<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 000-27985
QUINTUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0021612
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
47212 MISSION FALLS COURT
FREMONT, CALIFORNIA 94539
(Address of principal executive offices, including ZIP code)
(510) 624-2800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Although the registrant has filed all reports required to be filed by Section 13
or 15 (d) of the Securities Exchange Act of 1934 during the period that the
registrant was required to file such reports, the registrant did not become
subject to such filing requirements until the registration of certain shares of
its common stock pursuant to a registration statement on Form S-1 (the
"Registrant Statement") was declared effective by the Securities and Exchange
Commission on November 15, 1999.
The number of shares outstanding of the registrant's common stock as of January
31, 2000 was 33,371,644.
<PAGE> 2
QUINTUS CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of December 31, 1999
and March 31, 1999 1
Condensed Consolidated Statements of Operations and Comprehensive
Loss for the Three and Nine Months Ended December 31, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended December 31, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
Item 3. Qualitative and Quantitative Disclosures About Market Risk 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Securities Holders 22
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURE 25
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUINTUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
------------ ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 36,820 $ 1,785
Short-term investments 30,700 --
Accounts receivable, net 16,284 8,671
Prepaid expenses and other assets 1,533 573
--------- --------
Total current assets 85,337 11,029
Property and equipment, net 4,463 3,162
Purchased technology, net 1,788 2,111
Intangible assets, net 44,264 2,970
Other assets 830 322
--------- --------
Total assets $ 136,682 $ 19,594
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 3,601 $ 2,352
Accrued compensation and related benefits 4,873 2,114
Other accrued liabilities 3,656 2,268
Deferred revenue 8,077 6,615
Borrowings under bank line of credit -- 4,868
Current portion of debt and lease obligations 888 1,456
--------- --------
Total current liabilities 21,095 19,673
Debt and lease obligations, less current portion 1,447 1,801
Deferred revenue 500 400
Redeemable convertible preferred stock -- 17,811
STOCKHOLDER'S EQUITY (DEFICIENCY):
Convertible preferred stock, $0.001 par value; authorized shares --
10,000,000 in December 1999 and 14,555,000 in March 1999;
issued and outstanding shares -- none in December 1999 and
13,970,914 in March 1999 -- 14
Redeemable convertible preferred stock, $0.001 par value; authorized
shares -- none in December 1999 and 4,500,000 in March 1999; issued and
outstanding shares -- none in December 1999 and
3,967,935 in March 1999 -- 3
Common stock, $0.001 par value; authorized shares -- 100,000,000
in December 1999 and 40,000,000 in March 1999; issued and
outstanding shares -- 33,257,765 in December 1999 and 4,208,478
in March 1999 34 4
Additional paid-in capital 161,439 15,483
Notes receivable from stockholders (223) (117)
Deferred compensation (2,526) (884)
Unrealized loss on short-term investments (30) --
Accumulated deficit (45,054) (34,594)
--------- --------
Total stockholders' equity (deficiency) 113,640 (20,091)
--------- --------
Total liabilities and stockholders' equity (deficiency) $ 136,682 $ 19,594
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE> 4
QUINTUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- ----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
License $ 9,471 $ 2,930 $ 22,819 $ 12,843
Service 4,042 3,024 12,784 8,971
-------- ------- -------- --------
Total revenues 13,513 5,954 35,603 21,814
COST OF REVENUES:
License 1,319 155 1,990 423
Service 2,886 2,426 7,957 6,602
-------- ------- -------- --------
Total cost of revenues 4,205 2,581 9,947 7,025
-------- ------- -------- --------
Gross profit 9,308 3,373 25,656 14,789
OPERATING EXPENSES:
Sales and marketing 7,840 4,639 17,278 13,255
Research and development 3,312 1,792 7,286 5,145
General and administrative 1,610 1,109 3,603 2,741
Amortization of intangibles 2,045 798 3,637 2,394
Acquired in-process technologies 3,000 -- 3,000 --
Stock-based compensation 574 56 1,183 116
-------- ------- -------- --------
Total operating expenses 18,381 8,394 35,987 23,651
-------- ------- -------- --------
Loss from continuing operations (9,073) (5,021) (10,331) (8,862)
Other income (expense), net 296 (181) (129) (706)
-------- ------- -------- --------
Net loss from continuing operations (8,777) (5,202) (10,460) (9,568)
Loss from discontinued operations -- (781) -- (1,430)
-------- ------- -------- --------
Net loss (8,777) (5,983) (10,460) (10,998)
======== ======= ======== ========
OTHER COMPREHENSIVE LOSS:
Unrealized loss on short-term investments (30) -- (30) --
-------- ------- -------- --------
Comprehensive loss $ (8,807) $(5,983) $(10,490) $(10,998)
======== ======= ======== ========
BASIC AND DILUTED NET LOSS PER COMMON SHARE:
Continuing operations $ (0.48) $ (1.62) $ (1.24) $ (3.24)
Discontinued operations -- (0.25) -- (0.48)
-------- ------- -------- --------
Basic and diluted net loss per common share $ (0.48) $ (1.87) $ (1.24) $ (3.72)
======== ======= ======== ========
Shares used in computation, basic and diluted 18,298 3,207 8,434 2,955
======== ======= ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
QUINTUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(10,460) $(10,998)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 5,010 3,854
Stock based compensation 1,183 116
Noncash interest expense -- 72
Acquired in-process technologies 3,000 --
Provision for doubtful accounts 300 200
Changes in operating assets and liabilities:
Accounts receivable (7,740) (1,743)
Prepaid expenses and other current assets (158) 69
Accounts payable 1,234 (98)
Accrued compensation and related benefits 2,760 224
Other accrued liabilities 605 1,337
Deferred revenue 499 2,666
-------- --------
Net cash used in operating activities (3,767) (4,301)
-------- --------
INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired 744 --
Purchase of property and equipment (1,649) (1,750)
Purchase of short-term investments (30,730) --
Increase in other assets (440) (87)
-------- --------
Net cash used in investing activities (32,075) (1,837)
-------- --------
FINANCING ACTIVITIES:
Proceeds from initial public offering, net 84,964 --
Proceeds from issuance of preferred stock 11,247 5,275
Proceeds from issuance of common stock 368 78
Repurchase of common stock (6) (29)
Proceeds from payment of notes receivable 59 1
Proceeds from notes payable to stockholders -- 1,000
Payments of redeemable preferred stock (18,122) --
Borrowings (repayment) under bank line of credit (4,868) 118
Borrowings (repayments of) bank loan (2,623) (2,050)
Principal payments on capital lease obligations (142) (90)
-------- --------
Net cash provided by financing activities 70,877 4,303
-------- --------
Net increase (decrease) in cash and cash equivalents 35,035 (1,835)
Cash and cash equivalents at beginning of period 1,785 1,986
-------- --------
Cash and cash equivalents at end of period $ 36,820 $ 151
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
Cash paid for interest $ 528 $ 318
======== ========
SUPPLEMENTAL NONCASH ACTIVITIES
Issuance of common stock and preferred stock and assumption
of options and warrants for the acquisition of Acuity $ 46,157 $ --
Issuance of common stock in exchange for notes receivable $ 165 $ --
Property acquired under capital lease $ 446 $ --
Issuance of warrants $ 660 $ 165
Issuance of common stock below fair market value $ 2,725 $ 405
Issuance of Series E preferred stock for notes payable to
stockholders $ -- $ 5,684
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 6
QUINTUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by Quintus Corporation ("Quintus") and reflect all
adjustments, consisting only of normal recurring adjustments, which are, in
the opinion of management, necessary for a fair presentation of our
financial position and results of operations for the interim periods. The
statements have been prepared in accordance with the regulations of the
Securities and Exchange Commission. Accordingly, they do not include all
information and footnotes required by generally accepted accounting
principles. The result of operations for the three and nine-month periods
ended December 31, 1999 are not necessarily indicative of the operating
results to be expected for the full fiscal year or future operating periods.
The information included in this report should be read in conjunction with
the audited consolidated financial statements and notes thereto included in
Quintus' Registration Statement on Form S-1, as amended, declared effective
by the Securities and Exchange Commission on November 15, 1999 (the
"Registration Statement").
2. INITIAL PUBLIC OFFERING
On November 16, 1999, Quintus completed an initial public offering in
which it sold 5,175,000 shares of common stock at $18 per share, which
included 675,000 shares in connection with the exercise of the underwriters'
over allotment option. The total proceeds from this transaction were $85.0
million, net of underwriters' discounts and other related costs of $8.2
million. Immediately after the closing of the offering, Quintus paid $18.1
million to holders of some series of preferred stock. The remaining net
proceeds were held in cash equivalents and short-term investments at
December 31, 1999. Upon the completion of the offering, all 17,938,849
shares of preferred stock, par value $0.001 per share, were automatically
converted to common stock on a one for one basis.
3. ACQUISITION OF ACUITY CORPORATION
On November 10, 1999, Quintus completed its acquisition of Acuity
Corporation ("Acuity"), a company specializing in providing Web based
customer interaction software. The transaction was accounted for using the
purchase method of accounting and, accordingly, the net assets and results
of operations of Acuity have been included in Quintus' consolidated
financial statements since the acquisition date. Quintus issued 2,021,146
shares of common stock and 3,047,378 shares of preferred stock. The shares
of preferred stock were converted to common stock upon the completion of the
offering on November 16, 1999. In addition, Quintus assumed warrants and
options to purchase 328,364 shares and 422,867 shares of common stock,
respectively. The purchase price for the acquisition was $47.1 million based
on capital stock issued, the value of the options and warrants assumed, and
transaction costs incurred. Quintus recognized a charge for in-process
technologies of $3.0 million in the quarter ended December 31, 1999. The
fair market value of assets acquired and liabilities assumed in the
acquisition were as follows (in thousands):
<TABLE>
<S> <C>
Tangible assets $ 3,616
Goodwill and other intangible assets 44,609
In-process research and development 3,000
Liabilities assumed (4,079)
-------
$47,146
=======
</TABLE>
Intangible assets consist of purchased technology and assembled
workforce of $1.4 million which are being amortized over four years,
trademark and trade name, customer related intangibles and
4
<PAGE> 7
goodwill of $43.2 million which are being amortized over five years, the
in-process research and development of $3.0 million which was expensed upon
acquisition.
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 was
charged to Quintus' operations during the quarter ended December 31, 1999.
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 included 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 following unaudited pro forma consolidated results of operations for
the nine months ended December 31, 1999 and 1998 assume the acquisition of
Acuity occurred as of April 1 of each period. The one-time $3.0 million
charge for purchased in-process technology was excluded as it was a material
nonrecurring charge.
(in thousands, except per share data):
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
----------------- -----------------
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Revenues 36,761 26,664
Net Loss from Continuing Operations (18,609) (22,854)
Loss Per Share (1.85) (4.59)
</TABLE>
4. COMMON STOCK AND NET LOSS PER SHARE
The following is a reconciliation of the numerators and denominators
used in computing basic and diluted net loss per share from continuing
operations (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss from continuing operations (numerator),
basic and diluted $ (8,777) $(5,983) $(10,460) $(10,998)
======== ======= ======== ========
Shares (denominator):
Weighted average common shares outstanding 19,026 4,217 9,222 4,230
Weighted average common shares outstanding
subject to repurchase (728) (1,010) (788) (1,275)
-------- ------- -------- --------
Shares used in computation, basic and diluted 18,298 3,207 8,434 2,955
======== ======= ======== ========
Loss per share from continuing operations,
basic and diluted $ (0.48) $ (1.87) $ (1.24) $ (3.72)
======== ======= ======== ========
</TABLE>
5
<PAGE> 8
At December 31, 1999 and 1998, options to purchase 2,859,664 and 1,946,309
shares of common stock, and warrants to purchase 837,358 and 722,645 shares
of common stock and preferred stock (in 1998) were excluded from the
calculation of net loss per share as their inclusion would be antidilutive.
5. COMPREHENSIVE LOSS
In fiscal 2000, Quintus adopted the Financial Accounting Standards Board
(SFAS) No. 130, Reporting Comprehensive Income. SFAS No. 130 requires
companies to report a new, additional measure of income on the income
statement or to create a new financial statement that shows the new measure
of income. Comprehensive income includes unrealized gains and losses on debt
and equity securities that have been previously excluded from net loss and
instead, reflected in equity. Quintus has reported the components of
comprehensive loss on its consolidated statements of operations.
6. RECENT ACCOUNTING PRONOUNCEMENTS
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 Quintus'
fiscal year ending March 31, 2000. Quintus 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 98-5 will be effective for Quintus' fiscal year
ending March 31, 2000. Quintus 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 Quintus' fiscal year ending
March 31, 2001. Management believes that this statement will not have a
significant impact on Quintus' financial position, results of operations or
cash flows.
7. LEGAL MATTERS
Quintus 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 Quintus'
financial condition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information contained or incorporated by reference in
this section, the following discussion contains forward-looking statements
within the meaning Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. Quintus' actual results
could differ significantly from those discussed herein. Factors that could cause
or contribute to these differences include, but are not limited to, those
discussed herein with this quarterly report on Form 10-Q and the Registration
Statement. Any forward-looking statements speak only as of the date such
statements are made.
6
<PAGE> 9
OVERVIEW
Quintus provides 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.
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.
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 were 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 through a direct sales force and indirectly through resellers
and distribution partners. 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 percentage of our total revenues in the future. We also 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.
7
<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth our results of operations as a percentage of
total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
License 70.1 % 49.2 % 64.1 % 58.9 %
Service 29.9 50.8 35.9 41.1
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
COST OF REVENUES:
License 9.8 2.6 5.6 1.9
Service 21.3 40.7 22.3 30.3
----- ----- ----- -----
Total cost of revenues 31.1 43.3 27.9 32.2
----- ----- ----- -----
Gross profit 68.9 56.7 72.1 67.8
OPERATING EXPENSES:
Sales and marketing 58.1 77.9 48.5 60.8
Research and development 24.5 30.1 20.6 23.6
General and administrative 11.9 18.6 10.1 12.6
Amortization of intangibles 15.1 13.4 10.2 11.0
Acquired in-process technologies 22.2 -- 8.4 --
Stock-based compensation 4.2 1.0 3.3 0.4
----- ----- ----- -----
Total operating expenses 136.0 141.0 101.1 108.4
----- ----- ----- -----
Loss from continuing operations (67.1) (84.3) (29.0) (40.6)
Other income (expense), net 2.1 (3.0) (0.4) (3.2)
----- ----- ----- -----
Net loss from continuing operations (65.0) (87.3) (29.4) (43.8)
Loss from discontinued operations -- (13.2) -- (6.6)
----- ----- ----- -----
Net loss (65.0)% (100.5)% (29.4)% (50.4)%
===== ===== ===== =====
</TABLE>
REVENUES
Total Revenues. Total revenues for the third quarter of fiscal 2000
increased 127.0% to $13.5 million from $6.0 million in the third quarter of
fiscal 1999. For the nine months ended December 31, 1999, total revenues
increased 63.2% to $35.6 million from $21.8 million in the comparable period of
fiscal 1999. One customer, Ticketmaster, L.L.P., accounted for 38.7% and 17.8%
of total revenues in the third quarter of fiscal 2000 and for the nine months
ended December 31, 1999, respectively. No one customer accounted for more than
10.0% of total revenues for the third quarter of fiscal 1999 and for the nine
months ended December 31, 1998.
License. License revenues increased 223.2% to $9.5 million in the third
quarter of fiscal 2000 from $3.0 million in the third quarter of fiscal 1999.
Total license revenues in the nine months ended December 31, 1999 increased
77.7% to $22.8 million from $12.8 million in the comparable period in fiscal
1999. The increase in license revenues was primarily due to an increase in the
number of licenses sold to new and existing customers and increased sales
generated by our expanded sales force. The increase in the number of licenses
was primarily due to increased market acceptance of our products, both in the
United States and internationally.
Service. Service revenues increased 33.7% to $4.0 million in the third
quarter of fiscal 2000 from $3.0 million in the third quarter of fiscal 1999.
Service revenues in the nine months ended December 31, 1999 increased 42.5% to
$12.8 million from $9.0 million in the comparable period of fiscal 1999. The
increase in absolute dollars was primarily due to growth in our consulting
business and growth in our installed base of customers with a maintenance
contract. Service revenues as a percentage of total revenues decreased to
8
<PAGE> 11
29.9% for the third quarter of fiscal 2000 from 50.8% for the third quarter of
fiscal 1999, and to 35.9% in the period ended December 31, 1999 from 41.1% in
the period ended December 31, 1998. Service revenues decreased as a percentage
of total revenues as we continue to have third-party system integrators
undertake a greater percentage of our product implementation. In future periods,
we expect this trend to continue.
COST OF REVENUES
License. Cost of licenses consists primarily of royalties, product
packaging, documentation and production. Cost of licenses increased 751.0% to
$1.3 million in the third quarter of fiscal 2000 from $155,000 in the third
quarter of fiscal 1999 representing 13.9% and 5.3% of license revenues in the
respective periods. Cost of licenses increased 370.4% to $2.0 million in the
nine months ended December 31, 1999 from $423,000 in the comparable period in
fiscal 1999 representing 8.7% and 3.3% of license revenues in the respective
periods. The increase was primarily due to an increase in sales of third-party
license revenues and the resulting increase in third-party royalty payments and
to a lesser extent increases in material costs and other related expenses. 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 increased 19.0% to $2.9
million in the third quarter of fiscal 2000 from $2.4 million in the third
quarter of fiscal 1999, representing 71.4% and 80.2% of service revenues,
respectively. Cost of services increased 20.5% to $8.0 million in the nine
months ended December 31, 1999 from $6.6 million in the comparable period in
fiscal 1999, representing 62.2% and 73.6% of service revenues, respectively. The
dollar increase was primarily due to the number of third-party consultants we
engaged to provide consulting and implementation of our products and an increase
in our installed base for our maintenance contracts. Cost of services as a
percentage of service revenues declined primarily due to an increase in margins
for service revenues. 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 69.0% to $7.8 million in
the third quarter of fiscal 2000 from $4.6 million in the third quarter of
fiscal 1999, representing 58.1% and 77.9% of total revenues in the respective
quarter. For the nine months ended December 31, 1999, sales and marketing
expenses increased 30.4% to 17.3 million from $13.3 million in the comparable
period in fiscal 1999, representing 48.5% and 60.8% of total revenues in the
respective periods. The increase in the dollar amount of sales and marketing
expenses was attributable primarily to the addition of sales and marketing
personnel, which increased from 67 employees at December 31, 1998 to 99
employees at December 31, 1999, an increase in sales commissions associated with
increases in revenues and higher marketing costs due to expanded advertising and
promotional activities. Sales and marketing expenses as a percentage of total
revenues decreased primarily due to growth in total revenues. 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 84.8% to $3.3 million in the third quarter of
fiscal 2000 from $1.8 million in the third quarter of fiscal 1999, representing
24.5% and 30.1% of total revenues in the respective quarter. For the nine months
ended December 31, 1999, research and development expenses increased 41.6% to
$7.3 million from $5.1 million in the comparable period of fiscal 1999,
representing 20.6% and 23.6% of total revenues in the respective periods. The
increase in research and development expenses was primarily due to increases in
personnel, which increased from 42 employees at December 31, 1998 to 84
employees at December 31, 1999. 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 in absolute
dollars will continue to increase in future periods. To date, all research and
development costs have been expensed as incurred.
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General and Administrative. General and administrative expenses consist
primarily of salaries and other related costs for finance and human resource
employees, as well as accounting, legal, other professional fees and allowance
for doubtful accounts. General and administrative expenses increased 45.2% to
$1.6 million in the third quarter of fiscal 2000 from $1.1 million in the third
quarter of fiscal 1999, representing 11.9% and 18.6% of total revenues in the
respective quarter. For the nine months ended December 31, 1999, general and
administrative expenses increased 31.4% from to $3.6 million from $2.7 million
in the comparable period of fiscal 1999, representing 10.1% and 12.6% of total
revenues in the respective periods. The dollar increase was primarily due to
increase in personnel, which increased from 24 employees at December 31, 1998 to
35 employees at December 31, 1999, and associated expenses necessary to manage
and support our increased scale of operations. The decline in general and
administrative expenses as a percentage of total revenues was primarily due to
the growth in total revenues. We currently expect general and administrative
expenses to increase in absolute dollars in the future as we continue to expand
our infrastructure.
Amortization of Intangibles. Amortization of intangibles represents costs
associated with our acquisition of Nabnasset in November 1997 and our
acquisition of Acuity in November 1999. Amortization is recorded on a
straight-line basis over a period of three to five years ending September 2004.
Amortization of intangibles was $2.0 million and $798,000 for the third quarter
of fiscal 2000 and 1999, respectively, representing 15.1% and 13.4% of total
revenues in the respective quarter. Amortization of intangibles was $3.6 million
and $2.4 million for the nine months ended December 31, 1999 and 1998,
respectively, representing 10.2% and 11.0% of total revenues in the respective
periods.
Acquired In-Process Technologies. In November 1999, we acquired Acuity for
$47.1 million based on capital stock issued, the value of options and warrants
assumed, and transaction costs incurred. The transaction was accounted for as a
purchase. In this acquisition, acquired technologies of $3.0 million were
charged to operations in the third quarter of fiscal 2000 as the technologies
did not have alternative future uses as of the date of the acquisition. There
were no acquired in-process technologies for the respective quarter and nine
months ended December 31, 1998.
Stock-Based Compensation. In the nine months ended December 31, 1999 and
1998, we recorded deferred stock-based compensation of $2.7 million and
$431,000, relating to stock options granted to employees. Such amounts represent
the difference between the exercise price and the deemed fair value of our
common stock at the date of grant. These amounts are being amortized over the
vesting periods of the granted options. In the third quarter of fiscal 2000 and
1999, we recognized stock-based compensation expense, in continuing operations,
related to options granted to employees of $574,000 and $56,000, respectively.
In the nine months ended December 31, 1999 and 1998, we recognized stock-based
compensation expense, in continuing operations, related to options granted to
employees of $1.2 million and $116,000, respectively.
Other Income (Expense), Net. Other income in the third quarter of fiscal
2000 consisted primarily of interest income from our investments of initial
public offering proceeds in short-term investments. Interest expense of $181,000
in the third quarter of fiscal 1999 and $706,000 in the nine months ended
December 31, 1998 was primarily due to our line of credit with a financial
institution, which was paid in full in the third quarter of fiscal 2000.
Included within interest expense in the nine months ended December 31, 1998, is
$165,000 with respect to warrants granted in connection with notes payable to
stockholders.
DISCONTINUED OPERATIONS
On February 26, 1999 we sold the assets of our Call Center Enterprises
division. The division had a loss of $781,000 for the third quarter of fiscal
1999 and $1.4 million for the nine months ended December 31, 1998, which were
recorded as discontinued operations. We may receive an additional payment of up
to 1998 to 84 employees at December 31, 1999. 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
in absolute dollars will continue to increase in future periods. To date, all
research and development costs have been expensed as incurred. $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.
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LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, our principal source of liquidity was approximately
$67.5 million of cash, cash equivalents and short-term investments.
On November 16, 1999, we completed an initial public offering in which we
sold 5,175,000 shares of common stock at $18 per share, including 675,000 shares
in connection with the exercise of the underwriters' over allotment option. The
total proceeds from this transaction were $85.0 million, net of underwriters'
discounts and other related costs of $8.2 million. Immediately after the closing
of our offering, we paid $18.1 million to holders of some series of our
preferred stock. The remaining net proceeds were held in cash equivalents and
short-term investments at December 31, 1999.
Cash used in operating activities was $3.8 million and $4.3 million for the
nine months ended December 31, 1999 and 1998, respectively. Cash used for the
nine months ended December 31, 1999 was primarily due to a net loss of $10.5
million and an increase in accounts receivable, offset by increases in
depreciation and amortization, a $3.0 million non-cash charge for in-process
technologies related to our acquisition of Acuity, and increases in accrued
compensation and accounts payable.
Cash used in investing activities was $32.1 million and $1.8 million for the
nine months ended December 31, 1999 and 1998, respectively. Cash used in
investing activities for the nine months ended December 31, 1999 was primarily
for purchases of short-term investments of $30.7 million.
Cash provided by financing activities was $70.9 million and $4.3 million for
the nine months ended December 31, 1999 and 1998, respectively. Cash provided by
financing activities consisted primarily of net proceeds from our initial public
offering in November 1999 of $85.0 million and net proceeds from issuance of
preferred stock of $11.2 million, offset in part by payments of $18.1 million to
some series of our preferred shareholders and $4.9 million in repayments of our
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 currently anticipate
that our current cash, cash equivalents and investments will be sufficient to
meet our anticipated cash needs for working capital and capital 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
In 1999, we implemented a company-wide program to identify and correct any
systems or devices which were not Year 2000 compliant. We determined that our
proprietary software products were Year 2000 compliant when configured and used
in accordance with the related documentation, assuming that the underlying
operation system of the host machine and any other software used with or in the
host machine or our products were Year 2000 compliant. Based on the results of
these tests, we did not expect recent versions of our products to suffer Year
2000-related problems, and to date we have not experienced significant Year
2000-related problems.
We made reasonable efforts to ensure that software licensed from third
parties that we incorporate into our eContact suite was Year 2000 compliant. In
instances where our customers were using older, non-compliant versions of these
software components, we advised them specifically what changes they needed to
make in order to make their systems Year 2000 compliant.
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We assessed our material internal IT systems, including both our own
software products and third party software and hardware technology, and our
non-IT systems. To the extent that we were not able to test the technology
provided by third-party vendors, we sought assurances from these vendors that
their systems were Year 2000 compliant.
As of December 1999, we did not have any information concerning the Year
2000 compliance status of our customers. Our current or future customers may
have incurred significant expenses to achieve Year 2000 compliance and they may
experience significant costs remedying any Year 2000 complications that may have
arisen. Our customers may also face litigation costs related to Year 2000
complications. 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 funded our Year 2000 readiness program from operating cash flows and did
not separately account for these costs. These expenses have not materially
affected our operating results. Because we contracted with a third party to
perform the majority of our hardware and systems upgrades, our engineering and
IT projects were not materially delayed.
Although we believe that no serious problems have arisen or will arise in
the future, a reasonable "worst case" scenario might include:
o 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.
o Alternative use problems. We 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 we are not aware of.
o Failure of engineering applications. While we 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 not experienced failures
in these areas, some engineering efforts could be hindered if
problems arise.
In assessing its state of readiness, Acuity determined, through internal
testing or certifications from vendors, that all of its systems were 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, were Year 2000 compliant. Expenses related
to these procedures did not have a material effect on Acuity's results of
operations.
Acuity determined that certain older versions of its software product were
not Year 2000 compliant. In response, Acuity attempted to contact all customers
with noncompliant products to notify them and to offer them the opportunity to
purchase a compliant product upgrade. We may 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 seek to assert liability against us following our
acquisition of Acuity.
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RISK FACTORS
In addition to the other information in this Form 10-Q, the following risk
factors should be considered carefully in evaluating our business or any
investment in Quintus.
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 $8.8 million and
$5.2 million for the third quarter of fiscal 2000 and 1999 and $10.5 million and
$9.6 million for the nine months ended December 31, 1999 and 1998, respectively.
As of December 31, 1999 we had an accumulated deficit of $45.1 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, respectively. Acuity
had an accumulated deficit of $25.3 million as of September 30, 1999. In
connection with our acquisition of Acuity, we recorded approximately $44.6
million of goodwill and intangible assets, which will be amortized on a monthly
basis over periods of four to five years. In connection with the acquisition of
Acuity, we recognized 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 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
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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 third quarter of fiscal 2000
and in the nine months ended December 31, 1999, our largest customer,
Ticketmaster L.L.P., accounted for 38.7% and 17.8% of our total revenues,
respectively. 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 could be harmed. Lucent Technologies
accounted for 5.8% and 21.1% of our total revenues for the third quarter of
fiscal 2000 and 1999 and 19.8% and 22.9% of our total revenues for the nine
months ended December 31, 1999 and 1998, respectively. Our distribution
agreement with Lucent Technologies expires in May 2000 and can be terminated
beforehand on 30 days' notice following a material breach of the agreement.
Lucent Technologies is not obligated to make any minimum purchases.
In addition, the loss of a reseller, the failure of a reseller to sell our
products, or our failure to attract and retain qualified new resellers in the
future could also harm our business. Typically our resellers do not have minimum
purchase or resale obligations, can cease marketing our products at any time,
and may offer competing products. We intend to expand our indirect distribution
channels by establishing additional relationships with resellers and
distribution partners. Competition for these relationships is intense, and we
may be unable to establish relationships on favorable terms, if at all. Even if
we are successful in establishing these relationships, they may not
substantially increase our revenues.
BECAUSE A SUBSTANTIAL PORTION OF OUR REVENUES COMES FROM SALES OF OUR
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 CTI product were 16.8% for
the third quarter of fiscal 2000 and 38.4% in fiscal 1999. We expect that
revenues from our 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, a company located in Austin, Texas,
where we previously had no other operations. Although our integration of
Acuity's products, personnel and systems is largely complete, unknown
complications could arise in the future. If difficulties stemming from these
integrations arise in the future, our business and operating results are likely
to suffer.
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Further, 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, 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 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.
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
expires on March 22, 2000 and can be cancelled without cause upon 60 days'
notice. If our relationship with Brightware is not extended beyond March 22,
2000 or 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.
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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.
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 to $35.6
million in the nine months ended December 31, 1999 from $21.8 million in the
nine months ended December 31, 1998. Our headcount increased from 189 employees
as of December 31, 1998 to 275 employees as of December 31, 1999. 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.
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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.
Among the various risks we face in conducting business internationally are:
o difficulties and costs of staffing and managing foreign operations;
o longer accounts receivable payment cycles and possible difficulties in
collecting accounts receivable, which may increase our operating costs
and hurt our financial performance;
o technology standards that are different from those on which our products
are designed, which could require expensive redesigns of our products;
o political and economic instability;
o unexpected changes in regulatory requirements that could make our
products and services more expensive and therefore less attractive to
potential customers; and
o 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:
o damage to our reputation;
o product returns or lost sales;
o product liability claims against us;
o delays in or loss of market acceptance of our products; and
o unexpected expenses and diversion of resources to remedy errors.
17
<PAGE> 20
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.
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.
Although no serious problems have arisen to date, 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 during
the calendar year 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.
18
<PAGE> 21
WE MAY FACE YEAR 2000-RELATED CLAIMS IN CONNECTION WITH PRIOR VERSIONS OF
ACUITY'S PRODUCTS.
In 1999, Acuity determined that certain older versions of its WebCenter
software product were not Year 2000 compliant. Acuity 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 was 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 COULD HARM THE MARKET PRICE OF
OUR COMMON STOCK AND OUR ABILITY TO RAISE MONEY THROUGH SALES OF EQUITY
SECURITIES.
The value of an 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 therefor
the value of your investment could fall. This could impair our ability to raise
capital through the sale of additional equity securities. With the exception of
the shares sold in our initial public offering, substantially all of our
currently outstanding shares are subject to lock-up agreements or bylaw
restrictions providing that, with certain limited exceptions, the holders of
such shares will not sell or otherwise dispose of any of such shares for a
period of 180 days after November 15, 1999 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.
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:
o the requirement that a special meeting of stockholders may only be called
by stockholders owning at least a majority of our outstanding shares;
o the ability of our board of directors to issue preferred stock without
stockholder approval; and
o the right of our board of directors to elect a director to fill a vacancy
created by the expansion of the board of directors.
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<PAGE> 22
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.
WE MAY HAVE CONTINGENT LIABILITY ARISING OUT OF A POSSIBLE VIOLATION OF SECTION
5 OF THE SECURITIES ACT OF 1933 IN CONNECTION WITH ELECTRONIC MAIL SENT TO SOME
EMPLOYEES REGARDING PARTICIPATION IN OUR DIRECTED SHARE PROGRAM.
As part of our initial public offering, we and the underwriters determined
to make available up to 250,000 shares at the initial public offering price for
employees and other persons associated with our company. On October 25, 1999,
representatives of Quintus sent electronic mail with respect to this directed
share program to our employees located in the United Kingdom and the Netherlands
and representatives of Acuity sent electronic mail with respect to this directed
share program to all Acuity employees. This electronic mail set forth procedural
aspects of the directed share program and informed the recipients that they
might have an opportunity to participate in the proposed directed share program.
We may not have delivered a preliminary prospectus for our initial public
offering to our employees in the United Kingdom and the Netherlands or to all
Acuity employees prior to their receipt of the electronic mail regarding the
directed share program. Also, this electronic mail may constitute a
non-conforming prospectus. We may have a contingent liability arising out of a
possible violation of Section 5 of the Securities Act of 1933 in connection with
the electronic mail sent to these potential participants who did not receive the
preliminary prospectus prior to the email regarding the directed share program
and who may have received a non-conforming prospectus. Any liability would
depend upon the number of shares purchased by the recipients of the electronic
mail. If any such liability is asserted, we will contest the matter strenuously.
We do not believe that any such liability would be material to our financial
condition.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1999, we had an outstanding balance of $1.8 million in loans
with interest rates ranging from 8.25% to 9.50%. A 10% movement in market
interest rates would not significantly impact our financial position or results
of operations.
Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our funds are invested in
instruments with maturity of less than two years. Our policy is to limit the
risk of principal loss and ensure the safety of invested founds by limiting
market and credit risk. Funds in excess of current operating requirements are
primarily invested in obligations of large corporations. Due to the nature of
our investments, we have concluded that there is no material market risk
exposure. Therefore, no quantitative tabular disclosures are required.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Changes in Securities
During the quarter ended December 31, 1999 and prior to the closing of our
initial public offering, we granted options to purchase 343,825 shares of common
stock to employees of the Company under our stock option plan, and employees of
Quintus exercised options for 226,913 shares of common stock.
20
<PAGE> 23
On October 15, 1999, we issued 136,997 shares of common stock pursuant to
the exercise of warrants previously issued to stockholders of Quintus. We
received proceeds in the amount of $41,099 in connection with these warrant
exercises.
On November 10, 1999, in connection with our acquisition of Acuity, we
issued 2,021,146 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.
On November 15, 1999, we issued 3,194 shares of common stock pursuant to the
exercise of warrants previously issued to stockholders of Quintus. We received
proceeds in the amount of $958 in connection with these warrant exercises.
On November 15, 1999, we issued an aggregate of 282,871 shares of common
stock for no proceeds pursuant to the net exercise of warrants previously issued
by Quintus.
On December 16, 1999, we issued 7,682 shares of common stock pursuant to the
exercise of warrants previously issued to a stockholder of Acuity. We received
proceeds in the amount of $67,982 in connection with these warrant exercises.
On December 27, 1999, we issued 62,159 shares of common stock pursuant to
the cashless exercise of warrants previously issued to a stockholder of Acuity.
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 transactions 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.
(d) Use of Proceeds from Sale of Registered Securities
In November 1999, we completed the initial public offering of our common
stock. The managing underwriters in the offering were Donaldson, Lufkin &
Jenrette, Dain Rauscher Wessels, a division of Dain Rauscher Incorporated, SG
Cowen Securities Corporation, and DLJdirect, Inc. The shares of common stock
sold in the offering were registered under the Securities Act of 1933, as
amended, on a Registration Statement of Form S-1/A (No. 333-86919). The
Securities and Exchange Commission declared the Registration Statement effective
on November 15, 1999. The offering commenced on November 15, 1999 and closed on
November 19, 1999.
In our initial public offering, we sold 5,175,000 shares of common stock at
$18 per share, which included 675,000 shares in connection with the exercise of
the underwriters' over allotment option. The total proceeds from this
transaction were $85.0 million, net of underwriters' discounts and other related
costs of $8.2 million. Immediately after the closing of our offering, we paid
$18.1 million to holders of some series of our preferred stock. The remaining
net proceeds were held in cash equivalents and short-term investments at
December 31, 1999.
The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions of $6.5 million, payable by Quintus, in
connection with the offering. None of the amounts shown was paid directly or
indirectly to any director or officer of Quintus or their associates, persons
owning 10 percent of more of any class of equity securities of Quintus or any
affiliate of Quintus.
<TABLE>
<S> <C>
SEC Registration Fee $ 24,682
NASD fee 10,355
Nasdaq National Market listing fee 94,000
Printing and engraving expenses 472,352
Legal fees and expenses 575,419
Accounting fees and expenses 364,600
Blue sky fees and expenses 5,000
Transfer agent fees 25,000
Miscellaneous fees and expenses 119,975
----------
Total 1,691,383
==========
</TABLE>
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<PAGE> 24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
During the quarter ended December 31, 1999, Quintus twice submitted matters
to its stockholders by written consent in lieu of stockholders' meetings.
On October 29, 1999, prior to Quintus' initial public offering, Quintus'
stockholders approved by written consent the following:
1. The adoption of Quintus' 1999 Stock Incentive Plan, under which
employees of Quintus (including officers), non-employee members of
the Board, and consultants to Quintus may be offered the opportunity
to acquire shares of Quintus' common stock. The stockholders
approved the reservation of 1,000,000 shares of common stock for
issuance under the 1999 Stock Incentive Plan;
2. The adoption of Quintus' Employee Stock Purchase Plan, under which
eligible employees may purchase common stock through payroll
deductions. The stockholders approved the reservation of 1,000,000
shares of common stock for issuance under the Employee Stock
Purchase Plan;
3. The adoption of Quintus' 1999 Director Option Plan, under which
directors of Quintus may be offered the opportunity to acquire
shares of Quintus' common stock. The stockholders approved the
reservation of 500,000 shares of common stock for issuance under the
1999 Stock Incentive Plan;
4. The form of indemnification agreement to be entered into by each of
Quintus' executive officers and directors;
5. Quintus' Amended and Restated Certificate of Incorporation which,
among other things, (i) authorizes 100,000,000 shares of common
stock and 10,000,000 shares of undesignated preferred stock, (ii)
deletes provisions specifying the rights, preferences and privileges
of Quintus' preferred stock, and (iii) provides that stockholder
action may not be taken by written consent; and
6. The adoption of Quintus' Amended and Restated Bylaws which, among
other things, require the approval of Quintus' 50% of stockholders
to call a special meeting.
The October 29, 1999 action by written consent of the stockholders of
Quintus was approved by the holders of approximately 69% of the shares eligible
to vote on such matters.
On November 9, 1999, prior to Quintus' initial public offering, Quintus'
stockholders approved by written consent the following:
1. Quintus' acquisition of Acuity Corp. ("Acuity") pursuant to the
Agreement and Plan of Reorganization dated as of September 10, 1999
(see Exhibit 2.1 to the Registration Statement).
2. The adoption of the 1999 Acuity Stock Plan, created to replace the
options to purchase stock in Acuity outstanding at the effective
time of the acquisition of Acuity.
22
<PAGE> 25
The October 29, 1999 action by written consent of the stockholders of
Quintus was approved by the holders of approximately 84% of the shares eligible
to vote on such matters.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
2.1(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.
3.3(1) Registrant's Restated Certificate of Incorporation.
3.5(1) Registrant's Amended and Restated Bylaws.
4.1(1) Reference is made to Exhibits 3.3 and 3.5.
4.2(1) Specimen Common Stock certificate.
4.3(1) Registrant's Amended and Restated Investors Rights Agreement,
dated November 10, 1999.
10.1(1) Form of Indemnification Agreement entered into between
Registrant and each of its directors and officers.
10.2(1) 1995 Stock Option Plan and forms of agreements thereunder.
10.3(1) 1999 Stock Incentive Plan and forms of agreements thereunder.
10.4(1) Employee Stock Purchase Plan.
10.5(1) 1999 Director Option Plan.
10.6(1) Light Industrial Lease between Registrant and Teachers
Insurance and Annuity Association of America, dated October
6, 1995.
10.7(1) Sublease between Registrant and Oryx Technology Corporation
and SurgX Corporation, dated October 1, 1999.
10.8(1)+ Software Distribution Agreement dated May 5, 1997, between
Nabnasset Corporation and Lucent Technologies Inc.
10.10(1)+ Authorized OEM/Reseller Agreement dated December 22, 1998,
between Registrant and Brightware, Inc.
10.11(1) Employment agreement between Registrant and Alan Anderson,
dated May 23, 1995 and Notice of Grant of Stock Option.
10.12(1) Employment agreement between Registrant and John Burke, dated
June 11, 1999.
10.13(1) Loan and Security Agreement between Registrant and Silicon
Valley Bank, dated September 18, 1998.
10.14(1) Sublease Agreement between Pavilion Technologies, Inc. and
Acuity Corp., dated December 19, 1996.
10.15+ Authorized OEM/Reseller Agreement between Quintus Corporation
and Lipstream Networks, Inc., dated December 3, 1999.
10.16 Sublease between Quintus Corporation and Advanced Radio
Telecom Corp., dated December 13, 1999, and corresponding
Master Lease.
10.17 Second Amendment to OEM/Reseller Agreement between Quintus
Corporation and Brightware, Inc., dated December 22, 1999.
27.1 Financial Data Schedule.
</TABLE>
-------------------
(1) Incorporated herein by reference to the registrant's Registration
Statement on Form S-1 declared effective by the Securities and
Exchange Commission on November 15, 1999.
23
<PAGE> 26
+ Portions of these exhibits have been omitted pursuant to requests
for confidential treatment.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Quintus during the quarter ended
December 31, 1999.
24
<PAGE> 27
QUINTUS CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
undersigned, thereunto duly authorized.
QUINTUS CORPORATION
Date: February 14, 2000 By: /s/ Susan Salvesen
----------------------------------------
SUSAN SALVESEN
CHIEF FINANCIAL OFFICER AND SECRETARY
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
25
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
NO. DESCRIPTION
- -------- -----------
<S> <C>
2.1(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.
3.3(1) Registrant's Restated Certificate of Incorporation.
3.5(1) Registrant's Amended and Restated Bylaws.
4.1(1) Reference is made to Exhibits 3.3 and 3.5.
4.2(1) Specimen Common Stock certificate.
4.3(1) Registrant's Amended and Restated Investors Rights Agreement, dated
November 10, 1999.
10.1(1) Form of Indemnification Agreement entered into between Registrant and
each of its directors and officers.
10.2(1) 1995 Stock Option Plan and forms of agreements thereunder.
10.3(1) 1999 Stock Incentive Plan and forms of agreements thereunder.
10.4(1) Employee Stock Purchase Plan.
10.5(1) 1999 Director Option Plan.
10.6(1) Light Industrial Lease between Registrant and Teachers Insurance and
Annuity Association of America, dated October 6, 1995.
10.7(1) Sublease between Registrant and Oryx Technology Corporation and SurgX
Corporation, dated October 1, 1999.
10.8(1)+ Software Distribution Agreement dated May 5, 1997, between Nabnasset
Corporation and Lucent Technologies Inc.
10.10(1)+ Authorized OEM/Reseller Agreement dated December 22, 1998, between
Registrant and Brightware, Inc.
10.11(1) Employment agreement between Registrant and Alan Anderson, dated May
23, 1995 and Notice of Grant of Stock Option.
10.12(1) Employment agreement between Registrant and John Burke, dated June 11,
1999.
10.13(1) Loan and Security Agreement between Registrant and Silicon Valley
Bank, dated September 18, 1998.
10.14(1) Sublease Agreement between Pavilion Technologies, Inc. and Acuity
Corp., dated December 19, 1996.
10.15+ Authorized OEM/Reseller Agreement between Quintus Corporation and
Lipstream Networks, Inc., dated December 3, 1999.
10.16 Sublease between Quintus Corporation and Advanced Radio Telecom Corp.,
dated December 13, 1999, and corresponding Master Lease.
10.17 Second Amendment to OEM/Reseller Agreement between Quintus Corporation
and Brightware, Inc., dated December 22, 1999.
27.1 Financial Data Schedule.
</TABLE>
- -------------------
(1) Incorporated herein by reference to the registrant's Registration Statement
on Form S-1 declared effective by the Securities and Exchange Commission on
November 15, 1999.
+ Portions of these exhibits have been omitted pursuant to requests for
confidential treatment.
<PAGE> 1
EXHIBIT 10.15
QUINTUS CORPORATION
AUTHORIZED OEM/RESELLER AGREEMENT
This Authorized OEM/Reseller Agreement (the "Agreement") is entered into as of
December 3, 1999, (the "Effective Date") by and between Quintus Corporation, a
Delaware corporation, having its principal place of business at 47212 Mission
Falls Court, Fremont, CA 94539 ("Quintus") and Lipstream Networks, Inc., a
Delaware Corporation with its principal place of business at 20401 Stevens Creek
Blvd., Cupertino, CA 95014 ("Lipstream").
In consideration of the covenants and conditions contained herein, the parties
agree as follows:
1. DEFINITIONS.
1.1 "Documentation" shall mean the related materials customarily supplied
by Lipstream to end users of the Licensed Software.
1.2 "End-User" shall mean a third party to whom Quintus licenses the
Integrated Software or the Client solely for internal use and not for resale.
In the case of Quintus' internal use of the Integrated Software or Client,
Quintus shall be deemed the End-User.
1.3 "Integrated Software" shall mean the Quintus products, which are sold
in conjunction with the Client and Quintus-developed customer relationship
applications, modified to include Lipstream's voice client functionality
through use of the SDK.
1.4 "Updates" shall mean any error corrections or modifications which
Lipstream at its sole discretion deems to be logical improvements to the
Licensed Software previously supplied to Quintus under the Agreement, and which
Lipstream makes generally available to other licensees, and does not separately
price or market.
1.5 "Client" shall mean the standard, generally available object code
commercial release and the underlying voice functionality of Lipstream's client
software described in Exhibit A that Lipstream distributes without charge. This
shall include all updates provided by Lipstream to Quintus under the terms of
this Agreement.
1.6 "SDK" shall mean Software Developer's Kit, which is Lipstream's
development software that facilitates the integration of the Client into other
software.
2. CUSTOMER OFFERINGS.
Quintus will integrate Client functionality, through the use of the SDK, into
its suite of web-based customer relationship management applications (the "End
User Offerings"). This End User Offering shall be comprised of three components:
2.1 Integrated Software as defined above.
1
<PAGE> 2
2.2 Voice Service - Initial Block: An initial provision of pre-paid voice
usage to support an End User's Customer Service Representative's ("CSR") first
year of VoIP service to be acquired by End User through Quintus ("Initial
Block"). For example: If an End User purchases Integrated Software from Quintus
and contracts to allow up to 25 of its support CSRs to make use of such
software simultaneously, End User will be required to pre-purchase 25 Initial
Blocks to support the voice traffic to be generated by these CSRs in the first
year.
2.3 Voice Service - Renewal Block(s). One-year extensions to the Initial
Blocks described above, are to be negotiated by Lipstream directly with the End
User.
3. HOSTING.
Lipstream will host and continuously provide the voice services for the End
User.
4. SALES.
Sales Responsibilities shall be as follows:
4.1 Initial Sale. Quintus shall be responsible for all initial sales of
the Integrated Software and the Initial Blocks to support voice usage. Should
an End User seek to increase the number of CSR's during the first year, Quintus
will be responsible for selling the additional blocks required to accommodate
such an increase and will pro rate the fees until the end of the initial year.
4.2 Renewal Sales. Lipstream shall be responsible for all sales of all
Renewal Blocks, both in the year directly following the Initial Block term as
well as all subsequent years. Quintus will make proper introductions between
Lipstream and End User at the time of initial sale.
5. GRANT OF RIGHTS.
5.1 Licenses. Subject to the terms and conditions of this Agreement,
Lipstream hereby grants to Quintus a limited, nonexclusive, nontransferable,
worldwide license during the term of this Agreement to (i) market and
distribute the Client and Documentation solely as part of the Integrated
Software in object code format for use by End-Users for their internal business
purposes only, (ii) allow Quintus' current resellers and distributors and
future resellers and distributors upon Lipstream's prior written consent, such
consent not to be unreasonably withheld, the right to market and distribute the
Client and Documentation, solely as part of the Integrated Software in object
code format for use by End Users for their internal business purposes only,
provided such reseller and/or distributor sublicenses the Client in accordance
with terms and conditions no less restrictive than those provided herein, (iii)
use the Client for its own internal use, and (iv) use the SDK to integrate the
Client into the Integrated Software. Quintus shall have no right to use,
license, distribute or otherwise transfer the Client or Documentation other
than those rights specifically granted hereunder.
5.2 License to Clients. Subject to all terms of this Agreement, Lipstream
hereby grants to Quintus and Quintus' resellers and distributors, for the term
of this Agreement, a worldwide, nonexclusive, royalty free license to use,
reproduce and distribute the Clients to End Users of the Integrated Software.
2
<PAGE> 3
5.3 License to Documentation. Subject to all terms of this Agreement,
Lipstream grants to Quintus, for the term of this Agreement, a worldwide,
non-exclusive royalty free license to use, reproduce and distribute the
Documentation, but only in connection with the use or maintenance of the
Clients.
5.4 Updates. Subject to all terms of this Agreement, Lipstream will
promptly provide to Quintus, during the term of this Agreement, all generally
available upgrades, releases and/or new versions of the Clients and/or
Documentation that Lipstream distributes without charge.
5.5 Ownership. Quintus acknowledges that Lipstream retains title to and
ownership of all proprietary rights with respect to the Client and
Documentation. The Client and Documentation are protected by copyright,
trademark and trade secret laws and international treaty provisions. The
Client and Documentation are licensed and not sold.
5.6 Development Copy. Quintus may use an unlimited number of copies of
the Integrated Software on an unlimited number of development and test servers,
at no additional charge, solely for demonstration, evaluation, training,
development and testing purposes during the term of this Agreement. Such copies
may not be deployed for operational use.
5.7 No Other Rights. All rights not expressly granted to Quintus herein
are retained by Lipstream. Quintus agrees not to decompile, reverse-engineer or
otherwise attempt to derive or modify the Integrated Software, SDK or Client,
nor authorize or permit any third party to do so.
6. COMPENSATION.
6.1 Setup. Quintus shall reimburse Lipstream for access to its voice
services in the following way: Lipstream will create a new End User account,
and will establish an ongoing, web-based, End User-specific reporting facility,
to be made continuously available to Quintus for the monitoring of its End
User's voice usage at no charge to Quintus.
6.2 Initial Block Fees. Quintus will pay Lipstream the Initial Block fees
as described in Exhibit B.
6.3 Training Fees. Lipstream will provide End Users with an optional
one-day voice service training session for all End User-employed customer
service, support, engineering and/or managerial personnel the End User
identifies as requiring such training. Fees for such training shall be as
described in Exhibit B.
6.4 Payment. On the [*] day of each new quarter, Quintus shall submit to
Lipstream a report detailing the End Users that have been sold services. Such
report shall be in reasonable detail, showing the basis for the payment. Payment
of such fees shall be due and payable net [*] from the receipt of the report.
6.5 Records; Audit Rights. Quintus shall maintain complete and accurate
books and records with respect to copies and distribution of Client and
Integrated Software, or otherwise pertaining to the payment of fees hereunder
until at least three (3) years after termination of this Agreement. Lipstream
shall at any time, on at least twenty (20) business days prior notice to
[*] 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.
3
<PAGE> 4
Quintus, be entitled to retain an accounting firm to audit the books and
records of Quintus pertaining to the payment of fees to Lipstream hereunder,
for the sole purpose of confirming the accuracy of the License Fee payments.
Such accounting firm shall execute a nondisclosure agreement prior to any such
audit. Any such audit shall be performed at Lipstream's expense during normal
business hours. In the event of any underpayment of License Fees, Quintus shall
promptly remit to Lipstream all amounts due.
6.6 Reporting. The parties shall comply with the reporting requirements
as found in Exhibit E.
6.7 Taxes. All payments to Lipstream hereunder shall be net of all sales,
use, and other taxes, which may be imposed upon such payments.
7. LIMITED WARRANTIES.
7.1 Product Warranty. Lipstream warrants to Quintus and End User that,
for the term of this agreement (a) the media on which the Client is furnished
will, under normal use, be free from defects in material and workmanship and
(b) the Client will perform in accordance with the Documentation. Lipstream's
sole obligation under this warranty, and Quintus' exclusive remedy, shall be
that Lipstream at its expense shall use commercially reasonable efforts to
repair, so that it becomes non-infringing while giving equivalent performance,
or replace any non-conforming Client with substantially equivalent functional
software. Quintus has the right to terminate this Agreement should the Client
not conform to the then current Documentation, provided Quintus has given
Lipstream written notification of such nonconformance and such nonconformance
has not been cured within a sixty (60) day period, commencing upon receipt of
such written notification. In the event Lipstream is unable to correct the
non-conformity, Lipstream's sole liability and Quintus' sole remedy shall be a
refund of the Fees paid to Lipstream. If Quintus terminates this Agreement,
Quintus shall immediately return to Lipstream or destroy the Client and all
related Documentation at Lipstream's option. Upon receipt or destruction of the
Client and related Documentation, Lipstream shall refund the fees paid by
Quintus relating to the specific non-conforming Client.
7.2 The warranty set forth above is made to and for the benefit of
Quintus only. The warranty will apply only if:
(a) the Client has been installed and used at all times and in
accordance with the Documentation;
(b) no modification, alteration or addition has been made to the
Client by persons other than Lipstream or its authorized representative;
(c) the media in which the Client is embedded has not been (i)
subject to accident, or misuse, or (ii) operated with other media not meeting
or not maintained in accordance with the manufacturer's specifications.
7.3 Representations. Quintus shall not make any warranties or
representations binding on Lipstream with respect to the Services, and Quintus
shall limit its representations regarding the
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<PAGE> 5
Services to those contained in this Agreement. Quintus shall indemnify and hold
Lipstream harmless from and against warranty claims made by End-Users for
warranties made by Quintus that exceed the scope of the warranty expressly set
forth above.
7.4 WARRANTY DISCLAIMER. EXCEPT AS EXPRESSLY STATED HEREIN, THE CLIENT IS
PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING,
BUT NOT LIMITED TO, WARRANTIES OF PERFORMANCE OR MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE OR NON-INFRINGEMENT.
8. PROPERTY RIGHTS.
8.1 Property Rights. Quintus acknowledges and agrees that, as between Quintus
and Lipstream, Lipstream owns all right, title, and interest in and to the
Client, SDK and Documentation subject to this Agreement, and in all of
Lipstream's patents, trademarks, trade names, inventions, copyrights, know-how
and trade secrets relating to the design, manufacture, marketing, operation or
service of the Client.
8.2 Proprietary Notices. Quintus will ensure that all copies of the
Client, the Documentation and the Integrated Software reproduced or distributed
by Quintus, as applicable, will incorporate all copyright or other proprietary
notices in the same manner that Lipstream incorporates such notices in the
Client or Documentation or in any other manner reasonably requested by
Lipstream. Quintus shall not, and shall require that its End-Users do not,
remove, alter, cover or obfuscate any copyright notice or other proprietary
rights notices placed on, or embedded in the Client or Documentation by
Lipstream.
8.3 Restrictions. Quintus shall not alter or remove any of Lipstream's
trademarks, marks or trade names (collectively "Trademarks") affixed to the
Client by Lipstream. Except as set forth in this Section 5.4, nothing contained
in this Agreement shall grant or shall be deemed to grant to Quintus any
right, title or interest in or to Lipstream's Trademarks. At no time during or
after the term of this Agreement shall Quintus challenge or assist others to
challenge Lipstream's Trademarks (except to the extent such restriction is
expressly prohibited by applicable law) or the registration thereof or attempt
to register any trademarks, marks or trade names confusingly similar to those
of Lipstream. Upon termination of this Agreement, Quintus shall immediately
cease to use all Lipstream's Trademarks.
8.4 Goodwill. Any and all goodwill arising from Quintus' use of the
Lipstream Trademarks shall inure solely to the benefit of Lipstream when and
as, on an on-going basis, such acquisition of goodwill occurs, as well as at
the expiration or termination of this Agreement, without any separate payment
or other consideration of any kind to Quintus and Quintus agrees to take all
such actions necessary to effect such vesting.
9. CONFIDENTIAL INFORMATION.
9.1 Definition. As used in this Agreement, the term "Confidential
Information" shall mean any information disclosed by one party to the other
pursuant to this Agreement which is in
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written, graphic, machine readable or other tangible form and is marked
"Confidential", "Proprietary" or in some other manner to indicate its
confidential nature. Confidential Information may also include oral information
disclosed by one party to the other pursuant to this Agreement, provided that
such information is designated as confidential at the time of disclosure and
reduced to a written summary by the disclosing party, within a reasonable time
period after its oral disclosure, which is marked in a manner to indicate its
confidential nature and delivered to the receiving party. Notwithstanding the
foregoing, the SDK and the SDK Documentation shall be deemed the Confidential
Information of Lipstream without the necessity of marking.
9.2 General. During the term of this Agreement and for a period of three
(3) years thereafter, each party shall treat as confidential all Confidential
Information of the other party, shall not use such Confidential Information
except as expressly set forth herein or otherwise authorized in writing, shall
implement reasonable procedures to prohibit the disclosure, unauthorized
duplication, misuse or removal of the other party's Confidential Information
and shall not disclose such Confidential Information to any third party except
as may be necessary and required in connection with the rights and obligations
of such party under this Agreement, and subject to confidentiality and nonuse
obligations at least as protective as those set forth herein. Without limiting
the foregoing, each of the parties shall use at least the same procedures and
degree of care which it uses to prevent the disclosure of its own confidential
information of like importance to prevent the disclosure of Confidential
Information disclosed to it by the other party under this Agreement, but in no
event less than reasonable care. The parties further agree to keep confidential
the terms and conditions of this Agreement.
9.3 Exceptions. Notwithstanding the above, neither party shall have
liability to the other with regard to any Confidential Information of the other
which: (i) was generally known and available in the public domain at the time
it was disclosed or becomes generally known and available in the public domain
through no fault of the receiving party; (ii) was known to the receiving party
at the time of disclosure; (iii) is disclosed with the prior written approval
of the disclosing party; (iv) was independently developed by the receiving
party without any use of the disclosing party's Confidential Information; or
(v) becomes known to the receiving party from a source other than the
disclosing party without breach of this Agreement by the receiving party and
otherwise not in violation of the disclosing party's rights. In addition, the
receiving party shall be entitled to disclose the other party's Confidential
Information to the extent such disclosure is required by order or requirement
of a court, administrative agency, or other governmental body, provided
however, that the receiving party shall provide prompt notice thereof to the
disclosing party to enable the disclosing party to seek a protective order or
otherwise prevent or restrict such disclosure.
9.4 Employee Agreements. Each party shall obtain the execution of
non-disclosure agreements with its employees, agents and consultants having
access to Confidential Information of the other party, and shall diligently
enforce such agreements.
9.5 Remedies. If either party breaches any of its obligations with
respect to confidentiality and unauthorized use of Confidential Information
hereunder, the other party shall be entitled to seek equitable relief to
protect its interest therein, including but not limited to injunctive relief, as
well as money damages.
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10. INTELLECTUAL PROPERTY INDEMNITY.
10.1 Indemnification. Lipstream shall defend, or at its option settle, at
its own expense, any claim, suit or proceeding brought against Quintus, its
officers, employees, directors and agents and Lipstream agrees to pay, subject
to the limitations hereinafter set forth, all reasonable damages and costs
(including reasonable attorney's fees), finally awarded against Quintus, as a
result of any such claim or any settlement entered into in good faith on such
issue in any such suit or proceeding, alleging that use of the SDK or Client or
distribution of the Client as part of the Integrated Software as contemplated
hereunder infringes any patent, copyright or trade secret of any third party
(collectively, "Intellectual Property Rights"). Lipstream's duty to indemnify
and defend is predicted upon Quintus doing the following (i) notify Lipstream
promptly of such claim, suit or proceeding, (ii) provide Lipstream with sole
control of any such action or settlement negotiations (it being understood that
Quintus may participate in such action at Quintus' expense with counsel of its
own choosing), and (iii) give Lipstream authority to proceed as contemplated
herein, and, at Lipstream's expense, give Lipstream proper and full
information and reasonable assistance to settle and/or defend any such claim,
suit or proceeding. If it is adjudicatively determined, or if Lipstream
believes it may be determined, that the SDK or Client infringes any
Intellectual Property Right, then Lipstream may, at its sole option and
expense, and in a reasonable time frame, either; (a) procure for Quintus the
right under such Intellectual Property Right to use or distribute such SDK and
Client as contemplated herein; (b) replace or modify the SDK and Client with
other functionally equivalent software; or (c) if (a) and (b) are not
practicable, as determined in Lipstream's sole discretion, terminate this
Agreement with respect to such SDK and Client and refund to Quintus all license
fees paid by Quintus for the terminated SDK and Client, less an amount equal
to one sixtieth (1/60th) of such license fees for each month or any portion
thereof which has elapsed since the commencement of the applicable license.
Lipstream will not be liable for any costs or expenses incurred without its
prior written authorization.
10.2 Limitation. Notwithstanding the provisions of Section 10.1 above,
Lipstream assumes no liability to the extent such claims are based on (i) the
use of the SDK or Client other than as set forth in the Documentation; (ii) the
use of other than the most recent version and prior sequential version of the
SDK or Client; (iii) combination or use of the SDK or Client with software not
provided by Lipstream if the infringement would have been avoided by use of the
SDK or Client alone; (iv) any marking or branding not applied by Lipstream or
applied at the request of an authorized employee of Quintus; or (v) any
modification of the SDK or Client, or any part thereof, unless such
modification was made by or authorized by Lipstream, if the infringement would
have been avoided in the absence of such modification.
10.3 Entire Liability. THE FOREGOING PROVISIONS OF THIS SECTION 10 STATE
THE ENTIRE LIABILITY AND OBLIGATIONS OF LIPSTREAM, AND THE EXCLUSIVE REMEDY OF
QUINTUS, WITH RESPECT TO THE INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADE
SECRET OR OTHER INTELLECTUAL PROPERTY RIGHT BY THE SDK OR CLIENT.
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11. LIMITED LIABILITY.
11.1 EXCEPT FOR LIABILITY UNDER SECTIONS 5, 9 AND 10, IN NO EVENT SHALL
EITHER PARTY'S LIABILITY TO THE OTHER PARTY OR ANY THIRD PARTY ARISING OUT OF
THIS AGREEMENT EXCEED THE TOTAL AMOUNT ACTUALLY RECEIVED BY LIPSTREAM. EXCEPT
FOR LIABILITY UNDER SECTIONS 5, 9 AND 10, IN NO EVENT WILL EITHER PARTY BE
LIABLE TO THE OTHER PARTY OR ANY OTHER ENTITY FOR ANY SPECIAL, CONSEQUENTIAL OR
INCIDENTAL DAMAGES, INCLUDING, WITHOUT LIMITATION, DAMAGES FOR THE LOSS OF USE,
LOSS OF PROFITS AND/OR FOR THE LOSS OF DATA OR INFORMATION OF ANY KIND UNDER
ANY CAUSE OF ACTION, WHETHER FOR BREACH OF CONTRACT (INCLUDING NEGLIGENCE), OR
OTHERWISE, AND WHETHER OR NOT SUCH PARTY OR ITS AGENTS HAVE BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGE. NOTHING IN THIS SECTION 8 IS INTENDED TO EXCLUDE OR
RESTRICT EITHER PARTY'S LIABILITY FOR DEATH OR PERSONAL INJURY OR PROPERTY
DAMAGE CAUSED BY THE GROSS NEGLIGENCE OF SUCH PARTY OR ITS EMPLOYEES OR AGENTS.
12. TERM AND TERMINATION.
12.1 Term. This Agreement shall commence upon the Effective Date and shall
continue in force for an initial term of Two (2) years unless terminated
earlier under the terms of this Section 9. Thereafter, this Agreement may be
renewed for successive one (1) year terms unless terminated by either party as
set forth herein.
12.2 Termination. This Agreement may be terminated by either party upon
ninety (90) days written notice for no cause or if the other party (i) breaches
any material term or condition of this Agreement and fails to remedy the breach
within thirty (30) days after being given notice thereof, or (ii) ceases to
function as a going concern or to conduct operations in the normal course of
business, (iii) has a petition filed by or against it under any state or
federal bankruptcy or insolvency laws which petition has not been dismissed or
set aside within sixty (60) days of filing.
12.3 Effect of Termination. In the event this Agreement is terminated,
Quintus' rights under this Agreement shall terminate, provided, however, that
Quintus' shall have the right to distribute its inventory of Integrated
Software in existence as of the date of termination, and each End-User's rights
to use the Integrated Software previously licensed to it by Quintus shall
survive. The SDK and Client and other Lipstream materials provided hereunder
will remain the property of Lipstream. Within thirty (30) days after the
termination of this Agreement, Quintus will prepare all such items in its
possession or control for shipment, or destroy such materials as Lipstream may
direct. Upon termination of this Agreement, neither party will retain any
copies of Confidential Information which may have been entrusted to it by the
other party, and within thirty (30) days of a written request by the other
party, an authorized representative of each party shall certify to the other
party that all copies of Confidential Information of the other party received
hereunder have been returned or destroyed. Notwithstanding the foregoing,
Quintus may retain one (1) copy of the Client and one (1) copy of any related
Documentation and may use such materials as is necessary to support its
installed End-User base. Quintus may honor any outstanding quotes for potential
End Users for a period of sixty (60) days commencing with the termination of
this Agreement.
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12.4 Limitation. In the event of termination by either party in accordance
with any of the provisions of this Agreement, neither party shall be liable to
the other because of such termination, for compensation, reimbursement or
damages on account of the loss of prospective profits or anticipated sales or
on account of expenditures, inventory, investment, leases or commitments in
connection with the business or goodwill of Lipstream or Quintus. Termination
shall not, however, relieve either party of obligations incurred prior to the
termination.
12.5 Survival of Provisions. The provisions of Sections 7, 8, 9, 10, 11,
15.9 and 15.10 of this Agreement shall survive the termination of this
Agreement for any reason. All other rights and obligations of the parties shall
cease upon termination of this Agreement.
13. MAINTENANCE AND ENHANCEMENT
13.1 Maintenance. Provided the Client is used in accordance with the terms
and conditions of the Agreement, Lipstream will provide technical support,
upgrades and enhancements to Quintus as indicated herein for the current,
unaltered version of the Client at no charge to Quintus. All support provided by
Lipstream shall be in accordance with Exhibit D.
13.2 Initial Block Term. During the term of the Initial Block, Lipstream
will support Quintus in the integration of the voice service on behalf of a
given End User of the Integrated Software, and will provide ongoing support as a
"first-tier" support provider for client and voice services. Lipstream will
support the End User directly during the term of the Initial Block for client
and voice services. Lipstream shall not be responsible for non-Lipstream related
End User technical issues.
13.3 Renewal Block Term(s). During subsequent Renewal Block terms,
Lipstream shall be responsible for directly supporting the End User of the
Integrated Software in matters pertaining to the ongoing availability and
quality of Lipstream voice services. Quintus shall continue to support its End
Users directly in all other matters.
13.4 SDK Support. Lipstream will provide ongoing technical support for the
SDK and agent downloadable Client to Quintus between 8:00am - 5:00pm PST,
Monday through Friday during the term of the Agreement.
14. BRANDING
14.1 Branding Requirement. Lipstream will receive text, icon, and/or logo
branding ("Voice by Lipstream") in any and all areas of the Lipstream voice
client functionality offering which become voice-enabled under the terms of
this agreement, as technically and practically feasible.
14.2 Branding Exceptions. Lipstream will provide a list of branding
exceptions as Exhibit C to the Agreement. For any requests that fall outside of
Exhibit C, Quintus will contact Lipstream to (a) to determine if Lipstream and
Quintus agree that such an exception is acceptable, and (b) to cooperate in
good faith to agree upon what alternate method(s) may be devised to achieving
acceptable brand recognition for Quintus and the Lipstream Voice Service
offering.
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15. MISCELLANEOUS.
15.1 Assignment. Neither this Agreement nor any rights under this
Agreement may be assigned or otherwise transferred by Quintus, in whole or in
part, without the prior written consent of Lipstream, which consent shall not
be unreasonably withheld, or whether voluntary or by operation of law,
including by way of sale of assets, merger or consolidation, without prior
written notification to Lipstream. Notwithstanding the foregoing, this
Agreement shall be binding upon and inure to the benefit of each party's
successors and assigns.
15.2 Notices. All notices, demands or consents required or permitted
under this Agreement shall be in writing. Notice shall be considered delivered
and effective (a) when personally delivered; (b) the day following transmission
if sent by telex, telegram or facsimile followed by written confirmation by
registered overnight carrier or certified United States mail; (c) one (1) day
after posting when sent by registered private overnight carrier (e.g., DHL,
Federal Express, etc.); or (d) five (5) days after posting when sent by
certified United States mail. Notices shall be sent to the parties at the
addresses set forth on the first page of this Agreement or at such other
address as shall be given by either party to the other in writing.
15.3 Publicity. Neither party will issue a press release or any other
announcement regarding this Agreement, or the relationship contemplated herein
unless both parties consent in writing, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, each party shall have the ability to
list the other party as a customer in its product literature and marketing
materials, including without limitation, on each party's website. In addition,
the parties agree to cooperate in issuing jointly approved press releases
concerning this Agreement, including without limitation an initial such release
within thirty (30) days after the Effective Date of this Agreement.
15.4 Partial Invalidity. If any paragraph, provision, or clause in this
Agreement shall be found or be held to be invalid or unenforceable in any
jurisdiction in which this Agreement is being performed, the remainder of this
Agreement shall be valid and enforceable and the parties shall negotiate, in
good faith, a substitute, valid and enforceable provision which most nearly
effects the parties' intent in entering into this Agreement.
15.5 Counterparts. This Agreement may be executed in two (2) or more
counterparts, all of which, taken together, shall be regarded as one and the
same instrument.
15.6 Waiver and Amendment. No modification, amendment or waiver of any
provision of this Agreement shall be effective unless in writing and signed by
the party to be charged. The failure of either party to enforce at any time the
provisions of this Agreement shall in no way constitute a present or future
waiver of such provisions, nor in any way affect the right of either party to
enforce each and every such provision thereafter.
15.7 Independent Contractors. The relationship of Lipstream and Quintus
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to constitute the parties as
partners, joint venturers, co-owners or otherwise as participants in a joint or
common undertaking, or allow either party to create or assume any obligation on
behalf
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of the other party. All financial obligations associated with a party's
business are the sole responsibility of such party.
15.8 Governmental Approvals. Quintus represents and warrants that it will
obtain all required approvals of the government of any country outside the
United States in which it markets or distributes the Licensed Software in
connection with this Agreement.
15.9 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California without reference to its
conflict of law principles and excluding the 1980 United Nations Convention on
Contracts for the International Sale of Goods.
15.10 Jurisdiction; Venue. Any disputes under this Agreement shall be
subject to the exclusive jurisdiction and venue of the California State courts
and the Federal courts located in San Francisco County, California and the
parties hereby consent to the personal and exclusive jurisdiction and venue of
these courts.
15.11 Force Majeure. Nonperformance of either party, except the payment of
money, shall be excused to the extent that performance is rendered impossible by
strike, fire, acts of God, governmental acts or orders or restrictions, failure
of suppliers, or any other reason where failure to perform is beyond the
reasonable control of and is not caused by the negligence of the non-performing
party.
15.12 Entire Agreement. The terms and conditions herein contained,
including all Exhibits which are incorporated herein by reference, constitute
the entire agreement between the parties and supersedes all previous agreements
and understandings, whether oral or written, between the parties hereto with
respect to the subject matter hereof, and no agreement or understanding varying
or extending the same shall be binding upon either party hereto unless in a
written document signed by the party to be bound thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by duly authorized officers or representatives as of the date first
above written.
LIPSTREAM NETWORKS, INC. QUINTUS CORPORATION
By: /s/ MATTHEW JONES By: /s/ MICHELLE E. FIELDS
--------------------------------- ---------------------------------
Name: Matthew Jones Name: Michelle E. Fields
------------------------------- -------------------------------
Title: CEO Title: Business Admin Manager
------------------------------ ------------------------------
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EXHIBIT A
SERVICES PROVIDED BY LIPSTREAM
1) NETWORK SCALING & CAPACITY GOALS
Provide for a voice service capacity that will support Services for
Quintus's End Users.
2) SERVICE LOCATION PLAN
a) The services are to be hosted by Lipstream
3) CLIENT LICENSE FROM LIPSTREAM TO END-USERS
a) The Client is available to End Users by download directly from
Lipstream or through Quintus.
4) LIPSTREAM CLIENT FEATURES
a) Interactive list of conference participants
b) Audio signal meter alongside of window to indicate spoken audio level
c) Self-adjusting microphone gain to normalize audio levels across
participants
d) Signal meter to provide feedback to the End User on Internet traffic
latency (i.e. whether the Internet is experiencing light or heavy
traffic)
e) Status area on bottom of window
f) Visual indication of talking participants
g) Ability to ignore individual conference participants
h) Audio feedback on events, such as participant entry and exit
i) Instant text messaging ("Whispering")
j) Client is an ActiveX control and/or a Netscape plug-in
k) Client operates as an HTML object, and obeys size and location
parameters. Possibilities include floating windows, frame-sets or
placement (embed) within a Web page.
l) Target size of the Client is 150K including CODEC
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m) The Client will auto download and install on supported browsers
[See Requirements]
n) Joining a conference can be set to be either manual or automatic
whereby the user is either prompted to enter their name or their name
is automatically passed to the conference (no user entry required)
o) Conference limits (i.e. the number of users in a conference) can be
preset
p) Implementation of TCP protocol fallback to better work with firewalls
5) LIPSTREAM CLIENT REQUIREMENTS
a) Network Connection: 28.8K kb or higher
b) Processor: Pentium 90 MHz or faster
c) Operating System: Windows 95, 98, or NT 4.0 [Macintosh support is not
planned at this time]
d) Browser: Microsoft Internet Explorer (supports auto-download and
install), Version 3.02 or higher, Netscape Navigator, Version 3.0.4 or
higher
e) Sound Cards: Lipstream will support the widely available sound cards.
Lipstream Engineering will continue to test and support well-known and
new cards as they are released and will provide to Quintus a full list
of supported sound cards as requested.
f) An audio headset, or microphone and speakers/headphones
6) LIPSTREAM PLANNED FUTURE FUNCTIONALITY
a) Ability of Client to play a .wav file.
b) Ability to run multiple instances of the Lipstream control on one
computer.
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EXHIBIT B
PRICING TERMS
1) Initial Block Fees:
Quintus will pay Lipstream the Initial Block fees in the amount of [*] per CSR.
2) Training Fees:
Fees for training shall be [*] per person, per session plus reasonable travel
and expenses and will be billed by Lipstream directly to End User.
[*] 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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EXHIBIT C
BRANDING EXCEPTION LIST (TO BE SUPPLIED BY LIPSTREAM)
16. Exhibit C: Branding and Branding Exceptions
1. Branding Guideline: As noted in Section 14, Company will receive text and
logo branding ("Voice by Lipstream") in any and all areas of the Company
voice client functionality offering which become voice-enabled under the
terms of this Agreement. An example of such branding follows:
[DIAGRAM] Lipstream Client
Window
Inclusion of Text and Logo
attribution: "Voice by
Figure A
2. Branding Exceptions: Certain exceptions to the Branding Requirement
specified in Section 14.1 are to be permitted without requirement for
advance approval by the Company. Instead of the text and logo attribution
depicted in Figure A, above, Customers may credit Lipstream for the
provision of voice technology and service in the following ways:
2.1 Inclusion of plain "Voice by Lipstream" text, in clearly-legible
typeface of sufficient size to be legible from a standard
computer-viewing distance, directly adjacent to the navigational
elements by which an end-Customer (i.e., a visitor to a given Quintus
Customer's website) might initiate a voice interaction with a Customer
Service Representative.
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[DIAGRAM]
Figure B
2.2 Inclusion of the Lipstream logo, directly adjacent to the navigational
elements by which an end-Customer (i.e., a visitor to a given Quintus
Customer's website) might initiate a voice interaction with a Customer
Service Representative.
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[GRAPHIC]
Figure C
3. Branding Escalations: Any and all additional Customer proposals entailing
variances from the Branding Guideline and allowable Exceptions specified
in Sections 1.0 and 2.0 of this Exhibit C shall be escalated to a
qualifying member of the Company's Marketing staff for review prior to the
granting of any approval for such variances.
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EXHIBIT D
LIPSTREAM SUPPORT
Title QUINTUS TECHNICAL SUPPORT PLAN
Author LIPSTREAM NETWORKS, INC.
Date DATE
Revision V1.0
I. OBJECTIVE
This document defines terms and conditions by which Lipstream Networks, Inc.
will provide technical assistance in the use of the Lipstream Networks'
products by QUINTUS and QUINTUS' users.
Service will meet the following minimum delivery requirements:
<TABLE>
<CAPTION>
SERVICE AVAILABILITY RESPONSE TIME+ RESPONSE TYPE
- ---------------------------- ------------ -------------- ------------------
<S> <C> <C> <C>
Business Hours Support 8am-6pm PST 1 hour phone and/or email
- --------------------------------------------------------------------------------
After Business Hours Support 6pm-8am PST 1 hour phone
</TABLE>
- --------------------------------------------------------------------------------
+ Actual resolution of incident may require additional time.
INCIDENT REPORTING & SUBMISSION
Incidents are to be submitted using one of the following mechanisms
Business Hours Support:
1. Via an automated, Web-based incident submission system provided by Lipstream
Networks at: http://support.lipstream.com
2. Via a phone call to Lipstream Technical Support Call Center at: 408-861-8233.
Each incident report should include the following information:
1. Platform information for end-user customer issues (per online submission
form).
After Business Hours Support:
1. Via a page to a Lipstream Technical Support Engineer at: 1-800-458-7073
or email to page.supportoncall(at)lipstream.com.
Email to the pager address triggers a page to the Technical Support engineer on
call. Please be sure to include your contract information.
o INCIDENT REPORT RESPONSE & RESOLUTION (LIPSTREAM NETWORKS)
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Lipstream Technical Support will respond within the specified response time.
The response can be either of the following:
1. A phone call from a Lipstream Technical Support representative that either
resolves the issue or gathers the necessary information for further
investigation.
2. Email from a Lipstream Technical Support representative that either
resolves the issue or gathers the necessary information for further
investigation.
After Lipstream Networks has completed a thorough investigation, each incident
will be categorized and the proper type of resolution applied, as defined by
Table 1 below:
TABLE 1
<TABLE>
<CAPTION>
INCIDENT TYPE RESOLUTION
- ---------------------------------------------------------------------------------------------
<S> <C>
End-use error Correct operational instructions are to be provided
- ---------------------------------------------------------------------------------------------
As designed Feature request may be submitted. Implementation will be at
the discretion of Lipstream Networks (see escalation process)
- ---------------------------------------------------------------------------------------------
Bug One of the following is to be provided:
1. Workaround, if available.
2. A fix in the next release of the software. A patch may be
provided if deemed necessary (see escalation process).
3. No fix.
- ---------------------------------------------------------------------------------------------
3rd-party incompatibility Problems that are the result of 3rd-party software or hardware
incompatibilities and/or unsupported platforms (software and
hardware) will be closed; however, Lipstream may choose to
follow up with the 3rd-party directly to assist in resolving
any incompatibilities with Lipstream software.
- ---------------------------------------------------------------------------------------------
</TABLE>
Lipstream Technical Support will use best-effort to resolve all incidents.
IV. ESCALATION PROCEDURE
If the resolution to a specific incident does not satisfactorily resolve the
incident, the following procedure may be used to escalate an incident's
resolution:
o Request a specific action such as:
1. Re-evaluation of incident by Lipstream Technical Support based on new
information provided by QUINTUS and/or Quintus' end user.
2. Patch fix (for bug in product)
3. Feature request (for unsupported functionality)
19
<PAGE> 20
o The Technical Support Manager will review each request; once the review is
complete, a conference call that includes appropriate QUINTUS and Lipstream
personnel will be initiated to reach a mutually satisfying agreement.
20
<PAGE> 21
EXHIBIT E
USAGE REPORTS
1. QUINTUS WILL PROVIDE LIPSTREAM USAGE REPORTS CONTAINING THE TOTAL # OF NEW
VOICE-ENABLED CSRs, BY CUSTOMER, WHENEVER QUINTUS AGREES TO PROVIDE SERVICE
TO A NEW CUSTOMER, OR INCREASES SERVICE FOR AN EXISTING CUSTOMER.
2. ON A MONTHLY BASIS LIPSTREAM WILL PROVIDE QUINTUS USAGE REPORTS CONTAINING
THE FOLLOWING INFORMATION:
a) Simultaneous Users
Monthly and daily graphs of peak, average, and minimum simultaneous
users, by customer account
b) Usage Minutes
Monthly graph of total usage minutes per day, by customer account
c) Session Length
Monthly graph of average session length per user per day, by customer
account
d) Conference Statistics
Monthly graph of number of rooms (conferences) per day, and table of
usage minutes and number of sessions for named rooms, by customer
account
21
<PAGE> 1
Exhibit 10.16
SUBLEASE
This Sublease ("Sublease"), dated for reference purposes as of December
13, 1999, by and between Advanced Radio Telecom Corp., a Delaware corporation
("Sublandlord") and Quintus Corporation, a California corporation
("Subtenant"), and is based upon the following facts and circumstances:
A. Sublandlord is the tenant under that certain Office Lease and Rider
to Office (collectively, "Master Lease"), dated December 18, 1996, with
EOP-Westbrook Corporate Center, L.L.C., successor in interest to LaSalle
National Trust, N.A. (the "Master Landlord"). A copy of that Master Lease is
attached to this Sublease and marked as Exhibit A.
B. Subtenant desires to sublease from Sublandlord the entirety of the
premises being leased by Master Landlord to Sublessor under the Master Lease,
namely the premises commonly known as Four Westbrook Corporate Center, Suite
620, Westchester, Illinois, consisting of approximately 5,878 square feet, as
more particularly described in the Master Lease (the "Premises").
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Sublease, and for valuable consideration, the receipt and sufficiency of which
are acknowledged by the parties, the parties agree as follows:
1. Sublease. Sublandlord subleases to Subtenant and Subtenant subleases
from Sublandlord the Premises, subject to the terms, covenants, and conditions
contained in this Sublease. Subtenant and Sublandlord hereby agree that any
statements of square footage (rentable, usable or otherwise) set forth in the
Master Lease or in this Sublease that may have been used in calculating the
rent, pro rata share of Operating Expenses or Taxes or any other matters, are
not subject to revision, whether or not the actual square footage is more or
less, and the rent, pro rata share of Operating Expenses or Taxes or any other
similar matters is not subject to revision. Subtenant hereby acknowledges and
agrees that, as of the start of this Sublease, the Premises are in good order
and condition, and Subtenant accepts the Premises on an "AS IS" basis, in the
condition existing as of the start of this Sublease, with any and all faults,
whether known or unknown, latent or patent. Subtenant shall, at Subtenant's
sole cost and expense, subject to compliance with the terms and conditions of
this Sublease and the Master Lease, perform any and all work of improvement
that may be necessary for Subtenant's use and occupancy of the Premises.
2. Term.
2.1 Subject to the terms and conditions set forth herein, the
original term ("Original Term") of this Sublease shall commence on February 1,
2000 ("Commencement Date") and shall expire on December 31, 2003 ("Expiration
Date").
2.2 The Master Landlord's written consent to this Sublease in
accordance with the terms of the Master Lease is a condition subsequent to the
validity of this Sublease. If the Master Landlord's consent has not been
obtained and a copy of that consent delivered to Subtenant by one (1) business
day prior to the Commencement Date, then either Sublandlord or Subtenant shall
thereafter each have the ongoing right, subject to the terms of this Section,
to terminate this Sublease pursuant to a notice ("Termination Notice") so
stating delivered to the other party. If either party gives the Termination
Notice, then this Sublease shall terminate effective ten (10) days following
receipt of the Termination Notice by the other party ("Termination Date"), in
which event, if the Termination Date is
1
<PAGE> 2
on a date after the Commencement Date, then notwithstanding such Commencement
Date, Sublandlord shall have no obligation to deliver the Premises to Sublessee
on the Commencement Date; provided, however, if Subtenant gives the Termination
Notice, and Sublandlord delivers to Subtenant the consent of Master Landlord to
this Sublease before the Termination Date, then Subtenant's exercise of such
termination right shall be cancelled and be null and void, the condition
subsequent set forth in this Section shall be satisfied and this Sublease shall
continue in full force and effect, and the Commencement Date shall be the later
of the Commencement Date set forth above or the date of Master Landlord's
consent to this Sublease. If this Sublease is terminated pursuant to one
party's giving the Notice of Termination, then this Sublease shall
automatically terminate as of the Termination Date, Sublandlord shall return to
Subtenant the Security Deposit and any other sums, if any, paid by Subtenant to
Sublandlord upon the parties execution of this Sublease and the parties shall
be released from any further obligations under this Sublease. Subtenant agrees
to cooperate with the Sublandlord, at no cost or expense to the Sublandlord, in
obtaining the consent of the Master Landlord to this Sublease, which
cooperation shall include, but not be limited to, providing documents,
materials and information requested or required by the Master Landlord, such as
those set forth in Section 15 of the Master Lease.
3. Monthly Base Rent, Operating Expenses and Taxes.
3.1 Subtenant shall pay Sublandlord $10,776.33 per month as Monthly
Base Rent during the Term of the Sublease. The Monthly Base Rent will increase
annually on the anniversary of the Commencement Date by three percent (3%) of
the Monthly Base Rent then currently in effect.
3.2 If the Term of this Sublease begins or ends on a date that is
not the first day of a month, Monthly Base Rent shall be prorated as of that
date. All Monthly Base Rent shall be payable monthly in advance on the first day
of each month. Except as otherwise specifically set forth in the Sublease,
Monthly Base Rent and all other amounts payable by Subtenant hereunder shall be
paid without offset, deduction, counter-claim, abatement or notice.
3.3 Subtenant hereby acknowledges and agrees that in addition to
Monthly Base Rent and any other amounts payable by Subtenant hereunder,
Subtenant shall pay Sublandlord's pro rata share of Operating Expenses and
Taxes over actual 1999 real Operating Expenses and Taxes as and when
Sublandlord is obligated to pay the same under the terms of the Master Lease.
3.4 Notwithstanding the foregoing, in lieu of any tenant improvement
allowance, Sublandlord shall abate the Monthly Base Rent, Operating Expenses
and Taxes for the first three months of the Term.
4. Use. Subtenant shall use and occupy the Premises for general office
use in accordance with the provisions of the Master Lease and this Sublease,
and for no other use or purpose.
5. Master Lease.
5.1 As applied to this Sublease, the words "Landlord" and "Tenant"
in the Master Lease shall mean and refer to Sublandlord and Subtenant,
respectively, under this Sublease. Except as otherwise expressly provided in
this Sublease, the covenants, agreements, provisions, and conditions of the
Master Lease are made a part of and incorporated into this Sublease as if
recited in full in this Sublease.
2
<PAGE> 3
5.2 Except as otherwise expressly provided in this Sublease, the
rights and obligations of the Master Landlord and the Tenant under the Master
Lease will be deemed the rights and obligations of Sublandlord and Subtenant,
respectively, under this Sublease, and will inure to the benefit of, and be
binding on, Sublandlord and Subtenant, respectively. As between the parties to
this Sublease only, in the event of a conflict between the terms of the Master
Lease and the terms of this Sublease, the terms of this Sublease will control.
5.3 Subtenant recognizes that Sublandlord is not in a position to
render any of the services or to perform any of the obligations required of
Master Landlord by the terms of the Master Lease, including, but not limited to,
the services or obligations of Master Landlord under the following Sections of
the Master Lease: Sections 7(C), 7(D) and (E) (pertaining to Operating
Expenses), Section 9 (Services), Section 13A(ii) and 13A(iv) (Risk Allocation
and Insurance), 13(C) (Landlord's Insurance), (18A) Repairs and Compliance, 19
(Fire or Casualty), 20 (Eminent Domain), (R-8) Second Addendum to Section 9,
and (R-13) Addendum to Section 17(CC). Therefore, despite anything to the
contrary in this Sublease, Subtenant agrees that Sublandlord shall have no
obligation, responsibility or liability in the performance or non-performance of
Master Landlord's obligations, responsibilities or liabilities under the Master
Lease. Subtenant shall look solely to Master Landlord therefor, and Sublandlord
shall not be liable to Subtenant for any default of the Master Landlord under
the Master Lease.
5.4 Subtenant shall not have any claim against Sublandlord based in
the Master Landlord's failure or refusal to comply with any of the provisions
of the Master Lease. Despite the Master Landlord's failure or refusal to comply
with any of those provisions of the Master Lease, this Sublease shall remain in
full force and effect and Subtenant shall pay the Monthly Base Rent and all
other charges provided for in this Sublease without any abatement, deduction or
setoff. Except as expressly provided in this Sublease, Subtenant agrees to be
subject to, and bound by, all of the covenants, agreements, terms, provisions,
and conditions of the Master Lease, as though Subtenant was the tenant under
the Master Lease.
5.5 Whenever the consent of the Master Landlord is required under
the Master Lease, then the consent of Sublandlord shall also be required.
6. Variations from Master Lease. As between Sublandlord and Subtenant,
the terms and conditions of the Master Lease are modified as stated below in
this Section:
6.1 The following Sections of the Master Lease shall not apply to
this Sublease:
- In Section (1) Basic Lease Provisions, subparagraphs B
(Tenant's address), D (Lease Term), E (Commencement Date), G (Monthly Base
Rent), H (Payee of Rent), I (Address for Payment of Rent), N (Security Deposit)
and O (Broker);
- (3) Term;
- (4) Possession;
- (13A(ii) and 13A(iv)) Risk Allocation and Insurance, 13(C)
Landlord's Insurance;
- (15) Assignment or Subletting (see Paragraph 10 below);
3
<PAGE> 4
-(18A) Repairs and Compliance;
-(35) Security Deposit;
-(38) Brokerage (see Paragraph 6.2 below);
-The following provisions of the Rider: (R-1) Addendum to
Section 1(G), (R-2) Addendum to Subsection 1(N), (R-3) First Addendum to
Section 4, (R-4) Second Addendum to Section 4, (R-6) Addendum to Section 9(B),
(R-10) Addendum to Section 12(P), (R-11) Addendum to Section 17(R), (R-16)
Addition Space, (R-17) Right to Terminate, (R-18) Moving Allowance, and (R-20)
Option to Extend; and
-Exhibit C (Work Letter Agreement).
6.2 Sublandlord and Subtenant each represents to the other (i) that
such party has had no dealings with any real estate broker or agent in
connection with the negotiation of this Sublease except for Amanda Cribari of
Cawley Chicago Commercial Real Estate Company, LLC, representing the Subtenant
("Subtenant's Broker") and Michael Fortuna of Cushman & Wakefield, representing
the Sublandlord ("Sublandlord's Broker") (collectively, the "Brokers"), and (ii)
that other than the Brokers, the parties know of no other real estate broker or
agent who is entitled to a commission or finders fee in connection with this
sublease. Each party shall indemnify, protect, defend and hold harmless the
other party against all claims, demands, losses, liabilities, lawsuits,
judgments and costs and expenses (including reasonable attorney's fees) for
any subleasing commission, finder's fee, or equivalent compensation alleged to
be owing on account of the indemnifying parties dealings with any real estate
broker or agent other than the Brokers. The terms of this section shall survive
the expiration or earlier termination of the sublease term. Sublandlord shall
pay a commission to the Brokers pursuant to a separate agreement with the
Brokers.
6.3 Any notice that may or must be given by either party under this
Sublease shall be delivered (i) personally, (ii) by certified mail, return
receipt requested, or (iii) by a nationally recognized overnight courier,
addressed to the party to whom it is intended. Any notice given to Sublandlord
or Subtenant shall be sent to the respective address set forth on the signature
page below, or to such other address as that party may designate for service of
notice by a notice given in accordance with the provisions of this section. A
notice sent pursuant to the terms of this section shall be deemed delivered (A)
when delivery is attempted, if delivered personally, (B) three (3) business
days after deposit into the United States mail, or (C) the day following
deposit with a nationally recognized overnight courier.
6.4 All amounts payable under this Sublease by Subtenant are payable
directly to Sublandlord. Subtenant shall make any and all such payments to
Advanced Radio Telecom Corp.
6.5 Subtenant shall name Sublandlord as an additional insured under
all insurance policies Subtenant is required to obtain hereunder and pursuant
to the Master Lease, including but not limited to, those policies required
under Section 13(B) of the Master Lease.
7. Hazardous Material.
7.1 Use of Hazardous Material. Subtenant shall not cause or permit
any Hazardous
4
<PAGE> 5
Material (as hereafter defined) to be generated, brought onto, used, stored, or
disposed of in or about the Premises by Subtenant or its agents, employees,
contractors, subtenants, or invitees. If, during the Term hereof, Subtenant
becomes aware of (a) any actual or threatened release of any Hazardous Material
on, under, or about the Premises or (b) any inquiry, investigation, proceeding,
or claim by any government agency or other person regarding the presence of
Hazardous Material on, under, or about the Premises, Subtenant shall give
Sublandlord written notice of the release or investigation within five (5) days
after learning of it and shall simultaneously furnish to Sublandlord copies of
any claims, notices of violation, reports, or other writings received by
Subtenant that concern the release or investigation.
7.2. Remediation Obligations. If the presence of any Hazardous
Material brought onto the Premises by Subtenant or Subtenant's employees,
agents, contractors, or invitees results in contamination of the Premises,
Subtenant shall promptly take all necessary actions, at Subtenant's sole
expense, to return the Premises to the condition that existed before the
introduction of such Hazardous Material. Subtenant shall first obtain approval
of the proposed remedial action from the Master Landlord and the Sublandlord.
This provision does not limit the indemnification obligation set forth herein.
7.3 Definition of "Hazardous Material." As used herein, the term
"Hazardous Material" shall mean any hazardous or toxic substance, material, or
waste that is or becomes regulated by the United States, the State of Illinois,
or any local government authority having jurisdiction over the Building.
Hazardous Material includes any "hazardous substance," as that term is defined
in the Comprehensive Environmental Response, Compensation, and Liability Act of
1980 (CERCLA) (42 United States Code sections 9601-9675), "Hazardous waste," as
that term is defined in the Resource Conservation and Recovery Act of 1976
(RCRA) (42 United States Code sections 6901-6992k), any pollutant, contaminant,
or hazardous, dangerous, or toxic chemical, material, or substance, within the
meaning of any other applicable federal, state, or local law, regulation,
ordinance, or requirement (including consent decrees and administrative orders
imposing liability or standards of conduct concerning any hazardous, dangerous,
or toxic waste, substance, or material, now or hereafter in effect), petroleum
products, radioactive material, including any source, special nuclear, or
byproduct material as defined in 42 United States Code sections 2011-2297g-4,
and polychlorinated biphenyls (PCBs) and substances or compounds containing
PCBs.
8. Indemnity. Subtenant shall, at Subtenant's sole expense and with
counsel reasonably acceptable to Sublandlord, indemnify, defend, protect and
hold harmless Master Landlord, Sublandlord and their respective shareholders,
directors, officers, employees, partners, affiliates and agents from and
against all claims, demands, losses, liabilities, lawsuits, judgments and
costs and expenses (including reasonable attorney's fees) caused by, arising
from or resulting from (a) the failure of Subtenant to perform any of the
covenants, agreements, terms, provisions, or conditions contained herein or in
the Master Lease that Subtenant is obligated to perform under the provisions of
this Sublease, (b) Subtenant's use or occupancy of the Premises, (c) the
release of any Hazardous Material in or about the Premises, or the violation of
any Environmental Law, by Subtenant or Subtenant's agent, contracts, or
invitees. This indemnification includes losses attributable to diminution in
the value of the Premises, loss or restriction of use of the Premises, adverse
effect on the marketing of any space on the Premises, and all other
liabilities, obligations, penalties, fines, claims, actions (including remedial
or enforcement actions of any kind and administrative or judicial proceedings,
orders, or judgments), damages (including consequential and punitive damages),
and reasonable costs (including attorney, consultant, and expert fees and
expenses) resulting from the release or violation. This indemnification shall
survive the expiration or termination of this Sublease.
5
<PAGE> 6
9. Cancellation of Master Lease. In the event the Master Lease is
canceled or terminated for any reason, or involuntarily surrendered by operation
of law before the expiration date of this Sublease, then this Sublease shall
also terminate; provided, however, Subtenant agrees, at the sole option of the
Master Landlord, to attorn to the Master Landlord for the then balance of the
Term of this Sublease and on the then executory terms of this Sublease. That
attornment shall be evidenced by an agreement in form and substance reasonably
satisfactory to the Master Landlord. Subtenant agrees to execute and deliver
such an agreement at any time within ten (10) business days after request by
the Master Landlord. Subtenant waives the provisions of any law now or later in
effect that may provide Subtenant any right to terminate this Sublease or to
surrender possession of the Premises in the event any proceeding is brought by
the Master Landlord to terminate the Master Lease.
10. Assignment or Subleasing. Subtenant shall have no right to assign
this Sublease or to sublet all or any portion of the Premises without the prior
written consent of both Sublandlord and Master Landlord, which consents will
not be unreasonably withheld.
11. Security Deposit.
11.1 Within five business days following Subtenant's execution of
this Sublease, Subtenant shall deposit with Sublandlord the amount of
$11,775.59 ("Security Deposit"). The Security Deposit shall be held by
Sublandlord as security for the faithful performance by Subtenant of all the
terms, covenants, and conditions of this Sublease to be kept and performed by
Subtenant during the Term. If Subtenant defaults with respect to any provision
of this Sublease, including, but not limited to, any provision relating to the
payment of rent, Sublandlord may (but shall not be required to) use, retain and
apply all or any part of the Security Deposit for the payment of any rent or
any other sum in default, or for the payment of any amount which Sublandlord
may spend or become obligated to spend by reason of Subtenant's default, or to
compensate Sublandlord for any other loss or damage which Sublandlord may
suffer as a result of Subtenant's default. If any portion of the Security
Deposit is so used or applied, Subtenant shall, within five (5) days after
written demand therefor, deposit with Sublandlord in cash or a cashier's check
an amount sufficient to restore the Security Deposit to its original amount,
and Subtenant's failure to do so shall constitute a material default under this
Sublease.
11.2 No trust relationship is created between Sublandlord and
Subtenant with respect to the Security Deposit. Sublandlord shall not be
required to keep the Security Deposit separate from its general funds, and
Subtenant shall not be entitled to interest on the Security Deposit. If
Subtenant shall fully and faithfully perform every provision of this Sublease,
the Security Deposit, or any balance thereof, shall be returned to Subtenant
(or, at Sublandlord's option, to the last assignee of Subtenant's interest
hereunder) within fifteen (15) days following the expiration of the Sublease
Term or vacation of the Premises by Subtenant, whichever event occurs last. In
the event of a termination of Sublandlord's interest in this Sublease, the
Security Deposit, or any portion thereof not previously applied, may be
released by Sublandlord to Sublandlord's transferee and, if so released,
Subtenant agrees to look solely to such transferee for proper application of
the Security Deposit in accordance with the terms of this Section and the
return thereof in accordance herewith.
12. General Provisions.
12.3 Severability. If any provision of this Sublease or the
application of any provision of this Sublease to any person or circumstance is,
to any extent, held to be invalid or unenforceable, the remainder of this
Sublease or the application of that provision to persons or
6
<PAGE> 7
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected, and each provision of this Sublease shall be valid and
be enforced to the fullest extent permitted by law.
12.4 Entire Agreement; Waiver. This Sublease constitutes the final,
complete and exclusive statement between the parties to this Sublease
pertaining to the Premises, supersedes all prior and contemporaneous
understandings or agreements of the parties, and is binding on and inures to
the benefit of their respective heirs, representatives, successors, and
assigns. No party has been induced to enter into this Sublease by, nor is any
party relying on, any representation or warranty outside those expressly set
forth in this Sublease. Any agreement made after the date of this Sublease is
ineffective to modify, waive, release, terminate, or effect an abandonment of
this Sublease, in whole or in part, unless that agreement is in writing, is
signed by the parties to this Sublease, and specifically states that agreement
modifies this Sublease.
12.5 Captions. Captions to the sections in this Sublease are included for
convenience only and do not modify any of the terms of this Sublease.
12.6 Further Assurances. Each party to this Sublease shall at its own
cost and expense execute and deliver such further documents and instruments and
shall take such other actions as may be reasonably required or appropriate to
evidence or carry out the intent and purposes of this Sublease.
12.7 Governing Law. This Sublease shall be governed by and in all
respects construed in accordance with the laws of the State of Illinois.
12.8 Capitalized Terms. All terms spelled with initial capital letters in
this Sublease that are not expressly defined in this Sublease shall have the
respective meanings given such terms in the Master Lease.
7
<PAGE> 8
12.9 Word Usage. Unless the context clearly requires otherwise, (a)
the plural and singular numbers shall each be deemed to include the other; (b)
the masculine, feminine, and neuter genders shall each be deemed to include the
others; (c) "shall," "will," "must," "agrees," and "covenants" are each
mandatory; (d) "may" is permissive; (e) "or" is not exclusive; and (f)
"includes" and "including" are not limiting.
The parties have executed this Sublease as of the date specified above.
Sublandlord: ADVANCED RADIO TELECOM CORP., a Delaware
corporation
By: /s/ R. S. MCCAMBRIDGE
---------------------------------
R. S. McCambridge
Its: President & C.O.O.
--------------------------------
Address of Sublandlord: 500-108th Avenue NE, Suite 2600
Bellevue, Washington 98004
Attention: General Counsel
Subtenant: QUINTUS CORPORATION, a California
corporation
By: [Signature Illegible]
---------------------------------
Its: Business Admin Manager
--------------------------------
Address of Subtenant: Four Westbrook Corporate Center
Suite 620
Westchester, Illinois 60154
Attention:
--------------------------
8
<PAGE> 9
WESTBROOK CORPORATE CENTER
WESTCHESTER, ILLINOIS
OFFICE LEASE
Between
LASALLE NATIONAL TRUST, N.A.,
AS SUCCESSOR TRUSTEE UNDER
TRUST NO. 115264
LANDLORD
and
Advanced Radio Telecom, Inc.
TENANT
DATED: December 18, 1996
Lease Prepared by: Sidney G. Saltz
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
(312) 222-9350
<PAGE> 10
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Basic Lease Provisions 1
2. Lease 1
3. Term 2
4. Possession 2
5. Purpose 2
6. Rent 2
7. Additional Rent 2
8. Lock Box 4
9. Services 5
10. Tenant's Obligations 5
11. Quiet Enjoyment 6
12. Certain Rights Reserved To Landlord 6
13. Risk Allocation And Insurance 7
14. Indemnity 9
15. Assignment Or Subletting 9
16. Condition Of Premises 10
17. Use of Premises 10
18. Repairs And Compliance 12
19. Fire Or Casualty 12
20. Eminent Domain 12
21. Surrender 13
22. Removal Of Tenant's Property 13
23. Holding Over 13
24. Subordination Or Superiority 14
25. Encumbering Title 14
26. Liens And Rights To Content 14
27. Defaults 14
28. Remedies 15
29. Opportunity To Cure 15
30. Landlord's Right To Cure 15
31. Remedies Cumulative 16
32. Default Under Other Leases 16
33. No Reinstatement 16
</TABLE>
i
<PAGE> 11
<TABLE>
<S> <C>
34. Alteration 16
35. Security Deposit 17
36. Relocation Of Tenant 17
37. Parking Areas 17
38. Brokerage 18
39. Estoppel Certificates 18
40. Tenant's Statement 18
41. Notices And Consents 18
42. Modification Of Lease 18
43. Landlord Means Owner 18
44. Miscellaneous Provisions 19
45. Short Form Lease 19
46. Binding On Successors 19
47. Execution Of Lease By Landlord 19
48. Light And Air 19
49. Force Majeure 19
50. Landlord's Expenses 19
51. Tenant's Authorization 19
52. Exculpatory Clause 19
</TABLE>
ii
<PAGE> 12
OFFICE LEASE
WESTBROOK CORPORATE CENTER
WESTCHESTER, ILLINOIS
THIS LEASE is made and entered into this 18th day of December 1996, by and
between, ______________________________________ but as Successor Trustee under
a Trust Agreement dated February 9, 1990, and known as Trust No. 115264
("Landlord") and Advanced Radio Telecom, Inc., a Delaware corporation,
qualified to transact business in Illinois _______________________________
("Tenant").
1. BASIC LEASE PROVISIONS.
A. Property Address: Four Westbrook Corporate Center, Westchester,
Illinois 60154.
B. Tenant's Address until the Commencement Date: 1415 West 22nd
Street, Oak Brook, Illinois 60521
Thereafter, the Premises.
C. Agent of Beneficiaries of Landlord: Podolsky and Associates
L.P., One Westbrook Corporate Center, Suite 400, Westchester, Illinois
60154 ("Agent").
D. Lease Term: Seven (7) years
E. Commencement Date: January 1, 1997
F. Expiration Date: December 31, 2003
G. Monthly Base Rent: $12,245.83
See Rider
H. Payee of Rent: Podolsky and Associates Management Account II
I. Address for Payment of Rent: Lock Box 72414, Chicago, Illinois
60678
J. Suite Number of Premises: 620
K. Rentable Area of Premises: 5,878 square feet
L. Rentable Area of this Project: 1,101,920 square feet
M. Initial Tenant's Pro Rata Share: .5334 percent
N. Security Deposit: $48,983.32 (See Rider)
O. Broker: Podolsky and Associates L.P. and Chicago Realty Group
P. Base Operating Expenses: Operating Expenses per square foot paid
or incurred in 1997.
Q. Base Taxes: Taxes per square foot paid in 1997 (assessed in
1996).
R. Number of Parking Spaces: Nineteen (19)
S. Number of Parking Spaces to be located in Executive Parking
Structure: Three (3)
T. Rider: Check if a Rider is attached. [X]
2. LEASE. Landlord, for and in consideration of the rents herein reserved
and of the covenants and agreements herein contained on the part of the Tenant
to be performed, hereby leases to the Tenant, and the Tenant accepts from the
Landlord, certain space as shown on Exhibit A attached hereto and made a part
hereof, designated as the Suite specified in Section 1(J) ("Premises") and
located in the office portion of one of the buildings (individually or
collectively, as the context requires, the "Building"), situated
<PAGE> 13
on and a part of the property (the "Property") legally described in Exhibit B
attached hereto and made a part hereof. The property is part of a larger
complex known as Westbrook Corporate Center which consists of a total of five
(5) office buildings (the "Project").
3. TERM. Subject to Section 4, the term of this Lease (hereinafter
"Term") shall commence on the date (hereinafter "Commencement Date") which is
the earlier to occur of:
A. The date specified in Section 1(E); or
B. The date Tenant first occupies all or part of the Premises.
The Term shall expire on the date ("Expiration Date") specified in Section 1(F)
unless sooner terminated as otherwise provided elsewhere in the Lease.
4. POSSESSION. Landlord agrees to perform the work, if any,
specified in the Work Letter Agreement attached hereto as Exhibit C and by this
reference made a part hereof. See Rider. The Work shall be deemed
"substantially completed" when the Work specified in the Work Letter Agreement
is fully completed except for so-called "punch list" items, none of which
interfere with Tenant's use and occupancy of the Premises for the conduct of
its business and a certificate of occupancy is issued (unless the issuance is
prevented by the act or omission of Tenant). Landlord shall notify Tenant as
soon as such Work is substantially completed. In the event that there is a
dispute as to whether such Work is substantially completed, the dispute shall
be resolved by the architect who prepared the plans and specifications. Taking
of possession by Tenant shall be deemed conclusively to establish that such
Work has been completed in accordance with the Work Letter Agreement, except
for any agreed "punch list" items. If the Premises are not substantially
completed on or before the date specified in Section 1(E) hereof, this Lease
shall remain in effect, the Landlord shall have no liability to Tenant as a
result of any delay in occupancy, but, unless the delay is occasioned by any
act or omission of Tenant, the Commencement Date determined in accordance with
Section 3 hereof shall be delayed to the date on which such work is
substantially completed, and the Expiration Date shall be delayed by a like
number of days. See Rider.
5. PURPOSE. The Premises shall be used and occupied only for the
purpose of general offices and related office uses.
6. RENT. Tenant agrees to pay the Monthly Base Rent to the Payee
specified in Section 1(H), at the address specified in Section 1(I), or to such
other payee or at such other address as may be designated by notice in writing
from Landlord to Tenant, without prior demand therefor and without any
deduction whatsoever. Unless otherwise provided to the contrary in this Lease,
Monthly Base Rent shall be paid monthly in advance on the first day of each
month of the Term, except that the first installment of Monthly Base Rent shall
be paid by Tenant to Landlord upon execution of this Lease by Tenant. Monthly
Base Rent shall be pro-rated for partial months at the beginning and end of the
Term. All charges, costs and sums required to be paid by Tenant to Landlord
under this Lease in addition to Monthly Base Rent shall be deemed "Additional
Rent," and Monthly Base Rent and Additional Rent hereinafter collectively be
referred to as "Rent." Tenant's covenant to pay Rent shall be independent of
every other covenant in this Lease. Rent not paid within five (5) days after
notice shall bear interest from the due date at a rate per annum equal to two
percent (2%) in excess of the announced base rate of interest of American
National Bank and Trust Company of Chicago, as of the date of such default
("Default Rate").
7. ADDITIONAL RENT. A. It is contemplated by Landlord that the
Project will be under unified management. If and so long as such unified
management shall continue, Additional Rent shall be payable pursuant to
Sections 7(B) and 7(C) hereof. If such unified management shall be
discontinued, then the provisions of Section 7(G) shall control. It is mutually
understood that the Monthly Base Rent does not anticipate any increase in the
amount of taxes on the Project or in the cost of operation and maintenance of
the Project. In order that the Rent payable hereunder shall reflect all such
increases, Tenant agrees to pay as Additional Rent, an amount calculated as
hereinafter set forth.
B. Definitions:
(i) First Year: The calendar year in which the Lease
commences.
(ii) Subsequent Year: Any calendar year following the First
Year.
(iii) Taxes: All taxes and assessments of every kind and
nature which the owner or owners of the Project ("Owners") shall
pay or become obligated to pay in respect of a calendar year
because of or in connection with the ownership, leasing and
operation of the Project, subject to the following:
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(a) the amount of ad valorem real and personal
property taxes against Owner's real and personal property to be
included shall be the amount shown by the latest available tax
bills on the last day of the calendar year in respect of which
Taxes are being determined. There shall be deducted from Taxes, the
amount of any refunds in Taxes relative to the Project, in the year
received by Owners;
(b) the amount of special taxes or special
assessments to be included shall be limited to the amount of the
installment (plus any interest (other than penalty interest)
payable thereon) of such special tax or special assessment required
to be paid during the calendar year in respect of which Taxes are
being determined;
(c) the amount of any excise, sales, income or
privilege tax or any other tax of any kind levied by the State of
Illinois or any political subdivision thereof, on rents or other
income from the Project shall be included, without limitation, but
shall not be greater than the amount which would have been payable
on account of such tax by Owners during the calendar year in
respect of which Taxes are being determined had the income received
by Owners from the Project been the sole taxable income of Owners
for such calendar year;
(d) there shall be excluded from Taxes all federal
income taxes, state and local net income taxes, federal excess
profits taxes, franchise, capital stock and federal or state
inheritance or estate taxes; however, if and to the extent that,
due to a change in the method of assessment or taxation, any
franchise, capital stock, income, profits or excess profits or
other tax or charge shall be substituted for the Taxes or any part
thereof now or hereafter imposed because of or in connection with
the ownership, leasing and operation of the Project, such taxes,
computed as if Owners owned or operated no property other than the
Project, shall be deemed included in the term Taxes.
(e) Taxes shall also include fees and costs incurred
by Owners during or prior to the Lease term for the purpose of
contesting or protesting tax assessments or rates, to the extent
that such fees and costs relate to savings realized during the term
of the Lease and any extensions thereof.
(f) See Rider.
(iv) Operating Expenses: All expenses, incurred or paid on
behalf of Owners in respect of the ownership, management, operation,
maintenance and repair of, and necessary replacements in, the Project
which, in accordance with generally accepted accounting practice as
applied to the operation and maintenance of first-class mixed use office
and commercial buildings, are properly chargeable to the ownership,
management, operation, maintenance and repair of, and necessary
replacements in, the Project including, without limitation, the cost of
window washing, scavenger service, repair or replacement of any heating,
ventilating and air conditioning equipment, wages and union benefits of
janitors, cleaning personnel, engineers and other employees (including
the amount of any social security taxes, unemployment insurance
contributions and "fringe benefits"), insurance premiums, fuel costs and
utility costs and management fees (not to exceed three percent (3%) of
gross receipts). Operating Expenses shall specifically include the costs,
as reasonably amortized by Owners with interest at a rate per annum equal
to two percent (2%) per annum in excess of the announced base rate of
interest of American National Bank and Trust Company of Chicago in effect
as of the completion of any capital improvement, on the unamortized
amount of any capital improvement made after the First Year which reduces
other Operating Expenses, but in an amount not to exceed in any one year
the reduction of such expense for that year. Operating Expenses shall not
include: (a) any interest expense on mortgages placed upon the Project;
(b) franchise or income taxes imposed upon Owners; (c) the cost of any
work or service performed in any instance for any tenant (including
Tenant) at the cost of such tenant; (d) expenses incurred by Owners as a
result of a fire or other casualty or as a result of a taking by way of
eminent domain; (e) expenses incurred in leasing or procuring new
tenants; (f) legal expenses in enforcing the terms of any leases; (g)
wages, salaries or other compensation paid to any executive employee
above the grade of building manager; (h) any expenses incurred solely due
to one tenant (including Tenant) and paid for by that tenant; or (i) any
uninsured casualty required herein to have been insured by Landlord. In
the event any buildings are not fully occupied during the First year or
any Subsequent Year, the variable Operating Expenses for that year shall
be equitably adjusted to reflect the Operating Expenses as though the
Building were fully occupied. Further, if Owners are not furnishing any
particular work or service (the cost of which if performed by Owners
would constitute an Operating Expense) to a tenant who had undertaken to
perform such work or service in lieu of the performance thereof by
Owners, Operating Expenses shall be deemed for the purposes of this
Section to be increased by an amount equal to the additional Operating
Expenses which would reasonably have been incurred during such period by
Owners if they had at its own expense furnished such work or service to
such tenant.
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(v) Tenant's Pro Rata Share: As of the date of this Lease,
the percentage set forth in Section 1(M) Tenant's Pro Rata Share shall
be adjusted from time to time so as to reflect the then current
proportion (expressed as a percentage) of the rentable area of the
Premises to the rentable area of all buildings on the Project;
provided, however, that if and so long as any portion of the Project
is leased to "stand-alone tenants" as hereinafter defined, the
percentage set forth in Section 1(M) shall not be applicable to
Tenant's Pro Rata Share of Operating Expenses. In such event, for the
purposes of calculating Tenant's Pro Rata Share of Operating
Expenses, there shall be excluded from the rentable area of all
buildings on the Project, the rentable area of any portions of the
Project leased to "stand-along tenants," which term shall mean major
retail or service tenants occupying the commercial, rather than the
office portion of the Project, whose leases do not provide for the
payment of Operating Expenses on the same basis as the remaining
commercial tenants on the Project.
C. As soon as practicable after January 1 in the first
Subsequent Year and in each Subsequent Year thereafter during the Term of
this Lease, and in the Subsequent Year following the year in which this
Lease expires, Landlord shall deliver to Tenant a statement in writing
setting forth the amount of Operating Expenses and Taxes during the
immediately preceding year. Within thirty (30) days after the delivery of
all such statements in each Subsequent Year, Tenant shall pay to Landlord
as Additional Rent, (i) a portion of Operating Expenses calculated by (a)
multiplying Tenant's Pro Rata Share of Operating Expenses by the amount of
Operating Expenses shown in Landlord's statement, and (b) subtracting
therefrom an amount calculated in turn by multiplying Base Operating
Expenses specified in Section 1(P) hereof by the Rentable Area of the
Premises; plus (ii) a portion of Taxes calculated by (a) multiplying
Tenant's Pro Rata Share by the amount of Taxes shown in Landlord's
statement, and (b) subtracting therefrom an amount calculated in turn by
multiplying Base Taxes specified in Section 1(O) hereof by the Rentable
Area of the Premises; minus (iii) the amount of Additional Rent paid by
Tenant for such Subsequent Year pursuant to Sections 7(D) and (E) hereof.
In the event that due to any payment made in accordance with said Sections
7(D) and (E), the Additional Rent paid in the immediately preceding
Subsequent Year exceeds the Additional Rent due from Tenant for such
period, Landlord shall pay to Tenant the excess amount, without interest,
within thirty (30) days after Landlord's statement. If the term ends other
than on the last day of a Subsequent Year, Tenant's Additional Rent shown
on the statement delivered after the end of the Term shall be reduced
proportionately and the payment due from Landlord or Tenant shall also be
apportioned and paid as aforesaid.
D. Landlord may make reasonable estimates, forecasts or
projections ("Projection") of Operating Expenses and Taxes for any
Subsequent Year. Landlord may deliver to Tenant a written statement
setting forth a Projection and a calculation of a monthly amount of
Additional Rent payable by Tenant by reason thereof, to become effective
as of delivery of the Projection. Tenant shall pay to Landlord the monthly
amount of Additional Rent determined pursuant to the Projection; provided,
however, that the Additional Rent shall be adjusted when the actual amount
of Additional Rent can be determined.
E. After delivery of Landlord's statement, as provided in
Section 7(C), and determination of the amount of the payment of Additional
Rent to be made to Landlord, or refunded to Tenant, as the case may be,
the monthly installments of Additional Rent then being paid by Tenant
(either by reason of Section 7(D) hereof or by reason of a prior
readjustment pursuant to this Section 7(E)) shall (i) be increased by
one-twelfth of the amount of such payment if it is made by Tenant to
Landlord, or (ii) be decreased by one-twelfth of the amount of such refund
made by Landlord to Tenant, subject, however, to Landlord's right under
Section 7(D) to make other reasonable Projections.
F. Anything contained in this Section 7 to the contrary
notwithstanding, the Rent shall not be adjusted or decreased below the
amount of Monthly Base Rent otherwise provided for in this Lease.
G. If the unified management of the Project shall be
discontinued, then Taxes and Operating Expenses shall be limited to Taxes
and Operating Expenses of Landlord relative to the Property, except that
Operating Expenses shall include any such expenses which are incurred or
paid by Landlord pursuant to the Westbrook Corporate Center Declaration of
Easements, Covenants and Restrictions dated April 11, 1988 and recorded
April 13, 1988, in the office of the Recorder of Deeds of Cook County,
Illinois as Document No. 88-153449, and shall exclude payments made by
other Owners to Landlord for such expenses pursuant thereto. In such
event, Tenant's Pro Rata Share shall be adjusted from time to time so as
to reflect the then current proportion (expressed as a percentage) of the
rentable area of the Premises to the rentable area of all buildings on the
Property (subject to the adjustment for "stand-alone" tenants).
8. LOCK BOX. Landlord may from time to time designate a lock box
collection agent for the collection of rents or other charges due
Landlord. In such event, the date of payment shall be the date of receipt
by the lock box collection agent of such payment (or the date of
collection of any such sum if
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payment is made in the form of a negotiable instrument thereafter dishonored
upon presentment); however, for the purposes of this Lease, no such payment or
collection shall be deemed "accepted" by Landlord if an Event of Default shall
have occurred, and if Landlord thereafter remits a check payable to Tenant in
the amount received by the lock box collection agent within twenty one (21)
days after the amount sent by Tenant is received by the lock box collection
agent or, in the case of a dishonored instrument, within twenty one (21) days
after collection. Neither the negotiation of Tenant's negotiable instrument by
the lock box collection agent, nor, the possession of the funds by Landlord
during the twenty one (21) day period, nor the return of any such sum to Tenant
shall be deemed to be inconsistent with the rejection of Tenant's tender of
such payment for all purposes as of the date of Landlord's lock box collection
agent's receipt of such payment (or collection), nor shall any of such events
be deemed to be a waiver of any breach by Tenant of any terms, covenant or
condition of this Lease nor a waiver of any of Landlord's rights or remedies.
9. SERVICES. Landlord shall provide the following services, the
cost of which shall be included in Operating Expenses:
A. Standard janitor service as furnished in first class office
buildings in the Chicago area in and about the Premises, Saturdays,
Sundays and holidays excepted. Tenant shall not provide any janitor
service.
B. Heat and air conditioning of the Premises and common areas,
daily from 8:00 A.M. to 6:30 P.M., Saturdays 8:00 A.M. to 1:00 P.M.,
Sundays and holidays excepted (hereinafter "Business Hours"), whenever
heat or air conditioning shall, in Landlord's judgment, be required to
maintain comfortable temperature. In the event Landlord determines that,
as a result of the use by Tenant in the Premises of electric power for
lights and outlets in excess of 3.5 watts per square foot, or occupancy of
the Premises by more than one person per 200 square feet of rentable area,
supplementary air conditioning is required to maintain a comfortable
temperature in the Premises, Landlord shall have the right to install
supplementary air conditioning equipment in the Premises, and Tenant
shall reimburse Landlord for the cost of such equipment and the
installation thereof, promptly upon being billed therefor by Landlord, and
Tenant shall thereafter, at its sole cost and expense, operate, and
perform necessary repairs, maintenance and, if necessary, replacements
relative to said supplementary equipment. See Rider. Without limiting
Tenant's obligations relative to the repair and maintenance of said
supplementary air conditioning equipment as set forth above, Tenant shall,
at all times during the term of this Lease during which supplementary air
conditioning equipment is installed and operating, have and keep in force
a maintenance contract, in form and with a contractor satisfactory to
Landlord, providing for inspection thereof at least once each calendar
quarter (which inspection shall encompass the work described on Schedule I
attached hereto and made a part hereof) and providing for necessary
repairs thereto. Said contract shall provide that it will not be
cancelable by either party thereto, except upon thirty (30) days' prior
written notice to Landlord.
C. Lighting of common areas during appropriate hours, depending
upon seasons of the year.
D. Water for drinking, lavatory and toilet purposes. Tenant
shall pay, at rates fixed by Landlord, for water used for any purpose other
than drinking, lavatory and toilet purposes.
E. Passenger elevator service in common with other tenants at
all times. Any or all elevator service may be automatic. All special or
construction elevator service shall be available to Tenant, at no
additional charge to Tenant, but shall be subject to reasonable scheduling
by Landlord.
F. Window washing of all windows in the Premises both inside
and out, weather permitting, at intervals to be determined by Landlord, but
no less than three (3) times per year.
Any additional work or services of the character described above and any
unusual amount of such work or service, including service furnished outside the
stipulated hours, required by Tenant, shall be paid for by Tenant at Landlord's
cost, plus 20% thereof for Landlord's overhead. See Rider. Landlord does not
warrant that any of the services above mentioned will be free from
interruptions caused by repairs, renewals, improvements, alterations, strikes,
lockouts, accidents, inability of Landlord to obtain fuel or supplies, or other
causes beyond the reasonable control of Landlord. Any such interruption of
service shall never be deemed an eviction or disturbance of Tenant's use and
possession of the Premises or any part thereof, or render Landlord liable to
Tenant for damages or relieve Tenant from performance of Tenant's obligation
under this Lease. See Rider. Landlord shall not be obligated to provide
ventilating and air conditioning after 10:00 p.m. Landlord's furnishing at its
expense of additional services or services at hours other than those specified
above shall be at Landlord's option and, if furnished, shall never be deemed a
continuing obligation of Landlord.
10. TENANT'S OBLIGATIONS. Tenant shall be responsible for, and shall
pay the following:
A. All utility costs, including without limitation, electric
and other charges incurred in connection with lighting, and providing
electrical power to the Premises. Tenant shall
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<PAGE> 17
hold Landlord harmless from all costs or expenses Landlord may incur from
Tenant's failure to pay utility bills or to perform any of its obligations
with respect to the purchase of utilities.
B. All interior maintenance, repairs and replacements as to the
Premises and its equipment, including, without limitation, equipment for
fire protection, plumbing, sewage and drainage serving the Premises only,
plus sprinkler heads, fixtures and appurtenances, the replacement of lamps
and ballasts, as required, but excluding the heating, ventilation and air
conditioning equipment serving the Premises. Such work shall be performed
at Tenant's expense either by Agent's employees or contractors or by
persons approved by Landlord.
11. QUIET ENJOYMENT. Landlord represents that it has full power and
authority to enter into this Lease. So long as Tenant is not in default in the
performance of its covenants and agreements in this Lease, Tenant's quiet and
peaceable enjoyment of the Premises shall not be disturbed or interfered with
by Landlord or by any person claiming by, through, or under Landlord.
12. CERTAIN RIGHTS RESERVED TO LANDLORD. Landlord reserves the
following rights:
A. To change the Building's name or street address upon 30 days'
prior written notice to Tenant.
B. To install, affix and maintain all signs on the Property or
on the exterior and/or interior of the Building.
C. To designate and/or approve prior to installation, all types
of signs, window shades, blinds, drapes, awnings or other similar items,
and all internal lighting that may be visible from the exterior of the
Building, or from interior common areas of the Building.
D. On reasonable prior notice to Tenant, to exhibit the Premises
to prospective tenants during the last twelve (12) months of the Term, and
to others having a legitimate interest at any time during the Term.
E. To maintain "For Rent" signs on the Property or on the
exterior and/or interior of the Building and upon the common areas.
F. To change the arrangement of entrances, doors and corridors
in the Building.
G. To grant to any party the exclusive right to conduct any
business or render any service on or to the Property, provided such
exclusive right shall not operate to prohibit Tenant from using the
Premises for the Purpose set forth in Section 5.
H. To approve the weight, size and location of safes, vaults and
other heavy equipment and articles in and about the Premises and the
Building (so as not to exceed the legal live load per square foot
designated by the structural engineers for the Building).
I. To establish controls for the purpose of regulating all
property and packages (both personal and otherwise) to be moved into or out
of the Premises and Building.
J. To regulate delivery and service of supplies in order to
insure the cleanliness and security of the Premises and to avoid congestion
of the loading docks, receiving areas and freight elevators.
K. To have access for Landlord and other tenants of the Building
to any mail chutes and boxes located in or on the Premises according to the
rules of the United States Postal Service.
L. To close the Building after Business Hours, except that the
Tenant and its employees and invitees shall be entitled to admission at all
times, under such regulations and procedures as Landlord may prescribe for
security purposes.
M. To take any and all reasonable measures, including
inspections and repairs to the Premises or to the Building or Property, as
may be necessary or desirable in the operation or protection thereof.
N. To retain at all times master keys or pass keys to the
Premises.
O. To install, operate and maintain a building security system
which monitors, by closed circuit television or otherwise, all persons
entering and leaving the Building.
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P. To install and maintain pipes, ducts, conduits, wires and
structural elements located in the Premises which serve other parts of the
Building or other tenants. See Rider.
Q. To schedule Tenant's move into and out of the Building.
R. During the last ninety (90) days of the Term, if during or prior
to that time Tenant vacates the Premises, to decorate, remodel, repair,
alter or otherwise prepare the Premises for reoccupancy.
S. To install within the Premises suitable controls so as to
maintain a minimum air temperature of 50 degrees F in order to prevent the
freezing of water pipes.
Landlord may enter upon the Premises for said purposes and may exercise any or
all of the foregoing rights hereby reserved without being deemed guilty of an
eviction or disturbance of Tenant's use or possession of the Premises and
without being liable in any manner to Tenant. Landlord shall give Tenant not
less than one (1) day's prior oral notice of any entry onto the Premises,
except that if an emergency exists, Landlord may enter without notice; if
Tenant is not available to admit Landlord in an emergency, Landlord may use
reasonable force commensurate with the circumstances, to enter the Premises.
13. RISK ALLOCATION AND INSURANCE.
A. Allocation of Risks. The parties desire, to the extent permitted
by law, to allocate certain risks of personal injury, bodily injury or
property damage, and risks of loss of real or personal property by reason
of fire, explosion or other casualty, and to provide for the responsibility
for insuring those risks. It is the intent of the parties that, to the
extent any event is insured for or required herein to be insured for, any
loss, cost, damage or expense arising from such event, including, without
limitation, the expense of defense against claims or suits, be covered by
insurance, without regard to the fault of Tenant, its officers, employees
or agents ("Tenant Protected Parties"), and without regard to the fault of
Landlord, its beneficiaries, Agent, their respective partners,
shareholders, members, agents, directors, officers and employees ("Landlord
Protected Parties"). As between Landlord Protected Parties and Tenant
Protected Parties, such risks are allocated as follows:
(i) Tenant shall bear the risk of bodily injury, personal injury
or death, or damage to the property, of third persons, occasioned by
events occurring on or about the Premises, regardless of the party at
fault. Said risks shall be insured as provided in Section 13(B)(i).
(ii) Landlord shall bear the risk of bodily injury, personal
injury, or death or damage to the property, of third persons,
occasioned by events occurring on or about the Property (other than
premises leased to tenants), provided such event is occasioned by the
wrongful act or omission of any of Landlord Protected Parties. Said
risk shall be insured against as provided in Section 13(C)(i).
(iii) Tenant shall bear the risk of damage to Tenant's contents,
trade fixtures, machinery, equipment, furniture and furnishings in
the Premises arising out of loss by the events required to be insured
against pursuant to Section 13(B)(ii).
(iv) Landlord shall bear the risk of damage to the Building
arising out of loss by events required to be insured against pursuant
to Section 13(C)(ii).
Notwithstanding the foregoing, provided the party required to carry
insurance under Section 13(B)(i) or Section 13(C)(i) hereof does not
default in its obligation to do so, if and to the extent that any loss
occasioned by any event of the type described in Section 13(A)(i) or
Section 13(A)(ii) exceeds the coverage or the amount of insurance as is
actually carried, or results from an event not required to be insured
against or not actually insured against, the party at fault shall pay the
amount not actually covered.
B. Tenant's Insurance. Tenant shall procure and maintain policies
of insurance, at its own cost and expense, insuring:
(i) the Landlord Protected Parties (as "named insureds"), and
Landlord's mortgagee, if any, of which Tenant is given written
notice, and Tenant Protected Parties, from all claims, demands or
actions made by or on behalf of any person or persons, firm or
corporation and arising from, related to or connected with the
Premises, for bodily injury to or personal injury to or death of any
person, or more than one (1) person, or for damage to property in an
amount of not less than $3,000,000.00 combined single limit per
occurrence/aggregate. Said insurance shall be written on an
"occurrence" basis and not on a "claims made" basis. If at any time
during the term of this Lease, Tenant owns or rents
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<PAGE> 19
more than one location, the policy shall contain an endorsement
to the effect that the aggregate limit in the policy shall apply
separately to each location owned or rented by Tenant. Landlord
shall have the right, exercisable by giving written notice
thereof to Tenant, to require Tenant to increase such limit if,
in Landlord's reasonable judgment, the amount thereof is
insufficient to protect the Landlord Protected Parties and
Tenant Protected Parties from judgments which might result from
such claims, demands or actions. If Tenant is unable, despite
reasonable efforts in good faith, to cause its liability insurer
to insure the Landlord Protected Parties as "named insureds",
Tenant shall nevertheless cause the Landlord Protected Parties
to be insured as "additional insureds" and in such event, Tenant
will protect, indemnify and save harmless the Landlord Protected
Parties from and against any and all liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses
(including without limitation reasonable attorney's fees and
expenses) imposed upon or incurred by or asserted against the
Landlord Protected Parties, or any of them, by reason of any
bodily injury to or personal injury to or death of any person or
more than one person or for damage to property, occurring on or
about the Premises, caused by any party including, without
limitation, any Landlord Protected Party, to the extent of the
amount of the insurance required to be carried under this
Section or such greater amount of insurance as is actually
carried. Tenant shall cause its liability insurance to include
contractual liability coverage fully covering the indemnity
hereinabove set forth.
(ii) all contents and Tenant's trade fixtures,
machinery, equipment, furniture and furnishings in the Leased
Premises to the extent of at least ninety percent (90%) of their
replacement cost under Standard Fire and Extended Coverage
Policy and all other risks of direct physical loss as insured
against under Special Form ("all risk" coverage). Said insurance
shall contain an endorsement waiving the insurer's right of
subrogation against any Landlord Protected Party, provided that
such waiver of the right of subrogation shall not be operative
in any case where the effect thereof is to invalidate such
insurance coverage or increase the cost thereof (except that
Landlord shall have the right, within thirty (30) days following
written notice, to pay such increased cost, thereby keeping such
waiver in full force and effect).
C. Landlord's Insurance. Landlord shall procure and
maintain policies of insurance insuring:
(i) All claims, demands or actions made by or on
behalf of any person or persons, firm or corporation and arising
from, related to or connected with the Property, other than
premises leased to tenants, for bodily injury to or personal
injury to or death of any person, or more than one (1) person,
or for damage to property in an amount of not less then
$3,000,000.00 combined single limit per occurrence/aggregate.
Said insurance shall be written on an "occurrence" basis and not
on a "claims made" basis. If at any time during the term of this
Lease, Landlord owns more than one location, the policy shall
contain an endorsement to the effect that the aggregate limit in
the policy shall apply separately to each location owned by
Landlord.
(ii) The improvements at any time situated upon
the Property against loss or damage by fire, lightning, wind
storm, hail storm, aircraft, vehicles, smoke, explosion, riot or
civil commotion as provided by the Standard Fire and Extended
Coverage Policy and all other risks of direct physical loss as
insured against under Special Form ("all risk" coverage). The
insurance coverage shall be for not less than 90% of the full
replacement cost of such improvements with agreed amount
endorsement. Landlord shall be named as the insured and all
proceeds of insurance shall be payable to Landlord. Said
insurance shall contain an endorsement waiving the insurer's
right of subrogation against any Tenant Protected Party,
provided that such waiver of the right of subrogation shall not
be operative in any case where the effect thereof is to
invalidate such insurance coverage or increase the cost thereof
(except that Tenant shall have the right, within thirty (30)
days following written notice, to pay such increased cost,
thereby keeping such waiver in full force and effect).
(iii) Landlord's business income, protecting
Landlord from loss of rents and other charges during the period
while the Premises are untenantable due to fire or other
casualty (for the period reasonably determined by Landlord).
(iv) Such other risks as reasonably determined
by Landlord.
D. Form of Insurance. All of the aforesaid insurance
shall be in responsible companies. As to Tenant's insurance, the insurer
and the form, substance and amount (where not stated above) shall be
satisfactory from time to time to Landlord and any mortgagee of
Landlord, and shall unconditionally provide that it is not subject to
cancellation, material modification or non-renewal except after at least
thirty (30) days prior written notice to Landlord and any mortgagee of
Landlord. Originals of Tenant's insurance policies (or certificates
thereof satisfactory to Landlord), together with satisfactory evidence
of payment of the premiums thereon, shall be deposited with
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Landlord at the Commencement Date and renewals thereof not less than thirty
(30) days prior to the end of the term of such coverage.
14. INDEMNITY. Tenant agrees to protect, indemnify and save Landlord
Protected Parties (as defined in Section 13) harmless from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses) imposed upon or incurred by or asserted against Landlord Protected
Parties, or any of them, by reasons of (a) any failure on the part of Tenant to
perform or comply with any of the terms of this Lease; or (b) performance of any
labor or services or the furnishing of any materials or any property in respect
to the Premises or any part thereof. In case any action, suit or proceeding is
brought against Landlord by reason of any such occurrence, Tenant will, at
Tenant's expense, by counsel reasonably approved by Landlord, resist and defend
such action, suit or proceeding, or cause the same to be resisted and defended.
15. ASSIGNMENT OR SUBLETTING.
A. Tenant shall not, without Landlord's prior written consent
(i) assign, convey or mortgage this Lease or any interest under it; (ii)
allow any transfer thereof or any lien upon Tenant's interest by operation
of law; (iii) sublet the Premises or any part thereof; or (iv) permit the
occupancy of the Premises or any part thereof by anyone other than Tenant.
If Tenant desires to assign the Lease or enter into any sublease of the
Premises, Tenant shall deliver written notice thereof to Landlord, together
with a copy of the proposed assignment or sublease agreement at least
thirty (30) day's prior to the effective date of the proposed assignment,
or the proposed commencement date of the term of the proposed sublease.
B. In making its determination as to whether to consent to any
proposed assignment or sublease, Landlord may consider, among other things,
the credit-worthiness and business reputation of the proposed assignee or
subtenant, the intended manner of use of the Premises by the proposed
assignee or subtenant, the estimated pedestrian and vehicular traffic in
the Premises and to the Property which would be generated by the proposed
assignee or subtenant, and any other factors which Landlord may deem
relevant. Subject to the foregoing, Landlord's consent to any assignment or
subletting shall not unreasonably be withheld. Any proposed assignment or
sublease shall be expressly subject to the terms and conditions of the
Lease. Any assignee shall expressly assume in writing all of Tenant's
obligations under the Lease. Any sublease shall (a) provide that the
sublease shall procure and maintain policies of insurance covering
liability and covering all contents, sublessee's trade fixtures, machinery,
equipment, furniture and furnishings in the Premises, each as required of
Tenants' in accordance with the terms of Section 13(B)(ii) hereof, (b)
provide for copy to Landlord of notice of default by either party, and (c)
otherwise be reasonably acceptable in form to Landlord.
C. In the event that Tenant proposes to assign the Lease or to
enter into a sublease of all or substantially all of the Premises,
Landlord shall have the right to terminate this Lease, effective as of the
effective date of the assignment or the commencement date of the proposed
sublease, as the case may be. Landlord may exercise said right by giving
Tenant written notice thereof within fifteen (15) days after receipt by
Landlord of Tenant's notice of the proposed assignment or sublease. In the
event that Landlord exercises such right, Tenant shall surrender the
Premises on the effective date of the termination and this Lease shall
thereupon terminate. Landlord may, in the event of such termination, enter
into a lease with any proposed assignee or subtenant for the Premises.
D. In the event that Tenant proposes to sublease only a
portion of the Premises, Landlord shall have the right to exclude from
this Lease that portion of the Premises proposed to be sublet by Tenant,
effective as of the Commencement Date of the proposed sublease. Landlord
may exercise said right by giving written notice thereof to tenant within
fifteen (15) days after receipt by Landlord of Tenant's notice of the
proposed sublease, and Landlord may enter into a lease with the proposed
subtenant for the portion of the Premises so excluded. In the event that
Landlord exercises such right, Tenant shall surrender the portion of the
Premises proposed to be sublet on the effective date of the exclusion, this
Lease shall terminate with respect to that portion of the Premises so
excluded, and Tenant shall reimburse Landlord, as additional rent, for any
cost to Landlord of construction or installation of necessary walls and
doors and relocation of utilities as required to divide the Premises
(unless such cost is paid for by the subtenant, either in cash or expressly
amortized in the Rent payable by such party). Effective as of the date that
any portion of the Premises are excluded pursuant to this Section 15(D),
the rent and Tenant's Pro Rata Share shall be reduced in the same
proportion as the number of square feet of rentable area contained in the
portion of the Premises so excluded bears to the number of square feet of
rentable area contained in the Premises prior to such exclusion.
Notwithstanding the exclusion of that portion of the Premises and the
termination of the Lease as to said portion, the Lease shall continue in
full force and effect, as so modified, as to the remaining portion of the
Premises. If Landlord does not exercise its right under this section 15(D)
to exclude from this Lease that portion of the Premises proposed to be
sublet by Tenant, and if Tenant enters into the proposed sublease, Tenant
shall pay to Landlord monthly, as additional rent hereunder, fifty percent
(50%) of the amount calculated by subtracting from the rent and other
consideration payable by the subtenant to Tenant for said space during any
month, the amount of "Effective Rent" payable
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<PAGE> 21
by Tenant to Landlord for such month, allocated to the subleased portion
of the Premises. Effective Rent for any month shall mean a sum calculated
by (a) determining the total of (i) Monthly Base Rent and Additional Rent
under Section 7 theretofore abated, plus (ii) any cash allowances
theretofore paid or thereafter to be paid to Tenant, plus (iii) any
payments by Landlord under prior leases of Tenant, plus (iv) any above
building standard construction, as reasonably determined by Landlord, (b)
dividing said total by the total number of months in the Term, and (c)
subtracting the quotient from the amount of Monthly Base Rent payable
under this Lease for such month. For such purpose, Effective Rent shall
be deemed allocated based on the relative rentable square foot area of
the total Premises and of that portion of the Premises so subleased by
Tenant.
E. No permitted assignment shall be effective and no
permitted sublease shall commence unless and until any default by Tenant
hereunder shall have been cured. No permitted assignment or subletting
shall relieve Tenant from Tenant's obligations and agreements hereunder
and Tenant shall continue to be liable as a principal and not as a
guarantor or surety to the same extent as though no assignment or
subletting had been made.
16. CONDITION OF PREMISES. Except as expressly set forth in this
Lease or in the Work Letter Agreement, Landlord has made no promise to alter,
remodel or improve the Premises and has made no representations respecting the
condition of the Premises or the Property.
17. USE OF PREMISES. Tenant agrees to perform the following
covenants and to comply with all reasonable rules and regulations that Landlord
may hereafter from time to time make for the Property. Landlord shall not be
liable in any way for damage caused by the non-observance by any of the other
tenants of such similar covenants in their leases or of such rules and
regulations.
A. Tenant shall occupy and use the Premises during the
terms for the purpose specified in Section 5 hereof and none other, and
shall not conduct itself, or permit its agents, employees or invitees to
conduct themselves, in the Premises or in the Building, in a manner
inconsistent with the character of the Building as a mixed use building
of the highest class, or with the comfort or convenience of other tenants.
B. Tenant shall not, without the prior written consent of
Landlord, exhibit, sell, or offer for sale on the Premises or in the
Building any article or thing except those articles and things
essentially connected with the stated use of the Premises by Tenant.
C. Tenant will not make or permit to be made any use of
the Premises which, directly or indirectly, is forbidden by public law,
ordinance or governmental regulation. Without limiting the generality of
the foregoing, Tenant shall not use or intend to use the Premises, in any
manner or part, to commit, or facilitate the commission of a violation of
the Federal Comprehensive Drug Abuse Prevention and Control Act of 1970,
as amended, or to subject the Property or any part thereof to forfeiture
under the Illinois Controlled Substances Act, Cannabis Control Act or any
similar statute.
D. Tenant shall not sell or offer to sell, distribute or
serve any alcoholic or other intoxicating beverage in or about the
Premises.
E. Any sign, lettering, picture, notice or advertisement
installed within the Premises which is visible from the public areas
within the Building shall be installed in such manner and be of such
character and style as Landlord shall approve in writing prior to such
installation. No sign, lettering, picture, notice or advertisement shall
be placed on any outside window or in a position to be visible from
outside the Building.
F. Tenant shall not advertise the business, profession or
activities of Tenant conducted in the Building in any manner which
violates the letter or spirit of any code of ethics adopted by any
recognized association or organization pertaining to such business,
profession or activities, and shall not use the name of the Project or
the Building for any purposes other than that of the business address of
Tenant, and Tenant shall never use any picture or likeness of the Project
or the Building in any circulars, notices, advertisements or
correspondence without Landlord's prior written consent.
G. Tenant shall not obstruct or use the public areas of
the Building for storage, or for any purpose other than ingress and
egress. Tenant shall not place any object against glass partitions, doors
or windows in the corridor area.
H. No additional locks or similar devices shall be
attached to any door without Landlord's prior written consent and only
upon the condition that Landlord shall have the keys to or combination of
such additional locks or devices. No keys for any door other than those
provided by Landlord shall be made. If more than one key for each lock is
desired, Landlord will provide the same upon payment by Tenant.
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<PAGE> 22
I. All persons entering or leaving the Building may be required
to do so under such regulations and controls as Landlord may from time to time
impose. Without limiting the generality of the foregoing, all persons entering
or leaving the Building between the hours of 6 P.M. and 8 A.M. Monday through
Friday or at any time on Saturday, Sunday or holidays may be required to
identify themselves to a watchman by registration or otherwise and to establish
their right to enter or leave the Building.
J. All corridor doors shall remain closed at all times when not
in use.
K. Tenant assumes all responsibility for protecting the Premises
from theft, robbery and pilferage. Except during Tenant's normal business hours,
Tenant shall keep all doors to the Premises locked and other means of entry to
the Premises closed and secured.
L. Only machinery or mechanical devices of a nature directly
related to Tenant's ordinary use of the Premises shall be installed, placed or
used in the Premises and the installation and use of all such machinery and
mechanical devices is subject to the other covenants contained in this Section
17 and the other portions of this Lease.
M. Tenant shall not do or permit anything to be done, or keep or
permit anything to be kept, in the Premises, which would increase the fire or
other casualty insurance rate on the Building or the property therein, or which
would result in insurance companies of good standing refusing to insure the
Building or any such property on a standard risk basis. In the event that any
use of the Premises by Tenant so increases such cost of insurance, Tenant shall
pay such increased cost to Landlord on demand as Additional Rent, but such
demand, or acceptance of such payment shall not be construed as a consent by
Landlord to Tenant's such use, or limit Landlord's further remedies under this
Lease.
N. Tenant shall comply, and cause its employees, agents,
contractors and invitees to comply, with Landlord's restrictions relative to
smoking in the lobbies, corridors, elevators, links, lavatories or other common
areas on the Property, whether posted or otherwise communicated to Tenant.
O. Safes, furniture, equipment, machines and other large or bulky
articles shall be brought into and out of the Building and into and out of the
Premises only through designated service entrances, and only then at such times
and in such manner (including the proper protection of the Building and the
Premises) as the Landlord shall direct and at Tenant's sole risk and cost.
P. Tenant shall not in any manner deface or damage the Property,
the Building or the Premises.
Q. Tenant shall not permit inflammables such as gasoline,
kerosene, naphtha and benzene, or explosives or any other articles of an
intrinsically dangerous nature in the Building or the Premises.
R. Tenant shall ascertain from Landlord the maximum amount of
electrical current which can safely be used in the Premises, taking into account
the capacity of the electric wiring of the Building and the Premises and the
requirements of other tenants, and shall not use more than such safe capacity.
Landlord's consent to the installation of electrical equipment shall not relieve
Tenant from the obligation not to use more electricity than such safe capacity.
[SEE RIDER.]
S. To the extent permitted by law, Tenant shall not permit
picketing or other union activity involving its employees in the Building,
except in those locations and subject to time and other limitations to which
Landlord may give prior written consent.
T. Tenant shall not enter or permit to be entered into or upon
the roof of the Building or any storage, heating, ventilation, air conditioning,
mechanical or machinery housing areas.
U. Tenant shall not distribute literature, flyers, handouts or
pamphlets of any type in any of the common areas of the Property without the
prior written consent of Landlord.
V. Tenant shall not permit the use of any apparatus for sound
production or transmission in such manner that the sound so transmitted or
produced shall be audible or vibrations therefrom shall be detectable beyond the
Premises. Tenant shall not cause or permit to be caused by any electrical or
communication interference of any kind to any electrically operated equipment on
the Property resulting directly or indirectly from the installation and/or
operation of any of Tenant's equipment.
W. Tenant shall not permit objectionable odors or vapors to
emanate from the Premises.
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<PAGE> 23
X. Tenant shall not contract for any work or service which
might involve the employment of labor incompatible with the Building
employees or employees of contractors doing work or performing services by
or on behalf of Landlord or with the terms and conditions of any
collective bargaining agreement to which Landlord or landlord's agents or
contractors may be a party.
Y. Tenant shall not bring or permit to be brought, any
bicycles or other vehicles into the Building or the Premises.
Z. Tenant shall not bring or permit to be brought, any
animals (other than animals to assist disabled persons) onto the Property
or into the Building or the Premises.
AA. Tenant shall not waste water by tying, wedging or
otherwise fastening open any faucets.
BB. Tenant shall not fasten any carpeting to the floors
other than by the method approved by Landlord. Tenant shall use protective
mats under desks, chairs or equipment and shall take such additional
precautions as may be necessary to protect the carpeting from damage other
than reasonable wear and tear.
CC. [SEE RIDER.]
18. REPAIRS AND COMPLIANCE.
A. Landlord shall keep the elevators, outside walls, roof
and all public areas of the Building in good order and repair, and shall
perform all maintenance and repairs to the heating, ventilating and air
conditioning equipment serving the Premises. Except to the extent tenants
(including Tenant) are required to reimburse Landlord for such work, the
cost thereof to Landlord shall be included in Operating Expenses.
B. Tenant shall promptly pay for the repairs set forth in
Section 10(B) hereof and Tenant shall, at Tenant's own expense, comply
with all laws and ordinances, and all orders, rules and regulations of all
governmental authorities and of all insurance bodies and their fire
prevention engineers at any time in force, applicable to the Premises or
to the Tenant's use thereof, except that Tenant shall not hereby be under
any obligation to comply with any law, ordinance, rule or regulation
requiring any substantial structural alteration of or in connection with
the Premises, unless such alteration is required by reason of Tenant's use
of the Premises, or a condition which has been created by or at the
sufferance of Tenant, or is required by reason of a breach of any of
Tenant's covenants and agreements hereunder. Without limiting the
generality of the foregoing, Tenant shall make any Alterations to the
Premises required under Title III of the Americans with Disabilities Act
(the "ADA") by reason of Tenant's use thereof.
19. FIRE OR CASUALTY. If the Premises or the building of which the
Premises are a part (including machinery or equipment used in its operation)
shall be damaged or destroyed by fire or other cause and if the Premises or such
building may be repaired and restored within one hundred eighty (180) days after
such damage, then Landlord shall commence to restore the Premises or such
building within sixty (60) days after such damage, and shall repair and restore
the same with reasonable promptness. [SEE RIDER.] If the damage renders the
Premises or such building untenantable in whole or in part and cannot reasonably
be repaired or restored within one hundred eighty (180) days, or if Landlord
elects to demolish such building or cease its operation, then Landlord shall
have the right to cancel and terminate this Lease as of the date of such damage
by giving written notice thereof to Tenant at any time within fifty-five (55)
days after such damage shall have occurred. If Landlord does not elect to cancel
and terminate this Lease as herein provided, Landlord shall repair and restore
the Premises or such building with reasonable promptness. In the event any such
damage renders the Premises untenantable by reason of such damage, then Rent
shall abate during the period beginning with the date of such fire or other
casualty and ending with the date when the Premises are again rendered
tenantable by an amount bearing the same ratio to the total amount of Rent for
such period as the untenantable portion of the Premises bears to the entire
Premises.
20. EMINENT DOMAIN.
A. Taking of the Whole. In the event that the whole or a
substantial part of the Premises shall be condemned or taken in any manner
for any public or quasi-public use, and as a result thereof, the Premises
cannot be used for substantially the same purpose as prior to such taking,
this Lease and the Term and estate hereby granted shall cease and
terminate as of the date possession is taken, and Landlord shall be
entitled to receive the entire award, Tenant hereby assigning to Landlord
its interest in said award, but if Landlord elects to make comparable
space available to the Tenant within the Building under comparable rent
and terms as herein provided. Tenant shall accept such space and this
Lease shall then apply to such space. [SEE RIDER.]
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<PAGE> 24
B. Partial Taking. If less than the whole or a substantial part
of the Premises shall be so condemned or taken, and after such taking the
Premises can be used for substantially the same purpose as prior thereto,
the Lease term shall cease only on the part so taken, as of the date
possession shall be taken by such public authority, and Tenant shall pay
full Rent up to that date (with appropriate refund by Landlord of such
Rent as may have been paid in advance for any period subsequent to the
date possession is taken) and thereafter the Rent shall be equitably
adjusted. Landlord shall, at its expense, make all necessary repairs or
alterations to the Building so as to constitute the Premises a complete
architectural unit, provided that Landlord shall not be obligated to
undertake any such repairs and alterations if the cost thereof exceeds the
award resulting from such taking.
C. Landlord's Right to Terminate. If more than fifty percent
(50%) of the building of which the Premises are a part or more than
twenty-five percent (25%) of the aggregate rentable area of the buildings
taken in the aggregate in the Project shall be taken by the exercise or
under the threat of the exercise of the power of eminent domain, Landlord
may, by notice in writing to Tenant delivered on or before the day of
surrendering possession to the public authority, terminate this Lease, and
rent shall be paid or refunded as of the date of termination. Landlord
shall be entitled to receive the entire award, Tenant hereby assigning to
Landlord its interest in said award.
21. SURRENDER. Upon the termination of this Lease, whether by
forfeiture, lapse of time or otherwise, or upon the termination of the Tenant's
right to possession of the Premises, Tenant will at once surrender and deliver
up the Premises, together with all improvements thereon, to Landlord in good
condition and repair, reasonable wear and tear excepted; conditions existing
because of Tenant's failure to perform maintenance, repairs or replacements as
required of Tenant under this Lease shall not be deemed "reasonable wear and
tear." Tenant shall surrender to Agent all keys to the Premises and make know to
Agent the explanation of all combination locks which Tenant is permitted to
leave on the Premises. Said improvements shall include all plumbing, lighting,
electrical, heating, cooling and ventilating fixtures and equipment and other
articles of personal property used in the operation of the Premises (as
distinguished from operations incident to the business of Tenant). Tenant may
remove any floor covering as to which Tenant paid the total cost of purchase and
installation; in such event, Tenant shall remove all fastenings, paper, glue,
bases and other vestiges thereof and restore the floor surface to its previous
condition, or shall pay to Landlord the cost of so restoring the floor surface
condition. Except as provided in the immediately preceding sentence, all
additions, hardware, non-trade fixtures and all improvements, in or upon the
Premises placed there by Tenant ("Alterations") shall become Landlord's property
and shall remain upon the Premises upon such termination without compensation or
allowance credit to Tenant, provided, however, that Landlord shall have the
right to require Tenant to remove any Alterations or any portion thereof,
including without limitation any floor covering purchased and installed at
Tenant's sole cost, and to restore the Premises to their condition prior to the
making thereof, repairing any damage occasioned by such removal and restoration.
Said right shall be exercised by Landlord's giving written notice thereof to
Tenant on or before twenty (20) days after any such termination. If Landlord
requires removal of any Alteration or portion thereof, and Tenant does not make
such removal in accordance with this Section at the time of such termination or
within ten (10) days after such request, whichever is later, Landlord may remove
the same (and repair any damage occasioned thereby), and dispose thereof, or at
its election, deliver the same to any other place of business of Tenant, or
warehouse the same. Tenant shall pay the costs of such removal, repair, delivery
and warehousing to Landlord on demand.
22. REMOVAL OF TENANT'S PROPERTY. Upon the termination of this Lease
by lapse of time, Tenant shall remove Tenant's articles of personal property
incident to Tenant's business ("Trade Fixtures"); provided, however, that Tenant
shall repair any injury or damage to the Premises which may result from such
removal, and shall restore the Premises to the same condition as prior to the
installation thereof. If Tenant does not remove Tenant's Trade Fixtures from the
Premises prior to the expiration or earlier termination of the Least Term,
Landlord may, at its option, remove the same (and repair any damage occasioned
thereby and restore the Premises as aforesaid) and dispose thereof or deliver
the same to any other place of business of Tenant, or warehouse the same, and
Tenant shall pay the cost of such removal, repair, restoration, delivery or
warehousing to Landlord on demand, or Landlord may treat said Trade Fixtures as
having been conveyed to Landlord with this Lease as a Bill of Sale, without
further payment or credit by Landlord to Tenant.
23. HOLDING OVER. Tenant shall have no right to occupy the Premises
or any portion thereof after the expiration of the Lease or after termination of
the Lease or of Tenant's right to possession pursuant to Section 28 hereof. In
the event Tenant or any party claiming by, through or under Tenant holds over,
Landlord may exercise any and all remedies available to it at law or in equity
to recover possession of the Premises, and for damages. For each and every month
or partial month that Tenant or any party claiming by, through or under Tenant
remains in occupancy of all or any portion of the Premises after the expiration
of Lease or after termination of the Lease or Tenant's right to possession,
Tenant shall pay, as minimum damages and not as a penalty, monthly rental at a
rate equal to double the rate of Monthly Base Rent and Additional Rent payable
by Tenant hereunder immediately prior to the expiration or other termination of
the Lease or of Tenant's right to possession. The acceptance by Landlord of any
lesser sum shall be construed as payment on account and not in satisfaction of
damages for such holding over.
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<PAGE> 25
24. SUBORDINATION OR SUPERIORITY. If the mortgage or
trustee named in any mortgage or trust deed hereafter made ("Mortgagee") shall
agree that, if it becomes the owner of the Property by foreclosure or deed in
lieu of foreclosure, it will recognize the rights and interests of Tenant under
the Lease and not disturb Tenant's use and occupancy of the Premises if and so
long as Tenant is not in default under the Lease (which agreement may, at such
mortgagee's option, require attornment by Tenant), then all or a portion of the
rights and interests of Tenant under this Lease shall be subject and
subordinate to such mortgage or trust deed and to any and all advances to be
made thereunder, and to the interest thereon, and all renewals, replacements
and extensions thereof. Any such Mortgage may elect that, instead of making
this Lease subject and subordinate to its mortgage or trust deed, the rights
and interests of Tenant under this lease shall have priority over the lien of
the mortgage or trust deed, whichever alternative may be elected by the
Mortgagee. If Tenant fails to execute and deliver any such instrument, Tenant
does hereby make, constitute and irrevocably appoint Landlord as its attorney
in fact, in its name, place and stead so to do.
25. ENCUMBERING TITLE. Tenant shall not do any act
which shall in any way encumber the title of Landlord in and to the Premises,
the Building or the Property, nor shall the interest or estate of Landlord in
the Premises, the Building or the Property be in any way subject to any claim
by way of lien or encumbrance, whether by operation of law or by virtue of any
express or implied contract by Tenant. Any claim to, or lien upon, the Premises,
the Building or the Property arising from any act or omission of Tenant shall
accrue only against the leasehold estate of Tenant and shall be subject and
subordinate to the paramount title and rights of Landlord in and to the
Premises, the Building and the Property.
26. LIENS AND RIGHT TO CONTEST. Tenant shall not
permit the Premises, the Building or the Property to become subject to any
mechanics', laborers' or materialmen's lien on account of labor or material
furnished to Tenant or claimed to have been furnished to Tenant in connection
with work of any character performed or claimed to have been performed on the
Premises by, or at the direction or sufferance of, Tenant, provided, however,
that Tenant shall have the right to contest in good faith and with reasonable
diligence, the validity of any such lien or claimed lien if Tenant shall give
to Landlord such security as may be deemed satisfactory to Landlord to assure
payment thereof and to prevent any sale, foreclosure, or forfeiture of the
Premises, the Building or the Property by reason of non-payment thereof,
provided further, however, that on final determination of the lien or claim of
lien, Tenant shall immediately pay any judgment rendered, with all proper costs
and charges, and shall have the lien released and any judgment satisfied.
27. DEFAULTS. Tenant further agrees that any one or
more of the following events shall be considered Events of Default as said term
is used herein, that is to say, if:
A. Tenant shall be adjudged an involuntary
bankrupt, or a decree or order approving, as properly filed, a petition
or answer filed against Tenant asking reorganization of Tenant under
the Federal bankruptcy laws as now or hereafter amended, or under the
laws of any State, shall be entered, and any such decree or judgment or
order shall not have been vacated or stayed or set aside within sixty
(60) days from the date of the entry or granting thereof; or
B. Tenant shall file, or admit the
jurisdiction of the court and the material allegations contained in,
any petition in bankruptcy, or any petition pursuant or purporting to
be pursuant to the Federal bankruptcy laws now or hereafter amended, or
Tenant shall institute any proceedings for relief of Tenant under any
bankruptcy or insolvency laws or any laws relating to the relief of
debtors, readjustment of indebtedness, reorganization, arrangements,
composition or extension; or
C. Tenant shall make any assignment for the
benefit of creditors or shall apply for or consent to the appointment
of a receiver for Tenant or any of the property of Tenant; or
D. The Premises are levied on by any
revenue officer or similar officer; or
E. A decree or order appointing a receiver
of the property of Tenant shall be made and such decree or order shall
not have been vacated, stayed or set aside within sixty (60) days from
the date of entry or granting thereof; or
F. Tenant shall abandon the Premises or
vacate the same during the Term hereof; or
G. Tenant shall default in any payments of
Rent required to be made by Tenant hereunder when due as herein
provided and such default shall continue for five (5) days after notice
thereof in writing to Tenant; or
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<PAGE> 26
H. Tenant shall default in securing insurance or in providing
evidence of insurance as set forth in Section 13 of this Lease and such
default shall continue for five (5) days after notice thereof in writing
to Tenant; or
I. Tenant shall fail to contest the validity of any lien or claimed
lien and give security to Landlord to assure payment thereof, or having
commenced to contest the same and having given such security, shall fail
to prosecute such contest with diligence, or shall fail to have the same
released and satisfied and judgment rendered thereon, and such default
continues for ten (10) days after notice thereof in writing to Tenant; or
J. Tenant shall default in any of the other covenants and
agreements herein contained to be kept, observed and performed by Tenant,
and such default shall continue for thirty (30) days after notice thereof
in writing to Tenant or shall exist at the expiration of the Term; or
K. Tenant shall default in keeping, observing or performing any
covenant or agreement herein contained to be kept, observed and performed
by Tenant, which default may result in an imminent risk of damage to
property (including without limitation the Property or the improvements
thereon or injury to or death of persons, and such default shall not be
cured immediately upon notice hereof to Tenant (which notice shall be
oral); or
L. Tenant shall repeatedly be late in the payment of Rent required
to be paid hereunder or shall repeatedly default in the keeping, observing
or performing of any other covenants or agreements herein contained to be
kept, observed or performed by Tenant (provided written notice of such
payment or other defaults shall have been given to Tenant, but whether or
not Tenant shall have timely cured any such payment or other defaults of
which notice was given).
28. REMEDIES. Upon the occurrence of any one or more Events of Default,
Landlord may terminate this Lease. Upon termination of this Lease, Landlord may
re-enter the Premises with or without process of law using such force as may be
necessary, and may remove all persons, fixtures and chattels therefrom and
Landlord shall not be liable for any damages resulting therefrom. Such re-entry
and repossession shall not work a forfeiture of the Rent to be paid and the
covenants to be performed by Tenant during the full Term. Upon such
repossession of the Premises, Landlord shall be entitled to recover as
liquidated damages and not as a penalty a sum of money equal to the value of
the Rent provided herein to be paid by Tenant to Landlord for the remainder of
the Term, less the fair rental value of the Premises for said period. Upon the
happening of any one or more of the above-mentioned Events of Default, Landlord
may repossess the Premises by forcible entry or detainer suit, or otherwise,
without demand or notice of any kind to Tenant (except as hereinabove expressly
provided for) and without terminating this Lease, in which event Landlord may
relet all or any part of the Premises for such rent and upon such terms as
shall be satisfactory to Landlord (including the right to relet the Premises
for a term greater or lesser than that remaining under the Term, and the right
to relet the Premises as apart of a larger area, and the right to change the
character or use made of the Premises). For the purpose of such reletting,
Landlord may decorate or make any repairs, changes, alterations or additions in
or to the Premises that may be necessary or convenient. If Landlord does not
relet the Premises, Tenant shall pay to Landlord on demand as liquidated
damages and not as a penalty a sum equal to the amount of Rent herein to be
paid by Tenant for the remainder of the Term. If the Premises are relet and a
sufficient sum shall not be realized from such reletting after paying all of the
expenses of such decorations, repairs, changes, alterations, additions, the
expenses of such reletting and the collection of the rent accruing therefrom
(including but not by way of limitation, reasonable attorneys' fees and
brokers' commissions), to satisfy the Rent herein provided to be paid for the
remainder of the Term, Tenant shall pay to Landlord on demand any deficiency.
Landlord shall use reasonable efforts to mitigate its damages arising out of
Tenant's default; Landlord shall not be deemed to have failed to use such
reasonable efforts by reason of the fact that Landlord has leased or sought to
lease other vacant premises owned by Landlord in preference to reletting the
Premises, or by reason of the fact that Landlord has sought to relet the
Premises at a rental rate higher than that payable by Tenant under the Lease
(but not in excess of the then current market rental rate).
29. OPPORTUNITY TO CURE. If Tenant defaults under Section 27(J), and such
default cannot with due diligence be cured within a period of thirty (30) days,
and if notice thereof in writing shall have been given to Tenant, and if
Tenant, prior to the expiration of thirty (30) days from and after the giving
of such notice, commences to eliminate the cause of such default and proceeds
diligently and with reasonable dispatch to take all steps and do all work
required to cure such default and does so cure such default, then an Event of
Default shall not be deemed to have occurred; provided, however, that Tenant's
right to cure hereunder shall not extend beyond the expiration of the Term, and
provided further that the curing of any default in such manner shall not be
construed to limit or restrict Landlord's remedies for any other default which
becomes an Event of Default.
30. LANDLORD'S RIGHT TO CURE. Landlord may, but shall not be obligated
to, cure any default by Tenant specifically including, but not by way of
limitation, Tenant's failure to obtain insurance, make repairs, or satisfy lien
claims, after complying with the notice provisions established in Section 29
and whenever Landlord so elects, all costs and expenses paid by Landlord in
curing such default, including without limitation reasonable attorney's fees,
shall be so much Additional Rent due on the next rent
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<PAGE> 27
date after such payment together with interest (except in the case of said
attorney's fees) at the Default Rate, from date of advancement to the date of
repayment by Tenant to Landlord.
31. REMEDIES CUMULATIVE. No remedy herein or otherwise
conferred upon or reserved to Landlord shall be considered to exclude or
suspend any other remedy but the same shall be cumulative and shall be in
addition to every other remedy given hereunder, or now or hereafter existing at
law or in equity or by statute, and every power and remedy given by this Lease
to Landlord may be exercised from time to time and as often as occasion may
rise or as may be deemed expedient. No delay or omission of Landlord to
exercise any right or power arising from any default, shall impair any such
right or power or shall be construed to be a waiver of any such default or any
acquiescence therein or affect the rights of Landlord with respect to any other
existing or subsequent defaults. Neither the rights herein given to receive,
collect, sue for or distrain for any Rent, or to enforce the terms, provisions
and conditions of this Lease, or to prevent the breach or non-observance
thereof, or the exercise of any such right or any other right or remedy
hereunder or otherwise granted or arising, shall in any way affect or impair or
toll the right or power of Landlord to declare the Lease Term hereby granted
ended, or to terminate this Lease as provided for in this Lease, or to
repossess without terminating the Lease, because of any default in or breach of
the covenants, provisions, or conditions of this Lease.
32. DEFAULT UNDER OTHER LEASES. A default in this Lease, or in
any other lease made by Tenant for any other premises on the Project shall, at
the Option of Landlord, be deemed a default in this Lease, the other lease or
both leases.
33. NO REINSTATEMENT. The acceptance by Landlord of any payment
of rent or other charges thereunder after the termination by Landlord of this
Lease of Tenant's right to possession hereunder shall not, in the absence of
agreement in writing to the contrary by Landlord, be deemed to restore this
Lease or Tenant's right to possession hereunder, as the case may be, but shall
be construed as a payment on account, and not in satisfaction of damages due
from Tenant to Landlord.
34. ALTERATION.
A. Tenant shall not make any alterations in or additions
to the Premises without Landlord's prior written consent in each and
every instance. [SEE RIDER]. As to any interior, non-structural
alteration, Landlord shall not unreasonably withhold its consent; as to
any other alteration, Landlord's consent may be withheld in Landlord's
discretion. In making its determination of whether to consent to any
proposed alteration as to which its consent may not be unreasonably
withheld, Landlord may consider, among other things, the remaining
length of the Term, the effect of the proposed alteration on the ability
of the Landlord to lease the Premises to a successor to Tenant, and any
other factors which Landlord may deem relevant. If Landlord consents to
any proposed alteration or addition (which alteration or addition
consented to is herein referred to as the "Alteration"), Landlord may
elect, alternatively and at Landlord's option, to either arrange and
contract for the Alteration to be performed, or to permit Tenant itself
to arrange and contract for the Alteration, each as hereinafter
provided.
B. In the event that Landlord shall elect to permit
Tenant to arrange and contract for the Alteration, then Tenant shall,
before permitting commencement of the Alteration, furnish to Landlord
for Landlord's review and approval all necessary plans and
specifications in reasonable detail, names and addresses of proposed
contractors, copies of contracts, and shall furnish necessary permits
and indemnification in form and amount reasonably satisfactory to
Landlord, against any and all claims, costs, damages, liabilities and
expenses which may arise in connection with the Alteration, and
certificates of insurance in form and amount reasonably satisfactory to
Landlord from all contractors performing labor or providing materials,
insuring Landlord against any and all liabilities which may arise out of
or be connected in any way with the Alteration; Tenant shall pay all
costs and expenses relative to the Alteration. Tenant shall permit
Landlord to monitor the construction operations in connection with the
Alteration and to restrict, as may reasonably be required, the passage
of manpower and materials and the conducting of construction activity in
order to avoid unreasonably disruption to Landlord or to other tenants
of the Building or damage to the Property or the Premises. Tenant shall
pay to Landlord, for Landlord's overhead in connection with monitoring
the Alteration, a sum equal to ten percent (10%) of Tenant's costs for
the Alteration. Promptly following completion of the Alteration, Tenant
shall furnish to Landlord contractors' affidavits, full and final
waivers of lien and receipted bills covering all labor and materials
expended and used in connection with the Alteration. Whether or not
Tenant shall furnish Landlord with all the foregoing, Tenant hereby
agrees to indemnify Landlord and hold Landlord harmless from any and all
liabilities of any kind and description which may arise out of or be
connected in any way with any Alteration. Any Alteration performed by
Tenant shall comply with all Landlord's insurance requirements and with
all applicable laws, ordinances and regulations. Landlord's approval of
plans and specifications or supervision of construction operations, if
any, shall not imply Landlord's acknowledgment, opinion or belief that
the Alteration complies with any such applicable laws, ordinances or
regulations, nor relieve Tenant from any responsibility hereinabove
imposed. Following the completion of the Alteration, Tenant shall also
provide Landlord with "as-built" drawings showing in detail the full
extent and nature of the Alteration.
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<PAGE> 28
C. In the event that Landlord shall elect to directly
arrange and contract for the Alteration on behalf of Tenant, Landlord
shall assume full responsibility for the preparation of plans and
specifications for the Alteration for the Tenant's approval, the
contracting for all labor and materials required by the Alteration,
compliance of the Alteration with all applicable laws, ordinances,
regulations, insurance and other requirements, and monitoring of the
Alteration. Tenant shall pay to Landlord the cost of the Alteration
including, without limitation, the cost of preparing the plans and
specifications, the cost of permits, fees, labor and materials required
to complete the Alteration, and the cost, if any, to repair and/or
redecorate the Premises as may be necessitated by the Alteration
(collectively "Costs"). Landlord's charge to Tenant for Landlord's
overhead in connection with Landlord's performance of the Alteration
shall be computed at twenty percent (20%) of the total substantiated
Costs. The Costs payable by Tenant to Landlord and Landlord's charge
therefor shall be deemed to be Additional Rent and shall be paid by
Tenant as the Alterations are performed, upon being billed by Landlord.
35. SECURITY DEPOSIT. To secure the faithful performance by
Tenant of all the covenants, conditions and agreements in this Lease set forth
and contained on the part of Tenant to be fulfilled, kept, observed and
performed including, but not by way of limitation, such covenants and
agreements in this Lease which become applicable upon the termination of the
same by re-entry or otherwise, Tenant has deposited with Agent the Security
Deposit as specified in Section 1(N) on the understanding that: (a) the
Security Deposit or any portion thereof not previously applied, or from time to
time, such one or more portions thereof, may be applied to the curing of any
default that may then exist, without prejudice to any other remedy or remedies
which Landlord may have on account thereof, and upon such application Tenant
shall pay Agent on demand the amount so applied which shall be added to the
Security Deposit so the same may be restored to its original amount; (b) should
the Property be conveyed by Landlord or should Agent cease to be the agent of
the beneficiaries of Landlord, the Security Deposit or any portion thereof not
previously applied may be turned over the Landlord's grantee or the new agent,
as the case may be, and if the same be turned over as aforesaid, Tenant hereby
releases Landlord and Agent from any and all liability with respect to the
Security Deposit and/or its application or return; (c) Landlord shall have no
personal liability with respect to said sum and Tenant shall look exclusively
to Agent or its successors for return of said sum when Tenant is entitled
hereunder to such return; (d) Agent or its successor shall not be obligated to
hold the Security Deposit as a separate fund, but on the contrary may commingle
the same with its other funds; (e) if Tenant shall faithfully fulfill, keep,
perform and observe all of the covenants, conditions and agreements in this
Lease set forth and contained on the part of Tenant to be fulfilled, kept,
performed and observed, the sum deposited or the portion thereof not previously
applied, shall be returned to Tenant without interest no later than thirty (30)
days after the expiration of the Term of this Lease or any renewal or extension
thereof, provided Tenant has vacated the Premises and surrendered possession
thereof to Landlord at the expiration of said Term or any extension or renewal
thereof as provided herein; (f) in the event that Landlord terminates the Lease
or Tenant's right to possession pursuant to Section 28 of this Lease, Agent may
apply the Security Deposit against damages suffered to the date of such
termination and/or may retain the Security Deposit to apply against such
damages as may be suffered or shall accrue thereafter by reason of Tenant's
default; (g) in the event any bankruptcy, insolvency, reorganization or other
creditor-debtor proceedings shall be instituted by or against Tenant, or its
successors or assigns, the Security Deposit shall be deemed to be applied first
to the payment of any Rent or Additional Rent due Landlord for all periods
prior to the institution of such proceedings, and the balance, if any, of the
Security Deposit may be retained or paid to Landlord in partial liquidation of
Landlord's damages.
37. PARKING AREAS. Tenant has been allocated a total number of
parking spaces in the Project as designated in Section 1(R). It is understood
by the parties hereto that parking on the Project is presently allocated to
tenants thereof on an unreserved basis, but that each tenant will be allocated
a certain number of parking spaces located in the executive parking structure,
on a designated basis. Landlord shall provide, for Tenant's use on a designated
basis, the number of parking spaces in the executive parking structure set
forth in Section 1(S). It is understood and agreed that the number of parking
spaces in the executive parking structure set forth in Section 1(S) is included
in the total number of parking spaces set forth in
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<PAGE> 29
Section 1(R), and is not in addition thereto. Landlord shall have no obligation
to Tenant to enforce the parking limits imposed on other tenants on the
Project or to enforce against third parties Tenant's right to the exclusive use
of its executive parking structure parking spaces. If, however, Tenant uses
parking in excess of that provided for herein or uses parking spaces designated
by Landlord for special use, and if such use occurs on a regular basis, and if
Tenant fails, after written notice from Landlord to reduce its excess use of the
parking areas or its use of parking spaces designated by Landlord for special
use, then such failure shall constitute a default under this Lease. Tenant
agrees that it shall, upon written request from Agent, provide Agent with
license numbers of automobiles used by its employees or require its employees to
affix a parking identification sticker to the window of the employee's
automobile, in a manner reasonably designated by Agent. Tenant shall cause its
personnel who have been designated by Tenant as the persons who are authorized
to use Tenant's allocated executive parking structure parking spaces to refrain
from parking their automobiles in the unreserved (surface) parking area of
Westbrook during the hours of 8:00 a.m. to 6:00 p.m. (or such other hours as may
be designated from time to time by Agent), Mondays through Fridays. If any such
personnel park in the unreserved parking area during such hours on a regular or
repeated basis and Tenant fails, after notice from Landlord, to cure such
breach, then Landlord shall have the right, at is option, exercisable by notice
in writing to Tenant, to reduce the number of parking spaces in the executive
parking structure allocated to Tenant in Section 1(S) by a number equal to the
number of Tenant's personnel who shall have breached said provision.
38. BROKERAGE. Tenant warrants that it has had no dealings with any
broker or agent in connection with this Lease other than the Broker as specified
in Section 1(O) and covenants to pay, hold harmless and indemnify Landlord from
and against any and all costs (including reasonable attorneys' fees), expense or
liability for any compensation, commissions and charges claimed by any other
broker or other agent with respect to this Lease or the negotiation thereof.
39. ESTOPPEL CERTIFICATES. Tenant shall at any time and from time to
time upon not less than 10 days' prior written notice from Landlord execute,
acknowledge and deliver to Landlord, in form reasonably satisfactory to Landlord
and/or Landlord's mortgagee, a written statement certifying that Tenant has
accepted the Premises, that this Lease is unmodified and in full force and
effect (or if there have been modifications, that the same is in full force and
effect as modified, and stating the modifications), that Landlord is not in
default hereunder, the date to which Rent has been paid in advance, if any, and
such other accurate certifications as may reasonably be requested by Landlord or
Landlord's mortgagee, and agreeing to give copies to any mortgagee of Landlord
of all notices by Tenant to Landlord. It is intended that any such statement
delivered by Tenant to Landlord pursuant to this Section may be relied upon by
any prospective purchaser of the Property and Premises, any mortgagee of the
Property and Premises and their respective successors and assigns. If Tenant
fails to provide such statement in the manner herein required, in addition to
any other remedy available to Landlord, Tenant shall be liable to Landlord for
all costs, expenses and damages resulting from such failure.
40. TENANT'S STATEMENT. Tenant shall furnish to Landlord within ten
(10) days after written request therefor from Landlord (not more frequently than
once in any twelve (12) month period), a copy of Tenant's then most recent
audited and certified financial statement. It is mutually agreed that the
Landlord may deliver a copy of such statements to any mortgagees or prospective
mortgagee of Landlord, or any prospective purchaser of the Property, but
otherwise Landlord shall treat such statements and information therein as
confidential.
41. NOTICES AND CONSENTS. All notices, demands, requests, consents
or approvals which may or are required to be given by either party to the other
shall be in writing and shall be deemed given when received or refused, if sent
by United States Registered or Certified Mail, postage prepaid, or if sent by
courier service, with receipt, (a) if for Tenant, addressed to Tenant at the
Premises or at such other place as Tenant may from time to time designate by
notice to the Landlord, or (b) if for Landlord, in care of the Agent, Attention:
Owner's Rep, or at such other place as Landlord may from time to time designate
by notice to Tenant. Tenant may rely upon any notice, consent or approval given
in writing by the Agent or from the attorneys for the Agent or for Landlord.
42. MODIFICATION OF LEASE. All negotiations, considerations,
representations and understandings between Landlord and Tenant are incorporated
herein. This Lease may be modified or altered only by agreement in writing
between Landlord and Tenant.
43. LANDLORD MEANS OWNER. The term "Landlord" as used in this Lease,
so far as covenants or obligations on the part of the Landlord are concerned,
shall be limited to mean and include only the owner or owners at the time in
question of the Premises and the Property, and in the event of any transfer or
transfers of title thereto, Landlord herein named (and in case of any subsequent
transfer or conveyances, the then grantor) shall be automatically freed and
relieved, from and after the date of such transfer or conveyance, of all
liability as respects the performance of any covenants or obligations on the
part of Landlord contained in this Lease thereafter to be performed, provided,
that any funds in the hands of such Landlord or the then grantor at the time of
such transfer, in which Tenant has an interest, shall be turned over to the
grantee, and any amount then due and payable to Tenant by Landlord or the then
grantor under any provisions of this Lease, shall be paid to Tenant.
44. MISCELLANEOUS PROVISIONS. All of the covenants of Tenant
hereunder shall be deemed and construed to be "conditions" as well as
"covenants" as though the words specifically expressing
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<PAGE> 30
or importing covenants and conditions were used in each separate instance. Time
is of the essence of this Lease, and all provisions relating thereto shall be
strictly construed. Nothing contained herein shall be deemed or construed by
the parties hereto, nor by any third party, as creating the relationship of
principal/agent, or of partnership, or of joint venture by the parties hereto,
it being understood and agreed that no provision contained in this Lease nor
any acts of the parties hereto shall be deemed to create any relationship other
than the relationship of Landlord and Tenant. The captions of this Lease are
for convenience only and are not to be construed as part of this Lease and
shall not be construed as defining or limiting in any way the scope or intent
of the provisions hereof. If any term or provision of this Lease shall to any
extent be held invalid or unenforceable, the remaining terms and conditions of
this Lease shall not be affected thereby, but each term and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
The covenants of this Lease which, by their terms, require payment or
performance by Tenant after the expiration or earlier termination of the Lease
and the obligation to pay any liability accruing during the term of the Lease,
shall survive the expiration or earlier termination of the Lease. This Lease
shall be governed by and construed in accordance with the laws of the State of
Illinois.
45. SHORT FORM LEASE. This Lease shall not be recorded, but the parties
agree, at the request of either of them, to execute a Short Form Lease for
recording, containing the names of the parties, the legal description and the
Term.
46. BINDING ON SUCCESSORS. All of the covenants, agreements, conditions
and undertakings contained in this Lease shall extend and inure to and be
binding upon the heirs, executors, administrators, successors and assigns of
the respective parties hereto, the same as if they were in every case
specifically named, and whenever in this Lease reference is made to either of
the parties hereto, it shall be held to include and apply to wherever
applicable, the heirs, executors, administrators, successors and assigns of
such party. Nothing herein contained shall be construed to grant or confer upon
any person or persons, firm, corporation or governmental authority, other than
the parties hereto, their heirs, executors, administrators, successors or
assigns, any right, claim or privilege by virtue of any covenant, agreement,
condition or undertaking in this Lease contained.
47. EXECUTION OF LEASE BY LANDLORD. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option for the Lease. This instrument becomes effective as a Lease upon
execution and delivery by both Landlord and Tenant.
48. LIGHT AND AIR. No rights to light or air over any real estate,
whether belonging to Landlord or any other party, are granted to Tenant by the
Lease.
49. FORCE MAJEURE. Landlord shall not be deemed in default with respect
to any of the terms, covenants and conditions of this Lease on Landlord's part
to be performed, if Landlord's failure to timely perform same is due in whole or
in part to any strike, lockout, labor trouble (whether legal or illegal), civil
disorder, failure of power, restrictive governmental laws and regulations,
riots, insurrections, war, shortages, accidents, casualties, acts of God,
delays caused directly by Tenant or Tenant's agents, employees and invitees, or
any other cause beyond the reasonable control of the Landlord.
50. LANDLORD'S EXPENSES. Tenant agrees to pay on demand Landlord's
expenses, including reasonable attorney's fees, expenses and administrative
hearing and court costs incurred either directly or indirectly in enforcing any
obligation of Tenant under this Lease, in curing any default by Tenant, in
connection with appearing, defending or otherwise participating in any action
or proceeding arising from the filing, imposition, contesting, discharging or
satisfaction of any lien or claim for lien, in defending or otherwise
participating in any legal proceedings initiated by or on behalf of Tenant
wherein Landlord is not adjudicated to be in default under this Lease, or in
connection with any investigation or review of any conditions or documents in
the event Tenant requests Landlord's agreement, approval or consent to any
action of Tenant which may be desired by Tenant or required of Tenant
hereunder. All such expenses shall be deemed to be Additional Rent.
51. TENANT'S AUTHORIZATION. If Tenant is a corporation, partnership,
association or any other entity, Tenant shall furnish to Landlord, within ten
(10) days after written request therefor from Landlord, certified resolutions
of Tenant's directors or other governing person or body authorizing execution
and delivery of this Lease and performance of Tenant of its obligations
hereunder, and evidencing that the person who physically executed the Lease on
behalf of Tenant was duly authorized to do so.
52. EXCULPATORY CLAUSE. This Lease is executed by LaSalle National Trust,
N.A., not personally but as Successor Trustee as aforesaid, in the exercise of
the power and authority conferred upon and vested in it as such Trustee, and
under the express direction of the beneficiary of a certain Trust Agreement
dated February 9, 1990, and known as Trust Number 115264. It is expressly
understood and agreed that nothing in this Lease contained shall be construed
as creating any liability whatsoever against said Trustee personally or said
beneficiaries or their agents, and in particular without limiting the generality
of the foregoing, there shall be no personal liability to pay any indebtedness
accruing hereunder or to perform any covenant, either express or implied,
herein contained, to keep, preserve or sequester any property of said Trust,
that said Trustee is not the agent of the beneficiaries and has no authority to
bind the beneficiaries to perform any covenant or agreement herein, and that
all personal liability of said Trustee (and said beneficiaries and
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<PAGE> 31
their agents to the extent permitted by law) of every sort, if any, is hereby
expressly waived by Tenant, and by every person now or hereafter claiming any
right or security hereunder; and that so far as the parties hereto are
concerned, the owner of any indebtedness or liability accruing hereunder shall
look solely to the Trust Estate from time to time subject to the provisions of
said Trust Agreement for the payment thereof. It is further understood and
agreed that the said Trustee has no agents or employees and merely holds naked
legal title to the property herein described, and has no knowledge respecting
rentals, leases, or other factual matter with respect to said premises, except
as represented to it by the beneficiaries of said Trust.
The parties hereto have caused this Lease to be executed on the date
first above written.
LANDLORD:
LaSALLE NATIONAL BANK, successor Trustee To:
LASALLE NATIONAL TRUST, N.A.,
not individually but as Successor
ATTEST: Trustee as aforesaid
/s/ NANCY A. STACK By /s/ [SIGNATURE ILLEGIBLE]
- ------------------------------- ------------------------------------
Asst. Secretary Its Vice President
--------------------------------
TENANT:
ATTEST: Advanced Radio Telecom, Inc.
By /s/ [SIGNATURE ILLEGIBLE]
- ------------------------------- ------------------------------------
Secretary Its VP and General Manager
--------------------------------
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<PAGE> 32
RIDER TO OFFICE LEASE BETWEEN LA SALLE
NATIONAL TRUST, TRUST NO. 115264, AS LANDLORD,
AND ADVANCED RADIO TELECOM, INC., AS TENANT
R-1. Addendum to Section 1(G). Effective January 1, 1998, Monthly Base
Rent shall be payable in accordance with the following schedule:
<TABLE>
<CAPTION>
Period: Monthly Base Rent:
------- ------------------
<S> <C>
1/1/98-12/31/98 $ 12,490.75
1/1/99-12/31/99 12,735.67
1/1/00-12/31/00 12,980.58
1/1/01-12/31/01 13,225.50
1/1/02-12/31/02 13,470.42
1/1/03-12/31/03 13,715.34
</TABLE>
R-2. Addendum to Subsection 1(N). Provided that no Event of Default by
Tenant shall then exist, the amount of the Security Deposit shall be reduced,
upon the expiration of the third year of the Term, to $12,245.83.
R-3. First Addendum to Section 4. If the cost of the Work exceeds the
sum of $171,000.00, Tenant shall deposit the excess with Agent promptly upon
receipt of written notice thereof from Agent.
R-4. Second Addendum to Section 4. Landlord shall make a good faith
effort to give Tenant written notice of any delay occasioned by an act or
omission of Tenant, but Landlord shall not be deemed in default hereunder for
failing to give such notice.
R-5. Addendum to Section 7(B)(iii)(f). There shall be excluded from
Taxes penalties incurred by Landlord due to Landlord's late payment of Taxes.
R-6. Addendum to Section 9(B). Landlord represents that based upon the
use of the Premises as contemplated by Tenant's plans and specifications
referred to in Exhibit C and approved by Landlord, supplementary air
conditioning equipment will not be required.
R-7. First Addendum to Section 9. If Tenant requires heat or air
conditioning in the Premises other than during Business Hours, the rate for such
<PAGE> 33
service during the initial Term (predicated on utility rates as they are in
effect as of the execution and delivery of this Lease), shall be $17.00 per hour
or fraction thereof for each wing or part thereof occupied by Tenant and
requiring such service. If utility rates increase, then Landlord shall have the
right to increase said hourly rate to compensate Landlord for the actual amount
of the additional costs of the utilities utilized to provide such service by
reason of said rate increases. After the expiration of the initial Term (i.e.,
during any additional term resulting from the exercise of an option to extend or
otherwise), Landlord shall have the right to charge the same rate for such
service as its usual and customary rate charged to other tenants on the Property
from time to time. Landlord's overhead charge shall not be made relative to said
service.
R-8. Second Addendum to Section 9. Anything in Section 9 to the
contrary notwithstanding, if Landlord's failure or inability to furnish any
service is the direct result of Landlord's negligence or willful misconduct, or
if Landlord is not proceeding diligently to correct such failure or inability to
furnish any service and, in either event, the Premises or any portion thereof is
rendered unusable by Tenant for a period of five (5) consecutive business days,
Tenant shall be entitled to an equitable abatement of Monthly Base Rent payable
hereunder with respect to the Premises or portion thereof rendered unusable
beginning on the sixth (6th) business day of such failure or inability of
Landlord to furnish such service until the date such service is rendered.
R-9. Addendum to Section 12(M). If because Landlord fails to
complete any inspections or repairs to the Premises, the Building or Property
with due diligence, the Premises become untenantable for a period in excess of
five (5) consecutive business days, Rent shall thereafter abate on a per diem
basis until the Premises are again tenantable by Tenant.
R-10. Addendum to Section 12(P). Landlord shall not, in connection
therewith, materially interfere with Tenant's use and enjoyment of the Premises
or materially reduce the rentable area of the Premises. Unless otherwise agreed
to by Tenant, each of such items shall be located inside the walls, above
dropped ceilings or below the floor level of the Premises.
-2-
<PAGE> 34
R-11. Addendum to Section 17(R). Landlord represents to Tenant that
the capacity of the electric wiring in the Building and the Premises is
sufficient for Tenant's use as reflected in the plans and specifications
referred to in Exhibit C and approved by Landlord.
R-12. Addendum to Section 17(CC). Tenant shall not operate any coin
or token operated vending machine or similar device for the sale of any goods,
wares, merchandise, food, beverages, or service, except for use by its
employees and their guests. Tenant agrees that it will afford other tenants in
the Project designated by Landlord a reasonable opportunity to bid to provide
such machines.
R-13. Addendum to Section 19. If the damage renders the Premises or
such building untenantable in whole or in part and cannot reasonably be
repaired or restored within three hundred sixty-five (365) days after the event
causing such damage or destruction, Landlord shall promptly give Tenant written
notice thereof and Tenant shall have the right, exercisable by giving written
notice thereof to Landlord within twenty (20) days after receipt of such notice
from Landlord, to terminate this Lease as of the date of such damage. If
neither party elects to cancel and terminate this Lease as herein provided,
Landlord shall repair and restore the Premises or such building with reasonable
promptness.
R-14. Addendum to Section 20(A). Tenant shall have the right to
claim and to retain any separate award for moving expenses or for the taking of
Tenant's trade fixtures, provided such separate award does not delay or reduce
the amount of Landlord's award.
R-15. Addendum to Section 34(A). Anything in Section 34(A) to the
contrary notwithstanding, Landlord's prior written consent shall not be
required for (a) wall coverings or (b) interior, non-structural Alterations not
affecting the Building's heating, ventilating or air conditioning systems, or
the Building's electrical or plumbing systems, and costing, in each instance,
less than Five Thousand Dollars ($5,000.00), provided the cost of such
Alterations shall not in any twelve (12) month period aggregate more than Twenty
-3-
<PAGE> 35
Thousand Dollars ($20,000.00). Tenant shall, however, give Landlord written
notice of such Alterations. Landlord's review and approval of plans and
specifications, names and addresses of proposed contractors, copies of contract,
indemnification and supervision shall not be required, but Tenant shall
otherwise comply, in connection with such Alterations, with the provisions of
Section 34(B).
R-16. Additional Space. (a) It is understood that there are presently
1,334 square feet of unleased space on the sixth (6th) floor of Four Westbrook
Corporate Center, shown as "Additional Space" on Exhibit A. Landlord agrees that
Landlord will keep Tenant apprised of Landlord's leasing activity with respect
thereto and will, at Tenant's request, advise Tenant in writing of the terms and
conditions upon which Landlord is willing to lease said space. Landlord agrees
that if Landlord has been requested to provide a revised proposal or space plan
to a prospective third-party tenant, Landlord shall give written notice thereof
to Tenant. Unless Tenant requests that Landlord advise Tenant of the terms and
conditions upon which Landlord is willing to lease said space and reaches
agreement with Landlord as to terms and conditions for a lease for said space on
or before seven (7) business days after receipt of such notice from Landlord,
Landlord shall have the right to conclude its negotiations with and lease said
space to such third-party. Tenant's rights under this subsection are subject to
prior rights of Lawson Associates, Inc.
(b) In addition to the rights of Tenant under Section R-16(a), Tenant
shall have the following rights regarding further Additional Space: Tenant may,
from time to time, give Landlord written notice of its need for additional
space, which notice shall specify the amount of space then needed and when the
space is required. Landlord shall, within seven (7) business days after receipt
of Tenant's said notice, advise Tenant in writing of the spaces which are
available in the Building. Tenant shall have the right to request that Landlord
advise Tenant in writing of the terms and conditions upon which Landlord is
willing to lease any of said designated space as selected by Tenant. Landlord
agrees that if Landlord has been requested to provide a
-4-
<PAGE> 36
revised proposal or space plan to a prospective third party tenant for such
space, Landlord shall give written notice thereof to Tenant. Unless Tenant
requests that Landlord advise Tenant of the terms and conditions upon which
Landlord is willing to lease said space and reaches agreement with Landlord as
to the terms and conditions for a lease for said space on or before seven (7)
business days after receipt of such notice from Landlord, Landlord shall have
the right to conclude its negotiations and lease said space to such third
party. Tenants rights under this subsection are subject to prior rights of
other tenants.
R-17. Right to Terminate. Provided that Tenant shall timely and faithfully
perform all of its covenants and obligations under this Lease, and provided
Tenant shall not have leased additional space pursuant to Section R-16 hereof,
Tenant shall have the right to terminate this Lease, effective December 31,
2002, which right shall be exercised by Tenant giving written notice thereof to
Landlord at least one (1) year prior to said effective date. It shall be a
condition of the effectiveness of such notice that it be accompanied by a
payment of consideration for such termination in the amount of Thirty Three
Thousand Six Hundred Seventy Six and 04/100 Dollars ($33,676.04).
R-18. Moving Allowance. Provided that Tenant is not then in default
hereunder with times to cure expired, Landlord shall pay to Tenant, upon
Tenant's occupancy of the Premises, the sum of Five Thousand Eight Hundred
Seventy Eight and no/100 Dollars ($5,878.00).
R-19. Antennas. Tenant shall have the right to install radio dishes on the
roof of the Building. The number of dishes, the sign, location and the manner
of installation shall be made in accordance with plans and specifications first
approved in writing by Landlord. Nothing contained herein shall be construed to
permit Tenant to violate any applicable laws or ordinances or any of the
provisions of this Lease including, without limitation, the provisions of
Section 17(V) of this Lease. Tenant shall, in such instance, install lines
between said equipment and the Premises through existing risers; said work
shall be done at Tenant's sole cost and expense. In the event such installation
requires the making of any roof cuts or the performance of any other roofing
-5-
<PAGE> 37
work, such roof cuts shall be made only as directed in writing by Landlord and
all roof cuts and other roofing work shall be performed at Tenant's sole cost
and expense by the roofing contractor designated by Landlord. Tenant shall, at
its sole cost and expense, perform any and all necessary repairs and maintenance
to said equipment and all related facilities and lines. From and after the
commencement of the installation of said equipment, Tenant shall reimburse
Landlord for all fees or charges imposed upon Landlord by any governmental
agency or utility having the right to impose the same by reason of the
installation or use thereof, but Tenant shall not otherwise be obligated to pay
any rent for the installation or use of such equipment or line. Tenant shall
remove such equipment at the expiration or earlier termination of the Lease or
of Tenant's right to possession hereunder, and Tenant shall restore the Building
to the condition existing prior to such installation, such removal work to be
subject to the same provisions of this Section regarding roofing work as were
applicable in connection with the original installation.
R-20. Option to Extend. Provided Tenant shall timely and faithfully
perform all of its obligations under this Lease during the original Term and
provided further that Tenant (and not a sublessee or assignee) shall then be in
occupancy of all of the Premises, Tenant shall have the right, exercisable by
giving written notice thereof to Landlord, not more than fifteen (15) months
nor fewer than twelve (12) months prior to the expiration of the original Term
(time being of the essence thereof) to extend the Term for an additional term of
five (5) years upon all of the terms, covenants and conditions contained in
this Lease, except that the Monthly Base Rent during the additional term
(hereinafter "Extension Monthly Base Rent") shall be equal to the rate of
Monthly Base Rent prevailing as of the commencement date of the Additional
Term, for new leases for space in buildings in Westchester, Oak Brook and
Oakbrook Terrace, Illinois which are first class, high rise, multi-use office
building having amenities similar to those in Westbrook Corporate Center.
Within seven (7) business days of Landlord's receipt of Tenant's notice
exercising the option to extend, Landlord shall advise Tenant in writing of
Landlord's good faith estimate of the rate of
-6-
<PAGE> 38
Extension Monthly Base Rent in accordance with said standard. The parties shall
negotiate in good faith to reach agreement on the amount of the Extension
Monthly Base Rent but if they are unable to do so on or before nine (9) months
prior to the expiration of the original Term, then either party shall have the
right, exercisable by giving written notice thereof to the other, to terminate
the negotiations and in such event, Tenant's exercise of the option to extend
shall be deemed null and void.
-7-
<PAGE> 39
(IF TENANT IS A CORPORATION)
STATE OF ILLINOIS )
) SS:
COUNTY OF COOK )
I, _______________________, a Notary Public in and for said County,
in the State aforesaid, DO HEREBY CERTIFY that _____________________,
personally known to me to be the _____ President of _____________________, a
____________ corporation, and __________________________, personally known to
me to be the ________________ Secretary of said corporation and personally
known to me to be the same persons whose names are subscribed to the foregoing
instrument, appeared before me this day in person and severally acknowledged
that they signed and delivered the said instrument as ____________ President
and ____________ Secretary of said corporation to be affixed thereto, pursuant
to authority given by the Board of Directors of said corporation, as their free
and voluntary act and as the free and voluntary act and deed of said
corporation, for the uses and purposes therein set forth.
GIVEN under my hand and Notarial Seal this __ day of ______________,
19__.
____________________________
Notary Public
<PAGE> 40
(LANDLORD)
STATE OF ILLINOIS )
) SS:
COUNTY OF COOK )
I, [ILLEGIBLE], a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that [ILLEGIBLE], personally known to me to be the
Vice President of LaSalle National Trust, N.A. and NANCY A. STACK, personally
known to me to be the Asst. Secretary thereof and personally known to me to be
the same persons whose names are subscribed to the foregoing instrument,
appeared before me this day in person and severally acknowledged that they
signed and delivered the said instrument as Vice President and Asst. Secretary
of said corporation to be affixed thereto, pursuant to authority given by the
Board of Directors of said corporation, as their free and voluntary act and as
the free and voluntary act and deed of said corporation, for the uses and
purposes therein set forth.
GIVEN under my hand and Notarial Seal this 10th day of January, 1997.
["OFFICIAL SEAL"]
[ILLEGIBLE]
[NOTARY PUBLIC STATE OF ILLINOIS]
[MY COMMISSION EXPIRES __ __ __]
/s/ [SIGNATURE ILLEGIBLE]
--------------------------
Notary Public
<PAGE> 41
EXHIBIT "A"
[FLOOR PLAN]
<PAGE> 42
EXHIBIT B
PARCEL 4 OF LOT 1 IN WESTBROOK CORPORATE CENTER P.U.D. BEING A SUBDIVISION OF
PART OF THE NORTHEAST 1/4 OF SECTION 30, TOWNSHIP 39 NORTH, RANGE 12 EAST OF
THE THIRD PRINCIPAL MERIDIAN, ACCORDING TO THE SURVEY ATTACHED AS EXHIBIT C TO
THE INSTRUMENT RECORDED JULY 27, 1990 AS DOCUMENT NUMBER 90-362917, IN COOK
COUNTY, ILLINOIS.
<PAGE> 43
EXHIBIT C
WORK LETTER AGREEMENT
1. The Tenant has specified certain improvements to be constructed within the
Premises (hereinafter the "Work"), substantially as shown on the space plan and
specifications to be prepared as provided in Paragraph 2 hereof, to be approved
in writing by the parties hereto.
2. All Work shall be performed at Landlord's sole cost. In addition, Tenant
shall cause the preparation of a space plan and working drawings, causing them
to be completed and approved by Landlord and Tenant on or before November 12,
1996. Landlord shall reimburse Tenant for the cost of the space plan and
working drawings (exclusive of engineering), in an amount not to exceed $18,809.
3. The Tenant may request work additional to the Work specified herein
("Additional Work"). Additional Work is subject to the Landlord's prior
approval, which shall not be unreasonably withheld, and if done shall be
performed by the Landlord at the Tenant's sole expense. Before starting any
Additional Work, the Landlord will provide the Tenant with a written statement
of the cost of the Additional Work. Tenant agrees to promptly provide Landlord
with a written authorization to proceed with the Additional Work and shall also
then pay to the Landlord the amount set forth on the Landlord's statement. If
Tenant delays in the providing of said authorization and payment, the Landlord
will proceed with the Work without performing the Additional Work.
4. The Tenant may request access for its agents to enter the Premises prior
to the commencement of the Term in order to perform other work required by
Tenant. Landlord, in its reasonable discretion, may grant the Tenant and its
agents a license to enter the Premises upon conditions that:
A. Tenant shall give Landlord five (5) days' prior written notice of its
request to have such access, and the notice shall be accompanied by:
1. A reasonably detailed description of and schedule for the work to
be performed;
2. Names and addresses of contractors and suppliers providing labor
and material for the work;
3. Copies of contracts, plans and specifications for the work; and
4. Evidence of licenses, permits, insurance, and indemnification, if
any, required for the work.
All of the above shall be subject to Landlord's approval, which shall not be
unreasonably withheld.
B. Such early access shall be the subject to Landlord's scheduling.
C. Tenant's agents shall work in harmony and not interfere with any Work
or Additional Work in the Premises or Building. If said agents cause or
threaten to cause any disharmony or interference (including labor disharmony),
Landlord may withdraw such license upon 24 hours prior written notice to the
Tenant.
Any such early entry shall be deemed to be under all of the terms, covenants
and conditions of the Lease, excluding only the covenant to pay Rent or
Additional Rent under Section 7 of the Lease. Tenant shall be responsible for
any damage to the Work, the Additional Work, the Premises, or the Building
caused by its agents.
5. The terms and provisions of the Lease, insofar as they are applicable to
this Work Letter Agreement, are hereby incorporated by reference.
6. All amounts payable by Tenant to Landlord hereunder shall be deemed to be
Additional Rent under the Lease.
7. Tenant shall deliver to Landlord within ten (10) days after the execution
and delivery of the Lease, any and all information, in addition to the
attachments hereto which Landlord may require to cause the preparation of all
working drawings. In addition, when Landlord submits working drawings to Tenant
for Tenant's review, Tenant shall respond to Landlord within five (5) days after
receipt thereof, approving or disapproving (setting forth in writing the reasons
for disapproval) the same. If Tenant does not so respond within said five (5)
days, Tenant shall be deemed to have approved the same.
<PAGE> 1
[BRIGHTWARE LETTERHEAD]
EXHIBIT - 10.17
SECOND AMENDMENT TO OEM/RESELLER AGREEMENT
This second amendment ("Second Amendment") serves to amend that certain
OEM/Reseller Agreement dated December 22, 1998 (the "Agreement") by and
between Brightware, Inc., ("Brightware") having a place of business at 350
Ignacio Blvd., Novato, CA 94949 and Quintus Corporation ("Company") having a
place of business at 47212 Mission Falls Court, Fremont, CA 94539. This Second
Amendment is effective as of the Second Amendment Effective Date.
The parties agree as follows:
Unless otherwise defined herein, capitalized terms used in this First Amendment
shall have the same meaning as those used in the Agreement.
"Second Amendment Effective Date" means December 23, 1999.
SECTION 9 - TERM AND TERMINATION
Per Section 9.1 of the Agreement, both parties agree to extend the terms of
this Agreement for a period of ninety (90) days, commencing with the Second
Amendment Effective Date. Upon such termination, both parties shall negotiate
in good faith a new OEM agreement or a continuing extension of the terms of
this Agreement.
PRECEDENCE
In the event of conflict between this Second Amendment and the Agreement, this
Second Amendment shall take precedence over the Agreement. This Second
Amendment, the First Amendment and the Agreement are the entire agreement
between the parties concerning the subject matter hereof and may only be
modified by an amendment executed by the parties authorized representatives.
This Second Amendment is made as of the Second Amendment Effective Date.
LICENSEE BRIGHTWARE, INC.
/s/ MICHELLE E. FIELDS /s/ [SIGNATURE ILLEGIBLE]
- ----------------------- --------------------------
Authorized Signature Authorized Signature
Michelle E. Fields,
Business Admin Manager CFO
- ----------------------- --------------------------
Printed Name, Title Printed Name, Title
1
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