<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1999.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
QUINTUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0021612
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
47212 MISSION FALLS COURT
FREMONT, CALIFORNIA 94539
(510) 624-2800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ALAN K. ANDERSON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
QUINTUS CORPORATION
47212 MISSION FALLS COURT
FREMONT, CALIFORNIA 94539
(510) 624-2800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
SCOTT C. DETTMER DOUGLAS H. COLLOM
DAVID T. YOUNG ROBERT F. KORNEGAY
DOUGLAS T. SHEEHY PRIYA CHERIAN HUSKINS
KEVIN A. LUCAS SCOTT GIESLER
GUNDERSON DETTMER STOUGH WILSON SONSINI GOODRICH & ROSATI
VILLENEUVE FRANKLIN & HACHIGIAN, LLP PROFESSIONAL CORPORATION
155 CONSTITUTION DRIVE 650 PAGE MILL ROAD
MENLO PARK, CALIFORNIA 94025 PALO ALTO, CALIFORNIA 94304
(650) 321-2400 (650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(A) REGISTRATION FEE
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Common Stock, $0.001 par value........................ $59,800,000 $16,624.40
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</TABLE>
(a) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION -- , 1999
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PROSPECTUS
, 1999
LOGO
SHARES OF COMMON STOCK
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QUINTUS CORPORATION:
- - We provide a comprehensive software solution to manage customer interactions
and deliver consistent customer service across multiple communication
channels, including the Internet, email and advanced telephony systems.
- - Quintus Corporation
47212 Mission Falls Court
Fremont, California 94539
(510) 624-2800
PROPOSED SYMBOL AND MARKET:
- - QNTS/Nasdaq National Market
THE OFFERING:
- - We are offering shares of our common stock.
- - The underwriters have an option to purchase up to additional shares
from Quintus to cover over-allotments.
- - This is the initial public offering of our common stock. We anticipate that
the initial public offering price will be between $ and $ per share.
- - We plan to use the proceeds from this offering for working capital and other
general purposes, and for the required payment of approximately $18.2 million
to holders of some series of our preferred stock.
- - Closing: , 1999.
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<CAPTION>
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Per Share Total
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<S> <C> <C>
Public offering price: $ $
Underwriting fees:
Proceeds to Quintus:
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</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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DONALDSON, LUFKIN & JENRETTE
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
SG COWEN
DLJDIRECT INC.
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAW TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
<PAGE> 3
[INSIDE FRONT COVER ARTWORK TO FOLLOW]
<PAGE> 4
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of the
prospectus or any sale of the common stock. In this prospectus, unless the
context indicates otherwise, "Quintus," "we," "us," and "our" refer to Quintus
Corporation, a Delaware corporation, and its wholly-owned subsidiaries, "Acuity"
refers to Acuity Corp., a Delaware corporation, and "Nabnasset" refers to
Nabnasset Corporation, a Delaware corporation.
TABLE OF CONTENTS
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Page
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 7
Special Note Regarding Forward-
Looking Statements................ 17
Use of Proceeds..................... 17
Dividend Policy..................... 17
Corporate Information............... 18
Capitalization...................... 19
Dilution............................ 20
Selected Consolidated Financial
Data.............................. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 23
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business............................ 36
Management.......................... 49
Certain Transactions................ 61
Principal Stockholders.............. 64
Description of Capital Stock........ 67
Shares Eligible for Future Sale..... 70
Underwriting........................ 72
Legal Matters....................... 74
Experts............................. 74
Change in Accountants............... 75
Additional Information.............. 75
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Quintus and the common stock being sold in this offering
and our consolidated financial statements and the related notes included
elsewhere in this prospectus. Unless otherwise indicated, all information in
this prospectus assumes the closing of our acquisition of Acuity prior to the
effectiveness of this offering.
QUINTUS CORPORATION
We provide a comprehensive e-Customer Relationship Management or eCRM
solution to manage customer interactions and deliver consistent customer service
across multiple communication channels, including the Internet, email and
advanced telephony systems. Our Quintus eContact software suite includes
customer relationship management applications that address the needs of sales
and service, consumer relations, technical support and human resources contact
centers and a sophisticated routing engine to manage customer interactions.
eContact enables companies to handle high volumes of customer interactions,
increase the efficiency of contact center resources and leverage cross-selling
and up-selling opportunities.
Customer service is increasingly critical to attracting and retaining
customers. Many companies are re-orienting their businesses to be more
responsive to customer needs and are focusing on customer satisfaction as a
means of differentiation. In addition, the emergence of the Internet as a major
platform for communication and commerce has increased competition for customers
and reduced the importance of traditional competitive advantages such as price,
location, availability and access. International Data Corporation estimates that
the number of customers buying goods and services over the Internet worldwide
will grow from approximately 30.8 million in 1998 to 182.6 million in 2003 and
that the value of these purchases will increase from $50.4 billion to $1.3
trillion over the same period.
The Internet enables customers and companies to interact in more ways than
ever before. In addition to traditional, telephone-based communications,
customers and companies can now interact through email, Web chat and Web
self-service. The Gartner Group estimates that approximately 25% of all customer
interactions will take place over the Internet via email or Web communications
by 2001. As a result of the growing number of communication channels, companies
are struggling to handle the volume and variety of customer interactions.
Customers increasingly expect to be able to interact with companies through
whichever channel best suits their needs and are likely to use a combination of
communication channels. For example, a customer may request product literature
via email, review marketing materials or fill in an application on the Web, call
to receive more detailed information or assistance, send a signed form by fax,
and check the status of an order online. We believe a significant market
opportunity exists for solutions that integrate a broad range of communication
channels and manage the entire customer interaction lifecycle.
The Quintus eContact software suite provides a platform for the
personalization, routing and management of customer interactions. Our eContact
suite enables consistent customer service through the use of common workflows
and business rules, shared customer profile information, uniform cross-selling
and up-selling strategies, and consolidated management and reporting functions.
3
<PAGE> 6
The Quintus eContact suite includes:
- eContact engine, the foundation of our eContact suite, provides advanced
routing, tracking, management and reporting functionality, and
consolidates all relevant customer information into a common data
repository.
- Channel applications enable companies to manage customer interactions
across multiple communication channels, including the Internet, email and
advanced telephony systems.
- Business applications address the needs of sales and service, consumer
relations, technical support and human resources contact centers and are
tightly integrated with our eContact engine.
In addition, we provide professional services, customer service management,
technical support and educational services to facilitate successful customer
implementations.
Our objective is to be the leading provider of eCRM software solutions. Key
elements of our strategy include maintaining and extending our technology
leadership, broadening our direct and indirect distribution channels, targeting
Global 1000 and leading Internet-based companies, and developing and expanding
strategic relationships.
We sell our products through a direct sales force in North America and
indirectly through resellers and distribution partners worldwide. We have over
250 customers across many industries including financial services,
telecommunications and consumer products. Our customers include Anheuser-Busch,
Citigroup, First Union Bank, Lucent Technologies, Procter & Gamble, Sun
Microsystems and United Airlines.
ACQUISITION OF ACUITY
On September 10, 1999, we entered into an agreement to acquire Acuity, a
provider of software products to manage Internet-based customer interactions. We
are currently integrating Acuity's WebCenter and WebACD products into our
Quintus eContact suite in order to provide a more comprehensive eCRM solution.
The acquisition is structured as a merger in which Acuity will become our
wholly-owned subsidiary and the stockholders of Acuity will become our
stockholders. The total number of our shares to be issued plus the number of
shares issuable upon exercise of options and warrants we will assume in
connection with the acquisition will equal 18% of our fully-diluted
capitalization immediately following the acquisition. The closing of the merger
is subject to regulatory approval and the approval of Acuity's stockholders. We
expect to close this acquisition prior to the effectiveness of this offering.
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<PAGE> 7
THE OFFERING
Common stock offered............ shares
Common stock to be outstanding
after the offering.............. shares
Use of proceeds................. For working capital and other general
corporate purposes, and for the required cash
distribution upon the completion of this
offering of approximately $18.2 million to
holders of some series of our preferred
stock.
Proposed Nasdaq National Market
symbol........................ QNTS
Generally, unless otherwise indicated, all information in this prospectus:
- gives effect to the conversion of all outstanding shares of preferred
stock into shares of common stock effective upon the closing of this
offering; and
- assumes no exercise of the underwriters' over-allotment option to
purchase up to additional shares.
The number of shares of our common stock to be outstanding after the
offering includes:
- shares of our common stock outstanding as of August 31, 1999;
- an estimated 4,530,000 shares to be issued in connection with our
acquisition of Acuity; and
- 247,602 shares issuable upon the exercise of outstanding warrants that
otherwise terminate upon the closing of this offering.
The number of shares of our common stock to be outstanding after the
offering does not include:
- 3,682,772 shares issuable upon exercise of options outstanding as of
August 31, 1999, including options to be assumed in connection with our
acquisition of Acuity;
- 613,723 shares reserved for future issuance under our stock option plans
as of August 31, 1999;
- 2,500,000 shares reserved for future issuance under our stock plans
subsequent to August 31, 1999;
- 755,043 shares issuable upon exercise of warrants outstanding as of
August 31, 1999, including warrants to be assumed in connection with our
acquisition of Acuity; and
- 300,000 shares issuable upon exercise of warrants granted subsequent to
August 31, 1999.
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
----------------------------- -------------------
1997 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $13,614 $ 21,890 $ 30,307 $ 7,552 $10,293
Gross profit......................... 8,443 13,600 21,130 5,521 7,654
Net loss from continuing
operations........................ (3,526) (10,146) (10,586) (2,786) (690)
Net loss............................. (3,526) (11,249) (11,466) (2,976) (690)
Basic and diluted net loss per common
share from continuing
operations........................ $ (3.73) $ (0.20)
======== =======
Shares used in computation, basic and
diluted........................... 2,835 3,506
</TABLE>
The pro forma as adjusted column of the table below gives effect to the:
- sale of 1,363,334 shares for proceeds of $11.2 million on August 26,
1999;
- issuance of an estimated 4,530,000 shares and the assumption of
approximately $1.8 million in debt in connection with our acquisition of
Acuity;
- issuance of 247,602 shares upon the assumed exercise of outstanding
warrants that otherwise terminate upon the closing of this offering;
- required payment of approximately $18.2 million to holders of some series
of our preferred stock upon conversion of our preferred stock into our
common stock;
- sale in this offering of shares of common stock at an
assumed initial public offering price of $ per share; and
- conversion of all outstanding shares of our preferred stock into shares
of our common stock upon the closing of this offering.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
---------------------
PRO FORMA
AS
ACTUAL ADJUSTED
<S> <C> <C>
BALANCE SHEET DATA:
Cash...................................................... $ 467 $
Working capital (deficiency).............................. (8,909)
Total assets.............................................. 20,724
Long-term obligations, less current portion............... 1,649
Liability related to redeemable convertible preferred
stock.................................................. 17,811
Total stockholders' equity (deficiency)................... (20,622)
</TABLE>
6
<PAGE> 9
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the following risk factors and the other information
in this prospectus before investing in our common stock. Our business and
results of operations could be seriously harmed by any of the following risks.
The trading price of our common stock could decline due to any of these risks,
and you may lose all or part of your investment in our common stock.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT TO INCUR FUTURE LOSSES.
We have not had a profitable quarter and we cannot assure you that we will
become profitable. We expect to increase our sales and marketing, research and
development, and other expenses as we attempt to grow our business. As a result,
we will need to generate significant revenues to achieve profitability, which we
may be unable to do. We have funded our operations through the sale of equity
securities, borrowings and the sale of our products and services. We incurred
net losses from continuing operations of $3.5 million, $10.1 million, $10.6
million and $690,000 in fiscal 1997, 1998 and 1999 and for the three months
ended June 30, 1999. As of June 30, 1999 we had an accumulated deficit of $37.0
million. In addition, in September 1999, we entered into an agreement to acquire
Acuity which had incurred net losses of $6.6 million, $7.7 million and $2.2
million in the years ended December 31, 1997 and 1998 and for the six months
ended June 30, 1999. Acuity had an accumulated deficit of $21.7 million as of
June 30, 1999. Upon the closing of the acquisition of Acuity, we will record
approximately $41.5 million of intangible assets, which will be amortized on a
quarterly basis over five years. In connection with the acquisition of Acuity,
we expect to recognize a charge for in-process technologies of approximately
$3.0 million in the quarter ending December 31, 1999.
BECAUSE WE RECENTLY EXPANDED THE SCOPE OF OUR PRODUCT OFFERINGS, IT MAY BE
DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS PROSPECTS.
You should not evaluate our business prospects based on our historical
operating results. In February 1999, we expanded the scope of our product
offering with the introduction of the Quintus eContact suite. To date no
customer has implemented our eContact suite. Prior to 1999, we sold some of the
components that are included in our eContact suite, but we have only recently
begun to sell the components that enable companies to manage customer
interactions over Internet-based communication channels. We cannot assure you
that our eContact suite will achieve market acceptance. In addition, we are
still in the process of integrating Acuity's WebCenter and WebACD products and
third-party providers' email and call routing functionality into our eContact
suite. We may encounter technical difficulties, delays and unforeseen expenses
as we continue our product integration and development efforts relating to
eContact.
IF OUR INITIAL IMPLEMENTATIONS OF THE QUINTUS ECONTACT SUITE SUFFER UNUSUAL
PROBLEMS OR DELAYS, OUR REPUTATION AND FUTURE OPERATING RESULTS MAY BE HARMED.
We are just beginning to deploy our eContact products as an integrated
suite. We cannot assure you that the initial implementations of our eContact
suite will succeed without problems or delays. Although we have deployed some of
the components that are included in our eContact suite, we have not deployed
eContact with integrated computer telephony, email, Web chat and Web
self-service capabilities. To complete a full implementation of our eContact
suite, we have to complete the integration of its components and will likely
have to integrate eContact with a wide variety of complex systems currently used
by our customers. If these implementations meet with significant technological
obstacles, we may be forced to spend additional resources, which may harm our
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<PAGE> 10
operating results. If the ease and speed of these implementations do not meet
the expectations of our customers, our reputation and ability to sell our
eContact suite will be harmed.
THE TRADING PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE IN RESPONSE TO
FLUCTUATIONS IN OUR QUARTERLY REVENUES AND OPERATING RESULTS.
We believe that quarter-to-quarter comparisons of our operating results may
not be meaningful. It is likely that in some future quarter our operating
results will be below the expectations of public market analysts and investors.
If this happens, the trading price of our common stock may fall substantially.
Our revenues and operating results are likely to vary significantly from quarter
to quarter due to a variety of factors, including the risks we describe in this
section.
Our ability to forecast revenue is limited. We derive substantially all of
our revenues from licenses of our software and related services. License
revenues in any quarter are substantially dependent on orders booked and shipped
in that quarter, and we cannot predict revenues for any future quarter with any
significant degree of certainty.
Our expenses are relatively fixed and are based, in part, on our
expectations of future revenues. Consequently, if revenue levels do not meet our
expectations, our financial results will be adversely effected. In addition, we
expect that sales derived through indirect channels, which are more difficult to
forecast, will increase as a percentage of total revenues in the future.
THE FAILURE TO OBTAIN A LARGE PROSPECTIVE CUSTOMER COULD CAUSE OUR REVENUES TO
DROP QUICKLY AND UNEXPECTEDLY.
We depend upon a limited number of large sales for a substantial portion of
our revenues in each quarter. For example, in the three months ended June 30,
1999, our largest customer accounted for 19.3% of our total revenues. Our
failure to successfully close one or more large sales in any particular period
could cause our revenues to drop quickly and unexpectedly. We expect to continue
to be dependent upon a limited number of customers for a significant portion of
our revenues and these customers are expected to vary from period-to-period. The
loss of a prospective major customer could result in our failure to meet
quarterly revenue expectations.
THE SUCCESS OF OUR BUSINESS RELIES HEAVILY ON INDIRECT DISTRIBUTION CHANNELS,
PARTICULARLY OUR DISTRIBUTION AGREEMENT WITH LUCENT TECHNOLOGIES.
If Lucent Technologies were to cease reselling our products or offer
competing products, our business would be harmed. Lucent Technologies accounted
for 9.2%, 19.3% and 33.9% of our total revenues in fiscal 1998 and 1999 and for
the three months ending June 30, 1999. Our distribution agreement with Lucent
Technologies expires in May 2000 but can be terminated on 30 days' notice
following a material breach of the agreement. Lucent Technologies is not
obligated to make any minimum purchases.
In addition, the loss of a reseller, the failure of a reseller to sell our
products, or our failure to attract and retain qualified new resellers in the
future could also harm our business. Typically our resellers do not have minimum
purchase or resale obligations, can cease marketing our products at any time,
and may offer competing products. We intend to expand our indirect distribution
channels by establishing additional relationships with resellers and
distribution partners. Competition for these relationships is intense, and we
may be unable to establish relationships on favorable terms, if at all. Even if
we are successful in establishing these relationships, they may not result in
substantial increases in our revenues.
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A SUBSTANTIAL PORTION OF OUR REVENUES RESULT FROM SALES OF OUR QUINTUS CTI
PRODUCT.
If sales of our Quintus CTI product do not meet our expectations, our
operating results will be harmed. Revenues from our Quintus CTI product were
39.6% and 40.1% in fiscal 1999 and for the three months ended June 30, 1999. We
expect that revenues from our Quintus CTI product will continue to account for a
substantial portion of our revenues in the future.
WE FACE A NUMBER OF RISKS RELATED TO OUR PENDING ACQUISITION OF ACUITY, AND WE
MAY FACE SIMILAR RISKS IN THE FUTURE IF WE ACQUIRE OTHER BUSINESSES OR
TECHNOLOGIES.
In September 1999, we entered into an agreement to acquire Acuity and began
integrating its WebCenter and WebACD products into the Quintus eContact suite.
If we are unable to effectively integrate Acuity into our operations, including
its products, personnel and systems, our business and operating results are
likely to suffer. This integration will be made more difficult by Acuity's
operations being located in Austin, Texas, where we currently have no other
operations. We have just begun to integrate Acuity with our operations and we
expect this integration to place a significant burden on our management team.
The acquisition of Acuity will be our third acquisition within the last
three years, and we may make more acquisitions in the future. If we are unable
to integrate effectively any newly acquired businesses, technologies or
products, our operating results could suffer. Integrating any newly acquired
businesses, technologies or products may be expensive and time-consuming. Future
acquisitions could also result in large and immediate write-offs for in-process
research and development, increased amortization charges or the incurrence of
debt and contingent liabilities, any of which could harm our operating results.
To finance acquisitions, we may need to raise additional funds through public or
private financings. Additional funds may not be available on favorable terms, or
at all, and, in the case of equity financings, may result in dilution to our
stockholders. Moreover, we may not be able to operate any acquired businesses
profitably or otherwise implement our growth strategy successfully.
IF WE FAIL TO SUCCESSFULLY EXPAND OUR SALES, MARKETING AND CUSTOMER SUPPORT
ACTIVITIES, WE MAY BE UNABLE TO EXPAND OUR BUSINESS.
We cannot expand our business without highly trained sales, marketing and
customer support personnel to educate existing and prospective customers,
systems integrators and resellers regarding the use and benefits of our
products, and to provide effective customer support. We have replaced a large
number of our sales people during the last year. As a result, the size of our
sales force has not grown substantially, and many of our sales personnel are new
to us. We expect our new sales personnel will require substantial training in
our products and sales practices. New sales personnel tend to be less productive
than those with greater experience selling our products. Moreover, we intend to
hire additional direct sales force personnel in the United States. Competition
for qualified sales personnel is particularly intense in the software industry.
In the past, we have experienced difficulty hiring employees with appropriate
qualifications in the timeframe we desired. Any delays or difficulties we
encounter in these recruiting, training or retention efforts could impair our
ability to attract new customers and enhance our relationships with existing
customers.
UNLESS WE ARE ABLE TO OVERCOME SUBSTANTIAL COMPETITION IN THE ECRM MARKET, WE
WILL NOT BE ABLE TO GROW OR SUSTAIN OUR REVENUES.
We cannot assure you that we will be able to compete successfully against
current and future competitors. Increased competition is likely to result in
price reductions, reduced margins and loss of market share, any of which could
harm our business, financial condition and results of operations. In
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<PAGE> 12
order to be successful in the future, we must respond promptly and effectively
to technological change, changing customer requirements and competitors'
innovations. The introduction of new products by competitors or shifts in market
demands could render our existing products obsolete.
We may not be able to compete effectively in the future as current
competitors expand their product offerings and new companies enter the rapidly
evolving eCRM market. We currently face competition primarily from customer
relationship management software vendors such as Siebel Systems and Clarify,
emerging Internet customer interaction software vendors such as Kana
Communications and WebLine Communications, and computer telephony software
vendors such as Genesys Telecommunications Labs.
Because there are relatively low barriers to entry in the software market,
we expect additional competition from other established and emerging companies.
Potential future competitors include traditional call center technology
providers and large enterprise application vendors as well as independent
systems integrators, consulting firms and in-house information technology
departments that may develop solutions that compete with our products.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, sales, marketing and
other resources, greater name recognition and a larger installed base of
customers than we do. As a result, these competitors can devote greater
resources to the development, promotion and sale of products than we can and may
be able to respond to new or emerging technologies and changes in customer
requirements more quickly than we can.
Current and potential competitors have established and may in the future
establish relationships among themselves or with third parties to increase the
ability of their products to address the needs of our current or prospective
customers. In addition, a number of companies with significantly greater
resources than ours could attempt to increase their presence in the eCRM market
by acquiring or forming strategic alliances with our competitors. As a result,
it is likely that new competitors or alliances among competitors will emerge and
may rapidly acquire significant market share, which would harm our business,
financial condition and results of operations.
WE RELY ON RESELLING BRIGHTWARE'S EMAIL MANAGEMENT PRODUCT AND CISCO
SYSTEMS-GEOTEL COMMUNICATIONS' CALL ROUTING PRODUCT IN ORDER TO PROVIDE SOME OF
THE FUNCTIONALITY OF OUR ECRM SOLUTION.
We resell Brightware's software to provide the email management
functionality of our Quintus eContact suite and resell the Cisco Systems-GeoTel
Communications' Intelligent Contact Management product to provide call routing
functionality. Our agreement with Brightware can be cancelled without cause upon
60 days' notice. If Brightware were to cancel our reseller agreement or be
acquired by one of our competitors, or their email management product were
otherwise unavailable to us, we would likely incur substantial delays and costs
as we attempt to integrate alternative email management functionality into our
product suite. In particular, there may be few alternative sources for
Brightware's natural language text analysis and automated email response
functionality. Our agreement with Cisco Systems-GeoTel Communications expires in
April 2000 and may be terminated if a breach of the agreement is not resolved
within 30 days' notice. If Cisco Systems-GeoTel Communications were to cancel
our reseller agreement or if their call routing product were otherwise
unavailable to us, we would not be able to provide call routing functionality as
part of our eContact suite. In addition, if we were not able to resell
Brightware's product or Cisco Systems-Geotel Communications' product, customers
that require such functionality would have to purchase those products
separately. As a result, the sales process with our prospective customers would
be complicated by the need to coordinate with a third party.
10
<PAGE> 13
OUR BUSINESS WILL SUFFER IF THE ECRM MARKET DOES NOT DEVELOP AND GROW.
The eCRM market is new, not well defined and may not grow. The use of
email, Web chat and Web self-service as channels for companies to interact with
their customers is recent and may not grow as expected. Concerns about the
security, reliability and quality of service may inhibit the growth of
Internet-based customer service. In addition, our potential customers are just
beginning to look for comprehensive solutions to manage customer interactions
across multiple communication channels. Our future success will depend on the
increased market acceptance of comprehensive solutions for the management of
customer interactions.
IF WE ARE NOT ABLE TO MAINTAIN AND DEVELOP RELATIONSHIPS WITH SYSTEMS
INTEGRATORS, THE ACCEPTANCE OF OUR PRODUCTS AND GROWTH OF OUR REVENUES WILL BE
IMPEDED.
We rely on systems integrators to promote our solution and implement our
products. If we fail to maintain and develop relationships with systems
integrators, our revenues may be harmed. We currently rely on systems
integrators such as AnswerThink Consulting Group, Cambridge Technology Partners
and Technology Solutions Company to recommend our products to their customers
and to install our products. If we are unable to rely on systems integrators to
implement our products, we will likely have to provide these services ourselves.
As a result, our ability to grow may be harmed. Systems integrators may develop,
market or recommend products that compete with our products. Moreover, if these
systems integrators fail to implement our products successfully, our reputation
may be harmed.
OUR LENGTHY AND VARIABLE SALES CYCLE MAKES IT DIFFICULT TO PREDICT THE TIMING OF
A SALE OR WHETHER A SALE WILL BE MADE.
The timing of our revenues is difficult to predict in large part due to the
length and variability of the sales cycle for our products. Customers often view
the purchase of our products as a significant and strategic decision. As a
result, our customers tend to take significant time and effort to evaluate our
products. The amount of time and effort depends in part on the size and the
complexity of the deployment. This evaluation process frequently results in a
lengthy sales cycle, typically ranging from three to nine months. During this
time we may incur substantial sales and marketing expenses and expend
significant management efforts. We do not recoup these investments if the
prospective customer does not ultimately license our product.
IF WE ARE UNABLE TO INTRODUCE NEW PRODUCTS OR PRODUCT ENHANCEMENTS ON A TIMELY
BASIS, OR IF THESE PRODUCTS OR PRODUCT ENHANCEMENTS DO NOT ACHIEVE MARKET
ACCEPTANCE, OUR BUSINESS WOULD BE MATERIALLY HARMED.
Our future success will depend on our ability to effectively and timely
anticipate and adapt to customer requirements and offer products and services
that meet customer demands. Our failure to introduce products or services that
satisfy customer requirements would harm our ability to remain competitive in
the eCRM market. Some of our customers may want features and capabilities that
our products do not have. As a result, we may need to develop features for our
products, which may result in a longer sales cycle, increased research and
development expenses and reduced margins on our products. In addition, the
development of new or enhanced products is a complex and uncertain process. We
may experience design, development, marketing and other difficulties that could
delay or prevent the introduction of new products and enhancements.
11
<PAGE> 14
OUR BUSINESS WOULD SUFFER IF WE DO NOT RETAIN OUR KEY PERSONNEL.
Our future success depends on the continuing service of our senior
management and other key personnel. The loss of the services of one or more of
our key personnel could seriously harm us. Most of our key personnel are not
bound by employment agreements. In addition, we do not carry key person life
insurance on any of our employees.
Our future success also depends on our continuing ability to attract, hire,
train and retain a substantial number of highly skilled personnel. Competition
for qualified personnel in our industry is intense, particularly for software
development and technical personnel. Our business would be seriously harmed if
we are unable to attract and retain key employees or other highly qualified
personnel in the future.
WE MAY NOT BE ABLE TO MANAGE OUR GROWTH EFFECTIVELY.
We have experienced rapid growth and plan to continue to significantly
expand our operations. We may not be able to manage our growth effectively,
which would impair our ability to attract and service customers and cause us to
incur higher operating costs. Expanding our operations has placed a significant
strain on our personnel and other resources. Our revenues have grown from $13.6
million in fiscal 1997 to $30.3 million in fiscal 1999. Our headcount increased
from 113 at the end of fiscal 1997 to 158 at the end of fiscal 1999. For the
three months ended June 30, 1999, our revenues were $10.3 million and our
headcount was 181. Upon the closing of our acquisition of Acuity, we will have
additional employees and operations to manage. As of June 30, 1999, Acuity had
92 employees. To manage our growth effectively, we may need to further improve
our operational, financial and management systems.
IF WE DO NOT SUCCESSFULLY ADDRESS THE RISKS INHERENT IN THE EXPANSION OF OUR
INTERNATIONAL OPERATIONS, OUR OPERATING RESULTS MAY SUFFER.
We have limited experience in international operations and may not be able
to compete effectively in international markets. We currently intend to expend
significant financial and management resources to expand our international
operations. We believe that the future expansion of our international operations
is important to the growth of our business. Most of our international sales are
generated through resellers and distributors, and we expect substantial costs
and resources will be required to train and support these resellers. Among the
various risks we face in conducting business internationally are:
- difficulties and costs of staffing and managing foreign operations;
- longer accounts receivable payment cycles and possible difficulties in
collecting accounts receivable, which may increase our operating costs
and hurt our financial performance;
- technology standards that are different from those on which our products
are designed, which could require expensive redesigns of our products;
- political and economic instability;
- unexpected changes in regulatory requirements that could make our
products and services more expensive and therefore less attractive to
potential customers; and
- fluctuations in currency exchange rates and the imposition of currency
exchange controls.
12
<PAGE> 15
To date, our international product sales have been denominated in U.S.
dollars. To the extent the U.S. dollar appreciates against foreign currencies
our products would become less competitive in foreign markets.
IF WE ARE UNABLE TO LICENSE THIRD-PARTY TECHNOLOGIES, WE MAY BE REQUIRED TO
EXPEND TIME AND RESOURCES TO OBTAIN SUBSTITUTE TECHNOLOGY.
Our products incorporate technologies that we license from third parties.
Although we believe we could obtain similar functionality from alternative
sources, substituting and integrating replacement technologies could require us
to divert substantial development resources. As a result, it could delay the
shipment of existing products pending the integration of the replacement
technology and could delay the introduction of new products or enhancements as a
result of the diversion of development resources. In addition, we may be
required to license replacement technologies on terms less favorable than our
current terms, which would increase our expenses. If we are unable to obtain the
third-party technologies necessary for the successful operation of our products,
our business would be harmed.
UNKNOWN SOFTWARE DEFECTS COULD HARM OUR BUSINESS AND REPUTATION.
Our software interacts with other complex systems and software. Our
software products may contain defects, particularly when first introduced.
Despite our software testing procedures, we may not discover software defects
that affect our products until after they are deployed. These defects could
result in:
- damage to our reputation;
- lost sales or product returns;
- product liability claims against us;
- delays in or loss of market acceptance of our products; and
- unexpected expenses and diversion of resources to remedy errors.
The occurrence of any of these events would negatively impact our operating
results. In addition, our customers generally use our products together with
products from other vendors. As a result, when problems occur, it may be
difficult to identify the source of the problem. Therefore, even if these
problems are not caused by our products, they may cause us to incur significant
warranty and repair costs, divert the attention of our engineering personnel and
cause significant customer relations problems.
A PRODUCT LIABILITY SUIT AGAINST US COULD HARM OUR BUSINESS.
A successful product liability claim brought against us could harm our
reputation and business. Our license agreements with our customers typically
contain provisions designed to limit our exposure to potential liability claims.
However, it is possible that the limitation of liability provisions contained in
our license agreements may not be effective under the laws of certain
jurisdictions. Moreover, our standard liability limitations may be reduced
during contract negotiations. Although we have not experienced any product
liability claims to date, we may in the future. In addition, even if not
successful, a product liability suit against us could harm our reputation and
business.
13
<PAGE> 16
OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY MAY
SIGNIFICANTLY IMPAIR OUR COMPETITIVE POSITION.
Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. We cannot be certain that the steps we have taken to
prevent the misappropriation of our intellectual property are adequate,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States. We rely on a combination of patent,
copyright, trademark and trade secret laws and restrictions on disclosure to
protect our intellectual property rights. In addition, we enter into
confidentiality agreements with our employees and certain customers, vendors and
strategic partners. Quintus has one issued U.S. patent and one filed U.S. patent
application. Through our acquisition of Acuity, we will acquire one additional
issued U.S. patent as well as nine additional filed U.S. patent applications. We
cannot assure you that any patents will be issued from these applications or
that any issued patent will protect our intellectual property. Furthermore,
other parties may independently develop similar or competing technology or
design around any patents that may be issued to us.
We may in the future initiate claims or litigation against third parties
for infringement of our proprietary rights in order to determine the scope and
validity of our proprietary rights or the proprietary rights of our competitors.
These claims could result in costly litigation and the diversion of our
technical and management personnel.
WE MAY FACE COSTLY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS.
If third parties claim that our products infringe on their intellectual
property rights, we may be forced to seek expensive licenses, re-engineer our
products, engage in expensive and time-consuming litigation or stop marketing
the challenged product. Further, by contract we typically indemnify our
customers against infringement claims related to our products. In the past third
parties have alleged that our products infringe their patents. Third parties may
make similar allegations in the future. In addition, because the contents of
patent applications in the United States are not publicly disclosed until the
patent is issued, we may not be aware of applications that have been filed which
relate to our software products. We may be subject to legal proceedings and
claims from time to time in the ordinary course of our business, including
claims of alleged infringement of the trademarks and other intellectual property
rights of third parties. Intellectual property litigation is expensive and time-
consuming and could divert management's attention away from running our
business. This litigation could also require us to develop non-infringing
technology or enter into royalty or license agreements. These royalty or license
agreements, if required, may not be available on acceptable terms, if at all.
Our failure or inability to develop non-infringing technology or license the
proprietary rights on a timely basis in a cost-effective manner would harm our
business.
WE COULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR THE SYSTEMS
OF OUR CUSTOMERS OR MATERIAL THIRD PARTIES ARE NOT YEAR 2000 COMPLIANT.
We may experience material problems and costs associated with Year 2000
compliance that could adversely affect our business, results of operations and
financial condition. If systems do not correctly recognize date information when
the year changes to 2000, we could experience
- potential warranty or other claims by our customers;
- errors in systems we use to run our business;
- errors in systems used by our suppliers;
- errors in systems used by our customers; and
14
<PAGE> 17
- the potential reduced spending by other companies on contact center
products as a result of significant information systems spending on Year
2000 remediation.
We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and implementing such a plan may itself be
material.
Any of these events could significantly harm our business, financial
condition and results of operations.
THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE.
The stock markets have in general, and with respect to technology companies
in particular, recently experienced substantial stock price and volume
volatility. The stock markets may continue to experience volatility that may
adversely affect the market price and trading volume of our common stock. Stock
prices for many companies in the technology sector have experienced wide
fluctuations that have often been unrelated to their financial performance.
Similar fluctuations may affect the market price of our common stock. In
addition, if we fail to address any of the risks described in this section, the
market price of our common stock and the value of your investment could decline
significantly.
SALES OF OUR COMMON STOCK FOLLOWING THIS OFFERING COULD ADVERSELY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK.
The value of your investment in our common stock and our ability to raise
money through the sale of additional equity securities could be adversely
affected if our existing stockholders sell large amounts of their Quintus common
stock. If significant volumes of our common stock are sold into the market, the
market price of our common stock and therefore the value of your investment
could fall. This could impair our ability to raise capital through the sale of
additional equity securities. Based on shares outstanding as of August 31, 1999,
upon completion of this offering, we will have shares of common
stock outstanding (or shares if the underwriters' over-allotment
option is exercised in full). Our directors, executive officers and holders of
substantially all of our current stock have executed lock-up agreements with the
underwriters that limit their ability to sell shares of our common stock. These
parties have agreed not to sell or otherwise dispose of any shares of our common
stock for a period of at least 180 days after the date of this prospectus
without the prior written approval of Donaldson, Lufkin & Jenrette Securities
Corporation. When these lock-up agreements expire, many of these shares and the
shares of common stock underlying any options held by these individuals will
become eligible for sale. See "Shares Eligible for Future Sale"
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price of our common stock is expected to be
substantially higher than the book value per share of our outstanding common
stock immediately after this offering. Accordingly, if you purchase our common
stock in this offering, you will incur immediate dilution of approximately
$ in the book value per share of our common stock from the price you
pay for our common stock. This calculation assumes that you purchased our common
stock for $ per share.
15
<PAGE> 18
THERE MAY BE NO ACTIVE TRADING MARKET IN OUR COMMON SHARES AFTER THIS OFFERING,
WHICH MAY MAKE IT DIFFICULT FOR YOU TO RESELL YOUR SHARES.
There has been no public trading market for our common shares prior to this
offering, and we cannot be sure that an active trading market will develop upon
completion of this offering or, if one does develop, that it will be sustained.
If no public trading market for our common shares develops, or if this market is
not active or sustained, it may be difficult for you to resell your shares at a
price at or above the initial public offering price.
CONTROL BY EXISTING STOCKHOLDERS MAY LIMIT YOUR ABILITY TO INFLUENCE THE OUTCOME
OF DIRECTOR ELECTIONS AND THE APPROVAL OF MERGERS OR OTHER BUSINESS
COMBINATIONS.
Upon completion of this offering, our executive officers, directors and
principal stockholders and their affiliates will beneficially own
shares, or approximately %, of the outstanding shares of
common stock ( % if the underwriters' over-allotment option is exercised in
full). If they were to act in concert, these stockholders would be able to
significantly influence all matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combination transactions.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW, AS WELL AS
PROVISIONS OF EMPLOYMENT AGREEMENTS OF SOME OF OUR KEY EXECUTIVE OFFICERS, COULD
PREVENT OR DELAY A CHANGE IN CONTROL OF QUINTUS.
Provisions in our bylaws and in our certificate of incorporation may have
the effect of delaying or preventing a change of control or changes in
management of Quintus. These provisions include:
- the requirement that a special meeting of stockholders may only be called
by stockholders owning at least a majority of our outstanding shares;
- the ability of our board of directors to issue preferred stock without
stockholder approval; and
- the right of our board of directors to elect a director to fill a vacancy
created by the expansion of the board of directors.
Furthermore, we are subject to the provisions of section 203 of the
Delaware General Corporation Law. These provisions prohibit large stockholders
owning 15% or more of our outstanding voting stock, from consummating a merger
or combination with a corporation unless this stockholder receives board
approval for the transaction or unless 66 2/3% of the outstanding shares of our
voting stock not owned by this stockholder approve the merger or combination.
In addition, our 1999 Stock Incentive Plan provides for full acceleration
of unvested options following certain sales or mergers of Quintus if the
optionee is terminated without cause within 18 months of the closing of the sale
or merger transaction. In addition, some of our officers have agreements with us
that provide for acceleration of vesting following certain sales or mergers of
Quintus. These provisions could make our acquisition by a third party more
costly and could delay or prevent a change of control or changes in our
management.
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<PAGE> 19
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "expect," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements you should specifically
consider various factors, including the risks outlined under "Risk Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform such statements to actual results
or to changes in our expectations.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of shares of
common stock we are offering will be approximately $ ($ if the
underwriters exercise their over-allotment option in full) at an assumed initial
public offering price of $ and after deducting estimated offering
expenses of $ and underwriting discounts and commissions payable by
Quintus.
We expect to use the net proceeds for working capital and other general
corporate purposes. In addition, under the terms of our certificate of
incorporation in effect prior to this offering, we are required to make a
payment of approximately $18.2 million upon the closing of this offering to the
current holders of our Series A, Series B, Series C and Series D preferred stock
as a result of the conversion of this preferred stock into common stock. A
portion of the net proceeds may also be used to acquire or invest in
complementary businesses, technologies, product lines or products. We have no
current plans, agreements or commitments with respect to any such acquisitions
or investments other than the pending closing of our acquisition of Acuity. We
will use shares of our capital stock to complete this acquisition. Our
management will have broad discretion concerning the use of the net proceeds of
this offering. We intend to invest these proceeds in investment grade,
interest-bearing securities pending their use.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock or other
securities. We currently expect to retain future earnings, if any, for use in
the operation and expansion of our business and do not anticipate paying cash
dividends in the future. Our existing bank line of credit prohibits the payment
of cash dividends.
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<PAGE> 20
CORPORATE INFORMATION
Quintus was incorporated in California in February 1984. Quintus became a
wholly-owned subsidiary of Intergraph Corporation in October 1989 and was
reincorporated in Delaware in June 1990. Quintus was purchased from Intergraph
Corporation in May 1995 in a management-led buyout backed by new investors. Our
principal executive offices are located at 47212 Mission Falls Court, Fremont,
California 94539 and our telephone number is (510) 624-2800. We have registered
the trademarks "Quintus" and "CustomerQ." Every other trademark, trade name or
service mark of any other company appearing in this prospectus is the property
of its holder.
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<PAGE> 21
CAPITALIZATION
The following table sets forth our cash position, current portion of
long-term obligations and total capitalization as of June 30, 1999. The pro
forma column of the table gives effect to the:
- sale of 1,363,334 shares of our preferred stock for proceeds of $11.2
million on August 26, 1999;
- issuance of an estimated 4,530,000 shares and the assumption of
approximately $1.8 million in debt in connection with our acquisition of
Acuity; and
- issuance of 247,602 shares upon the assumed exercise of outstanding
warrants that otherwise terminate upon the closing of this offering.
The pro forma as adjusted column of the table gives effect to the:
- required payment of approximately $18.2 million to holders of some series
of our preferred stock upon conversion of our preferred stock into our
common stock;
- sale in this offering of shares of common stock at an
assumed initial public offering price of $ per share, less
underwriting discounts and commissions and estimated offering expenses
payable by Quintus; and
- conversion of all outstanding shares of our preferred stock into shares
of our common stock upon the closing of this offering.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash........................................................ $ 467 $ 14,328 $
======== ======== =======
Current portion of long-term obligations.................... $ 1,425 $ 2,687 $
======== ======== =======
Long-term obligations, less current portion................. $ 1,649 $ 2,215 $
Liability related to redeemable convertible preferred
stock..................................................... 17,811 18,164
Stockholders' equity (deficiency):
Convertible preferred stock, $0.001 par value, shares
authorized 17,555,000 and 16,575,515 outstanding,
actual: 10,000,000 shares authorized and no shares
outstanding, pro forma: 10,000,000 shares authorized
and no shares outstanding, pro forma as adjusted....... 13,707 --
Common stock, $0.001 par value, shares authorized
40,000,000 and 4,311,084 outstanding, actual;
100,000,000 shares authorized and 27,027,535 shares
outstanding, pro forma; 100,000,000 shares authorized
and outstanding, pro forma as adjusted.. 4,323 74,506
Note receivable from stockholder.......................... (267) (267)
Deferred stock based compensation......................... (1,415) (1,415)
Accumulated deficit....................................... (36,970) (39,966)
-------- -------- -------
Total stockholders' equity (deficiency)................ (20,622) 32,858
-------- -------- -------
Total capitalization.............................. $ (1,162) $ 53,237 $
======== ======== =======
</TABLE>
This table does not include:
- 3,682,772 shares issuable upon exercise of options outstanding as of
August 31, 1999, including an estimated number of options to be assumed
in connection with our acquisition of Acuity as if it had occurred on
August 31, 1999;
- 613,723 shares reserved for future issuance under our stock option plans
as of August 31, 1999;
- 2,500,000 shares reserved for future issuance under our stock plans,
director option plan and employee stock purchase plan subsequent to
August 31, 1999;
- 755,043 shares issuable upon exercise of warrants outstanding as of
August 31, 1999, including an estimated number of warrants to be assumed
in connection with our acquisition of Acuity as if it had occurred on
August 31, 1999; and
- 300,000 shares issuable upon exercise of warrants granted subsequent to
August 31, 1999.
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<PAGE> 22
DILUTION
Our pro forma net tangible book value as of June 30, 1999, was $(12.9)
million, or approximately $(0.48) per share. Pro forma net tangible book value
per share represents the pro forma stockholders equity less pro forma intangible
assets divided by the pro forma number of shares of common stock outstanding,
giving effect to the conversion of all outstanding shares of preferred stock,
including the 1,363,334 shares of preferred stock issued on August 26, 1999, the
estimated 4,530,000 shares to be issued in connection with the closing of the
acquisition of Acuity and the issuance of 247,602 shares upon the assumed
exercise of outstanding warrants that otherwise terminate upon the closing of
this offering. After giving effect to the sale of the shares of
common stock being offered at an assumed initial public offering price of
$ per share and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our pro forma net
tangible book value at June 30, 1999, would have been , or
approximately $ per share. This represents an immediate increase in pro
forma net tangible book value of $ per share to existing stockholders and an
immediate dilution in net tangible book value of $ per share to new
investors of common stock in this offering. The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ --
Pro forma net tangible book value per share as of June 30,
1999................................................... $ (0.48)
Increase attributable to new investors.................... --
Pro forma net tangible book value per share after
offering.................................................. --
Dilution per share to new investors......................... $
=======
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1999,
the differences between the number of shares of common stock purchased, the
total consideration paid and the average price per share paid by existing
stockholders and by the new investors purchasing shares of common stock in this
offering, before deducting underwriting discounts and commissions and estimated
offering expenses payable by us, at the assumed public offering price of
$ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... % $ % $
New public investors......................
--------- ----- ---------- -----
Total........................... 100.0% 100.0%
========= ===== ========== =====
</TABLE>
To the extent that any shares are issued upon exercise of options or
warrants that were outstanding at June 30, 1999 or granted after that date, or
reserved for future issuance under our stock plans, there will be further
dilution to new investors.
20
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and the related notes and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
The consolidated statements of operations data for the years ended March
31, 1997 and 1998 and consolidated balance sheet data as of March 31, 1998 are
derived from our consolidated financial statements included elsewhere in this
prospectus, which have been audited by Ernst & Young LLP. The consolidated
statements of operations data for the year ended March 31, 1999 and consolidated
balance sheet data as of March 31, 1999 are derived from our consolidated
financial statements included elsewhere in this prospectus, which have been
audited by Deloitte & Touche LLP. The consolidated statements of operations data
for the period from May 25, 1995, the date of the acquisition of Quintus from
Intergraph Corporation in a management-led buyout with the financial backing of
new investors, to March 31, 1996 and balance sheet data as of March 31, 1996 and
1997 are derived from financial statements audited by Ernst & Young LLP, which
are not included in this prospectus. Prior to May 25, 1995, we were a
wholly-owned subsidiary of Intergraph Corporation. As a result, we believe
financial data for periods prior to May 25, 1995 is not material.
The consolidated statements of operations data for the three months ended
June 30, 1998 and 1999 and the consolidated balance sheet data as of June 30,
1999 are derived from our unaudited consolidated financial statements which, in
the opinion of management, have been prepared on the same basis as the audited
consolidated financial statements and reflect all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of our
results of operations and financial position. The historical results presented
below are not necessarily indicative of the results to be expected for any
future period.
21
<PAGE> 24
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
MAY 25, 1995 THREE MONTHS
THROUGH YEAR ENDED MARCH 31, ENDED JUNE 30,
MARCH 31, ------------------------------- ------------------
1996 1997 1998 1999 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License..................................... $ 5,174 $ 8,406 $ 12,948 $ 17,577 $ 4,790 $ 6,126
Service..................................... 1,267 5,208 8,942 12,730 2,762 4,167
------- ------- -------- -------- ------- -------
Total revenues........................ 6,441 13,614 21,890 30,307 7,552 10,293
------- ------- -------- -------- ------- -------
Cost of revenues:
License..................................... 637 972 708 554 74 218
Service..................................... 985 4,199 7,582 8,623 1,957 2,421
------- ------- -------- -------- ------- -------
Total cost of revenues................ 1,622 5,171 8,290 9,177 2,031 2,639
------- ------- -------- -------- ------- -------
Gross profit.................................. 4,819 8,443 13,600 21,130 5,521 7,654
Operating expenses:
Sales and marketing......................... 4,031 6,879 11,336 17,147 4,518 4,314
Research and development.................... 1,795 3,667 5,102 6,719 1,795 1,873
General and administrative.................. 1,196 1,263 3,233 3,577 803 998
Amortization of intangibles................. -- -- 1,335 3,185 796 796
Acquired in-process technologies............ 6,060 -- 2,200 -- -- --
Stock-based compensation.................... -- -- -- 171 4 169
------- ------- -------- -------- ------- -------
Total operating expenses.............. 13,082 11,809 23,206 30,799 7,916 8,150
------- ------- -------- -------- ------- -------
Loss from continuing operations............... (8,263) (3,366) (9,606) (9,669) (2,395) (496)
Interest expense, net......................... (32) (160) (540) (917) (391) (194)
------- ------- -------- -------- ------- -------
Net loss from continuing operations........... (8,295) (3,526) (10,146) (10,586) (2,786) (690)
Discontinued operations:
Loss from discontinued operations........... -- -- (1,103) (1,891) (190) --
Gain on disposal of discontinued
operations................................ -- -- -- 1,011 -- --
------- ------- -------- -------- ------- -------
Net loss...................................... $(8,295) $(3,526) $(11,249) $(11,466) $(2,976) $ (690)
======= ======= ======== ======== ======= =======
Basic and diluted net loss per common share
from continuing operations.................. $(72.34) $ (4.25) $ (6.88) $ (3.73) $ (1.12) $ (0.20)
======= ======= ======== ======== ======= =======
Basic and diluted net loss per common share... $(72.34) $ (4.25) $ (7.53) $ (4.04) $ (1.20) $ (0.20)
======= ======= ======== ======== ======= =======
Shares used in computation, basic and
diluted..................................... 115 868 1,695 2,835 2,484 3,506
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF
------------------------------------------- JUNE 30,
1996 1997 1998 1999 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash........................................................ $ 792 $ 3,045 $ 1,986 $ 1,785 $ 467
Working capital (deficiency)................................ 582 1,552 (11,250) (8,644) (8,909)
Total assets................................................ 5,699 9,852 23,141 19,594 20,274
Long-term obligations, net of current portion............... 528 19 4,246 2,201 1,649
Redeemable convertible preferred stock...................... 9,478 14,110 17,811 17,811 17,811
Total stockholders' deficiency.............................. (7,850) (10,831) (20,333) (20,091) (20,622)
</TABLE>
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with our consolidated
financial statements and related notes included elsewhere in this prospectus.
This discussion and analysis contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including, but not limited to, those set forth under "Risk
Factors" and elsewhere in this prospectus.
OVERVIEW
We provide a comprehensive e-Customer Relationship Management or eCRM
solution to manage customer interactions and deliver consistent customer service
across multiple communication channels, including the Internet, email and
advanced telephony systems. Our Quintus eContact software suite includes
customer relationship management applications that address the needs of sales
and service, consumer relations, technical support and human resources contact
centers and a sophisticated routing engine to manage customer interactions.
eContact enables companies to handle high volumes of customer interactions,
increase the efficiency of contact center resources and leverage cross-selling
and up-selling opportunities.
Quintus was incorporated in 1984 to develop artificial intelligence
software and was acquired in 1989 by Intergraph Corporation, a provider of
interactive computer graphics systems. Quintus was purchased from Intergraph in
May 1995 in a management-led buyout with the financial backing of new investors.
At the time of the buyout we primarily provided application software and
consulting services to the help desk market. Since then we have introduced
several customer relationship management applications for call centers. In
November 1997, we acquired Nabnasset, a provider of computer telephony
integration software. Following the acquisition we introduced our Quintus CTI
product and began integrating it with our customer relationship management
applications. As new communication channels have emerged, we have introduced new
products and added functionality to our existing products. In February 1999, we
introduced our Quintus eContact suite as a platform for integrating our existing
products with new channel applications. As part of our eContact suite, we also
resell an email management product from Brightware and a call routing product
from Cisco Systems-GeoTel Communications. In September 1999, we entered into an
agreement to acquire Acuity, a provider of software products to manage
Internet-based customer interactions. The acquisition is expected to close prior
to the effectiveness of this offering.
Our revenues were $13.6 million, $21.9 million, $30.3 million and $10.3
million in fiscal 1997, 1998 and 1999 and for the three months ended June 30,
1999. We derive substantially all of our revenues from licenses and services
associated with our products. License revenues are derived from product sales to
customers and through resellers and distributors. Service revenues are
attributable to the installation, consulting, maintenance and other support
services related to the sale of our products.
License revenues from sales to end users are recognized upon shipment of
the product, if a signed contract exists, the fee is fixed and determinable,
collection is deemed probable and vendor-specific objective evidence exists to
allocate the total fee to elements of the arrangement. License revenues for
contracts requiring us to provide significant customization services are
recognized using percentage of completion accounting using labor days as the
basis for determining the percentage complete. License revenues from sales to
resellers and distributors are generally recognized at the time a reseller or
distributor reports to us that they have sold our software and all revenue
recognition criteria have been met.
23
<PAGE> 26
Service revenues include maintenance revenues which are deferred and
recognized ratably over the maintenance period, which in most cases is one year,
and revenues from training and consulting services, which are recognized as
services are performed.
We sell our products to customers in North and South America, Europe, South
Africa and Japan. Sales to customers outside of the United States represented
15.3%, 14.0%, 18.3% and 12.1% of total revenues in fiscal 1997, 1998 and 1999
and for the three months ended June 30, 1999. All of our sales are denominated
in U.S. dollars. We intend to establish additional distribution relationships
with partners outside of the United States and expect international revenues to
continue to increase as a percent of our total revenues in the future.
We sell our products through a direct sales force and indirectly through
resellers and distribution partners. Lucent Technologies, which began reselling
our products in November 1997, accounted for 9.2%, 19.3% and 33.9% of total
revenues in fiscal 1998 and 1999 and for the three months ended June 30, 1999.
In fiscal 1997, one customer, State Farm Insurance, accounted for 23.8% of total
revenues. In fiscal 1998 and 1999, no customer accounted for more than 10% of
total revenues. For the three months ended June 30, 1999, one customer, Procter
& Gamble, accounted for 19.3% of total revenues. We expect that sales of our
products to a limited number of parties will continue to account for a large
percentage of total revenues for the foreseeable future.
In July 1997, we acquired Call Center Enterprises, a provider of strategic
call center consulting services, for $965,000 in cash. The acquisition was
accounted for as a purchase. In February 1999, we sold this business to
AnswerThink Consulting Group for $2.1 million in cash. The results of operations
for Call Center Enterprises are presented as discontinued operations in our
consolidated financial statements.
In November 1997, we acquired Nabnasset for $3.5 million in cash, stock and
options to purchase our common stock. The transaction was accounted for as a
purchase. In this acquisition, acquired technology included both existing
technology and in-process research and development. The valuation of acquired
technology was made by applying the income forecast method, which considers the
present value of cash flows by product lines. Acquired in-process technologies
were charged to operations, as the technologies did not have alternative future
uses as of the date of the acquisition.
As of June 30, 1999 we had an accumulated deficit of approximately $37.0
million. Our net loss from continuing operations was $3.5 million, $10.1
million, $10.6 million and $690,000 in fiscal 1997, 1998 and 1999 and for the
three months ended June 30, 1999. These losses resulted from costs incurred in
the development and sale of our products and services. We expect to continue to
experience significant growth in our operating expenses, particularly in the
areas of sales and marketing. As a result, we expect to incur additional losses
and cannot assure you that we will achieve or sustain profitability in the
future.
24
<PAGE> 27
RESULTS OF OPERATIONS
The following table sets forth our results of operations as a percentage of
total revenues:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31, JUNE 30,
----------------------- --------------
1997 1998 1999 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License...................................... 61.7% 59.2% 58.0% 63.4% 59.5%
Service...................................... 38.3 40.8 42.0 36.6 40.5
----- ----- ----- ----- -----
Total revenues............................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
License...................................... 7.1 3.2 1.8 1.0 2.1
Service...................................... 30.8 34.6 28.5 25.9 23.5
----- ----- ----- ----- -----
Total cost of revenues.................... 37.9 37.8 30.3 26.9 25.6
----- ----- ----- ----- -----
Gross profit................................... 62.1 62.2 69.7 73.1 74.4
Operating expenses:
Sales and marketing.......................... 50.5 51.8 56.6 59.8 41.9
Research and development..................... 26.9 23.3 22.2 23.8 18.2
General and administrative................... 9.3 14.8 11.8 10.6 9.7
Amortization of intangibles.................. -- 6.1 10.5 10.5 7.7
Acquired in-process technologies............. -- 10.1 -- -- --
Stock-based compensation..................... -- -- 0.6 0.1 1.6
----- ----- ----- ----- -----
Total operating expenses.................. 86.7 106.1 101.7 104.8 79.1
----- ----- ----- ----- -----
Loss from continuing operations................ (24.6) (43.9) (32.0) (31.7) (4.7)
Interest expense, net.......................... (1.2) (2.5) (3.0) (5.2) (1.9)
----- ----- ----- ----- -----
Net loss from continuing operations............ (25.8) (46.4) (35.0) (36.9) (6.6)
Discontinued operations:
Loss from discontinued operations............ -- (5.0) (6.2) (2.5) --
Gain on disposal of discontinued
operations................................ -- -- 3.3 -- --
----- ----- ----- ----- -----
Net loss....................................... (25.8)% (51.4)% (37.9)% (39.4)% (6.6)%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 AND 1999
REVENUES
Total Revenues. Total revenues increased 36.3% from $7.6 million to $10.3
million for the three months ended June 30, 1998 and 1999.
License. License revenues increased 27.9% from $4.8 million to $6.1 million
for the three months ended June 30, 1998 and 1999. The increase in license
revenues was primarily due to a significant increase in products sold through
Lucent Technologies and a large direct sale to Procter & Gamble.
Service. Service revenues increased 50.9% from $2.8 million to $4.2 million
for the three months ended June 30, 1998 and 1999. The growth in service
revenues was due primarily to an increase in maintenance revenues as a result of
our increased installed base, and an increase in consulting services to new and
existing customers. In future periods, we expect service revenues to decrease as
a
25
<PAGE> 28
percentage of total revenues as we seek to have third-party systems integrators
undertake a greater percentage of our product implementation.
COST OF REVENUES
License. Cost of licenses consists primarily of royalties, product
packaging, documentation and production. Cost of licenses was $74,000 and
$218,000 for the three months ended June 30, 1998 and 1999, representing 1.5%
and 3.6% of license revenues in the respective periods. The increase was
primarily due to an increase in license revenues and the resulting increase in
third-party royalty payments and to a lesser extent increases in material costs
and other related expenses. Recently, we have entered into reseller agreements
with Brightware and Cisco Systems-GeoTel Communications which require
significantly higher royalty rates. Although the sale of products under these
agreements has been minimal to date, the cost of licenses will vary
significantly in the future, depending on the mix of internally developed and
third-party products.
Service. Cost of services consists primarily of personnel costs and
third-party consulting fees associated with implementation, customization,
maintenance and other support services. Cost of services was $2.0 million and
$2.4 million for the three months ended June 30, 1998 and 1999, representing
70.9% and 58.1% of service revenues in the respective periods. The dollar
increase was primarily due to an increase in the number of third-party
consultants we engaged. Cost of services as a percentage of service revenues
declined primarily due to the higher margins for maintenance revenues. The cost
of services as a percentage of services revenues may vary between periods due to
the mix of services provided and the resources used to provide these services.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, travel, public relations, marketing materials and trade
shows. Sales and marketing expenses decreased 4.5% from $4.5 million to $4.3
million for the three months ended June 30, 1998 and 1999, representing 59.8%
and 41.9% of total revenues in the respective periods. The decrease in sales and
marketing expenses was primarily due to lower spending on marketing programs. We
intend to invest substantial resources to expand our direct sales force and
other distribution channels, and to conduct marketing programs to support our
existing and new product offerings. As a result, sales and marketing expenses
are expected to increase in absolute dollars in future periods.
Research and Development. Research and development expenses consist
primarily of personnel and related costs associated with the development of new
products, the enhancement and localization of existing products, quality
assurance and testing. Research and development expenses increased 4.3% from
$1.8 million to $1.9 million for the three months ended June 30, 1998 and 1999,
representing 23.8% and 18.2% of total revenues in the respective periods. The
decline in research and development expenses as a percentage of total revenues
was primarily due to the growth in total revenues. We anticipate that research
and development expenses will increase in absolute dollars in future periods. To
date, all research and development costs have been expensed as incurred.
General and Administrative. General and administrative expenses consist
primarily of salaries and other related costs for finance and human resource
employees, as well as accounting, legal, other professional fees and allowance
for doubtful accounts. General and administrative expenses increased 24.3% from
$803,000 to $998,000 for the three months ended June 30, 1998 and 1999,
representing 10.6% and 9.7% of total revenues in the respective periods. The
dollar increase was primarily due to an increase in the allowance for doubtful
accounts and increased staffing and associated expenses necessary to manage and
support our increased scale of operations. We anticipate that our general
26
<PAGE> 29
and administrative expenses will continue to increase in absolute dollars as a
result of the continued expansion of our administrative staff and facilities to
support growing operations.
Amortization of Intangibles. Amortization of intangibles consists of costs
associated with our acquisition of Nabnasset in November 1997. Amortization is
recorded on a straight-line basis over a period of three years ending in October
2000. Amortization of intangibles was $796,000 for the three months ended June
30, 1998 and 1999.
Stock-Based Compensation. In the three months ended June 30, 1998 and 1999,
we recorded deferred stock-based compensation of $43,000 and $700,000, relating
to stock options granted to employees. Such amounts represent the difference
between the exercise price and the deemed fair value of our common stock at the
date of grant. These amounts are being amortized over the vesting periods of the
granted options. In the three months ended June 30, 1998 and 1999, we recognized
stock-based compensation expense, in continuing operations, related to options
granted to employees of $4,000 and $169,000.
Interest Expense, Net. Interest expense consists of interest expense and
other non-operating expenses. In the three months ended June 30, 1998, we
recognized interest expense of $165,000 with respect to warrants granted in
connection with notes payable to stockholders. There was no such expense
recognized during the three months ended June 30, 1999.
DISCONTINUED OPERATIONS
On February 26, 1999 we sold the assets of our Call Center Enterprises
division. The division was sold for $2.1 million of cash resulting in a gain on
disposal of $1.0 million. We may receive an additional payment of up to $400,000
from the sale of Call Center Enterprises based on the number of former Call
Center Enterprises employees who remain employed by the purchaser for one year
subsequent to the date of disposition. The division had a loss of $190,000 for
the three months ended June 30, 1998, which was recorded as discontinued
operations.
FISCAL 1997, 1998 AND 1999
REVENUES
Total Revenues. Total revenues were $13.6 million, $21.9 million and $30.3
million in fiscal 1997, 1998 and 1999, increasing 60.8%, from fiscal 1997 to
1998 and 38.5% from fiscal 1998 to 1999.
License. License revenues were $8.4 million, $12.9 million and $17.6
million in fiscal 1997, 1998 and 1999, increasing 54.0% from fiscal 1997 to 1998
and 35.8% from fiscal 1998 to 1999. The increase in revenues from fiscal 1997 to
1998 was primarily due to an increase in our customer base as well as an
increase in sales to our existing customers. In addition, we acquired Nabnasset
in November 1997 and began realizing license revenues from our newly acquired
Quintus CTI product. The increase in license revenues from fiscal 1998 to 1999
was primarily due to a full year of CTI product sales in fiscal 1999 compared to
fewer than five months in fiscal 1998.
Service. Service revenues were $5.2 million, $8.9 million and $12.7 million
in fiscal 1997, 1998 and 1999, increasing 71.7% from fiscal 1997 to 1998 and
42.4% from fiscal 1998 to 1999. The increase in service revenues was primarily
due to growth in the installed base of customers with maintenance agreements,
maintenance renewals from products licensed in prior periods and increased
consulting revenues. The increase in service revenues from fiscal 1998 to 1999
was also due to additional consulting and maintenance revenues resulting from
our acquisition of Nabnasset.
27
<PAGE> 30
COST OF REVENUES
License. Cost of licenses was $972,000, $708,000 and $554,000 in fiscal
1997, 1998 and 1999, representing 11.6%, 5.5% and 3.2% of license revenue in the
respective periods. The decrease was primarily due to a decrease in royalty
payments associated with the licensing of our products.
Service. Cost of services was $4.2 million, $7.6 million and $8.6 million
for fiscal 1997, 1998 and 1999, representing 80.6%, 84.8% and 67.7% of service
revenue in the respective periods. From fiscal 1997 to 1998, the dollar increase
was primarily due to increases in professional services personnel, third-party
consulting expenses, and customer support staffing. From fiscal 1998 to 1999,
the dollar increase was primarily due to increases in professional services
personnel and third party consulting expenses. The decrease in cost of services
as a percentage of service revenues from fiscal 1998 to 1999 was primarily due
to a result of higher margins on our maintenance revenues.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses were $6.9 million, $11.3
million and $17.1 million in fiscal 1997, 1998 and 1999, representing 50.5%,
51.8% and 56.6% of total revenues in the respective periods. The increase was
primarily due to the further expansion of our worldwide sales and marketing
organization, higher sales commissions associated with increased revenues and
increased marketing activities.
Research and Development. Research and development expenses were $3.7
million, $5.1 million and $6.7 million in fiscal 1997, 1998 and 1999,
representing 26.9%, 23.3% and 22.2% of total revenues in the respective periods.
The dollar increases for each of the periods were primarily due to increases in
personnel and related overhead costs and to a lesser extent increased consulting
expenses.
General and Administrative. General and administrative expenses were $1.3
million, $3.2 million, and $3.6 million in fiscal 1997, 1998 and 1999,
representing 9.3%, 14.8% and 11.8% of total revenues in the respective periods.
The increase from fiscal 1997 to 1998 was primarily due to increases in
personnel, related overhead costs and expenses related to our infrastructure
expansion. The percentage decrease from fiscal 1998 to 1999 was primarily due to
our increased revenues.
Amortization of Intangibles. Amortization of intangibles was $1.3 million
and $3.2 million in fiscal 1998 and 1999, representing 6.1% and 10.5% of total
revenues in the respective periods. The increase was due to a full year of
amortization in fiscal 1999 versus a partial year of amortization in fiscal
1998.
Acquired In-Process Technologies. In November 1997, we acquired Nabnasset
for $3.5 million in cash, stock and options to purchase our common stock. The
transaction was accounted for as a purchase. In this acquisition, acquired
technology included both existing technology and in-process research and
development. The valuation of acquired technology was made by applying the
income forecast method, which considers the present value of cash flows by
product lines. Acquired in-process technologies were charged to operations, as
the technologies did not have alternative future uses as of the date of the
acquisition.
Stock-Based Compensation. During fiscal 1998 and 1999 we recorded deferred
stock-based compensation of $100,000 and $1.1 million relating to stock options
granted to employees. We had no deferred stock compensation relating to stock
options granted to employees in fiscal 1997. We recorded $171,000 of stock-based
compensation expense in operating expenses in fiscal 1999. There was no
stock-based compensation expense recorded in operating expenses during fiscal
1997 or 1998.
28
<PAGE> 31
Interest Expense, Net. Interest expense consists of interest expense and
other non-operating expenses. During fiscal 1998 and 1999, we recognized
interest expense of $258,000 and $165,000 with respect to warrants granted in
connection with notes payable to stockholders.
DISCONTINUED OPERATIONS
Our Call Center Enterprises division, which was sold in February 1999, had
revenues of $2.5 million and $3.2 million for fiscal 1998 and 1999, and incurred
a loss from operations of $1.1 million and $1.9 million in fiscal 1998 and 1999.
There were no assets or liabilities remaining as of March 31, 1999. Included
within the $1.0 million gain on the sale of discontinued operations is the fair
value of options granted in connection with the sale of Call Center Enterprises
of $453,000.
29
<PAGE> 32
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly results of operations
data for the five quarters ended June 30, 1999, as well as such data expressed
as a percentage of our total revenues for the periods presented. The information
in the table below should be read in conjunction with our annual audited
consolidated financial statements and related notes included elsewhere in this
prospectus. We have prepared this information on the same basis as our
consolidated financial statements and the information includes all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for the
quarters presented. Our quarterly operating results have varied substantially in
the past and may vary substantially in the future. You should not draw any
conclusions about our future results for any period from the results of
operations for any particular quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1999 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
License....................... $ 4,790 $ 5,123 $ 2,930 $ 4,734 $ 6,126
Service....................... 2,762 3,185 3,024 3,759 4,167
------- ------- ------- ------- -------
Total revenues............. 7,552 8,308 5,954 8,493 10,293
Cost of revenues:
License....................... 74 194 155 131 218
Service....................... 1,957 2,219 2,426 2,021 2,421
------- ------- ------- ------- -------
Total costs of revenues.... 2,031 2,413 2,581 2,152 2,639
Gross profit.................... 5,521 5,895 3,373 6,341 7,654
Operating expenses:
Sales and marketing........... 4,518 4,098 4,639 3,892 4,314
Research and development...... 1,795 1,558 1,792 1,574 1,873
General and administrative.... 803 829 1,109 836 998
Amortization of intangibles... 796 800 798 791 796
Stock-based compensation...... 4 56 56 55 169
------- ------- ------- ------- -------
Total operating expenses... 7,916 7,341 8,394 7,148 8,150
------- ------- ------- ------- -------
Loss from continuing
operations.................... (2,395) (1,446) (5,021) (807) (496)
Interest expense, net........... (391) (134) (181) (211) (194)
------- ------- ------- ------- -------
Net loss from continuing
operations.................... (2,786) (1,580) (5,202) (1,018) (690)
Discontinued operations:
Loss from discontinued
operations................. (190) (459) (781) (461) --
Gain on disposal of
discontinued operations.... -- -- -- 1,011 --
------- ------- ------- ------- -------
Net loss........................ $(2,976) $(2,039) $(5,983) $ (468) $ (690)
======= ======= ======= ======= =======
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
--------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1999 1999
<S> <C> <C> <C> <C> <C>
Revenues:
License........................ 63.4% 61.7% 49.2% 55.7% 59.5%
Service........................ 36.6 38.3 50.8 44.3 40.5
----- ----- ------ ----- -----
Total revenues.............. 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
License........................ 1.0 2.3 2.6 1.5 2.1
Service........................ 25.9 26.7 40.7 23.8 23.5
----- ----- ------ ----- -----
Total costs of revenues..... 26.9 29.0 43.3 25.3 25.6
Gross profit..................... 73.1 71.0 56.7 74.7 74.4
Operating expenses:
Sales and marketing............ 59.8 49.3 77.9 45.8 41.9
Research and development....... 23.8 18.8 30.1 18.5 18.2
General and administrative..... 10.6 10.0 18.6 9.8 9.7
Amortization of intangibles.... 10.5 9.6 13.4 9.3 7.7
Stock-based compensation....... 0.1 0.7 0.9 0.6 1.6
----- ----- ------ ----- -----
Total operating expenses.... 104.8 88.4 140.9 84.2 79.1
----- ----- ------ ----- -----
Loss from continuing
operations..................... (31.7) (17.4) (84.3) (9.5) (4.8)
Interest expense, net............ (5.2) 1.6 3.0 2.5 1.9
----- ----- ------ ----- -----
Net loss from continuing
operations..................... (36.9) (19.0) (87.3) (12.0) (6.7)
Discontinued operations:
Loss from discontinued
operations.................. (2.5) (5.5) (13.1) (5.4) --
Gain on disposal of
discontinued operations..... -- -- -- 11.9 --
----- ----- ------ ----- -----
Net loss......................... (39.4)% (24.5)% (100.4)% (5.5)% (6.7)%
===== ===== ====== ===== =====
</TABLE>
License revenues have generally increased in each of the five quarters
ended June 30, 1999, primarily due to increased market acceptance for our
products. Service revenues have also generally increased in each of these
quarters primarily due to the recognition of maintenance revenues attributable
to our growing installed base, and to a lesser extent, consulting and training
services associated with increased sales of our products. In the quarter ended
December 31, 1998 we recorded a large net loss due to our inability to close a
large number of license sales which had been forecasted to close in the quarter
coupled with an increase in operating expenses. In the following quarter we
experienced significant turnover in our sales personnel and we implemented
tighter expense controls resulting in lower overall operating expenses.
Our quarterly operating results have fluctuated significantly in the past,
and will continue to fluctuate in the future, as a result of a number of
factors, many of which are outside our control. As a result of our limited
operating history, we cannot forecast operating expenses based on historical
results. Accordingly, we base our anticipated level of expense in part on future
revenue projections. Most of our expenses are fixed in the short term and we may
not be able to quickly reduce spending if revenues are lower than we have
projected. Our ability to forecast our quarterly revenues accurately is limited
given our limited operating history, the length of our sales cycle and other
uncertainties in our business. If revenues in a particular quarter do not meet
projections, our net losses in a given quarter would be greater than expected.
As a result, we believe that quarter to quarter comparisons of our operating
results are not necessarily meaningful. Investors should not rely on the results
of one quarter as an indication of future performance.
31
<PAGE> 34
RECENT DEVELOPMENTS
On September 10, 1999, we entered into an agreement to acquire Acuity, a
provider of software products to manage Internet-based customer interactions. We
expect to close this acquisition prior to the effectiveness of this offering.
The acquisition is structured as a merger in which Acuity will become our
wholly-owned subsidiary and the stockholders of Acuity will become our
stockholders. The total number of our shares to be issued in connection with the
acquisition of Acuity plus the number of shares issuable upon exercise of
options and warrants we assume in the acquisition will equal 18% of our
fully-diluted capitalization immediately following the acquisition. Based on our
outstanding capitalization as of August 31, 1999, we expect to issue
approximately 2,960,000 shares of our preferred stock and 1,570,000 shares of
our common stock. In addition, we will assume warrants to purchase approximately
280,000 shares of our common and preferred stock and options to purchase
approximately 950,000 shares of our common stock. The closing of the merger is
subject to regulatory approval and the approval of the Acuity stockholders. The
acquisition will be accounted for using the purchase method of accounting. The
aggregate purchase price for the acquisition is approximately $45.5 million
based on the value of our capital stock to be issued and the value of the
options, warrants and liabilities to be assumed. In connection with the
acquisition of Acuity, we expect to recognize a charge for in-process
technologies of approximately $3.0 million in the quarter ending December 31,
1999. Acuity is located in Austin, Texas and had 92 employees on June 30, 1999.
Acuity's revenues for the year ended December 31, 1998 were $6.7 million, of
which $5.6 million were related to a product line that was subsequently sold in
March 1999. Acuity incurred net losses of $6.6 million, $7.7 million and $2.2
million in the years ended December 31, 1997 and 1998 and for the six months
ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since May 1995, we have financed our operations primarily through the sale
of equity securities, borrowings and the sale of our products and services. As
of June 30, 1999, we have raised approximately $26.1 million, net of offering
costs, from the issuance of preferred stock. As of June 30, 1999, we had
$467,000 in cash. On August 26, 1999, we raised $11.2 million from the sale of
shares of our preferred stock.
We have a $7.5 million credit line under which $4.9 million was outstanding
as of June 30, 1999. The line bears interest at prime plus 1.5% per annum and
has a maturity date of September 17, 1999. We expect to extend the maturity date
of the credit line to November 16, 1999. We also have a $1.1 million term loan,
of which $761,000 was outstanding as of June 30, 1999. The term loan bears
interest at prime plus 2.0% per annum and is due in monthly installments through
September 2001.
Cash used in operating activities was $2.0 million, $4.0 million, $7.3
million and $823,000 in fiscal 1997, 1998 and 1999 and for the three months
ended June 30, 1999. Cash used in fiscal 1997 was primarily due to a net loss of
$3.5 million and an increase in accounts receivable, offset in part by an
increase in accounts payable, deferred revenues and depreciation and
amortization expenses. Cash used in fiscal 1998 was primarily due to a net loss
of $11.2 million and an increase in accounts receivable, offset in part by an
increase of deferred revenues, depreciation and amortization expenses, and a
$2.2 million non-cash charge for in-process technologies related to our
acquisition of Nabnasset. Cash used in fiscal 1999 was primarily due to a net
loss of $11.5 million and a $1.0 million gain on the disposal of discontinued
operations, offset in part by depreciation and amortization expenses. Cash used
for the three months ended June 30, 1999 was primarily due to a net loss of
$690,000 million and an increase in accounts receivable offset in part by an
increase in accounts payable.
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Cash used in investing activities was $1.0 million, $3.7 million and
$297,000 in fiscal 1997 and 1998 and for the three months ended June 30, 1999.
Cash used in investing activities was primarily for purchases of property and
equipment in each period. In addition, cash used in fiscal 1998 included $2.5
million for the acquisition of Nabnasset. Cash provided by investing activities
of $924,000 in fiscal 1999 was primarily due to proceeds from the sale of
discontinued operations, offset by purchases of property and equipment.
Cash provided by financing activities was $5.2 million, $6.6 million and
$6.2 million in fiscal 1997, 1998 and 1999. Cash provided by financing
activities consisted primarily of proceeds from private sales of preferred stock
and borrowings under a bank line of credit. Cash used in financing activities
for the three months ended June 30, 1999 was $198,000.
We expect to experience significant growth in our operating expenses,
particularly sales and marketing and research and development expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that such operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In addition,
we may utilize cash resources to fund acquisitions or investments in
complementary businesses, technologies or product lines. We believe that the net
proceeds from this offering, together with bank financing, will be sufficient to
make a required cash payment of $18.2 million to holders of some series of our
preferred stock, upon the closing of this offering, and to meet our anticipated
needs for working capital and capital expenditures for at least the next 12
months. Thereafter, we may find it necessary to obtain additional equity or debt
financing. In the event additional financing is required, we may not be able to
raise it on acceptable terms or at all.
YEAR 2000 COMPLIANCE
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century of the year. Many existing
electronic systems, including computer systems, use only the last two digits to
refer to a year. Therefore, these systems may recognize a date using "00" as
1900 rather than the year 2000. If not corrected, these electronic systems could
fail or create erroneous results when addressing dates on and after January 1,
2000.
We have developed and are implementing a company-wide program to identify
and remedy the Year 2000 issues. The scope of our Year 2000 readiness program
includes the review and evaluation of:
- our software products;
- our IT systems, such as hardware and software used in the operation of
our business;
- our non-IT systems or embedded technology, such as micro-controllers
contained in various equipment and facilities; and
- the readiness of third parties such as suppliers and other key vendors.
We have tested our software products to determine that they are Year 2000
compliant, when configured and used in accordance with the related
documentation, assuming that the underlying operating system of the host machine
and any other software used with or in the host machine or our products are Year
2000 compliant. Based on the results of these tests, we do not expect that the
current versions of our products would abnormally end or provide incorrect or
invalid results due to date data, including dates that represent a different
century.
We have tested software obtained from third parties that we incorporate
into our products. Despite our tests and assurances from developers of products
incorporated into our products, our
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products may contain undetected errors or defects associated with Year 2000 date
functions. Known or unknown errors or defects in our products could result in
financial loss, harm to our reputation, and liability to others and could
seriously harm our business.
We have initiated an assessment of our material internal information
technology systems, including both our own software products and third party
software and hardware technology, and our non-information technology systems. We
expect to complete testing of our material information technology systems by
November 30, 1999. To the extent that we are not able to test the technology
provided by third-party vendors, we are seeking assurances from these vendors
that their systems are Year 2000 compliant. We are not currently aware of any
material operational issues or costs associated with preparing our internal
information technology and non-information technology systems for the Year 2000.
Because we are substantially dependent upon the proper functioning of our
computer systems, a failure of our systems to be Year 2000 compliant could
materially disrupt our operations, which could seriously harm our business.
Some commentators have predicted significant litigation regarding Year 2000
compliance issues. Because of the unprecedented nature of this litigation, it is
uncertain whether or to what extent we may be affected by it.
We do not currently have any information concerning the Year 2000
compliance status of our customers. Our current or future customers may incur
significant expenses to achieve Year 2000 compliance. If our customers are not
Year 2000 compliant, they may experience material costs to remedy problems, or
they may face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for or
delay purchases of our products and services. As a result, our business could be
seriously harmed.
We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to Year 2000 compliance
for administrative personnel to manage the testing, review and remediation, and
outside vendor and contractor assistance. In addition, we may experience
material problems and costs with Year 2000 compliance that could seriously harm
our business.
Year 2000 issues affecting our business, if not adequately addressed by us,
our third party vendors or suppliers or our customers, could have a number of
"worst case" consequences. These include:
- the inability of our customers to use our products and services to manage
their call centers;
- claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our products and services
to function properly, and any resulting settlements or judgements; and
- our inability to manage our own business.
We are in the process of designing our Year 2000 contingency plan to
address situations that may result if we are unable to achieve Year 2000
readiness for our critical operations. Although it is not yet fully developed,
we expect to complete our Year 2000 contingency plan before December 31, 1999.
We do not expect the cost of developing and implementing our contingency plan to
be material. In addition, we cannot assure you that our contingency plan will
successfully address any Year 2000 problems that may arise.
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RECENT ACCOUNTING PRONOUNCEMENTS
In fiscal 1998, we adopted Statement of Financial Accounting Standards
(SFAS) No. 130, Reporting Comprehensive Income, which requires an enterprise to
report, by major components and as a single total, the change in net assets
during the period from non-owner sources. The adoption of SFAS No. 130 did not
have a material impact on our consolidated financial statements.
In fiscal 1998, we adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which established annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services and geographic areas and major
customers. The adoption of SFAS No. 131 did not have a material impact on our
consolidated financial statements.
In fiscal 1998, we adopted Statement of Position, or SOP 97-2, Software
Revenue Recognition, and SOP 98-4, Deferral of the Effective Date of a Provision
of SOP 97-2, Software Revenue Recognition. SOP 97-2 and SOP 98-4 provide
guidance for recognizing revenue on software transactions and supercede SOP
91-1. The adoption of SOP 97-2 and SOP 98-4 did not have a material impact on
our financial results.
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use. SOP 98-1 establishes the accounting for costs of software
products developed or purchased for internal use, including when such costs
should be capitalized. SOP 98-1 will be effective for our fiscal year ending
March 31, 2000. We believe the adoption of this statement will not have a
significant impact on our financial position, results of operations or cash
flows.
In April 1998, the AcSEC issued SOP 98-5, Reporting on the Costs of
Start-up Activities. Under SOP 98-5, the cost of start-up activities should be
expensed as incurred. SOP 98-1 will be effective for our fiscal year ending
March 31, 2000. We believe the adoption of this statement will not have a
significant impact on our financial position, results of operations or cash
flows.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. SFAS
No. 133 will be effective for our fiscal year ending March 31, 2001. We believe
the adoption of this statement will not have a significant impact on our
financial position, results of operations or cash flows.
INTEREST RATE RISK
At June 30, 1999, we had an outstanding balance of $4.9 million under a
revolving line of credit with interest at prime plus 1.5% and a term loan with
an outstanding balance of $761,000 at prime plus 2.0%. A 10% movement in market
interest rates would not significantly impact our financial position or results
of operations.
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BUSINESS
We provide a comprehensive e-Customer Relationship Management or eCRM
solution to manage customer interactions and deliver consistent customer service
across multiple communication channels, including the Internet, email and
advanced telephony systems. Our Quintus eContact software suite includes
customer relationship management applications that address the needs of sales
and service, consumer relations, technical support and human resources contact
centers and a sophisticated routing engine to manage customer interactions.
eContact enables companies to handle high volumes of customer interactions,
increase the efficiency of contact center resources and leverage cross-selling
and up-selling opportunities.
INDUSTRY BACKGROUND
In today's competitive global marketplace, customer service is increasingly
critical to attracting and retaining customers. Many companies are re-orienting
their businesses to be more responsive to customer needs and are focusing on
customer service and satisfaction as a means of differentiation. Moreover,
companies are recognizing that every customer interaction provides an
opportunity to sell additional products and services, as well as increase
customer loyalty. As a result, in many industries customer service is becoming a
key competitive advantage.
The Internet has emerged as a major platform for communication and
commerce, enabling new and highly efficient channels for companies to engage in
commerce and interact directly with their customers. The growth of e-commerce
has increased competition for customers and reduced the importance of
traditional competitive advantages such as price, location, availability and
access. International Data Corporation estimates that the number of customers
buying goods and services over the Internet worldwide will grow from
approximately 30.8 million in 1998 to 182.6 million in 2003 and that the value
of these purchases will increase from $50.4 billion to $1.3 trillion over the
same period.
The Internet enables customers and companies to interact in more ways than
ever before. In addition to traditional, telephone-based communications,
customers and companies can now interact through email, Web chat and Web
self-service. These Internet-based communication channels are growing rapidly,
creating new challenges for companies attempting to provide quality customer
service. The Gartner Group estimates that approximately 25% of all customer
interactions will take place over the Internet via email or Web communications
by 2001. Forrester Research estimates that by 2001 consumers will send companies
approximately 50 million emails per day requesting product information or
service.
As a result of the growing number of communication channels, companies are
struggling to handle the volume and variety of customer interactions. While
Internet-based communications are forecast to grow substantially,
telephone-based communications will remain a critical component of companies'
customer service. Many companies are not equipped to address the convergence of
traditional and Internet-based communication channels and, consequently, cannot
offer customers the flexibility and service they demand. Customers increasingly
expect to be able to interact with companies through whichever channel best
suits their needs and are likely to use a combination of communication channels.
For example, a customer may request product literature via email, review
marketing materials or fill in an application on the Web, call to receive more
detailed information or assistance, send a signed form by fax, and check the
status of an order online. Companies' ability to provide consistent customer
service across all these communication channels will become increasingly
critical to delivering a superior customer experience.
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In many industries, Internet-based companies have captured increasing
market share and emerged as competitive threats to traditional "brick and
mortar" companies. As a result, many Global 1000 companies are under pressure to
quickly expand their online presence. These companies have typically provided
customer service through telephone-based communication channels and are now
looking to support new Internet-based communication channels. Many of these
companies have invested considerable resources to establish call centers that
manage inbound and outbound customer calls, including customer inquiries, orders
and service requests, as well as telesales and telemarketing operations. As
these companies move to support Internet-based communication channels and
establish multi-channel customer contact centers, they will seek to leverage
their existing investments in call center infrastructure and personnel. Frost
and Sullivan estimates that spending on Web-enabled call centers will increase
from $14.1 million in 1998 to $889.9 million in 2004.
Similarly, many Internet-based companies that have grown rapidly and built
sizable customer bases are faced with an increasingly competitive online market
environment and are looking for ways to differentiate themselves. These
Internet-based companies have relied primarily on email and Web self-service to
interact with their customers and many have delivered unsatisfactory customer
service. According to a recent survey of Internet sites by Jupiter
Communications, more than a third had no email address listed, took longer than
five days to respond or never responded to an email.
To date, companies have turned to several types of products to deliver
customer service. These products have primarily been point solutions targeted at
discrete communication channels. For example, computer telephony integration
software products, which automate call routing and reduce the time it takes to
respond to customer calls, are designed for telephone-based communications and
often are not able to handle or integrate with Internet-based communication
channels. Similarly, email management software products, which automate email
responses, typically are not integrated with other communication channels and
therefore do not provide a complete and accurate view of the customer. Companies
have also deployed customer relationship management applications to automate
customer interactions such as problem management and to provide a repository for
customer information. However, these applications are usually not integrated
with the underlying communication infrastructure and therefore cannot leverage
call routing or other features that enable more timely, efficient and
personalized customer service. Deploying these disparate solutions requires
significant integration and, as a result, they can be difficult and expensive to
implement and maintain.
We believe a significant market opportunity exists for solutions that
provide both traditional "brick and mortar" companies and new Internet-based
companies with the ability to integrate a broad range of communication channels
and manage the entire customer interaction lifecycle. We refer to this market
opportunity as the e-Customer Relationship Management or eCRM market. eCRM
solutions enable companies to:
- manage high volumes of customer interactions;
- support a broad range of communication channels;
- deliver consistent and integrated customer service;
- leverage Internet and telephony technologies; and
- capture all relevant customer information.
THE QUINTUS SOLUTION
We provide a comprehensive eCRM solution to manage customer interactions
and deliver consistent customer service across multiple communication channels,
including the Internet, email
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and advanced telephony systems. Our Quintus eContact software suite includes
customer relationship management applications that address the needs of sales
and service, consumer relations, technical support and human resources contact
centers and a sophisticated routing engine to manage customer interactions. Our
eContact software suite provides a platform for the personalization, routing and
management of customer interactions and is designed to leverage third party
products that support email and Internet-based customer service. We recently
entered into an agreement to acquire Acuity, which will extend our ability to
provide customer service functionality through Web chat, Web self-service,
browser-based collaboration and email. Our eContact suite enables companies to
handle high volumes of customer interactions, increase the efficiency of contact
center resources and leverage cross-selling and up-selling opportunities through
the use of common workflows and business rules, shared customer profile
information, and consolidated management and reporting functionality.
We have designed Quintus eContact to be a highly scalable and flexible
solution that can be easily deployed to assist companies in reducing the costs
and improving the efficiency of their customer service operations. eContact is
based on an open, standards-based architecture and can be integrated with other
systems, enabling companies to leverage their existing customer relationship
management applications and communication infrastructure. eContact addresses the
customer service needs of large organizations as well as rapidly growing
companies that require highly functional solutions to automate and manage high
volumes of customer interactions across traditional as well as Internet-based
communication channels.
The key features of the Quintus eContact solution are:
Broad Range of Communication Channels. Quintus eContact is a comprehensive
solution that enables companies to provide sophisticated routing, tracking and
reporting capabilities across their communication infrastructure and manage
customer interactions via telephone, email, Web self-service, Web chat,
browser-based collaboration and Web callback. Our solution also supports third-
party e-commerce applications, facsimile and imaging applications, and advanced
telephony systems, including automatic call distributors and interactive voice
response systems.
Integrated Applications and Communication Infrastructure. Quintus eContact
integrates communication infrastructure with customer relationship management
applications. We currently sell four customer relationship management
applications that address the needs of sales and service, consumer relations,
technical support and human resources contact centers. These applications
provide out-of-the-box functionality and allow companies to accelerate the
deployment of our solution.
Consistent Customer Service Across Communication Channels. Quintus eContact
allows companies to set business rules and personalization strategies to handle
customer interactions and deliver a consistent level of customer service across
multiple communication channels. Individual customer interactions can be managed
using transaction histories, legacy data, customer profiles and resource status
to offer a consistent and highly personalized level of customer service.
Business rules and personalization strategies can also be defined for specific
communication channels in order to leverage the attributes of each channel to
provide more targeted customer service and cross-selling and up-selling
opportunities.
Consolidated Customer Interaction Repository. Quintus eContact provides a
consolidated repository of information about each customer interaction
regardless of communication channel. Companies can analyze customer interactions
and determine the use and effectiveness of different channels by different
customer segments. Contact center agents can access complete customer histories
and review previous interactions. As a result, agents can respond more
effectively when, for
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example, a customer calls to discuss an email she received in response to an
order she previously placed online.
Highly Scalable and Flexible. Quintus eContact is designed to handle
millions of customer interactions per day and support thousands of agents across
multiple contact centers. eContact allows companies to increase the number of
customer interactions handled by routing customer interactions to the best
resource available, based on agent availability and experience, as well as prior
contact history. eContact is a modular solution, providing companies the
flexibility to implement the solution they need today and add functionality as
they expand the scope of their contact centers. In addition, our solution is
based on open standards, enabling it to share information with existing customer
relationship management applications and legacy systems.
OUR GROWTH STRATEGY
Our objective is to be the leading provider of eCRM software solutions that
manage customer interactions across a broad range of communication channels. Key
elements of our strategy include:
Maintain and Extend Technology Leadership. We will continue to leverage
leading Internet and telephony technologies to enhance the performance and
functionality of our products. We believe our Quintus eContact suite is the most
comprehensive solution that enables companies to efficiently and
cost-effectively manage high volumes of customer interactions across multiple
communication channels. We plan to incorporate new technologies, such as
Internet telephony, speech recognition and digital video, into our solution as
they achieve significant market acceptance. We intend to maintain our technology
leadership through focused research and development and, potentially, through
the licensing or acquisition of complementary technologies or businesses.
Broaden Direct and Indirect Distribution Capabilities. We intend to
continue to develop and extend our distribution capabilities. We sell our
solution through a direct sales force in North America and indirectly through 15
domestic and international resellers and distribution partners including IBM
Japan, Lucent Technologies and Logica. We plan to increase the size of our
direct sales organization and broaden our indirect distribution network with
strategic resellers and other distribution partners.
Target Global 1000 Companies. We plan to continue to target Global 1000
companies as they rapidly transition their businesses online. We believe that
there is a significant opportunity to provide a solution that enables these
companies to leverage their existing customer service infrastructure and deliver
a consistent and integrated level of customer service across both traditional
and Internet-based communication channels. Our customers include Global 1000
companies such as Citigroup, Lucent Technologies, Procter & Gamble and United
Airlines.
Target Leading Internet-based Companies. We plan to continue to target
leading Internet-based companies. We believe that these companies increasingly
recognize the need for higher levels of customer service in order to attract and
retain customers, and are looking for highly scalable solutions that are easy to
deploy and support both their existing Internet-based communication channels as
well as traditional communication channels. Leading Internet-based companies
that have purchased Acuity's WebCenter product line include drugstore.com,
living.com and REI.com.
Develop and Expand Strategic Relationships. We plan to continue to develop
technology and marketing relationships with leading vendors of complementary
products in order to increase our visibility in the marketplace and broaden the
functionality of our solution. We currently have strategic relationships with
Cisco Systems-GeoTel Communications and Brightware. We also intend to expand our
strategic relationships with leading systems integrators that have significant
influence over companies' purchasing decisions. We believe that systems
integrators help provide industry-specific
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expertise and support our growth and entry into new markets. We currently have
implementation relationships with AnswerThink Consulting Group, Cambridge
Technology Partners and Technology Solutions Company.
PRODUCTS
The Quintus eContact suite is a comprehensive eCRM solution that allows
companies to provide consistent customer service across a broad range of
communication channels, including voice, email, Web self-service, Web chat,
browser-based collaboration and Web callback. The eContact suite includes the
eContact engine, channel applications and business applications.
LOGO
The Quintus eContact suite is priced according to the product components
purchased and the number of users. Product components are typically priced from
$15,000 to $85,000 per installation, with per user prices typically ranging from
$500 to $2,300.
QUINTUS ECONTACT ENGINE
The Quintus eContact engine is the foundation of our eContact suite and
serves as a platform for managing customer interactions consistently across
multiple communication channels. Our eContact engine provides advanced routing,
tracking, management and reporting functionality, and consolidates all relevant
customer information into a common data repository. The eContact engine includes
the following features:
- Personalization Services. The Quintus eContact engine allows companies to
personalize each customer interaction based on sophisticated business
rules and workflows that take into account customer profiles, transaction
histories and resource availability. A customer interaction can be
managed and routed based upon the communication channel, the customer or
the purpose of that specific customer interaction. As a result, customers
can receive the same level of service across multiple communication
channels and companies can leverage the
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attributes of each communication channel to deliver more targeted and
effective customer service.
- Coordination Services. For each customer interaction, the Quintus
eContact engine captures all relevant customer information in real time.
By sharing customer information across systems, agents and communication
channels, companies can provide better informed, consistent and
synchronized customer service.
- Consolidated Repository and Reporting. All customer profiles and
histories, as well as detailed records of every customer interaction
regardless of communication channel, are stored in a common data
repository. The Quintus eContact engine includes a set of reporting tools
that allow companies to perform in-depth customer segmentation and trend
analysis.
- Centralized Customization and Administration. Companies can easily
customize business rules, workflows, screen layouts, Web pages, data
models and data access using Quintus eContact's drag-and-drop graphical
tools. This common toolset gives companies the flexibility necessary to
rapidly respond to changing business needs. Our eContact engine also
provides centralized administration of our solution. Companies can
control and monitor system status and availability as well as receive
notification alerts when pre-defined thresholds are met.
The Quintus eContact engine includes an enterprise data access layer that
provides access to relational databases as well as external data sources and
transactional systems, enabling companies to use their own business data to
manage customer interactions. Contact center agents interact with our eContact
suite through our agent console. The agent console provides an intuitive user
interface that displays customer information and pre-defined scripts, and can be
integrated with multiple applications, including front and back office systems
and legacy applications.
QUINTUS ECONTACT CHANNEL APPLICATIONS
Our channel applications enable companies to manage customer interactions
consistently across multiple communication channels including the Internet,
email and advanced telephony systems. Our channel applications can be deployed
separately or as a comprehensive solution to meet companies' evolving need for
multi-channel contact centers.
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------
CHANNEL APPLICATION PRODUCT DESCRIPTION
- -----------------------------------------------------------------------------------
Computer Telephony Quintus CTI integrates eContact with advanced telephony
Integration systems.
- -----------------------------------------------------------------------------------
Web Interaction Quintus WebCenter provides Web self-service and online
customer service through Web chat, browser-based
collaboration and Web callback.
- -----------------------------------------------------------------------------------
Email Management* Quintus Email Management provides email management with
natural language text analysis and rule-driven automated
responses.
- -----------------------------------------------------------------------------------
Electronic Commerce Quintus eCommerce Connector integrates eContact with
Connector e-commerce applications to capture transaction information.
- -----------------------------------------------------------------------------------
Network Routing* Quintus Network Routing creates an enterprise-wide "virtual
call center" with optimized routing between distributed
resources.
- -----------------------------------------------------------------------------------
</TABLE>
* Third-party products that we currently resell as part of the Quintus eContact
suite.
Computer Telephony Integration. Quintus CTI provides a highly scalable
platform for integrating advanced telephony systems such as automatic call
distributors and interactive voice response systems from major
telecommunications equipment vendors. Quintus CTI allows companies
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to apply sophisticated business rules and workflows to qualify and route
telephone-based customer communications. By integrating the telephony
infrastructure with our eContact solution, Quintus CTI also enables traditional
voice-only call centers to be extended to handle Web, email and other
communication channels.
Web Interaction. Quintus WebCenter, an Acuity product, provides a
comprehensive framework to manage Internet-based customer interactions,
including Web self-service, Web chat, browser-based collaboration and Web
callback. WebCenter enables companies to provide live customer service on the
Internet. Through Acuity's WebACD, Web-based customer interactions are routed to
the appropriate resources based on agent availability and experience. Agents can
collaborate with customers by synchronizing their browsers, seeing the Web pages
that customers are viewing and pushing new Web pages to customers to assist
them. WebCenter also allows companies to build a knowledge base of frequently
asked questions, deploy it on the Web and provide customers with full search
capabilities. With WebCenter companies can enhance their Web sites and deliver a
more engaging and personalized customer experience by providing immediately
available online customer service options. We have not yet implemented WebCenter
as part of our eContact suite; however, WebCenter has been sold to over 100
customers and we are currently engaged in our first WebCenter and eContact
deployment. We will acquire the WebCenter and WebACD products upon the closing
of our acquisition of Acuity, which is expected to occur prior to the
effectiveness of this offering.
Email Management. We deliver email management functionality by reselling
Brightware's software under a non-exclusive reseller agreement. Quintus Email
Management provides natural language analysis and automated response
capabilities, enabling companies to answer customers' emails accurately,
cost-effectively and rapidly. Email Management analyzes the email message
content, determines the nature of the customer request and automatically
responds to the email or forwards it with a suggested response to an agent for
further review. Responses can be automatically generated and include information
provided by the eContact repository or other external data sources. The next
version of the Quintus eContact suite, which is expected to be released in
October 1999, will integrate Brightware's email management products with our
eContact suite.
Electronic Commerce Connector. Quintus eCommerce Connector enables our
eContact solution to exchange information with e-commerce applications using
standard Internet protocols. Online customer transactions and purchases can be
recorded in the eContact repository and displayed to agents providing customer
service. Companies can integrate our Internet-based customer service solution
with their e-commerce applications to offer online customer assistance at the
time of purchase as well as aftersales support. In addition, our eCommerce
Connector enables companies to leverage information on customer purchasing
patterns to sell additional products or services with each customer interaction.
Network Routing. Quintus Network Routing provides enhanced call routing
functionality to distribute inbound customer calls across different locations.
We offer this functionality by reselling Cisco Systems-GeoTel Communications'
Intelligent Contact Management product under a non-exclusive reseller agreement.
Network Routing enables companies to create a real-time enterprise-wide "virtual
call center" that is independent of carriers and telephone switches. Companies
with multiple call centers can increase customer satisfaction and achieve
significant cost efficiencies by optimizing call delivery and transfers between
geographically dispersed resources.
QUINTUS ECONTACT BUSINESS APPLICATIONS
We currently market four business applications that address the needs of
sales and service, consumer relations, technical support and human resources
contact centers. Our business applications can run separately or be integrated
with the Quintus eContact suite, can be deployed across multiple
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locations and are accessed through agent desktops or via a Web browser.
Companies can easily customize data models, business rules, screen forms and Web
pages to meet specific requirements. Our business applications can also be
integrated with third-party applications and data sources.
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------
BUSINESS PRODUCT DESCRIPTION
APPLICATION
- -----------------------------------------------------------------------------------
Sales and Service Quintus CallCenterQ supports multi-function
business-to-consumer sales, service and marketing contact
centers.
- -----------------------------------------------------------------------------------
Consumer Relations Quintus CallCenterQ for Consumer Relations supports consumer
relations contact centers in the consumer product, service,
travel, hospitality and other industries.
- -----------------------------------------------------------------------------------
Technical Support Quintus CustomerQ supports business-to-business technical
support contact centers.
- -----------------------------------------------------------------------------------
Human Resources Quintus HRQ supports human resources contact centers serving
employees, former employees and retirees.
- -----------------------------------------------------------------------------------
</TABLE>
Sales and Service. Quintus CallCenterQ is designed for multi-function
sales, service and marketing contact centers. Targeted at business-to-consumer
industries, CallCenterQ enables agents to easily access pricing and product
information, process returns, track service issues and capture orders as well as
qualify and manage customer leads. CallCenterQ also allows companies to define
and manage marketing campaigns, and agents can be automatically prompted with
targeted cross-selling and up-selling opportunities. Additional features include
list management, literature fulfillment, automatic personalized letter
generation, agent scripting, and outbound preview dialing. CallCenterQ is
designed to help companies maximize revenue by enabling them to set up,
administer and evaluate the effectiveness of their sales and marketing
campaigns.
Consumer Relations. Quintus CallCenterQ for Consumer Relations is designed
for consumer relations contact centers and is targeted primarily at the consumer
product, service, travel and hospitality industries. CallCenterQ for Consumer
Relations provides agents with the information needed to resolve customer issues
including customer history and product information, and the ability to issue
vouchers and other forms of compensation. Additional features include scanned
letter/fax viewing, frequently asked questions knowledge base, automatic
personalized letter generation, and literature fulfillment. In addition,
CallCenterQ for Consumer Relations enables companies to gather important
customer feedback and market research to help them manage their brands.
Technical Support. Quintus CustomerQ is designed for business-to-business
technical support contact centers. CustomerQ provides agents with complete
customer history and product information, as well as service contracts,
warranties, billing and shipping information. Companies can also allow customers
to search for solutions, enter issues, and track the status of their technical
problems through the Internet. Other features include problem resolution, case
management, access to knowledge bases, defect tracking, automatic notification
and escalation, return processing and report generation. CustomerQ enables
companies to increase customer loyalty by rapidly and effectively addressing
customer requests for technical support. We also offer Quintus HelpQ, a
technical support application, which is targeted at the internal help desk
market.
Human Resources. Quintus HRQ is designed for human resources contact
centers serving employees, former employees and retirees. HRQ provides human
resources personnel with detailed employee history as well as health care and
financial benefits information. Other features include problem resolution,
dependent profiles, scanned letter/fax viewing, automatic personalized letter
generation and literature fulfillment. In addition, HRQ can be integrated with
leading human resources applications and knowledge bases. HRQ helps companies be
more responsive to their
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employees while reducing administrative costs and improving the productivity of
human resource departments.
CUSTOMERS
To date, we have licensed our software products to over 250 customers,
including companies in the financial services, telecommunications and consumer
product industries. The following is a representative list of companies from
which we have derived more than $300,000 of license and service revenue since
April 1, 1996.
<TABLE>
<S> <C> <C>
AMS Management Systems Engen Petroleum PricewaterhouseCoopers
Anheuser-Busch First Union Bank Procter & Gamble
Canada Trust Hartford Insurance Reuters
Canadian Imperial Bank of Inova Healthcare Services The Santa Cruz Operation
Commerce International Paper Siemens Nixdorf
Capita Group Lucent Technologies Steelcase
Citigroup Massachusetts Division of Sun Microsystems
Clarke American Employment & Training Telefonica do Brasil
Countrywide Home Loans Meca Software United Airlines
Deere & Company Northern Trust
</TABLE>
Prior to our acquisition of Acuity, Acuity licensed its WebCenter product
to over 100 customers.
The following case studies illustrate how some companies are using our
products.
PROCTER & GAMBLE
Procter & Gamble is a leading food and consumer products company, marketing
over 300 brands in more than 140 countries.
Business Challenge. Each year, Procter & Gamble receives high volumes of
calls and letters from consumers concerning its products and company policies.
Procter & Gamble required a solution that could integrate its telephone, letter
and facsimile interactions, and support emerging Internet communication
channels. In addition, Procter & Gamble, which has over 110,000 employees
worldwide, was looking for a solution to help manage human resources inquiries
by both current and former employees.
Solution. Procter & Gamble licensed our Quintus CallCenter for Consumer
Relations application for its consumer relations contact centers. Procter &
Gamble is also implementing our Quintus HRQ application in its human resources
contact centers to handle inquiries such as health benefits, payroll and pension
plans. Procter & Gamble expects that our solution will enable it to increase the
efficiency of its contact centers and improve its service to consumers and
employees by automating contact center interactions, providing detailed consumer
and employee information, and tracking problem resolution to completion.
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CITIGROUP
Citigroup is a leading global financial services company, providing over
100 million consumers, corporations, governments and institutions in more than
100 countries with a broad range of financial products and services.
Business Challenge. Citigroup relies on multiple call centers and thousands
of agents to provide financial services to customers over the telephone.
Citigroup needed to integrate its call center telephony systems with its
back-office systems to enable agents to access detailed customer information and
perform additional business functions. In addition, Citigroup required a
flexible and scalable solution that could be deployed across multiple call
centers. Citigroup was also looking for a solution that could be implemented in
conjunction with its "e-Citi" initiative to increase its presence on the
Internet and deliver financial services online.
Solution. Citigroup is currently using our Quintus CTI product to integrate
its telephony systems and enable approximately 1,000 agents across multiple call
centers to deliver superior customer service. Our solution enables Citigroup to
handle service requests quickly and cost-effectively by providing agents with
detailed customer information and routing calls to the most appropriate agent.
Citigroup has also deployed our Quintus CustomerQ application integrated with
our Quintus CTI product as part of its e-Citi projects. In addition to
increasing customer satisfaction by enabling e-Citi agents to track customer
relationships and activities, our solution is designed to increase revenue by
alerting agents to likely cross-selling and up-selling opportunities.
TECHNOLOGY
Quintus eContact is based on a scalable, multi-tiered architecture. Our
eContact product suite enables eCRM features through a sequence of cooperating,
distributed software servers that perform a variety of functions, including
creating and manipulating data containers, routing customer contacts, allowing
agents to access data and interact with customers through a Web browser. Our
multi-platform solution runs on all major UNIX and Windows NT operating systems.
Electronic Data Container. When a customer contacts a company, whether by
telephone, fax, email or through a Web site, an electronic data container for
that customer interaction is created. Existing customer information can be
retrieved from the data repository to populate the data container, or new
information can be obtained directly from the customer. The data container
continually collects information throughout the lifecycle of the customer
interaction and can be routed throughout an enterprise, carrying detailed
information about the customer, including the customer's history with the
company and details of this particular customer interaction. If the customer is
transferred to another agent at another site or to an agent using a different
communication channel, the data container accompanies the transition, ensuring
that the customer perceives a seamless service process.
Enterprise Data Access Layer. Quintus eContact includes a powerful
enterprise data access layer that provides access to relational and legacy data
sources. The enterprise data access layer creates a uniform view of third party
data regardless of the data source and allows eContact to incorporate
third-party customer information.
Abstraction and Customization. Quintus eContact uses a sophisticated data
abstraction layer that allows companies to store data entities, business rules
and screen layouts as business objects. Customizations are performed on the
business objects to modify them. All changes to the business objects are
automatically reflected throughout our eContact suite.
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Workflow and Routing Engine. Quintus eContact provides a graphical tool to
create and modify customer interaction flows, define routing rules and build
agent scripts. These customer interaction flows, rules and scripts are
specified, distributed and stored in Extensible Markup Language, allowing
eContact to leverage industry-standard tools and technologies. Customer
interaction flows are defined using re-usable building blocks that can be used
to create new routing rules as companies' needs evolve.
High Availability. We have built our system using a modular,
component-based approach. Additional contact center capabilities and
applications can be introduced without requiring companies to change their
computing infrastructure and, in most cases, without affecting their operations.
Our system also provides multiple redundant configurations, delivering the
ability to "failover" to an alternative configuration in the event of a system
failure.
CUSTOMER SUPPORT SERVICES
We believe that high quality services and support are critical requirements
for continued growth and increased sales of our products. We have made and
expect to continue to make significant investments to increase our ability to
service and support our customers.
Our customer support services organization is organized into four groups
including customer service management, professional services, technical support
and education services.
Customer Service Management. Our customer service management team handles
many aspects of our customer relationships including answering general
questions, renewing maintenance agreements, shipping product upgrades and
coordinating with our other resources to meet customer needs.
Professional Services. Our professional services group helps facilitate the
implementation of our solution. We provide systems integration services to
support our entire product suite. Our services include integration,
customization, data modeling, project management and business rules development.
The professional services group also provides support for our implementation
partners.
Technical Support. Our technical services group is dedicated to providing
the highest level of support to our customers. We currently operate three
technical support centers in the United States and rely upon a network of
service providers internationally to provide consultations via toll-free
telephone, email and the Web. Additionally, customers have 24-hour access to our
online knowledge repository and the ability to directly log and track their
issues through our Web site. We offer a tiered maintenance and support program.
Customers can choose from our existing support packages or have a custom package
developed to meet their particular needs including 24x7 coverage and other
assistance options.
Education Services. Our education services group offers a full spectrum of
classes providing the training needed to understand, implement and use our
solution. We offer lectures and teaching labs to end-users, administrators,
developers and system integration partners at our facilities in California and
Massachusetts. Upon request, we can also provide customized on-site training.
SALES AND MARKETING
Sales. We sell our products through a direct sales force and indirectly
through resellers and distribution partners. To date, we have targeted our sales
efforts at Global 1000 companies and other rapidly growing companies pursuing
eCRM initiatives, including those in the financial services, telecommunications
and consumer products industries. Our sales force consists primarily of sales
people and sales engineers located in our sales offices in numerous locations
across the United States.
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We also maintain international offices in Amsterdam and London from which we
provide sales support to our international distribution partners.
We currently have relationships with 15 domestic and international reseller
and distribution partners including IBM Japan, Lucent Technologies and Logica.
We also enhance our sales efforts through strategic relationships with systems
integrators such as AnswerThink Consulting Group, Cambridge Technology Partners
and Technology Solutions Company. We intend to continue to expand our sales
efforts by increasing the size of our direct sales force and broadening our
indirect distribution channels.
Marketing. Our marketing efforts focus on creating market awareness for
eCRM solutions, promoting our products and services, and generating sales
opportunities. We have a comprehensive marketing strategy that includes print
advertising, public relations campaigns, direct mailings, newsletters, industry
events including trade shows, analyst programs and speaking engagements, and
joint marketing arrangements. We also advertise on the Internet and use our Web
site to further our market presence and generate additional leads.
RESEARCH AND DEVELOPMENT
Our research and development efforts are focused primarily around enhancing
our core technology and developing additional applications for the Quintus
eContact suite. We operate development centers in California, Massachusetts and,
following the acquisition of Acuity, Texas. Our software development approach
consists of a well-defined methodology that provides guidelines for planning,
controlling and implementing projects. This approach uses a cross-functional,
team-based development and release process. Our research and development group
works closely with customers, partners, our sales and marketing group and senior
management to assist in defining product direction and to ensure that products
are brought to market successfully. Members of our research and development
group have extensive experience in customer relationship management software as
well as Internet and telephony communication technologies.
Our research and development expenditures were approximately $3.7 million,
$5.1 million, $6.7 million and $1.9 million in fiscal 1997, 1998 and 1999 and
for the three months ended June 30, 1999. We believe that our future performance
will depend in large part on our ability to enhance our current product line,
develop new products and maintain our technological competitiveness. As a
result, we intend to continue to expend significant resources in research and
development.
COMPETITION
The eCRM market is highly competitive and subject to rapid technological
change. We expect competition to increase significantly in the future as current
competitors expand their product offerings and new companies enter the market.
We currently face competition primarily from customer relationship management
software vendors such as Siebel Systems and Clarify, emerging Internet customer
interaction software vendors such as Kana Communications and WebLine
Communications, and computer telephony software vendors such as Genesys
Telecommunications Labs.
Because there are relatively low barriers to entry in the software market,
we expect additional competition from other established and emerging companies
if the eCRM market continues to develop and expand. Potential future competitors
include traditional call center technology providers and large enterprise
application vendors as well as independent systems integrators, consulting firms
and in-house information technology departments that may develop solutions that
compete with our products.
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We believe that we compete favorably with respect to the principal
competitive factors affecting our market, including price, product quality,
product scalability and reliability, core technology and architecture, customer
service and support, and ability to implement solutions.
PATENTS AND PROPRIETARY RIGHTS
Our success and competitiveness are dependent to a significant degree on
the protection of our proprietary technology. We rely primarily on a combination
of copyrights, trademarks, licenses, trade secret laws and restrictions on
disclosure to protect our intellectual property and proprietary rights. We also
enter into confidentiality agreements with our employees and consultants, and
generally control access to and distribution of our documentation and other
proprietary information. Despite these precautions, others may be able to copy
or reverse engineer aspects of our products, to obtain and use information that
we regard as proprietary or to independently develop similar technology. Any
such actions by competitors could harm our business, operating results and
financial condition.
In addition, the laws of some foreign countries may not protect our
proprietary rights to the same extent as the laws of the United States, and
effective patent, copyright, trademark and trade secret protection may not be
available in these jurisdictions.
We may need to take legal action in the future to enforce or defend our
intellectual property and proprietary rights, to protect our trade secrets or to
determine the validity and scope of the intellectual property and proprietary
rights of others. Litigation, whether successful or unsuccessful, could result
in substantial costs and diversion of management and technical resources, either
of which could harm our business, operating results and financial condition.
We attempt to avoid infringing upon known intellectual property and
proprietary rights of third parties in our product development efforts. However,
we have not conducted and do not plan to conduct comprehensive patent searches
to determine whether the technology used in our products infringes patents held
by others. In addition, product development is inherently uncertain in a rapidly
evolving technological environment in which there may be numerous patent
applications pending, many of which are confidential when filed, with regard to
similar technologies. If our products were to violate the proprietary rights of
others, we may be liable for substantial damages. In addition, we may be
required to reengineer our products or seek to obtain licenses to continue
offering our products. We cannot assure you that such efforts would be
successful.
EMPLOYEES
As of June 30, 1999, we had a total of 181 employees, including 51 people
in research and development, 63 people in sales and marketing, 42 people in
customer support services and 25 people in general and administrative services.
We do not have a collective bargaining agreement with any of our employees and
we consider our employee relations to be good. As of June 30, 1999, Acuity had a
total of 92 employees.
FACILITIES
Our principal administrative, sales, marketing, support and research and
development facilities are located in approximately 30,000 square feet of space
in Fremont, California and our lease expires on December 2000. We lease several
office suites in the United States and the United Kingdom for sales and service
personnel. In addition, we maintain offices in Acton, Massachusetts and have our
European headquarters in Amsterdam, the Netherlands. Upon the closing of our
acquisition of Acuity, we will assume a lease for 17,000 square feet in Austin,
Texas, expiring in June 2000.
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MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information regarding our directors
and officers as of September 9, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Executive Officers
Alan Anderson................... 36 Chairman and Chief Executive Officer
John Burke...................... 39 President
Susan Salvesen.................. 44 Chief Financial Officer and Secretary
Muralidhar Sitaram.............. 36 Senior Vice President, Engineering
Other Officers
Lawrence Byrd................... 42 Vice President, Marketing
Roger Nunn...................... 44 Vice President, Americas Operations
Mark Payne...................... 44 Vice President, International Operations
Candace Sestric................. 53 Vice President, Worldwide Customer Support Services
Directors
Paul Bartlett(a)................ 39 Director
Fredric Harman(b)............... 39 Director
William Herman(a)............... 39 Director
Alexander Rosen(b).............. 31 Director
Robert Shaw..................... 52 Director
Jeanne Wohlers(b)............... 54 Director
</TABLE>
- -------------------------
(a) Member of compensation committee
(b) Member of audit committee
EXECUTIVE OFFICERS
Alan Anderson has served as our Chief Executive Officer since May 1995 and
our Chairman since September 1999. From May 1995 to July 1999, Mr. Anderson also
served as our President. From October 1992 to May 1995, Mr. Anderson served as
Senior Vice President responsible for the North American operations of
OpenVision Technologies, a systems management software developer. From December
1991 to October of 1992, Mr. Anderson served as a director for consulting
services at Oracle Corporation, a database software company. From April 1989 to
December 1991, Mr. Anderson served as a director of professional services for
Sybase, a database software company. Mr. Anderson received his B.S. in
information systems from the University of San Francisco.
John Burke has served as our President since July 1999. From October 1996
to July 1999, Mr. Burke served as Senior Vice President for field sales and
support for SAP America, a provider of enterprise resource planning software.
From April 1996 to October 1996, Mr. Burke served as Senior Vice President of
sales and marketing for Oneware, a software development and distribution
company. From September 1990 to April 1996, Mr. Burke served as Executive Vice
President of SAP America. Mr. Burke received his B.B.A. in finance and marketing
from Ohio University.
Susan Salvesen has served as our Chief Financial Officer and Secretary
since January 1998. From April 1996 to September 1997, Ms. Salvesen served as
Vice President, Finance and Administration and Chief Financial Officer and
Secretary at Unify Corporation, a provider of e-
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commerce software solutions. From May 1994 to April 1996, Ms. Salvesen served as
Vice President of Finance and Chief Financial Officer at AG Associates, a
semiconductor equipment manufacturer. From February 1988 to May 1994, Ms.
Salvesen served as Corporate Controller at Aspect Telecommunications, a
telecommunications equipment company. Ms. Salvesen received her B.A. in
economics from Rutgers University and her M.B.A. from the University of
Pittsburgh.
Muralidhar Sitaram has served as our Senior Vice President, Engineering
since June 1996. From January 1994 to June 1996, Mr. Sitaram served as a
Director of Engineering at Quintus. Mr. Sitaram received his B.S. in physics and
computer science from Bombay University, India and his M.S. in computer science
from the Case Western Reserve University.
OTHER OFFICERS
Lawrence Byrd was a co-founder of Quintus in 1984 and has most recently
served as our Vice President, Marketing since May 1998. From October 1997 to May
1998, Mr. Byrd served as our Vice President, Product Marketing, from June 1996
to October 1997, as our Chief Technology Officer, from June 1995 to June 1996,
as our Vice President, Engineering and from December 1993 to June 1995, as a
vice president in our consulting group. Prior to this, Mr. Byrd held a range of
engineering, consulting and marketing positions for us. Mr. Byrd received his
B.A. in philosophy from the University of Durham, England.
Roger Nunn has served as Vice President, Americas Operations since
September 1999. From January 1999 to September 1999, Mr. Nunn served as our
Senior Vice President of Sales. From October 1997 to December 1998, Mr. Nunn
served as our Vice President of Channel Sales. From May 1994 to September 1997,
Mr. Nunn served as a Director of Marketing for Auspex Systems, a provider of
network file servers. From December 1988 to April 1994, Mr. Nunn was an area
channels manager for Sun Microsystems, a provider of computer workstations. Mr.
Nunn received his B.Sc. in engineering and his M.Sc. in management science from
Imperial College of London, England.
Mark Payne has served as our Vice President, International Operations since
July 1998. From June 1996 to June 1998, Mr. Payne served as Senior Vice
President of International Operations for Versatility, a software development
company. From July 1992 to June 1996, he served as General Manager of Northern
Europe for Gupta (now Centura), an applications development software company.
Candace Sestric has served as our Vice President, Worldwide Customer
Support since April 1997. From April 1996 to April 1997, Ms. Sestric served as
Vice President, Professional Services for Knowledge Networks, a customer
relationship management systems integrator. From November 1995 to February 1996,
Ms. Sestric served as Vice President, Customer Services for Siebel Systems, a
sales force automation software company. From June 1993 to November 1995, Ms.
Sestric served as Vice President, Worldwide Customer Support Services for Gupta
(now Centura). Ms. Sestric received her B.A. in business administration from the
College of Santa Fe.
DIRECTORS
Paul Bartlett has served as a director of Quintus since May 1995. Mr.
Bartlett joined Hall Kinion & Associates, a recruiting and staffing firm, in
September 1996 as President and has served as a director of Hall Kinion since
January of that same year. From August 1990 to September 1996, he was with the
Sprout Group, a venture capital firm, most recently as a partner. Mr. Bartlett
received his A.B. in economics from Princeton University and his M.B.A. from the
Stanford University Graduate School of Business.
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Fredric Harman has served as a director of Quintus since September 1996.
Since July 1994, Mr. Harman has served as a managing member of the general
partners of venture capital funds affiliated with Oak Investment Partners. From
April 1991 to June 1994, he served as a general partner of Morgan Stanley
Venture Capital. Mr. Harman sits on the boards of ILOG, S.A., Inktomi
Corporation, Primus Knowledge Solutions, Inc. and InterNAP Network Services. Mr.
Harman received his B.S. and M.S. in electrical engineering from Stanford
University and his M.B.A. from the Harvard Graduate School of Business.
William Herman has served as a director of Quintus since May 1995. Since
October 1998, Mr. Herman has served as President, Chief Executive Officer and a
director of Viewlogic Systems, a provider of electronic design automation
software. From December 1997 to October 1998, Mr. Herman served as President,
Viewlogic Systems Division, of Synopsys, a provider of electronic design
automation software. In October 1998, Synopsys acquired Viewlogic Systems, whose
business included the products and technologies offered by the current
Viewlogic. Mr. Herman served as President and Chief Executive Officer of the
predecessor Viewlogic from January 1997 to December 1997, and as President and
Chief Operating Officer from March 1995 to January 1997. From May 1994 to March
1995, Mr. Herman was President and Chief Operating Officer of Silerity, a
computer-aided engineering software company. Mr. Herman also sits on the board
of Hall Kinion & Associates. Mr. Herman received his B.S. in computer science
from Temple University.
Alexander Rosen has served as a director of Quintus since August 1997. Mr.
Rosen has been with the Sprout Group since 1996, most recently as a general
partner. From July 1993 to August 1994, he served as an associate for General
Atlantic Partners, a venture capital firm, focusing on software investments. Mr.
Rosen received his B.S. in electrical engineering and economics from the
Massachusetts Institute of Technology and his M.B.A. from the Stanford
University Graduate School of Business.
Robert Shaw has served as a director of Quintus since October 1995. Since
November 1998, Mr. Shaw has served as Chief Executive Officer and a director of
USWeb/CKS, an Internet professional services company. From June 1992 to August
1998, Mr. Shaw served in various capacities at Oracle, most recently as
Executive Vice President, Worldwide Consulting Services and Vertical Markets.
Mr. Shaw received his B.B.A. in finance from the University of Texas.
Jeanne Wohlers has served as a director of Quintus since October 1995. From
May 1994 to July 1998, Ms. Wohlers served as partner of Windy Hill Productions,
a producer of education and entertainment software. From August 1993 to June
1995, Ms. Wohlers was a consultant to Scopus Technology, a provider of customer
information management systems. Ms. Wohlers currently serves as an independent
director/trustee and Audit Committee Chair of 39 mutual funds managed by
American Century, and as a director of Indus International. Ms. Wohlers received
her B.A. in mathematics from Skidmore College and her M.B.A. from Columbia
University.
BOARD COMMITTEES
The board of directors has a compensation committee and an audit committee.
Compensation Committee. The compensation committee of the board of
directors reviews and makes recommendations to the board regarding all forms of
compensation provided to our executive officers and directors, including stock
compensation and loans. In addition, the compensation committee reviews and
approves stock compensation arrangements for all of our employees and
administers our 1999 Stock Incentive Plan, Employee Stock Purchase Plan and 1999
Director Option Plan. The current members of the compensation committee are
Messrs. Bartlett and Herman.
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Audit Committee. The audit committee of the board of directors reviews and
monitors our corporate financial reporting and our internal and external audits,
including, among other things, our internal audit and control functions, the
results and scope of the annual audit and other services provided by our
independent auditors and our compliance with legal matters that have a
significant impact on our financial reports. The audit committee also consults
with our management and our independent auditors prior to the presentation of
financial statements to stockholders and, as appropriate, initiates inquiries
into aspects of our financial affairs. In addition, the audit committee has the
responsibility to consider and recommend the appointment of, and to review fee
arrangements with, our independent auditors. The current members of the audit
committee are Ms. Wohlers and Messrs. Harman and Rosen.
DIRECTOR COMPENSATION
Directors do not receive any cash fees for their service on the board or
any board committee, but they are entitled to reimbursement for all reasonable
out-of-pocket expenses incurred in connection with their attendance at board and
board committee meetings. From time to time, certain directors who are not
employees of Quintus have received grants of options to purchase shares of our
common stock. Following this offering, directors will receive automatic option
grants under our 1999 Director Option Plan. If a change in control of Quintus
occurs, a non-employee director's option granted under our 1999 Director Option
Plan will become fully vested. See "Stock Plans -- 1999 Director Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors currently consists of
Messrs. Bartlett and Herman. No interlocking relationship exists between any
member of our board of directors or our compensation committee and any member of
the board of directors or compensation committee of any other company, and no
such interlocking relationship has existed in the past.
INDEMNIFICATION
In September 1999, the board of directors authorized Quintus to enter into
indemnification agreements with each of our directors and executive officers.
The form of indemnification agreement provides that we will indemnify our
directors and executive officers against any and all of their expenses incurred
by reason of their status as a director or executive officer to the fullest
extent permitted by Delaware law and our bylaws.
Our certificate of incorporation and bylaws each contain certain provisions
relating to the limitation of liability and indemnification of our directors and
officers. Our certificate of incorporation provides that our directors will not
be personally liable to Quintus or our stockholders for monetary damages for any
breach of fiduciary duty as a director, except for liability
- for any breach of the director's duty of loyalty to Quintus or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- in respect of certain unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law; or
- for any transaction from which the director derives any improper personal
benefit.
Our certificate of incorporation also provides that if the Delaware General
Corporation Law is amended after the approval by our stockholders of our
certificate of incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of
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our directors will be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law. The foregoing provisions of our
certificate of incorporation are not intended to limit the liability of our
directors or officers for any violation of applicable federal securities laws.
In addition, as permitted by Section 145 of the Delaware General
Corporation Law, our bylaws provide that
- we are required to indemnify our directors and executive officers to the
fullest extent permitted by the Delaware General Corporation Law;
- we may, in our discretion, indemnify other of our officers, employees and
agents as provided by the Delaware General Corporation Law;
- we are required to advance all expenses incurred by our directors and
executive officers in connection with a legal proceeding (subject to
certain exceptions);
- the rights conferred in the bylaws are not exclusive;
- we are authorized to enter into indemnification agreements with our
directors, officers, employees and agents; and
- we may not retroactively amend our bylaw provisions relating to
indemnification.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation for
the fiscal year ended March 31, 1999 paid by us for services by our Chief
Executive Officer and our other executive officers whose total salary and bonus
for such fiscal year exceeded $100,000, collectively referred to as the Named
Executive Officers. Amounts in the "All Other Compensation" column represent
premiums paid by us for term life insurance.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
<S> <C> <C> <C> <C>
Alan Anderson, Chief Executive
Officer............................. $190,000 $ 11,875 -- $408
Susan Salvesen, Chief Financial
Officer............................. 150,000 10,000 25,000 408
Muralidhar Sitaram, Senior Vice
President, Engineering.............. 155,833 -- 85,000 255
Peter Kenyon, former Vice President,
Field Operations(a)................. 89,702 304,773 -- 306
</TABLE>
- -------------------------
(a) Mr. Kenyon resigned as our Vice President, Field Operations in October 1998.
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<PAGE> 56
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the
fiscal year ended March 31, 1999 to each of the Named Executive Officers. No
stock appreciation rights were granted to these individuals during this period.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(D)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(A) FISCAL YEAR(B) ($/SH)(C) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Alan Anderson.......... -- --% $ -- -- $ -- $ --
Susan Salvesen......... 10,000 0.8 1.75 3/09/09 11,006 27,890
15,000 1.3 1.50 7/20/08 14,150 35,859
Muralidhar Sitaram..... 85,000 7.1 1.75 3/09/09 93,548 237,069
Peter Kenyon........... -- -- -- -- -- --
</TABLE>
- -------------------------
(a) Each of the options listed in the table is immediately exercisable except to
the extent exercisability was deferred to preserve incentive stock option
tax benefits. The shares purchasable upon exercise of these options are
subject to repurchase by us at the original exercise price paid per share
upon the optionee's cessation of service prior to vesting in such shares.
Other than Ms. Salvesen's option for 10,000 shares, the repurchase right
lapses and the optionee vests as to 25% of the option shares upon completion
of one year of service from the date of grant and the balance in a series of
equal monthly installments over the next 36 months of service thereafter.
Ms. Salvesen's option for 10,000 shares vests in equal monthly installments
over a two-year period. The option shares will vest upon an acquisition of
Quintus by merger or asset sale, unless our repurchase right with respect to
the unvested option shares is transferred to the acquiring entity. Each of
the options has a ten-year term, subject to earlier termination in the event
of the optionee's cessation of service with us.
(b) Based on an aggregate of 1,205,612 options granted to our employees under
the 1995 Stock Option Plan during the 12 months ended March 31, 1999.
(c) The exercise price was equal to the fair market value of our common stock as
valued by our board of directors on the date of grant. The exercise price
may be paid in cash, in shares of our common stock valued at fair market
value on the exercise date or through a cashless exercise procedure
involving a same-day sale of the purchased shares. We may also finance the
option exercise by loaning the optionee sufficient funds to pay the exercise
price for the purchased shares, together with any federal and state income
tax liability incurred by the optionee in connection with such exercise.
(d) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years). Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent our prediction of our stock price
performance. The potential realizable values at 5% and 10% appreciation are
calculated by assuming that the exercise price on the date of grant
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of
its term at the appreciated price.
54
<PAGE> 57
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers,
the number of options exercised during the fiscal year ended March 31, 1999 and
the number and value of securities underlying unexercised options that were held
by the Named Executive Officers as of March 31, 1999. No stock appreciation
rights were exercised by the Named Executive Officers in fiscal year 1999, and
no stock appreciation rights were outstanding at the end of that year.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT MARCH 31, OPTIONS AT
SHARES 1999(B) MARCH 31, 1999(C)
ACQUIRED ON VALUE ---------------------- ------------------
NAME EXERCISE REALIZED(A) VESTED UNVESTED VESTED UNVESTED
<S> <C> <C> <C> <C> <C> <C>
Alan Anderson............. -- $ -- -- -- $ -- $ --
Susan Salvesen............ 28,000 7,000 33,499 156,501 15,239 71,011
Muralidhar Sitaram........ -- -- 5,312 94,688 2,656 4,844
Peter Kenyon.............. -- -- -- -- -- --
</TABLE>
- -------------------------
(a) Equal to the fair market value of the purchased shares on the option
exercise date, less the exercise price paid for such shares.
(b) The options are immediately exercisable for all the option shares, but any
shares purchased under those options will be subject to repurchase by us, at
the original exercise price paid per share, upon the optionee's cessation of
service with us, prior to the vesting in such shares. The heading "Vested"
refers to shares no longer subject to repurchase; the heading "Unvested"
refers to shares subject to repurchase as of March 31, 1999.
(c) Based on the fair market value of our common stock at the end of fiscal 1999
($1.75 per share), less the exercise price payable for such shares.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
The Compensation Committee of the Board of Directors, as Plan Administrator
of the 1999 Stock Incentive Plan, has the authority to provide for accelerated
vesting of the shares of common stock subject to outstanding options held by the
Named Executive Officers and any other person in connection with certain changes
in control of Quintus. In connection with our adoption of the 1999 Stock
Incentive Plan, we have provided that upon a change in control of Quintus, each
outstanding option and all shares of restricted stock will generally become
fully vested unless the surviving corporation assumes the option or award or
replaces it with a comparable award.
Except for Mr. Anderson and Mr. Burke, none of the Named Executive Officers
has employment agreements with us, and his or her employment may be terminated
at any time. We have entered into an agreement with Mr. Anderson, our Chief
Executive Officer, dated May 23, 1995, which provides for payment of severance
pay in the amount of nine months base salary in the event that his employment is
involuntarily terminated without cause. In May 1995, we granted Mr. Anderson
unvested options to purchase 1,142,858 shares of common stock. Subsequently, Mr.
Anderson exercised his option to purchase all of these options subject to our
right to repurchase his unvested shares should he cease his service with us. As
of September 1999, Mr. Anderson had fully vested in 571,429 of these shares.
Provided that Mr. Anderson remains in our service, the remaining 571,429 shares
of unvested common stock will vest as follows: 142,857 will vest in equal annual
installments beginning in May 2000. However, these 571,429 shares of unvested
common stock could vest in full if following this offering the per share value
of our common stock reaches certain targets as measured on May 25, 2000, 2001 or
2002. Mr. Anderson's agreement also provides
55
<PAGE> 58
that these 571,429 shares of unvested common stock will vest in full following
certain changes in control of Quintus.
We have entered into an agreement with Mr. Burke, our President, dated June
11, 1999, which provides for payment of severance in the amount of 3 months base
salary in the event that his employment is involuntarily terminated without
cause before July 5, 2000. In addition, Mr. Burke has been granted unvested
options to purchase 685,000 shares of common stock. Of these 685,000 options,
411,000 will vest as follows: 205,000 will vest upon completion of one year of
service from the date of grant and the balance will vest in equal monthly
installments over the next 36 months of service thereafter. 274,000 of these
685,000 options will vest within three to five years, depending on Quintus'
achievement of certain license and revenue targets. Mr. Burke's agreement also
provides for accelerated vesting of up to half of his 685,000 options if his
employment is involuntarily terminated without cause within six months following
certain changes in control of Quintus and he is then vested in less than half of
such options.
STOCK PLANS
1999 STOCK INCENTIVE PLAN
Share Reserve. Our board of directors adopted our 1999 Stock Incentive Plan
in September 1999 to be effective simultaneously with this offering. We will
seek the approval of this plan by our stockholders. We have reserved 1,000,000
shares of our common stock for issuance under the 1999 Stock Incentive Plan. Any
shares not yet issued under our 1995 Stock Option Plan on the date of this
offering will also be available under the 1999 Stock Incentive Plan. On January
1 of each year, starting with the year 2000, the number of shares in the reserve
will automatically increase by 5% of the total number of shares of common stock
that are outstanding at that time or, if less, by 2,000,000 shares. In general,
if options or shares awarded under the 1999 Stock Incentive Plan or the 1995
Stock Option Plan are forfeited, then those options or shares will again become
available for awards under the 1999 Stock Incentive Plan. We have not yet
granted any options under the 1999 Stock Incentive Plan.
Outstanding options under the 1995 Stock Option Plan will be incorporated
into the 1999 Stock Incentive Plan at the time of this offering and no further
option grants will be made under the 1995 Stock Option Plan. The incorporated
options will continue to be governed by their existing terms, unless the Board
elects to extend one or more features of the 1999 Stock Incentive Plan to those
options or to other outstanding shares. Previously, options granted under the
1995 Stock Option Plan provided that vesting of the shares would accelerate upon
an acquisition only if not assumed by the acquiring entity.
Administration. The compensation committee of our board of directors
administers the 1999 Stock Incentive Plan. The committee has the complete
discretion to make all decisions relating to the interpretation and operation of
our 1999 Stock Incentive Plan. The committee has the discretion to determine who
will receive an award, what type of award it will be, how many shares will be
covered by the award, what the vesting requirements will be (if any), and what
the other features and conditions of each award will be. The compensation
committee may also reprice outstanding options and modify outstanding awards in
other ways.
Eligibility. The following groups of individuals are eligible to
participate in the 1999 Stock Incentive Plan:
- employees;
- members of our board of directors who are not employees; and
56
<PAGE> 59
- consultants.
Types of Award. The 1999 Stock Incentive Plan provides for the following
types of award:
- incentive stock options to purchase shares of our common stock;
- nonstatutory stock options to purchase shares of our common stock;
- restricted shares of our common stock; and
- stock appreciation rights and stock units.
Options. An optionee who exercises an incentive stock option may qualify
for favorable tax treatment under Section 422 of the Internal Revenue Code of
1986. On the other hand, nonstatutory stock options do not qualify for such
favorable tax treatment. The exercise price for incentive stock options granted
under the 1999 Stock Incentive Plan may not be less than 100% of the fair market
value of our common stock on the option grant date. In the case of nonstatutory
stock options, the minimum exercise price is 85% of the fair market value of our
common stock on the option grant date. Optionees may pay the exercise price by
using:
- cash;
- shares of common stock that the optionee already owns;
- a full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;
- an immediate sale of the option shares through a broker designated by us;
or
- a loan from a broker designated by us, secured by the option shares.
Options vest at the time or times determined by the compensation committee.
In most cases, our options vest over a four-year period following the date of
grant. Options generally expire ten years after they are granted, except that
they generally expire earlier if the optionee's service terminates earlier. The
1999 Stock Incentive Plan provides that no participant may receive options
covering more than 1,000,000 shares in the same year, except that a newly hired
employee may receive options covering up to 2,000,000 shares in the first year
of employment.
57
<PAGE> 60
Stock Appreciation Rights. A participant who exercises a stock appreciation
right shall receive the increase in value of our common stock over the base
price. The base price for stock appreciation rights granted under the 1999 Stock
Incentive Plan shall be determined by the compensation committee. The settlement
value of the stock appreciation right may be paid in cash or shares of common
stock.
Stock appreciation rights vest at the time or times determined by the
compensation committee. In most cases, our stock appreciation rights vest over a
four-year period following the date of grant. Stock appreciation rights
generally expire 10 years after they are granted, except that they generally
expire earlier if the participant's service terminates earlier. The 1999 Stock
Incentive Plan provides that no participant may receive stock appreciation
rights covering more than 1,000,000 shares in the same year, except that a newly
hired employee may receive stock appreciation rights covering up to 2,000,000
shares in the first year of employment.
Restricted Shares. Restricted shares may be awarded under the 1999 Stock
Incentive Plan in return for:
- cash;
- a full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;
- services already provided to us; and
- in the case of treasury shares only, services to be provided to us in the
future.
Restricted shares vest at the time or times determined by the compensation
committee.
Stock units. Stock units may be awarded under the 1999 Stock Incentive Plan
in return for:
- cash;
- a full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;
- services already provided to us; and
- in the case of treasury shares only, services to be provided to us in the
future.
Stock units vest at the time or times determined by the compensation
committee.
Change in Control. If a change in control of Quintus occurs, an option or
restricted stock award under the 1999 Stock Incentive Plan will generally become
fully vested. However, if the surviving corporation assumes the option or award
or replaces it with a comparable award, then vesting shall generally not
accelerate. A change in control includes:
- a merger of Quintus after which our own stockholders own 50% or less of
the surviving corporation (or its parent company);
- a sale of all or substantially all of our assets;
- the replacement of more than one-half of our directors over a 24-month
period; or
- an acquisition of 50% or more of our outstanding stock by any person or
group, other than a person related to Quintus (such as a holding company
owned by our stockholders).
58
<PAGE> 61
Amendments or Termination. Our board may amend or terminate the 1999 Stock
Incentive Plan at any time. If our board amends the plan, it does not need to
ask for stockholder approval of the amendment unless applicable law requires it.
The 1999 Stock Incentive Plan will continue in effect indefinitely, unless the
board decides to terminate the plan earlier.
EMPLOYEE STOCK PURCHASE PLAN
Share Reserve and Administration. Our board of directors adopted our
Employee Stock Purchase Plan on September 9, 1999. We will seek the approval of
this plan by our stockholders. Our Employee Stock Purchase Plan is intended to
qualify under Section 423 of the Internal Revenue Code and will become effective
simultaneously with this offering. We have reserved 1,000,000 shares of our
common stock for issuance under the plan. On May 1 of each year, starting with
the year 2000, the number of shares in the reserve will automatically be
increased by 2% of the total number of shares of our common stock that are
outstanding at that time or, if less, by 1,000,000 shares. The plan will be
administered by a committee of our board of directors.
Eligibility. All of our employees are eligible to participate if they are
employed by us for more than 20 hours per week and for more than five months per
year. Eligible employees may begin participating in the Employee Stock Purchase
Plan at the start of any offering period. Each offering period lasts 24 months.
Overlapping offering periods start on May 1 and November 1 of each year.
However, the first offering period will start on the effective date of this
offering and end on October 31, 2001.
Amount of Contributions. Our Employee Stock Purchase Plan permits each
eligible employee to purchase common stock through payroll deductions. Each
employee's payroll deductions may not exceed 15% of the employee's cash
compensation. Purchases of our common stock will occur on April 30 and October
31 of each year. Each participant may purchase up to 2,000 shares on any
purchase date. However, the value of the shares purchased in any calendar year
(measured as of the beginning of the applicable offering period) may not exceed
$25,000.
Purchase Price. The price of each share of common stock purchased under our
Employee Stock Purchase Plan will be 85% of the lower of:
- The fair market value per share of common stock on the date immediately
before the first day of the applicable offering period, or
- The fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the
plan will be 85% of the lower of:
- The price per share to the public in this offering, or
- The fair market value per share of common stock on the purchase date.
Other Provisions. Employees may end their participation in the Employee
Stock Purchase Plan at any time. Participation ends automatically upon
termination of employment with Quintus. If a change in control of Quintus
occurs, our Employee Stock Purchase Plan will end and shares will be purchased
with the payroll deductions accumulated to date by participating employees,
unless the plan is assumed by the surviving corporation or its parent. Our board
of directors may amend or terminate the Employee Stock Purchase Plan at any
time. Our chief executive officer may also amend the plan in certain respects.
If our board increases the number of shares of common stock reserved for
issuance under the plan (except for the automatic increases described above), it
must seek the approval of our stockholders.
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<PAGE> 62
1999 DIRECTOR OPTION PLAN
Share Reserve. Our board of directors adopted our 1999 Director Option Plan
on September 9, 1999. We will seek the approval of this plan by our
stockholders. We have reserved 500,000 shares of our common stock for issuance
under the plan. In general, if options granted under the 1999 Director Option
Plan are forfeited, then those options will again become available for grants
under the plan. The Director Option Plan will be administered by the
compensation committee of our board of directors, although all grants under the
plan are automatic and non-discretionary.
Initial Grants. Only the non-employee members of our board of directors
will be eligible for option grants under the 1999 Director Option Plan. Each
non-employee director who first joins our board after the effective date of this
offering will receive an initial option for 30,000 shares. That grant will occur
when the director takes office. The initial options vest in monthly installments
over the two-year period following the date of grant.
Annual Grants. At the time of each of our annual stockholders' meetings,
beginning in 2000, each non-employee director who will continue to be a director
after that meeting will automatically be granted an annual option for 10,000
shares of our common stock. However, a new non-employee director who is
receiving the 30,000-share initial option will not receive the annual option in
the same calendar year. The annual options are fully vested on the first
anniversary of the date of grant.
Other Option Terms. The exercise price of each non-employee director's
option will be equal to the fair market value of our common stock on the option
grant date. A director may pay the exercise price by using cash, shares of
common stock that the director already owns, or an immediate sale of the option
shares through a broker designated by us. The non-employee directors' options
have a 10-year term, except that they expire one year after a director leaves
the board (if earlier). If a change in control of Quintus occurs, a non-employee
director's option granted under the 1999 Director Option Plan will become fully
vested. Vesting also accelerates in the event of the optionee's death or
disability.
Amendments or Termination. Our board may amend or terminate the 1999
Director Option Plan at any time. If our board amends the plan, it does not need
to ask for stockholder approval of the amendment unless applicable law requires
it. The 1999 Director Option Plan will continue in effect indefinitely, unless
the board decides to terminate the plan.
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<PAGE> 63
CERTAIN TRANSACTIONS
RELATIONSHIPS AMONG OFFICERS OR DIRECTORS WITH CERTAIN INVESTORS
Two of our directors are associated with entities that each own more than
five percent of our capital stock. Mr. Rosen is a general partner in Sprout
Group, and Mr. Harman is a general partner in Oak Investment Partners. No other
officer or director of Quintus has any material relationship with any other
principal stockholder. The Sprout Group is affiliated with Donaldson, Lufkin &
Jenrette Securities Corporation, one of the underwriters of this offering. See
"Underwriting."
STOCK TRANSACTIONS
The following table summarizes the sales of preferred stock to our
executive officers, directors and principal stockholders, and persons and
entities associated with them, since our inception. Each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock automatically converts into one share of common stock and the
right to receive a cash payment equal to approximately 92.5% of the original per
share purchase price upon the closing of this offering. Each share of Series E
Preferred Stock and Series F Preferred Stock automatically converts into one
share of common stock upon the closing of this offering. See "Principal
Stockholders" for a summary of the affiliations of each of the persons and
entities described below.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK STOCK STOCK STOCK
<S> <C> <C> <C> <C> <C> <C>
Date of sale.......................... 5/25/95 3/7/96 9/17/96 11/10/97 5/21/98 8/26/99
Price per share....................... $1.00 $1.43 $1.91 $2.75 $4.15 $8.25
Entities associated with our directors
Entities Associated with DLJ Capital
Corporation (Mr. Rosen)........... 9,000,000 699,300 501,182 -- 1,304,100 --
Entities Associated with Oak
Investment Partners (Mr.
Harman)........................... -- -- 2,094,240 -- 669,085 --
Other 5% stockholders
HarbourVest Partners IV............. -- -- -- 970,002 455,760 --
Meritech Capital Partners........... -- -- -- -- -- 1,333,334
Outside directors
William Herman...................... 100,000 -- -- -- 60,241 30,000
Paul Bartlett....................... -- -- 52,356 -- 24,097 --
Jeanne Wohlers...................... -- 34,420 -- -- 12,049 --
Robert Shaw......................... -- -- -- -- 18,072 --
</TABLE>
EMPLOYMENT AGREEMENTS AND OTHER COMPENSATION ARRANGEMENTS
We have entered into employment agreements or compensation arrangements
with Alan Anderson, our Chief Executive Officer, and John Burke, our President.
See "Management--Employment and Change of Control Agreements."
OPTION GRANTS
We have granted options to our directors and executive officers, and we
intend to grant additional options to our directors and executive officers in
the future. See "Management--Option Grants in Last Fiscal Year" and
"Management--Director Compensation."
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<PAGE> 64
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with our directors and
executive officers. Such agreements may require us, among other things, to
indemnify our officers and directors, other than for liabilities arising from
willful misconduct of a culpable nature, and to advance their expenses incurred
as a result of any proceeding against them as to which they could be
indemnified. See "Management--Indemnification."
RIGHTS OF CERTAIN STOCKHOLDERS
Certain holders of our common stock are entitled to demand and "piggyback"
registration rights pursuant to an Amended and Restated Investors' Rights
Agreement, dated as of August 26, 1999. The following directors are parties to
this agreement: Jeanne Wohlers; William Herman; Paul Bartlett; and Robert Shaw.
In addition, the following principal stockholders are party to this agreement:
entities associated with the Sprout Group, in which Alexander Rosen is a general
partner; entities associated with Oak Investment Partners, in which director
Fredric W. Harman is a general partner; and HarbourVest Partners IV.
AGREEMENTS WITH COMPANIES WITH WHICH OUR DIRECTORS ARE ASSOCIATED
We have an ongoing contract with Hall, Kinion Associates, Inc., a
recruiting and staffing firm. Paul Bartlett, one of our directors, is president
of Hall, Kinion. In fiscal 1999, we paid an aggregate of $20,387 to Hall, Kinion
under this agreement.
LOANS TO CERTAIN EXECUTIVE OFFICERS
On May 14, 1996, we loaned Alan Anderson, our Chief Executive Officer, a
total of $37,500 for the exercise of stock options. Mr. Anderson purchased
750,000 shares of our common stock with the loan. In connection with the loan,
we entered into a stock pledge agreement with Mr. Anderson on May 14, 1996 and
became the holder of a full-recourse promissory note from Mr. Anderson dated May
14, 1996 in the amount of $37,500 and bearing an interest rate of 6.36%,
compounded annually. Principal and interest are due on May 14, 2001, subject to
acceleration upon the cessation of Mr. Anderson's employment and certain other
events. As of August 31, 1999, the amount outstanding on this note was $43,016.
On May 14, 1996, we loaned Alan Anderson, our Chief Executive Officer, a
total of $19,643 for the exercise of stock options. Mr. Anderson purchased
392,858 shares of our common stock with the loan. In connection with the loan,
we entered into a stock pledge agreement with Mr. Anderson on May 14, 1996 and
became the holder of a full-recourse promissory note from Mr. Anderson dated May
14, 1996 in the amount of $19,643 and bearing an interest rate of 6.36%,
compounded annually. Principal and interest are due on May 14, 2001, subject to
acceleration upon the cessation of Mr. Anderson's employment and certain other
events. As of August 31, 1999, the amount outstanding on this note was $22,533.
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<PAGE> 65
On April 20, 1999, we loaned Susan Salvesen, our Chief Financial Officer, a
total of $164,868 for the exercise of a stock option. She purchased 132,000
shares of our common stock with the loan. In connection with the loan, we
entered into a stock pledge agreement with Ms. Salvesen on April 20, 1999, and
became the holder of a full-recourse promissory note from Ms. Salvesen dated
April 20, 1999, in the amount of $164,868 and bearing an interest rate of 5.28%,
compounded annually. Principal and interest are due on April 20, 2003, subject
to acceleration upon the cessation of Ms. Salvesen's employment and certain
other events. As of August 31, 1999, the amount outstanding on this note was
$167,688.
We believe that the transactions above were made on terms no less favorable
to us than could have been obtained from unaffiliated parties. All future
transactions, including loans between us and our officers, directors, principal
stockholders and their affiliates, will be approved by a majority of the board
of directors, including a majority of the independent and disinterested
directors, and will continue to be made on terms no less favorable to us than
could have been obtained from unaffiliated parties.
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<PAGE> 66
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of August 31, 1999 and as adjusted to reflect the closing of our acquisition
of Acuity and the sale of the common stock offered in this offering for:
- each person who is known by us to beneficially own more than 5% of our
common stock;
- each of the Named Executive Officers;
- each of our directors; and
- all of our directors and executive officers as a group (11 persons).
As of August 31, 1999, there were 22,470,000 shares of our common stock
outstanding. We will issue approximately 4,530,000 shares in connection with our
acquisition of Acuity. Thus, the figures in the "Before Offering" column below
are based on 27,000,000 shares outstanding. The information in the table below
assumes no exercise of the underwriters' over-allotment option.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options
currently exercisable within 60 days of August 31, 1999 are deemed outstanding
for purposes of computing the percentage ownership of the person holding such
option but are not deemed outstanding for purposes of computing the percentage
ownership of any other person. Except where indicated, and subject to community
property laws where applicable, the persons in the table below have sole voting
and investment power with respect to all common stock shown as beneficially
owned by them. Unless otherwise indicated, the address of each of the
individuals listed in the table is c/o Quintus Corporation, 47212 Mission Falls
Court, Fremont, CA 94539.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
----------------------
NUMBER OF SHARES OUTSTANDING
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
<S> <C> <C> <C>
Entities Affiliated with DLJ Capital
Corporation(a)................................... 11,842,037 43.3%
c/o Sprout Group
3000 Sand Hill Road, Suite 170, Bldg. 3
Menlo Park, CA 94025
Entities Affiliated with Oak Investment
Partners(b)...................................... 2,903,516 10.7
525 University Avenue, Suite 1300
Palo Alto, CA 94301
HarbourVest Partners IV(c)......................... 1,530,908 5.6
One Financial Center
Boston, MA 02111
Entities Affiliated with MeriTech Capital.......... 1,333,334 4.9
428 University Avenue
Palo Alto, CA 94301
Alan K. Anderson(d)................................ 1,142,858 4.2
John J. Burke(e)................................... 685,000 2.5
Susan Salvesen(f).................................. 218,000 *
Muralidhar Sitaram(g).............................. 300,000 1.1
</TABLE>
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<PAGE> 67
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
----------------------
NUMBER OF SHARES OUTSTANDING
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
<S> <C> <C> <C>
Paul Bartlett(h)................................... 116,453 *
Fredric Harman(i).................................. 2,903,516 10.7
Will Herman(j)..................................... 250,241 *
Alexander Rosen(k)................................. 11,842,037 43.3
Robert Shaw........................................ 84,097 *
Jeanne Wohlers..................................... 122,049 *
All directors and executive officers as a
group(l)......................................... 17,664,251 62.1%
</TABLE>
- -------------------------
* Less than 1%.
(a) Includes 653,655 shares held by DLJ Capital Corporation, of which 9,947 are
held in the form of warrants to purchase Series B preferred stock, and
7,511 are held in the form of warrants to purchase common stock. Also
includes 3,605,644 shares held by Sprout Capital VI, L.P., of which 62,815
are held in the form of warrants to purchase Series B preferred stock and
47,437 are held in the form of warrants to purchase common stock. Also
includes 7,360,350 shares held by Sprout Capital VII, L.P., of which
119,500 are held in the form of warrants to purchase Series B preferred
stock and 90,245 are held in the form of warrants to purchase common stock.
Also includes 17,463 and 204,925 shares held by Sprout CEO Fund, L.P. and
DLJ ESC II, L.P. DLJ Capital Corporation is the managing general partner of
Sprout Capital VI, L.P., the managing general partner of Sprout Capital
VII, L.P, and the General Partner of Sprout CEO Fund, L.P.
(b) Includes 2,837,318 shares held by Oak Investment Partners VI, L.P., of
which 136,997 are held in the form of warrants to purchase common stock.
Also includes 66,198 shares held by Oak VI Affiliates Fund, L.P., of which
3,194 are held in the form of warrants to purchase common stock. Mr. Harman
has indirect ownership of the shares and has shared power to vote and
dispose of the shares held by Oak Investment Partners VI, L.P. and Oak VI
Affiliates Fund, L.P. The parties who share power to vote and dispose of
the shares held by Oak Investment Partners VI, L.P., with Mr. Harman are
Bandel L. Carano, Eileen M. More, Ann H. Lamont, Edward F. Glassmeyer and
Gerald R. Gallagher, all of whom are managing members of Oak Associates VI,
LLC, the general partner of Oak Investment Partners VI, L.P. The parties
who share power to vote and dispose of the shares held by Oak VI Affiliates
Fund, L.P., with Mr. Harman are Bandel L. Carano, Eileen M. More, Ann H.
Lamont, Edward F. Glassmeyer and Gerald R. Gallagher, all of whom are
managing members of Oak VI Affiliates, LLC, the general partner of Oak VI
Affiliates Fund, L.P. Mr. Harman, Bandel L. Carano, Eileen M. More, Ann H.
Lamont, Edward F. Glassmeyer and Gerald R. Gallagher disclaim beneficial
ownership of the securities held by such partnerships in which Mr. Harman,
Bandel L. Carano, Eileen M. More, Ann H. Lamont, Edward F. Glassmeyer and
Gerald R. Gallagher do not have a pecuniary interest.
(c) Includes 105,146 shares held in the form of warrants to purchase common
stock.
(d) Includes 571,429 shares of unvested common stock.
(e) Includes options to purchase 685,000 shares of common stock.
(f) Includes options to purchase 58,000 shares of common stock.
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<PAGE> 68
(g) Includes options to purchase 100,000 shares of common stock.
(h) Includes options to purchase 40,000 shares of common stock.
(i) Includes 2,903,516 shares held by entities affiliated with Oak Investment
Partners. See Note b above. Mr. Harman is a managing member of Oak
Associates VI, LLC, the general partner of Oak Investment Partners VI,
L.P., and a managing member of Oak VI Affiliates, LLC, the general partner
of Oak VI Affiliates Fund, L.P.
(j) Includes options to purchase 60,000 shares of common stock.
(k) Includes 11,842,037 shares held by entities affiliated with DLJ Capital
Corporation. See Note a above. Mr. Rosen is a general partner of the Sprout
Group and a general partner of DLJ Associates VII, L.P., which is a general
partner of Sprout Capital VII, L.P. Mr. Rosen disclaims beneficial
ownership of these shares, except to the extent of his pecuniary interest
arising from his interests in the partnerships named in Note a above.
(l) Includes options and warrants to purchase 1,420,646 shares.
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<PAGE> 69
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the closing of this offering, our authorized capital stock will
consist of 100,000,000 shares of common stock, $0.001 par value, and 10,000,000
shares of preferred stock, $0.001 par value. The following summary of certain
provisions of the common stock and the preferred stock does not purport to be
complete and is subject to, and qualified in its entirety by, our certificate of
incorporation and bylaws and by the provisions of applicable law.
COMMON STOCK
As of August 31, 1999, there were 22,470,000 shares of common stock
outstanding that were held of record by approximately stockholders. There
will be shares of common stock outstanding, assuming no exercise of
the underwriters' over-allotment option and assuming no exercise after August
31, 1999, of outstanding options, after giving effect to the issuance of
approximately 4,530,000 shares in connection with our acquisition of Acuity, the
sale of shares of common stock to the public in this offering and the
conversion of our preferred stock into common stock at a one-to-one ratio.
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available therefor. We
have never declared or paid cash dividends on our common stock or other
securities and do not currently anticipate paying cash dividends in the future.
Our bank line of credit currently prohibits the payment of dividends. In the
event of the liquidation, dissolution or winding up of Quintus, the holders of
common stock are entitled to share ratably in all assets remaining after payment
of liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable, and the shares of common stock to be issued upon the
effectiveness of this offering will be fully paid and nonassessable.
PREFERRED STOCK
Our certificate of incorporation authorizes 10,000,000 shares of preferred
stock. The board of directors has the authority to issue the preferred stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of preferred stock may have the effect of delaying, deferring or preventing a
change in control of Quintus without further action by the stockholders and may
adversely affect the voting and other rights of the holders of common stock. The
issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss of
voting control to others. At present, we have no plans to issue any of the
preferred stock.
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<PAGE> 70
WARRANTS
As of August 31, 1999, the following warrants to purchase an aggregate of
1,022,645 shares of our capital stock were outstanding:
- Warrants to purchase an aggregate of 5,000 shares of common stock at
$0.05 per share, which expire on April 17, 2006;
- Warrants to purchase an aggregate of 385,530 shares of common stock at
$0.30 per share, which expire on November 10, 2001;
- Warrants to purchase an aggregate of 8,466 shares of common stock at
$3.94 per share, which expire on January 7, 2002; and
- Warrants to purchase an aggregate of 76,047 shares of common stock at
$4.54 per share, which expire on November 10, 2001.
We have assumed throughout this prospectus the cash exercise of warrants to
purchase an aggregate of 192,262 shares of Series B preferred stock at $1.43 per
share and a warrant to purchase 55,340 shares of Series C preferred stock at
$1.91 per share.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
The certificate of incorporation provides that, effective upon the closing
of this offering, all stockholder actions must be effected at a duly called
meeting and not by a consent in writing. The bylaws provide that our
stockholders may call a special meeting of stockholders only upon a request of
stockholders owning at least 50% of our capital stock. These provisions of the
certificate of incorporation and bylaws could discourage potential acquisition
proposals and could delay or prevent a change in control of Quintus. These
provisions are intended to enhance the likelihood of continuity and stability in
the composition of the board of directors and in the policies formulated by the
board of directors and to discourage certain types of transactions that may
involve an actual or threatened change of control of Quintus. These provisions
are designed to reduce the vulnerability of Quintus to an unsolicited
acquisition proposal. The provisions also are intended to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for our shares and,
as a consequence, they also may inhibit fluctuations in the market price of our
shares that could result from actual or rumored takeover attempts. Such
provisions also may have the effect of preventing changes in our management. See
"Risk Factors--Anti-takeover provisions in our charter documents and Delaware
law could prevent or delay a change in control of Quintus."
DELAWARE TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
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<PAGE> 71
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines business combination to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
REGISTRATION RIGHTS
After this offering, the holders of 18,495,392 shares of common stock will
be entitled to certain rights with respect to the registration of those shares
under the Securities Act. If we proposed to register any of our securities under
the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, we must notify these
stockholders of the registration, and these stockholders may be entitled to
include all or part of their shares in the registration. Additionally, holders
of 18,495,392 shares of common stock have certain demand registration rights
under which they may require us to use our best efforts to register shares of
their common stock. Further, the holders of these demand rights may require us
to file additional registration statements on Form S-3. All of these
registration rights are subject to certain conditions and limitations, including
the right of underwriters to limit the number of shares included in a
registration and our right to not effect a requested registration within six
months following an offering of our securities, including this offering.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholders Services, L.L.C.
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<PAGE> 72
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, we will have shares of common
stock outstanding, assuming the issuance of shares of common stock
offered hereby and no exercise of options or warrants after August 31, 1999,
other than warrants that would otherwise expire upon the consummation of this
offering. Of these shares, the shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, except that any shares held by our affiliates, as that term is defined
under the Securities Act, may generally only be sold in compliance with the
limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining shares of common stock are deemed restricted shares
under Rule 144. The number of shares of common stock available for sale in the
public market is limited by restrictions under the Securities Act and lock-up
agreements under which the holders of such shares have agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days after the date
of this prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation. On the date of this prospectus, no shares other
than the shares offered hereby will be eligible for sale. Beginning 180
days after the date of this prospectus, or earlier with the consent of
Donaldson, Lufkin & Jenrette Securities Corporation, restricted shares
will become available for sale in the public market subject to certain
limitations of Rule 144 of the Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least one year,
including a person who may be deemed an affiliate, is entitled to sell within
any three-month period a number of shares of common stock that does not exceed
the greater of 1% of the then-outstanding shares of our common stock
(approximately shares after giving effect to this offering) or the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding such sale. Sales under Rule 144 of the
Securities Act are subject to certain restrictions relating to manner of sale,
notice and the availability of current public information about us. A person who
is not our affiliate at any time during the 90 days preceding a sale, and who
has beneficially owned shares for at least two years, would be entitled to sell
such shares immediately following this offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of Rule
144 of the Securities Act. However, the transfer agent may require an opinion of
counsel that a proposed sale of shares comes within the terms of Rule 144 of the
Securities Act prior to effecting a transfer of such shares.
Prior to this offering, there has been no public market for our common
stock and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional common stock will have on the
market price of our common stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could adversely affect the market price of the common stock and could impair our
future ability to raise capital through an offering of our equity securities.
OPTIONS
Rule 701 under the Securities Act provides that shares of common stock
acquired on the exercise of outstanding options may be resold by persons other
than our affiliates, beginning 90 days after the date of this prospectus,
subject only to the manner of sale provisions of Rule 144, and by affiliates,
beginning 90 days after the date of this prospectus, subject to all provisions
of Rule 144 except its one-year minimum holding period. We intend to file one or
more registration statements on form S-8 under the Securities Act to register
all shares of common stock subject to outstanding stock
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<PAGE> 73
options and common stock issued or issuable pursuant to our 1995 Stock Option
Plan and 1999 Stock Incentive Plan. We expect to file the registration statement
covering shares offered pursuant to the Stock Plan approximately 30 days
after the closing of this offering. Such registration statements are expected to
become effective upon filing. Shares covered by these registration statements
will thereupon be eligible for sale in the public markets, subject to the
lock-up agreements, if applicable.
LOCK-UP AGREEMENTS
Our officers, directors and stockholders have agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days after the date
of this offering. Donaldson, Lufkin & Jenrette Securities Corporation, however,
may in its sole discretion, at any time without notice, release all or any
portion of the shares subject to lock-up agreements.
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<PAGE> 74
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated , 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated, SG Cowen Securities Corporation and
DLJdirect Inc., are serving as representatives, have severally agreed to
purchase from Quintus, the respective number of shares of common stock set forth
opposite their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.......
Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated...........................................
SG Cowen Securities Corporation...........................
DLJdirect Inc. ...........................................
--------
Total..................................................
========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered hereby are subject to approval by their counsel of legal matters
concerning the offering and to condition precedents that must be satisfied by
Quintus. The underwriters are obligated to purchase and accept delivery of all
of the shares of common stock offered hereby, other than those shares covered by
the over-allotment option described below, if any are purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to dealers, including the
underwriters, at such price less a concession not in excess of $ per share.
The underwriters may allow, and such dealers may re-allow, to other dealers a
concession not in excess of $ per share. After the initial offering of the
common stock, the public offering price and other selling terms may be changed
by the representatives at any time without notice. The underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
An electronic prospectus will be available on the Web site maintained by
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation. Other than the prospectus in electronic format, the information on
this Web site relating to the offering is not part of this prospectus and has
not been approved or endorsed by Quintus or the underwriters, and should not be
relied on by prospective investors.
Quintus has granted to the underwriters an option, exercisable for 30 days
after the date of this prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of additional shares of common stock at the
initial public offering price less underwriting discounts and commission. The
underwriters may exercise the option solely to cover over-allotments, if any,
made in connection with the offering. To the extent that the underwriters
exercise the option, each underwriter will become obligated, subject to
conditions contained in the underwriting agreement, to purchase its pro rata
portion of such additional shares based on the underwriters' percentage
underwriting commitment as indicated in the above table.
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<PAGE> 75
Quintus has agreed to indemnify the underwriters against liabilities which
may arise in connection with the offering, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make.
Each of Quintus, its executive officers, directors, stockholders and option
holders has agreed not to:
- offer, pledge sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of
directly or indirectly any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock, whether any such transaction described above is to be
settled by delivery of common stock or other securities, in cash or
otherwise
for a period of 180 days after the date of this prospectus. Donaldson, Lufkin &
Jenrette Securities Corporation may release some or all of these shares from
such restrictions prior to the expiration of the 180-day period lock-up period,
although it has no current intention of doing so.
In addition, during such 180-day period, Quintus has also agreed not to
file any registration statement with respect to and each of its executive
officers, directors and stockholders of Quintus have agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price of the shares of common stock
offered was determined by negotiation among Quintus and the underwriters. The
factors considered in determining the initial public offering price included:
- the history of and the prospects for the industry in which Quintus
competes;
- the past and present operations of Quintus;
- the historical results of operations of Quintus;
- the prospectus for future earnings of Quintus;
- the recent market prices of securities of generally comparable companies;
and
- the general condition of the securities markets at the time of the
offering.
Other than in the United States, no action has been taken by Quintus or the
underwriters that would permit a public offering of the shares of common stock
offered in any jurisdiction where action for that purpose is required. The
shares of common stock offered may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and observe any restrictions
relating to the offering and the distribution of this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any shares of common stock offered in any jurisdiction in which such an
offer or a solicitation is unlawful.
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<PAGE> 76
DLJ Capital Corporation, Sprout Capital VI, L.P, Sprout Capital VII, L.P.,
Sprout CEO Fund, L.P. and DLJ ESC II, L.P. (collectively, the "Sprout Entities")
are affiliates of Donaldson, Lufkin & Jenrette Securities Corporation, one of
the underwriters. As described under "Principal Stockholders," the Sprout
Entities beneficially own an aggregate of shares of the outstanding
common stock, which represent more than 10% of the outstanding common stock. Of
these shares, shares are subject to a voting trust agreement and are held
and voted by an independent third party, Norwest Bank Indiana, N.A., as voting
trustee.
Because the Sprout Entities affiliated with Donaldson, Lufkin & Jenrette
Securities Corporation beneficially own more than 10% of the outstanding common
stock, this offering is being conducted in accordance with Rule 2720 of the
Conduct Rules of the National Associate of Securities Dealers, Inc., which
provides that the public offering price of an equity security be no higher than
that recommended by a "qualified independent underwriter" meeting certain
standards. In accordance with this requirement, [ ]
assumed the responsibilities of acting as qualified independent underwriter and
recommended a price in compliance with the requirements of Rule 2720.
In connection with the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot the offering,
creating a syndicate short position. The underwriters may bid for and stabilize
the price of the common stock. In addition, the underwriting syndicate may
reclaim selling concessions from syndicate members and selected dealers if they
repurchase previously distributed common stock in syndicate covering
transactions, in stabilizing transactions or otherwise. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
LEGAL MATTERS
The validity of the common stock offered in this offering will be passed
upon for us by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California. Certain legal matters in connection with this offering
will be passed upon for the underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
The Quintus consolidated financial statements as of and for the year ended
March 31, 1999, included in this prospectus and the related financial statement
schedule for the year ended March 31, 1999 included elsewhere in the
registration statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and elsewhere in the
registration statement, and have been so included in the reliance upon the
reports of such firm given upon their authority as experts in auditing and
accounting.
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedules at March 31, 1998 and 1997, and for the years
then ended, as set forth in their report. We've included our financial
statements and schedule in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
The Acuity financial statements as of December 31, 1997 and 1998 and for
each of the two years in the period ended December 31, 1998 included in this
prospectus and registration statement
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<PAGE> 77
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
auditing and accounting.
CHANGE IN ACCOUNTANTS
In February 1999, Quintus dismissed Ernst & Young LLP as its independent
auditors and subsequently appointed Deloitte & Touche LLP as its principal
accountants. There were no disagreements with the former accountants during the
fiscal years ended March 31, 1998 and 1999 or during any subsequent interim
period preceding their replacement on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreements, if not resolved to the former accountants' satisfaction,
would have caused them to make reference to the subject matter of the
disagreement in connection with their reports. The former independent auditors
issued an unqualified report on the financial statements as of and for the years
ended March 31, 1997 and 1998. Quintus did not consult with Deloitte & Touche
LLP on any accounting or financial reporting matters in the periods prior to
their appointment. The change in accountants was approved by our board of
directors.
ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form S-1 in connection with this offering. This prospectus does not
contain all the information set forth in the registration statement and its
exhibits and schedules. For further information with respect to Quintus and our
common stock please refer to the registration statement and to its exhibits and
schedules. Statements contained in this prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and each
such statement is qualified in all respects by reference to the full text of
such contract or other document filed as an exhibit to the registration
statement. A copy of the registration statement and its exhibits and schedules
may be inspected without charge at the public reference facilities maintained by
the SEC in Room 1024, 450 Fifth Street, N.W. Washington, D.C. 20549, and at the
SEC's regional offices located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the registration statement may be obtained from such offices upon payment of the
fees prescribed by the SEC. The SEC maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934 and
will file periodic reports, proxy statements and other information with the SEC.
Such periodic reports, proxy statements and other information will be available
for inspection and copying at the regional offices, public reference facilities
and web site of the SEC referred to above.
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<PAGE> 78
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUINTUS CORPORATION:
Independent Auditor's Report -- Deloitte & Touche LLP..... F-2
Report of Independent Auditors -- Ernst & Young LLP....... F-3
Consolidated Balance Sheets............................... F-4
Consolidated Statements of Operations..................... F-5
Consolidated Statements of Stockholders' Deficiency....... F-6
Consolidated Statements of Cash Flows..................... F-7
Notes to Consolidated Financial Statements................ F-8
ACUITY CORP.:
Report of Independent Accountants......................... F-26
Balance Sheets............................................ F-27
Statements of Operations.................................. F-28
Statements of Changes in Stockholders' Equity............. F-29
Statements of Cash Flows.................................. F-30
Notes to Financial Statements............................. F-31
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION:
Pro Forma Consolidated Balance Sheets..................... F-43
Pro Forma Consolidated Statements of Operations........... F-44
Notes to Pro Forma Consolidated Financial Statements...... F-46
</TABLE>
F-1
<PAGE> 79
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Quintus Corporation:
We have audited the accompanying consolidated balance sheet of Quintus
Corporation and subsidiaries (the Company) as of March 31, 1999, and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of March 31, 1999, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ Deloitte and Touche LLP
San Jose, CA
June 18, 1999
(September 10, 1999 as to Note 15)
F-2
<PAGE> 80
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Quintus Corporation
We have audited the accompanying consolidated balance sheets of Quintus
Corporation as of March 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity (net capital deficiency), and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Quintus Corporation at March 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
April 30, 1998,
except for Note 12,
as to which the date is
September 18, 1998
F-3
<PAGE> 81
QUINTUS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
------------------- JUNE 30,
1998 1999 1999
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 1,986 $ 1,785 $ 467
Accounts receivable, less allowance for doubtful accounts
of $848, $729 and $761.................................. 7,573 8,671 10,765
Prepaid expenses and other assets......................... 608 573 1,295
-------- -------- --------
Total current assets................................ 10,167 11,029 12,527
Property and equipment, net................................. 3,508 3,162 3,139
Purchased technology, less accumulated amortization of $556,
$1,889 and $2,222......................................... 3,444 2,111 1,778
Intangible assets, less accumulated amortization of $1,059,
$2,630 and $3,093......................................... 5,803 2,970 2,506
Other assets................................................ 219 322 324
-------- -------- --------
Total assets................................................ $ 23,141 $ 19,594 $ 20,274
======== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,762 $ 2,352 $ 3,983
Accrued compensation and related benefits................. 2,073 2,114 2,185
Other accrued liabilities................................. 1,633 2,268 2,269
Deferred revenue.......................................... 5,008 6,615 6,706
Borrowings under bank line of credit...................... 4,950 4,868 4,868
Notes payable to stockholders............................. 4,500 -- --
Current portion of capital lease obligations.............. 134 109 78
Current portion of long-term debt......................... 1,357 1,347 1,347
-------- -------- --------
Total current liabilities........................... 21,417 19,673 21,436
Capital lease obligations, less current portion............. 109 101 88
Long-term debt, less current portion........................ 2,637 1,700 1,361
Deferred revenue............................................ 1,500 400 200
Commitments and contingencies (Note 7)
Redeemable convertible preferred stock...................... 17,811 17,811 17,811
STOCKHOLDERS' DEFICIENCY:
Series A redeemable convertible preferred stock, $0.001
par value; authorized shares -- 9,100,000; issued and
outstanding shares -- 9,100,000; aggregate liquidation
preference -- $9,100.................................... 455 455 455
Series B redeemable convertible preferred stock, $0.001
par value; authorized shares -- 1,000,000; issued and
outstanding shares -- 768,140; aggregate liquidation
preference -- $1,098.................................... 128 128 128
Series C redeemable convertible preferred stock, $0.001
par value; authorized shares -- 3,000,000; issued and
outstanding shares -- 2,647,778; aggregate liquidation
preference -- $5,057.................................... 530 530 530
Series D redeemable convertible preferred stock, $0.001
par value; authorized shares -- 1,455,000; issued and
outstanding shares -- 1,454,996; aggregate liquidation
preference -- $4,001.................................... 1,819 1,819 1,819
Series E convertible preferred stock, $0.001 par value;
authorized shares -- 3,000,000; issued and outstanding
shares -- 2,604,601; aggregate liquidation
preference -- $10,809................................... -- 10,775 10,775
Common stock, $0.001 par value; authorized
shares -- 30,000,000 in 1998 and 40,000,000 in 1999;
issued and outstanding shares -- 4,117,300 in 1998;
4,208,478 in March 1999; 4,311,084 in June 1999......... 1,686 3,468 4,323
Notes receivable from stockholders........................ (58) (102) (267)
Deferred compensation..................................... (79) (884) (1,415)
Accumulated deficit....................................... (24,814) (36,280) (36,970)
-------- -------- --------
Total stockholders' deficiency...................... (20,333) (20,091) (20,622)
-------- -------- --------
Total liabilities and stockholders' deficiency.............. $ 23,141 $ 19,594 $ 20,274
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 82
QUINTUS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
------------------------------- ------------------
1997 1998 1999 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
License.............................. $ 8,406 $ 12,948 $ 17,577 $ 4,790 $ 6,126
Service.............................. 5,208 8,942 12,730 2,762 4,167
------- -------- -------- ------- -------
Total revenues.................... 13,614 21,890 30,307 7,552 10,293
COST OF REVENUES:
License.............................. 972 708 554 74 218
Service.............................. 4,199 7,582 8,623 1,957 2,421
------- -------- -------- ------- -------
Total cost of revenues............ 5,171 8,290 9,177 2,031 2,639
------- -------- -------- ------- -------
Gross profit........................... 8,443 13,600 21,130 5,521 7,654
OPERATING EXPENSES:
Sales and marketing.................. 6,879 11,336 17,147 4,518 4,314
Research and development............. 3,667 5,102 6,719 1,795 1,873
General and administrative........... 1,263 3,233 3,577 803 998
Amortization of intangibles.......... -- 1,335 3,185 796 796
Acquired in-process technologies..... -- 2,200 -- -- --
Stock-based compensation............. -- -- 171 4 169
------- -------- -------- ------- -------
Total operating expenses.......... 11,809 23,206 30,799 7,916 8,150
------- -------- -------- ------- -------
Loss from continuing operations........ (3,366) (9,606) (9,669) (2,395) (496)
OTHER INCOME (EXPENSE):
Interest expense..................... (157) (567) (804) (359) (195)
Other income (expense), net.......... (3) 27 (113) (32) 1
------- -------- -------- ------- -------
Total other income (expense)...... (160) (540) (917) (391) (194)
------- -------- -------- ------- -------
Net loss from continuing operations.... (3,526) (10,146) (10,586) (2,786) (690)
DISCONTINUED OPERATIONS (NOTE 3):
Loss from discontinued operations.... -- (1,103) (1,891) (190) --
Gain on disposal of discontinued
operations........................ -- -- 1,011 -- --
------- -------- -------- ------- -------
Net loss............................... (3,526) (11,249) (11,466) (2,976) (690)
Redeemable preferred stock accretion... (167) (1,519) -- -- --
------- -------- -------- ------- -------
Loss applicable to common
stockholders......................... $(3,693) $(12,768) $(11,466) $(2,976) $ (690)
======= ======== ======== ======= =======
BASIC AND DILUTED NET LOSS PER COMMON
SHARE:
Continuing operations................ $ (4.25) $ (6.88) $ (3.73) $ (1.12) $ (0.20)
Discontinued operations:
Loss from operations.............. -- (0.65) (0.67) (0.08) --
Gain on disposal.................. -- -- 0.36 -- --
------- -------- -------- ------- -------
Basic and diluted net loss per common
share................................ $ (4.25) $ (7.53) $ (4.04) $ (1.20) $ (0.20)
======= ======== ======== ======= =======
Shares used in computation, basic and
diluted.............................. 868 1,695 2,835 2,484 3,506
======= ======== ======== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 83
QUINTUS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE TOTAL
-------------------- ------------------ FROM DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS COMPENSATION DEFICIT DEFICIENCY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 1,
1996.................... 9,868,140 $ 493 191,160 $ 10 $ -- $ -- $ (8,353) $ (7,850)
Issuance of common stock
under stock option
plan.................... -- -- 2,913,646 154 (58) -- -- 96
Issuance of preferred
stock and warrants to
purchase preferred
stock................... 2,647,778 620 -- -- -- -- -- 620
Repurchase of common
stock................... -- -- (73,688) (4) -- -- -- (4)
Preferred stock
accretion............... -- -- -- -- -- -- (167) (167)
Net loss.................. -- -- -- -- -- -- (3,526) (3,526)
---------- ------- --------- ------ ----- ------- -------- --------
BALANCE AT MARCH 31,
1997.................... 12,515,918 1,113 3,031,118 160 (58) -- (12,046) (10,831)
Issuance of common stock
under stock option
plan.................... -- -- 944,949 167 -- -- -- 167
Issuance of common stock
and stock options in
connection with business
combinations............ -- -- 518,921 1,044 -- -- -- 1,044
Repurchase of common
stock................... -- -- (377,688) (42) -- -- -- (42)
Issuance of warrants to
purchase common stock... -- -- -- 258 -- -- -- 258
Issuance of preferred
stock................... 1,454,996 1,819 -- -- -- -- -- 1,819
Preferred stock
accretion............... -- -- -- -- -- (1,519) (1,519)
Compensatory stock
arrangements............ -- -- -- 99 -- (99) -- --
Amortization of deferred
compensation............ -- -- -- -- -- 20 -- 20
Net loss.................. -- -- -- -- -- -- (11,249) (11,249)
---------- ------- --------- ------ ----- ------- -------- --------
BALANCE AT MARCH 31,
1998.................... 13,970,914 2,932 4,117,300 1,686 (58) (79) (24,814) (20,333)
Issuance of common stock
under stock option
plan.................... -- -- 303,090 151 (44) -- -- 107
Repurchase of common
stock................... -- -- (211,912) (42) -- -- -- (42)
Issuance of warrants to
purchase common stock... -- -- -- 165 -- -- -- 165
Issuance of preferred
stock................... 2,604,601 10,775 -- -- -- -- -- 10,775
Compensatory stock
arrangements............ -- -- -- 1,508 -- (1,055) -- 453
Amortization of deferred
compensation............ -- -- -- -- -- 250 -- 250
Net loss.................. -- -- -- -- -- -- (11,466) (11,466)
---------- ------- --------- ------ ----- ------- -------- --------
BALANCE AT MARCH 31,
1999.................... 16,575,515 13,707 4,208,478 3,468 (102) (884) (36,280) (20,091)
Issuance of common stock
under stock option
plan*................... -- -- 148,944 160 (165) -- -- (5)
Repurchase of common
stock*.................. -- -- (46,338) (5) -- -- -- (5)
Compensatory stock
arrangements*........... -- -- -- 700 -- (700) -- --
Amortization of deferred
compensation*........... -- -- -- -- -- 169 -- 169
Net loss*................. -- -- -- -- -- -- (690) (690)
---------- ------- --------- ------ ----- ------- -------- --------
BALANCE AT JUNE 30,
1999*................... 16,575,515 $13,707 4,311,084 $4,323 $(267) $(1,415) $(36,970) $(20,622)
========== ======= ========= ====== ===== ======= ======== ========
</TABLE>
- -------------------------
* Unaudited
See notes to consolidated financial statements.
F-6
<PAGE> 84
QUINTUS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED MARCH 31, JUNE 30,
----------------------------- -----------------
1997 1998 1999 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(3,526) $(11,249) $(11,466) $(2,976) $ (690)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 822 3,148 5,090 1,377 1,115
Stock based compensation................................ -- 20 250 4 169
Noncash interest expense................................ -- 118 231 231 --
Acquired in-process technologies........................ -- 2,200 -- -- --
Loss (gain) on disposal of property and equipment....... (6) 50 -- -- --
Gain on disposal of discontinued operations............. -- -- (1,011) -- --
Changes in operating assets and liabilities:
Accounts receivable................................... (1,314) (1,114) (1,098) (1,811) (2,094)
Prepaid expenses and other current assets............. (414) (68) 35 145 (722)
Accounts payable...................................... 1,072 (1,110) 590 47 1,631
Accrued compensation and related benefits............. 378 1,219 41 (28) (31)
Other accrued liabilities and other long-term
liabilities........................................ 218 (1,145) (469) (276) (92)
Deferred revenue...................................... 770 3,981 507 (642) (109)
------- -------- -------- ------- -------
Net cash used in operating activities....................... (2,000) (3,950) (7,300) (3,929) (823)
------- -------- -------- ------- -------
INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired.............. -- (2,461) -- -- --
Purchase of property and equipment........................ (990) (1,172) (1,073) (409) (295)
Proceeds from sale of property and equipment.............. 27 -- -- -- --
Proceeds from sale of discontinued operations............. -- -- 2,100 -- --
Increase in other assets.................................. (25) (45) (103) 55 (2)
------- -------- -------- ------- -------
Net cash provided by (used in) investing activities......... (988) (3,678) 924 (354) (297)
------- -------- -------- ------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock................. 4,085 -- 5,275 5,275 --
Proceeds from issuance of common stock.................... 96 167 107 34 160
Repurchase of common stock................................ (4) (42) (42) -- (5)
Proceeds from notes payable to stockholders............... 1,000 4,500 1,000 1,000 --
Borrowings (repayments) under bank line of credit......... 668 4,950 (82) -- --
Proceeds from (repayments of) bank loan................... (577) (2,943) 51 (4,252) (340)
Principal payments on capital lease obligations........... (27) (63) (134) (87) (13)
------- -------- -------- ------- -------
Net cash provided by (used in) financing activities......... 5,241 6,569 6,175 1,970 (198)
------- -------- -------- ------- -------
Net increase (decrease) in cash............................. 2,253 (1,059) (201) (2,313) (1,318)
Cash at beginning of period................................. 792 3,045 1,986 1,986 1,785
------- -------- -------- ------- -------
Cash at end of period....................................... $ 3,045 $ 1,986 $ 1,785 $ (327) $ 467
======= ======== ======== ======= =======
Supplemental disclosure of cash flow information -- cash
paid for interest......................................... $ 160 $ 282 $ 643 $ 194 $ 195
======= ======== ======== ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Property acquired under capital leases.................... $ -- $ -- $ 101 $ -- $ --
======= ======== ======== ======= =======
Issuance of Series C preferred stock and warrants to
purchase Series B preferred stock in exchange for notes
payable................................................. $ 1,000 $ -- $ -- $ -- $ --
======= ======== ======== ======= =======
Issuance of common stock in exchange for notes
receivable.............................................. $ 58 $ -- $ 44 $ 120 $ 165
======= ======== ======== ======= =======
Issuance of Series D preferred stock in exchange for notes
payable to stockholders................................. $ -- $ 3,001 $ -- $ -- $ --
======= ======== ======== ======= =======
Issuance of Series D preferred stock, common stock and
stock options for purchase of business.................. $ -- $ 2,044 $ -- $ -- $ --
======= ======== ======== ======= =======
Issuance of Series E preferred stock in exchange for notes
payable to stockholders................................. $ -- $ -- $ 5,684 $ -- $ --
======= ======== ======== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 85
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Quintus Corporation (Quintus or the Company) provides a comprehensive
e-Customer Relationship Management ("eCRM") solution to manage customer
interactions and deliver consistent customer service across multiple
communication channels, including the Internet, email and advanced telephony
systems. The Company was founded in Delaware in May 1995.
Basis of Presentation -- The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries after the elimination
of all significant intercompany balances and transactions.
Liquidity -- As disclosed in the consolidated financial statements during
the years ended March 31, 1997, 1998 and 1999, the Company incurred net losses
from continuing operations of $3,526,000, $10,146,000 and $10,586,000 and had
net cash outflows from continuing operations of $2,000,000, $3,950,000 and
$7,300,000. The Company had a stockholders' deficiency of $20,091,000 at March
31, 1999. Management expects to incur further losses in fiscal year 2000. In
addition, in September 1999 the Company entered into an agreement to acquire
Acuity Corporation (see Note 15). Acuity Corporation has a history of losses and
net cash outflows from operations. In August 1999, the Company secured
$11,247,500 in equity financing (see Note 15). Management believes that this
equity financing when combined with existing cash on hand will be sufficient to
meet the Company's minimum obligations through March 31, 2000. However, the
Company will seek additional financing in the near term to execute its business
strategies and meet its longer term obligations.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Property and Equipment -- Property and equipment are recorded at cost and
depreciated using the straight-line method over the estimated useful lives of
the assets, which are generally two to five years. Assets recorded under capital
leases are amortized by the straight-line method over the shorter of their
respective useful lives or the lease term.
Revenue Recognition -- Statement of Position 97-2, Software Revenue
Recognition ("SOP 97-2"), was issued in October 1997 by the American Institute
of Certified Public Accountants ("AICPA") and was amended by Statement of
Position 98-4 ("SOP 98-4"). The Company adopted SOP 97-2 effective April 1, 1998
and SOP 98-4 effective March 31, 1998. The Company believes its current revenue
recognition policies and practices are consistent with SOP 97-2 and SOP 98-4.
Additionally, the AICPA issued SOP 98-9 in March 1998, which provides for
certain amendments to SOP 97-2, and is effective for transactions entered into
by the Company beginning April 1, 1999. The adoption of these amendments did not
have a material impact on its financial position, results of operations or cash
flows.
The Company licenses software to end users under noncancelable license
agreements and provides services such as installation, implementation, training,
and software maintenance. Software
F-8
<PAGE> 86
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
license revenue for contracts not requiring significant customization services
is recognized upon meeting each of the following criteria: an executed agreement
has been signed; products have been shipped; the license fee is fixed and
determinable; collection of the resulting receivable is probable; and vendor
specific objective evidence exists to allocate the total fee to elements of the
arrangement. Vendor-specific objective evidence is based on the price generally
charged when an element is sold separately, or if not yet sold separately, is
established by authorized management. For sales made through distributors the
Company generally recognizes revenue at the time these partners report to the
Company that they have sold the software to the end users and all revenue
recognition criteria have been met. Software license revenue from contracts
requiring the Company to perform significant customization services are
recognized on the percentage-of-completion method based on the ratio of labor
hours incurred to total estimated labor hours. Provisions for estimated losses
on contracts are made in the period in which the anticipated losses become
known. Actual costs and gross margins on such contracts could differ from
management's estimates, and such differences could be material to the financial
statements. Allowances for estimated future warranty costs are provided at the
time revenue is recognized. Service revenue includes maintenance revenue, which
is deferred and recognized ratably over the maintenance period, which in most
cases is one year, and revenue from training services which is recognized as
services are performed. Consulting revenues are recognized as services are
performed.
Software Development Costs -- Costs for the development of new software
products and substantial enhancements to existing software products are expensed
as incurred until technological feasibility has been established, at which time
any additional costs would be capitalized in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86, Computer Software to be Sold,
Leased or Otherwise Marketed. The costs to develop such software have not been
capitalized as the Company believes its current software development process is
essentially completed concurrent with the establishment of technological
feasibility.
Impairment of Long-Lived Assets -- In accordance with Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
evaluates its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
Intangible Assets -- Intangible assets, including purchased technology, are
related to the business acquisitions described in Note 2. Amortization is
recorded on a straight-line basis over a period of three years.
Income Taxes -- The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Under this
method, deferred tax liabilities and assets are recognized for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities. A valuation allowance is recorded
to reduce net deferred tax assets to amounts that are more likely than not to be
realized.
Stock-Based Compensation -- The Company accounts for employee stock options
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB Opinion No. 25).
F-9
<PAGE> 87
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
Loss per Common Share -- Basic loss per common share excludes dilution and
is computed by dividing loss applicable to common stockholders by the weighted
average number of common shares outstanding, less the weighted average number of
common shares subject to repurchase by the Company. Diluted loss per common
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock (convertible preferred stock, warrants and
common stock options) were exercised or converted into common stock. Common
share equivalents are excluded from the computation in loss periods as their
effect would be antidilutive.
Unaudited Interim Financial Information -- The interim financial
information for the three months ended June 30, 1998 and 1999 is unaudited and
has been prepared on the same basis as the audited financial statements. In the
opinion of management, such unaudited financial information includes all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the interim information.
Foreign Currency Transactions -- The functional currency of the Company's
foreign subsidiaries is the U.S. dollar. Accordingly, all monetary assets and
liabilities are remeasured at the current exchange rate at the end of each
period reported. Nonmonetary assets and liabilities are remeasured at historical
rates and revenues and expenses are remeasured at average exchange rates in
effect during the period, except for those expenses related balance sheet
amounts that are remeasured at historical exchange rates. Transaction gains and
losses, which are included in other income (expense) in the accompanying
consolidated statements of operations, have not been significant.
Concentration of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of trade
receivables. The Company sells its products to companies in diverse industries
and generally does not require its customers to provide collateral to support
accounts receivable. To reduce credit risk, management performs ongoing credit
evaluations of its customers' financial condition. The Company maintains
allowances for potential credit losses.
Certain Significant Risks and Uncertainties -- The Company operates in the
software industry, and accordingly, can be affected by a variety of factors. For
example, management of the Company believes that changes in any of the following
areas could have a significant negative effect on the Company's future financial
position, results of operations and cash flows: ability to obtain additional
financing; regulatory changes; fundamental changes in the technology underlying
software products; market acceptance of the Company's products under
development; development of distribution channels; ability to implement and
expand operational customer support and financial control systems to manage
rapid growth, both domestically and internationally; the hiring and retention of
key employees; relationship with Lucent; fundamental changes in technology
underlying software products; litigation or other claims against the Company.
Recently Issued Accounting Standards -- In 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, which requires an enterprise to report, by major
components and as a single total, the change in net assets during the period
from nonowner sources. The Company's comprehensive loss was equal to its net
loss for all years presented.
In 1998, the Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which established annual and interim
reporting standards for an enterprise's
F-10
<PAGE> 88
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
business segments and related disclosures about its products, services and
geographic areas and major customers. The Company operates in two reportable
segments (see Note 15).
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use. SOP 98-1 establishes the accounting for costs of software
products developed or purchased for internal use, including when such costs
should be capitalized. SOP 98-1 will be effective for the Company's fiscal year
ending March 31, 2000. The Company believes the adoption of this statement will
not have a significant impact on its financial position, results of operations
or cash flows.
In April 1998, the AcSEC issued SOP 98-5, Reporting on the Costs of
Start-up Activities. Under SOP 98-5, the cost of start-up activities should be
expensed as incurred. SOP 98-1 will be effective for the Company's fiscal year
ending March 31, 2000. The Company believes the adoption of this statement will
not have a significant impact on its financial position, results of operations
or cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. SFAS No. 133 will
be effective for the Company's fiscal year ending March 31, 2001. Management
believes that this statement will not have a significant impact on the Company's
financial position, results of operations or cash flows.
2. BUSINESS COMBINATIONS AND DISCONTINUED OPERATIONS
CALL CENTER ENTERPRISES, INC.
In July 1997, the Company acquired Call Center Enterprises, Inc. (CCE), a
provider of strategic call center consulting services, for $965,000 in cash in a
transaction that was accounted for as a purchase. Assets acquired and
liabilities assumed in the acquisition were as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable......................................... $ 826
Other assets................................................ 30
Goodwill.................................................... 1,262
Less liabilities assumed.................................... (1,153)
-------
$ 965
=======
</TABLE>
During fiscal 1999 the Company was required to make additional cash
payments of approximately $962,000 to former stockholders of CCE based upon
achievement of certain performance goals. These payments, which were contingent
upon the continued employment of the former CCE stockholders, were recorded as
charges to operations when the performance goal was attained.
On February 26, 1999, the Company sold the assets of CCE, which provided
implementation services for support and help-desk centers software application.
The division was sold for cash of $2,100,0000 with a gain on disposal of
$1,011,000. As a result, the operations of CCE have been
F-11
<PAGE> 89
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
classified as discontinued operations in the statement of operations. The
Company recorded as a part of the gain on disposal of discontinued operations
the fair value of options granted in connection with the disposal of $453,000.
The Company may receive an additional payment of up to $400,000 from the sale of
CCE based on the number of former CCE employees who remain employed by the
purchaser for one year subsequent to the date of disposition. The division had
revenues of $2,528,000 and $3,210,000 for the years ended March 31, 1998 and
1999, respectively. There were no assets or liabilities remaining as of March
31, 1999.
NABNASSET CORPORATION
In November 1997, the Company acquired Nabnasset Corporation (Nabnasset), a
provider of software which integrates telephone, voice, and data for $1,496,000
in cash, preferred stock with a fair value of $1,000,000, and 518,921 shares of
common stock and options to purchase 617,528 shares of common stock with an
aggregate fair value of $1,044,000. The transaction was accounted for as a
purchase. Assets acquired and liabilities assumed in the acquisition were as
follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable......................................... $ 1,036
Property and equipment...................................... 2,062
Other assets................................................ 75
In-process technologies..................................... 2,200
Purchased technology........................................ 4,000
Intangible assets........................................... 5,599
Accounts payable and accrued liabilities.................... (4,230)
Notes payable............................................... (6,070)
Other liabilities........................................... (1,132)
-------
$ 3,540
=======
</TABLE>
In this acquisition, acquired technology included both existing technology
and in-process research and development. The valuation of acquired technology
was made by applying the income forecast method, which considers the present
value of cash flows by product lines. Acquired in-process technologies were
charged to operations, as the technologies did not have alternative future uses
as of the date of the acquisition.
The operating results of Nabnasset have been included in the consolidated
statements of operations since the date of acquisition. Had the acquisition
taken place at the beginning of fiscal 1997, the unaudited pro forma results of
operations would have been as follows for the year ended March 31, (in
thousands, except per share data):
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Net revenues............................................... $17,439 $ 24,827
Net loss................................................... (7,807) (15,669)
Basic and diluted loss per common share.................... $ (5.63) $ (7.79)
</TABLE>
The pro forma results of operations give effect to certain adjustments,
including amortization of purchased intangibles and goodwill. The $2,200,000
charge for purchased in-process technology has been excluded from the pro forma
results as it is a material non-recurring charge.
F-12
<PAGE> 90
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
The pro forma amounts are based on certain assumptions and estimates and do
not necessarily represent results which would have occurred if the acquisition
had taken place on the basis assumed above, nor are they indicative of results
of future combined operations.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------- JUNE 30,
1998 1999 1999
<S> <C> <C> <C>
Land................................................. $ 170 $ 170 $ 170
Building............................................. 688 688 688
Computer equipment and software...................... 4,179 6,075 6,078
Furniture and equipment.............................. 548 1,279 1,368
Leasehold improvements............................... 184 306 306
------ ------ ------
5,769 8,518 8,610
Less accumulated depreciation and amortization....... 2,261 5,356 5,471
------ ------ ------
Net property and equipment........................... $3,508 $3,162 $3,139
====== ====== ======
</TABLE>
4. BANK LINE OF CREDIT
The Company maintains a committed revolving line with a bank that provides
for borrowings of up to $7,500,000, based on a percentage of eligible accounts
receivable, with interest at the bank's prime rate plus 1.5% (9.25% at March 31,
1999). At March 31, 1999, the Company had $4,868,000 in outstanding borrowings
under the line of credit agreement. Borrowings under this facility may be repaid
and reborrowed at any time prior to September 17, 1999 and are collateralized by
substantially all of the Company's assets and are subject to the Company's
compliance with certain financial and nonfinancial covenants.
As of March 31, 1999, the Company obtained a waiver from the bank for
noncompliance with certain covenants required by the line of credit agreement.
5. NOTES PAYABLE TO STOCKHOLDERS
As of March 31, 1998, the Company had notes payable to stockholders in the
amount of $4,500,000, which accrued interest at the prime rate plus 1% (9.5% at
March 31, 1998). In connection with the issuance of the notes payable, the
Company also issued warrants to stockholders to purchase 385,530 shares of
common stock at an exercise price of $0.30 per share. The principal and accrued
interest on the notes payable to stockholders were subsequently converted to
Series E convertible preferred stock during the year ended March 31, 1999 at the
same price as the Series E convertible preferred stock was sold to investors.
During fiscal 1999 the Company had additional notes payable to stockholders in
the amount of $1,000,000, which accrued interest at the prime rate plus 1%
(8.75% at March 31, 1999).
F-13
<PAGE> 91
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands, except monthly
installments and interest rates):
<TABLE>
<CAPTION>
MARCH 31,
---------------- JUNE 30,
1998 1999 1999
<S> <C> <C> <C>
Equipment loan payable to a bank, due in monthly
installments of $20,062 through 2000, with
interest at the prime rate plus 0.75% (8.5% at
March 31, 1999). The loan is secured by the
related equipment................................. $ 785 $ -- $ --
Amortizing term loan payable to a bank, due in
monthly installments of $28,571 through September
2001, with interest at the prime rate plus 2%
(9.75% at March 31, 1999). The loan is secured by
substantially all of the Company's assets......... -- 846 761
Mortgage notes payable to a bank, due in monthly
installments of $3,942 and $1,183 through 2020;
interest rate is subject to adjustment every three
years (8.25% at March 31, 1999). The mortgage is
secured by real property.......................... 628 618 614
Note payable from Nabnasset acquisition, due in
monthly installments of $55,555 and $27,778
through October 2000, with interest at 7.75%...... 2,581 1,583 1,333
------ ------ ------
Total............................................... 3,994 3,047 2,708
Less current portion................................ 1,357 1,347 1,347
------ ------ ------
Long-term debt...................................... $2,637 $1,700 $1,361
====== ====== ======
</TABLE>
At March 31, 1999, maturities of long-term debt are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDING
MARCH 31,
<S> <C>
2000................................................. $ 347
2001................................................. 355
2002................................................. 178
2003................................................. 14
2004................................................. 16
Thereafter................................................ 554
------
Total..................................................... $1,464
======
</TABLE>
7. COMMITMENTS
LEASES
The Company leases office space under a noncancelable operating lease
expiring in December 2000. The Company leases certain office equipment under
noncancelable lease agreements that are
F-14
<PAGE> 92
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
accounted for as capital leases. Equipment under capital lease arrangements
included in property and equipment amounted to $365,000 and $693,000 at March
31, 1998 and 1999, respectively. The related accumulated amortization was
$99,000 and $425,000 at March 31, 1998 and 1999, respectively.
At March 31, 1999, future minimum lease payments under noncancelable
operating leases and capital leases are as follows during the years ended March
31 (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
2000........................................................ $132 $406
2001........................................................ 55 244
2002........................................................ 32 --
2003........................................................ 29 --
2004........................................................ 17 --
---- ----
Total future minimum lease payments......................... 265 $650
====
Less amount representing interest........................... (55)
----
Present value of future minimum lease payments.............. 210
Less current portion........................................ 109
----
Long-term portion........................................... $101
====
</TABLE>
Rent expense was $431,000, $645,000 and $856,000 for the years ended March
31, 1997, 1998 and 1999, respectively.
ROYALTIES
The Company is required to pay royalties based on product revenue in excess
of specified minimum levels. The royalty rates are generally 1% to 3% of product
revenue, and certain agreements require royalties based upon the number of
users. At March 31, 1999, required minimum payments under such royalty
agreements are as follows during the years ended March 31 (in thousands):
<TABLE>
<S> <C>
2000........................................................ $429
2001........................................................ 80
----
Total....................................................... $509
====
</TABLE>
Royalty expense totaled $416,000, $328,000 and $285,000 for the years ended
March 31, 1997, 1998 and 1999, respectively. Such amounts have been included in
the cost of license revenue.
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Each share of Series A, B, C and D redeemable preferred stock is
convertible into one share of common stock at any time upon the election of the
holders of a majority of the then outstanding convertible preferred stock,
subject to certain antidilution adjustments. At the time of conversion, the
holders of the convertible preferred stock are entitled to a cash payment of
$0.925 for each share of Series A convertible preferred stock, $1.325 for each
share of Series B convertible preferred stock,
F-15
<PAGE> 93
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
$1.765 for each share of Series C convertible preferred stock, and $2.544 for
each share of Series D convertible preferred stock. Cash payments that would be
payable to convertible preferred stockholders upon conversion to common stock
total $17,811,000 as of March 31, 1999. At the time of issuance, a portion of
the proceeds from the sale was allocated to stockholders equity based on the
then fair market value of the common stock into which the shares will be
converted. The remainder was credited to redeemable preferred stock which is
presented outside of stockholders' equity. For each of the years ended March 31,
1997 and 1998, accretion of preferred stock totaled $167,000 and $1,519,000,
respectively, to reflect the difference between the carrying value and the
redemption value of the preferred stock on the date of issuance. The accretion
of the preferred stock has been recorded as increases to the carrying value of
the redeemable preferred stock and accumulated deficit. There was no accretion
for the year ended March 31, 1999.
The holder of each share of Series A convertible preferred stock has the
right to 10 votes, and the holder of each share of Series B, C, and D
convertible preferred stock has the right to 14 votes for each share of common
stock into which Series A, B, C, and D convertible preferred stock can be
converted.
The holders of Series A, B, C, and D convertible preferred stock are
entitled to noncumulative annual dividends of $0.20, $0.286, $0.382 and $0.55
per share, respectively, as declared by the Board of Directors, prior to the
payment of dividends to the holders of common stock. No cash dividends have been
declared through March 31, 1999.
In the event of any voluntary or involuntary liquidation of the Company,
the Series A, B, C and D convertible preferred stockholders are entitled to a
liquidation preference of $1,00, $1.43, $1.91 and $2.75 per share, respectively,
plus accrued dividends, if any.
9. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The holder of each share of Series E convertible preferred stock has the
right to 14 votes for each share of common stock into which Series E convertible
preferred stock can be converted.
The holders of Series E convertible preferred stock are entitled to
noncumulative annual dividends of $0.83 per share as declared by the Board of
Directors, prior to the payment of dividends to the holders of common stock. No
cash dividends have been declared through March 31, 1999.
In the event of any voluntary or involuntary liquidation of the Company,
the Series E convertible preferred stockholders are entitled to a liquidation
preference of $4.15 per share plus accrued dividends, if any.
STOCK OPTION PLAN
The 1995 Stock Option Plan (the "Plan"), authorized the grant of options to
purchase up to 4,185,714 shares of the Company's common stock. During the year
ended March 31, 1997, the Company's Board of Directors decreased options
available for issuance under the Plan by 410,715 shares. During the year ended
March 31, 1998, the Company's Board of Directors increased options available
under the Plan by 1,012,110 shares. Under the Plan, incentive options may be
granted at a
F-16
<PAGE> 94
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
price per share no less than the fair market value of common stock at the date
of grant. Nonqualified stock options may be granted at a price per share no less
than 85% of the fair market value on the date of grant. Options granted to any
10% stockholder may have an exercise price per share that is not less than 110%
of the fair market value per share of common stock on the date of grant. Options
granted are immediately exercisable, and unvested shares are subject to
repurchase by the Company at the amount originally paid. Options granted
generally have a maximum term of ten years and generally vest over four or five
years. At March 31, 1999, 949,998 shares of common stock were subject to
repurchase by the Company.
In connection with the acquisitions by the Company described in Note 2, the
Company granted options outside of the Plan to purchase up to 1,202,528 shares
of common stock. The options are generally exercisable immediately and have
similar vesting terms as options granted under the Plan with the exception of
options to purchase 486,168 shares of common stock, which vest immediately.
F-17
<PAGE> 95
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
<S> <C> <C>
Balances, April 1, 1996............................... 2,742,352 $0.05
Granted (weighted average fair value of $0.02)........ 1,090,250 0.07
Exercised............................................. (2,913,646) 0.05
Canceled.............................................. (579,423) 0.05
----------
Balances, March 31, 1997 (55,479 vested at a weighted
average price of $0.05 per share)................... 339,533 0.07
Granted (weighted average fair value of $0.90)........ 2,699,367 0.57
Exercised............................................. (944,949) 0.20
Canceled.............................................. (270,251) 0.32
----------
Balances, March 31, 1998 (616,824 vested at a weighted
average price of $0.42 per share)................... 1,823,700 0.70
Granted (weighted average fair value of $1.35)........ 1,205,612 1.57
Exercised............................................. (303,090) 0.44
Canceled.............................................. (931,092) 0.91
----------
Balances, March 31, 1999.............................. 1,795,130 1.22
Granted (weighted average fair value of $3.19)........ 386,500 4.61
Exercised............................................. (148,944) 1.23
Canceled.............................................. (218,185) 0.38
----------
Balances, June 30, 1999............................... 1,814,501 $2.04
==========
</TABLE>
At March 31, 1999, 940,227 shares were available under the Plan for future
grant.
Additional information regarding options outstanding as of March 31, 1999
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
--------------------------- ---------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING VESTED AT AVERAGE
RANGE OF NUMBER CONTRACTUAL MARCH 31, EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) 1999 PRICE
<S> <C> <C> <C> <C>
$0.03 - $0.10........................... 210,815 7.70 190,262 $0.05
$0.15 - $0.53........................... 174,945 7.00 135,162 0.36
$1.25 - $1.75........................... 1,409,370 9.33 168,340 1.39
--------- ---- -------- -----
1,795,130 8.91 493,764 $0.59
========= ==== ======== =====
</TABLE>
ADDITIONAL STOCK PLAN INFORMATION
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS No. 123) requires the disclosure of pro forma
net income and earnings per
F-18
<PAGE> 96
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
share had the Company adopted the fair value method as of the beginning of
fiscal 1995. Under SFAS No. 123, the fair value of the stock-based awards to
employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's calculations
were made using the minimum value method with the following weighted average
assumptions for 1997, 1998 and 1999; expected life, 5.2 years for 1997 grants,
6.0 years for 1998 grants, and 6.0 years for 1999 grants; risk free interest
rates of 6.4% in 1997 and 6.0% in both 1998 and 1999; and no dividends during
the expected term. The Company's calculations are based on a multiple option
valuation approach and forfeitures are recognized as they occur. If the computed
fair values of the stock-based awards had been amortized over the vesting period
of the awards, pro forma net loss applicable to common stockholders would have
been approximately $3,713,000 ($4.28 per basic and diluted share), $13,185,000
($7.78 per basic and diluted share), and $11,887,000 ($4.19 per basic and
diluted share) for the years ended March 31, 1997, 1998 and 1999, respectively.
However, the impact of outstanding nonvested stock options granted prior to 1995
has been excluded from the pro forma calculation; accordingly, the pro forma
adjustments are not indicative of future period pro forma adjustments, when the
calculation will apply to all applicable stock options.
STOCK-BASED COMPENSATION
Options Granted to Employees -- In connection with options granted to
employees to purchase common stock, the Company recorded deferred stock
compensation of $99,000 and $1,055,000 in fiscal years 1998 and 1999,
respectively. The Company had no deferred stock compensation in fiscal year
1997. Such amounts represent the difference between the exercise price and the
deemed fair value of the Company's common stock at the date of grant. The
deferred charges are being amortized to expense through fiscal year 2003.
Stock-based compensation expense of $20,000 was recognized as part of the
Company's discontinued operations during fiscal year 1998. There was no
stock-based compensation expense recognized in continuing operations during
fiscal year 1998. Stock-based compensation expense of $171,000 and $79,000 was
recorded as part of the Company's continuing and discontinued operations,
respectively, during fiscal year 1999.
Options and Warrants Granted to Nonemployees -- During fiscal years 1998
and 1999, in connection with notes payable to stockholders, the Company issued
warrants to purchase 253,012 and 132,532 shares of common stock, respectively,
with an exercise price of $0.30 per share. The balance outstanding on the notes
payable to stockholders was converted to preferred stock in May 1998. The fair
value of warrants amounting to $258,000 and $165,000 was charged to interest
expense during fiscal year 1998 and 1999, respectively.
F-19
<PAGE> 97
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
WARRANTS
The Company had the following outstanding warrants to purchase common stock
and preferred stock at March 31, 1999:
<TABLE>
<CAPTION>
NUMBER EXERCISE EXPIRATION
OF PRICE PER DATE OF
SHARES STOCK SHARE ISSUED WARRANTS
<C> <S> <C> <C> <C>
5,000 Common stock $0.05 April 1996 April 2006
192,262 Series B preferred $1.43 August 1996 August 2000 or upon
stock an initial public
offering of common
stock
55,340 Series C preferred $1.91 September 1996 Earlier of September
stock 2006 or upon the
initial public
offering of common
stock
8,466 Common stock $3.94 February 1997 January 2002
76,047 Common stock $4.54 November 1997 November 2001
253,012 Common stock $0.30 November 1997 - November 2001
March 1998
132,518 Common stock $0.30 April 1998 - November 2001
May 1998
</TABLE>
COMMON STOCK RESERVED
At March 31, 1999, the Company has received shares of common stock for
issuance as follows:
<TABLE>
<S> <C>
Conversion of preferred stock............................... 16,575,515
Issuance available under 1995 Stock Option Plan............. 940,227
Exercise of options......................................... 1,795,130
Exercise of warrants........................................ 722,645
----------
Total............................................. 20,033,517
==========
</TABLE>
F-20
<PAGE> 98
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
10. LOSS PER COMMON SHARE
The following is a reconciliation of the numerators and denominators used
in computing basic and diluted net loss per share from continuing operations (in
thousands).
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
MARCH 31, JUNE 30,
-------------------------------- ----------------
1997 1998 1998 1998 1999
<S> <C> <C> <C> <C> <C>
Net loss from continuing operations....... $(3,526) $(10,146) $(10,586) $(2,786) $ (690)
Redeemable preferred stock accretion...... (167) (1,519) -- -- --
------- -------- -------- ------- ------
Loss from continuing operations applicable
to common shareholders (numerator),
basic and diluted....................... $(3,693) $(11,665) $(10,586) $(2,786) $ (690)
======= ======== ======== ======= ======
Shares (denominator):
Weighted average common shares
outstanding.......................... 2,095 3,530 4,194 4,110 4,268
Weighted average common shares
outstanding subject to repurchase.... (1,227) (1,835) (1,359) (1,626) (762)
------- -------- -------- ------- ------
Shares used in computation, basic and
diluted................................. 868 1,695 2,835 2,484 3,506
======= ======== ======== ======= ======
Loss per share from continuing operations
applicable to common stockholders,
basic and diluted....................... $ (4.25) $ (6.88) $ (3.73) $ (1.12) $(0.20)
======= ======== ======== ======= ======
</TABLE>
For the above mentioned periods, the Company had securities outstanding
which could potentially dilute basic earnings per share in the future, but were
excluded in the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
MARCH 31, JUNE 30,
------------------------------------ -----------------------
1997 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C>
Convertible preferred stock..... 12,515,918 13,970,914 16,575,515 16,575,515 16,575,515
Shares of common stock subject
to repurchase................. 1,985,648 1,873,390 949,998 1,659,465 893,383
Outstanding options............. 339,533 1,823,700 1,795,130 1,863,975 1,814,501
Warrants........................ 252,602 590,127 722,645 722,645 722,645
---------- ---------- ---------- ---------- ----------
Total........................... 15,093,701 18,258,131 20,043,288 20,821,600 20,006,044
========== ========== ========== ========== ==========
</TABLE>
F-21
<PAGE> 99
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
11. INCOME TAXES
The Company's deferred income tax assets are comprised of the following at
March 31:
<TABLE>
<CAPTION>
1998 1999
(IN THOUSANDS)
<S> <C> <C>
Net deferred tax assets:
Net operating loss carryforwards.......................... $ 4,836 $ 8,394
Accruals deductible in different periods.................. 2,363 1,094
General business credits.................................. 327 327
Depreciation and amortization............................. 287 285
------- -------
Total deferred tax assets................................... 7,813 10,100
Valuation allowance......................................... (6,320) (9,142)
------- -------
Net deferred tax assets..................................... 1,493 58
Deferred tax liability -- purchased intangibles............. (1,493) (58)
------- -------
Net deferred tax assets..................................... $ -- $ --
======= =======
</TABLE>
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, as well as net operating
loss and tax credit carryforwards. Due to the uncertainty surrounding the
realization of the benefits of its favorable tax attributes in future tax
returns, as of March 31, 1998 and 1999, the Company has fully reserved its net
deferred tax assets of approximately $6,320,000 and $9,142,000, respectively.
For all periods presented the Company's effective rate differs from the
expected benefit at the federal statutory tax rate due primarily to state taxes
of approximately 5% offset by a valuation allowance against deferred tax assets.
The Company's loss from continuing operations for 1999 was generated by
$9,081,000 and $1,505,000 from domestic and international operations,
respectively. The Company did not have international operations in 1997 and
1998.
At March 31, 1999, the Company has net operating loss (NOL) carryforwards
of approximately $24,215,000 and $5,386,000 for federal and state income tax
purposes, respectively. The federal NOL carryforwards expire beginning in 2011,
while the state NOL carryforwards expire beginning in 2001.
At March 31, 1999, the Company also has research and development credit
carryforwards of approximately $242,000 and $128,000 available to offset future
federal and state income taxes, respectively. The federal credit carryforward
expires beginning in 2011, while the state credit carryforward has no
expiration.
The extent to which the loss and credit carryforwards can be used to offset
future taxable income and tax liabilities, respectively, may be limited,
depending on the extent of ownership changes within any three-year period.
F-22
<PAGE> 100
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
12. SAVINGS PLAN
The Company maintains a savings plan under Section 401(k) of the Internal
Revenue Code. Under the plan, employees may defer a portion of their pretax
salaries. The Company makes no matching contributions.
13. SEGMENT INFORMATION, OPERATIONS BY GEOGRAPHIC AREA AND SIGNIFICANT CUSTOMERS
As discussed in Note 1, the Company follows the requirements of SFAS No.
131, Disclosures About Segments of an Enterprise and Related Information. As
defined in SFAS No. 131, the Company operates in two reportable segments. The
Company's operations were divided into two segments: Quintus and CCE. As
discussed in Note 3, the Company discontinued its operations of CCE during
fiscal 1999. At the end of 1999, the Company operates in one reportable segment.
GEOGRAPHIC INFORMATION (IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------- --------------------------------------
1997 1998 1999 1998 1999
----------- ------------------------ ------------------------ ----------- ------------------------
LONG-LIVED LONG-LIVED LONG-LIVED
REVENUES(1) REVENUES(1) ASSETS REVENUES(1) ASSETS REVENUES(1) REVENUES(1) ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States........ $11,536 $18,830 $ 3,727 $24,749 $3,391 $6,557 $ 9,044 $3,365
Rest of the
world(2)........... 2,078 3,060 -- 5,558 93 995 1,249 98
------- ------- ------- ------- ------ ------ ------- ------
$13,614 $21,890 $ 3,727 $30,307 $3,484 $7,552 $10,293 $3,463
======= ======= ======= ======= ====== ====== ======= ======
</TABLE>
- -------------------------
(1) Revenues are attributed to countries based on location of customer invoiced.
(2) No individual foreign country accounted for greater than 10% of total
revenues or long-lived assets in any of the periods presented.
SIGNIFICANT CUSTOMERS
One unrelated customer accounted for 23.8% and 19.3% of total revenues in
1997 and 1999, respectively. No one customer accounted for greater than 10% of
total revenues in fiscal 1998.
Four customers accounted for 30.9%, 21.8%, 10.9% and 10.5% of accounts
receivable at March 31, 1997. One customer accounted for 21.1% and 28.6% of
accounts receivable at March 31, 1998 and 1999, respectively.
14. LITIGATION
The Company is a defendant and may be a potential defendant in lawsuits and
claims arising in the ordinary course of business. While the outcomes of such
claims, lawsuits, or other proceedings cannot be predicted with certainty,
management expects that such liability, to the extent not provided by insurance
or otherwise, will not have a material adverse effect on the financial condition
of the Company.
F-23
<PAGE> 101
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
15. SUBSEQUENT EVENTS
On August 26, 1999, the Company issued a total of 1,363,334 shares of
Series F convertible preferred stock at $8.25 per share for cash consideration
of $11,247,500. The Series F convertible preferred stock is convertible into one
share of common stock and has preferences, liquidation and voting rights similar
to those of Series E preferred stock. The Series F preferred stockholders are
entitled to no cash payments upon conversion to common stock.
On September 10, 1999, Quintus entered into an Agreement and Plan of
Reorganization to acquire all of the outstanding shares and assume the
outstanding options and warrants of Acuity Corp. (Acuity), a company
specializing in providing Web based customer interaction software. Quintus will
issue approximately 1,570,000 shares of common stock valued at approximately
$13,000,000, approximately 2,960,000 shares of Series G preferred stock valued
at approximately $24,400,000, and assume approximately 1,230,000 options and
warrants to purchase common and preferred stock valued at approximately
$7,800,000. The aggregate purchase price, including approximately $300,000 of
transaction costs not paid in stock, will be approximately $45,500,000. The
agreement is subject to shareholder approval and is expected to close in October
1999. The acquisition will be accounted for using the purchase method of
accounting.
On September 9, 1999, the Board of Directors approved, subject to
stockholder approval, the following:
ADOPTION OF THE 1999 STOCK INCENTIVE PLAN
1,000,000 shares of common stock were reserved for issuance under the 1999
Stock Incentive Plan. Any shares not yet issued under the 1995 Stock Option Plan
on the date of this offering will also be available under the 1999 Stock
Incentive Plan. On January 1 of each year, starting with the year 2000, the
number of shares in the reserve will automatically increase by 5% of the total
number of shares of common stock that are outstanding at that time or, if less,
by 2,000,000 shares. In general, if options or shares awarded under the 1999
Stock Incentive Plan or the 1995 Stock Incentive Plan are forfeited, then those
options or shares will again become available for awards under the 1999 Stock
Incentive Plan.
Outstanding options under the 1995 Stock Option Plan will be incorporated
into the 1999 Equity Incentive Plan at the time of this offering and no further
option grants will be made under the 1995 Stock Option Plan. The incorporated
options will continue to be governed by their existing terms, unless the Board
elects one or more features of the 1999 Stock Incentive Plan to those options or
to other outstanding shares. The Board has elected to extend the change in
control acceleration feature of the 1999 Stock Inventive Plan to all outstanding
options and unvested shares. Previously, options granted under the 1995 Stock
Option Plan provided that vesting of the shares would accelerate upon an
acquisition only if not assumed by the acquiring entity.
F-24
<PAGE> 102
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
ADOPTION OF THE EMPLOYEE STOCK PURCHASE PLAN
Under the purchase plan, eligible employees are allowed to have salary
withholdings of up to 15% of their cash compensation to purchase shares of
common stock at a price equal to 85% of the lower of the market value of the
stock on the first date immediately before the first day of the applicable
offering period or the fair market value on the purchase date. The initial
offering period commences upon the effective date for the initial public
offering of the Company's common stock. For the first offering period, shares of
common stock may be purchased at a price equal to 85% of the lower of the price
per share in the initial public offering or the market value on the purchase
date. The Company has initially reserved 1,000,000 shares of common stock under
this plan, plus an annual increase to be added on May 1st beginning with the
year 2000 equal to the lesser of (i) 1,000,000 shares, or (ii) 2% of the shares
of common stock outstanding on May 1st.
ADOPTION OF THE DIRECTORS OPTION PLAN
500,000 shares of common stock have been reserved under the Director Option
Plan. The plan provides for an initial automatic grant of an option to purchase
30,000 shares of common stock to a nonemployee director who first becomes a
director after the Company's initial public offering. The grant will occur when
the director takes office. The initial option will vest monthly over the
two-year period following the date of grant. In addition, at the time of the
annual stockholders' meeting beginning in 2000, each nonemployee director who
continues to be a director after that meeting will automatically be granted an
annual option to purchase 10,000 shares of common stock. However, a nonemployee
director who is receiving the 30,000 option initial grant will not receive the
annual option in the same calendar year. The annual options are fully vested on
the first anniversary of the date of grant.
F-25
<PAGE> 103
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Acuity Corp.
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' equity and cash flows present fairly, in
all material respects, the financial position of Acuity Corp. (the "Company"),
at December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has sustained recurring losses from operations
in the years then ended December 31, 1997 and 1998 which raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Austin, Texas
February 8, 1999, except as to Note 11,
for which the date is March 31, 1999
F-26
<PAGE> 104
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1997 1998 1999
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 2,135,448 $ 2,173,101 $ 2,232,231
Accounts receivable, net of allowance for doubtful
accounts of $73,215, $60,340 and $0, respectively..... 1,703,075 944,024 292,190
Note receivable......................................... -- -- 350,000
Prepaid expenses and other current assets............... 182,100 176,701 259,204
------------ ------------ ------------
Total current assets.................................. 4,020,623 3,293,826 3,133,625
Computer equipment, furniture and fixtures, net........... 1,171,168 1,233,464 1,103,048
Note receivable -- related party.......................... 75,000 -- --
Deposits and other assets................................. 64,478 56,013 49,300
------------ ------------ ------------
Total assets.......................................... $ 5,331,269 $ 4,583,303 $ 4,285,973
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Borrowings under line of credit......................... $ -- $ 721,240 $ 721,240
Current maturities of capital lease obligations......... -- 96,570 90,671
Current maturities of long-term obligations............. 533,534 518,182 450,000
Accounts payable........................................ 495,463 362,225 445,043
Accrued expenses........................................ 771,664 959,748 404,889
Accrued expenses -- related party....................... -- -- 226,968
Deferred revenue and customer advances.................. 1,345,809 762,776 576,874
------------ ------------ ------------
Total current liabilities............................. 3,146,470 3,420,741 2,915,685
Capital lease obligations, net of current maturities...... -- 239,863 203,564
Long-term obligations, net of current maturities.......... 1,185,785 587,500 362,500
------------ ------------ ------------
Total liabilities..................................... 4,332,255 4,248,104 3,481,749
------------ ------------ ------------
Commitments (Note 7)
Stockholders' Equity:
Convertible preferred stock, $.001 par value:
8,680,644 shares authorized at December 31, 1997 and
1998 and 9,823,502 shares at June 30, 1999;
6,220,994 and 8,252,074 shares issued at December
31, 1997 and 1998 and 9,037,789 at June 30, 1999,
6,173,994 and 8,252,074 outstanding in 1997 and
1998 and 9,037,789 at June 30, 1999; liquidation
value 19,857,196 at December 31, 1998 and
22,607,199 at June 30, 1999........................ 6,221 8,252 9,038
Common stock, $.001 par value, 15,000,000 shares
authorized at December 31, 1997 and 1998, and
20,065,969 shares at June 30, 1999; 4,852,383,
5,253,430 and 5,305,127 shares issued and
4,852,383, 4,853,430 and 4,905,127 outstanding at
December 31, 1997 and 1998 and June 30, 1999,
respectively....................................... 4,852 5,253 5,305
Additional paid-in capital............................ 12,847,565 20,069,214 22,780,735
Treasury stock -- at cost
Series B-1, 25,000, 0 and 0 shares, Series B-2,
22,000, 0 and 0 shares, and common stock, 0,
400,000 and 400,000 shares, respectively......... (76,000) (280,000) (280,000)
Accumulated deficit................................... (11,783,624) (19,467,520) (21,710,854)
------------ ------------ ------------
Total stockholders' equity....................... 999,014 335,199 804,224
------------ ------------ ------------
Total liabilities and stockholders' equity....... $ 5,331,269 $ 4,583,303 $ 4,285,973
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 105
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
License........................... $ 3,085,200 $ 4,212,501 $ 1,825,845 $ 947,647
Service........................... 819,488 1,743,199 816,319 129,310
Consulting........................ 906,487 763,391 447,222 221,817
----------- ----------- ----------- -----------
Total revenue................ 4,811,175 6,719,091 3,089,386 1,298,774
Cost of revenue:
License........................... 252,536 91,547 26,085 31,043
Service........................... 564,375 427,858 214,132 190,103
Consulting........................ 595,871 861,382 499,745 346,562
----------- ----------- ----------- -----------
Total cost of revenue........ 1,412,782 1,380,787 739,962 567,708
Gross profit........................ 3,398,393 5,338,304 2,349,424 731,066
Operating expenses:
Research and development.......... 1,542,199 4,389,983 2,054,385 1,971,432
Sales and marketing............... 6,373,790 6,311,540 2,715,236 2,971,363
General and administrative........ 2,020,157 2,377,393 1,097,521 745,212
----------- ----------- ----------- -----------
Total operating expenses..... 9,936,146 13,078,916 5,867,142 5,688,007
----------- ----------- ----------- -----------
Operating loss...................... (6,537,753) (7,740,612) (3,517,718) (4,956,941)
Other income (expense):
Gain on sale of assets............ -- -- -- 2,737,144
Interest expense.................. (91,452) (124,137) (44,952) (69,748)
Interest income................... 73,296 164,356 67,283 45,992
Other income (expense)............ (10,581) 16,497 13,388 219
----------- ----------- ----------- -----------
Net loss..................... $(6,566,490) $(7,683,896) $(3,481,999) $(2,243,334)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 106
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
------------------ ------------------ PAID-IN TREASURY ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK DEFICIT EQUITY
--------- ------ --------- ------ ----------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997..... 3,843,994 $3,844 4,145,000 $4,145 $ 5,920,897 $ -- $ (5,217,134) $ 711,752
Issuance of Series B-2
convertible preferred stock,
net of issuance costs........ 127,000 127 -- -- 252,123 -- -- 252,250
Issuance of Series C
convertible preferred stock,
net of issuance costs, and
related issuance of common
stock to Series B holders
under anti-dilution
provisions................... 2,250,000 2,250 400,000 400 6,613,915 -- -- 6,616,565
Exercise of stock options...... -- -- 307,383 307 60,630 -- -- 60,937
Purchase of treasury stock..... -- -- -- -- -- (76,000) -- (76,000)
Net loss....................... -- -- -- -- -- -- (6,566,490) (6,566,490)
--------- ------ --------- ------ ----------- --------- ------------ -----------
Balance at December 31, 1997... 6,220,994 6,221 4,852,383 4,852 12,847,565 (76,000) (11,783,624) 999,014
Issuance of Series C
convertible preferred stock
to vendors................... 6,650 7 -- -- 13,468 -- -- 13,475
Issuance of Series D
convertible preferred stock,
net of issuance costs........ 2,071,430 2,071 -- -- 7,203,319 -- -- 7,205,390
Exercise of stock options,
net.......................... -- -- 401,047 401 80,815 -- -- 81,216
Purchase of treasury stock..... -- -- -- -- -- (280,000) -- (280,000)
Retirement of treasury stock... (47,000) (47) -- -- (75,953) 76,000 -- --
Net loss....................... -- -- -- -- -- -- (7,683,896) (7,683,896)
--------- ------ --------- ------ ----------- --------- ------------ -----------
Balance at December 31, 1998... 8,252,074 8,252 5,253,430 5,253 20,069,214 (280,000) (19,467,520) 335,199
Issuance of Series E
convertible preferred stock,
net of issuance costs
(unaudited).................. 785,715 786 -- -- 2,696,478 -- -- 2,697,264
Exercise of stock options
(unaudited).................. -- -- 51,697 52 15,043 -- -- 15,095
Net loss (unaudited)........... -- -- -- -- -- -- (2,243,334) (2,243,334)
--------- ------ --------- ------ ----------- --------- ------------ -----------
Balance at June 30, 1999
(unaudited).................. 9,037,789 $9,038 5,305,127 $5,305 $22,780,735 $(280,000) $(21,710,854) $ 804,224
========= ====== ========= ====== =========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 107
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. $(6,566,490) $(7,683,896) $(3,481,999) $(2,243,334)
Adjustments to reconcile net loss to net
cash used in operating activities:
Forgiveness of related party
receivable........................... -- 75,000 75,000 --
Gain on sale of assets................. -- -- -- (2,737,144)
Depreciation........................... 540,723 745,917 386,539 354,365
Provision for doubtful accounts........ 226,567 155,574 66,756 79,666
Stock compensation expense............. -- 13,475 -- --
Changes in assets and liabilities:
Accounts receivable.................. (1,353,251) 603,477 569,713 572,168
Prepaid expenses and other current
assets............................ (157,991) 5,399 (76,892) (82,503)
Accounts payable..................... 189,594 (133,238) 76,087 82,818
Accrued expenses..................... 387,596 188,084 (71,773) (607,556)
Deferred revenue and customer
advances.......................... 843,009 (583,033) (334,121) (78,134)
----------- ----------- ----------- -----------
Net cash used in operating activities....... (5,890,243) (6,613,241) (2,790,690) (4,659,654)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of computer equipment, furniture
and fixtures........................... (1,218,550) (808,213) (622,337) (223,949)
Cash received from the sale of assets, net
of transaction costs................... -- -- -- 2,559,041
Change in deposits and other assets....... (34,655) 8,465 (5,870) 6,713
----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities................................ (1,253,205) (799,748) (628,207) 2,341,805
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short-term
debt................................... 1,000,000 721,240 721,240 --
Repayment of short-term debt.............. (1,000,000) -- -- --
Proceeds from issuance of long-term
note................................... 450,000 -- -- --
Amounts paid on installment obligation.... (275,000) (300,000) (150,000) (150,000)
Repayment of other long-term debt......... (105,682) (313,637) (157,153) (143,182)
Proceeds from sales -- leaseback.......... -- 386,280 386,280 --
Repayment of capital lease obligation..... -- (49,847) (12,128) (42,198)
Proceeds from issuance of preferred
stock.................................. 7,002,250 7,250,005 7,250,005 2,750,003
Financing costs related to preferred stock
issuance............................... (133,434) (44,615) (44,615) (52,739)
Proceeds from issuance of common stock.... 60,937 81,216 48,564 15,095
Purchase of treasury stock................ (76,000) (280,000) (280,000) --
----------- ----------- ----------- -----------
Net cash provided by financing activities... 6,923,071 7,450,642 7,762,193 2,376,979
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................... (220,377) 37,653 4,343,296 59,130
Cash and cash equivalents at beginning of
period.................................... 2,355,825 2,135,448 2,135,448 2,173,101
----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period.................................... $ 2,135,448 $ 2,173,101 $ 6,478,744 $ 2,232,231
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 108
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Acuity Corp., a Delaware corporation (the "Company") was incorporated on
August 2, 1995 as ichat, Inc. The Company is a provider of Web-based customer
interaction software. In June 1998 the Company changed its name to Acuity Corp.
to reflect a strategic change in its core product offerings from internet chat
software to its WebCenter customer interaction software. Shortly thereafter, the
Company commenced shipment of its WebCenter products that enable users to
interact with their customers over the Internet. During the year ended December
31, 1998, WebCenter revenue was approximately $1,215,000 and ichat revenue was
$5,504,000.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred operating
losses since inception related primarily to the development and marketing of its
products and has an accumulated deficit of $19,467,520 as of December 31, 1998.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. In February 1999, the Company completed a sale of preferred
stock and in March 1999 completed the sale of an exclusive license to its chat
technology (see note 11). The Company's management has developed a fiscal 1999
operating plan in which the Company has placed significant reliance on obtaining
additional outside financing. Management is actively pursuing additional debt
and equity financing from institutional investors as necessary and intends to
increase revenues and eventually achieve profitable operations. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying interim statements of operations and cash flows for the
six months ended June 30, 1998 and 1999 are unaudited but include all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the results of operations and
cash flows for the six months ended June 30, 1998 and 1999. The results of
operations and cash flows for the six months ended June 30, 1999 are not
necessarily indicative of the results to be expected for the full year. The data
disclosed in these notes to the financial statements for these periods are
unaudited.
CERTAIN RISKS AND UNCERTAINTIES
The Company's operating results are significantly dependent on the
Company's ability to market and develop its products. The life cycles of the
Company's products are difficult to estimate due in part to the effect of future
product enhancements and competition. The inability of the Company to
successfully develop and market its products as a result of competition or other
factors would have a material adverse effect on the Company's business,
financial condition and results of operations.
F-31
<PAGE> 109
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Concentrations of credit risk with respect to trade receivables are
generally limited due to the large number of customers, short payment terms, and
their dispersion across geographic areas. During 1998, sales to one customer was
$1,064,000, or 16%, with a related receivable balance of approximately $18,000.
Two other customers had receivable balances totaling approximately $590,000 at
December 31, 1998.
REVENUE RECOGNITION
The Company's revenues are derived from product licensing fees, fees for
maintenance and support, training and consulting. Product licensing fees are
recognized upon delivery, net of allowances for estimated future returns,
provided that no significant vendor obligations remain and collection of the
resulting receivable is deemed probable. Revenues from ongoing maintenance and
support are recognized ratably over the term of the maintenance period,
typically 12 months. Payments for maintenance and support are generally made in
advance and are nonrefundable. Revenues generated from training and consulting
are recognized upon completion and customer acceptance.
ADVERTISING EXPENSES
Advertising expenses consist primarily of costs incurred promoting the
Company's products, including public relations, trade shows, lead generation and
promotional materials. The Company expenses all advertising costs as incurred.
The Company's advertising expenses were approximately $1,035,189 for the year
ended December 31, 1997 and $687,080 for the year ended December 31, 1998.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and on deposit at local
banks. The Company considers highly liquid investments with original maturities
of three months or less to be cash equivalents. Cash equivalents consist of
deposits in money market funds at December 31, 1997 and 1998 and at June 30,
1999.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. Management does not believe there is undue risk of loss
because in management's opinion, the financial institutions in which cash is
deposited are high credit quality institutions and the securities are
obligations of the United States government. However, cash and cash equivalents
exceeded FDIC insurance coverage limits. The Company has not experienced any
losses on its deposits. Although the Company does not require collateral on
accounts receivable, it does maintain reserves for credit losses.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts and notes receivable, accounts
payable and accrued liabilities, approximated fair value as of December 31, 1997
and 1998, because of the relatively short maturity of these instruments.
F-32
<PAGE> 110
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The carrying amounts of the Company's borrowings under variable rate
long-term debt instruments approximate their fair value. The fair value of the
Company's other long-term obligation is estimated using discounted cash flow
analyses, based upon the Company's approximate incremental borrowing rates for
similar types of borrowing arrangements.
COMPUTER EQUIPMENT, FURNITURE AND FIXTURES
Computer equipment, furniture and fixtures, software and leasehold
improvements are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the respective assets,
generally three to seven years. Expenditures that increase the value or extend
the life of the asset are capitalized, while the cost of maintenance and repairs
are expensed as incurred. Upon disposal, assets and related accumulated
depreciation are removed from the accounts and the related gain or loss is
included in operations.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred. The
Company capitalizes certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have been
insignificant.
INCOME TAXES
The Company accounts for income taxes in accordance with the liability
method. This method requires that deferred taxes be computed annually utilizing
the liability method and adjusted when new tax laws or rates are enacted.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. The Company recorded no income
tax expense for both the years ended December 31, 1997 or 1998 and has provided
a valuation allowance to fully offset the net deferred tax asset because the
realization of tax benefits associated with net operating loss carryforwards is
not assured.
COMPREHENSIVE INCOME
The Company has had no items of comprehensive income other than its net
loss for each of the two years in the period ended December 31, 1998.
RECLASSIFICATION
Certain amounts previously reported in 1997 have been reclassified to
conform to the 1998 presentation.
F-33
<PAGE> 111
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. COMPUTER EQUIPMENT, FURNITURE AND FIXTURES:
Computer equipment, furniture and fixtures is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Computer equipment.............................. $1,129,599 $ 1,624,785 $ 1,669,207
Furniture and fixtures.......................... 168,957 219,819 249,865
Office equipment................................ -- 130,030 157,684
Software........................................ 105,790 233,343 353,393
Leasehold improvements.......................... 376,920 376,920 376,920
---------- ----------- -----------
1,781,266 2,584,897 2,807,069
Less: accumulated depreciation.................. (610,098) (1,351,433) (1,704,021)
---------- ----------- -----------
$1,171,168 $ 1,233,464 $ 1,103,048
========== =========== ===========
</TABLE>
During 1998, the Company entered into capital leases for computer equipment
with a capitalized cost of $386,280. Amortization expense and accumulated
amortization are included in depreciation expense and accumulated depreciation,
respectively. Accumulated amortization on these capitalized leases totaled
$96,570 at December 31, 1998. Future minimum lease payments as of December 31,
1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $147,867
2000........................................................ 147,867
2001........................................................ 95,643
2002........................................................ 23,177
--------
414,554
Less amount representing interest........................... (78,121)
--------
Present value of minimum lease payments................ 336,433
Less current portion........................................ (96,570)
--------
$239,863
========
</TABLE>
3. NOTE RECEIVABLE -- RELATED PARTY:
In August 1996, the Company issued a note receivable in the amount of
$75,000, due from a shareholder and officer of the Company ("Maker"), which bore
interest at 5.76% per annum and was collateralized by a stock pledge agreement
covering certain shares of common stock held by the Maker. During 1998, the note
was forgiven by the Company as part of the consideration given for a noncompete
agreement between the officer and the Company. The Company has received interest
payments during the year ended December 31, 1997 and 1998 of $4,320 and $2,160,
respectively.
4. LINE OF CREDIT:
The Company has a revolving line of credit arrangement with a commercial
bank that enables the Company to borrow against eligible trade accounts
receivable up to a total of $2,500,000. As of December 31, 1998, the Company had
$721,240 outstanding under the revolving line of credit. The credit arrangement
contains certain financial covenants and restrictions as to various matters,
F-34
<PAGE> 112
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
including the Company's net worth. The credit facility bears interest at prime
plus .5% (8.75% at December 31, 1998) and expires on March 25, 1999.
5. LONG-TERM OBLIGATIONS:
Long-term obligations are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Term loans:
Variable rate term loan with a commercial bank,
bearing interest at the bank's prime rate plus 1%
per annum (8.75% at December 31, 1998). The loan
requires monthly principal and interest payments
through May 1999................................. $ 231,819 $ 68,182 $ --
Variable rate term loan with a commercial bank,
bearing interest at prime plus 1% per annum
(8.75% at December 31, 1998). The loan requires
monthly principal and interest payments through
August 2001...................................... 412,500 262,500 187,500
Installment obligation:
Non-interest bearing installment obligation to a
minority shareholder of the Company. The note
is payable in quarterly installments and is
scheduled to be paid in full in May 2001....... 1,075,000 775,000 625,000
---------- ---------- ----------
1,719,319 1,105,682 812,500
Less: current maturities............................ (533,534) (518,182) (450,000)
---------- ---------- ----------
$1,185,785 $ 587,500 362,500
========== ========== ==========
</TABLE>
The term loans and line of credit are collateralized by substantially all
the assets of the Company and contain certain financial covenants and
restrictions as to various matters, including the Company's net worth. At
December 31, 1998 the Company was not in compliance with its minimum quick ratio
and maximum loss covenants, which were waived by the bank in a letter dated
February 18, 1999. Should the Company continue to be in non-compliance with its
debt covenants, the bank has various remedies including the acceleration of the
due dates of principal payments that are currently classified as non-current
liabilities in the Company's financial statements.
6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest payments of $91,452, $124,137, $44,953 and $67,748 were made for
the years ended December 31, 1997 and 1998 and during the six months ended June
30, 1997 and 1998, respectively. No tax payments were made during the same
periods.
F-35
<PAGE> 113
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a detail of non-cash financing activities:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------- -------------------
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Issuance of 400,000 common shares to Series B
convertible preferred stock and warrant
holders.................................... $120,000 $ -- $ -- $ --
Issuance of 6,650 Series C convertible
preferred stock to vendors................. -- 13,475 -- --
Deferred revenue liability extinguished in
the sale of assets......................... -- -- -- 107,768
Accrued commission-related party associated
with the sale of assets.................... -- -- -- 279,665
Note received in exchange for the sale of
assets..................................... -- -- -- 350,000
</TABLE>
7. COMMITMENTS:
The Company leases its facilities and certain other equipment under
operating lease agreements. Rental expense for the years ended December 31, 1997
and 1998 was approximately $159,134 and $356,080, respectively. Future minimum
rental commitments as of December 31, 1998 under these leases are as follows:
<TABLE>
<S> <C>
1999........................................................ $350,368
2000........................................................ 283,781
2001........................................................ 188,884
2002........................................................ 86,757
2003........................................................ 29,184
--------
$938,974
========
</TABLE>
8. STOCKHOLDERS' EQUITY:
PREFERRED STOCK
The Company currently has authorization for the issuance of 8,680,644
shares of $.001 par value preferred stock. At December 31, 1998 the following
series of convertible preferred stock were authorized:
<TABLE>
<CAPTION>
SHARES
SHARES ISSUED AND LIQUIDATION
SERIES DESIGNATED OUTSTANDING PREFERENCE
- -------------------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Series A.................................... 750,000 750,000 750,000
Series B-1.................................. 1,868,994 1,868,994 2,803,491
Series B-2.................................. 1,305,000 1,305,000 2,283,750
Series C.................................... 2,256,650 2,256,650 6,769,950
Series D.................................... 2,500,000 2,071,430 7,250,005
</TABLE>
Each series of preferred stock is convertible into common stock at the
option of the holder on a one-for-one basis, subject to certain adjustments.
Each series of preferred stock will automatically convert upon the earliest of
(i) the closing date of an underwritten public offering of the Company's
F-36
<PAGE> 114
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
common stock with aggregate proceeds of more than $18,000,000 and a per share
offering price of at least $9.00 or (ii) the date of an affirmative election of
the holders of 75% of the outstanding shares of preferred stock. The Company has
reserved 8,296,274 shares of common stock at December 31, 1998 to permit
conversion of the preferred stock in accordance with these terms.
Holders of the preferred stock are entitled to one vote for each share of
common stock into which such shares may be converted. Each share of preferred
stock entitles the holder to receive noncumulative dividends, if and when
declared by the board of directors, prior to any dividend paid on the common
stock. Dividends, if any, on preferred stock shall be declared at an annual rate
of 10% of the original price paid per share. As of December 31, 1998, no
dividends have been declared. In the event of liquidation, the preferred stock
has preference over the common stock in the amount equal to the original issue
price plus declared but unpaid dividends.
During 1995, the Company adopted the 1995 Stock Option/Stock Issuance Plan
(the "Plan"), providing for two separate equity programs: (i) the Option Grant
Program providing for the granting of both incentive and non-statutory stock
options, as defined by the Internal Revenue Code, and (ii) the Stock Issuance
Program providing for the issuance of common stock directly, either through the
immediate purchase of such shares or as a bonus for services rendered to the
Company.
The Plan, as amended, provides for a maximum number of common shares to be
optioned/issued of 3,950,000. Accordingly, the Company has reserved a sufficient
number of shares of common stock to permit exercise of options or issuance of
shares in accordance with the terms of the Plan. If an option expires or becomes
unexercisable for any reason, options related to the unpurchased shares become
available for grant. Each option granted under the Plan has a term of ten years
from the date of grant and an exercise price and vesting schedule as determined
by the Plan Administrator, at the date of grant, with the exception that
incentive stock options can not be granted for less than 100% of the fair market
value of the stock and non-statutory stock options can not be granted for less
than 110% of the fair market value of the stock to any shareholder of the
Company with a 10% or greater interest in the common stock of the Company. The
number of common stock options exercised and unvested was 313,437 and 176,033 at
December 31, 1997 and 1998, respectively.
F-37
<PAGE> 115
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
STOCK OPTION PLAN
Option activity under the Company's Plan follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVAILABLE EXERCISE AVERAGE
FOR GRANT SHARES PRICE EXERCISE PRICE AMOUNT
---------- ---------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997... 991,500 1,183,500 $0.10 - $0.20 $0.13 $ 151,700
Options granted......... (1,634,750) 1,634,750 0.10 - 0.30 0.27 442,273
Options exercised....... -- (307,383) 0.10 - 0.30 0.20 (60,937)
Options cancelled....... 766,382 (766,382) 0.10 - 0.30 0.15 (115,455)
---------- ---------- ----------
Balance at December 31,
1997....................... 123,132 1,744,485 417,581
Options approved for
grant................. 1,350,000 -- -- -- --
Options granted......... (2,775,000) 2,775,000 0.30 - 0.70 0.48 1,320,450
Options exercised....... (403,547) 0.10 - 0.50 0.20 (81,816)
Options cancelled....... 1,328,273 (1,328,273) 0.10 - 0.70 0.33 (432,724)
Options repurchased..... 2,500 0.20 0.20 --
---------- ---------- ----------
Balance at December 31,
1998....................... 28,905 2,727,665 1,223,491
Options approved for
grant (unaudited)..... 1,000,000 -- -- -- --
Options granted
(unaudited)........... (914,106) 914,106 0.70 0.70 636,607
Options exercised
(unaudited)........... -- (51,697) 0.10 - 0.70 0.29 (15,095)
Options cancelled
(unaudited)........... 693,659 (693,659) 0.10 - 0.70 0.54 (377,439)
---------- ---------- ----------
Balance at June 30, 1999
(unaudited)................ 808,458 2,956,415 $1,467,564
========== ========== ==========
</TABLE>
The weighted-average fair value of options granted during the years ended
December 31, 1997 and 1998 was $0.27 and $0.48 per share, respectively.
The following table summarizes information with respect to stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------- OPTIONS
WEIGHTED-AVERAGE EXERCISABLE
EXERCISE NUMBER REMAINING NUMBER
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- --------------------------------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.10................................. 20,000 6.9 20,000
0.15................................. 43,031 7.7 43,031
0.20................................. 25,874 8.1 25,874
0.30................................. 1,603,927 9.0 1,603,927
0.50................................. 168,500 9.3 168,500
0.70................................. 926,333 9.8 928,333
--------- ---------
Number outstanding at December 31,
1998................................. 2,787,665 2,787,665
========= =========
</TABLE>
F-38
<PAGE> 116
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1997, options to purchase 1,744,485 shares of common stock
were exercisable at a weighted average exercise price of $0.24 per share.
PRO FORMA STOCK BASED COMPENSATION
The Company has applied Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for the Plan. Accordingly, no compensation expense has been
recognized for the Plan. Had compensation cost for the Plan been determined
based upon the fair value at the grant date for awards under the Plan consistent
with the methodology prescribed under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," such amount would
not have been materially different.
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following weighted average assumptions used
for grants in 1997 and 1998: dividend yield of 0.0%, risk-free interest rate of
6.39% in 1997 and 6.00% in 1998 and expected lives of five years. Volatility of
the Company common stock underlying the options was not considered because the
Company's equity is not publicly traded as of December 31, 1998.
COMMON STOCK WARRANTS
The B-1 Series Preferred Stock Agreement was amended to provide for the
issuance of warrants to certain Series B-2 holders to purchase 465,153 shares of
the Company's common stock in consideration for terminating their rights to
purchase shares of Series B-3 Preferred Stock upon the Company's achievement of
designated milestone events in fiscal year 1997. The warrants are exercisable at
$2.75 per share. The Company has reserved a sufficient number of shares of
Series B-1 to permit exercise of this warrant.
9. EMPLOYEE BENEFITS:
The Company has established a 401(k) retirement savings plan for its full
time employees. All employees meeting minimum age requirements are eligible to
enroll in the Plan sixty days after commencement of employment. As of December
31, 1998, the Company has not provided matching contributions to employee
accounts.
10. INCOME TAXES:
The Company has not recorded the tax benefits attributable to its taxable
losses incurred during the years ended December 1997 or 1998 due to the
uncertainty surrounding the recoverability of these deferred tax assets.
At December 31, 1998 the Company had federal net operating loss
carryforwards of approximately $18,500,000 available to offset future taxable
income. The Company's federal operating loss carryforwards begin to expire
starting in the year 2011.
As a result of ownership changes in prior years as defined by Internal
Revenue Code Section 382, approximately $4,365,000 in net operating loss
carryforwards are subject to a maximum annual utilization of approximately
$1,000,000 at December 31, 1998.
F-39
<PAGE> 117
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The components of the net deferred tax asset are as follows at December 31,
1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 3,505,193 $ 6,292,559
Non-recurring charge related to purchased technology...... 672,093 570,883
Allowance for doubtful accounts and returns............... 131,930 124,699
Capitalization of software development costs.............. 6,479 3,906
Depreciation.............................................. 57,050 135,727
----------- -----------
Net deferred tax asset before valuation allowance........... 4,372,745 7,127,774
Valuation allowance......................................... (4,372,745) (7,127,774)
----------- -----------
Net deferred tax asset...................................... $ -- $ --
=========== ===========
</TABLE>
The following is a reconciliation of the amount of the income tax benefit
that would result from applying the statutory Federal income tax rates to pretax
loss and the reported amount of income tax benefit:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Tax benefit at statutory rate of 34%........................ $ 2,235,089 $ 2,612,524
State income tax benefit.................................... 196,343 229,140
Permanent difference........................................ (9,861) (15,603)
Other....................................................... -- (71,032)
Net increase in valuation allowance......................... (2,421,571) (2,755,029)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
11. SUBSEQUENT EVENTS:
AUTHORIZATION AND SALE OF SERIES E PREFERRED STOCK
On February 22, 1999 the Company's board of directors designated 1,142,858
shares of the Company's authorized preferred stock as Series E preferred stock.
On February 25, 1999 the Company sold 785,715 shares of Series E preferred stock
and warrants to purchase 392,858 shares of common stock for an aggregate
purchase price of $2,750,000. The warrants are exercisable through February 27,
2001 at an exercise price of $0.70 per share.
Each share of Series E preferred stock is entitled to receive noncumulative
dividends, when and if declared by the Company's board of directors, at a rate
of $0.35 per share per annum. Each share of Series E preferred stock is
convertible at the option of the holder into common shares of the Company on a
one for one basis, subject to certain anti-dilution provisions as described in
the Company's articles of incorporation. Conversion of the Series E preferred
stock is automatic upon either i) the sale of the Company's common stock in a
firmly underwritten public offering in which the offering price is not less than
$9.00 per share and which results in aggregate proceeds to the Company of at
least $18,000,000 net of underwriting discounts, commissions and fees, or ii)
the written consent of 75% of the outstanding shares of Series E preferred
stock.
F-40
<PAGE> 118
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Upon any liquidation, dissolution or winding up of the Company, the Series
E preferred shareholders are entitled to a liquidation preference of $3.50 per
share plus all declared but unpaid dividends thereon.
SALE OF EXCLUSIVE TECHNOLOGY LICENSE
In March 1999, the Company entered into an agreement to sell exclusive
source and object code licenses for the ichat software. Under the terms of the
agreement, the Company received $1.3 million in cash at the time of purchase,
notes receivable in the principal amounts of $1 million due on June 30, 1999,
$700,000 due on December 15, 1999, and $600,000 of preferred stock from the next
issuance of the purchaser. In connection with this sale, the Company entered
into a commission agreement with a stockholder under which the stockholder will
receive a total of $354,665 for negotiating the sale of these assets.
12. SUBSEQUENT EVENTS (UNAUDITED)
On September 10, 1999 the Company entered into an agreement to have all of
its outstanding capital stock acquired by Quintus Corporation.
In September, 1999 the Company's board of directors designated and sold
482,625 shares of the Company's authorized preferred stock as Series F preferred
stock for an aggregate purchase price of $1,250,000. The board also issued
warrants to purchase 178,570 shares of the Company's common stock.
* * * * *
F-41
<PAGE> 119
QUINTUS CORPORATION
PRO FORMA CONDENSED COMBINING
FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND
THREE MONTHS ENDED JUNE 30, 1999
On September 10, 1999, Quintus entered into an Agreement and Plan of
Reorganization to acquire all of the outstanding shares and assume the
outstanding options and warrants of Acuity Corp. (Acuity), a company
specializing in providing Web based customer interaction software. Quintus will
issue approximately 1,570,000 shares of common stock valued at approximately
$13,000,000, approximately 2,960,000 shares of Series G preferred stock valued
at approximately $24,400,000, and assume approximately 1,230,000 options and
warrants to purchase common and preferred stock valued at approximately
$7,800,000. The aggregate purchase price, including approximately $300,000 of
transaction costs not paid in stock, will be approximately $45,500,000. The
agreement is subject to shareholder approval and will close prior to the
effectiveness of this offering.
The acquisition will be accounted for using the purchase method of
accounting. The aggregate purchase price will be allocated to the assets and
liabilities acquired based on their fair value. The total consideration is
expected to exceed the fair value of the net assets acquired by approximately
$44.5 million. Approximately $3.0 million will be allocated to purchased
in-process technology, which has not yet reached technological feasibility and
does not have alternative future uses. This amount will be charged to Quintus'
operations in the period in which the transaction is consummated. The allocation
of the purchase price is preliminary and will not be finalized until the
transaction is consummated.
The accompanying pro forma financial statements are presented in accordance
with Article 11 of Regulation S-X.
The unaudited pro forma condensed combining balance sheet has been prepared
as if the acquisition was completed as of June 30, 1999. The unaudited pro forma
condensed combining statements of operations were prepared as if the acquisition
was completed at the beginning of the periods presented. To prepare the pro
forma unaudited condensed combining statements of operations, the Quintus
statement of operations for the year ended March 31, 1999 has been combined with
the statement of operations of Acuity for the year ended December 31, 1998.
Acuity's revenue of $6,719,000 for the year ended December 31, 1998 includes
$5,504,000 of revenue related to a product line that was sold during the first
quarter of 1999. Also, the statement of operations of both Quintus and Acuity
have been combined for the quarter ended June 30, 1999. The statement of
operations of Acuity for the quarter ended March 31, 1999 which has been
excluded from these pro forma financial statements included revenues, operating
loss and net income of $765,000, $2.4 million, and $321,000, respectively. This
method of combining the companies is only for presentation of pro forma
unaudited condensed combining financial statements. Actual statements of
operations of the companies will be combined from the effective date of the
acquisition.
The unaudited pro forma condensed combining financial statements should be
read in conjunction with the historical financial statements of Quintus and
Acuity.
The unaudited pro forma condensed combining statements of operations do not
include the one-time $3.0 million charge for purchased in-process technology
arising from this acquisition, as it is a material nonrecurring charge. This
charge will be included in the actual consolidated statement of operations of
Quintus when the acquisition is consummated.
The unaudited pro forma condensed balance sheet reflects the 1,363,334
shares of Series F convertible preferred stock issued on August 26, 1999, at
$8.25 per share for cash consideration of $11,247,500.
F-42
<PAGE> 120
QUINTUS CORPORATION
PRO FORMA CONDENSED COMBINING BALANCE SHEETS
JUNE 30, 1999
<TABLE>
<CAPTION>
SERIES F
PREFERRED PRO FORMA PRO FORMA
QUINTUS ACUITY STOCK ADJUSTMENTS NOTES COMBINED
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................. $ 467 $ 2,232 $11,248 $ -- $ 13,947
Accounts receivable, less
allowance for doubtful
accounts....................... 10,765 292 -- -- 11,057
Prepaid expenses and other
assets......................... 1,295 610 -- -- 1,905
-------- -------- ------- ------- --------
Total current assets........... 12,527 3,134 11,248 -- 26,909
Property and equipment, net......... 3,139 1,103 -- -- 4,242
Purchased technology, less
accumulated amortization.......... 1,778 -- -- -- 1,778
Intangible assets, less accumulated
amortization...................... 2,506 -- -- 41,500 3 44,006
Other assets........................ 324 49 -- -- 373
-------- -------- ------- ------- --------
Total assets................... $ 20,274 $ 4,286 $11,248 $41,500 $ 77,308
======== ======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable.................. $ 3,983 $ 445 $ -- $ -- $ 4,428
Other accrued liabilities......... 4,454 632 -- 300 5 5,386
Deferred revenue.................. 6,706 577 -- (200) 6 7,083
Borrowings under bank line of
credit......................... 4,868 -- -- -- 4,868
Current portion of long-term
debt........................... 1,425 1,262 -- -- 2,687
-------- -------- ------- ------- --------
Total current liabilities...... 21,436 2,916 -- 100 24,452
Long-term debt, less current
portion........................... 1,449 566 -- -- 2,015
Deferred revenue.................... 200 -- -- -- 200
Redeemable convertible preferred
stock............................. 17,811 -- -- -- 17,811
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock................... 13,707 9 11,248 24,391 1, 2, 8 49,355
Common stock...................... 4,323 5 -- 20,795 1, 2 25,123
Additional paid-in capital........ -- 22,781 -- (22,781) 1 --
Notes receivable from
stockholder.................... (267) -- -- -- (267)
Deferred stock-based
compensation................... (1,415) -- -- -- (1,415)
Treasury stock.................... -- (280) -- 280 1 --
Accumulated deficit............... (36,970) (21,711) -- 18,715 1, 4 (39,966)
-------- -------- ------- ------- --------
Total stockholders' equity
(deficiency)................. (20,622) 804 11,248 41,400 32,830
-------- -------- ------- ------- --------
Total liabilities and
stockholders' equity
(deficiency)................. $ 20,274 $ 4,286 $11,248 $41,500 $ 77,308
======== ======== ======= ======= ========
</TABLE>
See notes to pro forma consolidated financial statements.
F-43
<PAGE> 121
QUINTUS CORPORATION
PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
QUINTUS ACUITY
YEAR ENDED YEAR ENDED
MARCH 31, DECEMBER 31, PRO FORMA
1999 1998 ADJUSTMENTS NOTES PRO FORMA
(UNAUDITED) COMBINED
<S> <C> <C> <C> <C> <C>
Revenue.............................. $ 30,307 $ 6,719 $ 400 6 $ 37,426
Cost of revenue...................... 9,177 1,381 -- 10,558
-------- ------- ------- --------
Gross profit......................... 21,130 5,338 400 26,868
Operating Expenses:
Sales and marketing................ 17,147 6,312 -- 23,459
Research and development........... 6,719 4,390 -- 11,109
General and administrative......... 3,577 2,377 -- 5,954
Amortization of intangibles........ 3,185 -- 8,300 7 11,485
Stock-based compensation........... 171 -- -- 171
-------- ------- ------- --------
Total operating expenses... 30,799 13,079 8,300 52,178
-------- ------- ------- --------
Loss from operations................. (9,669) (7,741) (7,900) (25,310)
Other income (expense), net.......... (917) 57 (860)
-------- ------- ------- --------
Net loss from continuing
operations......................... $(10,586) $(7,684) $(7,900) $(26,170)
======== ======= ======= ========
Basic and diluted loss per common
share from continuing operations... $ (3.73) (6.01)
======== ========
Shares used in basic and diluted loss
per common share................... 2,835 4,355
======== ========
</TABLE>
See notes to pro forma consolidated financial statement of operations.
F-44
<PAGE> 122
QUINTUS CORPORATION
PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
QUINTUS ACUITY ADJUSTMENTS NOTES COMBINED
<S> <C> <C> <C> <C> <C>
Revenue.................................... $10,293 $ 534 $ 200 6 $11,027
Cost of revenue............................ 2,639 313 -- 2,952
------- ------- ------- -------
Gross profit............................... 7,654 221 200 8,075
Operating Expenses:
Sales and marketing...................... 4,314 1,339 5,653
Research and development................. 1,873 989 2,862
General and administrative............... 998 442 -- 1,440
Amortization of intangibles.............. 796 -- 2,075 7 2,871
Stock-based compensation................. 169 -- 169
------- ------- ------- -------
Total operating expenses......... 8,150 2,770 2,075 12,995
------- ------- ------- -------
Loss from operations....................... (496) (2,549) (1,875) (4,921)
Other income (expense), net................ (194) (15) (209)
------- ------- ------- -------
Net loss from continuing operations........ $ (690) $(2,564) $(1,875) $(5,130)
======= ======= ======= =======
Basic and diluted loss per common share
from continuing operations............... $ (0.20) $ (1.02)
======= =======
Shares used in basic and diluted loss per
common share............................. 3,506 5,026
======= =======
</TABLE>
See notes to pro forma consolidated financial statement of operations.
F-45
<PAGE> 123
QUINTUS CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 1999 AND STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
The following pro forma adjustments have been made to the pro forma
condensed combining financial statements:
1. Reflects the elimination of Acuity's shareholders' equity comprised
of preferred stock of $9,000, common stock of $5,000, additional paid in
capital of $22,781,000, treasury stock of $280,000 and accumulated deficit
of $21,711,000.
2. Reflects the issuance of approximately 2,960,000 shares of
preferred stock valued at approximately $24,400,000, approximately
1,570,000 shares of common stock valued at approximately $13,000,000 and
the assumption of approximately 1,230,000 options and warrants to purchase
common and preferred stock valued at approximately $7,800,000.
3. Reflects the allocation of purchase price to the intangible assets
identified in the purchase price allocation.
4. Reflects the one-time charge of $3,000,000 for purchased in-process
technology identified in the purchase
5. Reflects the accrual of estimated costs to be paid in cash directly
attributable to the completion of the acquisition.
6. Reflects an adjustment to conform to Quintus' accounting policy for
revenue recognition.
7. Reflects pro forma amortization of the purchased intangibles over
the estimated useful life of five years of $8,300,000 for the year ended
March 31, 1999 and $2,075,000 for the quarter ended June 30, 1999.
8. Reflects the issuance on August 26, 1999 of 1,363,334 shares of
Series F convertible preferred stock at $8.25 per share for total cash
consideration of $11,247,500.
F-46
<PAGE> 124
[INSIDE BACK COVER ARTWORK TO COME]
<PAGE> 125
APPENDIX TO GRAPHICS
Page 41:
"The Quintus eContact Suite" appears above the rectangular graphic. Across the
top of the graphic (from left to right), the phrases "Channel Applications,"
eContact Engine" and "Business Applications" break up the rectangular box into
three main columns. The left-hand column is broken into five vertical segments
entitled (from top to bottom) "Computer Telephony Integration," "Web
Interaction," "Email Management," "Electronic Commerce Connector" and "Network
Routing." The word "eContact" appears in the center of the large middle column.
In the corners of the middle column, appearing above and below "eContact," are
the phrases "Personalization Services," "Coordination Services," Centralized
Customization & Administration" and "Consolidated Repository & Reporting." The
right-hand column contains the phrases (from top to bottom) "Sales & Service,"
"Consumer Relations," "Technical Support" and "Human Resources." Two narrow
sub-columns, vertically labeled "Enterprise Data Access" and "Agent Console"
separate the large middle column from the right-hand column.
<PAGE> 126
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
LOGO
SHARES OF COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
SG COWEN
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as to
matter not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of you offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Quintus have
not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock may be required
to deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as an underwriter and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 127
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Quintus in connection with
the sale of Common Stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 16,624
NASD fee.................................................... 7,228
Nasdaq National Market listing fee..........................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue sky fees and expenses..................................
Transfer agent fees.........................................
Miscellaneous fees and expenses.............................
----------
Total............................................. $
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers, including reimbursement for expenses incurred, in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VII, Section 6, of the Registrant's bylaws provides
for mandatory indemnification of its directors and permissible indemnification
of officers and employees to the maximum extent permitted by the Delaware
General Corporation Law. The Registrant's certificate of incorporation provides
that, pursuant to Delaware law, its directors shall not be liable for monetary
damages for breach of the directors' fiduciary duty as directors to Quintus and
its stockholders. This provision in the certificate of incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to Quintus
for acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant has
entered into indemnification agreements with its officers and directors, a form
of which is attached as Exhibit 10.1 hereto and incorporated herein by
reference. The indemnification agreements provide the Registrant's officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law. Reference is made to Section of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Registrant against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 1996, we have issued and sold the following securities:
1. On September 17, 1996, we issued and sold an aggregate of 2,595,422
shares of our Series C Preferred Stock to a group of five investors for an
aggregate purchase price of $4,957,256.02. On
II-1
<PAGE> 128
December 18, 1996, we issued and sold 52,356 shares of our Series C Preferred
Stock to one investor for an aggregate purchase price of $99,999.96.
2. On November 10, 1997, we issued and sold an aggregate of 1,091,362
shares of our Series D Preferred Stock to a group of three investors for an
aggregate purchase price of $3,000,000.00. On that same date, in connection with
our acquisition of Nabnasset Corporation, we issued an additional aggregate of
363,634 shares of our Series D Preferred Stock to the same three investors in
exchange for the outstanding shares of Series A preferred stock of Nabnasset
Corporation.
3. On November 10, 1997, in connection with the acquisition of Nabnasset
Corporation, we assumed two warrants issued by Nabnasset on February 12, 1997.
These two warrants are exercisable for an aggregate of 8,466 shares of our
common stock.
4. On November 10, 1997, we issued and sold six warrants to purchase an
aggregate of 72,287 shares of our common stock to a group of six investors at a
per share exercise price of $4.54.
5. On November 10, 1997, in connection with our acquisition of Nabnasset,
we assumed a warrant issued by Nabnasset to its financial advisor on that same
date. The assumed warrant is exercisable for 76,047 shares of our common stock.
On March 9, 1998, Nabnasset's financial advisor transferred warrants to purchase
an aggregate of 18,252 shares of our common stock to a group of four investors.
6. On March 12, 1998, we issued and sold two warrants to purchase an
aggregate of 13,142 shares of our common stock to two investors at a per share
exercise price of $0.30.
7. On March 16, 1998, we issued and sold a warrant to purchase an aggregate
of 9,857 shares of our common stock to an investor at a per share exercise price
of $0.30.
8. On March 17, 1998, we issued and sold three warrants to purchase an
aggregate of 13,143 shares of our common stock to an investor at a per share
exercise price of $0.30.
9. On April 30, 1998, we issued and sold six warrants to purchase an
aggregate of 24,093 shares of our common stock to six investors at a per share
exercise price of $0.30.
10. On May 21, 1998, we issued and sold an aggregate of 2,538,335 shares of
our Series E Preferred Stock to a group of thirteen investors for an aggregate
purchase price of $10,534,090.25. On May 27, 1998, we issued and sold an
additional aggregate of 66,266 shares of our Series E Preferred Stock to a group
of three investors for an aggregate purchase price of $275,003.90.
11. On May 21, 1998, we issued and sold twelve warrants to purchase an
aggregate of 253,008 shares of our common stock to twelve investors at a per
share exercise price of $0.30.
12. On August 26, 1999, we issued and sold an aggregate of 1,363,334 shares
of our Series F Preferred Stock to a group of three investors for an aggregate
purchase price of $11,247,505.50.
13. On September 2, 1999, we issued and sold a warrant to purchase an
aggregate of 300,000 shares of our common stock at a per share exercise price of
$7.50.
14. We issued and sold an aggregate of 4,282,843 shares (assuming no
exercise of stock options after August 31, 1999) of common stock to our
employees, consultants and other service providers pursuant to stock grants and
exercises of options under our 1995 Stock Option Plan (Exhibit 10.2).
15. We granted options to purchase 9,121,443 shares of common stock to
employees, consultants and other service providers of Quintus under our 1995
Stock Option Plan, of which 4,342,242 shares have been exercised as of August
31, 1999.
The sale of the above securities were deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder, or
II-2
<PAGE> 129
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving any public offering or transactions under
compensation benefit plans and contracts relating to compensation as provided
under Rule 701, or Section 3(a)(10) of the Securities Act as a security issued
after a ruling by an authorized authority upon the fairness of the transaction's
terms and conditions. With regard to the sales of securities exempted by Section
4(2) of the Securities Act, the recipients of securities in each transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution and
appropriate legends were affixed to the share certificates issued in these
transactions. All recipients had adequate access, through their relationships
with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization by and among
Registrant, Acuity Corp., Ribeye Acquisition Corp. and
certain stockholders of Acuity Corp., dated September 10,
1999.
3.1 Certificate of Incorporation of Registrant, as amended to
date.
3.2 Form of Registrant's Restated Certificate of Incorporation
to be filed upon the closing of Registrant's acquisition of
Acuity Corp.
3.3 Form of Registrant's Restated Certificate of Incorporation
to be filed upon the closing of this offering.
3.4 Amended and Restated Bylaws of Registrant.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, and 3.4.
4.2* Specimen Common Stock certificate.
4.3 Form of Registrant's Amended and Restated Investors Rights
Agreement to be adopted upon the closing of Registrant's
acquisition of Acuity Corp.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1 Form of Indemnification Agreement to be entered into between
Registrant and each of its directors and officers.
10.2 1995 Stock Option Plan and form of stock purchase agreement
thereunder.
10.3 1999 Stock Incentive Plan and forms of agreements
thereunder.
10.4 Employee Stock Purchase Plan.
10.5 1999 Director Option Plan.
10.6 Light Industrial Lease between Registrant and Teachers
Insurance and Annuity Association of America, dated October
6, 1995.
10.7 Sublease Agreement between Pavilion Technologies, Inc. and
Acuity Corporation, dated December 19, 1996.
10.8* Software Distribution Agreement dated May 5, 1997, between
Nabnasset Corporation and Lucent Technologies Inc.
10.9* Distribution Agreement for ICR and SICR Programs dated April
26, 1999, between Registrant and GeoTel Communications
Corporation.
10.10* Authorized OEM/Reseller Agreement dated December 22, 1998,
between Registrant and Brightware, Inc.
10.11 Employment agreement between Registrant and Alan Anderson,
dated May 23, 1995 and Notice of Grant of Stock Option.
10.12 Employment agreement between Registrant and John Burke,
dated June 11, 1999.
10.13 Loan and Security Agreement between Registrant and Silicon
Valley Bank, dated as of September 18, 1998.
</TABLE>
II-3
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
16.1 Letter regarding change in certifying accountant.
21.1 Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP, Independent Auditor
23.2 Consent of Ernst & Young LLP Independent Auditors
23.3 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.4* Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-7).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fremont,
State of California, on this 10th day of September, 1999.
QUINTUS CORPORATION
By: /s/ ALAN K. ANDERSON
------------------------------------
Alan K. Anderson
Chief Executive Officer
II-5
<PAGE> 132
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Alan K. Anderson and Susan Salvesen, and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to sign any registration statement for the
same offering covered by this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of
1933, and all post-effective amendments thereto, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF
OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ ALAN K. ANDERSON Chief Executive Officer September 10, 1999
- -------------------------------------------------------- (Principal Executive
Alan K. Anderson Officer) and Director
/s/ SUSAN SALVESEN Chief Financial Officer September 10, 1999
- -------------------------------------------------------- (Principal Financial
Susan Salvesen and Accounting Officer)
and Secretary
/s/ PAUL H. BARTLETT Director September 10, 1999
- --------------------------------------------------------
Paul H. Bartlett
/s/ FREDRIC W. HARMAN Director September 10, 1999
- --------------------------------------------------------
Fredric W. Harman
/s/ WILLIAM HERMAN Director September 10, 1999
- --------------------------------------------------------
William Herman
/s/ ALEXANDER ROSEN Director September 10, 1999
- --------------------------------------------------------
Alexander Rosen
/s/ ROBERT W. SHAW Director September 10, 1999
- --------------------------------------------------------
Robert W. Shaw
/s/ JEANNE WOHLERS Director September 10, 1999
- --------------------------------------------------------
Jeanne Wohlers
</TABLE>
II-6
<PAGE> 133
REPORT ON SCHEDULE OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITOR
To the Board of Directors and Stockholders
of Quintus Corporation:
We have audited the consolidated financial statements of Quintus
Corporation (the Company) as of and for the year ended March 31, 1999, and have
issued our report thereon dated June 18, 1999 (September 10, 1999 as to Note 15)
(included elsewhere in this registration statement). Our audit also included the
financial statement schedule of the Company for the year ended March 31, 1999,
listed in Item 16(b). The financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audit. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
San Jose, California
June 18, 1999
S-1
<PAGE> 134
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Quintus Corporation
We have audited the consolidated financial statements of Quintus
Corporation as of March 31, 1998 and 1997, and for the years then ended, and
have issued our report thereon dated April 30, except for Note 12, as to which
the date is September 18, 1999 (included elsewhere in this Registration
Statement). Our audits also included the data for the two years ended March 31,
1998 included in the financial statement schedules listed in Item 16(b) of this
Registration Statement. These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Palo Alto, California
April 30, 1998
S-2
<PAGE> 135
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED BALANCE
AT TO COST AT
BEGINNING AND END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
--------- -------- ---------- -------
<S> <C> <C> <C> <C>
Year ended March 31, 1997
Allowance for doubtful accounts............. $569 $255 $(299) $525
==== ==== ===== ====
Year ended March 31, 1998
Allowance for doubtful accounts............. $525 $408 $ (85) $848
==== ==== ===== ====
Year ended March 31, 1999
Allowance for doubtful accounts............. $848 $235 $(354) $729
==== ==== ===== ====
</TABLE>
S-3
<PAGE> 136
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization by and among
Registrant, Acuity Corp., Ribeye Acquisition Corp. and
certain stockholders of Acuity Corp., dated September 10,
1999.
3.1 Certificate of Incorporation of Registrant, as amended to
date.
3.2 Form of Registrant's Restated Certificate of Incorporation
to be filed upon the closing of Registrant's acquisition of
Acuity Corp.
3.3 Form of Registrant's Restated Certificate of Incorporation
to be filed upon the closing of this offering.
3.4 Amended and Restated Bylaws of Registrant.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, and 3.4.
4.2* Specimen Common Stock certificate.
4.3 Form of Registrant's Amended and Restated Investors Rights
Agreement to be adopted upon the closing of Registrant's
acquisition of Acuity Corp.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1 Form of Indemnification Agreement to be entered into between
Registrant and each of its directors and officers.
10.2 1995 Stock Option Plan and form of stock purchase agreement
thereunder.
10.3 1999 Stock Incentive Plan and forms of agreements
thereunder.
10.4 Employee Stock Purchase Plan.
10.5 1999 Director Option Plan.
10.6 Light Industrial Lease between Registrant and Teachers
Insurance and Annuity Association of America, dated October
6, 1995.
10.7 Sublease Agreement between Pavilion Technologies, Inc. and
Acuity Corporation, dated December 19, 1996.
10.8* Software Distribution Agreement dated May 5, 1997, between
Nabnasset Corporation and Lucent Technologies Inc.
10.9* Distribution Agreement for ICR and SICR Programs dated April
26, 1999, between Registrant and GeoTel Communications
Corporation.
10.10* Authorized OEM/Reseller Agreement dated December 22, 1998,
between Registrant and Brightware, Inc.
10.11 Employment agreement between Registrant and Alan Anderson,
dated May 23, 1995 and Notice of Grant of Stock Option.
10.12 Employment agreement between Registrant and John Burke,
dated June 11, 1999.
10.13 Loan and Security Agreement between Registrant and Silicon
Valley Bank, dated as of September 18, 1998.
16.1 Letter regarding change in certifying accountant.
21.1 Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP, Independent Auditor
23.2 Consent of Ernst & Young LLP Independent Auditors
23.3 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.4* Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-7).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
QUINTUS CORPORATION,
RIBEYE ACQUISITION CORP.,
ACUITY CORP. AND
THE UNDERSIGNED STOCKHOLDERS OF ACUITY CORP.
SEPTEMBER 10, 1999
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TABLE OF CONTENTS
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ARTICLE I THE MERGER......................................................................................... 1
1.1 The Merger...................................................................................... 1
1.2 Closing; Effective Time......................................................................... 2
1.3 Effect of the Merger............................................................................ 2
1.4 Certificate of Incorporation; Bylaws............................................................ 2
1.5 Directors and Officers.......................................................................... 2
1.6 Effect on Capital Stock......................................................................... 2
1.7 Surrender of Certificates....................................................................... 5
1.8 No Further Ownership Rights in Target Capital Stock............................................. 7
1.9 Lost, Stolen or Destroyed Certificates.......................................................... 7
1.10 Tax Consequences............................................................................... 7
1.11 Exemption from Registration.................................................................... 8
1.12 Taking of Necessary Action; Further Action..................................................... 8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET.......................................................... 8
2.1 Organization, Standing and Power................................................................ 8
2.2 Capital Structure............................................................................... 9
2.3 Authority....................................................................................... 10
2.4 Financial Statements............................................................................ 10
2.5 Absence of Certain Changes...................................................................... 11
2.6 Absence of Undisclosed Liabilities.............................................................. 11
2.7 Accounts Receivable............................................................................. 11
2.8 Litigation...................................................................................... 12
2.9 Restrictions on Business Activities............................................................. 12
2.10 Governmental Authorization..................................................................... 12
2.11 Title to Property.............................................................................. 12
2.12 Intellectual Property.......................................................................... 13
2.13 Environmental Matters.......................................................................... 13
2.14 Taxes.......................................................................................... 14
2.15 Employee Benefit Plans......................................................................... 16
2.16 Employees and Consultants...................................................................... 18
2.17 Related-Party Transactions..................................................................... 19
2.18 Insurance...................................................................................... 20
2.19 Compliance with Laws........................................................................... 20
2.20 Brokers' and Finders' Fees..................................................................... 20
2.21 Voting Agreement; Irrevocable Proxies.......................................................... 20
2.22 Vote Required.................................................................................. 20
2.23 Trade Relations................................................................................ 20
2.24 Customers and Suppliers........................................................................ 20
2.25 Material Contracts............................................................................. 21
2.26 No Breach of Material Contracts................................................................ 22
2.27 Third-Party Consents........................................................................... 22
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2.28 Minute Books................................................................................... 22
2.29 Complete Copies of Materials................................................................... 23
2.30 Year 2000 Compliance........................................................................... 23
2.32 Representations Complete....................................................................... 23
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB........................................ 23
3.1 Organization, Good Standing and Qualification................................................... 24
3.2 Capitalization and Voting Rights................................................................ 24
3.3 Subsidiaries.................................................................................... 25
3.4 Authority....................................................................................... 25
3.5 Litigation...................................................................................... 26
3.6 Proprietary Information and Employee Stock Purchase Agreements.................................. 26
3.7 Patents and Trademarks.......................................................................... 26
3.8 Compliance with Other Instruments............................................................... 27
3.9 Agreements; Action.............................................................................. 27
3.10 Related Party Transactions..................................................................... 27
3.11 Permits........................................................................................ 28
3.12 Environmental and Safety Laws.................................................................. 28
3.13 Manufacturing and Marketing Rights............................................................. 28
3.14 Registration Rights............................................................................ 28
3.15 Title to Property and Assets................................................................... 28
3.16 Financial Statements........................................................................... 28
3.17 Changes........................................................................................ 29
3.18 Employee Benefit Plans......................................................................... 30
3.19 Tax Returns, Payments and Elections............................................................ 31
3.20 Insurance...................................................................................... 31
3.21 Labor Agreements and Actions................................................................... 32
3.22 Real Property Holding Company.................................................................. 32
3.23 Representations Complete....................................................................... 32
3.24 Brokers' and Finders' Fees..................................................................... 32
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................................................... 32
4.1 Conduct of Business of Target and Acquiror...................................................... 32
4.2 Conduct of Business of Target................................................................... 33
4.3 Notices......................................................................................... 35
ARTICLE V ADDITIONAL AGREEMENTS.............................................................................. 36
5.1 No Solicitation................................................................................. 36
5.2 Preparation of Information Statement............................................................ 36
5.3 Stockholders Meeting or Consent Solicitation.................................................... 37
5.4 Access to Information........................................................................... 37
5.5 Confidentiality................................................................................. 37
5.6 Public Disclosure............................................................................... 38
5.7 Consents........................................................................................ 38
5.8 Update Disclosure; Breaches..................................................................... 38
5.9 Voting Agreement................................................................................ 38
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5.10 Legal Requirements............................................................................. 41
5.11 Tax-Free Reorganization........................................................................ 41
5.12 Stock Options.................................................................................. 41
5.13 Fairness Hearing............................................................................... 42
5.14 Escrow Agreement............................................................................... 42
5.15 Additional Agreements; Best Efforts............................................................ 42
5.16 Employee Benefits.............................................................................. 42
5.17 Market Stand-Off Agreement..................................................................... 42
5.18 Delivery of Financial Information.............................................................. 43
5.19 Koz Inc. Stock Distribution.................................................................... 43
ARTICLE VI CONDITIONS TO THE MERGER.......................................................................... 44
6.1 Conditions to Obligations of Each Party to Effect the Merger.................................... 44
6.2 Additional Conditions to Obligations of Target.................................................. 45
6.3 Additional Conditions to the Obligations of Acquiror............................................ 45
ARTICLE VII TERMINATION, EXPENSES, AMENDMENT AND WAIVER...................................................... 47
7.1 Termination..................................................................................... 47
7.2 Effect of Termination........................................................................... 48
7.3 Expenses and Termination Fees................................................................... 48
7.4 Amendment....................................................................................... 48
7.5 Extension; Waiver............................................................................... 48
ARTICLE VIII ESCROW AND INDEMNIFICATION...................................................................... 48
8.1 Survival of Representations, Warranties and Covenants........................................... 48
8.2 Indemnity....................................................................................... 49
8.3 Escrow Fund..................................................................................... 49
8.4 Damage Threshold................................................................................ 50
8.5 Escrow Period................................................................................... 50
8.6 Claims upon Escrow Fund......................................................................... 50
8.7 Objections to Claims............................................................................ 51
8.8 Resolution of Conflicts; Arbitration............................................................ 51
8.9 Stockholders' Agent............................................................................. 52
8.10 Distribution Upon Termination of Escrow Period................................................. 53
8.11 Actions of the Stockholders' Agent............................................................. 53
8.12 Third-Party Claims............................................................................. 53
8.13 Maximum Liability and Remedies................................................................. 54
ARTICLE IX GENERAL PROVISIONS................................................................................ 54
9.1 Notices......................................................................................... 54
9.2 Interpretation.................................................................................. 55
9.3 Counterparts.................................................................................... 56
9.4 Entire Agreement; No Third Party Beneficiaries.................................................. 56
9.5 Severability.................................................................................... 56
9.6 Remedies Cumulative............................................................................. 56
9.7 Governing Law................................................................................... 56
9.8 Assignment...................................................................................... 57
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9.9 Rules of Construction........................................................................... 57
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SCHEDULES
Target Disclosure Letter
Acquiror Disclosure Letter
Option Schedule
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EXHIBITS
Exhibit A - Certificate of Merger
Exhibit B - Compensation Agreement
Exhibit C - Escrow Agreement
Exhibit D - Acquiror's Legal opinion
Exhibit E - Target's Legal opinion
Exhibit F - FIRPTA Notice
Exhibit G - Target Notice to Internal Revenue Service
Exhibit H Restated Certificate of Incorporation
Exhibit I Investors Rights Agreement
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
and entered into as of September 10, 1999, by and among Quintus Corporation, a
Delaware corporation ("Acquiror"), Ribeye Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Acquiror ("Merger Sub"), Acuity
Corp., a Delaware corporation ("Target"), Andrew Busey as "Stockholders'
Representative," and each of the undersigned affiliates of Target (each an
"Affiliate" and collectively the "Affiliates").
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub
believe it is in the best interests of their respective companies and the
stockholders of their respective companies that Target and Merger Sub combine
into a single company through the statutory merger of Merger Sub with and into
Target (the "Merger").
B. Pursuant to the Merger, among other things, each outstanding
share of capital stock of Target ("Target Capital Stock"), shall be converted
into shares of capital stock of Acquiror ("Acquiror Capital Stock"), as set
forth below.
C. Target, Acquiror, Merger Sub and the Affiliates desire to make
certain representations and warranties and other agreements in connection with
the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan
of reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code.
F. Concurrent with the execution of this Agreement and as an
inducement to Acquiror to enter into this Agreement, certain of the stockholders
of Target are entering into an agreement to vote the shares of Target's Capital
Stock owned by such person to approve the Merger and against any competing
proposals.
NOW, THEREFORE, in consideration of the covenants and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I.
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement, the
Certificate of Merger attached hereto as Exhibit A (the "Certificate of Merger")
and the applicable provisions of the Delaware General Corporation Law ("Delaware
Law"), Merger Sub shall be merged with and into Target, the separate corporate
existence of Merger Sub shall cease and Target shall continue as the
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surviving corporation. Target as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in Article
VI hereof or at such other time as the parties hereto agree (the date on which
the Closing shall occur, the "Closing Date"). The Closing shall take place at
the offices of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian in Menlo
Park, California, or at such other location as the parties hereto agree. On the
Closing Date, the parties hereto shall cause the Merger to be consummated by
filing the Certificate of Merger, together with the required officers'
certificates, with the Secretary of State of the State of Delaware, in
accordance with the relevant provisions of Delaware Law (the time and date of
such filing being the "Effective Time" and the "Effective Date," respectively).
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Target and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Target and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation.
(b) The Bylaws of Merger Sub, as in effect immediately prior
to the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. At the Effective Time, the directors of
Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, to hold office until such time as such directors resign,
are removed or their respective successors are duly elected or appointed and
qualified. The officers of Merger Sub immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, to hold office until such
time as such officers resign, are removed or their respective successors are
duly elected or appointed and qualified.
1.6 Effect on Capital Stock. By virtue of the Merger and without any
action on the part of Acquiror, Merger Sub, Target or the holders of any of
Target's securities:
(a) Conversion of Target Capital Stock. The "Total
Consideration" shall equal the number of shares of Acquiror Capital Stock to be
issued pursuant to this Section 1.6 plus the number of shares of Acquiror
Capital Stock to be reserved for issuance upon exercise of unexpired and
unexercised (whether vested or unvested and assuming the satisfaction of any
conditions to exercisability, including, without limitation, the passage of
time) Target Options (the "Target Option Reserve") and Target Warrants (each as
defined below) following
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consummation of the Merger. The Total Consideration shall equal the product of
(i) 0.2195121 and (ii) the sum of (A) the total number of outstanding shares of
Acquiror Capital Stock on an as-if-converted basis ("Acquiror Outstanding
Stock") as of the Exchange Ratio Date (as defined below) and (B) the total
number of shares of Acquiror Capital Stock issuable pursuant to the exercise of
outstanding options or other rights to acquire by purchase, exchange, conversion
or otherwise Acquiror Stock ("Acquiror Options") and outstanding warrants for
Acquiror Stock ("Acquiror Warrants") as of the Exchange Ratio Date. The "Total
Target Consideration" shall equal the product of (0.985) and the Total
Consideration. The "Financial Advisor Fee" shall equal the product of (0.015)
and the Total Consideration. The "Exchange Ratio" shall equal that number
derived by dividing the Total Target Consideration by the sum of the total
number of shares of Target Common Stock (as defined below) outstanding on an
as-if-converted basis ("Target Outstanding Stock") as of the Exchange Ratio Date
and the number of shares of Target Common Stock issuable pursuant to the
exercise of the Target Options and Target Warrants outstanding as of the
Exchange Ratio Date. The Exchange Ratio Date shall be the business day
immediately preceding the Effective Date.
At the Effective Time, each share of Target Capital Stock issued and
outstanding immediately prior to the Effective Time (other than (i) shares of
Target Capital Stock to be cancelled pursuant to Section 1.6(b) and (ii) shares
of Target Capital Stock held by persons who have not approved by vote or written
consent the Merger and with respect to which shares such persons remain entitled
to exercise dissenters' rights in accordance with Section 262 of the Delaware
Law (collectively, the "Dissenting Shares")) will be converted automatically
into the right to receive shares of Acquiror Capital Stock as follows:
- each share of common stock of Target ("Target Common Stock")
issued and outstanding will be converted automatically into the
right to receive that fraction of one share of Acquiror Common
Stock equal to the Exchange Ratio;
- each share of Series A Preferred Stock of Target ("Target Series
A Stock") issued and outstanding will be converted automatically
into the right to receive that fraction of one share of Acquiror
Series G-1 Preferred Stock equal to the Exchange Ratio;
- each share of Series B-1 Preferred Stock of Target ("Target
Series B-1 Stock") issued and outstanding will be converted
automatically into the right to receive that fraction of one
share of Acquiror Series G-2 Preferred Stock equal to the
Exchange Ratio
- each share of Series B-2 Preferred Stock Preferred Stock of
Target ("Target Series B-2 Stock") issued and outstanding will be
converted automatically into the right to receive that fraction
of one share of Acquiror Series G-3 Preferred Stock equal to the
Exchange Ratio
- each share of Series C Preferred Stock of Target ("Target Series
C Stock") issued and outstanding will be converted automatically
into the right to receive that fraction of one share of Acquiror
Series G-4 Preferred Stock equal to the Exchange Ratio;
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- each share of Series D Preferred Stock of Target ("Target Series
D Stock") and Series E Preferred Stock of Target ("Target Series
E Stock") issued and outstanding will be converted automatically
into the right to receive that fraction of one share of Acquiror
Series G-5 Preferred Stock equal to the Exchange Ratio; and
- each share of Series F Preferred Stock of Target ("Target Series
F Stock") issued and outstanding will be converted automatically
into the right to receive that fraction of one share of Acquiror
Series G-6 Preferred Stock equal to the Exchange Ratio.
At the Effective Time, the Acquiror shall deliver that number of
shares of Acquiror Series G-3 Preferred Stock equal to the Financial Advisor Fee
to Dain Rauscher Wessels, financial advisor to Target, pursuant to a
compensation agreement attached hereto as Exhibit B ("Compensation Agreement").
The rights, preferences and privileges of the Acquiror Series G Preferred Stock
shall be as stated in the Acquiror Restated Certificate of Incorporation, the
form of which is attached hereto as Exhibit H (the "Acquiror Restated
Certificate").
(b) Cancellation of Target Capital Stock Owned by Acquiror or
Target. At the Effective Time, all shares of Target Capital Stock that are owned
by Target as treasury stock, each share of Target Capital Stock owned by
Acquiror or any direct or indirect wholly owned subsidiary of Acquiror or of
Target immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) Target Stock Option Plans. At the Effective Time, the
Target 1995 Stock Option Plan, as amended (the "Target Stock Option Plan") shall
be terminated and all options to purchase Target Common Stock ("Target Options")
then outstanding under the Target Stock Option Plan shall be converted into
options to purchase shares of Acquiror Common Stock in accordance with Section
5.12.
(d) Target Warrants. At the Effective Time, each outstanding
warrant to purchase shares of Target Capital Stock (the "Target Warrants") shall
be assumed by Acquiror. Each such warrant so assumed by Acquiror under this
Agreement shall continue to have, and be subject to, the same terms and
conditions as those that existed immediately prior to the Effective Time, except
that (i) such warrant shall be exercisable for that number of whole shares of
Acquiror Capital Stock of such class and series as set forth in Section 1.6(a)
equal to the product of the number of shares of Target Capital Stock that were
issuable upon exercise of such option immediately prior to the Effective Time
multiplied by the Exchange Ratio and rounded down to the nearest whole number of
shares of Acquiror Capital Stock, and (ii) the per share exercise price for the
shares of Acquiror Capital Stock issuable upon exercise of such assumed warrant
shall be equal to the quotient determined by dividing the exercise price per
share of Target Capital Stock at which such warrant was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the nearest
whole cent.
(e) Capital Stock of Merger Sub. At the Effective Time, each
share of Common Stock of Merger Sub ("Merger Sub Common Stock"), issued and
outstanding immediately prior to the Effective Time shall be converted into and
exchanged for one validly
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issued, fully paid and nonassessable share of Common Stock of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Acquiror Common Stock or Target Capital Stock), reorganization, recapitalization
or other like change with respect to Acquiror Common Stock or Target Capital
Stock occurring after the date hereof and prior to the Effective Time.
(g) Fractional Shares. No fraction of a share of Acquiror
Capital Stock will be issued, but in lieu thereof each holder of shares of
Target Capital Stock who would otherwise be entitled to a fraction of a share of
Acquiror Capital Stock (after aggregating all fractional shares of Acquiror
Capital Stock to be received by such holder) shall receive from Acquiror an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the fair market value of one share of Acquiror
Common Stock on the Closing Date, as determined by the Acquiror's Board of
Directors.
(h) Dissenters' Rights. Any Dissenting Shares shall not be
converted into Acquiror Capital Stock but shall instead be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to Delaware Law. Target agrees that, except
with the prior written consent of Acquiror, or as required under Delaware Law,
it will not voluntarily make any payment with respect to, or settle or offer to
settle, any such purchase demand. Each holder of Dissenting Shares ("Dissenting
Stockholder") who, pursuant to the provisions of Delaware law, becomes entitled
to payment of the fair value for shares of Target Capital Stock shall receive
payment therefor (but only after the value therefor shall have been agreed upon
or finally determined pursuant to such provisions). If, after the Effective
Time, any Dissenting Shares shall lose their status as Dissenting Shares,
Acquiror shall issue and deliver, upon surrender by such stockholder of the
certificate or certificates representing shares of Target Capital Stock, the
number of shares of Acquiror Capital Stock to which such stockholder would
otherwise be entitled under this Section 1.6 and the Certificate of Merger less
the number of shares allocable to such stockholder that have been or will be
deposited in the Escrow Fund (as defined below) in respect of such shares of
Acquiror Capital Stock pursuant to Section 1.7(b) and Article VIII hereof.
1.7 Surrender of Certificates.
(a) Acquiror to Provide Common Stock and Cash. Promptly after
the Effective Time, Acquiror shall make available in accordance with this
Article I, through such reasonable procedures as Acquiror may adopt, (i) the
shares of Acquiror Capital Stock issuable pursuant to Section 1.6 in exchange
for shares of Target Capital Stock outstanding immediately prior to the
Effective Time less the number of shares of Acquiror Capital Stock to be
deposited into an escrow fund (the "Escrow Fund") pursuant to the requirements
of Article VIII hereof and (ii) cash in an amount sufficient to permit payment
of cash in lieu of fractional shares pursuant to Section 1.6(g).
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(b) Exchange Procedures. Promptly after the Effective Time,
the Surviving Corporation shall cause to be mailed to each holder of record
("Former Target Stockholders") of a certificate or certificates (the
"Certificates") which immediately prior to the Effective Time represented
outstanding shares of Target Capital Stock, whose shares were converted into the
right to receive shares of Acquiror Capital Stock (and cash in lieu of
fractional shares) pursuant to Section 1.6, (i) a letter of transmittal and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Acquiror Capital Stock (and cash in lieu
of fractional shares). Upon surrender of a Certificate for cancellation to
Acquiror or such agent or agents as may be appointed by Acquiror, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing the number of whole
shares of Acquiror Capital Stock less the number of shares of Acquiror Capital
Stock to be deposited in the Escrow Fund on such holder's behalf pursuant to
Article VIII hereof and payment in lieu of fractional shares which such holder
has the right to receive pursuant to Section 1.6, and the Certificate so
surrendered shall forthwith be canceled. Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of Target
Capital Stock will be deemed from and after the Effective Time, for all
corporate purposes, including the payment of dividends, to evidence the
ownership of the number of full shares of Acquiror Capital Stock into which such
shares of Target Capital Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.6. As soon as practicable after the Effective Time,
and subject to and in accordance with the provisions of Section 8.3 hereof,
Acquiror shall cause to be delivered to the Escrow Agent (as defined in Section
8.3 hereof) a certificate or certificates representing the Total Escrow Shares
(as defined below) which shall be registered in the name of the Escrow Agent as
nominee for the holders of Certificates cancelled pursuant to this Section 1.7.
The "Total Escrow Shares" shall be that number of shares of Acquiror Capital
Stock to be obtained by Former Target Stockholders in the Merger equal to ten
percent (10%) of the Total Target Consideration (excluding Target Option
Reserve). Such shares shall be beneficially owned by such holders and shall be
held in escrow and shall be available to compensate Acquiror for certain damages
as provided in Article VIII. To the extent not used for such purposes, such
shares shall be released, all as provided in Article VIII hereof.
(c) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Acquiror Capital Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Acquiror Capital Stock
represented thereby until the holder of record of such Certificate surrenders
such Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Acquiror Capital Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
which would have been previously payable (but for the provisions of this Section
1.7(c)) with respect to such shares of Acquiror Capital Stock.
(d) Transfers of Ownership. If any certificate for shares of
Acquiror Capital Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the Certificate so surrendered is
properly endorsed and otherwise in proper form for transfer and that the person
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requesting such exchange will have paid to Acquiror or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of Acquiror Capital Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of Acquiror or any agent designated by it that such tax has been
paid or is not payable.
(e) No Liability. Notwithstanding anything to the contrary in
this Section 1.7, neither the Surviving Corporation nor any party hereto shall
be liable to any person for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(f) Dissenting Shares. The provisions of this Section 1.7
shall also apply to Dissenting Shares that lose their status as such, except
that the obligations of Acquiror under this Section 1.7 shall commence on the
date of loss of such status and the holder of such shares shall be entitled to
receive in exchange for such shares the number of shares of Acquiror Capital
Stock to which such holder is entitled pursuant to Section 1.6 hereof.
1.8 No Further Ownership Rights in Target Capital Stock. After the
Effective Time, there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of Target Capital Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates (other than certificates representing Dissenting
Shares) are presented to the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Acquiror shall issue
in exchange for such lost, stolen or destroyed Certificates, upon the making of
an affidavit of that fact by the holder thereof, such shares of Acquiror Capital
Stock (and cash in lieu of fractional shares) as may be required pursuant to
Section 1.6; provided, however, that if the number of shares represented by a
lost Certificate exceeds 10,000, Acquiror may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Acquiror or the Surviving Corporation with respect to the Certificates alleged
to have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. No party shall take any action which would, to such party's knowledge,
cause the Merger to fail to qualify as a reorganization within the meaning of
Section 368 of the Code.
1.11 Exemption from Registration. The parties hereto expect that the
shares of Acquiror Capital Stock to be issued in connection with the Merger will
be issued in a transaction exempt from registration under the Securities Act of
1933, as amended (the "Securities Act"), by reason of Section 3(a)(10) thereof,
and that the issuance of the Acquiror Capital Stock and Acquiror's substitution
of Target Option hereunder will be qualified under the securities laws of the
State of California pursuant to Section 25121 thereof, after a fairness hearing
(the "Fairness Hearing") has been held pursuant to the authority granted by
Section 25142 of such law. Each of
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Acquiror, Merger Sub and Target shall use their respective best efforts (a) to
file an application for such hearing and qualification as soon as reasonably
practicable after the date of this Agreement and (b) to obtain such
qualification.
1.12 Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Target, the officers and directors of Target and Merger
Sub are fully authorized in the name of their respective corporations or
otherwise to take, and shall take, all such lawful and necessary action, so long
as such action is not inconsistent with this Agreement or the Transaction
Documents (as defined below).
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF TARGET
Target represents and warrants to Acquiror and Merger Sub that the
statements contained in this Article II are true and correct, except as set
forth in the disclosure letter delivered by Target to Acquiror prior to the
execution and delivery of this Agreement (the "Target Disclosure Letter"). The
Target Disclosure Letter shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article II, and the
disclosure in any paragraph shall qualify only the corresponding paragraph in
this Article II; provided, however, that any item disclosed under any paragraph
of the Target Disclosure Letter shall be deemed to be disclosed with respect to
every other applicable paragraph if the disclosure in respect of such one
paragraph of the Target Disclosure Letter is sufficient on its face to
reasonably inform the reader of the Target Disclosure Letter of the information
required to be disclosed in respect of other paragraphs of the Target Disclosure
Letter. Any reference in this Article II to an agreement being "enforceable"
shall be deemed to be qualified to the extent such enforceability is subject to
(i) laws of general application relating to bankruptcy, insolvency, moratorium
and the relief of debtors, and (ii) the availability of specific performance,
injunctive relief and other equitable remedies. In the remainder of this Article
II, "Target" will be deemed to include (and each representation and warranty
will apply separately and collectively to) Target and each of Target's
subsidiaries, unless the context otherwise requires.
2.1 Organization, Standing and Power. Target is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Target has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect (as defined herein) on Target. Target has
delivered to Acquiror a true and correct copy of the Certificate of
Incorporation and Bylaws or other charter documents, as applicable, of Target,
each as amended to date. Target is not in violation of any of the provisions of
its Certificate of Incorporation or Bylaws or equivalent organizational
documents. Target does not directly or indirectly own any equity or similar
interest in, or any interest convertible or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, joint venture or
other business association or entity.
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2.2 Capital Structure. The authorized capital stock of Target
consists of 20,727,164 shares of Common Stock, 4,900,471 of which are issued and
outstanding, and 10,306,127 shares of Preferred Stock, 750,000 shares of which
are designated Target Series A Stock, all of which are issued and outstanding,
1,868,994 shares of which are designated Target Series B-1 Stock, all of which
are issued and outstanding, 1,305,000 shares of which are designated Target
Series B-2 Stock, all of which are issued and outstanding, 2,256,650 shares of
Target Series C Stock, all of which are issued and outstanding, 2,500,000 shares
of which are designated Target Series D Stock, 2,071,430 of which are issued and
outstanding, 1,142,858 shares of which are designated Target Series E Stock,
785,715 of which are issued and outstanding, and 482,625 shares of Target Series
F Stock, none of which are issued and outstanding. There are no other
outstanding shares of capital stock or voting securities and no outstanding
commitments obligating Target to issue any shares of capital stock or voting
securities after the date of this Agreement other than pursuant to the exercise
of (i) outstanding Target Warrants and (ii) options outstanding as of the date
of this Agreement under the Target Stock Option Plan. All outstanding shares of
Target Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof, and are not subject
to preemptive rights, rights of first refusal, rights of first offer or similar
rights created by statute, the Certificate of Incorporation or Bylaws of Target
or any agreement to which Target is a party or by which it is bound. As of the
date of this Agreement, Target has reserved (i) 10,306,127 shares of Common
Stock for issuance upon conversion of the Preferred Stock, and (ii) 4,950,000
shares of Common Stock for issuance to employees, directors and consultants
pursuant to the Target Stock Option Plan, of which 3,030,794 shares are subject
to outstanding, unexercised options, (iii) 1,016,501 shares of Common Stock for
issuance upon exercise of outstanding Target Warrants and (iv) 20,080 shares of
Target Series E Stock for issuance upon exercise of outstanding Target Warrants.
Except for (i) the rights created pursuant to this Agreement and (ii) Target's
right to repurchase any unvested shares under the Target Stock Option Plan,
there are no other options, warrants, calls, rights, commitments or agreements
of any character to which Target is a party or by which it is bound obligating
Target to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of Target Capital Stock or
obligating Target to grant, extend, accelerate the vesting of, change the price
of, or otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. There are no contracts, commitments or agreements
relating to the voting, purchase or sale of Target Capital Stock (i) between or
among Target and any of its stockholders and (ii) to Target's knowledge, among
any of Target's stockholders or between any of Target's stockholders and any
third party, except for the stockholders delivering Irrevocable Proxies (as
defined below). The terms of the Target Stock Option Plan permit the assumption
of such Target Stock Option Plan by Acquiror or the substitution of options to
purchase Acquiror Common Stock as provided in this Agreement, without the
consent or approval of the holders of the outstanding options, the Former Target
stockholders, or otherwise and without any acceleration of the exercise schedule
or vesting provisions in effect for such options. True and complete copies of
all agreements and instruments relating to or issued under the Target Stock
Option Plan have been made available to Acquiror, and such agreements and
instruments have not been amended, modified or supplemented, and there are no
agreements to amend, modify or supplement such agreements or instruments from
the form made available to Acquiror. All outstanding Common Stock, Target Series
A Stock, Target Series B-1 Stock, Target Series B-2
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Stock, Target Series C Stock, Target Series D Stock, Target Series E Stock and
Target Series F Stock was issued in compliance with all applicable federal and
state securities laws.
2.3 Authority.
(a) Target has all requisite corporate power and authority to
enter into this Agreement and the Certificate of Merger (collectively, the
"Transaction Documents") and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the other
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Target, subject only to the approval of the Merger by Target's
stockholders as contemplated by Section 6.2(a). This Agreement and the other
Transaction Documents to which Target is a party have been duly executed and
delivered by Target and constitute the valid and binding obligations of Target
enforceable against Target in accordance with their terms.
(b) The execution and delivery of this Agreement and the other
Transaction Documents by Target do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (i) any provision of the Certificate
of Incorporation or Bylaws of Target, as amended, (ii) any Material Contract (as
defined in Section 2.25) to which Target is bound, or (iii) any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Target or any of its properties or
assets.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Target in connection with the
execution and delivery by Target of this Agreement and the other Transaction
Documents to which Target is a party or the consummation of the transactions
contemplated hereby or thereby, except for (i) the filing of the Certificate of
Merger, together with the required officers' certificates, as provided in
Section 1.2; and (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the securities laws of any foreign
country.
2.4 Financial Statements. Target has delivered to Acquiror its
audited financial statements (balance sheet, statement of operations, statement
of stockholders' equity and statement of cash flows) for the fiscal years ended
December 31, 1996, December 31, 1997 and December 31, 1998 and its unaudited
financial statements (balance sheet, statement of operations, statement of
stockholders' equity and statement of cash flows) on a consolidated basis as at,
and for the 7-month period ended July 31, 1999 (collectively, the "Target
Financial Statements"). The Target Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") (except that
the unaudited financial statements do not have notes thereto and subject to
year-end adjustments) applied on a consistent basis throughout the periods
indicated and with each other. The Target Financial Statements fairly present
the financial condition and operating results of Target as of the dates, and for
the periods, indicated therein, subject; in the case of the unaudited financing
statements, to normal year-end audit
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adjustments. Target maintains a standard system of accounting established and
administered in accordance with generally accepted accounting principles.
2.5 Absence of Certain Changes. Since July 31, 1999, (the "Target
Balance Sheet Date"), Target has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect (as defined
in Section 9.2) on Target; (ii) any acquisition, sale or transfer of any
material asset of Target; (iii) any change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by
Target or any revaluation by Target of any of its assets; (iv) any declaration,
setting aside, or payment of a dividend or other distribution with respect to
the shares of Target Capital Stock, or any direct or indirect redemption,
purchase or other acquisition by Target of any of its shares of Target Capital
Stock; (v) any Material Contract entered into by Target, other than as provided
to Acquiror, or any material amendment or termination of, or default under, any
Material Contract to which Target is a party or by which it is bound; (vi) any
amendment or change to the Certificate of Incorporation or Bylaws of Target;
(vii) any increase in or modification of the compensation or benefits payable or
to become payable by Target to any of its directors, employees or consultants,
(viii) capital expenditures or capital commitments by Target exceeding $25,000
individually or $100,000 in the aggregate; (ix) destruction of, damage to or
loss of any material assets, business or customer of Target (whether or not
covered by insurance); (x) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action; or (xi) any negotiation or agreement by
Target to do any of the things described in the preceding clauses (i) through
(xi) (other than negotiations with Acquiror and its representatives regarding
the transactions contemplated by this Agreement).
2.6 Absence of Undisclosed Liabilities. Target has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet for the period ended July 31, 1999 (the "Target Balance Sheet"),
and (ii) those incurred in connection with the execution of this Agreement.
2.7 Accounts Receivable. The accounts receivable shown on the Target
Balance Sheet arose in the ordinary course of business and have been collected
or are collectible in the book amounts thereof, less the allowance for doubtful
accounts and returns provided for in such balance sheet. To Target's knowledge,
allowances for doubtful accounts and returns are adequate and have been prepared
in accordance with the past practices of Target. The accounts receivable of
Target arising after the date of the Target Balance Sheet and prior to the date
hereof arose, in the ordinary course of business and have been collected or are
collectible in the book amounts thereof, less allowances for doubtful accounts
and returns determined in accordance with the past practices of Target. None of
the accounts receivable are subject to any material claim of offset or
recoupment, or counterclaim and Target has no knowledge of any specific facts
that would be reasonably likely to give rise to any such claim. No material
amount of accounts receivable are contingent upon the performance by Target of
any obligation. No agreement for deduction or discount has been made with
respect to any accounts receivable.
2.8 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or
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domestic, or, to the knowledge of Target, threatened against Target or any of
its properties or officers or directors (in their capacities as such), nor does
Target have any reason to expect that any such activity, threat or allegation
will be forthcoming. There is no judgment, decree or order against Target, or,
to the knowledge of Target, any of its directors or officers (in their
capacities as such), that could prevent, enjoin, or materially alter or delay
any of the transactions contemplated by this Agreement, or that could reasonably
be expected to have a Material Adverse Effect on Target. All litigation to which
Target is a party (or, to the knowledge of Target, threatened to become a party)
is disclosed in the Target Disclosure Letter. Target does not have any plans to
initiate any litigation, arbitration or other proceeding against any third
party.
2.9 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Target that has or could
reasonably be expected to have the effect of prohibiting or impairing any
current business practice of Target, any acquisition of property by Target or
the conduct of business by Target as currently conducted.
2.10 Governmental Authorization. Target has obtained each federal,
state, county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (i) pursuant to which Target
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of Target's business or the holding of any such
interest ((i) and (ii) herein collectively called "Target Authorizations"), and
all of such Target Authorizations are in full force and effect, except where the
failure to obtain or have any such Target Authorizations could not reasonably be
expected to have a Material Adverse Effect on Target.
2.11 Title to Property. Target has good and marketable title to all
of its properties, interests in properties and assets, real and personal,
necessary for the conduct of its business as presently conducted or which are
reflected in the Target Balance Sheet or acquired after the Target Balance Sheet
Date (except properties, interests in properties and assets sold or otherwise
disposed of in the ordinary course of business since the Target Balance Sheet
Date), or with respect to leased properties and assets, valid leasehold
interests therein, in each case free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except (i) the lien of current
taxes not yet due and payable, (ii) liens arising by operation of law or
statutory liens, (iii) liens securing debt that are reflected on the Target
Balance Sheet and (iv) liens which do not materially detract from or interfere
with the use of the properties subject thereto. All material plants, property
and equipment of Target that are used in the operations of its business are in
good operating condition and repair. All properties used in the operations of
Target are reflected in the Target Balance Sheet to the extent generally
accepted accounting principles require the same to be reflected. The Target
Disclosure Letter identifies each parcel of real property owned by Target.
2.12 Intellectual Property.
(a) Target is the sole and exclusive owner of all Target
Intellectual Property (defined below) free of all contingent and noncontingent
liens, restrictions, interests, rights of reversion or termination, and all
other encumbrances of any nature. The conduct of Target's business as currently
conducted will not infringe, misappropriate or violate any
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Intellectual Property (defined below) of others. All Target Intellectual
Property is free from any challenge (or threat thereof) and Target is not aware
of any specific basis therefor. With respect to patent rights, moral rights and
Mark rights (defined below), the foregoing representations and warranties of
this paragraph are made only to Target's knowledge. Target has not licensed any
Target Intellectual Property to any third party, except for object code licenses
in the ordinary course of business. Target is not a party to any license of
Intellectual Property belonging to any third party, except licenses for readily
available commercial software.
(b) All Target Intellectual Property that is the subject of
any application, registration or issuance with or from any governmental entity
is identified on the Target Disclosure Letter. All such applications,
registrations and issuances have been properly maintained. Target has adequately
protected all other Target Intellectual Property through the use of
confidentiality agreements and otherwise and Target is not aware of any use,
exercise or exploitation of any Target Intellectual Property, except as
authorized by Target. Target has not disclosed any source code to any third
party.
(c) Each current and former employee and contractor of Target
has executed and delivered (and to Target's knowledge, is in compliance with) an
enforceable agreement in substantially the form of Target's standard Proprietary
Information and Inventions Agreement (in the case of an employee) or Target's
standard Consulting Agreement (in the case of a contractor) (which agreement
provides assignment of all title and rights to any Target Intellectual Property
conceived or developed thereunder or otherwise in connection with his or her
consulting or employment).
(d) "Intellectual Property" means patent rights; trade name,
trademark, service mark and similar rights ("Mark" rights); copyrights; mask
work rights; sui generis database rights; trade secret rights; moral rights; and
all other intellectual and industrial property rights of any sort throughout the
world, and all applications, registrations, issuances and the like with respect
thereto. "Target Intellectual Property" means all Intellectual Property that has
been or is owned by Target, or used in Target's business as currently conducted.
2.13 Environmental Matters. To Target's knowledge, Target is and has
at all times operated its business in material compliance with all Environmental
Laws and no material expenditures are or will be required in order to comply
with such Environmental Laws. "Environmental Laws" means all applicable
statutes, rules, regulations, ordinances, orders, decrees, judgments, permits,
licenses, consents, approvals, authorizations, and governmental requirements or
directives or other obligations lawfully imposed by governmental authority under
federal, state or local law pertaining to the protection of the environment,
protection of public health, protection of worker health and safety, the
treatment, emission and/or discharge of gaseous, particulate and/or effluent
pollutants, and/or the handling of hazardous materials, including without
limitation, the Clean Air Act, 42 U.S.C. Section 7401, et seq., the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), 42 U.S.C. Section 9601, et seq., the Federal Water Pollution Control
Act, 33 U.S.C. Section 1321, et seq., the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901, et seq. ("RCRA"), and the Toxic Substances Control
Act, 15 U.S.C. Section 2601, et seq.
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2.14 Taxes.
(a) All Tax returns, statements, reports, declarations and
other forms and documents (including without limitation estimated Tax returns
and reports and material information returns and reports) required to be filed
with any Tax authority with respect to any Taxable period ending on or before
the Closing, by or on behalf of Target (collectively, "Tax Returns" and
individually a "Tax Return"), have been or will be completed and filed when due
(including any extensions of such due date) and all amounts shown due on such
Tax Returns on or before the Effective Time have been or will be paid on or
before such date. The Target Financial Statements (i) fully accrue all actual
and contingent liabilities for Taxes with respect to all periods through the
Target Balance Sheet Date and Target has not and will not incur any Tax
liability in excess of the amount reflected on the Target Balance Sheet included
in the Target Financial Statements with respect to such periods (excluding any
amount thereof that reflects a timing difference between book and taxable
income) and (ii) properly accrues in accordance with GAAP all material
liabilities for Taxes payable after Target Balance Sheet Date with respect to
all transactions and events occurring on or prior to such date. All information
set forth in the notes to the Target Financial Statements relating to Tax
matters is true, complete and accurate in all material respects. No material Tax
liability since the Target Balance Sheet Date has been incurred by Target other
than in the ordinary course of business, and adequate provision has been made by
Target for all Taxes since that date in accordance with GAAP on at least a
quarterly basis.
(b) Target has previously provided or made available to
Acquiror true and correct copies of all income, franchise, and sales Tax
Returns, and, as reasonably requested by Acquiror, prior to or following the
date hereof, presently existing information statements and reports. Target has
withheld and paid to the applicable financial institution or Tax authority all
amounts required to be withheld. To the best knowledge of Target, no Tax Returns
filed with respect to Taxable years of Target through the Taxable year ended
December 31, 1995 in the case of the United States, have been examined and
closed. Target (or any member of any affiliated or combined group of which
Target has been a member) has not granted any extension or waiver of the
limitation period applicable to any Tax Returns that is still in effect. There
is no material claim, audit, action, suit, proceeding, or (to the knowledge of
Target) investigation now pending or (to the knowledge of Target) threatened
against or with respect to Target in respect of any Tax or assessment. No notice
of deficiency or similar document of any Tax authority has been received by
Target, and there are no liabilities for Taxes (including liabilities for
interest, additions to Tax and penalties thereon and related expenses) with
respect to the issues that have been raised (and are currently pending) by any
Tax authority that could, if determined adversely to Target, materially and
adversely affect the liability of Target for Taxes. There are no liens for Taxes
(other than for current Taxes not yet due and payable) upon the assets of
Target. Target has never been a member of an affiliated group of corporations,
within the meaning of Section 1504 of the Code. Target is in full compliance
with all the terms and conditions of any Tax exemptions or other Tax-sharing
agreement or order of a foreign government and the consummation of the Merger
will not have any adverse effect on the continued validity and effectiveness of
any such Tax exemption or other Tax-sharing agreement or order. Neither Target
nor any person on behalf of Target has entered into or will enter into any
agreement or consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code (or any corresponding provision of state, local or
foreign income tax law) or agreed to have
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Section 341(f)(2) of the Code (or any corresponding provision of state, local or
foreign income tax law) apply to any disposition of any asset owned by Target.
None of the assets of Target is property that Target is required to treat as
being owned by any other person pursuant to the so-called "safe harbor lease"
provisions of former Section 168(f)(8) of the Code. None of the assets of Target
directly or indirectly secures any debt the interest on which is tax-exempt
under Section 103(a) of the Code. None of the assets of Target is "tax-exempt
use property" within the meaning of Section 168(h) of the Code. Target has not
made and will not make a deemed dividend election under Treas. Reg. Section
1.1502-32(f)(2) or a consent dividend election under Section 565 of the Code.
Target has never been a party to any transaction intended to qualify under
Section 355 of the Internal Revenue Code or any corresponding provision of state
law. Target has not participated in (and will not participate in) an
international boycott within the meaning of Section 999 of the Code. No Target
stockholder is other than a United States person within the meaning of the Code.
Target does not have and has not had a permanent establishment in any foreign
country, as defined in any applicable tax treaty or convention between the
United States of America and such foreign country and Target has not engaged in
a trade or business within any foreign country. Target has never elected to be
treated as an S-corporation under Section 1361 of the Code or any corresponding
provision of federal or state law. All material elections with respect to
Target's Taxes made during the fiscal years ending, December 31, 1998, 1997 and
1996 are reflected on the Target Tax Returns for such periods, copies of which
have been provided or made available to Acquiror. After the date of this
Agreement, no material election with respect to Taxes will be made without the
prior written consent of Acquiror, which consent will not be unreasonably
withheld or delayed. Target is not party to any joint venture, partnership, or
other arrangement or contract which could be treated as a partnership for
federal income tax purposes. Target is not currently and never has been subject
to the reporting requirements of Section 6038A of the Code. There is no
agreement, contract or arrangement to which Target is a party that could,
individually or collectively, result in the payment of any amount that would not
be deductible by reason of Sections 280G (as determined without regard to
Section 280G(b)(4), 162 (other than 162(a)) or 404 of the Code. Target is not a
party to or bound by any Tax indemnity, Tax sharing or Tax allocation agreement
(whether written or unwritten or arising under operation of federal law as a
result of being a member of a group filing consolidated Tax returns, under
operation of certain state laws as a result of being a member of a unitary
group, or under comparable laws of other states or foreign jurisdictions) which
includes a party other than Target nor does Target owe any amount under any such
Agreement. Target has previously provided to Acquiror true and correct copies of
all income, franchise, and sales Tax Returns, and, as reasonably requested by
Acquiror, prior to or following the date hereof, presently existing information
statements and reports. Target is not, and has not been, a United States real
property holding corporation (as defined in Section 897(c)(2) of the Code)
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
Other than by reason of the Merger, Target has not been and will not be required
to include any material adjustment in Taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Merger.
(c) For purposes of this Agreement, the following terms have
the following meanings: "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means any and all taxes including, without limitation, (i) any net
income, alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, value added,
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net worth, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom,
duty or other tax governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Entity (a "Tax authority")
responsible for the imposition of any such tax (domestic or foreign), (ii) any
liability for the payment of any amounts of the type described in (i) as a
result of being a member of an affiliated, consolidated, combined or unitary
group for any Taxable period or as the result of being a transferee or successor
thereof and (iii) any liability for the payment of any amounts of the type
described in (i) or (ii) as a result of any express or implied obligation to
indemnify any other person. As used in this Section 2.14, the term "Target"
means Target and any entity included in, or required under GAAP to be included
in, any of the Target Financial Statements.
2.15 Employee Benefit Plans.
(a) For all purposes under this Section 2.15 "ERISA Affiliate"
shall mean each person (as defined in Section 3(9) of ERISA) that, together with
Target, is treated as a single employer under Section 4001(b) of ERISA or
Section 414 of the Code. Except for the plans and agreements listed in Schedule
2.15 (collectively, the "Plans"), Target and its ERISA Affiliates do not
maintain, are not a party to, do not contribute to and are not obligated to
contribute to, and are employees or former employees of Target and its ERISA
Affiliates and their dependents or survivors do not receive benefits under, any
of the following (whether or not set forth in a written document):
(i) Any employee benefit plan, as defined in section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA");
(ii) Any bonus, deferred compensation, incentive,
restricted stock, stock purchase, stock option, stock appreciation right,
phantom stock, supplemental pension, executive compensation, cafeteria benefit,
dependent care, director or employee loan, fringe benefit, sabbatical,
severance, termination pay or similar plan, program, policy, agreement or
arrangement; or
(iii) Any plan, program, agreement, policy,
commitment or other arrangement relating to the provision of any benefit
described in section 3(1) of ERISA to former employees or directors or to their
survivors, other than procedures intended to comply with the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") or applicable state law.
(b) Neither Target nor any ERISA Affiliate has, since January
1, 1993, terminated, suspended, discontinued contributions to or withdrawn from
any employee pension benefit plan, as defined in section 3(2) of ERISA,
including (without limitation) any multiemployer plan, as defined in section
3(37) of ERISA.
(c) Target has provided to Acquiror complete, accurate and
current copies of each of the following:
(i) The text (including amendments) of each of the
Plans, to the extent reduced to writing;
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(ii) A summary of each of the Plans, to the extent
not previously reduced to writing;
(iii) With respect to each Plan that is an
employee benefit plan (as defined in section 3(3) of ERISA), the following:
(1) The most recent summary plan description, as
described in section 102 of ERISA;
(2) Any summary of material modifications that has
been distributed to participants but has not been incorporated in an updated
summary plan description furnished under Subparagraph (1) above; and
(3) The annual report, as described in section 103
of ERISA, and (where applicable) actuarial reports, for the three most recent
plan years for which an annual report or actuarial report has been prepared; and
(iv) With respect to each Plan that is intended to
qualify under section 401(a) of the Code the most recent determination letter
concerning the plan's qualification under section 401(a) of the Code, as issued
by the Internal Revenue Service, and any subsequent determination letter
application.
(d) With respect to each Plan that is an employee benefit plan
(as defined in section 3(3) of ERISA), the requirements of ERISA applicable to
such Plan have been satisfied in all material respects.
(e) With respect to each Plan that is subject to COBRA, the
requirements of COBRA applicable to such Plan have been satisfied in all
material respects.
(f) With respect to each Plan that is subject to the Family
Medical Leave Act of 1993, as amended, the requirements of such Act applicable
to such Plan have been satisfied in all material respects.
(g) Each Plan that is intended to qualify under section 401(a)
of the Code meets the requirements for qualification under section 401(a) of the
Code and the regulations thereunder, except to the extent that such requirements
may be satisfied by adopting retroactive amendments under section 401(b) of the
Code and the regulations thereunder. Each such Plan has been administered in
accordance with its terms (or, if applicable, such terms as will be adopted
pursuant to a retroactive amendment under section 401(b) of the Code) and the
applicable provisions of ERISA and the Code and the regulations thereunder.
(h) Neither Target nor any ERISA Affiliate has any accumulated
funding deficiency under section 412 of the Code or any termination or
withdrawal liability under Title IV of ERISA.
(i) All contributions, premiums or other payments due from the
Target to (or under) any Plan as of the date hereof have been fully paid or
adequately provided for on
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the books and financial statements of Target. All accruals (including, where
appropriate, proportional accruals for partial periods) have been made in
accordance with prior practices.
2.16 Employees and Consultants.
(a) Target has provided Acquiror with a true and complete list
of all individuals employed by Target as of the date hereof and the position and
base compensation payable to each such individual. The Target Disclosure Letter
contains a description of any written employment agreements, consulting
agreements or termination or severance agreements to which Target is a party.
(b) Target is not a party to or subject to a labor union or a
collective bargaining agreement or arrangement and is not a party to any labor
or employment dispute.
(c) The consummation of the transactions contemplated herein
will not result in (i) any amount becoming payable to any employee, director or
independent contractor of Target, (ii) the acceleration of payment or vesting of
any benefit, option or right to which any employee, director or independent
contractor of Target may be entitled (including without limitation the
acceleration of vesting under any stock option, stock purchase, or stock
restriction agreement to which such person is a party), (iii) the forgiveness of
any indebtedness of any employee, director or independent contractor of Target
or (iv) to Target's knowledge, any cost becoming due or accruing to Target or
the Acquiror with respect to any employee, director or independent contractor of
Target.
(d) Target is not obligated and upon consummation of the
Merger will not be obligated to make any payment or transfer any property that
would be considered a "parachute payment" under section 280G(b)(2) of the Code.
(e) To the knowledge of Target, no employee of Target has been
injured in the work place or in the course of his or her employment except for
injuries which are covered by insurance or for which a claim has been made under
workers' compensation or similar laws.
(f) Target has complied in all material respects with the
verification requirements and the record-keeping requirements of the Immigration
Reform and Control Act of 1986 ("IRCA"); to the knowledge of Target, the
information and documents on which Target relied to comply with IRCA are true
and correct; and there have not been any discrimination complaints filed against
Target pursuant to IRCA, and to the knowledge of Target, there is no basis for
the filing of such a complaint.
(g) Target has not received or been notified in writing of any
complaint by any employee, applicant, union or other party of any discrimination
or other conduct forbidden by law or contract.
(h) Target's action in complying with the terms of this
Agreement will not violate any agreements with any of Target's employees.
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(i) To Target's knowledge, Target has filed all required
reports and information with respect to its employees that are due prior to the
Closing Date and otherwise has complied in its hiring, employment, promotion,
termination and other labor practices with all applicable federal and state law
and regulations, including without limitation those within the jurisdiction of
the United States Equal Employment Opportunity Commission and the United States
Department of Labor. Target has filed and shall file any such reports and
information that are required to be filed prior to the Closing Date.
(j) Target is not aware that any of its employees or
contractors is obligated under any agreement, commitments, judgment, decree,
order or otherwise (an "Employee Obligation") that would interfere with the use
of his or her reasonable efforts to promote the interests of Target or that
would conflict with any of Target's business as conduct or proposed to be
conducted. Neither the execution nor delivery of this Agreement nor the conduct
of Target's business as conducted, will, to Target's knowledge, conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, any Employee Obligation.
2.17 Related-Party Transactions. No employee, officer, or director
of Target or member of his or her immediate family is indebted to Target, nor is
Target indebted (or committed to make loans or extend or guarantee credit) to
any of them other than advances for reasonable business expenses in the ordinary
course of business consistent with past practices. To Target's knowledge, none
of such persons owns directly or indirectly more than one percent (1%) of the
equity securities of any firm or corporation with which Target is affiliated or
with which Target has a material business relationship, or any firm or
corporation that competes with Target, except to the extent that employees,
officers, or directors of Target and members of their immediate families own
stock in publicly traded companies that may compete with Target.
2.18 Insurance. Target has policies of insurance and bonds of the
type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of Target. There is no material claim pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and, to its
knowledge, Target is otherwise in compliance with the terms of such policies and
bonds. Target has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
2.19 Compliance with Laws. To its knowledge, Target has complied
with, is not in violation of, and has not received any notices of violation with
respect to, any federal, state, local or foreign statute, law or regulation with
respect to the conduct of its business, or the ownership or operation of its
business, except for such violations or failures to comply as could not be
reasonably expected to have a Material Adverse Effect on Target.
2.20 Brokers' and Finders' Fees. Target has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
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2.21 Voting Agreement. All of the persons and/or entities deemed
"Affiliates" of Target within the meaning of Rule 145 promulgated under the
Securities Act have agreed in writing to vote for approval of the Merger by
executing this Agreement.
2.22 Vote Required. The affirmative vote of the holders of at least
(i) seventy-five percent (75%) of the outstanding Target Preferred Stock, voting
separately as class and (ii) a majority of the outstanding shares of the Target
Capital Stock, in each case outstanding on the record date set for the special
meeting of Target stockholders (or any written consent in lieu thereof), is the
only vote (or consent) of the holders of any Target Capital Stock necessary to
approve this Agreement and the transactions contemplated hereby (the "Required
Target Stockholder Approval").
2.23 Trade Relations. Target has not within the past three years
terminated its relationship with or refused to ship products to any dealer,
distributor, OEM, third party marketing entity or customer which had theretofore
paid or been obligated to pay Target in excess of Twenty Thousand Dollars
($20,000) over any consecutive twelve (12) month period. No claims have been
communicated or, to Target's knowledge, threatened against Target with respect
to wrongful termination of any dealer, distributor or any other marketing
entity, discriminatory pricing, price fixing, unfair competition, false
advertising, or any other material violation of any laws or regulations relating
to anti-competitive practices or unfair trade practices of any kind.
2.24 Customers and Suppliers. As of the date hereof, no customer
which individually accounted for more than 5% of Target's gross revenues during
the twelve (12) month period preceding the date hereof, and no material supplier
of Target, has canceled or otherwise terminated, or made any written threat to
Target to cancel or otherwise terminate its relationship with Target for any
reason including, without limitation the consummation of the transactions
contemplated hereby, or has at any time on or after December 31, 1998 decreased
materially its services or supplies to Target in the case of any such supplier,
or its usage of the services or products of Target in the case of such customer,
and to Target's knowledge, no such supplier or customer intends to cancel or
otherwise terminate its relationship with Target or to decrease materially its
services or supplies to Target or its usage of the services or products of
Target, as the case may be. Target has not knowingly breached, so as to provide
a benefit to Target that was not intended by the parties, any agreement with, or
engaged in any fraudulent conduct with respect to, any customer or supplier of
Target.
2.25 Material Contracts. Except for the material contracts described
in the Target Disclosure Letter (collectively, the "Material Contracts"), Target
is not a party to or bound by any material contract, including without
limitation:
(a) any distributor, sales, advertising, agency or
manufacturer's representative contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such contract more
than $20,000 over the life of the contract;
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(c) any contract that expires or may be renewed at the option
of any person other than the Target so as to expire more than one year after the
date of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with GAAP;
(e) any contract for capital expenditures in excess of $20,000
in the aggregate;
(f) any contract limiting the freedom of the Target to engage
in any line of business or to compete with any other Person as that term is
defined in the Exchange Act, as defined herein, or any confidentiality, secrecy
or non-disclosure contract;
(g) any contract pursuant to which Target leases any real
property;
(h) any contract pursuant to which the Target is a lessor of
any machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property;
(i) any contract with any person with whom the Target does not
deal at arm's length within the meaning of the Code;
(j) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other Person;
(k) any license, sublicense or other agreement to which Target
is a party (or by which it or any Target Intellectual Property is bound or
subject) and pursuant to which any person has been or may be assigned,
authorized to Use, or given access to any Target Intellectual Property;
(l) any license, sublicense or other agreement pursuant to
which Target has been or may be assigned or authorized to Use, or has incurred
any obligation in connection with, (A) any third party Intellectual Property
that is incorporated in or forms a part of any current product, service or
Intellectual Property offering of Target or (B) any Target Intellectual
Property;
(m) any agreement pursuant to which Target has deposited or is
required to deposit with an escrow holder or any other person or entity, all or
part of the source code (or any algorithm or documentation contained in or
relating to any source code) of any Target Intellectual Property ("Source
Materials"); and
(n) any agreement to indemnify, hold harmless or defend any
other person with respect to any assertion of personal injury, damage to
property or Intellectual Property infringement, misappropriation or violation or
warranting the lack thereof.
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2.26 No Breach of Material Contracts. The Target has performed all
of the obligations required to be performed by it and is entitled to all accrued
benefits under, and to Target's knowledge is not alleged to be in default with
respect to, any Material Contract. Each of the Material Contracts is in full
force and effect, unamended, and there exists no default or event of default or
event, occurrence, condition or act, with respect to Target or to Target's
knowledge with respect to the other contracting party, or otherwise that, with
or without the giving of notice, the lapse of the time or the happening of any
other event or conditions, would (A) become a default or event of default under
any Material Contract, which default or event of default would have a Material
Adverse Effect on Target or (B) result in the loss or expiration of any right or
option by Target (or the gain thereof by any third party) under any Material
Contract or (C) the release, disclosure or delivery to any third party of any
part of the Source Materials (as defined in Section 2.25(m)). True, correct and
complete copies of all Material Contracts have been delivered to the Acquiror.
2.27 Third-Party Consents. The Target Disclosure Letter lists all
Material Contracts that require a novation or consent to assignment, as the case
may be, prior to the Effective Time so that Acquiror shall be made a party in
place of Target or as assignee (the "Contracts Requiring Novation or Consent to
Assignment").
2.28 Minute Books. The minute books of Target made available to
Acquiror contain a complete and accurate summary of all meetings of directors
and stockholders or actions by written consent since the time of incorporation
of Target through the date of this Agreement, and accurately reflect all actions
taken by the directors and the stockholders in such minutes in all material
respects.
2.29 Complete Copies of Materials. Target has delivered or made
available true and complete copies of each document which has been requested by
Acquiror or its counsel in connection with their legal and accounting review of
Target.
2.30 Year 2000 Compliance. All of the Target's products (including
products currently under development) are able to record, store, process and
calculate and present calendar dates falling on and after January 1, 2000, and
are able to calculate any information dependent on or relating to such dates in
the same manner and with the same functionality, data integrity and performance
as the products are able to record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively "Year 2000 Compliant").
(a) All of the Target material products lose no functionality
with respect to the introduction of records containing dates falling on or after
January 1, 2000.
(b) All of the Target's internal computer systems, including
without limitation, its accounting systems, are Year 2000 Compliant.
2.31 Representations Complete. None of the representations or
warranties made by Target herein or in any Schedule hereto, including the Target
Disclosure Letter, or certificate furnished by Target pursuant to this
Agreement, when all such documents are read together in their entirety, contains
any untrue statement of a material fact, or omits to state any
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material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Acquiror and Merger Sub represent and warrant to Target that the
statements contained in this Article III are true and correct, except as set
forth in the disclosure schedule delivered by Acquiror to Target prior to the
execution and delivery of this Agreement (the "Acquiror Disclosure Letter"). The
Acquiror Disclosure Letter shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III, and the
disclosure in any paragraph shall qualify only the corresponding paragraph in
this Article III; provided, however, that any item disclosed under any paragraph
of the Acquiror Disclosure Letter shall be deemed to be disclosed with respect
to every other applicable paragraph if the disclosure in respect of such one
paragraph of the Acquiror Disclosure Letter is sufficient on its face to
reasonably inform the reader of the Acquiror Disclosure Letter of the
information required to be disclosed in respect of other paragraphs of the
Acquiror Disclosure Letter. Any reference in this Article III to an agreement
being "enforceable" shall be deemed to be qualified to the extent such
enforceability is subject to (i) laws of general application relating to
bankruptcy, insolvency, moratorium and the relief of debtors, and (ii) the
availability of specific performance, injunctive relief and other equitable
remedies.
3.1 Organization, Good Standing and Qualification. Acquiror is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted. Acquiror is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to so
qualify would have a Material Adverse Effect on Acquiror.
3.2 Capitalization and Voting Rights. The authorized capital of
Acquiror consists, or will consist immediately prior to the Closing, of:
(a) The authorized capital stock of the Acquiror consists of
9,100,000 shares of Series A Preferred Stock ("Acquiror Series A Preferred
Stock"), all of which are issued and outstanding, 1,000,000 shares of Series B
Preferred Stock ("Acquiror Series B Preferred Stock"), of which 768,140 are
issued and outstanding, 3,000,000 shares of Series C Preferred Stock ("Acquiror
Series C Preferred Stock"), 2,647,778 of which are issued or outstanding,
1,455,000 shares of Series D Preferred Stock ("Acquiror Series D Preferred
Stock"), 1,454,996 of which are issued or outstanding, 3,000,000 shares of
Series E Preferred Stock ("Acquiror Series E Preferred Stock"), 2,604,601 of
which are issued or outstanding, 1,500,000 shares of Series F Preferred Stock
("Acquiror Series F Preferred Stock"), 1,363,334 of which are issued or
outstanding, and 40,000,000 shares of Common Stock ("Acquiror Common Stock"),
4,282,843 of which are issued or outstanding. The outstanding shares of Acquiror
Series A Preferred Stock, Acquiror Series B Preferred Stock, Acquiror Series C
Preferred Stock, Acquiror Series D Preferred Stock, Acquiror Series E Preferred
Stock, Acquiror Series F Preferred Stock and Acquiror Common Stock are duly and
validly authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of
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the Act, and any relevant state securities laws or pursuant to valid exemptions
therefrom. Except for (A) the conversion privileges of the outstanding shares of
Acquiror Series A Preferred Stock, Acquiror Series B Preferred Stock, Acquiror
Series C Preferred Stock, Acquiror Series D Preferred Stock, Acquiror Series E
Preferred Stock, and Acquiror Series F Preferred Stock (B) the conversion
privileges of the Acquiror Series G Preferred Stock to be issued in the Merger,
(C) the rights provided in Section 2.2 of the Acquiror's Amended and Restated
Investors Rights Agreement dated August 26 1999, (D) currently outstanding
warrants to purchase (i) 192,262 shares of Acquiror Series B Preferred Stock,
(ii) 775,043 shares of Acquiror Common Stock and (iii) 55,340 shares of Acquiror
Series C Preferred Stock, and (E) currently outstanding options to purchase
2,627,917 shares of Acquiror Common Stock to certain of Acquiror's directors,
officers, employees and consultants, there are not outstanding any options,
warrants, rights (including conversion or preemptive rights) or agreements for
the purchase or acquisition from Acquiror of any shares of its capital stock. In
addition to the aforementioned options, Acquiror has reserved an aggregate of an
additional 45,365 shares of Acquiror Common Stock for purchase upon exercise of
options to be granted in the future under Acquiror's 1995 Stock Option Plan and
1995 Special Performance Option Grant Plan.
(b) Other than as set forth above and the commitment to issue
shares of Acquiror Capital Stock pursuant to this Agreement; there are no other
options, warrants, calls, rights, commitments or agreements of any character to
which Acquiror or Merger Sub is a party or by which either of them is bound
obligating Acquiror or Merger Sub to issue, deliver, sell, repurchase or redeem,
or cause to be issued, delivered, sold, repurchased or redeemed, any shares of
the capital stock of Acquiror or Merger Sub or obligating Acquiror or Merger Sub
to grant, extend or enter into any such option, warrant, call, right, commitment
or agreement. The shares of Acquiror Capital Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, and non-assessable,
will not be subject to any preemptive or other statutory right of stockholders,
will be issued in compliance with applicable U.S. Federal and state securities
laws and will be free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof. There are no
contracts, commitments or agreements relating to voting, registration, purchase
or sale of Acquiror Capital Stock (i) between or among Acquiror and any of its
stockholders or (ii) to the best of Acquiror's knowledge, between or among any
of Acquiror's stockholders or between any of Acquiror's stockholders and any
third party.
3.3 Subsidiaries. Acquiror does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. Acquiror is not a participant in any joint venture,
partnership, or similar arrangement.
3.4 Authority.
(a) Each of Acquiror and Merger Sub has all requisite
corporate power and authority to enter into this Agreement and the other
Transaction Documents and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of each of Acquiror and Merger Sub. This Agreement and the other Transaction
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Documents have been duly executed and delivered by each of Acquiror and Merger
Sub and constitute the valid and binding obligations of each of Acquiror and
Merger Sub.
(b) The execution and delivery of this Agreement and the other
Transaction Documents do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under (i) any provision of the Certificate
of Incorporation or Bylaws of Acquiror or any of its subsidiaries, as amended,
or (ii) any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Acquiror or any of its
subsidiaries or their properties or assets.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Acquiror or any of its subsidiaries in connection with the
execution and delivery of this Agreement or the other Transaction Documents by
Acquiror or the consummation by Acquiror of the transactions contemplated hereby
or thereby, except for (i) the filing of the Certificate of Merger, together
with the required officers' certificates, as provided in Section 1.2 or (ii) any
filings as may be required under applicable state securities laws and the
securities laws of any foreign country.
3.5 Litigation. There is no action, suit, proceeding or
investigation pending or, to Acquiror's knowledge, currently threatened against
Acquiror or any of its properties or officers or directors (in their capacities
as such) that questions the validity of the Transaction Documents, or the right
of Acquiror to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any Material Adverse Effect on Acquiror, or any change in the
current equity ownership of Acquiror. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or threatened
involving the prior employment of any of Acquiror's employees, their use in
connection with Acquiror's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers. Acquiror is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by Acquiror currently pending or that Acquiror intends to
initiate.
3.6 Proprietary Information and Employee Stock Purchase Agreements.
Each employee of Acquiror has executed Acquiror's standard form Proprietary
Information and Inventions Agreement. Acquiror, after reasonable investigation,
is not aware that any of such employees are in violation thereof.
3.7 Patents and Trademarks. To the knowledge of Acquiror (but
without having conducted any special investigation or patent search) with
respect to patents, trademarks, service marks and trade names only, Acquiror has
sufficient title and ownership of all patents, trademarks, service marks, trade
names, copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted without any conflict with or
infringement of the rights of others. There are no outstanding options,
licenses, or agreements of
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any kind relating to the foregoing, nor is Acquiror bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
Acquiror has not received any written communications alleging that Acquiror has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. Acquiror is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her reasonable efforts to promote the interests
of Acquiror or that would conflict with Acquiror's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement or the other
Transaction Documents, nor the carrying on of Acquiror's business by the
employees of Acquiror, nor the conduct of Acquiror's business as proposed, will,
to Acquiror's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated.
Acquiror does not believe it is or will be necessary to utilize any inventions
of any of its employees (or people it currently intends to hire) made prior to
their employment by Acquiror.
3.8 Compliance with Other Instruments. Acquiror is not in violation
or default of any provision of its Restated Certificate or Bylaws, or in any
material respect of any instrument, judgment, order, writ, decree or contract to
which it is a party or by which it is bound, or, to its knowledge, of any
provision of any federal or state statute, rule or regulation applicable to
Acquiror. The execution, delivery and performance of the Transaction Documents,
and the consummation of the transactions contemplated hereby and thereby will
not result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or contract or an
event that results in the creation of any lien, charge or encumbrance upon any
assets of Acquiror or the suspension, revocation, impairment, forfeiture, or
nonrenewal of any material permit, license, authorization, or approval
applicable to Acquiror, its business or operations or any of its assets or
properties.
3.9 Agreements; Action.
(a) Except for the Transaction Documents, there are no
agreements, understandings or proposed transactions between Acquiror and any of
its officers, directors, affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
Acquiror is a party or by which it is bound that may involve (i) obligations
(contingent or otherwise) of, or payments to Acquiror in excess of, $100,000, or
(ii) the license of any patent, copyright, trade secret or other proprietary
right to or from Acquiror, or (iii) provisions restricting or affecting the
development, manufacture or distribution of Acquiror's products or services.
(c) Acquiror has not (i) declared or paid any dividends or
authorized or made any distribution upon or with respect to any class or series
of its capital
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stock, (ii) incurred any indebtedness for money borrowed or any other
liabilities individually in excess of $100,000 or, in the case of indebtedness
and/or liabilities individually less than $100,000, in excess of $500,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
3.10 Related-Party Transactions. No employee, officer, or director
of Acquiror or member of his or her immediate family is indebted to Acquiror,
nor is Acquiror indebted (or committed to make loans or extend or guarantee
credit) to any of them. To Acquiror's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which
Acquiror is affiliated or with which Acquiror has a business relationship, or
any firm or corporation that competes with Acquiror, except that employees,
officers, or directors of Acquiror and members of their immediate families may
own stock in publicly traded companies that may compete with Acquiror. No member
of the immediate family of any officer or director of Acquiror is directly or
indirectly interested in any material contract with Acquiror.
3.11 Permits. Acquiror has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of Acquiror, and
Acquiror believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. Acquiror
is not in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
3.12 Environmental and Safety Laws. To its knowledge, Acquiror is
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to the best of its knowledge,
no material expenditures are or will be required in order to comply with any
such existing statute, law or regulation.
3.13 Manufacturing and Marketing Rights. Acquiror has not granted
rights to manufacture, produce, assemble, license, market, or sell its products
to any other person and is not bound by any agreement that affects Acquiror's
exclusive right to develop, manufacture, assemble, distribute, market or sell
its products.
3.14 Registration Rights. Except as provided in the Investors Rights
Agreement, Acquiror has not granted or agreed to grant any registration rights,
including piggyback rights, to any person or entity.
3.15 Title to Property and Assets. Acquiror owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
(i) the lien of current taxes not yet due and payable, (ii) liens arising by
operation of law or statutory liens, (iii) liens securing debt that are
reflected on the Acquiror Financial Statements and (iv) liens which do not
materially detract from or interfere with the use of the properties subject
thereto. With respect to the property and assets it leases, Acquiror is in
compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
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3.16 Financial Statements. Acquiror has delivered or made available
to Target its audited financial statements (balance sheet and profit and loss
statement, statement of stockholders' equity and statement of cash flows,
including notes thereto) at March 31, 1999 and for the fiscal year then ended,
and its unaudited financial statements (balance sheet and profit and loss
statement) as at and for the three month period ended June 30, 1999 ("the
Acquiror Financial Statements"). The Acquiror Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated and with each other, except
that the Acquiror Financial Statements for the three month period ended June 30,
1999 (the "Interim Acquiror Financial Statements") may not contain all footnotes
required by generally accepted accounting principles. The Acquiror Financial
Statements fairly present the financial condition and operating results of
Acquiror as of the dates, and for the periods, indicated therein, subject in the
case of Interim Acquiror Financial Statements to normal year end audit
adjustments. Except as set forth in the Acquiror Financial Statements, Acquiror
has no material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to June 30, 1999 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Acquiror Financial Statements, which, in both cases,
individually or in the aggregate, are not material to the financial condition or
operating results of Acquiror. Except as disclosed in the Acquiror Financial
Statements, Acquiror is not a guarantor or indemnitor of any indebtedness of any
other person, firm or corporation. Acquiror maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
3.17 Changes. Since June 30, 1999 there has not been:
(a) any change in the assets, liabilities, financial condition
or operating results of Acquiror from that reflected in the Acquiror Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of Acquiror (as such
business is presently conducted and as it is proposed to be conducted);
(c) any waiver by Acquiror of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by Acquiror, except in the ordinary
course of business and that is not material to the assets, properties, financial
condition, operating results or business of Acquiror (as such business is
presently conducted and as it is proposed to be conducted);
(e) any material change or amendment to a material contract or
arrangement by which Acquiror or any of its assets or properties is bound or
subject;
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(f) any material change in any compensation arrangement or
agreement with any employee;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key
officer of Acquiror;
(i) any mortgage, pledge, transfer of a security interest in,
or lien, created by Acquiror, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(j) any loans or guarantees made by Acquiror to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(k) any declaration, setting aside or payment or other
distribution in respect of any of Acquiror's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by
Acquiror;
(l) to Acquiror's knowledge, any other event or condition of
any character that might materially and adversely affect the assets, properties,
financial condition, operating results or business of Acquiror (as such business
is presently conducted and as it is proposed to be conducted); or
(m) any agreement or commitment by Acquiror to do any of the
things described in this Section 3.17.
3.18 Employee Benefit Plans.
(a) Neither Acquiror nor any ERISA Affiliate has, since
January 1, 1993, terminated, suspended, discontinued contributions to or
withdrawn from any employee pension benefit plan, as defined in section 3(2) of
ERISA, including (without limitation) any multiemployer plan, as defined in
section 3(37) of ERISA.
(b) With respect to each employee benefit plan (as defined in
section 3(3) of ERISA) of Acquiror, the requirements of ERISA applicable to such
plan have been satisfied.
(c) With respect to each plan of Acquiror that is subject to
COBRA, the requirements of COBRA applicable to such plan have been satisfied.
(d) With respect to each plan of Acquiror that is subject to
the Family Medical Leave Act of 1993, as amended, the requirements of such Act
applicable to such plan have been satisfied.
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(e) Each plan of Acquiror that is intended to qualify under
section 401(a) of the Code meets the requirements for qualification under
section 401(a) of the Code and the regulations thereunder, except to the extent
that such requirements may be satisfied by adopting retroactive amendments under
section 401(b) of the Code and the regulations thereunder. Each such plan of
Acquiror has been administered in accordance with its terms (or, if applicable,
such terms as will be adopted pursuant to a retroactive amendment under section
401(b) of the Code) and the applicable provisions of ERISA and the Code and the
regulations thereunder.
(f) Neither Acquiror nor any ERISA Affiliate has any
accumulated funding deficiency under section 412 of the Code or any termination
or withdrawal liability under Title IV of ERISA.
(g) All contributions, premiums or other payments due from the
Acquiror to (or under) any plan of Acquiror have been fully paid or adequately
provided for on the books and financial statements of Acquiror. All accruals
(including, where appropriate, proportional accruals for partial periods) have
been made in accordance with prior practices.
3.19 Tax Returns, Payments and Elections. Each Tax Return required
to be filed with any Tax authority by or on behalf of Acquiror, has been or will
be completed and filed when due (including any extensions of such due date) and
all amounts shown due on each such Tax Return has been or will be paid on or
before such date. Acquiror has withheld and paid to the applicable financial
institution or Tax authority all amounts required to be withheld. No material
Tax liability since June 30, 1999 has been incurred by Acquiror other than in
the ordinary course of business. There is no material claim, audit, action,
suit, proceeding, or (to the knowledge of Acquiror) investigation now pending or
(to the knowledge of Acquiror) threatened against or with respect to Acquiror in
respect of any Tax or assessment. No notice of deficiency or similar document of
any Tax authority has been received by Acquiror, and there are no liabilities
for Taxes (including liabilities for interest, additions to Tax and penalties
thereon and related expenses) with respect to the issues that have been raised
(and are currently pending) by any Tax authority that could, if determined
adversely to Acquiror, materially and adversely affect the liability of Acquiror
for Taxes. There are no liens for Taxes (other than for current Taxes not yet
due and payable) upon the assets of Acquiror. Acquiror is in full compliance
with all the terms and conditions of any Tax exemptions or other Tax-sharing
agreement or order of a foreign government and the consummation of the Merger
will not have any adverse effect on the continued validity and effectiveness of
any such Tax exemption or other Tax-sharing agreement or order. Acquiror is not
party to any joint venture, partnership, or other arrangement or contract which
could be treated as a partnership for federal income tax purposes. Acquiror is
not a party to or bound by any Tax indemnity, Tax sharing or Tax allocation
agreement (whether written or unwritten or arising under operation of federal
law as a result of being a member of a group filing consolidated Tax returns,
under operation of certain state laws as a result of being a member of a unitary
group, or under comparable laws of other states or foreign jurisdictions) which
includes a party other than Acquiror nor does Acquiror owe any amount under any
such Agreement. Acquiror has not elected pursuant to the Code, to be treated as
a Subchapter S corporation or a collapsible corporation pursuant to Section
1362(a) or Section 341(f) of the Code, nor has it made any other elections
pursuant to the Code (other than elections that relate solely to methods of
accounting, depreciation or amortization) that would have a material effect
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on Acquiror, its financial condition, its business as presently conducted or
proposed to be conducted or any of its properties or material assets.
3.20 Insurance. Acquiror has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
3.21 Labor Agreements and Actions. Acquiror is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
contract, commitment or arrangement with any labor union, and no labor union has
requested or, to Acquiror's knowledge, has sought to represent any of the
employees, representatives or agents of Acquiror. There is no strike or other
labor dispute involving Acquiror pending, or to the best of Acquiror's
knowledge, threatened, that could have a Material Adverse Effect on Acquiror (as
such business is presently conducted and as it is proposed to be conducted), nor
is Acquiror aware of any labor organization activity involving its employees. To
its knowledge, Acquiror has complied in all material respects with all
applicable state and federal equal employment opportunity and other laws related
to employment.
3.22 Real Property Holding Company. Acquiror is not a real property
holding company within the meaning of Section 897 of the Code.
3.23 Representations Complete. None of the representations,
warranties or statements made by Acquiror herein or in any Schedule hereto,
including the Acquiror Disclosure Letter, or certificate furnished by Acquiror
pursuant to this Agreement, when all such documents are read together in their
entirety, contains any untrue statement of a material fact, or omits to state
any material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
3.24 Brokers' and Finders' Fees. Acquiror has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
ARTICLE IV.
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Target and Acquiror. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Target and Acquiror each
agree (except to the extent expressly contemplated by this Agreement or as
consented to in writing by the other), to carry on its and its subsidiaries'
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted. Target further agrees to (i) pay and to cause
its subsidiaries to pay debts and Taxes when due subject to good faith disputes
over such debts or Taxes, (ii) subject to Acquiror's consent to the filing of
material Tax Returns if applicable, to pay or perform other obligations when
due, and (iii) to use all reasonable efforts consistent with past practice and
policies to preserve intact its and its subsidiaries' present business
organizations, use commercially
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reasonable efforts to keep available the services of its and its subsidiaries'
present officers and key employees and preserve its and its subsidiaries'
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it or its subsidiaries, to the end that its
and its subsidiaries' goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Target agrees to promptly notify Acquiror of any event or
occurrence not in the ordinary course of its or its subsidiaries' business, and
of any event which could reasonably be expected to have a Material Adverse
Effect on Target. Without limiting the foregoing, except as expressly
contemplated by this Agreement, neither Target nor Acquiror shall do, cause or
permit any of the following, or allow, cause or permit any of its subsidiaries
to do, cause or permit any of the following, without the prior written consent
of the other:
(a) Dividends; Changes in Capital Stock. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock (other than any issuance of capital stock upon exercise of
outstanding options, warrants or rights therefor), or repurchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except from
former employees, directors and consultants in accordance with agreements
providing for the repurchase of shares in connection with any termination of
service to it or its subsidiaries;
(b) Other. Take, or agree in writing or otherwise to take, any
of the actions described above, or any action which would make any of its
representations or warranties contained in this Agreement untrue or incorrect or
prevent it from performing or cause it not to perform its covenants hereunder.
4.2 Conduct of Business of Target During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, except as expressly contemplated by this
Agreement, Target shall not do, cause or permit any of the following, or allow,
cause or permit any of its subsidiaries to do, cause or permit any of the
following, without the prior written consent of Acquiror:
(a) Charter Documents. Cause or permit any amendments to its
Certificate of Incorporation or Bylaws other than the amendment of Target's
Certificate of Incorporation contemplated by Section 6.3(i) hereof;
(b) Material Contracts. Enter into any material contract,
agreement, license or commitment, or violate, amend or otherwise modify or waive
any of the terms of any of its material contracts, agreements or licenses other
than in the ordinary course of business consistent with past practice;
(c) Stock Option Plans, etc. Accelerate, amend or change the
period of exercisability or vesting of options or other rights granted under its
stock plans or authorize cash payments in exchange for any options or other
rights granted under any of such plans;
(d) Issuance of Securities. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its
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capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities, other
than (i) the issuance of shares of its Common Stock pursuant to the exercise of
stock options, warrants or other rights therefor outstanding as of the date of
this Agreement, (ii) the issuance of options to purchase up to 20,000 shares of
Target Common Stock in any one instance or up to 50,000 shares of Target Common
Stock in the aggregate, so long as such issuances are in the ordinary course of
business and consistent with past practice and the exercise price per share of
each such option is equal to the then fair market value of Target's Common Stock
as determined by Acquiror and (iii) the issuance of up to 482,625 shares of
Target Series F Stock and warrants to purchase up to 482,625 shares of Common
Stock;
(e) Intellectual Property. Transfer to or license any person
or entity or otherwise extend, amend or modify any rights to its Intellectual
Property other than the grant of non-exclusive licenses in the ordinary course
of business consistent with past practice;
(f) Exclusive Rights. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing, manufacturing
or other exclusive rights of any type or scope with respect to any of its
products or technology;
(g) Dispositions. Sell, lease, license or otherwise dispose of
or encumber any of its properties or assets which are material, individually or
in the aggregate, to its and its subsidiaries' business, taken as a whole, other
than the sale of licenses of Target's products that are in the ordinary course
of business and consistent with past practice, other than the Koz Distribution
so long as the Koz Distribution is effected in accordance with Section 5.19
hereof.
(h) Indebtedness. Incur or commit to incur any indebtedness
for borrowed money or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others other than accounts
payable arising in the ordinary course of business and consistent with past
practice;
(i) Leases. Enter into any single operating lease requiring
payments in excess of $5,000 per month;
(j) Payment of Obligations. Pay, discharge or satisfy in an
amount in excess of $20,000 in any one case or $50,000 in the aggregate, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business,
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in the Target Financial Statements;
(k) Capital Expenditures. Incur or commit to incur any
capital expenditures in excess of $50,000 in the aggregate;
(l) Insurance. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
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(m) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(n) Employee Benefits; Severance. Take any of the following
actions: (i) increase or agree to increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or wages of
non-officer employees in the ordinary course of business and in accordance with
past practices, (ii) grant any additional severance or termination pay to, or
enter into any employment or severance agreements with, any officer or employee,
(iii) enter into any collective bargaining agreement, or (iv) establish, adopt,
enter into or amend in any material respect any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, trust, fund,
policy or arrangement for the benefit of any directors, officers or employees;
(o) Lawsuits. Commence a lawsuit or arbitration proceeding
other than (i) for the routine collection of bills, or (ii) for a breach of this
Agreement;
(p) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its and its subsidiaries' business, taken as a whole;
(q) Taxes. Make any material tax election other than in the
ordinary course of business and consistent with past practice, change any
material tax election, adopt any tax accounting method other than in the
ordinary course of business and consistent with past practice, change any tax
accounting method, file any tax return (other than any estimated tax returns,
immaterial information returns, payroll tax returns or sales tax returns) or any
amendment to a tax return, enter into any closing agreement, settle any Tax
claim or assessment or consent to any Tax claim or assessment provided that
Acquiror shall not unreasonably withhold or delay approval of any of the
foregoing actions, except as required by law;
(r) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; or
(s) Other. Take or agree in writing or otherwise to take, any
of the actions described in Sections 4.2(a) through (r) above, or any action
which would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not to
perform its covenants hereunder.
4.3 Notices. Target shall give all notices and other information
required to be given to the employees of Target, any collective bargaining unit
representing any group of employees of Target, and any applicable government
authority under the National Labor Relations Act, the Internal Revenue Code, the
Consolidated Omnibus Budget Reconciliation Act, and other applicable law in
connection with the transactions provided for in this Agreement.
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ARTICLE V.
ADDITIONAL AGREEMENTS
5.1 No Solicitation.
(a) From and after the date of this Agreement until the
earlier of (x) the termination of this Agreement in accordance with Section 7.1
or (y) the Effective Time, Target shall not, directly or indirectly, through any
officer, director, employee, representative or agent, (i) solicit, initiate, or
encourage any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for a merger, consolidation, business
combination, sale of all or substantially all of the assets, sale of shares of
capital stock (including without limitation by way of a tender offer) or similar
transactions involving Target, other than the transactions contemplated by this
Agreement (any of the foregoing inquiries or proposals being referred to in this
Agreement as a "Takeover Proposal"), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Takeover Proposal, or (iii) agree to, approve or recommend any
Takeover Proposal.
(b) Without limiting the foregoing, it is understood that any
violations of the restrictions set forth in this paragraph by any officer,
director, employee, financial advisor, attorney, representative or agent,
whether or not acting on behalf of Target, shall be deemed to be a breach of
this Section 5.1 by Target.
(c) Target shall notify Acquiror immediately (and no later
than 24 hours) after receipt by Target (or its advisors or agents) of any
Takeover Proposal or any request for information in connection with a Takeover
Proposal or for access to the properties, books or records of Target by any
person or entity that informs Target that it is considering making, or has made,
a Takeover Proposal. Such notice shall be made orally and in writing and shall
indicate in reasonable detail the identity of the offeror and the terms and
conditions of such proposal, inquiry or contact.
5.2 Preparation of Information Statement. As soon as practicable
after the execution of this Agreement, Target and Acquiror shall prepare an
Information Statement for the stockholders of Target to approve this Agreement,
the Certificate of Merger and the transactions contemplated hereby and thereby.
The Information Statement shall constitute a disclosure document for the offer
and issuance of the shares of Acquiror Common Stock to be received by the
holders of Target Capital Stock in the Merger. Acquiror and Target shall each
use its best efforts to cause the Information Statement to comply with
applicable federal and state securities laws requirements. Each of Acquiror and
Target agrees to provide promptly to the other such information concerning its
business and financial statements and affairs as, in the reasonable judgment of
the providing party or its counsel, may be required or appropriate for inclusion
in the Information Statement, or in any amendments or supplements thereto, and
to cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the Information Statement. Target will promptly
advise Acquiror, and Acquiror will promptly advise Target, in writing if at any
time prior to the Effective Time either Target or Acquiror shall obtain
knowledge of any facts that might make it necessary or appropriate to amend or
supplement the Information Statement in order to make the statements contained
or incorporated
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by reference therein not misleading or to comply with applicable law. The
Information Statement shall contain the recommendation of the Board of Directors
of Target that the Target stockholders approve the Merger and this Agreement and
the conclusion of the Board of Directors that the terms and conditions of the
Merger as contained herein are fair and reasonable to the stockholders of
Target. Anything to the contrary contained herein notwithstanding, Target shall
not include in the Information Statement any information with respect to
Acquiror or its affiliates or associates, the form and content of which
information shall not have been approved by Acquiror prior to such inclusion.
5.3 Stockholders Meeting or Consent Solicitation. As soon as
permitted by the Commissioner (as defined in Section 5.13), Target shall
promptly take all actions necessary to either (i) call a meeting of its
stockholders to be held for the purpose of voting upon this Agreement and the
Merger or (ii) commence a consent solicitation to obtain such approvals in order
to effect consummation of the Merger on or before November 10, 1999, or as soon
thereafter as is practicable. Target will, through its Board of Directors,
recommend to its stockholders approval of such matters as soon as practicable
after the date hereof. Target shall use all reasonable efforts to solicit from
its stockholders proxies or consents in favor of such matters.
5.4 Access to Information.
(a) Target shall afford Acquiror and its accountants, counsel
and other representatives, reasonable access during normal business hours during
the period prior to the Effective Time to (i) all of Target's and its
subsidiaries' properties, books, contracts, commitments and records, and (ii)
all other information concerning the business, properties and personnel of
Target and its subsidiaries as Acquiror may reasonably request. Target agrees to
provide to Acquiror and its accountants, counsel and other representatives
copies of internal financial statements promptly upon request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Acquiror and Target shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.4 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.5 Confidentiality. The parties each agree that all information
provided by one party to the other in the course of pursuing this transaction
that is marked or otherwise identified as confidential will be deemed
confidential and proprietary to the providing party, and will not be disclosed
to any other person or entity (other than the receiving party's attorneys,
accountants, or other advisers subject to similar confidentiality restrictions),
and such information will not be used by the receiving party except for the
limited purpose of evaluating the desirability of completing this proposed
transaction; provided, however, that these confidentiality restrictions will not
apply to information that the receiving party can demonstrate is publicly
available or was already known by the receiving party through a third party with
no
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confidentiality obligations to the other party. All documents and other written
information (and all copies thereof, including copies on electronic media)
received by one party from the other shall promptly be returned to the
disclosing party upon the written request of the disclosing party. The parties
further acknowledge that the provisions of this Section 5.5 shall be in addition
to, and not in substitution for, the provisions of the non-disclosure agreement
dated April 27, 1999 between Target and Acquiror (the "Non-Disclosure
Agreement"), and that to the extent there is a conflict between this Section 5.5
and the Non-Disclosure Agreement, the provisions of this Section 5.5 shall
prevail.
5.6 Public Disclosure. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or required by Acquiror
to comply with the rules and regulations of the SEC or to comply with disclosure
obligations under applicable securities laws.
5.7 Consents. Each of Acquiror and Target shall promptly apply for
or otherwise seek, and use its reasonable commercial efforts to obtain, all
consents and approvals required to be obtained by it for the consummation of the
Merger, and shall use commercially reasonable efforts to obtain all necessary
consents, waivers and approvals under any of its material contracts in
connection with the Merger for the assignment thereof or otherwise.
5.8 Update Disclosure; Breaches. From and after the date of this
Agreement until the Effective Time, Target and Acquior shall promptly notify the
other party, by written update to the Target Disclosure Letter or Acquiror
Disclosure Letter, as applicable, of (i) the occurrence or non-occurrence of any
event which would be likely to cause any condition to the obligations of any
party to effect the Merger and the other transactions contemplated by this
Agreement not to be satisfied, or (ii) the failure of Target or Acquiror, as the
case may be, to comply with or satisfy any covenant, condition or agreement
required to be complied with or satisfied by it pursuant to this Agreement which
would be likely to result in any condition to the obligations of any party to
effect the Merger and the other transactions contemplated by this Agreement not
to be satisfied. The delivery of any notice pursuant to this Section 5.8 shall
not cure any breach of any covenant, representation or warranty requiring
disclosure of such matter prior to the date of this Agreement or otherwise limit
or affect the remedies available hereunder to the party receiving such notice.
5.9 Voting Agreement.
(a) Transfer of Shares.
(i) Definitions.
(1) "Shares" shall mean all issued and outstanding
shares of Target Capital Stock owned of record or beneficially (over which
beneficially-owned
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shares the Affiliate exercises voting power) by the Affiliate as of the record
date for persons entitled (A) to receive notice of, and to vote at the meeting
of the stockholders of Target called for the purpose of voting on the matter
referred to in subsection 5.9(b), or (B) to take action by written consent of
the stockholders of Target with respect to the matter referred to in subsection
5.9(b).
(2) "Subject Securities" shall mean: (i) all
securities of the Target (including all shares of Target Capital Stock and all
options, warrants and other rights to acquire shares of Target Capital Stock)
beneficially owned by Affiliate as of the date of this Agreement; and (ii) all
additional securities of Target (including all additional shares of Target
Capital Stock and all additional options, warrants and other rights to acquire
shares of Target Capital Stock) of which Affiliate acquires ownership during the
period from the date of this Agreement through the Expiration Date. As used
herein, the term "Expiration Date" shall mean the earlier to occur of (i) the
Effective Time and (ii) the date on which this Agreement shall be terminated in
accordance with Article VII hereof.
(3) A person shall be deemed to have effected
a "Transfer" of a security if such person directly or indirectly: (i) sells,
pledges, encumbers, grants an option with respect to, transfers or disposes of
such security or any interest in such security; or (ii) enters into an agreement
or commitment providing for the sale of, pledge of, encumbrance of, grant of an
option with respect to, transfer of or disposition of such security or any
interest therein.
(4) "Opposing Proposal" shall mean (i) any
proposal made in opposition to or in competition with consummation of the
Merger; (ii) any merger, consolidation, sale of assets, reorganization or
recapitalization, with any party other than with Acquiror and its affiliates; or
(iii) any liquidation or winding up of Target.
(ii) Additional Purchases. The Affiliate agrees that
any shares of Target Capital Stock that the Affiliate shall purchase or with
respect to which the Affiliate shall otherwise acquire beneficial ownership
after the execution of this Agreement and prior to the Expiration Date ("New
Shares") shall be subject to the terms and conditions of this Agreement to the
same extent as if they constituted Shares.
(iii) Transferee of Subject Securities to be Bound by
this Agreement. Affiliate agrees that, during the period from the date of this
Agreement through the Expiration Date, Affiliate shall not cause or permit any
Transfer of any of the Subject Securities to be effected unless each person to
which any of such Subject Securities, or any interest in any of such Subject
Securities, is or may be transferred shall have: (a) executed a counterpart of
this Agreement (with such modifications as Acquiror may reasonably request); and
(b) agreed in writing to hold such Subject Securities (or interest in such
Subject Securities) subject to all of the terms and provisions of this
Agreement.
(b) Agreement to Vote Shares and Grant Proxy. At every meeting
of the stockholders of Target called with respect to any of the following, and
on every action or approval by written consent of the stockholders of Target
with respect to any of the following, the Affiliate agrees to vote the Shares
and any New Shares in favor of approval of this
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Agreement and the Merger and any matter necessary to facilitate the Merger. In
order to effectuate the foregoing, the Affiliate does hereby constitute and
appoint Acquiror, or any nominee of Acquiror, with full power of substitution,
from the date hereof to the Expiration Date, as its true and lawful proxy, for
and in its name, place and stead, including the right to sign its name (as
stockholder) to any consent, certificate or other document relating to Target
that the laws of the State of Delaware may permit or require, to cause the
Shares and any New Shares to be voted in the manner contemplated by this
subsection 5.9(b). The parties and proxies named above shall not exercise this
proxy on any other matter except as provided above. The parties acknowledge that
the proxy provided for here is irrevocable and coupled with an interest.
(c) Representations, Warranties and Covenants of each
Affiliate. Each Affiliate represents, warrants and covenants to Acquiror and
Merger Sub as follows:
(i) Ownership of Shares. Affiliate (together with
such Affiliate's spouse, if applicable) (i) is the sole beneficial and record
owner and holder of the Shares and has full voting power with respect thereto,
and (ii) does not own any shares of capital stock of Target other than the
Shares (excluding shares as to which Affiliate currently disclaims beneficial
ownership).
(ii) Authority; Due Execution. Affiliate has full
power and authority to make, enter into and carry out the terms of this
Agreement. Affiliate has duly executed and delivered this Agreement and
(assuming the due authorization, execution and delivery of this Agreement by
Acquiror) this Agreement constitutes a valid and binding obligation of such
Affiliate.
(iii) No Proxy Solicitations. Affiliate will not, and
will not permit any entity under such Affiliate's control to (i) solicit proxies
or become a "participant" in a "solicitation," as such terms are defined in
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to an Opposing Proposal; (ii) initiate a
stockholder's vote or action by consent of Target stockholders with respect to
an Opposing Proposal; or (iii) become a member of a "group" (as such term is
used in Section 13(d) of the Exchange Act) with respect to any voting securities
of Target with respect to an Opposing Proposal.
(d) Specific Performance; Injunctive Relief. Each Afiliate
acknowledges that Acquiror will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
the Affiliate set forth in this Section 5.9. Therefore, it is agreed that, in
addition to any other remedies that may be available to Acquiror upon any such
violation, Acquiror shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to Acquiror at law or in equity.
(e) Termination. This Section 5.9 shall terminate and shall
have no further force or effect as of the Expiration Date.
5.10 Legal Requirements. Each of Acquiror and Target will, and will
cause their respective subsidiaries to, take all reasonable actions necessary to
comply promptly with all
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legal requirements which may be imposed on them with respect to the consummation
of the transactions contemplated by this Agreement and will promptly cooperate
with and furnish information to any party hereto necessary in connection with
any such requirements imposed upon such other party in connection with the
consummation of the transactions contemplated by this Agreement and will take
all reasonable actions necessary to obtain (and will cooperate with the other
parties hereto in obtaining) any consent, approval, order or authorization of,
or any registration, declaration or filing with, any Governmental Entity or
other person, required to be obtained or made in connection with the taking of
any action contemplated by this Agreement.
5.11 Tax-Free Reorganization. Neither Target, Acquiror nor Merger
Sub will, either before or after consummation of the Merger, take any action
which, to the knowledge of such party, would cause the Merger to fail to
constitute a "reorganization" within the meaning of Code Section 368.
5.12 Stock Options.
(a) All Target Options outstanding, whether or not
exercisable, whether or not vested, and whether or not performance-based, at the
Effective Time under the Target Stock Option Plan, shall by virtue of the Merger
and without any further action on the part of Target or the holder thereof, be
converted into an option to purchase Acquiror Common Stock pursuant to the terms
of the Quintus Corporation 1999 Stock Plan ("Quintus 1999 Stock Plan") in such
manner that Acquiror (i) is "assuming a stock option in a transaction to which
Section 424(a) applied" within the meaning of Section 424 of the Code, or (ii)
to the extent that Section 424 of the Code does not apply to any such Target
Options, would be a transaction within Section 424 of the Code. Each Target
Option converted by Acquiror shall be exercisable upon the same terms and
conditions as under the Target Stock Option Plan and the applicable option
agreement issued thereunder, except that (A) each such Target Option shall be
exercisable for that whole number of shares of Acquiror Common Stock (rounded
down to the nearest whole share) into which the number of shares of Target
Common Stock subject to such Target Option immediately prior to the Effective
Time would be converted under Section 1.6(a), and (B) the option price per share
of Acquiror Common Stock shall be an amount equal to the option price per share
of Target Common Stock subject to such Target Option in effect immediately prior
to the Effective Time divided by the Exchange Ratio (the option price per share,
as so determined, being rounded downward to the nearest full cent). Acquiror
shall (i) on or prior to the Effective Time, reserve for issuance the number of
shares of Acquiror Common Stock that will become subject to Target Options
pursuant to this Section 5.12, (ii) from and after the Effective Time, upon
exercise of the Target Options in accordance with the terms thereof, make
available for issuance all shares of Acquiror Common Stock covered thereby and
(iii) as promptly as practicable after the Effective Time, issue to each holder
of an outstanding Target Option a document evidencing the foregoing conversion
by Acquiror.
(b) Acquiror shall comply with the terms of the Target Stock Option
Plan and ensure, to the extent required by, and subject to the provisions of,
such Target Stock Option Plan, that Target Stock Options which qualified as
incentive stock options prior the Effective Time continue to quality as
incentive stock options after the Effective Time.
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(c) Without limiting the foregoing, Acquiror shall take all
corporate action necessary to reserve and make available for issuance a
sufficient number of shares of Acquiror Common Stock for delivery under Target
Stock Options assumed in accordance with this Section 5.12.
5.13 Fairness Hearing. Acquiror will as promptly as practicable
after execution hereof, file (i) a permit application under Section 25121 of
California Law with the California Commissioner of Corporations (the
"Commissioner") and (ii) a request for a hearing to be held by the Commissioner
to consider the terms, conditions and fairness of the transactions contemplated
by this Agreement and the Certificate of Merger pursuant to Section 25142 of
California Law ("Fairness Hearing"). As soon as permitted by the Commissioner,
Target shall cause the mailing of the hearing notice to all holders of
securities entitled to receive such notice pursuant to the requirements of the
rules of the Commissioner and California Law. Target shall furnish to Acquiror
such data and information as is reasonably necessary for Acquiror' preparation
and filing of the permit application, the request for the hearing and the
hearing notice.
5.14 Escrow Agreement. Upon execution of this Agreement, each
Affiliate agrees to execute and deliver to Acquiror the Escrow Agreement in the
form attached hereto as Exhibit C ("Escrow Agreement") (it being understood by
the parties hereto that each Former Target Stockholder shall have shares
deposited into the Escrow Fund, not just the Affiliates).
5.15 Additional Agreements. Each of Target, Acquiror and Merger Sub
agrees to use its reasonable commercial efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement, subject to the appropriate vote
of stockholders of Target described in Section 5.3, including cooperating fully
with the other party, including by provision of information. In case at any time
after the Effective Time reasonable further action is necessary or desirable to
carry out the purposes of this Agreement or to vest the Surviving Corporation
with full title to all properties, assets, rights, approvals, immunities and
franchises of either Target or Merger Sub of the proper officers and directors
of each party to this Agreement shall take such necessary action.
5.16 Employee Benefits. Acquiror shall take such reasonable actions,
to the extent permitted by Acquiror's benefits program, as are necessary to
allow eligible employees of Target to participate in the benefit programs of
Acquiror, or alternative benefits programs in the aggregate substantially
comparable to those applicable to employees of Acquiror on similar terms, as
soon as practicable after the Effective Time of the Merger.
5.17 Market Stand-Off Agreement. Each Affiliate hereby agrees that
during a period not to exceed one hundred eighty (180) days following the
effective date of the IPO (as defined in Section 8.6(b)) and during periods not
to exceed ninety (90) days following the effective date of registration
statements (other than a registration statement relating either to sale of
securities to employees of the Company pursuant to its stock option, stock
purchase or similar plan or a SEC Rule 145 transaction) of Acquiror filed under
the Securities Act within two (2) years of the effective date of the IPO, such
periods to be specified by Acquiror and an underwriter of Acquiror Common Stock
or other securities of Acquiror (or such lesser period of
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time as negotiated with the underwriter) it shall not, to the extent requested
by Acquiror and such underwriter, (x) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Acquiror Common Stock or any
securities convertible into or exercisable or exchangeable for Acquiror Common
Stock (including, without limitation, shares of Acquiror Common Stock or
securities convertible into or exercisable or exchangeable for Acquiror Common
Stock which may be deemed to be beneficially owned by such Affiliate in
accordance with the rules and regulations of the Securities and Exchange
Commission) or (y) enter into any swap or other arrangement that transfers all
or a portion of the economic consequences associated with the ownership of any
Acquiror Common Stock (regardless of whether any of the transactions described
in clause (x) or (y) is to be settled by the delivery of Acquiror Common Stock,
or such other securities, in cash or otherwise); provided, however, that all
officers and directors of Acquiror and holders of at least one percent (1%) of
then-outstanding Acquiror Common Stock enter into similar agreements. In order
to enforce the foregoing covenant, Acquiror may impose stop-transfer
instructions with respect to such Affiliate's shares of Acquiror Capital Stock
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such period. Each Affiliate agrees that the
managing underwriters of the IPO will be third party beneficiaries of this
Section 5.17.
5.18 Delivery of Financial Information. Acquiror shall deliver to
each Affiliate, as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of Acquiror, an income statement for such
fiscal year, a balance sheet of Acquiror and a statement of stockholders' equity
as of the end of such year, and a statement of cash flows for such year, such
year-end financial reports to be audited and certified by independent public
accountants of nationally recognized standing selected by Acquiror; provided,
that the requirement that such financial statements be audited and certified may
be waived by action of the Board of Directors of Acquiror if all members of the
Board vote in favor of such waiver. The obligations of Acquiror under this
Section 5.18 shall terminate and be of no further force or effect upon the
earlier to occur of (i) the effectiveness of the IPO, (ii) when the Company
first becomes subject to the periodic reporting requirements of Sections 12(g)
or 15(d) of the Exchange Act or (iii) the one-year anniversary of the date of
this Agreement.
5.19 Koz Inc. Stock Distribution. Target agrees that if Target
distributes or sells the shares of capital stock of Koz Inc. ("Koz") currently
held by Target to certain of Target's stockholders (the "Koz Distribution"),
such transaction will: (i) contain indemnification provisions (which such
indemnity shall survive for at least three years following the closing of the
Koz Distribution) in which each of the purchasers or distributees of the Koz
stock agrees in writing to indemnify Target and Target's successors and assigns
for any Damages (as defined in Section 8.2) arising out of or related to the Koz
Distribution; (ii) close on or before September 30, 1999; (iii) comply with (a)
all applicable laws, including without limitation the Delaware General
Corporation Law, (b) the certificate or articles of incorporation of Koz, (c)
the bylaws of Koz, (d) any Koz shareholder agreement or other agreement that
affects the transferability of the shares, (e) Target's certificate of
incorporation, (f) Target's bylaws and (g) any Target shareholder agreement or
other agreement that affects the transferability of the shares; (iv) contain a
minimum aggregate purchase price for the Koz stock of $535,000; and
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(v) not cause, in the reasonable judgment of Acquiror or counsel to Acquiror,
the Merger to fail to constitute a "reorganization" within the meaning of Code
Section 368.
ARTICLE VI.
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable diligent efforts to have such injunction or other order lifted.
(b) Governmental Approval. Acquiror and Target and their
respective subsidiaries shall have timely obtained from each Governmental Entity
all approvals, waivers and consents, if any, necessary for consummation of or in
connection with the Merger and the transactions contemplated hereby, including
such approvals, waivers and consents as may be required under the Securities
Act.
(c) Tax Opinion. Each of Target and Acquiror shall have
received a written opinion from its respective counsel to the effect that the
Merger will constitute a reorganization within the meaning of Section 368 of the
Code. In preparing the Target and the Acquiror tax opinions, counsel may rely on
reasonable assumptions and may also rely on (and to the extent reasonably
required, the parties shall make) reasonable representations related thereto.
(d) Fairness Hearing. The Commissioner of Corporations for the
State of California shall have approved the terms and conditions of the
transactions contemplated by this Agreement and the Certificate of Merger and
the fairness of such terms and conditions pursuant to Section 25142 of the
California Statute following a fairness hearing and shall have issued a Permit
under Section 25121 of the California securities laws for the issuance of (i)
the Acquiror Common Stock and Acquiror Series G Preferred Stock to be issued in
the Merger, (ii) the options to purchase Acquiror Common Stock issuable to
former holders of Target Stock Options, (iii) the Acquiror Common Stock issuable
on exercise of the Target Stock Options to be assumed by Acquiror, (iv) the
warrants to purchase Acquiror Capital Stock issuable to former holders of Target
Warrants and (v) the Acquiror Capital Stock issuable on exercise of the Target
Warrants to be assumed by Acquiror.
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6.2 Additional Conditions to Obligations of Target. The obligations
of Target to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by Target:
(a) Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by the holders of at least (i) seventy-five
percent (75%) of the outstanding Target Preferred Stock, voting separately as
class, and (ii) a majority of the outstanding shares of the Target Capital Stock
outstanding as of the record date set for the Target Stockholders Meeting or
solicitation of stockholder consents.
(b) Legal Opinion. Target shall have received a legal opinion
from Acquiror's legal counsel substantially in the form attached as Exhibit D
hereto.
(c) Injunctions or Restraints on Merger and Conduct of
Business. No proceeding brought by any administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking to
prevent the consummation of the Merger shall be pending. In addition, no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's conduct or operation of
the business of Target and its subsidiaries, following the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(d) Investors Rights Agreement. Acquiror and the holders of at
least a majority of the Registrable Securities (as defined in Section 1.1(b) of
Acquiror's Amended and Restated Investors Rights Agreement dated August 26,
1999) of Acquiror then outstanding shall have executed the Amended and Restated
Investors Rights Agreement in the form attached hereto as
Exhibit I.
6.3 Additional Conditions to the Obligations of Acquiror. The
obligations of Acquiror to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Acquiror:
(a) Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by the holders of at least ninety-five percent
(95%) of the shares of Target Capital Stock outstanding as of the record date
set for the Target Stockholders Meeting or solicitation of stockholder consents.
(b) Third Party Consents. Acquiror shall have been furnished
with evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger under
the contracts of Target set forth on Schedule 6.3(c) hereto.
(c) Injunctions or Restraints on Merger and Conduct of
Business. No proceeding brought by any administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking to
prevent the consummation of the Merger shall
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be pending. In addition, no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint provision limiting or
restricting Acquiror's conduct or operation of the business of Target and its
subsidiaries, following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other Governmental Entity,
domestic or foreign, seeking the foregoing be pending.
(d) Legal Opinion. Acquiror shall have received a legal
opinion from Target's legal counsel, in substantially the form attached hereto
as Exhibit E.
(e) FIRPTA Certificate. Target shall, prior to the Closing
Date, provide Acquiror with a properly executed FIRPTA Notification Letter,
substantially in the form of Exhibit F attached hereto, which states that shares
of capital stock of Target do not constitute "United States real property
interests" under Section 897(c) of the Code, for purposes of satisfying
Acquiror's obligations under Treasury Regulation Section 1.1445-2(c)(3). In
addition, simultaneously with delivery of such Notification Letter, Target shall
have provided to Acquiror, as agent for Target, a form of notice to the Internal
Revenue Service in accordance with the requirements of Treasury Regulation
Section 1.897-2(h)(2) and substantially in the form of Exhibit G attached hereto
along with written authorization for Acquiror to deliver such notice form to the
Internal Revenue Service on behalf of Target upon the Closing of the Merger.
(f) Resignation of Directors. The directors of Target in
office immediately prior to the Effective Time shall have resigned as directors
of Target effective as of the Effective Time.
(g) Proprietary Information and Inventions Agreements. All of
the employees of Target on September __, 1999 shall have entered into
Proprietary Information and Inventions Agreements in a form reasonably
acceptable to Acquiror.
(h) Compensation Agreement. Dain Rauscher Wessels, financial
advisor to Target, shall have entered into a Compensation Agreement
substantially in the form attached hereto as Exhibit B.
(i) Amendment of Target Certificate of Incorporation. Target
shall have filed an amendment to its Certificate of Incorporation so that the
Merger does not constitute a "liquidation" under Section 3 of the Target's
Certificate of Incorporation.
(j) Escrow Agreement. The parties to the Escrow Agreement
shall have entered into an Escrow Agreement in the form attached hereto as
Exhibit C.
(k) Equity Financing. Target shall have closed an equity
financing with gross proceeds of at least $1,240,000.
(l) Koz Distribution. The Koz Distribution, if any, shall have
complied with each of the requirements set forth in Section 5.19 hereof.
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ARTICLE VII.
TERMINATION, EXPENSES, AMENDMENT AND WAIVER
7.1 Termination.
(a) Termination. This Agreement may be terminated at any time
prior to Closing:
(i) By mutual written consent duly authorized by the
Board of Directors of Acquiror and Target;
(ii) By the Acquiror if there is the failure of a
condition set forth in Section 6.3 hereof to be satisfied (and such condition is
not waived in writing by the Acquiror) on or prior to November 10, 1999 or the
occurrence of any event which results or would result in the failure of a
condition set forth in Section 6.3 hereof; provided that the Acquiror may not
terminate this Agreement prior to such date if (x) the Target has not had an
adequate opportunity to cure such failure or (y) the Target has the right to
terminate this Agreement under clause (iii) of this Section 7.1(a);
(iii) By Target if there is the failure of a
condition set forth in Section 6.2 hereof to be satisfied (and such condition is
not waived in writing by the Company) on or prior to November 10, 1999, or the
occurrence of any event which results or would result in the failure of a
condition set forth in Section 6.2 hereof be satisfied on or prior to such date;
provided that, Target may not terminate this Agreement prior to such date if (x)
Acquiror has not had an adequate opportunity to cure such failure or (y)
Acquiror has the right to terminate this Agreement under clause (ii) of this
Section 7.1(a); or
(iv) By Target if there is a failure of a condition
set forth in Section 6.1 hereof (unless the ability to meet such condition was
within the control of Target) or by Acquiror if there is a failure of a
condition set forth in Section 6.1 hereof (unless the ability to meet such
condition was within the control of Acquiror).
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror or Target
or their respective officers, directors, stockholders or affiliates, except to
the extent that such termination results from the breach by a party hereto of
any of its representations, warranties or covenants set forth in this Agreement;
provided that, the provisions of Section 5.5 (Confidentiality), Section 7.3
(Expenses) and this Section 7.2 shall remain in full force and effect and
survive any termination of this Agreement.
7.3 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, the fees and expenses of its
advisers, accountants and legal counsel) shall be paid by the party incurring
such expense; provided, however, that any out-of-pocket expenses incurred by
Target in excess of $250,000 for fees and expenses of legal counsel and
accountants shall remain an obligation of Target's stockholders. If Acquiror or
Target receives any invoices for amounts in excess of said amounts, it may, with
Acquiror's written
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approval, pay such fees; provided, however, that such payment shall, if not
promptly reimbursed by the Target stockholders at Acquiror's request, constitute
"Damages" recoverable under the Escrow Agreement and such Damages shall not be
subject to the Escrow Basket (as defined below).
7.4 Amendment. The boards of directors of Acquiror, Merger Sub and
Target may cause this Agreement to be amended at any time only by the execution
of an instrument in writing signed on behalf of each of such parties; provided
that an amendment made subsequent to adoption of the Agreement by the
stockholders of Target shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the Target Capital Stock, (ii)
alter or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger, or (iii) alter or change any of the
terms and conditions of the Agreement if such alteration or change would
adversely affect the holders of Target Capital Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII.
ESCROW AND INDEMNIFICATION
8.1 Survival of Representations, Warranties and Covenants.
Notwithstanding any investigation conducted before or after the Closing Date,
and notwithstanding any actual or implied knowledge or notice of any facts or
circumstances which Acquiror or Target may have as a result of such
investigation or otherwise, Acquiror and Target will be entitled to rely upon
the other party's representations, warranties and covenants set forth in this
Agreement. The obligations of Target with respect to its representations,
warranties, agreements and covenants will survive the Closing and continue in
full force and effect until the date 12 months following the Closing Date (the
"Target Termination Date"), at which time, subject to Section 8.5, the
representations, warranties and covenants of Target set forth in this Agreement
and any liability of the Former Target Stockholders with respect to those
representations, warranties and covenants will terminate. The obligations of
Acquiror with respect to its representations, warranties, agreements and
covenants will survive the Closing and continue in full force and effect until
the earlier of (i) the date 12 months following the Closing Date or (ii) the
expiration or early termination of the lock-up restrictions applicable to the
shares of Target Common Stock in connection with the Acquiror's IPO (the
"Acquiror Termination Date"), at which time the representations, warranties and
covenants of Acquiror set forth in this Agreement and any liability of the
Acquiror Stockholders with respect to those representations, warranties and
covenants will terminate.
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8.2 Indemnity. From and after the Closing Date, and subject to the
provisions of this Article VIII, Acquiror and the Surviving Corporation (on or
after the Closing Date) shall be indemnified and held harmless by the Former
Target Stockholders against, and reimbursed for, any actual liability, damage,
loss, obligation, demand, judgment, fine, penalty, cost or expense, other than
any such damages resulting from injunctive relief granted as to an intellectual
property claim), but including reasonable attorneys' fees and expenses, and the
costs of investigation incurred in defending against or settling such liability,
damage, loss, cost or expense or claim therefor and any amounts paid in
settlement thereof) imposed on or reasonably incurred and paid by Acquiror or
the Surviving Corporation as a result of any breach of any representation,
warranty, agreement or covenant on the part of Target under this Agreement
(collectively the "Damages"). "Damages" as used herein is not limited to matters
asserted by third parties, but includes Damages actually incurred or sustained
by Acquiror in the absence of claims by a third party.
8.3 Escrow Fund. As security for the indemnity provided for in
Section 8.2 hereof, shares of Acquiror Capital Stock to be issued to Target
Stockholders pursuant to Section 1.6 ("Acquisition Shares") equal to ten percent
(10%) of the Total Target Consideration (excluding the Target Option Reserve)
shall be deposited by Acquiror in an escrow account with a third party financial
or banking institution mutually reasonably acceptable to Acquiror and Target as
Escrow Agent (the "Escrow Agent"), as of the Closing Date, such deposit to
constitute an escrow fund (the "Escrow Fund") to be governed by the terms set
forth in this Agreement and the provisions of an Escrow Agreement to be executed
and delivered pursuant to Section 5.18. The Escrow Fund shall be allocated among
the Former Target Stockholders receiving Acquiror Capital Stock on a pro-rata
basis in accordance with the number of shares of Acquiror Capital Stock held by
the Former Target Stockholders upon consummation of the Merger (excluding for
purposes of this calculation any Dissenting Shares). Upon compliance with the
terms hereof and subject to the provisions of this Article VIII, Acquiror and
the Surviving Corporation shall be entitled to obtain indemnity from the Escrow
Fund for Damages covered by the indemnity provided for in Section 8.2 of this
Agreement.
8.4 Damage Threshold. Notwithstanding the foregoing, Acquiror may
not receive any shares from the Escrow Fund unless and until an Officer's
Certificate (as defined in Section 8.6 below) identifying Damages the aggregate
amount of which exceeds $250,000 (the "Escrow Basket") has been delivered to the
Escrow Agent as provided in Section 8.6 below and such amount is determined
pursuant to this Article VIII to be payable, in which case Acquiror shall
receive shares equal in value to the full amount of Damages. In determining the
amount of any Damage attributable to a breach, any materiality standard
contained in a representation, warranty or covenant of Acquiror shall be
disregarded.
8.5 Escrow Period. The Escrow Period shall terminate at the
expiration of twelve (12) months after the Effective Time; provided, however,
that a portion of the Escrow Shares, which are necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate theretofore delivered
to the Escrow Agent prior to termination of the Escrow Period with respect to
facts and circumstances existing prior to expiration of the Escrow Period, shall
remain in the Escrow Fund until such claims have been finally resolved.
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<PAGE> 55
8.6 Claims upon Escrow Fund.
(a) Upon receipt by the Escrow Agent on or before the
Termination Date of a certificate signed by the chief financial or chief
executive officer of Acquiror (an "Officer's Certificate") for a claim against
the Escrow Fund:
(i) stating that Acquiror or the Surviving
Corporation has incurred, paid or properly accrued (in accordance with GAAP) or
knows of facts giving rise to a reasonable probability that it will have to
incur, pay or accrue (in accordance with GAAP) Damages in an aggregate stated
amount with respect to which Acquiror or the Surviving Corporation is entitled
to payment from the Escrow Fund pursuant to this Agreement; and
(ii) specifying in reasonable detail the individual
items of Damages included in the amount so stated, the date each such item was
incurred, paid or properly accrued (in accordance with GAAP), or the basis for
such anticipated liability, the specific nature of the breach to which such item
is related, the Escrow Agent shall, subject to the provisions of Sections 8.7
and 8.8 of this Agreement, deliver to Acquiror shares of Acquiror Capital Stock
in an amount necessary to indemnify Acquiror for the Damages claimed. All shares
of Acquiror Capital Stock subject to such claims shall remain in the Escrow Fund
until Damages are actually incurred or paid or the Acquiror determines in its
reasonably good faith judgment that no Damages will be required to be incurred
or paid (in which event such shares shall be distributed to the Former Target
Stockholders in accordance with Section 8.10 below).
(b) For the purpose of compensating Acquiror for its Damages
pursuant to this Agreement, the Acquiror Capital Stock in the Escrow Fund shall
be valued at (i) prior to the closing of a bona fide registered public offering
under the Securities Act (an "IPO"), the following prices per share: (1) the
Acquiror Series G-1 Preferred Stock, G-2 Preferred Stock, G-3 Preferred Stock,
G-4 Preferred Stock, G-5 Preferred Stock and G-6 Preferred Stock shall be valued
at $8.25 per share; and (2) the Common Stock shall be valued at $7.50 per share;
or (ii) after the IPO, the market value of the public stock, as measured by the
average of the closing sales price for a share of Acquiror Common Stock as
quoted on the Nasdaq National Market for the five (5) trading days immediately
preceding and ending on the day of the release of the Acquiror Capital Stock
from the Escrow Fund.
8.7 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholders' Agent (defined in Section 8.9 below) and
for a period of thirty (30) days after such delivery to the Escrow Agent, the
Escrow Agent shall make no delivery of Acquiror Common Stock or other property
pursuant to Section 8.6 hereof unless the Escrow Agent shall have received
written authorization from the Stockholders' Agent to make such delivery. After
the expiration of such thirty (30) day period, the Escrow Agent shall make
delivery of the Acquiror Common Stock or other property in the Escrow Fund in
accordance with Section 8.6 hereof, provided that no such payment or delivery
may be made if the Stockholders' Agent shall object in a written statement to
the claim made in the Officer's Certificate (the "Objective Notice"), and
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<PAGE> 56
such statement shall have been delivered to the Escrow Agent and to Acquiror
prior to the expiration of such thirty (30) day period.
8.8 Resolution of Conflicts; Arbitration.
(a) In case the Stockholders' Agent shall so object in writing
to any claim or claims by Acquiror made in any Officer's Certificate, the
Stockholders' Agent and Acquiror shall attempt in good faith for sixty (60) days
from the date of receipt of the Objection Notice to agree upon the rights of the
respective parties with respect to each of such claims. If the Stockholders'
Agent and Acquiror should so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties and shall be furnished to the
Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum
and shall distribute the Acquiror Common Stock or other property from the Escrow
Fund in accordance with the terms thereof.
(b) If no such agreement can be reached after good faith
negotiation, either Acquiror or the Stockholders' Agent may, by written notice
to the other, demand arbitration of the matter unless the amount of the Damage
is at issue in pending litigation with a third party, in which event arbitration
shall not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by arbitration
conducted by three arbitrators. Within fifteen (15) days after such written
notice is sent, Acquiror and the Stockholders' Agent shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The decision of the arbitrators as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement, and notwithstanding anything in Section 8.6 hereof, the Escrow
Agent shall be entitled to act in accordance with such decision and make or
withhold payments out of the Escrow Fund in accordance therewith.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Santa Clara or San Mateo County, California under the commercial rules then in
effect of the American Arbitration Association. There shall be limited discovery
prior to the arbitration hearing as follows: (a) exchange of witness lists and
copies of documentary evidence and documents related to or arising out of the
issues to be arbitrated, (b) depositions of all party witnesses, and (c) such
other depositions as may be allowed by the arbitrator upon a showing of good
cause. The arbitrator shall be required to provide in writing to the parties the
basis for the award or order of such arbitrator, and a court reporter shall
record all hearings, with such record constituting the official transcript of
such proceedings. Any order or award of the arbitrator in accordance with the
foregoing shall be final, binding and conclusive as to the parties to this
Article VIII. For purposes of this Section 8.8, in any arbitration hereunder in
which any claim or the amount thereof stated in the Officer's Certificate is at
issue, Acquiror shall be deemed to be the Non-Prevailing Party unless the
arbitrators award Acquiror more than two-thirds (2/3) of the amount in dispute;
otherwise, the Target Stockholders for whom shares of Acquiror Common Stock
otherwise issuable to them have been deposited in the Escrow Fund shall be
deemed to be the Non-Prevailing Party. The Non-Prevailing Party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and
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<PAGE> 57
the expenses, including without limitation, attorneys' fees and costs,
reasonably incurred by the other party to the arbitration.
8.9 Stockholders' Agent.
(a) Andrew Busey shall be constituted and appointed as agent
("Stockholders' Agent") for and on behalf of the Target stockholders to give and
receive notices and communications, to authorize delivery to Acquiror of the
Acquiror Common Stock or other property from the Escrow Fund in satisfaction of
claims by Acquiror, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of the Stockholders'
Agent for the accomplishment of the foregoing. Such agency may be changed by the
holders of a majority in interest of the Escrow Fund from time to time upon not
less than ten (10) days' prior written notice to Acquiror. The Stockholder's
Agent may resign upon ten (10) days notice to the parties to this Agreement and
the Former Target Stockholders. No bond shall be required of the Stockholders'
Agent, and the Stockholders' Agent shall receive no compensation for his
services. Notices or communications to or from the Stockholders' Agent shall
constitute notice to or from each of the Target stockholders.
(b) The Stockholders' Agent shall not be liable for any act
done or omitted hereunder as Stockholders' Agent while acting in good faith and
in the exercise of reasonable judgment, and any act done or omitted pursuant to
the advice of counsel shall be conclusive evidence of such good faith. The
Target stockholders shall severally indemnify the Stockholders' Agent and hold
him harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Stockholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.
(c) The Stockholders' Agent shall have reasonable access to
information about Target and the reasonable assistance of Target's officers and
employees for purposes of performing its duties and exercising its rights
hereunder, provided that the Stockholders' Agent shall treat confidentially and
not disclose any nonpublic information from or about Target to anyone (except on
a need to know basis to individuals who agree to treat such information
confidentially).
(d) The Stockholders' Agent shall be entitled to a
distribution from the Escrow Fund equal to any such indemnity claim which has
not been satisfied; provided, however, that no such distribution shall be made
until all claims of Acquiror set forth in any Officer's Certificate delivered to
the Escrow Agent on or prior to the Termination Date have been resolved.
8.10 Distribution Upon Termination of Escrow Period. Within five (5)
business days following the Termination Date, the Escrow Agent shall deliver to
the Former Target Stockholders all of the shares in the Escrow Fund in excess of
any amount of such shares reasonably necessary to satisfy any unsatisfied or
disputed claims for Damages specified in any Officer's Certificate delivered to
the Escrow Agent on or before the Termination Date and any unsatisfied or
disputed claims by the Stockholder's Agent under Section 8.9. As soon as all
such
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claims have been resolved, the Escrow Agent shall deliver to the Former Target
Stockholders all shares remaining in the Escrow Fund and not required to satisfy
such claims. Deliveries of shares to the Former Target Stockholders pursuant to
this section shall be made in proportion to the allocation set forth in Section
8.3.
8.11 Actions of the Stockholders' Agent. A decision, act, consent or
instruction of the Stockholders' Agent shall constitute a decision of all Target
stockholders for whom shares of Acquiror Common Stock otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each such Target stockholder, and the Escrow Agent and Acquiror may rely upon
any decision, act, consent or instruction of the Stockholders' Agent as being
the decision, act, consent or instruction of each and every such Target
stockholder. The Escrow Agent and Acquiror are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Stockholders' Agent.
8.12 Third-Party Claims. In the event Acquiror becomes aware of a
third-party claim which Acquiror believes may result in a demand against the
Escrow Fund, Acquiror shall promptly notify the Stockholders' Agent of such
claim. Acquiror shall have the right to settle any such claim only with the
written consent of the Stockholders' Agent, which consent shall not be
unreasonably withheld; provided, however, that the Stockholders' Agent may, at
his option, direct the settlement negotiations or (ii) disputes or disagreements
with customers of Acquiror or Target. In the event that the Stockholders' Agent
has consented to any such settlement, neither the Former Target Stockholders nor
the Stockholders' Agent shall have any power or authority to object under
Section 8.7 or any other provision of this Agreement to the amount of any claim
by Acquiror against the Escrow Fund for indemnity with respect to such
settlement. If any proceeding is commenced, or if any claim, demand or
assessment is asserted, in respect of which a claim for indemnification is or
might be made against the Escrow Fund the Stockholders' Agent may, at his
option, contest or defend any such action, proceeding, claim, demand or
assessment, with counsel selected by the Stockholder Agent who is reasonably
acceptable to Acquiror; provided, however, that if Acquiror shall reasonably
object to such control, then the Stockholders' Agent and Acquiror shall
cooperate in the defense of such matter; provided further, that the
Stockholders' Agent shall not admit any liability with respect thereto or
settle, compromise, pay or discharge the same without the prior written consent
of Acquiror, which consent shall not be unreasonably withheld. With respect to
any claim for indemnification based on matters relating to the intellectual
property of Target, or customers of Target or Acquiror, Acquiror shall have the
option to defend any such proceeding with counsel reasonably satisfactory to the
Stockholders' Agent; provided, however, that Acquiror shall not admit any
liability with respect thereto or settle, compromise, pay or discharge the same
without the prior written consent of the Stockholders' Agent, which consent
shall not be unreasonably withheld. The Stockholder Agent or Acquiror, whichever
is not controlling the defense of any matter, shall be entitled to participate
in such defense, at Acquiror's or the Former Target Stockholders' expense.
8.13 Maximum Liability and Remedies. The Escrow Fund shall be the
sole and exclusive remedy of Acquiror and the Surviving Corporation after the
Closing with respect to any representation, warranty, covenant or agreement made
by Target under this Agreement and any claim for indemnification with respect
thereto; provided, however, that nothing herein limits
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any potential remedies and liabilities of Acquiror or the Surviving Corporation,
arising under applicable state and federal laws with respect to any intentional
or fraudulent misrepresentations, made in or pursuant to this Agreement. Nothing
in this Agreement shall limit the liability of any Target stockholder in
connection with any breach by such stockholder of the Stockholder Representation
Agreement or the Voting and Proxy Agreement.
ARTICLE IX.
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Acquiror or Merger Sub, to:
Quintus Corporation
47212 Mission Falls Court
Fremont, CA 94539
Attention: Chief Financial Officer
Facsimile No.: (510) 624-2895
Telephone No.: (510) 624-2895
with a copy to (which shall not constitute notice):
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
Attention: Scott C. Dettmer
Facsimile No.: (650) 321-2800
Telephone No.: (650) 321-2400
(b) if to Target, to:
Acuity Corp.
11100 Metric Blvd., Building 7
Austin, TX 78758
Attention: President
Facsimile No.: (512) 719.8225
Telephone No.: (512) 425.2200
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with a copy to (which shall not constitute notice):
Gray Cary Ware & Freidendrich
100 Congress Avenue, Suite 1440
Austin, TX 78701-4042
Attention: Paul E. Hurdlow
Facsimile No.: (512) 457-7070
Telephone No.: (512) 457-7000
(c) if to the Stockholders' Agent, to:
Andrew Busey
---------------------------------
---------------------------------
Facsimile No.:
-----
Telephone No.:
-----
9.2 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement, any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that is materially adverse to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of such entity and its subsidiaries, taken
as a whole. In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge after due and diligent inquiry of officers and
directors of such party and its subsidiaries reasonably believed to have
knowledge of such matters. The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The phrases "the
date of this Agreement", "the date hereof", and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to the date first above
written. The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; No Third Party Beneficiaries. This Agreement,
the other Transaction Documents and the documents and instruments and other
agreements specifically referred to herein or delivered pursuant hereto,
including the Exhibits, the Schedules, including the Target Disclosure Letter
and the Acquiror Disclosure Letter (a) constitute the entire
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<PAGE> 61
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, except for the
Confidentiality Agreement, which shall continue in full force and effect, and
shall survive any termination of this Agreement or the Closing, in accordance
with its terms; (b) are not intended to confer upon any other person any rights
or remedies hereunder, except for the rights of the Target Stockholders and
optionholders described herein.
9.5 Severability. In the event that any provision of this Agreement,
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Remedies Cumulative. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without regard to
applicable principles of conflicts of law. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction of any court located within
the State of California, in connection with any matter based upon or arising out
of this Agreement or the matters contemplated herein, agrees that process may be
served upon them in any manner authorized by the laws of the State of California
for such persons and waives and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction and such process.
9.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and permitted assigns.
9.9 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
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IN WITNESS WHEREOF, Target, Acquiror, Merger Sub and each Affiliate
have caused this Agreement to be executed and delivered by their respective
officers thereunto duly authorized, and the Stockholders' Representative has
executed this Agreement, all as of the date first written above.
"TARGET"
ACUITY CORP.
By: /s/ MARK WHIPPLE SAUL
-------------------------------------
Mark Whipple Saul, Chairman,
Chief Executive Officer and President
"ACQUIROR"
QUINTUS CORPORATION
By: /s/ ALAN K. ANDERSON
-------------------------------------
Alan K. Anderson, Chief
Executive Officer
"MERGER SUB"
RIBEYE ACQUISITION CORP.
By: /s/ ALAN K. ANDERSON
-------------------------------------
Alan K. Anderson,
Chief Executive Officer
"STOCKHOLDERS' REPRESENTATIVE"
/s/ ANDREW BUSEY
--------------------------------------
Andrew Busey
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
<PAGE> 63
INVESTORS:
ONSET ENTERPRISE ASSOCIATES II, L.P.
By: OEA II Management, L.P.
its General Partner
By: /s/ THOMAS E. WINTER
-------------------------------------
Thomas E. Winter,
its General Partner
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/
-------------------------------------
(Signature)
Name:
-----------------------------------
Title:
-----------------------------------
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/
-------------------------------------
(Signature)
Name:
-----------------------------------
Title:
-----------------------------------
VECTOR CAPITAL, L.P.
By: Vector Capital Partners, L.L.C.,
a General Partner
By: /s/
-------------------------------------
(Signature)
Name:
-----------------------------------
Title:
-----------------------------------
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
<PAGE> 64
SONY MUSIC ENTERTAINMENT INC.
By: /s/
-------------------------------------
(Signature)
Name:
-----------------------------------
Title:
-----------------------------------
CURLY H VENTURES, LTD.
By: /s/
-------------------------------------
(Signature)
Name:
-----------------------------------
Title:
-----------------------------------
KECALP, INC.
By: /s/
-------------------------------------
(Signature)
Name:
-----------------------------------
Title:
-----------------------------------
TEA CUSTODIANS (WESTONE) LIMITED
By: /s/
-------------------------------------
(Signature)
Name:
-----------------------------------
Title:
-----------------------------------
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
<PAGE> 65
/s/ ANDREW BUSEY
-----------------------------------------
Andrew Busey
/s/ MARK WHIPPLE SAUL
-----------------------------------------
Mark Whipple Saul
/s/ JOHN HIME
-----------------------------------------
John Hime
/s/ ANDREW BUSEY
-----------------------------------------
Andrew Busey
/s/ STEVE SMITH
-----------------------------------------
Steve Smith
/s/ ALEX SLUSKY
-----------------------------------------
Alex Slusky
/s/ REG MCHONE
-----------------------------------------
Reg McHone
/s/ DAN FOWKES
-----------------------------------------
Dan Fowkes
/s/ DEAN CRUSE
-----------------------------------------
Dean Cruse
/s/ MICHAEL OSWALD
-----------------------------------------
Michael Oswald
/s/ KURT SOMERHOLTER
-----------------------------------------
Kurt Somerholter
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF QUINTUS CORPORATION,
A Delaware Corporation
Quintus Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "General Corporation
Law"),
DOES HEREBY CERTIFY THAT:
FIRST: The name of the corporation is Quintus Corporation and that the
corporation was originally incorporated on June 11, 1990 under the name QTNEWCO,
INC.
pursuant to the General Corporation Law.
SECOND: The Board of Directors of the corporation, at a meeting duly
called and held, adopted resolutions amending and restating the Certificate of
Incorporation to read in full as follows:
"RESOLVED, that the Certificate of Incorporation of the corporation
(the "Certificate") be and it hereby is amended and restated to read in its
entirety as follows:
ARTICLE I
The name of this corporation is Quintus Corporation.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law.
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock," each with a par value of $0.001 per share. The total number of shares
which this corporation is authorized to issue is Fifty-Nine Million Fifty-Five
Thousand (59,055,000) shares. Forty Million (40,000,000) shares shall be Common
Stock and Nineteen Million Fifty-Five Thousand (19,055,000) shares shall be
Preferred Stock.
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<PAGE> 2
B. Rights, Preferences and Restrictions of Preferred Stock. The
Preferred Stock authorized by this Certificate of Incorporation may be issued
from time to time in series. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series A Preferred Stock (the "Series
A Preferred Stock"), which series shall consist of Nine Million One Hundred
Thousand (9,100,000) shares, the Series B Preferred Stock (the "Series B
Preferred Stock"), which series shall consist of One Million (1,000,000) shares,
the Series C Preferred Stock (the "Series C Preferred Stock"), which series
shall consist of Three Million (3,000,000) shares, the Series D Preferred Stock
(the "Series D Preferred Stock"), which series shall consist of One Million Four
Hundred Fifty-Five Thousand (1,455,000) shares, the Series E Preferred Stock
(the "Series E Preferred Stock"), which series shall consist of Three Million
(3,000,000) shares and the Series F Preferred Stock (the "Series F Preferred
Stock"), which series shall consist of One Million Five Hundred Thousand
(1,500,000) shares, are as set forth below in this Article IV(B). The Board of
Directors of this corporation is hereby authorized to fix or alter the rights,
preferences, privileges, and restrictions granted to or imposed upon additional
series of Preferred Stock, and the number of shares constituting any such series
and the designation thereof, or any of them. Subject to compliance with
applicable protective voting rights which have been or may be granted to the
Preferred Stock or series thereof ("Protective Provisions") and other applicable
rights under the General Corporation Law, but notwithstanding any other rights
of the Preferred Stock or any series thereof, the rights, privileges,
preferences and restrictions of any such additional series may be subordinated
to, pari passu with (including, without limitation, inclusion in provisions with
respect to liquidation and acquisition preferences, redemption and/or approval
of matters by vote or written consent), or senior to any of those of any present
or future class or series of Preferred or Common Stock. Subject to compliance
with applicable Protective Provisions, the Board of Directors is also authorized
to increase or decrease the number of shares of any series (other than the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock, the Series E Preferred Stock or the Series
F Preferred Stock) prior or subsequent to the issue of that series, but not
below the number of shares of such series then outstanding. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
1. Dividend Provisions.
(a) The holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Series F Preferred Stock shall be entitled to receive dividends, out
of any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other non-redeemable equity securities and rights convertible into or entitling
the holder thereof to receive, directly or indirectly, additional shares of
Common Stock of this corporation) on the Common Stock of this corporation, at
the per share rate of $0.20, $0.286, $0.382, $0.55, $0.83 and $1.65 per annum,
respectively, (as adjusted for any stock dividends, combinations or splits with
respect to such shares) or, if greater (as determined on a per annum basis), an
amount equal to that paid on any other outstanding shares of this corporation,
payable only when and if declared by the Board of Directors. If any dividends
are declared or paid in any year on the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the
Series E Preferred Stock and the Series F Preferred Stock in an
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amount less than $0.20, $0.286, $0.382, $0.55, $0.83 and $1.65 respectively, per
share, all such Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock dividends during such year shall be declared or paid, as
applicable, ratably among the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Series F Preferred Stock in proportion to the full preferential
dividend amounts for such Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock set forth above. The right to such dividends on shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
shall not be cumulative and no right shall accrue to holders of shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock or Series F Preferred Stock by reason
of the fact that dividends on such shares are not declared in any prior year,
nor shall any undeclared or unpaid dividend bear or accrue interest.
(b) In the event this corporation shall declare any other
dividend or distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights to purchase any such securities or evidence of
indebtedness, then, in each such case the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock shall be entitled
to a proportionate share of any such dividend or distribution as though the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock were the holders of the number of shares of Common Stock of this
corporation into which their respective shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock of this
corporation entitled to receive such distribution.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock which may from time to time come into existence, the
holders of Series F Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Common
Stock by reason of their ownership thereof, an amount per share equal to $8.25
(the "Original Series F Issue Price") for each share (as adjusted for any stock
dividends, combinations or splits with respect to such shares) of Series F
Preferred Stock held by each such holder plus any undeclared but unpaid
dividends on such share (the "Series F Liquidation Preference"). After payment
of the Series F Liquidation Preference, the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of the Common Stock by reason of their ownership thereof, (i) an amount
per share equal to $1.00 (the "Original Series A Issue Price") for each share
(as adjusted for any stock dividends, combinations or splits with respect to
such shares) of Series A Preferred
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Stock held by each such holder plus any declared but unpaid dividends on such
share, (ii) an amount per share equal to $1.43 (the "Original Series B Issue
Price") for each share (as adjusted for any stock dividends, combinations or
splits with respect to such shares) of Series B Preferred Stock held by each
such holder plus any declared but unpaid dividends on such share, (iii) an
amount per share equal to $1.91 (the "Original Series C Issue Price") for each
share (as adjusted for any stock dividends, combinations or splits with respect
to such shares) of Series C Preferred Stock held by each such holder plus any
undeclared but unpaid dividends on such share, (iv) an amount per share equal to
$2.75 (the "Original Series D Issue Price") for each share (as adjusted for any
stock dividends, combinations or splits with respect to such shares) of Series D
Preferred Stock held by each such holder plus any undeclared but unpaid
dividends on such share, and (v) an amount per share equal to $4.15 (the
"Original Series E Issue Price") for each share (as adjusted for any stock
dividends, combinations or splits with respect to such shares) of Series E
Preferred Stock held by each such holder plus any undeclared but unpaid
dividends on such share. If upon the occurrence of such event and after payment
of the Series F Liquidation Preference, the assets and funds thus distributed
among the holders of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then, subject to the rights of series of
Preferred Stock which may from time to time come into existence, the assets and
funds of this corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock in proportion to the full preferential amount each such holder
is otherwise entitled to receive under this subsection 2(a).
(b) Upon the completion of the distributions required by
subsection (a) of this Section 2, the remaining assets of this corporation
available for distribution to stockholders shall be distributed among the
holders of Series E Preferred Stock, Series F Preferred Stock and Common Stock
pro rata based on the number of shares of Common Stock held by each (assuming
full conversion of all such Series E Preferred Stock and Series F Preferred
Stock) until, with respect to the holders of the Series E Preferred Stock and
Series F Preferred Stock, such holders shall have received an aggregate of
$10.375 per share and $12.375 per share, respectively (as adjusted for any stock
splits, stock dividends, recapitalizations or the like) (including amounts paid
pursuant to subsection (a) of this Section 2); thereafter, if assets remain in
this corporation, the holders of the Common Stock of this corporation shall
receive all of the remaining assets of this corporation pro rata based on the
number of shares of Common Stock held by each.
(c) A consolidation or merger of this corporation with or into
any other corporation or corporations (other than a wholly-owned subsidiary or
parent corporation), or a sale, conveyance or disposition of all or
substantially all of the assets of this corporation or the effectuation by this
corporation of a transaction or series of related transactions in which more
than 50% of the voting power of this corporation is disposed of, shall be deemed
to be a liquidation, dissolution or winding up within the meaning of this
Section 2.
(d) In the event a liquidation, dissolution or winding up of
this corporation under this Section 2 is effected, whether in whole or in part,
through a noncash
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distribution, such noncash distribution shall be valued at the fair value
thereof as determined in good faith by the Board of Directors of this
corporation.
3. Conversion. The holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock shall have conversion rights (the
"Conversion Rights") as follows:
(a) Right to Convert. The Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be
convertible, at any time upon the election of the holders of at least a majority
of the then-outstanding shares of Series A Preferred, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock, voting together as a
single class, into shares of Common Stock and a right to receive cash, (i) with
each share of Series A Preferred Stock converting upon such an election into
such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Original Series A Issue Price by the Conversion Price
applicable to Series A Preferred Stock, determined as hereafter provided, in
effect on the date of such conversion and a right to receive from this
corporation a cash payment in an amount equal to $0.925 for each share of Series
A Preferred Stock held, plus all declared but unpaid dividends on such share
(the "Series A Cash Amount"), (ii) with each share of Series B Preferred Stock
converting upon such an election into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Series B Issue Price by the Conversion Price applicable to Series B Preferred
Stock, determined as hereafter provided, in effect on the date of such
conversion and a right to receive from this corporation a cash payment in an
amount equal to $1.325 for each share of Series B Preferred Stock held, plus all
declared but unpaid dividends on such share (the "Series B Cash Amount"), (iii)
with each share of Series C Preferred Stock converting upon such an election
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Original Series C Issue Price by the Conversion Price
applicable to the Series C Preferred Stock, determined as hereafter provided, in
effect on the date of such conversion and a right to receive from this
corporation a cash payment in an amount equal to $1.765 for each share of Series
C Preferred Stock held, plus all declared but unpaid dividends on such share
(the "Series C Cash Amount") and (iv) with each share of Series D Preferred
Stock converting upon such an election into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Series D Issue Price by the Conversion Price applicable to Series D Preferred
Stock, determined as hereafter provided, in effect on the date of such
conversion and a right to receive from this corporation a cash payment in an
amount equal to $2.544 for each share of Series D Preferred Stock held, plus all
declared but unpaid dividends on such share (the "Series D Cash Amount"). Each
share of Series E Preferred Stock and Series F Preferred Stock shall be
convertible, at the option of the holder thereof at any time after the date of
issuance of such share, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing the Original Series E Issue Price
or Original Series F Issue Price, as the case may be, by the Conversion Price
(determined as hereinafter provided) per share in effect for such series of
Preferred Stock at the time of conversion. The initial Conversion Price per
share for shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock shall be the Original Series A Issue Price, the Original Series
B Issue Price, the Original Series C Issue Price, the Original Series D Issue
Price, the Original Series E Issue Price and the Original Series F Issue Price,
respectively; provided, however, that the Conversion Prices
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for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock shall be subject to adjustment as set forth in subsection 3(d). The Series
A Cash Amount, the Series B Cash Amount, the Series C Cash Amount and the Series
D Cash Amount are sometimes hereinafter referred to collectively as the "Cash
Amounts."
(b) Automatic Conversion.
(i) Each share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall
automatically be converted into shares of Common Stock and a right to receive
cash, with each share of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock converting into: (i) fully
paid and nonassessable shares of Common Stock at the respective Conversion
Prices for each of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock at the time in effect for
such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock, respectively; and (ii) a right to receive
from this corporation a cash payment in an amount equal to the Series A Cash
Amount for each share of Series A Preferred Stock held, the Series B Cash Amount
for each share of Series B Preferred Stock held, the Series C Cash Amount for
each share of Series C Preferred Stock held and the Series D Cash Amount for
each share of Series D Preferred Stock held, except as provided below in
subsection 3(c), immediately upon the corporation's sale of its Common Stock in
a firm commitment underwritten public offering pursuant to a registration
statement on Form S-1 under the Securities Act of 1933, as amended, the public
offering price of which is not less than $40,000,000 in the aggregate.
(ii) Each share of Series E Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such Series E Preferred Stock immediately upon the
earlier of (A) the corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement on Form S-1
under the Securities Act of 1933, as amended, the public offering price of which
was not less than $40,000,000 in the aggregate, or (B) the date specified by
written consent or agreement of the holders of at least sixty percent (60%) of
the then outstanding shares of Series E Preferred Stock; provided, however, that
to the extent that the Series E Preferred Stock would automatically convert into
Common Stock pursuant to clause (A) of this subsection 3(b)(ii) and the public
offering price is less than $8.30 per share (adjusted to reflect subsequent
stock dividends, stock splits or recapitalization) (as so adjusted, the "Series
E Price"), each share of Series E Preferred Stock shall automatically convert
into such number of fully paid and nonassessable shares of Common Stock as is
determined (X) by dividing the Series E Price by the price per share of the
public offering or (Y) by dividing the Original Series E Issue Price by the
Conversion Price applicable to the Series E Preferred Stock (as adjusted, if
applicable, by Section 3(d)) in effect on the date of such conversion, whichever
is greater.
(iii) Each share of Series F Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
then in effect for such series of Preferred Stock immediately upon the earlier
of (A) the corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement on Form S-1
under the Securities Act of 1933, as amended, the public offering price of
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which is not less than $40,000,000 in the aggregate, or (B) the date specified
by written consent or agreement of the holders of at least a majority of the
then outstanding shares of Series F Preferred Stock, respectively; provided,
however, that to the extent that the Series F Preferred Stock would
automatically convert into Common Stock pursuant to clause (A) of this
subsection 3(b)(ii) and the public offering price is less than $11.00 per share
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalization), each share of Series F Preferred Stock shall automatically
convert into such number of fully paid and nonassessable shares of Common Stock
as is determined (X) by dividing $11.00 by the price per share of the public
offering or (Y) by dividing the Original Series F Issue Price by the Conversion
Price per share (as adjusted, if applicable, by Section 3(d)) in effect for such
series of Preferred Stock at the time of such conversion, whichever is greater.
(c) Mechanics of Conversion. Following such a conversion, each
holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred
Stock shall surrender the certificate or certificates therefor, duly endorsed,
at the office of this corporation or of any transfer agent for such holder, and
shall indicate in writing the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This corporation shall
issue and deliver to each such holder, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled pursuant to Section 3(a) or Section 3(b)
above, as applicable, and shall pay (i) to each holder of Series A Preferred
Stock the applicable Series A Cash Amount for each share of Series A Preferred
Stock held by such holder, (ii) to each holder of Series B Preferred Stock the
applicable Series B Cash Amount for each share of Series B Preferred Stock held
by such holder, (iii) to each holder of Series C Preferred Stock the applicable
Series C Cash Amount for each share of Series C Preferred Stock held by such
holder, and (iv) to each holder of Series D Preferred Stock the applicable
Series D Cash Amount for each share of Series D Preferred Stock held by such
holder, payable by check or wire transfer within ten calendar days following
such conversion. In the case of conversion pursuant to Section 3(a), such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such election to convert the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock or Series F Preferred Stock, as the case may be, and
the holders entitled to receive the shares of Common Stock issuable and Cash
Amounts payable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with a public offering of the Company's Common
Stock, the conversion may, at the election of the holders requesting such
conversion, be conditioned upon the closing of the sale of securities pursuant
to such public offering, in which event the conversion of the Series A Preferred
Stock, the Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall not
be deemed to have occurred until immediately subsequent to the closing of such
sale of securities. If the funds of this corporation legally available for
payment of the total Cash Amounts upon conversion of the Series A Preferred
Stock, the Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock are insufficient at the time of such conversion to pay in full
the total Cash Amounts required upon such conversion, those funds that are
legally available at such time, if any, shall be applied ratably to the payment
of the Cash Amounts, and, thereafter, when additional funds of this corporation
become legally
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available for payment of the remaining portion of such total Cash Amounts, such
funds shall be applied ratably to the payment of such remaining Cash Amounts
until it is paid in full.
(d) Conversion Price Adjustments of Preferred Stock for Certain
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall be
subject to adjustment from time to time as follows:
(i) (A) If the corporation shall issue, after the date upon
which any shares of Series A Preferred Stock are first issued (the "Series A
Purchase Date") or the shares of Series B Preferred Stock are first issued (the
"Series B Purchase Date") or the shares of Series C Preferred Stock are first
issued (the "Series C Purchase Date") or the shares of Series D Preferred Stock
are first issued (the "Series D Purchase Date") or the shares of Series E
Preferred Stock are first issued (the "Series E Purchase Date") or the shares of
Series F Preferred Stock are first issued (the "Series F Purchase Date") (the
"Purchase Date" with respect to such series), any Additional Stock (as defined
below) without consideration or for a consideration per share less than the
Conversion Price for such series in effect immediately prior to the issuance of
such Additional Stock, the Conversion Price for such series in effect
immediately prior to each such issuance shall forthwith (except as otherwise
provided in this clause (i)) be adjusted to a price determined by multiplying
such Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issuance
(including the number of shares of Common Stock issuable upon conversion of
outstanding Preferred Stock) plus the number of shares of Common Stock that the
aggregate consideration received by the corporation for such issuance would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock (including the number of share of Common Stock
issuable upon conversion of outstanding Preferred Stock) outstanding immediately
prior to such issuance plus the number of shares of such Additional Stock.
(B) No adjustment of the Conversion Price for the Series
A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock,
the Series D Preferred Stock, the Series E Preferred Stock, or the Series F
Preferred Stock shall be made in an amount less than one cent per share,
provided that any adjustments which are not required to be made by reason of
this sentence shall be carried forward and shall be either taken into account in
any subsequent adjustment made prior to 3 years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of 3 years from the date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided for in subsections
3(d)(i)(E)(3) and 3(d)(i)(E)(4), no adjustment of such Conversion Price pursuant
to this subsection 3(d)(i)(B) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
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(D) In the case of the issuance of the Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or
after the applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 3(d)(i) and subsection 3(d)(ii):
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (to the extent then exercisable) of such options
to purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in subsections
3(d)(i)(C) and 3(d)(i)(D)), if any, received by the corporation upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (to the extent then
convertible or exchangeable) for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in subsections 3(d)(i)(C) and 3(d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Prices of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock, to the extent in any way affected by or computed using
such options, rights or securities, shall be recomputed to reflect such change,
but no further adjustment shall be made for the actual issuance of Common Stock
or any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
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(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Prices of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock, to the extent in any way affected
by or computed using such options, rights or securities or options or rights
related to such securities, shall be recomputed to reflect the issuance of only
the number of shares of Common Stock (and convertible or exchangeable securities
which remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
3(d)(i)(E)(1) and 3(d)(i)(E)(2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either subsection
3(d)(i)(E)(3) or 3(d)(i)(E)(4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 3(d)(i)(E)) by this
corporation after the applicable Purchase Date other than
(A) securities issued pursuant to a transaction
described in subsection 3(d)(iii) hereof;
(B) shares of Common Stock issuable or issued to
employees, consultants or directors of this corporation directly or pursuant to
stock option plans or restricted stock plans approved by the Board of Directors
of this corporation prior to the Series E Purchase Date and pursuant to stock
option plans or restricted stock plans approved by the Board of Directors of
this corporation after the Series F Purchase Date and approved by the holders of
a majority of outstanding shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series F Preferred
Stock, voting together as a single class;
(C) securities issuable upon the conversion of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock;
(D) securities issued pursuant to the acquisition of
another business entity or business segment of any such entity by this
corporation by merger, purchase of substantially all the assets or other
reorganization whereby this corporation will own a majority of the voting power
of such business entity or business segment of any such entity, in each such
instance, approved by the Board of Directors;
(E) securities issued to vendors or customers or to
other persons in similar commercial situations with this corporation if such
issuance is approved by the Board of Directors;
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(F) securities issued in connection with obtaining lease
financing, whether issued to a lessor, guarantor or other person if such
issuance is approved by the Board of Directors;
(G) any right, option or warrant to acquire any security
convertible into the securities excluded from the definition of Additional Stock
pursuant to subsections (D) through (F) above;
(H) warrants issued April 17, 1996 to purchase 5,000
shares of Common Stock and the Common Stock issuable upon exercise thereof;
(I) warrants issued August 16, 1996 to purchase 192,262
shares of Series B Preferred Stock and the Preferred Stock issuable upon
exercise thereof;
(J) warrants to purchase 331,312 shares of Common Stock
and the Common Stock issuable upon exercise thereof issued pursuant to that
certain Note and Warrant Purchase Agreement dated November 10, 1997 by and among
the corporation and the other parties thereto;
(K) warrants to purchase 300,000 shares of Common Stock
issued on or about August 19, 1999 and the Common Stock issuable upon exercise
thereof.
(iii) In the event the corporation should at any time or from
time to time after the Series A Purchase Date, the Series B Purchase Date, the
Series C Purchase Date, the Series D Purchase Date, the Series E Purchase Date,
or the Series F Purchase Date fix a record date for the effectuation of a split
or subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred Stock, the Series B Preferred Stock, the Series
C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock
and the Series F Preferred Stock, respectively, shall be appropriately decreased
so that the number of shares of Common Stock issuable on conversion of each
share of such series shall be increased in proportion to such increase of the
aggregate of shares of Common Stock outstanding and those issuable with respect
to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding at
any time after the Series A Purchase Date, Series B Purchase Date, Series C
Purchase Date, Series D Purchase Date, Series E Purchase Date or Series F
Purchase Date is decreased by a combination of the outstanding shares of Common
Stock, then, following the record date of such combination, the Conversion Ratio
shall be appropriately adjusted so that the
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number of shares of Common Stock issuable on conversion of each share of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock,
respectively, shall be decreased in proportion to such decrease in outstanding
shares.
(e) Other Distributions. In the event this corporation shall declare
a distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 3(d)(iii), then, in each such
case for the purpose of this subsection 3(e), the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of the corporation into
which their shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series
F Preferred Stock, respectively, are convertible as of the record date fixed for
the determination of the holders of Common Stock of the corporation entitled to
receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3), provision shall be made so that the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, and Series F Preferred Stock shall
thereafter be entitled to receive upon conversion of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock, respectively, the
number of shares of stock or other securities or property of the Company or
otherwise, to which a holder of Common Stock deliverable upon conversion would
have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 3
with respect to the rights of the holders of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock after the recapitalization
to the end that the provisions of this Section 3 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.
(g) No Impairment. This corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions hereof and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock against impairment.
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(h) No Fractional Shares. No fractional shares shall be issued upon
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F
Preferred Stock, and the number of shares of Common Stock to be issued shall be
rounded to the nearest whole share. Such rounding shall be based on the total
number of shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F
Preferred Stock such holder is converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(i) Reservation of Stock Issuable Upon Conversion. This corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
Preferred Stock such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of
Preferred Stock; and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Preferred Stock, in addition to such other remedies as
shall be available to the holder of such Preferred Stock, this corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
4. Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each applicable holder of Preferred Stock, at least 20
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
5. Voting Rights.
(a) Subject to Section 5(b) below, the Common Stock and Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock will vote
together as a single class on all matters submitted for stockholder consent or
approval; provided, however, that if at any time the voting power of the
then-outstanding Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock would otherwise be insufficient to elect all of this
corporation's directors (any period during which such condition exists referred
to as the "Voting Shift Period"), then, during the Voting Shift Period, (i) the
number of authorized directors of this corporation shall be set at a number not
less than five (5), (ii) the Series A Preferred Stock and Series B Preferred
Stock then outstanding shall be entitled to elect, voting as a separate class,
that number of directors equal to three-fourths (3/4ths) of the then-authorized
directors (rounded to the nearest whole number), (iii) the Series C Preferred
Stock shall be entitled, pursuant to subsection 5(b), to elect, voting
separately as a series, one (1) director, and (iii) the holders of the Common
Stock then outstanding shall be entitled to elect the remaining number of
authorized directors.
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(b) The holders of the Series C Preferred Stock, voting separately
as a series, shall be entitled to elect one (1) member of the Board of
Directors.
(c) The holder of each share of Series A Preferred Stock shall have
ten votes for each share of Common Stock into which such Series A Preferred
Stock could then be converted (with any fractional share determined on an
aggregate conversion basis being rounded to the nearest whole share), and with
respect to such votes by the holders of Series A Preferred Stock, each share of
Series A Preferred Stock shall have full voting rights and powers equal to the
voting rights and powers of ten shares of Common Stock, and the holders thereof
shall be entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote. The
holder of each share of Series B Preferred Stock shall have fourteen votes for
each share of Common Stock into which such Series B Preferred Stock could then
be converted (with any fractional share determined on an aggregate conversion
basis being rounded to the nearest whole share), and with respect to such votes
by the holders of Series B Preferred Stock, each share of Series B Preferred
Stock shall have full voting rights and powers equal to the voting rights and
powers of fourteen shares of Common Stock, and the holders thereof shall be
entitled, notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote. The holder of each
share of Series C Preferred Stock shall have fourteen votes for each share of
Common Stock into which such Series C Preferred Stock could then be converted
(with any fractional share determined on an aggregate conversion basis being
rounded to the nearest whole share), and with respect to such votes by the
holders of Series C Preferred Stock, each share of Series C Preferred Stock
shall have full voting rights and powers equal to the voting rights and powers
of fourteen shares of Common Stock, and the holders thereof shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of this corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. The holder of each share of
Series D Preferred Stock shall have fourteen votes for each share of Common
Stock into which such Series D Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share), and with respect to such votes by the holders of
Series D Preferred Stock, each share of Series D Preferred Stock shall have full
voting rights and powers equal to the voting rights and powers of fourteen
shares of Common Stock, and the holders thereof shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of this corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. The holder of each share of
Series E Preferred Stock shall have fourteen votes for each share of Common
Stock into which such Series E Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share), and with respect to such votes by the holders of
Series E Preferred Stock, each share of Series E Preferred Stock shall have full
voting rights and powers equal to the voting rights and powers of fourteen
shares of Common Stock, and the holders thereof shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of this corporation, and shall be entitled to vote,
together with
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<PAGE> 15
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote. The holder of each share of Series F
Preferred Stock shall have fourteen votes for each share of Common Stock into
which such Series F Preferred Stock could then be converted (with any fractional
share determined on an aggregate conversion basis being rounded to the nearest
whole share), and with respect to such votes by the holders of Series F
Preferred Stock, each share of Series F Preferred Stock shall have full voting
rights and powers equal to the voting rights and powers of fourteen shares of
Common Stock, and the holders thereof shall be entitled, notwithstanding any
provision hereof, to notice of any stockholders' meeting in accordance with the
bylaws of this corporation, and shall be entitled to vote, together with holders
of Common Stock, with respect to any question upon which holders of Common Stock
have the right to vote.
6. Protective Provisions. In addition to the vote provided for
pursuant to Section 5 above, and subject to the rights of series of Preferred
Stock which may from time to time come into existence:
(a) so long as any shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock or Series F Preferred Stock are outstanding, this corporation
shall not, without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least seventy-five percent (75%) of the
voting power of the then outstanding shares of such Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock voting together as a
single class:
(i) increase or decrease the authorized number of shares of
any series of Preferred Stock;
(ii) create any new class or series of stock or any other
securities convertible into equity securities of this corporation (by
reclassification or otherwise) having a preference over or on parity with the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, or Series F Preferred Stock
with respect to voting, dividends, conversion, redemption or upon liquidation;
(iii) redeem or repurchase any other class or series of
stock prior to the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F
Preferred Stock;
(iv) alter or change the rights, preferences, or privileges
of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred
Stock so as to adversely affect such shares of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock or Series F Preferred Stock; or
(v) amend or alter the voting percentage required to approve
an event or change listed in this Section 6(a);
(b) So long as any shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock or
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<PAGE> 16
Series F Preferred Stock are outstanding, this corporation shall not, without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least a majority of the voting power of the then outstanding
shares of such Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F
Preferred Stock, voting together as a single class, sell, convey, or otherwise
dispose of or encumber all or substantially all of its property or business or
merge into or consolidate with any other corporation (other than a wholly-owned
subsidiary corporation) or effect any transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
corporation is disposed of.
(c) This corporation shall not (i) alter or change the rights,
preferences or privileges of any series of Preferred Stock so as to affect
adversely the shares of such series in a manner different than the shares of any
other series of Preferred Stock, or (ii) amend the provisions of this Section
6(c) without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of shares of such adversely affected series that
are entitled to vote with respect to the matter and that hold at least a
majority of the then outstanding shares of such series.
(d) This corporation shall not (i) amend or alter Section 2(b)
of Article IV or Section 3(b)(ii) of Article IV or (ii) amend the provisions of
this Section 6(d) without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least sixty percent (60%) of
the then outstanding shares of Series E Preferred Stock.
(e) This corporation shall not (i) amend or alter Section 2(b)
of Article IV or Section 3(b)(iii) of Article IV or (ii) amend the provisions of
this Section 6(e) without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least sixty percent (60%) of
the then outstanding shares of Series F Preferred Stock.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of
all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, only
when and if declared by the Board of Directors, out of any assets of this
corporation legally available therefor, such dividends as may be declared from
time to time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or
winding up of this corporation, the assets of this corporation shall be
distributed as provided in Section B(2) of this Article IV of this Certificate
of Incorporation.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
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ARTICLE V
Except as otherwise provided in this Certificate, in furtherance and
not in limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to make, repeal, alter, amend and rescind any or all of the
bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the bylaws
of this corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or outside the State of
Delaware, as the bylaws may provide. The books of this corporation may be kept,
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of this corporation.
ARTICLE IX
A director of this corporation shall not be personally liable to this
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to this corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law, or
(iv) for any transaction from which the director derived any improper personal
benefit. If the General Corporation Law is amended after approval by the
stockholders of this Article to authorize corporate action further eliminating
or limiting the personal liability of directors then the liability of a director
of this corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article
IX by the stockholders of this corporation shall not adversely affect any right
or protection of a director of this corporation existing at the time of such
repeal or modification.
ARTICLE X
Except as provided for in Section 6 of Article IV, this corporation
reserves the right to amend, alter, change or repeal any provision contained in
this Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation."
* * *
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THIRD: That thereafter, pursuant to resolution of the Board of
Directors, the Amended and Restated Certificate of Incorporation was submitted
to the stockholders for their approval, which approval was given by written
consent of a majority of the stockholders pursuant to Section 228 of the General
Corporation Law.
FOURTH: That said Amended and Restated Certificate of Incorporation was
duly adopted in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed by the President and the Secretary of the Corporation this 24th day of
August, 1999.
QUINTUS CORPORATION
/s/ Alan K. Anderson
-----------------------------------------
Alan K. Anderson
Chief Executive Officer
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<PAGE> 1
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF QUINTUS CORPORATION,
A Delaware Corporation
Quintus Corporation, a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "General Corporation
Law"),
DOES HEREBY CERTIFY THAT:
FIRST: The name of the corporation is Quintus Corporation and
that the corporation was originally incorporated on June 11, 1990 under the name
QTNEWCO, INC. pursuant to the General Corporation Law.
SECOND: The Board of Directors of the corporation, at a meeting
duly called and held, adopted resolutions amending and restating the Certificate
of Incorporation to read in full as follows:
"RESOLVED, that the Certificate of Incorporation of the
corporation (the "Certificate") be and it hereby is amended and restated
to read in its entirety as follows:
ARTICLE I
The name of this corporation is Quintus Corporation.
ARTICLE II
The address of the registered office of the corporation in the
State of Delaware is 1209 Orange Street in the City of Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law.
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock," each with a par value of $0.001 per share. The total number of shares
which this corporation is authorized to issue is One Hundred Thirty-Three
Million (133,000,000) shares. One Hundred Million (100,000,000) shares shall be
Common Stock and Thirty-Three Million (33,000,000) shares shall be Preferred
Stock.
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B. Rights, Preferences and Restrictions of Preferred Stock. The
Preferred Stock authorized by this Certificate of Incorporation may be issued
from time to time in one or more series. The rights, preferences, privileges,
and restrictions granted to and imposed on the Series A Preferred Stock (the
"Series A Preferred Stock"), which series shall consist of Nine Million One
Hundred Thousand (9,100,000) shares, the Series B Preferred Stock (the "Series B
Preferred Stock"), which series shall consist of One Million (1,000,000) shares,
the Series C Preferred Stock (the "Series C Preferred Stock"), which series
shall consist of Three Million (3,000,000) shares, the Series D Preferred Stock
(the "Series D Preferred Stock"), which series shall consist of One Million Four
Hundred Fifty-Five Thousand (1,455,000) shares, the Series E Preferred Stock
(the "Series E Preferred Stock"), which series shall consist of Three Million
(3,000,000) shares, the Series F Preferred Stock (the "Series F Preferred
Stock"), which series shall consist of One Million Five Hundred Thousand
(1,500,000) shares, the Series G-1 Preferred Stock (the "Series G-1 Preferred
Stock"), which series shall consist of __________ (_______) shares, the Series
G-2 Preferred Stock (the "Series G-2 Preferred Stock"), which series shall
consist of __________ (_______) shares, the Series G-3 Preferred Stock (the
"Series G-3 Preferred Stock"), which series shall consist of __________
(_______) shares, the Series G-4 Preferred Stock (the "Series G-4 Preferred
Stock"), which series shall consist of __________ (_______) shares, the Series
G-5 Preferred Stock (the "Series G-5 Preferred Stock"), which series shall
consist of __________ (_______) shares, and the Series G-6 Preferred Stock (the
"Series G-6 Preferred Stock"), which series shall consist of __________
(_______) shares, are as set forth below in this Article IV(B). The Series G-1
Preferred Stock, Series G-2 Preferred Stock, Series G-3 Preferred Stock, Series
G-4 Preferred Stock, Series G-5 Preferred Stock and Series G-6 Preferred Stock
are sometimes collectively referred to herein as the "Series G Preferred Stock."
The Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock and Series G Preferred Stock are sometimes collectively referred to herein
as the "Series Preferred Stock." The Board of Directors of this corporation is
hereby authorized to fix or alter the rights, preferences, privileges, and
restrictions granted to or imposed upon additional series of Preferred Stock,
and the number of shares constituting any such series and the designation
thereof, or any of them. Subject to compliance with applicable protective voting
rights which have been or may be granted to the Preferred Stock or series
thereof ("Protective Provisions") and other applicable rights under the General
Corporation Law, but notwithstanding any other rights of the Preferred Stock or
any series thereof, the rights, privileges, preferences and restrictions of any
such additional series may be subordinated to, pari passu with (including,
without limitation, inclusion in provisions with respect to liquidation and
acquisition preferences, redemption and/or approval of matters by vote or
written consent), or senior to any of those of any present or future class or
series of Preferred or Common Stock. Subject to compliance with applicable
Protective Provisions, the Board of Directors is also authorized to increase or
decrease the number of shares of any series (other than the Series Preferred
Stock) prior or subsequent to the issue of that series, but not below the number
of shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
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1. Dividend Provisions.
(a) The holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock, Series F Preferred Stock, Series G-1 Preferred Stock, Series G-2
Preferred Stock, Series G-3 Preferred Stock, Series G-4 Preferred Stock, Series
G-5 Preferred Stock and Series G-6 Preferred Stock shall be entitled to receive
dividends, out of any assets legally available therefor, prior and in preference
to any declaration or payment of any dividend (payable other than in Common
Stock or other non-redeemable equity securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this corporation) on the Common Stock of this
corporation, at the per share rate of $0.20, $0.286, $0.382, $0.55, $0.83,
$1.65,
[THIS NUMBER (THE "Series G-1 Dividend") SHALL BE THE PRODUCT OF (x) 0.20 AND
(y) A FRACTION, THE NUMERATOR OF WHICH IS $1.00 AND THE DENOMINATOR OF WHICH IS
THE "EXCHANGE RATIO" AS SET FORTH IN SECTION 1.6(a) (THE "EXCHANGE RATIO") OF
THE AGREEMENT AND PLAN OF REORGANIZATION, DATED SEPTEMBER __, 1999, BY AND AMONG
THE COMPANY, RIBEYE ACQUISITION CORP.AND ACUITY CORP. (THE "MERGER AGREEMENT")],
[THIS NUMBER (THE "Series G-2 Dividend") SHALL BE THE PRODUCT OF (x) 0.20 AND
(y) A FRACTION, THE NUMERATOR OF WHICH IS $1.50 AND THE DENOMINATOR OF WHICH IS
THE "EXCHANGE RATIO"],
[THIS NUMBER (THE "Series G-3 Dividend") SHALL BE THE PRODUCT OF (x) 0.20 AND
(y) A FRACTION, THE NUMERATOR OF WHICH IS $1.75 AND THE DENOMINATOR OF WHICH IS
THE "EXCHANGE RATIO"],
[THIS NUMBER (THE "Series G-4 Dividend") SHALL BE THE PRODUCT OF (x) 0.20 AND
(y) A FRACTION, THE NUMERATOR OF WHICH IS $3.00 AND THE DENOMINATOR OF WHICH IS
THE "EXCHANGE RATIO"],
[THIS NUMBER (THE "Series G-5 Dividend") SHALL BE THE PRODUCT OF (x) 0.20 AND
(y) A FRACTION, THE NUMERATOR OF WHICH IS $3.50 AND THE DENOMINATOR OF WHICH IS
THE "EXCHANGE RATIO"] and
[THIS NUMBER (THE "Series G-6 Dividend") SHALL BE THE PRODUCT OF (x) 0.20 AND
(y) A FRACTION, THE NUMERATOR OF WHICH IS $2.59 AND THE DENOMINATOR OF WHICH IS
THE "EXCHANGE RATIO"]
per annum, respectively, (as adjusted for any stock dividends, combinations or
splits with respect to such shares) or, if greater (as determined on a per annum
basis), an amount equal to that paid on any other outstanding shares of this
corporation, payable only when and if declared by the Board of Directors. If any
dividends are declared or paid in any year on the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock, Series G-1 Preferred Stock,
Series G-2 Preferred Stock, Series G-3 Preferred Stock, Series G-4 Preferred
Stock, the Series G-5 Preferred Stock and the Series G-6 Preferred Stock in an
amount less than $0.20, $0.286, $0.382, $0.55, $0.83,
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$1.65, the Series G-1 Dividend, the Series G-2 Dividend, the Series G-3
Dividend, the Series G-4 Dividend, the Series G-5 Dividend and the Series G-6
Dividend, respectively, per share, all such Series Preferred Stock dividends
during such year shall be declared or paid, as applicable, ratably among the
Series Preferred Stock in proportion to the full preferential dividend amounts
for such Series Preferred Stock set forth above. The right to such dividends on
shares of Series Preferred Stock shall not be cumulative and no right shall
accrue to holders of shares of Series Preferred Stock by reason of the fact that
dividends on such shares are not declared in any prior year, nor shall any
undeclared or unpaid dividend bear or accrue interest.
(b) In the event this corporation shall declare any other
dividend or distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights to purchase any such securities or evidence of
indebtedness, then, in each such case the holders of the Series Preferred Stock
shall be entitled to a proportionate share of any such dividend or distribution
as though the holders of the Series Preferred Stock were the holders of the
number of shares of Common Stock of this corporation into which their respective
shares of Series Preferred Stock are convertible as of the record date fixed for
the determination of the holders of Common Stock of this corporation entitled to
receive such distribution.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock which may from time to time come into existence, the
holders of Series F Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series G
Preferred Stock and Common Stock by reason of their ownership thereof, an amount
per share equal to $8.25 (the "Original Series F Issue Price") for each share
(as adjusted for any stock dividends, combinations or splits with respect to
such shares) of Series F Preferred Stock held by each such holder plus any
undeclared but unpaid dividends on such share (the "Series F Liquidation
Preference"). After payment of the Series F Liquidation Preference, the holders
of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series G Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets of this corporation to the holders of the Common Stock by
reason of their ownership thereof,
(i) an amount per share equal to $1.00 (the "Original Series A Issue Price") for
each share (as adjusted for any stock dividends, combinations or splits with
respect to such shares) of Series A Preferred Stock held by each such holder
plus any declared but unpaid dividends on such share,
(ii) an amount per share equal to $1.43 (the "Original Series B Issue Price")
for each share (as adjusted for any stock dividends, combinations or splits with
respect to such shares) of Series B Preferred Stock held by each such holder
plus any declared but unpaid dividends on such share,
(iii) an amount per share equal to $1.91 (the "Original Series C Issue Price")
for each share (as adjusted for any stock dividends, combinations or splits with
respect to such shares) of Series C
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Preferred Stock held by each such holder plus any undeclared but unpaid
dividends on such share,
(iv) an amount per share equal to $2.75 (the "Original Series D Issue Price")
for each share (as adjusted for any stock dividends, combinations or splits with
respect to such shares) of Series D Preferred Stock held by each such holder
plus any undeclared but unpaid dividends on such share,
(v) an amount per share equal to $4.15 (the "Original Series E Issue Price") for
each share (as adjusted for any stock dividends, combinations or splits with
respect to such shares) of Series E Preferred Stock held by each such holder
plus any undeclared but unpaid dividends on such share,
(vi) an amount per share equal to [THIS NUMBER (THE "Original Series G-1 Issue
Price") SHALL BE A FRACTION, THE NUMERATOR OF WHICH IS $1.00 AND THE DENOMINATOR
OF WHICH IS THE "EXCHANGE RATIO"] for each share (as adjusted for any stock
dividends, combinations or splits with respect to such shares) of Series G-1
Preferred Stock held by each such holder plus any undeclared but unpaid
dividends on such share,
(vii) an amount per share equal to [THIS NUMBER (THE "Original Series G-2 Issue
Price") SHALL BE A FRACTION, THE NUMERATOR OF WHICH IS $1.50 AND THE DENOMINATOR
OF WHICH IS THE "EXCHANGE RATIO"] for each share (as adjusted for any stock
dividends, combinations or splits with respect to such shares) of Series G-2
Preferred Stock held by each such holder plus any undeclared but unpaid
dividends on such share,
(viii) an amount per share equal to [THIS NUMBER (THE "Original Series G-3 Issue
Price") SHALL BE A FRACTION, THE NUMERATOR OF WHICH IS $1.75 AND THE DENOMINATOR
OF WHICH IS THE "EXCHANGE RATIO"] for each share (as adjusted for any stock
dividends, combinations or splits with respect to such shares) of Series G-3
Preferred Stock held by each such holder plus any undeclared but unpaid
dividends on such share,
(ix) an amount per share equal to [THIS NUMBER (THE "Original Series G-4 Issue
Price") SHALL BE A FRACTION, THE NUMERATOR OF WHICH IS $3.00 AND THE DENOMINATOR
OF WHICH IS THE "EXCHANGE RATIO"] for each share (as adjusted for any stock
dividends, combinations or splits with respect to such shares) of Series G-4
Preferred Stock held by each such holder plus any undeclared but unpaid
dividends on such share,
(x) an amount per share equal to [THIS NUMBER (THE "Original Series G-5 Issue
Price") SHALL BE A FRACTION, THE NUMERATOR OF WHICH IS $3.50 AND THE DENOMINATOR
OF WHICH IS THE "EXCHANGE RATIO"] for each share (as adjusted for any stock
dividends, combinations or splits with respect to such shares) of Series G-5
Preferred Stock held by each such holder plus any undeclared but unpaid
dividends on such share, and
(xi) an amount per share equal to [THIS NUMBER (THE "Original Series G-6 Issue
Price") SHALL BE A FRACTION, THE NUMERATOR OF WHICH IS $____ AND THE DENOMINATOR
OF WHICH IS THE "EXCHANGE RATIO"] for each share (as adjusted for any stock
dividends, combinations or splits with respect to such shares) of Series G-6
Preferred Stock held by each such holder plus any undeclared but unpaid
dividends on such share.
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<PAGE> 6
If upon the occurrence of such event and after payment of the Series F
Liquidation Preference, the assets and funds thus distributed among the holders
of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series G Preferred
Stock shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then, subject to the rights of series of
Preferred Stock which may from time to time come into existence, the assets and
funds of this corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series G Preferred Stock in proportion to the full
preferential amount each such holder is otherwise entitled to receive under this
subsection 2(a).
(b) Upon the completion of the distributions required by
subsection (a) of this Section 2, the remaining assets of this corporation
available for distribution to stockholders shall be distributed among the
holders of Series E Preferred Stock, Series F Preferred Stock, Series G
Preferred Stock and Common Stock pro rata based on the number of shares of
Common Stock held by each (assuming full conversion of all such Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock) until,
with respect to the holders of Series E Preferred Stock, Series F Preferred
Stock, Series G-1 Preferred Stock, Series G-2 Preferred Stock, Series G-3
Preferred Stock, Series G-4 Preferred Stock, Series G-5 Preferred Stock and
Series G-6 Preferred Stock, such holders shall have received an aggregate of
$10.375, $12.375,
[THIS NUMBER SHALL BE THE PRODUCT OF (i) THE ORIGINAL SERIES G-1 ISSUE PRICE AND
(ii) 2.0],
[THIS NUMBER SHALL BE THE PRODUCT OF (i) THE ORIGINAL SERIES G-2 ISSUE PRICE AND
(ii) 2.0],
[THIS NUMBER SHALL BE THE PRODUCT OF (i) THE ORIGINAL SERIES G-3 ISSUE PRICE AND
(ii) 2.0],
[THIS NUMBER SHALL BE THE PRODUCT OF (i) THE ORIGINAL SERIES G-4 ISSUE PRICE AND
(ii) 2.0],
[THIS NUMBER SHALL BE THE PRODUCT OF (i) THE ORIGINAL SERIES G-5 ISSUE PRICE AND
(ii) 2.0],
[THIS NUMBER SHALL BE THE PRODUCT OF (i) THE ORIGINAL SERIES G-6 ISSUE PRICE AND
(ii) 2.0],
per share respectively (as adjusted for any stock splits, stock dividends,
recapitalizations or the like) (including amounts paid pursuant to subsection
(a) of this Section 2); thereafter, if assets remain in this corporation, the
holders of the Common Stock of this corporation shall receive all of the
remaining assets of this corporation pro rata based on the number of shares of
Common Stock held by each.
(c) A consolidation or merger of this corporation with or into
any other corporation or corporations (other than a wholly-owned subsidiary or
parent
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<PAGE> 7
corporation), or a sale, conveyance or disposition of all or substantially all
of the assets of this corporation or the effectuation by this corporation of a
transaction or series of related transactions in which more than 50% of the
voting power of this corporation is disposed of, shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this Section 2.
(d) In the event a liquidation, dissolution or winding up of this
corporation under this Section 2 is effected, whether in whole or in part,
through a noncash distribution, such noncash distribution shall be valued at the
fair value thereof as determined in good faith by the Board of Directors of this
corporation.
3. Conversion. The holders of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
shall have conversion rights (the "Conversion Rights") as follows:
(a) Right to Convert. The Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be
convertible, at any time upon the election of the holders of at least a majority
of the then-outstanding shares of Series A Preferred, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock, voting together as a
single class, into shares of Common Stock and a right to receive cash, (i) with
each share of Series A Preferred Stock converting upon such an election into
such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Original Series A Issue Price by the Conversion Price
applicable to Series A Preferred Stock, determined as hereafter provided, in
effect on the date of such conversion and a right to receive from this
corporation a cash payment in an amount equal to $0.925 for each share of Series
A Preferred Stock held, plus all declared but unpaid dividends on such share
(the "Series A Cash Amount"), (ii) with each share of Series B Preferred Stock
converting upon such an election into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Series B Issue Price by the Conversion Price applicable to Series B Preferred
Stock, determined as hereafter provided, in effect on the date of such
conversion and a right to receive from this corporation a cash payment in an
amount equal to $1.325 for each share of Series B Preferred Stock held, plus all
declared but unpaid dividends on such share (the "Series B Cash Amount"), (iii)
with each share of Series C Preferred Stock converting upon such an election
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Original Series C Issue Price by the Conversion Price
applicable to theSeries C Preferred Stock, determined as hereafter provided, in
effect on the date of such conversion and a right to receive from this
corporation a cash payment in an amount equal to $1.765 for each share of Series
C Preferred Stock held, plus all declared but unpaid dividends on such share
(the "Series C Cash Amount") and (iv) with each share of Series D Preferred
Stock converting upon such an election into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Series D Issue Price by the Conversion Price applicable to Series D Preferred
Stock, determined as hereafter provided, in effect on the date of such
conversion and a right to receive from this corporation a cash payment in an
amount equal to $2.544 for each share of Series D Preferred Stock held, plus all
declared but unpaid dividends on such share (the "Series D Cash Amount"). Each
share of Series E Preferred Stock, Series F Preferred Stock, Series G-1
Preferred Stock, Series G-2 Preferred Stock, Series G-3 Preferred Stock, Series
G-4 Preferred Stock, Series G-5 Preferred Stock and Series G-6 Preferred
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<PAGE> 8
Stock shall be convertible, at the option of the holder thereof at any time
after the date of issuance of such share, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Series E Issue Price, Original Series F Issue Price, the Original Series G-1
Issue Price, the Original Series G-2 Issue Price, the Original Series G-3 Issue
Price, the Original Series G-4 Issue Price, the Original Series G-5 Issue Price
or the Original Series G-6 Issue Price, as the case may be, by the Conversion
Price (determined as hereinafter provided) per share in effect for such series
of Preferred Stock at the time of conversion. The initial Conversion Price per
share for shares of Series Preferred Stock shall be the Original Series A Issue
Price, the Original Series B Issue Price, the Original Series C Issue Price, the
Original Series D Issue Price, the Original Series E Issue Price, the Original
Series F Issue Price, the Original Series G-1 Issue Price, the Original Series
G-2 Issue Price, the Original Series G-3 Issue Price, the Original Series G-4
Issue Price, the Original Series G-5 Issue Price and the Original Series G-6
Issue Price, respectively; provided, however, that the Conversion Prices for the
Series Preferred Stock shall be subject to adjustment as set forth in subsection
3(d). The Series A Cash Amount, the Series B Cash Amount, the Series C Cash
Amount and the Series D Cash Amount are sometimes hereinafter referred to
collectively as the "Cash Amounts."
(b) Automatic Conversion.
(i) Each share of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock shall automatically
be converted into shares of Common Stock and a right to receive cash, with each
share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock converting into: (i) fully paid and
nonassessable shares of Common Stock at the respective Conversion Prices for
each of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock at the time in effect for such
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, respectively; and (ii) a right to receive from this
corporation a cash payment in an amount equal to the Series A Cash Amount for
each share of Series A Preferred Stock held, the Series B Cash Amount for each
share of Series B Preferred Stock held, the Series C Cash Amount for each share
of Series C Preferred Stock held and the Series D Cash Amount for each share of
Series D Preferred Stock held, except as provided below in subsection 3(c),
immediately upon the corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement on Form S-1
under the Securities Act of 1933, as amended, the public offering price of which
is not less than $40,000,000 in the aggregate.
(ii) Each share of Series E Preferred Stock shall automatically
be converted into shares of Common Stock at the Conversion Price at the time in
effect for such Series E Preferred Stock immediately upon the earlier of (A) the
corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement on Form S-1 under the Securities
Act of 1933, as amended, the public offering price of which was not less than
$40,000,000 in the aggregate, or (B) the date specified by written consent or
agreement of the holders of at least sixty percent (60%) of the then outstanding
shares of Series E Preferred Stock; provided, however, that to the extent that
the Series E Preferred Stock would automatically convert into Common Stock
pursuant to clause (A) of this subsection 3(b)(ii) and the public offering price
is less than $8.30 per share (adjusted to reflect subsequent stock dividends,
stock splits or recapitalization) (as so adjusted, the "Series E
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<PAGE> 9
Price"), each share of Series E Preferred Stock shall automatically convert into
such number of fully paid and nonassessable shares of Common Stock as is
determined (X) by dividing the Series E Price by the price per share of the
public offering or (Y) by dividing the Original Series E Issue Price by the
Conversion Price applicable to the Series E Preferred Stock (as adjusted, if
applicable, by Section 3(d)) in effect on the date of such conversion, whichever
is greater.
(iii) Each share of Series F Preferred Stock shall automatically
be converted into shares of Common Stock at the Conversion Price then in effect
for such series of Preferred Stock immediately upon the earlier of (A) the
corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement on Form S-1 under the Securities
Act of 1933, as amended, the public offering price of which is not less than
$40,000,000 in the aggregate, or (B) the date specified by written consent or
agreement of the holders of at least a majority of the then outstanding shares
of Series F Preferred Stock; provided, however, that to the extent that the
Series F Preferred Stock would automatically convert into Common Stock pursuant
to clause (A) of this subsection 3(b)(iii) and the public offering price is less
than $11.00 per share (adjusted to reflect subsequent stock dividends, stock
splits or recapitalization), each share of Series F Preferred Stock shall
automatically convert into such number of fully paid and nonassessable shares of
Common Stock as is determined (X) by dividing $11.00 by the price per share of
the public offering or (Y) by dividing the Original Series F Issue Price by the
Conversion Price per share (as adjusted, if applicable, by Section 3(d)) in
effect for such series of Preferred Stock at the time of such conversion,
whichever is greater.
(iv) Each share of Series G Preferred Stock shall automatically
be converted into shares of Common Stock at the Conversion Price then in effect
for such series of Preferred Stock immediately upon the earlier of (A) the
corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement on Form S-1 under the Securities
Act of 1933, as amended, the public offering price of which is not less than
$40,000,000 in the aggregate, or (B) the date specified by written consent or
agreement of the holders of at least a majority of the then outstanding shares
of Series G Preferred Stock.
(c) Mechanics of Conversion. Following such a conversion, each
holder of Series Preferred Stock shall surrender the certificate or certificates
therefor, duly endorsed, at the office of this corporation or of any transfer
agent for such holder, and shall indicate in writing the name or names in which
the certificate or certificates for shares of Common Stock are to be issued.
This corporation shall issue and deliver to each such holder, or to the nominee
or nominees of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled pursuant to
Section 3(a) or Section 3(b) above, as applicable, and shall pay (i) to each
holder of Series A Preferred Stock the applicable Series A Cash Amount for each
share of Series A Preferred Stock held by such holder, (ii) to each holder of
Series B Preferred Stock the applicable Series B Cash Amount for each share of
Series B Preferred Stock held by such holder, (iii) to each holder of Series C
Preferred Stock the applicable Series C Cash Amount for each share of Series C
Preferred Stock held by such holder, and (iv) to each holder of Series D
Preferred Stock the applicable Series D Cash Amount for each share of Series D
Preferred Stock held by such holder, payable by check or wire transfer within
ten calendar days following such conversion. In the case of conversion pursuant
to
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<PAGE> 10
Section 3(a), such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such election to convert the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, or
Series G Preferred Stock, as the case may be, and the holders entitled to
receive the shares of Common Stock issuable and Cash Amounts payable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with a public offering of the Company's Common Stock, the conversion may, at the
election of the holders requesting such conversion, be conditioned upon the
closing of the sale of securities pursuant to such public offering, in which
event the conversion of the Series Preferred Stock shall not be deemed to have
occurred until immediately subsequent to the closing of such sale of securities.
If the funds of this corporation legally available for payment of the total Cash
Amounts upon conversion of the Series A Preferred Stock, the Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock are insufficient at
the time of such conversion to pay in full the total Cash Amounts required upon
such conversion, those funds that are legally available at such time, if any,
shall be applied ratably to the payment of the Cash Amounts, and, thereafter,
when additional funds of this corporation become legally available for payment
of the remaining portion of such total Cash Amounts, such funds shall be applied
ratably to the payment of such remaining Cash Amounts until it is paid in full.
(d) Conversion Price Adjustments of Preferred Stock for Certain
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
Preferred Stock shall be subject to adjustment from time to time as follows:
(i) (A) If the corporation shall issue, after the date upon which
any shares of Series A Preferred Stock are first issued (the "Series A Purchase
Date") or the shares of Series B Preferred Stock are first issued (the "Series B
Purchase Date") or the shares of Series C Preferred Stock are first issued (the
"Series C Purchase Date") or the shares of Series D Preferred Stock are first
issued (the "Series D Purchase Date") or the shares of Series E Preferred Stock
are first issued (the "Series E Purchase Date") or the shares of Series F
Preferred Stock are first issued (the "Series F Purchase Date") or the shares of
Series G Preferred Stock are first issued (the "Series G Purchase Date") (the
"Purchase Date" with respect to such series), any Additional Stock (as defined
below) without consideration or for a consideration per share less than the
Conversion Price for such series in effect immediately prior to the issuance of
such Additional Stock, the Conversion Price for such series in effect
immediately prior to each such issuance shall forthwith (except as otherwise
provided in this clause (i)) be adjusted to a price determined by multiplying
such Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issuance
(including the number of shares of Common Stock issuable upon conversion of
outstanding Preferred Stock) plus the number of shares of Common Stock that the
aggregate consideration received by the corporation for such issuance would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock (including the number of share of Common Stock
issuable upon conversion of outstanding Preferred Stock) outstanding immediately
prior to such issuance plus the number of shares of such Additional Stock.
(B) No adjustment of the Conversion Price for the Series
Preferred Stock shall be made in an amount less than one cent per share,
provided that
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any adjustments which are not required to be made by reason of this sentence
shall be carried forward and shall be either taken into account in any
subsequent adjustment made prior to 3 years from the date of the event giving
rise to the adjustment being carried forward, or shall be made at the end of 3
years from the date of the event giving rise to the adjustment being carried
forward. Except to the limited extent provided for in subsections 3(d)(i)(E)(3)
and 3(d)(i)(E)(4), no adjustment of such Conversion Price pursuant to this
subsection 3(d)(i)(B) shall have the effect of increasing the Conversion Price
above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by this corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or after the
applicable Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 3(d)(i) and subsection 3(d)(ii):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (to the extent then exercisable) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in subsections
3(d)(i)(C) and 3(d)(i)(D)), if any, received by the corporation upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (to the extent then convertible or
exchangeable) for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration, if any, received by the corporation for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange
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of such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in
subsections 3(d)(i)(C) and 3(d)(i)(D)).
(3) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to this corporation
upon exercise of such options or rights or upon conversion of or in exchange for
such convertible or exchangeable securities, including, but not limited to, a
change resulting from the antidilution provisions thereof, the Conversion Prices
of the Series Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual issuance of
Common Stock or any payment of such consideration upon the exercise of any such
options or rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Prices of the Series Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities or options or
rights related to such securities, shall be recomputed to reflect the issuance
of only the number of shares of Common Stock (and convertible or exchangeable
securities which remain in effect) actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities.
(5) The number of shares of Common Stock deemed issued and
the consideration deemed paid therefor pursuant to subsections 3(d)(i)(E)(1) and
3(d)(i)(E)(2) shall be appropriately adjusted to reflect any change, termination
or expiration of the type described in either subsection 3(d)(i)(E)(3) or
3(d)(i)(E)(4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 3(d)(i)(E)) by this
corporation after the applicable Purchase Date other than
(A) securities issued pursuant to a transaction described in
subsection 3(d)(iii) hereof;
(B) shares of Common Stock issuable or issued to employees,
consultants or directors of this corporation directly or pursuant to stock
option plans or restricted stock plans approved by the Board of Directors of
this corporation prior to the Series G Purchase Date and pursuant to stock
option plans or restricted stock plans approved by the Board of Directors of
this corporation after the Series G Purchase Date and approved by the holders of
a majority of outstanding shares of Series Preferred Stock, voting together as a
single class;
(C) securities issuable upon the conversion of the Series
Preferred Stock;
(D) securities issued pursuant to the acquisition of another
business entity or business segment of any such entity by this corporation by
merger,
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purchase of substantially all the assets or other reorganization whereby
this corporation will own a majority of the voting power of such business entity
or business segment of any such entity, in each such instance, approved by the
Board of Directors;
(E) securities issued to vendors or customers or to other persons
in similar commercial situations with this corporation if such issuance is
approved by the Board of Directors;
(F) securities issued in connection with obtaining lease
financing, whether issued to a lessor, guarantor or other person if such
issuance is approved by the Board of Directors;
(G) any right, option or warrant to acquire any security
convertible into the securities excluded from the definition of Additional Stock
pursuant to subsections (D) through (F) above;
(H) warrants issued April 17, 1996 to purchase 5,000 shares of
Common Stock and the Common Stock issuable upon exercise thereof;
(I) warrants issued August 16, 1996 to purchase 192,262 shares of
Series B Preferred Stock and the Preferred Stock issuable upon exercise thereof;
(J) warrants issued to purchase 55,340 shares of Series C
Preferred Stock and the Preferred Stock issuable upon exercise thereof;
(K) warrants to purchase 385,530 shares of Common Stock and the
Common Stock issuable upon exercise thereof issued pursuant to that certain Note
and Warrant Purchase Agreement dated November 10, 1997 by and among the
corporation and the other parties thereto;
(L) warrants to purchase 300,000 shares of Common Stock issued on
or about August 19, 1999 and the Common Stock issuable upon exercise thereof;
and
(M) securities issued in connection with the corporation's sale
of its Common Stock in a firm commitment underwritten public offering pursuant
to a registration statement on Form S-1 under the Securities Act of 1933, as
amended.
(iii) In the event the corporation should at any time or from
time to time after the Series A Purchase Date, the Series B Purchase Date, the
Series C Purchase Date, the Series D Purchase Date, the Series E Purchase Date,
the Series F Purchase Date or the Series G Purchase Date fix a record date for
the effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of
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Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price of the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock, the Series E Preferred Stock, the Series F Preferred Stock, and
Series G Preferred Stock, respectively, shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
such series shall be increased in proportion to such increase of the aggregate
of shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding at any
time after the Series A Purchase Date, Series B Purchase Date, Series C Purchase
Date, Series D Purchase Date, Series E Purchase Date, Series F Purchase Date or
Series G Purchase Date is decreased by a combination of the outstanding shares
of Common Stock, then, following the record date of such combination, the
Conversion Ratio shall be appropriately adjusted so that the number of shares of
Common Stock issuable on conversion of each share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock, and Series G Preferred
Stock, respectively, shall be decreased in proportion to such decrease in
outstanding shares.
(e) Other Distributions. In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 3(d)(iii), then, in each such
case for the purpose of this subsection 3(e), the holders of the Series
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of Series Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in this Section
3), provision shall be made so that the holders of the Series Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series Preferred
Stock, the number of shares of stock or other securities or property of the
Company or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of the Series Preferred
Stock after the recapitalization to the end that the provisions of this Section
3 (including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of the Series Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
(g) No Impairment. This corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed
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<PAGE> 15
or performed hereunder by this corporation, but will at all times in
good faith assist in the carrying out of all the provisions hereof and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Series Preferred Stock against
impairment.
(h) No Fractional Shares. No fractional shares shall be issued
upon conversion of the Series Preferred Stock, and the number of shares of
Common Stock to be issued shall be rounded to the nearest whole share. Such
rounding shall be based on the total number of shares of Series Preferred Stock
such holder is converting into Common Stock and the number of shares of Common
Stock issuable upon such aggregate conversion.
(i) Reservation of Stock Issuable Upon Conversion. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the Preferred Stock such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Preferred Stock, in addition to
such other remedies as shall be available to the holder of such Preferred Stock,
this corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
4. Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each applicable holder of Preferred Stock, at least 20
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
5. Voting Rights.
(a) Subject to Section 5(b) below, the Common Stock and Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock will vote together as a single class on all matters submitted
for stockholder consent or approval; provided, however, that if at any time the
voting power of the then-outstanding Series Preferred Stock would otherwise be
insufficient to elect all of this corporation's directors (any period during
which such condition exists referred to as the "Voting Shift Period"), then,
during the Voting Shift Period, (i) the number of authorized directors of this
corporation shall be set at a number not less than five (5), (ii) the Series A
Preferred Stock and Series B Preferred Stock then outstanding shall be entitled
to elect, voting as a separate class, that number of directors equal to
three-fourths (3/4ths) of the then-authorized directors (rounded to the nearest
whole number), (iii) the Series C Preferred Stock shall be entitled, pursuant to
subsection 5(b), to elect, voting
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<PAGE> 16
separately as a series, one (1) director, and (iii) the holders of the Common
Stock then outstanding shall be entitled to elect the remaining number of
authorized directors.
(b) The holders of the Series C Preferred Stock, voting
separately as a series, shall be entitled to elect one (1) member of the Board
of Directors.
(c) The holder of each share of Series A Preferred Stock shall
have ten votes for each share of Common Stock into which such Series A Preferred
Stock could then be converted (with any fractional share determined on an
aggregate conversion basis being rounded to the nearest whole share), and with
respect to such votes by the holders of Series A Preferred Stock, each share of
Series A Preferred Stock shall have full voting rights and powers equal to the
voting rights and powers of ten shares of Common Stock, and the holders thereof
shall be entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote. The
holder of each share of Series B Preferred Stock shall have fourteen votes for
each share of Common Stock into which such Series B Preferred Stock could then
be converted (with any fractional share determined on an aggregate conversion
basis being rounded to the nearest whole share), and with respect to such votes
by the holders of Series B Preferred Stock, each share of Series B Preferred
Stock shall have full voting rights and powers equal to the voting rights and
powers of fourteen shares of Common Stock, and the holders thereof shall be
entitled, notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote. The holder of each
share of Series C Preferred Stock shall have fourteen votes for each share of
Common Stock into which such Series C Preferred Stock could then be converted
(with any fractional share determined on an aggregate conversion basis being
rounded to the nearest whole share), and with respect to such votes by the
holders of Series C Preferred Stock, each share of Series C Preferred Stock
shall have full voting rights and powers equal to the voting rights and powers
of fourteen shares of Common Stock, and the holders thereof shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of this corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. The holder of each share of
Series D Preferred Stock shall have fourteen votes for each share of Common
Stock into which such Series D Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share), and with respect to such votes by the holders of
Series D Preferred Stock, each share of Series D Preferred Stock shall have full
voting rights and powers equal to the voting rights and powers of fourteen
shares of Common Stock, and the holders thereof shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of this corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. The holder of each share of
Series E Preferred Stock shall have fourteen votes for each share of Common
Stock into which such Series E Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share), and with respect to such votes by the holders of
Series E Preferred Stock, each share of Series E Preferred Stock shall have full
voting rights and powers equal to
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<PAGE> 17
the voting rights and powers of fourteen shares of Common Stock, and the holders
thereof shall be entitled, notwithstanding any provision hereof, to notice of
any stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote. The
holder of each share of Series F Preferred Stock shall have fourteen votes for
each share of Common Stock into which such Series F Preferred Stock could then
be converted (with any fractional share determined on an aggregate conversion
basis being rounded to the nearest whole share), and with respect to such votes
by the holders of Series F Preferred Stock, each share of Series F Preferred
Stock shall have full voting rights and powers equal to the voting rights and
powers of fourteen shares of Common Stock, and the holders thereof shall be
entitled, notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote. The holder of each
share of Series G Preferred Stock shall have fourteen votes for each share of
Common Stock into which such Series G Preferred Stock could then be converted
(with any fractional share determined on an aggregate conversion basis being
rounded to the nearest whole share), and with respect to such votes by the
holders of Series G Preferred Stock, each share of Series G Preferred Stock
shall have full voting rights and powers equal to the voting rights and powers
of fourteen shares of Common Stock, and the holders thereof shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of this corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote.
6. Protective Provisions. In addition to the vote provided for
pursuant to Section 5 above, and subject to the rights of series of Preferred
Stock which may from time to time come into existence:
(a) so long as any shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock or Series G Preferred Stock are
outstanding, this corporation shall not, without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least
seventy-five percent (75%) of the voting power of the then outstanding shares of
such Series Preferred Stock voting together as a single class:
(i) increase or decrease the authorized number of shares of
any series of Preferred Stock;
(ii) create any new class or series of stock or any other
securities convertible into equity securities of this corporation (by
reclassification or otherwise) having a preference over or on parity with the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock or
Series G Preferred Stock with respect to voting, dividends, conversion,
redemption or upon liquidation;
(iii) redeem or repurchase any other class or series of stock
prior to the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock,
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<PAGE> 18
Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock or
Series G Preferred Stock;
(iv) alter or change the rights, preferences, or privileges of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred
Stock or Series G Preferred Stock so as to adversely affect such shares of
Series Preferred Stock; or
(v) amend or alter the voting percentage required to approve
an event or change listed in this Section 6(a).
(b) So long as any shares of Series Preferred Stock are
outstanding, this corporation shall not, without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least a
majority of the voting power of the then outstanding shares of such Series
Preferred Stock, voting together as a single class, sell, convey, or otherwise
dispose of or encumber all or substantially all of its property or business or
merge into or consolidate with any other corporation (other than a wholly-owned
subsidiary corporation) or effect any transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
corporation is disposed of.
(c) This corporation shall not (i) alter or change the rights,
preferences or privileges of any series of Preferred Stock so as to affect
adversely the shares of such series in a manner different than the shares of any
other series of Preferred Stock, or (ii) amend the provisions of this Section
6(c) without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of shares of such adversely affected series that
are entitled to vote with respect to the matter and that hold at least a
majority of the then outstanding shares of such series.
(d) This corporation shall not (i) amend or alter Section 2(b) of
Article IV or Section 3(b)(ii) of Article IV or (ii) amend the provisions of
this Section 6(d) without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least sixty percent (60%) of
the then outstanding shares of Series E Preferred Stock.
(e) This corporation shall not (i) amend or alter Section 2(b) of
Article IV or Section 3(b)(iii) of Article IV or (ii) amend the provisions of
this Section 6(e) without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least sixty percent (60%) of
the then outstanding shares of Series F Preferred Stock.
(f) This corporation shall not (i) amend or alter Section 2(b) of
Article IV or Section 3(b)(iv) of Article IV or (ii) amend the provisions of
this Section 6(f) without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least fifty percent (50%) of
the then outstanding shares of Series G Preferred Stock.
7. Status of Converted Stock. In the event any shares of Series
Preferred Stock shall be converted pursuant to Section 3 hereof, the shares so
converted shall be cancelled and shall not be issuable by this corporation.
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<PAGE> 19
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, only when and if
declared by the Board of Directors, out of any assets of this corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or
winding up of this corporation, the assets of this corporation shall be
distributed as provided in Section B(2) of this Article IV of this Certificate
of Incorporation.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
Except as otherwise provided in this Certificate, in furtherance
and not in limitation of the powers conferred by statute, the Board of Directors
is expressly authorized to make, repeal, alter, amend and rescind any or all of
the bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from
time to time by a bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the
bylaws of this corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or outside the State
of Delaware, as the bylaws may provide. The books of this corporation may be
kept, (subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of this corporation.
ARTICLE IX
A director of this corporation shall not be personally liable to
this corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to this corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing
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violation of law, (iii) under Section 174 of the General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the General Corporation Law is amended after approval by
the stockholders of this Article to authorize corporate action further
eliminating or limiting the personal liability of directors then the liability
of a director of this corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this
Article IX by the stockholders of this corporation shall not adversely affect
any right or protection of a director of this corporation existing at the time
of such repeal or modification.
ARTICLE X
Except as provided for in Section 6 of Article IV, this
corporation reserves the right to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation."
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<PAGE> 21
* * *
THIRD: That thereafter, pursuant to resolution of the Board of
Directors, the Amended and Restated Certificate of Incorporation was submitted
to the stockholders for their approval, which approval was given by written
consent of a majority of the stockholders pursuant to Section 228 of the General
Corporation Law.
FOURTH: That said Amended and Restated Certificate of
Incorporation was duly adopted in accordance with the provisions of Sections 242
and 245 of the General Corporation Law.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation
has been signed by the Chief Executive Officer of the Corporation this _____ day
of _________, 1999.
QUINTUS CORPORATION
By:
------------------------------------------
Alan K. Anderson,
Chief Executive Officer
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF QUINTUS CORPORATION
A DELAWARE CORPORATION
The undersigned, Alan K. Anderson, hereby certifies that:
ONE: He is the duly elected and acting Chief Executive Officer of
the corporation.
TWO: The name of the corporation is Quintus Corporation and that
the corporation was originally incorporated on June 11, 1990 under the name
QTNEWCO, INC. pursuant to the General Corporation Law of the State of Delaware.
THREE: Pursuant to Section 242 and Section 245 of the General
Corporation Law of the State of Delaware, Quintus Corporation has adopted this
Amended and Restated Certificate of Incorporation, restating, integrating and
further amending its Restated Certificate of Incorporation dated on or about
August 24, 1999, which Amended and Restated Certificate of Incorporation has
been duly proposed by the directors and adopted by the stockholders of this
corporation (by written consent pursuant to Section 228 of said General
Corporate Law) in accordance with the provisions of said Section 242 and Section
245.
FOUR: The Amended and Restated Certificate of Incorporation of
said corporation shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Quintus Corporation.
ARTICLE II
The address of the registered office of this corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent at such address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
ARTICLE IV
This corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares that this corporation is authorized to issue is one hundred ten
million (110,000,000) shares. One hundred
<PAGE> 2
million (100,000,000) shares shall be Common Stock, par value $0.001 per share,
and ten million (10,000,000) shares shall be Preferred Stock, par value $0.001
per share.
The Preferred Stock may be issued from time to time in one or
more series, without further stockholder approval. The Board of Directors is
hereby authorized, in the resolution or resolutions adopted by the Board of
Directors providing for the issuance of any wholly unissued series of Preferred
Stock, within the limitations and restrictions stated in this Amended and
Restated Certificate of Incorporation (the "Restated Certificate"), to fix or
alter the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any wholly
unissued series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or any of them, and to increase or
decrease the number of shares of any series subsequent to the issue of shares of
that series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
ARTICLE V
Except as otherwise provided in this Restated Certificate, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from
time to time by a bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the
Bylaws of this corporation shall so provide.
ARTICLE VIII
Except as otherwise provided in this Restated Certificate, any
action required or permitted to be taken by the stockholders of the Corporation
must be effected at an annual or special meeting of the stockholders of the
Corporation, and no action required to be taken or that may be taken at any
annual or special meeting of the stockholders of the Corporation may be taken by
written consent.
ARTICLE IX
A director of this corporation shall, to the full extent
permitted by the Delaware General Corporation Law as it now exists or as it may
hereafter be amended, not be liable to this
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<PAGE> 3
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. Neither any amendment nor repeal of this Article IX, nor the
adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this Article IX, shall eliminate or reduce the effect of this
Article IX in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article IX, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE X
This corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE XI
To the fullest extent permitted by applicable law, the
Corporation is authorized to provide indemnification of (and advancement of
expenses to) agents of the Corporation (and any other persons to which General
Corporation Law permits the Corporation to provide indemnification) through
bylaw provisions, agreements with such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
General Corporation Law, subject only to limits created by applicable General
Corporation Law (statutory or non-statutory), with respect to actions for breach
of duty to the Corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions
of this Article XI shall not adversely affect any right or protection of a
director, officer, agent, or other person existing at the time of, or increase
the liability of any director of the Corporation with respect to, any acts or
omissions of such director, officer or agent occurring prior to such amendment,
repeal or modification.
* * *
FIVE: That thereafter said amendment and restatement was duly
adopted in accordance with the provisions of Section 242 and Section 245 of the
General Corporation Law by obtaining the vote of the holders of the majority of
the outstanding stock of the corporation in favor of said amendment and
restatement in the manner set forth in Section 228 of the General Corporation
Law.
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have executed this
certificate on _______________, 1999.
-----------------------------------------
Alan K. Anderson, Chief Executive Officer
<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
QUINTUS CORPORATION
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Dover,
County of Kent, State of Delaware.
Section 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at the principal executive offices of the Company or at
such other place as may be fixed from time to time by the Board of Directors,
either within or without the State of Delaware as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the
year 1995, shall be held at such date and time as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting, at
which they shall elect by a plurality vote a
<PAGE> 2
board of directors, and transact such other business as may properly be brought
before the meeting.
Section 3. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not less than ten (10) nor more than sixty (60) days
before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
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Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of fifty percent (50%) of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express
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provision of the statutes or of the certificate of incorporation, a different
vote is required, in which case such express provision shall govern and control
the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
At all elections of directors of the corporation each stockholder
having voting power shall be entitled to exercise the right of cumulative voting
as provided in the certificate of incorporation.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
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ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the
whole board shall be determined by resolution of the Board of Directors or by
the stockholders at the annual meeting of the stockholders, except as provided
in Section 2 of this Article, and each director elected shall hold office until
his successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and new created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an election
of directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the corporation and do
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all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these bylaws directed or required to be exercised or done by
the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
president on two (2) days' notice to each director by mail or forty-eight (48)
hours notice to each director either personally or by telegram; special meetings
shall be called by the president or secretary in like manner and on like notice
on the written request of two directors unless the board consists of only one
director, in which case special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of the sole
director.
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Section 8. At all meetings of the board a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation of these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate
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members of any committee, who may replace any absent or disqualified member at
any meeting of the committee.
In the absence of disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
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COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of
the certificate of incorporation or of these bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
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Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
Board of Directors and shall be a president, treasurer and a secretary. The
Board of Directors may elect from among its members a Chairman of the Board and
a Vice Chairman of the Board. The Board of Directors may also choose one or more
vice-presidents, assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a president, a treasurer, and a
secretary and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the Board of Directors may be
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removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the corporation shall be
filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at
all meetings of the Board of Directors and of the stockholders at which he shall
be present. He shall have and may exercise such powers as are, from time to
time, assigned to him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief executive officer of
the corporation; and in the absence of the Chairman and Vice Chairman of the
Board he shall preside at all meetings of the stockholders and the Board of
Directors; he shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 9. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
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Section 10. In the absence of the president or in the event of
his inability or refusal to act, the vice-president, if any, (or in the event
there be more than one vice-president, the vice-presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board
of Directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 12. The assistant secretary, or if there be more than
one, the assistant secretaries in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the
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event of his inability or refusal to act, perform the duties and exercise the
powers of the secretary and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 14. He shall disburse the funds of the corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 15. If required by the Board of Directors, he shall give
the corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his office and for the restoration
to the corporation, in case of his death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
Section 16. The assistant treasurer, or if there shall be more
than one, the assistant treasurers in the order determined by the Board of
Directors (or if there be no such determination,
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then in the order of their election) shall, in the absence of the treasurer or
in the event of his inability or refusal to act, perform the duties and exercise
the powers of the treasurer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by,
the chairman or vice-chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation.
Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such
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class or series of stock, provided that, except as otherwise provided in Section
202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
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TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
MARKET STAND-OFF
Section 6. Each stockholder of the corporation who receives or
purchases shares on or after the date these amended and restated bylaws are
adopted by the Board of Directors shall not, during the 180-day period following
the effective date of a registration statement of the corporation filed under
the Act, to the extent requested by the corporation or an underwriter of
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the common stock or other securities of the corporation, (x) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (including, without limitation, shares of Common Stock or
securities convertible into or exercisable or exchangeable for Common Stock
which may be deemed to be beneficially owned by the undersigned in accordance
with the rules and regulations of the Securities and Exchange Commission) or (y)
enter into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (x) or (y) is
to be settled by the delivery of Common Stock, or such other securities, in cash
or otherwise). The corporation may impose stop-transfer instructions with
respect to registrable stock of each stockholder (and the shares or securities
of every other person subject to the foregoing restriction) until the end of
such period. All certificates representing any shares of stock of the
corporation shall have endorsed thereon the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A 180-DAY MARKET STANDOFF REQUIREMENT
CONTAINED IN THE CORPORATIONS BYLAWS. COPIES OF THE BYLAWS MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION.
REGISTERED STOCKHOLDERS
Section 7. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such
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owner, and to hold liable for calls and assessments a person registered on its
books as the owner of shares and shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
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FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal
having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent
authorized under the laws of the State of Delaware, as those laws may be amended
and supplemented from time to time, indemnify any director made, or threatened
to be made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation, provided, however, that the
corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by the Board of
Directors of the corporation. The indemnification provided for in this Section 6
shall: (i) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (ii)
continue as to a person who has ceased to be a director, and (iii) inure to the
benefit of the heirs, executors and administrators of such a person. The
corporation's obligation to provide
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indemnification under this Section 6 shall be offset to the extent of any other
source of indemnification or any otherwise applicable insurance coverage under a
policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation which alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its shareholders.
The foregoing provisions of this Section 6 shall be deemed to be
a contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
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The Board of Directors in its discretion shall have power on
behalf of the corporation to indemnify any person, other than a director, made a
party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
ARTICLE VIII
RIGHT OF FIRST REFUSAL
Section 1. No stockholder shall sell, assign, pledge, or in any
manner transfer any of the shares of stock of the corporation or any right or
interest therein, whether voluntarily or by operation of law, or by gift or
otherwise, except by a transfer which meets the requirements hereinafter set
forth in this Bylaw:
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(a) If the stockholder desires to sell or otherwise transfer any
of his or her shares of stock, then the stockholder shall first give written
notice thereof to the corporation. The notice shall name the proposed transferee
and state the number of shares to be transferred, the proposed consideration and
all other terms and conditions of the proposed transfer.
(b) For thirty (30) days following receipt of such notice, the
corporation shall have the option to purchase all, but not less than all, of the
shares specified in the notice at the price and upon the terms set forth in such
notice. In the event of a gift, property settlement or other transfer in which
the proposed transferee is not paying the full price for the shares, the price
shall be deemed to be the fair market value of the stock at such time as
determined in good faith by the Board of Directors. In the event the corporation
elects to purchase such shares, is shall give written notice to the transferring
stockholder of its election and settlement for said shares shall be made as
provided below in paragraph (d).
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s) elect to
acquire the shares of the transferring stockholder as specified in said
transferring stockholder's notice, the Secretary of the corporation shall so
notify the transferring stockholder and settlement thereof shall be made in cash
within thirty (30) days after the Secretary of the corporation receives said
transferring stockholder's notice; provided that if the terms of payment set
forth in said transferring stockholder's notice be payable in property other
than cash or evidences of indebtedness, the corporation shall have the right to
pay the purchase price in the form of cash equal to the value of such property.
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(e) In the event the corporation and/or its assignees(s) do not
elect to acquire the shares specified in the transferring stockholder's notice,
said transferring stockholder may, within the sixty-day period following the
expiration of the option rights granted to the corporation and/or its
assignees(s) herein, transfer the shares as specified in said transferring
stockholder's notice. All shares so sold by said transferring stockholder shall
continue to be subject to the provision of this Bylaw in the same manner as
before said transfer.
(f) Anything to the contrary contained herein notwithstanding,
the following transactions shall be exempt from the provision of this Bylaw:
(1) A stockholder's transfer of any or all shares held either
during such stockholder's lifetime or on death by will or intestacy to such
stockholder's immediate family or to any custodian or trustee for the account of
such stockholder or such stockholder's immediate family. "Immediate family" as
used herein shall mean spouse, lineal descendant, father, mother, brother, or
sister of the stockholder making such transfer.
(2) A stockholder's transfer of any or all of such
stockholder's shares to a person who, at the time of such transfer, is a
stockholder of the corporation.
(3) A stockholder's transfer of any or all of such
stockholder's shares to a person who, at the time of such transfer, is an
officer or Director of the corporation.
(4) A corporate stockholder's transfer of any or all of its
shares pursuant to and in accordance with the terms of any merger,
consolidation,
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reclassification of shares or capital reorganization of the corporate
stockholder, or pursuant to a sale of all or substantially all of the stock or
assets of a corporate stockholder.
(5) A transfer by a stockholder which is a limited or general
partnership to any or all of its partners or former partners.
(6) A corporate stockholder's transfer of any or all of its
shares to its stockholders on a pro rata basis.
In any such case, the transferee, assignee, or other recipient
shall receive and hold such stock subject to the provisions of this Bylaw, and
there shall be no further transfer of such stock except in accord with this
Bylaw.
(g) The provisions of this Bylaw may be waived with respect to
any transfer either by the corporation, upon duly authorized action of its Board
of Directors, or by the stockholders, upon the express written consent of the
owners of a majority of the voting power of the corporation (excluding the votes
represented by those shares to be transferred by the transferring stockholder).
This Bylaw may be amended or repealed either by a duly authorized action of the
Board of Directors or by the stockholders, upon the express written consent of
the owners of a majority of the voting power of the corporation.
(h) Any sale or transfer, or purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this Bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on
either of the following dates, whichever shall first occur:
(1) On May 24, 2005; or
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(2) Upon the date securities of the corporation are first
offered to the public pursuant to a registration statement filed with, and
declared effective by, the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended.
(j) The certificates representing shares of stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT
OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS
ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION.
ARTICLE IX
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or
new bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate or incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
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<PAGE> 26
CERTIFICATE OF SECRETARY OF
QUINTUS CORPORATION
The undersigned, Susan Salvesen, hereby certifies that she is the
duly elected and acting Secretary of Quintus Corporation, a Delaware corporation
(the "Corporation"), and that the Bylaws attached hereto constitute the Bylaws
of said Corporation as duly adopted by the Board of Directors on September 2,
1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed her
name this 2nd day of September, 1999.
/s/ SUSAN SALVESEN
----------------------------------
Susan Salvesen, Secretary
<PAGE> 1
EXHIBIT 4.3
QUINTUS CORPORATION
AMENDED AND RESTATED
INVESTORS RIGHTS AGREEMENT
_____________ ___, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights......................................................................2
1.1 Definitions.....................................................................2
1.2 Request for Registration........................................................3
1.3 Company Registration............................................................4
1.4 Obligations of the Company......................................................5
1.5 Furnish Information.............................................................6
1.6 Expenses of Demand Registration.................................................6
1.7 Expenses of Company Registration................................................6
1.8 Underwriting Requirements.......................................................7
1.9 Delay of Registration...........................................................7
1.10 Indemnification................................................................7
1.11 Reports Under Securities Exchange Act of 1934..................................9
1.12 Form S-3 Registration.........................................................10
1.13 Assignment of Registration Rights.............................................11
1.14 Limitations on Subsequent Registration Rights.................................11
1.15 "Market Stand-Off" Agreement..................................................11
1.16 Termination of Registration Rights............................................11
2. Covenants of the Company................................................................12
2.1 Delivery of Financial Statements...............................................12
2.2 Investor's Right of First Refusal..............................................13
2.3 Observer Rights................................................................14
2.4 Termination of Certain Covenants...............................................15
2.5 SBIC Inspection Rights.........................................................15
3. Miscellaneous...........................................................................15
3.1 Successors and Assigns.........................................................15
3.2 Governing Law..................................................................15
3.3 Counterparts...................................................................15
3.4 Titles and Subtitles...........................................................16
3.5 Notices........................................................................16
3.6 Expenses.......................................................................16
3.7 Amendments and Waivers.........................................................16
3.8 Severability...................................................................16
3.9 Aggregation of Stock...........................................................16
3.10 Entire Agreement; Amendment; Waiver...........................................16
3.11 Election of Director..........................................................16
Schedule A Schedule of Investors
</TABLE>
<PAGE> 3
AMENDED AND RESTATED
INVESTORS RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT (the "Agreement")
is made as of the ____th day of ____________, 1999, by and among Quintus
Corporation, a Delaware corporation (the "Company"), and certain stockholders of
the Company (the "Investors") listed on Schedule A hereto.
RECITALS
WHEREAS, certain of the Investors (the "Existing Investors") hold
shares of the Company's Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock and/or shares of Common Stock issued upon conversion
thereof and possess registration rights, information rights, rights of first
refusal, and other rights pursuant to an Amended and Restated Investors' Rights
Agreement dated as of August 26, 1999 among the Company and such Existing
Investors (the "Prior Agreement");
WHEREAS, the Existing Investors are holders of a majority of the
"Registrable Securities" of the Company (as defined in the Prior Agreement), and
desire to terminate the Prior Agreement and to accept the rights created
pursuant hereto in lieu of the rights granted to them under the Prior Agreement;
WHEREAS, the Company entered into an Agreement and Plan of Merger
("Merger Agreement") with Nabnasset Corporation ("Nabnasset") on August 15,
1997, as amended October 8, 1997, pursuant to which all outstanding shares of
Nabnasset Series A Preferred Stock, all of which shares were owned by Hancock
Venture Partners IV Direct Fund L.P. ("HVP"), Pioneer Ventures Limited
Partnership ("Pioneer"), and Pioneer Ventures Limited Partnership II
(collectively, "New Investors"), were automatically converted into shares of the
Company's Series D Preferred Stock;
WHEREAS, the Company entered into a Series D Preferred Stock Purchase
Agreement (the "Series D Purchase Agreement") on November 10, 1997 whereby
certain investors (the "Series D Investors") purchased shares of the Company's
Series D Preferred Stock;
WHEREAS, the Company entered into a Series E Preferred Stock Purchase
Agreement (the "Series E Purchase Agreement") on May 21, 1998 whereby certain of
the Existing Investors purchased shares of the Company's Series E Preferred
Stock; and
WHEREAS, the Company entered into a Series F Preferred Stock Purchase
Agreement (the "Series F Purchase Agreement") on August 26, 1999 whereby
MeriTech Capital Partners ("MeriTech") purchased shares of the Company's Series
F Preferred Stock; and
<PAGE> 4
WHEREAS, the Company entered into an Agreement and Plan of
Reorganization ("Merger Agreement") with Acuity Corp. ("Acuity") on September
___, 1999 pursuant to which, among other things, (i) Ribeye Acquisition Corp., a
wholly owned subsidiary of the Company, will merge with and into Acuity, with
Acuity continuing as the surviving corporation (the "Merger"), and (ii) all
outstanding shares of Acuity Series A Preferred Stock, Series B-1 Preferred
Stock, Series B-2 Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock will automatically
convert into shares of Series G-1 Preferred Stock, Series G-2 Preferred Stock,
Series G-3 Preferred Stock, Series G-4 Preferred Stock, Series G-5 Preferred
Stock and Series G-6 Preferred Stock, respectively, of the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the Existing Investors hereby agree that the Prior Agreement
shall be superseded and replaced in its entirety by this Agreement, and the
parties hereto further agree as follows:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The terms "register", "registered", and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and the declaration or ordering of effectiveness of such registration
statement or document;
(b) The term "Registrable Securities" means (1) (i) the Common
Stock issuable upon conversion of the Series A Preferred Stock of the Company
(the "Series A Preferred"), (ii) the Common Stock issuable upon conversion of
the Series B Preferred Stock of the Company (the "Series B Preferred"), (iii)
the Common Stock issuable upon conversion of the Series C Preferred Stock of the
Company (the "Series C Preferred"), (iv) the Common Stock issuable upon
conversion of the Series D Preferred Stock of the Company (the "Series D
Preferred"), (v) the Common Stock issuable upon conversion of the Series E
Preferred Stock of the Company (the "Series E Preferred"), (vi) the Common Stock
issuable upon conversion of the Series F Preferred Stock of the Company (the
"Series F Preferred"), (vii) the Common Stock issuable upon conversion of the
Series G-1 Preferred Stock, Series G-2 Preferred Stock, Series G-3 Preferred
Stock, Series G-4 Preferred Stock, Series G-5 Preferred Stock and Series G-6
Preferred Stock of the Company (together, "the Series G Preferred"), (viii) the
Common Stock of the Company issued and sold pursuant to that certain Series B
Preferred Stock Purchase Agreement by and between the Company and certain of the
Existing Investors, and (ix) the Common Stock issued upon conversion of the
warrants to purchase shares of Common Stock issued and sold pursuant to that
certain Note and Warrant Purchase Agreement dated November 10, 1997 by and
between the Company and certain of the Investors (collectively with the Common
Stock referenced in clause (viii) of this Section 1.1(b), the "Registrable
Common Stock") and (2) any Common Stock of the Company issued as (or issuable
upon the exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, the Series A Preferred, the Series B Preferred,
2
<PAGE> 5
the Series C Preferred, the Series D Preferred, the Series E Preferred, the
Series F Preferred, the Series G Preferred or the Registrable Common Stock;
provided, however, that such term shall not include any such shares sold by a
person in a transaction in which his rights under this Section 1 are not
assigned;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock that
are at that time issued, and issuable upon conversion of the Series A Preferred,
the Series B Preferred, the Series C Preferred, the Series D Preferred, the
Series E Preferred, the Series F Preferred and the Series G Preferred that are
Registrable Securities, plus the number of shares of Registrable Common Stock
that are Registrable Securities;
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof; and
(e) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
1.2 Request for Registration.
(a) If the Company shall receive at any time beginning six (6)
months after the effective date of the first registration statement for a public
offering of securities of the Company (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or a SEC Rule 145
transaction), a written request from the Holders of at least twenty-five percent
(25%) of the Registrable Securities then outstanding that the Company file a
registration statement under the Act covering the registration of at least
twenty-five percent (25%) of the Registrable Securities then outstanding and
yielding aggregate proceeds, net of underwriting discounts and commissions, of
at least Ten Million Dollars ($10,000,000), then the Company shall, subject to
the limitations of subsection 1.2(b) hereof, within ten (10) days of the receipt
of such request, give written notice of such request to all Holders in
accordance with Section 3.5 hereof and shall effect as soon as practicable, and
in any event shall use its commercially reasonable efforts to effect within one
hundred twenty (120) days of the receipt of such request, the registration under
the Act of all Registrable Securities which the Holders request to be registered
within twenty (20) days of the mailing of such notice by the Company.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as part of their request made pursuant to this Section 1.2 and the Company shall
include such information in the written notice referred to in subsection 1.2(a).
In such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise
3
<PAGE> 6
mutually agreed by a majority in interest of the Initiating Holders and such
Holder) to the extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company as
provided in subsection 1.4(e)) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder.
(c) Notwithstanding the foregoing, the Company shall not be
obligated under this Section 1.2 to effect any such registration:
(i) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 1.2, a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement. The Company shall
have the right to defer taking action with respect to such filing for a period
of not more than 120 days after receipt of the request of the Initiating
Holders, which right shall not be utilized more than once in any 12 month
period;
(ii) after the Company has effected two (2) such
registrations pursuant to this Section 1.2; or
(iii) during the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
one hundred eighty (180) days immediately following, the effective date of any
registration statement pertaining to securities of the Company (other than (i) a
registration of securities in a Rule 145 transaction; (ii) a registration with
respect to an employee benefit plan; or (iii) a registration in which the only
Common Stock being registered is Common Stock issuable upon conversion of debt
securities which are also being registered), provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and that the Company's estimate of
the date of filing such registration statement is made in good faith.
1.3 Company Registration. If the Company proposes to register
(including for this purpose a registration effected by the Company for
stockholders other than the Holders) any of its capital stock or other
securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, or a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Company shall, at such time, promptly give each
Holder written notice of such registration in accordance with Section 3.5
hereof. Upon the
4
<PAGE> 7
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company, the Company shall, subject to the provisions of
subsection 1.8 hereof, cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this Section
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its commercially reasonable
efforts to cause such registration statement to become effective, and, upon the
reasonable request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for up to
forty-five (45) days; (b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its commercially reasonable efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Act.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or fails to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
5
<PAGE> 8
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 1, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
1.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.6 Expenses of Demand Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.2 for each Holder, including without limitation all
registration, filing, and qualification fees, fees and disbursements of Company
counsel, printing and accounting fees relating or apportionable thereto, and
fees of one (1) special counsel representing all selling stockholders in each
such offering, but excluding underwriting discounts and commissions relating to
Registrable Securities; provided, however that the Company shall not be required
to pay for any expenses of any registration proceeding begun pursuant to Section
1.2 if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in which
case all participating Holders shall bear such expenses), unless the Holders of
a majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2; provided, further, that, if at the
time of the withdrawal of a registration request as described in the foregoing
sentence, the Holders have learned of a material adverse change in the
condition, business or prospects of the Company from that known to the Holders
at the time of their request, the Holders shall not be required to pay any of
such expenses and shall retain their rights pursuant to Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear and pay
all expenses incurred in connection with any registrations, filings or
qualifications of Registrable
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<PAGE> 9
Securities with respect to the registrations pursuant to Section 1.3 for each
Holder including without limitation all registration, filing, and qualification
fees, fees and disbursements of Company counsel, printing and accounting fees
relating or apportionable thereto, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine, in their sole discretion, will not
jeopardize the success of the offering by the Company. If: (a) the total amount
of securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds (b) the amount of securities to be sold other
than by the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders) but in no event shall the amount of securities of
the selling Holders included in the offering be reduced below twenty percent
(20%) of the total amount of securities included in such offering, unless such
offering is the initial firm commitment underwritten offering of the Company's
securities to the general public, in which case the selling stockholders may be
excluded if the underwriters make the determination described above and no other
stockholder's securities are included. For purposes of the preceding
parenthetical concerning apportionment, for any selling stockholder that is a
holder of Registrable Securities and that is a partnership or corporation, the
partners, retired partners and stockholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
stockholder", and any pro rata reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling stockholder," as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, each Holder's officers, directors and partners,
any underwriter (as defined in the Act) for such Holder and each person, if any,
who controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934, as amended (the "1934
7
<PAGE> 10
Act"), against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission therein of a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, any state
securities law, any rule or regulation promulgated under the Act, the 1934 Act
or any state securities law; and the Company will pay to each such Holder,
officer, director, partner, underwriter or controlling person, as incurred, any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 1.10(b) exceed the net
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the
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<PAGE> 11
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) use its best efforts to make and keep public information
available, as those terms are understood and defined in SEC Rule 144, at all
times after ninety (90) days after the effective date of the first registration
statement filed by the Company in a firm commitment underwritten public offering
on Form S-1 under the Securities Act of 1933, as amended (the "Initial Public
Offering");
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably
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<PAGE> 12
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
1.12 Form S-3 Registration. In case the Company shall receive from
any Holder or Holders of the Registrable Securities a written request that the
Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within 15 days after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.12: (i) if
Form S-3 is not then available for such offering by the Holders; (ii) if the
Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an anticipated aggregate price
to the public (net of any underwriters' discounts or commissions) of less than
$2,500,000; (iii) if the Company shall furnish to the Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental to
the Company and its stockholders for such Form S-3 Registration to be effected
at such time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a period of not more than 120
days after receipt of the request of the Holder or Holders under this Section
1.12; provided, however, that the Company shall not utilize this right more than
once in any twelve-month period; (iv) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected two (2)
registrations on Form S-3 for the Holders pursuant to this Section 1.12; (v) if
the Company has consummated, less than twelve (12) months prior to a request
pursuant to this Section 1.12, its Initial Public Offering; or (vi) after the
Company has effected three (3) such registrations pursuant to this Section 1.12;
(vii) in any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 1.12, including (without limitation)
all registration, filing, qualification, printing and special accounting fees
(other than those regularly incurred by the Company) and the reasonable fees and
disbursements of counsel for the selling Holder or Holders and counsel for the
Company, shall be borne by the Company.
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<PAGE> 13
Registrations effected pursuant to this Section 1.12 shall not be counted as
demands for registration or registrations effected pursuant to Section 1.2.
1.13 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities; provided, however, (i) that the Company is
furnished in advance of such transfer with written notice of the name and
address of such transferee or assignee and the securities with respect to which
such registration rights are being assigned, (ii) such transferee or assignee
receives all and not less than all of the Registrable Securities held by such
Holder (except that Holders who are partnerships need not transfer all their
Registrable Securities to assign the registration rights set forth herein
provided that such transferee or assignee is a partner or retired partner of
such partnership or to affiliates of any Holder), and (iii) that such assignment
shall be effective only if immediately following such transfer the further
disposition of such securities by the transferee or assignee is restricted under
the Act.
1.14 Limitations on Subsequent Registration Rights. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder to include
such securities in any registration filed under Section 1.2 hereof or would
allow such holder or prospective holder priority as to the inclusion of such
securities over a Holder's Registrable Securities in any registration filed
under Section 1.3 hereof.
1.15 "Market Stand-Off" Agreement. Each Investor hereby agrees that
during a period not to exceed one hundred eighty (180) days following the
effective date of the Company's Initial Public Offering and during periods not
to exceed ninety (90) days following the effective date of registration
statements of the Company filed under the Act within two (2) years of the
effective date of the Company's Initial Public Offering, such periods to be
specified by the Company and an underwriter of Common Stock or other securities
of the Company (or such lesser period of time as negotiated with the
underwriter) it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period
except Common Stock included in such registration; provided, however, that all
officers and directors of the Company and holders of at least one percent (1%)
of the Company's then-outstanding Common Stock (calculated on a fully-diluted
basis) enter into similar agreements. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of each Investor (and the shares or securities of every
other person subject to the foregoing restriction) until the end of such period.
1.16 Termination of Registration Rights. No Holder shall be entitled
to exercise any right provided for in this Section 1 after five (5) years
following the consummation of the Company's Initial Public
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<PAGE> 14
Offering, or if such Holder can sell, after the Initial Public Offering, all of
such Holder's Registrable Securities (and any other Company securities then held
by such Holder) within a single three-month period under Rule 144 (without
recourse to Rule 144(k)).
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall deliver:
(a) to each Holder of Registrable Securities, as soon as
practicable, but in any event within ninety (90) days after the end of each
fiscal year of the Company, an income statement for such fiscal year, a balance
sheet of the Company and a statement of stockholders' equity as of the end of
such year, and a statement of cash flows for such year, such year-end financial
reports to be audited and certified by independent public accountants of
nationally recognized standing selected by the Company; provided, that the
requirement that such financial statements be audited and certified may be
waived by action of the Board of Directors of the Company if all members of the
Board vote in favor of such waiver.
(b) to each Holder of at least one million (1,000,000) shares of
Registrable Securities (as presently constituted), to each Series D Investor for
so long as such investor owns not less than 50% of the shares of Series D
Preferred Stock received pursuant to the Merger Agreement and the Series D
Purchase Agreement (or an equivalent amount of Common Stock issued upon
conversion thereof), to the Series F Investors for so long as the Series F
Investors own not less than 50% of the shares of Series F Preferred Stock
purchased pursuant to the Series F Purchase Agreement (or an equivalent amount
of Common Stock upon conversion thereof), and to each Holder of Series G
Preferred for so long as such Holder owns not less than five hundred thousand
(500,000) shares of Series G Preferred (or an equivalent amount of Common Stock
upon conversion thereof), as soon as practicable, but in any event:
(i) within forty-five (45) days after the end of each of the
first three (3) quarters of each fiscal year of the Company, an income
statement, a statement of cash flows for such fiscal quarter, and a balance
sheet as of the end of such fiscal quarter;
(ii) within thirty (30) days of the end of each month, an
unaudited income statement and statement of cash flows and balance sheet for and
as of the end of such month, together with a narrative comparison to budget, in
reasonable detail;
(iii) as soon as practicable, but in any event within sixty
(60) days prior to the end of each fiscal year, a copy of the Company's annual
operating plan, including a financial forecast for the next fiscal year,
prepared on a monthly basis, including balance sheets and statements of cash
flows for such months and, as soon as prepared, any revised financial forecasts;
and
(iv) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as such
Holder or any assignee of such Holder may from time to time request, provided,
however, that the Company shall not be obligated under this subsection (b)(iv)
or any other subsection of this Section 2.1 to provide
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<PAGE> 15
information which it deems in good faith to be a trade secret or similar
confidential information or to provide information to a direct competitor of the
Company.
2.2 Investor's Right of First Refusal. The Company hereby grants to
the Holders of Registrable Securities (each such holder is referred to for
purposes of this Section 2.2 as a "Stockholder") the right of first refusal to
purchase a pro rata share of New Securities (as defined in this Section 2.2)
that the Company may, from time to time, propose to sell and issue. A
Stockholder's pro rata share, for purposes of this right of first refusal, is
equal to such Stockholder's percentage interest in the then-outstanding Common
Stock of the Company (assuming, for purposes of such percentage interest,
complete conversion of all outstanding convertible securities and complete
exercise of any and all outstanding options and warrants of the Company). This
right of first refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any shares of capital stock of
the Company, including Common Stock and Preferred Stock, whether now authorized
or not, and any rights, options or warrants to purchase such shares, and
securities of any type whatsoever that are, or may become, convertible into such
shares; provided that "New Securities" does not include (i) Common Stock
issuable upon conversion of the Company's Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock or Series G Preferred Stock, (ii)
securities issued pursuant to a bona fide, firmly underwritten public offering
of shares of Common Stock registered under the Act, (iii) securities issued in
connection with the leasing or financing of equipment, or with the indebtedness
of the Company to banks, insurance companies, or other commercial lending
institutions regularly engaged in the business of lending money, if such
issuance is approved by the Board of Directors, (iv) securities issued pursuant
to the acquisition of another corporation by the Company by (A) merger, (B)
purchase of substantially all of the assets or (C) other reorganization whereby
the Company owns not less than fifty-one percent (51%) of the voting power of
such corporation in each instance where such transaction and such issuance are
approved by the Board of Directors, (v) any of the Company's Common Stock (or
related options exercisable for such Common Stock) issued to employees, officers
and directors of, and consultants to, the Company, pursuant to any arrangement
approved by the Board of Directors of the Company, (vi) stock issued upon
conversion or exercise of any convertible securities, options or warrants,
provided that the rights of first refusal established by this Section 2.2 first
applied with respect to the initial sale or grant by the Company of such
convertible securities, options or warrants, (vii) stock issued in connection
with any stock split, stock dividend or recapitalization by the Company, (viii)
shares of capital stock of the Company issued pursuant to the Series A Preferred
Stock Purchase Agreements dated May 25, 1995 and July 22, 1995, Common Stock and
Series B Preferred Stock Purchase Agreement dated March 7, 1996, the Series C
Preferred Stock Purchase Agreements dated September 17, 1996 and December 18,
1996, the Series D Preferred Stock Purchase Agreement dated November 10, 1997,
the Series E Preferred Stock Purchase Agreement dated May 21, 1998, and the
Series F Preferred Stock Purchase Agreement dated August 26, 1999, (ix) shares
of Series D Preferred Stock issued pursuant to the Agreement and Plan of Merger
dated August 15, 1997, as amended October 8, 1997, (x) the April 17, 1996
issuance of warrants to purchase 5,000 shares of Common Stock, (xi) the August
16, 1996 issuance of warrants to purchase 192,262 shares of Series B Preferred
Stock and the issuance of
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<PAGE> 16
the shares of Series B Preferred Stock upon exercise of such warrants, (xii) the
issuance of warrants to purchase 55,340 shares of Series C Preferred Stock and
the issuance of the shares of Series C Preferred Stock upon exercise of such
warrants, (xiii) the issuance of warrants to purchase 385,530 shares of Common
Stock under the Note and Warrant Purchase Agreement dated as November 10, 1997
and the issuance of the shares of Common Stock upon exercise of such warrants
and (xiv) the issuance of warrants to purchase 300,000 shares of Common Stock
and the issuance of the shares of Common Stock upon exercise of such warrants.
(b) In the event the Company proposes to undertake an issuance
of New Securities, it shall give each Stockholder written notice of its
intention, describing the type of New Securities, and the price and terms upon
which the Company proposes to issue the same. Each Stockholder shall have
fifteen (15) days from the date of receipt of any such notice to agree to
purchase up to the Stockholder's pro rata share of such New Securities for the
price and upon the terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased.
(c) In the event a Stockholder fails to exercise the right of
first refusal within such fifteen (15) day period, the Company shall have ninety
(90) days thereafter to sell the New Securities respecting which the
Stockholder's option was not exercised, at the price and upon terms no more
favorable to the purchasers of such securities than specified in the Company's
notice. In the event the Company has not sold the New Securities within said
ninety (90) day period, the Company shall not thereafter issue or sell any New
Securities, without first offering such securities to the Stockholders in the
manner provided above.
2.3 Observer Rights. As long as the "Series D Investors"
collectively own not less than 727,500 shares of Series D Preferred Stock of the
Company (or an equivalent amount of Common Stock issued upon conversion
thereof), the Company shall invite a representative designated by the holders of
a majority of the Registrable Securities held by such Series D Investors to
attend all meetings of its Board of Directors in a nonvoting observer capacity
(it being understood and the Company hereby agrees that such representative
shall alternate between a representative of Hancock Venture Partners IV - Direct
Fund L.P. and a representative of Pioneer Ventures Limited Partnership as such
entities may from time to time determine). As long as MeriTech collectively owns
not less than 333,334 shares of Series F Preferred Stock of the Company (or an
equivalent amount of Common Stock issued upon conversion thereof), the Company
shall invite a representative designated by MeriTech to attend all meetings of
its Board of Directors in a nonvoting observer capacity. The Company shall
provide to each representative copies of all notices, minutes, consents, and
other materials that it provides to its directors; provided, however, that each
representative shall agree to hold in confidence and trust and to act in a
fiduciary manner with respect to all information so provided; and, provided
further, that the Company reserves the right to withhold any information and to
exclude a representative from any meeting or portion thereof if access to such
information or attendance at such meeting could adversely affect the
attorney-client privilege between the Company and its counsel or would result in
disclosure of trade secrets to such representative if such Investor or its
representative is a direct competitor of the Company.
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<PAGE> 17
2.4 Termination of Certain Covenants. The obligations of the Company
under Sections 2.1, 2.2 and 2.3 hereof shall terminate and be of no further
force or effect concurrent with the effectiveness of the Company's Initial
Public Offering, or when the Company first becomes subject to the periodic
reporting requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever
event shall first occur.
2.5 SBIC Information Rights. Promptly after written request made by
any Investor that is a small business investment company (a "SBIC Investor")
licensed under the Small Business Investment Act of 1958, as amended (the "SBIC
Act"), the Company shall provide such information as such Investor may
reasonably request to enable such Investor to comply with its recordkeeping,
reporting, and other obligations under the SPIC Act and under the regulations of
the Small Business Administration thereunder; provided, however, that the
Company shall not be obligated pursuant to this Section 2.5 to provide access to
any information that it reasonably considers to be a trade secret or similar
confidential information; provided further that such Investor shall agree to
hold in confidence and trust and to act in a fiduciary manner with respect to
all information so provided. Notwithstanding anything to the contrary herein,
the prior written consent of Pioneer Ventures Limited Partnership II
(collectively, "Pioneer") shall be required, so long as Pioneer holds at least
one (1) share of capital stock of the Company in order to effect any amendment
or waiver of this Section 2.5. The Company shall complete, execute and deliver
to each of the Investors who so request a Size Status Declaration on SBA Form
480, and a Non-Discrimination Certificate on SBA Form 652-D. If requested by an
SBIC Investor, the Company shall permit representatives of the Small Business
Administration access to the Company's records; provided, however, that the
Company shall not be obligated pursuant to this Section 2.5 to provide access to
any information that it reasonably considers to be a trade secret or similar
confidential information.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 18
3.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or five (5)
days following deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days advance written notice to
the other parties.
3.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
at least a majority of the Registrable Securities then outstanding.
Notwithstanding the foregoing, the rights granted to the Series D Investors and
the Series F Investors, respectively, under Sections 2.1 and 2.3 may be amended
only with the written consent of the holders of at least a majority of the
Series D Preferred Stock and the Series F Preferred Stock, respectively, (or the
Common Stock issued upon conversion thereof) then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of the Registrable Securities, each future holder of the Registrable
Securities, and the Company (whether or not such Holder is a party to or
consents to such amendment or waiver).
3.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 Aggregation of Stock. All shares of Registrable Securities held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
3.10 Entire Agreement; Amendment; Waiver. This Agreement and the
Purchase Agreements constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
3.11 Election of Director.
(a) Upon the closing of the Merger and for so long as the
Holders of Series G Preferred and/or their transferees continue to hold more
than 50% of the shares of Series G Preferred issued in the Merger, in any
election of directors of the Company, the Investors shall
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<PAGE> 19
each vote at any regular or special meeting of stockholders (or by written
consent) such number of shares of voting capital stock then owned by them (or as
to which they then have voting power) as may be necessary to elect one (1)
member of the Board of Directors designated by the holders of a majority of the
shares of Series G Preferred issued in the Merger, which designate shall
initially be Andrew Busey.
(b) Section 3.11(a) shall terminate and be of no further force
or effect upon (a) the consummation of the Company's sale of its Common Stock or
other securities pursuant to a registration statement under the Securities Act
of 1933, as amended, (other than a registration statement relating either to
sale of securities to employees of the Company pursuant to its stock option,
stock purchase or similar plan or a SEC Rule 145 transaction), or (b)
___________, 2009.
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<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Investors Rights Agreement as of the date first above written.
COMPANY:
QUINTUS CORPORATION
By:
------------------------------
Alan K. Anderson
Chief Executive Officer
Address: 47212 Mission Falls Court
Fremont, California 94539
INVESTORS:
Name:
----------------------------
By:
------------------------------
(Signature)
Address:
--------------------------
--------------------------
SIGNATURE PAGE TO QUINTUS CORPORATION AMENDED AND RESTATED INVESTORS
RIGHTS AGREEMENT
<PAGE> 21
SCHEDULE A
SCHEDULE OF INVESTORS
DLJ Capital Corporation
Sprout Capital VI, L.P.
Sprout Capital VII, L.P.
DLJ ESC II, L.P.
The Sprout CEO Fund, L.P.
William Herman
Jeanne Wohlers
Beverly Powell
Paul H. Bartlett
Oak Investment Partners VI, Limited Partnership
Oak VI Affiliates Fund, Limited Partnership
MeriTech Capital Partners, L.P.
MeriTech Capital Affiliates L.P.
Hancock Venture Partners IV - Direct Fund L.P.
Ascent Venture Partners II, L.P.
Ascent Venture Partners, L.P.
Robert Shaw
Robert Hammer
Onset Enterprise Associates II, L.P.
General Electric Capital Corporation
S-1
<PAGE> 22
GE Capital Equity Investments, Inc.
Vector Capital, L.P.
Sony Music Entertainment Inc.
Curly H Ventures, Ltd.
KECALP, Inc.
TEA Custodians (Westone) Limited
Rod MacDonald
Jim Sullivan
Ray Villeneuve
Dain Rauscher Wessels
<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of ____,
between Quintus Corporation, a Delaware corporation ("the Company"), and
_________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company has adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers and directors of the
Company to the maximum extent authorized by Section 145 of the Delaware General
Corporation Law, as amended ("Law"); and
WHEREAS, the Bylaws and the Law, by their nonexclusive nature, permit
contracts between the Company and the officers or directors of the Company with
respect to indemnification of such officers or directors; and
WHEREAS, in accordance with the authorization as provided by the Law,
the Company may purchase and maintain a policy or policies of directors' and
officers' liability insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its officers or directors in the performance of their
obligations to the Company; and
WHEREAS, in recognition of past services and in order to induce
Indemnitee to continue to serve as an officer or director of the Company, the
Company has determined and agreed to enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's service as an officer
or director after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee. The Company hereby agrees to hold harmless
and indemnify Indemnitee to the full extent authorized or permitted by the
provisions of the Law, as such may be amended from time to time, and Article
VII, Section 6 of the Bylaws, as such may be amended. In furtherance of the
foregoing indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 1(a) if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or participant in any
Proceeding (as hereinafter defined) other than a Proceeding by or in the right
of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified
against all Expenses (as hereinafter defined), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith
<PAGE> 2
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal Proceeding, had no
reasonable cause to believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 1(b)
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or participant in any Proceeding brought by or in the right of the
Company. Pursuant to this Section 1(b), Indemnitee shall be indemnified against
all Expenses actually and reasonably incurred by him or on his behalf in
connection with such Proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; provided, however, that, if applicable law so provides, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company unless and to the extent that the Court of
Chancery of the State of Delaware shall determine that such indemnification may
be made.
(c) Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. Additional Indemnity. In addition to, and without regard to any
limitations on, the indemnification provided for in Section 1, the Company shall
and hereby does indemnify and hold harmless Indemnitee against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf if, by reason of his Corporate
Status, he is, or is threatened to be made, a party to or participant in any
Proceeding (including a Proceeding by or in the right of the Company),
including, without limitation, all liability arising out of the negligence or
active or passive wrongdoing of Indemnitee. The only limitation that shall exist
upon the Company's obligations pursuant to this Agreement shall be that the
Company shall not be obligated to make any payment to Indemnitee that is finally
determined (under the procedures, and subject to the presumptions, set forth in
Sections 6 and 7 hereof) to be unlawful under Delaware law.
3. Contribution in the Event of Joint Liability.
(a) Whether or not the indemnification provided in Sections 1
and 2 hereof is available, in respect of any threatened, pending or completed
action, suit or proceeding
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in which Company is jointly liable with Indemnitee (or would be if joined in
such action, suit or proceeding), Company shall pay, in the first instance, the
entire amount of any judgment or settlement of such action, suit or proceeding
without requiring Indemnitee to contribute to such payment and Company hereby
waives and relinquishes any right of contribution it may have against
Indemnitee. Company shall not enter into any settlement of any action, suit or
proceeding in which Company is jointly liable with Indemnitee (or would be if
joined in such action, suit or proceeding) unless such settlement provides for a
full and final release of all claims asserted against Indemnitee.
(b) Without diminishing or impairing the obligations of the
Company set forth in the preceding subparagraph, if, for any reason, Indemnitee
shall elect or be required to pay all or any portion of any judgment or
settlement in any threatened, pending or completed action, suit or proceeding in
which Company is jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), Company shall contribute to the amount of expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred and paid or payable by Indemnitee in proportion
to the relative benefits received by the Company and all officers, directors or
employees of the Company other than Indemnitee who are jointly liable with
Indemnitee (or would be if joined in such action, suit or proceeding), on the
one hand, and Indemnitee, on the other hand, from the transaction from which
such action, suit or proceeding arose; provided, however, that the proportion
determined on the basis of relative benefit may, to the extent necessary to
conform to law, be further adjusted by reference to the relative fault of
Company and all officers, directors or employees of the Company other than
Indemnitee who are jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), on the one hand, and Indemnitee, on the other hand,
in connection with the events that resulted in such expenses, judgments, fines
or settlement amounts, as well as any other equitable considerations which the
law may require to be considered. The relative fault of Company and all
officers, directors or employees of the Company other than Indemnitee who are
jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), on the one hand, and Indemnitee, on the other hand, shall be
determined by reference to, among other things, the degree to which their
actions were motivated by intent to gain personal profit or advantage, the
degree to which their liability is primary or secondary, and the degree to which
their conduct is active or passive.
(c) Company hereby agrees to fully indemnify and hold Indemnitee
harmless from any claims of contribution which may be brought by officers,
directors or employees of the Company other than Indemnitee who may be jointly
liable with Indemnitee.
4. Indemnification for Expenses of a Witness. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of his
Corporate Status, a witness in any Proceeding to which Indemnitee is not a
party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
5. Advancement of Expenses. Notwithstanding any other provision of this
Agreement, the Company shall advance all Expenses incurred by or on behalf of
Indemnitee in connection with any Proceeding by reason of Indemnitee's Corporate
Status within ten (10) days
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<PAGE> 4
after the receipt by the Company of a statement or statements from Indemnitee
requesting such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by Indemnitee and shall include or be
preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay
any Expenses advanced if it shall ultimately be determined that Indemnitee is
not entitled to be indemnified against such Expenses. Any advances and
undertakings to repay pursuant to this Section 5 shall be unsecured and interest
free. Notwithstanding the foregoing, the obligation of the Company to advance
Expenses pursuant to this Section 5 shall be subject to the condition that, if,
when and to the extent that the Company determines that Indemnitee would not be
permitted to be indemnified under applicable law, the Company shall be entitled
to be reimbursed, within thirty (30) days of such determination, by Indemnitee
(who hereby agrees to reimburse the Company) for all such amounts theretofore
paid; provided, however, that if Indemnitee has commenced or thereafter
commences legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Company that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding and Indemnitee shall not
be required to reimburse the Company for any advance of Expenses until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed).
6. Procedures and Presumptions for Determination of Entitlement to
Indemnification. It is the intent of this Agreement to secure for Indemnitee
rights of indemnity that are as favorable as may be permitted under the law and
public policy of the State of Delaware. Accordingly, the parties agree that the
following procedures and presumptions shall apply in the event of any question
as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification (including, but not limited to,
the advancement of Expenses and contribution by the Company) under this
Agreement, Indemnitee shall submit to the Company a written request, including
therein or therewith such documentation and information as is reasonably
available to Indemnitee and is reasonably necessary to determine whether and to
what extent Indemnitee is entitled to indemnification. The Secretary of the
Company shall, promptly upon receipt of such a request for indemnification,
advise the Board of Directors in writing that Indemnitee has requested
indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 6(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case by one of the following three methods, which
shall be at the election of Indemnitee: (1) by a majority vote of the
disinterested directors, even though less than a quorum, or (2) by independent
legal counsel in a written opinion, or (3) by the stockholders.
(c) If the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). The Independent
Counsel shall be selected by
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<PAGE> 5
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors). Indemnitee or the Company, as the case may be, may, within
10 days after such written notice of selection shall have been given, deliver to
the Company or to Indemnitee, as the case may be, a written objection to such
selection; provided, however, that such objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the requirements
of "Independent Counsel" as defined in Section 13 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. Absent a proper and timely objection, the person so selected shall
act as Independent Counsel. If a written objection is made and substantiated,
the Independent Counsel selected may not serve as Independent Counsel unless and
until such objection is withdrawn or a court has determined that such objection
is without merit. If, within 20 days after submission by Indemnitee of a written
request for indemnification pursuant to Section 6(a) hereof, no Independent
Counsel shall have been selected and not objected to, either the Company or
Indemnitee may petition the Court of Chancery of the State of Delaware or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the court or by such other person as the court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 6(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 6(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 6(c), regardless of the
manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(e) Indemnitee shall be deemed to have acted in good faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act, of
any director, officer, agent or employee of the Enterprise shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement. Whether or not the foregoing provisions of this Section 6(e) are
satisfied, it shall in any event be presumed that Indemnitee has at all times
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
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<PAGE> 6
(f) If the person, persons or entity empowered or selected under
Section 6 to determine whether Indemnitee is entitled to indemnification shall
not have made a determination within thirty (30) days after receipt by the
Company of the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law; provided, however, that such 30 day period may be extended for a reasonable
time, not to exceed an additional fifteen (15) days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 6(g) shall not apply if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 6(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat.
(g) Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Independent Counsel, member of the Board of Directors, or stockholder of the
Company shall act reasonably and in good faith in making a determination under
the Agreement of the Indemnitee's entitlement to indemnification. Any costs or
expenses (including attorneys' fees and disbursements) incurred by Indemnitee in
so cooperating with the person, persons or entity making such determination
shall be borne by the Company (irrespective of the determination as to
Indemnitee's entitlement to indemnification) and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or other
disposition short of final judgment may be successful if it permits a party to
avoid expense, delay, distraction, disruption and uncertainty. In the event that
any action, claim or proceeding to which Indemnitee is a party is resolved in
any manner other than by adverse judgment against Indemnitee (including, without
limitation, settlement of such action, claim or proceeding with or without
payment of money or other consideration) it shall be presumed that Indemnitee
has been successful on the merits or otherwise in such action, suit or
proceeding. Anyone seeking to overcome this presumption shall have the burden of
proof and the burden of persuasion, by clear and convincing evidence.
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<PAGE> 7
7. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to this Agreement within
ten (10) days after receipt by the Company of a written request therefor, or (v)
payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Section 6 of this
Agreement, Indemnitee shall be entitled to an adjudication in an appropriate
court of the State of Delaware, or in any other court of competent jurisdiction,
of his entitlement to such indemnification. Indemnitee shall commence such
proceeding seeking an adjudication within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 7(a). The Company shall not oppose Indemnitee's right to seek any such
adjudication.
(b) In the event that a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding commenced pursuant to this Section 7
shall be conducted in all respects as a de novo trial, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination under
Section 6(b).
(c) If a determination shall have been made pursuant to Section
6(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding
commenced pursuant to this Section 7, absent a prohibition of such
indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7,
seeks a judicial adjudication of his rights under, or to recover damages for
breach of, this Agreement, or to recover under any directors' and officers'
liability insurance policies maintained by the Company the Company shall pay on
his behalf, in advance, any and all expenses (of the types described in the
definition of Expenses in Section 13 of this Agreement) actually and reasonably
incurred by him in such judicial adjudication, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advancement of
expenses or insurance recovery.
(e) The Company shall be precluded from asserting in any
judicial proceeding commenced pursuant to this Section 7 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court that the Company is bound by all the provisions of
this Agreement.
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<PAGE> 8
8. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification as provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the certificate of incorporation of the
Company, the Bylaws, any agreement, a vote of stockholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this Agreement or
of any provision hereof shall limit or restrict any right of Indemnitee under
this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal. To the
extent that a change in the Law, whether by statute or judicial decision,
permits greater indemnification than would be afforded currently under the
Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors, officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
9. Exception to Right of Indemnification. Notwithstanding any other
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors of the Company or (b)
such Proceeding is being brought by the Indemnitee to assert, interpret or
enforce his rights under this Agreement.
10. Duration of Agreement. All agreements and obligations of the Company
contained herein shall continue during the period Indemnitee is an officer or
director of the
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<PAGE> 9
Company (or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise) and shall continue thereafter so long as Indemnitee
shall be subject to any Proceeding (or any proceeding commenced under Section 7
hereof) by reason of his Corporate Status, whether or not he is acting or
serving in any such capacity at the time any liability or expense is incurred
for which indemnification can be provided under this Agreement. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors (including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), assigns, spouses,
heirs, executors and personal and legal representatives. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as an
officer or director of the Company or any other Enterprise at the Company's
request.
11. Security. To the extent requested by the Indemnitee and approved by
the Board of Directors of the Company, the Company may at any time and from time
to time provide security to the Indemnitee for the Company's obligations
hereunder through an irrevocable bank line of credit, funded trust or other
collateral. Any such security, once provided to the Indemnitee, may not be
revoked or released without the prior written consent of the Indemnitee.
12. Enforcement.
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby in
order to induce Indemnitee to serve as an officer or director of the Company,
and the Company acknowledges that Indemnitee is relying upon this Agreement in
serving as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
13. Definitions. For purposes of this Agreement:
(a) "Corporate Status" describes the status of a person who is
or was a director, officer, employee or agent or fiduciary of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the express written
request of the Company.
(b) "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(c) "Enterprise" shall mean the Company and any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is
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<PAGE> 10
or was serving at the express written request of the Company as a director,
officer, employee, agent or fiduciary.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party (other than with
respect to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees of the Independent
Counsel referred to above and to fully indemnify such counsel against any and
all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(f) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director of the Company, by reason of any
action taken by him or of any inaction on his part while acting as an officer or
director of the Company, or by reason of the fact that he is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other Enterprise; in each case
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement; including one pending on or before the date of this Agreement;
and excluding one initiated by an Indemnitee pursuant to Section 7 of this
Agreement to enforce his rights under this Agreement.
14. Severability. If any provision or provisions of this Agreement shall
be held by a court of competent jurisdiction to be invalid, void, illegal or
otherwise unenforceable for any reason whatsoever: (a) the validity, legality
and enforceability of the remaining provisions of this Agreement (including
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby and shall remain enforceable to the fullest extent permitted by law; and
(b) to the fullest extent
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<PAGE> 11
possible, the provisions of this Agreement (including, without limitation, each
portion of any section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
thereby.
15. Modification and Waiver. No supplement, modification, termination or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
16. Notice By Indemnitee. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The failure
to so notify the Company shall not relieve the Company of any obligation which
it may have to the Indemnitee under this Agreement or otherwise unless and only
to the extent that such failure or delay materially prejudices the Company.
17. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to the address set forth below Indemnitee
signature hereto.
(b) If to the Company, to:
Quintus Corporation
47212 Mission Falls Court
Fremont, CA 94539
Attention: Chief Financial Officer
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
18. Identical Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
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<PAGE> 12
19. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
20. Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
21. Gender. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
QUINTUS CORPORATION
By:_________________________________
Name:____________________________
Title:___________________________
INDEMNITEE
____________________________________
Name:_______________________________
Address:
____________________________________
____________________________________
____________________________________
____________________________________
<PAGE> 1
EXHIBIT 10.2
QUINTUS CORPORATION
1995 STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option Plan is intended to promote the interests of
Quintus Corporation, a Delaware corporation, by providing eligible persons with
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to
make such determinations under, and issue such interpretations of, the Plan and
any outstanding options as it may deem necessary or advisable. Decisions of the
Plan Administrator shall be final and binding on all parties who have an
interest in the Plan or any option or shares issued thereunder.
III. ELIGIBILITY
A. The persons eligible to receive option grants under the Plan are
as follows:
(i) Employees,
(ii) non-employee members of the Board or the
non-employee members of the board of directors of any Parent or Subsidiary,
and
(iii) consultants who provide services to the
Corporation (or any Parent or Subsidiary)
B. The Plan Administrator shall have full authority to determine
which eligible persons are to receive option grants under the Plan, the time or
times when such option grants are to be made, the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at
<PAGE> 2
which each option is to become exercisable, the vesting schedule (if any)
applicable to the option shares and the maximum term for which the option is to
remain outstanding.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 1,038,034
shares.
B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the
options are canceled in accordance with the cancellation-regrant provisions of
Article Two. All shares issued under the Plan, whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan.
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive. In no event
shall any such adjustments be made in connection with the conversion of one or
more outstanding shares of the Corporation's preferred stock into shares of
Common Stock.
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1) The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The exercise price per share shall not be less than
eighty-five percent (85%) of the Fair Market Value per share of Common
Stock on the option grant date.
(ii) If the person to whom the option is granted is a 10%
Stockholder, then the exercise price per share shall not be less than one
hundred
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ten percent (110)% of the Fair Market Value per share of Common Stock on
the option grant date.
2) The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Three
and the documents evidencing the option, be payable in cash or check made
payable to the Corporation. Should the Common Stock be registered under Section
12(g) of the 1934 Act at the time the option is exercised, then the exercise
price may also be paid as follows:
(i) in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable written instructions
(a) to a Corporation-designated brokerage firm to effect the immediate sale
of the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required to
be withheld by the Corporation by reason of such exercise and (b) to the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option grant. However, no option shall have a term in excess of
ten (10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time of cessation
of Service or death:
(i) Should the Optionee cease to remain in Service for any
reason other than Disability or death, then the Optionee shall have a
period of three (3) months following the date of such cessation of Service
during which to exercise each outstanding option held by such Optionee.
(ii) Should such Service terminate by reason of Disability,
then the Optionee shall have a period of six (6) months following the date
of such cessation of Service during which to exercise each outstanding
option held by such Optionee. However, should such Disability be deemed to
constitute Permanent Disability, then the period during which each
outstanding option held by the Optionee is to remain exercisable shall be
extended by an additional six (6) months so that the exercise period shall
be the twelve (12)-month period following the date of the Optionee's
cessation of Service by reason of such Permanent Disability.
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<PAGE> 4
(iii) Should the Optionee die while holding one or more
outstanding options, then the personal representative of the Optionee's
estate or the person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of descent and
distribution shall have a period of twelve (12) months following the date
of the Optionee's death during which to exercise each such option.
(iv) Under no circumstances, however, shall any such
option be exercisable after the specified expiration of the option term.
(v) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for more than the number
of vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate and
cease to be outstanding to the extent it is not exercisable for vested
shares on the date of such cessation of Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock under the Plan. Should the Optionee cease Service while holding such
unvested shares, the Corporation shall have the right to repurchase, at the
exercise price paid per share, all or (at the discretion of the Corporation
and with the consent of the Optionee) any of those unvested shares. The terms
upon which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right. The Plan Administrator may not
impose a vesting schedule upon any option grant or any shares of Common Stock
subject to the option which is more restrictive than twenty percent (20%) per
year vesting, beginning one (1) year after the option grant date. However, this
minimum vesting requirement shall not be applicable with respect to any option
granted to a Highly-Compensated Person. All outstanding repurchase rights under
the Plan shall terminate automatically in the event of any Corporate
Transaction, except to the extent that the repurchase rights are assigned to
the successor corporation (or parent thereof) in connection with such Corporate
Transaction.
F. FIRST REFUSAL RIGHTS. Pursuant to Article VIII of the
Corporation's bylaws, the Corporation shall have the right of first refusal
with respect to any proposed disposition by the Optionee (or any successor in
interest) of any shares of Common Stock issued under the Plan. Such right of
first refusal shall lapse upon the registration of the shares of Common Stock
under Section 12(g) of the 1934 Act.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned in accordance with the terms of a Qualified Domestic Relations
Order. The assigned option may only be exercised by the person or persons
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<PAGE> 5
who acquire a proprietary interest in the option pursuant to such Qualified
Domestic Relations Order. The terms applicable to the assigned option (or
portion thereof) shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.
H. WITHHOLDING. The Corporation's obligation to deliver shares of
Common stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of the Plan shall be applicable to Incentive Options. Options which
are specifically designated as Non-Statutory Options shall not be subject to
the terms specified in this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each outstanding
option shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof) in connection with
such Corporate Transaction.
B. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in the consummation of such Corporate
Transaction, had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to (i) the number and
class of securities available for issuance under the Plan following the
consummation of such Corporate Transaction and (ii) the exercise price payable
per share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
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C. The grant of options under the Plan shall in no way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same of different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
ARTICLE THREE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the option exercise
price by delivering a promissory note payable in one or more installments. The
terms of any such promissory note (including the interest rate and the terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In all events, the maximum credit available to each Optionee may
not exceed the sum of (i) the aggregate option exercise price payable for the
purchased shares (less the par value of such shares) plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee in
connection with the option exercise.
II. ADDITIONAL AUTHORITY
A. The Plan Administrator shall have the discretion, exercisable either
at the time an option is granted or at any time while the option remains
outstanding:
(i) to extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service or death from the
limited period otherwise in effect for that option to such greater period of
time as the Plan Administrator shall deem appropriate; provided, that is no
event shall such option be exercisable after the specified expiration of the
option term, and/or
(ii) to permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of the
Optionee's cessation of Service or death but also with respect to one or more
additional installments in which the Optionee would have vested under the option
had the Optionee continued in Service.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective when adopted by the Board on April 16, 1996.
The Plan was approved by the Corporation's stockholders on May 17, 1996.
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B. The Plan shall terminate upon the earliest of (i) the expiration
of the ten (10)-year period measured from the date the Plan is adopted by the
Board, (ii) the date on which all shares available for issuance under the Plan
shall have been issued or (iii) the termination of all outstanding options in
connection with a Corporate Transaction. Upon a clause (i) termination, all
options and unvested stock issuances outstanding under the Plan shall continue
to have full force and effect in accordance with the provisions of the documents
evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall, without the consent of the Optionees, adversely affect
their rights and obligations under their outstanding options. In addition, the
Board shall not, without the approval of the Corporation's stockholders, (i)
increase the maximum number of shares issuable under the Plan, except for
permissible adjustments in the event of certain changes in the Corporation's
capitalization, (ii) materially modify the eligibility requirements for Plan
participation or (iii) materially increase the benefits accruing to Plan
participants.
B. Options may be granted under the Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided any such options actually granted may not be exercised until
there is obtained stockholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such stockholder approval is not obtained within twelve (12) months after the
date the excess grants are first made, then any options granted on the basis of
such excess shares shall terminate and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option hereunder
and the issuance of any shares of Common Stock upon the exercise of any option
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it and the shares of Common Stock issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of the Optionee, which rights are
hereby expressly reserved by each, to terminate the Optionee's Service at any
time for any reason, with or without cause.
VIII. FINANCIAL REPORTS
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The Corporation shall deliver a balance sheet and an income statement at
least annually to each individual holding an outstanding option under the Plan,
unless such individual is a key Employee whose duties in connection with the
Corporation (or any Parent or Subsidiary) assure such individual access to
equivalent information.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to exercise one or more administrative functions
under the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting power
of the Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Quintus Corporation, a Delaware
corporation.
G. DISABILITY shall mean the inability of an individual to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment and shall be determined by the Plan Administrator
on the basis of such medical evidence as the Plan Administrator deems warranted
under the circumstances. Disability shall be deemed to constitute PERMANENT
DISABILITY in the event that such Disability is expected to result in death or
has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
H. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or
order (including approval of a property settlement agreement) which provides or
otherwise conveys pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
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(i) If the Common Stock is at the time
traded on the Nasdaq National Market, then the Fair Market Value shall
be the closing selling price per share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time
listed on any Stock Exchange, then the Fair Market Value shall be the
closing selling price per share of Common stock on the date in question
on the Stock Exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is officially quoted
in the composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) If the Common Stock is at the time
neither listed on any Stock Exchange nor traded on the Nasdaq National
Market, then the Fair Market Value shall be determined by the Plan
Administrator after taking into account such factors as the Plan
Administrator shall deem appropriate.
L. HIGHLY-COMPENSATED PERSON shall mean an Optionee who is an
officer, director or consultant to the Corporation, its parent or subsidiaries.
M. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
O. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
P. OPTIONEE shall mean any person to whom an option is granted
under the Plan.
Q. PARENT shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the Corporation,
provided each corporation in the unbroken chain (other than the Corporation)
owns, at the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
R. PLAN shall mean the Corporation's 1995 Stock Option Plan, as
set forth in this document.
S. PLAN ADMINISTRATOR shall mean either the Board or the
Committee, to the extent the Committee is at the time responsible for the
administration of the Plan.
T. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic
Relations Order which substantially complies with the requirements of Code
Section 414(p). The Plan
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Administrator shall have the sole discretion to determine whether a Domestic
Relations Order is a Qualified Domestic Relations Order.
U. SERVICE shall mean the provision of services to the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant,
except to the extent otherwise specifically provided in the documents
evidencing the option grant.
V. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
W. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
X. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing tern percent (10%) or more of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
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QUINTUS CORPORATION
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or the board
of directors of any Parent or Subsidiary and consultants who provide services to
the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5, 6 or 17.
3 LIMITED TRANSFERABILITY. This option shall be neither transferable
nor assignable by Optionee other than by will or by the laws of descent and
distribution following Option's death and may be exercised, during Option's
lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may also be assigned
in accordance with the terms of a Qualified Domestic Relations Order. If so
assigned, the assigned option shall be exercisable only by the person or persons
who acquire a proprietary interest in the option pursuant to such Qualified
Domestic Relations Order. The terms applicable to the assigned option (or
portion thereof) shall be the same as those in effect for this option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.
4, DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5, 6 or 17.
<PAGE> 13
5. Cessation of Service. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable.
(a) Should Optionee cease to remain in Service for any reason
(other than death or Disability) while this option is outstanding, then Optionee
shall have a period of three (3) months (commencing with the date of such
cessation of Service) during which to exercise this option, but in no event
shall this option be exercisable at any time after the Expiration Date.
(b) Should Optionee die while this option is outstanding, then
the personal representative of Optionee's estate or the person or persons to
whom the option is transferred pursuant to Optionee's will or in accordance with
the laws of descent and distribution shall have the right to exercise this
option. Such right shall lapse and this option shall cease to be outstanding
upon the earlier of (i) the expiration of the twelve (12)-month period measured
from the date of Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Disability while
this option is outstanding, then Optionee shall have a period of six (6) months
(commencing with the date of such cessation of Service) during which to exercise
this option. However, should such Disability be deemed to constitute Permanent
Disability, then the period during which this option is to remain exercisable
shall be extended by an additional six (6) months so that the exercise period
shall be the twelve (12)-month period following the date of Optionee's cessation
of Service by reason of such Permanent Disability. In no event shall this option
be exercisable at any time after the Expiration Date.
Note: Exercise of this option on a date later than three (3)
months following cessation of Service due to Disability will
result in loss of favorable Incentive Option treatment, unless
such Disability constitutes Permanent Disability. In the event
that Incentive Option treatment is not available, this option
will be taxed as a Non-Statutory Option upon exercise.
(d) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number of
vested Option Shares for which the option is exercisable at the time of
Optionee's cessation of Service. Upon the expiration of such limited exercise
period or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding for any vested Option Shares for which the option has
not been exercised. To the extent Optionee is not vested in the Option Shares at
the time of Optionee's cessation of Service, this option shall immediately
terminate and cease to be outstanding with respect to those shares.
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6. SPECIAL TERMINATION OF OPTION
(a) in the event of a Corporate Transaction, this option shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation or parent thereof In connection with such Corporate
Transaction.
(b) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
(c) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares,
9. MANNER OF EXERCISING OPTION
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation A Purchase
Agreement for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(A) cash or check made payable to the Corporation; or
(B) a promissory note payable to the Corporation, but
only to the extent approved by the Plan Administrator in
accordance with Paragraph 14.
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Should the Common Stock be registered under Section 12(g) of
the 1934 Act at the time the option is exercised, then the Exercise
Price may also be paid as follows:
(C) in shares of Common Stock held by Optionee (or any
other person or persons exercising the option) for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at fair Market Value on the
Exercise Date; or
(D) to the extent the option is exercised for vested
Option Shares, through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide irrevocable
written instructions (a) to a Corporation designated brokerage firm
to effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate Exercise
Price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld
by the Corporation by reason of such exercise and (b) to the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Purchase Agreement delivered to
the Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if other than
Optionee) have the right to exercise this option.
(iv) Execute and deliver to the Corporation such
written representations as may be requested by the Corporation in order for it
to comply with the applicable requirements of Federal and state securities
laws.
(v) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining Optionee) for the
satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any
fractional shares
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<PAGE> 16
10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE
EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION
AND ITS ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS
SPECIFIED IN THE PURCHASE AGREEMENT.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the Issuance of the
Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law relating
thereto and with all applicable regulations of any stock exchange (or the Nasdaq
National Market if applicable) on which the Common Stock may be listed for
trading at the time of such exercise and issuance.
(b) The inability of the Corporation to obtain approval from
any regulatory body having authority deemed by the Corporation to be necessary
to the lawful issuance and sale of any Common Stock pursuant to this option
shall relieve the Corporation of any liability with respect to the non-issuance
or sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
14. FINANCING. The Plan Administrator may, in its absolute
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a promissory note.
The terms of any such promissory note (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion.(1)
15. CONSTRUCTION. This Agreement and the option evidenced hereby
are made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under
- ---------------------
(1) Authorization of payment of the Exercise Price by a promissory note under
such provisions may, under currently proposed Treasury Regulations, result in
the loss of incentive stock option treatment under the Federal tax laws.
5
<PAGE> 17
the Plan or this Agreement shall be conclusive and binding on all persons having
an interest in this option.
16. GOVERNING LAW. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
17. STOCKHOLDER APPROVAL. If the Option Shares covered by this
Agreement exceed, as of the Grant Date, the number of shares of Common Stock
which may without stockholder approval be issued under the Plan, then this
option shall be void with respect to such excess shares, unless stockholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock usable under the Plan is obtained in accordance with the provisions of the
Plan.
18. ADDITIONAL TERMS APPLICABLE TO AIM INCENTIVE OPTION. In the
event this option is designated an incentive Option in the Grant Notice, the
following terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is exercised
for one or more Option Shares: (i) more than three (3) months after the date
Optionee ceases to be an Employee for any reason other than death or Permanent
Disability or (ii) more than twelve (12) months after the date Optionee ceases
to be an Employee by reason of Permanent Disability,
(b) This option shall not become exercisable in the calendar
year in which granted if (and to the extent) the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this option would
otherwise first become exercisable in such calendar year would, when added to
the aggregate value (determined as of the respective date or dates of grant) of
the Common Stock and any other securities for which one or more other Incentive
Options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. To the extent the exercisability of this
option is deferred by reason of the foregoing limitation, the deferred portion
shall become exercisable in the first calendar year or years thereafter in which
the One Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18(b)
would not be contravened, but such deferral shall in all events end immediately
prior to the effective date of a Corporate Transaction in which this option is
not to be assumed, whereupon the option shall become immediately exercisable as
a Non-Statutory Option for the deferred portion of the Option Shares.
(c) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become exercisable for the
first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
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<PAGE> 18
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. Code she mean the Internal Revenue Code of 1986, as amended.
D COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
- a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from
the persons holding those securities immediately prior to such transaction, or
- the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of the
Corporation.
F. CORPORATION shall mean Quintus Corporation, a Delaware corporation.
G. DISABILITY shall mean the inability of Optionee to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute PERMANENT DISABILITY in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
H. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
K. EXERCISE PRICE shall mean the exercise price per share as specified
in the Grant Notice.
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<PAGE> 19
L. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
M. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
- If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per share
of Common Stock on the date in question, as the price is reported by the
National Association of Securities Dealers on the Nasdaq National Market or any
successor system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
- If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by the
Plan Administrator to be the primary market for the Common Stock, as such price
is officially quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
- If the Common Stock is at the time neither listed on any Stock
Exchange nor traded on the Nasdaq National Market, then the Fair Market Value
shall be, determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate.
N. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice
0. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
P. INCENTIVE OPTION shall mean an option which satisfies the
requirements of code Section 422.
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option.
T. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
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<PAGE> 20
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PLAN shall mean the Corporation's 1995 Stock Option Plan.
W. PLAN ADMINISTRATOR shall mean either the Board or a committee of
Board members, to the extent the committee is at the time responsible for the
administration of the Plan.
X. PURCHASE AGREEMENT shall mean the stock purchase agreement in
substantially the form of Exhibit B to the Grant Notice.
Y. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
Z. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant.
AA. STOCK EXCHANGE shall mean the American Stock Exchange or the New
York Stock Exchange.
BB. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
A-3
<PAGE> 21
QUINTUS CORPORATION
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this ___________ day of Corporation, a Delaware
corporation (the "Corporation"), _______ , 19___, by and among Quintus an
Optionee under the Corporation's 1995 Stock Option Plan (the "Plan"), and
Optionee's spouse.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
1. EXERCISE. Optionee hereby purchases shares of Common Stock (the
"Purchased Shares") pursuant to that certain option (the "Option") granted
Optionee on _______ , 199_ (the "Grant Date") to purchase up to _______ shares
of Common Stock under the Plan at the exercise price of $________ per share (the
"Exercise Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to the
Corporation, Optionee shall pay the Exercise Price for the Purchased Shares in
accordance with the provisions of the Option Agreement and shall deliver
whatever additional documents may be required by the Option Agreement as a
condition for exercise, together with a duly-executed blank Assignment Separate
from Certificate (in the form attached hereto as Exhibit I) with respect to the
Purchased Shares.
3. DELIVERY OF CERTIFICATES. The certificates representing any
Purchased Shares which are subject to the Repurchase Right shall be held in
escrow in accordance with the provisions of this Agreement.
4. STOCKHOLDER RIGHTS. Until such time as the Corporation exercises
the Repurchase Right, the First Refusal Right or the Special Purchase Right,
Optionee (or any successor in interest) shall have all the rights of a
stockholder (including voting, dividend and liquidation rights) with respect to
the Purchased Shares, including the Purchased Shares held in escrow hereunder,
subject, however, to the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
1. RESTRICTED SECURITIES. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Optionee in reliance upon
the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Optionee hereby
confirms that Optionee has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Optionee hereby acknowledges that Optionee is prepared to hold the Purchased
Shares for an indefinite period and that Optionee is aware that SEC Rule 144
issued under the 1933 Act which exempts certain resales of unrestricted
securities
<PAGE> 22
is not presently available to exempt the resale of the Purchased Shares from the
registration requirements of the 1933 Act.
2. RESTRICTIONS ON DISPOSITION OF PURCHASED SHARES. Optionee shall
make no disposition of the Purchased Shares (other than a Permitted Transfer)
unless and until there is compliance with all of the following requirements:
(i) Optionee shall have provided the Corporation with a
written summary of the terms and conditions of the proposed disposition.
(ii) Optionee shall have complied with all requirements of
this Agreement applicable to the disposition of the Purchased Shares.
(iii) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that (a) the proposed disposition does not require
registration of the Purchased Shares under the 1933 Act or (b) all
appropriate action necessary for compliance with the registration
requirements of the 1933 Act or any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.
(iv) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that the proposed disposition shall not result in the
contravention of any transfer restrictions applicable to the Purchased
Shares pursuant to the provisions of state securities laws.
The Corporation shall not be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. RESTRICTIVE LEGENDS. The stock certificates for the Purchased
Shares shall be endorsed with one or more restrictive legends, including the
following:
(i) "The shares represented by this certificate have not
been registered under the Securities Act of 1933. The shares may not be
sold or offered for sale in the absence of (a) an effective registration
statement for the shares under such Act, (b) a 'no action' letter of the
Securities and Exchange Commission with respect to such sale or offer or
(c) satisfactory assurances to the Corporation that registration under
such Act is not required with respect to such sale or offer."
(ii) "The shares represented by this certificate are
subject to certain repurchase rights and rights of first refusal granted
to the Corporation and accordingly may not be sold, assigned,
transferred, encumbered or in any manner disposed of except in
conformity with the terms of a written agreement dated
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<PAGE> 23
_______ 199__ between the Corporation and the registered holder of the
shares (or the predecessor in interest to the shares). A copy of such
agreement is maintained at the Corporation's principal corporate
offices."
C. TRANSFER RESTRICTIONS
1. RESTRICTION on TRANSFER. Except for any Permitted Transfer,
Optionee shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right, the Market Stand-Off or the Special Purchase Right.
2. TRANSFEREE OBLIGATIONS. Each person (other than the Corporation)
to whom the Purchased Shares are transferred by means of a Permitted Transfer
must, as a condition precedent to the validity of such transfer, acknowledge in
writing to the Corporation that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to (i) the Repurchase
Right, (ii) the First Refusal Right and (iii) the Market Stand-Off, to the same
extent such shares would be so subject if retained by Optionee.
3. MARKET STAND-OFF.
(a) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off") shall
be in effect for such period of time from and after the effective date of the
final prospectus for the offering as may be requested by the Corporation or such
underwriters. In no event, however, shall such period exceed one hundred eighty
(180) days, and the Market Stand-Off shall in all events terminate two (2) years
after the effective date of the Corporation's initial public offering.
(b) Owner shall be subject to the Market Stand-Off provided and
only if the officers and directors of the Corporation are also subject to
similar restrictions.
(C) Any new, substituted or additional securities which are by
reason of any Recapitalization or Reorganization distributed with respect to the
Purchased Shares shall be immediately subject to the Market Stand-Off, to the
same extent the Purchased Shares are at such time covered by such provisions.
(d) In order to enforce the Market Stand-Off, the Corporation may
impose stop-transfer instructions with respect to the Purchased Shares until the
end of the applicable stand-off period.
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<PAGE> 24
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the 90 day period following
the date Optionee ceases for any reason to remain in Service or (if later)
during the 90 day period following the execution date of this Agreement, to
repurchase at the Exercise Price all or (at the discretion of the Corporation
and with the consent of Optionee) any portion of the Purchased Shares in which
Optionee is not, at the time of his or her cessation of Service, vested in
accordance with the Vesting Schedule (such shares to be hereinafter referred to
as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Right of Repurchase shall
be exercisable only by written notice delivered to the Owner which sets forth
the date on which the repurchase is to be effected. Such date of repurchase
shall be prior to the applicable 90 day period specified in paragraph D.1
above. The Corporation shall, prior to the close of business on the date
specified for the repurchase, pay to the Owner an amount equal to the Exercise
Price previously paid for the Unvested Shares which are to be repurchased from
Owner. Payment shall be made in cash or cash equivalents or by canceling
indebtedness to the Corporation incurred by the Owner in the purchase of the
Purchased Shares. The Owner shall deliver to the Corporation the certificate(s)
representing the Purchased Shares to be repurchased, properly endorsed for
transfer, promptly following receipt of the written notice specified above.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right shall
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Optionee vests in accordance with the Vesting Schedule. All Purchased
Shares as to which the Repurchase Right lapses shall, however, remain subject to
(i) the First Refusal Right, (ii) the Market Stand-Off and (iii) the Special
Purchase Right.
4. AGGREGATE VESTING LIMITATION. If the Option is exercised in more
than one increment so that Optionee is a party to one or more other Stock
Purchase Agreements (the "Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which Optionee would otherwise at the time be
vested, in accordance with the Vesting Schedule, had all the Purchased Shares
(including those acquired under the Prior Purchase Agreements) been acquired
exclusively under this Agreement.
5. RECAPITALIZATION. Any new, substituted or additional securities
or other property (including cash paid other than as a regular cash dividend)
which is by reason of any Recapitalization distributed with respect to the
Purchased Shares shall be immediately subject to the Repurchase Right, but only
to the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments to reflect such distribution shall be made to the number
and/or class of Purchased Shares subject to this Agreement and to the price per
share to be paid upon the exercise of the Repurchase Right in order to reflect
the effect of any such Recapitalization upon
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<PAGE> 25
the Corporation's capital structure; provided, however, that the aggregate
purchase price shall remain the same.
6. CORPORATE TRANSACTION.
(a) Immediately prior to the consummation of any Corporate
Transaction, the Repurchase Right shall automatically lapse in its entirety,
except to the extent the Repurchase Right is to be assigned to the successor
corporation (or parent thereof) in connection with the Corporate Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to the new capital
stock or other property (including any cash payment) received in exchange for
the Purchased Shares in consummation of the Corporate Transaction, but only to
the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments shall be made to the price per share payable upon
exercise of the Repurchase Right to reflect the effect of the Corporate
Transaction upon the Corporation's capital structure; provided, however, that
the aggregate purchase price shall remain the same.
E. RIGHT OF FIRST REFUSAL
Pursuant to Article VIII of the Corporation's bylaws, the
Corporation shall have the right of first refusal (the "First Refusal Right"),
exercisable in connection with any proposed transfer of the Purchased Shares in
which Optionee has vested in accordance with the Vesting Schedule. The First
Refusal Right shall lapse upon the registration of the Common Stock under
Section 12(g) of the 1934 Act.
F. MARITAL DISSOLUTION OR LEGAL SEPARATION
1. GRANT. In connection with the dissolution of Optionee's marriage
or the legal separation of Optionee and Optionee's spouse, the Corporation shall
have the right (the "Special Purchase Right") to purchase from Optionee's
spouse, in accordance with the provisions of Paragraph F.3, all or any portion
of the Purchased Shares which would otherwise be awarded to such spouse in
settlement of any community property or other marital property rights such
spouse may have in such shares.
2. NOTICE OF DECREE OR AGREEMENT. Optionee shall promptly provide
the Corporation with written notice (the "Dissolution Notice") of (i) the entry
of any judicial decree or order resolving the property rights of Optionee and
Optionee's spouse in connection with their marital dissolution or legal
separation or (ii) the execution of any contract or agreement relating to the
distribution or division of such property rights. The Dissolution Notice shall
be accompanied by a copy of the actual decree or order of dissolution or
contract or agreement between Optionee and Optionee's spouse which provides for
the award to the spouse of one or more Purchased Shares in settlement of any
community property or other marital property rights such spouse may have in such
shares.
3. EXERCISE OF THE SPECIAL PURCHASE RIGHT. The Special Purchase
Right shall be exercisable by delivery of written notice (the "Purchase Notice")
to Optionee and
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<PAGE> 26
Optionee's spouse within thirty (30) days after the Corporation's receipt of the
Dissolution Notice. The Purchase Notice shall indicate the number of shares to
be purchased by the Corporation, the date such purchase is to be effected (such
date to be not less than five (5) business days, nor more than ten (10) business
days, after the date of the Purchase Notice) and the Fair Market Value to be
paid for such Purchased Shares. Optionee (or Optionee's spouse, to the extent
such spouse has physical possession of the Purchased Shares) shall, prior to the
close of business on the date specified for the purchase, deliver to the
Corporation the certificates representing the shares to be purchased. The
Corporation shall, concurrently with the receipt of the stock certificates, pay
to Optionee's spouse (in cash or cash equivalents) an amount equal to the Fair
Market Value specified for such shares in the Purchase Notice.
If Optionee's spouse does not agree with the Fair Market Value
specified for the shares in the Purchase Notice, then the spouse shall promptly
notify the Corporation in writing of such disagreement and the fair market value
of such shares shall thereupon be determined by an appraiser of recognized
standing selected by the Corporation and the spouse. If they cannot agree on an
appraiser within twenty (20) days after the date of the Purchase Notice, each
shall select an appraiser of recognized standing, and the two (2) appraisers
shall designate a third appraiser of recognized standing whose appraisal shall
be determinative of such value. The cost of the appraisal shall be shared
equally by the Corporation and Optionee's spouse. The closing shall then be held
on the fifth (5th) business day following the completion of such appraisal;
provided, however, that if the appraised value is more than twenty-five percent
(25%) greater than the Fair Market Value specified for the shares in the
Purchase Notice, the Corporation shall have the right, exercisable prior to the
expiration of such five (5) business-day period, to rescind the exercise of the
Special Purchase Right and thereby revoke its election to purchase the shares
awarded to the spouse. In the event the Corporation so revokes its election, the
Corporation shall bear the entire cost of the appraisal.
4. LAPSE. The Special Purchase Right shall lapse upon the earlier to
occur of (i) the lapse of the First Refusal Right or (ii) the expiration of the
exercise period specified in Paragraph F.3, to the extent the Special Purchase
Right is not timely exercised in accordance with such paragraph.
G. ESCROW
1. DEPOSIT. Upon issuance, the certificates for the Purchased Shares
which are subject to the Repurchase Right shall be deposited in escrow with the
Corporation to be held in accordance with the provisions of this Article G. Each
deposited certificate shall be accompanied by a duly-executed Assignment
Separate from Certificate in the form of Exhibit I. The deposited certificates,
together with any other assets or securities from time to time deposited with
the Corporation pursuant to the requirements of this Agreement, shall remain in
escrow until such time or times as the certificates (or other assets and
securities) are to be released or otherwise surrendered for cancellation in
accordance with Paragraph G.3. Upon delivery of the certificates (or other
assets and securities) to the Corporation, Owner shall be issued a receipt
acknowledging the number of Purchased Shares (or other assets and securities)
delivered in escrow.
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<PAGE> 27
2. RECAPITALIZATION/REORGANIZATION. Any new, substituted or
additional securities or other property which is by reason of any
Recapitalization or Reorganization distributed with respect to the Purchased
Shares shall be delivered to the Corporation to be held in escrow under this
Article G, but only to the extent the Purchased Shares are at the time subject
to the escrow requirements hereunder. However, all regular cash dividends on the
Purchased Shares (or other securities at the time held in escrow) shall be paid
directly to Owner and shall not be held in escrow.
3. RELEASE/SURRENDER. The Purchased Shares, together with any other
assets or securities held in escrow hereunder, shall be subject to the following
terms relating to their release from escrow or their surrender to the
Corporation for repurchase and cancellation:
(i) Should the Corporation elect to exercise the Repurchase Right
with respect to any Unvested Shares, then the escrowed certificates for
those Unvested Shares (together with any other assets or securities
attributable thereto) shall be surrendered to the Corporation
concurrently with the payment to Owner of an amount equal to the
aggregate Exercise Price for such Unvested Shares, and Owner shall cease
to have any further rights or claims with respect to such Unvested
Shares (or other assets or securities attributable thereto).
(ii) Should the Corporation elect to exercise the First Refusal
Right with respect to any Target Shares held at the time in escrow
hereunder, then the escrowed certificates for those Target Shares
(together with any other assets or securities attributable thereto)
shall be surrendered to the Corporation concurrently with the payment of
the Paragraph E.3 purchase price for such Target Shares to Owner, and
Owner shall cease to have any further rights or claims with respect to
such Target Shares (or other assets or securities attributable thereto).
(iii) Should the Corporation elect not to exercise the Repurchase
Right with respect to any Unvested Shares or the First Refusal Right
with respect to any Target Shares held at the time in escrow hereunder,
then the escrowed certificates for those shares (together with any other
assets or securities attributable thereto) shall be released to Owner.
(iv) As the Purchased Shares (or any other assets or securities
attributable thereto) vest in accordance with the Vesting Schedule, the
certificates for those vested shares (as well as all other vested assets
and securities) shall be released from escrow upon Owner's request, but
not more frequently than once every six (6) months.
(v) All Purchased Shares which vest (and any other vested assets
and securities attributable thereto) shall be released within thirty
(30) days after the earlier to occur of (a) Optionee's cessation of
Service or (b) the lapse of the First Refusal Right.
7
<PAGE> 28
(vi) All Purchased Shares (or other assets or securities)
released from escrow shall nevertheless remain subject to (a) the First
Refusal Right, to the extent such right has not otherwise lapsed, (b)
the Market Stand-Off, until such restriction terminates, and (c) the
Special Purchase Right, to the extent such right has not otherwise
lapsed.
H. SPECIAL TAX ELECTION
The acquisition of the Purchased Shares may result in adverse tax
consequences which may be avoided by FILING an election under Code Section
83(b). Such election must be filed within thirty (30) days after the date of
this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b)
ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTION'S SOLE RESPONSIBILITY, AND NOT
THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF
OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON
HIS OR HER BEHALF.
I. GENERAL PROVISIONS
1. ASSIGNMENT The Corporation may assign the Repurchase Right, the
First Refusal Right and/or the Special Purchase Right to any person or entity
selected by the Board, including (without limitation) one or more stockholders
of the Corporation.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement or
in the Plan shall confer upon Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Optionee) or of Optionee, which rights are hereby expressly reserved
by each, to terminate Optionee's Service at any time for any reason, with or
without cause.
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right, the First Refusal Right or the Special Purchase
Right shall not constitute a waiver of any other repurchase rights and/or rights
of first refusal that may subsequently arise under the provisions of this
Agreement or any other agreement between the Corporation and Optionee or
Optionee's spouse. No waiver of any breach or condition of this Agreement shall
be
8
<PAGE> 29
deemed to be a waiver of any other or subsequent breach or condition, whether of
like or different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make available,
at the time and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares to be repurchased in accordance with the
provisions of this Agreement, then from and after such time, the person from
whom such shares are to be repurchased shall no longer have any rights as a
holder of such shares (other than the right to receive payment of such
consideration in accordance with this Agreement). Such shares shall be deemed
purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
J. MISCELLANEOUS PROVISIONS
1. OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the provisions of this Agreement.
2. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
3. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California without resort to that
State's conflict-of-laws rules.
4. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Optionee, Optionee's assigns and the legal representatives,
heirs and legatees of Optionee's estate, whether or not any such person shall
have become a party to this Agreement and have agreed in writing to join herein
and be bound by the terms hereof.
6. POWER OF ATTORNEY. Optionee's spouse hereby appoints Optionee his
or her true and lawful attorney in fact, for him or her and in his or her name,
place and stead, and for his or her use and benefit, to agree to any amendment
or modification of this Agreement and to execute such further instruments and
take such further actions as may reasonably be necessary to carry out the intent
of this Agreement. Optionee's spouse further gives and grants unto Optionee as
his or her attorney in fact full power and authority to do and perform every act
necessary and
9
<PAGE> 30
proper to be done in the exercise of any of the foregoing powers as fully as he
or she might or could do if personally present, with full power of substitution
and revocation, hereby ratifying and confirming all that Optionee shall lawfully
do and cause to be done by virtue of this power of attorney.
10
<PAGE> 31
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
QUINTUS CORPORATION
By:
---------------------------------------
Title:
-------------------------------------
Address:
-----------------------------------
-------------------------------------------
-------------------------------------------
OPTIONEE
-----------------------------------
Address:
-------------------------------------------
11
<PAGE> 1
EXHIBIT 10.3
QUINTUS CORPORATION
1999 STOCK INCENTIVE PLAN
(AS ADOPTED SEPTEMBER 9, 1999)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. INTRODUCTION................................................................ 1
ARTICLE II. ADMINISTRATION.............................................................. 1
2.1 Committee Composition....................................................... 1
2.2 Committee Responsibilities.................................................. 1
2.3 Committee for Non-Officer Grants............................................ 1
ARTICLE III. SHARES AVAILABLE FOR GRANTS................................................. 2
3.1 Basic Limitation............................................................ 2
3.2 Annual Increase in Shares................................................... 2
3.3 Additional Shares........................................................... 2
3.4 Dividend Equivalents........................................................ 2
ARTICLE IV. ELIGIBILITY................................................................. 2
4.1 Incentive Stock Options..................................................... 2
4.2 Other Grants................................................................ 3
ARTICLE V. OPTIONS..................................................................... 3
5.1 Stock Option Agreement...................................................... 3
5.2 Number of Shares............................................................ 3
5.3 Exercise Price.............................................................. 3
5.4 Exercisability and Term..................................................... 3
5.5 Modification or Assumption of Options....................................... 4
5.6 Buyout Provisions........................................................... 4
ARTICLE VI. PAYMENT FOR OPTION SHARES................................................... 4
6.1 General Rule................................................................ 4
6.2 Surrender of Stock.......................................................... 4
6.3 Exercise/Sale............................................................... 4
6.4 Exercise/Pledge............................................................. 5
6.5 Promissory Note............................................................. 5
6.6 Other Forms of Payment...................................................... 5
ARTICLE VII. STOCK APPRECIATION RIGHTS................................................... 5
7.1 SAR Agreement............................................................... 5
7.2 Number of Shares............................................................ 5
7.3 Exercise Price.............................................................. 5
7.4 Exercisability and Term..................................................... 5
7.5 Exercise of SARs............................................................ 6
7.6 Modification or Assumption of SARs.......................................... 6
</TABLE>
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<TABLE>
<S> <C>
ARTICLE VIII. RESTRICTED SHARES.......................................................... 6
8.1 Restricted Stock Agreement.................................................. 6
8.2 Payment for Awards.......................................................... 6
8.3 Vesting Conditions.......................................................... 6
8.4 Voting and Dividend Rights.................................................. 7
ARTICLE IX. STOCK UNITS................................................................. 7
9.1 Stock Unit Agreement........................................................ 7
9.2 Payment for Awards.......................................................... 7
9.3 Vesting Conditions.......................................................... 7
9.4 Voting and Dividend Rights.................................................. 7
9.5 Form and Time of Settlement of Stock Units.................................. 7
9.6 Death of Recipient.......................................................... 8
9.7 Creditors' Rights........................................................... 8
ARTICLE X. CHANGE IN CONTROL.......................................................... 8
10.1 Effect of Change in Control................................................ 8
10.2 Involuntary Termination.................................................... 8
ARTICLE XI. PROTECTION AGAINST DILUTION................................................ 9
11.1 Adjustments................................................................ 9
11.2 Dissolution or Liquidation................................................. 9
11.3 Reorganizations............................................................ 9
ARTICLE XII. DEFERRAL OF AWARDS......................................................... 9
ARTICLE XIII. AWARDS UNDER OTHER PLANS................................................... 10
ARTICLE XIV. PAYMENT OF FEES IN SECURITIES.............................................. 10
14.1 Effective Date............................................................. 10
14.2 Elections to Receive NSOs, Restricted Shares or Stock Units................ 10
14.3 Number and Terms of NSOs, Restricted Shares or Stock Units................. 11
ARTICLE XV. LIMITATION ON RIGHTS....................................................... 11
15.1 Retention Rights........................................................... 11
15.2 Stockholders' Rights....................................................... 11
15.3 Regulatory Requirements.................................................... 11
ARTICLE XVI. WITHHOLDING TAXES.......................................................... 12
16.1 General.................................................................... 12
16.2 Share Withholding.......................................................... 12
ARTICLE XVII. FUTURE OF THE PLAN......................................................... 12
17.1 Term of the Plan........................................................... 12
17.2 Amendment or Termination................................................... 12
ARTICLE XVIII. LIMITATION ON PAYMENTS.................................................... 12
18.1 Scope of Limitation........................................................ 12
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
18.2 Application to Award....................................................... 13
18.3 Basic Rule................................................................. 13
18.4 Reduction of Payments...................................................... 13
18.5 Overpayments and Underpayments............................................. 13
18.6 Related Corporations....................................................... 14
ARTICLE XIX. DEFINITIONS................................................................ 14
</TABLE>
iii
<PAGE> 5
QUINTUS CORPORATION
1999 STOCK INCENTIVE PLAN
ARTICLE I. INTRODUCTION.
The Plan was adopted by the Board to be effective at the IPO. The
purpose of the Plan is to promote the long-term success of the Company and the
creation of stockholder value by (a) encouraging Employees, Outside Directors
and Consultants to focus on critical long-range objectives, (b) encouraging the
attraction and retention of Employees, Outside Directors and Consultants with
exceptional qualifications, and (c) linking Employees, Outside Directors and
Consultants directly to stockholder interests through increased stock ownership.
The Plan seeks to achieve this purpose by providing for Awards in the form of
Restricted Shares, Stock Units, Options (which may constitute incentive stock
options or nonstatutory stock options) or stock appreciation rights.
The Plan shall be governed by, and construed in accordance with,
the laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE II. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange
Commission may establish for administrators acting under plans intended to
qualify for exemption under Rule 16b-3 (or its successor) under the Exchange
Act; and
(b) Such requirements as the Internal Revenue Service may
establish for outside directors acting under plans intended to qualify for
exemption under section 162(m)(4)(C) of the Code.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select
the Employees, Outside Directors and Consultants who are to receive Awards under
the Plan, (b) determine the type, number, vesting requirements and other
features and conditions of such Awards, (c) interpret the Plan and (d) make all
other decisions relating to the operation of the Plan. The Committee may adopt
such rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons.
2.3 COMMITTEE FOR NON-OFFICER GRANTS. The Board may also appoint
a secondary committee of the Board, which shall be composed of one or more
directors of the Company who need not satisfy the requirements of Section 2.1.
Such secondary committee may administer the Plan with respect to Employees and
Consultants who are not considered officers or directors of the Company under
section 16 of the Exchange Act, may grant Awards under the
<PAGE> 6
Plan to such Employees and Consultants and may determine all features and
conditions of such Awards. Within the limitations of this Section 2.3, any
reference in the Plan to the Committee shall include such secondary committee.
ARTICLE III. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Shares of Common Stock issued pursuant to
the Plan may be authorized but unissued shares or treasury shares. The aggregate
number of Options, SARs, Stock Units and Restricted Shares awarded under the
Plan shall not exceed (a) 1,000,000 plus (b) the additional shares of Common
Stock described in Sections 3.2 and 3.3 and (c) any shares remaining available
for issuance under the Predecessor Plan. The limitations of this Section 3.1 and
Section 3.2 shall be subject to adjustment pursuant to Article 11.
3.2 ANNUAL INCREASE IN SHARES. As of January 1 of each year,
commencing with the year 2000, the aggregate number of Options, SARs, Stock
Units and Restricted Shares that may be awarded under the Plan shall
automatically increase by a number equal to the lesser of (a) 5% of the total
number of shares of Common Stock then outstanding or (b) [2,000,000] shares.
3.3 ADDITIONAL SHARES. If Restricted Shares or shares of Common
Stock issued upon the exercise of Options are forfeited (including any Options
incorporated from the Predecessor Plan), then such shares of Common Stock shall
again become available for Awards under the Plan. If Stock Units, Options or
SARs are forfeited or terminate for any other reason before being exercised,
then the corresponding shares of Common Stock shall again become available for
Awards under the Plan. If Stock Units are settled, then only the number of
shares of Common Stock (if any) actually issued in settlement of such Stock
Units shall reduce the number available under Section 3.1 and the balance shall
again become available for Awards under the Plan. If SARs are exercised, then
only the number of shares of Common Stock (if any) actually issued in settlement
of such SARs shall reduce the number available under Section 3.1 and the balance
shall again become available for Awards under the Plan. The foregoing
notwithstanding, the aggregate number of shares of Common Stock that may be
issued under the Plan upon the exercise of ISOs shall not be increased when
Restricted Shares or other shares of Common Stock are forfeited.
3.4 DIVIDEND EQUIVALENTS. Any dividend equivalents paid or
credited under the Plan shall not be applied against the number of Restricted
Shares, Stock Units, Options or SARs available for Awards, whether or not such
dividend equivalents are converted into Stock Units.
ARTICLE IV. ELIGIBILITY.
4.1 INCENTIVE STOCK Options. Only Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, an Employee who owns more than 10% of the total
combined voting power of all classes of outstanding stock of the Company or any
of its Parents or Subsidiaries shall not be eligible for the grant of an ISO
unless the requirements set forth in section 422(c)(6) of the Code are
satisfied.
2
<PAGE> 7
4.2 OTHER GRANTS. Only Employees, Outside Directors and
Consultants shall be eligible for the grant of Restricted Shares, Stock Units,
NSOs or SARs.
ARTICLE V. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the
Plan shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms of the Plan and
may be subject to any other terms that are not inconsistent with the Plan. The
Stock Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a reduction in
the Optionee's other compensation. A Stock Option Agreement may provide that a
new Option will be granted automatically to the Optionee when he or she
exercises a prior Option and pays the Exercise Price in the form described in
Section 6.2.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify
the number of shares of Common Stock subject to the Option and shall provide for
the adjustment of such number in accordance with Article 10. Options granted to
any Optionee in a single fiscal year of the Company shall not cover more than
1,000,000 shares of Common Stock, except that Options granted to a new Employee
in the fiscal year of the Company in which his or her service as an Employee
first commences shall not cover more than 2,000,000 shares of Common Stock. The
limitations set forth in the preceding sentence shall be subject to adjustment
in accordance with Article 11.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a Common Share on the date of
grant and the Exercise Price under an NSO shall in no event be less than 85% of
the Fair Market Value of a Common Share on the date of grant. In the case of an
NSO, a Stock Option Agreement may specify an Exercise Price that varies in
accordance with a predetermined formula while the NSO is outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall
specify the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service. Options may be awarded in
combination with SARs, and such an Award may provide that the Options will not
be exercisable unless the related SARs are forfeited.
5.5 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations
of the Plan, the Committee may modify, extend or assume outstanding options or
may accept the cancellation of outstanding options (whether granted by the
Company or by another issuer) in return for the grant of new options for the
same or a different number of shares and at the same or a different exercise
price. The foregoing notwithstanding, no modification of an Option shall,
3
<PAGE> 8
without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option.
5.6 BUYOUT PROVISIONS. The Committee may at any time (a) offer to
buy out for a payment in cash or cash equivalents an Option previously granted
or (b) authorize an Optionee to elect to cash out an Option previously granted,
in either case at such time and based upon such terms and conditions as the
Committee shall establish.
ARTICLE VI.PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of shares of Common
Stock issued upon exercise of Options shall be payable in cash or cash
equivalents at the time when such shares of Common Stock are purchased, except
as follows:
(a) In the case of an ISO granted under the Plan, payment
shall be made only pursuant to the express provisions of the applicable Stock
Option Agreement. The Stock Option Agreement may specify that payment may be
made in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time
accept payment in any form(s) described in this Article 6.
6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, shares of Common Stock that are already owned
by the Optionee. Such shares of Common Stock shall be valued at their Fair
Market Value on the date when the new shares of Common Stock are purchased under
the Plan. The Optionee shall not surrender, or attest to the ownership of,
shares of Common Stock in payment of the Exercise Price if such action would
cause the Company to recognize compensation expense (or additional compensation
expense) with respect to the Option for financial reporting purposes.
6.3 EXERCISE/SALE. To the extent that this Section 6.3 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) an irrevocable
direction to a securities broker approved by the Company to sell all or part of
the shares of Common Stock being purchased under the Plan and to deliver all or
part of the sales proceeds to the Company.
6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) an irrevocable
direction to pledge all or part of the shares of Common Stock being purchased
under the Plan to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company.
6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) a full-recourse
promissory note. However, the par value of the shares of Common Stock being
purchased under the Plan, if newly issued, shall be paid in cash or cash
equivalents.
4
<PAGE> 9
6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6
is applicable, all or any part of the Exercise Price and any withholding taxes
may be paid in any other form that is consistent with applicable laws,
regulations and rules.
ARTICLE VII. STOCK APPRECIATION RIGHTS.
7.1 SAR AGREEMENT. Each grant of an SAR under the Plan shall be
evidenced by an SAR Agreement between the Optionee and the Company. Such SAR
shall be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan. The provisions of the
various SAR Agreements entered into under the Plan need not be identical. SARs
may be granted in consideration of a reduction in the Optionee's other
compensation.
7.2 NUMBER OF SHARES. Each SAR Agreement shall specify the number
of shares of Common Stock to which the SAR pertains and shall provide for the
adjustment of such number in accordance with Article 11. SARs granted to any
Optionee in a single calendar year shall in no event pertain to more than
1,000,000 shares of Common Stock, except that SARs granted to a new Employee in
the fiscal year of the Company in which his or her service as an Employee first
commences shall not pertain to more than 2,000,000 shares of Common Stock. The
limitations set forth in the preceding sentence shall be subject to adjustment
in accordance with Article 11.
7.3 EXERCISE PRICE. Each SAR Agreement shall specify the Exercise
Price. An SAR Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the SAR is outstanding.
7.4 EXERCISABILITY AND TERM. Each SAR Agreement shall specify the
date when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may be
awarded in combination with Options, and such an Award may provide that the SARs
will not be exercisable unless the related Options are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. An SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
7.5 EXERCISE OF SARS. Upon exercise of an SAR, the Optionee (or
any person having the right to exercise the SAR after his or her death) shall
receive from the Company (a) shares of Common Stock, (b) cash or (c) a
combination of shares of Common Stock and cash, as the Committee shall
determine. The amount of cash and/or the Fair Market Value of shares of Common
Stock received upon exercise of SARs shall, in the aggregate, be equal to the
amount by which the Fair Market Value (on the date of surrender) of the shares
of Common Stock subject to the SARs exceeds the Exercise Price. If, on the date
when an SAR expires, the Exercise Price under such SAR is less than the Fair
Market Value on such date but any portion of such SAR has not been exercised or
surrendered, then such SAR shall automatically be deemed to be exercised as of
such date with respect to such portion.
5
<PAGE> 10
7.6 MODIFICATION OR ASSUMPTION OF SARS. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding SARs or may
accept the cancellation of outstanding SARs (whether granted by the Company or
by another issuer) in return for the grant of new SARs for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an SAR shall, without the consent
of the Optionee, alter or impair his or her rights or obligations under such
SAR.
ARTICLE VIII. RESTRICTED SHARES.
8.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Shares
under the Plan shall be evidenced by a Restricted Stock Agreement between the
recipient and the Company. Such Restricted Shares shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical.
8.2 PAYMENT FOR AWARDS. Subject to the following sentence,
Restricted Shares may be sold or awarded under the Plan for such consideration
as the Committee may determine, including (without limitation) cash, cash
equivalents, full-recourse promissory notes, past services and future services.
To the extent that an Award consists of newly issued Restricted Shares, the
consideration shall consist exclusively of cash, cash equivalents or past
services rendered to the Company (or a Parent or Subsidiary) or, for the amount
in excess of the par value of such newly issued Restricted Shares, full-recourse
promissory notes, as the Committee may determine.
8.3 VESTING CONDITIONS. Each Award of Restricted Shares may or
may not be subject to vesting. Vesting shall occur, in full or in installments,
upon satisfaction of the conditions specified in the Restricted Stock Agreement.
Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events.
8.4 VOTING AND DIVIDEND RIGHTS. The holders of Restricted Shares
awarded under the Plan shall have the same voting, dividend and other rights as
the Company's other stockholders. A Restricted Stock Agreement, however, may
require that the holders of Restricted Shares invest any cash dividends received
in additional Restricted Shares. Such additional Restricted Shares shall be
subject to the same conditions and restrictions as the Award with respect to
which the dividends were paid.
ARTICLE IX. STOCK UNITS.
9.1 STOCK UNIT AGREEMENT. Each grant of Stock Units under the
Plan shall be evidenced by a Stock Unit Agreement between the recipient and the
Company. Such Stock Units shall be subject to all applicable terms of the Plan
and may be subject to any other terms that are not inconsistent with the Plan.
The provisions of the various Stock Unit Agreements entered into under the Plan
need not be identical. Stock Units may be granted in consideration of a
reduction in the recipient's other compensation.
6
<PAGE> 11
9.2 PAYMENT FOR AWARDS. To the extent that an Award is granted in
the form of Stock Units, no cash consideration shall be required of the Award
recipients.
9.3 VESTING CONDITIONS. Each Award of Stock Units may or may not
be subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events.
9.4 VOTING AND DIVIDEND RIGHTS. The holders of Stock Units shall
have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded
under the Plan may, at the Committee's discretion, carry with it a right to
dividend equivalents. Such right entitles the holder to be credited with an
amount equal to all cash dividends paid on one Common Share while the Stock Unit
is outstanding. Dividend equivalents may be converted into additional Stock
Units. Settlement of dividend equivalents may be made in the form of cash, in
the form of shares of Common Stock, or in a combination of both. Prior to
distribution, any dividend equivalents which are not paid shall be subject to
the same conditions and restrictions as the Stock Units to which they attach.
9.5 FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of
vested Stock Units may be made in the form of (a) cash, (b) shares of Common
Stock or (c) any combination of both, as determined by the Committee. The actual
number of Stock Units eligible for settlement may be larger or smaller than the
number included in the original Award, based on predetermined performance
factors. Methods of converting Stock Units into cash may include (without
limitation) a method based on the average Fair Market Value of shares of Common
Stock over a series of trading days. Vested Stock Units may be settled in a lump
sum or in installments. The distribution may occur or commence when all vesting
conditions applicable to the Stock Units have been satisfied or have lapsed, or
it may be deferred to any later date. The amount of a deferred distribution may
be increased by an interest factor or by dividend equivalents. Until an Award of
Stock Units is settled, the number of such Stock Units shall be subject to
adjustment pursuant to Article 11.
9.6 DEATH OF RECIPIENT. Any Stock Units Award that becomes
payable after the recipient's death shall be distributed to the recipient's
beneficiary or beneficiaries. Each recipient of a Stock Units Award under the
Plan shall designate one or more beneficiaries for this purpose by filing the
prescribed form with the Company. A beneficiary designation may be changed by
filing the prescribed form with the Company at any time before the Award
recipient's death. If no beneficiary was designated or if no designated
beneficiary survives the Award recipient, then any Stock Units Award that
becomes payable after the recipient's death shall be distributed to the
recipient's estate.
9.7 CREDITORS' RIGHTS. A holder of Stock Units shall have no
rights other than those of a general creditor of the Company. Stock Units
represent an unfunded and unsecured obligation of the Company, subject to the
terms and conditions of the applicable Stock Unit Agreement.
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ARTICLE X. CHANGE IN CONTROL.
10.1 EFFECT OF CHANGE IN CONTROL. In the event of any Change in
Control, each outstanding Award shall automatically accelerate so that each such
Award shall, immediately prior to the effective date of the Change in Control,
become fully exercisable for all of the shares of Common Stock at the time
subject to such Award and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. However, an outstanding Award shall NOT so
accelerate if and to the extent such Award is, in connection with the Change in
Control, either to be assumed by the successor corporation (or parent thereof)
or to be replaced with a comparable Award for shares of the capital stock of the
successor corporation (or parent thereof). The determination of Award
comparability shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
ARTICLE XI. PROTECTION AGAINST DILUTION.
11.1 ADJUSTMENTS. In the event of a subdivision of the
outstanding shares of Common Stock, a declaration of a dividend payable in
shares of Common Stock, a declaration of a dividend payable in a form other than
shares of Common Stock in an amount that has a material affect on the price of
shares of Common Stock, a combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise) into a lesser number of
shares of Common Stock, a recapitalization, a spin-off or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of:
(a) The number of Options, SARs, Restricted Shares and Stock
Units available for future Awards under Article 3;
(b) The limitations set forth in Sections 5.2 and 7.2;
(c) The number of shares of Common Stock covered by each
outstanding Option and SAR;
(d) The Exercise Price under each outstanding Option and SAR;
or
(e) The number of Stock Units included in any prior Award
which has not yet been settled.
Except as provided in this Article 11, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
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11.2 DISSOLUTION OR LIQUIDATION. To the extent not previously
exercised or settled, Options, SARs and Stock Units shall terminate immediately
prior to the dissolution or liquidation of the Company.
11.3 REORGANIZATIONS. In the event that the Company is a party to
a merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for (a) the
continuation of the outstanding Awards by the Company, if the Company is a
surviving corporation, (b) the assumption of the outstanding Awards by the
surviving corporation or its parent or subsidiary, (c) the substitution by the
surviving corporation or its parent or subsidiary of its own awards for the
outstanding Awards, (d) full exercisability or vesting and accelerated
expiration of the outstanding Awards or (e) settlement of the full value of the
outstanding Awards in cash or cash equivalents followed by cancellation of such
Awards.
ARTICLE XII. DEFERRAL OF AWARDS.
The Committee (in its sole discretion) may permit or require a
Participant to:
(a) Have cash that otherwise would be paid to such Participant
as a result of the exercise of an SAR or the settlement of Stock Units credited
to a deferred compensation account established for such Participant by the
Committee as an entry on the Company's books;
(b) Have shares of Common Stock that otherwise would be
delivered to such Participant as a result of the exercise of an Option or SAR
converted into an equal number of Stock Units; or
(c) Have shares of Common Stock that otherwise would be
delivered to such Participant as a result of the exercise of an Option or SAR or
the settlement of Stock Units converted into amounts credited to a deferred
compensation account established for such Participant by the Committee as an
entry on the Company's books. Such amounts shall be determined by reference to
the Fair Market Value of such shares of Common Stock as of the date when they
otherwise would have been delivered to such Participant.
A deferred compensation account established under this Article 12 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Company. Such an account
shall represent an unfunded and unsecured obligation of the Company and shall be
subject to the terms and conditions of the applicable agreement between such
Participant and the Company. If the deferral or conversion of Awards is
permitted or required, the Committee (in its sole discretion) may establish
rules, procedures and forms pertaining to such Awards, including (without
limitation) the settlement of deferred compensation accounts established under
this Article 12.
ARTICLE XIII. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such
awards may be settled in the form of shares of Common Stock issued under this
Plan. Such shares of
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Common Stock shall be treated for all purposes under the Plan like shares of
Common Stock issued in settlement of Stock Units and shall, when issued, reduce
the number of shares of Common Stock available under Article 3.
ARTICLE XIV. PAYMENT OF FEES IN SECURITIES.
14.1 EFFECTIVE DATE. No provision of this Article 14 shall be
effective unless and until the Board has determined to implement such provision.
14.2 ELECTIONS TO RECEIVE NSOS, RESTRICTED SHARES OR STOCK UNITS.
An Outside Director may elect to receive his or her annual retainer payments or
meeting fees from the Company in the form of cash, NSOs, Restricted Shares or
Stock Units, or a combination thereof, as determined by the Board. Such NSOs,
Restricted Shares and Stock Units shall be issued under the Plan. An election
under this Article 14 shall be filed with the Company on the prescribed form.
14.3 NUMBER AND TERMS OF NSOS, RESTRICTED SHARES OR STOCK UNITS.
The number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers or meeting fees that would otherwise be
paid in cash shall be calculated in a manner determined by the Board. The Board
shall also determine the terms of such NSOs, Restricted Shares or Stock Units.
ARTICLE XV. LIMITATION ON RIGHTS.
15.1 RETENTION RIGHTS. Neither the Plan nor any Award granted
under the Plan shall be deemed to give any individual a right to remain an
Employee, Outside Director or Consultant. The Company and its Parents,
Subsidiaries and Affiliates reserve the right to terminate the service of any
Employee, Outside Director or Consultant at any time, with or without cause,
subject to applicable laws, the Company's certificate of incorporation and
by-laws and a written employment agreement (if any).
15.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend
rights, voting rights or other rights as a stockholder with respect to any
shares of Common Stock covered by his or her Award prior to the time when a
stock certificate for such shares of Common Stock is issued or, if applicable,
the time when he or she becomes entitled to receive such shares of Common Stock
by filing any required notice of exercise and paying any required Exercise
Price. No adjustment shall be made for cash dividends or other rights for which
the record date is prior to such time, except as expressly provided in the Plan.
15.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue shares of Common Stock
under the Plan shall be subject to all applicable laws, rules and regulations
and such approval by any regulatory body as may be required. The Company
reserves the right to restrict, in whole or in part, the delivery of shares of
Common Stock pursuant to any Award prior to the satisfaction of all legal
requirements relating to the issuance of such shares of Common Stock, to their
registration, qualification or listing or to an exemption from registration,
qualification or listing.
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ARTICLE XVI. WITHHOLDING TAXES.
16.1 GENERAL. To the extent required by applicable federal,
state, local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise in connection with the Plan. The Company shall not be
required to issue any shares of Common Stock or make any cash payment under the
Plan until such obligations are satisfied.
16.2 SHARE WITHHOLDING. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any shares of Common Stock that
otherwise would be issued to him or her or by surrendering all or a portion of
any shares of Common Stock that he or she previously acquired. Such shares of
Common Stock shall be valued at their Fair Market Value on the date when taxes
otherwise would be withheld in cash.
ARTICLE XVII. FUTURE OF THE PLAN.
17.1 TERM OF THE PLAN. The Plan, as set forth herein, shall
become effective the date of effectiveness of the IPO. The Plan shall remain in
effect until it is terminated under Section 17.2, except that no ISOs shall be
granted on or after the 10th anniversary of the later of (a) the date when the
Board adopted the Plan or (b) the date when the Board adopted the most recent
increase in the number of shares of Common Stock available under Article 3 which
was approved by the Company's stockholders. The Plan shall serve as the
successor to the Predecessor Plan, and no further option grants shall be made
under the Predecessor Plan after the Plan effective date. All options
outstanding under the Predecessor Plan as of such date shall, immediately upon
effectiveness of the Plan, be incorporated into the Plan and treated as
outstanding options under the Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the terms of the documents
evidencing such option, and no provision of the Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock, except that the vesting acceleration provisions of Article 10 relating to
Change in Control shall be extended to the options incorporated from the
Predecessor Plan.
17.2 AMENDMENT OR TERMINATION. The Board may, at any time and for
any reason, amend or terminate the Plan. An amendment of the Plan shall be
subject to the approval of the Company's stockholders only to the extent
required by applicable laws, regulations or rules. No Awards shall be granted
under the Plan after the termination thereof. The termination of the Plan, or
any amendment thereof, shall not affect any Award previously granted under the
Plan.
ARTICLE XVIII. LIMITATION ON PAYMENTS.
18.1 SCOPE OF LIMITATION. This Article 18 shall apply to an Award
only if:
(a) The independent auditors most recently selected by the
Board (the "Auditors") determine that the after-tax value of such Award to the
Participant, taking into account the effect of all federal, state and local
income taxes, employment taxes and excise taxes applicable to the Participant
(including the excise tax under section 4999 of the Code), will be
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greater after the application of this Article 18 than it was before the
application of this Article 18; or
(b) The Committee, at the time of making an Award under the
Plan or at any time thereafter, specifies in writing that such Award shall be
subject to this Article 18 (regardless of the after-tax value of such Award to
the Participant).
18.2 APPLICATION TO AWARD. If this Article 18 applies to an
Award, it shall supersede any contrary provision of the Plan or of any Award
granted under the Plan.
18.3 BASIC RULE. In the event that the Auditors determine that
any payment or transfer by the Company under the Plan to or for the benefit of a
Participant (a "Payment") would be nondeductible by the Company for federal
income tax purposes because of the provisions concerning "excess parachute
payments" in section 280G of the Code, then the aggregate present value of all
Payments shall be reduced (but not below zero) to the Reduced Amount. For
purposes of this Article 18, the "Reduced Amount" shall be the amount, expressed
as a present value, which maximizes the aggregate present value of the Payments
without causing any Payment to be nondeductible by the Company because of
section 280G of the Code.
18.4 REDUCTION OF PAYMENTS. If the Auditors determine that any
Payment would be nondeductible by the Company because of section 280G of the
Code, then the Company shall promptly give the Participant notice to that effect
and a copy of the detailed calculation thereof and of the Reduced Amount, and
the Participant may then elect, in his or her sole discretion, which and how
much of the Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Payments equals the Reduced Amount)
and shall advise the Company in writing of his or her election within 10 days of
receipt of notice. If no such election is made by the Participant within such
10-day period, then the Company may elect which and how much of the Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 18, present
value shall be determined in accordance with section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Article 18 shall be binding upon
the Company and the Participant and shall be made within 60 days of the date
when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.
18.5 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty
in the application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments will have
been made by the Company which should not have been made (an "Overpayment") or
that additional Payments which will not have been made by the Company could have
been made (an "Underpayment"), consistent in each case with the calculation of
the Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which
12
<PAGE> 17
he or she shall repay to the Company, together with interest at the applicable
federal rate provided in section 7872(f)(2) of the Code; provided, however, that
no amount shall be payable by the Participant to the Company if and to the
extent that such payment would not reduce the amount which is subject to
taxation under section 4999 of the Code. In the event that the Auditors
determine that an Underpayment has occurred, such Underpayment shall promptly be
paid or transferred by the Company to or for the benefit of the Participant,
together with interest at the applicable federal rate provided in section
7872(f)(2) of the Code.
18.6 RELATED CORPORATIONS. For purposes of this Article 18, the
term "Company" shall include affiliated corporations to the extent determined by
the Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE XIX. DEFINITIONS.
19.1 "AFFILIATE" means any entity other than a Subsidiary, if the
Company and/or one or more Subsidiaries own not less than 50% of such entity.
19.2 "AWARD" means any award of an Option, an SAR, a Restricted
Share or a Stock Unit under the Plan.
19.3 "BOARD" means the Company's Board of Directors, as
constituted from time to time.
19.4 "CHANGE IN CONTROL" shall mean:
(a) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate reorganization, if
persons who were not stockholders of the Company immediately prior to such
merger, consolidation or other reorganization own immediately after such merger,
consolidation or other reorganization 50% or more of the voting power of the
outstanding securities of each of (i) the continuing or surviving entity and
(ii) any direct or indirect parent corporation of such continuing or surviving
entity;
(b) The sale, transfer or other disposition of all or
substantially all of the Company's assets;
(c) A change in the composition of the Board, as a result of
which fewer than 50% of the incumbent directors are directors who either (i) had
been directors of the Company on the date 24 months prior to the date of the
event that may constitute a Change in Control (the "original directors") or (ii)
were elected, or nominated for election, to the Board with the affirmative votes
of at least a majority of the aggregate of the original directors who were still
in office at the time of the election or nomination and the directors whose
election or nomination was previously so approved; or
(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing at least 50% of the
total voting power represented by the Company's then outstanding voting
securities. For purposes of this Paragraph (d), the term "person" shall have the
same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but
shall
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exclude (i) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or of a Parent or Subsidiary and (ii) a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of the common stock of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
19.5 "CODE" means the Internal Revenue Code of 1986, as amended.
19.6 "COMMITTEE" means a committee of the Board, as described in
Article 2.
19.7 "COMMON STOCK" means the common stock of the Company.
19.8 "COMPANY" means Quintus Corporation, a Delaware corporation.
19.9 "CONSULTANT" means a consultant or adviser who provides bona
fide services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.
19.10 "EMPLOYEE" means a common-law employee of the Company, a
Parent, a Subsidiary or an Affiliate.
19.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
19.12 "EXERCISE PRICE," in the case of an Option, means the
amount for which one Common Share may be purchased upon exercise of such Option,
as specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
19.13 "FAIR MARKET VALUE" means the market price of one share of
Common Stock, determined by the Committee in good faith on such basis as it
deems appropriate. Whenever possible, the determination of Fair Market Value by
the Committee shall be based on the prices reported in The Wall Street Journal.
Such determination shall be conclusive and binding on all persons.
19.14 "INVOLUNTARY TERMINATION" means the termination of the
Service of any individual which occurs by reason of:
(a) such individual's involuntary dismissal or discharge by
the Company for reasons other than Misconduct, or
(b) such individual's voluntary resignation following (a) a
change in his or her position with the Company which materially reduces his or
her level of responsibility,
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(b) a reduction in his or her level of compensation (including base salary,
fringe benefits and participation in bonus or incentive programs) or (C) a
relocation of such individual's place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is effected by
the Company without the individual's consent.
19.15 "ISO" means an incentive stock option described in section
422(b) of the Code.
19.16 "MISCONDUCT" means the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Company (or any Parent or Subsidiary), or any other intentional misconduct by
such person adversely affecting the business or affairs of the Company (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Company (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee or Participant or other person in the Service of the Company (or
any Parent or Subsidiary).
19.17 "NSO" means a stock option not described in sections 422 or
423 of the Code.
19.18 "OPTION" means an ISO or NSO granted under the Plan and
entitling the holder to purchase shares of Common Stock.
19.19 "OPTIONEE" means an individual or estate who holds an
Option or SAR.
19.20 "OUTSIDE DIRECTOR" shall mean a member of the Board who is
not an Employee. Service as an Outside Director shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.
19.21 "PARENT" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
19.22 "PARTICIPANT" means an individual or estate who holds an
Award.
19.23 "PLAN" means this Quintus Corporation 1999 Stock Incentive
Plan, as amended from time to time.
19.24 "PREDECESSOR PLAN" means the Company's existing 1995 Stock
Option Plan.
19.25 "RESTRICTED SHARE" means a Common Share awarded under the
Plan.
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19.26 "RESTRICTED STOCK AGREEMENT" means the agreement between
the Company and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Share.
19.27 "SAR" means a stock appreciation right granted under the
Plan.
19.28 "SAR AGREEMENT" means the agreement between the Company and
an Optionee which contains the terms, conditions and restrictions pertaining to
his or her SAR.
19.29 "STOCK OPTION AGREEMENT" means the agreement between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.
19.30 "STOCK UNIT" means a bookkeeping entry representing the
equivalent of one Common Share, as awarded under the Plan.
19.31 "STOCK UNIT AGREEMENT" means the agreement between the
Company and the recipient of a Stock Unit which contains the terms, conditions
and restrictions pertaining to such Stock Unit.
19.32 "SUBSIDIARY" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
16
<PAGE> 1
EXHIBIT 10.4
QUINTUS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
(AS ADOPTED SEPTEMBER 9, 1999)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. PURPOSE OF THE PLAN..........................................................1
SECTION 2. ADMINISTRATION OF THE PLAN...................................................1
(a) Committee Composition........................................................1
(b) Committee Responsibilities...................................................1
SECTION 3. ENROLLMENT AND PARTICIPATION.................................................1
(a) Offering Periods.............................................................1
(b) Accumulation Periods.........................................................1
(c) Enrollment...................................................................1
(d) Duration of Participation....................................................2
(e) Applicable Offering Period...................................................2
SECTION 4. EMPLOYEE CONTRIBUTIONS.......................................................2
(a) Frequency of Payroll Deductions..............................................2
(b) Amount of Payroll Deductions.................................................2
(c) Changing Withholding Rate....................................................3
(d) Discontinuing Payroll Deductions.............................................3
(e) Limit on Number of Elections.................................................3
SECTION 5. WITHDRAWAL FROM THE PLAN.....................................................3
(a) Withdrawal...................................................................3
(b) Re-Enrollment After Withdrawal...............................................3
SECTION 6. CHANGE IN EMPLOYMENT STATUS..................................................3
(a) Termination of Employment....................................................3
(b) Leave of Absence.............................................................4
(c) Death........................................................................4
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.........................................4
(a) Plan Accounts................................................................4
(b) Purchase Price...............................................................4
(c) Number of Shares Purchased...................................................4
(d) Available Shares Insufficient................................................5
(e) Issuance of Stock............................................................5
(f) Unused Cash Balances.........................................................5
(g) Stockholder Approval.........................................................5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP...............................................5
(a) Five Percent Limit...........................................................5
(b) Dollar Limit.................................................................6
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 9. RIGHTS NOT TRANSFERABLE......................................................6
SECTION 10. NO RIGHTS AS AN EMPLOYEE.....................................................7
SECTION 11. NO RIGHTS AS A STOCKHOLDER...................................................7
SECTION 12. SECURITIES LAW REQUIREMENTS..................................................7
SECTION 13. STOCK OFFERED UNDER THE PLAN.................................................7
(a) Authorized Shares............................................................7
(b) Anti-Dilution Adjustments....................................................7
(c) Reorganizations..............................................................8
SECTION 14. AMENDMENT OR DISCONTINUANCE..................................................8
SECTION 15. DEFINITIONS..................................................................8
(a) Accumulation Period..........................................................8
(b) Board........................................................................8
(c) Code.........................................................................8
(d) Committee....................................................................8
(e) Company......................................................................8
(f) Compensation.................................................................8
(g) Corporate Reorganization.....................................................9
(h) Eligible Employee............................................................9
(i) Exchange Act.................................................................9
(j) Fair Market Value............................................................9
(k) IPO..........................................................................9
(l) Offering Period.............................................................10
(m) Participant.................................................................10
(n) Participating Company.......................................................10
(o) Plan........................................................................10
(p) Plan Account................................................................10
(q) Purchase Price..............................................................10
(r) Stock.......................................................................10
(s) Subsidiary..................................................................10
</TABLE>
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<PAGE> 4
QUINTUS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board effective as of the date of the IPO.
The purpose of the Plan is to provide Eligible Employees with an opportunity to
increase their proprietary interest in the success of the Company by purchasing
Stock from the Company on favorable terms and to pay for such purchases through
payroll deductions. The Plan is intended to qualify under section 423 of the
Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Company, who shall be appointed by the Board.
(b) COMMITTEE RESPONSIBILITIES. The Committee shall interpret the Plan
and make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) OFFERING PERIODS. While the Plan is in effect, two overlapping
Offering Periods shall commence in each calendar year. The Offering Periods
shall consist of the 24-month periods commencing on each May 1 and November 1,
except that the first Offering Period shall commence on the date of the IPO and
end on October 31, 2001.
(b) ACCUMULATION PERIODS. While the Plan is in effect, two Accumulation
Periods shall commence in each calendar year. The Accumulation Periods shall
consist of the six-month periods commencing on each May 1 and November 1, except
that the first Accumulation Period shall commence on the date of the IPO and end
on April 30, 2000.
(c) ENROLLMENT. Any individual who, on the day preceding the first day
of an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Company at the prescribed location on or before the start date of
such Offering Period.
(d) DURATION OF PARTICIPATION. Once enrolled in the Plan, a Participant
shall continue to participate in the Plan until he or she ceases to be an
Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end
of the Accumulation Period in which his or her employee contributions were
discontinued under Section 4(d) or 8(b). A Participant who
<PAGE> 5
discontinued employee contributions under Section 4(d) or withdrew from the Plan
under Section 5(a) may again become a Participant, if he or she then is an
Eligible Employee, by following the procedure described in Subsection (c) above.
A Participant whose employee contributions were discontinued automatically under
Section 8(b) shall automatically resume participation at the beginning of the
earliest Accumulation Period ending in the next calendar year, if he or she then
is an Eligible Employee.
(e) APPLICABLE OFFERING PERIOD. For purposes of calculating the Purchase
Price under Section 7(b), the applicable Offering Period shall be determined as
follows:
(i) Once a Participant is enrolled in the Plan for an Offering
Period, such Offering Period shall continue to apply to him or her until
the earliest of (A) the end of such Offering Period, (B) the end of his
or her participation under Subsection (d) above or (C) re-enrollment for
a subsequent Offering Period under Paragraph (ii) or (iii) below.
(ii) In the event that the Fair Market Value of Stock on the
last trading day before the commencement of the Offering Period for
which the Participant is enrolled is higher than on the last trading day
before the commencement of any subsequent Offering Period, the
Participant shall automatically be re-enrolled for such subsequent
Offering Period.
(iii) Any other provision of the Plan notwithstanding, the
Company (at its sole discretion) may determine prior to the commencement
of any new Offering Period that all Participants shall be re-enrolled
for such new Offering Period.
(iv) When a Participant reaches the end of an Offering Period
but his or her participation is to continue, then such Participant shall
automatically be re-enrolled for the Offering Period that commences
immediately after the end of the prior Offering Period.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase shares
of Stock under the Plan solely by means of payroll deductions. Payroll
deductions, as designated by the Participant pursuant to Subsection (b) below,
shall occur on each payday during participation in the Plan.
(b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall designate
on the enrollment form the portion of his or her Compensation that he or she
elects to have withheld for the purchase of Stock. Such portion shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% nor
more than 15%.
(c) CHANGING WITHHOLDING RATE. If a Participant wishes to change the
rate of payroll withholding, he or she may do so by filing a new enrollment form
with the Company at the prescribed location at any time. The new withholding
rate shall be effective as soon as
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<PAGE> 6
reasonably practicable after such form has been received by the Company. The new
withholding rate shall be a whole percentage of the Eligible Employee's
Compensation, but not less than 1% nor more than 15%.
(d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Company at the prescribed location at any time. Payroll
withholding shall cease as soon as reasonably practicable after such form has
been received by the Company. (In addition, employee contributions may be
discontinued automatically pursuant to Section 8(b).) A Participant who has
discontinued employee contributions may resume such contributions by filing a
new enrollment form with the Company at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Company.
(e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more than 2
elections under Subsection (c) or (d) above during any Accumulation Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) WITHDRAWAL. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Company at the prescribed location at any
time before the last day of an Accumulation Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) TERMINATION OF EMPLOYMENT. Termination of employment as an Eligible
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 5(a). (A transfer from one Participating
Company to another shall not be treated as a termination of employment.)
(b) LEAVE OF ABSENCE. For purposes of the Plan, employment shall not be
deemed to terminate when the Participant goes on a military leave, a sick leave
or another bona fide leave of absence, if the leave was approved by the Company
in writing. Employment, however, shall be deemed to terminate 90 days after the
Participant goes on a leave, unless a contract or statute guarantees his or her
right to return to work. Employment shall be deemed to terminate in any event
when the approved leave ends, unless the Participant immediately returns to
work.
(c) DEATH. In the event of the Participant's death, the amount credited
to his or her Plan Account shall be paid to a beneficiary designated by him or
her for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Company at the
prescribed location before the Participant's death.
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<PAGE> 7
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) PLAN ACCOUNTS. The Company shall maintain a Plan Account on its
books in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. Amounts credited to Plan Accounts shall not be trust
funds and may be commingled with the Company's general assets and applied to
general corporate purposes. No interest shall be credited to Plan Accounts.
(b) PURCHASE PRICE. The Purchase Price for each share of Stock purchased
at the close of an Accumulation Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last
trading day in such Accumulation Period; or
(ii) 85% of the Fair Market Value of such share on the last
trading day before the commencement of the applicable Offering Period
(as determined under Section 3(e)) or, in the case of the first Offering
Period under the Plan, the lower of: (A) 85% of the price at which one
share of Stock is offered to the public in the IPO; or (B) 85% of the
Fair Market Value of such share on the purchase date.
(c) NUMBER OF SHARES PURCHASED. As of the last day of each Accumulation
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Stock calculated in accordance with this Subsection (c), unless the
Participant has previously elected to withdraw from the Plan in accordance with
Section 5(a). The amount then in the Participant's Plan Account shall be divided
by the Purchase Price, and the number of shares that results shall be purchased
from the Company with the funds in the Participant's Plan Account. The foregoing
notwithstanding, no Participant shall purchase more than 2000 shares of Stock
with respect to any Accumulation Period nor more than the amounts of Stock set
forth in Sections 8(b) and 13(a). The Committee may determine with respect to
all Participants that any fractional share, as calculated under this Subsection
(c), shall be (i) rounded down to the next lower whole share or (ii) credited as
a fractional share.
(d) AVAILABLE SHARES INSUFFICIENT. In the event that the aggregate
number of shares that all Participants elect to purchase during an Accumulation
Period exceeds the maximum number of shares remaining available for issuance
under Section 13(a), then the number of shares to which each Participant is
entitled shall be determined by multiplying the number of shares available for
issuance by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
(e) ISSUANCE OF STOCK. Certificates representing the shares of Stock
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the close of the applicable Accumulation Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be
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<PAGE> 8
registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property.
(f) UNUSED CASH BALANCES. An amount remaining in the Participant's Plan
Account that represents the Purchase Price for any fractional share shall be
carried over in the Participant's Plan Account to the next Accumulation Period.
Any amount remaining in the Participant's Plan Account that represents the
Purchase Price for whole shares that could not be purchased by reason of
Subsection (c) above, Section 8(b) or Section 13(a) shall be refunded to the
Participant in cash, without interest.
(g) STOCKHOLDER APPROVAL. Any other provision of the Plan
notwithstanding, no shares of Stock shall be purchased under the Plan unless and
until the Company's stockholders have approved the adoption of the Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) FIVE PERCENT LIMIT. Any other provision of the Plan notwithstanding,
no Participant shall be granted a right to purchase Stock under the Plan if such
Participant, immediately after his or her election to purchase such Stock, would
own stock possessing more than 5% of the total combined voting power or value of
all classes of stock of the Company or any parent or Subsidiary of the Company.
For purposes of this Subsection (a), the following rules shall apply:
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he
or she has a right or option to purchase under this or any other plan;
and
(iii) Each Participant shall be deemed to have the right to
purchase 2000 shares of Stock under this Plan with respect to each
Accumulation Period.
(b) DOLLAR LIMIT. Any other provision of the Plan notwithstanding, no
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:
(i) In the case of Stock purchased during an Offering Period
that commenced in the current calendar year, the limit shall be equal to
(A) $25,000 minus (B) the Fair Market Value of the Stock that the
Participant previously purchased in the current calendar year (under
this Plan and all other employee stock purchase plans of the Company or
any parent or Subsidiary of the Company).
(ii) In the case of Stock purchased during an Offering Period
that commenced in the immediately preceding calendar year, the limit
shall be equal to (A) $50,000 minus (B) the Fair Market Value of the
Stock that the Participant previously purchased (under this Plan and all
other employee stock purchase
5
<PAGE> 9
plans of the Company or any parent or Subsidiary of the Company) in the
current calendar year and in the immediately preceding calendar year.
(iii) In the case of Stock purchased during an Offering Period
that commenced in the second preceding calendar year, the limit shall be
equal to (A) $75,000 minus (B) the Fair Market Value of the Stock that
the Participant previously purchased (under this Plan and all other
employee stock purchase plans of the Company or any parent or Subsidiary
of the Company) in the current calendar year and in the two preceding
calendar years.
For purposes of this Subsection (b), the Fair Market Value of Stock shall be
determined in each case as of the beginning of the Offering Period in which such
Stock is purchased. Employee stock purchase plans not described in section 423
of the Code shall be disregarded. If a Participant is precluded by this
Subsection (b) from purchasing additional Stock under the Plan, then his or her
employee contributions shall automatically be discontinued and shall resume at
the beginning of the earliest Accumulation Period ending in the next calendar
year (if he or she then is an Eligible Employee).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's
interest in any Stock or moneys to which he or she may be entitled under the
Plan, shall not be transferable by voluntary or involuntary assignment or by
operation of law, or in any other manner other than by beneficiary designation
or the laws of descent and distribution. If a Participant in any manner attempts
to transfer, assign or otherwise encumber his or her rights or interest under
the Plan, other than by beneficiary designation or the laws of descent and
distribution, then such act shall be treated as an election by the Participant
to withdraw from the Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Company for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Companies or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares of Stock that he or she may have a right to purchase under the Plan until
such shares have been purchased on the last day of the applicable Accumulation
Period.
SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Stock shall not be issued under the Plan unless the issuance
and delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including
6
<PAGE> 10
(without limitation) the Securities Act of 1933, as amended, the rules and
regulations promulgated thereunder, state securities laws and regulations, and
the regulations of any stock exchange or other securities market on which the
Company's securities may then be traded.
SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) AUTHORIZED SHARES. The number of shares of Stock available for
purchase under the Plan shall be 1,000,000 (subject to adjustment pursuant to
this Section 13). On May 1 of each year, commencing with May 1, 2000, the
aggregate number of shares of Stock available for purchase during the life of
the Plan shall automatically be increased by a number equal to the lesser of:
(i) 2% of the then-outstanding number of Common Shares; or (ii) 1,000,000 shares
(subject to adjustment pursuant to this Section 13).
(b) ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares of Stock
offered under the Plan, the 1,000,000-share limitation described in Section
7(c), the 1,000,000-share limitation described in Section 13(a), and the price
of shares that any Participant has elected to purchase shall be adjusted
proportionately by the Committee for any increase or decrease in the number of
outstanding shares of Stock resulting from a subdivision or consolidation of
shares or the payment of a stock dividend, any other increase or decrease in
such shares effected without receipt or payment of consideration by the Company,
the distribution of the shares of a Subsidiary to the Company's stockholders or
a similar event.
(c) REORGANIZATIONS. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period and Accumulation Period then in progress shall terminate and
shares shall be purchased pursuant to Section 7, unless the Plan is continued or
assumed by the surviving corporation or its parent corporation. The Plan shall
in no event be construed to restrict in any way the Company's right to undertake
a dissolution, liquidation, merger, consolidation or other reorganization.
SECTION 14. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan
at any time and without notice. The Company's Chief Executive Officer may also
amend the Plan in certain respects. Except as provided in Section 13, any
increase in the aggregate number of shares of Stock to be issued under the Plan
shall be subject to approval by a vote of the stockholders of the Company. In
addition, any other amendment of the Plan shall be subject to approval by a vote
of the stockholders of the Company to the extent required by an applicable law
or regulation.
SECTION 15. DEFINITIONS.
(a) "ACCUMULATION PERIOD" means a six-month period during which
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 3(b).
(b) "BOARD" means the Board of Directors of the Company, as constituted
from time to time.
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(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of the Board, as described in Section
2.
(e) "COMPANY" means Quintus Corporation, a Delaware corporation.
(f) "COMPENSATION" means (i) the total compensation paid in cash to a
Participant by a Participating Company, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.
(g) "CORPORATE REORGANIZATION" means:
(i) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets or the complete liquidation or
dissolution of the Company.
(h) "ELIGIBLE EMPLOYEE" means any employee of a Participating Company
who meets both of the following requirements:
(i) His or her customary employment is for more than five months
per calendar year and for more than 20 hours per week; and
(ii) He or she has been an employee of a Participating Company
for not less than five consecutive months.
The foregoing notwithstanding, an individual shall not be considered an Eligible
Employee if his or her participation in the Plan is prohibited by the law of any
country which has jurisdiction over him or her or if he or she is subject to a
collective bargaining agreement that does not provide for participation in the
Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(j) "FAIR MARKET VALUE" means the market price of Stock, determined by
the Committee as follows:
(i) If the Stock was traded on The Nasdaq National Market on the
date in question, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by The Nasdaq National
Market;
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(ii) If the Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date;
or
(iii) If none of the foregoing provisions is applicable, then
the Fair Market Value shall be determined by the Committee in good faith
on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal or as reported
directly to the Company by Nasdaq or a stock exchange. Such determination shall
be conclusive and binding on all persons.
(k) "IPO" means the initial offering of Stock to the public pursuant to
a registration statement filed by the Company with the Securities and Exchange
Commission.
(l) "OFFERING PERIOD" means a 24-month period with respect to which the
right to purchase Stock may be granted under the Plan, as determined pursuant to
Section 3(a).
(m) "PARTICIPANT" means an Eligible Employee who elects to participate
in the Plan, as provided in Section 3(c).
(n) "PARTICIPATING COMPANY" means (i) the Company and (ii) each present
or future Subsidiary designated by the Committee as a Participating Company.
(o) "PLAN" means this Quintus Corporation Employee Stock Purchase Plan,
as it may be amended from time to time.
(p) "PLAN ACCOUNT" means the account established for each Participant
pursuant to Section 7(a).
(q) "PURCHASE PRICE" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 7(b).
(r) "STOCK" means the Common Stock of the Company.
(s) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
9
<PAGE> 1
EXHIBIT 10.5
QUINTUS CORPORATION
1999 DIRECTOR OPTION PLAN
(AS ADOPTED SEPTEMBER 9, 1999)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. INTRODUCTION.....................................................................1
ARTICLE 2. ADMINISTRATION...................................................................1
2.1 Committee Composition...........................................................1
2.2 Committee Responsibilities......................................................1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS......................................................1
3.1 Basic Limitation................................................................1
3.2 Additional Shares...............................................................1
ARTICLE 4. AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS................................2
4.1 Eligibility.....................................................................2
4.2 Initial Grants..................................................................2
4.3 Annual Grants...................................................................2
4.4 Accelerated Exercisability......................................................2
4.5 Exercise Price..................................................................2
4.6 Term............................................................................2
4.7 Affiliates of Non-Employee Directors............................................2
4.8 Stock Option Agreement..........................................................2
ARTICLE 5. PAYMENT FOR OPTION SHARES........................................................3
5.1 Cash............................................................................3
5.2 Surrender of Stock..............................................................3
5.3 Exercise/Sale...................................................................3
5.4 Other Forms of Payment..........................................................3
ARTICLE 6. PROTECTION AGAINST DILUTION......................................................3
6.1 Adjustments.....................................................................3
6.2 Dissolution or Liquidation......................................................3
6.3 Reorganizations.................................................................3
ARTICLE 7. LIMITATION ON RIGHTS.............................................................4
7.1 Stockholders' Rights............................................................4
7.2 Regulatory Requirements.........................................................4
7.3 Withholding Taxes...............................................................4
ARTICLE 8. FUTURE OF THE PLAN...............................................................4
8.1 Term of the Plan................................................................4
8.2 Amendment or Termination........................................................4
ARTICLE 9. DEFINITIONS......................................................................4
</TABLE>
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<PAGE> 3
QUINTUS CORPORATION
1999 DIRECTOR OPTION PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board on August __, 1999 to be
effective at the effectiveness of the IPO. The purpose of the Plan is to promote
the long-term success of the Company and the creation of stockholder value by
(a) encouraging Non-Employee Directors to focus on critical long-range
objectives, (b) encouraging the attraction and retention of Non-Employee
Directors with exceptional qualifications and (c) linking Non-Employee Directors
directly to stockholder interests through increased stock ownership. The Plan
seeks to achieve this purpose by providing for automatic and non-discretionary
grants of Options to Non-Employee Directors.
The Plan shall be governed by, and construed in accordance with,
the laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1. COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy such requirements as the Securities and Exchange
Commission may establish for administrators acting under plans intended to
qualify for exemption under Rule 16b-3 (or its successor) under the Exchange
Act.
2.2. COMMITTEE RESPONSIBILITIES. The Committee shall interpret the Plan
and make all decisions relating to the operation of the Plan. The Committee may
adopt such rules or guidelines as it deems appropriate to implement the Plan.
The Committee's determinations under the Plan shall be final and binding on all
persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Common Shares subject to Options granted under the Plan shall not exceed (a)
250,000 plus (b) the additional Common Shares described in Section 3.2. The
limitations of this Section 3.1 shall be subject to adjustment pursuant to
Article 6.
3.2. ADDITIONAL SHARES. If Options are forfeited or terminate for any
other reason before being exercised, then the Common Shares subject to such
Options shall again become available for the grant of Options under the Plan.
<PAGE> 4
ARTICLE 4. AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.
4.1. ELIGIBILITY. Only Non-Employee Directors shall be eligible for the
grant of Options under the Plan.
4.2. INITIAL GRANTS. Each Non-Employee Director who first becomes a
member of the Board after the date of the IPO shall receive a one-time grant of
an Option covering 30,000 Common Shares (subject to adjustment under Article 6).
Such Option shall be granted on the date when such Non-Employee Director first
joins the Board and shall become exercisable for the shares in 24 equal monthly
installments from the date of grant. A Non-Employee Director who previously was
an Employee shall not receive a grant under this Section 4.2.
4.3. ANNUAL GRANTS. Upon the conclusion of each regular annual meeting
of the Company's stockholders held in the year 2000 or thereafter, each
Non-Employee Director who will continue serving as a member of the Board
thereafter shall receive an Option covering 10,000 Common Shares (subject to
adjustment under Article 6), except that such Option shall not be granted in the
calendar year in which the same Non-Employee Director received the Option
described in Section 4.2. Options granted under this Section 4.3 shall become
exercisable in full on the first anniversary of the date of grant. A
Non-Employee Director who previously was an Employee shall be eligible to
receive grants under this Section 4.3.
4.4. ACCELERATED EXERCISABILITY. All Options granted to a Non-Employee
Director under this Article 4 shall also become exercisable in full in the event
of:
(a) The termination of such Non-Employee Director's service
because of death or total and permanent disability; or
(b) A Change in Control with respect to the Company.
4.5. EXERCISE PRICE. The Exercise Price under all Options granted to a
Non-Employee Director under this Article 4 shall be equal to 100% of the Fair
Market Value of a Common Share on the date of grant, payable in one of the forms
described in Article 5.
4.6. TERM. All Options granted to a Non-Employee Director under this
Article 4 shall terminate on the earliest of (a) the 10th anniversary of the
date of grant, (b) the date 12 months after the termination of such Non-Employee
Director's service for any reason.
4.7. AFFILIATES OF NON-EMPLOYEE DIRECTORS. The Committee may provide
that the Options that otherwise would be granted to a Non-Employee Director
under this Article 4 shall instead be granted to an affiliate of such
Non-Employee Director. Such affiliate shall then be deemed to be a Non-Employee
Director for purposes of the Plan, provided that the service-related vesting and
termination provisions pertaining to the Options shall be applied with regard to
the service of the Non-Employee Director.
4.8. STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option
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<PAGE> 5
shall be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan.
ARTICLE 5. PAYMENT FOR OPTION SHARES.
5.1. CASH. All or any part of the Exercise Price may be paid in cash or
cash equivalents.
5.2. SURRENDER OF STOCK. All or any part of the Exercise Price may be
paid by surrendering, or attesting to the ownership of, Common Shares that are
already owned by the Optionee. Such Common Shares shall be valued at their Fair
Market Value on the date when the new Common Shares are purchased under the
Plan. The Optionee shall not surrender, or attest to the ownership of, Common
Shares in payment of the Exercise Price if such action would cause the Company
to recognize compensation expense (or additional compensation expense) with
respect to the Option for financial reporting purposes.
5.3. EXERCISE/SALE. All or any part of the Exercise Price and any
withholding taxes may be paid by delivering (on a form prescribed by the
Company) an irrevocable direction to a securities broker approved by the Company
to sell all or part of the Common Shares being purchased under the Plan and to
deliver all or part of the sales proceeds to the Company.
5.4. OTHER FORMS OF PAYMENT. At the sole discretion of the Committee,
all or any part of the Exercise Price and any withholding taxes may be paid in
any other form that is consistent with applicable laws, regulations and rules.
ARTICLE 6. PROTECTION AGAINST DILUTION.
6.1. ADJUSTMENTS. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares, a combination
or consolidation of the outstanding Common Shares (by reclassification or
otherwise) into a lesser number of Common Shares, a recapitalization, a spin-off
or a similar occurrence, the Committee shall make such adjustments as it, in its
sole discretion, deems appropriate in one or more of (a) the number of Common
Shares available for future grants under Article 3, (b) the number of Options to
be granted to Non-Employee Directors under Article 4, (c) the number of Common
Shares covered by each outstanding Option or (d) the Exercise Price under each
outstanding Option. Except as provided in this Article 6, an Optionee shall have
no rights by reason of any issue by the Company of stock of any class or
securities convertible into stock of any class, any subdivision or consolidation
of shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class.
6.2. DISSOLUTION OR LIQUIDATION. To the extent not previously exercised,
Options shall terminate immediately prior to the dissolution or liquidation of
the Company.
6.3. REORGANIZATIONS. In the event that the Company is a party to a
merger or other reorganization, outstanding Options shall be subject to the
agreement of merger or
3
<PAGE> 6
reorganization. Such agreement shall provide for (a) the continuation of the
outstanding Options by the Company, if the Company is a surviving corporation,
(b) the assumption of the outstanding Options by the surviving corporation or
its parent or subsidiary, (c) the substitution by the surviving corporation or
its parent or subsidiary of its own options for the outstanding Options, (d)
full exercisability and accelerated expiration of the outstanding Options or (e)
settlement of the full value of the outstanding Options in cash or cash
equivalents followed by cancellation of such Options.
ARTICLE 7. LIMITATION ON RIGHTS.
7.1. STOCKHOLDERS' RIGHTS. An Optionee shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Option prior to the time when he or she becomes entitled
to receive such Common Shares by filing a notice of exercise and paying the
Exercise Price. No adjustment shall be made for cash dividends or other rights
for which the record date is prior to such time, except as expressly provided in
the Plan.
7.2 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Option prior to the satisfaction of all legal requirements relating to
the issuance of such Common Shares, to their registration, qualification or
listing or to an exemption from registration, qualification or listing.
7.3. WITHHOLDING TAXES. To the extent required by applicable federal,
state, local or foreign law, an Optionee or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
ARTICLE 8. FUTURE OF THE PLAN.
8.1. TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on effectiveness of the IPO. The Plan shall remain in effect until it
is terminated under Section 8.2.
8.2. AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Options shall be granted under the
Plan after the termination thereof. The termination of the Plan, or any
amendment thereof, shall not affect any Option previously granted under the
Plan.
ARTICLE 9. DEFINITIONS.
9.1. "BOARD" means the Company's Board of Directors, as constituted from
time to time.
4
<PAGE> 7
9.2. "CHANGE IN CONTROL" means:
(a) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization, if
persons who were not stockholders of the Company immediately prior to
such merger, consolidation or other reorganization own immediately after
such merger, consolidation or other reorganization 50% or more of the
voting power of the outstanding securities of each of (i) the continuing
or surviving entity and (ii) any direct or indirect parent corporation
of such continuing or surviving entity;
(b) The sale, transfer or other disposition of all or
substantially all of the Company's assets;
(c) A change in the composition of the Board, as a result of
which fewer than 50% of the incumbent directors are directors who either
(i) had been directors of the Company on the date 24 months prior to the
date of the event that may constitute a Change in Control (the "original
directors") or (ii) were elected, or nominated for election, to the
Board with the affirmative votes of at least a majority of the aggregate
of the original directors who were still in office at the time of the
election or nomination and the directors whose election or nomination
was previously so approved; or
(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing at
least 50% of the total voting power represented by the Company's then
outstanding voting securities. For purposes of this Subsection (d), the
term "person" shall have the same meaning as when used in sections 13(d)
and 14(d) of the Exchange Act but shall exclude (i) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or of a Parent or Subsidiary and (ii) a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of the common
stock of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
9.3. "CODE" means the Internal Revenue Code of 1986, as amended.
9.4. "COMMITTEE" means a committee of the Board, as described in Article
2.
9.5. "COMMON SHARE" means one share of the common stock of the Company.
9.6. "COMPANY" means Quintus Corporation, a Delaware corporation.
9.7. "EMPLOYEE" means a common-law employee of the Company, a Parent or
a Subsidiary.
5
<PAGE> 8
9.8. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
9.9. "EXERCISE PRICE" means the amount for which one Common Share may be
purchased upon exercise of such Option, as specified in the applicable Stock
Option Agreement.
9.10. "FAIR MARKET VALUE" means the market price of Common Shares,
determined by the Committee in good faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal. Such determination
shall be conclusive and binding on all persons.
9.11. "IPO" means the initial offering of common stock of the Company to
the public pursuant to a registration statement filed by the Company with the
Securities and Exchange Commission.
9.12. "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an
Employee.
9.13. "OPTION" means an option granted under the Plan and entitling the
holder to purchase Common Shares. Options do not qualify as incentive stock
options described in section 422(b) of the Code.
9.14. "OPTIONEE" means an individual or estate who holds an Option.
9.15. "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
9.16. "PLAN" means this Quintus Corporation 1999 Director Option Plan,
as amended from time to time.
9.17. "STOCK OPTION AGREEMENT" means the agreement between the Company
and an Optionee that contains the terms, conditions and restrictions pertaining
to his or her Option.
9.18. "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
6
<PAGE> 1
EXHIBIT 10.6
LIGHT INDUSTRIAL LEASE
between
Teachers Insurance and Annuity
Association of America
("Lessor")
and
Quintus, Inc.
("Lessee")
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C> <C>
1 BASIC LEASE TERMS 1
1.1 Commencement of Lease 1
1.2 Lease Term 1
1.3 Monthly Rent 1
1.4 Lessee's Pro Rata Share 1
1.5 Security Deposit 2
1.6 Use 2
2 PREMISES 2
2.1 Description 2
2.2 Possession 2
2.3 Early Entry 2
2.4 Condition of Premises 2
3 TERM 3
3.1 Term 3
3.2 Delay in Commencement 3
4 RENT 3
4.1 Monthly Rent 3
4.2 Mode of Payment 3
4.3 Late Charges 3
4.4 Security Deposit 4
5 TAXES 4
5.1 Real Property Taxes 4
5.2 Personal Property Taxes 5
6 INSURANCE 5
6.1 Property Rental Insurance - Premises 5
6.2 Property Insurance - Fixtures and Inventory 5
6.3 Lessor's Liability Insurance 5
6.4 Lessee's Liability Insurance 5
6.5 Waiver of Subrogation 5
6.6 Plate Glass Replacement 6
6.7 Workers' Compensation Insurance 6
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C> <C>
7 MAINTENANCE 6
7.1 Maintenance - Premises 6
7.2 Maintenance - Building and Common Area 7
7.3 Common Area Expenses 7
7.4 Alterations, Changes and Additions by Lessee 9
7.5 Plumbing 10
7.6 Liens 10
8 UTILITIES 10
9 USE OF PREMISES 11
9.1 Use 11
9.2 Suitability 11
9.3 Uses Prohibited 11
10 DEFAULT PROVISIONS 12
10.1 Lessee's Default 12
10.2 Remedies 12
10.3 Default by Lessor 13
11 EXPIRATION OR TERMINATION 14
11.1 Surrender of Possession 14
11.2 Holding Over 14
11.3 Voluntary Surrender 14
12 CONDEMNATION OF PREMISES 14
12.1 Total Condemnation 14
12.2 Partial Condemnation 15
12.3 Award to Lessee 15
13 ENTRY BY LESSOR 15
14 INDEMNIFICATION 16
15 ASSIGNMENT AND SUBLETTING 16
16 DAMAGE OR DESTRUCTION 17
16.1 Right to Terminate on Destruction of Premises 17
16.2 Repairs by Lessor 18
16.3 Reduction of Rent During Repairs 18
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C> <C>
16.4 Arbitration 18
17 PARKING 18
18 COVENANTS, CONDITIONS AND RESTRICTIONS 18
19 HAZARDOUS MATERIALS 19
19.1 Definition 19
19.2 Use 19
19.3 Notice 19
19.4 Removal and Disposal 19
19.5 Indemnity 20
19.6 Right of Entry 20
19.7 Inspection 20
19.8 Surrender 20
19.9 Survival 21
19.10 Lessor's Covenant 21
20 BROKERS 21
20.1 Brokers 21
20.2 Commission 21
21 MISCELLANEOUS PROVISIONS 21
21.1 Waiver 21
21.2 Successors and Assigns 22
21.3 Notices 22
21.4 Partial Invalidity 22
21.5 Number and Gender 22
21.6 Descriptive Headings 22
21.7 Time is of the Essence 22
21.8 Entire Agreement 22
21.9 Memorandum of Lease 22
21.10 Applicable Law 22
21.11 Corporate Authority 23
21.12 Litigation Expense 23
21.13 Subordination of Leasehold 23
21.16 Lessee's Certificate 23
21.17 Attornment 24
</TABLE>
(iii)
<PAGE> 5
LIGHT INDUSTRIAL LEASE
This Light Industrial Lease ("Lease") is made and entered into this 6th
day of October, 1995, between Teachers Insurance and Annuity Association of
America, a New York corporation ("Lessor") and Quintus, Inc., a California
corporation ("Lessee").
ARTICLE I
BASIC LEASE TERMS
1.1 Commencement of Lease. The Term of this Lease shall commence on
October 15, 1995 (the "Commencement Date").
1.2 Lease Term. The Term of this Lease shall expire five (5) years and
two (2) months after the Commencement Date.
1.3 Monthly Rent. The base monthly rental shall be as follows:
<TABLE>
<CAPTION>
Month of Term Base Monthly Rental
------------- -------------------
<S> <C>
Oct 15, 1995 - Dec 14, 1995 $0.00/month
Dec 15, 1995 - Dec 14, 1997 $21,228.00/month
Dec 15, 1997 - Dec 14, 1998 $22,722.00/month
Dec 15, 1998 - Dec 14, 2000 $24,216.00/month
</TABLE>
Notwithstanding anything to the contrary set forth above if Lessor terminates
this Lease because of Lessee's default, base monthly rental shall be deemed to
have been due and payable at the rate of Twenty-One Thousand Two Hundred
Twenty-Eight and no/100ths Dollars ($21,228.00) per month for the first two (2)
months of the Term.
Upon execution of this Lease by Lessor and Lessee, Lessee shall immediately
deliver to Lessor the Security Deposit set forth in Paragraph 1.5 and Twenty-One
Thousand Two Hundred Twenty-Eight and no/100ths Dollars ($21,228.00) as
prepayment of base monthly rental for the third (3rd) month of the Term.
As used in this paragraph, the first "rental month" shall mean the month
beginning on the Commencement Date and ending on the same day of the next
calendar month (the monthly "anniversary" of the Commencement Date), and each
succeeding rental month shall begin on the monthly "anniversary" of the
Commencement Date. If the Commencement Date does not fall on the first day of a
calendar month, then the rent payments payable for each partial calendar month
shall be prorated on a per diem basis, based on a 30 day month.
1.4 Lessee's Pro Rata Share. Lessee's pro rata share shall be sixty-nine
and 87/100ths percent (69.87%), the square footage of the Premises divided by
the square footage of the Building.
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<PAGE> 6
Lessee's pro rata share shall be adjusted appropriately if the amount of space
leased by Lessee in the Building increases.
1.5 Security Deposit. Seventy Thousand and no/100ths Dollars
($70,000.00).
1.6 Use. Software development, engineering, research & development,
sales and general office.
ARTICLE 2
PREMISES
2.1 Description. Lessor hereby leases to Lessee a portion of Building
105, consisting of approximately twenty-nine thousand eight hundred eighty-two
(29,882) square feet ("Premises"), and commonly known as 47212 Mission Falls
Court, Fremont, Alameda County, California, together with the right to use the
common areas of the parcel on which the Premises are located. EXHIBIT A further
describes the Premises being leased hereby, and the parcel of which the Premises
is a part ("Property"). Building 105 (the "Building") consists of a total area
of approximately forty-two thousand seven hundred sixty-eight (42,768) square
feet.
2.2 Possession. Lessor shall deliver possession of the Premises to
Lessee on the Commencement Date as hereinafter defined.
2.3 Early Entry. Lessee shall be permitted to enter the Premises prior
to the Commencement Date for the purpose of installing telephone and data
cabling, fixturing or any other purpose expressly permitted by Lessor. Such
early entry shall be subject to all the terms and provisions hereof, except for
the payment of base monthly rent which shall commence on the Commencement Date.
If, however, Lessee commences occupancy of the Premises prior to October 15,
1995, the Commencement Date and the schedule of base monthly rent set forth in
Paragraph 1.3 shall be revised to reflect such earlier date as the Commencement
Date of this Lease. Lessee shall coordinate such early entry with Lessor so as
minimize interference with any work that Lessor may be performing at the
Premises.
2.4 Condition of Premises. By taking possession of the Premises, Lessee
shall be deemed to have accepted the Premises and all improvements thereon in
their current "as is" condition, subject to all applicable laws, codes and
ordinances. Lessee acknowledges that neither Lessor nor its agents have made any
representations or warranties as to the suitability or fitness of the Premises
for the conduct of Lessee's business or for any other purpose, nor has Lessor
agreed to undertake any alterations or improvements to the Premises. Any
alterations or improvements to the Premises shall be constructed by Lessee, at
Lessee's sole expense, in accordance with the terms and conditions set forth in
Paragraph 7.4 below.
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<PAGE> 7
ARTICLE 3
TERM
3.1 Term. The Lease shall commence on the date determined pursuant to
Paragraph 1.1 (the "Commencement Date") and shall continue thereafter for the
term specified in Paragraph 1.2 unless sooner terminated pursuant to this Lease.
"Term" shall hereafter mean the term of this Lease.
3.2 Delay in Commencement. If for any reason Lessor cannot deliver
possession of the Premises to Lessee on the Commencement Date, such failure
shall not affect the validity of this Lease nor shall it extend the Term or
render Lessor liable to Lessee for any loss or damage resulting therefrom.
Notwithstanding any other provision of this Lease, if the Term of the Lease does
not commence on the scheduled Commencement Date because Lessor cannot deliver
possession of the Premises to Lessee, the Term of the Lease shall instead
commence on the date on which Lessor tenders possession of the Premises to
Lessee, and the Lease shall terminate sixty-two (62) months from the date on
which the Term of the Lease commences.
ARTICLE 4
RENT
4.1 Monthly Rent. Lessee shall pay to Lessor as base monthly rent for
the Premises in advance on the first day of each calendar month of the Term
without deduction, offset, prior notice or demand, in lawful money of the United
States, the sum specified in Paragraph 1.3. If the Commencement Date is not the
first day of a calendar month, the first monthly installment of base monthly
rent shall be applied on a per diem basis against payment of the base monthly
rent from the date base monthly rent is first payable until the first day of the
first succeeding calendar month. Any unused portion of said amount shall be
applied against payment of the base monthly rent for such first succeeding
calendar month, and the balance of the base monthly rent for that month shall be
due on the first day thereof. All additional amounts of rent or other charges
required to be paid by Lessee under this Lease shall be deemed additional rent.
4.2 Mode of Payment. Lessee shall pay all rent due hereunder to Lessor
c/o The Martin Group, 4637 Chabot Drive, Suite 218, Pleasanton, CA 94588, or any
such other place as Lessor may designate from time to time in writing.
4.3 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on the Lessor by
the terms of any mortgage or trust deed covering the Premises. Accordingly, if
any installment of rent or any other sum due from Lessee shall not be received
by Lessor or Lessor's designated agent within five (5) days after the date such
rent or other sum is due, Lessee shall pay to Lessor a late charge equal to five
percent (5%) of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Lessor will incur
by reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a
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<PAGE> 8
waiver of lessee's default with respect to such overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies granted hereunder.
4.4 Security Deposit. Concurrent with Lessee's execution of this Lease,
Lessee shall deposit with Lessor a security deposit ("Deposit") in the amount
specified in Paragraph 1.5. The Deposit shall be held for the faithful
performance by Lessee of all the terms, covenants and conditions of this Lease
to be kept and performed by Lessee. If Lessee defaults with respect to any
provisions of this Lease, including but not limited to the provisions relating
to the payment of rent and any of the monetary amounts due hereunder, Lessor may
(but shall not be required to) use, apply or retain any part or all of the
Deposit for the payment of any amount which Lessor may spend or become obligated
to spend by reason of Lessee's default or to compensate Lessor for any loss or
damage which Lessor may suffer by reason of Lessee's default. If any portion of
the Deposit is so used or applied, Lessee shall, within ten (10) days after
written demand therefor, deposit cash with Lessor in an amount sufficient to
restore the Deposit to its original amount. Lessee's failure to do so shall be a
material breach of this Lease. Lessor shall not be required to keep the Deposit
separate from its general funds, and Lessee shall not be entitled to any
interest on the Deposit. If Lessee fully and faithfully performs every provision
of this Lease to be performed by it, the Deposit, or balance thereof, shall be
returned to Lessee (or, at Lessor's option, to the last assignee of Lessee's
interest hereunder) at the expiration of the Term and after Lessee has vacated
the Premises. In the event of termination of Lessor's interest in this Lease,
Lessor shall transfer the Deposit to Lessor's successor in interest, whereupon
Lessee agrees to release Lessor from all liability for the return of such
deposit or the accounting therefor.
ARTICLE 5
TAXES
5.1 Real Property Taxes. Lessee shall pay all Real Property Taxes levied
against the Premises during the Term as provided in Paragraph 7.3 below. If the
Premises are not separately assessed, Lessee agrees to pay to Lessor its pro
rata share of all Real Property Taxes levied against the Property. As used
herein, "Real Property Taxes" shall include any form of assessment, license,
fee, levy, penalty or tax imposed by any authority having the direct or indirect
power to tax (excluding Lessor's income taxes), including any improvement
district, as against any legal or equitable interests of Lessor in the Property
or as against Lessor's business of renting the Property; provided, however, that
any so-called "rent tax" shall only be paid by Lessee if such rent tax is levied
in lieu of, and not in addition to, ad valorem real property taxes currently
levied against the Property. Lessee's share of Real Property Taxes shall be
equitably prorated to cover only the period of time within the fiscal tax year
during which this Lease is in effect. With respect to any assessments which may
be levied against or upon the Premises, and which may be paid in annual
installments, only the amount of such annual installments (with appropriate
proration for any partial year) and interest due thereon shall be included
within the compilation of the annual Real Property Taxes.
-4-
<PAGE> 9
5.2 Personal Property Taxes. Lessee shall pay before delinquency all
taxes levied or assessed on Lessee's fixtures, improvements, furnishings,
merchandise, equipment and personal Property in and on the Premises, whether or
not affixed to the real property.
ARTICLE 6
INSURANCE
6.1 Property Rental Insurance - Premises. During the Term, Lessor shall
keep the Property insured against loss or damage by fire and those risks
normally covered by an "all risk" or " causes of loss - special form" policy of
property insurance for the full replacement cost thereof. Any recovery received
from said insurance policy shall be paid to Lessor.
6.2 Property Insurance - Fixtures and Inventory. During the Term, Lessee
shall, at its sole expense, maintain insurance with "all risk" or "causes of
loss - special form" coverage on any fixtures, leasehold improvements,
furnishings, merchandise, equipment or personal property in or on the Premises,
whether in place as of the date hereof or installed hereafter, for the full
replacement value thereof, and Lessee shall also have sole responsibility and
cost for maintaining any other types of insurance as Lessee elects to carry. Any
deductibles shall be paid by Lessee.
6.3 Lessor's Liability Insurance. During the Term, Lessor shall maintain
at its sole cost a policy or policies of commercial general liability insurance
insuring Lessor (and such others as designated by Lessor) against liability for
bodily injury, death and property damage on or about the Property, with combined
single limit coverage of not less than Two Million Dollars ($2,000,000).
6.4 Lessee's Liability Insurance. During the Term, Lessee shall, at its
sole expense, maintain for the mutual benefit of Lessor and Lessee, commercial
general liability and property damage insurance against claims for bodily
injury, death or property damage occurring in or about the Premises or arising
out of the use or occupancy of the Premises, with combined single limit coverage
of not less than Two Million Dollars ($2,000,000). The limits of such insurance
shall not limit the liability of Lessee. Lessee shall furnish to Lessor prior to
the Commencement Date, and at least thirty (30) days prior to the expiration
date of any policy, certificates indicating that the liability insurance
required of Lessee above is in full force and effect; that Lessor has been named
as an additional insured; and that all such policies will not be canceled
unless thirty (30) days' prior written notice of the proposed cancellation has
been given to Lessor. The insurance shall be with insurers reasonably approved
by Lessor and with policies in form reasonably satisfactory to Lessor. Said
policies shall provide that Lessor, although an additional insured, may recover
for any loss suffered by Lessor by reason of Lessee's negligence, and shall
include a broad form liability endorsement. Lessee's insurance shall be primary
and noncontributing with any other insurance available to Lessor.
6.5 Waiver of Subrogation. Lessor hereby releases Lessee, and Lessee
hereby releases Lessor, and their respective officers, agents, employees and
servants, from any and all claims or demands of damages, loss, expense or injury
to the Premises, or to the furnishings and fixtures and equipment, or inventory
or other property of either Lessor or Lessee in, about or upon the Premises,
-5-
<PAGE> 10
which is caused by or results from perils, events or happenings which are the
subject of insurance carried by the respective parties and in force at the time
of any such loss; provided, however, that such waiver shall be effective only to
the extent permitted by the insurance covering such loss and to the extent such
insurance is not prejudiced thereby. Each party shall cause each insurance
policy obtained by it to provide that the insurance company waives all right of
recovery by way of subrogation against either party in connection with any
damage covered by any policy.
6.6 Plate Glass Replacement. Lessee shall replace, at its sole expense,
any and all plate glass and other glass in and about the Premises which is
damaged or broken by vandalism. If any plate glass or other glass in and about
the Premises is damaged or broken by causes other than vandalism, then Lessee
shall pay Lessor an amount equal to Lessor's cost of replacement, provided that
such amount shall not exceed the deductible then in effect on Lessor's insurance
policy, if any, covering the damaged glass. Nothing herein shall be construed to
require Lessor to carry plate glass insurance.
6.7 Workers' Compensation Insurance. Lessee shall, at its sole expense,
maintain and keep in force during the Term a policy or policies of Workers'
Compensation Insurance and any other employee benefit insurance sufficient to
comply with all applicable laws, statutes, ordinances and governmental rules,
regulations or requirements.
ARTICLE 7
MAINTENANCE
7.1 Maintenance - Premises. Throughout the Term, Lessee agrees to keep
and maintain the Premises and all improvements and appurtenances upon the
Premises, including all sewer connections, plumbing, heating and cooling
appliances, roof membrane, wiring and glass, in good order, condition and
repair, including the replacement of such improvements and appurtenances when
necessary, provided that Lessee shall not be responsible for insured damage to
the foregoing or damages to the foregoing caused by Lessor or its agents or by
other tenants. Lessee hereby expressly waives the provisions of any law
permitting repairs by a tenant at the expense of a landlord, including, without
limitation, all rights of Lessee under Section 1941 and 1942 of the California
Civil Code. Lessee agrees to keep the Premises clean and in sanitary condition
as required by the health, sanitary and police ordinances and regulation of any
political subdivision having jurisdiction, and provide, at its own expense,
trash removal and janitorial services. Lessee further agrees to keep the
interior of the Premises, such as the windows, floors, walls, doors, showcases
and fixtures clean and neat in appearance and to remove all trash and debris
which may be found in or around the Premises. If any repairs and/or maintenance
to be made by Lessee are necessary, Lessor shall have the right to cause such
repairs and/or maintenance to be made if Lessee fails to cause such repairs, or
commence to cause such repairs and diligently prosecute same to completion,
within fifteen (15) days after written notice from Lessor to Lessee. Lessee
agrees that upon demand, it shall pay to Lessor the cost of any such repairs,
together with accrued interest from the date of payment at the highest rate
allowable by law. Notwithstanding anything to the contrary above, Lessor may
elect to enter into one or more maintenance contracts with third parties for the
provision of all or a part of Lessee's maintenance obligations as set forth in
this paragraph, excluding
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<PAGE> 11
janitorial services. Upon such election, Lessee shall be relieved from its
obligations to perform only those maintenance obligations covered by such
maintenance contracts, and Lessee shall bear one hundred percent (100%) of the
cost of any such maintenance contracts to the extent applicable to the Premises.
All such costs shall be paid in advance on a monthly basis with Lessee's rent
payments. If Lessor elects to enter into one or more maintenance contracts with
third parties for the the provision of all or part of Lessee's maintenance
obligations, Lessor shall obtain competitive bids for such services and the
contracts entered into shall be at a fair market rate for the services provided.
7.2 Maintenance - Building and Common Area. Except for damage caused by
any negligent or intentional act or omission of Lessee, Lessee's employees,
suppliers, shippers, customers, or invitees (in which event Lessee shall repair
the damage) Lessor, at Lessor's expense, shall keep in good condition and repair
the foundations, exterior walls, the structural condition of interior bearing
walls, and the roof structure of the Building.
Lessor shall maintain the Common Areas of the Property in good working order and
condition, except that damage occasioned by the act of Lessee and not covered by
the insurance described in Article 6 shall be repaired by Lessor at Lessee's
expense. Lessee shall notify Lessor in writing of any repairs or maintenance to
the Common Areas which may be required and Lessor shall have a reasonable time
to make such repairs which shall not exceed thirty (30) days from the date of
Lessee's notice to Lessor unless such repairs and/or maintenance cannot
reasonably be completed within such 30-day period, in which event Lessor shall
have such additional time as may reasonably be required to complete such repairs
and/or maintenance. The Common Areas of the Property shall be comprised of all
non-leasable space including, but not limited to, sidewalks, parking areas,
private roadways within the Property, water amenities, exterior lighting and
landscaping.
7.3 Common Area Expenses.
(a) Common Area Expenses Defined. The term "Common Area
Expenses" shall mean all expenses, costs and disbursements of every kind and
nature which Lessor shall pay or become obligated to pay because of or in
connection with the ownership, management, maintenance, repair and operation of
the Building and Common Area and such additional Building or Common Area
facilities in subsequent years as may be determined by Lessor to be necessary,
including but not limited to, the following:
(i) wages and salaries of all employees engaged in the
operation, maintenance and security of the Building and Common Area, including
taxes, insurance and benefits relating thereto, and the rental cost of overhead
of any office and storage space used to provide such services;
(ii) cost of all supplies, materials and labor used in
the operation, repair, replacement and maintenance of the Building and Common
Area;
(iii) cost of all utilities, including surcharges, for
the Common Area, including the cost of water, sewer, gas, power, heating,
lighting, air conditioning and ventilating; and the cost of all license, permit
and inspections fees;
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(iv) cost of all insurance which Lessor or Lessor's
lender deems necessary for the Building and Common Area such as the cost of
"All-Risk" property insurance, including, at Lessor's option, earthquake and
flood coverage, insurance against loss of rents on an "All-Risk" basis; and
casualty and liability insurance applicable to the Building and Lessor's
personal property used in connection therewith;
(v) cost of repairs and general maintenance of the
Building and Common Area (excluding repairs and general maintenance paid by
proceeds of insurance or by Lessee pursuant to Article 7, or other third
parties, and alterations attributable solely to lessees of the Building);
(vi) a reasonable management fee for the manager of the
Building consistent with management fees charged by owners of similar properties
in the market area of the Property;
(vii) the reasonable cost at market rates of any
additional services not provided to the Building and Common Area at the
Commencement Date, but thereafter provided by Lessor in its management of the
same;
(viii) the cost of any capital improvements made to the
Building after the Commencement Date that reduce other operating expenses or are
required under any governmental law or regulation that was not applicable to the
Building at the time it was constructed, such cost thereof to be amortized over
such reasonable period as Lessor shall determine consistent with applicable
governmental requirements; and
(ix) Real Property Taxes.
(b) Exclusions from Common Area Expenses. Common Area Expenses
shall not include: (i) the cost of any additional or extraordinary services
provided to other tenants of the Building; (ii) costs paid for directly by
Lessee. (iii) principal and interest payment on loans secured by deeds of trust
recorded against the Building; (iv) real estate sales or leasing brokerage
commissions; (v) legal and accounting fees; (vi) executive salaries of off-site
personnel employed by Lessor excepting the management fee referenced in
Paragraph 7.3(a)(vi) above; (vii) the cost of any repairs to the foundations,
exterior walls, the structural condition of interior bearing walls, or the roof
structure of the Building; or (viii) Hazardous Materials clean-up costs except
as otherwise provided in Article 19. Additionally, Common Area Expenses shall
not include all utilities and janitorial services which shall be contracted for
and paid for by Lessee, commencing on the Lease Commencement Date.
(c) Adjustment.
(i) Monthly Payments. Lessee shall pay to Lessor on the
first day of each calendar month of the Term, an amount estimated by Lessor to
be Lessee's pro rata share of the Common Area Expenses. The Common Area Expenses
may be adjusted by Lessor at the end of any calendar quarter on the basis of
Lessor's experience and reasonably anticipated costs. Any such
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adjustment shall be effective as of the calendar month next succeeding receipt
by Lessee of written notice of such adjustment.
(ii) Accounting. Within one hundred twenty (120) days
following the end of each calendar year, Lessor shall furnish to Lessee a
statement of Lessee's pro rata share of the actual Common Area Expenses (the
"Actual Expenses") for the calendar year and the payments made by Lessee with
respect to such period. If the Common Area Expenses paid by Lessee for such
period are less than the amount of Actual Expenses, Lessee shall pay Lessor the
deficiency within ten (10) days after receipt of such statement. Any overpayment
made by Lessee shall be credited against the next monthly payment(s) of Common
Area Expenses due from Lessee.
(iii) Proration. Lessee's obligation to pay Common Area
Expenses shall be prorated on the basis of a 365-day year to account for any
fractional portion of a year included at the commencement or expiration of the
Term of this Lease.
(iv) Survival. Lessee's obligation to pay for any Common
Area Expenses pursuant to this paragraph shall survive any termination of this
Lease for a period of eighteen (18) months.
7.4 Alterations, Changes and Additions by Lessee. No changes,
alterations, or additions shall be made by Lessee to the Premises without the
prior written consent of Lessor which Lessor will not unreasonably withhold,
except that Lessor's consent shall not be required for minor, nonstructural
changes, alterations or additions to the Premises that do not affect the
Building systems, provided that the cost of such changes, alterations or
additions does not exceed $5,000.00 per work of improvement or $25,000.00 in the
aggregate over the term of the Lease. Lessor shall have the right, however, to
withhold its consent to structural or exterior changes at Lessor's sole and
absolute discretion. As used herein, alterations include utility installations
such as ducting, power panels, fluorescent fixtures, base heaters, conduit and
wiring. As a condition to giving such consent, Lessor may require that Lessee
agree to remove any such alterations, additions or improvements at the
expiration of the term and to restore the Premises to their prior condition and
that Lessee provide Lessor a payment and completion bond from a California
surety company at Lessee's expense. All changes, alterations or additions to be
made to the Premises shall be under the supervision of a competent architect and
made in accordance with plans and specifications which have been furnished to
and approved by Lessor prior to commencement of work. If the written consent of
Lessor to any proposed alterations by Lessee shall have been obtained, Lessee
agrees to advise Lessor in writing of the date upon which such alterations will
commence in order to permit Lessor to post a notice of nonresponsibility. All
such alterations, changes and additions shall be constructed in a good and
workmanlike manner in accordance with all ordinances and laws relating thereto.
With respect to any improvements which Lessee is entitled to make hereunder,
Lessee shall use only duly qualified, reputable and licensed contractors and
subcontractors for any work commenced after the Commencement Date. Lessee's
selection of contractors and subcontractors shall be subject to Lessor's prior
written approval, which shall not be unreasonably withheld. Lessee shall provide
to Lessor copies of all plans, specifications and drawings of all changes,
alterations and additions prior to the commencement of any work relating
thereto. All leasehold improvements made by Lessee
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shall remain the property of Lessee during the Term and Lessee shall have the
night to depreciate or amortize the cost of the same and claim and collect
investment tax credits and all other tax benefits with respect to such
improvements. At the end of the Term, Lessee shall, at Lessor's sole discretion,
remove all leasehold improvements installed by it.
7.5 Plumbing. Lessee shall not use the plumbing facilities for any
purpose other than that for which they were constructed. The expense of any
breakage, stoppage or other damage relating to the plumbing and resulting from
the introduction by Lessee, its agents, employees or invitees of foreign or
harmful substances into the plumbing facilities shall be borne by Lessee.
7.6 Liens. Lessee shall keep the Premises and the Building free from any
liens arising out of work performed, materials furnished or obligations incurred
by Lessee and shall indemnify, hold harmless and defend Lessor from any liens
and encumbrances arising out of any work performed or materials furnished by or
at the direction of Lessee. In the event that Lessee shall not, within twenty
(20) days following the imposition of any such lien and notice of the same to
Lessee, cause such lien to be released of record by payment or posting of a
proper bond, Lessor shall have, in addition to all other remedies provided
herein and by law, the right, but not the obligation, to cause the same to be
released by such means as it shall deem proper, including payment of the claim
giving rise to such lien. All such sums paid by Lessor and all expenses incurred
by it in connection therewith including reasonable attorneys' fees and costs
shall be payable to Lessor by Lessee on demand with interest at the highest rate
allowable by law. Lessor shall have the right at all times to post and keep
posted on the Premises any notices permitted or required by law, or which are
proper, for the protection of Lessor and the Premises, and any other party
having an interest herein, from mechanics, and materialmen's liens, and Lessee
shall give to Lessor at least ten (10) business days' prior written notice of
the expected date of commencement of any work relating to changes, alterations
or additions to the Premises.
ARTICLE 8
UTILITIES
Lessee shall pay prior to delinquency throughout the Term the cost of water,
gas, heating, cooling, sewer, telephone, electricity, garbage, air conditioning
and ventilating, janitorial services, landscape maintenance (except Common Area
landscape maintenance) and all other materials and utilities supplied to the
Premises. If any such services are not separately metered to Lessee, Lessee
shall pay Lessee's pro rata share of all charges which are jointly metered,
unless Lessor reasonably determines that Lessee is utilizing more than Lessee's
pro rata share of any such utilities, in which event Lessee shall pay for its
actual usage of any such utilities as reasonably determined by Lessor, and in
either event payment shall be made by Lessee within fifteen (15) days of receipt
of the statement for such charges.
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ARTICLE 9
USE OF PREMISES
9.1 Use. The Premises shall be used and occupied by Lessee for only the
purposes specified in Paragraph 1.6 and for no other purposes whatsoever without
obtaining the prior written consent of Lessor, which shall not be unreasonably
withheld.
9.2 Suitability. This Lease shall be subject to all applicable zoning
ordinances and to any municipal, county and state laws and regulations governing
and regulating the use of the Premises. Lessee acknowledges that neither Lessor
nor Lessor's agent has made any representation or warranty as to the suitability
of the Premises for the conduct of Lessee's business.
9.3 Uses Prohibited.
(a) Rate of Insurance. Lessee shall not do or permit anything to
be done in or about the Premises which will cause an increase in the existing
rate of insurance upon the Premises (unless Lessee shall pay an increased
premium as a result of such use or acts) or cause the cancellation of any
insurance policy covering the Premises or the Building of which the Premises may
be a part, nor shall Lessee sell or permit to be kept, used or sold in or about
such Premises any articles which may be prohibited by a standard form policy of
fire insurance.
(b) Interference With Other Tenants. Lessee shall not do or
permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building or injure or annoy them or use or allow the Premises to be used for any
unlawful purpose, nor shall Lessee cause, maintain or permit any nuisance in, or
about the Premises. Lessee shall not commit or suffer to be committed any waste
in or upon the Premises.
(c) Applicable Laws. Lessee shall not conduct any auctions on
the Premises or use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, zoning
restriction, ordinance, governmental rule, regulation or requirements of duly
constituted public authorities whether now in force or which may hereafter be
enacted or promulgated. Lessee shall at its sole cost and expense promptly
comply with all laws, statutes, ordinances and governmental rules, regulations
or requirements now in force or which may hereafter be in force (including the
Americans With Disabilities Act as it applies to the Premises and to any portion
of the Property affected by Lessee's use of the Premises) and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to Lessee's use or occupancy of the Premises. The
judgment of any court of competent jurisdiction and exhaustion of any appeals
periods, or the admission of Lessee in any action against Lessee whether Lessor
be a party thereto or not, that Lessee has violated any law. statute, ordinance
or government rule, regulation or requirement, shall be conclusive of that fact
as between Lessor and Lessee.
(d) Signs. Lessee shall not place any sign upon the Premises
without Lessor's prior written consent, which consent shall not be unreasonably
withheld. Lessee shall have the right to install, at Lessee's sole expense, one
sign on the Building exterior, subject to Lessor's consent as to the exact
location, size, style and color of the sign, the CC&Rs (defined in Article 18)
and all
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applicable governmental regulations. Upon the expiration or sooner termination
of this Lease, Lessee shall remove its signage from the Building and shall
repair any damage to the Building caused by the installation and/or removal of
Tenant's signage.
ARTICLE 10
DEFAULT PROVISIONS
10.1 Lessee's Default. A default under this Lease by Lessee shall exist
if any of the following occurs:
(a) If Lessee fails to pay base monthly rent or any other sum
required to be paid hereunder when due and Lessee fails to cure such breach
within five (5) days after written notice from Lessor; provided, however, that
such notice shall be in lieu of, and not in addition to, any notice required
under Section 1161 of the California Code of Civil Procedure;
(b) If Lessee fails to perform any term, covenant or condition
of this Lease except those requiring the payment of money, and Lessee fails to
cure such breach within twenty (20) days after written notice from Lessor where
such breach could reasonably be cured within such twenty (20) day period;
provided, however, that where such failure could not reasonably be cured within
the twenty (20) day period, that Lessee shall not be in default if it commences
such performance within the twenty (20) day period and diligently thereafter
prosecutes the same to completion;
(c) If Lessee assigns its assets for the benefit of its
creditors;
(d) If the sequestration or attachment of or execution on any
material part of Lessee's property essential to the conduct of Lessee's business
occurs, and Lessee fails to obtain a return or release of such property within
thirty (30) days thereafter, or prior to sale pursuant to such sequestration,
attachment or levy, whichever is earlier;
(e) If Lessee abandons or vacates the Premises and ceases to pay
rent; or
(f) If a court makes or enters any decree or order other than
under the bankruptcy laws of the United States adjudging Lessee to be insolvent;
or approving as properly filed a petition seeking reorganization of Lessee; or
directing the winding up or liquidation of Lessee and such decree or order shall
have continued for a period of thirty (30) days.
10.2 Remedies. Upon a default, Lessor shall have the following remedies,
in addition to all other rights and remedies provided by law or otherwise
provided in this Lease, to which Lessor may resort cumulatively or in the
alternative:
(a) Lessor may continue this Lease in full force and effect, and
this Lease shall continue in full force and effect as long as Lessor does not
terminate this Lease, and Lessor shall have the right to collect base monthly
rent and other charges due hereunder when due.
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(b) Lessor may terminate Lessee's night to possession of the
Premises at any time by giving written notice to that effect, and relet the
Premises or any part thereof. Lessee shall be liable immediately to Lessor for
all costs Lessor incurs in reletting the Premises or any part thereof,
including, without limitation, broker's commissions, expenses of cleaning and
restoring the Premises required by the reletting, and like costs. Reletting may
be for a period shorter or longer than the remaining term of this Lease. No act
by Lessor other than giving written notice to Lessee shall terminate this Lease.
Acts of maintenance, efforts to relet the Premises or the appointment of a
receiver on Lessor's initiative to protect Lessor's interest under this Lease
shall not constitute a termination of Lessee's right to possession. On
termination, Landlord has the right to remove all Lessee's property and store
same at Lessee's cost and to recover from Lessee as damages:
(i) The worth at the time of award of unpaid rent and
other sums due and payable which had been earned at the time of termination;
plus
(ii) The worth at the time of award of the amount by
which the unpaid rent and other sums due and payable which would have been
payable after termination until the time of award exceeds the amount of such
rent loss that Lessee proves could have been reasonably avoided; plus
(iii) The worth at the time of award of the amount by
which the unpaid rent and other sums due and payable for the balance of the Term
after the time of award exceeds the amount of such Rent loss that Lessee proves
could be reasonably avoided; plus
(iv) Any other amount necessary to compensate Lessor for
all the detriment proximately caused by Lessee's failure to perform Lessee's
obligations under this Lease, or which, in the ordinary course of things, would
be likely to result therefrom; plus
(v) At Lessor's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by the laws
of the State of California.
The "worth at the time of award" of the amounts referred to in
Paragraphs 10.2(b)(i) and 10.2(b)(ii) is computed by allowing interest at the
maximum rate permitted by law on the unpaid rent and other sums due and payable
from the termination date through the date of award. The "worth at the time of
award" of the amount referred to in Paragraph 10.2(b)(iii) is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%).
(c) Lessor may, with or without terminating this Lease, re-enter
the Premises and remove all persons and property from the Premises; such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Lessee. No reentry or taking possession of the
Premises by Lessor pursuant to this paragraph shall be construed as an election
to terminate this Lease unless a written notice of such intention is given to
Lessee.
10.3 Default by Lessor. Lessor will be in default if Lessor fails to
perform any obligation required of Lessor (other than a delay in delivery of
possession as provided for in Paragraph 3.2)
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within thirty (30) days after written notice by Lessee, specifying wherein
Lessor has failed to perform such obligation; provided that if the nature of
Lessor's obligation is such that more than thirty (30) days are required for
performance, then Lessor shall not be in default if Lessor promptly commences
performance within such thirty (30) day period and thereafter diligently
prosecutes the same to completion.
ARTICLE II
EXPIRATION OR TERMINATION
11.1 Surrender of Possession. Lessee agrees to deliver up and surrender
to Lessor possession of the Premises and all improvements thereon, subject to
the terms of Paragraph 7.4, in as good order and condition as when possession
was taken by Lessee, excepting only ordinary wear and tear and elements of age
and any insured casualty. Upon termination of this Lease, Lessor may re-enter
the Premises and remove all persons and property therefrom. If Lessee shall fail
to remove any effects which it is entitled to remove from the Premises upon the
termination of this Lease, for any cause whatsoever, Lessor, at its option, may
remove the same and store or dispose of them, and Lessee agrees to pay to Lessor
on demand any and all expenses incurred in such removal and in making the
Premises free from all dirt, litter, debris and obstruction, including all
storage and insurance charges. If the Premises are not surrendered at the end of
the Term, Lessee shall defend, indemnify and hold Lessor harmless from all loss
or liability resulting from delay by Lessee in so surrendering the Premises,
including, without limitation, any claims made by any succeeding lessee founded
on such delay.
11.2 Holding Over. If Lessee remains in possession of the Premises after
expiration of the term and if Lessor and Lessee have not executed an express
written agreement as to such holding over, then such occupancy shall be a
tenancy from month to month at a monthly rental equivalent of 125% of the
monthly rental in effect immediately prior to such expiration, such payments to
be made as herein provided. In the event of such holding over all of the terms
of this Lease including the payment of all charges owing hereunder other than
rent shall remain in force and effect on said month to month basis.
11.3 Voluntary Surrender. The voluntary or other surrender of this Lease
by Lessee, or a mutual cancellation thereof, shall not work a merger, but shall,
at the option of Lessor, terminate all or any existing subleases or
subtenancies, or operate as an assignment to Lessor of any or all such subleases
or subtenancies.
ARTICLE 12
CONDEMNATION OF PREMISES
12.1 Total Condemnation. If the entire Premises, whether by exercise of
governmental power or the sale or transfer by Lessor to any condemnor under
threat of condemnation or while proceedings for condemnation are pending, at any
time during the Term, or such portion of the entire Premises, shall be taken by
condemnation such that there does not remain a portion suitable for
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occupation, this Lease shall then terminate as of the date transfer of
possession required. Upon such condemnation, all rent shall be paid up to the
date transfer of possession is required, and Lessee shall have no claim against
Lessor for the value of the unexpired term of this Lease.
12.2 Partial Condemnation. If any portion of the Premises is taken by
condemnation during the Term, whether by exercise of governmental power or the
sale or transfer by Lessor to any condemnor under threat of condemnation or
while proceedings for condemnation are pending, this Lease shall remain in full
force and effect; except that in the event a partial taking leaves the Premises
unfit for normal and proper conduct of the business of Lessee, then Lessee shall
have the right to terminate this lease effective on the date transfer of
possession is required. Lessee may elect to exercise its right to terminate this
Lease pursuant to this paragraph by serving written notice to Lessor within
thirty (30) days of Lessee's receipt of notice of condemnation. All rent shall
be paid up to the date of termination; and Lessee shall have no claim against
Lessor for the value of any unexpired term of this Lease. If this Lease shall
not be canceled, the rent after such partial taking shall be that percentage of
the adjusted base rent specified herein, equal to the percentage which the
square footage of the untaken part of the Premises immediately after the taking
bears to the square footage of the entire Premises immediately before the
taking. If Lessee's continued use of the Premises requires alterations and
repairs by reason of a partial taking, Lessor shall make and pay for such
alterations and repairs, but only to the extent of proceeds received by Lessor
for the condemning authority relating to the improvements to be altered and
repaired, and Lessee shall pay the balance of such alterations and repairs. If
Lessee is not willing to pay the balance of such alterations and repairs, Lessor
shall have the right to terminate this Lease as of the date of taking.
12.3 Award to Lessee. In the event of any condemnation, whether total or
partial, Lessee shall have the night to claim and recover from the condemning
authority such compensation as may be separately awarded or recoverable by
Lessee for all losses of Lessee, including loss of business, fixtures or
equipment belonging to Lessee immediately prior to the condemnation. The balance
of any condemnation award shall belong to Lessor, and Lessee shall have no
further right to recover from Lessor or the condemning authority for any
additional claims arising out of such taking.
Notwithstanding the foregoing, any other award made as a result of a total or
partial taking shall belong to and be paid to Lessor, except that Lessee shall
receive from such award the following: (a) a sum attributable to improvements or
alterations made to the Premises by Lessee which Lessee has the right to remove
but elects not to remove and which increase the value of the Premises; and (b)
any part of the award made directly to Lessee for the taking of personal
property or trade fixtures belonging to Lessee, for the interruption of Lessee's
business or for its moving costs, or for loss of Lessee's good will.
ARTICLE 13
ENTRY BY LESSOR
Provided that Lessor gives Lessee prior written notice, Lessee shall permit
Lessor and its agents to enter the Premises at all reasonable times for any of
the following purposes: to inspect the Premises; to maintain the Building; to
make such repairs to the Premises as Lessor is obligated or may elect
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to make; to make repairs, alterations or additions to any other portion of the
Building; to show the Premises and post "To Lease" signs for the purposes of
reletting during the last ninety (90) days of the Term; to show the Premises as
part of a prospective sale by Lessor or to post notices of nonresponsibility.
Lessor shall have such right of entry without any rebate of rent to Lessee for
any loss of occupancy or quiet enjoyment of the Premises thereby occasioned.
In case of emergency, Lessor may enter the Premises without providing notice to
Lessee. In making any entry into the Premises, Lessor shall not unreasonably
interfere with Lessee's business. Lessor shall comply with Lessee's reasonable
security regulations.
ARTICLE 14
INDEMNIFICATION
Lessee agrees not to hold Lessor liable for any injury or damage, either
proximate or remote, occurring through or caused by any repairs or alterations
to the Premises unless such injury or damage arises from the willful misconduct
or negligence of Lessor or its agents. Lessee agrees that Lessor shall not be
liable for any injury or damage occasioned by defective electric wiring, or the
breaking, bursting, stoppage or leaking of any part of the plumbing, air
conditioning, heating, fire control sprinkler systems or gas, sewer or steam
pipes, unless such injury or damage arises from the willful misconduct or
negligence of Lessor or its agents. Lessee will defend, indemnify, save and hold
harmless Lessor from all claims, actions, liability, loss, expense (including
reasonable attorneys' fees and costs), damage or injury to persons or property
arising from or occurring by reason of Lessee's occupation or use of the
Premises unless such losses or injuries are proximately caused by any willful
misconduct or negligence of Lessor or its agents. Lessor shall not be liable for
any damage to or loss of property of Lessee or other persons located on the
Premises, and Lessee shall defend, indemnify, save and hold Lessor harmless from
any claims and losses arising out of damage to the same, unless such loss or
damage is proximately caused by the willful misconduct or negligence of Lessor
or its agents.
Lessor will defend, indemnify, save and hold harmless Lessee from all claims,
actions, liability, loss, expense (including reasonable attorneys' fees and
costs), damage or injury to persons or property arising from or occurring by
reason of the willful misconduct or negligence of Lessor or its agents.
ARTICLE 15
ASSIGNMENT AND SUBLETTING
Lessee shall not assign this Lease in whole or in part, or sublet the Premises
or any part thereof, or license the use of all or any portion of the Premises or
business conducted thereon, or encumber or hypothecate this Lease, without first
obtaining the written consent of Lessor, which consent will not be unreasonably
withheld. Lessee shall submit in writing to Lessor: (a) the name and legal
composition of the proposed sublessee; (b) the nature of the proposed
sublessee's business to be carried on in the Premises; (c) the terms and
provisions of the proposed sublease, and (d) such financial and other reasonable
information as Lessor may request concerning the proposed sublessee.
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Lessor shall give its consent or give notice that it does not consent,
specifying the reasons therefor, within seven (7) business days after receiving
all the information set forth in the preceding sentence. Any assignment,
subletting, licensing, encumbering, or hypothecating of this Lease without such
prior written consent shall, at the option of Lessor, constitute grounds for
termination of this Lease. Lessor's consent to any assignment or sublease shall
not constitute a waiver of the necessity for such consent to any subsequent
assignment or sublease. This prohibition against assignment and subletting shall
be construed to include a prohibition against assignment or subletting by
operation of law. Notwithstanding any assignment or subletting with Lessor's
consent, Lessee shall remain fully liable on this Lease and shall not be
released from its obligations hereunder. In the event Lessor shall consent to a
sublease or assignment under this paragraph, Lessee shall pay Lessor's
reasonable attorneys' fees incurred in connection with giving such consent. In
addition, Lessee shall pay to Lessor with its regularly scheduled rent payments
fifty percent (50%) of all rent or other charges in lieu of rent collected by
Lessee from a sublessee or assignee which are in excess of the rent then owing
pursuant to Article 4.
Notwithstanding the foregoing, Lessee shall be free to assign or sublet without
Lessor's consent (a) to a company that controls, is controlled by, or is under
common control with Lessee, (b) to the surviving entity in connection with a
merger, consolidation or other reorganization of Lessee, and (c) to the
purchaser in connection with the sale of substantially all of the assets of the
business being conducted at the Premises, provided that Lessee notifies Lessor
of Lessee's intent to make such assignment or sublet prior to the date of actual
assignment, or sublet and, in the event of any assignment of this Lease, the
assignee executes an agreement whereby the assignee assumes the obligations of
Lessee under this Lease.
ARTICLE 16
DAMAGE OR DESTRUCTION
16.1 Right to Terminate on Destruction of Premises.
(a) If the Premises are damaged by a peril not covered by
insurance, Lessor may terminate the Lease if the cost to restore exceeds twenty
percent (20%) of the replacement cost of the Premises and Lessee does not agree
in writing to pay such excess within ten (10) days of receipt of Lessor's
written election to terminate.
(b) Either Lessor or Lessee shall have the option to terminate
the Lease if the Premises are materially damaged during the Term and such option
is exercised in writing no later than ten (10) calendar days after the
occurrence of the damage. As used herein, materially damaged shall mean that the
cost of repair is equal to or greater than thirty-three percent (33%) of the
replacement cost of the Premises. If, however, the insurance proceeds available
to Lessor, plus the funds, if any, which Lessee is willing to contribute to
repair or rebuild the Premises, are sufficient to repair or rebuild the
Premises, Lessee shall have the right to elect to continue this Lease and Lessor
shall, as soon as possible, commence the repair of the Premises and diligently
prosecute the construction of the Premises to completion. Lessee shall exercise
such right on or before ten (10) calendar days after Lessor notifies Lessee of
the approximate cost of repair and the amount of
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<PAGE> 22
insurance proceeds available; and Lessee's failure to timely exercise such fight
shall be deemed a waiver of such right.
16.2 Repairs by Lessor. If neither Lessor nor Lessee elects to terminate
this Lease pursuant to Paragraph 16.1, Lessor shall, immediately upon receipt
of insurance proceeds paid in connection with such casualty, proceed to repair
or rebuild the Premises, on the same plan and design as existed immediately
before such damage or destruction occurred, subject to such delays as may be
reasonably attributable to governmental restrictions or failure to obtain
materials or labor, or other causes beyond the control of Lessor. Lessee shall
be liable for the repair and replacement of all fixtures, leasehold
improvements, furnishings, merchandise, equipment and personal property not
covered by the property insurance described in Paragraphs 6.1 and 6.2.
16.3 Reduction of Rent During Repairs. If Lessee is able to continue to
conduct its business during the making of repairs, the rent then prevailing will
be equitably reduced in the proportion that the unusable part of the Premises
bears to the whole thereof for the period that repairs are being made. No rent
shall be payable while the Premises are wholly unusable due to casualty damage.
16.4 Arbitration. Any controversy or claim arising out of or relating to
this article shall be settled by arbitration in accordance with California Code
of Civil Procedure, Sections 1280 et seq. The expenses of arbitration shall be
borne by the parties as allocated by the arbitrators. The party desiring
arbitration shall serve notice upon the other party, together with designation
of the first party's arbitrator.
ARTICLE 17
PARKING
Lessee shall have the nonexclusive right to use one hundred nineteen (119)
parking spaces in the parking area, provided that under no circumstances shall
Lessor be required to police or monitor the parking rights of Lessee or any
other tenant.
ARTICLE 18
COVENANTS, CONDITIONS AND RESTRICTIONS
This Lease is subject to the terms and conditions of (a) the Declaration of
Covenants, Conditions and Restrictions of Mission Falls Business Park ("CC&Rs")
imposing certain covenants, conditions and restrictions on the use and
management of the Property, (b) the Bylaws ("Bylaws") of Mission Falls Business
Park Owners Association ("Association"), a California nonprofit mutual benefit
corporation charged with the responsibility of managing Mission Falls Business
Park in accordance with the CC&Rs and the Articles of Incorporation of the
Association ("Articles"), and (c) the rules ("Rules") adopted from time to time
by the Association in accordance with the CC&Rs providing for restrictions on
the use of Mission Falls Business Park. Collectively, the CC&Rs, Articles,
Bylaws and Rules are referred to herein as the "Governing Documents." Lessor
has delivered to
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<PAGE> 23
Lessee copies of the CC&Rs recorded September 6, 1984 as Instrument No.
84-181476, and the First Amendment to the CC&Rs recorded April 19, 1985 as
Instrument No. 85-076494, and the Articles and the Bylaws, respectively filed in
connection therewith. Lessee agrees to comply with all provisions of the
Governing Documents applicable to its occupancy, interest, use and utilization
of the Premises subject to this Lease. Any failure to comply with the Governing
Documents shall be a default under the terms of this Lease.
ARTICLE 19
HAZARDOUS MATERIALS
19.1 Definition. "Hazardous Material" shall mean any substance or
material which has been designated hazardous or toxic by any federal, state,
county, municipal or other governmental agency or authority or determined by
such agency or authority to be capable of endangering or posing a risk of injury
to, or adverse effect on, the health or safety of persons, the environment or
property.
19.2 Use. Lessee shall not store, use, generate, release or dispose of
any Hazardous Materials in, on or adjacent to the Premises or the Property, or
ship any Hazardous Materials therefrom, except in compliance with all laws,
ordinances, regulations, rules, and policies, including any obligation to notify
Lessor of same. Lessee shall submit to Lessor copies of all permits, licenses,
filings, reports or other documentation submitted to any governmental agency or
authority, at the same time such documents are submitted to the governmental
agency or authority.
19.3 Notice. Lessee shall immediately notify Lessor as soon as possible
of any inquiry, test, investigation, or enforcement proceeding by or against
Lessee or the Premises or the Property concerning a Hazardous Material in, on,
under or within 2,000 feet of the Premises and the Property. Lessee acknowledges
that Lessor, as the owner of the Premises, shall have the right, at its
election, in its own name or as Lessee's agent, to negotiate, defend, approve,
and appeal, at Lessee's expense, any action taken or order issued by an
applicable governmental authority with regard to Lessee's failure to comply with
the provisions of this Article 19. Notwithstanding the foregoing, Lessee shall
not be responsible for the cost of complying with any action taken or order
issued by an applicable governmental authority with regard to any Hazardous
Materials found in, on or under any real property within 2,000 feet of the
Premises or the Property if their presence was not caused by Lessee, its agents,
employees, contractors, invitees or subtenants. Lessee shall submit to Lessor
copies of all such inquiries, tests, investigations and enforcement proceedings
and copies of all reports and responses thereto prepared by Lessee. Lessee shall
submit same to Lessor within five (5) days after receipt of same by Lessee,
whether such receipt is from a governmental authority or nongovernmental entity.
19.4 Removal and Disposal. In addition, Lessee shall immediately remove
all Hazardous Materials which Lessee, its agents, employees, contractors,
invitees or subtenants have caused to be released or disposed of in, on, under
or adjacent to, the Premises or the Property. Lessee shall dispose of all
Hazardous Material removed from the Premises or the Property in lawful disposal
sites
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<PAGE> 24
and otherwise in compliance with all applicable laws, ordinances. regulations.
rules and policies, and in all removals of Hazardous Materials, Lessee shall
list itself as the shipper.
19.5 Indemnity. Lessee shall indemnify, defend and hold Lessor harmless
from and against any claims, suits, causes of action, costs, fees, including
attorneys' fees and costs, arising out of or in connection with any Hazardous
Materials stored, used, generated, released or disposed of by Lessee or its
agents, employees, contractors, invitees or subtenants in, on, under or adjacent
to the Premises or the Property, or any Hazardous Materials shipped by Lessee
therefrom, including any clean-up work, inquiry or enforcement proceeding
resulting therefrom.
19.6 Right of Entry. Notwithstanding any other right of entry granted to
Lessor under this Lease, Lessor shall have the right to enter the Premises or to
have consultants enter the Premises throughout the term of this Lease for the
purpose of determining: (i) whether the Premises are in conformity with federal,
state and local laws, ordinances, regulations, rules and policies including
those pertaining to the environmental condition of the Premises and the
Property, (ii) whether Lessee has complied with this Article 19, and (iii) the
corrective measures, if any, required of Lessee to ensure the safe storage,
use, generation, release, shipment and disposal of Hazardous Materials, or to
remove Hazardous Materials. Such entry shall comply with the provisions of
Article 13. Lessee agrees to provide access and reasonable assistance for such
inspections. Such inspections may include, but are not limited to, entering the
Premises or the Property with drill rigs or other machinery for the purpose of
obtaining soil, water or other samples. Lessor shall not be limited in the
number of such inspections during the term of this Lease.
19.7 Ispection. If Lessee does store, use, generate, release, or dispose
of any Hazardous Materials in, on, under or adjacent to the Premises or the
Property, or ship any Hazardous Materials therefrom, Lessee shall pay for the
reasonable cost of any inspection reasonably determined to be necessary by
Lessor. If Lessee does not store, use, generate, release or dispose of any
Hazardous Materials in, on, under or adjacent to the Premises or the Property,
or ship any Hazardous Material therefrom, Lessor shall pay the cost of such
inspection, however, if such inspection, together with any other evidence, shows
that Lessee caused the presence of any Hazardous Materials, Lessee shall pay for
the reasonable cost of such inspection and all subsequent inspections until the
Hazardous Materials are eliminated. If such consultants determine that the
Premises or the Property, or both, are contaminated with Hazardous Materials
caused to be present by Lessee, Lessee shall, in a timely manner, at its
expense, remove such Hazardous Materials or otherwise comply with the
recommendations of such consultants to the reasonable satisfaction of Lessor and
any applicable governmental agencies and reimburse Lessor for the cost of such
inspections within ten (10) days of receipt of a written statement therefor. The
right granted to Lessor herein to inspect the Premises or the Property shall not
create a duty on Lessor's part to inspect the Premises or the Property, or any
liability of Lessor for Lessee's use, storage, release or disposal of Hazardous
Materials, it being understood that Lessee shall be solely responsible for all
liability in connection therewith.
19.8 Surrender. Lessee shall surrender the Premises to Lessor upon the
expiration or earlier termination of this Lease free of all Hazardous Materials
which Lessee, its agents, employees, contractors, invitees or subtenants have
caused to be released or disposed of in, on, under or adjacent to the Premises
or the Property, and in a condition which complies with all governmental
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<PAGE> 25
laws, ordinances, regulations, rules and policies, reasonable recommendations of
consultants hired by Lessor, and such other reasonable requirements as may be
imposed by Lessor.
19.9 Survival. Lessee's and Lessor's obligations under this Article 19
shall survive termination of this Lease.
19.10 Lessor's Covenant. Lessor represents and covenants that it has no
knowledge of the existence of any Hazardous Materials located on or beneath the
Premises prior to Lessee's occupancy of the Premises.
ARTICLE 20
BROKERS
20.1 Brokers. Lessee warrants and represents that it has had no dealings
with any real estate broker or agent in connection with the negotiation of this
Lease, except for Bishop Hawk and R&D Commercial Properties and that it knows of
no other real estate broker or agent who is or might be entitled to a commission
in connection with this Lease. Lessee agrees to indemnify, defend and hold
Lessor and its agents harmless from and against any and all liabilities or
expenses, including attorneys' fees and costs, arising out of or in connection
with claims made by any other broker or individual for commissions or fees
resulting from Lessee's execution of this Lease.
20.2 Commission. Lessor shall pay the commission due to Bishop Hawk in
connection with this Lease in four installments of Fifteen Thousand Eight
Hundred Twenty-Four and 19/100ths Dollars ($15,824.19) each on the following
terms and conditions. Lessor shall pay the first installment to Bishop Hawk on
execution of this Lease by Lessor and Lessee. Lessor shall pay the second
installment or before the first day of the thirteenth (13th) month of the Term,
the third installment on or before the first day of the twenty-fifth (25th)
month of the Term, and the fourth and final installment on or before the first
day of the thirty-seventh (37th) month of Term; provided, however, that the
second, third and fourth installments of the commission, as applicable, shall be
paid to Bishop Hawk only if Lessee has not been in default of any material
provision of this Lease during the previous twelve (12) month period.
ARTICLE 21
MISCELLANEOUS PROVISIONS
21.1 Waiver. No waiver of any default of any of the covenants or
conditions of this Lease shall be construed to be a waiver of any other default
or to be a consent to any further or succeeding default of the same or other
covenant or condition. The subsequent acceptance of rent hereunder by Lessor
shall not be deemed to be a waiver of any preceding default by Lessee of any
term, covenant or condition of this Lease, other than the failure of Lessee to
pay the particular rent so accepted, regardless of Lessor's knowledge of such
preceding default at the time of acceptance of such rent.
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<PAGE> 26
21. 2 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall be binding upon and shall inure to the benefit of the
heirs, personal representatives, successors and assigns of the parties.
21.3 Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and either
personally delivered or sent by certified mail, return receipt requested,
postage prepaid, properly addressed to Lessor c/o The Martin Group, at 4637
Chabot Drive, Suite 218, Pleasanton, CA 94588, and to Lessee at the Premises, or
at such other address as may from time to time be designated in like manner by
one party to the other. Any such notice shall be deemed given when personally
delivered or on the date indicated on the Postal Service's certified mail
receipt.
21.4 Partial Invalidity. If for any reason any provision of this Lease
shall be determined to be invalid or inoperative, the validity and effect of the
other provisions hereof shall not be affected thereby.
21.5 Number and Gender. All terms in this Lease shall be construed to
mean either the singular or the plural, masculine, feminine or neuter, as the
situation may demand.
21.6 Descriptive Headings. The headings used herein and in any of the
documents attached hereto as schedules, lists or exhibits are descriptive only
and for the convenience of identifying provisions, and are not determinative of
the meaning or effect of any such provisions.
21.7 Time is of the Essence. In all matters time is of the essence in
the performance of all obligations under this Lease.
21.8 Entire Agreement. This Lease and the documents attached hereto as
schedules, lists or exhibits, constitute the entire agreement and understanding
between the parties with respect to the subject matters herein and therein, and
supersede and replace any prior agreements and understandings, whether oral or
written, between and among them with respect to the lease of the Premises,
rental therefor, use thereof and all other such matters. The provisions of this
Lease may be waived, altered, amended or repealed in whole or in part only upon
the written consent of Lessor and Lessee.
21.9 Memorandum of Lease. Lessor and Lessee mutually agree that they
will not file or record a copy of this Lease, but that in the event Lessor
requests a recording, Lessor and Lessee shall execute and acknowledge a
memorandum of this Lease in a form approved by the parties setting forth in said
memorandum the description of the Premises, the date of the Lease, the
Commencement Date and the date of termination. Said memorandum of Lease may be
recorded in the Recorder's Office of the County in which the Premises are
located.
21.10 Applicable Law. This Lease shall be construed and interpreted in
accordance with the laws of the State of California, without giving effect to
any doctrine of renvoi or other doctrine of conflicts of law.
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<PAGE> 27
2.11 Corporate Authority. Each individual executing this Lease on behalf
of a corporation represents and warrants that he is duly authorized to execute
and deliver this Lease on behalf of the corporation in accordance with a duly
adopted resolution of the Board of Directors of the corporation, and that this
Lease is binding upon said corporation in accordance with its terms.
21.12 Litigation Expense. If any party shall bring an action against any
other party hereto by reason of the breach of any covenant, warranty,
representation or condition hereof, or otherwise arising out of this Lease or
any schedule, list or exhibit hereto, whether for declaratory or other relief,
the prevailing party in such suit shall be entitled to such party's costs of
suit and reasonable attorneys' fees, which shall be payable whether or not such
action is prosecuted to judgment.
21.13 Subordination of Leasehold. Lessee agrees that this Lease is and
shall be, at all times, subject and subordinate to the lien of any mortgage or
other encumbrances which Lessor may create against the Premises or the Property,
or both, including all renewals, replacements and extensions thereof, provided,
however, that regardless of any default under any such mortgage or encumbrance
or any sale of the Premises under such mortgage, so long as Lessee performs all
covenants and conditions of this Lease and continues to make all payments
hereunder, this Lease and Lessee's possession and rights hereunder shall not be
disturbed by the mortgagee or anyone claiming under or through such mortgagee.
Lessee agrees to execute any and all instruments in writing which may be
required by Lessor to subordinate Lessee's rights to the lien of such mortgage.
Lessee's subordination is only effective in favor of a future lender so long as
such lender, on behalf of itself and any purchaser at a foreclosure sale, agrees
in writing to recognize all rights of Lessee under the Lease.
21.14 Lessee's Remedy. If, as a consequence of a default by Lessor under
this Lease, Lessee recovers a money judgment against Lessor, such judgment shall
be satisfied only out of the proceeds of sale received upon execution of such
judgment and levied thereon against the right, title and interest of Lessor in
the Building and out of rent or other income from such property received by
Lessor, or out of consideration received by Lessor from the sale or other
disposition of all or any part of Lessor's right, title or interest in the
Building, and neither Lessor nor its agents shall be liable for any deficiency.
21.15 Unrelated Business Income. Lessor shall have the right at any
time, and from time to time to unilaterally amend the provisions of this Lease
if Lessor is advised by its counsel that all or any portion of the monies paid
by Lessee to Lessor hereunder are, or may be deemed to be, unrelated business
income within the meaning of the United States Internal Revenue Code or
regulations issued thereunder, and Lessee agrees that it will execute all
documents or instruments necessary to effect such amendment or amendments,
provided that no such amendment shall result in Lessee having to pay in the
aggregate more money on account of its occupancy of the Premises or materially
increase Lessee's obligations under the terms of this Lease as so amended and
provided further, that no such amendment or amendments shall result in Lessee
receiving under the provisions of this Lease less services than it is entitled
to receive, nor services of a lesser quality.
21.16 Lessee's Certificate. Within fifteen (15 )days following Lessor's
request, Lessee shall complete, execute and deliver to Lessor a Lessee's
Certificate setting forth the information requested
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<PAGE> 28
therein relating to this Lease and Lessor's and Lessee's obligations thereunder.
Failure of Lessee to deliver such certificate within said fifteen (15) days
shall be deemed to be an acknowledgment that Lessor is not in default under the
Lease, and that the terms of the Lease have not been modified or supplemented in
any way. It is intended that such certificate may be relied upon by any
prospective purchaser, lender, or assignee of any lender of the Premises.
21.17 Attornment. Lessee shall, in the event of any sale of the Premises
or if proceedings are brought for the foreclosure of, or in the event of
exercise of the power of sale under, any mortgage, installment land contract or
deed of trust made by Lessor covering the Premises, attorn to the mortgagee or
the purchaser upon any such foreclosure or sale and recognize such mortgagee or
purchaser as Lessor under this Lease.
LESSOR LESSEE
Teachers Insurance and Annuity Quintus, Inc., a California corporation
Association of America, a New York
corporation By /s/ ALAN K. ANDERSON
--------------------------------------
By /s/ [SIGNATURE ILLEGIBLE] its PRESIDENT, CEO
-------------------------------- -------------------------------------
its ASST. SECRETARY
-------------------------------
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<PAGE> 29
[MAP]
EXHIBIT A
<PAGE> 1
EXHIBIT 10.7
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (the "SUBLEASE") is entered into effective as of
December 19, 1996, by and between PAVILION TECHNOLOGIES, INC. ("SUBLESSOR"), a
Texas corporation, and ICHAT, a Texas Corporation, ("SUBLESSEE") on the
following terms and conditions:
RECITALS:
A. Security Capital Industrial Trust ("LANDLORD") and Sublessor entered
into a certain Lease Agreement dated February 27, 1996 (hereinafter referred to
as the "LEASE") for the lease of approximately 89,438 rentable square feet of
the building known as Braker # 7 located at Braker Center, 11100 Metric Blvd.,
Austin, Texas 78758 (hereinafter referred to as the "PREMISES").
B. Sublessor desires to sublease a portion of the Premises to Sublessee
on the terms and conditions set forth herein.
C. In connection with the Sublease, Sublessor represents and warrants, to
the best of its knowledge, as follows: (i) the Lease is in full force and
effect; (ii) Sublessor has not received any notice of default from Landlord and
is not aware of any condition which would, with the passage of time, be an
event of default under the Lease; and (iii) Sublessor has not mortgaged or
collaterally assigned its interest in the Lease of the Premises.
NOW, THEREFORE, with reference to the foregoing recitals which are hereby
incorporated in and made a part of this Sublease and in consideration of the
agreements and covenants set forth herein, Sublessor and Sublessee agree as
follows:
1. Sublease of Premises: Possession. Sublessor, in consideration of the
rents reserved and covenants agreed to be kept and performed by Sublessee,
hereby subleases to Sublessee, and Sublessee subleases from Sublessor
approximately 17,002 rentable square feet of the Premises as shown in "Exhibit
A" on the terms and conditions hereinafter set forth (hereinafter referred to as
"SUBLEASED PREMISES"), together with a non-exclusive right for Sublessee, its
customers, guests, invitees, employees, agents and licensees to us all easements
rights and privileges appurtenant thereto, including the right to use the
parking areas, driveways, roads, alleys and other portions of the "COMMON AREAS"
(herein so called) as reflected on the Attached "Exhibit A". Sublessee hereby
expressly agrees to perform any and all obligations and covenants required
hereunder for the term hereof.
2. Subordinate to Lease. This Sublease is and shall be subject and
subordinate to the Lease. Nothing contained in the Sublease shall be construed
to create privity of estate or of contract between Sublessee and Landlord.
1
<PAGE> 2
3. Premises Condition. Sublessee accepts the Subleased Premises in their
present condition as of the Commencement Date (as hereinafter defined), subject
to all applicable legal restrictions, the rules and regulations affecting the
Premises promulgated by Landlord from time to time and the terms, conditions and
provisions of this Sublease. Sublessor has made no warranty or representation
as to the suitability of the Subleased Premises for the conduct of Sublessee's
business. The taking of possession of the Subleased Premises by Sublessee shall
evidence Sublessee's acceptance of the Subleased Premises and shall estop
Sublessee from claiming that the Subleased Premises were not in good repair and
condition at the time of the Commencement Date. Sublessee agrees to assume all
costs imposed on Sublessor by Landlord or an authorized agent thereof to make
all Alterations, as defined in Section 22 of this Sublease, in compliance with
applicable federal, state or local laws and regulations, including but not
limited to the American's with Disabilities Act (ADA), CERCLA, all applicable
OSHA regulations and any other applicable laws, regulations or ordinances.
Sublessee acknowledges and agrees that it has inspected the Premiss and agrees
to accept same in its present condition, "AS IS" and "WITH ALL FAULTS."
4. Term. The term of this Sublease shall commence on February 1, 1997,
but in no case later than Feb. 16, 1997 ("COMMENCEMENT DATE"), upon delivery of
the Subleased Premises to Sublessee, free of all tenancies except for
Sublessor's interest in the Lease and terminate at midnight (12:00 a.m.) on
July 31, 1998. Notwithstanding the foregoing, Sublessee may terminate this
Sublease after April 30, 1998 by providing six (6) months advance prior written
notice to Sublessor of Sublessee's intent to cancel this Sublease and the
effective date of early termination. In the event Sublessor does terminate this
Sublease prior to July 31, 1998, pursuant to the terms of this paragraph,
Sublessee will pay Sublessor the amount of Sublessor's costs (tenant
improvements and leasing commissions) which are unamortized as of the early
termination date.
5. Rental.
(a) The rental during the Sublease for the Subleased Premises will
be in the amount of $11,901.40 per month (calculated at $.70 per sq.
ft.) ("FIXED RENT").
(b) Sublessee acknowledges that the Subleased Premises constitute a
portion of the overall Premises leased by Sublessor pursuant to the
terms and conditions of the Lease which provide that Sublessor shall
be responsible for and pay on a monthly basis to Landlord its
proportionate share of operating expenses for the building and
project of which the Premises are a part in addition to all of the
expenses incurred directly by Sublessor in connection with the use
and operation of the Premises. Accordingly, Sublessee agrees to be
responsible for and timely pay Sublessor for Sublessee's
proportionate share of all expenses, including but not limited to,
common area costs and expenses, real estate and personal property
taxes, insurance premiums, utility costs and expenses, all other
costs and expenses passed through or charged to Sublessor by Landlord
under the Lease and other items as expressly discussed herein (such
items are collectively referred to herein as "ADDITIONAL RENT").
Sublessee agrees in addition to Fixed Rent, to pay Sublessor in
advance on the first day of every month hereunder commencing on the
Commencement Date one-twelfth (1/12) of the estimated annual
Additional Rent.
2
<PAGE> 3
In January of each year, Sublessor shall provide Sublessee with a
written compilation and computation of the expected operating expenses
and other items constituting Additional Rent for the succeeding year.
By March 1 of each year, Sublessor agrees to provide Sublessee with a
written summary together with supporting information of the prior
year's expenses. Any overage paid by Sublessee in the prior year shall
be credited to the next owed payment of Additional rent.
Alternatively, in the event of any underpayment, Sublessee agrees to
pay such amount to Sublessor within fifteen (15) days of receipt of
such written computation and request therefor.
Sublessor agrees to use reasonable efforts to minimize all such
expenses and to fairly and accurately estimate future years' Additional
Rent (including operating expenses). At this time, annual operating
expenses (on a rentable square footage basis) are estimated to be as
follows:
<TABLE>
<S> <C>
Common area maintenance $0.297
Taxes 1.089
Insurance 0.048
Other 0.283
------
TOTAL: $1.717/sq. ft.
</TABLE>
with Sublessee's proportionate share estimated to be $0.1431 per
rentable square foot per month for a total Additional Rent of $2400.50
per month, (please note that this amount does not include Sublessee's
proportionate share of utilities discussed in paragraph 10 below).
(c) Sublessee shall pay all payments required hereunder promptly when
due without notice or demand, without set-off, deduction or
counterclaim of any nature or reason, except as set forth herein.
Sublessee agrees to remit to Sublessor all other costs, charges and
expenses required under the Lease which are deemed rent thereunder.
Sublessee waives and disclaims any present or future right to apply any
payment or part-payment of rent, or to set-off or counterclaim in any
action for rent, against any obligation of Sublessor, however incurred,
and agrees that it will not claim or assert such right, set-off or
counterclaim.
(d) Fixed Rent, Additional Rent and all additional monetary
obligations (collectively referred to herein as "Rental") under the
terms of this Sublease, shall be due and payable and begin to accrue on
the Commencement Date and continue thereafter during the term hereof.
(e) Commission: Sublesser agrees to pay to Magnum Real Estate (sole
agent representing Sublessee) a commission of 4% for leasing,
expansions, renewals and extensions, on net lease revenue.
6. Uses. The Subleased Premises shall be used only for the purposes of
receiving, storing, shipping and selling (but limited to wholesale sales)
products, materials and merchandise made and/or distributed by Sublessee, use as
an engineering lab, for research and development of electronic and computer
related products and for such other lawful purposes as may be incidental
thereto; provided, however, with Sublessor's prior written consent which may not
be
3
<PAGE> 4
unreasonably withheld, conditioned or delayed, Sublessee may also use the
Subleased Premises for light manufacturing. Sublessee shall not conduct or give
notice of any auction, liquidation, or going out of business sale on the
Subleased Premises. Sublessee shall not permit any objectionable odors, smoke,
dust, noise, gas, vibration or any other nuisance. Outside storage of trucks
and other vehicles is prohibited without the express written consent of
Sublessor. Sublessee shall at its own expense use and occupy the Subleased
Premises in compliance with all laws, including without limitation, the
Americans with Disabilities Act (ADA), orders, judgments, ordinances,
regulations, codes, directives, permits, licenses, covenants and restrictions
now or hereafter applicable to the Subleased Premises. Sublessee will not use
or permit the use of the Subleased Premises in a manner that would be
inconsistent with the insurance of Sublessor or Landlord. Sublessee shall at
all times operate and occupy the Subleased Premises in a safe and proper manner
and will not commit waste or overload the floor or structure or perform or
permit anyone to perform an act which would damage the Subleased Premises.
7. Services. If an interruption in services shall occur, Sublessee shall
immediately provide simultaneous notice to Sublessor and Landlord. Sublessor
shall in no event be liable to Sublessee for Landlord's or Sublessor's failure
to provide any services, amenities and rights nor shall any such failure be
construed as a breach hereof by Sublessor or an eviction of Sublessee or
entitle Sublessee to an abatement of any of the Rentals under this Sublease,
except and only to the extent that Sublessor receives an abatement under the
Lease with respect thereto.
8. Disclaimer of Warranties. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
HEREIN, SUBLESSEE ACKNOWLEDGES THAT SUBLESSOR HAS NOT MADE OR WILL MAKE ANY
REPRESENTATIONS OR WARRANTIES TO SUBLESSEE WITH RESPECT TO THE QUALITY OF
CONSTRUCTION OF ANY LEASEHOLD IMPROVEMENTS OR TENANT FINISH WITHIN THE
SUBLEASED PREMISES OR AS TO THE CONDITION OF THE SUBLEASED PREMISES, EITHER
EXPRESS OR IMPLIED, AND THAT SUBLESSOR EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTY
THAT THE SUBLEASED PREMISES ARE OR WILL BE SUITABLE FOR SUBLESSEE'S INTENDED
COMMERCIAL PURPOSES. SUBLESSEE'S OBLIGATION TO PAY RENTALS UNDER THIS SUBLEASE
IS NOT DEPENDENT UPON THE CONDITION OF THE SUBLEASED PREMISES (NOW OR IN THE
FUTURE) OR THE PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS UNDER THE LEASE OR BY
SUBLESSOR UNDER THIS SUBLEASE, AND SUBLESSEE SHALL CONTINUE TO PAY THE RENTALS
HEREUNDER WITHOUT ABATEMENT, SET OFF OR DEDUCTION NOTWITHSTANDING ANY BREACH BY
SUBLESSOR OF ITS DUTIES OR OBLIGATIONS UNDER THE SUBLEASE, WHETHER EXPRESS OR
IMPLIED.
9. Repairs and Maintenance. Except for Landlord's obligation of repair
under the Lease regarding structural soundness of the roof, foundation, or
exterior walls of the building in which the Premises is located, Sublessee
covenants and agrees that it shall maintain or cause to be maintained, the
Subleased Premises in good order and repair. Landlord under the Lease has also
agreed to maintain in good repair and condition the parking area and other
common areas of the building. In the event of any repairs, or maintenance that
Sublessee deems to be the responsibility of Landlord, Sublessee shall provide
written notice to both Landlord and Sublessor setting out in detail the repairs
and/or maintenance requested. Sublessor shall have no liability
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to Sublessee resulting from any failure to repair or maintain by Landlord or
resulting from any interruption of utility service to the Subleased Premises,
unless such interruption is caused, in whole or in part, by the negligence or
misconduct of Sublessor.
10. Utilities. Sublessee shall be responsible for all charges for
electricity and gas used in the Subleased Premises as the Subleased Premises are
monitored by a separate meter which does not monitor any other portion of the
Premises. In addition, Sublessee shall be responsible for its pro-rata share of
all other utilities, including but not limited to, sewer, sprinkler services and
other utilities and services used on the Subleased Premises, all maintenance
charges for utilities, and any storm sewer charges or other similar charges
imposed by any governmental entity or utility provider. Sublessee acknowledges
and agrees that it may share various utility meters servicing the Premises with
other sub-tenants and Sublessor, other than the electricity and gas meter
referenced above, and that each user of such meter and corresponding utility
service shall be responsible for and pay for its proportionate share of such
utility service. Sublessee agrees to independently contract for and be solely
responsible for the following services and utilities: telephone, HVAC
maintenance, refuse/trash collection and janitorial. Sublessee agrees to limit
water and sewer use to normal restroom facilities.
11. Taxes on Personalty and Sublease Improvements. Sublessee shall pay
all ad valorem and similar taxes or assessments levied upon or applicable to
all equipment, fixtures, furniture, and other property placed in or on the
Subleased Premises by Sublessee and all license and other fees or charges
imposed on the business conducted by Sublessee on the Subleased Premises.
Sublessee is solely responsible for any increase in ad valorem taxes or other
charges which result from modifications made to the Subleased Premises by
Sublessee or for any failure to modify the Subleased Premises which results in
increased taxes, fines or other penalties. Sublessor shall have the right (but
not the obligation) to pay any such additional costs and to recover them from
Sublessee after presenting a written statement that such sum is due.
12. Sublessee Improvements. Sublessee Improvements. Sublessor and
Sublessee agree that each will provide a dollar-for-dollar matching finish out
allowance of up to a total of $25,000 each in order to accommodate any
improvements to the Subleased Premises, including municipal permits, and
architectural and engineering fees incurred by Sublessee. Sublessee shall
install or retain, as part of the above referenced improvements, a coffee bar
with a sink within the Subleased Premises. Sublessor will reimburse Sublessee
to the extent provided above for approved sublease improvements and related
costs and expenses within thirty (30) days of Sublessor's receipt of written
request therefor accompanied by suitable supporting documentation. Sublessee
will ensure that all improvements and alterations made to the Subleased
Premises comply with all applicable codes and ordinances. Sublessor agrees to
make available to Sublessee, at no cost to Sublessee, the carpet tiles
currently stored by Sublessor. Sublessee may not make or cause to be made any
improvements or alterations to the Subleased Premises without the prior
approval of Sublessor and Landlord. Sublessee must provide Sublessor with
as-built drawings of any improvements Sublessee makes to the Subleased Premises.
13. Parking. Sublessee shall be entitled to park in common areas with
other tenants of the Premises in those areas designated for non-reserved
parking. Sublessor shall have no
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obligation or responsibility for enforcing Sublessee's parking rights, and
Sublessee acknowledges that Landlord ultimately controls all parking areas.
Sublessee shall have access to one (1) parking space for every three hundred
and seventy (370) rentable square feet leased by it. Sublessee agrees to
require its non-officer employees to park in the area located behind the
building. Sublessee acknowledges that all deliveries to the Subleased Premises
are to utilize the truck court and that no trucks, trailers, delivery vehicles
or similar vehicles are allowed to be parked in the common areas for any period
other than as necessary for delivery.
14. Signage. Sublessee shall not make any changes to the exterior of the
Premises, or install any lights, decorations, signs, painting, advertising or
any other item of a similar nature without the prior written consent of
Sublessor and Landlord. For any approved signage or other item, Sublessee shall
be solely responsible for all expenses of installation and securance of any and
all required municipal permits. Subject to Sublessor's and Landlord's design
approval, Sublessee shall be entitled to signage on the monument directory and
at the entrance to the Subleased Premises.
15. Insurance, Taxes, Other Charges.
(a) Sublessor, under the terms of the Lease has agreed to carry or cause to
be carried on the Premises during the term hereof, commercial general liability
insurance and all risk property insurance for the Premises and Sublessor's
improvements located therein. During the term of this Sublease, Sublessee agrees
to reimburse Sublessor for Sublessee's proportionate share of Sublessor's annual
total cost for the premiums for Sublessor's insurance which shall be due and
payable in advance as follows: (i) commencing on the Commencement Date, and
continuing on the first day of each month thereafter, Sublessee shall pay
monthly to Sublessor, Sublessee's proportionate share of the cost for the
premiums of such insurance, and (ii) any additional amounts for Sublessee's
proportionate share shall be paid within fifteen (15) days of written request
therefore from Sublessor;
(b) Sublessee, at its expense, shall maintain during the term of this
Sublease the following: all risk property insurance covering the full
replacement cost of all property and improvements installed or placed in the
Subleased Premises by Sublessee; workers' compensation insurance with no less
than the minimum limits required by law, if applicable; employer's liability
insurance with such limits as are required by law and commercial liability
insurance, with the minimum limit of $1,000,000 per occurrence and a minimum
umbrella limit of $1,000,000, for a total minimum combined general liability and
umbrella limit of $2,000,000 (together with such additional umbrella coverage as
Landlord and/or Sublessor may reasonably require) for property damage, personal
injuries, or deaths of persons occurring in or about the Subleased Premises. The
commercial liability policies shall name Landlord and Sublessor as additional
insureds, insure on an occurrence and not a claims-made basis, issued by
insurance companies which are reasonably acceptable to Landlord and/or
Sublessor, not be cancelable unless thirty (30) days prior written notice shall
have been given to Landlord, contain a hostile fire endorsement and contractual
liability endorsement and provide primary coverage to Landlord and Sublessor
(any policy issued to Landlord and Sublessor providing duplicate or similar
coverage shall be deemed excess over
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Sublessee's policies). Such policies or certificates thereof shall be delivered
to Sublessor by Tenant upon commencement of the sublease term and upon each
renewal of said insurance.
(c) The all risk property insurance obtained by Landlord, Sublessor
and Sublessee shall each include a waiver of subrogation and recovery by the
insurers and all rights based upon an assignment from its insured, against
Landlord, Sublessor or Sublessee, their officers, directors, employees,
managers, agents, invitees and contractors, in connection with any loss or
damage thereby insured against. None of the parties nor their respective
officers, directors, employees, managers, agents, representatives, invitees or
contractors shall be liable to the others for loss or damage caused by any risk
coverable by All Risk Property Insurance, and each party waives any claims
against the other party, and its officers, directors, employees, managers,
agents, representatives, invitees and contractors, for such loss or damage.
Sublessor and its agents, employees and contractors shall not be liable for, and
Sublessee hereby waives all claims against such parties for, business
interruption and losses occasioned thereby sustained by Sublessee or any person
claiming through Sublessee resulting from any accident or occurrence in or upon
the Premises from any cause whatsoever, including without limitation, damage
caused in whole or in part, directly or indirectly, by the negligence of
Landlord, or Sublessor, or their respective agents, representatives, employees
or contractors.
(d) Sublessee and its invitees, employees, contractors and
agents shall not be liable for, and Sublessor hereby waives all claims against
Sublessee and its invitees, employees, contractors and agents for damage to
property sustained by Sublessor or any person claiming through Sublessor
resulting from any accident or occurrence in or upon the Subleased Premises,
from any cause whatsoever, including, without limitation, damage in whole or in
part, directly or indirectly, by the negligence of Sublessee or its invitees,
employees, contractors or agents; provided, however, such waiver shall only
apply to claims in excess of the commercially reasonable deductible under
Sublessor's insurance policy.
(e) Sublessor covenants and agrees to indemnify and save
Sublessee, its employees and agents, harmless of and from any and all claims,
costs, expenses and liabilities, including, without limitation, attorneys' fees,
arising on account of or by reason of claims by third parties for injuries or
death to persons or damages to property resulting from the negligence or willful
misconduct of Sublessor or its agents, employees or contractors, to the extent
not attributable to any negligence of Sublessee, or its employees, agents or
contractors. If a claim under the foregoing indemnity is made against the
indemnitee which the indemnitee believes to be covered by an indemnitor's
indemnification obligation hereunder, the indemnitee shall promptly notify the
indemnitor of the claim and, in such notice, shall offer to the indemnitor the
opportunity to assume the defense of the claim within 10 business days after
receipt of the notice (with counsel reasonably acceptable to the indemnitee). If
the indemnitor timely elects to assume the defense of the claim, the indemnitor
shall have the right to settle the claim on any terms it considers reasonable
and without indemnitee's prior written consent, as long as the settlement shall
not require the indemnitee to render any performance or pay any consideration,
and the indemnitee shall not have the right to settle any such claim. If the
indemnitor fails to timely elect to assume the defense of the claim or fails to
defend the claim with diligence, then the indemnitee shall have the right to
take over the defense of the claim and to settle the claim on any terms the
indemnitee
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considers reasonable. Any such settlement shall be valid as against the
indemnitor. If the indemnitor assumes the defense of a claim, the indemnitee may
employ its own counsel but such employment shall be at the sole expense of the
indemnitee. If any such claim arises out of the negligence of both Sublessor and
Sublessee, responsibility for such claim shall be allocated between Sublessor
and Sublessee based on their respective degrees of negligence. This indemnity
does not cover claims arising from the presence or release of Hazardous
Materials.
16. Fire or Other Casualty. If the Subleased Premises are destroyed in
whole or in part by fire or other casualty at any time during the Sublease and
if after such damage or destruction, Sublessee, in its reasonable judgment, is
not able to use Subleased Premises to substantially the same extent and for
substantially the same purposes as Sublessee used the Subleased Premises before
the fire or other casualty, Sublessee simultaneously shall give to Sublessor
and Landlord written notice describing in reasonable detail the destruction. If
the damage is not the result of negligence on the part of Sublessee, its
agents, employees, or invitees and the Landlord terminates the Lease, this
Sublease shall automatically terminate. If Landlord elects to restore or repair
the damage so that the Subleased Premises are substantially the same as before
the damage, the Sublease shall continue in effect in accordance with its terms,
except that if Sublessor receives any abatement in rent, Sublessee shall
receive an abatement in its Rental equal to the same percentage abatement
received by Sublessor. If the damage is a result of the negligence of Sublessee
or any of its agents, employees or invitees, then this Sublease shall continue
in full effect in accordance with its terms with no abatement in the Rental.
Sublessee shall furthermore be liable either to Sublessor or Landlord, at
Sublessor's election, for all costs incurred in repairing or replacing the
damage caused by the negligent action of Sublessee, its agents, employees, or
invitees. SUBLESSEE ALSO AGREES TO INDEMNIFY SUBLESSOR FOR ANY AND ALL CLAIMS
MADE AGAINST SUBLESSOR BY LANDLORD OR ANY OTHER PARTY, WHETHER SOUNDING IN
CONTRACT, TORT, OR ANY OTHER LEGAL DOCTRINE, WHICH CLAIMS ARISE IN ANY MANNER
FROM THE DAMAGE CAUSED BY THE SUBLESSEE'S, ITS AGENTS', EMPLOYEES',
REPRESENTATIVES OR INVITEES' NEGLIGENCE.
17. Environmental Requirements. Except for Hazardous Materials (as
hereinafter defined) contained in de minimis quantities for ordinary cleaning
or office purposes, Sublessee shall not permit or cause any party to bring any
Hazardous Material upon the Subleased Premises or to transport, store, use,
generate, manufacture or release any Hazardous Material in or about the
Subleased Premises without the prior written consent of Sublessor. Sublessee,
at its sole cost and expense shall operate its business in strict compliance
with all Environmental Requirements (as hereinafter defined) and shall remedy in
a manner satisfactory to Sublessor any Hazardous Material released on or from
the Subleased Premises by Sublessee, its agents, employees, representatives, or
invitees. Sublessee shall complete and certify to disclosure statements as
reasonably requested by Sublessor from time to time relating to Sublessee's
transportation, storage, use, generation, manufacture or release of Hazardous
Materials on the Subleased Premises. The term "ENVIRONMENTAL REQUIREMENTS"
means all applicable present and future statutes, regulations, ordinances,
codes, judgments, orders or other similar enactments of any governmental
authority or agency regulating or relating to health, safety, environmental
conditions on, under, or about the Premises, including the Subleased Premises,
including, but not limited to,
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the following: Comprehensive Environmental Response, Compensation and Liability
Act; Resource Conservation and Recovery Act; and all state and local laws which
are counterparts or related thereto and any regulations or policies promulgated
thereunder. "HAZARDOUS MATERIALS" include, but are not limited to; substances,
materials, waste, pollutant, or contaminant listed or defined as hazardous or
toxic, under any Environmental Requirements, asbestos, petroleum, including
crude oil or any fraction thereof, natural gas liquids, liquefied natural gas,
or synthetic gas usable for fuel. As defined in Environmental Requirements,
Sublessee is and shall be deemed to be the operator of the Sublessee's
facility, and the owner of all Hazardous Material brought on the Subleased
Premises by Sublessee, its agents, employees, or invitees and the waste,
by-products, or residues generated, resulting or produced therefrom.
Sublessee shall indemnify, defend and hold Sublessor harmless from and
against any and all losses, claims, demands, actions, suits, damages, expenses
including without limitation repair, remediation, removal, or clean-up
expenses, and costs which are brought or recoverable against or suffered or
incurred by Sublessor as a result of the release of Hazardous Materials for
which Sublessee is obligated to remedy as provided above or other breach of the
requirements under this Sublease by Sublessee, its agents, employees, or
invitees, regardless of whether Sublessee had any knowledge of this
noncompliance. THE OBLIGATIONS OF SUBLESSEE UNDER THIS PARAGRAPH SHALL SURVIVE
THE TERMINATION OR EXPIRATION OF THIS SUBLEASE.
Sublessor shall have access to, and a right to perform inspections and
tests on the Subleased Premises to determine Sublessee's compliance with the
Environmental Requirements and other obligations under this provision. Access
shall be granted to Sublessor upon Sublessor's prior written notice to
Sublessee and at such times as to minimize, so far as may be reasonable under
the circumstances, any interference with Sublessee's business. Such inspections
shall be conducted at Sublessor's expense unless the tests demonstrate that
Sublessee has failed to comply with the provisions of this section, in which
case Sublessee shall reimburse Sublessor for all costs incurred for the
inspection and the tests. Sublessor's receipt of or satisfaction with any
environmental assessment in no way waives any rights that Sublessor holds
against Sublessee.
18. Default by Sublessee; Remedies of Sublessor. In case of any breach
hereunder by Sublessee, in addition to all other rights of Sublessor hereunder
or available to Sublessor at law or equity, Sublessor shall have all the rights
against Sublessee as would be available to Landlord against Sublessor under the
Lease if such breach were by Sublessor thereunder. If Sublessee defaults in the
timely and satisfactory performance of any of the terms and provisions hereof
and Sublessor places the enforcement of this Sublease in the hands of an
attorney, Sublessee agrees to reimburse Sublessor for all reasonable costs and
expenses incurred by Sublessor as a result thereof including, but not limited
to, reasonable attorneys' fees and court costs.
19. Sublessor's Right to Perform Sublessee's Obligations. Upon default,
in addition to any other rights that Sublessor has under this Sublease or at
law or in equity, Sublessor shall have the right but not the obligation to
perform all or any part of such obligations of Sublessee. Upon a receipt of the
demand therefor from Sublessor, Sublessee shall reimburse Sublessor for the
reasonable costs to Sublessor of performing such obligations plus the interest
thereon at the
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maximum rate of interest at which Sublessee may lawfully contract in Texas from
the date such costs are paid by Sublessor until Sublessee reimburses Sublessor.
20. Indemnity by Sublessee. Sublessee shall indemnify and hold Sublessor,
its officers, directors, shareholders, representatives, agents and employees,
free and harmless of and from any and all demands, claims, causes of action,
fines, penalties, losses, liabilities, judgments and expenses (including
without limitation, attorney's fees and court costs) incurred, directly or
indirectly, in connection with or arising from: (a) the use or occupancy of the
Subleased Premises by Sublessee or any person claiming under Sublessee; (b) any
activity, work or thing done, or permitted or suffered by Sublessee in or about
the Subleased Premises; (c) any acts, omissions or negligence of Sublessee or
any person claiming under Sublessee, or the contractors, agents, employees,
invitees, or visitors of Sublessee or any such person; or (d) any breach,
violation or nonperformance by Sublessee or any person claiming under Sublessee
or the employees, agents, contractors, invitees, or visitors of Sublessee or
any such person of any term, covenant or provision of this Sublease, or any
law, ordinance or government requirement of any kind. If any action or
proceeding is brought against Sublessor, its employees or agents by reason of
any such claim, Sublessee, upon notice from Sublessor, shall defend the claim
at Sublessee's expense with counsel reasonably satisfactory to Sublessor. The
obligations of Sublessee under this paragraph shall survive the termination or
expiration of this Sublease.
21. Indemnity by Sublessor. Sublessor shall indemnify and hold Sublessee,
its officers, directors, shareholders, representatives, agents and employees,
free and harmless of and from any and all demands, claims, causes of action,
fines, penalties, damages, losses, liabilities, judgments and expenses
(including without limitation, attorney's fees and court costs) incurred in
connection with or arising from: (a) the prior use or occupancy of the Premises
by Sublessor or any person claiming under Sublessor; (b) any activity, work or
thing done, or permitted or suffered by Sublessor in or about the Premises; (c)
any acts, omissions or negligence of Sublessor or any person claiming under
Sublessor, or the contractor, agents, employees, invitees, or visitors of
Sublessor or any such person; or (d) any breach, violation or nonperformance by
Sublessor or any person claiming under Sublessor or the employees, agents,
contractors, invitees, or visitors of Sublessor or any such person of and term,
covenant or provision of this Sublease, or any law, ordinance or government
requirement of any kind. If any action or proceeding is brought against
Sublessee, its employees or agents by reason of any such claim, Sublessor, upon
notice from Sublessee, shall defend the claim at Sublessor's expense with
counsel reasonably satisfactory to Sublessee.
22. Alterations.
(a) Any alterations, additions or improvements made by or on behalf of
Sublessee to the Subleased Premises ("ALTERATIONS"), other than those
specifically approved herein, shall be subject to Landlord's and Sublessor's
prior written consent, which may be withheld in the sole discretion of Landlord
or Sublessor, respectively. Sublessee shall cause, at its sole expense, all
Alterations to comply with insurance and all legal requirements and shall be
constructed at Sublessee's sole cost and expense. All approved Alterations
shall be constructed in a good and workmanlike manner by contractors reasonably
acceptable to Sublessor and only good grades of
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material shall be used. Any and all plans and specifications for any
alterations shall be submitted to Sublessor for its approval. Sublessor may
monitor construction of the Alterations. Sublessor's right to review plans and
specifications and to monitor construction shall be solely for its own benefit,
and Sublessor shall have no duty to see that such plans and specifications or
construction comply with applicable laws, codes, rules and regulations.
Sublessee agrees to furnish security or make other arrangements reasonably
satisfactory to Sublessor to assure payment for the completion of all work,
free and clear of any and all liens and shall provide certificates of insurance
in amounts and from an insurance company satisfactory to Sublessor protecting
Sublessor and Landlord against liability from personal injury or property
damage during construction. Upon surrender of these Subleased Premises, all
alterations and any leasehold improvements constructed by Sublessor or
Sublessee shall remain on the Subleased Premises as Sublessor's property,
except to the extent Sublessor or Landlord requires removal at Sublessee's
expense of any such items or to which Sublessor or Landlord have otherwise
agreed in writing in connection with Sublessor's consent to any Alterations.
Sublessee shall repair any and all damage caused by such removal.
(b) Sublessee, at its own cost and expense and without need for
Sublessor's prior written approval, may erect such shelves, bins, machinery and
trade fixtures (collectively "TRADE FIXTURES") in the ordinary course of its
business provided that such items do not alter the basic character of the
Subleased Premises, do not overload or damage the Subleased Premises, and may
be removed without injury to the Premises, and the construction, erection and
installation thereof complies with all legal requirements and with Sublessor's
requirements set forth above. Sublessee shall remove its Trade Fixtures and
shall repair and all damage caused by such removal.
(c) Sublessor and Sublessee acknowledge and agree that Sublessee will
submit plans and specifications and related items prepared by RTG Partners,
Inc. for the Subleased Premises prior to making any improvements to the
Subleased Premises. Subject to the mutual agreement between Sublessor and
Sublessee regarding such plans, both parties agree that these plans will be
utilized for the construction of the subleased improvements. There shall be no
modifications, alterations or changes to such plans by Sublessee without the
prior written consent of Sublessor, which shall be made in Sublessor's sole
discretion.
23. Waiver and Release. Sublessor and Sublessee hereby agree to waive and
release all claims, liabilities and causes of action against each other and
their respective officers, directors, shareholders, representatives, agents,
and employees for loss or damage to or destruction of, the buildings and other
improvements, fixtures, equipment, supplies, merchandise and other property,
whether that of the party or of others in, upon or situated or about the
Premises resulting from fire, explosion or other perils included in standard
extended coverage insurance, whether caused by the negligence of any of said
persons or otherwise. This waiver shall remain in full force so long as each
party's insurer shall consent thereto. The foregoing mutual waivers are given
in consideration of each other and the termination or suspension of one shall
with like effect terminate or suspend the other.
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24. Inspection. Upon 24 hours notice, except in cases of emergency,
Sublessor and its agents, representatives and contractors may enter the
Subleased Premises during business hours to inspect the Subleased Premises.
25. Consent of Landlord. This Sublease shall be void unless the consent
of the Landlord to this Sublease is obtained in writing. Sublessee agrees that
all rights and privileges granted hereunder are subject to the limitations in
the Lease and that Sublessor is not granting any rights or privileges to
Sublessee over and above those which Sublessor is entitled under the Lease.
26. Prohibition on Subletting. Sublessee is prohibited from subleasing or
assigning the Sublease, its rights thereunder, any or all of the Subleased
Premises, or in any other way encumbering or creating a lien on the Subleased
Premises.
27. Surrender of Premises. Sublessee shall, upon the expiration of the
term granted herein, or any earlier termination of the Sublease for any cause,
surrender the Subleased Premises to Sublessor, including without limitation, all
building apparatus and equipment then upon the Subleased Premises, and all
alterations, improvements and other additions which may be made or installed by
either party to, in, upon or about the Subleased Premises, other than
Sublessee's property (which shall remain the property of Sublessee), broom
clean, without any damage, injury or disturbance thereto (reasonable wear and
year, loss due to condemnation, and damage due to casualty excepted), or payment
therefor.
28. Holding Over. If Sublessee does not surrender possession of the
Subleased Premises at the end of the term of the Sublease, Sublessee shall be a
tenant-at-sufferance of the Sublessor and shall owe rent owe rent for the
duration of the holdover equal to one hundred fifty percent (150%) of the
Rentals, including Fixed Rent and Additional Rent. No holding over shall
operate to extend this Sublease and in the event of any such holdover,
Sublessee shall, in addition to all other obligations and liabilities of
Sublessee hereunder, all of which shall remain in full force while Sublessee is
a tenant-at-sufferance, indemnify, defend and hold harmless Sublessor from and
against any and all clams for damages brought by Landlord or any other tenant
or any other party.
29. Arbitration. Sublessee hereby agrees to submit all disputes arising
out of this Sublease to arbitration in accordance with the rules and procedure
of the American Arbitration Association.
30. Entire Agreement. No oral statements or prior written material not
specifically incorporated herein shall be of any force or effect. Sublessee
agrees that in entering into this Sublease, it has relied solely on the
representations and agreements contained herein. This Sublease constitutes the
entire agreement between Sublessor and Sublessee and shall in no way be modified
or otherwise altered by Sublessee without the prior written consent of
Sublessor and the Landlord.
31. Notices. All notices required or permitted to be given hereunder, or
given in regard to this Sublease by one party to the other, shall be in writing
and the same shall be given
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and be deemed to have been served and given (a) if mailed, when placed in the
United States mail, postage prepaid, by certified mail, return receipt
requested, addressed to the party to whom notice is given at the address
hereinafter specified, or (b) if hand delivered in any other manner, when
actually received by the party to whom notice is given, or (c) if sent by
facsimile, immediately upon facsimile transmittal with a copy of the notice and
proof of transmission delivered by certified mail, return receipt requested, or
(d) if sent by a nationally recognized overnight courier, one (1) day after
being deposited with such courier. Any party hereto may, at any time by giving
five (5) days' written notice to the other party hereto, designate any other
address or addressee in substitution of its specified address or addressee to
which such notices shall be given.
If to Sublessor:
Pavilion Technologies, Inc.
11100 Metric Blvd.
Broker #7, Suite 700
Austin, Texas 787
Attention: Facilities Manager
FAX (512) 438-1401
With a copy to:
Jenkens & Gilchrist
2200 One American Center
600 Congress Avenue
Austin, Texas 78701
Attention: J. Bradley Greenblum
FAX: (512) 404-3520
If to Sublessee:
ICHAT at Subleased Premises
Attention: Chief Financial Officer
FAX: (512) 349-0005
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With a copy to:
Brobeck, Phleger & Harrison LLP
301 Congress Ave., Suite 1200
Austin, TX 78701
Attention: Mike Dunn
FAX: (512) 477-5813
If to Landlord:
Security Capital Industrial Trust
c/o SCI Client Services Incorporated
9101 Wall Street, Suite 1080
Austin, Texas 78754
With a copy to:
Security Capital Industrial Trust
14100 East 35th Place
Aurora, Colorado 80011
FAX: (303) 375-8581
32. Cure of Defaults. Sublessee shall be entitled to cure any default by
Sublessor under the Lease, and shall be entitled to offset any amounts so spent
against further sums due under the Sublease, in addition to any other remedy
available at law.
33. Counterparts. This Sublease may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
34. Successor Landlord. When the term "Landlord" is used herein, such
term shall also mean any party succeeding to Landlord's interest in the Lease.
35. Liens. Sublessee agrees to not allow and to discharge any and all
liens, encumbrances or charges arising out of the work of any contractor,
mechanic, labor or laborer or material contracted for by Sublessee. If any lien
or notice of lien on account of an alleged debt of Sublessee or any notice of
contract by a party engaged by Sublessee or Sublessee's contractor to work in
the Subleased Premises shall be filed against the Premiss, Sublessee shall,
within thirty (30) days after notice of the filing thereof, cause the same to
be discharged of record by payment, deposit or bond.
36. Nonrecordation of Sublease. Sublessee shall not record the Sublease.
Upon request by Sublessee, the parties shall join in the execution of a
memorandum of this Sublease for the purpose of recordation. Any recording costs
associated with the memorandum of this Sublease shall be borne by the party
requesting recordation.
14
<PAGE> 15
37. Attorney's Fees. In the event that at any time during the term of this
Sublease, either party shall institute any action or proceeding against the
other relating to the provisions of this Sublease, or any default hereunder, the
unsuccessful party in such action or proceeding agrees to reimburse the
successful party for the reasonable expenses of attorney's fees and other costs
and expenses incurred therein by the successful party.
38. Remedies. All rights and remedies of the Sublessor and Sublessee
herein created or otherwise existing at law are cumulative and the exercise of
one or more rights or remedies may be exercised and enforced concurrently or
consecutively and whenever and as often as deemed desirable.
39. Waiver. The failure of either Sublessor or Sublessee to insist upon
strict performance by the other of any of the covenants, conditions and
agreements of this Sublease shall not be deemed a waiver of any subsequent
breach or default and any of the covenants, conditions and agreements of this
Sublease. No surrender of the Subleased Premises by Sublessee shall be affected
by Sublessor's acceptance of Rental or by any other means whatsoever nor shall
acceptance of Rental be deemed a waiver of any other right or remedy by
Sublessor, unless the same is evidenced by Sublessor's written acceptance of the
surrender or other waiver.
40. Estoppel. At any time and from time to time either party, upon
request of the other party, shall execute, acknowledge and deliver an
instrument, stating, if the same be true, that this Sublease is a true and
exact copy of the Sublease, that there are no amendments hereto (or, if not so,
stating what amendments there may be), that this Sublease is then in full force
and effect, and including such other customary language and information that is
generally included in estoppel certificates. Such instrument will be executed
by the other party and delivered to the requesting party within fifteen (15)
days of receipt of such written request therefor.
41. Severability. Any provision of the Sublease which shall prove to be
invalid, void or illegal, shall in no way affect, impair or invalidate any
other provision hereof and such other provisions shall remain in full force and
effect.
42. Laws and Ordinances. Except as specifically set forth herein,
Sublessee agrees, at is sole cost and expense, to comply with all existing and
future laws, ordinances, orders and regulations regarding the Subleased
Premises and Sublessee's operations therein.
43. Rules and Regulations. Sublessee shall, at all times during the lease
term, comply with all reasonable rules and regulations at any time or from time
to time established by Landlord covering use of the Premises. Sublessor shall
not have any liability or obligation for the breach of any rules or regulations
by other tenants in the buildings constituting a portion of the project in
which the Premises is located or in the enforcement by Landlord of such rules
and regulations.
44. Force Majeure. Sublessor shall not be held responsible for delays in
the performance of its obligations hereunder when caused by strikes, lockouts,
labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes therefore, governmental
15
<PAGE> 16
restrictions, regulations or controls, delays in the issuances of permits,
enemy or hostile action, civil commotion, fire or other casualty, or other
causes beyond a reasonable control of Sublessor.
45. Limitation of Liability of Sublessor and Officers and Shareholders of
Sublessor. Any obligation or liability whatsoever of Sublessor hereunder, which
may arise at any time under the Sublease or any obligation or liability which
may be incurred by it pursuant to any other instrument, transaction or
undertaken and contemplated hereby shall not be personally binding upon, nor
shall resort for the enforcement thereof be had to the property of, the
directors, officers, shareholders, employees, representatives or agents of
Sublessor, regardless of whether such obligation or liability is in the nature
of contractor, or otherwise.
46. Late Charter and Interest on Overdue Rental. If any installment of
Fixed Rent or Additional Rent is not received on the due date thereof,
Sublessor will provide written notice to Sublessee regarding same. If the
installment of Rent and/or Additional Rent is not paid within five (5) days
after written notice is submitted to Sublessee, (without in any way implying
Sublessor's consent to such late payment), Sublessee agrees to pay Sublessor a
late charge equal to five percent (5%) of the installment of Rental due and
unpaid, in addition to said installment, it being understood that the late
charge shall constitute liquidated damages and shall be for the purpose of
reimbursing Sublessor for the additional costs and expenses incurred by
Sublessor. In addition to the late charge, Sublessor agrees to pay Sublessee
interest, at the maximum rate allowed by law, on any Fixed rent or Additional
Rent not paid within thirty (30) days after the due date thereof, which
interest shall accrue from the due date to the date of payment. Notwithstanding
the foregoing, the late charge shall not apply to any sum which may have been
advanced by Sublessor to or for the benefit of Sublessee pursuant to any
provision of this lease, it being understood that such sum shall bear interest,
which Sublessee agrees to pay Sublessor at the highest maximum allowable
interest rate.
47. Security Deposit. Sublessor agrees to deliver contemporaneously with
its execution hereof, a security deposit in the amount of $14,500.00 which shall
be held by Sublessor, without liability for interest, as security for the
performance of Sublessee of Sublessee's covenants and obligations under this
Sublease, it being expressly understood that the security deposit shall not be
considered as advance payment of Rental or a measure of Sublessor's damages in
the case of default by Sublessee. Upon occurrence of any event of default
hereunder, Sublessor, from time to time and without prejudice to any other
remedy, may use the security deposit to the extent necessary to make good any
arrearages of Rental and any other damages, injury, expense or liability caused
to Sublessor by such event of default. Following any such application of the
security deposit, Sublessee shall pay Sublessor on demand the amount so applied
in order to restore the security deposit to its original amount. If Sublessor
has not been in default hereunder, any remaining balance of the security
deposit shall be returned to Sublessee by Sublessor within a reasonable period
of time after the termination of this Sublease. If Sublessor transfers its
interest in the Premises during the term hereof, Sublessor may assign the
security deposit to the transferee and thereafter, Sublessor shall have no
further liability to Sublessee for the return of the security deposit.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Sublease Agreement as of
the day and year set forth above.
SUBLESSOR:
PAVILION TECHNOLOGIES, INC.,
a Texas corporation
By: /s/ RONALD R. RIDESER
------------------------------------
Name: Ronald R. Rideser
----------------------------------
Title: President & CEO
----------------------------------
SUBLESSEE:
ICHAT
a Delaware corporation
By: /s/ R.N. MACDONALD
------------------------------------
Name: R.N. MacDonald
----------------------------------
Title: CFO
---------------------------------
17
<PAGE> 18
EXHIBIT "A"
ICHAT LEASE SPACE
[GRAPHIC]
<PAGE> 19
CONSENT BY LANDLORD TO SUBLEASE
The undersigned, as Landlord under that certain Lease dated February 27,
1996, with Pavilion Technologies, Inc., ("Sublandlord") for certain premises at
11100 Metric Blvd., Austin, Texas, (the "Prime Lease"), hereby consents to the
entering into of the foregoing Sublease dated ________________________, 1996,
("Sublease") between Sublandlord, as Sublessor, and ichat as Subtenant
("Subtenant"), upon the express understandings and conditions that:
a. Landlord neither approves nor disapproves the terms, conditions and
agreements contained in the Sublease (all of which shall be
subordinate and subject at all times to the terms, covenants and
conditions of the Prime Lease) and assumes no liability or obligation
of any kind whatsoever on account of anything contained in the
Sublease;
b. By executing this consent, Landlord shall not be deemed to have waived
any rights under the Prime Lease nor shall Landlord be deemed to have
waived Sublandlord's obligations to obtain any required consents under
the Prime Lease (other than consent to the Sublease itself);
c. Notwithstanding anything in the Sublease to the contrary, Sublandlord
shall be and continue to remain liable for the payment of rent and the
full and prompt performance of all of the obligations of Tenant under
and set forth in the Prime Lease;
d. Nothing contained in the Sublease shall be taken or construed to in
any way modify, alter, waive or affect any of the terms, covenants or
conditions contained in the Prime Lease, or be deemed to grant
Subtenant any privity of contract with Landlord, or require Landlord
to accept any payments form Subtenant on behalf of Sublandlord;
e. The Sublease shall be deemed and agreed to be a sublease only and not
an assignment and there shall be no further subletting or assignment
or all or any portion of the premises demised under the Prime Lease
(including the premises demised by the foregoing Sublease) except in
accordance with the terms and conditions of the Prime Lease; and
f. If Landlord terminates the Prime Lease as a result of a default by
Sublandlord thereunder, the Sublease shall automatically terminate concurrently
therewith unless Landlord elects in writing to keep the Sublease in full force
and effect in which case the Sublease shall become and be deemed to be a direct
indenture of lease between Landlord and Subtenant.
LANDLORD
SECURITY CAPITAL INDUSTRIAL TRUST
By: /s/ STEVEN K. MEYER
-----------------------------
Name: Steven K. Meyer
-----------------------------
Title: Senior Vice President
-----------------------------
Dated: December 12, 1996
<PAGE> 20
SECOND AMENDMENT OF SUBLEASE AGREEMENT
This SECOND AMENDMENT OF SUBLEASE AGREEMENT (the "Amendment No. 2") is
made and entered into by and between PAVILION TECHNOLOGIES, INC., a Texas
corporation ("Sublessor") and ACUITY CORP. (f/k/a ICHAT), a Delaware
corporation ("SUBLESSEE").
WHEREAS, Sublessor and Sublessee entered into that certain Sublease
Agreement (the "Sublease") dated December 19, 1996 pursuant to which Sublessor
subleased to Sublessee, and Sublessee subleased from Sublessor, approximately
17,002 rentable square feet of that certain building known as Braker #7 located
at Braker Center, 11100 Metric Blvd., Austin, Texas 78758 (the "Premises").
WHEREAS, Sublessor and Sublessee amended the Sublease by that certain
Amendment of Sublease (the "Amendment No. 1") deemed by the Sublessor and
Sublessee to be dated June 1, 1998, in order to increase the rentable square
feet of the Premises to 22058, among other changes;
WHEREAS, Sublessor and Sublessee desire to further amend the Sublease to
change certain terms and provisions thereof;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Sublessor and Sublessee agree as
follows:
1. Extension of Term. The termination date of the Term is hereby
extended to June 30, 2000, midnight (12:00 a.m.) local time.
2. Extension Option. Sublessee may elect to extend the termination
date of the Term to June 30, 2001, with an increase to Fixed Rent
and Additional Rent to be determined by Sublessor and Sublessee
at that time, provided that (a) Sublessee furnishes Sublessor
with no fewer than four (4) months' prior written notice of the
extended termination date; and (b) Sublessor has not previously
notified Sublessee in writing of Sublessor's election not to
extend the termination date of the Term.
3. Increase in Rental. The Fixed Rent is hereby increased to
$16,543.50 per month (calculated at $.75 per rsf), and the first
payment reflecting such increase shall be due on July 1, 1999.
4. Additional Rent. Paragraph 5(b) of the Sublease is hereby amended
as follows: The third sentence through the end of Paragraph 5(b)
is deleted and replaced with the following: "Sublessee shall pay
the Additional Rent (including any increases or adjustments
thereto) for the Subleased Premises in accordance with any and
all of the terms and provisions set forth in the Lease by and
between Landlord and Sublessor which pertain to the items that
collectively comprise Additional Rent. Sublessor will provide any
and all credits or adjustments (if applicable), notices,
<PAGE> 21
Information and documentation to Sublessee with regard to the
Additional Rent for the Subleased Premises (including any increases
thereto) as, and to the extent, that such credits or adjustments (if
applicable), notices, information and documentation are made available
to Sublessor by Landlord."
This Amendment No. 2 may be executed in any number of counterparts with the
same effect as if all parties hereto had signed the same document. All such
counterparts shall be construed together and shall constitute one instrument,
but in making proof hereof it shall only be necessary to produce one such
counterpart. In the event of any conflict between the terms of the Sublease or
Amendment No. 1 and the terms of this Amendment No. 2, the terms of this
Amendment No. 2 will prevail. Except as specifically amended herein, all terms
and conditions of the Sublease and Amendment No. 1 shall continue in full force
and effect.
Dated to be effective the ____ day of January, 1999.
SUBLESSOR:
PAVILION TECHNOLOGIES, INC.,
a Texas corporation
By: /s/ KEVIN NAUGHTON
-------------------------------
Name: Kevin Naughton
-------------------------------
Title: CFO
------------------------------
SUBLESSEE:
ACUITY CORP. (f/k/a ICHAT),
a Delaware corporation
By: /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
Name: [ILLEGIBLE]
-------------------------------
Title: Controller, Asst. Sec.
-------------------------------
2
<PAGE> 1
EXHIBIT 10.11
QC ACQUISITION CORP.
c/o Sprout Group
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
May 23, 1995
Mr. Alan Anderson
2185 Ridge Point Court
Walnut Creek, CA 94596
Dear Alan:
QC Acquisition Corp. ("QCAC") is pleased to extend this offer of employment
to you to serve as President and Chief Executive Officer of Quintus Corporation
(the "Company"). This offer and your employment with the Company, should you
decide to accept our offer, would commence upon QCAC's purchase of all of the
Company's outstanding capital stock (the "Purchase"). The other terms and
conditions of your employment would be as follows:
1. Position. You will serve in a full-time capacity as President and
Chief Executive Officer of the Company. In addition, you will be elected a
Director of the Company immediately following the Purchase. As we also
discussed, as President and a director of the Company, you will have input on
the appointment of other directors of the Company.
2. Compensation. You will be paid a salary of $15,833.33 per month,
payable in accordance with the Company's standard payroll practices for
salaried employees. This salary will be subject to adjustment at the discretion
of the Company's Board of Directors in each subsequent calendar year as part of
the Board's annual review of employee compensation.
3. Bonus. You will be eligible for an annual bonus of up to 50 percent
(50%) of your salary. Bonus payments, if any, will be determined pursuant to an
annual management incentive plan presented by the Company's management for each
prospective fiscal year and approved by and at the discretion of the Company's
Board of Directors.
<PAGE> 2
Mr. Alan Anderson May 23, 1995
Page 2
4. Stock Options. Following the Purchase, you will be granted an
option to purchase 1,142,858 shares of Common Stock of QCAC,(1)/(QCAC
anticipates that it will merge into the Company following the Purchase, with
your options becoming options to purchase a comparable number of shares of
Company Common Stock and representing a comparable percentage of Company's
capitalization.) Your option is expected to be treated as an "incentive stock
option," subject to its satisfying all the applicable requirements for an
incentive stock option under the applicable tax laws, and will have a per share
exercise price equal to $0.05 per share. Your option will have a term of ten
years, subject to earlier termination upon termination of your service
relationship with the Company or a sale or merger of QCAC.(2) Subject to the
terms described herein, your option will be governed by a Stock Option Plan
adopted by the Board of Directors of QCAC in its sole discretion and evidenced
by agreements adopted under such plan.(3)
This option will be subject to vesting, with fifty percent (50%) of
the underlying shares vesting pursuant to a time-based formula and the other
fifty percent (50%) vesting based on Company performance. Your time-based
options will vest as follows: After twelve months of employment, twenty-five
percent (25%) will vest; and the remainder will vest in equal monthly
installments over the 36 months following the one year anniversary of your
employment. Your performance-based options will vest over a
________________________
(1) As of the Purchase, QCAC will have issued 9,000,000 shares of Series A
Preferred Stock at $1.00 per share, which Preferred Stock is convertible on a
one-for-one basis into Common Stock, and options (including yours) covering
2,928,582 shares of Common Stock. Your percentage interest, of course, is
subject to dilution if QCAC raises additional equity financing or grants
additional stock options.
(2) In the event the entity surviving such sale or merger does not assume your
option, the vesting of your option will accelerate such that all of the
underlying shares will be vested immediately prior to such sale or merger. Even
if the entity surviving such sale or merger is willing to assume your option,
the vesting of the shares underlying the performance-based portion of your
option will accelerate if such sale or merger involves a value of the Company
in excess of the thresholds set forth in Exhibit A hereto.
(3) Among other terms, the Stock Option Plan will require that optionees not
sell, make any short sale of, loan, pledge, grant any option for the purchase
of, or otherwise dispose of or transfer for value any of the QCAC shares issued
upon exercise of an option under the Stock Option Plan for up to one hundred
eighty days following QCAC's initial public offering or another underwritten
public offering of QCAC equity securities, pursuant to a registration statement
declared effective under the Securities Act of 1933, as amended, within two
years of QCAC's initial public offering.
<PAGE> 3
Mr. Alan Anderson May 23, 1995
Page 3
significantly longer vesting schedule(4), but the vesting of such
performance-based options will accelerate upon the achievement of specified
performance milestones as set forth in Exhibit A hereto.
5. Severance. In the event that the Company terminates your employment
"without cause" (as defined below), you will be entitled to receive your regular
monthly compensation until the earlier of (a) six months following the effective
date of such termination if such termination occurs within twelve months after
the Purchase or nine months following the effective date of such termination if
such termination occurs on or after the twelve month anniversary of the Purchase
and (b) your commencing full-time employment with another employer. For purposes
of this letter, termination "without cause" shall mean termination for reasons
other than: (i) financial dishonesty, including without limitation,
misappropriation of funds or property of the Company, (ii) a repeated refusal to
comply with reasonable directives of the Board of Directors of the Company, or
the gross negligence or willful misconduct in the performance of duties assigned
to you by such Board, or (iii) the conviction of any crime involving moral
turpitude, fraud, or any felony.
6. Fringe Benefits. The Company will provide you with those employee
benefits that the Company after the Purchase maintains generally for its
employees and for which you individually qualify.
7. Expense Reimbursement. During the period of your employment, you will
be reimbursed for reasonable and necessary expenses incurred on behalf of the
Company in accordance with the Company's expense reimbursement policy.
8. Vacation. You will accrue vacation pursuant to the Company's general
vacation policies which are in effect after the Purchase.
9. Proprietary Information and Inventions Agreement. As with all Company
employees involved in the development of or with access to Company trade
secrets, you will be required, as a condition to your employment with the
Company, to sign the Company's standard Proprietary Information and Inventions
Agreement, a copy of which is enclosed as Exhibit B hereto.
- -------------------
(4) The exact time periods for the time-based vesting of your performance-based
options is pending input from the independent accounting firm selected to audit
the Company's financial statements, but could involve the vesting of such shares
in a single lump sum on the day before the tenth anniversary of your employment
with the Company.
<PAGE> 4
May 23, 1995
Page 4
Mr. Alan Anderson
10. Period of Employment. Your employment with the Company will be "at
will," meaning that either you or the Company will be entitled to terminate your
employment at any time for any reason with or without cause. Any contrary
representations which may have been made or which may be made to you are
superseded by this offer.
11. Outside Activities. During the period that you render services to the
Company, you will not engage in any employment, business, or activity that is
in any way competitive with the business or proposed business of the Company,
and you will not assist any other person or other organization in competing
with the Company or in preparing to engage in competition with the business or
proposed business of the Company.
12. Entire Agreement. Other than the Company's standard Proprietary
Information and Inventions Agreement referred to in paragraph 9 and the
Company's standard stock option grant documents referred to in paragraph 4,
this letter contains all of the terms of your employment with the Company and
supersedes any other understandings, oral or written, between you and the
Company.
<PAGE> 5
Mr. Alan Anderson May 23, 1995
Page 5
13. Modifications. Any additions or modifications of these terms
would have to be in writing and signed by yourself and a person authorized by
the Board of Directors of the Company.
We hope that you find the foregoing terms acceptable, and we look
forward to your response to this letter by May 24, 1995. You may indicate your
acceptance by signing and dating the enclosed duplicate original of this letter
and returning it to me by the May 24, 1995 expiration date. We believe that you
will be a key contributor to the Company's future success and profitability, and
we look forward to the start of your new career with the Company.
Very truly yours,
QC ACQUISITION CORP.
By: /s/ PAUL H. BARTLETT
---------------------
Paul H. Bartlett
Chairman of the Board
AGREED TO AND ACCEPTED BY:
ALAN ANDERSON
/s/ ALAN ANDERSON
- ------------------
Date: 5/24/95
-------------
<PAGE> 6
EXHIBIT A
PERFORMANCE VESTING
To the extent one or more of the following financial performance
milestones are attained while the Optionee continues in Service to QCAC (as
definitively defined in the Option Plan, "Service"), then the applicable
percentage of the shares underlying the performance-based option (the
"Performance Option Shares") indicated for each such attained milestone shall
immediately vest and QCAC's repurchase right with respect to those Option
Shares shall terminate.
The performance milestones are based on the Operating Income of Quintus
Corporation ("Quintus"), QCAC's wholly-owned subsidiary, determined in
accordance with generally accepted accounting principles but excluding (a)
amortization of goodwill or purchase-price related intangibles arising from
QCAC's May 25, 1995 acquisition of all of the outstanding capital stock of
Quintus, (b) closing costs directly related to such acquisition, and (c) the
expenses incurred pursuant to the termination of certain Quintus employees as
contemplated by Section 4.5 of the Stock Purchase Agreement effecting such
acquisition. Such adjusted Quintus Operating Income shall be reasonably
determined by the Board of Directors of QCAC and shall include, without
limitation, the expense of any bonus payments to Quintus employees. Any such
accelerated vesting of the Performance Option Shares and lapse of QCAC's
repurchase right with respect to those Performance Option Shares shall be
calculated proportionately (calculated on a straight-line basis, with any
fractional share rounded to the nearest whole number of Option Shares) if
Quintus Operating Income for a specified period falls between the Threshold
Operating Income and the Maximum Vesting Operating Income. No accelerated
vesting of the Option Shares will occur if Quintus Operating Income is at or
below the Threshold Operating Income level; and even if Quintus Operating
Income should exceed the Maximum Vesting Operating Income level specified for a
particular time period below, the maximum acceleration for that time period
shall be limited to 35% of the Performance Option Shares in the case of
full-year periods or 17.5% of the Performance Option Shares in the case of
partial-year periods.
<TABLE>
<CAPTION>
% of Option % of Option
Shares Vesting at Maximum Shares Vesting
Threshold % of Option Target Target Vesting at Maximum
Operating Shares Vesting Operating Operating Operating Vesting
Time Period Income at Threshold Income Income Income Operating Income
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/25/95 to ($2,028,000) 0% ($1,352,000) 12.5% ($1,081,600) 17.5%
12/31/95
01/01/96 to $1,428,000 0% $2,856,000 25.0% $3,427,200 35.0%
12/31/96
01/01/97 to $2,960,000 0% $5,920,000 25.0% $7,104,000 35.0%
12/31/97
01/01/98 to $4,140,000 0% $8,280,000 25.0% $9,936,000 35.0%
12/31/98
01/01/99 to $2,900,000 0% $5,800,000 12.5% $6,960,000 17.5%
06/30/99
</TABLE>
1 of 2 Pages
<PAGE> 7
EXHIBIT A continued
ACCELERATION OF VESTING
Should a Corporate Transaction (as defined below) be effected during the
time periods set forth below for an acquisition price (the "Per Share
Acquisition Price") payable per share of QCAC Common Stock (determined on a
fully-diluted basis as if all QCAC's outstanding securities exercisable or
convertible into Common Stock were in fact exercised or converted immediately
prior to such Corporate Transaction) in an amount not less than the minimum
price per share indicated below for the respective time periods indicated below
in which such Corporate Transaction occurs, then QCAC's repurchase right
regarding Performance Option Shares will, immediately prior to the effective
date of that Corporate Transaction, terminate in its entirety and all of an
Optionee's Performance Option Shares shall immediately vest.
<TABLE>
<CAPTION>
Time Period Minimum
of Acquisition Price
Acquisition Per Share
----------- -----------------
<S> <C>
05/25/95 to 12/31/96 $4.20
01/01/97 to 12/31/97 $5.25
01/01/98 to 12/31/98 $6.30
01/01/99 to 12/31/99 $7.35
01/01/00 to 12/31/00 $8.40
01/01/01 or later $9.45
</TABLE>
Should a Corporate Transaction be effected during a time period set
forth above for a Per Share Acquisition Price less than the applicable minimum
price listed above for such time period, there will be no acceleration of
vesting, and the vesting and repurchase rights related to such options will
remain in effect.
Upon the consummation of a Corporate Transaction, each such option will
terminate, unless the acquirer expressly agrees to assume such option or
substitute therefor a substitute option of the acquirer.
"Corporate Transaction" shall mean either of the following
shareholder-approved transactions: (1) a merger or consolidation in which
securities possessing more than fifty percent (50%) of the total combined voting
power of QCAC's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction, or (2) the sale, transfer or other disposition of all or
substantially all of QCAC's assets in complete liquidation or dissolution of
QCAC. (Note that the merger of QCAC into Quintus is not a "Corporate
Transaction" and that following such merger, options will be governed as if
initially granted by Quintus.)
2 of 2 Pages
<PAGE> 8
EXHIBIT B
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
<PAGE> 9
EMPLOYEE
PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
------------------------
The following confirms an agreement between me and Quintus
Corporation, a Delaware corporation (the "Company"), which is a material part
of the consideration for my employment by the Company:
1. In consideration of my employment by the Company and the
compensation received by me from the Company from time to time, I hereby agree
as follows:
a. I understand that the Company possesses and will possess
Proprietary Information which is important to the business. For purposes of
this Agreement, "Proprietary Information" is information that was or will be
developed, created, or discovered by or on behalf of the Company, or which
became or will become known by, or was or is conveyed to the Company, which has
commercial value in the Company's business. "Proprietary Information" includes,
but is not limited to, information about circuits, layouts, algorithms, trade
secrets, computer programs, designs, technology, ideas, know-how, processes,
formulas, compositions, data, techniques, improvements, inventions (whether
patentable or not), works of authorship, business and product development
plans, salaries and terms of compensation of other employees, customers and
other information concerning the Company's actual or anticipated business,
research or development, or which is received in confidence by or for the
Company from any other person. I understand that my employment creates a
relationship of confidence and trust between me and the Company with respect to
Proprietary Information.
All Proprietary Information and all title, patents, patent
rights, copyrights, mask work rights, trade secret rights, and other
intellectual property and rights anywhere in the world (collectively "Rights")
in connection therewith shall be the sole property of the Company. I hereby
assign to the Company any Rights I may have or acquire in such Proprietary
Information. At all times, both during my employment by the Company and after
its termination, I will keep in confidence and trust and will not use or
disclose any Proprietary Information or anything relating to it without the
prior written consent of an officer of the Company except as may be necessary
and appropriate in the ordinary course of performing my duties to the Company.
Disclosure restrictions of this Agreement shall not apply
to any information that I can document is generally known to the public through
no fault of mine. Nothing contained herein will prohibit an employee from
disclosing to anyone the amount of his or her wages.
<PAGE> 10
b. I understand that the Company possesses or will possess
"Company Materials" which are important to its business. For purposes of this
Agreement, "Company Materials" are documents or other media or tangible items
that contain or embody Proprietary Information or any other information
concerning the business, operations or plans of the Company, whether such
documents have been prepared by me or by others. "Company Materials" include,
but are not limited to, blueprints, drawings, photographs, charts, graphs,
notebooks, customer lists, computer disks, tapes or printouts, sound recordings
and other printed, typewritten or handwritten documents, as well as samples,
prototypes, models, products and the like.
All Company Materials shall be the sole property of the
Company. I agree that during my employment by the Company, I will not remove any
Company Materials from the business premises of the Company or deliver any
Company Materials to any person or entity outside the Company, except as I am
required to do in connection with performing the duties of my employment. I
further agree that, immediately upon the termination of my employment by me or
by the Company for any reason, or during my employment if so requested by the
Company, I will return all Company Materials, apparatus, equipment and other
physical property, or any reproduction of such property, excepting only (i) my
personal copies of records relating to my compensation; (ii) my personal copies
of any materials previously distributed generally to stockholders of the
Company; and (iii) my copy of this Agreement.
c. I will promptly disclose in writing to my immediate
supervisor, with a copy to the Chairman of the Board of Directors of the
Company, or to any persons designated by the Company, all "Inventions", (which
term includes improvements, inventions, works of authorship, trade secrets,
technology, circuits, layouts, algorithms, computer programs, formulas,
compositions, ideas, designs, processes, techniques, know-how and data, whether
or not patentable) made or conceived or reduced to practice or developed by me,
either alone or jointly with others, during the term of my employment. I will
also disclose to the President of the Company Inventions conceived, reduced to
practice, or developed by me within six (6) months of the termination of my
employment with the Company; such disclosures shall be received by the Company
in confidence (to the extent they are not assigned in (d) below) and do not
extend the assignment made in Section (d) below.
I will not disclose Inventions covered by Section 1.d to
any person outside the Company unless I am requested to do so by management
personnel of the Company.
d. I agree that all Inventions which I make, conceive, reduce
to practice or develop (in whole or in part, either alone or jointly with
others) during my employment shall be the sole property of the Company to the
maximum extent permitted by Section 2870 of the California Labor Code, a copy
of which is attached hereto as Attachment B, and I hereby assign such
Inventions and all Rights therein to the
2.
<PAGE> 11
Company. No assignment in this Agreement shall extend to inventions, the
assignment of which is prohibited by Labor Code section 2870. The Company shall
be the sole owner of all Rights in connection therewith.
e. I agree to perform, during and after my employment, all
acts deemed necessary or desirable by the Company to permit and assist it, at
the Company's expense, in evidencing, perfecting, obtaining, maintaining,
defending and enforcing Rights and/or my assignment with respect to such
Inventions in any and all countries. Such acts may include, but are not limited
to, execution of documents and assistance or cooperation in legal proceedings I
hereby irrevocably designate and appoint the Company and its duly authorized
officers and agents, as my agents and attorneys-in-fact to act for and in my
behalf and instead of me, to execute and file any documents and to do all other
lawfully permitted acts to further the above purposes with the same legal force
and effect as if executed by me.
f. I have attached hereto as Attachment A a complete list of
all existing Inventions to which I claim ownership as of the date of this
Agreement and that I desire to specifically clarify are not subject to this
Agreement.
g. During the term of my employment and for one (1) year
thereafter, I will not encourage or solicit any employee or consultant of the
Company to leave the Company for any reason. However, this obligation shall not
affect any responsibility I may have as an employee of the Company with respect
to the bona fide hiring and firing of Company personnel.
h. I agree that during my employment with the Company I will
not engage in any employment, business, or activity that is in any way
competitive with the business of proposed business of the Company, and I will
not assist any other person or organization in competing with the Company or
in preparing to engage in competition with the business or proposed business of
the Company. The provisions of this paragraph shall apply both during normal
working hours and at all other times including, but not limited to, nights,
weekends and vacation time, while I am employed by the Company.
i. I represent that my performance of all the terms of this
Agreement will not breach any agreement to keep in confidence proprietary
information acquired by me in confidence or in trust prior to my employment by
the Company. I have not entered into, and I agree I will not enter into, any
agreement either written or oral in conflict herewith or in conflict with my
employment with the Company.
2. I agree that this Agreement is not an employment contract and
that I have the right to resign and the Company has the right to terminate my
employment at any time, for any reason, with or without cause.
3.
<PAGE> 12
3. I agree that this Agreement does not purport to set forth all of
the terms and conditions of my employment, and that as an employee of the
Company I have obligations to the Company which are not set forth in this
Agreement.
4. I agree that my obligations under paragraphs 1(a) through 1(e)
and paragraph 1(g) of this Agreement shall continue in effect after termination
of my employment, regardless of the reason or reasons for termination, and
whether such termination is voluntary or involuntary on my part, and that the
Company is entitled to communicate my obligations under this Agreement to any
future employer or potential employer of mine.
5. I agree that any dispute in the meaning, effect or validity of
this Agreement shall be resolved in accordance with the laws of the State of
California without regard to the conflict of laws provisions thereof. I further
agree that if one or more provisions of this Agreement are held to be illegal
or unenforceable under applicable California law, such illegal or unenforceable
portion(s) shall be limited or excluded from this Agreement to the minimum
extent required so that this Agreement shall otherwise remain in full force and
effect and enforceable in accordance with its terms.
6. This Agreement shall be effective as of the date I execute this
Agreement and shall be binding upon me, my heirs, executors, assigns, and
administrators and shall inure to the benefit of the Company, its subsidiaries,
successors and assigns.
7. This Agreement can only be modified by a subsequent written
agreement executed by the Chairman of the Board of Directors of the Company.
4.
<PAGE> 13
I HAVE READ THIS AGREEMENT CAREFULLY AND I UNDERSTAND AND ACCEPT THE
OBLIGATIONS WHICH IT IMPOSES UPON ME WITHOUT RESERVATION. NO PROMISES OR
REPRESENTATIONS HAVE BEEN MADE TO ME TO INDUCE ME TO SIGN THIS AGREEMENT. I
SIGN THIS AGREEMENT VOLUNTARILY AND FREELY, IN DUPLICATE, WITH THE
UNDERSTANDING THAT ONE COUNTERPART WILL BE RETAINED BY THE COMPANY AND THE
OTHER COUNTERPART WILL BE RETAINED BY ME.
Dated: 5/24/1999 /s/ ALAN K. ANDERSON
----------------------------------------
Employee Signature
Alan K. Anderson
----------------------------------------
Employee Name
ACCEPTED AND AGREED TO:
QUINTUS CORPORATION
By: /s/ PAUL H. BARTLETT
- -------------------------------------
5.
<PAGE> 14
ATTACHMENT A
------------
Quintus Corporation
301 East Evelyn Avenue
Mountain View, CA 94041-1530
Ladies and Gentlemen:
1. The following is a list of Inventions relevant to the subject matter
of my employment by Quintus Corporation (the "Company") that have been made or
conceived or first reduced to practice by me alone or jointly with others prior
to my employment by the Company that I desire to clarify are not subject to the
Company's Proprietary Information and Inventions Agreement.
X No Inventions
- -------
See below:
- -------
Additional sheets attached
- -------
2. I propose to bring to my employment the following materials and
documents of a former employer:
X No materials or documents
- -------
See below:
- -------
/s/ Alan K. Anderson
---------------------------------------------
Employee Signature
Alan K. Anderson
---------------------------------------------
Employee Name
<PAGE> 15
ATTACHMENT B
Section 2870. Application of provision providing that employee shall
assign or offer to assign rights in invention to employer.
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to
practice of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer; or
(2) Result from any work performed by the employee for his
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
<PAGE> 1
EXHIBIT 10.12
[Q U I N T U S Letterhead]
June 11, 1999
John Burke
3956 Paradise Canyon Court
Naperville, IL 60564
Dear John:
Quintus Corporation is pleased to extend this offer of employment to serve as
President. As we've discussed you will report directly to me. The areas you will
be responsible for include: Worldwide Sales, Partners/Channel Sales, Marketing
and Customer Support Services.
This offer and your employment with Quintus, should you decide to accept our
offer, would commence on July 6, 1999. The other terms and conditions of your
employment would be as follows.
1) Compensation. You will be paid a salary of $16,500.00 per month
(annualized to $198,000.00), payable in accordance with our standard payroll
practices for salaried employees. This salary will be subject to adjustment at
the discretion of the Company's Board of Directors in each subsequent calendar
year as part of the Board's annual review of employee compensation. If you are
terminated within one year of your hire date for reasons other than cause, you
will receive a severance package of 3 months of base salary.
2) Stock Options. You will be granted two options to purchase 685,000
shares of the Company's Common Stock pursuant to approval by and at the
discretion of the Company's Board of Directors. The first grant will be for
411,000 which are time-based options of which 205,000 will vest on your 1-year
anniversary date and the remaining 206,000 will vest 1/36 over the remaining
3 years.
The second grant will be for 274,000 performance based options which will vest
at your 5-year anniversary. However, these options are subject to acceleration
based on meeting the objectives described below. If you achieve all of the
objectives you will be 100% vested in your performance based options in 3 years.
Each objective will be based on meeting FY Revenue book targets, Ending backlog
targets and Total revenue targets. You may meet or exceed each target within the
total objective to receive acceleration. Each target if met will accelerate
30,000 options. With the exception of backlog, which if met will vest 31,333.
Following are your FY'00 targets:
<PAGE> 2
Total Fiscal Year Targets 2000:
<TABLE>
<S> <C>
License Revenue Booked $40,681,000
License Backlog $14,250,000
Total Revenues $43,494,000
</TABLE>
The remaining two fiscal year targets will be provided to you within 2 weeks of
final fiscal year budgets. The effective date of any acceleration will be April
1st of the next fiscal year. If any target is not met the 30,000 or in the case
of the backlog, the 31,333 options associated with the target will vest on your
5-year anniversary.
3) Option Acceleration. If (i) a Corporate Transaction occurs before
Optionee's Service terminates, (ii) the Corporation's Repurchase Right is
assigned to the successor corporation (or its parent) in connection with such
Corporate Transaction, (iii) Optionee is subject to an Involuntary Termination
within six (6) months after such Corporate Transaction and (iv) Optionee at the
time of such Involuntary Termination has a vested interest in less than fifty
percent (50%) of the Option Shares, then Optionee's vested interest shall be
increased to fifty percent (50%) of the Option Shares. For this purpose,
"Involuntary Termination" shall mean the termination of Optionee's Service by
reason of:
(a) The involuntary discharge of Optionee by the Corporation (or the
Parent or Subsidiary employing him) for reasons other than Cause; or
(b) The voluntary resignation of Optionee following (i) a change in his
position with the Corporation (or the Parent or Subsidiary employing
him) that materially reduces his level of authority or
responsibility, (ii) a reduction in his compensation (including base
salary, fringe benefits and participation in bonus or incentive
programs based on corporate performance) by more than ten percent
(10%) or (iii) a relocation of the Corporation's principal executive
office by more than thirty-five (35) miles.
For this purpose, "Cause" shall mean (i) the authorized use or disclosure
of the confidential information or trade secrets of the Corporation, which
use or disclosure causes material harm to the Corporation, (ii) conviction
of, or pleas of "guilty" or "no contest" to, a felony under the laws of
the United States or any state thereof, (iii) gross negligence or (iv)
continued failure to perform assigned duties after receiving written
notification from the Corporation's Board. The foregoing, however, shall
not be deemed an exclusive list of all acts or omissions that the
Corporation (or a Parent or Subsidiary) may consider as grounds for the
discharge of Optionee.
In no event shall any additional Option Shares vest after Optionee's
cessation of Service.
<PAGE> 3
4) Bonus. You will be eligible to receive an annual bonus of $180,000. The
bonus will be based on meeting specific objectives in which you and I agree
upon. The Board of Directors and/or myself reserves the right to change the
bonus plan.
5) Fringe Benefits. You are entitled to take part in those employee
benefits that Quintus maintains generally for its employees and for which you
individually qualify. The benefits are effective with your date of hire.
6) Proprietary Information and Inventions Agreement. You will be required,
as a condition to your employment with Quintus, to sign the company's standard
Proprietary Information and Inventions Agreement, a copy of it is attached.
7) Location of Employment. Your employment location will be in our Chicago
office for the first twelve months. We agree that you and I will revisit the
location at that time. Your position will require frequent travel to corporate
headquarters in Fremont during the first year.
8) Period of Employment. Your employment with Quintus will be "at will",
meaning that either you or Quintus will be entitled to terminate your employment
at any time for any reason, with or without cause. Any contract representations
which may have been made or which may be made to you are superseded by this
offer.
9) Outside Activities. During the period that you render services to the
company, you will not engage in any employment, business, or activity that is in
any way competitive with the business or proposed business of the Company, and
you will not assist any other person or organization in competing with the
Company or in preparing to engage in competition with the business or proposed
business of the Company.
10) Entire Agreement and Modifications. This letter and all of the
exhibits attached contain all of the terms of your employment with Quintus and
supersede any other understanding, oral or written, between you and Quintus. Any
additions or modifications of these terms would have to be in writing and signed
by you and the company's President.
You may indicate your agreement with these terms by signing and dating the
enclosed letter and returning it to Joyce Phillips by Friday, August 26, 1999. I
look forward to working with you in making Quintus a successful company.
<PAGE> 4
I truly believe we are developing one of the best management teams in our
industry and I think your expertise will be invaluable as the company develops
into a market leader.
Sincerely,
Alan K. Anderson,
CEO
/s/ ALAN K. ANDERSON
Agreed to and accepted by
Name: /s/ JOHN BURKE
----------------------------
Date: 6/30/99
----------------------------
<PAGE> 1
EXHIBIT 10.13
This LOAN AND SECURITY AGREEMENT is entered into as of September 18, 1998,
by and between SILICON VALLEY BANK ("BANK") and QUINTUS CORPORATION
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software an other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit issuance,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower and Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiations, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents (including fees and expenses
of appeal or review, or those incurred in any Insolvency Proceeding), whether or
not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and
all computer programs, or tape files, and the equipment, containing such
information.
"Borrowing Base" means an amount equal to (i) eighty percent
(80%) of Eligible Accounts, as determined by Bank with reference to the most
recent Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
1
<PAGE> 2
"Committed Revolving Line" means Seven Million Five Hundred
Thousand Dollars ($7,500,000).
"Contingent Obligation" means, as applied to any Person,
any direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determined amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
such Person in good faith, provided, however, that such amount shall not in any
event exceed the maximum amount of the obligations under the guarantee or other
support arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance, Letter of Credit,
Term Loan, Exchange Contract or any other extension of credit by Bank for the
benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current assets on
the consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current
liabilities on the consolidated balance sheet of Borrower and its Subsidiaries,
as at such date, plus, to the extent not already included therein, all
outstanding Credit Extensions made under this Agreement, including all
Indebtedness that is payable upon demand or within one year from the date of
determination thereof unless such Indebtedness is renewable or extendable at
the option of Borrower or any Subsidiary to a date more than one year from the
date of determination, but excluding Subordinated Debt.
"Debt Service Coverage" means, as measured quarterly as of
the last day of each fiscal quarter of Borrower, on a consolidated basis
determined in accordance with GAAP, the ratio of (a) an amount equal to the sum
of (i) net income, plus (ii) depreciation and amortization of intangible assets
and other non-cash charges to income plus (iii) quarterly interest expense to
(b) an amount equal to the sum of (x) all scheduled repayments and mandatory
prepayments of principal on account of long-term Debt for such quarter plus (y)
quarterly interest expense.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank in
Bank's reasonable judgment and upon notification thereof to Borrower in
accordance with the provisions hereof. Unless otherwise agreed to by Bank in
writing, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay
within ninety (90) days of invoice date, except with respect to Accounts owing
from Lucent Technologies, which will be excluded to the extent such Accounts
have not paid within one hundred twenty (120) days of invoice date;
2
<PAGE> 3
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date, except with respect to Accounts owing from Lucent
Technologies, which shall be excluded if fifty percent (50%) of such Accounts
have not been paid within one hundred twenty (120) days of invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed twenty-five percent
(25%) of all Accounts, except with respect to Lucent Technologies, as to which
the percentage shall be thirty-five percent (35%), to the extent such
obligations exceed the aforementioned percentages, except as approved in
writing by Bank;
(d) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for Eligible
Foreign Accounts;
(e) Accounts with respect to which the account debtor is a
federal, state or local governmental entity or any department, agency or
instrumentality thereof;
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the account
debtor (sometimes referred to as "contra" accounts, e.g. accounts payable,
customer deposits, credit accounts, etc.);
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines
to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which
the account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit
either advised or negotiated through Bank or in favor of Bank as beneficiary
in an amount and of a tenor, and issued by a financial institution, acceptable
to Bank; or (3) that Bank approves on a case-by-case basis.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
3
<PAGE> 4
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means all of Borrower's
right, title and interest in and to the following:
(a) Copyrights, Trademarks, and Patents;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights,
Patents, or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks, or Patents; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, and any other present or future agreement entered
into between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
4
<PAGE> 5
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means September 17, 2001.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Patents" means all patents, patent applications and like
protections, including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same.
"Payment Date" means the seventeenth (17th) calendar day of each
month, commencing on the first such date after the Closing Date and ending on
the Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under
this Agreement or any other Loan Document;
(b) Indebtedness existing on the closing Date and disclosed
in the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in
the Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii)
certificates of deposit maturing no more than one (1) year from the date of
investment therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the closing Date and disclosed in
the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are
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maintained on Borrower's Books in accordance with GAAP, provided the same have
no priority over any Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the time
of its acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such equipment;
(d) Leases or subleases and licenses or sublicenses granted to
others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, and any interest or title of a lessor, licensor or under any lease or
license, provided that such leases, subleases, licenses and sublicenses do not
prohibit the grant of the security interest granted hereunder, and
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate: means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means as of any applicable date, the unrestricted
cash; unrestricted cash-equivalents; and net, billed accounts receivable of
Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer,
the President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means the date immediately preceding
the first anniversary of the Closing Date.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity
of which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"Tangible Net Worth" means, as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries minus without
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from assets,
and (ii) Total Liabilities.
"Term Loan" means a credit extension of One Million One Hundred
Thousand Dollars ($1,000,000).
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"Total Liabilities" means, as of any applicable date, all
obligations that should, in accordance with GAAP, be classified as liabilities
on the consolidated balance sheet of Borrower, including in any event all
Indebtedness, but specifically excluding Subordinated Debt.
"Trademarks" means any trademark and servicemark rights,
whether registered or not, applications to register and registrations of the
same and like protections, and the entire goodwill of the business of Assignor
connected with and symbolized by such trademarks.
1.2. Accounting and Other Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations and determinations made hereunder shall be made in accordance with
GAAP. When used herein, the term "financial statements" shall include the notes
and schedules thereto. The terms "including"/"includes" shall always be read as
meaning "including (or includes) without limitation," when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1. Credit Extensions. Borrower promises to pay to the order of
Bank, in lawful money of the United States of America, the aggregate unpaid
principal amount of all Credit Extensions made by Bank to Borrower hereunder.
Borrower shall also pay interest on the unpaid principal amount of such Credit
Extensions at rates in accordance with the terms hereof.
2.1.1 Advances.
(a) Subject to and upon the terms and conditions
of this Agreement, Bank agrees to make Advances to Borrower in an aggregate
outstanding amount not to exceed (i) the Committed Revolving Line or the
Borrowing Base, whichever is less. Subject to the terms and conditions of this
Agreement, amounts borrowed pursuant to this Section 2.1.1 may be repaid and
reborrowed at any time prior to the Revolving Maturity Date.
(b) Whenever Borrower desires an Advance,
Borrower will notify Bank by facsimile transmission or telephone no later than
3:00 p.m. Pacific time, on the Business Day that the Advance is to be made. Each
such notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Advances made under this Section 2.1.1 to
Borrower's deposit account.
(c) The Committed Revolving Line shall terminate
on the Revolving Maturity Date, at which time all Advances under this Section
2.1.1 shall be immediately due and payable.
2.1.2 Term Loan.
(a) Subject to and upon the terms and conditions
of this Agreement, Bank agrees to make a Term Loan available to Borrower.
Amounts borrowed pursuant to this Section 2.1.2 may not be reborrowed once
repaid.
(b) Interest shall accrue on the Term Loan at
the rate specified in Section 2.3(a), and shall be payable monthly during the
term thereof. The Term Loan will be payable in thirty-six (36) equal monthly
installments of principal, plus all accrued interest, beginning on the Payment
Date of the month following the Closing Date, and ending on the Maturity Date,
at which time all amounts owing under this Agreement shall be due and payable.
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2.2 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 of this
Agreement is greater than the lesser of (i) the Committed Revolving Line or
(ii) the Borrowing Base, Borrower shall immediately pay to Bank, in cash, the
amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate.
(i) Except as set forth in Section 2.3(b), any Advances shall
bear interest on the average daily balance thereof, at a per annum rate equal
to the Prime Rate.
(ii) Except as set forth in Section 2.3(b), the Term Loan shall
bear interest on the average daily balance thereof, at a per annum rate equal
to the Prime Rate plus 0.5%.
(b) Default Rate. All Obligations shall bear interest, from and
after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on each
Payment Date. Borrower hereby authorizes Bank to debit any accounts with Bank,
including, without limitation, Account Number _______ for payments of principal
and interest due on the Obligations and any other amounts owing by Borrower to
Bank. Bank will notify Borrower of all debits which Bank has made against
Borrower's accounts. Any such debits against Borrower's accounts in no way
shall be deemed a set-off. Any interest not paid when due shall be compounded
by becoming a part of the Obligations, and such interest shall thereafter
accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time to
time hereafter, the applicable rate of interest hereunder shall be increased or
decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by
an amount equal to such change in the Prime Rate. All interest chargeable under
the Loan Document shall be computed on the basis of a three hundred sixty (360)
day year for the actual number of days elapsed.
2.4. Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is
honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 12:00
noon Pacific time shall be deemed to have been received by Bank as of the
opening of business on the immediately following Business Day. Whenever any
payment to Bank under the Loan Documents would otherwise be due (except by
reason of acceleration) on a date that is not a Business Day, such payment
shall instead be due on the next Business Day, and additional fees or interest,
as the case may be, shall accrue and be payable for the period of such
extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Two Thousand Dollars
($2,000) which fee shall be due on the Closing Date and shall be fully earned
and non-refundable;
(b) Financial Examination and Appraisal Fees. Bank's customary fees
and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and for
each appraisal of Collateral and financial analysis and examination of Borrower
performed from time to time by Bank or its agents;
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(c) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses,
as and when they become due.
2.6. Additional Costs. In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for
taxes on the overall net income of Bank imposed by the United States of America
or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction income or additional expense as
and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7. Term. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1. Conditions Precedent to Initial Credit Extension. The obligation
of Bank to make the initial Credit Extension is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) an intellectual property security agreement;
(d) financing statements (Forms UCC-1);
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof; and
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(g) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2. Conditions Precedent to all Credit Extensions. The obligation of
Bank to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1. Grant of Security Interest. Borrower grants and pledges to Bank
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt performance by Borrower of each
of its covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
Borrower acknowledges that Bank may place a "hold" on any Deposit Account
pledged as Collateral to secure the Obligations. Notwithstanding termination of
this Agreement, Bank's Lien on the Collateral shall remain in effect for so
long as any Obligations are outstanding.
4.2. Delivery of Additional Documentation Required. Borrower shall
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3. Right to Inspect. Bank (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, from time to
time during Borrower's usual business hours, to inspect Borrower's Books and to
make copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1. Due Organization and Qualification. Borrower and each Subsidiary
is a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2. Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound. Borrower
is not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect.
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5.3. No Prior Encumbrances. Borrower has good and indefeasible title
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4. Bona Fide Eligible Accounts. The Eligible Accounts are bona
fide existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5. Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6. Intellectual Property. Borrower is the sole owner of the
Intellectual Property Collateral, except for non-exclusive licenses granted by
Borrower to its customers in the ordinary course of business. Each of the
Patents is valid and enforceable, and no part of the Intellectual Property
Collateral has been judged invalid or unenforceable, in whole or in part, and
no claim has been made that any part of the Intellectual Property Collateral
violates the rights of any third party. Except for and upon filing with the
United States Patent and Trademark Office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights
necessary to perfect the security interests created hereunder, and except as has
been already made or obtained, no authorization, approval or other action by,
and no notice to or filing with, any United States governmental authority or
United States regulatory body is required either (i) for the grant by Borrower
of the security interest granted hereby or for the execution, delivery or
performance of Loan Documents by Borrower in the United States or (ii) for the
perfection in the United States or the exercise by Bank of its rights and
remedies hereunder.
5.7. Name; Location of Chief Executive Office. Except as disclosed in
the Schedule, Borrower has not done business and will not, without at least
thirty (30) days prior written notice to Bank, do business under any name other
than that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.8. Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision could have a Material Adverse Effect or a material
adverse effect on Borrower's interest or Bank's security interest in the
Collateral.
5.9. No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.10. Solvency. The fair saleable value of Borrower's assets
(including goodwill minus disposition costs) exceeds the fair value of its
liabilities; the Borrower is not left with unreasonably small capital after the
transactions contemplated by this Agreement; and Borrower is able to pay its
debts (including trade debts) as they mature.
5.11. Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from Borrower's failure
to comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940. Borrower is not
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards
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Act. Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.
5.12. Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the release or other disposition of hazardous waste or
hazardous substances into the environment.
5.13. Taxes. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed on a timely basis, and has paid, or
has made adequate provision for the payment of, all taxes reflected therein,
except those being contested in good faith by proper proceedings with adequate
reserves under GAAP.
5.14. Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.15. Government Consents. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations
or filings with, and given all notices to, all governmental authorities that
are necessary for the continued operation of Borrower's business as currently
conducted.
5.16. Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1. Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2. Government Compliance. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA. Borrower shall comply, and
shall cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3. Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within thirty (30)
days after the end of each month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during such
period, in a form and certified by an Officer of Borrower reasonably acceptable
to Bank; (b) as soon as available, but in any event within
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one hundred twenty (120) days after the end of Borrower's fiscal year, audited
consolidated financial statements of Borrower prepared in accordance with GAAP,
consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably
acceptable to Bank; (c) within five (5) days of filing, copies of all
statements, reports and notices sent or made available generally by Borrower to
its security holders or to any holders of Subordinated Debt and all reports on
Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission; (d)
promptly upon receipt of notice thereof, a report of any legal actions pending
or threatened against Borrower or any Subsidiary that could result in damages
or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars
($100,000) or more; (e) prompt notice of any material change in the composition
of the Intellectual Property Collateral, including, but not limited to, any
subsequent ownership right of Borrower in or to any Copyright, Patent or
Trademark not specified in any intellectual property security agreement between
Borrower and Bank or knowledge of an event that materially adversely affects
the value of the Intellectual Property Collateral; and (f) such budgets, sales
projections, operating plans or other financial information as Bank may
reasonably request from time to time.
Within ten (10) days after the fifteenth (15th) calendar day and the last
day of each month, Borrower shall deliver to Bank a Borrowing Base Certificate
signed by a Responsible Officer in substantially the form of Exhibit C hereto,
together with aged listings of accounts receivable and accounts payable.
Within thirty (30) days after the last day of each month, Borrower shall
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in substantially the form of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred
and is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances,
if any, as between Borrower and its account debtors shall be on the same basis
and in accordance with the usual customary practices of Borrower, as they exist
at the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is (i) contested in good
faith by appropriate proceedings, (ii) is reserved against (to the extent
required by GAAP) by Borrower and (iii) no lien other than a Permitted Lien
results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Bank. All
such policies of property insurance shall contain a
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lender's loss payable endorsement, in a form satisfactory to Bank, showing Bank
as an additional loss payee thereof and all liability insurance policies shall
show the Bank as an additional insured, and shall specify that the insurer must
give at least twenty (20) days notice to Bank before canceling its policy for
any reason. At Bank's request, Borrower shall deliver to Bank certified copies
of such policies of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at the option of
Bank, be payable to Bank to be applied on account of the Obligations.
6.7. Principal Depository. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.8. Quick Ratio. Borrower shall maintain, as of the last day of
each fiscal quarter, a ratio of Quick Assets to Current Liabilities, less
deferred maintenance revenue, of at least 1.0 to 1.0.
6.9. Profitability. Borrower may incur losses not to exceed: (i)
$1,500,000 for the fiscal quarter ending September 30, 1998; (ii) $1,000,000 for
the fiscal quarter ending December 31, 1998; (iii) $1,000,000 for the fiscal
quarter ending March 31, 1999; or (iv) $500,000 for the fiscal quarter ending
June 30, 1999. Borrower shall have a net profit of at least $1 for each fiscal
quarter thereafter.
6.10. Liquidity, Debt Service Coverage. Subject to the remainder of
this section, Borrower shall maintain (i) as of the last day of each calendar
month, a Liquidity Ratio of at least 1.5 to 1.0 and (ii) as of the last day of
each fiscal quarter, a Liquidity Ratio of at least 2.0 to 1.0. Notwithstanding
the foregoing, if Borrower attains two consecutive quarters of Debt Service
Coverage of not less than 1.5 to 1.0, then Liquidity Ratio will no longer be
tested and instead Borrower shall maintain, as of the last day of each of
Borrower's fiscal quarters, a Debt Service Coverage of at least 1.5 to 1.0. For
purposes of this Section, "Liquidity Ratio" means as of any date for which it is
tested, the ratio of (a) an amount equal to (i) cash and cash equivalents plus
(ii) the amount available to be drawn but not drawn under Section 2.1.1 to (b)
the aggregate outstanding amount of the Term Loan.
6.11. Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered (to the
extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Exhibits A, B and C to the Intellectual Property
Security Agreement delivered to Bank by Borrower in connection with this
Agreement within thirty (30) days of the date of this Agreement. Borrower shall
register or cause to be registered with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those additional
intellectual property rights developed or acquired by Borrower from time to time
in connection with any product prior to the sale or licensing of such product to
any third party, including without limitation revisions or additions to the
intellectual property rights listed on such Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents, Copyrights, (ii) use its
best efforts to detect infringements of the Trademarks, Patents, and Copyrights
and promptly advise Bank in writing of material infringements detected and (iii)
not allow any Trademarks, Patents, or Copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Bank, which shall not be
unreasonably withheld, unless Bank determines that reasonable business practices
suggest that abandonment is appropriate.
(d) Bank shall have the right, but not the obligation, to take,
at Borrower's sole expense, any actions that Borrower is required under this
Section 6.11 to take but which Borrower fails to take, after fifteen (15) days'
notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section 6.11.
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6.12. Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit
Extension hereunder shall be available and until payment in full of the
outstanding Obligations or for so long as Bank may have any commitment to make
any Advances, Borrower will not do any of the following:
7.1. Dispositions. Convey, sell, lease, transfer or
otherwise dispose of (collectively, a "Transfer"), or permit any of its
Subsidiaries to Transfer, all or any part of its business or property, other
than Transfers (i) of inventory in the ordinary course of business, (ii) of
non-exclusive licenses and similar arrangements for the use of the property of
Borrower or its Subsidiaries in the ordinary course of business, or (iii) of
worn-out or obsolete Equipment.
7.2. Changes in Business, Ownership, Management or Business
Locations. Engage in any business, or permit any of its Subsidiaries to engage
in any business, other than the businesses currently engaged in by Borrower and
any business substantially similar or related thereto (or incidental thereto),
or suffer a material change in Borrower's ownership or management. Borrower will
not, without at least thirty (30) days prior written notification to Bank,
relocate its chief executive office or add any new offices or business
locations.
7.3. Mergers or Acquisitions. Merge or consolidate, or
permit any of its Subsidiaries to merger or consolidate, with or into any other
business organization, or acquire, or permit any of its Subsidiaries to acquire,
all or substantially all of the capital stock or property of another Person.
7.4. Indebtedness. Create, incur, assume or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness.
7.5. Encumbrances. Create, incur, assume or suffer to exist
any Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6. Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock.
7.7. Investments. Directly or indirectly acquire or own,
or make any Investment in or to any Person, or permit any of its Subsidiaries so
to do, other than Permitted Investments.
7.8. Transactions with Affiliates. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a non-affiliated
Person.
7.9. Intellectual Property Agreements. Borrower shall not
permit the inclusion in any material contract to which it becomes a party of any
provisions that could or might in any way prevent the creation of a security
interest in Borrower's rights and interests in any property included within the
definition of the Intellectual Property Collateral acquired under such
contracts, except to the extent that such provisions are necessary in Borrower's
exercise of its reasonable business judgment.
7.10. Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
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7.11. Inventory. Store the Inventory with a bailee,
warehouseman, or similar party unless Bank has received a pledge of any
warehouse receipt covering such Inventory. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory only at the location set
forth in Section 10 hereof and such other locations of which Borrower gives Bank
prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
7.12. Compliance. Become an "investment company" or a company
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advance for such
purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1. Payment Default. If Borrower fails to pay, when due, any
of the Obligations;
8.2. Covenant Default.
(a) If Borrower fails to perform any obligation
under Sections 6.3, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11 or 6.12, or violates any of
the covenants contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep,
or observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after the occurrence
thereof; provided, however, that if the default cannot by its nature be cured
within the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default (provided that no Credit
Extensions will be required to be made during such cure period);
8.3. Material Adverse Change. If there (i) occurs a material adverse
change in the business, operations, or condition (financial or otherwise) of
Borrower or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4. Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of
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Default where such action or event is stayed or an adequate bond has been
posted pending a good faith contest by Borrower (provided that no Credit
Extensions will be required to be made during such cure period);
8.5. Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding);
8.6. Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect;
8.7. Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8. Judgments. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.9. Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice
of its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable (provided that upon the occurrence of an Event of Default described
in Section 8.5 all Obligations shall become immediately due and payable without
any action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Demand that Borrower (i) deposit cash with Bank in an
amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all Letters of Credit fees scheduled to be paid or payable over
the remaining term of the Letters of Credit;
(d) Liquidate any Exchange Contracts not yet settled and demand
that Borrower immediately deposit cash with Bank in an amount sufficient to
cover any losses incurred by Bank due to liquidation of the Exchange Contracts
at the then prevailing market price;
(e) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(f) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to
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assemble the Collateral if Bank so requires, and to make the Collateral
available to Bank as Bank may designate. Borrower authorizes Bank to enter the
premises where the Collateral is located, to take and maintain possessions of
the Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Bank's determination appears to be
prior or superior to its security interest and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's premises, Borrower
hereby grants Bank a license to enter such premises and to occupy the same,
without charge, in order to exercise any of Bank's rights or remedies provided
herein, at law, in equity, or otherwise;
(g) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(h) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section 9.1,
to use, without charge, Borrower's labels, patents, copyrights, mask works,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for sale,
and selling any Collateral and, in connection with Bank's exercise of its
rights under this Section 9.1, Borrower's rights under all licenses and all
franchise agreements shall inure to Bank's benefit;
(i) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order Bank deems appropriate;
(j) Bank may credit bid and purchase at any public sale, or at
any private sale as permitted by law; and
(k) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
(l) Bank shall have a non-exclusive, royalty-free license to
use the Intellectual Property Collateral to the extent reasonably necessary to
permit Bank to exercise its rights and remedies upon the occurrence of an Event
of Default.
9.2 Power of Attorney. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or
notify account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verification of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; (e) settle and adjust disputes and
claims respecting the accounts directly with account debtors, for amounts and
upon terms which Bank determines to be reasonable; (f) to modify, in its sole
discretion, any intellectual property security agreement entered into between
Borrower and Bank without first obtaining Borrower's approval of or signature
to such modification by amending Exhibit A, Exhibit B, Exhibit C and Exhibit D,
thereof, as appropriate, to include reference to any right, title or interest
in any Copyrights, Patents, or Trademarks acquired by Borrower after the
execution hereof or to delete any reference to any right, title or interest in
any Copyrights, Patents, or Trademarks in which Borrower no longer has or
claims any right, title or interest; (g) to file in its sole discretion, one
ore more financing or continuation statements and amendments thereto, relative
to any of the Collateral without the signature of Borrower where permitted by
law; and (h) to transfer the Intellectual Property Collateral into the name of
Bank or third party to the extent permitted under the California Uniform
Commercial Code, provided Bank may exercise such power of attorney to sign the
name of Borrower on
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any of the documents described in Section 4.2 regardless of whether an Event of
Default has occurred. The appointment of Bank as Borrower's attorney in fact,
and each and every one of Bank's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully repaid
and performed and Bank's obligation to provide advances hereunder is terminated.
9.3. Accounts Collection. At any time from the date of this
Agreement, Bank may notify any Person owing funds to Borrower of Bank's
security interest in such funds and verify the amount of such Account. Borrower
shall collect all amounts owing to Borrower for Bank, receive in trust all
payments as Bank's trustee, and, if requested or required by Bank, immediately
deliver such payments to Bank in their original form as received from the
account debtor, with proper endorsement for deposit.
9.4. Bank Expenses. If Borrower fails to pay any amounts or
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves under the Committed Revolving Line as Bank deems necessary to protect
Bank from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type discussed in Section 6.6 of this Agreement, and
take any action with respect to such policies as Bank deems prudent. Any
amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be
immediately due and payable, and shall bear interest at the then applicable
rate hereinabove provided, and shall be secured by the Collateral. Any payments
made by Bank shall not constitute an agreement by Bank to make similar payments
in the future or a waiver by Bank of any Event of Default under this Agreement.
9.5. Bank's Liability for Collateral. So long as Bank complies
with reasonable banking practices, Bank shall not in any way or manner be
liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss
or damage thereto occurring or arising in any manner or fashion from any cause;
(c) any diminution in the value thereof; or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other person whomsoever.
All risk of loss, damage or destruction of the Collateral shall be borne by
Borrower.
9.6. Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election, or acquiescence by it. No waiver by
Bank shall be effective unless made in a written document signed on behalf of
Bank and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.7. Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements
and other informational documents which may be sent by first-class mail,
postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, by certified mail, portage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, as
its addresses set forth below:
If to Borrower: Quintus Corporation
47212 Mission Falls Court
Fremont, CA 94539
Attn: Susan Salvesen
FAX: (510) 770-1377
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If to Bank: Silicon Valley Bank
1731 Embarcadero Road, Suite 220
Palo Alto, CA 94303
Attn: Scott Wiebe
FAX: (650) 812-0640
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE
The Loan Documents shall be governed by, and construed in
accordance with, the internal laws of the State of California, without regard
to principles of conflicts of law. Each of Borrower and Bank hereby submits to
the exclusive jurisdiction of the state and Federal courts located in the
County of Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR, ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND
AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
12. GENERAL PROVISIONS.
12.1. Successors and Assigns. This Agreement shall bind
and inure to the benefit of the respective successors and permitted assigns of
each of the parties; provided, however, that neither this Agreement nor any
rights hereunder may be assigned by Borrower without Bank's prior written
consent, which consent may be granted or withheld in Bank's sole discretion.
Bank shall have the right without the consent of or notice to Borrower to sell,
transfer, negotiate, or grant participation in all or any part of, or any
interest in, Bank's obligations, rights and benefits hereunder.
12.2. Indemnification. Borrower shall indemnify,
defend, protect and hold harmless Bank and its officers, employees, and agents
against: (a) all obligations, demands, claims, and liabilities claimed or
asserted by any other party in connection with the transactions contemplated by
the Loan Documents; and (b) all losses or Bank Expenses in any way suffered,
incurred, or paid by Bank as a result of or in any way arising out of,
following, or consequential to transactions between Bank and Borrower whether
under the Loan Documents, or otherwise (including without limitation reasonable
attorneys fees and expenses), except for losses caused by Bank's gross
negligence or willful misconduct.
12.3. Time of Essence. Time is of the essence for the
performance of all obligations set forth in this Agreement.
12.4. Severability of Provisions. Each provision of
this Agreement shall be severable from every other provision of this Agreement
for the purpose of determining the legal enforceability of any specific
provision.
12.5. Amendments in Writing, Integration. This
Agreement cannot be amended or terminated except by a writing signed by
Borrower and Bank. All prior agreements, understandings, representations,
warranties, and negotiations between the parties hereto with respect to the
subject matter of this Agreement, if any, are merged into this Agreement and
the Loan Documents.
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12.6. Counterparts. This Agreement may be executed in any number
of counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, shall be deemed to be an original, and all
of which, when taken together, shall constitute but one and the same Agreement.
12.7. Survival. All covenants, representations and warranties
made in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run,
provided that so long as the obligations referred to in the first sentence of
this Section 12.7 have been satisfied, and Bank has no commitment to make any
Credit Extensions or to make any other loans to Borrower, Bank shall release all
security interest granted hereunder and redeliver all Collateral held by it in
accordance with applicable law.
12.8. Confidentiality. In handling any confidential information,
Bank shall exercise the same degree of care that it exercises with respect to
its own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Agreement, except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Bank in connection with their
present or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Loans, provided that they have
entered into a comparable confidentiality agreement in favor of Borrower and
have delivered a copy to Borrower, (iii) as required by law, regulations, rule
or order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Bank and (v)
as Bank may deem appropriate in connection with the exercise of any remedies
hereunder. Confidential information hereunder shall not include information that
either: (a) is in the public domain after disclosure to Bank through no fault of
Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have
actual knowledge that such third party is prohibited from disclosing such
information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
QUINTUS CORPORATION
By: /s/ Susan Salvesin
-------------------------
Title: CFO
----------------------
SILICON VALLEY BANK
By: /s/ [Signature Illegible]
-------------------------
Title: Vice President
----------------------
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EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and
any and all credit insurance, guaranties, and other security therefor, as well
as all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash deposit accounts, securities, securities
entitlements, securities accounts, investment property, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any
of the foregoing;
(g) All Borrower's Books relating to the foregoing and any and all
claims, rights and interests in any of the above and all substitutions for,
additions and accessions to and proceeds thereof.
A-1
<PAGE> 23
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of October 15, 1998,
by and between Quintus Corporation ("Borrower") and Silicon Valley Bank
("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated September 18, 1998, as may
be amended from time to time, (the "Loan Agreement"). The Loan Agreement
provided for, among other things, a Committed Revolving Line in the original
principal amount of Seven Million Five Hundred Thousand Dollars ($7,500,000) and
a Term Loan in the original principal amount of One Million One Hundred Thousand
Dollars ($1,100,000). Defined terms used but not otherwise defined herein shall
have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTEES. Repayment of the Indebtedness
is secured by the Collateral as described in the Loan Agreement and an
Intellectual Property Security Agreement dated September 18, 1998.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the indebtedness shall
be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Loan Agreement
1. Section 1.1 entitled "Definitions" is hereby amended to
incorporate the following defined terms:
"Exchange Contract" has the meaning set forth in Section
2.1.4.
"Letter of Credit" means a letter of credit or similar
undertaking issued by Bank pursuant to Section 2.1.3.
"Letter of Credit Reserve" has the meaning set forth in
Section 2.1.3.
2. The following Sections are hereby incorporated into the
Loan Agreement to read as follows:
2.1.3 Letters of Credit
Bank agrees to issue or cause to be issued Letters of
Credit for the account of Borrower not exceeding (i) the
lesser of the Committed Revolving Line or the Borrowing
Base, whichever is less, minus (ii) the then outstanding
principal balance of the Advances minus the Foreign
Exchange Reserve, however the face amount of outstanding
Letters of Credit (including drawn but unreimbursed
Letters of Credit and any Letter of Credit Reserve) may
not in any case exceed One Million Five Hundred Dollars
($1,500,000). Each Letter of Credit shall have an expiry
date no later than one hundred eighty (180) days after
the Revolving Maturity Date provided that Borrower's
Letter of Credit reimbursement obligation shall be
secured by cash
<PAGE> 24
on terms acceptable to bank at any time the Revolving Maturity
Date if the term of this agreement is not extended by Bank.
2.1.4 Foreign Exchange Contract, Foreign exchange Settlements.
Borrower may enter foreign exchange contracts (the "Exchange
Contracts") not exceeding an aggregate amount of $500,000 (the
"Contract Limit"), under which Bank will sell to or purchase
from Borrower foreign currency on a spot or a future basis.
Borrower may not request any Exchange Contracts if it is out of
compliance with any provision of this Agreement. Exchange
Contracts must provide for delivery of settlement on or before
the Revolving Maturity Date. The amount available under the
Committed Revolving Line is reduced by the following (the
"Exchange Reserve") on any given day (the "Determination Date"):
(i) on all outstanding Exchange contracts on which delivery is
to be effected or settlement allowed more than two business days
after the Determination Date, 10% of the gross amount of
Exchange Contracts; plus (ii) on all outstanding Exchange
Contracts on which delivery is to be effected or settlement
allowed within two business days after the Determination Date,
100% of the gross amount of the Exchange Contracts.
Banks may terminate the Exchange Contracts if (a) an Event of
Default occurs or (b) there is not sufficient availability under
the Committed Revolving Line and Borrower does not have
available funds in its deposit account for the Foreign Exchange
Reserve. If Bank terminates the Exchange Contracts, Borrower
will reimburse Bank for all fees, costs and expenses in
connection with the Exchange Contracts.
Borrower may not permit the total of all Exchange Contracts on
which delivery is to be effected and settlement allowed in any
two business day period to be more than $500,000 (the
"Settlement Limit") nor may Borrower permit the total of all
Exchange Contracts outstanding at any one time, to exceed the
Contract Limit. However, the amount which may be settled in any
2 business day period may be increased above the Settlement
Limit if:
(i) there is sufficient availability under the Committed
Revolving Line in the amount of the Foreign Exchange Reserve
for each Determination Date, provided that Bank in advance
shall reserve the full amount of the Foreign Exchange
Reserve against the Committed Revolving Line; or
(ii) there is sufficient availability under the Committed
Revolving Line for settlements within any 2 business day
period, but Bank: (A) verifies good funds overseas before
crediting Borrower's deposit account (in the case of
Borrower's sale of foreign currency); or (B) debits
Borrower's deposit account before delivering foreign
currency overseas (in the case of Borrower's purchase of
foreign currency.
If Borrower purchases foreign currency, Borrower must in advance
instruct Bank either to treat the settlement as an advance under
the Committed Revolving Line, or to debit Borrower's account for
the amount settled.
Borrower will execute all bank's standard applications and
agreements in connection with the Exchange Contracts and pay all
Bank's standard fees and charges.
2
<PAGE> 25
Borrower will indemnify Bank and hold it harmless from all
claims, liabilities, demands, obligations, actions, costs
and expenses (including reasonable attorneys' fees) which
it incurs arising out of or in any way relating to any of
the Exchange Contracts or any contemplated transactions.
3. Sub-section (a) of Section 2.1.1 entitled "Advances" is
hereby amended in its entirety to read as follows:
Subject to and upon the terms and conditions of this
Agreement Bank agrees to make Advances to Borrower in an
aggregate outstanding amount not to exceed (i) the
Committed Revolving Line or the Borrowing Base, whichever
is less, minus (ii) the amount of all outstanding Letters
of Credit (including drawn but unreimbursed Letters of
Credit) and minus (iii) the Foreign Exchange Reserve.
subject to the terms and conditions of this Agreement,
amounts borrowed pursuant to this Section 2.1.1 may be
repaid and reborrowed at any time prior to the Revolving
Maturity Date.
Section 2.2 entitled "Overadvances" is hereby amended in
its entirety to read as follows:
If Borrower's Obligations under Section 2.1.1, 2.1.3 and
2.1.4 exceed the lesser of either (i) the Committed
Revolving Line or (ii) the Borrowing Base, Borrower must
immediately pay in cash to Bank the excess.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to
modifications to the existing Indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Bank to make any future modifications to the
Indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Bank and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker, endorser,
or guarantor will be released by virtue of this Loan Modification Agreement.
The terms of this paragraph apply not only to this Loan Modification Agreement,
but also to all subsequent loan modification agreements.
3
<PAGE> 26
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
QUINTUS CORPORATION SILICON VALLEY BANK
By: /s/ MARK P. THOMPSON By: /s/ SCOTT M. WIENE
--------------------------------- ---------------------------------
Name: Mark P. Thompson Name: Scott M. Wiene
------------------------------- -------------------------------
Title: VP, Corporate Controller Title: Assistant Vice President
------------------------------ ------------------------------
4
<PAGE> 27
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of March 30, 1999, by
and between Quintus Corporation ("Borrower") and Silicon Valley Bank ("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated September 18, 1998, as may
be amended from time to time (the "Loan Agreement"). The Loan Agreement
provided for, among other things, a Committed Revolving Line in the original
principal amount of Seven Million Five Hundred Thousand Dollars ($7,500,000)
and a Term Loan in the original principal amount of One Million One Hundred
Thousand Dollars ($1,100,000). Defined terms used but not otherwise defined
herein shall have the same meanings as in the Loan Agreement.
Hereafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
secured by the Collateral as described in the Loan Agreement and an
Intellectual Property Security Agreement dated September 18, 1998.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Loan Agreement
1. Section 1.1 entitled "Definitions" is hereby amended to
incorporate the following defined terms:
"Borrowing Base" means an amount equal to (i) eighty percent
(80%) of Eligible Accounts plus the applicable Overadvance
Amount (as set forth below under "Overadvance Schedule")
"Purchase Agreement" means that certain Accounts Receivable
Purchase Agreement, between Borrower and Silicon Valley
Financial Services, of even date herewith.
"Purchase Sublimit" has the meaning set forth in Section
2.1.5.
"Overadvance Amount" means an amount not to exceed the
amounts set forth for each applicable period set forth in
the Overadvance Schedule, the Overadvance shall be cured by
Borrower by paying down the indebtedness from the
Collections under the Purchase Agreement, as more
particularly described therein.
"Overadvance Schedule" means:
$1,100,000 for the period of March 16, 1999 through March
18, 1999;
$700,000 for the period of March 19, 1999 through March 24,
1999;
$350,000 for the period of March 26, 1999 through March 30,
1999;
$0 thereafter.
<PAGE> 28
2. Sub-section (a) of Section 2.1.1 entitled "Advances" is
hereby amended in its entirety to read as follows:
Subject to and upon the terms and conditions of this
Agreement Bank agrees to make Advances to Borrower in an
aggregate outstanding amount not to exceed (i) the Committed
Revolving Line or the Borrowing Base, whichever is less,
minus (ii) the amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit); minus
(iii) the Foreign Exchange Reserve and minus (iv) the
Purchasing Sublimit. Subject to the terms and conditions of
this Agreement, amounts borrowed pursuant to this Section
2.1.1 may be repaid and reborrowed at any time prior to the
Revolving Maturity Date. Notwithstanding the foregoing,
until such time as Borrower has fully repaid the
Overadvance Amount in full in accordance with the
Overadvance Schedule and is in full compliance with the
Loan Agreement, Borrower shall no longer be entitled to
further Advances.
3. The following Sections are hereby incorporated into the
Loan Agreement to read as follows:
2.1.5 Purchasing Sublimit.
Borrower may use up to $7,500,000 (gross $9,375,000) for
selling receivables to Silicon Valley Financial Services
under the terms and conditions of the Purchase Agreement.
The amount available under the Committed Revolving Line
shall be reduced by the aggregate amount of the Purchased
Receivables as such term is defined in the Purchase
Agreement.
4. Section 2.2 entitled "Overadvances" is hereby amended in
its entirety to read as follows:
If Borrower's Obligations under Section 2.1.1, 2.1.3, 2.14
and 2.1.5 exceed the lesser of either (i) the Committed
Revolving Line or (ii) the Borrowing Base, Borrower must
immediately pay in cash to Bank the excess.
5. Section 6.3 entitled "Financial Statements, Reports,
Certificates" is hereby amended in part to provide that
within three (3) days after the end of each week, Borrower
shall deliver to Bank a Borrowing Base Certificate signed by
a Responsible Officer, together with aged listings of
accounts receivable and accounts payable, as well as weekly
cash flow projections.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to
modifications to the existing Indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Bank to make any future modifications to the
2
<PAGE> 29
Indebtedness. Noting in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Bank and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker, endorser,
or guarantor will be released by virtue of this Loan Modification Agreement.
The terms of this paragraph apply not only to this Loan Modification Agreement,
but also to all subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK;
QUINTUS CORPORATION SILICON VALLEY BANK
By: /s/ SUSAN SALVESEN By:
--------------------------------- ---------------------------------
Name: Susan Salvesen Name:
------------------------------- -------------------------------
Title: CFO Title:
------------------------------ ------------------------------
<PAGE> 1
EXHIBIT 16.1
September 9, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
We have read "Change in Accountants" on page 81 of the Registration
Statement (Form S-1) of Quintus Corporation, and are in agreement with the
statements contained therein. We have no basis to agree or disagree with other
statements of the registrant contained therein.
/s/ ERNST & YOUNG LLP
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
--------------------------
Quintus Corporation wholly owns Nabnasset Corporation, a Delaware corporation,
Quintus CallCenter Solutions Co., a Canadian corporation, Quintus CallCenter
Solutions BV (Netherlands), a company incorporated in the Netherlands, and
Ribeye Acquisition Corp., a Delaware corporation. Quintus Corporation also owns
approximately 20% of the outstanding capital stock of Logic Programming
Associates, LTD, a company incorporated under the laws of England.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Quintus Corporation
on Form S-1 of our report dated June 18, 1999 (September 10, 1999 as to Note
15), appearing in the Prospectus, which is part of this Registration Statement,
and of our report dated June 18, 1999 relating to the financial statement
schedule appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
San Jose, California
September 10, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our reports dated April 30, 1998,
except for Note 12, as to which the date is September 18, 1998, in the
Registration Statement (Form S-1) and related Prospectus of Quintus Corporation.
Ernst & Young LLP
Palo Alto, California
September 9, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated February 8, 1999, except as to Note 11, for which the date is
March 31, 1999, relating to the financial statements of Acuity Corp.,
which appear in such Registration Statement. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Austin, Texas
September 9, 1999
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17,811 17,811
13,707 13,707
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