<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1999.
REGISTRATION NO. 333-86919
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
QUINTUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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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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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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE PRICE(2) REGISTRATION FEE(3)
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Common Stock, par value $0.001......... 4,600,000 $17.00 $78,200,000 $21,740
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</TABLE>
(1) Includes 600,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(a) solely for the purpose of computing the
amount of the registration fee.
(3) Includes an additional registration fee of $3,837 with respect to the
increase in the size of the offering. A registration fee of $17,903 was
previously paid.
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
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.
SUBJECT TO COMPLETION -- NOVEMBER 12, 1999
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PROSPECTUS
, 1999
LOGO
4,000,000 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 the telephone.
- - 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 4,000,000 shares of our common stock.
- - The underwriters have an option to purchase up to 600,000 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 $15.00 and $17.00 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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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.
<PAGE> 3
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.
TABLE OF CONTENTS
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Page
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Prospectus Summary.................. 3
Risk Factors........................ 7
Special Note Regarding Forward-
Looking Statements................ 16
Use of Proceeds..................... 16
Dividend Policy..................... 16
Corporate Information............... 17
Capitalization...................... 18
Dilution............................ 19
Selected Consolidated Financial
Data.............................. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 22
</TABLE>
<TABLE>
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Page
<S> <C>
Business............................ 36
Management.......................... 51
Certain Transactions................ 63
Principal Stockholders.............. 66
Description of Capital Stock........ 69
Shares Eligible for Future Sale..... 72
Underwriting........................ 74
Legal Matters....................... 77
Experts............................. 77
Change in Accountants............... 77
Additional Information.............. 78
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
<PAGE> 4
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 the consolidated financial statements and related notes included in this
prospectus.
QUINTUS CORPORATION
We provide a comprehensive e-Customer Relationship Management or eCRM
solution to manage customer interactions, such as customer orders, inquiries and
service requests, and deliver consistent customer service across multiple
communication channels, including the Internet, email and the telephone. Our
Quintus eContact software suite includes applications that address the needs of
customer service representatives and agents in sales and service, consumer
relations, technical support and human resources centers and a routing engine to
manage customer interactions. These applications and our routing engine can be
sold separately or in a group. eContact enables companies to handle high volumes
of customer interactions and leverage opportunities to sell additional products
and services to their customers.
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 to
differentiate themselves from their competitors. In addition, the emergence of
the Internet as a medium 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 integrated solutions that enable companies to manage
their customer relationships across a broad range of communication channels,
including the Internet, email and the telephone. This market is referred to as
the e-Customer Relationship Management or eCRM market.
The Quintus eContact software suite allows companies to personalize, route
and manage customer interactions. Our eContact suite enables consistent customer
service through the use of common rules for prioritizing, handling and
responding to customer interactions, shared customer profile information,
uniform strategies for selling additional products and services to customers,
and consolidated management and reporting functions that allow companies to
capture and analyze customer information.
3
<PAGE> 5
The Quintus eContact suite includes:
- the eContact engine, the foundation of our eContact suite, that routes,
tracks and manages customer interactions, consolidates relevant customer
information into a common data information source, and provides reporting
capabilities that allow companies to analyze customer information;
- channel applications that enable companies to manage customer
interactions across multiple communication channels, including the
Internet, email and the telephone; and
- business applications that address the needs of customer service
representatives and agents in sales and service, consumer relations,
technical support and human resources centers and are integrated with our
eContact engine.
We only recently introduced and sold the email management and
Internet-based customer service components of our eContact suite. As a result no
customer has completed the implementation of these new components.
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, Ticketmaster and United Airlines.
ACQUISITION OF ACUITY
On November 10, 1999, we acquired Acuity Corp., 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
was structured as a merger in which Acuity has become our wholly-owned
subsidiary and the stockholders of Acuity have become our stockholders. The
total number of our shares issued plus the number of shares issuable upon
exercise of options and warrants we assumed in connection with the acquisition
equaled 5,817,514 shares or 18% of our fully-diluted capitalization immediately
following the acquisition.
4
<PAGE> 6
THE OFFERING
Common stock offered............ 4,000,000 shares
Common stock to be outstanding
after the offering.............. 31,639,527 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.
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 600,000 additional shares.
The number of shares of our common stock to be outstanding after the
offering includes:
- 22,244,595 shares of our common stock outstanding as of September 30,
1999;
- 5,066,283 shares issued in connection with our acquisition of Acuity; and
- 328,649 shares issuable upon the assumed exercise of outstanding warrants
prior to the closing of this offering.
The number of shares of our common stock to be outstanding after the
offering does not include:
- 3,137,083 shares issuable upon exercise of options outstanding as of
September 30, 1999 and 422,867 options assumed in connection with our
acquisition of Acuity;
- 718,996 shares issuable upon exercise of warrants outstanding as of
September 30, 1999 and 328,364 warrants assumed in connection with our
acquisition of Acuity; and
- 2,981,995 shares reserved for future issuance under our stock plans as of
September 30, 1999.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
----------------------------- -----------------
1997 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $13,614 $ 21,890 $ 30,307 $15,860 $22,090
Gross profit......................... 8,443 13,600 21,130 11,416 16,348
Net loss from continuing
operations........................ (3,526) (10,146) (10,586) (4,366) (1,683)
Net loss............................. (3,526) (11,249) (11,466) (5,015) (1,683)
Basic and diluted net loss per common
share from continuing
operations........................ $ (3.73) $ (0.49)
======== =======
Shares used in computation, basic and
diluted........................... 2,835 3,435
</TABLE>
The pro forma as adjusted column of the table below gives effect to the:
- issuance of 5,066,283 shares and the assumption of approximately $1.8
million in debt in connection with our acquisition of Acuity;
- issuance of 328,649 shares upon the assumed exercise of outstanding
warrants prior to 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 4,000,000 shares of common stock at an assumed
initial public offering price of $16.00 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 SEPTEMBER 30, 1999
-------------------------
PRO FORMA
AS
ACTUAL ADJUSTED
<S> <C> <C>
BALANCE SHEET DATA:
Cash........................................................ $ 7,713 $ 50,637
Working capital........................................... 2,918 42,563
Total assets.............................................. 27,973 116,750
Long-term obligations, less current portion............... 1,331 1,835
Liability related to redeemable convertible preferred
stock.................................................. 17,811 --
Total stockholders' equity (deficiency)................... (9,268) 92,384
</TABLE>
6
<PAGE> 8
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the following risks 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.
BECAUSE WE MAY NOT ACHIEVE PROFITABILITY, THE TRADING PRICE OF OUR COMMON STOCK
COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
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 become profitable, which we may
be unable to do. If we fail to become profitable, the trading price of our
common stock could decline significantly. 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 $1.7 million in fiscal 1997, 1998 and 1999 and
for the six months ended September 30, 1999. As of September 30, 1999 we had an
accumulated deficit of $36.3 million. In addition, in November 1999, we acquired
Acuity which had incurred net losses of $6.6 million, $7.7 million and $4.6
million in the years ended December 31, 1997 and 1998 and for the nine months
ended September 30, 1999. Acuity had an accumulated deficit of $25.3 million as
of September 30, 1999. Upon the closing of our acquisition of Acuity, we
recorded approximately $43.7 million of intangible assets, which will be
amortized on a quarterly basis over periods of four to 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 OFFERING, IT MAY BE
DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS PROSPECTS.
In February 1999, we expanded the scope of our product offering with
components for managing email and Internet-based customer interactions and
introduced the Quintus eContact suite. As a result, while we sold many of the
components that are included in our eContact suite prior to 1999, we have only
recently sold the components for managing email and Internet-based customer
interactions. We sold our first email management and Internet-based customer
service components in the quarter ended September 30, 1999 and, as a result, no
customer has completed the implementation of these components. We cannot assure
you that our eContact suite will achieve market acceptance. In addition, we are
still integrating Acuity's WebCenter and WebACD products into our eContact
suite. We may encounter technical difficulties, delays and unforeseen expenses
as we continue our product integration and development efforts.
IF OUR INITIAL IMPLEMENTATIONS OF THE QUINTUS ECONTACT SUITE SUFFER PROBLEMS OR
DELAYS, OUR REPUTATION AND FUTURE OPERATING RESULTS MAY BE HARMED.
We are just beginning to deploy our eContact suite. The initial
implementations of our eContact suite may encounter problems or delays. Although
we have successfully deployed some of the components of our eContact suite, we
have not deployed eContact with integrated computer telephony, email, Web chat
and Web self-service capabilities. To successfully implement our eContact suite,
we must 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
7
<PAGE> 9
resources, harming our 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.
BECAUSE OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY FLUCTUATE
SIGNIFICANTLY, THE TRADING PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE.
It is likely that in some future quarter our revenues and operating results
will fall below the expectations of 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 revenues 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. In addition, we expect that sales derived
through indirect channels, which are more difficult to forecast, may increase as
a percentage of total revenues in the future. 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 operating results will suffer.
BECAUSE WE DEPEND UPON A LIMITED NUMBER OF LARGE SALES FOR A SUBSTANTIAL PORTION
OF OUR REVENUES, THE FAILURE TO OBTAIN LARGE PROSPECTIVE CUSTOMERS COULD CAUSE
OUR REVENUES TO FALL 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 six months ended September 30,
1999, our largest customer accounted for 12.6% 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 prospective major customers could result in our failure to meet
quarterly revenue expectations, causing the trading price of our common stock to
fall.
WE RELY HEAVILY ON OUR INDIRECT DISTRIBUTION CHANNELS, PARTICULARLY OUR
DISTRIBUTION AGREEMENT WITH LUCENT TECHNOLOGIES.
If Lucent Technologies were to cease reselling or fail to continue to
promote our products, our operating results would be harmed. Lucent Technologies
accounted for 9.3%, 21.7% and 28.3% of our total revenues in fiscal 1998 and
1999 and for the six months ending September 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.
8
<PAGE> 10
Even if we are successful in establishing these relationships, they may not
substantially increase our revenues.
BECAUSE A SUBSTANTIAL PORTION OF OUR REVENUES COMES FROM SALES OF OUR QUINTUS
CTI PRODUCT, OUR OPERATING RESULTS WILL SUFFER IF THESE SALES DO NOT CONTINUE.
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
38.4% and 32.1% in fiscal 1999 and for the six months ended September 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 RECENT ACQUISITION OF ACUITY, AND WE
MAY FACE SIMILAR RISKS IN THE FUTURE IF WE ACQUIRE OTHER BUSINESSES OR
TECHNOLOGIES.
In November 1999, we acquired Acuity. We are integrating Acuity's WebCenter
and WebACD products into the Quintus eContact suite. If we are unable to
effectively integrate Acuity's 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
previously had 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 was 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. 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.
BECAUSE MANY OF OUR SALES PEOPLE ARE NEW HIRES AND HIRING ADDITIONAL SALES
PERSONNEL IS PARTICULARLY COMPETITIVE, WE MAY BE UNABLE TO EXPAND OUR BUSINESS.
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.
BECAUSE THE ECRM MARKET IS HIGHLY COMPETITIVE, WE MAY NOT BE ABLE TO SUCCEED AND
YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
If we fail to compete successfully in the highly competitive and rapidly
changing eCRM market, we may not be able to succeed and you may lose part or all
of your investment. We face competition primarily from customer relationship
management software firms, emerging Internet customer
9
<PAGE> 11
interaction software vendors and computer telephony software companies. We also
face competition from traditional call center technology providers, large
enterprise application software vendors, independent systems integrators,
consulting firms and in-house IT departments. Because barriers to entry into the
software market are relatively low, we expect to face additional competition in
the future.
Many of our competitors can devote significantly more resources to the
development, promotion and sale of products than we can, and many of them can
respond to new technologies and changes in customer preferences more quickly
than we can. Further, other companies with resources greater than ours may
attempt to gain market share in the eCRM market by acquiring or forming
strategic alliances with our competitors. See "Business--Competition."
OUR ABILITY TO PROVIDE EMAIL MANAGEMENT FUNCTIONALITY WOULD BE HARMED IF WE
COULD NOT RESELL BRIGHTWARE'S EMAIL MANAGEMENT PRODUCT.
We resell Brightware's software to provide the email management
functionality of the Quintus eContact suite. 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. In addition, if we were not able to
resell Brightware's product, companies requiring email management functionality
would have to purchase another product. As a result, the sales process with our
prospective customers would be complicated by the need to coordinate with a
third party.
OUR BUSINESS WILL SUFFER IF THE ECRM MARKET DOES NOT GROW.
The eCRM market is new 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. Our potential customers are just beginning
to look for solutions for managing customer interactions across multiple
communication channels, and concerns about the security, reliability and quality
of customer service delivery over the Internet may inhibit the growth of our
market. If eCRM software fails to achieve market acceptance, our business will
suffer and may not succeed.
BECAUSE WE DEPEND ON THIRD-PARTY SYSTEMS INTEGRATORS TO SELL OUR PRODUCTS, OUR
REVENUES WILL LIKELY SUFFER IF WE DO NOT DEVELOP AND MAINTAIN THESE
RELATIONSHIPS.
We rely on systems integrators to promote, sell and implement our solution.
If we fail to maintain and develop relationships with systems integrators, our
revenues will likely suffer. 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, resulting in
increased costs. As a result, our ability to grow may be harmed. In addition,
systems integrators may develop, market or recommend products that compete with
our products. For this reason, we must cultivate our relationships with these
firms, and our failure to do so could result in reduced sales revenues. Further,
if these systems integrators fail to implement our products successfully, our
reputation may be harmed.
10
<PAGE> 12
BECAUSE THE SALES CYCLE FOR OUR PRODUCTS CAN BE QUITE LENGTHY, IT IS DIFFICULT
FOR US TO PREDICT WHEN 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. Companies often view
the purchase of our products as a significant and strategic decision. As a
result, companies tend to take significant time and effort evaluating 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 ECRM PRODUCTS OR PRODUCT ENHANCEMENTS ON A
TIMELY BASIS, OR IF THE MARKET DOES NOT ACCEPT THESE PRODUCTS OR PRODUCT
ENHANCEMENTS, OUR BUSINESS WILL SUFFER.
The eCRM market is new and is likely to change rapidly. Our future success
will depend on our ability to effectively and timely anticipate changing
customer requirements and offer products and services that meet these demands.
Potential customers may seek features that our products do not have. As a
result, we may need to develop these features, and this may result in a longer
sales cycle, increased research and development expenses and reduced profit
margins. In addition, the development of new or enhanced eCRM 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. For example, our ability to introduce new products
would be impaired if we cannot continue to attract, hire, train and retain
highly skilled personnel.
OUR FAILURE TO MANAGE OUR RAPID GROWTH COULD INCREASE OUR COSTS AND HARM OUR
BUSINESS.
We have experienced rapid growth and plan to continue to significantly
expand our operations. We may not be able to manage this 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 six
months ended September 30, 1999, our revenues were $22.1 million and our
headcount was 208 at the end of that period. Our recent acquisition of Acuity
brought additional employees and operations to manage. As of September 30, 1999,
Acuity had 81 employees. To manage our growth effectively, we may need to
further improve our operational, financial and management systems. We cannot
assure you that we will improve these systems adequately.
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 continue to train and support these resellers.
11
<PAGE> 13
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.
BECAUSE WE DEPEND ON LICENSED THIRD-PARTY TECHNOLOGIES, WE WILL FACE ADDITIONAL
COSTS IF WE HAVE TO REPLACE THESE TECHNOLOGIES.
Our products incorporate technologies that we license from third parties.
Although we believe we could obtain similar technologies from alternative
sources, substituting and integrating replacement technologies could require us
to divert significant resources. These efforts, if required, could delay the
shipment of existing products 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;
- product returns or lost sales;
- 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 hurt 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.
12
<PAGE> 14
ALTHOUGH WE HAVE TAKEN MEASURES TO PROTECT OUR INTELLECTUAL PROPERTY, OUR
COMPETITIVE POSITION MAY SUFFER IF THESE MEASURES PROVE TO BE INADEQUATE.
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 acquired 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 FACE COSTLY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS.
Companies have in the past alleged that our products infringe their
patents, and others may make similar allegations in the future. Such claims or
other claims that our products infringe other intellectual property rights, may
force us 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. 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 SIGNIFICANT THIRD PARTIES ARE NOT YEAR 2000 COMPLIANT.
We may experience material problems and costs associated with the Year 2000
and our Year 2000 compliance efforts. If our eContact suite of products,
including those software components that we license from others, do not
correctly recognize date information when the calendar year changes to 2000, we
could experience warranty or other claims by our customers. These claims could
be costly to defend and could result in judgments against us.
If our internal systems, such as engineering and finance applications, are
not Year 2000 compliant, we could experience problems running our day-to-day
business. In such a case, product development efforts could be delayed, and we
may be unable to adequately respond to the needs and concerns of our customers.
Further, if systems generally are not Year 2000 compliant, we may not be able to
obtain adequate supplies if our suppliers experience Year 2000 problems, and
companies could reduce their spending on eCRM products if they redirect
resources toward Year 2000 remediation programs. See "Business -- Year 2000
Compliance."
We have made significant efforts to ensure that our proprietary software,
the software we license from others and our internal systems are Year 2000
compliant. We believe that no serious problems
13
<PAGE> 15
will arise that will result in significant costs. However, a reasonable "worst
case" scenario might include:
- Cash expenditures and lost person-hours. If certain functions of our
eContact suite fail, our customers may be unable to manage the operations
of their customer service centers and we may be forced to spend time and
money to correct these deficiencies.
- Alternative use problems. We have certified the eContact software
components, whether internally developed or licensed from others, as Year
2000 compliant in the eCRM field of use. If any of our customers have
adopted and are using eContact for alternative uses, they may face
problems that we are not aware of.
- Failure of engineering applications. While we have certified as Year 2000
compliant our material internal systems, it is possible that some of our
non-critical, narrow use engineering applications will experience
difficulties. Although we have no reason to believe that these
applications will fail, some areas of our engineering efforts could be
hindered if problems arise.
WE MAY FACE YEAR 2000-RELATED CLAIMS IN CONNECTION WITH PRIOR VERSIONS OF
ACUITY'S PRODUCTS.
Acuity has determined that certain older versions of its WebCenter software
product are not Year 2000 compliant. Acuity has attempted to contact all
customers with noncompliant products to notify them of this lack of compliance
and to offer them the opportunity to purchase a product upgrade that is Year
2000 compliant. We cannot assure you that customers of Acuity who experience
Year 2000 failures will not seek damages from Acuity or Quintus. In addition,
Acuity previously sold an iChat product that was not Year 2000 compliant. Acuity
sold its iChat product line prior to entering an agreement to be acquired by us.
We believe that any liabilities that result from the iChat product's failure to
be Year 2000 compliant will be the responsibility of the purchaser of the iChat
product line; however, third parties might still seek to assert liability
against us or Acuity.
SALES OF OUR COMMON STOCK INTO THE PUBLIC MARKET FOLLOWING THIS OFFERING COULD
HARM THE MARKET PRICE OF OUR COMMON STOCK AND OUR ABILITY TO RAISE MONEY THROUGH
SALES OF EQUITY SECURITIES.
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 into the public market. If significant volumes of our common stock are
sold into the public 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 September 30, 1999, upon completion of this offering, we will
have 31,639,527 shares of common stock outstanding. The holders of substantially
all of our currently outstanding stock are subject to lock-up agreements or
bylaw restrictions providing that, with certain limited exceptions, the holders
will not sell or otherwise dispose of any shares of our common stock for a
period of 180 days after the date of this prospectus without the prior written
approval of Donaldson, Lufkin & Jenrette Securities Corporation. When these
lock-up agreements and bylaw restrictions 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."
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
14
<PAGE> 16
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 18,296,570
shares, or approximately 55.8%, of the outstanding shares of common stock. 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, 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.
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.
15
<PAGE> 17
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.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of 4,000,000 shares of
common stock we are offering will be approximately $58.1 million at an assumed
initial public offering price of $16.00 and after deducting estimated offering
expenses of approximately $1.4 million and underwriting discounts and
commissions payable by Quintus. If the underwriters exercise their
over-allotment option in full, then the net proceeds will be approximately $67.0
million.
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. We expect to use the remaining net proceeds
for working capital and other general corporate purposes. Some of the net
proceeds will be used to fund the expansion of our sales force and our
international operations. We currently estimate that during the next 12 months
we will incur at least $25 million to fund sales and marketing expenses, of
which at least $5 million will fund international operations. 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. 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.
16
<PAGE> 18
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.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth our cash position, current portion of
long-term obligations and total capitalization as of September 30, 1999. The pro
forma column of the table gives effect to the issuance of 5,066,283 shares and
the assumption of approximately $1.8 million in debt in connection with our
acquisition of Acuity.
The pro forma as adjusted column of the table gives effect to the:
- issuance of 328,649 shares upon the assumed exercise of outstanding
warrants that otherwise terminate upon the closing of this offering;
- conversion of all outstanding shares of our preferred stock into shares
of our common stock 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; and
- sale in this offering of 4,000,000 shares of common stock at an assumed
initial public offering price of $16.00 per share, less underwriting
discounts and commissions and estimated offering expenses payable by
Quintus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash........................................................ $ 7,713 $ 9,954 $ 50,637
======== ======== ========
Current portion of long-term obligations.................... $ 1,393 $ 1,937 $ 1,937
======== ======== ========
Long-term obligations, less current portion................. $ 1,331 $ 1,835 $ 1,835
Liability related to redeemable convertible preferred
stock..................................................... 17,811 17,811 --
Stockholders' equity (deficiency):
Convertible preferred stock, $0.001 par value, shares
authorized 19,055,000 and 17,938,849 outstanding,
actual: 19,055,000 shares authorized and 20,986,227
shares outstanding, pro forma: 10,000,000 shares
authorized and no shares outstanding, pro forma as
adjusted............................................... 18 21 --
Common stock, $0.001 par value, shares authorized
40,000,000 and 4,305,746 outstanding, actual;
40,000,000 shares authorized and 6,324,651 shares
outstanding, pro forma; 100,000,000 shares authorized
and 31,639,527 outstanding, pro forma as adjusted...... 4 6 32
Additional paid-in capital................................ 30,310 76,462 134,952
Note receivable from stockholder.......................... (223) (223) (223)
Deferred stock based compensation......................... (3,100) (3,100) (3,100)
Accumulated deficit....................................... (36,277) (39,277) (39,277)
-------- -------- --------
Total stockholders' equity (deficiency)................ (9,268) 33,889 92,384
-------- -------- --------
Total capitalization.............................. $ 9,874 $ 53,535 $ 94,219
======== ======== ========
</TABLE>
This table does not include:
- 3,137,083 shares issuable upon exercise of options outstanding as of
September 30, 1999, and 422,867 options assumed in connection with our
acquisition of Acuity as if it had occurred on September 30, 1999;
- 718,996 shares issuable upon exercise of warrants outstanding as of
September 30, 1999, and 328,364 warrants assumed in connection with our
acquisition of Acuity as if it had occurred on September 30, 1999; and
- 2,981,995 shares reserved for future issuance under our stock plans as of
September 30, 1999.
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<PAGE> 20
DILUTION
Our pro forma net tangible book value as of September 30, 1999, was $(13.0)
million, or approximately $(0.47) 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, the issuance of 5,066,283 shares in connection with the closing
of the acquisition of Acuity and the issuance of 328,649 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 4,000,000 shares of common
stock being offered at an assumed initial public offering price of $16.00 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 September 30, 1999, would have been $45.1 million, or approximately
$1.43 per share. This represents an immediate increase in pro forma net tangible
book value of $1.90 per share to existing stockholders and an immediate dilution
in net tangible book value of $14.57 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............. $16.00
Pro forma net tangible book value per share as of
September 30, 1999..................................... $(0.47)
Increase attributable to new investors.................... $ 1.90
Pro forma net tangible book value per share after
offering.................................................. 1.43
------
Dilution per share to new investors......................... $14.57
======
</TABLE>
The following table sets forth, on a pro forma basis as of September 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 $16.00
per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 27,639,527 87.4% $ 66,663,000 51.0% $ 2.41
New public investors................... 4,000,000 12.6 64,000,000 49.0 16.00
---------- ----- ------------ -----
Total........................ 31,639,527 100.0% $130,663,000 100.0%
========== ===== ============ =====
</TABLE>
To the extent that any shares are issued upon exercise of options or
warrants that were outstanding at September 30, 1999 or granted after that date,
or reserved for future issuance under our stock plans, there will be further
dilution to new investors.
19
<PAGE> 21
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. The financial data for the
year ended and as of March 31, 1995 is derived from Company's predecessor entity
financial records. In connection with the acquisition of Quintus from
Intergraph, in-process technology of $6.1 million and purchased software of
$398,000 was recorded. These amounts were charged to the Company's operations
during the year ended March 31, 1996.
During July 1997 and November 1997, we acquired Call Center Enterprises,
Inc. and Nabnasset Corporation, respectively. In connection with these
acquisitions, we acquired intangible assets of approximately $10.8 million,
which are being amortized over a three year period, and we recorded a charge for
approximately $2.2 million for in-process research and development costs during
the year ended March 31, 1998. These transactions are described in detail at
Note 2 of our notes to our Consolidated Financial Statements included elsewhere
in this prospectus.
The consolidated statements of operations data for the six months ended
September 30, 1998 and 1999 and the consolidated balance sheet data as of
September 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.
20
<PAGE> 22
<TABLE>
<CAPTION>
------------
FOR THE
PERIOD FROM
-------------- MAY 25, 1995 SIX MONTHS ENDED
YEAR ENDED THROUGH YEAR ENDED MARCH 31, SEPTEMBER 30,
MARCH 31, MARCH 31, ----------------------------- -----------------
1995 1996 1997 1998 1999 1998 1999
(PREDECESSOR) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
License.......................... $ 6,193 $ 5,174 $ 8,406 $ 12,948 $ 17,577 $ 9,913 $13,348
Service.......................... 915 1,267 5,208 8,942 12,730 5,947 8,742
------- ------- ------- -------- -------- ------- -------
Total revenues............ 7,108 6,441 13,614 21,890 30,307 15,860 22,090
------- ------- ------- -------- -------- ------- -------
Cost of revenues:
License.......................... 1,394 637 972 708 554 268 671
Service.......................... 780 985 4,199 7,582 8,623 4,176 5,071
------- ------- ------- -------- -------- ------- -------
Total cost of revenues.... 2,174 1,622 5,171 8,290 9,177 4,444 5,742
------- ------- ------- -------- -------- ------- -------
Gross profit....................... 4,934 4,819 8,443 13,600 21,130 11,416 16,348
Operating expenses:
Sales and marketing.............. 3,019 4,031 6,879 11,336 17,147 8,616 9,438
Research and development......... 3,378 1,795 3,667 5,102 6,719 3,353 3,974
General and administrative....... 689 1,196 1,263 3,233 3,577 1,632 1,993
Amortization of intangibles...... -- -- -- 1,335 3,185 1,596 1,592
Acquired in-process
technologies................... -- 6,060 -- 2,200 -- -- --
Stock-based compensation......... -- -- -- -- 171 60 609
------- ------- ------- -------- -------- ------- -------
Total operating
expenses................ 7,086 13,082 11,809 23,206 30,799 15,257 17,606
------- ------- ------- -------- -------- ------- -------
Loss from continuing operations.... (2,152) (8,263) (3,366) (9,606) (9,669) (3,841) (1,258)
Interest expense, net.............. (976) (32) (160) (540) (917) (525) (425)
------- ------- ------- -------- -------- ------- -------
Net loss from continuing
operations....................... (3,128) (8,295) (3,526) (10,146) (10,586) (4,366) (1,683)
Discontinued operations:
Loss from discontinued
operations..................... -- -- -- (1,103) (1,891) (649) --
Gain on disposal of discontinued
operations..................... -- -- -- -- 1,011 -- --
------- ------- ------- -------- -------- ------- -------
Net loss........................... $(3,128) $(8,295) $(3,526) $(11,249) $(11,466) $(5,015) $(1,683)
======= ======= ======= ======== ======== ======= =======
Basic and diluted net loss per
common share from continuing
operations....................... $(76.63) $ (4.25) $ (6.88) $ (3.73) $ (1.66) $ (0.49)
======= ======= ======== ======== ======= =======
Basic and diluted net loss per
common share..................... $(76.63) $ (4.25) $ (7.53) $ (4.04) $ (1.91) $ (0.49)
======= ======= ======== ======== ======= =======
Shares used in computation, basic
and diluted...................... 109 868 1,695 2,835 2,634 3,435
- -----------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------
AS OF AS OF MARCH 31, AS OF
MARCH 31, ---------------------------------------- SEPTEMBER 30,
1995 1996 1997 1998 1999 1999
(PREDECESSOR) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash.................................... $ 1,117 $ 792 $ 3,045 $ 1,986 $ 1,785 $ 7,713
Working capital (deficiency)............ 1,537 582 1,552 (11,250) (8,644) 2,918
Total assets............................ 4,943 5,699 9,852 23,141 19,594 27,973
Long-term obligations, net of current
portion............................... 14,510 528 19 4,246 2,201 1,331
Redeemable convertible preferred
stock................................. -- 9,478 14,110 17,811 17,811 17,811
Total stockholders' deficiency.......... (11,696) (7,850) (10,831) (20,333) (20,091) (9,268)
</TABLE>
21
<PAGE> 23
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
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 Corporation, 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. In
November 1999, we acquired Acuity, a provider of software products to manage
Internet-based customer interactions.
Our revenues were $13.6 million, $21.9 million, $30.3 million and $22.1
million in fiscal 1997, 1998 and 1999 and for the six months ended September 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.
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 13.8% of total revenues in fiscal 1997, 1998 and 1999
and for the six months ended September 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.
22
<PAGE> 24
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 9.3%, 21.7% and 28.3% of total
revenues in fiscal 1998 and 1999 and for the six months ended September 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 six months ended September 30, 1999, one customer,
Procter & Gamble, accounted for 12.6% 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 September 30, 1999 we had an accumulated deficit of approximately
$36.3 million. Our net loss from continuing operations was $3.5 million, $10.1
million, $10.6 million and $1.7 million in fiscal 1997, 1998 and 1999 and for
the six months ended September 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.
23
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth our results of operations as a percentage of
total revenues:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
----------------------- --------------
1997 1998 1999 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License........................................ 61.7% 59.2% 58.0% 62.5% 60.4%
Service...................................... 38.3 40.8 42.0 37.5 39.6
----- ----- ----- ----- -----
Total revenues............................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
License...................................... 7.1 3.2 1.8 1.7 3.0
Service...................................... 30.8 34.6 28.5 26.3 23.0
----- ----- ----- ----- -----
Total cost of revenues.................... 37.9 37.8 30.3 28.0 26.0
----- ----- ----- ----- -----
Gross profit................................... 62.1 62.2 69.7 72.0 74.0
Operating expenses:
Sales and marketing.......................... 50.5 51.8 56.6 54.3 42.7
Research and development..................... 26.9 23.3 22.2 21.1 18.0
General and administrative................... 9.3 14.8 11.8 10.3 9.0
Amortization of intangibles.................. -- 6.1 10.5 10.1 7.2
Acquired in-process technologies............. -- 10.1 -- -- --
Stock-based compensation..................... -- -- 0.6 0.4 2.8
----- ----- ----- ----- -----
Total operating expenses.................. 86.7 106.1 101.7 96.2 79.7
----- ----- ----- ----- -----
Loss from continuing operations................ (24.6) (43.9) (32.0) (24.2) (5.7)
Interest expense, net.......................... (1.2) (2.5) (3.0) (3.3) (1.9)
----- ----- ----- ----- -----
Net loss from continuing operations............ (25.8) (46.4) (35.0) (27.5) (7.6)
Discontinued operations:
Loss from discontinued operations............ -- (5.0) (6.2) (4.1) --
Gain on disposal of discontinued
operations................................ -- -- 3.3 -- --
----- ----- ----- ----- -----
Net loss....................................... (25.8)% (51.4)% (37.9)% (31.6)% (7.6)%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
REVENUES
Total Revenues. Total revenues increased 39.3% from $15.9 million to $22.1
million for the six months ended September 30, 1998 and 1999.
License. License revenues increased 34.7% from $9.9 million to $13.3
million for the six months ended September 30, 1998 and 1999. The increase in
license revenues was primarily due to an increase in products sold through
Lucent Technologies from $3.1 million to $5.3 million for the six months ended
September 30, 1998 and 1999, and a large direct sale of $2.1 million to Procter
& Gamble.
Service. Service revenues increased 47.0% from $5.9 million to $8.7 million
for the six months ended September 30, 1998 and 1999. The growth in service
revenues was due primarily to an increase in maintenance revenues from $3.2
million to $4.6 million for the six months ended September 30,
24
<PAGE> 26
1998 and 1999 as a result of our increased installed base. The growth in service
revenues was also due to an increase in consulting service revenues from new and
existing customers from $2.7 million to $4.2 million for the six months ended
September 30, 1998 and 1999. In future periods, we expect service revenues to
decrease as a percentage of total revenues as we seek to have third-party system
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 $268,000 and
$671,000 for the six months ended September 30, 1998 and 1999, representing 2.7%
and 5.0% 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 a reseller agreement
with Brightware which requires significantly higher royalty rates. Although the
sale of products under this agreement have been minimal to date, the cost of
licenses may 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 $4.2 million and
$5.1 million for the six months ended September 30, 1998 and 1999, representing
70.2% and 58.0% 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 service 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, bonuses, travel, public relations, marketing materials
and trade shows. Sales and marketing expenses increased 9.5% from $8.6 million
to $9.4 million for the six months ended September 30, 1998 and 1999,
representing 54.3% and 42.7% of total revenues in the respective periods. The
increase in sales and marketing expenses was primarily due to higher
international operating expenses, which increased from $400,000 to $1.7 million
for the six months ended September 30, 1998 and 1999, offset by lower spending
on marketing programs. We formed our first foreign subsidiary in July of 1998.
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 future periods.
Research and Development. Research and development expenses consist
primarily of personnel and related expenses associated with the development of
new products, the enhancement and localization of existing products, and quality
assurance and testing costs incurred prior to commercial production. Research
and development expenses increased 18.5% from $3.4 million to $4.0 million for
the six months ended September 30, 1998 and 1999, representing 21.1% and 18.0%
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 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
25
<PAGE> 27
professional fees and allowance for doubtful accounts. General and
administrative expenses increased 22.1% from $1.6 million to $2.0 million for
the six months ended September 30, 1998 and 1999, representing 10.3% and 9.0% of
total revenues in the respective periods. The dollar increase was primarily due
to increased staffing costs of $318,000 and associated expenses necessary to
manage and support our increased scale of operations. We anticipate that our
general and administrative expenses will continue to increase as a result of the
continued expansion of our administrative staff and facilities to support
growing operations.
Amortization of Intangibles. Amortization of intangibles represents 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 October
2000. Amortization of intangibles was $1.6 million for the six months ended
September 30, 1998 and 1999.
Stock-Based Compensation. In the six months ended September 30, 1998 and
1999, we recorded deferred stock-based compensation of $238,000 and $2.7
million, 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 six months ended September 30,
1998 and 1999, we recognized stock-based compensation expense, in continuing
operations, related to options granted to employees of $60,000 and $609,000.
Interest Expense, Net. Interest expense consists of interest expense and
other non-operating expenses. In the six months ended September 30, 1998,
interest expense included $165,000 with respect to warrants granted in
connection with notes payable to stockholders. There was no such expense
recognized during the six months ended September 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 $649,000 for
the six months ended September 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. License revenue from our CTI product
increased from $3.1 million in fiscal 1998 to $7.7 million in fiscal 1999.
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
26
<PAGE> 28
increase in service revenues was primarily due to growth in the installed base
of customers with maintenance agreements and maintenance renewals from products
licensed in prior periods representing $1.9 million, $4.2 million and $7.2
million for fiscal 1997, 1998 and 1999. The growth in service revenues was also
due to an increase in consulting service revenues from new and existing
customers, representing $3.3 million, $4.7 million and $5.5 million for fiscal
1997, 1998 and 1999.
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 expansion of our worldwide sales and marketing
organization, which increased from 34 employees in fiscal 1997 to 56 employees
in fiscal 1999, 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, which increased from 31 employees in fiscal 1997 to 44 employees in
fiscal 1999, 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, which increased from 16 employees in fiscal 1997 to 24 employees in
fiscal 1998, 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
27
<PAGE> 29
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 $99,000 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.
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.
28
<PAGE> 30
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly results of operations
data for the six quarters ended September 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 SEPTEMBER 30,
(IN THOUSANDS) 1999
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License.................... $ 4,790 $ 5,123 $ 2,930 $ 4,734 $ 6,126 $ 7,222
Service.................. 2,762 3,185 3,024 3,759 4,167 4,575
------- ------- ------- ------- ------- -------
Total revenues......... 7,552 8,308 5,954 8,493 10,293 11,797
Cost of revenues:
License.................. 74 194 155 131 218 453
Service.................. 1,957 2,219 2,426 2,021 2,421 2,650
------- ------- ------- ------- ------- -------
Total cost of
revenues............. 2,031 2,413 2,581 2,152 2,639 3,103
Gross profit............... 5,521 5,895 3,373 6,341 7,654 8,694
Operating expenses:
Sales and marketing...... 4,518 4,098 4,639 3,892 4,314 5,124
Research and
development............ 1,795 1,558 1,792 1,574 1,873 2,101
General and
administrative......... 803 829 1,109 836 998 995
Amortization of
intangibles............ 796 800 798 791 796 796
Stock-based
compensation........... 4 56 56 55 169 440
------- ------- ------- ------- ------- -------
Total operating
expenses............. 7,916 7,341 8,394 7,148 8,150 9,456
------- ------- ------- ------- ------- -------
Loss from continuing
operations............... (2,395) (1,446) (5,021) (807) (496) (762)
Interest expense, net...... (391) (134) (181) (211) (194) (231)
------- ------- ------- ------- ------- -------
Net loss from continuing
operations............... (2,786) (1,580) (5,202) (1,018) (690) (993)
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) $ (993)
======= ======= ======= ======= ======= =======
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1998 1998 1999 1999 1999
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License........................ 63.4% 61.7% 49.2% 55.7% 59.5% 61.2%
Service...................... 36.6 38.3 50.8 44.3 40.5 38.8
----- ----- ------ ----- ----- -----
Total revenues............. 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
License...................... 1.0 2.3 2.6 1.5 2.1 3.8
Service...................... 25.9 26.7 40.7 23.8 23.5 22.5
----- ----- ------ ----- ----- -----
Total costs of revenues.... 26.9 29.0 43.3 25.3 25.6 26.3
Gross profit................... 73.1 71.0 56.7 74.7 74.4 73.7
Operating expenses:
Sales and marketing.......... 59.8 49.3 77.9 45.8 41.9 43.4
Research and development..... 23.8 18.8 30.1 18.5 18.2 17.8
General and administrative... 10.6 10.0 18.6 9.8 9.7 8.4
Amortization of
intangibles................ 10.5 9.6 13.4 9.3 7.7 6.7
Stock-based compensation..... 0.1 0.7 0.9 0.6 1.6 3.7
----- ----- ------ ----- ----- -----
Total operating expenses... 104.8 88.4 140.9 84.2 79.1 80.2
----- ----- ------ ----- ----- -----
Loss from continuing
operations................... (31.7) (17.4) (84.3) (9.5) (4.8) (6.5)
Interest expense, net.......... (5.2) 1.6 3.0 2.5 1.9 2.0
----- ----- ------ ----- ----- -----
Net loss from continuing
operations................... (36.9) (19.0) (87.3) (12.0) (6.7) (8.4)
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)% (8.4)%
===== ===== ====== ===== ===== =====
</TABLE>
License revenues have generally increased in each of the six quarters ended
September 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. Decreased license revenues for
the quarter were primarily due to significant turnover in our sales force during
the quarter. In addition our newly hired sales personnel, who were still gaining
experience with our products, were unable to close a large number of sales
forecasted for the quarter. In the following quarter we experienced further
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, investors should not rely on the results of one quarter as an
indication of future performance.
30
<PAGE> 32
RECENT DEVELOPMENTS
On November 10, 1999, we acquired Acuity, a provider of software products
to manage Internet-based customer interactions. The acquisition was structured
as a merger in which Acuity has become our wholly-owned subsidiary and the
stockholders of Acuity have become our stockholders. The total number of our
shares issued in connection with the acquisition of Acuity plus the number of
shares issuable upon exercise of options and warrants we assumed in the
acquisition equaled 5,817,514 shares or 18% of our fully-diluted capitalization
immediately following the acquisition. We issued 3,047,378 shares of our
preferred stock and 2,018,905 shares of our common stock. In addition, we
assumed warrants to purchase 328,364 shares of our common and preferred stock
and options to purchase 422,867 shares of our common stock. The acquisition will
be accounted for using the purchase method of accounting. The aggregate purchase
price for the acquisition was approximately $46.5 million based on the value of
our capital stock issued and the value of the options, warrants and liabilities
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 81
employees on September 30, 1999. Acuity's revenues for the year ended December
31, 1998 were $6.7 million, of which $5.5 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 $4.6 million in the years ended December 31, 1997 and
1998 and for the nine months ended September 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 September 30, 1999, we have raised approximately $41.4 million, net of
offering costs, from the issuance of preferred stock. As of September 30, 1999,
we had $7.7 million in cash.
We have a $7.5 million credit line under which $4.4 million was outstanding
as of September 30, 1999. The line had a maturity date of September 17, 1999
that was extended to December 17, 1999. Changes to the terms of the line
included a waiver to the financial covenants as well as a change of the interest
rate to prime plus 0.5% per annum. Warrants were issued to the bank to purchase
25,000 shares of Series F preferred stock at $8.25 per share. We also have a
$1.1 million term loan, of which $719,000 was outstanding as of September 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 $3.8 million in fiscal 1997, 1998 and 1999 and for the six months
ended September 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 six months ended September 30, 1999 was primarily due to a net loss of
$1.7 million and an increase in accounts receivable and a decrease in deferred
revenues, offset in part by an increase in depreciation and amortization and
stock based compensation.
Cash used in investing activities was $1.0 million, $3.7 million and
$396,000 in fiscal 1997 and 1998 and for the six months ended September 30,
1999. Cash used in investing activities was primarily for purchases of property
and equipment in each period. In addition, cash used in fiscal
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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 and $10.1 million in fiscal 1997, 1998 and 1999 and for the six
months ended September 30, 1999. Cash provided by financing activities consisted
primarily of proceeds from private sales of preferred stock and borrowings under
a bank line of credit.
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 these 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 inventory
any systems or devices that may be affected, identify which systems or devices
are not Year 2000 compliant and remedy any Year 2000 issues that become known to
us. The scope of our Year 2000 readiness program includes the review and
evaluation of:
- our proprietary software products;
- the software components that we license from others and are part of the
eContact suite of 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 proprietary software products and determined 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
recent versions of our products will suffer Year 2000-related problems.
We have made reasonable efforts to ensure that software licensed from third
parties that we incorporate into our eContact suite is Year 2000 compliant.
Despite our tests and assurances from the
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developers of these products, products we sell may contain undetected errors or
defects associated with Year 2000 date functions. In most cases, we have
determined that recent versions of these licensed software components are Year
2000 compliant. In instances where our customers are using older, non-compliant
versions of these software components, we have advised them specifically what
changes they need to make in order to make their systems Year 2000 compliant.
We have initiated an assessment of our material internal IT systems,
including both our own software products and third party software and hardware
technology, and our non-IT systems. We have successfully upgraded and made
compliant our source code repository and our call defect tracking system. We
expect to complete testing of our material IT systems, including a comprehensive
"roll forward" simulation test by November 30, 1999, and we expect to address
any issues that arise from these tests by the second week of December. 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 potential costs associated with preparing our internal IT and non-IT
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.
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 operating
results could suffer.
We have funded our Year 2000 readiness program from operating cash flows
and have not separately accounted for these costs. To date, these costs have not
been material. We will incur additional costs for administrative personnel to
manage our testing, review and remediation efforts, and we will incur some
expenses related to outside vendor and contractor assistance. We do not believe
these expenses will materially affect our operating results. Because we have
contracted with a third party to perform the majority of our hardware and
systems upgrades, our engineering and IT projects have not been materially
delayed.
We have made significant efforts to ensure that our proprietary software,
the software we license from others and our internal systems are Year 2000
compliant. We believe that no serious problems will arise that will result in
significant costs. However, a reasonable "worst case" scenario might include:
- Cash expenditures and lost person-hours. If certain functions of our
eContact suite fail, our customers may be unable to manage their eCRM
operations and we may be forced to spend time and money to correct these
deficiencies.
- Alternative use problems. We have certified the eContact software
components, whether internally developed or licensed from others, as Year
2000 compliant in the eCRM field of use. If any of our customers have
adapted and are using eContact for alternative uses, they may face
problems that we are not aware of.
- Failure of engineering applications. While we have certified as Year 2000
compliant our material internal systems, it is possible that some of our
non-critical, narrow use engineering applications will experience
difficulties. Although we have no reason to believe that these
applications will fail, some areas of our engineering efforts could be
hindered if problems arise.
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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.
Acuity has completed its Year 2000 assessments and preparations. In
assessing its state of readiness, Acuity determined, through internal testing or
by receiving certifications from vendors, that all of its systems are generally
Year 2000 compliant. In particular, Acuity investigated the readiness of its
desktop applications and its engineering and accounting software systems. Acuity
also assessed its internal hardware and servers, as well as its telephone and
security systems. Acuity also requested that third-party providers of material
software products certify that these software products, including software
incorporated into Acuity's products, are Year 2000 compliant.
Acuity has not tracked its Year 2000 preparedness expenses separately, and,
while it is unable to accurately estimate these expenses, it does not believe
they have had or will have a material effect on its results of operations.
A reasonable worst case scenario for Acuity would involve a company-wide
shut down for an undeterminable period of time caused by the failure of its
network systems. Because it believes all material systems are Year 2000
compliant, Acuity has not implemented any definite contingency plans.
Acuity determined that certain older versions of its software product are
not Year 2000 compliant. In response, Acuity has attempted to contact all
customers with noncompliant products to notify them of this lack of compliance
and to offer them the opportunity to purchase a product upgrade that is Year
2000 compliant. Following our acquisition of Acuity, we will be liable for
claims that Acuity customers have against Acuity. In addition, Acuity previously
sold an iChat product that was not Year 2000 compliant. Acuity sold its iChat
product line prior to entering an agreement to be acquired by us. We believe
that any liabilities that result from the iChat product's failure to be Year
2000 compliant will be the responsibility of the purchaser of the iChat product
line; however, third parties might still seek to assert liability against us
following our acquisition of Acuity.
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.
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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 September 30, 1999, we had an outstanding balance of $4.4 million under
a revolving line of credit with interest at prime plus 0.5% and a term loan with
an outstanding balance of $719,000 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
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 to differentiate themselves from their
competitors. 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, customer service is becoming a key
competitive advantage in many industries.
The Internet has emerged as a major medium for communication and commerce,
enabling new, highly efficient channels through which companies can 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 companies to interact with their customers in more
ways than ever before. In addition to traditional telephone-based communication
channels, 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 use of these new 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.
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 orders, inquiries
and service requests, and telesales and telemarketing operations. As these
companies move to support Internet-based communication channels and establish
customer service centers with capabilities for handling multi-channel
communications, they will seek to leverage their existing investments in call
center infrastructure and personnel. Frost and
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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 increasingly competitive online market
environments and are looking for ways to differentiate themselves from their
competitors. These Internet-based companies have relied primarily on email and
Web self-service to interact with their customers. 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
five days or more 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 manage customer relationships across a broad range
of communication channels including the Internet, email and the telephone. This
market is referred to 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 telephone technologies; and
- capture all relevant customer information.
THE QUINTUS SOLUTION
We provide a comprehensive eCRM solution that enables companies to manage
customer interactions, such as customer orders, inquiries and service requests,
and deliver consistent customer service across multiple communication channels,
including the Internet, email and the telephone. Our Quintus eContact software
suite includes applications that address the needs of customer service
representatives and agents in sales and service, consumer relations, technical
support and human resources centers and a routing engine that manages customer
interactions. Our eContact software suite enables companies to personalize,
route and manage customer interactions and is designed to leverage third party
products that support email and Internet-based customer service. Our recent
acquisition of Acuity 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
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to handle high volumes of customer interactions, increase the efficiency of
their customer service operations and leverage opportunities to sell additional
products and services to their customers through the use of common rules for
prioritizing, handling and responding to customer interactions, shared customer
profile information, and consolidated management and reporting functions that
allow companies to capture and analyze customer information.
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.
Our eContact suite consists of several different software applications that
can be sold separately or in a group. We only recently introduced and sold the
email management and Internet-based customer service components of our eContact
suite. As a result no customer has completed the implementation of these new
components.
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, such as 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 personalized level of customer service. Rules for
prioritizing, handling and responding to customer interactions 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 opportunities to sell additional products and
services to customers.
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. Customer service agents can access complete customer
histories and review previous interactions. As a result, agents can respond more
effectively when, for example, a customer calls to discuss an email she received
in response to an order she previously placed online.
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Highly Scalable and Flexible. Quintus eContact is designed to handle
millions of customer interactions per day and support thousands of agents across
multiple customer service centers. eContact allows companies to increase the
number of customer interactions handled by customer service agents 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 with the flexibility to implement the
solution they need today and add functionality as they expand the scope of their
customer service 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 our 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 a strategic relationship with
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
expertise and support our growth and
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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 that can be sold
separately or in a group.
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
enables customer interactions, such as customer orders, inquiries and service
requests, to be managed consistently across multiple communication channels. Our
eContact engine, routes, tracks, and manages customer interactions, consolidates
all relevant customer information into a common data source, and provides
reporting capabilities that allow companies to capture and analyze customer
information. The eContact engine includes the following features:
- Personalization Services. The Quintus eContact engine allows companies to
personalize each customer interaction based on sophisticated rules for
prioritizing, handling and responding to customer interactions 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
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channels and companies can leverage the 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 Data Source 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 source.
The Quintus eContact engine provides reporting capabilities that allow
companies to perform in-depth customer segmentation and trend analysis.
- Centralized Customization and Administration. Companies can customize
rules for prioritizing, handling and responding to customer interactions,
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 to 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. Customer service 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 the telephone. Companies can deploy our channel applications
separately or as a comprehensive solution to meet their evolving needs for
customer service centers handling interactions across multiple communications
channels.
<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. We deliver this functionality by reselling
Brightware's software.
- -----------------------------------------------------------------------------------
Electronic Commerce Quintus eCommerce Connector integrates eContact with
Connector e-commerce applications to capture transaction information.
- -----------------------------------------------------------------------------------
</TABLE>
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 to apply
sophisticated rules for prioritizing, handling and responding to customer
interactions to qualify and route telephone-based customer communications. By
integrating the telephony infrastruc-
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ture 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 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 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.
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 data source or other external data sources.
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 data source 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.
QUINTUS ECONTACT BUSINESS APPLICATIONS
We currently market four business applications that address the needs of
customer service centers for sales and service, consumer relations, technical
support and human resources. Our business applications can run separately or be
integrated with the Quintus eContact suite, can be deployed across multiple
locations and are accessed through agent desktops or via a Web browser.
Companies can easily customize data models, rules for handling customer
interactions, screen forms and Web pages to meet their specific requirements.
Our business applications can also be integrated with third-party applications
and data sources.
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<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------
BUSINESS PRODUCT DESCRIPTION
APPLICATION
- -----------------------------------------------------------------------------------
Sales and Service Quintus CallCenterQ supports multi-function
business-to-consumer sales, service and marketing centers.
- -----------------------------------------------------------------------------------
Consumer Relations Quintus CallCenterQ for Consumer Relations supports consumer
relations centers in the consumer product, service, travel,
hospitality and other industries.
- -----------------------------------------------------------------------------------
Technical Support Quintus CustomerQ supports business-to-business technical
support centers.
- -----------------------------------------------------------------------------------
Human Resources Quintus HRQ supports human resources centers serving
employees, former employees and retirees.
- -----------------------------------------------------------------------------------
</TABLE>
Sales and Service. Quintus CallCenterQ is designed for multi-function
sales, service and marketing 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 opportunities to sell additional products or services to customers.
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 centers and is targeted primarily at the consumer
product, service, travel and hospitality industries. CallCenterQ for Consumer
Relations provides agents with the information they need 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 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 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 employees while reducing administrative costs and improving
the productivity of human resource departments.
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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 Ticketmaster
Deere & Company Northern Trust United Airlines
</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 centers. Procter & Gamble is
also implementing our Quintus HRQ application in its human resources 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 call centers and improve its service to consumers and employees by
automating call center interactions, providing detailed consumer and employee
information, and tracking problem resolution to completion.
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
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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.
TICKETMASTER
Ticketmaster is a leading provider of automated ticketing distribution
services, selling approximately 70 million tickets worldwide in 1998.
Business Challenge. Ticketmaster sells tickets to the public through the
telephone, the Internet and retail outlets. More recently, Ticketmaster has
started selling a greater percentage of tickets over the Internet. Through the
Internet, Ticketmaster allows customers to find information about upcoming
events and purchase tickets and other related merchandise. To support its
growing online sales and customer service needs, Ticketmaster sought a more
comprehensive solution that would enable it to provide a higher level of
customer service through automated email, Web chat, Web callback and
collaborative browsing. Ticketmaster wanted to be able to integrate this
solution with its existing call centers and telephone systems.
Solution. Ticketmaster selected our Quintus eContact suite earlier this
year. Ticketmaster expects that our solution, which is being developed, will
enable it to provide live customer support through Web chat and browser-based
collaboration, and to respond more efficiently to large volumes of emails.
Ticketmaster plans to integrate our solution within its call centers as its need
for Internet customer service increases.
ASHFORD.COM
Ashford.com is an online retailer of luxury and premium products, selling
more than 150 brands and 8,000 different styles of new and vintage watches,
fragrances, leather accessories, sunglasses and writing instruments.
Business Challenge. As a provider of luxury and premium products,
Ashford.com targets a customer group that expects a high level of customer
service. Ashford.com wanted to be able to communicate directly with its online
customers as they navigate its Web site in order to increase sales and provide
an enhanced online shopping experience.
Solution. Ashford.com deployed WebCenter to provide interactive sales,
service and support to customers on its Web site. WebCenter enables Ashford.com
to deliver live online assistance to its customers while they are browsing the
Web site. Customers can remain online and have one-on-one chat sessions with
customer service agents. WebCenter also allows an agent to display Web pages on
a customer's screen in real-time in order to provide additional support. For
example, an agent could help a customer fill in a purchase form or guide a
customer through the site in order to view specific products. In addition, using
WebCenter, Ashford.com can connect each customer to the most appropriate agent,
matching a customer's inquiry with an agent's area of expertise. Since
implementing WebCenter, Ashford.com has noted that customers using its live
customer service capabilities are more likely to make a purchase and experience
higher levels of customer satisfaction.
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REI.COM
REI.com is the online division of Recreational Equipment Incorporated
(REI), a national retailer of outdoor gear and clothing.
Business Challenge. As an online retailer, REI.com depends on customers
making purchases through its Web site. REI.com found that many potential
customers on its Web site abandoned their shopping carts before completing a
purchase. In order to increase sales REI.com wanted to create a more engaging
online experience and enable customers to interact directly with its customer
service agents while navigating its Web site.
Solution. REI.com deployed WebCenter to provide customer service on its Web
site. WebCenter allows customers to easily find answers to commonly asked
questions by querying an online knowledge base and to receive assistance through
email or by connecting to a live customer service agent through Web chat.
Customers are also able to request that an agent call them back. REI is
currently offering live online customer assistance during peak hours and is
looking to extend it in the future. By providing live customer support during
the sales process, REI.com expects to increase the number of potential customers
that make a purchase, as well as the overall level of customer satisfaction and
loyalty.
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 an 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 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.
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
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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 customer service 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. We also maintain international offices in Amsterdam
and London from which we provide sales support to our international distribution
partners.
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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 enhance 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
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 $4.0 million in fiscal 1997, 1998 and 1999 and
for the six months ended September 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
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 Laboratories. 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. 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.
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
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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. Recently, a number of our
competitors have been acquired by significantly larger companies, creating a
number of stronger competitors with greater resources than ours. Cisco Systems
acquired GeoTel Communications in June 1999 and entered into an agreement to
acquire WebLine Communications in September 1999. These acquisitions strengthen
Cisco's position as a provider of call routing and Web chat software. In
September 1999, Alcatel entered into an agreement to acquire Genesys
Telecommunications Laboratories, adding Genesys' computer telephony software
functionality to its voice and data network capabilities. More recently, in
October 1999, PeopleSoft entered into an agreement to acquire The Vantive
Corporation, a provider of customer relationship management software. In
addition, in October 1999, Nortel entered into an agreement to acquire Clarify,
a provider of customer relationship management software.
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 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.
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
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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 September 30, 1999, we had a total of 208 employees, including 54
people in research and development, 81 people in sales and marketing, 44 people
in customer support services and 29 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 September 30,
1999, Acuity had a total of 81 employees.
FACILITIES
Our principal administrative, sales, marketing, support and research and
development facilities are located in approximately 36,000 square feet of space
in Fremont, California. Our lease of approximately 30,000 square feet expires in
December 2000, and our lease of approximately 6,000 square feet expires in April
2001. 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 assumed a lease for
approximately 22,000 square feet in Austin, Texas, expiring in June 2000.
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MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth information regarding our directors and
officers as of September 30, 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
John Cecala..................... 37 Vice President, Sales
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................... 39 Director
Andrew Busey.................... 28 Director
Fredric Harman.................. 39 Director
William Herman.................. 39 Director
Alexander Rosen................. 31 Director
Robert Shaw..................... 52 Director
Jeanne Wohlers.................. 54 Director
</TABLE>
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-commerce software solutions.
From May 1994 to April 1996, Ms. Salvesen served as Vice President
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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 our
Director of Engineering. 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.
John Cecala has served as our Vice President, Sales since January 1999.
From October 1995 to January 1999, Mr. Cecala served as a regional sales
manager, and from January 1994 to October 1995 he served as one of our sales
representatives. Prior to January 1994, Mr. Cecala served as a national and
strategic account sales representative for Lotus Development, a computer
software developer. Mr. Cecala received his B.A. degree in business and computer
science from Concordia University.
Roger Nunn has served as our 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.
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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.
Andrew Busey became a director of Quintus upon the closing of our
acquisition of Acuity in November 1999. Mr. Busey founded Acuity in August 1995
and served as President and Chief Executive Officer of Acuity until June 1996.
From July 1996 to January 1998, Mr. Busey served as Chairman and Chief
Technology Officer of Acuity, and from January 1998 to May 1999 he served as
Acuity's Chairman. In October 1998, Mr. Busey co-founded living.com, an online
provider of furniture and home furnishings, and he served as living.com's
President and Chairman until September 1999. He currently is the Chairman and
Chief Technology Officer of living.com. Mr. Busey received his B.A. degree in
computer science from Duke University.
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
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entertainment software. From October 1994 to April 1997, Ms. Wohlers served as a
director of OpenVision Technologies. 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 board of directors has established a stock option
committee whose sole member is the chairman of the board of directors, Alan
Anderson. The stock option committee has the power to approve grants of stock
options under our 1999 Stock Incentive Plan to individuals who are neither
officers nor board members not exceeding 20,000 shares per grant. The current
members of the compensation committee are Messrs. Bartlett and Herman.
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.
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<PAGE> 56
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 connection with 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 our
directors will be eliminated or limited to the fullest extent permitted by the
Delaware General Corporation Law. These provisions 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;
- with some exceptions, we are required to advance all expenses incurred by
our directors and executive officers in connection with a legal
proceeding;
- 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.
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<PAGE> 57
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. Mr. Kenyon resigned as our Vice President, Field Operations
in October 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
<S> <C> <C> <C>
Alan Anderson, Chief Executive Officer.............. $190,000 $ 11,875 --
Susan Salvesen, Chief Financial Officer............. 150,000 10,000 25,000
Muralidhar Sitaram, Senior Vice President,
Engineering....................................... 155,833 -- 85,000
Peter Kenyon, former Vice President, Field
Operations........................................ 89,702 304,773 --
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth each grant of stock options during the fiscal
year ended March 31, 1999 to each of the Named Executive Officers. We granted a
total of 1,205,612 options to our employees during fiscal 1999. No stock
appreciation rights were granted to these individuals during this period.
Each of the options listed in the table below 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 may
be repurchased 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 in 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. Ms. Salvesen's option for
10,000 shares vests in equal monthly installments over a two-year period. Each
of the option shares listed in the table will vest upon an acquisition of
Quintus by merger or asset purchase, unless our repurchase right in connection
with unvested option shares is transferred to the acquiring entity. Each of the
options has a ten-year term, but may be terminated earlier if the optionee
ceases to remain with us.
The exercise prices of the options we grant are 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.
The potential realizable values at 5% and 10% appreciation are calculated
by assuming a base price of $16.00 per share that appreciates at the indicated
rate for the entire ten-year term of the option and that the option is exercised
at the exercise price and sold on the last day of its term at the
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appreciated price. Stock price appreciation rates of 5% and 10% are assumed
pursuant to rules promulgated by the Securities and Exchange Commission and do
not represent our prediction of our stock price performance.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Alan Anderson........ -- --% $ -- -- $ -- $ --
Susan Salvesen....... 10,000 0.8 1.75 3/09/09 243,123 397,499
15,000 1.2 1.50 7/20/08 368,435 599,998
Muralidhar Sitaram... 85,000 7.1 1.75 3/09/09 2,066,547 3,378,740
Peter Kenyon......... -- -- -- -- -- --
</TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The table below 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.
The amounts in the "Value Realized" column are equal to the fair market
value of the purchased shares on the option exercise date, less the exercise
price paid for such shares.
Options granted under our 1995 Stock Option Plan are immediately
exercisable for all the option shares, but any shares purchased under those
options may be repurchased by us, at the original exercise price paid per share,
if the optionee ceases to remain with us prior to the vesting in his or her
shares. The headings "Vested" refer to shares we may no longer repurchase; the
headings "Unvested" refer to shares we had rights to repurchase as of March 31,
1999.
The amounts in the "Value of Unexercised in-the-Money Options at March 31,
1999" column are based on $1.75 per share, the fair market value of our common
stock at the end of fiscal 1999, less the exercise price payable for such
shares.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES AT MARCH 31, 1999 MARCH 31, 1999
ACQUIRED ON VALUE ---------------------- ------------------
NAME EXERCISE REALIZED 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>
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
The compensation committee, as plan administrator of the 1999 Stock
Incentive Plan, has the authority to accelerate the vesting of the shares of
common stock subject to outstanding options held
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<PAGE> 59
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 671,429 of these shares.
Provided that Mr. Anderson remains in our service, the remaining 471,429 shares
of unvested common stock will vest as follows: 117,857 will vest in equal annual
installments beginning in May 2000. However, these 471,429 shares of unvested
common stock could vest in full if following this offering the per share value
of our common stock reaches specified targets as measured on May 25, 2000, 2001
or 2002. Mr. Anderson's agreement also provides that these 471,429 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 specified 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
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<PAGE> 60
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. Employees, consultants and members of our board of directors
who are not employees are eligible to participate in the 1999 Stock Incentive
Plan.
Types of Award. The 1999 Stock Incentive Plan provides for the award of
incentive or nonstatutory options to purchase shares of our common stock,
restricted shares of our common stock, 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.
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
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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 vest at the time or times determined
by the compensation committee and 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. Stock units vest at the time or times determined by the
compensation committee and 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.
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.
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.
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<PAGE> 62
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 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.
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
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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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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>
TOTAL VALUE OF
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F PREFERRED
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED STOCK
STOCK STOCK STOCK STOCK STOCK STOCK PURCHASED
<S> <C> <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 -- $116,369,272
Entities Associated with Oak
Investment Partners (Mr. Harman).... -- -- 2,094,240 -- 669,085 -- $ 6,776,701
Other 5% stockholders
HarbourVest Partners IV............... -- -- -- 970,002 455,760 -- $ 4,558,910
Outside directors
William Herman........................ 100,000 -- -- -- 60,241 30,000 $ 597,500
Paul Bartlett......................... -- -- 52,356 -- 24,097 -- $ 200,002
Jeanne Wohlers........................ -- 34,420 -- -- 12,049 -- $ 99,224
Robert Shaw........................... -- -- -- -- 18,072 -- $ 74,999
</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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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, under which Hall, Kinion recruits qualified
candidates for consideration of employment in specific positions with us. If we
hire any Hall, Kinion candidate, either immediately or within 6 months of the
date the candidate is first referred to us by Hall, Kinion, we pay Hall, Kinion
20% of the candidate's base annual salary. Paul Bartlett, one of our directors,
is president of Hall, Kinion. In fiscal 1999 and the six months ended September
30, 1999, we paid an aggregate of $20,387 and $217,228, respectively, to Hall,
Kinion under this agreement.
Mr. Busey, who became one of our directors upon the closing of our
acquisition of Acuity, is the Chairman and Chief Technology Officer of
living.com, an online retailer of home furnishings. In March 1999, Acuity
licensed its WebCenter product to living.com and received approximately $90,000
in connection with this license.
LOANS TO CERTAIN EXECUTIVE OFFICERS AND DIRECTORS
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 September 30, 1999, the amount outstanding on this note was
$43,093.
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 September 30, 1999, the amount outstanding on this note was
$22,573.
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<PAGE> 66
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 September 30, 1999, the amount outstanding on this note was
$167,385.
In August 1996, Acuity loaned Mr. Busey $75,000. The note bore interest at
5.76% per annum and was collateralized by a stock pledge agreement secured by
shares owned by Mr. Busey. In 1998, Acuity forgave the note in connection with a
noncompete agreement Mr. Busey entered into with Acuity. Acuity received
interest payments of $4,320 and $2,160 during fiscal 1997 and 1998.
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.
ACUITY'S SALE OF ITS ICHAT BUSINESS
In March 1999, Acuity sold its iChat business to KOZ, Inc. Under the terms
of an agency agreement between Mr. Busey and Acuity, Mr. Busey had the right to
receive 10% of the stock and cash received by Acuity for the sale of the iChat
assets. In June 1999, Acuity received 659,341 shares of KOZ Series E preferred
stock, valued at approximately $0.91 per share. Ten percent of these shares are
to be transferred to Mr. Busey, in accordance with the agency agreement. In
August 1999, Acuity received a payment of $310,000 from KOZ in connection with
the sale of the iChat business, creating an obligation to pay Mr. Busey $31,000.
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<PAGE> 67
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of September 30, 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 (10 persons).
As of September 30, 1999, there were 22,573,244 shares of our common stock
outstanding assuming the exercise of warrants to purchase 328,649 shares of
stock that were outstanding on that date. We issued 5,066,283 shares in
connection with our acquisition of Acuity. Thus, the figures in the "Before
Offering" and "After Offering" columns below are based on 27,639,527 and
31,639,527 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 September 30, 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
OPTIONS OR WARRANTS ----------------------
NUMBER OF SHARES INCLUDED IN OUTSTANDING
BENEFICIALLY BENEFICIAL BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OWNERSHIP OFFERING OFFERING
<S> <C> <C> <C> <C>
Entities Affiliated with Donaldson,
Lufkin & Jenrette, Inc.(a).......... 11,842,037 140,193 42.6% 37.3%
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 -- 10.5 9.2
525 University Avenue, Suite 1300
Palo Alto, CA 94301
HarbourVest Partners IV -- Direct Fund
L.P.(c)............................. 1,530,908 105,146 5.5 4.8
One Financial Center
Boston, MA 02111
Alan K. Anderson(d)................... 1,142,858 -- 4.1 3.6
John J. Burke......................... 685,000 685,000 2.4 2.1
Susan Salvesen........................ 248,000 88,000 * *
</TABLE>
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<PAGE> 68
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OPTIONS OR WARRANTS ----------------------
NUMBER OF SHARES INCLUDED IN OUTSTANDING
BENEFICIALLY BENEFICIAL BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OWNERSHIP OFFERING OFFERING
<S> <C> <C> <C> <C>
Muralidhar Sitaram.................... 330,000 130,000 1.2 1.0
Paul Bartlett......................... 116,453 40,000 * *
Andrew Busey.......................... 602,319 -- 2.2 1.9
Fredric Harman(e)..................... 2,903,516 -- 10.5 9.1
Will Herman........................... 220,241 60,000 * *
Alexander Rosen(f).................... 11,842,037 -- 42.6 37.3
Robert Shaw........................... 84,097 -- * *
Jeanne Wohlers........................ 122,049 -- * *
All directors and executive officers
as a group(11)...................... 18,296,570 1,143,193 63.6 55.8
</TABLE>
- -------------------------
* Less than 1%.
(a) Includes 653,655 shares held by entities affiliated with Donaldson, Lufkin
& Jenrette, Inc., of which 7,253 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 45,803 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 87,137 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 ESC II, L.P. is an
Employees' Securities Corporation as defined in the Investment Company Act
of 1940. The general partner of DLJ ESC II, L.P. is DLJ LBO Plans
Management Corporation and the limited partners of DLJ ESC II, L.P. are
current or former employees of Donaldson, Lufkin & Jenrette, Inc. and its
affiliates. 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. The entities
affiliated with Donaldson, Lufkin & Jenrette, Inc. (the "DLJ Entities")
have placed a sufficient number of their shares in a voting trust so that
upon the closing of this offering, the DLJ Entities will exercise voting
control over less than five percent of the outstanding common stock. The
shares subject to the voting trust are held and voted by an independent
third party, Norwest Bank Indiana, N.A., as voting trustee. DLJ Capital
Corporation has the power to dispose of the shares subject to the voting
trust that were formerly held by DLJ Capital Corporation, Sprout Capital
VI, L.P., Sprout Capital VII, L.P. and Sprout CEO Fund, L.P. DLJ LBO Plans
Management Corporation has the power to dispose of the shares subject to
the voting trust that were formerly held by DLJ ESC II, L.P. DLJ Capital
Corporation has the power to vote and dispose of its shares, as well as
those held by Sprout Capital VI, L.P., Sprout Capital VII, L.P. and Sprout
CEO Fund, L.P., that are not subject to the voting trust. DLJ LBO Plans
Management Corporation has the power to vote and dispose of shares held by
DLJ ESC II, L.P. that are not subject to the voting trust.
(b) Includes 2,837,318 shares held by Oak Investment Partners VI, L.P., and
66,198 shares held by Oak VI Affiliates Fund, L.P. 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
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<PAGE> 69
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) Hancock Venture Partners, Inc. is the managing general partner of Back Bay
Partners XII L.P., the general partner of HarbourVest Partners IV-Direct
Fund L.P. D. Brooks Zug and Edward W. Kane, who comprise the investment
committee of Hancock Venture Partners, Inc., hold the power to vote and
dispose of the shares held by HarbourVest Partners IV-Direct Fund L.P.
(d) Includes 471,429 shares of unvested common stock.
(e) 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.
(f) 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.
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<PAGE> 70
DESCRIPTION OF CAPITAL STOCK
GENERAL
At 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 is not complete and is
qualified by our certificate of incorporation and bylaws and by the provisions
of applicable law.
COMMON STOCK
As of September 30, 1999, there were 22,244,595 shares of common stock
outstanding that were held of record by approximately 193 stockholders. There
will be 31,639,527 shares of common stock outstanding, assuming the exercise of
328,649 warrants prior to the closing of this offering and no exercise of the
underwriters' over-allotment option and no exercise after September 30, 1999, of
outstanding options, and after giving effect to the issuance of 5,066,283 shares
in connection with our acquisition of Acuity, the sale of 4,000,000 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> 71
WARRANTS
As of September 30, 1999, the following warrants to purchase a total of
718,996 shares of our capital stock were outstanding, excluding warrants to
purchase 328,649 shares of stock that we have assumed will be exercised before
the offering:
- Warrants to purchase a total of 25,000 shares of Series F preferred stock
at $8.25 per share, which expire on April 17, 2006;
- Warrants to purchase a total of 385,530 shares of common stock at $0.30
per share, which expire on November 10, 2001;
- Warrants to purchase a total of 8,466 shares of common stock at $3.94 per
share, which expire on January 7, 2002; and
- Warrants to purchase 300,000 shares of common stock at the lesser of
$7.50 or the price of shares sold in this offering per share, which
expire on the earlier of one year after the closing date of this offering
or July 18, 2004.
We have assumed throughout this prospectus the pre-offering cash exercise
of the following warrants:
- Warrants to purchase a total of 5,000 shares of common stock at $0.05 per
share;
- Warrants to purchase a total of 76,047 shares of common stock at $4.54
per share;
- Warrants to purchase a total of 192,262 shares of Series B preferred
stock at $1.43 per shares; and
- Warrants to purchase a total of 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 10% 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, as well as provisions of employment agreements of some of our key
executives, could prevent or delay a change in control of Quintus."
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<PAGE> 72
DELAWARE TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law,
which, with some 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;
- 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 (a) by persons who are
directors and also officers and (b) 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;
- with some 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 21,728,872 shares of common stock and
warrants to purchase common stock will be entitled to registration rights. If we
propose 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 securityholders and these
securityholders may be entitled to include all or part of their shares in the
registration. Additionally, holders of 21,728,872 shares of common stock and
warrants to purchase common stock have 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
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<PAGE> 73
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
Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of common stock in the public market
following this offering, including shares issued upon exercise of outstanding
options and warrants, could adversely affect the prevailing market price of our
common stock and could impair our ability to raise capital through the sale of
our equity securities. As described below, most of the shares currently
outstanding will not be available for sale immediately after this offering due
to contractual and legal restrictions on resale. However, public sales of
substantial amounts of our common stock after these restrictions lapse could
adversely affect the prevailing market price of our stock and our ability to
raise equity capital in the future.
Upon completion of this offering, we will have outstanding 31,639,527
shares of common stock, based upon shares outstanding as of September 30, 1999
and assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options or warrants, other than 328,649 warrants prior
to the consummation of this offering. Of these shares, the 4,000,000 shares sold
in this offering will be freely tradable without restriction under the
Securities Act except for any shares purchased by our "affiliates," as that term
is defined in Rule 144 under the Securities Act. The remaining 27,639,527 shares
of common stock held by existing stockholders include 21,502,019 restricted
shares and 6,137,508 non-restricted shares. As described below, substantially
all of these 27,639,527 restricted and non-restricted shares are subject to
lock-up agreements or bylaw restrictions providing that, with certain limited
exceptions, the stockholder will not offer, sell, contract to sell or otherwise
dispose of any common stock or any securities that are convertible into common
stock for a period of 180 days after the date of this prospectus without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. As
a result of these lock-up agreements and bylaw restrictions, only 24,188 of
these shares may be resold prior to 181 days after the date of this prospectus.
Donaldson, Lufkin & Jenrette Securities Corporation may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements or bylaw restrictions, although it has no current
intention of doing so.
The following table shows approximately when the 27,639,527 shares of our
common stock that are not being sold in this offering, but which will be
outstanding when this offering is complete, will be eligible for sale in the
public market:
ELIGIBILITY OF SHARES FOR SALE IN THE PUBLIC MARKET
<TABLE>
<S> <C>
At the effective date....................................... 24,188
180 days after the effective date........................... 25,923,356
More than 180 days after the effective date................. 1,691,983
</TABLE>
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Resale of 17,008,186 of the restricted shares that will become available
for sale in the public market starting 180 days after the date of this
prospectus will be limited by volume and other resale restrictions under Rule
144 because the holders of those shares are our affiliates.
RULE 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person who has beneficially owned restricted shares for at least
one year would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 316,400 shares immediately after this offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the public availability of information about us. Under Rule
144(k), a person who is not deemed to have been an affiliate of Quintus at any
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
RULE 701
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any of our employees, officers,
directors or consultants who purchased shares under a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701. Rule
701 permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that nonaffiliates may sell such shares in reliance on Rule 144 without
having to comply with the holding period, public information, volume limitation
or notice provisions of Rule 144. All holders of Rule 701 shares are required to
wait until 90 days after the date of this prospectus before selling such shares.
However, all Rule 701 shares are subject to lock-up agreements or bylaw
restrictions and will only become eligible for sale upon the expiration of the
180 days following the date of this prospectus. Donaldson, Lufkin & Jenrette
Securities Corporation may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements or bylaw restrictions, although it has no current intent of doing so.
Following the date of this prospectus, we will file a registration
statement on Form S-8 to register all the shares of common stock subject to
outstanding options or reserved for future issuance under our stock plans.
Common stock issued upon exercise of outstanding vested options or issued under
or purchase plan, other than common stock issued to our affiliates, will be
available for immediate resale in the open market.
73
<PAGE> 75
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated November , 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., have severally agreed to purchase from Quintus the 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
underwriters to purchase and accept delivery of the shares of common stock
offered by this prospectus are subject to approval by their counsel of legal
matters concerning the offering and to conditions that must be satisfied by
Quintus. The underwriters are obligated to purchase and accept delivery of all
of the shares of common stock offered by this prospectus, 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 600,000 additional shares of common stock at the
initial public offering price less underwriting discounts and commissions. 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.
74
<PAGE> 76
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.
Quintus, its executive officers and directors and substantially all of its
stockholders and option holders are subject to agreements or bylaw restrictions
providing that, with certain limited exceptions, they will not:
- 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 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. Furthermore, no Quintus stockholders
have demand registration rights that may be exercised during such 180 day
period.
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 by this prospectus will be determined by negotiation among Quintus and
the underwriters. The factors to be considered in determining the initial public
offering price include:
- 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.
The underwriters have reserved up to 200,000 shares of the common stock to
be sold in this offering for sale to some of our employees and associates of our
employees and directors, and to other individuals or companies who have
commercial arrangements or personal relationships with us. Through this directed
share program, we intend to ensure that those individuals and companies that
have supported us, or who are in a position to support us in the future, have
the opportunity to purchase our common stock at the same price that we are
offering our shares to the general public. Prospective participants will not
receive any investment materials other than a copy of this prospectus, and will
be permitted to participate in this offering at the initial public offering
price presented on the cover page of this prospectus. No commitment to purchase
shares by any participant in the directed share program will be accepted until
after the registration statement of which this
75
<PAGE> 77
prospectus is a part is effective and an initial public offering price has been
established. The number of shares available for sale to the general public will
be reduced by the number of shares sold through the directed share program. Any
shares reserved for the directed share program which are not so purchased will
be offered by the underwriters to the general public on the same basis as the
other shares offered hereby.
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.
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 referred to as 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 11,842,037
shares of the outstanding common stock, which represent more than 10% of the
outstanding common stock. The Sprout Entities have placed a sufficient number of
their shares in a voting trust so that upon the closing of this offering, the
Sprout Entities will exercise voting control over less than five percent of the
outstanding common stock. The shares subject to the voting trust 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 Association 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, Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated, will assume the responsibilities of
acting as qualified independent underwriter and will recommend a price in
compliance with the requirements of Rule 2720. As compensation for its services
as qualified independent underwriter, we have agreed to pay $10,000 to Dain
Rauscher Wessels on the closing of this offering.
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.
76
<PAGE> 78
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 for the two years in
the period 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 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
On March 9, 1999, our audit committee dismissed Ernst & Young LLP as our
independent auditors and subsequently appointed Deloitte & Touche LLP as our
principal accountants. There were no disagreements with the former accountants
during the fiscal years ended March 31, 1997 and 1998 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. We 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.
77
<PAGE> 79
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 in connection with this offering. While the information
contained in this prospectus is materially complete, 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. 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.
78
<PAGE> 80
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-27
Balance Sheets............................................ F-28
Statements of Operations.................................. F-29
Statements of Changes in Stockholders' Equity (Deficit)... F-30
Statements of Cash Flows.................................. F-31
Notes to Financial Statements............................. F-32
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION:
Pro Forma Condensed Combining Financial Statements........ F-44
Pro Forma Condensed Combining Balance Sheets.............. F-46
Pro Forma Condensed Combining Statements of Operations.... F-47
Notes to Pro Forma Condensed Combining Financial
Statements............................................. F-49
</TABLE>
F-1
<PAGE> 81
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 & Touche LLP
San Jose, CA
June 18, 1999
(November 10, 1999 as to Note 15)
F-2
<PAGE> 82
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 the related consolidated statements of
operations, stockholders' equity (net capital deficiency), and cash flows for
the two years in the period 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 the consolidated results of its
operations and its cash flows for the two years in the period then ended in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
April 30, 1998
F-3
<PAGE> 83
QUINTUS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
------------------- SEPTEMBER 30,
1998 1999 1999
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 1,986 $ 1,785 $ 7,713
Accounts receivable, less allowance for doubtful accounts
of $848, $729 and $825.................................. 7,573 8,671 12,378
Prepaid expenses and other assets......................... 608 573 926
-------- -------- --------
Total current assets................................ 10,167 11,029 21,017
Property and equipment, net................................. 3,508 3,162 3,133
Purchased technology, less accumulated amortization of $556,
$1,889 and $2,555......................................... 3,444 2,111 1,445
Intangible assets, less accumulated amortization of $1,059,
$2,630 and $3,556......................................... 5,803 2,970 2,043
Other assets................................................ 219 322 335
-------- -------- --------
Total assets................................................ $ 23,141 $ 19,594 $ 27,973
======== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,762 $ 2,352 $ 2,030
Accrued compensation and related benefits................. 2,073 2,114 2,421
Other accrued liabilities................................. 1,633 2,268 2,510
Deferred revenue.......................................... 5,008 6,615 5,377
Borrowings under bank line of credit...................... 4,950 4,868 4,368
Notes payable to stockholders............................. 4,500 -- --
Current portion of capital lease obligations.............. 134 109 46
Current portion of long-term debt......................... 1,357 1,347 1,347
-------- -------- --------
Total current liabilities........................... 21,417 19,673 18,099
Capital lease obligations, less current portion............. 109 101 264
Long-term debt, less current portion........................ 2,637 1,700 1,067
Deferred revenue............................................ 1,500 400 --
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.................................... 9 9 9
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.................................... 1 1 1
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.................................... 3 3 3
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 1 1
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................................... -- 3 3
Series F convertible preferred stock, $0.001 par value;
authorized shares -- 1,500,000; issued and outstanding
shares -- 1,363,334; aggregate liquidation
preference -- $11,247................................... -- -- 1
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; 4,305,746 in September 1999.... 4 4 4
Additional paid-in capital................................ 2,914 15,483 30,310
Notes receivable from stockholders........................ (58) (117) (223)
Deferred compensation..................................... (79) (884) (3,100)
Accumulated deficit....................................... (23,128) (34,594) (36,277)
-------- -------- --------
Total stockholders' deficiency...................... (20,333) (20,091) (9,268)
-------- -------- --------
Total liabilities and stockholders' deficiency.............. $ 23,141 $ 19,594 $ 27,973
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 84
QUINTUS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
----------------------------- -----------------
1997 1998 1999 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
License........................................ $ 8,406 $ 12,948 $ 17,577 $ 9,913 $13,348
Service...................................... 5,208 8,942 12,730 5,947 8,742
------- -------- -------- ------- -------
Total revenues............................ 13,614 21,890 30,307 15,860 22,090
COST OF REVENUES:
License...................................... 972 708 554 268 671
Service...................................... 4,199 7,582 8,623 4,176 5,071
------- -------- -------- ------- -------
Total cost of revenues.................... 5,171 8,290 9,177 4,444 5,742
------- -------- -------- ------- -------
Gross profit................................... 8,443 13,600 21,130 11,416 16,348
OPERATING EXPENSES:
Sales and marketing.......................... 6,879 11,336 17,147 8,616 9,438
Research and development..................... 3,667 5,102 6,719 3,353 3,974
General and administrative................... 1,263 3,233 3,577 1,632 1,993
Amortization of intangibles.................. -- 1,335 3,185 1,596 1,592
Acquired in-process technologies............. -- 2,200 -- -- --
Stock-based compensation..................... -- -- 171 60 609
------- -------- -------- ------- -------
Total operating expenses.................. 11,809 23,206 30,799 15,257 17,606
------- -------- -------- ------- -------
Loss from continuing operations................ (3,366) (9,606) (9,669) (3,841) (1,258)
OTHER INCOME (EXPENSE):
Interest expense............................. (157) (567) (804) (495) (430)
Other income (expense), net.................. (3) 27 (113) (30) 5
------- -------- -------- ------- -------
Total other income (expense).............. (160) (540) (917) (525) (425)
------- -------- -------- ------- -------
Net loss from continuing operations............ (3,526) (10,146) (10,586) (4,366) (1,683)
DISCONTINUED OPERATIONS (NOTE 3):
Loss from discontinued operations............ -- (1,103) (1,891) (649) --
Gain on disposal of discontinued
operations................................ -- -- 1,011 -- --
------- -------- -------- ------- -------
Net loss....................................... (3,526) (11,249) (11,466) (5,015) (1,683)
Redeemable preferred stock accretion........... (167) (1,519) -- -- --
------- -------- -------- ------- -------
Loss applicable to common stockholders......... $(3,693) $(12,768) $(11,466) $(5,015) $(1,683)
======= ======== ======== ======= =======
BASIC AND DILUTED NET LOSS PER COMMON SHARE:
Continuing operations........................ $ (4.25) $ (6.88) $ (3.73) $ (1.66) $ (0.49)
Discontinued operations:
Loss from operations...................... -- (0.65) (0.67) (0.25) --
Gain on disposal.......................... -- -- 0.36 -- --
------- -------- -------- ------- -------
Basic and diluted net loss per common share.... $ (4.25) $ (7.53) $ (4.04) $ (1.91) $ (0.49)
======= ======== ======== ======= =======
Shares used in computation, basic and
diluted...................................... 868 1,695 2,835 2,634 3,435
======= ======== ======== ======= =======
Pro forma basic and diluted net loss per share
(Note 1):
Continuing operations........................ $ (0.52) $ (0.08)
Discontinued operations:
Loss from operations...................... (0.09) --
Gain on disposal.......................... 0.05 --
-------- -------
Pro forma basic and diluted net loss per share
(Note 1)..................................... $ (0.56) $ (0.08)
======== =======
Shares used to compute pro forma basic and
diluted net loss per share (Note 1).......... 20,279 21,499
======== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 85
QUINTUS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL NOTES
-------------------- ------------------ PAID RECEIVABLE
CAPITAL FROM DEFERRED
SHARES AMOUNT SHARES AMOUNT ---------- STOCKHOLDERS COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 1, 1996.............. 9,868,140 $ 10 191,160 $-- $ 493 $ -- $ --
Issuance of common stock under stock
option plan........................... -- -- 2,913,646 3 151 (58) --
Issuance of preferred stock and
warrants to purchase preferred
stock................................ 2,647,778 3 -- -- 617 -- --
Repurchase of common stock............ -- -- (73,688) -- (4) -- --
Preferred stock accretion............. -- -- -- -- (167) -- --
Net loss.............................. -- -- -- -- -- -- --
---------- ------- --------- --- ------- ----- -------
BALANCE AT MARCH 31, 1997............. 12,515,918 13 3,031,118 3 1,090 (58) --
Issuance of common stock under stock
option plan.......................... -- -- 944,949 1 166 -- --
Issuance of common stock and stock
options in connection with business
combinations......................... -- -- 518,921 -- 1,044 -- --
Repurchase of common stock............ -- -- (377,688) -- (42) -- --
Issuance of warrants to purchase
common stock......................... -- -- -- -- 258 -- --
Issuance of preferred stock........... 1,454,996 1 -- -- 1,818 -- --
Preferred stock accretion............. -- -- -- -- (1,519) --
Compensatory stock arrangements....... -- -- -- -- 99 -- (99)
Amortization of deferred
compensation......................... -- -- -- -- -- -- 20
Net loss.............................. -- -- -- -- -- -- --
---------- ------- --------- --- ------- ----- -------
BALANCE AT MARCH 31, 1998............. 13,970,914 14 4,117,300 4 2,914 (58) (79)
Issuance of common stock under stock
option plan.......................... -- -- 303,090 -- 166 (59) --
Repurchase of common stock............ -- -- (211,912) -- (42) -- --
Issuance of warrants to purchase
common stock......................... -- -- -- -- 165 -- --
Issuance of preferred stock........... 2,604,601 3 -- -- 10,772 -- --
Compensatory stock arrangements....... -- -- -- -- 1,508 -- (1,055)
Amortization of deferred
compensation......................... -- -- -- -- -- -- 250
Net loss.............................. -- -- -- -- -- -- --
---------- ------- --------- --- ------- ----- -------
BALANCE AT MARCH 31, 1999............. 16,575,515 17 4,208,478 4 15,483 (117) (884)
Issuance of common stock under stock
option plan*......................... -- -- 143,606 -- 201 (165) --
Repurchase of common stock*........... -- -- (46,338) -- (5) -- --
Issuance of warrants to purchase
stock*............................... -- -- -- -- 660 -- (100)
Issuance of preferred stock*.......... 1,363,334 1 -- -- 11,246 -- --
Repayment of notes receivable*........ -- -- -- -- -- 59 --
Compensatory stock arrangements*...... -- -- -- -- 2,725 -- (2,725)
Amortization of deferred
compensation*........................ -- -- -- -- -- -- 609
Net loss*............................. -- -- -- -- -- -- --
---------- ------- --------- --- ------- ----- -------
BALANCE AT SEPTEMBER 30, 1999*........ 17,938,849 $ 18 4,305,746 $ 4 $30,310 $(223) $(3,100)
========== ======= ========= === ======= ===== =======
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT DEFICIENCY
<S> <C> <C>
BALANCE AT APRIL 1, 1996.............. $ (8,353) $ (7,850)
Issuance of common stock under stock
option plan........................... -- 96
Issuance of preferred stock and
warrants to purchase preferred
stock................................ -- 620
Repurchase of common stock............ -- (4)
Preferred stock accretion............. -- (167)
Net loss.............................. (3,526) (3,526)
-------- --------
BALANCE AT MARCH 31, 1997............. (11,879) (10,831)
Issuance of common stock under stock
option plan.......................... -- 167
Issuance of common stock and stock
options in connection with business
combinations......................... -- 1,044
Repurchase of common stock............ -- (42)
Issuance of warrants to purchase
common stock......................... -- 258
Issuance of preferred stock........... -- 1,819
Preferred stock accretion............. -- (1,519)
Compensatory stock arrangements....... -- --
Amortization of deferred
compensation......................... -- 20
Net loss.............................. (11,249) (11,249)
-------- --------
BALANCE AT MARCH 31, 1998............. (23,128) (20,333)
Issuance of common stock under stock
option plan.......................... -- 107
Repurchase of common stock............ -- (42)
Issuance of warrants to purchase
common stock......................... -- 165
Issuance of preferred stock........... -- 10,775
Compensatory stock arrangements....... -- 453
Amortization of deferred
compensation......................... -- 250
Net loss.............................. (11,466) (11,466)
-------- --------
BALANCE AT MARCH 31, 1999............. (34,594) (20,091)
Issuance of common stock under stock
option plan*......................... -- 36
Repurchase of common stock*........... -- (5)
Issuance of warrants to purchase
stock*............................... -- 560
Issuance of preferred stock*.......... -- 11,247
Repayment of notes receivable*........ -- 59
Compensatory stock arrangements*...... -- --
Amortization of deferred
compensation*........................ -- 609
Net loss*............................. (1,683) (1,683)
-------- --------
BALANCE AT SEPTEMBER 30, 1999*........ $(36,277) $ (9,268)
======== ========
</TABLE>
- -------------------------
* Unaudited
See notes to consolidated financial statements.
F-6
<PAGE> 86
QUINTUS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
----------------------------- -----------------
1997 1998 1999 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(3,526) $(11,249) $(11,466) $(5,015) $(1,683)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 822 3,148 5,090 2,673 2,186
Stock based compensation................................ -- 20 250 251 609
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) -- --
Provision for doubtful accounts......................... 255 408 235 100 200
Changes in operating assets and liabilities:
Accounts receivable................................... (1,569) (1,522) (1,333) (3,141) (3,907)
Prepaid expenses and other current assets............. (414) (68) 35 110 (353)
Accounts payable...................................... 1,072 (1,110) 590 (311) (383)
Accrued compensation and related benefits............. 378 1,219 41 720 307
Other accrued liabilities and other long-term
liabilities........................................ 218 (1,145) (469) 334 303
Deferred revenue...................................... 770 3,981 507 (318) (1,078)
------- -------- -------- ------- -------
Net cash used in operating activities....................... (2,000) (3,950) (7,300) (4,366) (3,799)
------- -------- -------- ------- -------
INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired.............. -- (2,461) -- -- --
Purchase of property and equipment........................ (990) (1,172) (1,073) (701) (383)
Proceeds from sale of property and equipment.............. 27 -- -- -- --
Proceeds from sale of discontinued operations............. -- -- 2,100 -- --
Increase in other assets.................................. (25) (45) (103) 42 (13)
------- -------- -------- ------- -------
Net cash provided by (used in) investing activities......... (988) (3,678) 924 (659) (396)
------- -------- -------- ------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock................. 4,085 -- 5,275 5,275 11,247
Proceeds from issuance of common stock.................... 96 167 107 58 36
Repurchase of common stock................................ (4) (42) (42) (10) (5)
Proceeds from payment of notes receivable................. -- -- -- -- 59
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) -- (500)
Proceeds from (repayments of) bank loan................... (577) (2,943) 51 (1,769) (633)
Principal payments on capital lease obligations........... (27) (63) (134) (60) (81)
------- -------- -------- ------- -------
Net cash provided by (used in) financing activities......... 5,241 6,569 6,175 4,494 10,123
------- -------- -------- ------- -------
Net increase (decrease) in cash............................. 2,253 (1,059) (201) (531) 5,928
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 $ 1,455 $ 7,713
======= ======== ======== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -- CASH
PAID FOR INTEREST......................................... $ 160 $ 282 $ 643 $ 495 $ 430
======= ======== ======== ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Property acquired under capital leases.................... $ -- $ -- $ 101 $ -- $ 181
======= ======== ======== ======= =======
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 $ -- $ 59 $ 59 $ 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> 87
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 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> 88
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 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> 89
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 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.
Pro Forma Net Loss per Share -- The Company intends to make a $17,811,000
cash distribution to convertible preferred stockholders payable upon conversion
to common stock (see Note 8) using a portion of the proceeds from its planned
initial public offering. Pro forma basic and diluted net loss per share amounts
are calculated using the weighted average number of common shares outstanding
for the period (excluding shares subject to repurchase), the weighted average
number of common shares resulting from the assumed conversion of all outstanding
shares of convertible preferred stock upon the closing of the initial public
offering contemplated by this Prospectus plus the number of shares whose
proceeds are to be used to repay the cash distribution, assuming a $16 offering
price, reduced by expected per share offering costs.
Unaudited Interim Financial Information -- The interim financial
information for the six months ended September 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
F-10
<PAGE> 90
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
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 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>
F-11
<PAGE> 91
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
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 classified as
discontinued operations in the statement of operations. The Company recorded
$453,000 as a reduction in the gain on disposal of discontinued operations for
the fair value of options, due to the Company accelerating vesting of CCE
employees' options as if they had been employed for 12 additional months. 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. As of the date of acquisition, multiple
research and development projects were underway including efforts related to the
next generation of Voice Enhanced Services Platform (VESP). The key elements of
Nabnasset's development process include: sales specification, functional
specifications, prototype development, question and answer sessions,
documentation and product release. A project is considered to be technologically
feasible upon the completion of beta testing that occurs as the final step in
the prototype development phase. At the date of acquisition, an additional
research and development effort of approximately 14 months was anticipated prior
to its release. Value was allocated to in
F-12
<PAGE> 92
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
process research and development based on a discounted cashflow model and
considered the core technology resident in the in-process products, Nabnasset's
past experience with typical product life cycles, demand from Nabnasset
customers for new versions incorporating additional features, the migration of
technology between platforms and the roadmap for future development. Quintus
completed development of the next generation of VESP and introduced CTI version
5.0 in January 1999. This version is sold on a stand-alone basis as a CTI
product and is also integrated into Quintus' eContact suite. 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.
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,
---------------- SEPTEMBER 30,
1998 1999 1999
<S> <C> <C> <C>
Land............................................. $ 170 $ 170 $ 170
Building......................................... 688 688 688
Computer equipment and software.................. 4,179 6,075 6,309
Furniture and equipment.......................... 548 1,279 1,507
Leasehold improvements........................... 184 306 306
------ ------ ------
5,769 8,518 8,980
Less accumulated depreciation and amortization... 2,261 5,356 5,847
------ ------ ------
Net property and equipment....................... $3,508 $3,162 $3,133
====== ====== ======
</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
F-13
<PAGE> 93
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
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. For valuation of warrants
see discussion under "Stock-Based Compensation" at Note 9. 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-14
<PAGE> 94
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 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,
---------------- SEPTEMBER 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.......................................... -- 846 719
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...... 628 618 612
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 1,083
------ ------ ------
Total........................................... 3,994 3,047 2,414
Less current portion............................ 1,357 1,347 1,347
------ ------ ------
Long-term debt.................................. $2,637 $1,700 $1,067
====== ====== ======
</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................................................. $1,347
2001................................................. 938
2002................................................. 178
2003................................................. 14
2004................................................. 16
Thereafter................................................ 554
------
Total..................................................... $3,047
======
</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-15
<PAGE> 95
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 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-16
<PAGE> 96
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 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 an increase to the carrying value of
the redeemable preferred stock and a reduction of additional paid in capital.
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 and 1999, the Company's Board of Directors increased options
available under the Plan by 1,012,110 and 824,993 shares, respectively. Under
the
F-17
<PAGE> 97
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
Plan, incentive options may be granted at a 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.
The table as presented below include 685,000 options at a price of $5.00,
which were granted to an employee outside of the Plan.
\ 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.............................................. (712,809) 0.96
----------
Balances, March 31, 1999.............................. 2,013,413 1.17
Granted (weighted average fair value of $3.69)........ 1,565,250 5.80
Exercised............................................. (143,606) 1.12
Canceled.............................................. (297,974) 0.80
----------
Balances, September 30, 1999.......................... 3,137,083 $3.52
==========
</TABLE>
At March 31, 1999, 517,232 shares were available under the Plan for future
grant.
F-18
<PAGE> 98
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
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........................... 393,228 7.00 266,030 0.44
$1.25 - $1.75........................... 1,409,370 9.33 168,340 1.39
--------- ---- ------- -----
2,013,413 8.91 624,632 $0.58
========= ==== ======= =====
</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 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
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
F-19
<PAGE> 99
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
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.
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 or upon an
initial public
offering of common
stock
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 or upon
an initial public
offering of common
stock
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>
During fiscal year 1997, the Company issued warrants to purchase 13,466
shares of common stock and 247,602 shares of preferred stock. The fair value of
these warrants amounting to $26,000 was charged to general and administrative
expenses and was calculated using a risk free interest rate of 6%, expected
volatility of 50% and a term ranging from 4 to 10 years. During fiscal years
1998 and 1999, in connection with notes payable to stockholders, the Company
issued warrants to purchase 329,059 and 132,518 shares of common stock. The
balance outstanding on the notes payable to stockholders was converted to
preferred stock in May 1998. The fair value of these warrants amounting to
approximately $258,000 and $165,000 was charged to interest expense during
fiscal year 1998 and 1999, respectively, and was calculated using a risk free
interest rate of 6%, expected volatility of 50% and a term ranging from 2 1/2 to
3 years.
F-20
<PAGE> 100
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
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............. 517,232
Exercise of options......................................... 2,013,413
Exercise of warrants........................................ 722,645
----------
Total............................................. 19,828,805
==========
</TABLE>
NOTES RECEIVABLE FROM STOCKHOLDERS
On May 14, 1996 the Company loaned a shareholder $57,143 for the exercise
of 1,142,858 stock options. The Company entered into a stock pledge agreement
with the shareholder and became the holder of a full-recourse promissory note
from the shareholder in the amount of $57,143 bearing interest at 6.36%,
compounded annually. Principal and interest are due on May 14, 2001.
On July 2, 1998 the Company loaned a shareholder $59,299 for the exercise
of 149,076 stock options. The Company entered into a stock pledge agreement with
the shareholder and became the holder of a full-recourse promissory note from
the shareholder in the amount of $59,299 bearing interest at 5.48%, compounded
semi-annually. Principal and interest are due on July 2, 1999.
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>
YEAR ENDED SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
-------------------------------- -----------------
1997 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C>
Net loss from continuing operations...... $(3,526) $(10,146) $(10,586) $(4,366) $(1,683)
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) $(4,366) $(1,683)
======= ======== ======== ======= =======
Shares (denominator):
Weighted average common shares
outstanding......................... 2,095 3,530 4,194 4,207 4,275
Weighted average common shares
outstanding subject to repurchase... (1,227) (1,835) (1,359) (1,573) (840)
------- -------- -------- ------- -------
Shares used in computation, basic and
diluted................................ 868 1,695 2,835 2,634 3,435
======= ======== ======== ======= =======
Loss per share from continuing operations
applicable to common stockholders,
basic and diluted...................... $ (4.25) $ (6.88) $ (3.73) $ (1.66) $ (0.49)
======= ======== ======== ======= =======
</TABLE>
F-21
<PAGE> 101
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
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 SIX MONTHS ENDED
MARCH 31, SEPTEMBER 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 17,938,849
Shares of common stock subject
to repurchase................... 1,985,648 1,873,390 949,998 1,446,200 864,831
Outstanding options............. 339,533 1,823,700 2,013,413 1,899,118 3,137,083
Warrants........................ 252,602 590,127 722,645 722,645 1,047,645
---------- ---------- ---------- ---------- ----------
Total........................... 15,093,701 18,258,131 20,261,571 20,643,478 22,988,408
========== ========== ========== ========== ==========
</TABLE>
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..................................... 1,493 958
Deferred tax liability -- purchased intangibles............. (1,493) (958)
------- -------
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.
F-22
<PAGE> 102
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
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.
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, SIX MONTHS ENDED SEPTEMBER 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 $12,982 $19,052 $3,368
Rest of the
world(2)............. 2,078 3,060 -- 5,558 93 2,878 3,038 100
------- ------- ------- ------- ------ ------- ------- ------
$13,614 $21,890 $ 3,727 $30,307 $3,484 $15,860 $22,090 $3,468
======= ======= ======= ======= ====== ======= ======= ======
</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.
F-23
<PAGE> 103
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
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.
15. SUBSEQUENT EVENTS
On July 19, 1999, as part of a license grant, the Company issued a customer
a warrant to purchase up to 300,000 shares of the Company's common stock at an
exercise prices per share equal to the lesser of (i) the initial public offering
price, net of commissions, per one share of the Company's common stock or (ii)
$7.50 per share. All revenues have been recognized during the quarter ended
September 30, 1999, except $522,000, which has been deferred. The deferred
revenue is due upon installation of the software by an independent third party.
The fair value of the warrant of approximately $560,000, was recorded as a
discount to reduce revenue in the quarter ended September 30, 1999. The
Company's calculations were made using the Black Scholes model with the
following assumptions: expected life of 1.2 years; risk-free interest rate of
6.0%; volatility of 50%; and no dividends during the expected term.
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 November 10, 1999, Quintus consummated its 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
issued approximately 2,018,905 shares of common stock valued at approximately
$16,656,000, approximately 3,047,378 shares of Series G preferred stock valued
at approximately $25,141,000 and assumed approximately 751,231 options and
warrants to purchase common and preferred stock valued at approximately
$4,360,000. The aggregate purchase price, including approximately $300,000 of
transaction costs not paid in stock, will be approximately $46,457,000. The
acquisition will be accounted for using the purchase method of accounting.
F-24
<PAGE> 104
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
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.
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
F-25
<PAGE> 105
QUINTUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND SIX
MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
option in the same calendar year. The annual options are fully vested on the
first anniversary of the date of grant.
Effective September 29, 1999, the Company amended the loan and security
agreement and limited waiver, maintained with a bank, to extend the maturity
date of the Company's revolving line for borrowings up to $7,500,000 from
September 17, 1999 to December 17, 1999. Changes to the terms of the line
included a waiver to the financial covenants as well as a change of the interest
rate to prime plus 0.5% per annum. In addition, the Company granted the bank a
warrant to purchase 25,000 shares of Series F Preferred Stock at an exercise
price of $8.25 per share. The fair value of the warrant was deemed at $100,000,
which will be amortized over the extension of the maturity date. The Company's
calculations were made using the Black Scholes model with the following
assumptions: expected life of .2 years; risk-free interest rate of 6.0%;
volatility of 50%; and no dividends during the expected term.
F-26
<PAGE> 106
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders 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.
PricewaterhouseCoopers LLP
Austin, Texas
February 8, 1999, except as to Notes 4 and 11,
for which the date is March 31, 1999
F-27
<PAGE> 107
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1997 1998 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 2,135,448 $ 2,173,101 $ 2,241,424
Accounts receivable, net of allowance for doubtful
accounts of $73,215, $60,340 and $38,072,
respectively.......................................... 1,703,075 944,024 781,801
Prepaid expenses and other current assets............... 182,100 176,701 371,964
------------ ------------ ------------
Total current assets.................................. 4,020,623 3,293,826 3,395,189
Computer equipment, furniture and fixtures, net........... 1,171,168 1,233,464 915,962
Note receivable -- related party.......................... 75,000 -- --
Deposits and other assets................................. 64,478 56,013 34,034
------------ ------------ ------------
Total assets.......................................... $ 5,331,269 $ 4,583,303 $ 4,345,185
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Borrowings under line of credit......................... $ -- $ 721,240 $ 721,240
Current maturities of capital lease obligations......... -- 96,570 94,071
Current maturities of long-term obligations............. 533,534 518,182 450,000
Accounts payable........................................ 495,463 362,225 693,416
Accrued expenses........................................ 771,664 959,748 458,282
Accrued expenses -- related party....................... -- -- 166,968
Deferred revenue and customer advances.................. 1,345,809 762,776 1,549,280
------------ ------------ ------------
Total current liabilities............................. 3,146,470 3,420,741 4,133,257
Capital lease obligations, net of current maturities...... -- 239,863 179,065
Long-term obligations, net of current maturities.......... 1,185,785 587,500 325,000
------------ ------------ ------------
Total liabilities..................................... 4,332,255 4,248,104 4,637,322
------------ ------------ ------------
Commitments (Note 7)
Stockholders' Equity:
Convertible preferred stock, $.001 par value:
8,680,644 shares authorized at December 31, 1997 and
1998 and 10,306,127 shares at September 30, 1999;
6,220,994 and 8,252,074 shares issued at December
31, 1997 and 1998 and 9,520,414 at September 30,
1999, 6,173,994 and 8,252,074 outstanding in 1997
and 1998 and 9,520,414 at September 30, 1999;
liquidation value $19,857,196 at December 31, 1998
and $23,857,196 at September 30, 1999.............. 6,221 8,252 9,520
Common stock, $.001 par value, 15,000,000 shares
authorized at December 31, 1997 and 1998, and
20,727,164 shares at September 30, 1999; 4,852,383,
5,253,430 and 5,446,595 shares issued and
4,852,383, 4,853,430 and 5,046,595 outstanding at
December 31, 1997 and 1998 and September 30, 1999,
respectively....................................... 4,852 5,253 5,447
Additional paid-in capital............................ 12,847,565 20,069,214 25,482,096
Deferred stock-based compensation..................... -- -- (160,034)
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) (25,349,166)
------------ ------------ ------------
Total stockholders' equity (deficit)............. 999,014 335,199 (292,137)
------------ ------------ ------------
Total liabilities and stockholders' equity
(deficit)...................................... $ 5,331,269 $ 4,583,303 $ 4,345,185
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 108
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
License............................. $ 3,085,200 $ 4,212,501 $ 2,327,607 $ 1,025,858
Maintenance....................... 819,488 1,743,199 1,218,442 268,413
Consulting........................ 906,487 763,391 566,644 355,997
----------- ----------- ----------- -----------
Total revenue................ 4,811,175 6,719,091 4,112,693 1,650,268
Cost of revenue:
License........................... 252,536 91,547 41,541 107,451
Maintenance....................... 564,375 427,858 320,705 277,428
Consulting........................ 595,871 861,382 689,526 535,109
----------- ----------- ----------- -----------
Total cost of revenue........ 1,412,782 1,380,787 1,051,772 919,988
Gross profit........................ 3,398,393 5,338,304 3,060,921 730,280
Operating expenses:
Research and development.......... 1,542,199 4,389,983 3,310,410 2,947,024
Sales and marketing............... 6,373,790 6,311,540 4,407,055 3,910,244
General and administrative........ 2,020,157 2,377,393 1,627,777 1,163,504
----------- ----------- ----------- -----------
Total operating expenses..... 9,936,146 13,078,916 9,345,242 8,020,772
----------- ----------- ----------- -----------
Operating loss...................... (6,537,753) (7,740,612) (6,284,321) (7,290,492)
Other income (expense):
Gain on sale of assets............ -- -- -- 2,728,296
Interest expense.................. (91,452) (124,137) (86,126) (107,797)
Interest income................... 73,296 164,356 134,301 61,455
Other income (expense)............ (10,581) 16,497 16,386 (34,802)
----------- ----------- ----------- -----------
Net loss............................ (6,566,490) (7,683,896) (6,219,760) (4,643,340)
Dividend to preferred
stockholders...................... -- -- -- (1,238,296)
----------- ----------- ----------- -----------
Net loss attributable to common
stockholders...................... $(6,566,490) $(7,683,896) $(6,219,760) $(5,881,636)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 109
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED
------------------ ------------------ PAID-IN STOCK-BASED TREASURY ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION STOCK DEFICIT
--------- ------ --------- ------ ----------- ------------ --------- ------------
<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)
Issuance of Series B-2
convertible preferred stock,
net of issuance costs........ 127,000 127 -- -- 252,123 -- -- --
Issuance of Series C
convertible preferred stock,
net of issuance costs........ 2,250,000 2,250 400,000 400 6,613,915 -- -- --
Exercise of stock options...... -- -- 307,383 307 60,630 -- -- --
Purchase of treasury stock..... -- -- -- -- -- -- (76,000) --
Net loss....................... -- -- -- -- -- -- -- (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)
Issuance of Series C
convertible preferred stock
to vendors................... 6,650 7 -- -- 13,468 -- -- --
Issuance of Series D
convertible preferred stock,
net of issuance costs........ 2,071,430 2,071 -- -- 7,203,319 -- -- --
Exercise of stock options,
net.......................... -- -- 401,047 401 80,815 -- -- --
Purchase of treasury stock..... -- -- -- -- -- -- (280,000) --
Retirement of treasury stock... (47,000) (47) -- -- (75,953) -- 76,000 --
Net loss....................... -- -- -- -- -- -- -- (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)
Issuance of Series E
convertible preferred stock,
net of issuance costs
(unaudited).................. 785,715 786 -- -- 2,616,494 -- -- --
Issuance of common stock
warrants in connection with
the issuance of Series E
convertible preferred stock
(unaudited).................. -- -- -- -- 86,428 -- -- --
Issuance of Series F
convertible preferred stock,
net of issuance costs
(unaudited).................. 482,625 482 -- -- 687,081 -- -- --
Issuance of common stock
warrants in connection with
the issuance of Series F
convertible preferred stock
(unaudited).................. -- -- -- -- 546,424 -- -- --
Non-cash dividend in connection
with the issuance of Series F
convertible preferred stock
and common stock warrants
(unaudited).................. -- -- -- -- 1,072,494 -- -- (1,072,494)
Exercise of stock options
(unaudited).................. -- -- 207,227 208 80,912 -- -- --
Non-cash dividend to
stockholders in connection
with the extension of common
stock warrants (unaudited)... -- -- -- -- 165,812 -- -- (165,812)
Repurchase of unvested stock
options (unaudited).......... -- -- (14,062) (14) (2,797) -- -- --
Stock-based compensation
(unaudited).................. -- -- -- -- 160,034 (160,034) -- --
Net loss (unaudited)........... -- -- -- -- -- -- -- (4,643,340)
--------- ------ --------- ------ ----------- --------- --------- ------------
Balance at September 30, 1999
(unaudited).................. 9,520,414 $9,520 5,446,595 $5,447 $25,482,096 $(160,034) $(280,000) $(25,349,166)
========= ====== ========= ====== =========== ========= ========= ============
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
Balance at January 1, 1997..... $ 711,752
Issuance of Series B-2
convertible preferred stock,
net of issuance costs........ 252,250
Issuance of Series C
convertible preferred stock,
net of issuance costs........ 6,616,565
Exercise of stock options...... 60,937
Purchase of treasury stock..... (76,000)
Net loss....................... (6,566,490)
-----------
Balance at December 31, 1997... 999,014
Issuance of Series C
convertible preferred stock
to vendors................... 13,475
Issuance of Series D
convertible preferred stock,
net of issuance costs........ 7,205,390
Exercise of stock options,
net.......................... 81,216
Purchase of treasury stock..... (280,000)
Retirement of treasury stock... --
Net loss....................... (7,683,896)
-----------
Balance at December 31, 1998... 335,199
Issuance of Series E
convertible preferred stock,
net of issuance costs
(unaudited).................. 2,617,280
Issuance of common stock
warrants in connection with
the issuance of Series E
convertible preferred stock
(unaudited).................. 86,428
Issuance of Series F
convertible preferred stock,
net of issuance costs
(unaudited).................. 687,563
Issuance of common stock
warrants in connection with
the issuance of Series F
convertible preferred stock
(unaudited).................. 546,424
Non-cash dividend in connection
with the issuance of Series F
convertible preferred stock
and common stock warrants
(unaudited).................. --
Exercise of stock options
(unaudited).................. 81,120
Non-cash dividend to
stockholders in connection
with the extension of common
stock warrants (unaudited)... --
Repurchase of unvested stock
options (unaudited).......... (2,811)
Stock-based compensation
(unaudited).................. --
Net loss (unaudited)........... (4,643,340)
-----------
Balance at September 30, 1999
(unaudited).................. $ (292,137)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 110
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 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) $(6,219,760) $(4,643,340)
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................. -- -- -- (2,728,296)
Depreciation........................... 540,723 745,917 580,967 532,586
Provision for doubtful accounts........ 226,567 155,574 83,582 79,666
Stock compensation expense............. -- 13,475 -- --
Changes in assets and liabilities:
Accounts receivable.................. (1,353,251) 603,477 (473,881) 82,557
Prepaid expenses and other current
assets............................ (157,991) 5,399 (113,796) (195,263)
Deposits and other assets............ (34,655) 8,465 (12,640) 21,979
Accounts payable..................... 189,594 (133,238) 294,273 331,191
Accrued expenses..................... 387,596 188,084 2,098 (501,466)
Deferred revenue and customer
advances.......................... 843,009 (583,033) 673,657 894,272
----------- ----------- ----------- -----------
Net cash used in operating activities....... (5,924,898) (6,604,776) (5,110,500) (6,126,114)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of computer equipment, furniture
and fixtures........................... (1,218,550) (808,213) (776,334) (223,923)
Cash received from the sale of assets, net
of transaction costs................... -- -- -- 2,796,344
----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities................................ (1,218,550) (808,213) (776,334) 2,572,421
----------- ----------- ----------- -----------
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) (225,000) (150,000)
Repayment of other long-term debt......... (105,682) (313,637) (235,810) (180,682)
Proceeds from sales -- leaseback.......... -- 386,280 386,280 --
Repayment of capital lease obligation..... -- (49,847) (30,573) (63,297)
Proceeds from issuance of preferred
stock.................................. 7,002,250 7,250,005 7,250,005 4,000,003
Financing costs related to preferred stock
issuance............................... (133,434) (44,615) (44,615) (62,309)
Proceeds from issuance of common stock,
net.................................... 60,937 81,216 39,656 78,301
Purchase of treasury stock................ (76,000) (280,000) (280,000) --
----------- ----------- ----------- -----------
Net cash provided by financing activities... 6,923,071 7,450,642 7,581,183 3,622,016
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................... (220,377) 37,653 1,694,349 68,323
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 $ 3,829,797 $ 2,241,424
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 111
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
nine months ended September 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 nine months ended September 30, 1998 and 1999. The results of
operations and cash flows for the nine months ended September 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
F-32
<PAGE> 112
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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 revenues, and
fees for maintenance and support, training and consulting services. Product
licensing revenues are recognized after shipment of the product, provided
persuasive evidence of an arrangement exists, collection of the resulting
receivable is probable, the fee for the arrangement is fixed and determinable
and product returns are reasonably estimable. Certain of the Company's software
sales involve significant modification or customization of the Company's
product. The Company records revenue on the sale of software products that
include significant modification and customization, for which no vendor specific
objective evidence exists for certain of the elements in the arrangement, on the
completed contract method. In instances where there are customer acceptance
criteria related to the Company's products, such revenue is deferred until the
acceptance criteria have been satisfied. Provisions for estimated returns and
warranty are recorded at the time products are shipped.
Maintenance revenue consists of maintenance and renewal fees for providing
unspecified product updates on an if and when available basis and technical
support for the Company's software products. Maintenance revenues are recognized
ratably over the related service period, generally twelve months.
Consulting revenue consists of training and consulting services provided to
the Company's customers. Training and consulting revenues are recognized as the
related services are performed.
Customer advances and billed amounts due from customers in excess of
revenue recognized are recorded as deferred revenue.
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 September
30, 1999.
F-33
<PAGE> 113
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-34
<PAGE> 114
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
2. COMPUTER EQUIPMENT, FURNITURE AND FIXTURES:
Computer equipment, furniture and fixtures is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1997 1998 1999
---------- ----------- -------------
<S> <C> <C> <C>
Computer equipment.............................. $1,129,599 $ 1,624,785 $ 1,663,887
Furniture and fixtures.......................... 168,957 219,819 235,668
Office equipment................................ -- 130,030 162,009
Software........................................ 105,790 233,343 356,119
Leasehold improvements.......................... 376,920 376,920 376,920
---------- ----------- -----------
1,781,266 2,584,897 2,794,603
Less: accumulated depreciation.................. (610,098) (1,351,433) (1,878,641)
---------- ----------- -----------
$1,171,168 $ 1,233,464 $ 915,962
========== =========== ===========
</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
F-35
<PAGE> 115
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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,
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. On March
25, 1999 the Company entered into a loan modification agreement under which the
expiration date was extended to March 25, 2000.
5. LONG-TERM OBLIGATIONS:
Long-term obligations are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 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..................................... 412,500 262,500 150,000
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 1,105,682 775,000
Less: current maturities........................... (533,534) (518,182) (450,000)
---------- ---------- ----------
$1,185,785 $ 587,500 325,000
========== ========== ==========
</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.
F-36
<PAGE> 116
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest payments of $91,452, $124,137, $86,127 and $107,797 were made for
the years ended December 31, 1997 and 1998 and during the nine months ended
September 30, 1998 and 1999, respectively. No tax payments were made during the
same periods.
The following is a detail of non-cash financing activities:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- -------------------
1997 1998 1998 1999
-------- ------- ------- --------
<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.................... -- -- -- 166,968
Note received in exchange for the sale of
assets..................................... -- -- -- 350,000
Dividend in connection with the issuance of
Series F convertible preferred stock and
common stock warrants...................... -- -- -- 1,072,484
Dividend to stockholders in connection with
the extension of common stock warrants..... -- -- -- 165,812
</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>
F-37
<PAGE> 117
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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.
STOCK OPTION PLAN
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
F-38
<PAGE> 118
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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 2,787,665 1,223,491
Options approved for
grant (unaudited)..... 1,000,000 -- -- -- --
Options granted
(unaudited)........... (1,046,056) 1,046,056 0.70 0.70 728,972
Options exercised
(unaudited)........... -- (207,227) 0.10 - 0.70 0.39 (81,120)
Options repurchased
(unaudited)........... 14,062 -- -- -- --
Options cancelled
(unaudited)........... 762,579 (762,579) 0.10 - 0.70 0.55 (416,763)
---------- ---------- ----------
Balance at September 30, 1999
(unaudited)................ 759,490 2,863,915 $1,454,580
========== ========== ==========
</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.
F-39
<PAGE> 119
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
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
At December 31, 1998 the Company has outstanding warrants for the purchase
of 465,163 shares of its common stock at an exercise price of $2.75 per share.
These warrants are exercisable at any time through January 10, 1999. These
warrants were issued to holders of the Company's B-1 preferred stock as part of
a recapitalization of the Company in 1996. The warrants were issued in exchange
for warrants to purchase 465,153 shares of the Company's then authorized Series
B-3 preferred stock at an exercise price of $2.25 per share. The Company's
articles of incorporation were then amended to remove the Series B-3 preferred
stock from the Company's authorized capital.
F-40
<PAGE> 120
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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>
F-41
<PAGE> 121
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS:
AUTHORIZATION AND SALE OF SERIES E CONVERTIBLE 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 convertible
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. The warrants were
allocated $86,428 of the proceeds from the sale of the Series E convertible
preferred stock. The fair value of the warrants were calculated using the
Black-Scholes options model with the following assumptions: dividend yield of
0%, volatility of 50%, and a risk-free interest rate of 4.91%.
Each share of Series E convertible 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.
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. At
September 30, 1999 the Company had a remaining balance due to the stockholder of
$166,968 related to this transaction. The amount has been disclosed as accrued
expenses -- related party.
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
convertible 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 at an exercise price of $0.70 per share through September, 2001. The
F-42
<PAGE> 122
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
warrants were allocated $546,424 of the proceeds from the sale of the Series F
convertible preferred stock. The fair value of the warrants were calculated
using the Black-Scholes option model with the following assumptions: dividend
yield of 0%, volatility of 50%, and a risk-free interest rate of 4.91%. The fair
value of the Series F convertible preferred stock and the warrants to purchase
common stock exceeded the $1,250,000 in gross proceeds received by the Company
by $1,072,144. As a result, the Company has recorded a deemed dividend related
to this transaction.
On September 2, 1999 the Company's board of directors extended the
expiration date of the warrants that were set to expire on January 10, 1999 to
January 10, 2000. In relation to this extension, the Company has recorded a
dividend to the Company's current stockholders that are also the holders of the
Company's warrants in the amount of $165,812. The fair value of the extension of
the warrants was calculated using the Black-Scholes option model using the
following assumptions: dividend yield of 0%, volatility of 50%, and a risk-free
interest rate of 5.63%.
* * * * *
F-43
<PAGE> 123
QUINTUS CORPORATION
PRO FORMA CONDENSED COMBINING
FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND
SIX MONTHS ENDED SEPTEMBER 30, 1999
On November 10, 1999, Quintus consummated its 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
issued a total of 5,066,283 shares comprised of 2,018,905 shares of common stock
valued at approximately $16,656,000, 3,047,378 shares of Series G preferred
stock valued at approximately $25,141,000, and assumed 422,867 options and
328,364 warrants to purchase common and preferred stock valued at approximately
$4,360,000. The aggregate purchase price, including approximately $300,000 of
transaction costs not paid in stock, will be approximately $46,457,000.
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
$46,749,000, which represents the following estimated intangible assets:
<TABLE>
<CAPTION>
PERIOD OF
INTANGIBLE ASSET AMOUNT($) AMORTIZATION
---------------- ---------- ------------
<S> <C> <C>
In-process research and development................... 3,000,000 N/A
Purchased technology.................................. 700,000 4 years
Assembled workforce................................... 700,000 4 years
Trademark and trade name.............................. 1,200,000 5 years
Customer related intangibles.......................... 4,200,000 5 years
Goodwill.............................................. 36,949,000 5 years
----------
46,749,000
==========
</TABLE>
The acquired technology provides a comprehensive framework to manage
internet-based customer interactions, including Web self-service, Web chat,
browser-based collaboration and Web-call back. The in-process research and
development represents 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 in-process research and development was identified and valued
through extensive interviews and discussions with Quintus and Acuity management
and the analysis of data provided by Acuity concerning developmental products,
their respective stage of development, the time and resources needed to complete
them, their expected income generating ability, target markets and associated
risks. The Income Approach, which includes an analysis of the markets, cash
flows, and risks associated with achieving such cash flows, was the primary
technique utilized in valuing each in-process research and development project.
A portion of the purchase price was allocated to the developmental projects
based on the appraised fair values of such projects. 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 September 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,
F-44
<PAGE> 124
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 six months ended September 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 pro forma earnings per share disclosed in the unaudited pro forma
condensed statements of operations have assumed the conversion of the 3,047,378
shares of preferred stock to be issued in connection with the acquisition into
common stock since these shares will automatically convert upon the
effectiveness of the Company's initial public offering.
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.
F-45
<PAGE> 125
QUINTUS CORPORATION
PRO FORMA CONDENSED COMBINING BALANCE SHEETS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
QUINTUS ACUITY ADJUSTMENTS NOTES COMBINED
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................ $ 7,713 2,241 $ -- 9,954
Accounts receivable, less allowance for
doubtful accounts........................ 12,378 782 -- 13,160
Prepaid expenses and other assets........... 926 372 -- 1,298
-------- -------- ------- -------
Total current assets..................... 21,017 3,395 -- 24,412
Property and equipment, net................... 3,133 916 -- 4,049
Purchased technology, less accumulated
amortization................................ 1,445 -- 700 3 2,145
Intangible assets, less accumulated
amortization................................ 2,043 -- 43,049 3 45,092
Other assets.................................. 335 34 -- 369
-------- -------- ------- -------
Total assets............................. $ 27,973 4,345 $43,749 76,067
======== ======== ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable............................ $ 2,030 693 $ -- 2,723
Accrued liabilities......................... 4,931 626 300 5 5,857
Deferred revenue............................ 5,377 1,549 -- 6,926
Borrowings under bank line of credit........ 4,368 721 -- 5,089
Current portion of long-term debt........... 1,393 544 -- 1,937
-------- -------- ------- -------
Total current liabilities................ 18,099 4,133 300 22,532
Long-term debt, less current portion.......... 1,331 504 -- 1,835
Redeemable convertible preferred stock........ 17,811 -- -- 17,811
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock............................. 18 10 (7) 1, 2 21
Common stock................................ 4 5 (3) 1, 2 6
Additional paid-in capital.................. 30,310 25,482 20,670 1, 2 76,462
Notes receivable from stockholder........... (223) -- -- (223)
Deferred stock-based compensation........... (3,100) (160) 160 1 (3,100)
Treasury stock.............................. -- (280) 280 1
Accumulated deficit......................... (36,277) (25,349) 22,349 1, 4 (39,277)
-------- -------- ------- -------
Total stockholders' equity
(deficiency)........................... (9,268) (292) 43,449 33,889
-------- -------- ------- -------
Total liabilities and stockholders'
equity (deficiency).................... $ 27,973 4,345 $43,749 76,067
======== ======== ======= =======
</TABLE>
See notes to pro forma consolidated financial statements.
F-46
<PAGE> 126
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 $ -- $ 37,026
Cost of revenue...................... 9,177 1,381 -- 10,558
-------- ------- ------- --------
Gross profit......................... 21,130 5,338 -- 26,468
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 -- 8,820 6 12,005
Stock-based compensation........... 171 -- -- 171
-------- ------- ------- --------
Total operating expenses... 30,799 13,079 8,820 52,698
-------- ------- ------- --------
Loss from operations................. (9,669) (7,741) (8,820) (26,230)
Other income (expense), net.......... (917) 57 -- (860)
-------- ------- ------- --------
Net loss from continuing
operations......................... $(10,586) $(7,684) $(8,820) $(27,090)
======== ======= ======= ========
Pro forma basic and diluted loss per
share from continuing operations... $ (0.52) $ (1.07)
======== ========
Shares used in pro forma basic and
diluted loss per share............. 20,279 5,066 7 25,345
======== ======= ========
</TABLE>
See notes to pro forma consolidated financial statement of operations.
F-47
<PAGE> 127
QUINTUS CORPORATION
PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 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.................................... $22,090 $ 885 $ -- $ 22,975
Cost of revenue............................ 5,742 666 -- 6,408
------- ------- ------- --------
Gross profit............................... 16,348 219 16,567
Operating Expenses:
Sales and marketing...................... 9,438 2,277 -- 11,715
Research and development................. 3,974 1,965 -- 5,939
General and administrative............... 1,993 860 -- 2,853
Amortization of intangibles.............. 1,592 -- 4,410 6 6,002
Stock-based compensation................. 609 -- -- -- 609
------- ------- ------- --------
Total operating expenses......... 17,606 5,102 4,410 27,118
------- ------- ------- --------
Loss from operations....................... (1,258) (4,883) (4,410) (10,551)
Other income (expense), net................ (425) (81) -- -- (506)
------- ------- ------- --------
Net loss from continuing operations........ $(1,683) $(4,964) $(4,410) $(11,057)
======= ======= ======= ========
Pro forma basic and diluted loss per share
from continuing operations............... $ (0.08) $ (0.42)
======= ========
Shares used in pro forma basic and diluted
loss per share........................... 21,499 5,066 7 26,565
======= ======= ========
</TABLE>
See notes to pro forma consolidated financial statement of operations.
F-48
<PAGE> 128
QUINTUS CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 1999 AND STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 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 $10,000, common stock of $5,000, additional paid in
capital of $25,482,000, deferred stock-based compensation of $160,000,
treasury stock of $280,000 and accumulated deficit of $25,349,000.
2. Reflects the issuance of approximately 3,047,378 shares of
preferred stock valued at approximately $25,141,000, approximately
2,018,905 shares of common stock valued at approximately $16,656,000 and
the assumption of approximately 751,231 options and warrants to purchase
common and preferred stock valued at approximately $4,360,000.
3. Reflects the allocation of purchase price to the intangible assets
identified in the purchase price allocation.
4. Reflects the one-time charge of $3,000,000 for purchased in-process
technology identified in the purchase price allocation.
5. Reflects the accrual of estimated costs to be paid in cash directly
attributable to the completion of the acquisition.
6. Reflects pro forma amortization of the purchased intangibles over
the estimated useful lives as follows:
<TABLE>
<CAPTION>
AMORTIZATION
CHARGE
TWELVE MONTHS SIX MONTHS
ENDED ENDED
AMOUNT PERIOD MARCH 31, SEPTEMBER 30,
INTANGIBLE ASSET ($) OF AMORTIZATION 1999 1999
---------------- ----------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Purchased Technology........... $ 700,000 4 years $ 175,000 $ 87,500
Assembled Workforce............ 700,000 4 years 175,000 87,500
Trademark...................... 1,200,000 5 years 240,000 120,000
Customer related intangibles... 4,200,000 5 years 840,000 420,000
Goodwill....................... 36,949,000 5 years 7,390,000 3,695,000
----------- ---------- ----------
$43,749,000 $8,820,000 $4,410,000
=========== ========== ==========
</TABLE>
7. Reflects the issuance of approximately 5,066,283 shares for the
acquisition of Acuity. This calculation assumes the conversion of 3,047,378
shares of preferred stock to be issued in connection with the acquisition
into common stock since these shares will automatically convert upon the
effectiveness of the Company's initial public offering.
F-49
<PAGE> 129
APPENDIX TO GRAPHICS
INSIDE FRONT COVER
Graphic: The right and left sides of the page are illustrated with vertical
collages of people using computers, talking on telephones and acting as customer
service agents.
Caption: The upper left corner contains the QUINTUS logo and phrase, "e-Customer
Relationship Management for the Internet Economy." The center of the page
contains the phrase "Managing customer interactions across the Internet, email
and the telephone."
GATEFOLD
The top, right side of the gatefold contains the text "Quintus eContact," and
below it "e-Customer Relationship Management for the Internet Economy." The
center of the gatefold contains a square graphical representation of the
eContact software product. On the right side of the square are two pictures
with text illustrating "Customer Interaction Repository" and "Distributed
Real-Time Data Sharing." On the left side of the square, placed vertically, are
the text phrases "Personalization and Workflow," "Channel Applications,"
"Business Applications" and Consolidated Reporting." Leading out of the left
side of the square is a hairline connection to three pictures with text
illustrating "Web," "Email" and "Voice." On the right side of the square is a
picture with text illustrating "Enterprise Data." Above the square and below
the top text are two bullet points that read "Customer service, support and
sales through the Internet, email and the telephone" and "Consistent
personalization, routing and management of customer interactions across
communication channels." Below the square are two bullet points that read
"Allows e-commerce businesses to add online customer service to Web sites" and
"Allows traditional businesses to automate and extend existing contact centers
to new communication channels."
INSIDE BACK COVER
Placed in the middle of the page which is largely blank is the Quintus "Q"
logo, the name "QUINTUS" and the phrase "e-Customer Relationship Management for
the Internet Economy."
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> 130
[Quintus Logo]
e-Customer Relationship Management for
the Internet Economy
<PAGE> 131
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
LOGO
4,000,000 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
matters 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 your 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> 132
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.......................... 95,000
Printing and engraving expenses............................. 250,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 475,000
Blue sky fees and expenses.................................. 5,000
Transfer agent fees......................................... 25,000
Miscellaneous fees and expenses............................. 26,148
----------
Total............................................. $1,400,000
==========
</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 7 of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Registrant against certain liabilities.
II-1
<PAGE> 133
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 1, 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 five investors for an aggregate
purchase price of $4,957,256. On 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.
2. On November 10, 1997, we issued and sold an aggregate of 1,091,362
shares of our Series D preferred stock to three investors for an aggregate
purchase price of $3,000,000. On that same date, in connection with our
acquisition of Nabnasset Corporation, we also issued an 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.
3. On November 10, 1997, in connection with the acquisition of Nabnasset,
we assumed warrants issued by Nabnasset on February 12, 1997. These warrants are
exercisable for an aggregate of 8,466 shares of our common stock.
4. On November 10, 1997, we issued and sold warrants to purchase an
aggregate of 72,287 shares of our common stock to 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 of those shares to four investors.
6. On March 12, 1998, we issued and sold 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 one investor at a per share exercise
price of $0.30.
8. On March 17, 1998, we issued and sold warrants to purchase an aggregate
of 13,143 shares of our common stock to one investor at a per share exercise
price of $0.30.
9. On April 30, 1998, we issued and sold 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 thirteen investors for an aggregate purchase
price of $10,534,090. On May 27, 1998, we issued and sold an additional
aggregate of 66,266 shares of our Series E preferred stock to three investors
for an aggregate purchase price of $275,003.
11. On May 21, 1998, we issued and sold 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 three investors for an aggregate purchase
price of $11,247,505.
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. On September 29, 1999, we issued and sold a warrant to purchase 25,000
shares of our Series F preferred stock to one investor at a per share exercise
price of $8.25.
II-2
<PAGE> 134
15. From October 1, 1996 to September 30, 1999, we issued an aggregate of
2,617,339 shares of common stock to our employees, consultants and other service
providers pursuant to exercises of options under our stock option plans (Exhibit
10.2).
16. On November 10, 1999, in connection with our acquisition of Acuity
Corp., we issued 2,018,905 shares of common stock and 3,047,378 shares of Series
G preferred stock, assumed warrants to purchase 328,364 shares of common stock
and preferred stock, and assumed options to purchase 422,867 shares of common
stock.
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 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 in effect prior
to Registrant's acquisition of Acuity Corp.
3.2 Registrant's Restated Certificate of Incorporation, dated
November 10, 1999.
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.
3.5* Form of Amended and Restated Bylaws to be filed upon the
closing of this offering.
4.1* Reference is made to Exhibits 3.1, 3.2, 3.3, and 3.4.
4.2* Specimen Common Stock certificate.
4.3 Registrant's Amended and Restated Investors Rights
Agreement, dated November 10, 1999.
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.
</TABLE>
II-3
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.7* Sublease between Registrant and Oryx Technology Corporation
and SurgX Corporation, dated October 1, 1999.
10.8+ Software Distribution Agreement dated May 5, 1997, between
Nabnasset Corporation and Lucent Technologies Inc.
10.9# Intentionally omitted.
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.
10.14* Sublease Agreement between Pavilion Technologies, Inc. and
Acuity Corporation, dated December 19, 1996.
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>
- -------------------------
* Previously filed.
+ Portions of these exhibits have been omitted pursuant to a request for
confidential treatment.
# Previously filed Exhibit 10.9, Distribution Agreement for ICR and SICR
Programs dated April 26, 1999 between Registrant and GeoTel Communications
Corporation, has been omitted because that agreement was terminated on
November 6, 1999.
(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
II-4
<PAGE> 136
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-5
<PAGE> 137
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 12th day of November, 1999.
QUINTUS CORPORATION
By: /s/ ALAN K. ANDERSON
------------------------------------
Alan K. Anderson
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDMENT TO THE 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 November 12, 1999
- -------------------------------------------------------- (Principal Executive
Alan K. Anderson Officer) and Director
/s/ SUSAN SALVESEN Chief Financial Officer November 12, 1999
- -------------------------------------------------------- (Principal Financial
Susan Salvesen and Accounting Officer)
and Secretary
* Director November 12, 1999
- --------------------------------------------------------
Paul H. Bartlett
* Director November 12, 1999
- --------------------------------------------------------
Andrew Busey
* Director November 12, 1999
- --------------------------------------------------------
Fredric W. Harman
* Director November 12, 1999
- --------------------------------------------------------
William Herman
* Director November 12, 1999
- --------------------------------------------------------
Alexander Rosen
* Director November 12, 1999
- --------------------------------------------------------
Robert W. Shaw
</TABLE>
II-6
<PAGE> 138
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Director November 12, 1999
- --------------------------------------------------------
Jeanne Wohlers
*By: /s/ SUSAN SALVESEN
----------------------------------------------------
Susan Salvesen
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 139
REPORT ON SCHEDULE OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
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 (November 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> 140
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 for the two years in the period then
ended, and have issued our report thereon dated April 30, 1998 (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> 141
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> 142
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 in effect prior
to Registrant's acquisition of Acuity Corp.
3.2 Registrant's Restated Certificate of Incorporation, dated
November 10, 1999.
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.
3.5* Form of Amended and Restated Bylaws to be filed upon the
closing of this offering.
4.1* Reference is made to Exhibits 3.1, 3.2, 3.3, and 3.4.
4.2* Specimen Common Stock certificate.
4.3 Registrant's Amended and Restated Investors Rights
Agreement, dated November 10, 1999.
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 between Registrant and Oryx Technology Corporation
and SurgX Corporation, dated October 1, 1999.
10.8+ Software Distribution Agreement dated May 5, 1997, between
Nabnasset Corporation and Lucent Technologies Inc.
10.9# Intentionally omitted.
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.
10.14* Sublease Agreement between Pavilion Technologies, Inc. and
Acuity Corporation, dated December 19, 1996.
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>
- -------------------------
* Previously filed.
+ Portions of these exhibits have been omitted pursuant to a request for
confidential treatment.
# Previously filed Exhibit 10.9, Distribution Agreement for ICR and SICR
Programs dated April 26, 1999 between Registrant and GeoTel Communications
Corporation, has been omitted because that agreement was terminated on
November 6, 1999.
<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 Two Hundred Seventy Nine
Thousand Six Hundred Seventy Nine (279,679) shares, the Series G-2 Preferred
Stock (the "Series G-2 Preferred Stock"), which series shall consist of Six
Hundred Ninety Six Thousand Nine Hundred Sixty (696,960) shares, the Series G-3
Preferred Stock (the "Series G-3 Preferred Stock"), which series shall consist
of Four Hundred Eighty Six Thousand Six Hundred Forty Two (486,642) shares, the
Series G-4 Preferred Stock (the "Series G-4 Preferred Stock"), which series
shall consist of Eight Hundred Forty One Thousand Five Hundred Eighteen
(841,518) shares, the Series G-5 Preferred Stock (the "Series G-5 Preferred
Stock"), which series shall consist of One Million Seventy Four Thousand Eight
Hundred Fifty Three (1,074,853) shares, and the Series G-6 Preferred Stock (the
"Series G-6 Preferred Stock"), which series shall consist of One Hundred Eighty
Thousand Forty Eight (180,048) 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, $0.644, $0.965, $1.126, $1.931, $2.253 and $1.667 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, $1.65, $0.644, $0.965, $1.126, $1.931,
$2.253 and $1.667, 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
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<PAGE> 4
(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 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 $3.218 (the "Original Series G-1 Issue Price")
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 $4.827 (the "Original Series G-2 Issue
Price") 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 $5.631 (the "Original Series G-3 Issue
Price") 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,
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<PAGE> 5
(ix) an amount per share equal to $9.654 (the "Original Series G-4 Issue Price")
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 $11.263 (the "Original Series G-5 Issue Price")
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 $8.335 (the "Original Series G-6 Issue Price")
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.
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, $6.436, $9.654, $11.263, $19.308, $22.526 and $16.669 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.
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<PAGE> 6
(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 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
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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 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.
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(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 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
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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 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
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<PAGE> 10
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 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
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<PAGE> 11
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, 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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<PAGE> 12
(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 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
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<PAGE> 13
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 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
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<PAGE> 14
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 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
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<PAGE> 15
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 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
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<PAGE> 16
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, 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
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<PAGE> 17
(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.
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.
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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
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.
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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 Chief Executive Officer of the Corporation this 10th day of
November, 1999.
QUINTUS CORPORATION
By: /s/ ALAN K. ANDERSON
-----------------------------------
Alan K. Anderson,
Chief Executive Officer
<PAGE> 1
EXHIBIT 4.3
QUINTUS CORPORATION
AMENDED AND RESTATED
INVESTORS RIGHTS AGREEMENT
NOVEMBER 10, 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 10th day of November, 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
10, 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,
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<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.
10
<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
11
<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
12
<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
13
<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.
14
<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.
15
<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
16
<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)
November 10, 2009.
17
<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: /s/ Alan K. Anderson
------------------------------
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 10.8
SOFTWARE DISTRIBUTION AGREEMENT
BETWEEN
LUCENT TECHNOLOGIES INC.
AND
NABNASSET CORPORATION
Proprietary to
Lucent Technologies Inc./Nabnasset Corporation
<PAGE> 2
TABLE OF CONTENTS
SOFTWARE DISTRIBUTION AGREEMENT
BETWEEN
LUCENT TECHNOLOGIES INC.
AND
NABNASSET CORPORATION
<TABLE>
<S> <C>
RECITALS................................................................ -1-
1. DEFINITIONS........................................................ -1-
2. LICENSE GRANT...................................................... -3-
3. RELATIONSHIP OF THE PARTIES........................................ -4-
4. PERIODIC MEETINGS.................................................. -5-
5. GOLDEN MASTERS..................................................... -6-
6. MONTHLY REPORTS.................................................... -6-
7. AUDIT.............................................................. -7-
8. LICENSE FEE........................................................ -7-
9. RIGHTS TO PRODUCT.................................................. -7-
10. DELIVERABLES....................................................... -8-
11. TAXES.............................................................. -9-
12. PAYMENTS........................................................... -10-
13. MISCELLANEOUS EXPENSES............................................. -11-
14. ESCROW AGREEMENT................................................... -11-
15. ACCEPTANCE......................................................... -12-
</TABLE>
Proprietary to
Lucent Technologies Inc./Nabnasset Corporation
<PAGE> 3
<TABLE>
<S> <C>
16. CONTINUED PRODUCT AVAILABILITY..................................... -13-
17. MARKETING.......................................................... -13-
18. WARRANTY........................................................... -14-
19. LIMITATION OF LIABILITY............................................ -16-
20. TECHNICAL SUPPORT.................................................. -16-
21. TRAINING........................................................... -17-
22. END USER SUBLICENSES............................................... -17-
23. TERM, TERMINATION AND DEFAULT...................................... -18-
24. INDEMNIFICATION.................................................... -20-
25. COPYRIGHT NOTICE................................................... -21-
26. ASSIGNMENT......................................................... -22-
27. USE OF TRADENAME................................................... -23-
28. CONFIDENTIALITY.................................................... -24-
29. EXPORT............................................................. -26-
30. LUCENT RIGHT TO COMPARABLE PRODUCT................................. -26-
31. NOTICES AND REQUESTS............................................... -27-
32. CONTROLLING LAW.................................................... -28-
33. ENTIRE AGREEMENT................................................... -28-
34. DISPUTE RESOLUTION................................................. -28-
</TABLE>
Proprietary to
Lucent Technologies Inc./Nabnasset Corporation
ii
<PAGE> 4
<TABLE>
<S> <C>
35. GENERAL............................................................ -29-
36. FORCE MAJEURE...................................................... -29-
37. AGREEMENT TITLE AND ARTICLE HEADINGS............................... -29-
38. IMPLEADER.......................................................... -29-
39. EXCLUSION OF LICENSES.............................................. -30-
40. NON-WAIVER......................................................... -30-
41. INSURANCE AND LIABILITY............................................ -30-
42. COMPLIANCE WITH LAWS............................................... -31-
43. RELEASES VOID...................................................... -31-
44. PLANT RULES AND GOVERNMENT CLEARANCE............................... -32-
45. SURVIVAL OF OBLIGATIONS............................................ -32-
46. HARDWARE AND SOFTWARE DEVELOPMENT ASSISTANCE....................... -32-
47. EXHIBITS INCORPORATED.............................................. -32-
</TABLE>
EXHIBITS and ATTACHMENTS
Exhibit A - Product to be Delivered
Exhibit B - Payment Schedule
Exhibit C - Training Deliverables
Exhibit D - Technical Support
Exhibit E - Supplier's Existing and Potential Customers
Exhibit F - Supplier's Standard License Agreement
Attachment 1 - Escrow Agreement
Proprietary to
Lucent Technologies Inc./Nabnasset Corporation
iii
<PAGE> 5
SOFTWARE DISTRIBUTION AGREEMENT
This Agreement is entered into by and between Lucent Technologies Inc.,
a Delaware corporation, by and through its Business Communications Systems
Division with a place of business at 211 Mt. Airy Rd., Basking Ridge NJ 07920
(hereinafter called LUCENT), and Nabnasset Corporation, a Massachusetts
corporation, with a place of business at 15 Craig Road, Acton, Massachusetts
01720 (hereinafter called SUPPLIER).
The effective date of this Agreement shall be the later of the dates
executed by the respective parties.
RECITALS
WHEREAS, SUPPLIER has the right to license PRODUCT, as hereinafter
defined, and
WHEREAS, LUCENT desires to obtain rights to PRODUCT and related materials
described hereinafter; and
WHEREAS, SUPPLIER desires to provide LUCENT with such rights upon the
terms and conditions set forth in this Agreement; and
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and conditions set forth in this Agreement, the parties agree as
follows:
1. DEFINITIONS
A. AFFILIATE: means a subsidiary, corporation, partnership, or venture a
majority of whose voting stock or ownership interest is owned directly or
indirectly by LUCENT.
B. AGREEMENT: means this document and all of the annexed schedules and
exhibits, all of which are hereby incorporated herein by reference together with
any future written amendments hereto which have been executed by SUPPLIER and
LUCENT.
C. CONFIDENTIAL INFORMATION: means information which is defined in Section 28
hereof.
D. DEMONSTRATION COPY: means a copy of the PRODUCT contained in demonstration
kits which shall be supplied to LUCENT by SUPPLIER at no charge.
Proprietary to
Lucent Technologies Inc./Nabnasset Corporation
-1-
<PAGE> 6
E. DOCUMENTATION: means the technical documentation, user manuals, handbooks.
list of errors, workarounds, specifications and other written materials relating
to PRODUCT provided by SUPPLIER for the PRODUCT.
F. END USER: means a third person or legal entity that obtains rights from
LUCENT or from a Subdistributor during the term of this Agreement to utilize
PRODUCT and who will have no right to grant further rights to or license PRODUCT
to others.
G. ENHANCEMENTS: means modifications or additions to PRODUCT other than
maintenance modifications, that may be integrated into the PRODUCT and alter
features, functionality or performance of the PRODUCT.
H. GOLDEN MASTER: means an Object Code version of the PRODUCT provided to
LUCENT on a media mutually agreed upon by LUCENT and SUPPLIER which will be
utilized by LUCENT to replicate copies of the PRODUCT for distribution to End
Users pursuant to Sublicenses.
I. LICENSE FEE: means the amount of money to be paid by LUCENT to SUPPLIER in
accordance with the schedule set forth on Exhibit B hereof for each copy of the
PRODUCT replicated and provided to an End User, to a Subdistributor or used
internally by LUCENT in a production environment.
J. MAINTENANCE AGREEMENT: means a separate agreement which addresses the
maintenance and support obligation to End Users and which is more fully
described in Exhibit D hereto.
K. MAINTENANCE RELEASE: means a modification of the Object Code of the
Product which corrects bugs or errors but does not alter the functionality of
the PRODUCT.
L. MAJOR RELEASE: means a new version of the Object Code of the PRODUCT which
SUPPLIER has determined results in a substantial alteration in the features or
functions of the PRODUCT.
M. MINOR RELEASE: means a new set of Object Code for the PRODUCT that
includes support for planned future features and /or addition of limited new
features.
N. NEW MODULE: means additional functionality that SUPPLIER may make
available to LUCENT and/or End Users for licensing separately to work with the
PRODUCT.
Proprietary to
Lucent Technologies Inc./Nabnasset Corporation
-2-
<PAGE> 7
0. OBJECT CODE: means computer programs of the PRODUCT assembled or compiled
in magnetic or electronic binary form on software media which are readable and
reasonable by machine but are not generally readable by humans without reverse
assembly, reverse compiling or reverse engineering and which are executable
versions of the PRODUCT which may be utilized on platforms as defined in Exhibit
A hereto.
P. PRODUCT: means the (1) Object Code version of the software of SUPPLIER,
that is described in Exhibit A hereto that SUPPLIER markets, maintains and
supports as of the date of this Agreement, (2) any Releases, as hereinafter
defined, enhancements, fixes, updates and modifications provided to LUCENT
pursuant to the terms and provisions hereof, and the Documentation. PRODUCT does
not include any intellectual property developed or created by LUCENT pursuant to
Section 9 of this Agreement.
Q. RELEASES: means any Enhancement, Major Release, Minor Release, or
Maintenance Release.
R. SUPPORT: means warranty and maintenance services which the SUPPLIER is
obligated to provide pursuant to the terms and provisions of the warranty or a
Maintenance Agreement.
S. SUBDISTRIBUTORS: means a third party who is granted distribution rights to
End Users by Lucent through a Sublicense agreement pursuant to the terms and
provisions of this Agreement.
T. SUBLICENSE: means a written agreement between an End User and a
Subdistributor LUCENT; or between a Subdistributor and LUCENT, pursuant to which
the End User is granted limited rights to use the PRODUCT and the Subdistributor
is granted certain distribution rights.
2. LICENSE GRANT
A. SUPPLIER grants LUCENT, subject to the terms and conditions set forth
herein, including but not limited to the payment terms set forth in Exhibit B, a
non-exclusive, perpetual, worldwide right and license to use, demonstrate,
market, Sublicense, and distribute copies of PRODUCT supplied to LUCENT by
SUPPLIER in Object Code form.
SUPPLIER also grants to LUCENT a non-exclusive, perpetual, royalty-free
license to (i) use and reproduce the PRODUCT for purposes of evaluation and
acceptance; (ii) reproduce Demonstration Copies of each PRODUCT supplied to
LUCENT by SUPPLIER
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solely for the purpose of marketing and promoting the PRODUCT and training
customers in its use; (iii) reproduce and distribute copies of Documentation for
use by LUCENT personnel in its activities pursuant to this Agreement and for use
by Subdistributors and End Users; and (iv) reproduce and distribute copies and
Documentation in furtherance of this Agreement. Any and all rights and licenses
granted to LUCENT under this Agreement shall be non-transferrable except that
(a) LUCENT may transfer all or part of said rights and licenses at any time to
any AFFILIATE; and (b) LUCENT may transfer all or part of said rights and
licenses to a third party with the prior written consent of SUPPLIER, which
consent shall not be unreasonably withheld. LUCENT shall also have the right to
appoint any AFFILIATE or any third party as a Subdistributor either in the
United States or in any countries internationally in which the PRODUCT is
Sublicensed. Such Subdistributor(s) shall have the right and license to
Sublicense the PRODUCT to further Subdistributors or to End-Users. LUCENT shall
be responsible to SUPPLIER for the acts of its Subdistributors that are in
violation of this Agreement.
B. In no event shall LUCENT reverse compile or disassemble Object Code
versions of the PRODUCT or otherwise create, or attempt to create or permit,
allow or assist others to create source code versions of the PRODUCT
C. The license grants to LUCENT in this Agreement shall extend to any
AFFILIATE.
3. RELATIONSHIP OF THE PARTIES
LUCENT and SUPPLIER are and shall remain independent companies and the
employees of one shall not hold themselves out or be considered to be employees
or representatives of the other. This Agreement is not intended by the parties
to constitute or create a joint venture, agency, partnership, OEM, or other form
of business organization, and the rights and obligations of the parties shall be
only those expressly set forth herein. If LUCENT and SUPPLIER agree to provide
an integrated solution to a customer and LUCENT and SUPPLIER determine that a
prime contractor/subcontractor relationship between LUCENT and SUPPLIER is
appropriate, unless LUCENT and SUPPLIER agree to the contrary, LUCENT shall
assume the prime contractor position, and in every prime/subcontractor
situation, a separate written prime/subcontractor agreement covering the
respective obligations of the parties and the rights to any intellectual
property created during the prime/subcontractor relationship pertaining to that
customer shall be executed by LUCENT and SUPPLIER. The terms of these separate
prime/subcontractor agreements shall not override the terms of this Agreement
unless expressly agreed to by LUCENT and SUPPLIER.
If, at any time, either party discloses to the other party information
relating to an
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opportunity to sublicense PRODUCT to an interested End User, such information
shall be deemed Confidential Information as defined in Section 28 hereof, and as
such, shall not be used as a sales lead by either party's direct sales force to
approach said End User to license PRODUCT directly to said End User unless
agreed by the parties. Further, SUPPLIER agrees not to create any commission
plan or any other type of incentive that would have the effect of encouraging
the direct sales force of SUPPLIER to specifically compete against LUCENT.
At SUPPLIER's request, LUCENT acknowledges that SUPPLIER has established
relationships with certain end users of the PRODUCT ("Existing Customers") and
has entered into marketing discussions with certain potential end users
("Potential End Users"). Said Existing End Users and Potential End Users
(collectively, "Listed Customers") are listed in Exhibit E. As soon as practical
after the effective date of this Agreement, sales or marketing personnel of the
parties shall agree on the parties' respective roles in dealing with the Listed
Customers with respect to the PRODUCT and related services. If a joint agreement
cannot be reached by the parties as to any Existing Customer by July 1, 1997,
SUPPLIER shall have right of first preference to enter into agreements with such
Existing Customer for PRODUCT and related services. If a joint agreement cannot
be reached by the parties as to any Potential End User by July 1, 1997, the
parties shall market and sell PRODUCT and related services to such Potential End
User independently and without restriction in the absence of an agreement by the
parties to the contrary as to any Potential End User. Beginning on January 1,
1998, the parties shall market and sell PRODUCT and related services
independently and without restriction to Potential End Users. Nothing in this
paragraph shall be construed to preclude any customer, Listed Customer or End
User at any time from electing to license PRODUCT from either party and such
election shall be binding on both parties. Nothing contained in this paragraph
shall restrict LUCENT from marketing or selling any LUCENT or third party
equipment or related services to any customer or End User, including but not
limited to any Listed Customer, provided that, LUCENT shall not market or sell
the PRODUCT and related services, or a product and its related services which
directly compete with the PRODUCT and related services, to an Existing Customer
in the absence of a specific request by such Existing Customer.
4. PERIODIC MEETINGS
During the term of this Agreement, duly authorized representatives of the
parties shall meet quarterly within thirty (30) days of the receipt by SUPPLIER
of the quarterly payment by LUCENT of any fees due hereunder to discuss issues
arising out of this Agreement and related services and PRODUCT, to review
volumes of PRODUCT Sublicensed by LUCENT, to review SUPPLIER plans relating to
PRODUCT, and to
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review levels of Sublicense satisfaction with PRODUCT. No discussions or
agreements reached during said meetings shall modify or amend this Agreement
unless reduced to the form of a Written amendment to this Agreement signed by
authorized representatives of LUCENT and SUPPLIER.
5. GOLDEN MASTERS
Upon execution of this Agreement by LUCENT and SUPPLIER, SUPPLIER shall
provide to LUCENT (i) three copies of a Golden Master of the PRODUCT software in
Object Code form and (ii) three copies of all applicable Documentation. The
Documentation shall be provided on the same media as the Object Code that will
allow LUCENT to reproduce and distribute such Documentation in accordance with
normal manufacture reproduction procedures. In addition to the rights granted in
Section 2 hereof, entitled License Grant, subject to the provisions of this
Agreement, LUCENT shall have the right to reproduce the PRODUCT in Object Code
form and all applicable Documentation for distribution to End Users solely for
the use of such End User without the right to distribute the PRODUCT further.
Subject to the provisions of this Agreement, LUCENT shall also have the right to
distribute the PRODUCT, Demonstration Copies, and Documentation to its
Subdistributors.
6. MONTHLY REPORTS
LUCENT shall render written monthly reports to SUPPLIER within [*] days
from the end of each calendar month specifying the number of copies of the
PRODUCT and the number of copies of the Documentation delivered to End Users
during the previous month. Each such report shall include the name and address
of each End User. Within [*] days from the end of each quarter, LUCENT will pay
to SUPPLIER the total License Fees payable to SUPPLIER corresponding to the
number of copies of PRODUCT replicated and shipped to End Users or used
internally by LUCENT during the quarter just ended.
SUPPLIER shall render written monthly reports to LUCENT within [*] from the
end of each calendar month specifying the number of Maintenance Agreements with
End Users executed during the previous month. Each such report shall include the
name and address of each End User. Within [*] days of the end of each quarter
SUPPLIER will pay to LUCENT the portion due LUCENT of such fees paid pursuant to
such Maintenance Agreements during the quarter just ended.
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[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
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7. AUDIT
SUPPLIER shall have the right to engage an independent accounting firm to
audit LUCENT's information on distribution of the PRODUCT to establish the
accuracy and timeliness of monthly reports and quarterly payments made to
SUPPLIER by LUCENT. The information provided to SUPPLIER by the accounting firm
shall be limited to the firm's opinion on the accuracy and timeliness of reports
and payments made by LUCENT: as to all other information qathered or discovered
during the audit, the accounting firm shall be required to hold all such
information strictly confidential to LUCENT. The audit may be conducted not more
than once a year, and LUCENT shall not unreasonably, withhold or delay its
consent to the time of the audit and SUPPLIER'S choice of accounting firm. The
accounting firm shall be bound by a non-disclosure agreement in the form to be
provided by LUCENT to ensure compliance with this paragraph and shall provide
LUCENT with a copy of its audit report. Any discrepancies or errors identified
in an audit report shall be corrected by the party who committed the error
within thirty (30) days of the receipt of the report by that party. Any dispute
related to the content of an audit report shall be resolved pursuant to Section
34.
8. LICENSE FEE
LUCENT shall pay SUPPLIER a License Fee as shown in EXHIBIT B for each
copy of the PRODUCT replicated and provided to an End User by LUCENT or its
Subdistributors.
9. RIGHTS TO PRODUCT
The PRODUCT, including all Releases and New Modules, is and shall remain
at all times the exclusive property of SUPPLIER. LUCENT shall have no right,
title or interest in the PRODUCT except as expressly set forth herein. No
Subdistributor or End User shall acquire any rights of ownership in the PRODUCT.
At the request of SUPPLIER, LUCENT will execute and deliver any document,
instrument or agreement to SUPPLIER that may be appropriate to maintain the
exclusive ownership of the PRODUCT by SUPPLIER.
The parties recognize and acknowledge that LUCENT shall have the right to
develop and create templates, interfaces, and other intellectual property that
may be used in conjunction with the PRODUCT or incorporated into the PRODUCT for
specific End Users. The parties agree that LUCENT shall have full right, title,
and interest in the
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intellectual property that it develops and creates, and SUPPLIER shall have full
right, title, and interest in the intellectual property it has developed and
created, including but not limited to the PRODUCT delivered to LUCENT, and to
the intellectual property SUPPLIER develops and creates in the future. No right,
title or interest in intellectual property shall pass from one party to the
other unless expressly set forth in this Agreement or upon the express, written
consent of both parties. Any dispute between the Parties relating to a right or
interest of intellectual property shall be resolved pursuant to Section 34.
SUPPLIER may use, sell, assign, transfer or license the PRODUCT to third
parties free from any restrictions of LUCENT.
10. DELIVERABLES
A. SUPPLIER agrees to deliver upon execution to LUCENT three (3) Golden
Master copies of the PRODUCT; three (3) copies of all Documentation contained in
media described in EXHIBIT A; three (3) Golden Master copies of Demonstration
Copies of the PRODUCTS; and any other deliverable items set forth in Exhibit A.
B. Deliveries by SUPPLIER of Golden Masters and Documentation under this
Agreement shall be one copy of each to the following three locations:
Lucent Receiving Dock
1200 West 120 Avenue
Westminster, CO 80234
Operations Manager Integrated Business Solutions
8200 East Maplewood Avenue
Englewood, CO 80111
Attn: Jerald Wyatt
Dan Prentice
Lucent Technologies Bell Laboratories
Room 30E108
11900 N. Pecos Street
Westminster, CO 80234-2703
Any or all of these locations may be changed by LUCENT at any time upon
written notice to SUPPLIER.
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C. From time to time, SUPPLIER may issue Releases and New Modules. SUPPLIER
shall promptly provide to LUCENT, at no additional charge, three (3) Golden
Master Copies of the Releases and New Modules, three (3) Golden Master copies
of corresponding Demonstration Copies, and three (3) copies of all applicable
Documentation for each Release or New Module as soon as such Release or New
Module is ready for use by any of SUPPLIER's customers. Whenever possible,
SUPPLIER will provide LUCENT with 120 day advance notice of Release or New
Module schedules and content. Such Release or New Module shall be considered
PRODUCT subject to all terms and conditions of this Agreement. Should SUPPLIER
introduce a Release or New Module, LUCENT may, at its sole option, elect not to
distribute said Release or New Module. Such decision shall not affect the
respective obligations of the parties under this Agreement, except that if End
Users continue to have versions or Releases of PRODUCT that have been obsoleted
and no longer supported by SUPPLIER, the parties shall negotiate with the End
User in a fair and equitable manner by which said End Users may continue to
obtain PRODUCT maintenance service. If the parties fail to reach such agreement,
they shall initiate the dispute resolution process set forth in Section 34
hereof.
D. During the entire term of this Agreement and for five (5) years
thereafter, SUPPLIER shall provide to LUCENT the most current listings of all
known bugs, and Releases associated with the PRODUCT (including all versions
then being supported by SUPPLIER). The above referenced listings supplied to
LUCENT shall be no less comprehensive than those provided by SUPPLIER to its own
installation and support personnel.
11. TAXES
In addition to all other fees and charges, LUCENT shall bear all taxes,
duties, including customs duties, import and export fees and any other charges
or assessments established by any governmental agency that are applicable to the
performance of this Agreement, whether now in force or enacted in the future.
All License Fees payable by LUCENT to SUPPLIER are exclusive of any tax, levy,
or similar governmental charge that may be assessed by any jurisdiction, whether
based on gross revenue, the delivery, possession or use of the PRODUCT, the
services provided hereunder, the execution or performance of this Agreement, or
otherwise, except for net income, net worth or franchise taxes assessed on
SUPPLIER by the U. S. Government or any state or municipality in the United
States. If under the laws of any jurisdiction LUCENT is required to withhold any
tax on License Fees, then the amount of the License Fees shall be automatically
increased to totally offset such tax so that the amount actually remitted to
SUPPLIER net of all taxes equals the amount of the License Fees due and payable
to SUPPLIER. LUCENT will pay all taxes, levies or similar governmental charges
or
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provide SUPPLIER with an executed certificate of exemption conforming to the
requirements of the relevant taxing authority.
12. PAYMENTS
A. All payments due to SUPPLIER under this Agreement shall be made in
accordance with Section 6 hereof, Exhibit B, and this Section. The License Fee
with respect to each copy of the PRODUCT replicated will be earned by SUPPLIER
on the date which LUCENT ships a copy of the PRODUCT to an End User and will be
payable to SUPPLIER within [*] days after the end of the quarter in which the
shipment date occurred.
B. If LUCENT reproduces Demonstration Copies of the PRODUCT or copies of
Documentation pursuant to paragraph A of Section 2 hereof, no payment of any
kind shall be due to SUPPLIER for the distribution of such reproduced copies.
C. License Fees payable hereunder shall be adjusted once a year. The
effective date of such adjustment, if any, shall be May 1 of each year during
the term of this Agreement. The adjusted License Fee will be computed by
multiplying the then current License Fee by a fraction, the numerator of which
is the published suggested list price of SUPPLIER in effect on February 1 of the
then current year, and the denominator of which is the published suggested list
price of the SUPPLIER on February 1 of the year immediately preceding the then
current year, provided that, only with respect to the computation of the
adjusted License Fee as of May 1, 1998, the denominator of the fraction shall be
the published suggested list price of SUPPLIER on the date of this Agreement.
The License Fee as adjusted will be effective for one (1) year beginning on the
then current May 1. This adjustment process will occur each year during the term
of this Agreement. Further, in any year there is an increase, the increase shall
not apply to copies of the PRODUCT replicated after May 1 of such year in those
cases where LUCENT has entered into a binding bid, contract or purchase order
from the End User with respect to such copies during the period from January 1
to January 31 of such year.
D. In the event that LUCENT elects to license the PRODUCT for internal
production purposes, License Fees paid to SUPPLIER shall be in accordance with
the payments as outlined in Exhibit B. License Fees paid by LUCENT for such
internal use shall accumulate toward the total payment schedules as defined in
Exhibit B.
E. If for any reason an End User returns the PRODUCT within ninety (90) days
of its shipment from LUCENT, LUCENT shall be entitled to a credit from SUPPLIER
equal to
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separately with the Commission. Confidential treatment has been
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the License Fee paid to SUPPLIER during the next quarterly payment for the
PRODUCT in accordance with Exhibit B.
F. Notwithstanding any other provision contained in this Agreement, and
except when LUCENT is acting as an agent selling a Maintenance Agreement to an
End User on SUPPLIER's behalf, in no event will the parties disclose to each
other pricing strategy information relating to their respective customers or
specific prices that have been or will he offered to their respective customers
for the PRODUCT.
13. MISCELLANEOUS EXPENSES
Monthly reports and notices required from either LUCENT or SUPPLIER by
this Agreement will be delivered to the recipient at the expense of the party
that generated the report.
Unless otherwise expressly agreed to by the parties herein or otherwise,
LUCENT and SUPPLIER shall each pay all travel expenses of their respective
employees.
14. ESCROW AGREEMENT
The parties agree to establish a proprietary escrow account for the
benefit of LUCENT to maintain, during the life of this Agreement and five (5)
years thereafter, all then current copies of the PRODUCT, Demonstration Copies,
and Documentation related to the PRODUCT under this Agreement pursuant to a
separate escrow agreement to be concluded by and between the parties to this
Agreement and a neutral third-party escrow agent designated by the agreement of
both parties (the "Escrow Agreement") in the form attached hereto and made a
part hereof as Attachment 1. The escrow agent will be Data Securities
International, Inc. ("DSI"), or such other escrow agent as the parties mutually
designate. The nature and completeness of any deposited materials will be
subject to verification by a representative of LUCENT in the presence of a
representative of SUPPLIER, only at the facilities of the escrow agent where the
escrowed materials are kept. No copies, in whole or in part, of the escrowed
materials may be made by the SUPPLIER representative and all such materials will
be considered to be confidential information regardless of whether or not they
have been marked as confidential information. One half of the escrow fees shall
be paid by LUCENT and one half shall be paid by SUPPLIER. With reasonable prior
permission of LUCENT, SUPPLIER may change the escrow agent at any time. Any
release of escrowed materials will be subject to the terms and conditions of
Attachment 1.
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15. ACCEPTANCE
A. LUCENT shall evaluate the PRODUCT and Documentation delivered under this
Agreement for compliance with the criteria referenced or set forth in Exhibit A,
and shall submit a written acceptance or rejection to SUPPLIER within [*] after
the receipt by LUCENT of the complete PRODUCT and Documentation. Such written
acceptance or rejection shall be transmitted to SUPPLIER only by LUCENT.
Shipment to and use of the PRODUCT or Documentation by a customer within the [*]
period shall not be deemed acceptance. Failure by LUCENT to submit a written
rejection to SUPPLIER by the end of the [*] period shall be deemed acceptance.
LUCENT will provide a certified copy of the PRODUCT, without charge, to those
customers who received PRODUCT prior to certification and no payment will be due
to SUPPLIER for this certified PRODUCT.
B. If a PRODUCT or Documentation evaluated pursuant to paragraph A of this
Article is rejected, SUPPLIER agrees to use its best efforts to correct each
error leading to such rejection within [*] after receipt of notice from LUCENT
of such error. The corrected PRODUCT or Documentation shall be resubmitted for
acceptance testing within [*] following receipt of notice from LUCENT of such
errors. LUCENT shall have [*] after the resubmissions of such corrected PRODUCT
or Documentation to accept or reject such PRODUCT or Documentation. If the
corrected PRODUCT or Documentation passes the acceptance tests, SUPPLIER agrees
to deliver to LUCENT new Golden Master copies and/or Documentation incorporating
the corrections within two (2) business days, at no charge to LUCENT.
C. If the errors in a rejected PRODUCT or Documentation cannot be corrected
within the period specified in Paragraph B of this Section or if a resubmitted
PRODUCT or Documentation retested by LUCENT during the re-evaluation period is
again rejected, then LUCENT shall, at its option, (1) retain the PRODUCT or
Documentation at an equitable adjustment in price as may be agreed by the
parties, in which case the PRODUCT or Documentation shall be deemed accepted;
(2) afford SUPPLIER one or more extensions for a period or periods to be
specified by LUCENT without prejudice to LUCENT's rights to thereafter exercise
its option under either clause (1) or (3) of this paragraph if the errors have
not been corrected; or (3) terminate this Agreement upon [*] written notice.
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* Certain information in this exhibit has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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16. CONTINUED PRODUCT AVAILABILITY
SUPPLIER agrees to maintain and Support the PRODUCT, Demonstration Copies,
and Documentation described in Exhibit A for a minimum of [*] from the date of
expiration or termination of this Agreement. In no event will SUPPLIER be
obligated to provide Support unless such Support: (i) is being paid for in
accordance with the terms and provisions of a Maintenance Agreement, (ii) is
covered by the ninety (90) day warranty set forth in Section 18 hereof or (iii)
is being paid by an End User on a time and materials basis at the then current
rates of SUPPLIER for time and materials. In no event will an End User be
required to purchase a Maintenance Agreement. During said [*] period, LUCENT
shall have the right and license to continue to maintain and support its
customers who had been Sublicensed PRODUCT at the time of expiration or
termination of this Agreement. LUCENT shall not have the right to enter into new
Sublicenses after the expiration or termination of this Agreement without the
express written consent of SUPPLIER. SUPPLIER will notify LUCENT, in writing, of
any decision to discontinue production, marketing, licensing or the distribution
of PRODUCT for any reason including, without limitation, the availability of any
upgraded, improved, or changed PRODUCT within ten (10) days of said decision. In
no event shall said decision be less than ninety (90) days prior to the actual
date of discontinuance, nor shall said decision result in an inability of LUCENT
to properly service its Sublicensees as intended by this Agreement. Should any
such decision materially interfere with LUCENT's ability to reasonably serve its
customers, and SUPPLIER is unable or unwilling to provide a reasonable
alternative, LUCENT shall have the right to pursue remedial actions pursuant to
the Escrow Agreement.
17. MARKETING
LUCENT shall have complete authority to market or not market any or all of
the PRODUCT as it sees fit so long as LUCENT meets the payment obligations set
forth in this Agreement and does not otherwise violate SUPPLIER's rights in the
PRODUCT. Nothing in this Agreement shall be construed to obligate LUCENT to in
any way market, distribute, ship or otherwise utilize any PRODUCT or any portion
thereof. Specifically, this Agreement shall in no way be interpreted or
considered as placing a "best efforts" standard upon LUCENT with respect to the
marketing of any or all of the PRODUCT. Notwithstanding the foregoing during the
first two years of the term of this Agreement, if Lucent does not actively
market the PRODUCT during any twelve (12) month period, then SUPPLIER may cancel
this Agreement upon thirty (30) days written notice. If there is any dispute
between SUPPLIER and LUCENT with respect to whether the PRODUCT is being
actively marketed by LUCENT, then the parties may resort to the dispute
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* Certain information in this exhibit has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 18
resolution procedures hereunder.
18. WARRANTY
SUPPLIER warrants to LUCENT and its End Users all of the following:
A. The PRODUCT and Demonstration Copies will be delivered to LUCENT free from
significant errors, conforming to and performing in accordance with the
Documentation. The Golden Master media conveying the PRODUCT and Demonstration
Copies will be free from defects in material and workmanship and conform to
PRODUCT specifications and Documentation for the warranty period described
below, provided that the PRODUCT has not been altered or modified in violation
of the terms hereof or the terms of a Sublicense. The PRODUCT will be compatible
with and may be used in conjunction with other software as described in the
Documentation. SUPPLIER at its own cost will correct any bugs or errors in the
PRODUCT necessary to make the PRODUCT conform to the Documentation and
specifications and shall replace or correct any defective PRODUCT during the
warranty period. If it is not commercially reasonable for SUPPLIER to correct or
replace the defective PRODUCT then End User shall return the PRODUCT to LUCENT.
SUPPLIER will give a credit, on the next succeeding quarterly payment due from
LUCENT, subject to the limitation below, for the License Fees on the defective
PRODUCT returned to LUCENT. The warranty period will be for a period of ninety
(90) days and will be computed as follows: The ninety (90) day warranty period
to the End User will commence on either of the following dates: (1) in the event
the PRODUCT is installed by LUCENT or the SUPPLIER, then the said warranty
period will commence on the date that such installation is completed, or (ii) in
the event the installation of the PRODUCT is to be performed by the End User,
then the said warranty period will commence on the date the PRODUCT is shipped
by LUCENT to the End User. During any calendar year, the credit to be given to
LUCENT for defective PRODUCT returned by End Users will not exceed twelve and
one half (12.5%) per cent of the License Fees received by SUPPLIER during such
calendar year.
B. Support will be performed in a first-class, workmanlike manner in
accordance with generally accepted industry standards. If any Support does not
meet the above stated warranty, then it shall be performed in a conforming
manner at no additional cost to LUCENT or End Users.
C. There are no copy protection or similar mechanisms within the PRODUCT,
Demonstration Copies, or Documentation that will, either now or in the future,
interfere with the grants made in this Agreement.
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D. SUPPLIER knows of no claims by any third party that PRODUCT, Demonstration
Copies, or Documentation infringe any patent, copyright, or trademark, nor has
SUPPLIER been notified of any such potential claim.
E. As to PRODUCT for which SUPPLIER does not solely own all intellectual
property rights, SUPPLIER has full right, power and authority to license the
PRODUCT to LUCENT and its customers as provided in this Agreement.
F. LUCENT shall make all reasonable efforts to encourage End Users to
purchase Maintenance Agreements. If the End User does not have a Maintenance
Agreement then SUPPLIER shall have no obligation to End User other than the
warranty obligations for ninety (90) days as described above provided, however,
that SUPPLIER will, after the expiration of the warranty period, provide Support
on a time and material basis, the pricing of which will be set from time to time
by SUPPLIER.
G. To the best of SUPPLIER's knowledge and belief, the PRODUCT, and
Demonstration Copies do not contain any malicious code, program, or other
internal component (e.g. computer virus, computer worm, computer time bomb, or
similar component), which could damage, destroy, or alter PRODUCT, Demonstration
Copies, firmware, or hardware or which could, in any manner, reveal, damage,
destroy, or alter any data or other information accessed through or processed by
the PRODUCT in any manner. SUPPLIER shall immediately advise LUCENT, in writing,
upon reasonable suspicion or actual knowledge that the PRODUCT provided under
this Agreement may result in the harm described above. SUPPLIER shall indemnify
and hold LUCENT and its customers harmless from any damage resulting from the
harm described above.
H. PRODUCT will record, store, process and present calendar dates falling on
or after January 1, 2000, in the same manner and with the same functionality as
it performed before January 1, 2000. The PRODUCT will process both twentieth
(20th) Century and Twenty-first (21st) dates Century simultaneously, the date
field will not be converted back to a two-digit field during processing and all
screens within the PRODUCT have been designed to accept a four (4) digit field.
This maintenance will be considered part of and covered under the maintenance
provisions of the Agreement at no additional charge to LUCENT.
I. All warranties shall survive inspection, acceptance and payment.
THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES,
WHETHER EXPRESS OR IMPLIED, INCLUDING THE
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IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
19. LIMITATION OF LIABILITY
EXCEPT FOR PERSONAL INJURY, NEITHER LUCENT NOR SUPPLIER, THEIR
SUBSIDIARIES, AFFILIATES, DIRECTORS, OFFICERS, OR EMPLOYEES SHALL BE LIABLE FOR
ANY INCIDENTAL, INDIRECT, SPECIAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES OR FOR
LOST PROFITS, WHETHER FORESEEABLE OR UNFORESEEABLE, BASED ON CLAIMS OF THE OTHER
PARTY (INCLUDING, BUT NOT LIMITED TO, CLAIMS FOR LOSS OF DATA, GOODWILL, USE OF
MONEY, OR USE OF THE PRODUCTS, INTERRUPTION IN USE OR AVAILABILITY OF DATA,
STOPPAGE OF OTHER WORK, OR IMPAIRMENT OF OTHER ASSETS) ARISING OUT OF BREACH OR
FAILURE OF EXPRESS OR IMPLIED WARRANTY, BREACH OF CONTRACT, MISREPRESENTATION,
NEGLIGENCE, STRICT LIABILITY IN TORT, OR OTHERWISE.
20. TECHNICAL SUPPORT
If, at any time during the term of this Agreement or during the five (5)
years after its expiration or termination, LUCENT discovers or identifies
because of its own direct efforts and not because of information generated from
End Users or Subdistributors, a bug or other error in the PRODUCT that
interferes with its performance in accordance with the Documentation, SUPPLIER
shall correct such bug or error within the time frames set forth in the
Maintenance Agreement referenced in Exhibit D consistent with the severity
levels described in such Maintenance Agreement, provided that the Release of the
PRODUCT in question is then currently being supported by SUPPLIER. Any and all
Services performed by SUPPLIER to correct such bugs or error in PRODUCT shall be
performed at no additional cost, beyond the maintenance fees set forth in
Exhibit B. SUPPLIER shall have no obligation to correct any bug or error for
End Users unless such End User is under warranty or Maintenance Agreement or is
willing to pay for such corrective action on a time and materials basis.
Notwithstanding the foregoing, in the event an End User has terminated its
Maintenance Agreement in accordance with such Maintenance Agreement and
identifies a bug or error and reports same to LUCENT, LUCENT shall communicate
same to SUPPLIER. SUPPLIER shall examine the bug or error and determine the
applicable resolution. Should SUPPLIER determine that said bug or error is the
result of the specific
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use of the PRODUCT by the End User and is not related to the documented
specifications and functionality of the PRODUCT, SUPPLIER shall provide LUCENT
either separate bug fix or workaround patch to remedy the problem
or integrate the fix into the next Maintenance Release of the PRODUCT which
shall be distributed by LUCENT to its current End Users under a Maintenance
Agreement or to those willing to pay for the Maintenance Release on a time and
materials basis. Should the original reporting End User wish to receive the bug
fix or workaround patch, SUPPLIER reserves the right to charge the End User for
such correction.
In the event LUCENT believes that SUPPLIER is not making reasonable
efforts to respond to reported bugs and/or errors in the PRODUCT, LUCENT
reserves the right to suspend sale and distribution of the PRODUCT until
SUPPLIER has provided sufficient assurances that it will comply with its
obligations under this Agreement
21. TRAINING
A. SUPPLIER shall make available to LUCENT those training services defined in
Exhibit C of this Agreement.
B. LUCENT shall be granted the right and license to obtain and distribute
course or training materials from SUPPLIER at no charge.
C. LUCENT shall also have a royalty-free license to use, reproduce and
distribute fact sheets, brochures and other promotional literature for PRODUCT.
22. END USER SUBLICENSES
A. LUCENT, or its Subdistributor shall enter into a written Sublicense with
each End User to whom PRODUCT is Sublicensed. The Sublicense agreements shall
include the following provisions:
1. Acknowledgment that other than warranty or maintenance
obligations of SUPPLIER, LUCENT and/or Subdistributor shall
assume sole liability vis-a-vis the End User and/or
Subdistributor.
2. Shall be independent of this Agreement and shall survive
the termination of this Agreement.
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3. All the provisions set forth the form of SUPPLIER's end
user license attached hereto as Exhibit F, unless otherwise
agreed by the parties,
4. In the event that LUCENT enters into a Sublicense that
deviates in the provisions of (i), (ii) or (iii) above, then
such deviation shall not be deemed to be a breach of this
Agreement, provided that, LUCENT indemnifies and holds the
SUPPLIER harmless with respect to any damages directly caused by
such deviation.
LUCENT will maintain a copy of each Sublicense. LUCENT will use reasonable
efforts to ensure each Sublicense agreement includes the aforementioned terms
and conditions. However, failure to do so shall not be deemed a breach of this
Agreement. In that event, LUCENT will defend, indemnify, and hold SUPPLIER
harmless for any direct, proven damages proximately caused by LUCENT's failure
to include such terms and conditions. If LUCENT learns of any breach of a
Sublicense that could harm SUPPLIER, LUCENT shall take prompt commercially
reasonable, corrective action to remedy the breach and/or obtain other
appropriate relief and shall, in addition, immediately notify SUPPLIER in
writing of breach and corrective action undertaken. The execution of these
duties by LUCENT shall not preclude SUPPLIER from also undertaking corrective
action. In addition, if a breach in a Sublicense occurs that would, in the
opinion of SUPPLIER, result in irreparable harm to SUPPLIER, unless injunctive
or other equitable relief is entered into to restrain the violation, LUCENT
SHALL (i) use reasonable efforts of LUCENT to obtain such equitable relief as
promptly as reasonably possible; or (ii) assign the rights of LUCENT or
Subdistributor under the Sublicense to SUPPLIER to allow SUPPLIER to seek such
equitable relief. The foregoing obligations of LUCENT to enforce each Sublicense
as necessary to protect the interest of SUPPLIER shall survive the expiration or
termination of this Agreement.
Neither party shall make any representations or warranties to any third
party that would in any way would be or purport to be binding on the other party
unless such representation or warranty is pursuant to the terms of this
Agreement or unless the party to be bound expressly agrees in advance to such
representation or warranty.
23. TERM, TERMINATION AND DEFAULT
The term of this Agreement shall be three (3) years from its effective
date unless earlier terminated pursuant to this Agreement. No later than twelve
(12) months prior to the initial term or any renewal period of this Agreement,
the parties shall reach an agreement on whether to extend the term of the
Agreement for an additional one (1) year
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beyond the then scheduled expiration date. Failure by the parties to reach such
agreement to extend the term or agreement by the parties not to extend the
term shall mean that the Agreement shall expire on the expiration date then
scheduled. Additionally, either party may terminate this Agreement if the other
party is in default. A party to this Agreement is said to be in default if it
commits a material breach or if it ceases normal operations or becomes
insolvent.
In no event shall either party terminate by reason of any such default
unless written notice detailing such default is given to the other party. The
other party shall thereafter have thirty (30) days after such written notice to
correct such default; or, if said default cannot reasonably be corrected within
said thirty (30) days, the other party shall begin substantial corrective action
within said thirty (30) days and shall proceed promptly to correct said default.
If such corrective action is not completed within sixty (60) days after such
written notice, the party not in default may at its option terminate this
Agreement.
Upon expiration or termination of this Agreement for any reason, each
party shall return and make no further use of the property, materials and other
items (and all copies thereof) belonging to the other party and relating to this
Agreement except for any and all such property, material and other items,
including but not limited to Golden Masters, specifications, work-around lists,
and Documentation, needed by the parties to perform those functions and duties
that survive expiration or termination of this Agreement.
If this Agreement expires or is terminated for any reason other than
default by SUPPLIER, the licenses granted under this Agreement are terminated,
except that:
(i) LUCENT may continue to utilize such licenses to the extent
necessary for LUCENT to fulfill its support and maintenance
obligations, if any, to its existing customers; and
(ii) Licenses granted by LUCENT prior to termination of this
Agreement, and LUCENT payment obligations, if any, with respect
to PRODUCT ordered and received prior to expiration or
termination and with respect to continuing Support and any other
support services set forth in Exhibit D, shall survive; and
(iii) Upon termination of this Agreement for reason of default by
SUPPLIER, all the licenses granted to LUCENT under this Agreement
shall continue until the end of the term or extension, as the
case may be, that would have been in effect pursuant to paragraph
A of this Article in the absence of such termination for default.
Upon the conclusion of such term
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or extension, LUCENT's rights and obligations with respect to
such licenses shall terminate, except for the surviving rights
and licenses as specified in the Agreement, including but not
limited to clauses (i) and (ii) above.
24. INDEMNIFICATION
SUPPLIER represents and warrants that it now has and will retain the
sufficient right, title and interest in the PRODUCT to make this Agreement.
SUPPLIER shall indemnify LUCENT for any loss, damage, expense or liability
resulting from, and agrees to defend at its expense any suit against LUCENT or
its customers based upon, a claim that SUPPLIER does not have sufficient right,
title, and interest in any of the PRODUCT to make this Agreement, or that any of
the PRODUCT violates a trade secret or infringes a patent, a copyright or a
Tradename. The foregoing shall not prohibit LUCENT from retaining its own
counsel at its own expense and participating in the suit. Such indemnity
includes, but is not limited to, the amount of any settlement or the damages and
costs (including attorneys' fees, if any) awarded in any such suit. LUCENT shall
promptly notify SUPPLIER in writing of any notice of claim or of threatened or
actual suit, and at SUPPLIER's request and expense, shall afford SUPPLIER
cooperation for the defense or settlement of the same; provided, however, that
SUPPLIER shall not make any statement on LUCENT's behalf that would constitute
an admission against interest by LUCENT, nor enter into any settlement adversely
affecting LUCENT rights, without the prior written consent of LUCENT, which
consent shall not be unreasonably withheld, delayed or qualified. Nor shall
LUCENT enter into a settlement without the prior written consent of SUPPLIER,
unless such consent is unreasonably withheld in which case LUCENT shall enter
into such settlement and then rely upon the dispute resolution process set forth
in Section 34 to establish the amount of the settlement to be indemnified by
SUPPLIER. Upon a settlement, or in the event of an award adverse to LUCENT in
any such action, SUPPLIER shall post bond or the security acceptable to LUCENT
in an amount sufficient to insure payment in full of such settlement or such
damages and costs, as the case may be.
In the event a suit is initiated, or is reasonably likely, or an
injunction is entered against LUCENT in such suit wherein LUCENT is enjoined
from using such PRODUCT, SUPPLIER shall use commercially reasonable efforts to
procure for LUCENT the right to continue to use the PRODUCT or replace or modify
such PRODUCT to make them non-infringing. Any such replacement or modification
shall meet substantially the specifications set out in Exhibit A. The provision
of such replacement or modification shall not relieve SUPPLIER of the
obligations set forth in the preceding paragraph. The replacement or
modification shall be considered a PRODUCT subject to all terms and
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conditions including acceptance) under this Agreement.
Each party agrees to notify the other party immediately if any U.S. or
foreign patent is cited against the PRODUCT or if any legal action of the type
contemplated in this Article is commenced or threatened.
Notwithstanding any other provision contained in this Agreement, if an End
User is damaged during a time that a warranty or Maintenance Agreement is in
effect, either by a failure of a PRODUCT to perform according to the
Documentation or specifications, or a failure of the PRODUCT to meet
representations made to the End Users by SUPPLIER or by LUCENT with SUPPLIER's
written approval, or due to virus contained in Product, and said End User
obtains a judgment or reaches a settlement with LUCENT damages in accordance
with the provisions hereof, SUPPLIER shall indemnify and hold LUCENT harmless
for said judgment or settlement, subject to the following cap: (i) the License
Fee paid to SUPPLIER by LUCENT for the PRODUCT for that End User. (ii) a percent
of the judgement or settlement, said percent equal to the percent computed by
dividing the License Fee paid to SUPPLIER by LUCENT by the Sublicense fee billed
by Lucent to the End User, or (iii) $25,000, whichever is greater. In no event
shall SUPPLIER indemnify LUCENT for an amount greater than the judgment or
settlement. In the event that it appears likely that LUCENT will be entering
into a settlement with an End User for such a claim, it will so advise SUPPLIER,
who shall have the right to consult with LUCENT regarding the claim. If LUCENT
agrees to a settlement which is not consented to in writing by SUPPLIER,
SUPPLIER may resort for relief to the dispute resolution provisions of Section
34 hereof. LUCENT shall indemnify and hold SUPPLIER harmless with respect to any
claims, judgements or settlements, which do not relate to the PRODUCT or which
are based on unauthorized representations and warranties of LUCENT. Where an End
User is damaged through the actions and/or products of both LUCENT and SUPPLIER,
the damages shall be apportioned between the parties based upon mutual
agreement, or in the absence of such agreement, pursuant to Section 34. Any
refusal by one party to indemnify the other party under this paragraph shall be
resolved pursuant to Section 34.
25. COPYRIGHT NOTICE
LUCENT will not alter or delete any SUPPLIER copyright notice appearing on
the container or labels of the PRODUCT in object form.
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26. ASSIGNMENT
SUPPLIER shall not assign any right or interest under this Agreement
(excepting monies due or to become due) nor delegate any work or other
obligation to be performed by or owed under this Agreement without the prior
written consent of LUCENT, which consent shall not be unreasonably withheld,
delayed, or qualified. Any attempted assignment or delegation in contravention
of the above provisions shall be void and ineffective. Any assignment of monies
shall be void and ineffective to the extent that (1) SUPPLIER shall not have
given LUCENT at least thirty (30) days prior written notice of such assignment
and (2) such assignment attempts to impose upon LUCENT obligations to the
assignee additional to the payment of such monies, or to preclude LUCENT from
dealing solely and directly with SUPPLIER in all matters pertaining to this
Agreement including the negotiation of amendments or settlements of charges due.
[*]
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[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
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[*]
27. USE OF TRADENAME
LUCENT may use SUPPLIER's trademarks, tradenames, and tradedress
(hereafter "Tradename") in marketing the PRODUCT under the following conditions:
In order to enable SUPPLIER to maintain control of the use of its
Tradename, LUCENT agrees to submit samples of the usage of said Tradename to
SUPPLIER for its review and approval which approval will not be unreasonably
withheld. PRODUCT and materials Generated and released by LUCENT will be
consistent with the samples reviewed by SUPPLIER,
A. The rights of LUCENT to use or any Tradename of SUPPLIER will cease at the
termination of this Agreement.
B. Use of SUPPLIER Tradenames by LUCENT will bear no royalty.
C. All rights and goodwill in any SUPPLIER Tradename will remain with
SUPPLIER (except the rights specifically licensed in this Agreement) and any use
by LUCENT of any such Tradename will inure to the benefit of SUPPLIER.
D. SUPPLIER shall supply to LUCENT a list of the countries where SUPPLIER's
rights to use a Tradename have been established by registration or other
appropriate official procedures and will update such list as appropriate during
the term of this Agreement; and if no registration has been made in any country,
SUPPLIER shall so state. LUCENT shall have the option (i) to request SUPPLIER to
seek such registration, which request shall not be unreasonably denied or
delayed; or, (ii) at LUCENT's own expense, to seek such registration in any
country on behalf of SUPPLIER. If SUPPLIER seeks such registration upon LUCENT's
request, and if SUPPLIER so requests, LUCENT shall reimburse SUPPLIER for the
reasonable, direct costs of such registration, and such amounts shall then be
deducted from the License Fees subsequently paid by LUCENT for
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separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
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PRODUCT Sublicensed by LUCENT in the corresponding country.
E. LUCENT shall have the right to display its tradename and/or accompanying
language stating its involvement with SUPPLIER's PRODUCT on PRODUCTS,
DOCUMENTATION, and other materials distributed and licensed under this
Agreement. LUCENT agrees to submit samples of the usage of said Tradename and
language to SUPPLIER for its review and approval, which approval will not be
unreasonably withheld. PRODUCT, DOCUMENTATION, and other materials generated and
released by LUCENT will be consistent with the samples reviewed by SUPPLIER. If
use of LUCENT's Tradename or language on any PRODUCT or DOCUMENTATION requires
SUPPLIER to incur costs to modify such PRODUCT or DOCUMENTATION, LUCENT shall
reimburse SUPPLIER for such reasonable direct costs as long as LUCENT is advised
in advance of those costs.
F. If, at any time during the term of this Agreement and for five (5) years
after its expiration or termination, SUPPLIER decides to the change the name
under which the PRODUCT is marketed , it shall provide one hundred twenty (120)
days notice of such change to LUCENT. Further, SUPPLIER shall provide to LUCENT
evidence that the new name has been successfully registered in the United States
and every country in which the PRODUCT was substantially licensed prior to the
name change. SUPPLIER shall indemnify and hold LUCENT harmless for any damages
LUCENT incurs as a result of SUPPLIER's failure to obtain sufficient right,
title, and interest in the new name or to ensure that the new name does not
infringe any copyright or Tradename. Further, SUPPLIER's obligations to
indemnify LUCENT under the indemnification provision of Section 24 shall apply
to new names for PRODUCTS to the same degree as they applied to all other
SUPPLIER Tradenames.
28. CONFIDENTIALITY
During the Term of this Agreement, each party shall have access to
"Confidential Information" of the other. For purposes hereof, "Confidential
Information" shall mean all trade secrets, know-how, source code, and other
proprietary information regarding the PRODUCT, as well as all materials, data,
systems, procedures, financial information, customers, vendors, suppliers,
strategies and other business and technical information of the other which is
not readily accessible or otherwise known to the general public, and which, if
in written, graphic, physical or machine readable form, is appropriately labeled
as Confidential Information, or, if disclosed orally, is identified by the
disclosing party at the time of such disclosure as Confidential Information and
the disclosing party provides the recipient with written confirmation within
thirty (30) days thereafter referencing the
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date of disclosure and describing the information so disclosed as Confident
Information. Without limiting the Generality of the foregoing, all information
heretofore disclosed and designated Confidential shall be deemed Confidential
Information hereunder and hereafter subject to the restrictions imposed hereby.
Except as expressly permitted by the terms of this Agreement, neither party
hereto shall, during the term of this Agreement or thereafter, use, publish or
divulge the other party's Confidential Information without the written consent
of the other. The foregoing prohibition on disclosure shall not, however,
preclude either party from disclosing Confidential Information of the other to
their employees as long as the Confidential Information is used solely in
furtherance of this Agreement. In addition to the restrictions and limitations
on disclosure set forth herein, LUCENT and SUPPLIER at all times shall use
reasonable efforts to protect the unauthorized disclosure or use of Confidential
Information, which reasonable efforts shall require at least the same degree of
care in protecting the Confidential Information of the other as used to protect
their own such Confidential Information. The respective obligations of LUCENT
and SUPPLIER regarding Confidential Information shall not apply to such
Confidential Information which the recipient can show: (1) was already known to
the recipient prior to its disclosure; (2) was publicly available at the time of
its disclosure or subsequently has become so without violation by the recipient
of its confidentiality obligations hereunder, (3) was rightfully received from
third parties without obligations of confidentiality to the disclosing party;
(4) was approved in writing by the disclosing party for release by tile
recipient without restriction; (5) was independently developed by the recipient
as as substantiated by appropriate evidence; or (6) was disclosed because of
court order or government regulation, provided that prior to making any such
disclosure pursuant to order or regulation, the recipient shall promptly notify
the disclosing party and, upon the disclosing party's request, the recipient
shall cooperate with the disclosing party in contesting or avoiding such
disclosure at the sole cost and expense of the disclosing party.
From time to time, LUCENT shall be asked by End Users or potential
customers about new or future features, function, capabilities, operating
environments, interfaces, device drivers, servers, and clients associated with
PRODUCT and their scheduled availability in the market. Notwithstanding anything
contained herein to the contrary, LUCENT shall be permitted to disclose such
information even though such information may be deemed Confidential Information.
LUCENT shall disclose such information only when such disclosure is reasonably
intended to further market opportunities for PRODUCT or when responding to
reasonable inquiries from End Users. No prior consent is required by SUPPLIER.
for such disclosure unless such information was originally given to LUCENT by
SUPPLIER with specific prohibitions against such disclosure. Where appropriate,
LUCENT shall disclose such information after the recipient has signed a
Non-Disclosure Agreement covering such information, but LUCENT shall not be in
breach of the Agreement for disclosure of such information in the absence of
such Non-Disclosure
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Agreement.
The terms and conditions of this Agreement are confidential and shall not
be disclosed to third parties, without the written agreement of both parties
hereto, except to the extent required by a court or regulatory agency of
competent Jurisdiction. LUCENT is allowed to mention in its promotional
literature and advertising that the licensed PRODUCT has been provided to LUCENT
by SUPPLIER. SUPPLIER shall not issue or release for publication any articles or
advertising or publicity matter relating to work under this Agreement or
mentioning or implying the name or identification of LUCENT, any of its
Affiliates or any of their respective personnel, unless prior written approval
is granted by LUCENT. The term "identification" includes any trade name,
trademark, service mark, insignia symbol or any simulation thereof.
29. EXPORT
LUCENT shall not export the PRODUCT, or any other information supplied to
LUCENT by SUPPLIER under this Agreement, contrary to the laws of the United
States. SUPPLIER shall not export any LUCENT Information, or any other items
supplied to SUPPLIER under this Agreement by LUCENT, contrary to the laws of the
United States.
30. LUCENT RIGHT TO COMPARABLE PRODUCT
This Agreement does not grant to SUPPLIER any exclusive privileges or
rights related to supplying to LUCENT any products or services comparable to the
PRODUCT, and LUCENT may contract with other manufacturers and suppliers for the
development or procurement of such comparable products and services. This
Agreement does not grant to LUCENT any exclusive privileges or rights related to
licensing the PRODUCT and SUPPLIER may license the PRODUCT to third parties.
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31. NOTICES AND REQUESTS
Any notice or request which, under the terms of this Agreement or under
any statute, must or may be given or made by SUPPLIER or LUCENT shall be in
writing and shall be given or made by telegram or similar communication or by
certified or registered mail addressed to the respective parties as follows:
To: Lucent Technologies Inc.
211 Mt. Airy Rd.
Room 2E404
Basking Ridge, New Jersey 07920
Attn: Bill Riley
and, if the notice relates in any way to an alleged breach of this Agreement,
to:
Hal Bretan, Esq.
Lucent Technologies Inc.
219 Mt. Airy Road
Room 2F224
Basking Ridge, NJ 07920
To: SUPPLIER:
Nabnasset Corporation
15 Craig Road
Acton, MA 01720
Attn: Chief Executive Officer
and, if the notice relates in any way to an alleged breach of this Agreement, to
the aforementioned address with a copy to:
John T. Lynch, Esq.
Davis, Malm & D'Agostine, P. C.
One Boston Place
Boston, MA 02108
Such notice or demand shall be deemed to have been given or made when sent
by telegram or other communication or when deposited, postage prepaid in the
U.S. mail.
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The above addresses may be changed at any time by giving prior written notice
as above provided.
32. CONTROLLING LAW
The construction, interpretation and performance of this Agreement and all
transactions under it shall be governed by the laws of the State of New Jersey,
excluding its choice of law rules, and SUPPLIER further consents to jurisdiction
by the state and federal courts sitting in the State of New Jersey and any court
wherein an action is commenced against LUCENT based on a claim for which
SUPPLIER had indemnified LUCENT under this Agreement. Process may be served on
SUPPLIER by U.S. Mail, postage prepaid, certified or registered, return receipt
requested, or by such other method as is authorized by law.
33. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between LUCENT and
SUPPLIER with respect to the subject matter hereof and shall not be amended or
modified without specific written provision to that effect, signed by the
parties. No oral statement, prior written correspondence, prior dealings, any
prior communication, or any understandings of any nature of or by any person
whomsoever shall, in any manner or degree, modify or otherwise affect the terms
and provisions of this Agreement. Additional or different terms inserted in this
Agreement by either party, or deletions thereto, whether by alterations,
addenda, or otherwise, shall be of no force and effect, unless expressly
consented to by the other party in writing.
34. DISPUTE RESOLUTION
If a dispute arises out of or relates to this Agreement, or its breach,
and said dispute cannot be resolved through direct negotiations between the
parties, the parties agree to submit the dispute to non-binding mediation by a
sole mediator selected by the parties or, in the absence of an agreement on a
mediator, by the American Arbitration Association ("AAA"). If not thus resolved
by the parties within thirty (30) days of the onset of mediation, the parties
shall submit the dispute to binding arbitration by the AAA, which arbitration
shall be governed by the United States Arbitration Act, and judgment on the
award may be entered in any court having jurisdiction. The arbitrator may not
limit, expand, or otherwise modify the terms of this Agreement, nor may the
arbitrator award punitive damages. The parties, their representatives and
witnesses, and the mediator
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and/or arbitrator shall hold the existence, content, and result of mediation and
arbitration in confidence.
35. GENERAL
If any of the provisions of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate or
render unenforceable the entire Agreement, but rather the entire Agreement shall
be construed as if not containing the particular invalid or unenforceable
provision or provisions, and the rights and obligations of SUPPLIER and LUCENT
shall be construed and enforced accordingly.
Subject to limitations set forth in this Agreement, this Agreement will
inure to the benefit of and be binding upon the parties, their successors,
administrators, heirs and assigns.
36. FORCE MAJEURE
The obligations of LUCENT and SUPPLIER under this Agreement shall be
temporarily suspended in the event of strikes, riots, war, invasion, fire,
explosion, accident, delays in carriers, acts of God and all other delays beyond
the obligated party's reasonable control, and any failure to perform by that
party as a result of any such interference or interruption shall not be deemed a
default. Performance may be suspended for the period of any such delay. The
party whose performance is suspended shall notify in writing the other party
within fifteen (15) days of such suspension. In the event that the performance
by one party is delayed by at least sixty (60) days for any reason contemplated
in this Article, the other party may elect to terminate this Agreement on
written notice.
37. AGREEMENT TITLE AND ARTICLE HEADINGS
The title and Article headings of this Agreement are inserted for
convenience only and are not intended to affect the meaning or interpretation of
this Agreement.
38. IMPLEADER
SUPPLIER shall not implead or bring an action against LUCENT and its
customers or the employees of either, based on any claim by any person for
personal injury or death that occurs in the course or scope of employment of
such person by LUCENT and its customers and that arises out of PRODUCT or
services furnished by SUPPLIER under this Agreement.
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39. EXCLUSION OF LICENSES
No licenses, express or implied, under any patents or copyrights are
granted by LUCENT to SUPPLIER under this Agreement.
40. NON-WAIVER
No course of dealing or failure of either party to strictly enforce any
term, right or condition of this Agreement shall be construed as a waiver of
such term, right or condition.
41. INSURANCE AND LIABILITY
SUPPLIER shall maintain and cause SUPPLIER's subcontractors to maintain
during the term of this Agreement: (1) Workers' Compensation insurance as
prescribed by the law of the state or nation in which the work is performed, (2)
employer's liability insurance with limits of at least $300,000 each occurrence,
and (3) comprehensive automobile liability insurance if the use of motor
vehicles is required, with limits of at least $1,000,000 for bodily injury and
property damage for each occurrence and (4) Comprehensive General Liability
(CGL) insurance, including Blanket Contractual Liability, and Broad Form
Property damage, with limits of at least $1,000,000 combined single limit for
personal injury and property damage for each occurrence, and (5) if the
furnishing to LUCENT (by sale or otherwise) of products or material is involved,
CGL insurance endorsed to include products liability and completed operations
coverage in the amount of $5,000,000 for each occurrence. All CGL insurance
shall designate LUCENT as an additional insured. All such insurance must be
primary and required to respond and pay prior to any other available coverage.
SUPPLIER agrees that SUPPLIER, SUPPLIER's insurer(s) and anyone claiming
by, through, under or in SUPPLIER's behalf shall have no claim, right of action
or right of subrogation against LUCENT and its customers based on any loss or
liability insured against under the foregoing insurance. SUPPLIER and SUPPLIER's
subcontractors shall furnish prior to the start of work certificates or adequate
proof of the foregoing insurance, including copies of the endorsements and
insurance policies. Such insurance policies or endorsements shall provide that
LUCENT be notified in writing at least thirty (30) days prior to cancellation of
or any change in the policy.
Proprietary to
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<PAGE> 35
All persons furnished by SUPPLIER shall be considered solely SUPPLIER's
employees or agents, and SUPPLIER shall be responsible for payment of all
unemployment, social security and other payroll taxes, including contributions
from them when required by law. SUPPLIER agrees to indemnify and save harmless
LUCENT, its affiliates and its customers and their officers, directors,
employees, successors and assigns (all hereinafter referred to as LUCENT) from
and against any losses, damages, claims, demands, suits, liabilities and
expenses (including reasonable attorney's fees) that arise out of or result
from: (1) injuries or death to persons or damage to property, including theft,
in any way arising out of or occasioned by, caused or alleged to have been
caused by or on account of the performance of the work or services performed by
SUPPLIER or person furnished by SUPPLIER, (2) assertions under Worker's
Compensation or similar acts made by persons furnished by SUPPLIER or by a
subcontractor, or by reason of any injuries to such persons for which LUCENT
would be responsible under Worker's Compensation or similar acts if the persons
were employed by LUCENT, or (3) any failure by SUPPLIER to perform SUPPLIER's
obligations under this Article. SUPPLIER agrees to defend LUCENT at LUCENT
request, against any such claim, demand or suit. LUCENT agrees to notify
SUPPLIER within a reasonable time of any written claims or demands against
SUPPLIER for which SUPPLIER is responsible under this Article.
42. COMPLIANCE WITH LAWS
SUPPLIER and all persons furnished by SUPPLIER shall comply with the Fair
Labor Standards Act and the Occupational Safety and Health Act and all other
federal, state, and local laws, ordinances, regulations and codes, including
identification and procurement of required permits, certificates, approvals and
inspections, in performance under this Agreement. SUPPLIER agrees to indemnify
LUCENT and its End Users any loss or damage that may be sustained by reason of
any failure to do so. LUCENT and all persons furnished by LUCENT shall comply
with the Fair Labor Standards Act and the Occupational Safety and Health Act and
all other federal, state, and local laws, ordinances, regulations and codes,
including identification and procurement of required permits, certificates,
approvals and inspections, in performance under this Agreement. LUCENT agrees to
indemnify SUPPLIER from any loss or damage that may be sustained by reason of
any failure to do so.
43. RELEASES VOID
Neither party shall require waivers or releases of any personal rights
from representatives or customers of the other in connection with visits to its
premises and both
Proprietary to
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<PAGE> 36
parties agree that no such releases or waivers shall be pleaded by them or third
persons in any action or proceeding.
44. PLANT RULES AND GOVERNMENT CLEARANCE
All persons furnished by SUPPLIER shall, while on the premises of LUCENT
and End Users, comply with all plant rules and regulations and, required by
government regulations, submit satisfactory clearance from the U.S. Department
of Defense and other federal authorities concerned. All persons furnished by
LUCENT shall, while on the premises of SUPPLIER comply with all plant rules and
regulations and, required by government regulations, submit satisfactory
clearance from the U.S. Department of Defense and other federal authorities
concerned.
45. SURVIVAL OF OBLIGATIONS
Both parties acknowledge and agree that the obligations set forth herein,
which by their nature are intended to survive, including but not limited to the
Articles entitled: DELIVERABLES, USE OF INFORMATION, WARRANTY, INDEMNIFICATION,
COMPLIANCE WITH LAWS, and INSURANCE AND LIABILITY, CONTROLLING LAW, GENERAL,
RELEASES VOID, ESCROW AGREEMENT and TERM, TERMINATION AND DEFAULT shall survive
expiration or termination of this Agreement.
46. HARDWARE AND SOFTWARE DEVELOPMENT ASSISTANCE
The parties have agreed that in furtherance of this Agreement it may
become necessary for LUCENT to provide SUPPLIER direct access to LUCENT's
hardware and software. Based upon this understanding, the parties have agreed to
either execute a mutually satisfactory addendum to this Agreement which must be
executed by both parties or a mutually satisfactory separate agreement to
address various issues which arise because of such arrangement, including
without limitation, the cost of hardware, software and support of such LUCENT
equipment to SUPPLIER.
47. EXHIBITS INCORPORATED
Exhibits A through F and Attachment 1 are included herein and made a part
hereof.
Proprietary to
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<PAGE> 37
IN WITNESS WHEREOF, the parties have executed this Software Distribution
Agreement between Lucent Technologies Inc. and Nabnasset Corporation. All signed
copies of this Agreement shall be deemed originals.
Lucent Technologies Inc. Nabnasset Corporation
Dated: May 5, 1991 Dated: May 2, 1997
----------------------------- -----------------------------
By: [Signature Illegible] By: DUNCAN I. MACKAY
-------------------------------- --------------------------------
Name (Print): [Illegible] Name (Print): Duncan I. MacKay
---------------------- ----------------------
Title: Vice President Sales and Title: Executive Vice President
Service
----------------------------- -----------------------------
Proprietary to
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<PAGE> 38
EXHIBIT A
PRODUCT TO BE DELIVERED BY SUPPLIER
Unless otherwise specified herein, all capitalized terms used in this Exhibit
shall have the same meaning as described in the Agreement.
1. DEFINITIONS
PRODUCT
The term PRODUCT as used herein shall mean the most current version of
SUPPLIER'S software PRODUCTs currently known as Voice Enhanced Service Platform
(VESP(R)) and its components: Core (VDU Server, ORB Server, Directory Server,
History Server and Alarm Server), WAN, Multi-Wan, Telephony, IVR, Web,
Management Console (ManCon), Report, Path (includes Scripter and CQS), Recall,
Agent, Desk-Link (help desk module) and Test-Link (Hammer integration module)
together with all related documentation, and internal databases, made
commercially available by SUPPLIER to its customers, or distributors and shall
also include any New Modules made available by SUPPLIER.
The parties agree that Releases and New Modules which are released by the
SUPPLIER shall be incorporated into and made part of the pricing tables
included in Exhibit B.
If at any time SUPPLIER changes the name of the PRODUCT or any of its
components, the new name or names shall be substituted in this Agreement and
will include all functionality as referenced herein.
VESP(R) is a registered trademark of SUPPLIER.
2. DELIVERABLE ITEMS
For each PRODUCT provided to LUCENT by SUPPLIER under this Agreement, SUPPLIER
shall furnish:
(i) Object Code on the appropriate media (3 copies);
(ii) all printed Documentation applicable to (i) (3 copies);
1A
<PAGE> 39
Note: At the recipient's option, Documentation may be sent electronically via a
file transfer from SUPPLIER.
(iii) training per Exhibit C;
(iv) Technical Support per Exhibit D; and
(v) Demonstration Copies including sample integrations
3. ACCEPTANCE
The PRODUCE will be deemed accepted by LUCENT if the PRODUCT functions and
performs substantially in accordance with the Documentation and specifications
at the time of installation. Acceptance and/or rejection of the PRODUCT shall
be documented as described in Section 15, "Acceptance" of the Agreement.
4. PERFORMANCE OF THE PRODUCT
PRODUCT performance will be established by LUCENT upon installation and
implementation of PRODUCT by LUCENT and verification that the PRODUCT performs
substantially in accordance with the Documentation.
5. INSTALLATION REQUIREMENTS
All steps required for installation shall be clearly documented in the
Installation Chapter of the user Documentation or an accessible README file
provided with the PRODUCT.
All new Releases and/or New Modules when loaded will modify only files,
directories and databases which are part of the PRODUCT. The PRODUCT operates
with two (2) fixed format databases that do not change from Release and as a
result, the End-User's business data should not be impacted by a new Release
and/or New Module since the End User's applications accesses such business data
from an End User's customized server. The End User should always verify their
business data after the installation of any such Release and/or New Module.
2A
<PAGE> 40
6. ON LINE ASSISTANCE FEATURES
An on line help command shall be provided in addition to a README file for the
initial copy of the PRODUCT and all new releases and enhancements. These files
shall contain:
o Installation requirements
o General description of the application
o Known caveats
o Compatibility requirements
o Release changes (what's new in this release)
3A
<PAGE> 41
EXHIBIT B
PAYMENT SCHEDULE
Unless otherwise specified herein, all capitalized terms used in this Exhibit
shall have the same meanings as described in the Agreement.
LUCENT will take orders for the PRODUCT, replicate and package the PRODUCT,
bill End Users and make payments of the License Fees to SUPPLIER on a
quarterly basis in accordance with the schedules set forth in the following
tables. [*]
[*}
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
1B
<PAGE> 42
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
2B
<PAGE> 43
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
3B
<PAGE> 44
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
4B
<PAGE> 45
MAINTENANCE PRICING
Within [*] days from the end of each quarter, SUPPLIER will send
payment to LUCENT equal to the percentage specified as commission associated
with SUPPLIER's Maintenance Agreements sold by Lucent during the quarter.
Unless otherwise specified by LUCENT, SUPPLIER shall send payment to the
address stated in the "Notices" section of the Agreement.
SUPPLIER's Maintenance Agreement shall be sold by LUCENT according to the
following Table**
<TABLE>
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Term of Maintenance Agreement (years) 1 2 3 4 5
Commission [*] [*] [*] [*] [*]
Maintenance price to End User** [*] [*] [*] [*] [*]
- ------------------------------------------------------------------------------------
</TABLE>
[*]
[*]
[*]
*** Maintenance Pricing shall be adjusted in accordance with the provisions of
Section 12 of this Agreement.
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
5B
<PAGE> 46
In the event an End User that is not under warranty or a Maintenance Agreement
wishes to license Minor Releases and/or Maintenance Releases made available by
SUPPLIER, such End User may license such Minor Releases and/or Maintenance
Releases on a time and materials basis at the then current SUPPLIER prices for
such Minor Release and/or Maintenance Releases. In the event an End User wishes
to license Minor Releases and/or Maintenance Releases from LUCENT, such End
User shall be able to do so. SUPPLIER and LUCENT agree to negotiate a
reasonable fee to be paid to SUPPLIER by LUCENT for the license of such Minor
Releases and/or Maintenance Releases.
6B
<PAGE> 47
EXHIBIT C
TRAINING DELIVERABLES
SUPPLIER, subject to the terms and conditions contained herein, shall make
training available to LUCENT at no charge. All capitalized terms used herein
shall have the same meaning as described in the Agreement.
DOMESTIC
1. Services Support and Implementation Training
Support training is intended to prepare LUCENT's technical staff to support
questions from End Users on the PRODUCT, including diagnosis of problems,
design, implementation and debugging of routing scripts, how to use reporting
tools and details of the PRODUCT's interaction with different ACD, Dialer, CTI
and VRU systems. Training should address all of the information made available
under End User training and include specific materials, such as the answers to
the most frequently asked questions by End Users directed to End User Support.
Implementation training will prepare LUCENT's Technologies Professional
Services Consultants to design, configure, install, test, customize, integrate,
and administer all components of the PRODUCT. Consultants need to be capable of
supporting pre-sale configuration of the PRODUCT and responding to detailed
customer issues, loading the PRODUCT on End User's Personal Computers and other
computers, Installing PRODUCT at the End User's sites linking Dialer, CTI, ACD
and VRU elements of the call center and training End Users in the use of the
PRODUCT. The training will also provide Lucent personnel an understanding of
call flow and script development.
In order to provide the highest level of technical and implementation support,
upon LUCENT's request, SUPPLIER shall allow LUCENT personnel to complete an
"internship" on-site with SUPPLIER to learn firsthand about the PRODUCT. Any and
all travel and expenses of LUCENT's personnel shall be the responsibility of
LUCENT.
LUCENT shall be allowed to train up to 50 students over the initial term of
this Agreement. In the event that LUCENT desires to train personnel in excess of
50 students as specified herein, training shall be charged to LUCENT at
SUPPLIER's then current rates. LUCENT shall divide this training allowance
between domestic and international audiences.
1C
<PAGE> 48
SUPPLIER may also provide an optional "train the trainer" program to allow
LUCENT to educate personnel about the PRODUCT who in turn will train other
personnel of LUCENT to support the PRODUCT or act as a End User interface for
trouble calls. Travel and expenses shall be borne by either LUCENT or SUPPLIER
as appropriate.
SUPPLIER will provide timely training on Releases and new elements of the
PRODUCT as they become available in order for LUCENT personnel to maintain
knowledge of the then current PRODUCT.
2. Sales Training
This training is intended to prepare the LUCENT Sales Channel in the operation,
configuration and sale of the PRODUCT and sale of Maintenance Agreements.
SUPPLIER shall conduct one course annually in a one day session at multiple
locations designed to familiarize the Sales Channel with the PRODUCT, to enable
the Sales Channel to identify and qualify potential End Users, and to describe
benefits and competitive advantages of PRODUCT to the potential End Users. The
parties shall mutually agree to the frequency of the sessions, number of
attendees and the locations for such training. If additional sessions in excess
of the agreed frequency are requested by LUCENT, the parties shall agree to a
fee for such sessions.
SUPPLIER will provide an annual in depth training course to develop a select
group of sales individuals to be able to design, configure and sell SUPPLIER's
PRODUCT. In the alternative, SUPPLIER may train one Lucent employee on changes
to the PRODUCT who can then train additional LUCENT sales staff.
SUPPLIER will provide its sales tools and product information to allow sales
personnel to design and configure and price a solution for the End User.
3. End User Training
If requested, SUPPLIER will provide training classes to End Users at SUPPLIER's
current rates, including reasonable travel and expenses.
SUPPLIER will provide reproducible training materials and instruction so that
LUCENT may, at its option, conduct End User training courses.
At LUCENT's request, SUPPLIER shall also provide an optional "train the
trainer" program to allow LUCENT to be able to conduct training sessions that
will educate its personnel about the
2C
<PAGE> 49
EXHIBIT D
TECHNICAL SUPPORT
Unless otherwise specified herein, all defined terms used in this Exhibit shall
have the same meanings as described in the Agreement.
This Exhibit applies to Support to be provided by SUPPLIER during the Warranty
period as defined in the Agreement and during the term of any Maintenance
Agreement between an End User and SUPPLIER.
SUPPLIER acknowledges and agrees that LUCENT is currently assessing its role in
the provision of Support for the PRODUCT to its End Users. As part of the
initial implementation of this Agreement, SUPPLIER shall provide Support to all
End Users during the warranty period and during the term of a Maintenance
Agreement between SUPPLIER and the End User.
SUPPLIER agrees to provide LUCENT's End Users that purchase a Maintenance
Agreement Support in accordance with the terms and conditions contained in
SUPPLIER's Maintenance Agreement including customer support Monday through
Friday, 8:00 AM 5:00 PM eastern standard time, excluding SUPPLIER's company
holidays. Extended Support is available from SUPPLIER and shall be negotiated
by the parties.
SUPPLIER agrees to commence negotiation of the transition of maintenance
programs for the PRODUCT to LUCENT within 270 days from the effective date of
this Agreement if LUCENT so requests. Such transition may include the
provision of Level 1 and/or Level 2 support as defined below directly to the End
User. Level 1 and Level 2 are defined as:
Level 1: Initial and primary contact for the End User. Able to understand
and discuss and diagnose PRODUCT modules, components. Provide known and easily
remedied problems. Forward calls which are considered more difficult to a
senior technical support team member.
Level 2: Provide problem isolation, gather appropriate documentation,
perform problem recreation, search problem databases, provide a work-around
solution. Forward calls which are considered more difficult to Supplier for
further diagnosis and problem resolution.
On a case-by case basis, if SUPPLIER and LUCENT agree to establish a
prime/subcontractor relationship for the provision of Support to an End User,
pricing for such prime/subcontractor relationship shall be mutually agreed
between the parties.
1D
<PAGE> 50
EXHIBIT E
SUPPLIER'S EXISTING CUSTOMERS
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE> 51
POTENTIAL SUPPLIER END USERS
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE> 52
EXHIBIT F
VOICE ENHANCED SOFTWARE PLATFORM (VESP)
SOFTWARE LICENSE AGREEMENT
This Agreement made as of the _____ day of _______, 199__, between NABNASSET
CORPORATION, a Massachusetts corporation with a usual place of business located
at 15 Craig Road, Acton, MA 01720 ("Nabnasset"), and _______________________,
a corporation with a usual place of business situated at ____________________,
______________________ ("Licensee").
In consideration of the mutual covenants contained herein, the parties
agree as follows:
1. LICENSE GRANT
Subject to the terms and conditions of this Agreement, NABNASSET hereby grants
to Licensee, and Licensee accepts, a non-transferable, non-assignable and
non-exclusive license to use the Licensed Software (as defined below) provided
by Nabnasset at the Designated Sites (as defined below) and in the
configuration listed on Schedule A hereto.
Subject to the rights granted to Licensee pursuant to this Agreement, all
right, title, and interest in and to the Licensed Software, Program
Documentation, Confidential Information and all related materials are and
shall at all times remain the sole and exclusive property of Nabnasset.
Nabnasset may use, sell, assign, transfer, and license copies of and rights
relating to the Licensed Software to third parties free from any claim or
interference by Licensee.
Licensee shall not modify, enhance or otherwise change or supplement the
Licensed Software without the prior written consent on Nabnasset. Licensee
agrees that a modification or enhancement to the Licensed Software developed by
Licensee, whether or not authorized by this Agreement, or by Nabnasset for
Licensee, whether or not reimbursed by Licensee, shall be the exclusive
property of Nabnasset. The modified or enhanced version of the Licensed
Software shall not constitute computer software or a computer program different
from the Licensed Software and as such, is encompassed by the terms and
conditions of this Agreement.
2. DEFINITIONS
As used in this Agreement the following words shall mean:
CALL CENTER APPLICATIONS means the internal Use by Licensee of the Licensed
Software in a Workstation at a Designated Site for Use by Licensee to
coordinate computerized data with voice data.
DESIGNATED SITES means locations of Licensee which have workstations and which
are listed in Schedule A hereto which shall be updated quarterly by Licensee.
LICENSE FEES means the consideration set forth in Schedule B hereto to be paid
to Licensee by Nabnasset with respect to the Licensed Software.
Nabnasset Confidential
1
<PAGE> 53
Licensee shall not cause or permit display, loan, publication, transfer or
possession (whether by sale, exchange, gift, operation of law or otherwise),
sublicensing or other dissemination of the Licensed Software or Program
Documentation, in whole or in part, to any third party without the prior
written consent of Nabnasset.
The rights of Licensee under this Agreement to use the Licensed Software shall
not be assigned or sublicensed by Licensee to any third party without the prior
written consent of Nabnasset.
4. CONFIDENTIALITY
Licensee hereby acknowledges that (i) the Licensed Software contains and is
comprised of trade secrets, know-how and other confidential information of
Nabnasset which constitutes and shall be treated as the confidential property
of Nabnasset (the "Confidential Information"): (ii) this Agreement grants
Licensee no title to or rights of ownership in the Licensed Software or any
component thereof; (iii) Licensee shall keep in confidence all Confidential
Information with respect to the Licensed Software and shall exercise all
reasonable care to safeguard the confidentiality of the Licensed Software and
(iv) neither the Licensed Software nor any component thereof shall be
duplicated or reproduced except as explicitly permitted hereunder without the
prior written consent of Nabnasset.
Notwithstanding the foregoing, Confidential Information shall not include any
information which (i) is or becomes part of the public domain through no act or
omission on the part of the Licensee, (ii) is in the possession of Licensee, as
evidenced by a writing, without actual or constructive knowledge of an
obligation of confidentiality with respect thereto, at or prior to the time of
disclosure under this Agreement; (iii) is released from confidential treatment
by written consent of the disclosing party; (iv) is disclosed to Licensee by a
third party with the legal right to make such disclosure.
All forms of the Licensed Software (including, but not limited to, storage
units, magnetic media containers and/or printed listings) and all media used
with the Licensed Software and all modifications thereto by Licensee, shall
bear an appropriate copyright and proprietary notice in a form reasonably
specified by Nabnasset. Licensing of the Licensed Software is not intended as
an admission, nor should it be deemed to create a presumption, that publication
of such materials has occurred.
Licensee acknowledges that unauthorized use or any use not authorized hereby,
disclosure or transfer of the Confidential Information will: (i) substantially
diminish the value of the trade secrets and other Confidential Information of
Nabnasset; (ii) render the remedy at law of Nabnasset for such unauthorized
use, disclosure or transfer inadequate; and (iii) cause irreparable harm to
Nabnasset. Nabnasset shall be entitled to injunctive relief to protect the
interests of Nabnasset herein, including but not limited to preliminary and
permanent injunctive relief.
It is expressly understood by Licensee that the obligations of Licensee under
this Section 4 shall survive the termination of this Agreement.
5. TERM
The license granted under this Agreement shall be in effect from the date of
this Agreement and shall remain in effect for ten (10) years or until sooner
terminated in accordance with the provisions hereof. This Agreement shall be
automatically extended for one five (5) year period unless Licensee gives
written notice of termination to Nabnasset no less than six (6) months prior
Nabnasset Confidential
3
<PAGE> 54
to the expiration of the initial term of this Agreement. All terms and
conditions of this Agreement shall apply during the extended term.
6. DELIVERY AND INSTALLATION
One copy of the Master Copy and one copy of the Program Documentation shall be
delivered to Licensee on the date hereof unless a later date is mutually agreed
upon. Nabnasset assumes the risk of loss to the Licensed Software until
delivered to Licensee. Thereafter, the risk of loss or damage to the Licensed
Software (except for replacement of defective items, pursuant to the applicable
warranties herein or in the Maintenance Agreement, if any) shall be upon
Licensee. Licensee shall be solely responsible for the selection, installation,
management, and control of the utilization of the Licensed Software. Licensee
shall be solely responsible for making copies of and installation of the
Licensed Software at Workstations.
7. PERFORMANCE WARRANTIES
Nabnasset hereby represents and warrants that the Licensed Software will, at
the time of shipment, substantially conform to the Program documentation
provided by Nabnasset when given normal, proper, and intended Use. Nabnasset
shall have no obligation to make repairs or replacements to the Licensed
Software to the extent any damage, defect, malfunction, error, or loss in, to,
or out of the Licensed Software results in whole or in part from catastrophe,
fault, or negligence of Licensee, or from improper or unauthorized Use of the
Licensed Software, or use of the Licensed Software in a manner for which the
Licensed Software was not designed, or by causes external to the Licensed
Software such as but not limited to power failure or electric power surges.
Nabnasset will replace any Licensed Software storage media which is defective
upon request by Licensee made within thirty (30) days after shipment of the
Licensed Software and upon return of the original storage media containing the
Licensed Software. The sole remedy of the Licensee for defects in the media
shall be the repair or replacement of the defective media.
This warranty shall not be applicable in the event that any modifications to
the Licensed Software or its storage media are made by Licensee or its
employees, agents or contractors without the prior written consent of Nabnasset.
8. DISCLAIMER OF IMPLIED WARRANTIES
THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES AND CONDITIONS
EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO THOSE CONCERNING
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
9. LIMITATION OF DAMAGES
LIABILITY OF NABNASSET FOR ANY CAUSE OF ACTION WHATSOEVER, INCLUDING LIABILITY
FOR ANY CLAIM OF INFRINGEMENT FOR PROPRIETARY RIGHTS, SHALL NOT EXCEED THE
TOTAL AMOUNT OF LICENSE FEES THEN PAID TO DATE BY LICENSEE FOR LICENSED
SOFTWARE. IN NO EVENT SHALL NABNASSET BE LIABLE FOR LOSS OF DATA, LOST PROFITS
OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES OF LICENSEE UNDER ANY
CIRCUMSTANCES WHATSOEVER.
Nabnasset Confidential
4
<PAGE> 55
10. LICENSE FEES
In consideration of the license rights granted to Licensee pursuant to this
Agreement. Licensee shall pay Nabnasset the License Fees and any additional
expenses, including but not limited to travel, subsistence, and other
reasonable documented expenses incurred by Nabnasset, in the amounts and at the
times set forth on Schedule B hereto. Nabnasset reserves the right to invoice
any such "out of pocket expenses" on a separate invoice. All payments are due
to Nabnasset thirty (30) days from the receipt of invoice.
Any License Fee or other amount not timely paid hereunder shall bear interest
at the rate of one and one half percent (1.5%) per month (or such lesser amount
as may be the maximum amount allowed by law) for each month or portion thereof
during which such fees or amounts are not paid. All amounts payable pursuant to
this Agreement are exclusive of all federal, state, local, municipal, or other
excise, sales, use, property, or similar taxes and fees (but not any income
tax or any tax on or measured by income), now in force or enacted in the
future, and all such taxes and fees shall be paid by Licensee. Licensee shall
obtain and provide to Nabnasset any certificate of exemption or similar
document required to exempt any transaction under this Agreement from sales
tax, use tax, or other tax liability.
11. MAINTENANCE AND TRAINING
Simultaneously with the execution of this Agreement, Licensee may enter into a
Maintenance Agreement with Nabnasset. Upon shipment of the Licensed Software
and the execution of the Maintenance Agreement. Licensee shall be provided by
Nabnasset any and all released updates, maintenance, and support of the
Licensed Software pursuant to the terms of Nabnasset's Maintenance Agreement.
In no event shall Nabnasset be under any obligation to revise or update the
Licensed Software or to maintain or support the Licensed Software in the event
of a termination of the Maintenance Agreement unless Licensee agrees to obtain
such update or support in a time and materials basis.
Upon the request of Licensee, Nabnasset will provide programming, project
management, consulting, and other related services at its then current
published hourly rates. The scope and charges for such services will be
specified in a mutually satisfactory task order, which task order shall become
effective upon acceptance and execution by Licensee and Nabnasset.
12. INFRINGEMENT
If a third party claims that the Licensed Software infringes any United States
patent or copyright, Nabnasset will, provided that Licensee is not in default
hereunder, defend Licensee against such claim at the expense of Nabnasset and
Nabnasset will pay all damages that a court of competent jurisdiction awards,
provided that Licensee promptly notifies Nabnasset in writing of the claim, and
allows Nabnasset to control, and cooperates with Nabnasset in, the defense of
any such claim or any related settlement negotiations. In all events any
settlement of such claim must be approved in writing by Nabnasset. If such a
claim is made or appears possible, Nabnasset may, at its option, secure for
Licensee the right of Licensee to continue to Use the Licensed Software, modify
or replace the Licensed Software in order that the Licensed Software is no
longer infringing, or, if neither of the foregoing alternatives is possible in
the judgment of Nabnasset, require Licensee to return the Licensed Software for
a credit equal to the portion of previously paid Licensee Fees allocable to
the remainder of the term hereof. Nabnasset has no obligation with respect to
any claim caused by modifications made by, or at the request of, Licensee to
the Licensed Software and in accordance with specifications or designs of
Licensee, modifications to the Licensed Software not authorized by Nabnasset,
improper Use, or any utilization by Licensee which would constitute a default
hereunder.
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5
<PAGE> 56
THIS SECTION SETS FORTH THE ENTIRE OBLIGATION OF NABNASSET WITH RESPECT TO ANY
CLAIM OF INFRINGEMENT
13. DEFAULT AND TERMINATION
Either party may terminate this Agreement upon any breach of or default under
this Agreement by the other party. The nonbreaching party may give notice of
such breach or default to the breaching party and, with the exception of
nonpayment provided for in Section 10, unless such breach shall be cured within
thirty (30) days after delivery of such notice, then without limitation of any
other remedy available hereunder, the nonbreaching party may terminate this
Agreement forthwith by delivery of a notice of termination at anytime
thereafter and before such breach or default has been cured.
If Licensee fails to pay the License Fees, any maintenance fees, taxes, duties,
or other amounts due within ten (10) days after written notice from Nabnasset
then, at the option of Nabnasset, this Agreement and all licenses hereunder
shall terminate upon the date thereafter specified in the written notice from
Nabnasset to Licensee.
If Licensee shall fail in any respect to comply with the requirement set forth
in Section 4 above, Nabnasset may terminate this Agreement and all licenses
hereunder immediately upon written notice delivered to Licensee.
If either party files a petition under any chapter of the Bankruptcy Code as
amended or for the appointment of a receiver, or if an involuntary petition in
bankruptcy is filed against such party and said petition is not discharged
within thirty (30) days, or if either party shall become insolvent or make a
general assignment for the benefit of its creditors, or if the business or
property of either party shall come into the possession of its creditors or of
a governmental agency or of a receiver, or if any preceding supplementary to
judgment shall be commenced against either party, or any judgment against
either party, not fully bonded, shall remain unpaid in whole or in part for at
least thirty (30) days after entry thereof, then in any case, the other party
may at its option terminate this Agreement.
Upon expiration or earlier termination of this Agreement, Licensee shall, at the
request of Nabnasset (i) return to Nabnasset the Master Copy and all existing
copies of the Licensed Software, Program Documentation and any related material
or (ii) furnish to Nabnasset evidence satisfactory to Nabnasset that the Master
Copy and all copies of the Licensed Software, Program Documentation, and any
related material have been destroyed.
14. DISPUTES
If any claim or dispute between Nabnasset and Licensee arising out of or
related to this Agreement is not resolved through good faith negotiations
between Licensee and Nabnasset, Licensee and Nabnasset shall submit the claim
or dispute to binding arbitration before a single arbitrator knowledgeable in
the telecommunications and software licensing fields or in commercial matters
as agreed upon by the parties, or if the parties cannot agree upon an
arbitrator within thirty (30) days, an arbitrator appointed by the American
Arbitrator Association. The arbitration shall be conducted in the Commonwealth
of Massachusetts, and the arbitration shall be conducted under the rules then
prevailing of the American Arbitration Association. The arbitrator may award
attorney's fees and costs as part of his award; however, such arbitrator shall
not have the right to award punitive damages as part of any such award not have
the authority to modify or
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6
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If to Licensee to:
-------------------------------------
-------------------------------------
-------------------------------------
ATTENTION:
---------------------------
or such other address as shall be specified by like notice. Any notice that is
delivered personally in the manner provided herein shall be deemed to have been
duly given to the party to whom it is directed upon actual receipt by such
party. Any notice that is addressed and mailed, postage prepaid, in the manner
herein provided shall be conclusively presumed to have been duly given to the
party to which it is addressed at the close of business, local time of the
recipient, on the fourth business day after the day it is so placed in the
mail. Any notice sent by overnight mail service will be presumed to have been
duly given to the party on the next subsequent day after such overnight mail is
sent.
Governing Law: This Agreement shall be construed in accordance with and
governed by the laws of the Commonwealth of Massachusetts and shall take effect
as a sealed instrument.
Severability: In the event that any provision herein shall be deemed invalid or
unenforceable; the other provisions hereof shall remain in full force and
effect and binding upon the parties hereto.
Force Majeure: Nabnasset shall not be responsible or liable for, or deemed in
breach hereof because of any delay in the performance of its obligations
hereunder to the extent caused by circumstances beyond its control, without its
fault or negligence and that could not have been prevented by the exercise of
due diligence, including but not limited to fire, flood, explosion, war,
strike, embargo, government requirement, civil or military authority, acts of
God, or similar circumstances beyond its control.
IN WITNESS WHEREOF, Nabnasset and Licensee have caused this Agreement to be
executed as of the date first written above by their respective duly authorized
officers.
<TABLE>
<CAPTION>
NABNASSET CORPORATION __________________________
<S> <C>
By: By:
--------------------------- ---------------------------
Title: Title:
--------------------------- ---------------------------
Date: Date:
--------------------------- ---------------------------
</TABLE>
8
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SCHEDULE A
DESIGNATED SITE(S)
The Licensed Software is to for use at the following site(s):
LICENSEE CONFIGURATION
The configuration at the above site is as follows:
Switch:
VRU:
Desktop:
Server
Database:
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SCHEDULE C
The Right to Use Software License for Nabnasset's Voice Enhanced Service
Platform Programs (VESP Programs) is provided to Licensee in the configuration
detailed in Schedule A.
The following VESP server components are licensed for use depending upon
services purchased:
Nabnasset Confidential
11
<PAGE> 60
ATTACHMENT 1
PREFERRED REGISTRATION
TECHNOLOGY ESCROW AGREEMENT
Account Number 1401056-00001-1221012
This Agreement is effective May 14, 1997, among Data Securities International,
Inc. ("DSI"), Nabnasset Corporation ("Depositor") and Lucent Technologies Inc.
("Preferred Registrant"), who collectively may be referred to in this Agreement
as "the parties".
A. Depositor and Preferred Registrant have entered or will enter into a
license agreement, development agreement, and/or other agreement regarding
certain proprietary technology of Depositor. To distinguish from this
Agreement, the other agreement(s) will be referred to as "the license
agreement."
B. Depositor desires to avoid disclosure of its proprietary technology except
under certain limited circumstances.
C. The availability of the proprietary technology of Depositor is critical to
Preferred Registrant in the conduct of its business and, therefore, Preferred
Registrant needs access to the proprietary technology under limited
circumstances.
D. Depositor and Preferred Registrant desire to establish an escrow with DSI
to provide for the retention, administration and controlled access of the
proprietary technology materials of Depositor.
E. The parties desire this Agreement to be supplementary to the license
agreement pursuant to 11 United States [Bankruptcy] Code, Section 365(n).
ARTICLE 1 -- DEPOSITS
1.1 Obligation to Make Deposit. Upon the signing of this Agreement by the
parties, Depositor shall deliver to DSI the proprietary information and other
materials ("deposit materials") required to be deposited by the license
agreement or, if the license agreement does not identify the materials to be
deposited with DSI, then such materials will be identified on an Exhibit A. If
Exhibit A is applicable, it is to be prepared and signed by Depositor and
Preferred Registrant. DSI shall have no obligation with respect to the
preparation, signing or delivery of Exhibit A.
1.2 Identification of Tangible Media. Prior to the delivery of the deposit
materials to DSI, Depositor shall conspicuously label for identification each
document, magnetic tape, disk, or other tangible media upon which the deposit
materials are written or stored. Additionally, Depositor shall complete an
Exhibit B to list each such tangible media by the item label description, the
type of media and the quantity. The Exhibit B must be signed by Depositor and
delivered to DSI with the deposit materials. Unless and until Depositor makes
the initial deposit with DSI, DSI shall have no obligation with respect to this
Agreement, except the
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<PAGE> 61
obligation to notify the parties regarding the status of the deposit account as
required in Section 2.2 below.
1.3 Deposit Inspection. When DSI receives the deposit materials and the
Exhibit B. DSI will conduct a deposit inspection by visually matching the
labeling of the tangible media containing the deposit materials to the item
descriptions and quantity listed on the Exhibit B. In addition to the deposit
inspection, Preferred Registrant may elect to cause a verification of the
deposit materials in accordance with Section 1.6 below.
1.4 Acceptance of Deposit. At completion of the deposit inspection, if DSI
determines that the labeling of the tangible media matches the item
descriptions and quantity on Exhibit B, DSI will sign the Exhibit B and mail a
copy thereof to Depositor and Preferred Registrant. If DSI determines the
labeling does not match the item descriptions or quantity on the Exhibit B, DSI
will (a) note the discrepancies in writing on the Exhibit B; (b) sign the
Exhibit B with the exceptions noted; and (c) provide a copy of the Exhibit B to
Depositor and Preferred Registrant. DSI's acceptance of the deposit occurs upon
the signing of the Exhibit B by DSI. Delivery of the signed Exhibit B to
Preferred Registrant is Preferred Registrant's notice that the deposit
materials have been received and accepted by DSI.
1.5 Depositor's Representations. Depositor represents as follows:
a. Depositor lawfully possesses all of the deposit materials deposited
with DSI;
b. With respect to all of the deposit materials, Depositor has the right
and authority to grant to DSI and Preferred Registrant the rights as
provided in this Agreement;
c. The deposit materials consist of proprietary information and other
materials identified either in the license agreement or Exhibit A, as
the case may be.
1.6 Verification. Preferred Registrant shall have the right, at Preferred
Registrant's expense, to cause a verification of any deposit materials. A
verification determines, in different levels of detail, the accuracy,
completeness, sufficiency and quality of the deposit materials. If a
verification is elected after the deposit materials have been delivered to DSI,
then only DSI, or at DSI's election an independent person or company selected
and supervised by DSI, may perform the verification.
1.7 Deposit Updates. Unless otherwise provided by the license agreement,
Depositor shall update the deposit materials within 60 days of each release of
a new version of the product which is subject to the license agreement. Such
updates will be added to the existing deposit. All deposit updates shall be
listed on a new Exhibit B and the new Exhibit B shall be signed by Depositor.
The processing of all deposit updates shall be in accordance with Sections 1.2
through 1.6 above. All references in this Agreement to the deposit materials
shall include the initial deposit materials and any updates.
1.8 Removal of Deposit Materials. The deposit materials may be removed and/or
exchanged only on written instructions signed by Depositor and Preferred
Registrant, or as otherwise provided in this Agreement.
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<PAGE> 62
ARTICLE 2 -- CONFIDENTIALITY AND RECORD KEEPING
2.1 Confidentiality. DSI shall maintain the deposit materials in a secure,
environmentally safe, locked receptacle which is accessible only to authorized
employees of DSI. DSI shall have the obligation to reasonably protect the
confidentiality of the deposit materials. Except as provided in this Agreement,
DSI shall not disclose, transfer, make available, or use the deposit materials.
DSI shall not disclose the content of this Agreement to any third party. If DSI
receives a subpoena or other order of a court or other judicial tribunal
pertaining to the disclosure or release of the deposit materials, DSI will
immediately notify the parties to this Agreement. It shall be the
responsibility of Depositor and/or Preferred Registrant to challenge any such
order; provided, however, that DSI does not waive its rights to present its
position with respect to any such order. DSI will not be required to disobey
any court or other judicial tribunal order. (See Section 7.5 below for notices
of requested orders.)
2.2 Status Reports. DSI will issue to Depositor and Preferred Registrant a
report profiling the account history at least semi-annually. DSI may provide
copies of the account history pertaining to this Agreement upon the request of
any party to this Agreement.
2.3 Audit Rights. During the term of this Agreement, Depositor and Preferred
Registrant shall each have the right to inspect the written records of DSI
pertaining to this Agreement. Any inspection shall be held during normal
business hours and following reasonable prior notice.
ARTICLE 3 -- GRANT OF RIGHTS TO DSI
3.1 Title to Media. Depositor hereby transfer to DSI the title to the media
upon which the proprietary information and materials are written or stored.
However, this transfer does not include the ownership of the proprietary
information and materials contained on the media such as any copyright, trade
secret, patent or other intellectual property rights.
3.2 Right to Make Copies. DSI shall have the right to make copies of the
deposit materials as reasonably necessary to perform this Agreement and shall
provide written notice to Depositor of each such copy made. DSI shall copy all
copyright, nondisclosure, and other proprietary notices and titles contained on
the original deposit materials onto any copies made by DSI.
3.3 Right to Sublicense Upon Release. As of the effective date of this
Agreement, Depositor hereby grants to DSI a non-exclusive, irrevocable,
perpetual, and royalty-free license to sublicense the deposit materials to
Preferred Registrant upon the release, if any, of the deposit materials in
accordance with Section 4.5 below. Except upon such a release, DSI shall not
sublicense or otherwise transfer the deposit materials.
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<PAGE> 63
ARTICLE 4 -- RELEASE OF DEPOSIT
4.1 Release Conditions. As used in this Agreement, "Release Conditions" shall
mean the following:
a. The occurrence and continuance of a material breach by the Depositor,
or any successor of the Depositor, of the obligation of the Depositor
to satisfy the maintenance and support obligations of the Depositor
with respect to the Deposit Material being licensed by the Preferred
Registrant, from the Depositor pursuant to the License Agreement,
provided that, such breach is not waived by the Preferred Registrant
or is not cured by Depositor within thirty (30) days of written notice
from Preferred Registrant to Depositor; or
b. Depositor's failure to continue to do business in the ordinary course;
or
c. The filing by Depositor of a petition for protection under the
Bankruptcy Code of the United States, or an involuntary petition which
is not dismissed within ninety (90) days.
4.2 Filing For Release. If Preferred Registrant believes in good faith that a
Release Condition has occurred, Preferred Registrant may provide to DSI written
notice of the occurrence of the Release Condition and a request for the release
of the deposit materials. Upon receipt of such notice, DSI shall provide a copy
of the notice to Depositor, by certified mail, return receipt requested, or by
Federal Express or equivalent.
4.3 Contrary Instructions. From the date DSI mails the notice requesting
release of the deposit materials, Depositor shall have ten business days to
deliver to DSI Contrary Instructions. "Contrary Instructions" shall mean the
written representation by Depositor that a Release Condition has not occurred
or has been cured. Upon receipt of Contrary Instructions, DSI shall send a copy
to Preferred Registrant by registered or certified mail, return receipt
requested, or by Federal Express or equivalent. Additionally, DSI shall notify
both Depositor and Preferred Registrant that there is a dispute to be resolved
pursuant to the Dispute Resolution section of this Agreement. Subject to
Section 5.2, DSI will continue to store the deposit materials without release
pending (a) joint instructions from Depositor and Preferred Registrant, (b)
resolution pursuant to the Dispute Resolution provisions, or (c) order of a
court.
4.4 Release of Deposit. If DSI does not receive Contrary Instructions from
the Depositor, DSI is authorized to release the deposit materials to the
Preferred Registrant or, if more than one registrant is registered to the
deposit, to release a copy of the deposit materials to the Preferred
Registrant. However, DSI is entitled to receive any fees due DSI before making
the release. This Agreement will terminate upon the release of the deposit
materials held by DSI.
4.5 Use License Following Release. Unless otherwise provided in the license
agreement, upon release of the deposit materials in accordance with this Article
4, Preferred Registrant shall have a non-exclusive, non-transferrable,
irrevocable right to use the deposit materials for the sole purpose of
continuing the benefits afforded to Preferred Registrant by the license
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<PAGE> 64
agreement. Preferred Registrant shall be obligated to maintain the
confidentiality of the released deposit materials.
ARTICLE 5 -- TERM AND TERMINATION
5.1 Term of Agreement. The initial term of this Agreement is for a period of
one year. Thereafter, this Agreement shall automatically renew from year-to-year
unless (a) Depositor and Preferred Registrant jointly instruct DSI in writing at
any time after one year that the Agreement is terminated; or (b) the Agreement
is terminated by DSI for nonpayment in accordance with Section 5.2. If the
deposit materials are subject to another escrow agreement with DSI, DSI reserves
the right, after the initial one year term, to adjust the anniversary date of
this Agreement to match the then prevailing anniversary date of such other
escrow arrangements.
5.2 Termination for Nonpayment. In the event of the nonpayment of fees owed to
DSI, DSI shall provide written notice of delinquency to all parties to this
Agreement. Any party to this Agreement shall have the right to make the payment
to DSI to cure the default. If the past-due payment is not received in full by
DSI within one month of the date of such notice, then DSI shall have the right
to terminate this Agreement any time thereafter by sending written notice of
termination to all parties. DSI shall have no obligation to take any other
action under this agreement so long as any payment due to DSI remains unpaid.
5.3 Disposition of Deposit Materials Upon Termination. Upon any termination of
this Agreement by joint instruction of Depositor and Preferred registrant, DSI
shall destroy, return, or otherwise deliver the deposit materials in accordance
with such instructions. Upon any termination for nonpayment, DSI may, at its
sole discretion, destroy the deposit materials or return them to Depositor. DSI
shall have no obligation to return or destroy the deposit materials if the
deposit materials are subject to another escrow agreement with DSI.
5.4 Survival of Terms Following Termination. Upon any termination of this
Agreement, the following provisions of this Agreement shall survive:
a. Depositor's representations (Section 1.5).
b. The obligations of confidentiality with respect to the deposit
materials.
c. The licenses granted in the sections entitled right to Sublicense Upon
Release (Section 3.3) and Use License Following Release (Section 4.5),
if a release of the deposit materials has occurred prior to
termination.
d. The obligation to pay DSI any fees and expenses due.
e. The provisions of Article 7.
f. Any provisions in this Agreement which specifically state they survive
the termination or expiration of this Agreement.
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<PAGE> 65
ARTICLE 6 -- DSI'S FEES
6.1 Fee Schedule. DSI is entitled to be paid its standard fees and expenses
applicable to the services provided. DSI shall notify the parties at least 90
days prior to any increase in fees. For any service not listed on DSI's
standard fee schedule, DSI will provide a quote prior to rendering the service,
if requested.
6.2 Payment Terms. DSI shall not be required to perform any service unless the
payment for such service and any outstanding balances owed to DSI are paid in
full. All other fees are due upon receipt of invoice. If invoiced fees are not
paid, DSI may terminate this Agreement in accordance with Section 5.2. Late
fees on past due amounts shall accrue at the rate of one and one-half percent
per month (18% per annum) from the date of the invoice.
ARTICLE 7 -- LIABILITY AND DISPUTES
7.1 Right to Reply on Instructions. DSI may act in reliance upon any
instruction, instrument, or signature reasonably believed by DSI to be genuine.
DSI may assume that any employee of a party to this Agreement who gives any
written notice, request, or instruction has the authority to do so. DSI shall
not be responsible for failure to act as a result of causes beyond the
reasonable control of DSI.
7.2 Indemnification. DSI shall perform its obligations under this Agreement
in a reasonable and prudent manner. Provided DSI is not in breach of its
obligations under the terms of this Agreement, the Depositor or Preferred
Registrant (the "Indemnifying Party") each agree to indemnify, defend and hold
harmless DSI from any and all claims, actions, damages, arbitration fees and
expenses, costs, attorneys' fees and other liabilities incurred by DSI.
7.3 Dispute Resolution. Any dispute relating to or arising from this
Agreement shall be resolved by arbitration under the Commercial Rules of the
American Arbitration Association by a single arbitrator knowledgeable in
computer systems. No punitive, exemplary, consequential or special damages
shall be awarded. Unless otherwise agreed by Depositor and Preferred Registrant,
arbitration will take place in San Diego, California, U.S.A. Any court having
jurisdiction over the matter may enter judgment on the award of the
arbitrator(s). Service of a petition to confirm the arbitration award may be
made by First Class mail or by Federal Express or equivalent, to the attorney
for the party or, if unrepresented, to the party at the last known business
address.
7.4 Controlling Law. This Agreement is to be governed and construed in
accordance with the laws of the state of California, without regard to its
conflict of law provisions.
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7.5 Notice of Requested Order. If any party intends to obtain an order from the
arbitrator or any court of competent jurisdiction which may direct DSI to take,
or refrain from taking any action, that party shall:
a. Give DSI at least two business days' prior notice of the hearing;
b. Include in any such order that, as a precondition to DSI's obligation,
DSI be paid in full for any past due fees and be paid for the
reasonable value of the services to be rendered pursuant to such
order; and
c. Ensure that DSI not be required to deliver the original (as opposed to
a copy) of the deposit materials if DSI may need to retain the
original in its possession to fulfill any of its other escrow duties.
ARTICLE 8 -- GENERAL PROVISIONS
8.1 Entire Agreement. This Agreement, which includes the Exhibits described
herein, embodies the entire understanding between all of the parties with
respect to its subject matter and supersedes all previous communications,
representations or understandings, either oral or written. No amendment or
modification of this Agreement shall be valid or binding unless signed by all
the parties hereto, except Exhibit A need not be signed by DSI and Exhibit B
need not be signed by Preferred Registrant.
8.2 Notices. All notices, invoices, payments, deposits and other documents and
communications shall be given to the parties at the addresses specified in the
attached Exhibit C. It shall be the responsibility of the parties to notify each
other as provided in this Section in the event of a change of address. The
parties shall have the right to rely on the last known address of the other
parties. Unless otherwise provided in this Agreement, all documents and
communications may be delivered by First Class Mail.
8.3 Severability. In the event any provision of this Agreement is found to be
invalid, voidable or unenforceable, the parties agree that unless it materially
affects the entire intent and purpose of this Agreement, such invalidity,
voidability or unenforceability shall affect neither the validity of this
Agreement nor the remaining provisions herein, and the provision in question
shall be deemed to be replaced with a valid and enforceable provision most
closely reflecting the intent and purpose of the original provision.
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8.4 Successors. This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the parties. However, DSI shall have
no obligation in performing this Agreement to recognize any successor of
Depositor or Preferred Registrant unless DSI receives clear, authoritative and
conclusive written evidence of the change of parties.
Nabnasset Corporation Lucent Technologies Inc.
- --------------------- ------------------------
Depositor Preferred Registrant
By: /s/ DUNCAN I. MACKAY By: /s/ CHARLES KNOPF
----------------------- ------------------------
Name: Duncan I. Mackay Name: Charles Knopf
Title: Executive Vice President Title: Relationship Manager
------------------------ ------------------------
Date: May 2nd, 1997 Date: May 5, 1997
------------------- --------------------
Data Securities International, Inc.
By: /s/ KATHLEEN M. CUMMINS
-------------------------
Name: Kathleen M. Cummins
Title: Contract Administrator
----------------------
Date: 5/14/97
-------------------
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EXHIBIT A
MATERIALS TO BE DEPOSITED
Account Number ________________________
Depositor represents to Preferred Registrant that Deposit Materials delivered
to DSI shall consist of the following:
VESP Source Code
Nabnasset Corporation Lucent Technologies Inc.
- --------------------- ------------------------
Depositor Preferred Registrant
By: /s/ DUNCAN I. MACKAY By: /s/ CHARLES KNOPF
----------------------- ------------------------
Name: Duncan I. Mackay Name: Charles Knopf
Title: Executive Vice President Title: Relationship Manager
------------------------ --------------------
Date: May 2nd, 1997 Date: May 5, 1997
------------------- --------------------
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Date:___________________
EXHIBIT B
DESCRIPTION OF DEPOSIT MATERIALS
Account Number_________________________________________________________________
Depositor Company Name_________________________________________________________
DEPOSIT TYPE: ____________________ Initial _______________ Supplemental
ENVIRONMENT:
Host System CPU/OS_________________ Version___________________ Backup _________
Source System CPU/OS_________________ Version_________________ Compiler _______
Special Instructions: _________________________________________________________
DEPOSIT COPYING REQUIREMENT:
Hardware needed:________________________________________________________________
Software needed/Instructions:___________________________________________________
DEPOSIT MATERIALS:
Exhibit B Name__________________________________________ Version _______________
Item label description Media Quantity
For Depositor, I certify that the above For DSI, I certify that the deposit
described deposit materials have been inspection has been completed
transmitted to DSI: (any exceptions are noted above):
By_____________________________________ By_________________________________
Print Name_____________________________ Print Name_________________________
Date___________________________________ Date of Acceptance_________________
ISE______EX. B# ___________________
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EXHIBIT C
DESIGNATED CONTACT
Account Number 1401056-00001-1221012
Notices, Deposit Material returns and
communication, including delinquencies Invoices to Depositor should be
to Depositor should be addressed to: addressed to:
Company Name: Nabnasset Corporation
--------------------- -------------------------------
Address: 15 Craig Road
--------------------- -------------------------------
Acton, MA 01720
--------------------- -------------------------------
--------------------- -------------------------------
Designated Contact: Contact:
---------------- -------------------------------
Telephone: (508) 787-2800
--------------------------------------------------------------
Facsimile: (508) 787-2834
--------------------------------------------------------------
State of Incorporation:
----------------------------------------------------
Notices and communications, including Invoices to Preferred Registrant
delinquencies to Preferred Registrant should be addressed to:
should be addressed to:
Company Name: Lucent Technologies Inc.
-------------------------------------------------------------
Address: 211 Mt. Airy Road
-------------------------------------------------------------
Basking Ridge NJ 07920
-------------------------------------------------------------
Room 26468
-------------------------------------------------------------
Designated Contact: Charles Knopf Contact: William Riley
-------------------- ----------------------
Telephone: 908 953 7037 908 953 8594
-------------------- -------------------------------
Facsimile: 908 953 2486 908 953 2486
-------------------- -------------------------------
Requests from Depositor or Preferred Registrant to change the Designated
Contact should be given in writing by the Designated Contact or an authorized
employee of Depositor or Preferred Registrant.
Invoice Inquiries and fee
Contracts, Deposit Material and notices remittances to DSI should be
to DSI should be addressed to: addressed to:
DSI DSI
Contract Administration Accounts Receivable
Suite 200 Suite 1450
9555 Chesapeake Drive 425 California Street
San Diego, CA 92123 San Francisco, CA 94104
Telephone: (619) 694-1900 (415) 398-7900
Facsimile: (619) 694-1919 (415) 398-7914
Date: 5-14-97
-------------------
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AMENDMENT NO. 1
TO THE
SOFTWARE DISTRIBUTORSHIP AGREEMENT
BETWEEN
LUCENT TECHNOLOGIES INC. ("LUCENT")
AND
NABNASSET CORPORATION ("SUPPLIER")
WHEREAS, the parties entered into a Software Distributorship Agreement
("Agreement") dated May 5, 1997; and
WHEREAS, the parties have identified additional pricing information to be added
to Exhibit B attached to and incorporated into the Agreement; and
WHEREAS, the parties have agreed to replace Exhibit B in its entirety to
address such missing information;
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
LUCENT and SUPPLIER hereby mutually agree as follows:
1. Exhibit B of the Agreement is deleted in its entirety and replaced it
with Exhibit B(1), dated June 19, 1997 as attached hereto.
In all other respects, the Agreement dated May 5, 1997 remains unchanged.
ACCEPTED AND AGREED:
LUCENT TECHNOLOGIES INC. NABNASSET CORPORATION
By: /s/ CHARLES KNOPF /s/ DUNCAN I. MACKAY
------------------------ ---------------------------
Printed: Charles Knopf Printed: Duncan I. Mackay
------------------ ------------------
Title: Relationship Manager Title: EVP Field Operations
--------------------- --------------------
Date: 6/20/97 Date: 6/20/97
--------------------- --------------------
<PAGE> 72
EXHIBIT B(1)
PAYMENT SCHEDULE
Unless otherwise specified herein, all capitalized terms used in this Exhibit
shall have the same meanings as described in the Agreement.
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
1B
Revised 06/20/97
<PAGE> 73
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
2B
Revised 06/20/97
<PAGE> 74
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
3B
Revised 06/20/97
<PAGE> 75
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
4B
Revised 06/20/97
<PAGE> 76
[*]
MAINTENANCE PRICING
[*]
SUPPLIER's Maintenance Agreement shall be sold by LUCENT according to the
following Table**:
<TABLE>
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Term of Maintenance Agreement (years) 1 2 3 4 5 6
Commission [*] [*] [*] [*] [*] [*]
Maintenance price to End User** [*] [*] [*] [*] [*] [*]
- -------------------------------------------------------------------------
</TABLE>
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
5B
Revised 06/20/97
<PAGE> 77
[*]
***Maintenance Pricing shall be adjusted in accordance with the provisions
of Section 12 of this Agreement.
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE> 78
For Maintenance Services on a 7X24 basis, the following surcharge percentages
shall be added to the above Maintenance fees:
<TABLE>
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Term of Agreement (years) [*] [*] [*] [*] [*] [*]
Surcharge [*] [*] [*] [*] [*] [*]
- -------------------------------------------------------------------------
</TABLE>
In the event an End User that is not under warranty or a Maintenance Agreement
wishes to license Minor Releases and/or Maintenance Releases made available by
SUPPLIER, such End User may license such Minor Releases and/or Maintenance
Releases on a time and materials basis at the then current SUPPLIER prices for
such Minor Release and/or Maintenance Releases. In the event an End User wishes
to license Minor Releases and/or Maintenance Releases from LUCENT, such End
User shall be able to do so. SUPPLIER and LUCENT agree to negotiate a
reasonable fee to be paid to SUPPLIER by LUCENT for the license of such Minor
Releases and or Maintenance Releases.
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
7B
<PAGE> 79
AMENDMENT NO. 2
TO THE
SOFTWARE DISTRIBUTORSHIP AGREEMENT
BETWEEN
LUCENT TECHNOLOGIES INC. ("LUCENT")
AND
NABNASSET CORPORATION ("SUPPLIER")
WHEREAS, the parties entered into a Software Distributorship Agreement
("Agreement") dated May 5, 1997; and
WHEREAS, the parties have identified additional pricing information to be added
to Exhibit B attached to and incorporated into the Agreement; and
WHEREAS, the parties have agreed to replace Exhibit B in its entirety to
address such missing information;
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
LUCENT and SUPPLIER hereby mutually agree as follows:
1. Exhibit B of the Agreement is deleted in its entirety and replaced it
with Exhibit B(2), dated August 27, 1997 as attached hereto.
In all other respects, the Agreement dated May 5, 1997 remains unchanged.
ACCEPTED AND AGREED:
LUCENT TECHNOLOGIES INC. NABNASSET CORPORATION
By: /s/ CHARLES KNOPF By: /s/ DUNCAN I. MACKAY
------------------------- --------------------------
Printed: Charles Knopf Printed: Duncan I. Mackay
-------------------- ---------------------
Title: Relationship Manager Title: EVP Field Operations
-------------------- ---------------------
Date: 9/2/97 Date: 9/5/97
----------------------- ------------------------
<PAGE> 80
EXHIBIT B(2)
PAYMENT SCHEDULE
Unless otherwise specified herein, all capitalized terms used in this Exhibit
shall have the same meanings as described in the Agreement.
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
1B
Revised 08/27/97
<PAGE> 81
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
2B
Revised 08/27/97
<PAGE> 82
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
3B
<PAGE> 83
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
4B
<PAGE> 84
[*]
Should the parties identify an opportunity for a site and/or corporate license
which requires the establishment of a specific License Fee, the parties shall
negotiate such specific Licence Fee, negotiate the percentage that each party
shall receive for the licensing of the PRODUCT and negotiate the proportion of
the License Fee that shall accumulate toward the total License Fees payable to
SUPPLIER.
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
5B
<PAGE> 85
MAINTENANCE PRICING
Within thirty (30) days from the end of each quarter, SUPPLIER will send
payment to LUCENT equal to the percentage specified as commission associated
with SUPPLIER's Maintenance Agreements sold by Lucent during the quarter.
Unless otherwise specified by LUCENT, SUPPLIER shall send payment to the
address stated in the "Notices" section of the Agreement.
SUPPLIER's Maintenance Agreement shall be sold by LUCENT according to the
following Table**:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Term of Maintenance Agreement (years) [*] [*] [*] [*] [*] [*]
- -------------------------------------------------------------------------------------------
Commission [*] [*] [*] [*] [*] [*]
- -------------------------------------------------------------------------------------------
Maintenance price to End User** [*] [*] [*] [*] [*] [*]
- -------------------------------------------------------------------------------------------
</TABLE>
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
6B
<PAGE> 86
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE> 87
***Maintenance Pricing shall be adjusted in accordance with the provisions of
Section 12 of this Agreement.
For Maintenance Services on a 7X 24 basis, the following surcharge percentages
shall be added to the above Maintenance fees:
<TABLE>
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Term of Agreement (years) [*] [*] [*] [*] [*] [*]
Surcharge [*] [*] [*] [*] [*] [*]
- -------------------------------------------------------------------------
</TABLE>
In the event an End User that is not under warranty or a Maintenance Agreement
wishes to license Minor Releases and/or Maintenance Releases made available by
SUPPLIER, such End User may license such Minor Releases and/or Maintenance
Releases on a time and materials basis at the then current SUPPLIER prices for
such Minor Release and/or Maintenance Releases. In the event an End User wishes
to license Minor Releases and/or Maintenance Releases from LUCENT, such End
User shall be able to do so. SUPPLIER and LUCENT agree to negotiate a
reasonable fee to be paid to SUPPLIER by LUCENT for the license of such Minor
Releases and or Maintenance Releases.
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
8B
<PAGE> 88
AMENDMENT NO. 3
TO THE
SOFTWARE DISTRIBUTION AGREEMENT
BETWEEN
LUCENT TECHNOLOGIES INC. ("LUCENT")
AND
NABNASSET CORPORATION ("SUPPLIER")
WHEREAS, the parties entered into a Software Distribution Agreement
("Agreement") dated May 5, 1997 and amended such Agreement June 20, 1997 and
September 5, 1997; and
WHEREAS, the parties have identified additional pricing information to be added,
deleted and modified to Exhibit B attached to and incorporated into the
Agreement; and
WHEREAS, the parties have agreed to replace Exhibit B(2) in its entirety to
address such information;
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
LUCENT and SUPPLIER hereby mutually agree as follows:
1. Exhibit B(2) of the Agreement is deleted in its entirety and replaced
with Exhibit B(3), dated December 15, 1997 as attached hereto.
In all other respects, the Agreement dated May 5, 1997 remains unchanged.
ACCEPTED AND AGREED:
LUCENT TECHNOLOGIES INC. NABNASSET CORPORATION
By: /s/ CHARLES KNOPF By: /s/ DUNCAN I. MACKAY
--------------------------------- -----------------------------------
Printed: Charles Knopf Printed: Duncan I. Mackay
---------------------------- ------------------------------
Title: Business Development Manager Title: Vice President & General Manager
---------------------------- --------------------------------
Date: 12/10/97 Date: 12/15/97
------------------------------ ---------------------------------
1B
Revised 12/15/97
<PAGE> 89
EXHIBIT B(3)
PAYMENT SCHEDULE
Unless otherwise specified herein, all capitalized terms used in this Exhibit
shall have the same meanings as described in the Agreement.
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
2B
Revised 12/15/97
<PAGE> 90
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
3B
<PAGE> 91
[*]
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
4B
<PAGE> 92
[*]
Should the parties identify an opportunity for a site and/or corporate license
which requires the establishment of a specific License Fee, the parties shall
negotiate such specific License Fee, negotiate the percentage that each party
shall receive for the licensing of the PRODUCT and negotiate the proportion of
the License Fee that shall accumulate toward the total License Fees payable to
SUPPLIER.
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
5B
<PAGE> 93
MAINTENANCE PRICING
Within thirty (30) days from the end of each quarter, SUPPLIER will send
payment to LUCENT equal to the percentage specified as commission associated
with SUPPLIER's Maintenance Agreement sold by Lucent during the quarter. Unless
otherwise specified by LUCENT, SUPPLIER shall send payment to the address
stated in the "Notices" section of the Agreement.
SUPPLIER's Maintenance Agreement shall be sold by LUCENT according to the
following Table**:
<TABLE>
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Term of Maintenance Agreement (years) [*] [*] [*] [*] [*] [*]
Commission [*] [*] [*] [*] [*] [*]
Maintenance price to End User** [*] [*] [*] [*] [*] [*]
- -------------------------------------------------------------------------
</TABLE>
[*]
LUCENT shall include a statement in all quotations for multiple year
Maintenance Agreements which states that discounts for multi-year term
Maintenance Agreements as described in the schedule above shall be available to
End Users who agree to be invoiced by and pay in full to SUPPLIER the total
cost of the multi-year term of the Maintenance Agreement prior to the
commencement of services.
Should SUPPLIER and LUCENT identify an opportunity to sell maintenance services
to an End User which requires the establishment of special maintenance pricing
or terms different from those stated in this Section of Exhibit B, the parties
shall negotiate mutually acceptable prices, terms and commissions.
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
6B
<PAGE> 94
[*]
[*]
***Maintenance Pricing shall be adjusted in accordance with the provisions of
Section 12 of this Agreement.
For Maintenance Services on a 7x24 basis, the following shall be used in lieu of
the above Maintenance fees:
<TABLE>
<CAPTION>
Term of Agreement (years) 1 2 3 4 5 6
<S> <C> <C> <C> <C> <C> <C>
Maintenance Price to End User [*] [*] [*] [*] [*] [*]
Commission [*] [*] [*] [*] [*] [*]
</TABLE>
In the event an End User that is not under warranty or a Maintenance Agreement
wishes to license Minor Releases and/or Maintenance Releases made available by
SUPPLIER, such End User may license such Minor Releases and/or Maintenance
Releases on a time and materials basis at the then current SUPPLIER prices for
such Minor Release and/or Maintenance Releases. In the event an End User wishes
to license Minor Releases and/or Maintenance Releases from LUCENT, such End User
shall be able to do so. SUPPLIER and LUCENT agree to negotiate a reasonable fee
to be paid to SUPPLIER by LUCENT for the license of such Minor Releases and/or
Maintenance Releases.
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
7B
Revised 12/15/97
<PAGE> 95
AMENDMENT NO. 4
TO THE
SOFTWARE DISTRIBUTION AGREEMENT
BETWEEN
LUCENT TECHNOLOGIES INC. ("LUCENT")
AND
NABNASSET CORPORATION ("SUPPLIER")
WHEREAS, the Lucent Technologies Inc. and Nabnasset Corporation entered into a
Software Distribution Agreement dated May 5, 1997, which was subsequently
amended on June 20, 1997; September 5, 1997; and December 15, 1997
(collectively, the "Agreement"); and
WHEREAS, Quintus Corporation ("Quintus") assumed all of the rights,
obligations, and duties of Nabnasset Corporation pursuant to a letter agreement
dated October 29, 1997; and
WHEREAS, Lucent and Quintus now wish to further amend the Agreement,
specifically related to the provision of services by Quintus to Lucent.
NOW THEREFORE, in consideration of the premises and other good an valuable
consideration, the receipt and sufficiency of which is acknowledged hereby,
Lucent and Quintus hereby mutually agree as follows:
1. The parties hereby change the title of this Agreement to "Software
Distribution Agreement between Lucent Technologies Inc. and Quintus
Corporation." The parties acknowledge that all references to SUPPLIER in the
Agreement are to Quintus Corporation.
2. Exhibit B(3) is hereby modified to delete, in its entirety, the section
entitled Maintenance Pricing and to insert, in its place, a new section
entitled Maintenance Fee, attached hereto as Addition to Exhibit B(3).
3. Exhibit D of the Agreement is hereby deleted in its entirety and replaced
with Exhibit D(1), attached hereto, which Exhibit shall be effective as of the
Effective Date of this Amendment No. 4. Notwithstanding anything contained in
the Agreement to the contrary, all references to a Maintenance Agreement
between the parties in the Agreement shall henceforth refer solely to Exhibit
D(1).
4. Section 20 of the Agreement is hereby amended as follows: The last
sentence in the second paragraph of Section 20 is amended to read, "Should the
original reporting End User wish to receive the bug fix or workaround patch,
SUPPLIER reserves the right to charge Lucent for the reasonable time and
material expended pursuant to Exhibit D(1) (Technical Support) for such
correction if the End User is not under a Maintenance Agreement."
<PAGE> 96
5. The Effective Date of this Amendment shall be the later date that either
of the parties executes this Amendment.
In all other respects, the Agreement, as amended, remains unchanged.
ACCEPTED AND AGREED:
LUCENT TECHNOLOGIES INC. QUINTUS CORPORATION
By: /s/ CHARLES KNAPF By: /s/ ROGER A. NUNN
--------------------------------- -----------------------------------
Name: Charles Knapf Name: Roger A. Nunn
------------------------------- ---------------------------------
Title: Business Development Title: Senior VP Sales
------------------------------ --------------------------------
Date: 3/8/99 Date: 3/12/99
------------------------------- ---------------------------------
<PAGE> 97
ADDITION TO EXHIBIT B(3)
MAINTENANCE FEE
Within [*] from the end of each calendar month, Lucent shall send SUPPLIER a fee
of [*] per Site per month for those customers who elect to take, through Lucent,
a post-warranty maintenance contract for Quintus Products for work performed
from [*] Monday through Friday. For each customer, this fee will be paid by
Lucent to Quintus monthly beginning at the conclusion of each customer's
warranty period, as set forth in the Distribution Agreement in Section 18A. In
addition, Quintus will be available for out of hours coverage by pager. Lucent
will pay Quintus [*] for work performed outside of Quintus' normal business
hours [*] Monday through Friday). Billing for such out-of-hours work will occur
in 30 minute increments.
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE> 98
EXHIBIT D(1)
TECHNICAL SUPPORT
This Exhibit applies to support given by SUPPLIER for the PRODUCT.
LUCENT OBLIGATIONS
Lucent is to provide first, second and third level technical support to their
customers and shall be responsible for receiving and responding to all calls
for maintenance and support. Lucent shall be responsible to identify and track
their customers issues. For problems that cannot be resolved by Lucent, Lucent
will escalate the problem to Quintus for fourth level support. Quintus will be
under no obligation to accept any calls from Lucent's customers.
Definition of Levels
o FIRST LEVEL technical problems are usually questions about a Quintus
product that requires an explanation of a feature, function, error message,
installation or system administration. The answers to these questions are
usually found in Quintus product manuals.
o SECOND LEVEL technical problems are usually questions about customization,
recommendations with design, integration, or development. Other second
level problems may require debugging the customers' designs and code.
o THIRD LEVEL technical problems are suspected to be product defects, product
performance issues, or product enhancement requests.
o FOURTH LEVEL technical problems are all Third Level issues which, given
best efforts by Lucent, could not be resolved.
SERVICE CENTER
Lucent will equip, staff and maintain a Quintus CTI-enabled Service Center.
This Service Center will have laboratory environment that will have a dedicated
set of servers, agents, phones, switch(es) and IVRs provided by Lucent.
PAYMENT
Lucent will pay Quintus a fee [*] per Site per month for those customers who
elect to take, through Lucent, a post-warranty maintenance contract for Quintus
Products for work performed from [*] Monday through Friday. For each customer,
this fee will be paid by Lucent to Quintus monthly beginning at the conclusion
of each customer's warranty period, as set forth in the Distribution Agreement
in Section 18A. In addition, Quintus will be available for out of hours coverage
by pager, Lucent will pay Quintus [*] for work performed outside of Quintus'
normal business hours ([*] Monday through Friday). Billing will occur in 30
minute increments. The fee out of hours support will be reviewed annually.
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE> 99
Definition of Site: Each customer installation of the Quintus Core Services is
considered a separate Site.
In addition, Lucent will pay Quintus the time and expense (T&E) rates in
effect at the time Quintus provides services for those Lucent's customers that
require support but are not under current maintenance contract. These customers
which are not under maintenance contracts will not be entitled to patches or
upgrades.
NOTIFICATION
At least five (5) days prior to the beginning of each month, Lucent will
provide Quintus a list of Lucent's customers who will be entering maintenance
contracts for Quintus products during the upcoming months. Said list will
include the following information:
o Customer name
o Site address(es)
REMOTE ACCESS
During the term of this Agreement Lucent will make a good faith effort to
provide Quintus with remote access to the system(s) upon which the Software is
installed. Such access will be provided upon request by Quintus and will be
continuously available in any period when a problem reported by Lucent to
Quintus remains unresolved. Lucent and Quintus will mutually agree upon the
hardware and software facilities for remote access, and Lucent will make best
efforts to provide such facilities. In the event Lucent fails to provide such
access in a timely manner, Quintus shall not be deemed in breach of this
Agreement due to inability to respond.
QUINTUS OBLIGATIONS
SUPPORT SERVICES DESCRIPTION
Standard Quintus Support Services provides Lucent with fourth level technical
support and consists of the following:
o A toll free Quintus Customer Support Line
o Direct access to a Technical Support Engineer during Quintus business hours
o 24 hours access to Quintus' call tracking system
o 24 hours access to Quintus' call solutions database
o 24 hours access to Quintus' defects database
o Problem Solving
o Problem Tracking
o Bug Reporting
o Clarification of documentation
o Software maintenance releases and updates
o Bug fixes
o Reporting mechanism for Lucent to generate summaries of problems logged
o Priority problem escalation to engineering
<PAGE> 100
- - Enhancements and Feature upgrades at no additional charge
Quintus will also make available, at the time and expense rates in effect at
the time Quintus provides services, 24 by 7 on-call pager support for CRITICAL
Priority (Severity Level 4) Problems.
COMMUNICATIONS
This Agreement shall provide technical support access for two (2) named Lucent
contacts that have received appropriate Quintus training. Additional support
contacts may be purchased at the price in effect at the time Lucent requests
the service.
Lucent will notify Quintus of problems via phone calls, emails or direct entry
into the Quintus' Call Tracking System via WebQ. Quintus Technical Support
staff will log and track all Lucent assistance requests and responses in its
database. Lucent may contact Quintus Technical Support staff to track the
progress of their requests during normal Quintus business hours using the call
ID provided at the time the problem is logged. Lucent also has 24-hour WebQ
access to the Quintus Call Tracking System to monitor progress on issues.
Where required for cross-referencing purposes, Lucent may use WebQ annotate the
Quintus call to include the Lucent's ticket number.
SERVICE LEVEL AGREEMENT
DEFINITION
Quintus prioritizes support in relation to the severity of the problem.
Quintus' standard descriptions used to determine the level of support to be
provided are:
- - A CRITICAL Priority (Severity Level 4) Problem is defined as a problem that
causes significant impact to a production system for the majority of agents.
Typical examples would include a production system down condition; when
Quintus Software located on a production system is unusable; is causing data
loss or corruption; or fails catastrophically in response to internal errors,
invalid input or user error. For NABNASSET-CTI Programs, this will only apply
to the server software supplied by Quintus and its connectivity to PC-based
programs. The severity level does not apply to Lucent- or Customer- provided
or installed program(s) affecting individual Quintus PC software
installations.
- - A HIGH Priority (Severity Level 2) Problem is defined as a moderate production
system impact, when important features of the Software do not function in
accordance with the documentation or restricted use of one or more functions.
A problem affecting a Test or Development System, severely affecting the "Go
Live" date is also considered "high." This includes PC-based CTI programs.
- - A MEDIUM Priority (Severity Level 1) Problem is defined as a minor system
impact that restricts the use of features and functionality of the Software. A
problem that
<PAGE> 101
moderately impacts a Test or Development System or is isolated to a few
agents is also given Medium Priority.
- - A LOW Priority Problem is defined as a "How To" question or Enhancement
request.
RESOLUTION
During the term of this Agreement, Quintus shall use reasonable efforts to
correct or provide workarounds for all reproducible programming Problems in the
Products attributable to Quintus with a level of effort commensurate with the
severity of the Problem or Error.
- - For CRITICAL Priority (Severity Level 4) Problem, Quintus will use
reasonable efforts to respond to Lucent within one (1) hour to determine
the problem. Quintus will work diligently to assist Lucent with the
Critical Priority Problem and will make all reasonable efforts to
reproduce and resolve all issues within twenty-four hours (24) of receipt
of all pertinent information regarding the problem from Lucent. If a
solution or workaround can not be found, or if progress towards problem
resolution is stalled after the twenty-four hour period, the problem is
escalated to Engineering for resolution. The problem is deemed resolved
if a solution or a workaround is provided to Lucent. If the problem is due
to a Quintus product defect, a patch may be provided to Lucent. Quintus
will provide Lucent with four (4) hour updates until problem is resolved.
- - For HIGH Priority (Severity Level 2) Problem, Quintus will use reasonable
efforts to respond to Lucent within four (4) hours to determine the
problem and to make a first attempt at problem reproduction and
resolution. If the first attempt is unsuccessful, Quintus Technical
Support Engineers will provide continuous effort to resolve Lucent issues
for two (2) business days after which time the problem is escalated to
Engineering for assistance. The problem is deemed resolved if a solution
or a workaround is provided to Lucent. Quintus will provide Lucent with
updates twice a week until problem is resolved.
- - For MEDIUM Priority (Severity Level 1) Problem, Quintus will use
reasonable efforts to respond within eight (8) hours to give an
assessment of the problem and a time period in which the problem may be
addressed. A Medium Priority problem is deemed resolved once a solution
is provided, a workaround is provided or a defect identified to be
addressed in the next product update.
- - For LOW Priority Problems Quintus will use reasonable efforts to respond.
Preliminary status will be provided within forty-eight (48) hours.
Resolution time begins when Quintus is notified of the problem and is measured
in Quintus business hours. 24x7 support for Critical Priority problems is
available at additional charge.
<PAGE> 102
Quintus will provide customer on-site support for Critical (Severity Level 4)
trouble resolution, if deemed necessary by all parties. If Quintus provides
on-site support at the customer's request, Quintus will bill Lucent at then
current time and expense (T&E) rates.
ESCALATION
If during the course of problem resolution Lucent determines that Quintus is
not meeting established goals, Lucent can escalate the problem to the Manager
of Technical Support, then Director of Technical Support, then Vice President
of WorldWide Customer Support Services.
TERMS OF SUPPORT
Maintenance is limited to versions of the Software that are supported by
Quintus and to problems that are reproducible in that version of the Software,
running unaltered on the Designated Computers.
Quintus shall provide technical support for the current version of the
Software. Additionally, Quintus will support the previous sequential release of
the Software for a period of twelve (12) months following the release of a
subsequent version.
Corrections to certain problems may only be available through a future version
of the Software or through a documentation update.
Maintenance services will not be provided if the:
- - Software is not used in accordance with the software license agreement
under which the Software was supplied to Lucent;
- - Software has been altered or modified by Lucent, its Customer or a third
party;
- - Lucent makes significant changes to the hardware and/or software in their
operating environments that are not supported by the Software.
SOFTWARE UPDATE SERVICE
There will be no additional charge for providing new/current releases to
customers with a current Maintenance Contract. Customers under Maintenance
shall receive all generally released enhancements to the Software and all
documentation updates as well as new versions of the Software ("Updates") as
they are made commercially available. This does not include significant changes
in functionality and new releases of the Quintus Software. It will be Lucent's
responsibility to provide their customers with the software updates.
If Lucent requests Quintus support with the installation of new/current
releases, then Quintus will provide support and charge Lucent at the time and
expense (T&E) rates in effect at the time Quintus provides the service.
YEAR 2000 COMPLIANCE
Subject to any hardware limitations with respect to time and date stamps,
Quintus certifies that CustomerQ version 3.3 and higher, HelpQ versions 3.3
and higher,
<PAGE> 103
CallCenterQ version 4.0 and higher, SalesQ version 4.0 and higher, and Nab CTI
version 3.6 and higher ("Software") are "Year 2000" compliant. "Year 2000"
compliant means that the Software will record, maintain and process accurate
dates for all dates including and following January 1, 2000, including leap
years, provided that all other products used by the Customer in connection or
combination with the Software, including without limitation, hardware, software
and firmware, accurately exchange date data with the Software.
KNOWLEDGE TRANSFER
Quintus will make a good faith effort to provide Lucent with knowledge transfer
on all new Product Releases/Maintenance Releases. This knowledge transfer may
include release notes, invitations to appropriate internal trainings, and ride
alongs on appropriate engagements or presentations.
Quintus will also share access to our Solutions database which contains
frequently asked questions and answers.
CESSATION OF SERVICE
In the event that Quintus ceases to offer maintenance on any Quintus software
licensed by Lucent, or any component thereof used by Lucent, Quintus agrees to
provide Lucent with reasonable notice and options for continued support of the
software on an as needed basis for a period of one (1) year from the date of
cessation of service.
REINSTATEMENT FEES
In the event maintenance is not renewed or was never originally procured; a
reinstatement fee will be assessed. The reinstatement fee is equal to the
maintenance fee for the period in which the Software was not under maintenance
plus [*] of such fee.
[*] Certain information in this exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 5 to Registration Statement No.
333-86919 of Quintus Corporation on Form S-1 of our report dated June 18, 1999
(November 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
November 10, 1999
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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, in
Amendment No. 4 to the Registration Statement (Form S-1, No. 333-86919) and
related Prospectus of Quintus Corporation.
Ernst & Young LLP
Palo Alto, California
November 5, 1999
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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 Notes 4 and 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
November 12, 1999
