for 2003, 5.3%for 2004 and 5.9% for 2005. The bank overdrafts have no stated expiration.However, they are callable by the banks at any time.

**Note 7.   Receivablesfactoring program**

In February 2005, theCompany entered into an agreement with a French factoring company to sellcertain accounts receivables of the largest customers of its French operatingsubsidiary, Genesys Conferencing Europe S.A.S. Under the terms of theagreement, the Company must repurchase certain receivables that have been soldto the factoring company when specific criteria are met. Consequently,receivables sold under the program are reported in accounts receivable andthe sales proceeds are recorded as borrowings and classified as other currentliabilities in the Company’s consolidated balance sheets. At December 31,2005, €0.9million included in the €21.3 million of billed accounts receivable inthe consolidated balance sheet had been sold under the terms of the program.

F-19

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

**Note 8.   Long-termdebt and capital leases**

Long-termdebt, including capital leases, consists of the following:

| ** **                                                             | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                             | ** ** | **2004**              | ** ** | **2005** | ** ** |
| Term loans,  variable rate                                             |       | €                | 66,111     |   | € | 67,490 |   |
| Revolving loans,  variable rate                                        |       | 7,342                 |       | 8,477 |   |
| 3% Convertible Bonds,  net of unamortized discount of €46 in 2004 |       | 3,178                 |       | — |   |
| Interest free  loan from ANVAR                                         |       | 120                   |       | 70 |   |
| Capital lease  obligations                                             |       | 247                   |       | 43 |   |
| Total long-term  debt                                                  |       | 76,998                |       | 76,080 |   |
| Less current  portion                                                  |       | (12,225               | )          | (1,100 | ) |
| Long-term debt,  less current portion                                  |       | €                | 64,773     |   | € | 74,980 |   |

 

As described below, theCompany reduced its debt outstanding in March 2006 in connection with arecapitalization. After this repayment, the debt outstanding under theprincipal credit facility has been reduced from €76.0million to approximately €32.4 million.

**Bank FinancingAmendment and Recapitalization**

***U.S. $125 MillionCredit Facility***

On April 20,2001, the Company and Vialog entered into a U.S. $125 million creditfacility agreement with BNP Paribas, CIBC World Markets and Fortis Bank. Thiscredit facility, which was amended thereafter, replaced the Company’s thenoutstanding U.S. $35 million multi-currency term loan and thelong-term debt of Vialog (U.S. $75 million senior notes payable) thatexisted prior to the acquisition of Vialog. Prior to the execution of variousamendments on April 30, 2003, August 6, 2004, December 15, 2005and January 27, 2006 as described below, the U.S. $125 million creditfacility included the following terms:

·       AU.S. $50 million senior term loan facility granted to Vialog, which wasused by Vialog to refinance its existing debt. This facility initially maturedon April 28, 2006 and bore interest at the rate of Libor USD plus a marginof 2.65% per annum.

·       AU.S. $30 million senior term loan facility granted to Vialog, which wasused by Vialog to refinance its existing debt. This facility initially maturedon October 31, 2006 and bore interest at the rate of Libor USD plus amargin of 3.15% per annum.

·       AU.S. $35 million senior term loan facility granted to the Company, whichthe Company used to partially refinance its existing debt. This facilityinitially matured on April 28, 2006 and bore interest at the rate of LiborUSD plus a margin of 2.65% per annum.

·       AU.S. $5 million revolving loan facility granted to Vialog, to be used byVialog for working capital purposes. This facility bore interest at the rate ofLibor USD plus a margin of 2.65% per annum.

F-20

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

·       AU.S. $5 million revolving loan facility granted to the Company, which theCompany uses for working capital purposes. This facility bore interest at therate of Libor USD plus a margin of 2.65% per annum.

Prior to the amendments described below, the U.S.$50 million and U.S. $35 million term loans granted to Vialog and theCompany, respectively, were to be repaid in semi-annual installments inaccordance with the schedule set forth in the credit facility agreement. TheU.S. $30 million facility was to be repaid in one payment at maturity.

On April 11, 2003 andAugust 6, 2004, the Company signed two separate amendments to theApril 2001 U.S. $125 million credit facility with the bank lenders. Bothof these amendments mainly provide for the rescheduling of principal repaymentsand adjustments to the Company’s financial covenants.

At December 31, 2004, the Company did not satisfyits cash cover financial covenant. At March 31, 2005, the Company did notsatisfy the cash cover, leverage and consolidated EBITDA ratio financialcovenants. At June 30, 2005, the Company did not satisfy the cash coverand leverage financial covenants. The Company obtained waivers from its banklenders with respect to these covenants at these dates. In addition, on September 30,2005, the Company obtained prospective waivers from its bank lenders for anyfinancial covenant defaults from September 30, 2005 through September 30,2006.

On December 15, 2005, the Company signed anamendment to the April 2001 U.S. $125 million credit facility with itslenders. As part of the amendment, the prospective waivers from the Company’sbank lenders were extended for any financial covenant defaults from September 30,2005 through December 31, 2006. Also under this amendment, the Company’slenders agreed to increase the variable rate revolving loan portion of thecredit facility by U.S. $6 million. This increase in the credit facility wasintended to finance working capital needs and certain payments in connectionwith the Company’s purchase of Genesys Teleconferencia Iberia S.A.

On January 27, 2006, the Company’s principalcredit facility was amended (the “2006 Amendment”) as part of a financialrecapitalization. This 2006 Amendment became effective upon the closing of theissuance of new shares. The amendment requires the Company to use commerciallyreasonable efforts to refinance the credit facility; however, the Company isnot required to enter into a refinancing arrangement if it would provide forinterest terms at an average rate greater than LIBOR + 4.0% per annum orcontain other commercially unreasonable terms. The Company is also not requiredto finance with one of the Company’s existing lenders. If the Company fails torefinance the credit facility in full by October 31, 2006, the Companywill pay interest at 1.0% per annum above the rate it currently pays from November 1,2006 to April 30, 2007, at 2.0% per annum above the rate it currently paysfrom May 1, 2007 to October 31, 2007, at 3.0% per annum above therate it currently pays from November 1, 2007 to April 30, 2008, andat 4.0% per annum above the rate it currently pays from May 1, 2008 to October 31,2008.

The 2006 Amendmentprohibits the Company’s payment of dividends. The Company has pledged assecurity for its credit facility the shares of its principal subsidiaries, aswell as assets of the Company’s principal U.S. subsidiary. If its financialresults do not reach the levels required by its debt covenants and the Companyis unable to obtain a waiver from its lenders, the Company’s debt would be indefault and subject to acceleration by its lenders.

F-21

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

On February 22, 2006,the Company completed a financial recapitalization that included a U.S. $65million share offering (the “Share Offering”), the proceeds of which were usedto repay more than half of the total debt. The Share Offering was made to theCompany’s existing shareholders, who received warrants granting the right tosubscribe for new shares. As a result of the Share Offering, 51,490,530 newshares were issued. Through this repayment, the Company reduced the debtoutstanding under the credit facility to U.S. $38.1 million (approximately €32.4million). See Note 10.

***Current and principal repayment schedule, asamended***

Underthe August 6, 2004 amendment, the annual principal payment schedule comparedto the amended and restated repayment schedule subsequent to therecapitalization and $50 million payment made in the first quarter of 2006 inaccordance with the 2006 Amendment, is as follows:

| ** ** | ** ** | **Repayments according to  amendment signed on  August 6, 2004** | ** ** | **Repayments according to the  2006 Amendment** | ** ** | **Difference** | ** ** |
|------------|------------|------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|----------------|------------|
| ** ** | ** ** | **(in millions)**                                                                         | ** ** |
| 2006       |       |                                                                                           | $          | 16.0                                                                |       |           |       | $ | 1.2 |   |   |   | $ | (14.8 | ) |   |
| 2007       |       |                                                                                           | 22.3       |                                                                |       |           | 11.9       |   |   |   | (10.4 | ) |   |
| 2008       |       |                                                                                           | 49.8       |                                                                |       |           | 25.0       |   |   |   | (24.8 | ) |   |
| Total      |       |                                                                                           | $          | 88.1                                                                |       |           |       | $ | 38.1 |   |   |   | $ | (50.0 | ) |   |

 

Under the 2006 Amendment, interestwill continue to be paid according to the original schedule (*i.e.*, semi-annually on April 30 and October 31).****The Company has also agreed to prepay certain amounts ofthe debt if its excess cash flows exceed certain levels.

The weighted average interest rate on the U.S.$125 million credit facility outstanding at December 31, 2003, 2004and 2005 was 4.0%, 5.2% and 6.1%, respectively.

***Financial covenants***

The 2006 Amendment adjusts the levelof the Company’s existing financial covenants and deletes the financialcovenants that previously required the Company to maintain a minimum level ofEBITDA, as defined, and prohibited the Company from incurring capitalexpenditures in excess of certain levels. The financial covenants in the 2006Amendment establish threshold levels at which the Company would be able toimplement certain transactions before its bank lenders could declare theCompany in default under the credit agreement. However, if the Company fallsbelow certain base levels, its lenders could declare the Company in default.

Theamended threshold financial covenants are as follows:

·       The Company mustmaintain a cash cover ratio (consolidated cash flow over consolidated debtservice) at or above specified levels varying from 0.82 to 3.25 for eachquarter ending from March 31, 2006 to September 30, 2008;

·       the Company mustmaintain an interest cover ratio (consolidated EBITDA over consolidated netinterest expense) of no less than 4.12 as at March 31, 2006, increasingprogressively to 17.71 as at September 30, 2008; and

F-22

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

·       the Company mustmaintain a leverage ratio (outstanding consolidated net indebtedness overconsolidated EBITDA) for each quarter of no more than 1.68 as at March 31,2006, decreasing progressively to 0.04 as at September 30, 2008.

Shouldthe Company fail to meet one of these covenants, it would be required to pursueone of the following transactions or, if the Company fails to do so, bedeclared in default:

·       a capitalincrease in an amount of not less than €20 million;

·       a new loan of anamount sufficient to repay the sums outstanding under the credit facility;

·       a bond issuancein an amount sufficient to repay the sums outstanding under the creditfacility;

·       the execution ofa merger agreement or sale and purchase agreement, or the launching of a tenderoffer; or

·       anothertransaction that is ratified by the Company’s Board of Directors and acceptedby our lenders.

If the Company is unable to effectone of these transactions, its lenders will have the right to require immediaterepayment in full of the Company’s outstanding indebtedness. It is likely thatthe Company would be unable to make such a repayment.

Inaddition to the threshold financial covenants described above, the Company mustmeet the following base financial covenants:

·       The Company mustmaintain a cash cover ratio at or above specified levels varying from 0.69 to2.74;

·       The Company mustmaintain an interest cover ratio of no less than 3.47 as at March 31,2006, increasing progressively to 14.91 in 2008; and

·       The Company mustmaintain a leverage ratio of no more than 1.92 as at March 31, 2006,decreasing progressively to 0.04 in 2008.

Compliance with the ratios listedabove is tested quarterly, at the end of each quarter through September 30,2008. All ratios are computed under U.S. GAAP.

Inaddition, the 2006 Amendment prohibits the payment of dividends. The Companyhas pledged as security for its credit facility the shares of its principalsubsidiaries, as well as the cash and equivalents and accounts receivable ofits principal U.S. subsidiary. All of the existing security has been confirmedin connection with the 2006 Amendment. If its financial results do not reachthe levels required by its debt covenants and it is unable to obtain a waiverfrom its lenders, the Company’s debt would be in default and subject toacceleration by its lenders.

F-23

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

***Futurerepayments***

In connection with the recapitalizationand debt repayment, the Company’s principal credit facility was amended onJanuary 27, 2006. As part of this amendment, the repayment schedule of thedebt outstanding under the principal credit facility has been changed. Futurerepayments of long-term debt, excluding capital lease obligations afterconsideration of the new credit facility repayment schedule, are as follows:

| 2006                                                                |   | € | 1,096  |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|
| 2007                                                                |   | 10,060 |   |
| 2008                                                                |   | 21,168 |   |
| Debt repaid in January  2006 through the issuance of common shares* |   | 43,713 |   |
| Total                                                               |   | € | 76,037 |   |

----

*                     In accordance with SFAS No. 6, *Classification of Short-Term Obligations Expected to be Refinanced*,the Company reported the short-term portion of debt outstanding on itsconsolidated balance sheet at December 31, 2005 reflecting the currentrepayment schedule of the January 27, 2006 amendment.

***3%Convertible Bonds due 2004***

OnAugust 6, 1999, the Company issued 1,524,390 3% Convertible Bonds, eachwith a principal amount of €18.37, for €16.40each. Each bond was originally convertible into one share of common stock, andunless converted, was originally due September 1, 2004. The bonds werecallable at the Company’s option. The original issuance discount of €3,003was amortized as additional interest expense over the life of the bonds.851,056 and 197,011 bonds were converted into shares of common stock during 2000and 2001, respectively. The remaining 476,323 notes were not converted intocommon stock and were subsequently repurchased.

OnMay 26, 2003, at the request of the Company and as part of the financialrestructuring plan, the bondholders approved the rescheduling of 50% of theprincipal repayment (all of which was previously due September 1, 2004).The Company repaid 50% of the principal of these bonds totaling €6.4 millionon September 1, 2004, and was required to repay the remaining 50% of theoutstanding principal on October 31, 2005. As a result of the modificationof the terms of the bonds, they were no longer convertible into the Company’s ordinaryshares.

In February 2004, the Company repurchased 125,330Convertible Bonds (with a principal amount of €2.3 million)for an amount of €2.2 million and, as a result, 350,993 bonds were outstanding at December 31,2004, with an aggregate principal amount of €3.2 million.

In October 2005, theCompany repaid the total remaining outstanding Convertible Bonds for €3.2 million.There was no gain or loss on this repayment.

***Other Long-TermDebt***

During 2001, the Companywas granted an interest free loan for €120 by ANVAR (an agency ofthe French government) relating to web conferencing, which will be repaid bythe end of 2006.

F-24

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

**Note 9.   Fairvalue of financial instruments**

At December 31, 2004 and 2005, the carryingvalues of current financial instruments such as cash, restricted cash, accountsreceivable and payable, unbilled receivables, accrued liabilities and thecurrent portion of long-term debt approximated their market value, based on theshort-term maturities of these instruments. At December 31, 2004 and 2005,the fair values approximated carrying value of long-term debt as the Company’slong-term debt had a variable rate.

The fair value oflong-term debt is estimated based on the quoted market prices for the same orsimilar debt instruments, or where quoted prices are not available, on thepresent value of future cash flows discounted at borrowing rates currentlyoffered for debt instruments with similar remaining maturities.

**Note 10.   Shareholders’equity (deficit)**

***Astound acquisition***

To finance the 2001 acquisition of Astound, theCompany issued 1,103,200 notes convertible into shares of the Company. Of theseconvertible notes, 156,109 are convertible into options that replace existingAstound options and may be exercised in the future for the purchase of sharesof the Company; 30,700 are convertible into special options that may beexercised in the future for the purchase of shares of the Company; and theremaining 916,391 notes are directly convertible into ordinary shares of theCompany. The issuance of these convertible notes was reserved to a subsidiaryof the Company that contributed the notes to the Astound shareholders. Astoundshareholders were thus able to receive ordinary shares of the Company, eitherimmediately or at a future date.

Through July 2003, the unit share price underthese convertible notes was €28.79. As part of the July 2003capital increase with preferential subscription rights for currentshareholders, the unit share price was adjusted to take into account thedilution effect. The unit share price is currently €28.66, representing a nominalvalue of €1.00and unit additional paid-in-capital of €27.66 per convertiblenote.

Thefollowing table shows the number of shares or options for each type of theconvertible notes that were converted or forfeited (following the departure ofthe options holders from the Company) from January 1, 2003 through December 31,2005.

| ** **                                                                | ** ** | **Notes  convertible into  replacement options** | ** ** | **Notes  convertible into  special options** | ** ** | **Notes directly  convertible into  shares of the  Company** | ** ** | **Total**  | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|------------|------------|
| Remaining convertible notes at Jan. 1, 2003 |       |                                                       | 98,608     |                                                   |       |                                                                             | 30,700     |       |       |   | 137,347 |   |   | 266,655 | ** ** |
| Converted notes                                                           |       |                                                       | —     |                                                   |       |                                                                             | —     | ** ** |       |   | (72,280 | ) |   | (72,280 | ) |
| Forfeited notes                                                           |       |                                                       | (53,975    | )                                                      |       |                                                                             | —     | ** ** |       |   | — |   |   | (53,975 | ) |
| Remaining  convertible notes at Dec. 31, 2003                        |       |                                                       | 44,633     |                                                   |       |                                                                             | 30,700     | ** ** |       |   | 65,067 |   |   | 140,400 |   |
| Forfeited notes                                                           |       |                                                       | (1,274     | )                                                      |       |                                                                             | —     | ** ** |       |   | — |   |   | (1,274 | ) |
| Remaining  convertible notes at Dec. 31, 2004                        |       |                                                       | 43,359     |                                                   |       |                                                                             | 30,700     | ** ** |       |   | 65,067 |   |   | 139,126 |   |
| Forfeited notes                                                           |       |                                                       | (746       | )                                                      |       |                                                                             | —     | ** ** |       |   | — |   |   | (746 | ) |
| Remaining convertible  notes at Dec. 31, 2005                        |       |                                                       | 42,613     |                                                   |       |                                                                             | 30,700     | ** ** |       |   | 65,067 |   |   | 138,380 |   |

 

F-25

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

***Public offerings***

In August 2003, the Company raised €6,193in cash, inclusive of the issuance premium, in an equity rights offering, withpreferential subscription rights, as a condition to the financial restructuringdisclosed in Note 11. The Company issued 2,814,944 new ordinary shares, whichwere subsequently listed on the *NouveauMarché* of Euronext Paris (now Eurolist by Euronext) starting August 6,2003. The Company agreed to use the proceeds of the rights offering, which weredeposited in an escrow account, to repay the principal of, or repurchase, the3% Convertible Bonds due 2004 and 2005 (see Note 7).

To permit the rights offering described above, theCompany’s shareholders approved a reduction in the nominal value of itsordinary shares from €5 per share to €1per share at its June 5, 2003 shareholders meeting. Under French law, theCompany would not have been permitted to offer shares in the rights offering ata price that was less than the nominal value of those shares.

On February 22, 2006,the Company completed a planned recapitalization that included the amendmentand restatement of its U.S. $125 million credit facility, a U.S. $65 millionequity offering and certain other transactions relating to the Company’s shares.The equity offering was implemented through the distribution to the Company’sshareholders of warrants granting the right to subscribe to new shares. Shareholderswere able to exercise their warrants until February 15, 2006, and ADSholders were able to exercise their warrants until February 13, 2006. Thewarrants exercise period was followed by a private placement to institutionalinvestors outside the United States. 51,490,530 new shares were issued as aresult of the exercise of offering, representing gross proceeds of $65 million(approximately €53.6 million).

***Other***

The June 5, 2003special shareholders’ meeting resulted in a reduction of the Company’s ordinaryshares by €61,885 from €77,356 to €15,471in the Company’s statutory accounts, against the accumulated deficit. The nominalvalue per share was reduced from €5 to €1.Thereafter, ordinary shares amounted to 15,471,204 shares having a nominalvalue of €1.Due to the decrease of nominal value per share, the shares to be issued werereduced by €305,against an increase of additional-paid-in-capital.

***Preemptivesubscription rights***

Shareholders havepreemptive rights to subscribe on a pro rata basis for additional shares issuedby the Company for cash. Shareholders may waive their preemptive subscriptionrights at an extraordinary general meeting of shareholders under certaincircumstances. Preemptive subscription rights, if not previously waived, aretransferable during the subscription period relating to a particular offer ofshares.

***Dividend rights***

The Company may distribute dividends out of its “distributableprofits,” plus any amounts held in its reserve that the shareholders decide tomake available for distribution, other than those reserves, which arespecifically required by law or its by-laws. “Distributable profits” consist ofits statutory net profits in each year, as increased or reduced by any profitor loss carried forward from prior years, less any contributions to the reserveaccounts pursuant to law or its by-laws.

The Company must allocate5% of its statutory net profit for each year to its legal reserve accountbefore dividends may be paid with respect to that year. Such allocation must bemade until the amount in 

F-26

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

thelegal reserve is equal to 10% of the aggregate nominal value of the issued andoutstanding share capital. This restriction on the payment of dividends alsoapplies to each of the Company’s French subsidiaries on a statutory basis. At December 31,2005, the Company’s legal reserve was €146. The legal reserve maybe distributed to shareholders only upon liquidation of the Company.

**Note 11.   Employeestock option plans**

***1998, 1999 and 2000Stock Plans***

On September 23, 1998, the Board of Directorsapproved the 1998 Stock Plan (the “1998 plan”) for grants of options forordinary shares to directors, officers and key employees. A total of 412,890shares are authorized for issuance under the 1998 plan. Stock options under the1998 plan are granted at prices equivalent to the price of the initial publicoffering on October 1, 1998. However, following the Company’s August 2003rights offering in connection with its financial restructuring, the Companyrevised all of the exercise prices of our outstanding stock options inaccordance with French law, which requires the Company to maintain equalitybetween the shareholders and the beneficiaries of the Company’s stock options.Under the terms of the 1998 plan, the options give the right to purchase oneshare per option. The options generally vest at a rate of 20% by the first yearanniversary (“bracket A”), 50% by the third year anniversary (“bracket B”) andthe final 30% by the fourth year anniversary (“bracket C”). Shares acquiredupon the exercise of stock options must be held for 3 years for bracket Aoptions and 2 years for bracket B and bracket C options. The optionsexpire eight years after the date of grant. Ordinary shares attributable toawards, which have expired, been terminated, cancelled or forfeited, areavailable for issuance or use in connection with future awards.

On September 15, 1999, the Board of Directorsapproved the 1999 Stock Plan (the “1999 plan”) for grants of options forordinary shares to directors, officers and key employees. A total of 230,504shares are authorized for issuance under the 1999 plan. Stock options under the1999 plan are granted at prices equivalent to the average market value of theCompany’s ordinary shares calculated over the 20 trading sessions prior to thedate of grant. The other terms of the 1999 plan are identical to the 1998 plan.

On September 8, 2000, the Board of Directors ofthe Company approved the 2000 Stock Plan (the “2000 plan”) pursuant to theauthorization given by the shareholders’ meeting held on June 6, 2000. Atotal of 550,000 shares are authorized for issuance under the 2000 plan. Stockoptions under the 2000 plan are granted at prices equivalent to the averagemarket value of the Company’s ordinary shares calculated over the 20 tradingsessions prior to the date of grant. Under the terms of the 2000 plan, theoptions give the right to purchase one share per option. The options generallyvest at a rate of 20% by the first year anniversary (“bracket A”), 50% by thethird year anniversary (“bracket B”) and the final 30% by the fourth year anniversary(“bracket C”). Shares acquired upon the exercise of stock options must be heldfor 3 years for bracket A options and two years for bracket B andbracket C options. Options expire eight years after the date of grant. Ordinaryshares attributable to awards, which have expired, been terminated , cancelledor forfeited, are available for issuance or use in connection with futureawards.

On September 8, 2000, the Board of Directorsamended these three stock option plans with respect to the change of controlclause that stipulates that if an individual shareholder or a group ofshareholders (acting together) acquires more than 25% of the Company’s shares,the vesting of options can be accelerated, at the discretion of the Board forcertain identified employees of the Company.

F-27

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

On September 26, 2001, for these three plans, theminimal period before selling shares acquired upon the exercise of stockoptions for non-French residents or non-signers of a work contract according tothe French Law was changed. These option holders can now sell their shares uponexercise.

On June 5, 2003, the1998, 1999 and 2000 plans were amended and now the options granted under thethree plans after April 2000 are vested at a rate of 20% by the first yearanniversary (“bracket A”), 50% by the second year anniversary (“bracket B”) andthe final 30% by the third year anniversary (“bracket C”). Shares acquired uponthe exercise of stock options must be held for three years for bracket Aoptions, two years for bracket B options and one year for bracket Coptions.

***2001 Stock Plan***

On September 26, 2001, the Board of Directors ofthe Company approved the 2001 Stock Plan (the “2001 plan”) pursuant to theauthorization given by the shareholders’ meeting held on June 26, 2001. Atotal of 550,000 shares are authorized for issuance under the 2001 plan. Thisplan is divided into two parts.

The first part of the 2001 plan relates to Frenchresidents or signers of a work contract according to French Law. Stock optionsunder this part are granted at prices equivalent to the average market value ofthe Company’s ordinary shares calculated over the 20 trading sessions prior tothe date of grant. Under the terms of this part of the 2001 plan, the optionsgive the right to purchase one share per option. The options generally vest ata rate of 20% by the first year anniversary (“bracket A”), 50% by the secondyear anniversary (“bracket B”) and the final 30% by the third year anniversary(“bracket C”). Shares acquired upon the exercise of stock options must be heldfor three years for bracket A options, two years for bracket Boptions and one year for bracket C options. Options expire eight yearsafter the date of grant. Ordinary shares attributable to awards, which haveexpired, been terminated, cancelled or forfeited, are available for issuance oruse in connection with future awards.

The second part of the2001 plan relates to non-French residents or non-signers of a work contractaccording to the French Law. Stock options under this part are granted atprices equivalent to the average market value of the Company’s ordinary sharescalculated over the 20 trading sessions prior to the date of grant. The optionsare exercised on the Nasdaq Stock Market only. Under the terms of this part ofthe 2001 plan, the options give the right to purchase 2 ADS’s per option. If onthe effective date of the exercise of a vested option, the grantee is arestricted participant, such grantee shall receive one ordinary share insteadof 2 ADS’s. The options vest at a rate of 10% upon the first year anniversaryand an additional 7.5% for each quarter thereafter, until fully vested. Optionscan be exercised immediately upon vesting and there are no holding restrictionson the underlying ADS’s (or ordinary shares for restricted participant).Options expire eight years after the date of grant. ADS’s (or ordinary sharesfor restricted participant) attributable to awards which have expired, beenterminated, canceled or forfeited are available for issuance or use inconnection with future awards.

***Stock optionexchange program***

In November 2002, the Company announced avoluntary stock option exchange program for its eligible employees. Thisprogram included two separate offers: one to French residents and one fornon-French residents. Pursuant to the terms and conditions of each offer,eligible employees were given the opportunity to renounce the right to thebenefit of all outstanding stock options granted under the 1998, 1999, 2000 and2001 Stock Plans, in exchange for an equal number of new options to be grantedon or after 

F-28

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

June 5, 2003 forFrench residents and June 27, 2003 for non-French residents. Offersexpired on December 2, 2002 for French residents and December 18,2002 for non-French residents. As a result of the two separate offers,employees tendered an aggregate of 1,045,511 options in return for the promiseto grant new options.

On June 5, 2003 and June 27,2003, the Company re-granted one new stock option for each stock optioncancelled in 2002, subject to adjustments for any stock splits, stock dividendsand similar events, provided that the employee was still employed by theCompany at the new option grant date. The new options granted are under thesame option plan as the related cancelled options and on substantially the sameterms and conditions as such options, except that the exercise price was basedon the “market value” of the Company’s ordinary shares (or ADSs) at the time ofthe grant and was determined in accordance with the terms of the applicableoption plan. The new options granted to non-French residents have the samevesting schedule and maximum term as the related cancelled options. The newoptions granted to French residents have the same vesting schedule as therelated cancelled options, starting on the date of grant of the new options,and they have the same maximum term as the related cancelled options.

***2003 Stock Plan***

On June 5, 2003, the Board of Directors of theCompany approved the 2003 Stock Plan (“the 2003 plan”) pursuant to theauthorization given by the shareholders’ meeting held on June 5, 2003. Atotal of 1,000,000 shares are authorized for issuance under the 2003 plan. Thisplan is divided into two parts.

The first part of the 2003 plan relates to Frenchresidents or signers of a work contract according to French Law. Stock optionsunder this part are granted at prices equivalent to the average market value ofthe Company’s ordinary shares calculated over the 20 trading sessions prior tothe date of grant. Under the terms of this part of the 2003 plan, the optionsgive the right to purchase one share per option. The options generally vest ata rate of 20% by the first year anniversary (“bracket A”), 50% by the secondyear anniversary (“bracket B”) and the final 30% by the third year anniversary(“bracket C”). Shares acquired upon the exercise of stock options must be heldfor three years for bracket A options, two years for bracket Boptions, and one year for bracket C options. Options expire eight yearsafter the date of grant. Ordinary shares attributable to awards, which haveexpired, been terminated, been canceled or forfeited, are available forissuance or use in connection with future awards.

The second part of the2003 plan relates to non-French residents or non-signers of a work contractaccording to the French Law. Stock options under this part are granted atprices equivalent to the average market value of the Company’s ordinary sharescalculated over the 20 trading sessions prior to the date of grant. The optionsare exercised on the NASDAQ Stock Market only. Under the terms of this part ofthe 2003 plan, the options give the right to purchase 2 ADS’s per option. If,on the effective date of the exercise of a vested option, the grantee is arestricted participant, such grantee shall receive one ordinary share insteadof 2 ADS’s. The options vest at a rate of 10% upon the first year anniversaryand an additional 7.5% for each quarter thereafter, until fully vested. Optionscan be exercised immediately upon vesting and there are no holding restrictionson the underlying ADS’s (or ordinary shares for restricted participant).Options expire eight years after the date of grant. ADS’s (or ordinary sharesfor restricted participant) attributable to awards which have expired, beenterminated, canceled or forfeited are available for issuance or use inconnection with future awards.

F-29

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

***Stock optionrepricing (1998, 1999, 2000, 2001 and 2003 plans)***

On September 18,2003, the Board of Directors approved the repricing of granted stock options tocomply with the French Company Act after the completion of the rights offeringin August 2003. The exercise prices of outstanding stock options wereimmediately decreased by 7.44% to offset the dilution effect for option holdersdue to the rights offering with preferential rights for existing shareholders.Furthermore, on April 18, 2006, the Board of Directors approved therepricing of granted stock options to comply with the French Company Act afterthe completion of the capital increase, by distributing warrants, free of charge, in February 2006. Theexercise prices of outstanding stock options were immediately decreased by20.51% to offset the dilution effect for option holders due to the capitalincrease, by distributing warrants free of charges, to existing shareholders. Asa modification of the exercise price of outstanding stock options occurred, theCompany accounts for these stock options under the variable accounting methodin accordance with FASB Interpretation No. 44, *Accountingfor Certain Transactions Involving Stock Compensation*, issued by theFinancial Accounting Standards Board in March 2000, starting on September 18,2003. The corresponding compensation expense, classified in general andadministrative expenses, amounted to €160 for the year ended December 31,2003, and has been offset by a compensation credit of €160for the year ended December 31, 2004 as a result of the decrease in theCompany’s quoted share price.

***2005 Stock Plan***

On June 28, 2005, the Board of Directors of theCompany approved the 2005 Stock Plan (“the 2005 plan”) pursuant to theauthorization given by the shareholders’ meeting held on June 28, 2005. Atotal of 500,000 shares are authorized for issuance under the 2005 plan. Thisplan is divided into two parts.

The first part of the 2005 plan relates to Frenchresidents or signers of a work contract according to French Law. Stock optionsunder this part are granted at prices equivalent to the average market value ofthe Company’s ordinary shares calculated over the 20 trading sessions prior tothe date of grant. Under the terms of this part of the 2005 plan, the optionsgive the right to purchase one share per option. The options vest at a rate of10% upon the first year anniversary and an additional 7.5% for each quarterthereafter, until fully vested. Options can be exercised immediately uponvesting but there are holding restrictions on the ordinary shares. Options canbe sold after 4 years from the grant date. Options expire eight years after thedate of grant. Ordinary shares attributable to awards, which have expired, beenterminated, canceled or forfeited, are available for issuance or use inconnection with future awards.

The second part of the 2005 plan relates to non-Frenchresidents or non-signers of a work contract according to the French Law. Stockoptions under this part are granted at prices equivalent to the average marketvalue of the Company’s ordinary shares calculated over the 20 trading sessionsprior to the date of grant. The options are exercised on the NASDAQ Stock Marketonly. Under the terms of this part of the 2005 plan, the options give the rightto purchase 2 ADS’s per option. If, on the effective date of the exercise of avested option, the grantee is a restricted participant, such grantee shallreceive one ordinary share instead of 2 ADS’s. The options vest at a rate of10% upon the first year anniversary and an additional 7.5% for each quarterthereafter, until fully vested. Options can be exercised immediately uponvesting and there are no holding restrictions on the underlying ADS’s (orordinary shares for restricted participant). Options expire eight years afterthe date of grant. ADS’s (or ordinary shares for restricted 

F-30

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

participant) attributableto awards which have expired, been terminated, canceled or forfeited areavailable for issuance or use in connection with future awards.

Stockoption activity under the 1998, 1999, 2000, 2001, 2003 and 2005 plans was asfollows:

| ** **                                | ** ** | **Shares  available  for grant** | ** ** | **Options  outstanding** | ** ** | **Weighted-  average  exercise price** | ** ** |
|-------------------------------------------|------------|---------------------------------------|------------|--------------------------|------------|---------------------------------------------|------------|
| **Balance  as of January 1, 2003**   |       | 1,165,595                             |       |                     | 562,531    |                                        |       |   | € | 22.47 |   |   |
| Authorized                                |       | 1,000,000                             |       |                     | —     |                                        |       |   | — |   |   |
| Granted                                   |       | (2,076,801                            | )          |                     | 2,076,801  |                                        |       |   | 4.45 |   |   |
| Exercised                                 |       | —                                |       |                     | (10,599    | )                                           |       |   | 4.33 |   |   |
| Forfeited                                 |       | 98,000                                |       |                     | (105,500   | )                                           |       |   | 17.91 |   |   |
| **Balance as of December 31, 2003**  |       | 186,794                               |       |                     | 2,523,233  |                                        |       |   | 7.43 |   |   |
| Granted                                   |       | (117,290                              | )          |                     | 117,290    |                                        |       |   | 3.65 |   |   |
| Forfeited                                 |       | 39,901                                |       |                     | (126,171   | )                                           |       |   | 11.14 |   |   |
| **Balance as of December 31, 2004**  |       | 109,405                               |       |                     | 2,514,352  |                                        |       |   | 7.06 |   |   |
| Authorized                                |       | 500,000                               |       |                     | —     |                                        |       |   | — |   |   |
| Granted                                   |       | (15,000                               | )          |                     | 15,000     |                                        |       |   | 1.49 |   |   |
| Forfeited                                 |       | 23,669                                |       |                     | (107,780   | )                                           |       |   | 6.28 |   |   |
| **Balance  as of December 31, 2005** |       | 618,074                               |       |                     | 2,421,572  |                                        |       |   | 7.06 |   |   |

 

Thefollowing table summarizes the status of stock options outstanding exercisableat December 31, 2005:

| ** **                                 | ** ** | **Options outstanding** | ** ** |
|--------------------------------------------|------------|------------------------------|------------|
| **Range of exercise price** | ** ** | ** **                   | ** ** | **Number  outstanding** | ** ** | **Weighted-average  remaining  contractual life  (in years)** | ** ** | **Number  exercisable** | ** ** | **Weighted-  average  exercise price** | ** ** |
| €1.49  &  €5.54         |       |                         | 2,000,031  |   |   |   | 5.38 |   |   | 1,416,820 |   |   | € | 4.22 |   |   |
| €9.17  &  €12.00        |       |                         | 50,699     |   |   |   | 0.72 |   |   | 50,699 |   |   | 9.17 |   |   |
| €13.24  &  €14.68       |       |                         | 207,984    |   |   |   | 3.14 |   |   | 207,984 |   |   | 14.19 |   |   |
| €20.45  &  €23.16       |       |                         | 101,858    |   |   |   | 3.29 |   |   | 101,858 |   |   | 22.45 |   |   |
| €46.67  &  €49.49       |       |                         | 61,000     |   |   |   | 1.61 |   |   | 61,000 |   |   | 48.64 |   |   |
|                                       |       |                         | 2,421,572  |   |   |   | 4.91 |   |   | 1,838,361 |   |   | € | 7.06 |   |   |
|                                            |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

***Stock plan atGenesys Conferencing, Inc. (formerly Vialog Corporation)***

In accordance with the merger agreement, Vialog stockoptions remain outstanding after the acquisition by Genesys S.A. on the sameterms and conditions except that, upon exercise the holder receives a right toreceive Genesys ADS’s for Vialog common stock based on the same exchange ratioused in connection with the merger.

On February 14, 1996 and April 29, 1999,Vialog’s Board of Directors approved the 1996 and 1999 Vialog Stock Plans,respectively. The maximum number of shares of Vialog’s common stock that may be

F-31

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

subject to outstandingawards may not exceed 3,250,000 shares and 1,500,000 shares as of December 31,2001 for the 1996 and 1999 Vialog’s Stock Plans, respectively. Shares of commonstock attributable to awards, which have expired, been terminated, cancelled orforfeited, are available for issuance or use in connection with future awards.The 1996 and 1999 Vialog Stock Plans will remain in effect until February 14,2006 and April 29, 2009, respectively, unless terminated earlier by theVialog’s Board of Directors.

Stockoption activity under the 1996 and 1999 Vialog Stock Plans was as follows:

| ** **                                | ** ** | **Number of  options  available for  grant** | ** ** | **Number of  outstanding  Vialog stock  options** | ** ** | **Equivalent  number of  Genesys  ordinary shares** | ** ** | **Equivalent  weighted-  average exercise  price of Genesys  ordinary share** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|
| **Balance  as of January 1, 2002**   |       |                                                   | 960,065    |                                                        |       | 2,045,846                                                     |       |                                                                                              | 685,665    |   |   |   | € | 20.65 |   |   |   |
| Exercised                                 |       |                                                   | —     |                                                        |       | (55,000                                                       | )          |                                                                                              | (18,433    | ) |   |   | 11.21 |   |   |   |
| Cancelled                                 |       |                                                   | 1,202,556  |                                                        |       | (1,202,556                                                    | )          |                                                                                              | (403,037   | ) |   |   | 19.45 |   |   |   |
| **Balance as of December 31, 2002**  |       |                                                   | 2,162,621  |                                                        |       | 788,290                                                       |       |                                                                                              | 264,195    |   |   |   | 17.06 |   |   |   |
| Forfeited                                 |       |                                                   | 238,070    |                                                        |       | (238,070                                                      | )          |                                                                                              | (79,789    | ) |   |   | 24.58 |   |   |   |
| **Balance as of December 31, 2003**  |       |                                                   | 2,400,691  |                                                        |       | 550,220                                                       |       |                                                                                              | 184,406    |   |   |   | 13.80 |   |   |   |
| Forfeited                                 |       |                                                   | 18,060     |                                                        |       | (18,060                                                       | )          |                                                                                              | (6,053     | ) |   |   | 8.42 |   |   |   |
| **Balance as of December 31, 2004**  |       |                                                   | 2,418,751  |                                                        |       | 532,160                                                       |       |                                                                                              | 178,353    |   |   |   | 12.95 |   |   |   |
| Forfeited                                 |       |                                                   | 18,500     |                                                        |       | (18,500                                                       | )          |                                                                                              | (6,200     | ) |   |   | 12.69 |   |   |   |
| **Balance  as of December 31, 2005** |       |                                                   | 2,437,251  |                                                        |       | 513,660                                                       |       |                                                                                              | 172,153    |   |   |   | 12.77 |   |   |   |

 

Thefollowing table summarizes the status of stock options outstanding andexercisable at December 31, 2005:

| ** **                                                 | ** ** | **Options outstanding** | ** ** |
|------------------------------------------------------------|------------|------------------------------|------------|
| **Range of equivalent exercise price** | ** ** | ** **                   | ** ** | **Equivalent  outstanding  number  of Genesys  ordinary shares** | ** ** | **Weighted-average  remaining  contractual life  (in years)** | ** ** | **Equivalent  exercisable  number  of Genesys  ordinary shares** | ** ** | **Equivalent  weighted-  average exercise  price of Genesys  ordinary shares** | ** ** |
| €4.38  &€10.14                               |       |                         | 76,562     |   |   |   | 3.6 |   |   |   | 76,562 |   |   |   | € | 7.55 |   |   |
| €10.95  &€15.33                              |       |                         | 41,998     |   |   |   | 3.8 |   |   |   | 41,998 |   |   |   | 11.73 |   |   |
| €17.52                                                |       |                         | 8,545      |   |   |   | 3.1 |   |   |   | 8,545 |   |   |   | 17.52 |   |   |
| €21.91  &€23.00                              |       |                         | 45,048     |   |   |   | 4.5 |   |   |   | 45,048 |   |   |   | 22.87 |   |   |
|                                                       |       |                         | 172,153    |   |   |   | 3.8 |   |   |   | 172,153 |   |   |   | € | 12.77 |   |   |
|                                                            |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-32

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

**Note 12.   Otherlong-term liabilities**

Otherlong-term liabilities consist of the following:

| ** **                                                                                                                      | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                      | ** ** | **2004**              | ** ** | **2005** | ** ** |
| Accrued restructuring  expenses as follows:                                                                                     |       |                  |       |   |   |
| United States, 2002-03 plans, consolidation of  call centers                                                                    |       | €                | 610        |   | € | 5 |   |
| United States, 1998-99 plans, consolidation of  call centers                                                                    |       | 796                   |       | 553 |   |
| Germany, 2002 plan, closing of Rödermark call center                                                                       |       | 211                   |       | 97 |   |
| Montpellier, 2004 plan,  consolidation of senior management, legal, administrative and finance  departments to Reston, Virginia |       | 450                   |       | 30 |   |
| Subtotal—accrued restructuring expenses                                                                                    |       | 2,067                 |       | 686 |   |
| Accrued severance  and related litigation                                                                                       |       | 336                   |       | 211 |   |
| Tax audit  accruals (Genesys Conferencing France)                                                                               |       | 244                   |       | — |   |
| Deferred rent                                                                                                                   |       | 11                    |       | — |   |
| Other                                                                                                                           |       | 53                    |       | 428 |   |
| Total other long-term  liabilities                                                                                              |       | 2,711                 |       | 1,325 |   |
| Less current  portion                                                                                                           |       | (1,467                | )          | (627 | ) |
| Other long-term  liabilities, less current portion                                                                              |       | €                | 1,244      |   | € | 698 |   |

 

***Restructuringcharge***

Restructuringcharges disclosed in the consolidated statements of operations consist of thefollowing:

| ** **                                                                                        | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                        | ** ** | **2003**              | ** ** | **2004** | ** ** | **2005** | ** ** |
| United States, 2002-03 plans, consolidation of  call centers                                      |       | €                | 466        |   | € | 932 |   | € | 5 |   |
| Consolidation of senior management and  administrative and finance department to Reston, Virginia |       | —                |       | 1,116 |   | (52 | ) |
| Separation costs and severance                                                                    |       | 568                   |       | 194 |   | — |   |
| Consolidation of the video division                                                               |       | —                |       | — |   | 303 |   |
| Others                                                                                            |       | 81                    |       | — |   | — |   |
| Total  restructuring charge                                                                       |       | €                | 1,115      |   | € | 2,242 |   | € | 256 |   |

 

***Consolidation ofsenior management and finance, legal and administrative departments***

In August 2004, theCompany announced the completion of the consolidation of senior management andfinance, legal and administrative departments to Reston, Virginia. Thesedepartments were previously located in Montpellier, France and, to a lesserextent, in Denver, Colorado. The €1.1 million chargerecorded in 2004 relates to severance and other personnel-relatedexpenses.

F-33

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

***Consolidation ofNorth American Call Centers in 2002 and 2003***

During 2002, the Company consolidated six call centersto two call centers in North America.

On September 22, 2003, the Company announced thatthe Chanhassen, Minnesota call center would be closed and all traffic formerlygenerated in Chanhassen would be re-routed to the Company’s Reston, Virginiacall center where the Company has been building a high-capacity call center.This new closing in North America is due to call center automation, inparticular the deployment of a new back office operating system and the ongoingmove towards automated services.

The changes in thecarrying value of accrued restructuring expenses associated with the 2002 and2003 consolidation plans from December 31, 2002 through December 31,2003 are as follows:

| ** **                                                                 | ** ** | **Balance at  Dec. 31,  2002** | ** ** | **Currency  translation  adjustment** | ** ** | **Additions to  the accrued  restructuring  costs** | ** ** | **Expenses  incurred** | ** ** | **Balance at  Dec. 31, 2003** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------------------|------------|---------------------------------------|------------|---------------------------------------------------------------|------------|------------------------|------------|----------------------------------------------|------------|
| Future lease  payments under non cancelable operating leases               |       |                                     | €     | 2,395                                 |       |                                                          |       | €                 | (335       | )                                            |       |   | — |   |   |   | € | (687 | ) |   |   | € | 1,373 |   |   |
| Write-offs  of leasehold improvements, equipment and other tangible assets |       |                                     | 764        |                                  |       |                                                          | (56        | )                      |       |                                         | —     |   |   |   | (708 | ) |   |   | — |   |   |
| Employee  severance and related expenses                                   |       |                                     | 355        |                                  |       |                                                          | (72        | )                      |       |                                         | 444        |   |   |   | (350 | ) |   |   | 377 |   |   |
| Others                                                                     |       |                                     | 69         |                                  |       |                                                          | (7         | )                      |       |                                         | 22         |   |   |   | (64 | ) |   |   | 20 |   |   |
| Total                                                                      |       |                                     | €     | 3,583                                 |       |                                                          |       | €                 | (470       | )                                            |       |   | € | 466 |   |   |   | € | (1,809 | ) |   |   | € | 1,770 |   |   |
|                                                                            |            |                                          |            |                                       |            |                                                               |            |                        |            |                                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Thechanges in the carrying value of accrued restructuring expenses associated withthe 2002 and 2003 consolidation plans from December 31, 2003 through December 31,2004 are as follows:

| ** **                                                   | ** ** | **Balance at  Dec. 31,  2003** | ** ** | **Currency  translation  adjustment** | ** ** | **Additions to  the accrued  restructuring  costs** | ** ** | **Expenses  incurred** | ** ** | **Balance at  Dec. 31, 2004** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------|------------|---------------------------------------|------------|---------------------------------------------------------------|------------|------------------------|------------|----------------------------------------------|------------|
| Future lease  payments under non cancelable operating leases |       |                                     | €     | 1,373                                 |       |                                                          |       | €                 | (35        | )                                            |       |   | € | 406 |   |   |   | € | (1,152 | ) |   |   | € | 592 |   |   |
| Employee  severance and related expenses                     |       |                                     | 377        |                                  |       |                                                          | 5          |                   |       |                                         | 18         |   |   |   | (382 | ) |   |   | 18 |   |   |
| Others                                                       |       |                                     | 20         |                                  |       |                                                          | —     |                   |       |                                         | —     |   |   |   | (20 | ) |   |   | — |   |   |
| Total                                                        |       |                                     | €     | 1,770                                 |       |                                                          |       | €                 | (30        | )                                            |       |   | € | 424 |   |   |   | € | (1,554 | ) |   |   | € | 610 |   |   |

 

Thechanges in the carrying value of accrued restructuring expenses associated withthe 2002 and 2003 consolidation plans from December 31, 2004 through December 31,2005 are as follows:

| ** **                                                   | ** ** | **Balance at  Dec. 31,  2004** | ** ** | **Currency  translation  adjustment** | ** ** | **Additions to  the accrued  restructuring  costs** | ** ** | **Expenses  incurred** | ** ** | **Balance at  Dec. 31, 2005** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------|------------|---------------------------------------|------------|---------------------------------------------------------------|------------|------------------------|------------|----------------------------------------------|------------|
| Future lease  payments under non cancelable operating leases |       |                                     | €     | 592                                   |       |                                                          |       | €                 | (77        | )                                            |       |   | — |   |   |   | € | (510 | ) |   |   | € | 5 |   |   |
| Employee severance  and related expenses                     |       |                                     | 18         |                                  |       |                                                          | 1          |                   |       |                                         | —     |   |   |   | (19 | ) |   |   | — |   |   |
| Total                                                        |       |                                     | €     | 610                                   |       |                                                          |       | €                 | (76        | )                                            |       |   | — |   |   |   | € | (529 | ) |   |   | € | 5 |   |   |

 

F-34

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

***Consolidation ofNorth America call centers in 1998-99***

Following a detailedreview of accrued restructuring expenses relating to consolidation of callcenters performed by Vialog Corporation (merged with Genesys Conferencing Incon January 1, 2002) in 1998-99, an additional future rental chargeof €1,144representing an updated estimate of unrecoverable future payment under non-cancelableoperating leases was recorded in 2002. Consequently, goodwill from the Vialogacquisition increased by €1,144.

***Closing of theFrankfurt, Germany call center***

To provide higher levelsof customer service and improve operating efficiencies, the Company’sRödermark, Germany call center was closed in October 2002 and all trafficformerly generated in Frankfurt has been re-routed to the Company’s otherEuropean call center, located in the United Kingdom.

**Note 13.**   Incometaxes

Thecomponents of the income tax provision (benefit) are as follows:

| ** **                      | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------|------------|---------------------------------------------|------------|
| ** **                      | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                      | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | ** ** | ** ** |
| Current:                        |       | €                                      | 2,530      |   |   | € | 2,507 |   |   | € | 1,718 |   |
| —Domestic                  |       | 47                                          |       |   | 118 |   |   | (11 | ) |
| —Foreign                   |       | 2,483                                       |       |   | 2,389 |   |   | 1,728 |   |
| Deferred:                       |       | (1,256                                      | )          |   | 72 |   |   | (1,973 | ) |
| —Domestic                  |       | (548                                        | )          |   | 400 |   |   | — |   |
| —Foreign                   |       | (708                                        | )          |   | (328 | ) |   | (1,973 | ) |
| Income tax provision  (benefit) |       | €                                      | 1,274      |   |   | € | 2,579 |   |   | € | (255 | ) |

 

F-35

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

Theprovision for income taxes differs from the computed “expected” income taxexpense (benefit) using the French statutory tax rate of approximately 34% in2003, 2004 and 2005, respectively, for the following reasons:

| ** **                                                                | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                                                | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | ** ** | ** ** |
| (Loss) income  before taxes                                               |       | €                                      | (20,195    | ) | € | (78,368 | ) | € | 3,606 |   |
| French statutory  tax rate                                                |       | 34.33                                       | %          | 34.33 | % | 33.83 | % |
| Income tax  (benefit) expense at statutory rate                           |       | €                                      | (6,933     | ) | € | (26,903 | ) | € | 1,220 |   |
| *Increase (reduction) in taxes  resulting from:*                          |       |                                        |       |   |   |   |   |
| Foreign income tax rates different from the French  statutory  tax rate   |       | 4                                           |       | (1,007 | ) | (134 | ) |
| Amortization of  non-deductible other intangibles                         |       | 3,107                                       |       | 25 |   | — |   |
| Non deductible  impairment on goodwill and identifiable intangible assets |       | 1,078                                       |       | 18,333 |   | — |   |
| Valuation  allowance on deferred tax assets                               |       | (4,162                                      | )          | 12,058 |   | (2,328 | ) |
| Other permanent  differences                                              |       | (128                                        | )          | 74 |   | 418 |   |
| Others                                                                    |       | (16                                         | )          | — |   | 569 |   |
| Income tax expense  (benefit)                                             |       | €                                      | 1,274      |   | € | 2,579 |   | € | (255 | ) |

 

Theconsolidated net deferred tax asset consists of the following:

| ** **                                                      | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                      | ** ** | **2004**              | ** ** | **2005** | ** ** |
| ** **                                                      | ** ** | **(restated)**        | ** ** | ** ** | ** ** |
| Total deferred  tax liability associated with intangible assets |       | €                | (4,385     | ) | € | (3,502 | ) |
| Net operating  losses carried forward:                          |       |                  |       |   |   |
| France                                                          |       | 15,672                |       | 10,875 |   |
| United States                                                   |       | 27,760                |       | 32,252 |   |
| Canada                                                          |       | 3,404                 |       | 1,905 |   |
| Singapore                                                       |       | 184                   |       | 181 |   |
| Japan                                                           |       | 143                   |       | 257 |   |
| Italy                                                           |       | 245                   |       | 214 |   |
| Hong Kong                                                       |       | 71                    |       | 39 |   |
| China                                                           |       | 8                     |       | 10 |   |
| Total net  operating losses                                     |       | 47,487                |       | 45,733 |   |
| Valuation  allowance                                            |       | (42,654               | )          | (40,326 | ) |
| Other deferred  tax assets, net                                 |       | 448                   |       | 516 |   |
| Deferred taxes, net                                             |       | €                | 448        |   | € | 2,421 |   |

 

The Company does not have any net operating losses inGermany, Australia, Malaysia or any other countries not listed above. The useof a portion of the net operating losses carried forward in the United Statesand Canada could be limited because of the ownership change that occurred uponacquisition of Vialog in April 2001, Astound in March 2001 and, to alesser extent, Eureka and Telechoice Deutschland and Eureka GlobalTeleconferencing Service in Germany in September 2000. Additionally, theCompany 

F-36

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

could have limitations onthe utilization of a portion of its NOL carryforwards subject to possibleannual limitations due to prior changes in ownership, and the conclusions ofin-progress or future tax audits in some countries.

The Company has recorded a valuation allowance againstdeferred tax assets generated in United States, Australia, Singapore andHong Kong for all periods presented herein, due to the uncertainty ofrealization through future operations. The valuation allowance will be reducedat such time as management believes it is more likely than not that thedeferred tax assets will be realized. Any reductions in the valuation allowancewill reduce future provisions for income tax expense.

Thebreakdown per expiration date of net operating losses carried forward is asfollows:

| 2008                                |   | €  | 5,443   |   |
|-------------------------------------|--------|---------|---------|--------|
| 2012–2025 (United  States)     |   | 106,418 |    |
| No expiration  date (mainly France) |   | 34,460  |    |
| Total                               |   | €  | 146,321 |   |

 

**The Company has not provided forU.S. income taxes or foreign withholding taxes of international subsidiaries’undistributed earnings since the Company considers the undistributed earningsto be indefinitely invested in the foreign entities. Management has decidedthat the determination of the amount of any unrecognized deferred tax liabilityfor the cumulative undistributed earnings is not practical to determine sinceit would depend on a number of factors that cannot be known until such time asa decision to repatriate the earnings might be made.**

**Note 14.   Commitmentsand contingencies**

***Lease contracts***

The Company leases its facilities under long-termoperating lease agreements expiring on various dates through December 2011.The Company also leases equipment (mainly teleconferencing bridges) underlong-term operating leases expiring on various dates through December 2006.The rent expenses for long-term operating leases amounted to €8,066,€7,277,and €5,389in 2003, 2004 and 2005, respectively.

As of December 31,2005, aggregate minimum lease payments under non-cancelable operating leasesand commitments were as follows:

| 2006       |   | € | 4,237  |   |
|------------|--------|--------|--------|--------|
| 2007       |   | 2,912  |   |
| 2008       |   | 2,254  |   |
| 2009       |   | 1,750  |   |
| 2010       |   | 827    |   |
| Thereafter |   | 736    |   |
| Total      |   | € | 12,716 |   |

 

F-37

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

TheCompany also leases equipment and cars under capital leases, which expire atvarious dates through 2007. The amounts of future minimum lease payments undercapital leases are as follows:

| 2006                                                  |   | € | 4      |   |
|-------------------------------------------------------|--------|--------|--------|--------|
| 2007                                                  |   | 42     |   |
| Thereafter                                            |   | — |   |
|                                                  |   | 46     |   |
| Less imputed  interest                                |   | (3     | )      |
| Present value of  future minimum lease payments       |   | 43     |   |
| Less current  portion                                 |   | (4     | )      |
| Long-term portion       |   | € | 39     |   |

 

At December 31, 2005,restricted cash included a €0.1 million securitydeposit securing an equipment lease.

***Interest rate swapand knock out cap agreements***

On June 29, 2001, the Company entered into a U.S.$57.5 million interest rate swap agreement (the “2001 Swap Agreement”) tohedge its exposure on 50% of its outstanding term loans under the U.S.$125 million credit facility, excluding the U.S. $10 millionrevolving line of credit, granted in April 2001, denominated in U.S.dollars. The 2001 Swap Agreement converted underlying variable rate debt basedon LIBOR USD to fixed rate debt with an interest rate of 5.52%.

The interest-rate swap agreement was designated as acash flow hedge under SFAS 133 and had a term equal to specific debtobligation. This agreement involved the exchange of amounts based on a fixedinterest rate for amounts based on variable interest rates over the life of theagreement without an exchange of the notional amount upon which the paymentsare based. The difference to be paid or received as interest rates change wasaccrued and recognized as an adjustment of interest expense related to thedebt. The related amount payable to or receivable from third parties wasincluded in other liabilities or assets. The amount of the interest rate swap’sineffectiveness was not material. As such, fair value of the swap agreement andchanges in the fair value as a result of changes in market interest rates wererecognized as comprehensive income or loss. The interest-rate swap agreementexpired on April 30, 2004. The Company has no interest rate swapagreements outstanding at December 31, 2004.

The fair value of the 2001 Swap Agreement and changesin the fair value as a result of changes in market interest rates wasrecognized as comprehensive income or loss. As a result, accumulated othercomprehensive income for this interest rate swap agreement included €0and €781at December 31, 2004 and 2003, respectively.

On December 11, 2003, the Company entered into anew financial instrument named CAP 6 months 3.00% Knock Out 5.00% (Knock-OutCAP) to hedge its exposure on its outstanding debt denominated in U.S. dollarsfor the period between May 1, 2004 and October 30, 2008. This newfinancial instrument replaced the 2001 Swap Agreement that expired on April 30,2004. The Company paid U.S. $354 for the full period. No other amount willbe paid thereafter for this financial instrument because one single paymentonly is required at the date of the signature.

F-38

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

The fair value adjustmentof the Knock-Out CAP as a result of changes in market interest rates arerecognized as other financial income (expense) as the Company is not able toapply the hedge accounting treatment prescribed under SFAS 133. Thefinancial income recorded in 2003, 2004 and 2005 was €66,€85,and €306,respectively. The fair value of the Knock-Out CAP, classified as other assetson the consolidated balance sheets, amounted to an asset of U.S. $369 (€271)and U.S. $670 (€568)at December 31, 2004, and 2005, respectively.

***Tax risk***

Management performs a comprehensive review of theCompany’s tax positions on an annual basis and accrues amounts for potentialtax contingencies. Based on these reviews and the results of discussions andresolutions of these matters with certain tax authorities and the closure oftax years subject to tax audit, reserves are recorded as necessary.

***Commitments***

The U.S.$125 million credit facility agreement signed on April 20, 2001 withBNP Paribas, CIBC World Markets and Fortis Bank is secured by the following:

·       Stockpledge of shares of Genesys Conferencing Ltd. (UK), Genesys Conferencing A.B.(Sweden) and Genesys Conferencing Inc. (US);

·       Securityover some assets such as accounts receivable (U.S. $7,344, equivalent to €5,392)of Genesys Conferencing Inc., including assets previously held by Vialog beforethe merger with Genesys Conferencing Inc. on January 1, 2002.

The Company also enteredinto a separate collateral security agreement in favor of a bank amounting to €1,459.

***Demand litigation***

Genesys S.A. and GenesysConferencing France S.A.S. have been sued before the Commercial Court ofCréteil (France) by Demand S.A. The litigation arose from a commercial disputeregarding the early termination of a Rich Media sales contract that was thesubject of a prior settlement agreement. The Company contested each of theseclaims and counterclaimed for damages and legal fees. On February 28,2006, the Court dismissed all of the claims made by Demand S.A. and Demand S.A.was ordered to pay fees of €10,000 to the Company andits subsidiary. Demand S.A. has subsequently appealed this decision.

***Shareholdersagreement of Genesys Teleconferencia Iberia SA***

In 1999, the Company entered into a shareholdersagreement with the other shareholders of Genesys Teleconferencia Iberia SA, aSpanish joint venture in which the Company currently holds a 20% minorityinterest. Two other partners, Grupo Multitel SA (formerly Multitel Cable, SA)and Almagro Asesoramiento e Inversiones SA, hold 60% and 20% of the equity ofthe joint venture, respectively. These partners claimed that the Company wasrequired to purchase their equity interests under the terms of put options inthe shareholders agreement and have claimed that the put option price should beapproximately €5.3 million.

F-39

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

In accordance with the shareholders agreement, theCompany commenced arbitration proceedings against the other partners primarilyregarding the validity of the put options and valuation methodology of thepurchase price. On January 25, 2006, the arbitrators ruled that the otherpartners’ put options were valid. The arbitrators set the purchase price at €4.8million, which was less than the €5.3 million (plus interestand costs) claimed by the Company’s partners.

On February 10, 2006,the Company purchased the remaining 80% interest in the subsidiary that it didnot previously own. The Company paid the purchase price of €4.8million in cash using the additional revolving amount under its principalcredit facility prior to the recapitalization. This amount was repaid with aportion of the proceeds of the equity offering completed on February 22,2006. The purchase price allocation has not been finalized.

***Other***

In the normal course ofbusiness, the Company is at times subject to pending and threatened legalactions and proceedings. Management believes that the outcome of such actionsor proceedings will not have a material adverse effect on the financialposition of the Company.

**Note 15.   Employeeretirement and benefit plans**

The Company contributes to pensions for personnel inFrance in accordance with local law, by contributing based on salaries to therelevant government agencies. The Company bears no actuarial liability inconnection with these plans.

In the United States, the Company sponsors two definedcontribution plans that qualify under section 401(k) of the InternalRevenue Code (GCI Plan and Vialog Plan). During 2002, 2003 and 2004, theCompany made contributions of approximately U.S. $417 (equivalent to €441),U.S. $251 (equivalent to €221) and U.S. $366 (equivalent to €294)respectively, to these plans. Employees who are not former Vialog employees areeligible to enroll in the GCI Plan and may contribute up to 20% of theireligible wages into this Plan, so long as the total contributions do not exceeddollar limits established under IRS regulations. The Company matches 20% of theemployee contributions under the GCI Plan. Former Vialog employees participatein the Vialog Plan and may contribute up to 15% of pre-tax annual compensation,as defined in this separate Plan, so long as the total contributions do notexceed dollar limits established under IRS regulations. The Company, under theVialog Plan, matches 50% of the participant’s contribution up to a maximum of6% of the participant’s compensation.

Effective January 1, 2003, the Vialog Plan wasterminated and former Vialog employees who participated in the Vialog Plan weremerged into and became participants in the GCI Plan. Effective February 1,2004, all employees in the United States are in the same Genesys Plan with aCompany match of 50% of the participant’s contribution, up to a maximum of 6%of the participant’s compensation. Total contributions cannot exceed dollarlimits established under IRS regulations, which is currently set at U.S. $15annually.

In the UK, the Company has defined contribution planswhose assets are held separately from those of the Company. Costs recognizedfor these plans were €260, €228and €281in 2003, 2004 and 2005, respectively.

F-40

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

French law also requirespayment of a lump sum retirement indemnity to all employees based upon years ofservice and compensation at retirement. Benefits do not vest prior toretirement. There is no formal plan and no funding of the obligation isrequired. At December 31, 2005, the Company had recognized the actuariallydetermined obligation of €358.

**Note 16.   Revenues**

Revenueconsists of the following:

| ** **             | ** ** | **Years ended December 31,** | ** ** |
|------------------------|------------|---------------------------------------------|------------|
| ** **             | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Services:**          |       |                                        |       |   |   |   |   |
| Genesys Meeting Center |       | €                                      | 108,272    |   | € | 104,595 |   | € | 110,672 |   |
| Genesys Event Service  |       | 44,579                                      |       | 29,582 |   | 27,965 |   |
| Other                  |       | 6,648                                       |       | 4,861 |   | 3,292 |   |
| Total                  |       | €                                      | 159,500    |   | € | 139,038 |   | € | 141,929 |   |

 

**Note 17.   Segmentand geographic information**

The Company and its subsidiaries currently operate inthree reportable segments: North America, Europe, and Asia-Pacific. Managementmakes key decisions and evaluates performance of the Company based on thesesegments. Transfers between segments are accounted for at amounts that aregenerally above cost and consistent with the rules and regulations ofgoverning tax authorities. Such transfers are eliminated in the consolidatedfinancial statements. Corporate items include non-operating overhead andresearch and development expenditures. Corporate assets mainly includetelecommunications equipment.

F-41

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

The following is asummary of operations by segment for the years ended December 31, 2003,2004 and 2005:

| ** **                                                     | ** ** | **North  America** | ** ** | **Europe** | ** ** | **Asia-Pacific** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
|----------------------------------------------------------------|------------|--------------------|------------|------------|------------|------------------|------------|---------------|------------|-----------|------------|
| **2003**                                                       |       |               |       |       |       |             |       |          |       |      |       |   |   |   |   |
| Revenue                                                        |       | €             | 92,944     |       | €     | 58,288           |       |          | €     | 8,268     |       |   |   | — |   |   | € | 159,500 |   |
| Gross profit                                                   |       | 52,312             |       | 45,116     |       |             | 4,929      |          |       |      | —     |   |   | 102,357 |   |
| Operating (loss)  income                                       |       | (12,298            | )          | 21,658     |       |             | 1,003      |          |       |      | (26,079    | ) |   | (15,716 | ) |
| Net interest  (expense) income                                 |       | (870               | )          | (681       | )          |             | 120        |          |       |      | (3,070     | ) |   | (4,501 | ) |
| Equity in income  of affiliated company                        |       | —             |       | 22         |       |             | —     |          |       |      | —     |   |   | 22 |   |
| (Loss) income before  tax                                      |       | (13,168            | )          | 20,999     |       |             | 1,123      |          |       |      | (29,149    | ) |   | (20,195 | ) |
| Income tax credit  (expense) (restated)                        |       | 708                |       | (1,914     | )          |             | (30        | )             |       |      | (38        | ) |   | (1,274 | ) |
| Total assets                                                   |       | 117,586            |       | 67,241     |       |             | 4,777      |          |       |      | 24,233     |   |   | 213,837 |   |
| Depreciation and  amortization of property and equipment  |       | 3,887              |       | 1,724      |       |             | 373        |          |       |      | 4,861      |   |   | 10,845 |   |
| Amortization of  intangibles                                   |       | 8,822              |       | 773        |       |             | —     |          |       |      | —     |   |   | 9,595 |   |
| Impairment of  goodwill and intangibles                        |       | 28,057             |       | —     |       |             | —     |          |       |      | —     |   |   | 28,057 |   |
| Purchases of  property and equipment                           |       | 6,014              |       | 1,638      |       |             | 706        |          |       |      | 1,101      |   |   | 9,459 |   |
| **2004**                                                       |       |               |       |       |       |             |       |          |       |      |       |   |   |   |   |
| Revenue                                                        |       | €             | 71,613     |       | €     | 57,329           |       |          | €     | 10,096    |       |   |   | — |   |   | € | 139,038 |   |
| Gross profit                                                   |       | 36,111             |       | 43,632     |       |             | 6,199      |          |       |      | —     |   |   | 85,942 |   |
| Operating (loss)  income                                       |       | (68,697            | )          | 23,825     |       |             | 1,105      |          |       |      | (27,678    | ) |   | (71,445 | ) |
| Net interest (expense)  income                                 |       | (2,114             | )          | (13        | )          |             | 85         |          |       |      | (4,952     | ) |   | (6,994 | ) |
| Equity in income  of affiliated company                        |       | —             |       | 71         |       |             | —     |          |       |      | —     |   |   | 71 |   |
| (Loss) income  before tax                                      |       | (70,811            | )          | 23,883     |       |             | 1,190      |          |       |      | (32,630    | ) |   | (78,368 | ) |
| Income tax (expense)  credit (restated)                        |       | (111               | )          | (2,549     | )          |             | (49        | )             |       |      | 130        |   |   | (2,579 | ) |
| Total assets                                                   |       | 30,860             |       | 59,235     |       |             | 5,443      |          |       |      | 10,574     |   |   | 106,112 |   |
| Depreciation and  amortization of property and equipment  |       | 3,439              |       | 1,931      |       |             | 365        |          |       |      | 4,163      |   |   | 9,898 |   |
| Amortization of  intangibles                                   |       | 4,599              |       | 783        |       |             | —     |          |       |      | —     |   |   | 5,382 |   |
| Impairment of goodwill  and intangibles                        |       | 75,401             |       | —     |       |             | —     |          |       |      | —     |   |   | 75,401 |   |
| Purchases of  property and equipment (*)                       |       | 2,794              |       | 1,751      |       |             | 570        |          |       |      | 934        |   |   | 6,049 |   |
| **2005**                                                       |       |               |       |       |       |             |       |          |       |      |       |   |   |   |   |
| Revenue                                                        |       | €             | 70,764     |       | €     | 58,851           |       |          | €     | 12,314    |       |   |   | — |   |   | € | 141,929 |   |
| Gross profit                                                   |       | 39,813             |       | 44,499     |       |             | 7,620      |          |       |      | —     |   |   | 91,932 |   |
| Operating income (loss)                                        |       | 10,890             |       | 24,424     |       |             | 2,831      |          |       |      | (26,281    | ) |   | 11,864 |   |
| Net interest  (expense) income                                 |       | (3,416             | )          | (283       | )          |             | 132        |          |       |      | (4,759     | ) |   | (8,326 | ) |
| Equity in income  of affiliated company                        |       | —             |       | 68         |       |             | —     |          |       |      | —     |   |   | 68 |   |
| Income (loss)  before tax                                      |       | 7,474              |       | 24,209     |       |             | 2,963      |          |       |      | (31,040    | ) |   | 3,606 |   |
| Income tax  credit (expense)                              |       | 1,901              |       | (3,853     | )          |             | (374       | )             |       |      | 2,581      |   |   | 255 |   |
| Total assets                                                   |       | 32,402             |       | 50,317     |       |             | 5,891      |          |       |      | 10,551     |   |   | 99,161 |   |
| Depreciation and  amortization of property and equipment  |       | 3,253              |       | 1,350      |       |             | 341        |          |       |      | 3,593      |   |   | 8,537 |   |
| Amortization of  intangibles                                   |       | 2,802              |       | 778        |       |             | —     |          |       |      | —     |   |   | 3,580 |   |
| Purchases of property and  equipment                           |       | 2,850              |       | 907        |       |             | 362        |          |       |      | 2,232      |   |   | 6,351 |   |

----

(*)             Compared to the amount of €3,894 disclosed on the line “purchases of propertyand equipment” on the 2004 Statement of Cash Flows, the amount of €6,049 disclosed above includes thefollowing:

·        Equipment acquired under capital lease for €344; and

·        Equipment prepaid in 2003 but only installed in 2004for €1,811.

F-42

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

***Geographicarea information:***

| ** **                   | ** ** | **United  States** | ** ** | **England** | ** ** | **France** | ** ** | **Nordic** | ** ** | **Australia** | ** ** | **Other  foreign  countries** | ** ** | **Total** | ** ** |
|------------------------------|------------|--------------------|------------|-------------|------------|------------|------------|------------|------------|---------------|------------|-------------------------------|------------|-----------|------------|
| **2003**                     |       |               |       |        |       |       |       |       |       |          |       |                          |       |      |       |   |   |
| Revenue                      |       | €             | 92,851     |        | €     | 25,022     |       | €     | 12,749     |          | €     | 9,957                         |       |      | €     | 5,083 |   |   | € | 13,838 |   | € | 159,500 |   |
| Property and  equipment, net |       | 12,813             |       | 7,870       |       | 2,150      |       | 915        |       |          | 865        |                          |       | 2,671     |       | 27,284 |   |
| **2004**                     |       |               |       |        |       |       |       |       |       |          |       |                          |       |      |       |   |   |
| Revenue                      |       | €             | 71,565     |        | €     | 22,303     |       | €     | 13,614     |          | €     | 9,630                         |       |      | €     | 6,387 |   |   | € | 15,539 |   | € | 139,038 |   |
| Property and  equipment, net |       | 9,860              |       | 2,043       |       | 1,281      |       | 471        |       |          | 816        |                          |       | 7,895     |       | 22,366 |   |
| **2005**                     |       |               |       |        |       |       |       |       |       |          |       |                          |       |      |       |   |   |
| Revenue                      |       | €             | 70,712     |        | €     | 13,891     |       | €     | 32,379     |          | €     | 5,024                         |       |      | €     | 7,250 |   |   | € | 12,673 |   | € | 141,929 |   |
| Property and equipment,  net |       | 9,788              |       | 1,610       |       | 930        |       | 275        |       |          | 727        |                          |       | 8,628     |       | 21,958 |   |

 

**Note 17.   Subsequentevents**

On January 27, 2006, the Company’s principalcredit facility was amended as part of a financial recapitalization. Thisamendment became effective upon the closing of the Company’s issuance of newshares. The amendment requires the Company to use commercially reasonableefforts to refinance the credit facility. To satisfy this requirement, theCompany will not be required to enter into a refinancing arrangement thatprovides for interest terms at an average rate greater than LIBOR + 4.0% perannum, that contains other commercially unreasonable terms, or includes one ofthe Company’s existing lenders. If the Company fails to refinance the creditfacility in full by October 31, 2006, the Company will pay interest at1.0% per annum above the rate it currently pays from November 1, 2006 to April 30,2007, at 2.0% per annum above the rate it currently pays from May 1, 2007to October 31, 2007, at 3.0% per annum above the rate it currently paysfrom November 1, 2007 to April 30, 2008, and at 4.0% per annum abovethe rate it currently pays from May 1, 2008 to October 31, 2008. SeeNote 8.

On February 22, 2006, the Company successfullycompleted a U.S. $65 million (approximately €53.6million) equity offering. On a pro forma basis, adjusting for the net proceedsfrom the equity offering, the Company’s net debt position as of December 31,2005 was approximately €32.4 million and shareholders’ equity was approximately€31.9million. Under its existing and amended credit facility, the Company will haveapproximately €1.0million of scheduled debt repayments in 2006. See Note 10.

F-43

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**GENESYS S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands, except share and per share data when indicated)**

The table below summarizesthe Company’s actual cash, long-term debt and capitalization at December 31,2005, and as adjusted to reflect the issuance of 51,490,530 new shares at theoffering price of €1.04 per share and theapplication of the net proceeds thereof, before deducting expenses payable bythe Company:

| ** **                                 | ** ** | **At December 31, 2005** | ** ** |
|--------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                 | ** ** | **Actual**                              | ** ** | **As adjusted **(1) | ** ** |
| ** **                                 | ** ** | **(unaudited)**                         | ** ** |
| Cash and cash  equivalents                 |       | €                                  | 5,789      |   | € | 5,789 |   |
| Current portion  of long-term debt         |       | 13,563                                  |       | 1,096 |   |
| Long-term portion  of long-term debt       |       | 62,474                                  |       | 32,495 |   |
| Shareholders’ equity  (deficit)       |       |                                    |       |   |   |
| Ordinary shares                            |       | 18,308                                  |       | 69,798 |   |
| Ordinary shares to be issued               |       | 65                                      |       | 65 |   |
| Additional paid-in capital                 |       | 197,129                                 |       | 191,233 |   |
| Accumulated other comprehensive income     |       | 14,910                                  |       | 14,910 |   |
| Accumulated deficit                        |       | (238,079                                | )          | (238,079 | ) |
| Treasury shares                            |       | (751                                    | )          | (751 | ) |
| Total  shareholders’ equity (deficit) |       | (8,418                                  | )          | 37,176 |   |
| Total  capitalization                      |       | 54,056                                  |       | 69,711 |   |
| Number of shares  issued and outstanding   |       | 18,307,756                              |       | 69,798,286 |   |
| Number of shares to be  issued (2)         |       | 65,067                                  |       | 65,067 |   |
|                                            |            |                                         |            |  |  |  |  |

----

(1)             $6 million of the net proceeds of the issuance of thenew shares will be used to repay a drawdown that was made after December 31,2005. The “as adjusted” figures reflect the repayment of an additional $50million of debt and the new repayment schedule as per the amendment to theprincipal credit facility signed on January 27, 2006.

(2)             Represents convertible notes issued in connection withthe acquisition of Astound in 2001. See Note 9.

On January 25, 2006, the Company released updatedinformation regarding the shareholders’ agreement of its subsidiary GenesysTeleconferencia Iberia S.A. (“Genesys Iberia”). This update is detailed inNote 14—Commitments and contingencies.

F-44

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**SIGNATURES**

The registrant hereby certifies that it meets all ofthe requirements for filing on Form 20-F and that it has duly causedand authorized the undersigned to sign this annual report on its behalf.

|        |   | GENESYS S.A. |
|--------|--------|--------------|
|   |   | By           |   | /s/ FRANÇOIS  LEGROS |
|   |   |         |   | Name: François  Legros |
|   |   |         |   | Title:   Chairman  and Chief Executive Officer |
|   |   |         |   | Date:   May 18,  2006 |

 

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**Exhibit Index**

Documentsfiled as exhibits to this annual report:

| 1.1  |   | Bylaws *(statuts)*  of Genesys (English translation) (as amended by the General Meeting on  June 28, 2005 and to reflect the results of our February 2006  recapitalization).                                                                                                                                                                                                                               |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1  |   | Form of  Deposit Agreement (incorporated herein by reference to Exhibit A to the  Registration Statement on Form F-6 relating to our American  Depositary Shares).                                                                                                                                                                                                                                     |
| 4.1  |   | U.S.  $125 million Credit Facility among Vialog Corporation, Genesys S.A., BNP  Paribas and Others dated April 20, 2001, as amended November 27  2001, as amended June 11, 2002 (incorporated herein by reference to  Exhibit 4.1 of our annual report on Form 20-F for the year  ended December 31, 2001 as filed with the SEC on June 12, 2002).                            |
| 4.2  |   | Excerpt from the  Information Document (*Note d’Information*)  of our company relating to the terms and conditions of our 3% convertible  bonds due September 2004 (incorporated herein by reference to  Exhibit 10.2 to our Registration Statement on Form F-4, File  No. 333-55392).                                                                                                       |
| 4.3  |   | Amendment to our  U.S. $125 million Credit Facility dated April 30, 2003  (incorporated herein by reference to Exhibit 4.3 of our annual report on  Form 20-F for the year ended December 31, 2002 as filed with  the SEC on May 15, 2003).                                                                                                                                             |
| 4.4  |   | Excerpt from the  Minutes of Genesys’ Compensation Committee, dated June 5, 2003, relating  to the termination payments to be made to Mr. François Legros in the  event of his termination or resignation (incorporated herein by reference to  Exhibit 4.4 of our annual report on Form 20-F for the year  ended December 31, 2003 as filed with the SEC on April 28, 2004). |
| 4.5  |   | Amendment to our  U.S. $125 million Credit Facility dated August 6, 2004  (incorporated herein by reference to Exhibit 4.5 of our annual report on  Form 20-F for the year ended December 31, 2004 as filed with  the SEC on May 2, 2005).                                                                                                                                              |
| 4.6  |   | Amended and  Restated Credit Facility dated January 27, 2006 (incorporated herein by  reference to Exhibit 99.1 to our Form 6-K filed with the SEC  on January 27, 2006).                                                                                                                                                                                                                         |
| 8.1  |   | For a list of our  significant subsidiaries, see Item 4 “Information on the  Company—Organizational Structure.”                                                                                                                                                                                                                                                                                        |
| 11.1 |   | Financial code of  ethics, required by Item 16B (incorporated herein by reference to  Exhibit 11.1 of our annual report on Form 20-F for the year  ended December 31, 2003 as filed with the SEC on April 28, 2004).                                                                                                                                                                              |
| 12.1 |   | Certifications by  François Legros, Chairman and Chief Executive Officer, and Michael E. Savage,  Chief Financial Officer, required by Section 302 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                                                                                      |
| 13.1 |   | Certifications by  François Legros, Chairman and Chief Executive Officer, and Michael E. Savage,  Chief Financial Officer, required by Section 906 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                                                                                      |
| 99.1 |   | Report of the  Chairman of the Board of Directors for 2003  as required by Art. 117 of the French  Financial Security Law (*Loi de Sécurité Financière*) (English Translation).                                                                                                                                                                                                                        |
| 99.2 |   | Codes of Business  Conduct and Ethics (required by Nasdaq Marketplace Rule 4350(n)).                                                                                                                                                                                                                                                                                                                             |

 

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