-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R54T8HMAgvtxVnmLcR8EANy57HQHRGUrPw2mniGRBoNKuG7JPjOWLNRICt6d4VJL VtZSeWyCIwZHhQwsI0cb4g== 0000891618-00-000873.txt : 20000215 0000891618-00-000873.hdr.sgml : 20000215 ACCESSION NUMBER: 0000891618-00-000873 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUINTUS CORP CENTRAL INDEX KEY: 0001024678 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770021612 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27985 FILM NUMBER: 540536 BUSINESS ADDRESS: STREET 1: 47212 MISSION FALLS COURT CITY: FREMONT STATE: CA ZIP: 94539 BUSINESS PHONE: 5106242800 MAIL ADDRESS: STREET 1: 47212 MISSION FALLS COURT CITY: FREMONT STATE: CA ZIP: 94539 10-Q 1 FORM 10-Q FOR PERIOD ENDED DECEMBER 31, 1999 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. 2 QUINTUS CORPORATION INDEX
PAGE 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
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS QUINTUS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
DECEMBER 31, MARCH 31, 1999 1999 ------------ --------- 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 ========= ========
See accompanying notes to condensed consolidated financial statements. 1 4 QUINTUS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED ----------------------------- ---------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ 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 ======== ======= ======== ========
See accompanying notes to condensed consolidated financial statements. 2 5 QUINTUS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED ----------------------------- DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ 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
See accompanying notes to condensed consolidated financial statements. 3 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): Tangible assets $ 3,616 Goodwill and other intangible assets 44,609 In-process research and development 3,000 Liabilities assumed (4,079) ------- $47,146 =======
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 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):
NINE MONTHS ENDED NINE MONTHS ENDED ----------------- ----------------- DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- Revenues 36,761 26,664 Net Loss from Continuing Operations (18,609) (22,854) Loss Per Share (1.85) (4.59)
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):
THREE MONTHS ENDED NINE MONTHS ENDED ----------------------------- ----------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ 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) ======== ======= ======== ========
5 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 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 10 RESULTS OF OPERATIONS The following table sets forth our results of operations as a percentage of total revenues:
THREE MONTHS ENDED NINE MONTHS ENDED --------------------------- --------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ 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)% ===== ===== ===== =====
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 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. 9 12 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. 10 13 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. 11 14 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. 12 15 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 13 16 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. 14 17 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. 15 18 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. 16 19 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 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 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. 19 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 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. 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 ==========
21 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 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 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.
------------------- (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 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 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 28 EXHIBIT INDEX
EXHIBITS NO. DESCRIPTION - -------- ----------- 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.
- ------------------- (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. EX-10.15 2 EX-10.15 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 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 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 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 4 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 5 6 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. 6 7 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. 7 8 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. 8 9 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. 9 10 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 10 11 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 ------------------------------ ------------------------------ 11 12 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 12 13 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. 13 14 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. 14 15 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. 15 16 [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. 16 17 [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. 17 18 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:
SERVICE AVAILABILITY RESPONSE TIME+ RESPONSE TYPE - ---------------------------- ------------ -------------- ------------------ Business Hours Support 8am-6pm PST 1 hour phone and/or email - -------------------------------------------------------------------------------- After Business Hours Support 6pm-8am PST 1 hour phone
- -------------------------------------------------------------------------------- + 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) 18 19 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
INCIDENT TYPE RESOLUTION - --------------------------------------------------------------------------------------------- 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. - ---------------------------------------------------------------------------------------------
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 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 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 EX-10.16 3 EX-10.16 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 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 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 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 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 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 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 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 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 10 INDEX
Page ---- 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
i 11 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
ii 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 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: -2- 14 (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. -3- 15 (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 -4- 16 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 -5- 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. -6- 18 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 -7- 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 -8- 20 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 -9- 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. -10- 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. -11- 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.] -12- 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. -13- 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 -14- 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 -15- 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. -16- 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 -17- 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 -18- 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 -19- 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 -------------------------------- -20- 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:
Period: Monthly Base Rent: ------- ------------------ 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
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 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- 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- 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- 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- 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- 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- 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 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 41 EXHIBIT "A" [FLOOR PLAN] 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. 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. EX-10.17 4 EX-10.17 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 EX-27.1 5 EX-27.1
5 1,000 3-MOS 3-MOS 9-MOS 9-MOS MAR-31-2000 MAR-31-1999 MAR-31-2000 MAR-31-1999 OCT-01-1999 OCT-01-1998 APR-01-1999 APR-01-1998 DEC-31-1999 DEC-31-1998 DEC-31-1999 DEC-31-1998 0 0 36,820 0 0 0 30,700 0 0 0 17,250 0 0 0 966 0 0 0 0 0 0 0 85,337 0 0 0 13,145 0 0 0 8,682 0 0 0 136,682 0 0 0 21,095 0 0 0 1,947 0 0 0 0 0 0 0 0 0 0 0 34 0 0 0 113,606 0 0 0 136,682 0 9,471 2,930 22,819 12,843 13,513 5,954 35,603 21,814 1,319 155 1,990 423 4,205 2,581 9,947 7,025 (393) 51 (399) 81 100 100 300 200 97 130 528 625 (8,777) (5,202) (10,460) 0 0 0 0 (9,568) (8,777) (5,202) (10,460) (9,568) 0 (781) 0 (1,430) 0 0 0 0 0 0 0 0 (8,777) (5,983) (10,460) (10,998) (0.48) (1.87) (1.24) (3.72) (0.48) (1.87) (1.24) (3.72)
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