AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1999.

REGISTRATION NO. 333-86919

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

QUINTUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 7372 77-0021612
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)

47212 MISSION FALLS COURT
FREMONT, CALIFORNIA 94539
(510) 624-2800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

ALAN K. ANDERSON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
QUINTUS CORPORATION
47212 MISSION FALLS COURT
FREMONT, CALIFORNIA 94539
(510) 624-2800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

SCOTT C. DETTMER DOUGLAS H. COLLOM
DAVID T. YOUNG ROBERT F. KORNEGAY
DOUGLAS T. SHEEHY PRIYA CHERIAN HUSKINS
KEVIN A. LUCAS SCOTT GIESLER
GUNDERSON DETTMER STOUGH WILSON SONSINI GOODRICH & ROSATI
VILLENEUVE FRANKLIN & HACHIGIAN, LLP PROFESSIONAL CORPORATION
155 CONSTITUTION DRIVE 650 PAGE MILL ROAD
MENLO PARK, CALIFORNIA 94025 PALO ALTO, CALIFORNIA 94304
(650) 321-2400 (650) 493-9300

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _____________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.

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2

SUBJECT TO COMPLETION -- , 1999

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PROSPECTUS
, 1999

LOGO

SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------

QUINTUS CORPORATION:

- - We provide a comprehensive software solution to manage customer interactions
and deliver consistent customer service across multiple communication
channels, including the Internet, email and advanced telephony systems.
- - Quintus Corporation

47212 Mission Falls Court
Fremont, California 94539
(510) 624-2800

PROPOSED SYMBOL AND MARKET:

- - QNTS/Nasdaq National Market
THE OFFERING:

- - We are offering shares of our common stock.

- - The underwriters have an option to purchase up to additional shares
from Quintus to cover over-allotments.

- - This is the initial public offering of our common stock. We anticipate that
the initial public offering price will be between $ and $ per share.

- - We plan to use the proceeds from this offering for working capital and other
general purposes, and for the required payment of approximately $18.2 million
to holders of some series of our preferred stock.

- - Closing: , 1999.

- ------------------------------------------------------------------------------
Per Share Total
- ------------------------------------------------------------------------------

Public offering price: $ $
Underwriting fees:
Proceeds to Quintus:
- ------------------------------------------------------------------------------

THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
- --------------------------------------------------------------------------------

Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------

DONALDSON, LUFKIN & JENRETTE

DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED

SG COWEN
DLJDIRECT INC.

WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAW TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
3

[INSIDE FRONT COVER ARTWORK TO FOLLOW]
4

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of the
prospectus or any sale of the common stock. In this prospectus, unless the
context indicates otherwise, "Quintus," "we," "us," and "our" refer to Quintus
Corporation, a Delaware corporation, and its wholly-owned subsidiaries, "Acuity"
refers to Acuity Corp., a Delaware corporation, and "Nabnasset" refers to
Nabnasset Corporation, a Delaware corporation.

TABLE OF CONTENTS

Page

Prospectus Summary.................. 3
Risk Factors........................ 7
Special Note Regarding Forward-
Looking Statements................ 17
Use of Proceeds..................... 17
Dividend Policy..................... 17
Corporate Information............... 18
Capitalization...................... 19
Dilution............................ 20
Selected Consolidated Financial
Data.............................. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 23

Page

Business............................ 36
Management.......................... 50
Certain Transactions................ 62
Principal Stockholders.............. 65
Description of Capital Stock........ 68
Shares Eligible for Future Sale..... 71
Underwriting........................ 73
Legal Matters....................... 75
Experts............................. 75
Change in Accountants............... 76
Additional Information.............. 76
Index to Consolidated Financial
Statements........................ F-1

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information regarding Quintus and the common stock being sold in this offering
and our consolidated financial statements and the related notes included
elsewhere in this prospectus. Unless otherwise indicated, all information in
this prospectus assumes the closing of our acquisition of Acuity prior to the
effectiveness of this offering.

QUINTUS CORPORATION

We provide a comprehensive e-Customer Relationship Management or eCRM
solution to manage customer interactions and deliver consistent customer service
across multiple communication channels, including the Internet, email and
advanced telephony systems. Our Quintus eContact software suite includes
customer relationship management applications that address the needs of sales
and service, consumer relations, technical support and human resources contact
centers and a sophisticated routing engine to manage customer interactions.
eContact enables companies to handle high volumes of customer interactions,
increase the efficiency of contact center resources and leverage cross-selling
and up-selling opportunities.

Customer service is increasingly critical to attracting and retaining
customers. Many companies are re-orienting their businesses to be more
responsive to customer needs and are focusing on customer satisfaction as a
means of differentiation. In addition, the emergence of the Internet as a major
platform for communication and commerce has increased competition for customers
and reduced the importance of traditional competitive advantages such as price,
location, availability and access. International Data Corporation estimates that
the number of customers buying goods and services over the Internet worldwide
will grow from approximately 30.8 million in 1998 to 182.6 million in 2003 and
that the value of these purchases will increase from $50.4 billion to $1.3
trillion over the same period.

The Internet enables customers and companies to interact in more ways than
ever before. In addition to traditional, telephone-based communications,
customers and companies can now interact through email, Web chat and Web
self-service. The Gartner Group estimates that approximately 25% of all customer
interactions will take place over the Internet via email or Web communications
by 2001. As a result of the growing number of communication channels, companies
are struggling to handle the volume and variety of customer interactions.
Customers increasingly expect to be able to interact with companies through
whichever channel best suits their needs and are likely to use a combination of
communication channels. For example, a customer may request product literature
via email, review marketing materials or fill in an application on the Web, call
to receive more detailed information or assistance, send a signed form by fax,
and check the status of an order online. We believe a significant market
opportunity exists for solutions that integrate a broad range of communication
channels and manage the entire customer interaction lifecycle.

The Quintus eContact software suite provides a platform for the
personalization, routing and management of customer interactions. Our eContact
suite enables consistent customer service through the use of common workflows
and business rules, shared customer profile information, uniform cross-selling
and up-selling strategies, and consolidated management and reporting functions.
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6

The Quintus eContact suite includes:

- eContact engine, the foundation of our eContact suite, provides advanced
routing, tracking, management and reporting functionality, and
consolidates all relevant customer information into a common data
repository.

- Channel applications enable companies to manage customer interactions
across multiple communication channels, including the Internet, email and
advanced telephony systems.

- Business applications address the needs of sales and service, consumer
relations, technical support and human resources contact centers and are
tightly integrated with our eContact engine.

In addition, we provide professional services, customer service management,
technical support and educational services to facilitate successful customer
implementations.

Our objective is to be the leading provider of eCRM software solutions. Key
elements of our strategy include maintaining and extending our technology
leadership, broadening our direct and indirect distribution channels, targeting
Global 1000 and leading Internet-based companies, and developing and expanding
strategic relationships.

We sell our products through a direct sales force in North America and
indirectly through resellers and distribution partners worldwide. We have over
250 customers across many industries including financial services,
telecommunications and consumer products. Our customers include Anheuser-Busch,
Citigroup, First Union Bank, Lucent Technologies, Procter & Gamble, Sun
Microsystems and United Airlines.

ACQUISITION OF ACUITY

On September 10, 1999, we entered into an agreement to acquire Acuity, a
provider of software products to manage Internet-based customer interactions. We
are currently integrating Acuity's WebCenter and WebACD products into our
Quintus eContact suite in order to provide a more comprehensive eCRM solution.
The acquisition is structured as a merger in which Acuity will become our
wholly-owned subsidiary and the stockholders of Acuity will become our
stockholders. The total number of our shares to be issued plus the number of
shares issuable upon exercise of options and warrants we will assume in
connection with the acquisition will equal 18% of our fully-diluted
capitalization immediately following the acquisition. The closing of the merger
is subject to regulatory approval and the approval of Acuity's stockholders. We
expect to close this acquisition prior to the effectiveness of this offering.
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7

THE OFFERING

Common stock offered............ shares

Common stock to be outstanding
after the offering.............. shares

Use of proceeds................. For working capital and other general
corporate purposes, and for the required cash
distribution upon the completion of this
offering of approximately $18.2 million to
holders of some series of our preferred
stock.

Proposed Nasdaq National Market
symbol........................ QNTS

Generally, unless otherwise indicated, all information in this prospectus:

- gives effect to the conversion of all outstanding shares of preferred
stock into shares of common stock effective upon the closing of this
offering; and

- assumes no exercise of the underwriters' over-allotment option to
purchase up to additional shares.

The number of shares of our common stock to be outstanding after the
offering includes:

- shares of our common stock outstanding as of August 31, 1999;

- an estimated 4,530,000 shares to be issued in connection with our
acquisition of Acuity; and

- 247,602 shares issuable upon the exercise of outstanding warrants that
otherwise terminate upon the closing of this offering.

The number of shares of our common stock to be outstanding after the
offering does not include:

- 3,682,772 shares issuable upon exercise of options outstanding as of
August 31, 1999, including options to be assumed in connection with our
acquisition of Acuity;

- 613,723 shares reserved for future issuance under our stock option plans
as of August 31, 1999;

- 2,500,000 shares reserved for future issuance under our stock plans
subsequent to August 31, 1999;

- 755,043 shares issuable upon exercise of warrants outstanding as of
August 31, 1999, including warrants to be assumed in connection with our
acquisition of Acuity; and

- 300,000 shares issuable upon exercise of warrants granted subsequent to
August 31, 1999.
5
8

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
----------------------------- -------------------
1997 1998 1999 1998 1999

STATEMENT OF OPERATIONS DATA:
Revenues............................. $13,614 $ 21,890 $ 30,307 $ 7,552 $10,293
Gross profit......................... 8,443 13,600 21,130 5,521 7,654
Net loss from continuing
operations........................ (3,526) (10,146) (10,586) (2,786) (690)
Net loss............................. (3,526) (11,249) (11,466) (2,976) (690)
Basic and diluted net loss per common
share from continuing
operations........................ $ (3.73) $ (0.20)
======== =======
Shares used in computation, basic and
diluted........................... 2,835 3,506

The pro forma as adjusted column of the table below gives effect to the:

- sale of 1,363,334 shares for proceeds of $11.2 million on August 26,
1999;

- issuance of an estimated 4,530,000 shares and the assumption of
approximately $1.8 million in debt in connection with our acquisition of
Acuity;

- issuance of 247,602 shares upon the assumed exercise of outstanding
warrants that otherwise terminate upon the closing of this offering;

- required payment of approximately $18.2 million to holders of some series
of our preferred stock upon conversion of our preferred stock into our
common stock;

- sale in this offering of shares of common stock at an
assumed initial public offering price of $ per share; and

- conversion of all outstanding shares of our preferred stock into shares
of our common stock upon the closing of this offering.

AS OF JUNE 30, 1999
---------------------
PRO FORMA
AS
ACTUAL ADJUSTED

BALANCE SHEET DATA:
Cash...................................................... $ 467 $
Working capital (deficiency).............................. (8,909)
Total assets.............................................. 20,724
Long-term obligations, less current portion............... 1,649
Liability related to redeemable convertible preferred
stock.................................................. 17,811
Total stockholders' equity (deficiency)................... (20,622)

6
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RISK FACTORS

An investment in our common stock involves a high degree of risk. You
should carefully consider the following risk factors and the other information
in this prospectus before investing in our common stock. Our business and
results of operations could be seriously harmed by any of the following risks.
The trading price of our common stock could decline due to any of these risks,
and you may lose all or part of your investment in our common stock.

WE HAVE A HISTORY OF LOSSES AND WE EXPECT TO INCUR FUTURE LOSSES.

We have not had a profitable quarter and we cannot assure you that we will
become profitable. We expect to increase our sales and marketing, research and
development, and other expenses as we attempt to grow our business. As a result,
we will need to generate significant revenues to achieve profitability, which we
may be unable to do. We have funded our operations through the sale of equity
securities, borrowings and the sale of our products and services. We incurred
net losses from continuing operations of $3.5 million, $10.1 million, $10.6
million and $690,000 in fiscal 1997, 1998 and 1999 and for the three months
ended June 30, 1999. As of June 30, 1999 we had an accumulated deficit of $37.0
million. In addition, in September 1999, we entered into an agreement to acquire
Acuity which had incurred net losses of $6.6 million, $7.7 million and $2.2
million in the years ended December 31, 1997 and 1998 and for the six months
ended June 30, 1999. Acuity had an accumulated deficit of $21.7 million as of
June 30, 1999. Upon the closing of the acquisition of Acuity, we will record
approximately $41.5 million of intangible assets, which will be amortized on a
quarterly basis over five years. In connection with the acquisition of Acuity,
we expect to recognize a charge for in-process technologies of approximately
$3.0 million in the quarter ending December 31, 1999.

BECAUSE WE RECENTLY EXPANDED THE SCOPE OF OUR PRODUCT OFFERINGS, IT MAY BE
DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS PROSPECTS.

You should not evaluate our business prospects based on our historical
operating results. In February 1999, we expanded the scope of our product
offering with the introduction of the Quintus eContact suite. To date no
customer has implemented our eContact suite. Prior to 1999, we sold some of the
components that are included in our eContact suite, but we have only recently
begun to sell the components that enable companies to manage customer
interactions over Internet-based communication channels. We cannot assure you
that our eContact suite will achieve market acceptance. In addition, we are
still in the process of integrating Acuity's WebCenter and WebACD products and
third-party providers' email and call routing functionality into our eContact
suite. We may encounter technical difficulties, delays and unforeseen expenses
as we continue our product integration and development efforts relating to
eContact.

IF OUR INITIAL IMPLEMENTATIONS OF THE QUINTUS ECONTACT SUITE SUFFER UNUSUAL
PROBLEMS OR DELAYS, OUR REPUTATION AND FUTURE OPERATING RESULTS MAY BE HARMED.

We are just beginning to deploy our eContact products as an integrated
suite. We cannot assure you that the initial implementations of our eContact
suite will succeed without problems or delays. Although we have deployed some of
the components that are included in our eContact suite, we have not deployed
eContact with integrated computer telephony, email, Web chat and Web
self-service capabilities. To complete a full implementation of our eContact
suite, we have to complete the integration of its components and will likely
have to integrate eContact with a wide variety of complex systems currently used
by our customers. If these implementations meet with significant technological
obstacles, we may be forced to spend additional resources, which may harm our

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operating results. If the ease and speed of these implementations do not meet
the expectations of our customers, our reputation and ability to sell our
eContact suite will be harmed.

THE TRADING PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE IN RESPONSE TO
FLUCTUATIONS IN OUR QUARTERLY REVENUES AND OPERATING RESULTS.

We believe that quarter-to-quarter comparisons of our operating results may
not be meaningful. It is likely that in some future quarter our operating
results will be below the expectations of public market analysts and investors.
If this happens, the trading price of our common stock may fall substantially.
Our revenues and operating results are likely to vary significantly from quarter
to quarter due to a variety of factors, including the risks we describe in this
section.

Our ability to forecast revenue is limited. We derive substantially all of
our revenues from licenses of our software and related services. License
revenues in any quarter are substantially dependent on orders booked and shipped
in that quarter, and we cannot predict revenues for any future quarter with any
significant degree of certainty.

Our expenses are relatively fixed and are based, in part, on our
expectations of future revenues. Consequently, if revenue levels do not meet our
expectations, our financial results will be adversely effected. In addition, we
expect that sales derived through indirect channels, which are more difficult to
forecast, will increase as a percentage of total revenues in the future.

THE FAILURE TO OBTAIN A LARGE PROSPECTIVE CUSTOMER COULD CAUSE OUR REVENUES TO
DROP QUICKLY AND UNEXPECTEDLY.

We depend upon a limited number of large sales for a substantial portion of
our revenues in each quarter. For example, in the three months ended June 30,
1999, our largest customer accounted for 19.3% of our total revenues. Our
failure to successfully close one or more large sales in any particular period
could cause our revenues to drop quickly and unexpectedly. We expect to continue
to be dependent upon a limited number of customers for a significant portion of
our revenues and these customers are expected to vary from period-to-period. The
loss of a prospective major customer could result in our failure to meet
quarterly revenue expectations.

THE SUCCESS OF OUR BUSINESS RELIES HEAVILY ON INDIRECT DISTRIBUTION CHANNELS,
PARTICULARLY OUR DISTRIBUTION AGREEMENT WITH LUCENT TECHNOLOGIES.

If Lucent Technologies were to cease reselling our products or offer
competing products, our business would be harmed. Lucent Technologies accounted
for 9.2%, 19.3% and 33.9% of our total revenues in fiscal 1998 and 1999 and for
the three months ending June 30, 1999. Our distribution agreement with Lucent
Technologies expires in May 2000 but can be terminated on 30 days' notice
following a material breach of the agreement. Lucent Technologies is not
obligated to make any minimum purchases.

In addition, the loss of a reseller, the failure of a reseller to sell our
products, or our failure to attract and retain qualified new resellers in the
future could also harm our business. Typically our resellers do not have minimum
purchase or resale obligations, can cease marketing our products at any time,
and may offer competing products. We intend to expand our indirect distribution
channels by establishing additional relationships with resellers and
distribution partners. Competition for these relationships is intense, and we
may be unable to establish relationships on favorable terms, if at all. Even if
we are successful in establishing these relationships, they may not result in
substantial increases in our revenues.

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A SUBSTANTIAL PORTION OF OUR REVENUES RESULT FROM SALES OF OUR QUINTUS CTI
PRODUCT.

If sales of our Quintus CTI product do not meet our expectations, our
operating results will be harmed. Revenues from our Quintus CTI product were
39.6% and 40.1% in fiscal 1999 and for the three months ended June 30, 1999. We
expect that revenues from our Quintus CTI product will continue to account for a
substantial portion of our revenues in the future.

WE FACE A NUMBER OF RISKS RELATED TO OUR PENDING ACQUISITION OF ACUITY, AND WE
MAY FACE SIMILAR RISKS IN THE FUTURE IF WE ACQUIRE OTHER BUSINESSES OR
TECHNOLOGIES.

In September 1999, we entered into an agreement to acquire Acuity and began
integrating its WebCenter and WebACD products into the Quintus eContact suite.
If we are unable to effectively integrate Acuity into our operations, including
its products, personnel and systems, our business and operating results are
likely to suffer. This integration will be made more difficult by Acuity's
operations being located in Austin, Texas, where we currently have no other
operations. We have just begun to integrate Acuity with our operations and we
expect this integration to place a significant burden on our management team.

The acquisition of Acuity will be our third acquisition within the last
three years, and we may make more acquisitions in the future. If we are unable
to integrate effectively any newly acquired businesses, technologies or
products, our operating results could suffer. Integrating any newly acquired
businesses, technologies or products may be expensive and time-consuming. Future
acquisitions could also result in large and immediate write-offs for in-process
research and development, increased amortization charges or the incurrence of
debt and contingent liabilities, any of which could harm our operating results.
To finance acquisitions, we may need to raise additional funds through public or
private financings. Additional funds may not be available on favorable terms, or
at all, and, in the case of equity financings, may result in dilution to our
stockholders. Moreover, we may not be able to operate any acquired businesses
profitably or otherwise implement our growth strategy successfully.

IF WE FAIL TO SUCCESSFULLY EXPAND OUR SALES, MARKETING AND CUSTOMER SUPPORT
ACTIVITIES, WE MAY BE UNABLE TO EXPAND OUR BUSINESS.

We cannot expand our business without highly trained sales, marketing and
customer support personnel to educate existing and prospective customers,
systems integrators and resellers regarding the use and benefits of our
products, and to provide effective customer support. We have replaced a large
number of our sales people during the last year. As a result, the size of our
sales force has not grown substantially, and many of our sales personnel are new
to us. We expect our new sales personnel will require substantial training in
our products and sales practices. New sales personnel tend to be less productive
than those with greater experience selling our products. Moreover, we intend to
hire additional direct sales force personnel in the United States. Competition
for qualified sales personnel is particularly intense in the software industry.
In the past, we have experienced difficulty hiring employees with appropriate
qualifications in the timeframe we desired. Any delays or difficulties we
encounter in these recruiting, training or retention efforts could impair our
ability to attract new customers and enhance our relationships with existing
customers.

UNLESS WE ARE ABLE TO OVERCOME SUBSTANTIAL COMPETITION IN THE ECRM MARKET, WE
WILL NOT BE ABLE TO GROW OR SUSTAIN OUR REVENUES.

We cannot assure you that we will be able to compete successfully against
current and future competitors. Increased competition is likely to result in
price reductions, reduced margins and loss of market share, any of which could
harm our business, financial condition and results of operations. In

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12

order to be successful in the future, we must respond promptly and effectively
to technological change, changing customer requirements and competitors'
innovations. The introduction of new products by competitors or shifts in market
demands could render our existing products obsolete.

We may not be able to compete effectively in the future as current
competitors expand their product offerings and new companies enter the rapidly
evolving eCRM market. We currently face competition primarily from customer
relationship management software vendors such as Siebel Systems and Clarify,
emerging Internet customer interaction software vendors such as Kana
Communications and WebLine Communications, and computer telephony software
vendors such as Genesys Telecommunications Labs.

Because there are relatively low barriers to entry in the software market,
we expect additional competition from other established and emerging companies.
Potential future competitors include traditional call center technology
providers and large enterprise application vendors as well as independent
systems integrators, consulting firms and in-house information technology
departments that may develop solutions that compete with our products.

Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, sales, marketing and
other resources, greater name recognition and a larger installed base of
customers than we do. As a result, these competitors can devote greater
resources to the development, promotion and sale of products than we can and may
be able to respond to new or emerging technologies and changes in customer
requirements more quickly than we can.

Current and potential competitors have established and may in the future
establish relationships among themselves or with third parties to increase the
ability of their products to address the needs of our current or prospective
customers. In addition, a number of companies with significantly greater
resources than ours could attempt to increase their presence in the eCRM market
by acquiring or forming strategic alliances with our competitors. As a result,
it is likely that new competitors or alliances among competitors will emerge and
may rapidly acquire significant market share, which would harm our business,
financial condition and results of operations.

WE RELY ON RESELLING BRIGHTWARE'S EMAIL MANAGEMENT PRODUCT AND CISCO
SYSTEMS-GEOTEL COMMUNICATIONS' CALL ROUTING PRODUCT IN ORDER TO PROVIDE SOME OF
THE FUNCTIONALITY OF OUR ECRM SOLUTION.

We resell Brightware's software to provide the email management
functionality of our Quintus eContact suite and resell the Cisco Systems-GeoTel
Communications' Intelligent Contact Management product to provide call routing
functionality. Our agreement with Brightware can be cancelled without cause upon
60 days' notice. If Brightware were to cancel our reseller agreement or be
acquired by one of our competitors, or their email management product were
otherwise unavailable to us, we would likely incur substantial delays and costs
as we attempt to integrate alternative email management functionality into our
product suite. In particular, there may be few alternative sources for
Brightware's natural language text analysis and automated email response
functionality. Our agreement with Cisco Systems-GeoTel Communications expires in
April 2000 and may be terminated if a breach of the agreement is not resolved
within 30 days' notice. If Cisco Systems-GeoTel Communications were to cancel
our reseller agreement or if their call routing product were otherwise
unavailable to us, we would not be able to provide call routing functionality as
part of our eContact suite. In addition, if we were not able to resell
Brightware's product or Cisco Systems-Geotel Communications' product, customers
that require such functionality would have to purchase those products
separately. As a result, the sales process with our prospective customers would
be complicated by the need to coordinate with a third party.

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OUR BUSINESS WILL SUFFER IF THE ECRM MARKET DOES NOT DEVELOP AND GROW.

The eCRM market is new, not well defined and may not grow. The use of
email, Web chat and Web self-service as channels for companies to interact with
their customers is recent and may not grow as expected. Concerns about the
security, reliability and quality of service may inhibit the growth of
Internet-based customer service. In addition, our potential customers are just
beginning to look for comprehensive solutions to manage customer interactions
across multiple communication channels. Our future success will depend on the
increased market acceptance of comprehensive solutions for the management of
customer interactions.

IF WE ARE NOT ABLE TO MAINTAIN AND DEVELOP RELATIONSHIPS WITH SYSTEMS
INTEGRATORS, THE ACCEPTANCE OF OUR PRODUCTS AND GROWTH OF OUR REVENUES WILL BE
IMPEDED.

We rely on systems integrators to promote our solution and implement our
products. If we fail to maintain and develop relationships with systems
integrators, our revenues may be harmed. We currently rely on systems
integrators such as AnswerThink Consulting Group, Cambridge Technology Partners
and Technology Solutions Company to recommend our products to their customers
and to install our products. If we are unable to rely on systems integrators to
implement our products, we will likely have to provide these services ourselves.
As a result, our ability to grow may be harmed. Systems integrators may develop,
market or recommend products that compete with our products. Moreover, if these
systems integrators fail to implement our products successfully, our reputation
may be harmed.

OUR LENGTHY AND VARIABLE SALES CYCLE MAKES IT DIFFICULT TO PREDICT THE TIMING OF
A SALE OR WHETHER A SALE WILL BE MADE.

The timing of our revenues is difficult to predict in large part due to the
length and variability of the sales cycle for our products. Customers often view
the purchase of our products as a significant and strategic decision. As a
result, our customers tend to take significant time and effort to evaluate our
products. The amount of time and effort depends in part on the size and the
complexity of the deployment. This evaluation process frequently results in a
lengthy sales cycle, typically ranging from three to nine months. During this
time we may incur substantial sales and marketing expenses and expend
significant management efforts. We do not recoup these investments if the
prospective customer does not ultimately license our product.

IF WE ARE UNABLE TO INTRODUCE NEW PRODUCTS OR PRODUCT ENHANCEMENTS ON A TIMELY
BASIS, OR IF THESE PRODUCTS OR PRODUCT ENHANCEMENTS DO NOT ACHIEVE MARKET
ACCEPTANCE, OUR BUSINESS WOULD BE MATERIALLY HARMED.

Our future success will depend on our ability to effectively and timely
anticipate and adapt to customer requirements and offer products and services
that meet customer demands. Our failure to introduce products or services that
satisfy customer requirements would harm our ability to remain competitive in
the eCRM market. Some of our customers may want features and capabilities that
our products do not have. As a result, we may need to develop features for our
products, which may result in a longer sales cycle, increased research and
development expenses and reduced margins on our products. In addition, the
development of new or enhanced products is a complex and uncertain process. We
may experience design, development, marketing and other difficulties that could
delay or prevent the introduction of new products and enhancements.

11
14

OUR BUSINESS WOULD SUFFER IF WE DO NOT RETAIN OUR KEY PERSONNEL.

Our future success depends on the continuing service of our senior
management and other key personnel. The loss of the services of one or more of
our key personnel could seriously harm us. Most of our key personnel are not
bound by employment agreements. In addition, we do not carry key person life
insurance on any of our employees.

Our future success also depends on our continuing ability to attract, hire,
train and retain a substantial number of highly skilled personnel. Competition
for qualified personnel in our industry is intense, particularly for software
development and technical personnel. Our business would be seriously harmed if
we are unable to attract and retain key employees or other highly qualified
personnel in the future.

WE MAY NOT BE ABLE TO MANAGE OUR GROWTH EFFECTIVELY.

We have experienced rapid growth and plan to continue to significantly
expand our operations. We may not be able to manage our growth effectively,
which would impair our ability to attract and service customers and cause us to
incur higher operating costs. Expanding our operations has placed a significant
strain on our personnel and other resources. Our revenues have grown from $13.6
million in fiscal 1997 to $30.3 million in fiscal 1999. Our headcount increased
from 113 at the end of fiscal 1997 to 158 at the end of fiscal 1999. For the
three months ended June 30, 1999, our revenues were $10.3 million and our
headcount was 181. Upon the closing of our acquisition of Acuity, we will have
additional employees and operations to manage. As of June 30, 1999, Acuity had
92 employees. To manage our growth effectively, we may need to further improve
our operational, financial and management systems.

IF WE DO NOT SUCCESSFULLY ADDRESS THE RISKS INHERENT IN THE EXPANSION OF OUR
INTERNATIONAL OPERATIONS, OUR OPERATING RESULTS MAY SUFFER.

We have limited experience in international operations and may not be able
to compete effectively in international markets. We currently intend to expend
significant financial and management resources to expand our international
operations. We believe that the future expansion of our international operations
is important to the growth of our business. Most of our international sales are
generated through resellers and distributors, and we expect substantial costs
and resources will be required to train and support these resellers. Among the
various risks we face in conducting business internationally are:

- difficulties and costs of staffing and managing foreign operations;

- longer accounts receivable payment cycles and possible difficulties in
collecting accounts receivable, which may increase our operating costs
and hurt our financial performance;

- technology standards that are different from those on which our products
are designed, which could require expensive redesigns of our products;

- political and economic instability;

- unexpected changes in regulatory requirements that could make our
products and services more expensive and therefore less attractive to
potential customers; and

- fluctuations in currency exchange rates and the imposition of currency
exchange controls.

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15

To date, our international product sales have been denominated in U.S.
dollars. To the extent the U.S. dollar appreciates against foreign currencies
our products would become less competitive in foreign markets.

IF WE ARE UNABLE TO LICENSE THIRD-PARTY TECHNOLOGIES, WE MAY BE REQUIRED TO
EXPEND TIME AND RESOURCES TO OBTAIN SUBSTITUTE TECHNOLOGY.

Our products incorporate technologies that we license from third parties.
Although we believe we could obtain similar functionality from alternative
sources, substituting and integrating replacement technologies could require us
to divert substantial development resources. As a result, it could delay the
shipment of existing products pending the integration of the replacement
technology and could delay the introduction of new products or enhancements as a
result of the diversion of development resources. In addition, we may be
required to license replacement technologies on terms less favorable than our
current terms, which would increase our expenses. If we are unable to obtain the
third-party technologies necessary for the successful operation of our products,
our business would be harmed.

UNKNOWN SOFTWARE DEFECTS COULD HARM OUR BUSINESS AND REPUTATION.

Our software interacts with other complex systems and software. Our
software products may contain defects, particularly when first introduced.
Despite our software testing procedures, we may not discover software defects
that affect our products until after they are deployed. These defects could
result in:

- damage to our reputation;

- lost sales or product returns;

- product liability claims against us;

- delays in or loss of market acceptance of our products; and

- unexpected expenses and diversion of resources to remedy errors.

The occurrence of any of these events would negatively impact our operating
results. In addition, our customers generally use our products together with
products from other vendors. As a result, when problems occur, it may be
difficult to identify the source of the problem. Therefore, even if these
problems are not caused by our products, they may cause us to incur significant
warranty and repair costs, divert the attention of our engineering personnel and
cause significant customer relations problems.

A PRODUCT LIABILITY SUIT AGAINST US COULD HARM OUR BUSINESS.

A successful product liability claim brought against us could harm our
reputation and business. Our license agreements with our customers typically
contain provisions designed to limit our exposure to potential liability claims.
However, it is possible that the limitation of liability provisions contained in
our license agreements may not be effective under the laws of certain
jurisdictions. Moreover, our standard liability limitations may be reduced
during contract negotiations. Although we have not experienced any product
liability claims to date, we may in the future. In addition, even if not
successful, a product liability suit against us could harm our reputation and
business.

13
16

OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY MAY
SIGNIFICANTLY IMPAIR OUR COMPETITIVE POSITION.

Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. We cannot be certain that the steps we have taken to
prevent the misappropriation of our intellectual property are adequate,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States. We rely on a combination of patent,
copyright, trademark and trade secret laws and restrictions on disclosure to
protect our intellectual property rights. In addition, we enter into
confidentiality agreements with our employees and certain customers, vendors and
strategic partners. Quintus has one issued U.S. patent and one filed U.S. patent
application. Through our acquisition of Acuity, we will acquire one additional
issued U.S. patent as well as nine additional filed U.S. patent applications. We
cannot assure you that any patents will be issued from these applications or
that any issued patent will protect our intellectual property. Furthermore,
other parties may independently develop similar or competing technology or
design around any patents that may be issued to us.

We may in the future initiate claims or litigation against third parties
for infringement of our proprietary rights in order to determine the scope and
validity of our proprietary rights or the proprietary rights of our competitors.
These claims could result in costly litigation and the diversion of our
technical and management personnel.

WE MAY FACE COSTLY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS.

If third parties claim that our products infringe on their intellectual
property rights, we may be forced to seek expensive licenses, re-engineer our
products, engage in expensive and time-consuming litigation or stop marketing
the challenged product. Further, by contract we typically indemnify our
customers against infringement claims related to our products. In the past third
parties have alleged that our products infringe their patents. Third parties may
make similar allegations in the future. In addition, because the contents of
patent applications in the United States are not publicly disclosed until the
patent is issued, we may not be aware of applications that have been filed which
relate to our software products. We may be subject to legal proceedings and
claims from time to time in the ordinary course of our business, including
claims of alleged infringement of the trademarks and other intellectual property
rights of third parties. Intellectual property litigation is expensive and time-
consuming and could divert management's attention away from running our
business. This litigation could also require us to develop non-infringing
technology or enter into royalty or license agreements. These royalty or license
agreements, if required, may not be available on acceptable terms, if at all.
Our failure or inability to develop non-infringing technology or license the
proprietary rights on a timely basis in a cost-effective manner would harm our
business.

WE COULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR THE SYSTEMS
OF OUR CUSTOMERS OR MATERIAL THIRD PARTIES ARE NOT YEAR 2000 COMPLIANT.

We may experience material problems and costs associated with Year 2000
compliance that could adversely affect our business, results of operations and
financial condition. If systems do not correctly recognize date information when
the year changes to 2000, we could experience

- potential warranty or other claims by our customers;

- errors in systems we use to run our business;

- errors in systems used by our suppliers;

- errors in systems used by our customers; and

14
17

- the potential reduced spending by other companies on contact center
products as a result of significant information systems spending on Year
2000 remediation.

We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and implementing such a plan may itself be
material.

Any of these events could significantly harm our business, financial
condition and results of operations.

THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE.

The stock markets have in general, and with respect to technology companies
in particular, recently experienced substantial stock price and volume
volatility. The stock markets may continue to experience volatility that may
adversely affect the market price and trading volume of our common stock. Stock
prices for many companies in the technology sector have experienced wide
fluctuations that have often been unrelated to their financial performance.
Similar fluctuations may affect the market price of our common stock. In
addition, if we fail to address any of the risks described in this section, the
market price of our common stock and the value of your investment could decline
significantly.

SALES OF OUR COMMON STOCK FOLLOWING THIS OFFERING COULD ADVERSELY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK.

The value of your investment in our common stock and our ability to raise
money through the sale of additional equity securities could be adversely
affected if our existing stockholders sell large amounts of their Quintus common
stock. If significant volumes of our common stock are sold into the market, the
market price of our common stock and therefore the value of your investment
could fall. This could impair our ability to raise capital through the sale of
additional equity securities. Based on shares outstanding as of August 31, 1999,
upon completion of this offering, we will have shares of common
stock outstanding (or shares if the underwriters' over-allotment
option is exercised in full). Our directors, executive officers and holders of
substantially all of our current stock have executed lock-up agreements with the
underwriters that limit their ability to sell shares of our common stock. These
parties have agreed not to sell or otherwise dispose of any shares of our common
stock for a period of at least 180 days after the date of this prospectus
without the prior written approval of Donaldson, Lufkin & Jenrette Securities
Corporation. When these lock-up agreements expire, many of these shares and the
shares of common stock underlying any options held by these individuals will
become eligible for sale. See "Shares Eligible for Future Sale"

YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.

The initial public offering price of our common stock is expected to be
substantially higher than the book value per share of our outstanding common
stock immediately after this offering. Accordingly, if you purchase our common
stock in this offering, you will incur immediate dilution of approximately
$ in the book value per share of our common stock from the price you
pay for our common stock. This calculation assumes that you purchased our common
stock for $ per share.

15
18

THERE MAY BE NO ACTIVE TRADING MARKET IN OUR COMMON SHARES AFTER THIS OFFERING,
WHICH MAY MAKE IT DIFFICULT FOR YOU TO RESELL YOUR SHARES.

There has been no public trading market for our common shares prior to this
offering, and we cannot be sure that an active trading market will develop upon
completion of this offering or, if one does develop, that it will be sustained.
If no public trading market for our common shares develops, or if this market is
not active or sustained, it may be difficult for you to resell your shares at a
price at or above the initial public offering price.

CONTROL BY EXISTING STOCKHOLDERS MAY LIMIT YOUR ABILITY TO INFLUENCE THE OUTCOME
OF DIRECTOR ELECTIONS AND THE APPROVAL OF MERGERS OR OTHER BUSINESS
COMBINATIONS.

Upon completion of this offering, our executive officers, directors and
principal stockholders and their affiliates will beneficially own
shares, or approximately %, of the outstanding shares of
common stock ( % if the underwriters' over-allotment option is exercised in
full). If they were to act in concert, these stockholders would be able to
significantly influence all matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combination transactions.

ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW, AS WELL AS
PROVISIONS OF EMPLOYMENT AGREEMENTS OF SOME OF OUR KEY EXECUTIVE OFFICERS, COULD
PREVENT OR DELAY A CHANGE IN CONTROL OF QUINTUS.

Provisions in our bylaws and in our certificate of incorporation may have
the effect of delaying or preventing a change of control or changes in
management of Quintus. These provisions include:

- the requirement that a special meeting of stockholders may only be called
by stockholders owning at least a majority of our outstanding shares;

- the ability of our board of directors to issue preferred stock without
stockholder approval; and

- the right of our board of directors to elect a director to fill a vacancy
created by the expansion of the board of directors.

Furthermore, we are subject to the provisions of section 203 of the
Delaware General Corporation Law. These provisions prohibit large stockholders
owning 15% or more of our outstanding voting stock, from consummating a merger
or combination with a corporation unless this stockholder receives board
approval for the transaction or unless 66 2/3% of the outstanding shares of our
voting stock not owned by this stockholder approve the merger or combination.

In addition, our 1999 Stock Incentive Plan provides for full acceleration
of unvested options following certain sales or mergers of Quintus if the
optionee is terminated without cause within 18 months of the closing of the sale
or merger transaction. In addition, some of our officers have agreements with us
that provide for acceleration of vesting following certain sales or mergers of
Quintus. These provisions could make our acquisition by a third party more
costly and could delay or prevent a change of control or changes in our
management.

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19

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "expect," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements you should specifically
consider various factors, including the risks outlined under "Risk Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform such statements to actual results
or to changes in our expectations.

USE OF PROCEEDS

We estimate that the net proceeds from the sale of shares of
common stock we are offering will be approximately $ ($ if the
underwriters exercise their over-allotment option in full) at an assumed initial
public offering price of $ and after deducting estimated offering
expenses of $ and underwriting discounts and commissions payable by
Quintus.

We expect to use the net proceeds for working capital and other general
corporate purposes. In addition, under the terms of our certificate of
incorporation in effect prior to this offering, we are required to make a
payment of approximately $18.2 million upon the closing of this offering to the
current holders of our Series A, Series B, Series C and Series D preferred stock
as a result of the conversion of this preferred stock into common stock. A
portion of the net proceeds may also be used to acquire or invest in
complementary businesses, technologies, product lines or products. We have no
current plans, agreements or commitments with respect to any such acquisitions
or investments other than the pending closing of our acquisition of Acuity. We
will use shares of our capital stock to complete this acquisition. Our
management will have broad discretion concerning the use of the net proceeds of
this offering. We intend to invest these proceeds in investment grade,
interest-bearing securities pending their use.

DIVIDEND POLICY

We have never declared or paid any dividends on our common stock or other
securities. We currently expect to retain future earnings, if any, for use in
the operation and expansion of our business and do not anticipate paying cash
dividends in the future. Our existing bank line of credit prohibits the payment
of cash dividends.

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20

CORPORATE INFORMATION

Quintus was incorporated in California in February 1984. Quintus became a
wholly-owned subsidiary of Intergraph Corporation in October 1989 and was
reincorporated in Delaware in June 1990. Quintus was purchased from Intergraph
Corporation in May 1995 in a management-led buyout backed by new investors. Our
principal executive offices are located at 47212 Mission Falls Court, Fremont,
California 94539 and our telephone number is (510) 624-2800. We have registered
the trademarks "Quintus" and "CustomerQ." Every other trademark, trade name or
service mark of any other company appearing in this prospectus is the property
of its holder.

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21

CAPITALIZATION

The following table sets forth our cash position, current portion of
long-term obligations and total capitalization as of June 30, 1999. The pro
forma column of the table gives effect to the:

- sale of 1,363,334 shares of our preferred stock for proceeds of $11.2
million on August 26, 1999;

- issuance of an estimated 4,530,000 shares and the assumption of
approximately $1.8 million in debt in connection with our acquisition of
Acuity; and

- issuance of 247,602 shares upon the assumed exercise of outstanding
warrants that otherwise terminate upon the closing of this offering.

The pro forma as adjusted column of the table gives effect to the:

- required payment of approximately $18.2 million to holders of some series
of our preferred stock upon conversion of our preferred stock into our
common stock;

- sale in this offering of shares of common stock at an
assumed initial public offering price of $ per share, less
underwriting discounts and commissions and estimated offering expenses
payable by Quintus; and

- conversion of all outstanding shares of our preferred stock into shares
of our common stock upon the closing of this offering.

AS OF JUNE 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)

Cash........................................................ $ 467 $ 14,328 $
======== ======== =======
Current portion of long-term obligations.................... $ 1,425 $ 2,687 $
======== ======== =======
Long-term obligations, less current portion................. $ 1,649 $ 2,215 $
Liability related to redeemable convertible preferred
stock..................................................... 17,811 18,164
Stockholders' equity (deficiency):
Convertible preferred stock, $0.001 par value, shares
authorized 17,555,000 and 16,575,515 outstanding,
actual: 10,000,000 shares authorized and no shares
outstanding, pro forma: 10,000,000 shares authorized
and no shares outstanding, pro forma as adjusted....... 13,707 --
Common stock, $0.001 par value, shares authorized
40,000,000 and 4,311,084 outstanding, actual;
100,000,000 shares authorized and 27,027,535 shares
outstanding, pro forma; 100,000,000 shares authorized
and outstanding, pro forma as adjusted.. 4,323 74,506
Note receivable from stockholder.......................... (267) (267)
Deferred stock based compensation......................... (1,415) (1,415)
Accumulated deficit....................................... (36,970) (39,966)
-------- -------- -------
Total stockholders' equity (deficiency)................ (20,622) 32,858
-------- -------- -------
Total capitalization.............................. $ (1,162) $ 53,237 $
======== ======== =======

This table does not include:

- 3,682,772 shares issuable upon exercise of options outstanding as of
August 31, 1999, including an estimated number of options to be assumed
in connection with our acquisition of Acuity as if it had occurred on
August 31, 1999;

- 613,723 shares reserved for future issuance under our stock option plans
as of August 31, 1999;

- 2,500,000 shares reserved for future issuance under our stock plans,
director option plan and employee stock purchase plan subsequent to
August 31, 1999;

- 755,043 shares issuable upon exercise of warrants outstanding as of
August 31, 1999, including an estimated number of warrants to be assumed
in connection with our acquisition of Acuity as if it had occurred on
August 31, 1999; and

- 300,000 shares issuable upon exercise of warrants granted subsequent to
August 31, 1999.

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DILUTION

Our pro forma net tangible book value as of June 30, 1999, was $(12.9)
million, or approximately $(0.48) per share. Pro forma net tangible book value
per share represents the pro forma stockholders equity less pro forma intangible
assets divided by the pro forma number of shares of common stock outstanding,
giving effect to the conversion of all outstanding shares of preferred stock,
including the 1,363,334 shares of preferred stock issued on August 26, 1999, the
estimated 4,530,000 shares to be issued in connection with the closing of the
acquisition of Acuity and the issuance of 247,602 shares upon the assumed
exercise of outstanding warrants that otherwise terminate upon the closing of
this offering. After giving effect to the sale of the shares of
common stock being offered at an assumed initial public offering price of
$ per share and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our pro forma net
tangible book value at June 30, 1999, would have been , or
approximately $ per share. This represents an immediate increase in pro
forma net tangible book value of $ per share to existing stockholders and an
immediate dilution in net tangible book value of $ per share to new
investors of common stock in this offering. The following table illustrates this
dilution on a per share basis:

Assumed initial public offering price per share............. $ --
Pro forma net tangible book value per share as of June 30,
1999................................................... $ (0.48)
Increase attributable to new investors.................... --
Pro forma net tangible book value per share after
offering.................................................. --
Dilution per share to new investors......................... $
=======

The following table sets forth, on a pro forma basis as of June 30, 1999,
the differences between the number of shares of common stock purchased, the
total consideration paid and the average price per share paid by existing
stockholders and by the new investors purchasing shares of common stock in this
offering, before deducting underwriting discounts and commissions and estimated
offering expenses payable by us, at the assumed public offering price of
$ per share.

SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE

Existing stockholders..................... % $ % $
New public investors......................
--------- ----- ---------- -----
Total........................... 100.0% 100.0%
========= ===== ========== =====

To the extent that any shares are issued upon exercise of options or
warrants that were outstanding at June 30, 1999 or granted after that date, or
reserved for future issuance under our stock plans, there will be further
dilution to new investors.

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23

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and the related notes and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.

The consolidated statements of operations data for the years ended March
31, 1997 and 1998 and consolidated balance sheet data as of March 31, 1998 are
derived from our consolidated financial statements included elsewhere in this
prospectus, which have been audited by Ernst & Young LLP. The consolidated
statements of operations data for the year ended March 31, 1999 and consolidated
balance sheet data as of March 31, 1999 are derived from our consolidated
financial statements included elsewhere in this prospectus, which have been
audited by Deloitte & Touche LLP. The consolidated statements of operations data
for the period from May 25, 1995, the date of the acquisition of Quintus from
Intergraph Corporation in a management-led buyout with the financial backing of
new investors, to March 31, 1996 and balance sheet data as of March 31, 1996 and
1997 are derived from financial statements audited by Ernst & Young LLP, which
are not included in this prospectus. Prior to May 25, 1995, we were a
wholly-owned subsidiary of Intergraph Corporation. As a result, we believe
financial data for periods prior to May 25, 1995 is not material.

The consolidated statements of operations data for the three months ended
June 30, 1998 and 1999 and the consolidated balance sheet data as of June 30,
1999 are derived from our unaudited consolidated financial statements which, in
the opinion of management, have been prepared on the same basis as the audited
consolidated financial statements and reflect all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of our
results of operations and financial position. The historical results presented
below are not necessarily indicative of the results to be expected for any
future period.

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FOR THE
PERIOD FROM
MAY 25, 1995 THREE MONTHS
THROUGH YEAR ENDED MARCH 31, ENDED JUNE 30,
MARCH 31, ------------------------------- ------------------
1996 1997 1998 1999 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)

CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License..................................... $ 5,174 $ 8,406 $ 12,948 $ 17,577 $ 4,790 $ 6,126
Service..................................... 1,267 5,208 8,942 12,730 2,762 4,167
------- ------- -------- -------- ------- -------
Total revenues........................ 6,441 13,614 21,890 30,307 7,552 10,293
------- ------- -------- -------- ------- -------
Cost of revenues:
License..................................... 637 972 708 554 74 218
Service..................................... 985 4,199 7,582 8,623 1,957 2,421
------- ------- -------- -------- ------- -------
Total cost of revenues................ 1,622 5,171 8,290 9,177 2,031 2,639
------- ------- -------- -------- ------- -------
Gross profit.................................. 4,819 8,443 13,600 21,130 5,521 7,654
Operating expenses:
Sales and marketing......................... 4,031 6,879 11,336 17,147 4,518 4,314
Research and development.................... 1,795 3,667 5,102 6,719 1,795 1,873
General and administrative.................. 1,196 1,263 3,233 3,577 803 998
Amortization of intangibles................. -- -- 1,335 3,185 796 796
Acquired in-process technologies............ 6,060 -- 2,200 -- -- --
Stock-based compensation.................... -- -- -- 171 4 169
------- ------- -------- -------- ------- -------
Total operating expenses.............. 13,082 11,809 23,206 30,799 7,916 8,150
------- ------- -------- -------- ------- -------
Loss from continuing operations............... (8,263) (3,366) (9,606) (9,669) (2,395) (496)
Interest expense, net......................... (32) (160) (540) (917) (391) (194)
------- ------- -------- -------- ------- -------
Net loss from continuing operations........... (8,295) (3,526) (10,146) (10,586) (2,786) (690)
Discontinued operations:
Loss from discontinued operations........... -- -- (1,103) (1,891) (190) --
Gain on disposal of discontinued
operations................................ -- -- -- 1,011 -- --
------- ------- -------- -------- ------- -------
Net loss...................................... $(8,295) $(3,526) $(11,249) $(11,466) $(2,976) $ (690)
======= ======= ======== ======== ======= =======
Basic and diluted net loss per common share
from continuing operations.................. $(72.34) $ (4.25) $ (6.88) $ (3.73) $ (1.12) $ (0.20)
======= ======= ======== ======== ======= =======
Basic and diluted net loss per common share... $(72.34) $ (4.25) $ (7.53) $ (4.04) $ (1.20) $ (0.20)
======= ======= ======== ======== ======= =======
Shares used in computation, basic and
diluted..................................... 115 868 1,695 2,835 2,484 3,506

AS OF MARCH 31, AS OF
------------------------------------------- JUNE 30,
1996 1997 1998 1999 1999
(IN THOUSANDS)

CONSOLIDATED BALANCE SHEET DATA:
Cash........................................................ $ 792 $ 3,045 $ 1,986 $ 1,785 $ 467
Working capital (deficiency)................................ 582 1,552 (11,250) (8,644) (8,909)
Total assets................................................ 5,699 9,852 23,141 19,594 20,274
Long-term obligations, net of current portion............... 528 19 4,246 2,201 1,649
Redeemable convertible preferred stock...................... 9,478 14,110 17,811 17,811 17,811
Total stockholders' deficiency.............................. (7,850) (10,831) (20,333) (20,091) (20,622)

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25

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with our consolidated
financial statements and related notes included elsewhere in this prospectus.
This discussion and analysis contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including, but not limited to, those set forth under "Risk
Factors" and elsewhere in this prospectus.

OVERVIEW

Quintus was incorporated in 1984 to develop artificial intelligence
software and was acquired in 1989 by Intergraph Corporation, a provider of
interactive computer graphics systems. Quintus was purchased from Intergraph in
May 1995 in a management-led buyout with the financial backing of new investors.
At the time of the buyout we primarily provided application software and
consulting services to the help desk market. Since then we have introduced
several customer relationship management applications for call centers. In
November 1997, we acquired Nabnasset, a provider of computer telephony
integration software. Following the acquisition we introduced our Quintus CTI
product and began integrating it with our customer relationship management
applications. As new communication channels have emerged, we have introduced new
products and added functionality to our existing products. In February 1999, we
introduced our Quintus eContact suite as a platform for integrating our existing
products with new channel applications. As part of our eContact suite, we also
resell an email management product from Brightware and a call routing product
from Cisco Systems-GeoTel Communications. In September 1999, we entered into an
agreement to acquire Acuity, a provider of software products to manage
Internet-based customer interactions. The acquisition is expected to close prior
to the effectiveness of this offering.

Our revenues were $13.6 million, $21.9 million, $30.3 million and $10.3
million in fiscal 1997, 1998 and 1999 and for the three months ended June 30,
1999. We derive substantially all of our revenues from licenses and services
associated with our products. License revenues are derived from product sales to
customers and through resellers and distributors. Service revenues are
attributable to the installation, consulting, maintenance and other support
services related to the sale of our products.

License revenues from sales to end users are recognized upon shipment of
the product, if a signed contract exists, the fee is fixed and determinable,
collection is deemed probable and vendor-specific objective evidence exists to
allocate the total fee to elements of the arrangement. License revenues for
contracts requiring us to provide significant customization services are
recognized using percentage of completion accounting using labor days as the
basis for determining the percentage complete. License revenues from sales to
resellers and distributors are generally recognized at the time a reseller or
distributor reports to us that they have sold our software and all revenue
recognition criteria have been met.

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26

Service revenues include maintenance revenues which are deferred and
recognized ratably over the maintenance period, which in most cases is one year,
and revenues from training and consulting services, which are recognized as
services are performed.

We sell our products to customers in North and South America, Europe, South
Africa and Japan. Sales to customers outside of the United States represented
15.3%, 14.0%, 18.3% and 12.1% of total revenues in fiscal 1997, 1998 and 1999
and for the three months ended June 30, 1999. All of our sales are denominated
in U.S. dollars. We intend to establish additional distribution relationships
with partners outside of the United States and expect international revenues to
continue to increase as a percent of our total revenues in the future.

We sell our products through a direct sales force and indirectly through
resellers and distribution partners. Lucent Technologies, which began reselling
our products in November 1997, accounted for 9.2%, 19.3% and 33.9% of total
revenues in fiscal 1998 and 1999 and for the three months ended June 30, 1999.
In fiscal 1997, one customer, State Farm Insurance, accounted for 23.8% of total
revenues. In fiscal 1998 and 1999, no customer accounted for more than 10% of
total revenues. For the three months ended June 30, 1999, one customer, Procter
& Gamble, accounted for 19.3% of total revenues. We expect that sales of our
products to a limited number of parties will continue to account for a large
percentage of total revenues for the foreseeable future.

In July 1997, we acquired Call Center Enterprises, a provider of strategic
call center consulting services, for $965,000 in cash. The acquisition was
accounted for as a purchase. In February 1999, we sold this business to
AnswerThink Consulting Group for $2.1 million in cash. The results of operations
for Call Center Enterprises are presented as discontinued operations in our
consolidated financial statements.

In November 1997, we acquired Nabnasset for $3.5 million in cash, stock and
options to purchase our common stock. The transaction was accounted for as a
purchase. In this acquisition, acquired technology included both existing
technology and in-process research and development. The valuation of acquired
technology was made by applying the income forecast method, which considers the
present value of cash flows by product lines. Acquired in-process technologies
were charged to operations, as the technologies did not have alternative future
uses as of the date of the acquisition.

As of June 30, 1999 we had an accumulated deficit of approximately $37.0
million. Our net loss from continuing operations was $3.5 million, $10.1
million, $10.6 million and $690,000 in fiscal 1997, 1998 and 1999 and for the
three months ended June 30, 1999. These losses resulted from costs incurred in
the development and sale of our products and services. We expect to continue to
experience significant growth in our operating expenses, particularly in the
areas of sales and marketing. As a result, we expect to incur additional losses
and cannot assure you that we will achieve or sustain profitability in the
future.

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27

RESULTS OF OPERATIONS

The following table sets forth our results of operations as a percentage of
total revenues:

THREE MONTHS
ENDED
YEAR ENDED MARCH 31, JUNE 30,
----------------------- --------------
1997 1998 1999 1998 1999
(UNAUDITED)

Revenues:
License...................................... 61.7% 59.2% 58.0% 63.4% 59.5%
Service...................................... 38.3 40.8 42.0 36.6 40.5
----- ----- ----- ----- -----
Total revenues............................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
License...................................... 7.1 3.2 1.8 1.0 2.1
Service...................................... 30.8 34.6 28.5 25.9 23.5
----- ----- ----- ----- -----
Total cost of revenues.................... 37.9 37.8 30.3 26.9 25.6
----- ----- ----- ----- -----
Gross profit................................... 62.1 62.2 69.7 73.1 74.4
Operating expenses:
Sales and marketing.......................... 50.5 51.8 56.6 59.8 41.9
Research and development..................... 26.9 23.3 22.2 23.8 18.2
General and administrative................... 9.3 14.8 11.8 10.6 9.7
Amortization of intangibles.................. -- 6.1 10.5 10.5 7.7
Acquired in-process technologies............. -- 10.1 -- -- --
Stock-based compensation..................... -- -- 0.6 0.1 1.6
----- ----- ----- ----- -----
Total operating expenses.................. 86.7 106.1 101.7 104.8 79.1
----- ----- ----- ----- -----
Loss from continuing operations................ (24.6) (43.9) (32.0) (31.7) (4.7)
Interest expense, net.......................... (1.2) (2.5) (3.0) (5.2) (1.9)
----- ----- ----- ----- -----
Net loss from continuing operations............ (25.8) (46.4) (35.0) (36.9) (6.6)
Discontinued operations:
Loss from discontinued operations............ -- (5.0) (6.2) (2.5) --
Gain on disposal of discontinued
operations................................ -- -- 3.3 -- --
----- ----- ----- ----- -----
Net loss....................................... (25.8)% (51.4)% (37.9)% (39.4)% (6.6)%
===== ===== ===== ===== =====

THREE MONTHS ENDED JUNE 30, 1998 AND 1999

REVENUES

Total Revenues. Total revenues increased 36.3% from $7.6 million to $10.3
million for the three months ended June 30, 1998 and 1999.

License. License revenues increased 27.9% from $4.8 million to $6.1 million
for the three months ended June 30, 1998 and 1999. The increase in license
revenues was primarily due to a significant increase in products sold through
Lucent Technologies and a large direct sale to Procter & Gamble.

Service. Service revenues increased 50.9% from $2.8 million to $4.2 million
for the three months ended June 30, 1998 and 1999. The growth in service
revenues was due primarily to an increase in maintenance revenues as a result of
our increased installed base, and an increase in consulting services to new and
existing customers. In future periods, we expect service revenues to decrease as
a

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28

percentage of total revenues as we seek to have third-party systems integrators
undertake a greater percentage of our product implementation.

COST OF REVENUES

License. Cost of licenses consists primarily of royalties, product
packaging, documentation and production. Cost of licenses was $74,000 and
$218,000 for the three months ended June 30, 1998 and 1999, representing 1.5%
and 3.6% of license revenues in the respective periods. The increase was
primarily due to an increase in license revenues and the resulting increase in
third-party royalty payments and to a lesser extent increases in material costs
and other related expenses. Recently, we have entered into reseller agreements
with Brightware and Cisco Systems-GeoTel Communications which require
significantly higher royalty rates. Although the sale of products under these
agreements has been minimal to date, the cost of licenses will vary
significantly in the future, depending on the mix of internally developed and
third-party products.

Service. Cost of services consists primarily of personnel costs and
third-party consulting fees associated with implementation, customization,
maintenance and other support services. Cost of services was $2.0 million and
$2.4 million for the three months ended June 30, 1998 and 1999, representing
70.9% and 58.1% of service revenues in the respective periods. The dollar
increase was primarily due to an increase in the number of third-party
consultants we engaged. Cost of services as a percentage of service revenues
declined primarily due to the higher margins for maintenance revenues. The cost
of services as a percentage of services revenues may vary between periods due to
the mix of services provided and the resources used to provide these services.

OPERATING EXPENSES

Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, travel, public relations, marketing materials and trade
shows. Sales and marketing expenses decreased 4.5% from $4.5 million to $4.3
million for the three months ended June 30, 1998 and 1999, representing 59.8%
and 41.9% of total revenues in the respective periods. The decrease in sales and
marketing expenses was primarily due to lower spending on marketing programs. We
intend to invest substantial resources to expand our direct sales force and
other distribution channels, and to conduct marketing programs to support our
existing and new product offerings. As a result, sales and marketing expenses
are expected to increase in absolute dollars in future periods.

Research and Development. Research and development expenses consist
primarily of personnel and related costs associated with the development of new
products, the enhancement and localization of existing products, quality
assurance and testing. Research and development expenses increased 4.3% from
$1.8 million to $1.9 million for the three months ended June 30, 1998 and 1999,
representing 23.8% and 18.2% of total revenues in the respective periods. The
decline in research and development expenses as a percentage of total revenues
was primarily due to the growth in total revenues. We anticipate that research
and development expenses will increase in absolute dollars in future periods. To
date, all research and development costs have been expensed as incurred.

General and Administrative. General and administrative expenses consist
primarily of salaries and other related costs for finance and human resource
employees, as well as accounting, legal, other professional fees and allowance
for doubtful accounts. General and administrative expenses increased 24.3% from
$803,000 to $998,000 for the three months ended June 30, 1998 and 1999,
representing 10.6% and 9.7% of total revenues in the respective periods. The
dollar increase was primarily due to an increase in the allowance for doubtful
accounts and increased staffing and associated expenses necessary to manage and
support our increased scale of operations. We anticipate that our general

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29

and administrative expenses will continue to increase in absolute dollars as a
result of the continued expansion of our administrative staff and facilities to
support growing operations.

Amortization of Intangibles. Amortization of intangibles consists of costs
associated with our acquisition of Nabnasset in November 1997. Amortization is
recorded on a straight-line basis over a period of three years ending in October
2000. Amortization of intangibles was $796,000 for the three months ended June
30, 1998 and 1999.

Stock-Based Compensation. In the three months ended June 30, 1998 and 1999,
we recorded deferred stock-based compensation of $43,000 and $700,000, relating
to stock options granted to employees. Such amounts represent the difference
between the exercise price and the deemed fair value of our common stock at the
date of grant. These amounts are being amortized over the vesting periods of the
granted options. In the three months ended June 30, 1998 and 1999, we recognized
stock-based compensation expense, in continuing operations, related to options
granted to employees of $4,000 and $169,000.

Interest Expense, Net. Interest expense consists of interest expense and
other non-operating expenses. In the three months ended June 30, 1998, we
recognized interest expense of $165,000 with respect to warrants granted in
connection with notes payable to stockholders. There was no such expense
recognized during the three months ended June 30, 1999.

DISCONTINUED OPERATIONS

On February 26, 1999 we sold the assets of our Call Center Enterprises
division. The division was sold for $2.1 million of cash resulting in a gain on
disposal of $1.0 million. We may receive an additional payment of up to $400,000
from the sale of Call Center Enterprises based on the number of former Call
Center Enterprises employees who remain employed by the purchaser for one year
subsequent to the date of disposition. The division had a loss of $190,000 for
the three months ended June 30, 1998, which was recorded as discontinued
operations.

FISCAL 1997, 1998 AND 1999

REVENUES

Total Revenues. Total revenues were $13.6 million, $21.9 million and $30.3
million in fiscal 1997, 1998 and 1999, increasing 60.8%, from fiscal 1997 to
1998 and 38.5% from fiscal 1998 to 1999.

License. License revenues were $8.4 million, $12.9 million and $17.6
million in fiscal 1997, 1998 and 1999, increasing 54.0% from fiscal 1997 to 1998
and 35.8% from fiscal 1998 to 1999. The increase in revenues from fiscal 1997 to
1998 was primarily due to an increase in our customer base as well as an
increase in sales to our existing customers. In addition, we acquired Nabnasset
in November 1997 and began realizing license revenues from our newly acquired
Quintus CTI product. The increase in license revenues from fiscal 1998 to 1999
was primarily due to a full year of CTI product sales in fiscal 1999 compared to
fewer than five months in fiscal 1998.

Service. Service revenues were $5.2 million, $8.9 million and $12.7 million
in fiscal 1997, 1998 and 1999, increasing 71.7% from fiscal 1997 to 1998 and
42.4% from fiscal 1998 to 1999. The increase in service revenues was primarily
due to growth in the installed base of customers with maintenance agreements,
maintenance renewals from products licensed in prior periods and increased
consulting revenues. The increase in service revenues from fiscal 1998 to 1999
was also due to additional consulting and maintenance revenues resulting from
our acquisition of Nabnasset.

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30

COST OF REVENUES

License. Cost of licenses was $972,000, $708,000 and $554,000 in fiscal
1997, 1998 and 1999, representing 11.6%, 5.5% and 3.2% of license revenue in the
respective periods. The decrease was primarily due to a decrease in royalty
payments associated with the licensing of our products.

Service. Cost of services was $4.2 million, $7.6 million and $8.6 million
for fiscal 1997, 1998 and 1999, representing 80.6%, 84.8% and 67.7% of service
revenue in the respective periods. From fiscal 1997 to 1998, the dollar increase
was primarily due to increases in professional services personnel, third-party
consulting expenses, and customer support staffing. From fiscal 1998 to 1999,
the dollar increase was primarily due to increases in professional services
personnel and third party consulting expenses. The decrease in cost of services
as a percentage of service revenues from fiscal 1998 to 1999 was primarily due
to a result of higher margins on our maintenance revenues.

OPERATING EXPENSES

Sales and Marketing. Sales and marketing expenses were $6.9 million, $11.3
million and $17.1 million in fiscal 1997, 1998 and 1999, representing 50.5%,
51.8% and 56.6% of total revenues in the respective periods. The increase was
primarily due to the further expansion of our worldwide sales and marketing
organization, higher sales commissions associated with increased revenues and
increased marketing activities.

Research and Development. Research and development expenses were $3.7
million, $5.1 million and $6.7 million in fiscal 1997, 1998 and 1999,
representing 26.9%, 23.3% and 22.2% of total revenues in the respective periods.
The dollar increases for each of the periods were primarily due to increases in
personnel and related overhead costs and to a lesser extent increased consulting
expenses.

General and Administrative. General and administrative expenses were $1.3
million, $3.2 million, and $3.6 million in fiscal 1997, 1998 and 1999,
representing 9.3%, 14.8% and 11.8% of total revenues in the respective periods.
The increase from fiscal 1997 to 1998 was primarily due to increases in
personnel, related overhead costs and expenses related to our infrastructure
expansion. The percentage decrease from fiscal 1998 to 1999 was primarily due to
our increased revenues.

Amortization of Intangibles. Amortization of intangibles was $1.3 million
and $3.2 million in fiscal 1998 and 1999, representing 6.1% and 10.5% of total
revenues in the respective periods. The increase was due to a full year of
amortization in fiscal 1999 versus a partial year of amortization in fiscal
1998.

Acquired In-Process Technologies. In November 1997, we acquired Nabnasset
for $3.5 million in cash, stock and options to purchase our common stock. The
transaction was accounted for as a purchase. In this acquisition, acquired
technology included both existing technology and in-process research and
development. The valuation of acquired technology was made by applying the
income forecast method, which considers the present value of cash flows by
product lines. Acquired in-process technologies were charged to operations, as
the technologies did not have alternative future uses as of the date of the
acquisition.

Stock-Based Compensation. During fiscal 1998 and 1999 we recorded deferred
stock-based compensation of $99,000 and $1.1 million relating to stock options
granted to employees. We had no deferred stock compensation relating to stock
options granted to employees in fiscal 1997. We recorded $171,000 of stock-based
compensation expense in operating expenses in fiscal 1999. There was no
stock-based compensation expense recorded in operating expenses during fiscal
1997 or 1998.

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31

Interest Expense, Net. Interest expense consists of interest expense and
other non-operating expenses. During fiscal 1998 and 1999, we recognized
interest expense of $258,000 and $165,000 with respect to warrants granted in
connection with notes payable to stockholders.

DISCONTINUED OPERATIONS

Our Call Center Enterprises division, which was sold in February 1999, had
revenues of $2.5 million and $3.2 million for fiscal 1998 and 1999, and incurred
a loss from operations of $1.1 million and $1.9 million in fiscal 1998 and 1999.
There were no assets or liabilities remaining as of March 31, 1999. Included
within the $1.0 million gain on the sale of discontinued operations is the fair
value of options granted in connection with the sale of Call Center Enterprises
of $453,000.

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32

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth unaudited quarterly results of operations
data for the five quarters ended June 30, 1999, as well as such data expressed
as a percentage of our total revenues for the periods presented. The information
in the table below should be read in conjunction with our annual audited
consolidated financial statements and related notes included elsewhere in this
prospectus. We have prepared this information on the same basis as our
consolidated financial statements and the information includes all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for the
quarters presented. Our quarterly operating results have varied substantially in
the past and may vary substantially in the future. You should not draw any
conclusions about our future results for any period from the results of
operations for any particular quarter.

QUARTER ENDED
--------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1999 1999
(IN THOUSANDS)

Revenues:
License....................... $ 4,790 $ 5,123 $ 2,930 $ 4,734 $ 6,126
Service....................... 2,762 3,185 3,024 3,759 4,167
------- ------- ------- ------- -------
Total revenues............. 7,552 8,308 5,954 8,493 10,293
Cost of revenues:
License....................... 74 194 155 131 218
Service....................... 1,957 2,219 2,426 2,021 2,421
------- ------- ------- ------- -------
Total costs of revenues.... 2,031 2,413 2,581 2,152 2,639
Gross profit.................... 5,521 5,895 3,373 6,341 7,654
Operating expenses:
Sales and marketing........... 4,518 4,098 4,639 3,892 4,314
Research and development...... 1,795 1,558 1,792 1,574 1,873
General and administrative.... 803 829 1,109 836 998
Amortization of intangibles... 796 800 798 791 796
Stock-based compensation...... 4 56 56 55 169
------- ------- ------- ------- -------
Total operating expenses... 7,916 7,341 8,394 7,148 8,150
------- ------- ------- ------- -------
Loss from continuing
operations.................... (2,395) (1,446) (5,021) (807) (496)
Interest expense, net........... (391) (134) (181) (211) (194)
------- ------- ------- ------- -------
Net loss from continuing
operations.................... (2,786) (1,580) (5,202) (1,018) (690)
Discontinued operations:
Loss from discontinued
operations................. (190) (459) (781) (461) --
Gain on disposal of
discontinued operations.... -- -- -- 1,011 --
------- ------- ------- ------- -------
Net loss........................ $(2,976) $(2,039) $(5,983) $ (468) $ (690)
======= ======= ======= ======= =======

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AS A PERCENTAGE OF TOTAL REVENUES
--------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1999 1999

Revenues:
License........................ 63.4% 61.7% 49.2% 55.7% 59.5%
Service........................ 36.6 38.3 50.8 44.3 40.5
----- ----- ------ ----- -----
Total revenues.............. 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
License........................ 1.0 2.3 2.6 1.5 2.1
Service........................ 25.9 26.7 40.7 23.8 23.5
----- ----- ------ ----- -----
Total costs of revenues..... 26.9 29.0 43.3 25.3 25.6
Gross profit..................... 73.1 71.0 56.7 74.7 74.4
Operating expenses:
Sales and marketing............ 59.8 49.3 77.9 45.8 41.9
Research and development....... 23.8 18.8 30.1 18.5 18.2
General and administrative..... 10.6 10.0 18.6 9.8 9.7
Amortization of intangibles.... 10.5 9.6 13.4 9.3 7.7
Stock-based compensation....... 0.1 0.7 0.9 0.6 1.6
----- ----- ------ ----- -----
Total operating expenses.... 104.8 88.4 140.9 84.2 79.1
----- ----- ------ ----- -----
Loss from continuing
operations..................... (31.7) (17.4) (84.3) (9.5) (4.8)
Interest expense, net............ (5.2) 1.6 3.0 2.5 1.9
----- ----- ------ ----- -----
Net loss from continuing
operations..................... (36.9) (19.0) (87.3) (12.0) (6.7)
Discontinued operations:
Loss from discontinued
operations.................. (2.5) (5.5) (13.1) (5.4) --
Gain on disposal of
discontinued operations..... -- -- -- 11.9 --
----- ----- ------ ----- -----
Net loss......................... (39.4)% (24.5)% (100.4)% (5.5)% (6.7)%
===== ===== ====== ===== =====

License revenues have generally increased in each of the five quarters
ended June 30, 1999, primarily due to increased market acceptance for our
products. Service revenues have also generally increased in each of these
quarters primarily due to the recognition of maintenance revenues attributable
to our growing installed base, and to a lesser extent, consulting and training
services associated with increased sales of our products. In the quarter ended
December 31, 1998 we recorded a large net loss due to our inability to close a
large number of license sales which had been forecasted to close in the quarter
coupled with an increase in operating expenses. In the following quarter we
experienced significant turnover in our sales personnel and we implemented
tighter expense controls resulting in lower overall operating expenses.

Our quarterly operating results have fluctuated significantly in the past,
and will continue to fluctuate in the future, as a result of a number of
factors, many of which are outside our control. As a result of our limited
operating history, we cannot forecast operating expenses based on historical
results. Accordingly, we base our anticipated level of expense in part on future
revenue projections. Most of our expenses are fixed in the short term and we may
not be able to quickly reduce spending if revenues are lower than we have
projected. Our ability to forecast our quarterly revenues accurately is limited
given our limited operating history, the length of our sales cycle and other
uncertainties in our business. If revenues in a particular quarter do not meet
projections, our net losses in a given quarter would be greater than expected.
As a result, we believe that quarter to quarter comparisons of our operating
results are not necessarily meaningful. Investors should not rely on the results
of one quarter as an indication of future performance.

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RECENT DEVELOPMENTS

On September 10, 1999, we entered into an agreement to acquire Acuity, a
provider of software products to manage Internet-based customer interactions. We
expect to close this acquisition prior to the effectiveness of this offering.
The acquisition is structured as a merger in which Acuity will become our
wholly-owned subsidiary and the stockholders of Acuity will become our
stockholders. The total number of our shares to be issued in connection with the
acquisition of Acuity plus the number of shares issuable upon exercise of
options and warrants we assume in the acquisition will equal 18% of our
fully-diluted capitalization immediately following the acquisition. Based on our
outstanding capitalization as of August 31, 1999, we expect to issue
approximately 2,960,000 shares of our preferred stock and 1,570,000 shares of
our common stock. In addition, we will assume warrants to purchase approximately
280,000 shares of our common and preferred stock and options to purchase
approximately 950,000 shares of our common stock. The closing of the merger is
subject to regulatory approval and the approval of the Acuity stockholders. The
acquisition will be accounted for using the purchase method of accounting. The
aggregate purchase price for the acquisition is approximately $45.5 million
based on the value of our capital stock to be issued and the value of the
options, warrants and liabilities to be assumed. In connection with the
acquisition of Acuity, we expect to recognize a charge for in-process
technologies of approximately $3.0 million in the quarter ending December 31,
1999. Acuity is located in Austin, Texas and had 92 employees on June 30, 1999.
Acuity's revenues for the year ended December 31, 1998 were $6.7 million, of
which $5.6 million were related to a product line that was subsequently sold in
March 1999. Acuity incurred net losses of $6.6 million, $7.7 million and $2.2
million in the years ended December 31, 1997 and 1998 and for the six months
ended June 30, 1999.

LIQUIDITY AND CAPITAL RESOURCES

Since May 1995, we have financed our operations primarily through the sale
of equity securities, borrowings and the sale of our products and services. As
of June 30, 1999, we have raised approximately $26.1 million, net of offering
costs, from the issuance of preferred stock. As of June 30, 1999, we had
$467,000 in cash. On August 26, 1999, we raised $11.2 million from the sale of
shares of our preferred stock.

We have a $7.5 million credit line under which $4.9 million was outstanding
as of June 30, 1999. The line bears interest at prime plus 1.5% per annum and
has a maturity date of September 17, 1999. We expect to extend the maturity date
of the credit line to November 16, 1999. We also have a $1.1 million term loan,
of which $761,000 was outstanding as of June 30, 1999. The term loan bears
interest at prime plus 2.0% per annum and is due in monthly installments through
September 2001.

Cash used in operating activities was $2.0 million, $4.0 million, $7.3
million and $823,000 in fiscal 1997, 1998 and 1999 and for the three months
ended June 30, 1999. Cash used in fiscal 1997 was primarily due to a net loss of
$3.5 million and an increase in accounts receivable, offset in part by an
increase in accounts payable, deferred revenues and depreciation and
amortization expenses. Cash used in fiscal 1998 was primarily due to a net loss
of $11.2 million and an increase in accounts receivable, offset in part by an
increase of deferred revenues, depreciation and amortization expenses, and a
$2.2 million non-cash charge for in-process technologies related to our
acquisition of Nabnasset. Cash used in fiscal 1999 was primarily due to a net
loss of $11.5 million and a $1.0 million gain on the disposal of discontinued
operations, offset in part by depreciation and amortization expenses. Cash used
for the three months ended June 30, 1999 was primarily due to a net loss of
$690,000 and an increase in accounts receivable offset in part by an increase in
accounts payable.

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Cash used in investing activities was $1.0 million, $3.7 million and
$297,000 in fiscal 1997 and 1998 and for the three months ended June 30, 1999.
Cash used in investing activities was primarily for purchases of property and
equipment in each period. In addition, cash used in fiscal 1998 included $2.5
million for the acquisition of Nabnasset. Cash provided by investing activities
of $924,000 in fiscal 1999 was primarily due to proceeds from the sale of
discontinued operations, offset by purchases of property and equipment.

Cash provided by financing activities was $5.2 million, $6.6 million and
$6.2 million in fiscal 1997, 1998 and 1999. Cash provided by financing
activities consisted primarily of proceeds from private sales of preferred stock
and borrowings under a bank line of credit. Cash used in financing activities
for the three months ended June 30, 1999 was $198,000.

We expect to experience significant growth in our operating expenses,
particularly sales and marketing and research and development expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that such operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In addition,
we may utilize cash resources to fund acquisitions or investments in
complementary businesses, technologies or product lines. We believe that the net
proceeds from this offering, together with bank financing, will be sufficient to
make a required cash payment of $18.2 million to holders of some series of our
preferred stock, upon the closing of this offering, and to meet our anticipated
needs for working capital and capital expenditures for at least the next 12
months. Thereafter, we may find it necessary to obtain additional equity or debt
financing. In the event additional financing is required, we may not be able to
raise it on acceptable terms or at all.

YEAR 2000 COMPLIANCE

The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century of the year. Many existing
electronic systems, including computer systems, use only the last two digits to
refer to a year. Therefore, these systems may recognize a date using "00" as
1900 rather than the year 2000. If not corrected, these electronic systems could
fail or create erroneous results when addressing dates on and after January 1,
2000.

We have developed and are implementing a company-wide program to identify
and remedy the Year 2000 issues. The scope of our Year 2000 readiness program
includes the review and evaluation of:

- our software products;

- our IT systems, such as hardware and software used in the operation of
our business;

- our non-IT systems or embedded technology, such as micro-controllers
contained in various equipment and facilities; and

- the readiness of third parties such as suppliers and other key vendors.

We have tested our software products to determine that they are Year 2000
compliant, when configured and used in accordance with the related
documentation, assuming that the underlying operating system of the host machine
and any other software used with or in the host machine or our products are Year
2000 compliant. Based on the results of these tests, we do not expect that the
current versions of our products would abnormally end or provide incorrect or
invalid results due to date data, including dates that represent a different
century.

We have tested software obtained from third parties that we incorporate
into our products. Despite our tests and assurances from developers of products
incorporated into our products, our

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products may contain undetected errors or defects associated with Year 2000 date
functions. Known or unknown errors or defects in our products could result in
financial loss, harm to our reputation, and liability to others and could
seriously harm our business.

We have initiated an assessment of our material internal information
technology systems, including both our own software products and third party
software and hardware technology, and our non-information technology systems. We
expect to complete testing of our material information technology systems by
November 30, 1999. To the extent that we are not able to test the technology
provided by third-party vendors, we are seeking assurances from these vendors
that their systems are Year 2000 compliant. We are not currently aware of any
material operational issues or costs associated with preparing our internal
information technology and non-information technology systems for the Year 2000.
Because we are substantially dependent upon the proper functioning of our
computer systems, a failure of our systems to be Year 2000 compliant could
materially disrupt our operations, which could seriously harm our business.

Some commentators have predicted significant litigation regarding Year 2000
compliance issues. Because of the unprecedented nature of this litigation, it is
uncertain whether or to what extent we may be affected by it.

We do not currently have any information concerning the Year 2000
compliance status of our customers. Our current or future customers may incur
significant expenses to achieve Year 2000 compliance. If our customers are not
Year 2000 compliant, they may experience material costs to remedy problems, or
they may face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for or
delay purchases of our products and services. As a result, our business could be
seriously harmed.

We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to Year 2000 compliance
for administrative personnel to manage the testing, review and remediation, and
outside vendor and contractor assistance. In addition, we may experience
material problems and costs with Year 2000 compliance that could seriously harm
our business.

Year 2000 issues affecting our business, if not adequately addressed by us,
our third party vendors or suppliers or our customers, could have a number of
"worst case" consequences. These include:

- the inability of our customers to use our products and services to manage
their call centers;

- claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our products and services
to function properly, and any resulting settlements or judgements; and

- our inability to manage our own business.

We are in the process of designing our Year 2000 contingency plan to
address situations that may result if we are unable to achieve Year 2000
readiness for our critical operations. Although it is not yet fully developed,
we expect to complete our Year 2000 contingency plan before December 31, 1999.
We do not expect the cost of developing and implementing our contingency plan to
be material. In addition, we cannot assure you that our contingency plan will
successfully address any Year 2000 problems that may arise.

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RECENT ACCOUNTING PRONOUNCEMENTS

In fiscal 1998, we adopted Statement of Financial Accounting Standards
(SFAS) No. 130, Reporting Comprehensive Income, which requires an enterprise to
report, by major components and as a single total, the change in net assets
during the period from non-owner sources. The adoption of SFAS No. 130 did not
have a material impact on our consolidated financial statements.

In fiscal 1998, we adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which established annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services and geographic areas and major
customers. The adoption of SFAS No. 131 did not have a material impact on our
consolidated financial statements.

In fiscal 1998, we adopted Statement of Position, or SOP 97-2, Software
Revenue Recognition, and SOP 98-4, Deferral of the Effective Date of a Provision
of SOP 97-2, Software Revenue Recognition. SOP 97-2 and SOP 98-4 provide
guidance for recognizing revenue on software transactions and supercede SOP
91-1. The adoption of SOP 97-2 and SOP 98-4 did not have a material impact on
our financial results.

In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use. SOP 98-1 establishes the accounting for costs of software
products developed or purchased for internal use, including when such costs
should be capitalized. SOP 98-1 will be effective for our fiscal year ending
March 31, 2000. We believe the adoption of this statement will not have a
significant impact on our financial position, results of operations or cash
flows.

In April 1998, the AcSEC issued SOP 98-5, Reporting on the Costs of
Start-up Activities. Under SOP 98-5, the cost of start-up activities should be
expensed as incurred. SOP 98-1 will be effective for our fiscal year ending
March 31, 2000. We believe the adoption of this statement will not have a
significant impact on our financial position, results of operations or cash
flows.

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. SFAS
No. 133 will be effective for our fiscal year ending March 31, 2001. We believe
the adoption of this statement will not have a significant impact on our
financial position, results of operations or cash flows.

INTEREST RATE RISK

At June 30, 1999, we had an outstanding balance of $4.9 million under a
revolving line of credit with interest at prime plus 1.5% and a term loan with
an outstanding balance of $761,000 at prime plus 2.0%. A 10% movement in market
interest rates would not significantly impact our financial position or results
of operations.

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BUSINESS

INDUSTRY BACKGROUND

In today's competitive global marketplace, customer service is increasingly
critical to attracting and retaining customers. Many companies are re-orienting
their businesses to be more responsive to customer needs and are focusing on
customer service and satisfaction as a means of differentiation. Moreover,
companies are recognizing that every customer interaction provides an
opportunity to sell additional products and services, as well as increase
customer loyalty. As a result, in many industries customer service is becoming a
key competitive advantage.

The Internet has emerged as a major platform for communication and
commerce, enabling new and highly efficient channels for companies to engage in
commerce and interact directly with their customers. The growth of e-commerce
has increased competition for customers and reduced the importance of
traditional competitive advantages such as price, location, availability and
access. International Data Corporation estimates that the number of customers
buying goods and services over the Internet worldwide will grow from
approximately 30.8 million in 1998 to 182.6 million in 2003 and that the value
of these purchases will increase from $50.4 billion to $1.3 trillion over the
same period.

The Internet enables customers and companies to interact in more ways than
ever before. In addition to traditional, telephone-based communications,
customers and companies can now interact through email, Web chat and Web
self-service. These Internet-based communication channels are growing rapidly,
creating new challenges for companies attempting to provide quality customer
service. The Gartner Group estimates that approximately 25% of all customer
interactions will take place over the Internet via email or Web communications
by 2001. Forrester Research estimates that by 2001 consumers will send companies
approximately 50 million emails per day requesting product information or
service.

As a result of the growing number of communication channels, companies are
struggling to handle the volume and variety of customer interactions. While
Internet-based communications are forecast to grow substantially,
telephone-based communications will remain a critical component of companies'
customer service. Many companies are not equipped to address the convergence of
traditional and Internet-based communication channels and, consequently, cannot
offer customers the flexibility and service they demand. Customers increasingly
expect to be able to interact with companies through whichever channel best
suits their needs and are likely to use a combination of communication channels.
For example, a customer may request product literature via email, review
marketing materials or fill in an application on the Web, call to receive more
detailed information or assistance, send a signed form by fax, and check the
status of an order online. Companies' ability to provide consistent customer
service across all these communication channels will become increasingly
critical to delivering a superior customer experience.

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In many industries, Internet-based companies have captured increasing
market share and emerged as competitive threats to traditional "brick and
mortar" companies. As a result, many Global 1000 companies are under pressure to
quickly expand their online presence. These companies have typically provided
customer service through telephone-based communication channels and are now
looking to support new Internet-based communication channels. Many of these
companies have invested considerable resources to establish call centers that
manage inbound and outbound customer calls, including customer inquiries, orders
and service requests, as well as telesales and telemarketing operations. As
these companies move to support Internet-based communication channels and
establish multi-channel customer contact centers, they will seek to leverage
their existing investments in call center infrastructure and personnel. Frost
and Sullivan estimates that spending on Web-enabled call centers will increase
from $14.1 million in 1998 to $889.9 million in 2004.

Similarly, many Internet-based companies that have grown rapidly and built
sizable customer bases are faced with an increasingly competitive online market
environment and are looking for ways to differentiate themselves. These
Internet-based companies have relied primarily on email and Web self-service to
interact with their customers and many have delivered unsatisfactory customer
service. According to a recent survey of Internet sites by Jupiter
Communications, more than a third had no email address listed, took longer than
five days to respond or never responded to an email.

To date, companies have turned to several types of products to deliver
customer service. These products have primarily been point solutions targeted at
discrete communication channels. For example, computer telephony integration
software products, which automate call routing and reduce the time it takes to
respond to customer calls, are designed for telephone-based communications and
often are not able to handle or integrate with Internet-based communication
channels. Similarly, email management software products, which automate email
responses, typically are not integrated with other communication channels and
therefore do not provide a complete and accurate view of the customer. Companies
have also deployed customer relationship management applications to automate
customer interactions such as problem management and to provide a repository for
customer information. However, these applications are usually not integrated
with the underlying communication infrastructure and therefore cannot leverage
call routing or other features that enable more timely, efficient and
personalized customer service. Deploying these disparate solutions requires
significant integration and, as a result, they can be difficult and expensive to
implement and maintain.

We believe a significant market opportunity exists for solutions that
provide both traditional "brick and mortar" companies and new Internet-based
companies with the ability to integrate a broad range of communication channels
and manage the entire customer interaction lifecycle. We refer to this market
opportunity as the e-Customer Relationship Management or eCRM market. eCRM
solutions enable companies to:

- manage high volumes of customer interactions;

- support a broad range of communication channels;

- deliver consistent and integrated customer service;

- leverage Internet and telephony technologies; and

- capture all relevant customer information.

THE QUINTUS SOLUTION

We provide a comprehensive eCRM solution to manage customer interactions
and deliver consistent customer service across multiple communication channels,
including the Internet, email

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and advanced telephony systems. Our Quintus eContact software suite includes
customer relationship management applications that address the needs of sales
and service, consumer relations, technical support and human resources contact
centers and a sophisticated routing engine to manage customer interactions. Our
eContact software suite provides a platform for the personalization, routing and
management of customer interactions and is designed to leverage third party
products that support email and Internet-based customer service. We recently
entered into an agreement to acquire Acuity, which will extend our ability to
provide customer service functionality through Web chat, Web self-service,
browser-based collaboration and email. Our eContact suite enables companies to
handle high volumes of customer interactions, increase the efficiency of contact
center resources and leverage cross-selling and up-selling opportunities through
the use of common workflows and business rules, shared customer profile
information, and consolidated management and reporting functionality.

We have designed Quintus eContact to be a highly scalable and flexible
solution that can be easily deployed to assist companies in reducing the costs
and improving the efficiency of their customer service operations. eContact is
based on an open, standards-based architecture and can be integrated with other
systems, enabling companies to leverage their existing customer relationship
management applications and communication infrastructure. eContact addresses the
customer service needs of large organizations as well as rapidly growing
companies that require highly functional solutions to automate and manage high
volumes of customer interactions across traditional as well as Internet-based
communication channels.

The key features of the Quintus eContact solution are:

Broad Range of Communication Channels. Quintus eContact is a comprehensive
solution that enables companies to provide sophisticated routing, tracking and
reporting capabilities across their communication infrastructure and manage
customer interactions via telephone, email, Web self-service, Web chat,
browser-based collaboration and Web callback. Our solution also supports third-
party e-commerce applications, facsimile and imaging applications, and advanced
telephony systems, including automatic call distributors and interactive voice
response systems.

Integrated Applications and Communication Infrastructure. Quintus eContact
integrates communication infrastructure with customer relationship management
applications. We currently sell four customer relationship management
applications that address the needs of sales and service, consumer relations,
technical support and human resources contact centers. These applications
provide out-of-the-box functionality and allow companies to accelerate the
deployment of our solution.

Consistent Customer Service Across Communication Channels. Quintus eContact
allows companies to set business rules and personalization strategies to handle
customer interactions and deliver a consistent level of customer service across
multiple communication channels. Individual customer interactions can be managed
using transaction histories, legacy data, customer profiles and resource status
to offer a consistent and highly personalized level of customer service.
Business rules and personalization strategies can also be defined for specific
communication channels in order to leverage the attributes of each channel to
provide more targeted customer service and cross-selling and up-selling
opportunities.

Consolidated Customer Interaction Repository. Quintus eContact provides a
consolidated repository of information about each customer interaction
regardless of communication channel. Companies can analyze customer interactions
and determine the use and effectiveness of different channels by different
customer segments. Contact center agents can access complete customer histories
and review previous interactions. As a result, agents can respond more
effectively when, for

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example, a customer calls to discuss an email she received in response to an
order she previously placed online.

Highly Scalable and Flexible. Quintus eContact is designed to handle
millions of customer interactions per day and support thousands of agents across
multiple contact centers. eContact allows companies to increase the number of
customer interactions handled by routing customer interactions to the best
resource available, based on agent availability and experience, as well as prior
contact history. eContact is a modular solution, providing companies the
flexibility to implement the solution they need today and add functionality as
they expand the scope of their contact centers. In addition, our solution is
based on open standards, enabling it to share information with existing customer
relationship management applications and legacy systems.

OUR GROWTH STRATEGY

Our objective is to be the leading provider of eCRM software solutions that
manage customer interactions across a broad range of communication channels. Key
elements of our strategy include:

Maintain and Extend Technology Leadership. We will continue to leverage
leading Internet and telephony technologies to enhance the performance and
functionality of our products. We believe our Quintus eContact suite is the most
comprehensive solution that enables companies to efficiently and
cost-effectively manage high volumes of customer interactions across multiple
communication channels. We plan to incorporate new technologies, such as
Internet telephony, speech recognition and digital video, into our solution as
they achieve significant market acceptance. We intend to maintain our technology
leadership through focused research and development and, potentially, through
the licensing or acquisition of complementary technologies or businesses.

Broaden Direct and Indirect Distribution Capabilities. We intend to
continue to develop and extend our distribution capabilities. We sell our
solution through a direct sales force in North America and indirectly through 15
domestic and international resellers and distribution partners including IBM
Japan, Lucent Technologies and Logica. We plan to increase the size of our
direct sales organization and broaden our indirect distribution network with
strategic resellers and other distribution partners.

Target Global 1000 Companies. We plan to continue to target Global 1000
companies as they rapidly transition their businesses online. We believe that
there is a significant opportunity to provide a solution that enables these
companies to leverage their existing customer service infrastructure and deliver
a consistent and integrated level of customer service across both traditional
and Internet-based communication channels. Our customers include Global 1000
companies such as Citigroup, Lucent Technologies, Procter & Gamble and United
Airlines.

Target Leading Internet-based Companies. We plan to continue to target
leading Internet-based companies. We believe that these companies increasingly
recognize the need for higher levels of customer service in order to attract and
retain customers, and are looking for highly scalable solutions that are easy to
deploy and support both their existing Internet-based communication channels as
well as traditional communication channels. Leading Internet-based companies
that have purchased Acuity's WebCenter product line include drugstore.com,
living.com and REI.com.

Develop and Expand Strategic Relationships. We plan to continue to develop
technology and marketing relationships with leading vendors of complementary
products in order to increase our visibility in the marketplace and broaden the
functionality of our solution. We currently have strategic relationships with
Cisco Systems-GeoTel Communications and Brightware. We also intend to expand our
strategic relationships with leading systems integrators that have significant
influence over companies' purchasing decisions. We believe that systems
integrators help provide industry-specific

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expertise and support our growth and entry into new markets. We currently have
implementation relationships with AnswerThink Consulting Group, Cambridge
Technology Partners and Technology Solutions Company.

PRODUCTS

The Quintus eContact suite is a comprehensive eCRM solution that allows
companies to provide consistent customer service across a broad range of
communication channels, including voice, email, Web self-service, Web chat,
browser-based collaboration and Web callback. The eContact suite includes the
eContact engine, channel applications and business applications.

LOGO

The Quintus eContact suite is priced according to the product components
purchased and the number of users. Product components are typically priced from
$15,000 to $85,000 per installation, with per user prices typically ranging from
$500 to $2,300.

QUINTUS ECONTACT ENGINE

The Quintus eContact engine is the foundation of our eContact suite and
serves as a platform for managing customer interactions consistently across
multiple communication channels. Our eContact engine provides advanced routing,
tracking, management and reporting functionality, and consolidates all relevant
customer information into a common data repository. The eContact engine includes
the following features:

- Personalization Services. The Quintus eContact engine allows companies to
personalize each customer interaction based on sophisticated business
rules and workflows that take into account customer profiles, transaction
histories and resource availability. A customer interaction can be
managed and routed based upon the communication channel, the customer or
the purpose of that specific customer interaction. As a result, customers
can receive the same level of service across multiple communication
channels and companies can leverage the

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attributes of each communication channel to deliver more targeted and
effective customer service.

- Coordination Services. For each customer interaction, the Quintus
eContact engine captures all relevant customer information in real time.
By sharing customer information across systems, agents and communication
channels, companies can provide better informed, consistent and
synchronized customer service.

- Consolidated Repository and Reporting. All customer profiles and
histories, as well as detailed records of every customer interaction
regardless of communication channel, are stored in a common data
repository. The Quintus eContact engine includes a set of reporting tools
that allow companies to perform in-depth customer segmentation and trend
analysis.

- Centralized Customization and Administration. Companies can easily
customize business rules, workflows, screen layouts, Web pages, data
models and data access using Quintus eContact's drag-and-drop graphical
tools. This common toolset gives companies the flexibility necessary to
rapidly respond to changing business needs. Our eContact engine also
provides centralized administration of our solution. Companies can
control and monitor system status and availability as well as receive
notification alerts when pre-defined thresholds are met.

The Quintus eContact engine includes an enterprise data access layer that
provides access to relational databases as well as external data sources and
transactional systems, enabling companies to use their own business data to
manage customer interactions. Contact center agents interact with our eContact
suite through our agent console. The agent console provides an intuitive user
interface that displays customer information and pre-defined scripts, and can be
integrated with multiple applications, including front and back office systems
and legacy applications.

QUINTUS ECONTACT CHANNEL APPLICATIONS

Our channel applications enable companies to manage customer interactions
consistently across multiple communication channels including the Internet,
email and advanced telephony systems. Our channel applications can be deployed
separately or as a comprehensive solution to meet companies' evolving need for
multi-channel contact centers.

- -----------------------------------------------------------------------------------
CHANNEL APPLICATION PRODUCT DESCRIPTION
- -----------------------------------------------------------------------------------
Computer Telephony Quintus CTI integrates eContact with advanced telephony
Integration systems.
- -----------------------------------------------------------------------------------
Web Interaction Quintus WebCenter provides Web self-service and online
customer service through Web chat, browser-based
collaboration and Web callback.
- -----------------------------------------------------------------------------------
Email Management* Quintus Email Management provides email management with
natural language text analysis and rule-driven automated
responses.
- -----------------------------------------------------------------------------------
Electronic Commerce Quintus eCommerce Connector integrates eContact with
Connector e-commerce applications to capture transaction information.
- -----------------------------------------------------------------------------------
Network Routing* Quintus Network Routing creates an enterprise-wide "virtual
call center" with optimized routing between distributed
resources.
- -----------------------------------------------------------------------------------

* Third-party products that we currently resell as part of the Quintus eContact
suite.

Computer Telephony Integration. Quintus CTI provides a highly scalable
platform for integrating advanced telephony systems such as automatic call
distributors and interactive voice response systems from major
telecommunications equipment vendors. Quintus CTI allows companies

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to apply sophisticated business rules and workflows to qualify and route
telephone-based customer communications. By integrating the telephony
infrastructure with our eContact solution, Quintus CTI also enables traditional
voice-only call centers to be extended to handle Web, email and other
communication channels.

Web Interaction. Quintus WebCenter, an Acuity product, provides a
comprehensive framework to manage Internet-based customer interactions,
including Web self-service, Web chat, browser-based collaboration and Web
callback. WebCenter enables companies to provide live customer service on the
Internet. Through Acuity's WebACD, Web-based customer interactions are routed to
the appropriate resources based on agent availability and experience. Agents can
collaborate with customers by synchronizing their browsers, seeing the Web pages
that customers are viewing and pushing new Web pages to customers to assist
them. WebCenter also allows companies to build a knowledge base of frequently
asked questions, deploy it on the Web and provide customers with full search
capabilities. With WebCenter companies can enhance their Web sites and deliver a
more engaging and personalized customer experience by providing immediately
available online customer service options. We have not yet implemented WebCenter
as part of our eContact suite; however, WebCenter has been sold to over 100
customers and we are currently engaged in our first WebCenter and eContact
deployment. We will acquire the WebCenter and WebACD products upon the closing
of our acquisition of Acuity, which is expected to occur prior to the
effectiveness of this offering.

Email Management. We deliver email management functionality by reselling
Brightware's software under a non-exclusive reseller agreement. Quintus Email
Management provides natural language analysis and automated response
capabilities, enabling companies to answer customers' emails accurately,
cost-effectively and rapidly. Email Management analyzes the email message
content, determines the nature of the customer request and automatically
responds to the email or forwards it with a suggested response to an agent for
further review. Responses can be automatically generated and include information
provided by the eContact repository or other external data sources. The next
version of the Quintus eContact suite, which is expected to be released in
October 1999, will integrate Brightware's email management products with our
eContact suite.

Electronic Commerce Connector. Quintus eCommerce Connector enables our
eContact solution to exchange information with e-commerce applications using
standard Internet protocols. Online customer transactions and purchases can be
recorded in the eContact repository and displayed to agents providing customer
service. Companies can integrate our Internet-based customer service solution
with their e-commerce applications to offer online customer assistance at the
time of purchase as well as aftersales support. In addition, our eCommerce
Connector enables companies to leverage information on customer purchasing
patterns to sell additional products or services with each customer interaction.

Network Routing. Quintus Network Routing provides enhanced call routing
functionality to distribute inbound customer calls across different locations.
We offer this functionality by reselling Cisco Systems-GeoTel Communications'
Intelligent Contact Management product under a non-exclusive reseller agreement.
Network Routing enables companies to create a real-time enterprise-wide "virtual
call center" that is independent of carriers and telephone switches. Companies
with multiple call centers can increase customer satisfaction and achieve
significant cost efficiencies by optimizing call delivery and transfers between
geographically dispersed resources.

QUINTUS ECONTACT BUSINESS APPLICATIONS

We currently market four business applications that address the needs of
sales and service, consumer relations, technical support and human resources
contact centers. Our business applications can run separately or be integrated
with the Quintus eContact suite, can be deployed across multiple

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locations and are accessed through agent desktops or via a Web browser.
Companies can easily customize data models, business rules, screen forms and Web
pages to meet specific requirements. Our business applications can also be
integrated with third-party applications and data sources.

- -----------------------------------------------------------------------------------
BUSINESS PRODUCT DESCRIPTION
APPLICATION
- -----------------------------------------------------------------------------------
Sales and Service Quintus CallCenterQ supports multi-function
business-to-consumer sales, service and marketing contact
centers.
- -----------------------------------------------------------------------------------
Consumer Relations Quintus CallCenterQ for Consumer Relations supports consumer
relations contact centers in the consumer product, service,
travel, hospitality and other industries.
- -----------------------------------------------------------------------------------
Technical Support Quintus CustomerQ supports business-to-business technical
support contact centers.
- -----------------------------------------------------------------------------------
Human Resources Quintus HRQ supports human resources contact centers serving
employees, former employees and retirees.
- -----------------------------------------------------------------------------------

Sales and Service. Quintus CallCenterQ is designed for multi-function
sales, service and marketing contact centers. Targeted at business-to-consumer
industries, CallCenterQ enables agents to easily access pricing and product
information, process returns, track service issues and capture orders as well as
qualify and manage customer leads. CallCenterQ also allows companies to define
and manage marketing campaigns, and agents can be automatically prompted with
targeted cross-selling and up-selling opportunities. Additional features include
list management, literature fulfillment, automatic personalized letter
generation, agent scripting, and outbound preview dialing. CallCenterQ is
designed to help companies maximize revenue by enabling them to set up,
administer and evaluate the effectiveness of their sales and marketing
campaigns.

Consumer Relations. Quintus CallCenterQ for Consumer Relations is designed
for consumer relations contact centers and is targeted primarily at the consumer
product, service, travel and hospitality industries. CallCenterQ for Consumer
Relations provides agents with the information needed to resolve customer issues
including customer history and product information, and the ability to issue
vouchers and other forms of compensation. Additional features include scanned
letter/fax viewing, frequently asked questions knowledge base, automatic
personalized letter generation, and literature fulfillment. In addition,
CallCenterQ for Consumer Relations enables companies to gather important
customer feedback and market research to help them manage their brands.

Technical Support. Quintus CustomerQ is designed for business-to-business
technical support contact centers. CustomerQ provides agents with complete
customer history and product information, as well as service contracts,
warranties, billing and shipping information. Companies can also allow customers
to search for solutions, enter issues, and track the status of their technical
problems through the Internet. Other features include problem resolution, case
management, access to knowledge bases, defect tracking, automatic notification
and escalation, return processing and report generation. CustomerQ enables
companies to increase customer loyalty by rapidly and effectively addressing
customer requests for technical support. We also offer Quintus HelpQ, a
technical support application, which is targeted at the internal help desk
market.

Human Resources. Quintus HRQ is designed for human resources contact
centers serving employees, former employees and retirees. HRQ provides human
resources personnel with detailed employee history as well as health care and
financial benefits information. Other features include problem resolution,
dependent profiles, scanned letter/fax viewing, automatic personalized letter
generation and literature fulfillment. In addition, HRQ can be integrated with
leading human resources applications and knowledge bases. HRQ helps companies be
more responsive to their

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employees while reducing administrative costs and improving the productivity of
human resource departments.

CUSTOMERS

To date, we have licensed our software products to over 250 customers,
including companies in the financial services, telecommunications and consumer
product industries. The following is a representative list of companies from
which we have derived more than $300,000 of license and service revenue since
April 1, 1996.

AMS Management Systems Engen Petroleum PricewaterhouseCoopers
Anheuser-Busch First Union Bank Procter & Gamble
Canada Trust Hartford Insurance Reuters
Canadian Imperial Bank of Inova Healthcare Services The Santa Cruz Operation
Commerce International Paper Siemens Nixdorf
Capita Group Lucent Technologies Steelcase
Citigroup Massachusetts Division of Sun Microsystems
Clarke American Employment & Training Telefonica do Brasil
Countrywide Home Loans Meca Software United Airlines
Deere & Company Northern Trust

Prior to our acquisition of Acuity, Acuity licensed its WebCenter product
to over 100 customers.

The following case studies illustrate how some companies are using our
products.

PROCTER & GAMBLE

Procter & Gamble is a leading food and consumer products company, marketing
over 300 brands in more than 140 countries.

Business Challenge. Each year, Procter & Gamble receives high volumes of
calls and letters from consumers concerning its products and company policies.
Procter & Gamble required a solution that could integrate its telephone, letter
and facsimile interactions, and support emerging Internet communication
channels. In addition, Procter & Gamble, which has over 110,000 employees
worldwide, was looking for a solution to help manage human resources inquiries
by both current and former employees.

Solution. Procter & Gamble licensed our Quintus CallCenter for Consumer
Relations application for its consumer relations contact centers. Procter &
Gamble is also implementing our Quintus HRQ application in its human resources
contact centers to handle inquiries such as health benefits, payroll and pension
plans. Procter & Gamble expects that our solution will enable it to increase the
efficiency of its contact centers and improve its service to consumers and
employees by automating contact center interactions, providing detailed consumer
and employee information, and tracking problem resolution to completion.

CITIGROUP

Citigroup is a leading global financial services company, providing over
100 million consumers, corporations, governments and institutions in more than
100 countries with a broad range of financial products and services.

Business Challenge. Citigroup relies on multiple call centers and thousands
of agents to provide financial services to customers over the telephone.
Citigroup needed to integrate its call center

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telephony systems with its back-office systems to enable agents to access
detailed customer information and perform additional business functions. In
addition, Citigroup required a flexible and scalable solution that could be
deployed across multiple call centers. Citigroup was also looking for a solution
that could be implemented in conjunction with its "e-Citi" initiative to
increase its presence on the Internet and deliver financial services online.

Solution. Citigroup is currently using our Quintus CTI product to integrate
its telephony systems and enable approximately 1,000 agents across multiple call
centers to deliver superior customer service. Our solution enables Citigroup to
handle service requests quickly and cost-effectively by providing agents with
detailed customer information and routing calls to the most appropriate agent.
Citigroup has also deployed our Quintus CustomerQ application integrated with
our Quintus CTI product as part of its e-Citi projects. In addition to
increasing customer satisfaction by enabling e-Citi agents to track customer
relationships and activities, our solution is designed to increase revenue by
alerting agents to likely cross-selling and up-selling opportunities.

TICKETMASTER

Ticketmaster is a leading provider of automated ticketing distribution
services, selling approximately 70 million tickets worldwide in 1998.

Business Challenge. Ticketmaster sells tickets to the public through the
telephone, the Internet and retail outlets. More recently, Ticketmaster has
started selling a greater percentage of tickets over the Internet. Through the
Internet, Ticketmaster allows customers to find information about upcoming
events and purchase tickets and other related merchandise. To support its
growing online sales and customer service needs, Ticketmaster sought a more
comprehensive solution that would enable it to provide a higher level of
customer service through automated email, Web chat, Web callback and
collaborative browsing. Ticketmaster wanted to be able to integrate this
solution with its existing call centers and telephone systems.

Solution. Ticketmaster selected our Quintus eContact suite earlier this
year. Ticketmaster expects that our solution, which is being developed, will
enable it to provide live customer support through Web chat and browser-based
collaboration, and to respond more efficiently to large volumes of emails.
Ticketmaster plans to integrate our solution within its call centers as its need
for Internet customer service increases.

TECHNOLOGY

Quintus eContact is based on a scalable, multi-tiered architecture. Our
eContact product suite enables eCRM features through a sequence of cooperating,
distributed software servers that perform a variety of functions, including
creating and manipulating data containers, routing customer contacts, allowing
agents to access data and interact with customers through a Web browser. Our
multi-platform solution runs on all major UNIX and Windows NT operating systems.

Electronic Data Container. When a customer contacts a company, whether by
telephone, fax, email or through a Web site, an electronic data container for
that customer interaction is created. Existing customer information can be
retrieved from the data repository to populate the data container, or new
information can be obtained directly from the customer. The data container
continually collects information throughout the lifecycle of the customer
interaction and can be routed throughout an enterprise, carrying detailed
information about the customer, including the customer's history with the
company and details of this particular customer interaction. If the customer is
transferred to another agent at another site or to an agent using a different

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communication channel, the data container accompanies the transition, ensuring
that the customer perceives a seamless service process.

Enterprise Data Access Layer. Quintus eContact includes a powerful
enterprise data access layer that provides access to relational and legacy data
sources. The enterprise data access layer creates a uniform view of third party
data regardless of the data source and allows eContact to incorporate
third-party customer information.

Abstraction and Customization. Quintus eContact uses a sophisticated data
abstraction layer that allows companies to store data entities, business rules
and screen layouts as business objects. Customizations are performed on the
business objects to modify them. All changes to the business objects are
automatically reflected throughout our eContact suite.

Workflow and Routing Engine. Quintus eContact provides a graphical tool to
create and modify customer interaction flows, define routing rules and build
agent scripts. These customer interaction flows, rules and scripts are
specified, distributed and stored in Extensible Markup Language, allowing
eContact to leverage industry-standard tools and technologies. Customer
interaction flows are defined using re-usable building blocks that can be used
to create new routing rules as companies' needs evolve.

High Availability. We have built our system using a modular,
component-based approach. Additional contact center capabilities and
applications can be introduced without requiring companies to change their
computing infrastructure and, in most cases, without affecting their operations.
Our system also provides multiple redundant configurations, delivering the
ability to "failover" to an alternative configuration in the event of a system
failure.

CUSTOMER SUPPORT SERVICES

We believe that high quality services and support are critical requirements
for continued growth and increased sales of our products. We have made and
expect to continue to make significant investments to increase our ability to
service and support our customers.

Our customer support services organization is organized into four groups
including customer service management, professional services, technical support
and education services.

Customer Service Management. Our customer service management team handles
many aspects of our customer relationships including answering general
questions, renewing maintenance agreements, shipping product upgrades and
coordinating with our other resources to meet customer needs.

Professional Services. Our professional services group helps facilitate the
implementation of our solution. We provide systems integration services to
support our entire product suite. Our services include integration,
customization, data modeling, project management and business rules development.
The professional services group also provides support for our implementation
partners.

Technical Support. Our technical services group is dedicated to providing
the highest level of support to our customers. We currently operate three
technical support centers in the United States and rely upon a network of
service providers internationally to provide consultations via toll-free
telephone, email and the Web. Additionally, customers have 24-hour access to our
online knowledge repository and the ability to directly log and track their
issues through our Web site. We offer a tiered maintenance and support program.
Customers can choose from our existing support packages or have a custom package
developed to meet their particular needs including 24x7 coverage and other
assistance options.

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Education Services. Our education services group offers a full spectrum of
classes providing the training needed to understand, implement and use our
solution. We offer lectures and teaching labs to end-users, administrators,
developers and system integration partners at our facilities in California and
Massachusetts. Upon request, we can also provide customized on-site training.

SALES AND MARKETING

Sales. We sell our products through a direct sales force and indirectly
through resellers and distribution partners. To date, we have targeted our sales
efforts at Global 1000 companies and other rapidly growing companies pursuing
eCRM initiatives, including those in the financial services, telecommunications
and consumer products industries. Our sales force consists primarily of sales
people and sales engineers located in our sales offices in numerous locations
across the United States. We also maintain international offices in Amsterdam
and London from which we provide sales support to our international distribution
partners.

We currently have relationships with 15 domestic and international reseller
and distribution partners including IBM Japan, Lucent Technologies and Logica.
We also enhance our sales efforts through strategic relationships with systems
integrators such as AnswerThink Consulting Group, Cambridge Technology Partners
and Technology Solutions Company. We intend to continue to expand our sales
efforts by increasing the size of our direct sales force and broadening our
indirect distribution channels.

Marketing. Our marketing efforts focus on creating market awareness for
eCRM solutions, promoting our products and services, and generating sales
opportunities. We have a comprehensive marketing strategy that includes print
advertising, public relations campaigns, direct mailings, newsletters, industry
events including trade shows, analyst programs and speaking engagements, and
joint marketing arrangements. We also advertise on the Internet and use our Web
site to further our market presence and generate additional leads.

RESEARCH AND DEVELOPMENT

Our research and development efforts are focused primarily around enhancing
our core technology and developing additional applications for the Quintus
eContact suite. We operate development centers in California, Massachusetts and,
following the acquisition of Acuity, Texas. Our software development approach
consists of a well-defined methodology that provides guidelines for planning,
controlling and implementing projects. This approach uses a cross-functional,
team-based development and release process. Our research and development group
works closely with customers, partners, our sales and marketing group and senior
management to assist in defining product direction and to ensure that products
are brought to market successfully. Members of our research and development
group have extensive experience in customer relationship management software as
well as Internet and telephony communication technologies.

Our research and development expenditures were approximately $3.7 million,
$5.1 million, $6.7 million and $1.9 million in fiscal 1997, 1998 and 1999 and
for the three months ended June 30, 1999. We believe that our future performance
will depend in large part on our ability to enhance our current product line,
develop new products and maintain our technological competitiveness. As a
result, we intend to continue to expend significant resources in research and
development.

COMPETITION

The eCRM market is highly competitive and subject to rapid technological
change. We expect competition to increase significantly in the future as current
competitors expand their product

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offerings and new companies enter the market. We currently face competition
primarily from customer relationship management software vendors such as Siebel
Systems and Clarify, emerging Internet customer interaction software vendors
such as Kana Communications and WebLine Communications, and computer telephony
software vendors such as Genesys Telecommunications Labs.

Because there are relatively low barriers to entry in the software market,
we expect additional competition from other established and emerging companies
if the eCRM market continues to develop and expand. Potential future competitors
include traditional call center technology providers and large enterprise
application vendors as well as independent systems integrators, consulting firms
and in-house information technology departments that may develop solutions that
compete with our products.

We believe that we compete favorably with respect to the principal
competitive factors affecting our market, including price, product quality,
product scalability and reliability, core technology and architecture, customer
service and support, and ability to implement solutions.

PATENTS AND PROPRIETARY RIGHTS

Our success and competitiveness are dependent to a significant degree on
the protection of our proprietary technology. We rely primarily on a combination
of copyrights, trademarks, licenses, trade secret laws and restrictions on
disclosure to protect our intellectual property and proprietary rights. We also
enter into confidentiality agreements with our employees and consultants, and
generally control access to and distribution of our documentation and other
proprietary information. Despite these precautions, others may be able to copy
or reverse engineer aspects of our products, to obtain and use information that
we regard as proprietary or to independently develop similar technology. Any
such actions by competitors could harm our business, operating results and
financial condition.

In addition, the laws of some foreign countries may not protect our
proprietary rights to the same extent as the laws of the United States, and
effective patent, copyright, trademark and trade secret protection may not be
available in these jurisdictions.

We may need to take legal action in the future to enforce or defend our
intellectual property and proprietary rights, to protect our trade secrets or to
determine the validity and scope of the intellectual property and proprietary
rights of others. Litigation, whether successful or unsuccessful, could result
in substantial costs and diversion of management and technical resources, either
of which could harm our business, operating results and financial condition.

We attempt to avoid infringing upon known intellectual property and
proprietary rights of third parties in our product development efforts. However,
we have not conducted and do not plan to conduct comprehensive patent searches
to determine whether the technology used in our products infringes patents held
by others. In addition, product development is inherently uncertain in a rapidly
evolving technological environment in which there may be numerous patent
applications pending, many of which are confidential when filed, with regard to
similar technologies. If our products were to violate the proprietary rights of
others, we may be liable for substantial damages. In addition, we may be
required to reengineer our products or seek to obtain licenses to continue
offering our products. We cannot assure you that such efforts would be
successful.

EMPLOYEES

As of June 30, 1999, we had a total of 181 employees, including 51 people
in research and development, 63 people in sales and marketing, 42 people in
customer support services and 25 people

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in general and administrative services. We do not have a collective bargaining
agreement with any of our employees and we consider our employee relations to be
good. As of June 30, 1999, Acuity had a total of 92 employees.

FACILITIES

Our principal administrative, sales, marketing, support and research and
development facilities are located in approximately 30,000 square feet of space
in Fremont, California and our lease expires on December 2000. We lease several
office suites in the United States and the United Kingdom for sales and service
personnel. In addition, we maintain offices in Acton, Massachusetts and have our
European headquarters in Amsterdam, the Netherlands. Upon the closing of our
acquisition of Acuity, we will assume a lease for 17,000 square feet in Austin,
Texas, expiring in June 2000.

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MANAGEMENT

DIRECTORS AND OFFICERS

The following table sets forth certain information regarding our directors
and officers as of September 9, 1999:

NAME AGE POSITION

Executive Officers
Alan Anderson................... 36 Chairman and Chief Executive Officer
John Burke...................... 39 President
Susan Salvesen.................. 44 Chief Financial Officer and Secretary
Muralidhar Sitaram.............. 36 Senior Vice President, Engineering

Other Officers
Lawrence Byrd................... 42 Vice President, Marketing
Roger Nunn...................... 44 Vice President, Americas Operations
Mark Payne...................... 44 Vice President, International Operations
Candace Sestric................. 53 Vice President, Worldwide Customer Support Services

Directors
Paul Bartlett(a)................ 39 Director
Fredric Harman(b)............... 39 Director
William Herman(a)............... 39 Director
Alexander Rosen(b).............. 31 Director
Robert Shaw..................... 52 Director
Jeanne Wohlers(b)............... 54 Director

- -------------------------
(a) Member of compensation committee

(b) Member of audit committee

EXECUTIVE OFFICERS

Alan Anderson has served as our Chief Executive Officer since May 1995 and
our Chairman since September 1999. From May 1995 to July 1999, Mr. Anderson also
served as our President. From October 1992 to May 1995, Mr. Anderson served as
Senior Vice President responsible for the North American operations of
OpenVision Technologies, a systems management software developer. From December
1991 to October of 1992, Mr. Anderson served as a director for consulting
services at Oracle Corporation, a database software company. From April 1989 to
December 1991, Mr. Anderson served as a director of professional services for
Sybase, a database software company. Mr. Anderson received his B.S. in
information systems from the University of San Francisco.

John Burke has served as our President since July 1999. From October 1996
to July 1999, Mr. Burke served as Senior Vice President for field sales and
support for SAP America, a provider of enterprise resource planning software.
From April 1996 to October 1996, Mr. Burke served as Senior Vice President of
sales and marketing for Oneware, a software development and distribution
company. From September 1990 to April 1996, Mr. Burke served as Executive Vice
President of SAP America. Mr. Burke received his B.B.A. in finance and marketing
from Ohio University.

Susan Salvesen has served as our Chief Financial Officer and Secretary
since January 1998. From April 1996 to September 1997, Ms. Salvesen served as
Vice President, Finance and Administration and Chief Financial Officer and
Secretary at Unify Corporation, a provider of e-

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commerce software solutions. From May 1994 to April 1996, Ms. Salvesen served as
Vice President of Finance and Chief Financial Officer at AG Associates, a
semiconductor equipment manufacturer. From February 1988 to May 1994, Ms.
Salvesen served as Corporate Controller at Aspect Telecommunications, a
telecommunications equipment company. Ms. Salvesen received her B.A. in
economics from Rutgers University and her M.B.A. from the University of
Pittsburgh.

Muralidhar Sitaram has served as our Senior Vice President, Engineering
since June 1996. From January 1994 to June 1996, Mr. Sitaram served as a
Director of Engineering at Quintus. Mr. Sitaram received his B.S. in physics and
computer science from Bombay University, India and his M.S. in computer science
from the Case Western Reserve University.

OTHER OFFICERS

Lawrence Byrd was a co-founder of Quintus in 1984 and has most recently
served as our Vice President, Marketing since May 1998. From October 1997 to May
1998, Mr. Byrd served as our Vice President, Product Marketing, from June 1996
to October 1997, as our Chief Technology Officer, from June 1995 to June 1996,
as our Vice President, Engineering and from December 1993 to June 1995, as a
vice president in our consulting group. Prior to this, Mr. Byrd held a range of
engineering, consulting and marketing positions for us. Mr. Byrd received his
B.A. in philosophy from the University of Durham, England.

Roger Nunn has served as Vice President, Americas Operations since
September 1999. From January 1999 to September 1999, Mr. Nunn served as our
Senior Vice President of Sales. From October 1997 to December 1998, Mr. Nunn
served as our Vice President of Channel Sales. From May 1994 to September 1997,
Mr. Nunn served as a Director of Marketing for Auspex Systems, a provider of
network file servers. From December 1988 to April 1994, Mr. Nunn was an area
channels manager for Sun Microsystems, a provider of computer workstations. Mr.
Nunn received his B.Sc. in engineering and his M.Sc. in management science from
Imperial College of London, England.

Mark Payne has served as our Vice President, International Operations since
July 1998. From June 1996 to June 1998, Mr. Payne served as Senior Vice
President of International Operations for Versatility, a software development
company. From July 1992 to June 1996, he served as General Manager of Northern
Europe for Gupta (now Centura), an applications development software company.

Candace Sestric has served as our Vice President, Worldwide Customer
Support since April 1997. From April 1996 to April 1997, Ms. Sestric served as
Vice President, Professional Services for Knowledge Networks, a customer
relationship management systems integrator. From November 1995 to February 1996,
Ms. Sestric served as Vice President, Customer Services for Siebel Systems, a
sales force automation software company. From June 1993 to November 1995, Ms.
Sestric served as Vice President, Worldwide Customer Support Services for Gupta
(now Centura). Ms. Sestric received her B.A. in business administration from the
College of Santa Fe.

DIRECTORS

Paul Bartlett has served as a director of Quintus since May 1995. Mr.
Bartlett joined Hall Kinion & Associates, a recruiting and staffing firm, in
September 1996 as President and has served as a director of Hall Kinion since
January of that same year. From August 1990 to September 1996, he was with the
Sprout Group, a venture capital firm, most recently as a partner. Mr. Bartlett
received his A.B. in economics from Princeton University and his M.B.A. from the
Stanford University Graduate School of Business.

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Fredric Harman has served as a director of Quintus since September 1996.
Since July 1994, Mr. Harman has served as a managing member of the general
partners of venture capital funds affiliated with Oak Investment Partners. From
April 1991 to June 1994, he served as a general partner of Morgan Stanley
Venture Capital. Mr. Harman sits on the boards of ILOG, S.A., Inktomi
Corporation, Primus Knowledge Solutions, Inc. and InterNAP Network Services. Mr.
Harman received his B.S. and M.S. in electrical engineering from Stanford
University and his M.B.A. from the Harvard Graduate School of Business.

William Herman has served as a director of Quintus since May 1995. Since
October 1998, Mr. Herman has served as President, Chief Executive Officer and a
director of Viewlogic Systems, a provider of electronic design automation
software. From December 1997 to October 1998, Mr. Herman served as President,
Viewlogic Systems Division, of Synopsys, a provider of electronic design
automation software. In October 1998, Synopsys acquired Viewlogic Systems, whose
business included the products and technologies offered by the current
Viewlogic. Mr. Herman served as President and Chief Executive Officer of the
predecessor Viewlogic from January 1997 to December 1997, and as President and
Chief Operating Officer from March 1995 to January 1997. From May 1994 to March
1995, Mr. Herman was President and Chief Operating Officer of Silerity, a
computer-aided engineering software company. Mr. Herman also sits on the board
of Hall Kinion & Associates. Mr. Herman received his B.S. in computer science
from Temple University.

Alexander Rosen has served as a director of Quintus since August 1997. Mr.
Rosen has been with the Sprout Group since 1996, most recently as a general
partner. From July 1993 to August 1994, he served as an associate for General
Atlantic Partners, a venture capital firm, focusing on software investments. Mr.
Rosen received his B.S. in electrical engineering and economics from the
Massachusetts Institute of Technology and his M.B.A. from the Stanford
University Graduate School of Business.

Robert Shaw has served as a director of Quintus since October 1995. Since
November 1998, Mr. Shaw has served as Chief Executive Officer and a director of
USWeb/CKS, an Internet professional services company. From June 1992 to August
1998, Mr. Shaw served in various capacities at Oracle, most recently as
Executive Vice President, Worldwide Consulting Services and Vertical Markets.
Mr. Shaw received his B.B.A. in finance from the University of Texas.

Jeanne Wohlers has served as a director of Quintus since October 1995. From
May 1994 to July 1998, Ms. Wohlers served as partner of Windy Hill Productions,
a producer of education and entertainment software. From August 1993 to June
1995, Ms. Wohlers was a consultant to Scopus Technology, a provider of customer
information management systems. Ms. Wohlers currently serves as an independent
director/trustee and Audit Committee Chair of 39 mutual funds managed by
American Century, and as a director of Indus International. Ms. Wohlers received
her B.A. in mathematics from Skidmore College and her M.B.A. from Columbia
University.

BOARD COMMITTEES

The board of directors has a compensation committee and an audit committee.

Compensation Committee. The compensation committee of the board of
directors reviews and makes recommendations to the board regarding all forms of
compensation provided to our executive officers and directors, including stock
compensation and loans. In addition, the compensation committee reviews and
approves stock compensation arrangements for all of our employees and
administers our 1999 Stock Incentive Plan, Employee Stock Purchase Plan and 1999
Director Option Plan. The current members of the compensation committee are
Messrs. Bartlett and Herman.

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Audit Committee. The audit committee of the board of directors reviews and
monitors our corporate financial reporting and our internal and external audits,
including, among other things, our internal audit and control functions, the
results and scope of the annual audit and other services provided by our
independent auditors and our compliance with legal matters that have a
significant impact on our financial reports. The audit committee also consults
with our management and our independent auditors prior to the presentation of
financial statements to stockholders and, as appropriate, initiates inquiries
into aspects of our financial affairs. In addition, the audit committee has the
responsibility to consider and recommend the appointment of, and to review fee
arrangements with, our independent auditors. The current members of the audit
committee are Ms. Wohlers and Messrs. Harman and Rosen.

DIRECTOR COMPENSATION

Directors do not receive any cash fees for their service on the board or
any board committee, but they are entitled to reimbursement for all reasonable
out-of-pocket expenses incurred in connection with their attendance at board and
board committee meetings. From time to time, certain directors who are not
employees of Quintus have received grants of options to purchase shares of our
common stock. Following this offering, directors will receive automatic option
grants under our 1999 Director Option Plan. If a change in control of Quintus
occurs, a non-employee director's option granted under our 1999 Director Option
Plan will become fully vested. See "Stock Plans -- 1999 Director Option Plan."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The compensation committee of the board of directors currently consists of
Messrs. Bartlett and Herman. No interlocking relationship exists between any
member of our board of directors or our compensation committee and any member of
the board of directors or compensation committee of any other company, and no
such interlocking relationship has existed in the past.

INDEMNIFICATION

In September 1999, the board of directors authorized Quintus to enter into
indemnification agreements with each of our directors and executive officers.
The form of indemnification agreement provides that we will indemnify our
directors and executive officers against any and all of their expenses incurred
by reason of their status as a director or executive officer to the fullest
extent permitted by Delaware law and our bylaws.

Our certificate of incorporation and bylaws each contain certain provisions
relating to the limitation of liability and indemnification of our directors and
officers. Our certificate of incorporation provides that our directors will not
be personally liable to Quintus or our stockholders for monetary damages for any
breach of fiduciary duty as a director, except for liability

- for any breach of the director's duty of loyalty to Quintus or our
stockholders;

- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;

- in respect of certain unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law; or

- for any transaction from which the director derives any improper personal
benefit.

Our certificate of incorporation also provides that if the Delaware General
Corporation Law is amended after the approval by our stockholders of our
certificate of incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of

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our directors will be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law. The foregoing provisions of our
certificate of incorporation are not intended to limit the liability of our
directors or officers for any violation of applicable federal securities laws.

In addition, as permitted by Section 145 of the Delaware General
Corporation Law, our bylaws provide that

- we are required to indemnify our directors and executive officers to the
fullest extent permitted by the Delaware General Corporation Law;

- we may, in our discretion, indemnify other of our officers, employees and
agents as provided by the Delaware General Corporation Law;

- we are required to advance all expenses incurred by our directors and
executive officers in connection with a legal proceeding (subject to
certain exceptions);

- the rights conferred in the bylaws are not exclusive;

- we are authorized to enter into indemnification agreements with our
directors, officers, employees and agents; and

- we may not retroactively amend our bylaw provisions relating to
indemnification.

EXECUTIVE COMPENSATION

The following table sets forth information with respect to compensation for
the fiscal year ended March 31, 1999 paid by us for services by our Chief
Executive Officer and our other executive officers whose total salary and bonus
for such fiscal year exceeded $100,000, collectively referred to as the Named
Executive Officers. Amounts in the "All Other Compensation" column represent
premiums paid by us for term life insurance.

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION

Alan Anderson, Chief Executive
Officer............................. $190,000 $ 11,875 -- $408
Susan Salvesen, Chief Financial
Officer............................. 150,000 10,000 25,000 408
Muralidhar Sitaram, Senior Vice
President, Engineering.............. 155,833 -- 85,000 255
Peter Kenyon, former Vice President,
Field Operations(a)................. 89,702 304,773 -- 306

- -------------------------
(a) Mr. Kenyon resigned as our Vice President, Field Operations in October 1998.

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OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth each grant of stock options during the
fiscal year ended March 31, 1999 to each of the Named Executive Officers. No
stock appreciation rights were granted to these individuals during this period.

POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(D)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(A) FISCAL YEAR(B) ($/SH)(C) DATE 5% 10%

Alan Anderson.......... -- --% $ -- -- $ -- $ --
Susan Salvesen......... 10,000 0.8 1.75 3/09/09 11,006 27,890
15,000 1.3 1.50 7/20/08 14,150 35,859
Muralidhar Sitaram..... 85,000 7.1 1.75 3/09/09 93,548 237,069
Peter Kenyon........... -- -- -- -- -- --

- -------------------------
(a) Each of the options listed in the table is immediately exercisable except to
the extent exercisability was deferred to preserve incentive stock option
tax benefits. The shares purchasable upon exercise of these options are
subject to repurchase by us at the original exercise price paid per share
upon the optionee's cessation of service prior to vesting in such shares.
Other than Ms. Salvesen's option for 10,000 shares, the repurchase right
lapses and the optionee vests as to 25% of the option shares upon completion
of one year of service from the date of grant and the balance in a series of
equal monthly installments over the next 36 months of service thereafter.
Ms. Salvesen's option for 10,000 shares vests in equal monthly installments
over a two-year period. The option shares will vest upon an acquisition of
Quintus by merger or asset sale, unless our repurchase right with respect to
the unvested option shares is transferred to the acquiring entity. Each of
the options has a ten-year term, subject to earlier termination in the event
of the optionee's cessation of service with us.

(b) Based on an aggregate of 1,205,612 options granted to our employees under
the 1995 Stock Option Plan during the 12 months ended March 31, 1999.

(c) The exercise price was equal to the fair market value of our common stock as
valued by our board of directors on the date of grant. The exercise price
may be paid in cash, in shares of our common stock valued at fair market
value on the exercise date or through a cashless exercise procedure
involving a same-day sale of the purchased shares. We may also finance the
option exercise by loaning the optionee sufficient funds to pay the exercise
price for the purchased shares, together with any federal and state income
tax liability incurred by the optionee in connection with such exercise.

(d) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years). Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent our prediction of our stock price
performance. The potential realizable values at 5% and 10% appreciation are
calculated by assuming that the exercise price on the date of grant
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of
its term at the appreciated price.

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AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table sets forth for each of the Named Executive Officers,
the number of options exercised during the fiscal year ended March 31, 1999 and
the number and value of securities underlying unexercised options that were held
by the Named Executive Officers as of March 31, 1999. No stock appreciation
rights were exercised by the Named Executive Officers in fiscal year 1999, and
no stock appreciation rights were outstanding at the end of that year.

NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT MARCH 31, OPTIONS AT
SHARES 1999(B) MARCH 31, 1999(C)
ACQUIRED ON VALUE ---------------------- ------------------
NAME EXERCISE REALIZED(A) VESTED UNVESTED VESTED UNVESTED

Alan Anderson............. -- $ -- -- -- $ -- $ --
Susan Salvesen............ 28,000 7,000 33,499 156,501 15,239 71,011
Muralidhar Sitaram........ -- -- 5,312 94,688 2,656 4,844
Peter Kenyon.............. -- -- -- -- -- --

- -------------------------
(a) Equal to the fair market value of the purchased shares on the option
exercise date, less the exercise price paid for such shares.

(b) The options are immediately exercisable for all the option shares, but any
shares purchased under those options will be subject to repurchase by us, at
the original exercise price paid per share, upon the optionee's cessation of
service with us, prior to the vesting in such shares. The heading "Vested"
refers to shares no longer subject to repurchase; the heading "Unvested"
refers to shares subject to repurchase as of March 31, 1999.

(c) Based on the fair market value of our common stock at the end of fiscal 1999
($1.75 per share), less the exercise price payable for such shares.

EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS

The Compensation Committee of the Board of Directors, as Plan Administrator
of the 1999 Stock Incentive Plan, has the authority to provide for accelerated
vesting of the shares of common stock subject to outstanding options held by the
Named Executive Officers and any other person in connection with certain changes
in control of Quintus. In connection with our adoption of the 1999 Stock
Incentive Plan, we have provided that upon a change in control of Quintus, each
outstanding option and all shares of restricted stock will generally become
fully vested unless the surviving corporation assumes the option or award or
replaces it with a comparable award.

Except for Mr. Anderson and Mr. Burke, none of the Named Executive Officers
has employment agreements with us, and his or her employment may be terminated
at any time. We have entered into an agreement with Mr. Anderson, our Chief
Executive Officer, dated May 23, 1995, which provides for payment of severance
pay in the amount of nine months base salary in the event that his employment is
involuntarily terminated without cause. In May 1995, we granted Mr. Anderson
unvested options to purchase 1,142,858 shares of common stock. Subsequently, Mr.
Anderson exercised his option to purchase all of these options subject to our
right to repurchase his unvested shares should he cease his service with us. As
of September 1999, Mr. Anderson had fully vested in 571,429 of these shares.
Provided that Mr. Anderson remains in our service, the remaining 571,429 shares
of unvested common stock will vest as follows: 142,857 will vest in equal annual
installments beginning in May 2000. However, these 571,429 shares of unvested
common stock could vest in full if following this offering the per share value
of our common stock reaches certain targets as measured on May 25, 2000, 2001 or
2002. Mr. Anderson's agreement also provides
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that these 571,429 shares of unvested common stock will vest in full following
certain changes in control of Quintus.

We have entered into an agreement with Mr. Burke, our President, dated June
11, 1999, which provides for payment of severance in the amount of 3 months base
salary in the event that his employment is involuntarily terminated without
cause before July 5, 2000. In addition, Mr. Burke has been granted unvested
options to purchase 685,000 shares of common stock. Of these 685,000 options,
411,000 will vest as follows: 205,000 will vest upon completion of one year of
service from the date of grant and the balance will vest in equal monthly
installments over the next 36 months of service thereafter. 274,000 of these
685,000 options will vest within three to five years, depending on Quintus'
achievement of certain license and revenue targets. Mr. Burke's agreement also
provides for accelerated vesting of up to half of his 685,000 options if his
employment is involuntarily terminated without cause within six months following
certain changes in control of Quintus and he is then vested in less than half of
such options.

STOCK PLANS

1999 STOCK INCENTIVE PLAN

Share Reserve. Our board of directors adopted our 1999 Stock Incentive Plan
in September 1999 to be effective simultaneously with this offering. We will
seek the approval of this plan by our stockholders. We have reserved 1,000,000
shares of our common stock for issuance under the 1999 Stock Incentive Plan. Any
shares not yet issued under our 1995 Stock Option Plan on the date of this
offering will also be available under the 1999 Stock Incentive Plan. On January
1 of each year, starting with the year 2000, the number of shares in the reserve
will automatically increase by 5% of the total number of shares of common stock
that are outstanding at that time or, if less, by 2,000,000 shares. In general,
if options or shares awarded under the 1999 Stock Incentive Plan or the 1995
Stock Option Plan are forfeited, then those options or shares will again become
available for awards under the 1999 Stock Incentive Plan. We have not yet
granted any options under the 1999 Stock Incentive Plan.

Outstanding options under the 1995 Stock Option Plan will be incorporated
into the 1999 Stock Incentive Plan at the time of this offering and no further
option grants will be made under the 1995 Stock Option Plan. The incorporated
options will continue to be governed by their existing terms, unless the Board
elects to extend one or more features of the 1999 Stock Incentive Plan to those
options or to other outstanding shares. Previously, options granted under the
1995 Stock Option Plan provided that vesting of the shares would accelerate upon
an acquisition only if not assumed by the acquiring entity.

Administration. The compensation committee of our board of directors
administers the 1999 Stock Incentive Plan. The committee has the complete
discretion to make all decisions relating to the interpretation and operation of
our 1999 Stock Incentive Plan. The committee has the discretion to determine who
will receive an award, what type of award it will be, how many shares will be
covered by the award, what the vesting requirements will be (if any), and what
the other features and conditions of each award will be. The compensation
committee may also reprice outstanding options and modify outstanding awards in
other ways.

Eligibility. The following groups of individuals are eligible to
participate in the 1999 Stock Incentive Plan:

- employees;

- members of our board of directors who are not employees; and

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- consultants.

Types of Award. The 1999 Stock Incentive Plan provides for the following
types of award:

- incentive stock options to purchase shares of our common stock;

- nonstatutory stock options to purchase shares of our common stock;

- restricted shares of our common stock; and

- stock appreciation rights and stock units.

Options. An optionee who exercises an incentive stock option may qualify
for favorable tax treatment under Section 422 of the Internal Revenue Code of
1986. On the other hand, nonstatutory stock options do not qualify for such
favorable tax treatment. The exercise price for incentive stock options granted
under the 1999 Stock Incentive Plan may not be less than 100% of the fair market
value of our common stock on the option grant date. In the case of nonstatutory
stock options, the minimum exercise price is 85% of the fair market value of our
common stock on the option grant date. Optionees may pay the exercise price by
using:

- cash;

- shares of common stock that the optionee already owns;

- a full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;

- an immediate sale of the option shares through a broker designated by us;
or

- a loan from a broker designated by us, secured by the option shares.

Options vest at the time or times determined by the compensation committee.
In most cases, our options vest over a four-year period following the date of
grant. Options generally expire ten years after they are granted, except that
they generally expire earlier if the optionee's service terminates earlier. The
1999 Stock Incentive Plan provides that no participant may receive options
covering more than 1,000,000 shares in the same year, except that a newly hired
employee may receive options covering up to 2,000,000 shares in the first year
of employment.

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Stock Appreciation Rights. A participant who exercises a stock appreciation
right shall receive the increase in value of our common stock over the base
price. The base price for stock appreciation rights granted under the 1999 Stock
Incentive Plan shall be determined by the compensation committee. The settlement
value of the stock appreciation right may be paid in cash or shares of common
stock.

Stock appreciation rights vest at the time or times determined by the
compensation committee. In most cases, our stock appreciation rights vest over a
four-year period following the date of grant. Stock appreciation rights
generally expire 10 years after they are granted, except that they generally
expire earlier if the participant's service terminates earlier. The 1999 Stock
Incentive Plan provides that no participant may receive stock appreciation
rights covering more than 1,000,000 shares in the same year, except that a newly
hired employee may receive stock appreciation rights covering up to 2,000,000
shares in the first year of employment.

Restricted Shares. Restricted shares may be awarded under the 1999 Stock
Incentive Plan in return for:

- cash;

- a full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;

- services already provided to us; and

- in the case of treasury shares only, services to be provided to us in the
future.

Restricted shares vest at the time or times determined by the compensation
committee.

Stock units. Stock units may be awarded under the 1999 Stock Incentive Plan
in return for:

- cash;

- a full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;

- services already provided to us; and

- in the case of treasury shares only, services to be provided to us in the
future.

Stock units vest at the time or times determined by the compensation
committee.

Change in Control. If a change in control of Quintus occurs, an option or
restricted stock award under the 1999 Stock Incentive Plan will generally become
fully vested. However, if the surviving corporation assumes the option or award
or replaces it with a comparable award, then vesting shall generally not
accelerate. A change in control includes:

- a merger of Quintus after which our own stockholders own 50% or less of
the surviving corporation (or its parent company);

- a sale of all or substantially all of our assets;

- the replacement of more than one-half of our directors over a 24-month
period; or

- an acquisition of 50% or more of our outstanding stock by any person or
group, other than a person related to Quintus (such as a holding company
owned by our stockholders).

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Amendments or Termination. Our board may amend or terminate the 1999 Stock
Incentive Plan at any time. If our board amends the plan, it does not need to
ask for stockholder approval of the amendment unless applicable law requires it.
The 1999 Stock Incentive Plan will continue in effect indefinitely, unless the
board decides to terminate the plan earlier.

EMPLOYEE STOCK PURCHASE PLAN

Share Reserve and Administration. Our board of directors adopted our
Employee Stock Purchase Plan on September 9, 1999. We will seek the approval of
this plan by our stockholders. Our Employee Stock Purchase Plan is intended to
qualify under Section 423 of the Internal Revenue Code and will become effective
simultaneously with this offering. We have reserved 1,000,000 shares of our
common stock for issuance under the plan. On May 1 of each year, starting with
the year 2000, the number of shares in the reserve will automatically be
increased by 2% of the total number of shares of our common stock that are
outstanding at that time or, if less, by 1,000,000 shares. The plan will be
administered by a committee of our board of directors.

Eligibility. All of our employees are eligible to participate if they are
employed by us for more than 20 hours per week and for more than five months per
year. Eligible employees may begin participating in the Employee Stock Purchase
Plan at the start of any offering period. Each offering period lasts 24 months.
Overlapping offering periods start on May 1 and November 1 of each year.
However, the first offering period will start on the effective date of this
offering and end on October 31, 2001.

Amount of Contributions. Our Employee Stock Purchase Plan permits each
eligible employee to purchase common stock through payroll deductions. Each
employee's payroll deductions may not exceed 15% of the employee's cash
compensation. Purchases of our common stock will occur on April 30 and October
31 of each year. Each participant may purchase up to 2,000 shares on any
purchase date. However, the value of the shares purchased in any calendar year
(measured as of the beginning of the applicable offering period) may not exceed
$25,000.

Purchase Price. The price of each share of common stock purchased under our
Employee Stock Purchase Plan will be 85% of the lower of:

- The fair market value per share of common stock on the date immediately
before the first day of the applicable offering period, or

- The fair market value per share of common stock on the purchase date.

In the case of the first offering period, the price per share under the
plan will be 85% of the lower of:

- The price per share to the public in this offering, or

- The fair market value per share of common stock on the purchase date.

Other Provisions. Employees may end their participation in the Employee
Stock Purchase Plan at any time. Participation ends automatically upon
termination of employment with Quintus. If a change in control of Quintus
occurs, our Employee Stock Purchase Plan will end and shares will be purchased
with the payroll deductions accumulated to date by participating employees,
unless the plan is assumed by the surviving corporation or its parent. Our board
of directors may amend or terminate the Employee Stock Purchase Plan at any
time. Our chief executive officer may also amend the plan in certain respects.
If our board increases the number of shares of common stock reserved for
issuance under the plan (except for the automatic increases described above), it
must seek the approval of our stockholders.

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1999 DIRECTOR OPTION PLAN

Share Reserve. Our board of directors adopted our 1999 Director Option Plan
on September 9, 1999. We will seek the approval of this plan by our
stockholders. We have reserved 500,000 shares of our common stock for issuance
under the plan. In general, if options granted under the 1999 Director Option
Plan are forfeited, then those options will again become available for grants
under the plan. The Director Option Plan will be administered by the
compensation committee of our board of directors, although all grants under the
plan are automatic and non-discretionary.

Initial Grants. Only the non-employee members of our board of directors
will be eligible for option grants under the 1999 Director Option Plan. Each
non-employee director who first joins our board after the effective date of this
offering will receive an initial option for 30,000 shares. That grant will occur
when the director takes office. The initial options vest in monthly installments
over the two-year period following the date of grant.

Annual Grants. At the time of each of our annual stockholders' meetings,
beginning in 2000, each non-employee director who will continue to be a director
after that meeting will automatically be granted an annual option for 10,000
shares of our common stock. However, a new non-employee director who is
receiving the 30,000-share initial option will not receive the annual option in
the same calendar year. The annual options are fully vested on the first
anniversary of the date of grant.

Other Option Terms. The exercise price of each non-employee director's
option will be equal to the fair market value of our common stock on the option
grant date. A director may pay the exercise price by using cash, shares of
common stock that the director already owns, or an immediate sale of the option
shares through a broker designated by us. The non-employee directors' options
have a 10-year term, except that they expire one year after a director leaves
the board (if earlier). If a change in control of Quintus occurs, a non-employee
director's option granted under the 1999 Director Option Plan will become fully
vested. Vesting also accelerates in the event of the optionee's death or
disability.

Amendments or Termination. Our board may amend or terminate the 1999
Director Option Plan at any time. If our board amends the plan, it does not need
to ask for stockholder approval of the amendment unless applicable law requires
it. The 1999 Director Option Plan will continue in effect indefinitely, unless
the board decides to terminate the plan.

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CERTAIN TRANSACTIONS

RELATIONSHIPS AMONG OFFICERS OR DIRECTORS WITH CERTAIN INVESTORS

Two of our directors are associated with entities that each own more than
five percent of our capital stock. Mr. Rosen is a general partner in Sprout
Group, and Mr. Harman is a general partner in Oak Investment Partners. No other
officer or director of Quintus has any material relationship with any other
principal stockholder. The Sprout Group is affiliated with Donaldson, Lufkin &
Jenrette Securities Corporation, one of the underwriters of this offering. See
"Underwriting."

STOCK TRANSACTIONS

The following table summarizes the sales of preferred stock to our
executive officers, directors and principal stockholders, and persons and
entities associated with them, since our inception. Each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock automatically converts into one share of common stock and the
right to receive a cash payment equal to approximately 92.5% of the original per
share purchase price upon the closing of this offering. Each share of Series E
Preferred Stock and Series F Preferred Stock automatically converts into one
share of common stock upon the closing of this offering. See "Principal
Stockholders" for a summary of the affiliations of each of the persons and
entities described below.

SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK STOCK STOCK STOCK

Date of sale.......................... 5/25/95 3/7/96 9/17/96 11/10/97 5/21/98 8/26/99
Price per share....................... $1.00 $1.43 $1.91 $2.75 $4.15 $8.25
Entities associated with our directors
Entities Associated with DLJ Capital
Corporation (Mr. Rosen)........... 9,000,000 699,300 501,182 -- 1,304,100 --
Entities Associated with Oak
Investment Partners (Mr.
Harman)........................... -- -- 2,094,240 -- 669,085 --
Other 5% stockholders
HarbourVest Partners IV............. -- -- -- 970,002 455,760 --
Meritech Capital Partners........... -- -- -- -- -- 1,333,334
Outside directors
William Herman...................... 100,000 -- -- -- 60,241 30,000
Paul Bartlett....................... -- -- 52,356 -- 24,097 --
Jeanne Wohlers...................... -- 34,420 -- -- 12,049 --
Robert Shaw......................... -- -- -- -- 18,072 --

EMPLOYMENT AGREEMENTS AND OTHER COMPENSATION ARRANGEMENTS

We have entered into employment agreements or compensation arrangements
with Alan Anderson, our Chief Executive Officer, and John Burke, our President.
See "Management--Employment and Change of Control Agreements."

OPTION GRANTS

We have granted options to our directors and executive officers, and we
intend to grant additional options to our directors and executive officers in
the future. See "Management--Option Grants in Last Fiscal Year" and
"Management--Director Compensation."

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INDEMNIFICATION AGREEMENTS

We have entered into indemnification agreements with our directors and
executive officers. Such agreements may require us, among other things, to
indemnify our officers and directors, other than for liabilities arising from
willful misconduct of a culpable nature, and to advance their expenses incurred
as a result of any proceeding against them as to which they could be
indemnified. See "Management--Indemnification."

RIGHTS OF CERTAIN STOCKHOLDERS

Certain holders of our common stock are entitled to demand and "piggyback"
registration rights pursuant to an Amended and Restated Investors' Rights
Agreement, dated as of August 26, 1999. The following directors are parties to
this agreement: Jeanne Wohlers; William Herman; Paul Bartlett; and Robert Shaw.
In addition, the following principal stockholders are party to this agreement:
entities associated with the Sprout Group, in which Alexander Rosen is a general
partner; entities associated with Oak Investment Partners, in which director
Fredric W. Harman is a general partner; and HarbourVest Partners IV.

AGREEMENTS WITH COMPANIES WITH WHICH OUR DIRECTORS ARE ASSOCIATED

We have an ongoing contract with Hall, Kinion Associates, Inc., a
recruiting and staffing firm. Paul Bartlett, one of our directors, is president
of Hall, Kinion. In fiscal 1999, we paid an aggregate of $20,387 to Hall, Kinion
under this agreement.

LOANS TO CERTAIN EXECUTIVE OFFICERS

On May 14, 1996, we loaned Alan Anderson, our Chief Executive Officer, a
total of $37,500 for the exercise of stock options. Mr. Anderson purchased
750,000 shares of our common stock with the loan. In connection with the loan,
we entered into a stock pledge agreement with Mr. Anderson on May 14, 1996 and
became the holder of a full-recourse promissory note from Mr. Anderson dated May
14, 1996 in the amount of $37,500 and bearing an interest rate of 6.36%,
compounded annually. Principal and interest are due on May 14, 2001, subject to
acceleration upon the cessation of Mr. Anderson's employment and certain other
events. As of August 31, 1999, the amount outstanding on this note was $43,016.

On May 14, 1996, we loaned Alan Anderson, our Chief Executive Officer, a
total of $19,643 for the exercise of stock options. Mr. Anderson purchased
392,858 shares of our common stock with the loan. In connection with the loan,
we entered into a stock pledge agreement with Mr. Anderson on May 14, 1996 and
became the holder of a full-recourse promissory note from Mr. Anderson dated May
14, 1996 in the amount of $19,643 and bearing an interest rate of 6.36%,
compounded annually. Principal and interest are due on May 14, 2001, subject to
acceleration upon the cessation of Mr. Anderson's employment and certain other
events. As of August 31, 1999, the amount outstanding on this note was $22,533.

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On April 20, 1999, we loaned Susan Salvesen, our Chief Financial Officer, a
total of $164,868 for the exercise of a stock option. She purchased 132,000
shares of our common stock with the loan. In connection with the loan, we
entered into a stock pledge agreement with Ms. Salvesen on April 20, 1999, and
became the holder of a full-recourse promissory note from Ms. Salvesen dated
April 20, 1999, in the amount of $164,868 and bearing an interest rate of 5.28%,
compounded annually. Principal and interest are due on April 20, 2003, subject
to acceleration upon the cessation of Ms. Salvesen's employment and certain
other events. As of August 31, 1999, the amount outstanding on this note was
$167,688.

We believe that the transactions above were made on terms no less favorable
to us than could have been obtained from unaffiliated parties. All future
transactions, including loans between us and our officers, directors, principal
stockholders and their affiliates, will be approved by a majority of the board
of directors, including a majority of the independent and disinterested
directors, and will continue to be made on terms no less favorable to us than
could have been obtained from unaffiliated parties.

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PRINCIPAL STOCKHOLDERS

The following table sets forth the beneficial ownership of our common stock
as of August 31, 1999 and as adjusted to reflect the closing of our acquisition
of Acuity and the sale of the common stock offered in this offering for:

- each person who is known by us to beneficially own more than 5% of our
common stock;

- each of the Named Executive Officers;

- each of our directors; and

- all of our directors and executive officers as a group (11 persons).

As of August 31, 1999, there were 22,470,000 shares of our common stock
outstanding. We will issue approximately 4,530,000 shares in connection with our
acquisition of Acuity. Thus, the figures in the "Before Offering" column below
are based on 27,000,000 shares outstanding. The information in the table below
assumes no exercise of the underwriters' over-allotment option.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options
currently exercisable within 60 days of August 31, 1999 are deemed outstanding
for purposes of computing the percentage ownership of the person holding such
option but are not deemed outstanding for purposes of computing the percentage
ownership of any other person. Except where indicated, and subject to community
property laws where applicable, the persons in the table below have sole voting
and investment power with respect to all common stock shown as beneficially
owned by them. Unless otherwise indicated, the address of each of the
individuals listed in the table is c/o Quintus Corporation, 47212 Mission Falls
Court, Fremont, CA 94539.

PERCENTAGE OF SHARES
----------------------
NUMBER OF SHARES OUTSTANDING
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING

Entities Affiliated with Donaldson, Lufkin &
Jenrette, Inc.(a)................................ 11,842,037 43.3%
c/o Sprout Group
3000 Sand Hill Road, Suite 170, Bldg. 3
Menlo Park, CA 94025
Entities Affiliated with Oak Investment
Partners(b)...................................... 2,903,516 10.7
525 University Avenue, Suite 1300
Palo Alto, CA 94301
HarbourVest Partners IV(c)......................... 1,530,908 5.6
One Financial Center
Boston, MA 02111
Entities Affiliated with MeriTech Capital.......... 1,333,334 4.9
428 University Avenue
Palo Alto, CA 94301
Alan K. Anderson(d)................................ 1,142,858 4.2
John J. Burke(e)................................... 685,000 2.5
Susan Salvesen(f).................................. 218,000 *

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PERCENTAGE OF SHARES
----------------------
NUMBER OF SHARES OUTSTANDING
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING

Muralidhar Sitaram(g).............................. 300,000 1.1
Paul Bartlett(h)................................... 116,453 *
Fredric Harman(i).................................. 2,903,516 10.7
Will Herman(j)..................................... 250,241 *
Alexander Rosen(k)................................. 11,842,037 43.3
Robert Shaw........................................ 84,097 *
Jeanne Wohlers..................................... 122,049 *
All directors and executive officers as a
group(l)......................................... 17,664,251 62.1%

- -------------------------
* Less than 1%.

(a) Includes 653,655 shares held by entities affiliated with Donaldson, Lufkin
& Jenrette, Inc., of which 9,947 are held in the form of warrants to
purchase Series B preferred stock, and 7,511 are held in the form of
warrants to purchase common stock. Also includes 3,605,644 shares held by
Sprout Capital VI, L.P., of which 62,815 are held in the form of warrants
to purchase Series B preferred stock and 47,437 are held in the form of
warrants to purchase common stock. Also includes 7,360,350 shares held by
Sprout Capital VII, L.P., of which 119,500 are held in the form of warrants
to purchase Series B preferred stock and 90,245 are held in the form of
warrants to purchase common stock. Also includes 17,463 and 204,925 shares
held by Sprout CEO Fund, L.P. and DLJ ESC II, L.P., DLJ ESC II, L.P. is an
Employees' Securities Corporation as defined in the Investment Company Act
of 1940. The general partner of DLJ ESC II, L.P. is DLJ LBO Plans
Management Corporation and the limited partners of DLJ ESC II, L.P. are
current or former employees of Donaldson, Lufkin & Jenrette, Inc. and its
affiliates. DLJ Capital Corporation is the managing general partner of
Sprout Capital VI, L.P., the managing general partner of Sprout Capital
VII, L.P, and the General Partner of Sprout CEO Fund, L.P.

(b) Includes 2,837,318 shares held by Oak Investment Partners VI, L.P., of
which 136,997 are held in the form of warrants to purchase common stock.
Also includes 66,198 shares held by Oak VI Affiliates Fund, L.P., of which
3,194 are held in the form of warrants to purchase common stock. Mr. Harman
has indirect ownership of the shares and has shared power to vote and
dispose of the shares held by Oak Investment Partners VI, L.P. and Oak VI
Affiliates Fund, L.P. The parties who share power to vote and dispose of
the shares held by Oak Investment Partners VI, L.P., with Mr. Harman are
Bandel L. Carano, Eileen M. More, Ann H. Lamont, Edward F. Glassmeyer and
Gerald R. Gallagher, all of whom are managing members of Oak Associates VI,
LLC, the general partner of Oak Investment Partners VI, L.P. The parties
who share power to vote and dispose of the shares held by Oak VI Affiliates
Fund, L.P., with Mr. Harman are Bandel L. Carano, Eileen M. More, Ann H.
Lamont, Edward F. Glassmeyer and Gerald R. Gallagher, all of whom are
managing members of Oak VI Affiliates, LLC, the general partner of Oak VI
Affiliates Fund, L.P. Mr. Harman, Bandel L. Carano, Eileen M. More, Ann H.
Lamont, Edward F. Glassmeyer and Gerald R. Gallagher disclaim beneficial
ownership of the securities held by such partnerships in which Mr. Harman,
Bandel L. Carano, Eileen M. More, Ann H. Lamont, Edward F. Glassmeyer and
Gerald R. Gallagher do not have a pecuniary interest.

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(d) Includes 571,429 shares of unvested common stock.

(e) Includes options to purchase 685,000 shares of common stock.

(f) Includes options to purchase 58,000 shares of common stock.

(g) Includes options to purchase 100,000 shares of common stock.

(h) Includes options to purchase 40,000 shares of common stock.

(i) Includes 2,903,516 shares held by entities affiliated with Oak Investment
Partners. See Note b above. Mr. Harman is a managing member of Oak
Associates VI, LLC, the general partner of Oak Investment Partners VI,
L.P., and a managing member of Oak VI Affiliates, LLC, the general partner
of Oak VI Affiliates Fund, L.P.

(j) Includes options to purchase 60,000 shares of common stock.

(k) Includes 11,842,037 shares held by entities affiliated with DLJ Capital
Corporation. See Note a above. Mr. Rosen is a general partner of the Sprout
Group and a general partner of DLJ Associates VII, L.P., which is a general
partner of Sprout Capital VII, L.P. Mr. Rosen disclaims beneficial
ownership of these shares, except to the extent of his pecuniary interest
arising from his interests in the partnerships named in Note a above.

(l) Includes options and warrants to purchase 1,420,646 shares.

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DESCRIPTION OF CAPITAL STOCK

GENERAL

Upon the closing of this offering, our authorized capital stock will
consist of 100,000,000 shares of common stock, $0.001 par value, and 10,000,000
shares of preferred stock, $0.001 par value. The following summary of certain
provisions of the common stock and the preferred stock does not purport to be
complete and is subject to, and qualified in its entirety by, our certificate of
incorporation and bylaws and by the provisions of applicable law.

COMMON STOCK

As of August 31, 1999, there were 22,470,000 shares of common stock
outstanding that were held of record by approximately stockholders. There
will be shares of common stock outstanding, assuming no exercise of
the underwriters' over-allotment option and assuming no exercise after August
31, 1999, of outstanding options, after giving effect to the issuance of
approximately 4,530,000 shares in connection with our acquisition of Acuity, the
sale of shares of common stock to the public in this offering and the
conversion of our preferred stock into common stock at a one-to-one ratio.

The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available therefor. We
have never declared or paid cash dividends on our common stock or other
securities and do not currently anticipate paying cash dividends in the future.
Our bank line of credit currently prohibits the payment of dividends. In the
event of the liquidation, dissolution or winding up of Quintus, the holders of
common stock are entitled to share ratably in all assets remaining after payment
of liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable, and the shares of common stock to be issued upon the
effectiveness of this offering will be fully paid and nonassessable.

PREFERRED STOCK

Our certificate of incorporation authorizes 10,000,000 shares of preferred
stock. The board of directors has the authority to issue the preferred stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of preferred stock may have the effect of delaying, deferring or preventing a
change in control of Quintus without further action by the stockholders and may
adversely affect the voting and other rights of the holders of common stock. The
issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss of
voting control to others. At present, we have no plans to issue any of the
preferred stock.

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WARRANTS

As of August 31, 1999, the following warrants to purchase an aggregate of
1,022,645 shares of our capital stock were outstanding:

- Warrants to purchase an aggregate of 5,000 shares of common stock at
$0.05 per share, which expire on April 17, 2006;

- Warrants to purchase an aggregate of 385,530 shares of common stock at
$0.30 per share, which expire on November 10, 2001;

- Warrants to purchase an aggregate of 8,466 shares of common stock at
$3.94 per share, which expire on January 7, 2002; and

- Warrants to purchase an aggregate of 76,047 shares of common stock at
$4.54 per share, which expire on November 10, 2001.

We have assumed throughout this prospectus the cash exercise of warrants to
purchase an aggregate of 192,262 shares of Series B preferred stock at $1.43 per
share and a warrant to purchase 55,340 shares of Series C preferred stock at
$1.91 per share.

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW

CERTIFICATE OF INCORPORATION AND BYLAWS

The certificate of incorporation provides that, effective upon the closing
of this offering, all stockholder actions must be effected at a duly called
meeting and not by a consent in writing. The bylaws provide that our
stockholders may call a special meeting of stockholders only upon a request of
stockholders owning at least 50% of our capital stock. These provisions of the
certificate of incorporation and bylaws could discourage potential acquisition
proposals and could delay or prevent a change in control of Quintus. These
provisions are intended to enhance the likelihood of continuity and stability in
the composition of the board of directors and in the policies formulated by the
board of directors and to discourage certain types of transactions that may
involve an actual or threatened change of control of Quintus. These provisions
are designed to reduce the vulnerability of Quintus to an unsolicited
acquisition proposal. The provisions also are intended to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for our shares and,
as a consequence, they also may inhibit fluctuations in the market price of our
shares that could result from actual or rumored takeover attempts. Such
provisions also may have the effect of preventing changes in our management. See
"Risk Factors--Anti-takeover provisions in our charter documents and Delaware
law could prevent or delay a change in control of Quintus."

DELAWARE TAKEOVER STATUTE

We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless:

- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;

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- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or

- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.

Section 203 defines business combination to include:

- any merger or consolidation involving the corporation and the interested
stockholder;

- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;

- subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;

- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or

- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.

In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.

REGISTRATION RIGHTS

After this offering, the holders of 18,495,392 shares of common stock will
be entitled to certain rights with respect to the registration of those shares
under the Securities Act. If we proposed to register any of our securities under
the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, we must notify these
stockholders of the registration, and these stockholders may be entitled to
include all or part of their shares in the registration. Additionally, holders
of 18,495,392 shares of common stock have certain demand registration rights
under which they may require us to use our best efforts to register shares of
their common stock. Further, the holders of these demand rights may require us
to file additional registration statements on Form S-3. All of these
registration rights are subject to certain conditions and limitations, including
the right of underwriters to limit the number of shares included in a
registration and our right to not effect a requested registration within six
months following an offering of our securities, including this offering.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is ChaseMellon
Shareholders Services, L.L.C.

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SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of common stock in the public market,
including shares issued upon exercise of outstanding options and warrants,
following this offering could adversely affect the prevailing market price of
our common stock and could impair our ability to raise capital through the sale
of our equity securities. As described below, none of the shares currently
outstanding will be available for sale immediately after this offering due to
contractual and legal restrictions on resale (described below). However, public
sales of substantial amounts of our common stock after these restrictions lapse
could adversely affect the prevailing market price of our stock and our ability
to raise equity capital in the future.

Upon completion of this offering, we will have outstanding 27,081,047
shares of common stock based upon shares outstanding as of August 31, 1999,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants, other than 328,649 warrants that would
otherwise expire upon the consummation of this offering. Of these shares, the
shares sold in this offering will be freely tradable without
restriction under the Securities Act except for any shares purchased by our
"affiliates," as that term is defined in Rule 144 under the Securities Act. The
remaining 27,081,047 shares of common stock held by existing stockholders
include 21,481,529 restricted shares and 5,599,518 non-restricted shares. These
27,081,047 restricted and non-restricted shares are subject to lock-up
agreements providing that, with certain limited exceptions, the stockholder will
not offer, sell, contract to sell or otherwise dispose of any common stock or
any securities that are convertible into common stock for a period of 180 days
after the date of this prospectus without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation. As a result of these
lock-up agreements, notwithstanding possible earlier eligibility for sale under
the provisions of Securities Act Rules 144, 144(k) or 701, none of these shares
will be resellable until 181 days after the date of this prospectus. Donaldson,
Lufkin & Jenrette Securities Corporation may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements.

The following table shows approximately when the 27,081,047 shares of our
common stock that are not being sold in this offering, but which will be
outstanding when this offering is complete, will be eligible for sale in the
public market:

ELIGIBILITY OF SHARES FOR SALE IN THE PUBLIC MARKET

At the effective date....................................... 0
180 days after the effective date........................... 25,389,064
More than 180 days after the effective date................. 1,691,983

Resale of 15,101,679 of the restricted shares and 863,295 of the
non-restricted shares that will become available for sale in the public market
starting 180 days after the effective date will be limited by volume and other
resale restrictions under Rule 144 because the holders of those shares are our
affiliates. The 1,069,518 shares issued in connection with our acquisition of
Nabnasset and the approximately 4,530,000 shares to be issued in connection with
out acquisition of Acuity will be freely tradable starting 180 days after the
effective date.

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RULE 144

In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person who has beneficially owned restricted shares for at least
one year would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:

- 1% of the number of shares of common stock then outstanding which will
equal approximately shares immediately after this offering and
the private placement; or

- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.

Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the public availability of information about us. Under Rule
144(k), a person who is not deemed to have been an affiliate of us at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

RULE 701

Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any of our employees, officers,
directors or consultants who purchased shares under a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701. Rule
701 permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that nonaffiliates may sell such shares in reliance on Rule 144 without
having to comply with the holding period, public information, volume limitation
or notice provisions of Rule 144. All holders of Rule 701 shares are required to
wait until 90 days after the date of this prospectus before selling such shares.
However, all Rule 701 shares are subject to lock-up agreements and will only
become eligible for sale upon the expiration of the 180-day lock-up agreements.
Donaldson, Lufkin & Jenrette Securities Corporation may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements.

Within 90 days following the effectiveness of this offering, we will file a
registration statement on Form S-8 registering 6,796,495 shares of common stock
subject to outstanding options or reserved for future issuance under our stock
plans. As of August 31, 1999, options to purchase a total of 2,623,103 shares
were outstanding and 799,473 shares were reserved for future issuance under our
stock plans. In addition, options to purchase 685,000 shares granted outside of
our stock plans were also outstanding. Common stock issued upon exercise of
outstanding vested options or issued under or purchase plan, other than common
stock issued to our affiliates, is available for immediate resale in the open
market.

LOCK-UP AGREEMENTS

Our officers, directors and stockholders have agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days after the date
of this offering. Donaldson, Lufkin & Jenrette Securities Corporation, however,
may in its sole discretion, at any time without notice, release all or any
portion of the shares subject to lock-up agreements.

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UNDERWRITING

Subject to the terms and conditions contained in an underwriting agreement
dated , 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated, SG Cowen Securities Corporation and
DLJdirect Inc., are serving as representatives, have severally agreed to
purchase from Quintus, the respective number of shares of common stock set forth
opposite their names below:

NUMBER
UNDERWRITERS OF SHARES

Donaldson, Lufkin & Jenrette Securities Corporation.......
Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated...........................................
SG Cowen Securities Corporation...........................
DLJdirect Inc. ...........................................
--------
Total..................................................
========

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered hereby are subject to approval by their counsel of legal matters
concerning the offering and to condition precedents that must be satisfied by
Quintus. The underwriters are obligated to purchase and accept delivery of all
of the shares of common stock offered hereby, other than those shares covered by
the over-allotment option described below, if any are purchased.

The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to dealers, including the
underwriters, at such price less a concession not in excess of $ per share.
The underwriters may allow, and such dealers may re-allow, to other dealers a
concession not in excess of $ per share. After the initial offering of the
common stock, the public offering price and other selling terms may be changed
by the representatives at any time without notice. The underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.

An electronic prospectus will be available on the Web site maintained by
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation. Other than the prospectus in electronic format, the information on
this Web site relating to the offering is not part of this prospectus and has
not been approved or endorsed by Quintus or the underwriters, and should not be
relied on by prospective investors.

Quintus has granted to the underwriters an option, exercisable for 30 days
after the date of this prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of additional shares of common stock at the
initial public offering price less underwriting discounts and commission. The
underwriters may exercise the option solely to cover over-allotments, if any,
made in connection with the offering. To the extent that the underwriters
exercise the option, each underwriter will become obligated, subject to
conditions contained in the underwriting agreement, to purchase its pro rata
portion of such additional shares based on the underwriters' percentage
underwriting commitment as indicated in the above table.

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Quintus has agreed to indemnify the underwriters against liabilities which
may arise in connection with the offering, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make.

Each of Quintus, its executive officers, directors, stockholders and option
holders has agreed not to:

- offer, pledge sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of
directly or indirectly any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or

- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock, whether any such transaction described above is to be
settled by delivery of common stock or other securities, in cash or
otherwise

for a period of 180 days after the date of this prospectus. Donaldson, Lufkin &
Jenrette Securities Corporation may release some or all of these shares from
such restrictions prior to the expiration of the 180-day period lock-up period,
although it has no current intention of doing so.

In addition, during such 180-day period, Quintus has also agreed not to
file any registration statement with respect to and each of its executive
officers, directors and stockholders of Quintus have agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.

Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price of the shares of common stock
offered was determined by negotiation among Quintus and the underwriters. The
factors considered in determining the initial public offering price included:

- the history of and the prospects for the industry in which Quintus
competes;

- the past and present operations of Quintus;

- the historical results of operations of Quintus;

- the prospectus for future earnings of Quintus;

- the recent market prices of securities of generally comparable companies;
and

- the general condition of the securities markets at the time of the
offering.

Other than in the United States, no action has been taken by Quintus or the
underwriters that would permit a public offering of the shares of common stock
offered in any jurisdiction where action for that purpose is required. The
shares of common stock offered may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and observe any restrictions
relating to the offering and the distribution of this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any shares of common stock offered in any jurisdiction in which such an
offer or a solicitation is unlawful.

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DLJ Capital Corporation, Sprout Capital VI, L.P., Sprout Capital VII, L.P.,
Sprout CEO Fund, L.P. and DLJ ESC II, L.P. (collectively, the "Sprout Entities")
are affiliates of Donaldson, Lufkin & Jenrette Securities Corporation, one of
the underwriters. As described under "Principal Stockholders," the Sprout
Entities beneficially own an aggregate of shares of the outstanding
common stock, which represent more than 10% of the outstanding common stock. Of
these shares, shares are subject to a voting trust agreement and are held
and voted by an independent third party, Norwest Bank Indiana, N.A., as voting
trustee.

Because the Sprout Entities affiliated with Donaldson, Lufkin & Jenrette
Securities Corporation beneficially own more than 10% of the outstanding common
stock, this offering is being conducted in accordance with Rule 2720 of the
Conduct Rules of the National Associate of Securities Dealers, Inc., which
provides that the public offering price of an equity security be no higher than
that recommended by a "qualified independent underwriter" meeting certain
standards. In accordance with this requirement, Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated assumed the responsibilities of acting as
qualified independent underwriter and recommended a price in compliance with the
requirements of Rule 2720.

In connection with the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot the offering,
creating a syndicate short position. The underwriters may bid for and stabilize
the price of the common stock. In addition, the underwriting syndicate may
reclaim selling concessions from syndicate members and selected dealers if they
repurchase previously distributed common stock in syndicate covering
transactions, in stabilizing transactions or otherwise. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.

LEGAL MATTERS

The validity of the common stock offered in this offering will be passed
upon for us by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California. Certain legal matters in connection with this offering
will be passed upon for the underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.

EXPERTS

The Quintus consolidated financial statements as of and for the year ended
March 31, 1999, included in this prospectus and the related financial statement
schedule for the year ended March 31, 1999 included elsewhere in the
registration statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and elsewhere in the
registration statement, and have been so included in the reliance upon the
reports of such firm given upon their authority as experts in auditing and
accounting.

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedules at March 31, 1998 and 1997, and for the years
then ended, as set forth in their report. We've included our financial
statements and schedule in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.

The Acuity financial statements as of December 31, 1997 and 1998 and for
each of the two years in the period ended December 31, 1998 included in this
prospectus and registration statement

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have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
auditing and accounting.

CHANGE IN ACCOUNTANTS

In February 1999, Quintus dismissed Ernst & Young LLP as its independent
auditors and subsequently appointed Deloitte & Touche LLP as its principal
accountants. There were no disagreements with the former accountants during the
fiscal years ended March 31, 1998 and 1999 or during any subsequent interim
period preceding their replacement on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreements, if not resolved to the former accountants' satisfaction,
would have caused them to make reference to the subject matter of the
disagreement in connection with their reports. The former independent auditors
issued an unqualified report on the financial statements as of and for the years
ended March 31, 1997 and 1998. Quintus did not consult with Deloitte & Touche
LLP on any accounting or financial reporting matters in the periods prior to
their appointment. The change in accountants was approved by our board of
directors.

ADDITIONAL INFORMATION

We filed with the Securities and Exchange Commission a registration
statement on Form S-1 in connection with this offering. This prospectus does not
contain all the information set forth in the registration statement and its
exhibits and schedules. For further information with respect to Quintus and our
common stock please refer to the registration statement and to its exhibits and
schedules. Statements contained in this prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and each
such statement is qualified in all respects by reference to the full text of
such contract or other document filed as an exhibit to the registration
statement. A copy of the registration statement and its exhibits and schedules
may be inspected without charge at the public reference facilities maintained by
the SEC in Room 1024, 450 Fifth Street, N.W. Washington, D.C. 20549, and at the
SEC's regional offices located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the registration statement may be obtained from such offices upon payment of the
fees prescribed by the SEC. The SEC maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is http://www.sec.gov.

Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934 and
will file periodic reports, proxy statements and other information with the SEC.
Such periodic reports, proxy statements and other information will be available
for inspection and copying at the regional offices, public reference facilities
and web site of the SEC referred to above.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

QUINTUS CORPORATION:
Independent Auditor's Report -- Deloitte & Touche LLP..... F-2
Report of Independent Auditors -- Ernst & Young LLP....... F-3
Consolidated Balance Sheets............................... F-4
Consolidated Statements of Operations..................... F-5
Consolidated Statements of Stockholders' Deficiency....... F-6
Consolidated Statements of Cash Flows..................... F-7
Notes to Consolidated Financial Statements................ F-8

ACUITY CORP.:
Report of Independent Accountants......................... F-26
Balance Sheets............................................ F-27
Statements of Operations.................................. F-28
Statements of Changes in Stockholders' Equity............. F-29
Statements of Cash Flows.................................. F-30
Notes to Financial Statements............................. F-31

PRO FORMA CONSOLIDATED FINANCIAL INFORMATION:
Pro Forma Consolidated Balance Sheets..................... F-43
Pro Forma Consolidated Statements of Operations........... F-44
Notes to Pro Forma Consolidated Financial Statements...... F-46

F-1
80

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Quintus Corporation:

We have audited the accompanying consolidated balance sheet of Quintus
Corporation and subsidiaries (the Company) as of March 31, 1999, and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of March 31, 1999, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.

/s/ Deloitte and Touche LLP

San Jose, CA
June 18, 1999
(September 10, 1999 as to Note 15)

F-2
81

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Quintus Corporation

We have audited the accompanying consolidated balance sheets of Quintus
Corporation as of March 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity (net capital deficiency), and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Quintus Corporation at March 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Palo Alto, California
April 30, 1998,
except for Note 12,
as to which the date is
September 18, 1998

F-3
82

QUINTUS CORPORATION

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

MARCH 31,
------------------- JUNE 30,
1998 1999 1999
(UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash...................................................... $ 1,986 $ 1,785 $ 467
Accounts receivable, less allowance for doubtful accounts
of $848, $729 and $761.................................. 7,573 8,671 10,765
Prepaid expenses and other assets......................... 608 573 1,295
-------- -------- --------
Total current assets................................ 10,167 11,029 12,527
Property and equipment, net................................. 3,508 3,162 3,139
Purchased technology, less accumulated amortization of $556,
$1,889 and $2,222......................................... 3,444 2,111 1,778
Intangible assets, less accumulated amortization of $1,059,
$2,630 and $3,093......................................... 5,803 2,970 2,506
Other assets................................................ 219 322 324
-------- -------- --------
Total assets................................................ $ 23,141 $ 19,594 $ 20,274
======== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,762 $ 2,352 $ 3,983
Accrued compensation and related benefits................. 2,073 2,114 2,185
Other accrued liabilities................................. 1,633 2,268 2,269
Deferred revenue.......................................... 5,008 6,615 6,706
Borrowings under bank line of credit...................... 4,950 4,868 4,868
Notes payable to stockholders............................. 4,500 -- --
Current portion of capital lease obligations.............. 134 109 78
Current portion of long-term debt......................... 1,357 1,347 1,347
-------- -------- --------
Total current liabilities........................... 21,417 19,673 21,436
Capital lease obligations, less current portion............. 109 101 88
Long-term debt, less current portion........................ 2,637 1,700 1,361
Deferred revenue............................................ 1,500 400 200
Commitments and contingencies (Note 7)
Redeemable convertible preferred stock...................... 17,811 17,811 17,811
STOCKHOLDERS' DEFICIENCY:
Series A redeemable convertible preferred stock, $0.001
par value; authorized shares -- 9,100,000; issued and
outstanding shares -- 9,100,000; aggregate liquidation
preference -- $9,100.................................... 455 455 455
Series B redeemable convertible preferred stock, $0.001
par value; authorized shares -- 1,000,000; issued and
outstanding shares -- 768,140; aggregate liquidation
preference -- $1,098.................................... 128 128 128
Series C redeemable convertible preferred stock, $0.001
par value; authorized shares -- 3,000,000; issued and
outstanding shares -- 2,647,778; aggregate liquidation
preference -- $5,057.................................... 530 530 530
Series D redeemable convertible preferred stock, $0.001
par value; authorized shares -- 1,455,000; issued and
outstanding shares -- 1,454,996; aggregate liquidation
preference -- $4,001.................................... 1,819 1,819 1,819
Series E convertible preferred stock, $0.001 par value;
authorized shares -- 3,000,000; issued and outstanding
shares -- 2,604,601; aggregate liquidation
preference -- $10,809................................... -- 10,775 10,775
Common stock, $0.001 par value; authorized
shares -- 30,000,000 in 1998 and 40,000,000 in 1999;
issued and outstanding shares -- 4,117,300 in 1998;
4,208,478 in March 1999; 4,311,084 in June 1999......... 1,686 3,468 4,323
Notes receivable from stockholders........................ (58) (102) (267)
Deferred compensation..................................... (79) (884) (1,415)
Accumulated deficit....................................... (24,814) (36,280) (36,970)
-------- -------- --------
Total stockholders' deficiency...................... (20,333) (20,091) (20,622)
-------- -------- --------
Total liabilities and stockholders' deficiency.............. $ 23,141 $ 19,594 $ 20,274
======== ======== ========

See notes to consolidated financial statements.

F-4
83

QUINTUS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
------------------------------- ------------------
1997 1998 1999 1998 1999
(UNAUDITED)

REVENUES:
License.............................. $ 8,406 $ 12,948 $ 17,577 $ 4,790 $ 6,126
Service.............................. 5,208 8,942 12,730 2,762 4,167
------- -------- -------- ------- -------
Total revenues.................... 13,614 21,890 30,307 7,552 10,293
COST OF REVENUES:
License.............................. 972 708 554 74 218
Service.............................. 4,199 7,582 8,623 1,957 2,421
------- -------- -------- ------- -------
Total cost of revenues............ 5,171 8,290 9,177 2,031 2,639
------- -------- -------- ------- -------
Gross profit........................... 8,443 13,600 21,130 5,521 7,654
OPERATING EXPENSES:
Sales and marketing.................. 6,879 11,336 17,147 4,518 4,314
Research and development............. 3,667 5,102 6,719 1,795 1,873
General and administrative........... 1,263 3,233 3,577 803 998
Amortization of intangibles.......... -- 1,335 3,185 796 796
Acquired in-process technologies..... -- 2,200 -- -- --
Stock-based compensation............. -- -- 171 4 169
------- -------- -------- ------- -------
Total operating expenses.......... 11,809 23,206 30,799 7,916 8,150
------- -------- -------- ------- -------
Loss from continuing operations........ (3,366) (9,606) (9,669) (2,395) (496)
OTHER INCOME (EXPENSE):
Interest expense..................... (157) (567) (804) (359) (195)
Other income (expense), net.......... (3) 27 (113) (32) 1
------- -------- -------- ------- -------
Total other income (expense)...... (160) (540) (917) (391) (194)
------- -------- -------- ------- -------
Net loss from continuing operations.... (3,526) (10,146) (10,586) (2,786) (690)
DISCONTINUED OPERATIONS (NOTE 3):
Loss from discontinued operations.... -- (1,103) (1,891) (190) --
Gain on disposal of discontinued
operations........................ -- -- 1,011 -- --
------- -------- -------- ------- -------
Net loss............................... (3,526) (11,249) (11,466) (2,976) (690)
Redeemable preferred stock accretion... (167) (1,519) -- -- --
------- -------- -------- ------- -------
Loss applicable to common
stockholders......................... $(3,693) $(12,768) $(11,466) $(2,976) $ (690)
======= ======== ======== ======= =======
BASIC AND DILUTED NET LOSS PER COMMON
SHARE:
Continuing operations................ $ (4.25) $ (6.88) $ (3.73) $ (1.12) $ (0.20)
Discontinued operations:
Loss from operations.............. -- (0.65) (0.67) (0.08) --
Gain on disposal.................. -- -- 0.36 -- --
------- -------- -------- ------- -------
Basic and diluted net loss per common
share................................ $ (4.25) $ (7.53) $ (4.04) $ (1.20) $ (0.20)
======= ======== ======== ======= =======
Shares used in computation, basic and
diluted.............................. 868 1,695 2,835 2,484 3,506
======= ======== ======== ======= =======

See notes to consolidated financial statements.

F-5
84

QUINTUS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE TOTAL
-------------------- ------------------ FROM DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS COMPENSATION DEFICIT DEFICIENCY

BALANCE AT APRIL 1,
1996.................... 9,868,140 $ 493 191,160 $ 10 $ -- $ -- $ (8,353) $ (7,850)
Issuance of common stock
under stock option
plan.................... -- -- 2,913,646 154 (58) -- -- 96
Issuance of preferred
stock and warrants to
purchase preferred
stock................... 2,647,778 620 -- -- -- -- -- 620
Repurchase of common
stock................... -- -- (73,688) (4) -- -- -- (4)
Preferred stock
accretion............... -- -- -- -- -- -- (167) (167)
Net loss.................. -- -- -- -- -- -- (3,526) (3,526)
---------- ------- --------- ------ ----- ------- -------- --------
BALANCE AT MARCH 31,
1997.................... 12,515,918 1,113 3,031,118 160 (58) -- (12,046) (10,831)
Issuance of common stock
under stock option
plan.................... -- -- 944,949 167 -- -- -- 167
Issuance of common stock
and stock options in
connection with business
combinations............ -- -- 518,921 1,044 -- -- -- 1,044
Repurchase of common
stock................... -- -- (377,688) (42) -- -- -- (42)
Issuance of warrants to
purchase common stock... -- -- -- 258 -- -- -- 258
Issuance of preferred
stock................... 1,454,996 1,819 -- -- -- -- -- 1,819
Preferred stock
accretion............... -- -- -- -- -- (1,519) (1,519)
Compensatory stock
arrangements............ -- -- -- 99 -- (99) -- --
Amortization of deferred
compensation............ -- -- -- -- -- 20 -- 20
Net loss.................. -- -- -- -- -- -- (11,249) (11,249)
---------- ------- --------- ------ ----- ------- -------- --------
BALANCE AT MARCH 31,
1998.................... 13,970,914 2,932 4,117,300 1,686 (58) (79) (24,814) (20,333)
Issuance of common stock
under stock option
plan.................... -- -- 303,090 151 (44) -- -- 107
Repurchase of common
stock................... -- -- (211,912) (42) -- -- -- (42)
Issuance of warrants to
purchase common stock... -- -- -- 165 -- -- -- 165
Issuance of preferred
stock................... 2,604,601 10,775 -- -- -- -- -- 10,775
Compensatory stock
arrangements............ -- -- -- 1,508 -- (1,055) -- 453
Amortization of deferred
compensation............ -- -- -- -- -- 250 -- 250
Net loss.................. -- -- -- -- -- -- (11,466) (11,466)
---------- ------- --------- ------ ----- ------- -------- --------
BALANCE AT MARCH 31,
1999.................... 16,575,515 13,707 4,208,478 3,468 (102) (884) (36,280) (20,091)
Issuance of common stock
under stock option
plan*................... -- -- 148,944 160 (165) -- -- (5)
Repurchase of common
stock*.................. -- -- (46,338) (5) -- -- -- (5)
Compensatory stock
arrangements*........... -- -- -- 700 -- (700) -- --
Amortization of deferred
compensation*........... -- -- -- -- -- 169 -- 169
Net loss*................. -- -- -- -- -- -- (690) (690)
---------- ------- --------- ------ ----- ------- -------- --------
BALANCE AT JUNE 30,
1999*................... 16,575,515 $13,707 4,311,084 $4,323 $(267) $(1,415) $(36,970) $(20,622)
========== ======= ========= ====== ===== ======= ======== ========

- -------------------------
* Unaudited

See notes to consolidated financial statements.

F-6
85

QUINTUS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

THREE MONTHS
ENDED
YEARS ENDED MARCH 31, JUNE 30,
----------------------------- -----------------
1997 1998 1999 1998 1999
(UNAUDITED)

OPERATING ACTIVITIES:
Net loss.................................................. $(3,526) $(11,249) $(11,466) $(2,976) $ (690)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 822 3,148 5,090 1,377 1,115
Stock based compensation................................ -- 20 250 4 169
Noncash interest expense................................ -- 118 231 231 --
Acquired in-process technologies........................ -- 2,200 -- -- --
Loss (gain) on disposal of property and equipment....... (6) 50 -- -- --
Gain on disposal of discontinued operations............. -- -- (1,011) -- --
Changes in operating assets and liabilities:
Accounts receivable................................... (1,314) (1,114) (1,098) (1,811) (2,094)
Prepaid expenses and other current assets............. (414) (68) 35 145 (722)
Accounts payable...................................... 1,072 (1,110) 590 47 1,631
Accrued compensation and related benefits............. 378 1,219 41 (28) (31)
Other accrued liabilities and other long-term
liabilities........................................ 218 (1,145) (469) (276) (92)
Deferred revenue...................................... 770 3,981 507 (642) (109)
------- -------- -------- ------- -------
Net cash used in operating activities....................... (2,000) (3,950) (7,300) (3,929) (823)
------- -------- -------- ------- -------
INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired.............. -- (2,461) -- -- --
Purchase of property and equipment........................ (990) (1,172) (1,073) (409) (295)
Proceeds from sale of property and equipment.............. 27 -- -- -- --
Proceeds from sale of discontinued operations............. -- -- 2,100 -- --
Increase in other assets.................................. (25) (45) (103) 55 (2)
------- -------- -------- ------- -------
Net cash provided by (used in) investing activities......... (988) (3,678) 924 (354) (297)
------- -------- -------- ------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock................. 4,085 -- 5,275 5,275 --
Proceeds from issuance of common stock.................... 96 167 107 34 160
Repurchase of common stock................................ (4) (42) (42) -- (5)
Proceeds from notes payable to stockholders............... 1,000 4,500 1,000 1,000 --
Borrowings (repayments) under bank line of credit......... 668 4,950 (82) -- --
Proceeds from (repayments of) bank loan................... (577) (2,943) 51 (4,252) (340)
Principal payments on capital lease obligations........... (27) (63) (134) (87) (13)
------- -------- -------- ------- -------
Net cash provided by (used in) financing activities......... 5,241 6,569 6,175 1,970 (198)
------- -------- -------- ------- -------
Net increase (decrease) in cash............................. 2,253 (1,059) (201) (2,313) (1,318)
Cash at beginning of period................................. 792 3,045 1,986 1,986 1,785
------- -------- -------- ------- -------
Cash at end of period....................................... $ 3,045 $ 1,986 $ 1,785 $ (327) $ 467
======= ======== ======== ======= =======
Supplemental disclosure of cash flow information -- cash
paid for interest......................................... $ 160 $ 282 $ 643 $ 194 $ 195
======= ======== ======== ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Property acquired under capital leases.................... $ -- $ -- $ 101 $ -- $ --
======= ======== ======== ======= =======
Issuance of Series C preferred stock and warrants to
purchase Series B preferred stock in exchange for notes
payable................................................. $ 1,000 $ -- $ -- $ -- $ --
======= ======== ======== ======= =======
Issuance of common stock in exchange for notes
receivable.............................................. $ 58 $ -- $ 44 $ 120 $ 165
======= ======== ======== ======= =======
Issuance of Series D preferred stock in exchange for notes
payable to stockholders................................. $ -- $ 3,001 $ -- $ -- $ --
======= ======== ======== ======= =======
Issuance of Series D preferred stock, common stock and
stock options for purchase of business.................. $ -- $ 2,044 $ -- $ -- $ --
======= ======== ======== ======= =======
Issuance of Series E preferred stock in exchange for notes
payable to stockholders................................. $ -- $ -- $ 5,684 $ -- $ --
======= ======== ======== ======= =======

See notes to consolidated financial statements.

F-7
86

QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Quintus Corporation (Quintus or the Company) provides a comprehensive
e-Customer Relationship Management ("eCRM") solution to manage customer
interactions and deliver consistent customer service across multiple
communication channels, including the Internet, email and advanced telephony
systems. The Company was founded in Delaware in May 1995.

Basis of Presentation -- The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries after the elimination
of all significant intercompany balances and transactions.

Liquidity -- As disclosed in the consolidated financial statements during
the years ended March 31, 1997, 1998 and 1999, the Company incurred net losses
from continuing operations of $3,526,000, $10,146,000 and $10,586,000 and had
net cash outflows from continuing operations of $2,000,000, $3,950,000 and
$7,300,000. The Company had a stockholders' deficiency of $20,091,000 at March
31, 1999. Management expects to incur further losses in fiscal year 2000. In
addition, in September 1999 the Company entered into an agreement to acquire
Acuity Corporation (see Note 15). Acuity Corporation has a history of losses and
net cash outflows from operations. In August 1999, the Company secured
$11,247,500 in equity financing (see Note 15). Management believes that this
equity financing when combined with existing cash on hand will be sufficient to
meet the Company's minimum obligations through March 31, 2000. However, the
Company will seek additional financing in the near term to execute its business
strategies and meet its longer term obligations.

Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Property and Equipment -- Property and equipment are recorded at cost and
depreciated using the straight-line method over the estimated useful lives of
the assets, which are generally two to five years. Assets recorded under capital
leases are amortized by the straight-line method over the shorter of their
respective useful lives or the lease term.

Revenue Recognition -- Statement of Position 97-2, Software Revenue
Recognition ("SOP 97-2"), was issued in October 1997 by the American Institute
of Certified Public Accountants ("AICPA") and was amended by Statement of
Position 98-4 ("SOP 98-4"). The Company adopted SOP 97-2 effective April 1, 1998
and SOP 98-4 effective March 31, 1998. The Company believes its current revenue
recognition policies and practices are consistent with SOP 97-2 and SOP 98-4.
Additionally, the AICPA issued SOP 98-9 in March 1998, which provides for
certain amendments to SOP 97-2, and is effective for transactions entered into
by the Company beginning April 1, 1999. The adoption of these amendments did not
have a material impact on its financial position, results of operations or cash
flows.

The Company licenses software to end users under noncancelable license
agreements and provides services such as installation, implementation, training,
and software maintenance. Software license revenue for contracts not requiring
significant customization services is recognized upon meeting each of the
following criteria: an executed agreement has been signed; products have been

F-8
87
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

shipped; the license fee is fixed and determinable; collection of the resulting
receivable is probable; and vendor specific objective evidence exists to
allocate the total fee to elements of the arrangement. Vendor-specific objective
evidence is based on the price generally charged when an element is sold
separately, or if not yet sold separately, is established by authorized
management. For sales made through distributors the Company generally recognizes
revenue at the time these partners report to the Company that they have sold the
software to the end users and all revenue recognition criteria have been met.
Software license revenue from contracts requiring the Company to perform
significant customization services are recognized on the
percentage-of-completion method based on the ratio of labor hours incurred to
total estimated labor hours. Provisions for estimated losses on contracts are
made in the period in which the anticipated losses become known. Actual costs
and gross margins on such contracts could differ from management's estimates,
and such differences could be material to the financial statements. Allowances
for estimated future warranty costs are provided at the time revenue is
recognized. Service revenue includes maintenance revenue, which is deferred and
recognized ratably over the maintenance period, which in most cases is one year,
and revenue from training services which is recognized as services are
performed. Consulting revenues are recognized as services are performed.

Software Development Costs -- Costs for the development of new software
products and substantial enhancements to existing software products are expensed
as incurred until technological feasibility has been established, at which time
any additional costs would be capitalized in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86, Computer Software to be Sold,
Leased or Otherwise Marketed. The costs to develop such software have not been
capitalized as the Company believes its current software development process is
essentially completed concurrent with the establishment of technological
feasibility.

Impairment of Long-Lived Assets -- In accordance with Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
evaluates its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.

Intangible Assets -- Intangible assets, including purchased technology, are
related to the business acquisitions described in Note 2. Amortization is
recorded on a straight-line basis over a period of three years.

Income Taxes -- The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Under this
method, deferred tax liabilities and assets are recognized for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities. A valuation allowance is recorded
to reduce net deferred tax assets to amounts that are more likely than not to be
realized.

Stock-Based Compensation -- The Company accounts for employee stock options
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB Opinion No. 25).

Loss per Common Share -- Basic loss per common share excludes dilution and
is computed by dividing loss applicable to common stockholders by the weighted
average number of common shares outstanding, less the weighted average number of
common shares subject to repurchase by the

F-9
88
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

Company. Diluted loss per common share reflects the potential dilution that
could occur if securities or other contracts to issue common stock (convertible
preferred stock, warrants and common stock options) were exercised or converted
into common stock. Common share equivalents are excluded from the computation in
loss periods as their effect would be antidilutive.

Unaudited Interim Financial Information -- The interim financial
information for the three months ended June 30, 1998 and 1999 is unaudited and
has been prepared on the same basis as the audited financial statements. In the
opinion of management, such unaudited financial information includes all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the interim information.

Foreign Currency Transactions -- The functional currency of the Company's
foreign subsidiaries is the U.S. dollar. Accordingly, all monetary assets and
liabilities are remeasured at the current exchange rate at the end of each
period reported. Nonmonetary assets and liabilities are remeasured at historical
rates and revenues and expenses are remeasured at average exchange rates in
effect during the period, except for those expenses related balance sheet
amounts that are remeasured at historical exchange rates. Transaction gains and
losses, which are included in other income (expense) in the accompanying
consolidated statements of operations, have not been significant.

Concentration of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of trade
receivables. The Company sells its products to companies in diverse industries
and generally does not require its customers to provide collateral to support
accounts receivable. To reduce credit risk, management performs ongoing credit
evaluations of its customers' financial condition. The Company maintains
allowances for potential credit losses.

Certain Significant Risks and Uncertainties -- The Company operates in the
software industry, and accordingly, can be affected by a variety of factors. For
example, management of the Company believes that changes in any of the following
areas could have a significant negative effect on the Company's future financial
position, results of operations and cash flows: ability to obtain additional
financing; regulatory changes; fundamental changes in the technology underlying
software products; market acceptance of the Company's products under
development; development of distribution channels; ability to implement and
expand operational customer support and financial control systems to manage
rapid growth, both domestically and internationally; the hiring and retention of
key employees; relationship with Lucent; fundamental changes in technology
underlying software products; litigation or other claims against the Company.

Recently Issued Accounting Standards -- In 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, which requires an enterprise to report, by major
components and as a single total, the change in net assets during the period
from nonowner sources. The Company's comprehensive loss was equal to its net
loss for all years presented.

In 1998, the Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which established annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services and geographic areas and major
customers. The Company operates in two reportable segments (see Note 15).

In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use. SOP 98-1

F-10
89
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

establishes the accounting for costs of software products developed or purchased
for internal use, including when such costs should be capitalized. SOP 98-1 will
be effective for the Company's fiscal year ending March 31, 2000. The Company
believes the adoption of this statement will not have a significant impact on
its financial position, results of operations or cash flows.

In April 1998, the AcSEC issued SOP 98-5, Reporting on the Costs of
Start-up Activities. Under SOP 98-5, the cost of start-up activities should be
expensed as incurred. SOP 98-1 will be effective for the Company's fiscal year
ending March 31, 2000. The Company believes the adoption of this statement will
not have a significant impact on its financial position, results of operations
or cash flows.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. SFAS No. 133 will
be effective for the Company's fiscal year ending March 31, 2001. Management
believes that this statement will not have a significant impact on the Company's
financial position, results of operations or cash flows.

2. BUSINESS COMBINATIONS AND DISCONTINUED OPERATIONS

CALL CENTER ENTERPRISES, INC.

In July 1997, the Company acquired Call Center Enterprises, Inc. (CCE), a
provider of strategic call center consulting services, for $965,000 in cash in a
transaction that was accounted for as a purchase. Assets acquired and
liabilities assumed in the acquisition were as follows (in thousands):

Accounts receivable......................................... $ 826
Other assets................................................ 30
Goodwill.................................................... 1,262
Less liabilities assumed.................................... (1,153)
-------
$ 965
=======

During fiscal 1999 the Company was required to make additional cash
payments of approximately $962,000 to former stockholders of CCE based upon
achievement of certain performance goals. These payments, which were contingent
upon the continued employment of the former CCE stockholders, were recorded as
charges to operations when the performance goal was attained.

On February 26, 1999, the Company sold the assets of CCE, which provided
implementation services for support and help-desk centers software application.
The division was sold for cash of $2,100,0000 with a gain on disposal of
$1,011,000. As a result, the operations of CCE have been classified as
discontinued operations in the statement of operations. The Company recorded as
a part of the gain on disposal of discontinued operations the fair value of
options granted in connection with the disposal of $453,000. The Company may
receive an additional payment of up to $400,000 from the sale of CCE based on
the number of former CCE employees who remain employed by the purchaser for one
year subsequent to the date of disposition. The division had revenues of
$2,528,000

F-11
90
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

and $3,210,000 for the years ended March 31, 1998 and 1999, respectively. There
were no assets or liabilities remaining as of March 31, 1999.

NABNASSET CORPORATION

In November 1997, the Company acquired Nabnasset Corporation (Nabnasset), a
provider of software which integrates telephone, voice, and data for $1,496,000
in cash, preferred stock with a fair value of $1,000,000, and 518,921 shares of
common stock and options to purchase 617,528 shares of common stock with an
aggregate fair value of $1,044,000. The transaction was accounted for as a
purchase. Assets acquired and liabilities assumed in the acquisition were as
follows (in thousands):

Accounts receivable......................................... $ 1,036
Property and equipment...................................... 2,062
Other assets................................................ 75
In-process technologies..................................... 2,200
Purchased technology........................................ 4,000
Intangible assets........................................... 5,599
Accounts payable and accrued liabilities.................... (4,230)
Notes payable............................................... (6,070)
Other liabilities........................................... (1,132)
-------
$ 3,540
=======

In this acquisition, acquired technology included both existing technology
and in-process research and development. The valuation of acquired technology
was made by applying the income forecast method, which considers the present
value of cash flows by product lines. Acquired in-process technologies were
charged to operations, as the technologies did not have alternative future uses
as of the date of the acquisition.

The operating results of Nabnasset have been included in the consolidated
statements of operations since the date of acquisition. Had the acquisition
taken place at the beginning of fiscal 1997, the unaudited pro forma results of
operations would have been as follows for the year ended March 31, (in
thousands, except per share data):

1997 1998

Net revenues............................................... $17,439 $ 24,827
Net loss................................................... (7,807) (15,669)
Basic and diluted loss per common share.................... $ (5.63) $ (7.79)

The pro forma results of operations give effect to certain adjustments,
including amortization of purchased intangibles and goodwill. The $2,200,000
charge for purchased in-process technology has been excluded from the pro forma
results as it is a material non-recurring charge.

The pro forma amounts are based on certain assumptions and estimates and do
not necessarily represent results which would have occurred if the acquisition
had taken place on the basis assumed above, nor are they indicative of results
of future combined operations.

F-12
91
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

MARCH 31,
---------------- JUNE 30,
1998 1999 1999

Land................................................. $ 170 $ 170 $ 170
Building............................................. 688 688 688
Computer equipment and software...................... 4,179 6,075 6,078
Furniture and equipment.............................. 548 1,279 1,368
Leasehold improvements............................... 184 306 306
------ ------ ------
5,769 8,518 8,610
Less accumulated depreciation and amortization....... 2,261 5,356 5,471
------ ------ ------
Net property and equipment........................... $3,508 $3,162 $3,139
====== ====== ======

4. BANK LINE OF CREDIT

The Company maintains a committed revolving line with a bank that provides
for borrowings of up to $7,500,000, based on a percentage of eligible accounts
receivable, with interest at the bank's prime rate plus 1.5% (9.25% at March 31,
1999). At March 31, 1999, the Company had $4,868,000 in outstanding borrowings
under the line of credit agreement. Borrowings under this facility may be repaid
and reborrowed at any time prior to September 17, 1999 and are collateralized by
substantially all of the Company's assets and are subject to the Company's
compliance with certain financial and nonfinancial covenants.

As of March 31, 1999, the Company obtained a waiver from the bank for
noncompliance with certain covenants required by the line of credit agreement.

5. NOTES PAYABLE TO STOCKHOLDERS

As of March 31, 1998, the Company had notes payable to stockholders in the
amount of $4,500,000, which accrued interest at the prime rate plus 1% (9.5% at
March 31, 1998). In connection with the issuance of the notes payable, the
Company also issued warrants to stockholders to purchase 385,530 shares of
common stock at an exercise price of $0.30 per share. The principal and accrued
interest on the notes payable to stockholders were subsequently converted to
Series E convertible preferred stock during the year ended March 31, 1999 at the
same price as the Series E convertible preferred stock was sold to investors.
During fiscal 1999 the Company had additional notes payable to stockholders in
the amount of $1,000,000, which accrued interest at the prime rate plus 1%
(8.75% at March 31, 1999).

F-13
92
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

6. LONG-TERM DEBT

Long-term debt consists of the following (in thousands, except monthly
installments and interest rates):

MARCH 31,
---------------- JUNE 30,
1998 1999 1999

Equipment loan payable to a bank, due in monthly
installments of $20,062 through 2000, with
interest at the prime rate plus 0.75% (8.5% at
March 31, 1999). The loan is secured by the
related equipment................................. $ 785 $ -- $ --
Amortizing term loan payable to a bank, due in
monthly installments of $28,571 through September
2001, with interest at the prime rate plus 2%
(9.75% at March 31, 1999). The loan is secured by
substantially all of the Company's assets......... -- 846 761
Mortgage notes payable to a bank, due in monthly
installments of $3,942 and $1,183 through 2020;
interest rate is subject to adjustment every three
years (8.25% at March 31, 1999). The mortgage is
secured by real property.......................... 628 618 614
Note payable from Nabnasset acquisition, due in
monthly installments of $55,555 and $27,778
through October 2000, with interest at 7.75%...... 2,581 1,583 1,333
------ ------ ------
Total............................................... 3,994 3,047 2,708
Less current portion................................ 1,357 1,347 1,347
------ ------ ------
Long-term debt...................................... $2,637 $1,700 $1,361
====== ====== ======

At March 31, 1999, maturities of long-term debt are as follows (in
thousands):

FISCAL YEARS ENDING
MARCH 31,

2000................................................. $1,347
2001................................................. 938
2002................................................. 178
2003................................................. 14
2004................................................. 16
Thereafter................................................ 554
------
Total..................................................... $3,047
======

7. COMMITMENTS

LEASES

The Company leases office space under a noncancelable operating lease
expiring in December 2000. The Company leases certain office equipment under
noncancelable lease agreements that are accounted for as capital leases.
Equipment under capital lease arrangements included in property and

F-14
93
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

equipment amounted to $365,000 and $693,000 at March 31, 1998 and 1999,
respectively. The related accumulated amortization was $99,000 and $425,000 at
March 31, 1998 and 1999, respectively.

At March 31, 1999, future minimum lease payments under noncancelable
operating leases and capital leases are as follows during the years ended March
31 (in thousands):

CAPITAL OPERATING
LEASES LEASES

2000........................................................ $132 $406
2001........................................................ 55 244
2002........................................................ 32 --
2003........................................................ 29 --
2004........................................................ 17 --
---- ----
Total future minimum lease payments......................... 265 $650
====
Less amount representing interest........................... (55)
----
Present value of future minimum lease payments.............. 210
Less current portion........................................ 109
----
Long-term portion........................................... $101
====

Rent expense was $431,000, $645,000 and $856,000 for the years ended March
31, 1997, 1998 and 1999, respectively.

ROYALTIES

The Company is required to pay royalties based on product revenue in excess
of specified minimum levels. The royalty rates are generally 1% to 3% of product
revenue, and certain agreements require royalties based upon the number of
users. At March 31, 1999, required minimum payments under such royalty
agreements are as follows during the years ended March 31 (in thousands):

2000........................................................ $429
2001........................................................ 80
----
Total....................................................... $509
====

Royalty expense totaled $416,000, $328,000 and $285,000 for the years ended
March 31, 1997, 1998 and 1999, respectively. Such amounts have been included in
the cost of license revenue.

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK

Each share of Series A, B, C and D redeemable preferred stock is
convertible into one share of common stock at any time upon the election of the
holders of a majority of the then outstanding convertible preferred stock,
subject to certain antidilution adjustments. At the time of conversion, the
holders of the convertible preferred stock are entitled to a cash payment of
$0.925 for each share of Series A convertible preferred stock, $1.325 for each
share of Series B convertible preferred stock, $1.765 for each share of Series C
convertible preferred stock, and $2.544 for each share of Series D convertible
preferred stock. Cash payments that would be payable to convertible preferred
stockholders upon conversion to common stock total $17,811,000 as of March 31,
1999. At the time

F-15
94
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

of issuance, a portion of the proceeds from the sale was allocated to
stockholders equity based on the then fair market value of the common stock into
which the shares will be converted. The remainder was credited to redeemable
preferred stock which is presented outside of stockholders' equity. For each of
the years ended March 31, 1997 and 1998, accretion of preferred stock totaled
$167,000 and $1,519,000, respectively, to reflect the difference between the
carrying value and the redemption value of the preferred stock on the date of
issuance. The accretion of the preferred stock has been recorded as increases to
the carrying value of the redeemable preferred stock and accumulated deficit.
There was no accretion for the year ended March 31, 1999.

The holder of each share of Series A convertible preferred stock has the
right to 10 votes, and the holder of each share of Series B, C, and D
convertible preferred stock has the right to 14 votes for each share of common
stock into which Series A, B, C, and D convertible preferred stock can be
converted.

The holders of Series A, B, C, and D convertible preferred stock are
entitled to noncumulative annual dividends of $0.20, $0.286, $0.382 and $0.55
per share, respectively, as declared by the Board of Directors, prior to the
payment of dividends to the holders of common stock. No cash dividends have been
declared through March 31, 1999.

In the event of any voluntary or involuntary liquidation of the Company,
the Series A, B, C and D convertible preferred stockholders are entitled to a
liquidation preference of $1,00, $1.43, $1.91 and $2.75 per share, respectively,
plus accrued dividends, if any.

9. STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK

The holder of each share of Series E convertible preferred stock has the
right to 14 votes for each share of common stock into which Series E convertible
preferred stock can be converted.

The holders of Series E convertible preferred stock are entitled to
noncumulative annual dividends of $0.83 per share as declared by the Board of
Directors, prior to the payment of dividends to the holders of common stock. No
cash dividends have been declared through March 31, 1999.

In the event of any voluntary or involuntary liquidation of the Company,
the Series E convertible preferred stockholders are entitled to a liquidation
preference of $4.15 per share plus accrued dividends, if any.

STOCK OPTION PLAN

The 1995 Stock Option Plan (the "Plan"), authorized the grant of options to
purchase up to 4,185,714 shares of the Company's common stock. During the year
ended March 31, 1997, the Company's Board of Directors decreased options
available for issuance under the Plan by 410,715 shares. During the year ended
March 31, 1998, the Company's Board of Directors increased options available
under the Plan by 1,012,110 shares. Under the Plan, incentive options may be
granted at a price per share no less than the fair market value of common stock
at the date of grant. Nonqualified stock options may be granted at a price per
share no less than 85% of the fair market value on the date of grant. Options
granted to any 10% stockholder may have an exercise price per share that is not
less than 110% of the fair market value per share of common stock on the date of
grant. Options granted are immediately exercisable, and unvested shares are
subject to repurchase by the Company

F-16
95
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

at the amount originally paid. Options granted generally have a maximum term of
ten years and generally vest over four or five years. At March 31, 1999, 949,998
shares of common stock were subject to repurchase by the Company.

In connection with the acquisitions by the Company described in Note 2, the
Company granted options outside of the Plan to purchase up to 1,202,528 shares
of common stock. The options are generally exercisable immediately and have
similar vesting terms as options granted under the Plan with the exception of
options to purchase 486,168 shares of common stock, which vest immediately.

Stock option activity is summarized as follows:

OPTIONS OUTSTANDING
----------------------------
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE

Balances, April 1, 1996............................... 2,742,352 $0.05
Granted (weighted average fair value of $0.02)........ 1,090,250 0.07
Exercised............................................. (2,913,646) 0.05
Canceled.............................................. (579,423) 0.05
----------
Balances, March 31, 1997 (55,479 vested at a weighted
average price of $0.05 per share)................... 339,533 0.07
Granted (weighted average fair value of $0.90)........ 2,699,367 0.57
Exercised............................................. (944,949) 0.20
Canceled.............................................. (270,251) 0.32
----------
Balances, March 31, 1998 (616,824 vested at a weighted
average price of $0.42 per share)................... 1,823,700 0.70
Granted (weighted average fair value of $1.35)........ 1,205,612 1.57
Exercised............................................. (303,090) 0.44
Canceled.............................................. (931,092) 0.91
----------
Balances, March 31, 1999.............................. 1,795,130 1.22
Granted (weighted average fair value of $3.19)........ 386,500 4.61
Exercised............................................. (148,944) 1.23
Canceled.............................................. (218,185) 0.38
----------
Balances, June 30, 1999............................... 1,814,501 $2.04
==========

At March 31, 1999, 940,227 shares were available under the Plan for future
grant.

F-17
96
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

Additional information regarding options outstanding as of March 31, 1999
is as follows:

OPTIONS OUTSTANDING OPTIONS VESTED
--------------------------- ---------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING VESTED AT AVERAGE
RANGE OF NUMBER CONTRACTUAL MARCH 31, EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) 1999 PRICE

$0.03 - $0.10........................... 210,815 7.70 190,262 $0.05
$0.15 - $0.53........................... 174,945 7.00 135,162 0.36
$1.25 - $1.75........................... 1,409,370 9.33 168,340 1.39
--------- ---- -------- -----
1,795,130 8.91 493,764 $0.59
========= ==== ======== =====

ADDITIONAL STOCK PLAN INFORMATION

Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS No. 123) requires the disclosure of pro forma
net income and earnings per share had the Company adopted the fair value method
as of the beginning of fiscal 1995. Under SFAS No. 123, the fair value of the
stock-based awards to employees is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values. The
Company's calculations were made using the minimum value method with the
following weighted average assumptions for 1997, 1998 and 1999; expected life,
5.2 years for 1997 grants, 6.0 years for 1998 grants, and 6.0 years for 1999
grants; risk free interest rates of 6.4% in 1997 and 6.0% in both 1998 and 1999;
and no dividends during the expected term. The Company's calculations are based
on a multiple option valuation approach and forfeitures are recognized as they
occur. If the computed fair values of the stock-based awards had been amortized
over the vesting period of the awards, pro forma net loss applicable to common
stockholders would have been approximately $3,713,000 ($4.28 per basic and
diluted share), $13,185,000 ($7.78 per basic and diluted share), and $11,887,000
($4.19 per basic and diluted share) for the years ended March 31, 1997, 1998 and
1999, respectively. However, the impact of outstanding nonvested stock options
granted prior to 1995 has been excluded from the pro forma calculation;
accordingly, the pro forma adjustments are not indicative of future period pro
forma adjustments, when the calculation will apply to all applicable stock
options.

STOCK-BASED COMPENSATION

Options Granted to Employees -- In connection with options granted to
employees to purchase common stock, the Company recorded deferred stock
compensation of $99,000 and $1,055,000 in fiscal years 1998 and 1999,
respectively. The Company had no deferred stock compensation in fiscal year
1997. Such amounts represent the difference between the exercise price and the
deemed fair value of the Company's common stock at the date of grant. The
deferred charges are being amortized to expense through fiscal year 2003.
Stock-based compensation expense of $20,000 was recognized as part of the
Company's discontinued operations during fiscal year 1998. There was no
stock-based compensation expense recognized in continuing operations during
fiscal year 1998. Stock-based

F-18
97
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

compensation expense of $171,000 and $79,000 was recorded as part of the
Company's continuing and discontinued operations, respectively, during fiscal
year 1999.

Options and Warrants Granted to Nonemployees -- During fiscal years 1998
and 1999, in connection with notes payable to stockholders, the Company issued
warrants to purchase 253,012 and 132,532 shares of common stock, respectively,
with an exercise price of $0.30 per share. The balance outstanding on the notes
payable to stockholders was converted to preferred stock in May 1998. The fair
value of warrants amounting to $258,000 and $165,000 was charged to interest
expense during fiscal year 1998 and 1999, respectively.

WARRANTS

The Company had the following outstanding warrants to purchase common stock
and preferred stock at March 31, 1999:

NUMBER EXERCISE EXPIRATION
OF PRICE PER DATE OF
SHARES STOCK SHARE ISSUED WARRANTS

5,000 Common stock $0.05 April 1996 April 2006
192,262 Series B preferred $1.43 August 1996 August 2000 or upon
stock an initial public
offering of common
stock
55,340 Series C preferred $1.91 September 1996 Earlier of September
stock 2006 or upon the
initial public
offering of common
stock
8,466 Common stock $3.94 February 1997 January 2002
76,047 Common stock $4.54 November 1997 November 2001
253,012 Common stock $0.30 November 1997 - November 2001
March 1998
132,518 Common stock $0.30 April 1998 - November 2001
May 1998

COMMON STOCK RESERVED

At March 31, 1999, the Company has received shares of common stock for
issuance as follows:

Conversion of preferred stock............................... 16,575,515
Issuance available under 1995 Stock Option Plan............. 940,227
Exercise of options......................................... 1,795,130
Exercise of warrants........................................ 722,645
----------
Total............................................. 20,033,517
==========

F-19
98
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

10. LOSS PER COMMON SHARE

The following is a reconciliation of the numerators and denominators used
in computing basic and diluted net loss per share from continuing operations (in
thousands).

THREE MONTHS
YEAR ENDED ENDED
MARCH 31, JUNE 30,
-------------------------------- ----------------
1997 1998 1998 1998 1999

Net loss from continuing operations....... $(3,526) $(10,146) $(10,586) $(2,786) $ (690)
Redeemable preferred stock accretion...... (167) (1,519) -- -- --
------- -------- -------- ------- ------
Loss from continuing operations applicable
to common shareholders (numerator),
basic and diluted....................... $(3,693) $(11,665) $(10,586) $(2,786) $ (690)
======= ======== ======== ======= ======
Shares (denominator):
Weighted average common shares
outstanding.......................... 2,095 3,530 4,194 4,110 4,268
Weighted average common shares
outstanding subject to repurchase.... (1,227) (1,835) (1,359) (1,626) (762)
------- -------- -------- ------- ------
Shares used in computation, basic and
diluted................................. 868 1,695 2,835 2,484 3,506
======= ======== ======== ======= ======
Loss per share from continuing operations
applicable to common stockholders,
basic and diluted....................... $ (4.25) $ (6.88) $ (3.73) $ (1.12) $(0.20)
======= ======== ======== ======= ======

For the above mentioned periods, the Company had securities outstanding
which could potentially dilute basic earnings per share in the future, but were
excluded in the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following:

YEAR ENDED THREE MONTHS ENDED
MARCH 31, JUNE 30,
------------------------------------ -----------------------
1997 1998 1999 1998 1999

Convertible preferred stock..... 12,515,918 13,970,914 16,575,515 16,575,515 16,575,515
Shares of common stock subject
to repurchase................. 1,985,648 1,873,390 949,998 1,659,465 893,383
Outstanding options............. 339,533 1,823,700 1,795,130 1,863,975 1,814,501
Warrants........................ 252,602 590,127 722,645 722,645 722,645
---------- ---------- ---------- ---------- ----------
Total........................... 15,093,701 18,258,131 20,043,288 20,821,600 20,006,044
========== ========== ========== ========== ==========

F-20
99
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

11. INCOME TAXES

The Company's deferred income tax assets are comprised of the following at
March 31:

1998 1999
(IN THOUSANDS)

Net deferred tax assets:
Net operating loss carryforwards.......................... $ 4,836 $ 8,394
Accruals deductible in different periods.................. 2,363 1,094
General business credits.................................. 327 327
Depreciation and amortization............................. 287 285
------- -------
Total deferred tax assets................................... 7,813 10,100
Valuation allowance......................................... (6,320) (9,142)
------- -------
Net deferred tax assets..................................... 1,493 58
Deferred tax liability -- purchased intangibles............. (1,493) (58)
------- -------
Net deferred tax assets..................................... $ -- $ --
======= =======

Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, as well as net operating
loss and tax credit carryforwards. Due to the uncertainty surrounding the
realization of the benefits of its favorable tax attributes in future tax
returns, as of March 31, 1998 and 1999, the Company has fully reserved its net
deferred tax assets of approximately $6,320,000 and $9,142,000, respectively.

For all periods presented the Company's effective rate differs from the
expected benefit at the federal statutory tax rate due primarily to state taxes
of approximately 5% offset by a valuation allowance against deferred tax assets.

The Company's loss from continuing operations for 1999 was generated by
$9,081,000 and $1,505,000 from domestic and international operations,
respectively. The Company did not have international operations in 1997 and
1998.

At March 31, 1999, the Company has net operating loss (NOL) carryforwards
of approximately $24,215,000 and $5,386,000 for federal and state income tax
purposes, respectively. The federal NOL carryforwards expire beginning in 2011,
while the state NOL carryforwards expire beginning in 2001.

At March 31, 1999, the Company also has research and development credit
carryforwards of approximately $242,000 and $128,000 available to offset future
federal and state income taxes, respectively. The federal credit carryforward
expires beginning in 2011, while the state credit carryforward has no
expiration.

The extent to which the loss and credit carryforwards can be used to offset
future taxable income and tax liabilities, respectively, may be limited,
depending on the extent of ownership changes within any three-year period.

F-21
100
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

12. SAVINGS PLAN

The Company maintains a savings plan under Section 401(k) of the Internal
Revenue Code. Under the plan, employees may defer a portion of their pretax
salaries. The Company makes no matching contributions.

13. SEGMENT INFORMATION, OPERATIONS BY GEOGRAPHIC AREA AND SIGNIFICANT CUSTOMERS

As discussed in Note 1, the Company follows the requirements of SFAS No.
131, Disclosures About Segments of an Enterprise and Related Information. As
defined in SFAS No. 131, the Company operates in two reportable segments. The
Company's operations were divided into two segments: Quintus and CCE. As
discussed in Note 3, the Company discontinued its operations of CCE during
fiscal 1999. At the end of 1999, the Company operates in one reportable segment.

GEOGRAPHIC INFORMATION (IN THOUSANDS)

YEAR ENDED MARCH 31, THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------- --------------------------------------
1997 1998 1999 1998 1999
----------- ------------------------ ------------------------ ----------- ------------------------
LONG-LIVED LONG-LIVED LONG-LIVED
REVENUES(1) REVENUES(1) ASSETS REVENUES(1) ASSETS REVENUES(1) REVENUES(1) ASSETS

United States........ $11,536 $18,830 $ 3,727 $24,749 $3,391 $6,557 $ 9,044 $3,365
Rest of the
world(2)........... 2,078 3,060 -- 5,558 93 995 1,249 98
------- ------- ------- ------- ------ ------ ------- ------
$13,614 $21,890 $ 3,727 $30,307 $3,484 $7,552 $10,293 $3,463
======= ======= ======= ======= ====== ====== ======= ======

- -------------------------
(1) Revenues are attributed to countries based on location of customer invoiced.

(2) No individual foreign country accounted for greater than 10% of total
revenues or long-lived assets in any of the periods presented.

SIGNIFICANT CUSTOMERS

One unrelated customer accounted for 23.8% and 19.3% of total revenues in
1997 and 1999, respectively. No one customer accounted for greater than 10% of
total revenues in fiscal 1998.

Four customers accounted for 30.9%, 21.8%, 10.9% and 10.5% of accounts
receivable at March 31, 1997. One customer accounted for 21.1% and 28.6% of
accounts receivable at March 31, 1998 and 1999, respectively.

14. LITIGATION

The Company is a defendant and may be a potential defendant in lawsuits and
claims arising in the ordinary course of business. While the outcomes of such
claims, lawsuits, or other proceedings cannot be predicted with certainty,
management expects that such liability, to the extent not provided by insurance
or otherwise, will not have a material adverse effect on the financial condition
of the Company.

F-22
101
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

15. SUBSEQUENT EVENTS

On August 26, 1999, the Company issued a total of 1,363,334 shares of
Series F convertible preferred stock at $8.25 per share for cash consideration
of $11,247,500. The Series F convertible preferred stock is convertible into one
share of common stock and has preferences, liquidation and voting rights similar
to those of Series E preferred stock. The Series F preferred stockholders are
entitled to no cash payments upon conversion to common stock.

On September 10, 1999, Quintus entered into an Agreement and Plan of
Reorganization to acquire all of the outstanding shares and assume the
outstanding options and warrants of Acuity Corp. (Acuity), a company
specializing in providing Web based customer interaction software. Quintus will
issue approximately 1,570,000 shares of common stock valued at approximately
$13,000,000, approximately 2,960,000 shares of Series G preferred stock valued
at approximately $24,400,000, and assume approximately 1,230,000 options and
warrants to purchase common and preferred stock valued at approximately
$7,800,000. The aggregate purchase price, including approximately $300,000 of
transaction costs not paid in stock, will be approximately $45,500,000. The
agreement is subject to shareholder approval and is expected to close in October
1999. The acquisition will be accounted for using the purchase method of
accounting.

On September 9, 1999, the Board of Directors approved, subject to
stockholder approval, the following:

ADOPTION OF THE 1999 STOCK INCENTIVE PLAN

1,000,000 shares of common stock were reserved for issuance under the 1999
Stock Incentive Plan. Any shares not yet issued under the 1995 Stock Option Plan
on the date of this offering will also be available under the 1999 Stock
Incentive Plan. On January 1 of each year, starting with the year 2000, the
number of shares in the reserve will automatically increase by 5% of the total
number of shares of common stock that are outstanding at that time or, if less,
by 2,000,000 shares. In general, if options or shares awarded under the 1999
Stock Incentive Plan or the 1995 Stock Incentive Plan are forfeited, then those
options or shares will again become available for awards under the 1999 Stock
Incentive Plan.

Outstanding options under the 1995 Stock Option Plan will be incorporated
into the 1999 Equity Incentive Plan at the time of this offering and no further
option grants will be made under the 1995 Stock Option Plan. The incorporated
options will continue to be governed by their existing terms, unless the Board
elects one or more features of the 1999 Stock Incentive Plan to those options or
to other outstanding shares. The Board has elected to extend the change in
control acceleration feature of the 1999 Stock Inventive Plan to all outstanding
options and unvested shares. Previously, options granted under the 1995 Stock
Option Plan provided that vesting of the shares would accelerate upon an
acquisition only if not assumed by the acquiring entity.

ADOPTION OF THE EMPLOYEE STOCK PURCHASE PLAN

Under the purchase plan, eligible employees are allowed to have salary
withholdings of up to 15% of their cash compensation to purchase shares of
common stock at a price equal to 85% of the lower of the market value of the
stock on the first date immediately before the first day of the applicable
offering period or the fair market value on the purchase date. The initial
offering period

F-23
102
QUINTUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THREE
MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

commences upon the effective date for the initial public offering of the
Company's common stock. For the first offering period, shares of common stock
may be purchased at a price equal to 85% of the lower of the price per share in
the initial public offering or the market value on the purchase date. The
Company has initially reserved 1,000,000 shares of common stock under this plan,
plus an annual increase to be added on May 1st beginning with the year 2000
equal to the lesser of (i) 1,000,000 shares, or (ii) 2% of the shares of common
stock outstanding on May 1st.

ADOPTION OF THE DIRECTORS OPTION PLAN

500,000 shares of common stock have been reserved under the Director Option
Plan. The plan provides for an initial automatic grant of an option to purchase
30,000 shares of common stock to a nonemployee director who first becomes a
director after the Company's initial public offering. The grant will occur when
the director takes office. The initial option will vest monthly over the
two-year period following the date of grant. In addition, at the time of the
annual stockholders' meeting beginning in 2000, each nonemployee director who
continues to be a director after that meeting will automatically be granted an
annual option to purchase 10,000 shares of common stock. However, a nonemployee
director who is receiving the 30,000 option initial grant will not receive the
annual option in the same calendar year. The annual options are fully vested on
the first anniversary of the date of grant.

F-24
103

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholders of Acuity Corp.

In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' equity and cash flows present fairly, in
all material respects, the financial position of Acuity Corp. (the "Company"),
at December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has sustained recurring losses from operations
in the years then ended December 31, 1997 and 1998 which raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

Austin, Texas
February 8, 1999, except as to Note 11,
for which the date is March 31, 1999

F-25
104

ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)

BALANCE SHEETS

DECEMBER 31,
--------------------------- JUNE 30,
1997 1998 1999
------------ ------------ ------------
(UNAUDITED)

ASSETS
Current Assets:
Cash and cash equivalents............................... $ 2,135,448 $ 2,173,101 $ 2,232,231
Accounts receivable, net of allowance for doubtful
accounts of $73,215, $60,340 and $0, respectively..... 1,703,075 944,024 292,190
Note receivable......................................... -- -- 350,000
Prepaid expenses and other current assets............... 182,100 176,701 259,204
------------ ------------ ------------
Total current assets.................................. 4,020,623 3,293,826 3,133,625
Computer equipment, furniture and fixtures, net........... 1,171,168 1,233,464 1,103,048
Note receivable -- related party.......................... 75,000 -- --
Deposits and other assets................................. 64,478 56,013 49,300
------------ ------------ ------------
Total assets.......................................... $ 5,331,269 $ 4,583,303 $ 4,285,973
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Borrowings under line of credit......................... $ -- $ 721,240 $ 721,240
Current maturities of capital lease obligations......... -- 96,570 90,671
Current maturities of long-term obligations............. 533,534 518,182 450,000
Accounts payable........................................ 495,463 362,225 445,043
Accrued expenses........................................ 771,664 959,748 404,889
Accrued expenses -- related party....................... -- -- 226,968
Deferred revenue and customer advances.................. 1,345,809 762,776 576,874
------------ ------------ ------------
Total current liabilities............................. 3,146,470 3,420,741 2,915,685
Capital lease obligations, net of current maturities...... -- 239,863 203,564
Long-term obligations, net of current maturities.......... 1,185,785 587,500 362,500
------------ ------------ ------------
Total liabilities..................................... 4,332,255 4,248,104 3,481,749
------------ ------------ ------------
Commitments (Note 7)
Stockholders' Equity:
Convertible preferred stock, $.001 par value:
8,680,644 shares authorized at December 31, 1997 and
1998 and 9,823,502 shares at June 30, 1999;
6,220,994 and 8,252,074 shares issued at December
31, 1997 and 1998 and 9,037,789 at June 30, 1999,
6,173,994 and 8,252,074 outstanding in 1997 and
1998 and 9,037,789 at June 30, 1999; liquidation
value 19,857,196 at December 31, 1998 and
22,607,199 at June 30, 1999........................ 6,221 8,252 9,038
Common stock, $.001 par value, 15,000,000 shares
authorized at December 31, 1997 and 1998, and
20,065,969 shares at June 30, 1999; 4,852,383,
5,253,430 and 5,305,127 shares issued and
4,852,383, 4,853,430 and 4,905,127 outstanding at
December 31, 1997 and 1998 and June 30, 1999,
respectively....................................... 4,852 5,253 5,305
Additional paid-in capital............................ 12,847,565 20,069,214 22,780,735
Treasury stock -- at cost
Series B-1, 25,000, 0 and 0 shares, Series B-2,
22,000, 0 and 0 shares, and common stock, 0,
400,000 and 400,000 shares, respectively......... (76,000) (280,000) (280,000)
Accumulated deficit................................... (11,783,624) (19,467,520) (21,710,854)
------------ ------------ ------------
Total stockholders' equity....................... 999,014 335,199 804,224
------------ ------------ ------------
Total liabilities and stockholders' equity....... $ 5,331,269 $ 4,583,303 $ 4,285,973
============ ============ ============

The accompanying notes are an integral part of these financial statements.

F-26
105

ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)

STATEMENTS OF OPERATIONS

YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------

Revenue:
License........................... $ 3,085,200 $ 4,212,501 $ 1,825,845 $ 947,647
Service........................... 819,488 1,743,199 816,319 129,310
Consulting........................ 906,487 763,391 447,222 221,817
----------- ----------- ----------- -----------
Total revenue................ 4,811,175 6,719,091 3,089,386 1,298,774
Cost of revenue:
License........................... 252,536 91,547 26,085 31,043
Service........................... 564,375 427,858 214,132 190,103
Consulting........................ 595,871 861,382 499,745 346,562
----------- ----------- ----------- -----------
Total cost of revenue........ 1,412,782 1,380,787 739,962 567,708
Gross profit........................ 3,398,393 5,338,304 2,349,424 731,066
Operating expenses:
Research and development.......... 1,542,199 4,389,983 2,054,385 1,971,432
Sales and marketing............... 6,373,790 6,311,540 2,715,236 2,971,363
General and administrative........ 2,020,157 2,377,393 1,097,521 745,212
----------- ----------- ----------- -----------
Total operating expenses..... 9,936,146 13,078,916 5,867,142 5,688,007
----------- ----------- ----------- -----------
Operating loss...................... (6,537,753) (7,740,612) (3,517,718) (4,956,941)
Other income (expense):
Gain on sale of assets............ -- -- -- 2,737,144
Interest expense.................. (91,452) (124,137) (44,952) (69,748)
Interest income................... 73,296 164,356 67,283 45,992
Other income (expense)............ (10,581) 16,497 13,388 219
----------- ----------- ----------- -----------
Net loss..................... $(6,566,490) $(7,683,896) $(3,481,999) $(2,243,334)
=========== =========== =========== ===========

The accompanying notes are an integral part of these financial statements.

F-27
106

ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
------------------ ------------------ PAID-IN TREASURY ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK DEFICIT EQUITY
--------- ------ --------- ------ ----------- --------- ------------ -------------

Balance at January 1, 1997..... 3,843,994 $3,844 4,145,000 $4,145 $ 5,920,897 $ -- $ (5,217,134) $ 711,752
Issuance of Series B-2
convertible preferred stock,
net of issuance costs........ 127,000 127 -- -- 252,123 -- -- 252,250
Issuance of Series C
convertible preferred stock,
net of issuance costs, and
related issuance of common
stock to Series B holders
under anti-dilution
provisions................... 2,250,000 2,250 400,000 400 6,613,915 -- -- 6,616,565
Exercise of stock options...... -- -- 307,383 307 60,630 -- -- 60,937
Purchase of treasury stock..... -- -- -- -- -- (76,000) -- (76,000)
Net loss....................... -- -- -- -- -- -- (6,566,490) (6,566,490)
--------- ------ --------- ------ ----------- --------- ------------ -----------
Balance at December 31, 1997... 6,220,994 6,221 4,852,383 4,852 12,847,565 (76,000) (11,783,624) 999,014
Issuance of Series C
convertible preferred stock
to vendors................... 6,650 7 -- -- 13,468 -- -- 13,475
Issuance of Series D
convertible preferred stock,
net of issuance costs........ 2,071,430 2,071 -- -- 7,203,319 -- -- 7,205,390
Exercise of stock options,
net.......................... -- -- 401,047 401 80,815 -- -- 81,216
Purchase of treasury stock..... -- -- -- -- -- (280,000) -- (280,000)
Retirement of treasury stock... (47,000) (47) -- -- (75,953) 76,000 -- --
Net loss....................... -- -- -- -- -- -- (7,683,896) (7,683,896)
--------- ------ --------- ------ ----------- --------- ------------ -----------
Balance at December 31, 1998... 8,252,074 8,252 5,253,430 5,253 20,069,214 (280,000) (19,467,520) 335,199
Issuance of Series E
convertible preferred stock,
net of issuance costs
(unaudited).................. 785,715 786 -- -- 2,696,478 -- -- 2,697,264
Exercise of stock options
(unaudited).................. -- -- 51,697 52 15,043 -- -- 15,095
Net loss (unaudited)........... -- -- -- -- -- -- (2,243,334) (2,243,334)
--------- ------ --------- ------ ----------- --------- ------------ -----------
Balance at June 30, 1999
(unaudited).................. 9,037,789 $9,038 5,305,127 $5,305 $22,780,735 $(280,000) $(21,710,854) $ 804,224
========= ====== ========= ====== =========== ========= ============ ===========

The accompanying notes are an integral part of these financial statements.

F-28
107

ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)

STATEMENTS OF CASH FLOWS

YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. $(6,566,490) $(7,683,896) $(3,481,999) $(2,243,334)
Adjustments to reconcile net loss to net
cash used in operating activities:
Forgiveness of related party
receivable........................... -- 75,000 75,000 --
Gain on sale of assets................. -- -- -- (2,737,144)
Depreciation........................... 540,723 745,917 386,539 354,365
Provision for doubtful accounts........ 226,567 155,574 66,756 79,666
Stock compensation expense............. -- 13,475 -- --
Changes in assets and liabilities:
Accounts receivable.................. (1,353,251) 603,477 569,713 572,168
Prepaid expenses and other current
assets............................ (157,991) 5,399 (76,892) (82,503)
Accounts payable..................... 189,594 (133,238) 76,087 82,818
Accrued expenses..................... 387,596 188,084 (71,773) (607,556)
Deferred revenue and customer
advances.......................... 843,009 (583,033) (334,121) (78,134)
----------- ----------- ----------- -----------
Net cash used in operating activities....... (5,890,243) (6,613,241) (2,790,690) (4,659,654)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of computer equipment, furniture
and fixtures........................... (1,218,550) (808,213) (622,337) (223,949)
Cash received from the sale of assets, net
of transaction costs................... -- -- -- 2,559,041
Change in deposits and other assets....... (34,655) 8,465 (5,870) 6,713
----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities................................ (1,253,205) (799,748) (628,207) 2,341,805
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short-term
debt................................... 1,000,000 721,240 721,240 --
Repayment of short-term debt.............. (1,000,000) -- -- --
Proceeds from issuance of long-term
note................................... 450,000 -- -- --
Amounts paid on installment obligation.... (275,000) (300,000) (150,000) (150,000)
Repayment of other long-term debt......... (105,682) (313,637) (157,153) (143,182)
Proceeds from sales -- leaseback.......... -- 386,280 386,280 --
Repayment of capital lease obligation..... -- (49,847) (12,128) (42,198)
Proceeds from issuance of preferred
stock.................................. 7,002,250 7,250,005 7,250,005 2,750,003
Financing costs related to preferred stock
issuance............................... (133,434) (44,615) (44,615) (52,739)
Proceeds from issuance of common stock.... 60,937 81,216 48,564 15,095
Purchase of treasury stock................ (76,000) (280,000) (280,000) --
----------- ----------- ----------- -----------
Net cash provided by financing activities... 6,923,071 7,450,642 7,762,193 2,376,979
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................... (220,377) 37,653 4,343,296 59,130
Cash and cash equivalents at beginning of
period.................................... 2,355,825 2,135,448 2,135,448 2,173,101
----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period.................................... $ 2,135,448 $ 2,173,101 $ 6,478,744 $ 2,232,231
=========== =========== =========== ===========

The accompanying notes are an integral part of these financial statements.

F-29
108

ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)

NOTES TO FINANCIAL STATEMENTS

1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Acuity Corp., a Delaware corporation (the "Company") was incorporated on
August 2, 1995 as ichat, Inc. The Company is a provider of Web-based customer
interaction software. In June 1998 the Company changed its name to Acuity Corp.
to reflect a strategic change in its core product offerings from internet chat
software to its WebCenter customer interaction software. Shortly thereafter, the
Company commenced shipment of its WebCenter products that enable users to
interact with their customers over the Internet. During the year ended December
31, 1998, WebCenter revenue was approximately $1,215,000 and ichat revenue was
$5,504,000.

BASIS OF PRESENTATION

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred operating
losses since inception related primarily to the development and marketing of its
products and has an accumulated deficit of $19,467,520 as of December 31, 1998.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. In February 1999, the Company completed a sale of preferred
stock and in March 1999 completed the sale of an exclusive license to its chat
technology (see note 11). The Company's management has developed a fiscal 1999
operating plan in which the Company has placed significant reliance on obtaining
additional outside financing. Management is actively pursuing additional debt
and equity financing from institutional investors as necessary and intends to
increase revenues and eventually achieve profitable operations. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

UNAUDITED INTERIM FINANCIAL INFORMATION

The accompanying interim statements of operations and cash flows for the
six months ended June 30, 1998 and 1999 are unaudited but include all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the results of operations and
cash flows for the six months ended June 30, 1998 and 1999. The results of
operations and cash flows for the six months ended June 30, 1999 are not
necessarily indicative of the results to be expected for the full year. The data
disclosed in these notes to the financial statements for these periods are
unaudited.

CERTAIN RISKS AND UNCERTAINTIES

The Company's operating results are significantly dependent on the
Company's ability to market and develop its products. The life cycles of the
Company's products are difficult to estimate due in part to the effect of future
product enhancements and competition. The inability of the Company to
successfully develop and market its products as a result of competition or other
factors would have a material adverse effect on the Company's business,
financial condition and results of operations.

F-30
109
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Concentrations of credit risk with respect to trade receivables are
generally limited due to the large number of customers, short payment terms, and
their dispersion across geographic areas. During 1998, sales to one customer was
$1,064,000, or 16%, with a related receivable balance of approximately $18,000.
Two other customers had receivable balances totaling approximately $590,000 at
December 31, 1998.

REVENUE RECOGNITION

The Company's revenues are derived from product licensing fees, fees for
maintenance and support, training and consulting. Product licensing fees are
recognized upon delivery, net of allowances for estimated future returns,
provided that no significant vendor obligations remain and collection of the
resulting receivable is deemed probable. Revenues from ongoing maintenance and
support are recognized ratably over the term of the maintenance period,
typically 12 months. Payments for maintenance and support are generally made in
advance and are nonrefundable. Revenues generated from training and consulting
are recognized upon completion and customer acceptance.

ADVERTISING EXPENSES

Advertising expenses consist primarily of costs incurred promoting the
Company's products, including public relations, trade shows, lead generation and
promotional materials. The Company expenses all advertising costs as incurred.
The Company's advertising expenses were approximately $1,035,189 for the year
ended December 31, 1997 and $687,080 for the year ended December 31, 1998.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash on hand and on deposit at local
banks. The Company considers highly liquid investments with original maturities
of three months or less to be cash equivalents. Cash equivalents consist of
deposits in money market funds at December 31, 1997 and 1998 and at June 30,
1999.

CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. Management does not believe there is undue risk of loss
because in management's opinion, the financial institutions in which cash is
deposited are high credit quality institutions and the securities are
obligations of the United States government. However, cash and cash equivalents
exceeded FDIC insurance coverage limits. The Company has not experienced any
losses on its deposits. Although the Company does not require collateral on
accounts receivable, it does maintain reserves for credit losses.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts and notes receivable, accounts
payable and accrued liabilities, approximated fair value as of December 31, 1997
and 1998, because of the relatively short maturity of these instruments.

F-31
110
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The carrying amounts of the Company's borrowings under variable rate
long-term debt instruments approximate their fair value. The fair value of the
Company's other long-term obligation is estimated using discounted cash flow
analyses, based upon the Company's approximate incremental borrowing rates for
similar types of borrowing arrangements.

COMPUTER EQUIPMENT, FURNITURE AND FIXTURES

Computer equipment, furniture and fixtures, software and leasehold
improvements are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the respective assets,
generally three to seven years. Expenditures that increase the value or extend
the life of the asset are capitalized, while the cost of maintenance and repairs
are expensed as incurred. Upon disposal, assets and related accumulated
depreciation are removed from the accounts and the related gain or loss is
included in operations.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to operations as incurred. The
Company capitalizes certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have been
insignificant.

INCOME TAXES

The Company accounts for income taxes in accordance with the liability
method. This method requires that deferred taxes be computed annually utilizing
the liability method and adjusted when new tax laws or rates are enacted.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. The Company recorded no income
tax expense for both the years ended December 31, 1997 or 1998 and has provided
a valuation allowance to fully offset the net deferred tax asset because the
realization of tax benefits associated with net operating loss carryforwards is
not assured.

COMPREHENSIVE INCOME

The Company has had no items of comprehensive income other than its net
loss for each of the two years in the period ended December 31, 1998.

RECLASSIFICATION

Certain amounts previously reported in 1997 have been reclassified to
conform to the 1998 presentation.

F-32
111
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. COMPUTER EQUIPMENT, FURNITURE AND FIXTURES:

Computer equipment, furniture and fixtures is comprised of the following:

DECEMBER 31,
------------------------- JUNE 30,
1997 1998 1999
---------- ----------- -----------

Computer equipment.............................. $1,129,599 $ 1,624,785 $ 1,669,207
Furniture and fixtures.......................... 168,957 219,819 249,865
Office equipment................................ -- 130,030 157,684
Software........................................ 105,790 233,343 353,393
Leasehold improvements.......................... 376,920 376,920 376,920
---------- ----------- -----------
1,781,266 2,584,897 2,807,069
Less: accumulated depreciation.................. (610,098) (1,351,433) (1,704,021)
---------- ----------- -----------
$1,171,168 $ 1,233,464 $ 1,103,048
========== =========== ===========

During 1998, the Company entered into capital leases for computer equipment
with a capitalized cost of $386,280. Amortization expense and accumulated
amortization are included in depreciation expense and accumulated depreciation,
respectively. Accumulated amortization on these capitalized leases totaled
$96,570 at December 31, 1998. Future minimum lease payments as of December 31,
1998 are as follows:

1999........................................................ $147,867
2000........................................................ 147,867
2001........................................................ 95,643
2002........................................................ 23,177
--------
414,554
Less amount representing interest........................... (78,121)
--------
Present value of minimum lease payments................ 336,433
Less current portion........................................ (96,570)
--------
$239,863
========

3. NOTE RECEIVABLE -- RELATED PARTY:

In August 1996, the Company issued a note receivable in the amount of
$75,000, due from a shareholder and officer of the Company ("Maker"), which bore
interest at 5.76% per annum and was collateralized by a stock pledge agreement
covering certain shares of common stock held by the Maker. During 1998, the note
was forgiven by the Company as part of the consideration given for a noncompete
agreement between the officer and the Company. The Company has received interest
payments during the year ended December 31, 1997 and 1998 of $4,320 and $2,160,
respectively.

4. LINE OF CREDIT:

The Company has a revolving line of credit arrangement with a commercial
bank that enables the Company to borrow against eligible trade accounts
receivable up to a total of $2,500,000. As of December 31, 1998, the Company had
$721,240 outstanding under the revolving line of credit. The credit arrangement
contains certain financial covenants and restrictions as to various matters,

F-33
112
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

including the Company's net worth. The credit facility bears interest at prime
plus .5% (8.75% at December 31, 1998) and expires on March 25, 1999.

5. LONG-TERM OBLIGATIONS:

Long-term obligations are comprised of the following:

DECEMBER 31,
----------------------- JUNE 30,
1997 1998 1999
---------- ---------- ----------

Term loans:
Variable rate term loan with a commercial bank,
bearing interest at the bank's prime rate plus 1%
per annum (8.75% at December 31, 1998). The loan
requires monthly principal and interest payments
through May 1999................................. $ 231,819 $ 68,182 $ --
Variable rate term loan with a commercial bank,
bearing interest at prime plus 1% per annum
(8.75% at December 31, 1998). The loan requires
monthly principal and interest payments through
August 2001...................................... 412,500 262,500 187,500
Installment obligation:
Non-interest bearing installment obligation to a
minority shareholder of the Company. The note
is payable in quarterly installments and is
scheduled to be paid in full in May 2001....... 1,075,000 775,000 625,000
---------- ---------- ----------
1,719,319 1,105,682 812,500
Less: current maturities............................ (533,534) (518,182) (450,000)
---------- ---------- ----------
$1,185,785 $ 587,500 362,500
========== ========== ==========

The term loans and line of credit are collateralized by substantially all
the assets of the Company and contain certain financial covenants and
restrictions as to various matters, including the Company's net worth. At
December 31, 1998 the Company was not in compliance with its minimum quick ratio
and maximum loss covenants, which were waived by the bank in a letter dated
February 18, 1999. Should the Company continue to be in non-compliance with its
debt covenants, the bank has various remedies including the acceleration of the
due dates of principal payments that are currently classified as non-current
liabilities in the Company's financial statements.

6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest payments of $91,452, $124,137, $44,953 and $67,748 were made for
the years ended December 31, 1997 and 1998 and during the six months ended June
30, 1997 and 1998, respectively. No tax payments were made during the same
periods.

F-34
113
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The following is a detail of non-cash financing activities:

YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------- -------------------
1997 1998 1997 1998

Issuance of 400,000 common shares to Series B
convertible preferred stock and warrant
holders.................................... $120,000 $ -- $ -- $ --
Issuance of 6,650 Series C convertible
preferred stock to vendors................. -- 13,475 -- --
Deferred revenue liability extinguished in
the sale of assets......................... -- -- -- 107,768
Accrued commission-related party associated
with the sale of assets.................... -- -- -- 279,665
Note received in exchange for the sale of
assets..................................... -- -- -- 350,000

7. COMMITMENTS:

The Company leases its facilities and certain other equipment under
operating lease agreements. Rental expense for the years ended December 31, 1997
and 1998 was approximately $159,134 and $356,080, respectively. Future minimum
rental commitments as of December 31, 1998 under these leases are as follows:

1999........................................................ $350,368
2000........................................................ 283,781
2001........................................................ 188,884
2002........................................................ 86,757
2003........................................................ 29,184
--------
$938,974
========

8. STOCKHOLDERS' EQUITY:

PREFERRED STOCK

The Company currently has authorization for the issuance of 8,680,644
shares of $.001 par value preferred stock. At December 31, 1998 the following
series of convertible preferred stock were authorized:

SHARES
SHARES ISSUED AND LIQUIDATION
SERIES DESIGNATED OUTSTANDING PREFERENCE
- -------------------------------------------- ---------- ----------- -----------

Series A.................................... 750,000 750,000 750,000
Series B-1.................................. 1,868,994 1,868,994 2,803,491
Series B-2.................................. 1,305,000 1,305,000 2,283,750
Series C.................................... 2,256,650 2,256,650 6,769,950
Series D.................................... 2,500,000 2,071,430 7,250,005

Each series of preferred stock is convertible into common stock at the
option of the holder on a one-for-one basis, subject to certain adjustments.
Each series of preferred stock will automatically convert upon the earliest of
(i) the closing date of an underwritten public offering of the Company's

F-35
114
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

common stock with aggregate proceeds of more than $18,000,000 and a per share
offering price of at least $9.00 or (ii) the date of an affirmative election of
the holders of 75% of the outstanding shares of preferred stock. The Company has
reserved 8,296,274 shares of common stock at December 31, 1998 to permit
conversion of the preferred stock in accordance with these terms.

Holders of the preferred stock are entitled to one vote for each share of
common stock into which such shares may be converted. Each share of preferred
stock entitles the holder to receive noncumulative dividends, if and when
declared by the board of directors, prior to any dividend paid on the common
stock. Dividends, if any, on preferred stock shall be declared at an annual rate
of 10% of the original price paid per share. As of December 31, 1998, no
dividends have been declared. In the event of liquidation, the preferred stock
has preference over the common stock in the amount equal to the original issue
price plus declared but unpaid dividends.

During 1995, the Company adopted the 1995 Stock Option/Stock Issuance Plan
(the "Plan"), providing for two separate equity programs: (i) the Option Grant
Program providing for the granting of both incentive and non-statutory stock
options, as defined by the Internal Revenue Code, and (ii) the Stock Issuance
Program providing for the issuance of common stock directly, either through the
immediate purchase of such shares or as a bonus for services rendered to the
Company.

The Plan, as amended, provides for a maximum number of common shares to be
optioned/issued of 3,950,000. Accordingly, the Company has reserved a sufficient
number of shares of common stock to permit exercise of options or issuance of
shares in accordance with the terms of the Plan. If an option expires or becomes
unexercisable for any reason, options related to the unpurchased shares become
available for grant. Each option granted under the Plan has a term of ten years
from the date of grant and an exercise price and vesting schedule as determined
by the Plan Administrator, at the date of grant, with the exception that
incentive stock options can not be granted for less than 100% of the fair market
value of the stock and non-statutory stock options can not be granted for less
than 110% of the fair market value of the stock to any shareholder of the
Company with a 10% or greater interest in the common stock of the Company. The
number of common stock options exercised and unvested was 313,437 and 176,033 at
December 31, 1997 and 1998, respectively.

F-36
115
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

STOCK OPTION PLAN

Option activity under the Company's Plan follows:

WEIGHTED-
AVAILABLE EXERCISE AVERAGE
FOR GRANT SHARES PRICE EXERCISE PRICE AMOUNT
---------- ---------- ------------- -------------- ----------

Balance at January 1, 1997... 991,500 1,183,500 $0.10 - $0.20 $0.13 $ 151,700
Options granted......... (1,634,750) 1,634,750 0.10 - 0.30 0.27 442,273
Options exercised....... -- (307,383) 0.10 - 0.30 0.20 (60,937)
Options cancelled....... 766,382 (766,382) 0.10 - 0.30 0.15 (115,455)
---------- ---------- ----------
Balance at December 31,
1997....................... 123,132 1,744,485 417,581
Options approved for
grant................. 1,350,000 -- -- -- --
Options granted......... (2,775,000) 2,775,000 0.30 - 0.70 0.48 1,320,450
Options exercised....... (403,547) 0.10 - 0.50 0.20 (81,816)
Options cancelled....... 1,328,273 (1,328,273) 0.10 - 0.70 0.33 (432,724)
Options repurchased..... 2,500 0.20 0.20 --
---------- ---------- ----------
Balance at December 31,
1998....................... 28,905 2,727,665 1,223,491
Options approved for
grant (unaudited)..... 1,000,000 -- -- -- --
Options granted
(unaudited)........... (914,106) 914,106 0.70 0.70 636,607
Options exercised
(unaudited)........... -- (51,697) 0.10 - 0.70 0.29 (15,095)
Options cancelled
(unaudited)........... 693,659 (693,659) 0.10 - 0.70 0.54 (377,439)
---------- ---------- ----------
Balance at June 30, 1999
(unaudited)................ 808,458 2,956,415 $1,467,564
========== ========== ==========

The weighted-average fair value of options granted during the years ended
December 31, 1997 and 1998 was $0.27 and $0.48 per share, respectively.

The following table summarizes information with respect to stock options
outstanding at December 31, 1998:

OPTIONS OUTSTANDING
------------------------------- OPTIONS
WEIGHTED-AVERAGE EXERCISABLE
EXERCISE NUMBER REMAINING NUMBER
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- --------------------------------------- ----------- ---------------- -----------

$0.10................................. 20,000 6.9 20,000
0.15................................. 43,031 7.7 43,031
0.20................................. 25,874 8.1 25,874
0.30................................. 1,603,927 9.0 1,603,927
0.50................................. 168,500 9.3 168,500
0.70................................. 926,333 9.8 928,333
--------- ---------
Number outstanding at December 31,
1998................................. 2,787,665 2,787,665
========= =========

F-37
116
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

At December 31, 1997, options to purchase 1,744,485 shares of common stock
were exercisable at a weighted average exercise price of $0.24 per share.

PRO FORMA STOCK BASED COMPENSATION

The Company has applied Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for the Plan. Accordingly, no compensation expense has been
recognized for the Plan. Had compensation cost for the Plan been determined
based upon the fair value at the grant date for awards under the Plan consistent
with the methodology prescribed under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," such amount would
not have been materially different.

The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following weighted average assumptions used
for grants in 1997 and 1998: dividend yield of 0.0%, risk-free interest rate of
6.39% in 1997 and 6.00% in 1998 and expected lives of five years. Volatility of
the Company common stock underlying the options was not considered because the
Company's equity is not publicly traded as of December 31, 1998.

COMMON STOCK WARRANTS

The B-1 Series Preferred Stock Agreement was amended to provide for the
issuance of warrants to certain Series B-2 holders to purchase 465,153 shares of
the Company's common stock in consideration for terminating their rights to
purchase shares of Series B-3 Preferred Stock upon the Company's achievement of
designated milestone events in fiscal year 1997. The warrants are exercisable at
$2.75 per share. The Company has reserved a sufficient number of shares of
Series B-1 to permit exercise of this warrant.

9. EMPLOYEE BENEFITS:

The Company has established a 401(k) retirement savings plan for its full
time employees. All employees meeting minimum age requirements are eligible to
enroll in the Plan sixty days after commencement of employment. As of December
31, 1998, the Company has not provided matching contributions to employee
accounts.

10. INCOME TAXES:

The Company has not recorded the tax benefits attributable to its taxable
losses incurred during the years ended December 1997 or 1998 due to the
uncertainty surrounding the recoverability of these deferred tax assets.

At December 31, 1998 the Company had federal net operating loss
carryforwards of approximately $18,500,000 available to offset future taxable
income. The Company's federal operating loss carryforwards begin to expire
starting in the year 2011.

As a result of ownership changes in prior years as defined by Internal
Revenue Code Section 382, approximately $4,365,000 in net operating loss
carryforwards are subject to a maximum annual utilization of approximately
$1,000,000 at December 31, 1998.

F-38
117
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The components of the net deferred tax asset are as follows at December 31,
1997 and 1998:

1997 1998
----------- -----------

Deferred tax assets:
Net operating loss carryforwards.......................... $ 3,505,193 $ 6,292,559
Non-recurring charge related to purchased technology...... 672,093 570,883
Allowance for doubtful accounts and returns............... 131,930 124,699
Capitalization of software development costs.............. 6,479 3,906
Depreciation.............................................. 57,050 135,727
----------- -----------
Net deferred tax asset before valuation allowance........... 4,372,745 7,127,774
Valuation allowance......................................... (4,372,745) (7,127,774)
----------- -----------
Net deferred tax asset...................................... $ -- $ --
=========== ===========

The following is a reconciliation of the amount of the income tax benefit
that would result from applying the statutory Federal income tax rates to pretax
loss and the reported amount of income tax benefit:

DECEMBER 31,
-------------------------
1997 1998
----------- -----------

Tax benefit at statutory rate of 34%........................ $ 2,235,089 $ 2,612,524
State income tax benefit.................................... 196,343 229,140
Permanent difference........................................ (9,861) (15,603)
Other....................................................... -- (71,032)
Net increase in valuation allowance......................... (2,421,571) (2,755,029)
----------- -----------
$ -- $ --
=========== ===========

11. SUBSEQUENT EVENTS:

AUTHORIZATION AND SALE OF SERIES E PREFERRED STOCK

On February 22, 1999 the Company's board of directors designated 1,142,858
shares of the Company's authorized preferred stock as Series E preferred stock.
On February 25, 1999 the Company sold 785,715 shares of Series E preferred stock
and warrants to purchase 392,858 shares of common stock for an aggregate
purchase price of $2,750,000. The warrants are exercisable through February 27,
2001 at an exercise price of $0.70 per share.

Each share of Series E preferred stock is entitled to receive noncumulative
dividends, when and if declared by the Company's board of directors, at a rate
of $0.35 per share per annum. Each share of Series E preferred stock is
convertible at the option of the holder into common shares of the Company on a
one for one basis, subject to certain anti-dilution provisions as described in
the Company's articles of incorporation. Conversion of the Series E preferred
stock is automatic upon either i) the sale of the Company's common stock in a
firmly underwritten public offering in which the offering price is not less than
$9.00 per share and which results in aggregate proceeds to the Company of at
least $18,000,000 net of underwriting discounts, commissions and fees, or ii)
the written consent of 75% of the outstanding shares of Series E preferred
stock.

F-39
118
ACUITY CORP.
(FORMERLY KNOWN AS ICHAT, INC.)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Upon any liquidation, dissolution or winding up of the Company, the Series
E preferred shareholders are entitled to a liquidation preference of $3.50 per
share plus all declared but unpaid dividends thereon.

SALE OF EXCLUSIVE TECHNOLOGY LICENSE

In March 1999, the Company entered into an agreement to sell exclusive
source and object code licenses for the ichat software. Under the terms of the
agreement, the Company received $1.3 million in cash at the time of purchase,
notes receivable in the principal amounts of $1 million due on June 30, 1999,
$700,000 due on December 15, 1999, and $600,000 of preferred stock from the next
issuance of the purchaser. In connection with this sale, the Company entered
into a commission agreement with a stockholder under which the stockholder will
receive a total of $354,665 for negotiating the sale of these assets.

12. SUBSEQUENT EVENTS (UNAUDITED)

On September 10, 1999 the Company entered into an agreement to have all of
its outstanding capital stock acquired by Quintus Corporation.

In September, 1999 the Company's board of directors designated and sold
482,625 shares of the Company's authorized preferred stock as Series F preferred
stock for an aggregate purchase price of $1,250,000. The board also issued
warrants to purchase 178,570 shares of the Company's common stock.

* * * * *

F-40
119

QUINTUS CORPORATION

PRO FORMA CONDENSED COMBINING
FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1999 AND
THREE MONTHS ENDED JUNE 30, 1999

On September 10, 1999, Quintus entered into an Agreement and Plan of
Reorganization to acquire all of the outstanding shares and assume the
outstanding options and warrants of Acuity Corp. (Acuity), a company
specializing in providing Web based customer interaction software. Quintus will
issue approximately 1,570,000 shares of common stock valued at approximately
$13,000,000, approximately 2,960,000 shares of Series G preferred stock valued
at approximately $24,400,000, and assume approximately 1,230,000 options and
warrants to purchase common and preferred stock valued at approximately
$7,800,000. The aggregate purchase price, including approximately $300,000 of
transaction costs not paid in stock, will be approximately $45,500,000. The
agreement is subject to shareholder approval and will close prior to the
effectiveness of this offering.

The acquisition will be accounted for using the purchase method of
accounting. The aggregate purchase price will be allocated to the assets and
liabilities acquired based on their fair value. The total consideration is
expected to exceed the fair value of the net assets acquired by approximately
$44.5 million. Approximately $3.0 million will be allocated to purchased
in-process technology, which has not yet reached technological feasibility and
does not have alternative future uses. This amount will be charged to Quintus'
operations in the period in which the transaction is consummated. The allocation
of the purchase price is preliminary and will not be finalized until the
transaction is consummated.

The accompanying pro forma financial statements are presented in accordance
with Article 11 of Regulation S-X.

The unaudited pro forma condensed combining balance sheet has been prepared
as if the acquisition was completed as of June 30, 1999. The unaudited pro forma
condensed combining statements of operations were prepared as if the acquisition
was completed at the beginning of the periods presented. To prepare the pro
forma unaudited condensed combining statements of operations, the Quintus
statement of operations for the year ended March 31, 1999 has been combined with
the statement of operations of Acuity for the year ended December 31, 1998.
Acuity's revenue of $6,719,000 for the year ended December 31, 1998 includes
$5,504,000 of revenue related to a product line that was sold during the first
quarter of 1999. Also, the statement of operations of both Quintus and Acuity
have been combined for the quarter ended June 30, 1999. The statement of
operations of Acuity for the quarter ended March 31, 1999 which has been
excluded from these pro forma financial statements included revenues, operating
loss and net income of $765,000, $2.4 million, and $321,000, respectively. This
method of combining the companies is only for presentation of pro forma
unaudited condensed combining financial statements. Actual statements of
operations of the companies will be combined from the effective date of the
acquisition.

The unaudited pro forma condensed combining financial statements should be
read in conjunction with the historical financial statements of Quintus and
Acuity.

The unaudited pro forma condensed combining statements of operations do not
include the one-time $3.0 million charge for purchased in-process technology
arising from this acquisition, as it is a material nonrecurring charge. This
charge will be included in the actual consolidated statement of operations of
Quintus when the acquisition is consummated.

The unaudited pro forma condensed balance sheet reflects the 1,363,334
shares of Series F convertible preferred stock issued on August 26, 1999, at
$8.25 per share for cash consideration of $11,247,500.

F-41
120

QUINTUS CORPORATION

PRO FORMA CONDENSED COMBINING BALANCE SHEETS
JUNE 30, 1999

SERIES F
PREFERRED PRO FORMA PRO FORMA
QUINTUS ACUITY STOCK ADJUSTMENTS NOTES COMBINED
(IN THOUSANDS)

ASSETS
CURRENT ASSETS:
Cash.............................. $ 467 $ 2,232 $11,248 $ -- $ 13,947
Accounts receivable, less
allowance for doubtful
accounts....................... 10,765 292 -- -- 11,057
Prepaid expenses and other
assets......................... 1,295 610 -- -- 1,905
-------- -------- ------- ------- --------
Total current assets........... 12,527 3,134 11,248 -- 26,909
Property and equipment, net......... 3,139 1,103 -- -- 4,242
Purchased technology, less
accumulated amortization.......... 1,778 -- -- -- 1,778
Intangible assets, less accumulated
amortization...................... 2,506 -- -- 41,500 3 44,006
Other assets........................ 324 49 -- -- 373
-------- -------- ------- ------- --------
Total assets................... $ 20,274 $ 4,286 $11,248 $41,500 $ 77,308
======== ======== ======= ======= ========

LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable.................. $ 3,983 $ 445 $ -- $ -- $ 4,428
Other accrued liabilities......... 4,454 632 -- 300 5 5,386
Deferred revenue.................. 6,706 577 -- (200) 6 7,083
Borrowings under bank line of
credit......................... 4,868 -- -- -- 4,868
Current portion of long-term
debt........................... 1,425 1,262 -- -- 2,687
-------- -------- ------- ------- --------
Total current liabilities...... 21,436 2,916 -- 100 24,452
Long-term debt, less current
portion........................... 1,449 566 -- -- 2,015
Deferred revenue.................... 200 -- -- -- 200
Redeemable convertible preferred
stock............................. 17,811 -- -- -- 17,811
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock................... 13,707 9 11,248 24,391 1, 2, 8 49,355
Common stock...................... 4,323 5 -- 20,795 1, 2 25,123
Additional paid-in capital........ -- 22,781 -- (22,781) 1 --
Notes receivable from
stockholder.................... (267) -- -- -- (267)
Deferred stock-based
compensation................... (1,415) -- -- -- (1,415)
Treasury stock.................... -- (280) -- 280 1 --
Accumulated deficit............... (36,970) (21,711) -- 18,715 1, 4 (39,966)
-------- -------- ------- ------- --------
Total stockholders' equity
(deficiency)................. (20,622) 804 11,248 41,400 32,830
-------- -------- ------- ------- --------
Total liabilities and
stockholders' equity
(deficiency)................. $ 20,274 $ 4,286 $11,248 $41,500 $ 77,308
======== ======== ======= ======= ========

See notes to pro forma consolidated financial statements.

F-42
121

QUINTUS CORPORATION

PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

QUINTUS ACUITY
YEAR ENDED YEAR ENDED
MARCH 31, DECEMBER 31, PRO FORMA
1999 1998 ADJUSTMENTS NOTES PRO FORMA
(UNAUDITED) COMBINED

Revenue.............................. $ 30,307 $ 6,719 $ 400 6 $ 37,426
Cost of revenue...................... 9,177 1,381 -- 10,558
-------- ------- ------- --------
Gross profit......................... 21,130 5,338 400 26,868
Operating Expenses:
Sales and marketing................ 17,147 6,312 -- 23,459
Research and development........... 6,719 4,390 -- 11,109
General and administrative......... 3,577 2,377 -- 5,954
Amortization of intangibles........ 3,185 -- 8,300 7 11,485
Stock-based compensation........... 171 -- -- 171
-------- ------- ------- --------
Total operating expenses... 30,799 13,079 8,300 52,178
-------- ------- ------- --------
Loss from operations................. (9,669) (7,741) (7,900) (25,310)
Other income (expense), net.......... (917) 57 (860)
-------- ------- ------- --------
Net loss from continuing
operations......................... $(10,586) $(7,684) $(7,900) $(26,170)
======== ======= ======= ========
Basic and diluted loss per common
share from continuing operations... $ (3.73) (6.01)
======== ========
Shares used in basic and diluted loss
per common share................... 2,835 4,355
======== ========

See notes to pro forma consolidated financial statement of operations.

F-43
122

QUINTUS CORPORATION

PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

PRO FORMA PRO FORMA
QUINTUS ACUITY ADJUSTMENTS NOTES COMBINED

Revenue.................................... $10,293 $ 534 $ 200 6 $11,027
Cost of revenue............................ 2,639 313 -- 2,952
------- ------- ------- -------
Gross profit............................... 7,654 221 200 8,075
Operating Expenses:
Sales and marketing...................... 4,314 1,339 5,653
Research and development................. 1,873 989 2,862
General and administrative............... 998 442 -- 1,440
Amortization of intangibles.............. 796 -- 2,075 7 2,871
Stock-based compensation................. 169 -- 169
------- ------- ------- -------
Total operating expenses......... 8,150 2,770 2,075 12,995
------- ------- ------- -------
Loss from operations....................... (496) (2,549) (1,875) (4,920)
Other income (expense), net................ (194) (15) (209)
------- ------- ------- -------
Net loss from continuing operations........ $ (690) $(2,564) $(1,875) $(5,129)
======= ======= ======= =======
Basic and diluted loss per common share
from continuing operations............... $ (0.20) $ (1.02)
======= =======
Shares used in basic and diluted loss per
common share............................. 3,506 5,026
======= =======

See notes to pro forma consolidated financial statement of operations.

F-44
123

QUINTUS CORPORATION

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 1999 AND STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

The following pro forma adjustments have been made to the pro forma
condensed combining financial statements:

1. Reflects the elimination of Acuity's shareholders' equity comprised
of preferred stock of $9,000, common stock of $5,000, additional paid in
capital of $22,781,000, treasury stock of $280,000 and accumulated deficit
of $21,711,000.

2. Reflects the issuance of approximately 2,960,000 shares of
preferred stock valued at approximately $24,400,000, approximately
1,570,000 shares of common stock valued at approximately $13,000,000 and
the assumption of approximately 1,230,000 options and warrants to purchase
common and preferred stock valued at approximately $7,800,000.

3. Reflects the allocation of purchase price to the intangible assets
identified in the purchase price allocation.

4. Reflects the one-time charge of $3,000,000 for purchased in-process
technology identified in the purchase

5. Reflects the accrual of estimated costs to be paid in cash directly
attributable to the completion of the acquisition.

6. Reflects an adjustment to conform to Quintus' accounting policy for
revenue recognition.

7. Reflects pro forma amortization of the purchased intangibles over
the estimated useful life of five years of $8,300,000 for the year ended
March 31, 1999 and $2,075,000 for the quarter ended June 30, 1999.

8. Reflects the issuance on August 26, 1999 of 1,363,334 shares of
Series F convertible preferred stock at $8.25 per share for total cash
consideration of $11,247,500.

F-45
124

[INSIDE BACK COVER ARTWORK TO COME]
125
APPENDIX TO GRAPHICS

Page 41:

"The Quintus eContact Suite" appears above the rectangular graphic. Across the
top of the graphic (from left to right), the phrases "Channel Applications,"
eContact Engine" and "Business Applications" break up the rectangular box into
three main columns. The left-hand column is broken into five vertical segments
entitled (from top to bottom) "Computer Telephony Integration," "Web
Interaction," "Email Management," "Electronic Commerce Connector" and "Network
Routing." The word "eContact" appears in the center of the large middle column.
In the corners of the middle column, appearing above and below "eContact," are
the phrases "Personalization Services," "Coordination Services," Centralized
Customization & Administration" and "Consolidated Repository & Reporting." The
right-hand column contains the phrases (from top to bottom) "Sales & Service,"
"Consumer Relations," "Technical Support" and "Human Resources." Two narrow
sub-columns, vertically labeled "Enterprise Data Access" and "Agent Console"
separate the large middle column from the right-hand column.
126

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999

LOGO

SHARES OF COMMON STOCK

-------------------------
PROSPECTUS
-------------------------

DONALDSON, LUFKIN & JENRETTE
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED

SG COWEN
DLJDIRECT INC.

- --------------------------------------------------------------------------------
We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as to
matter not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of you offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Quintus have
not changed since the date hereof.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock may be required
to deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as an underwriter and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
127

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Quintus in connection with
the sale of Common Stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fees.

SEC Registration fee........................................ $ 16,624
NASD fee.................................................... 7,228
Nasdaq National Market listing fee..........................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue sky fees and expenses..................................
Transfer agent fees.........................................
Miscellaneous fees and expenses.............................
----------
Total............................................. $
==========

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers, including reimbursement for expenses incurred, in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VII, Section 6, of the Registrant's bylaws provides
for mandatory indemnification of its directors and permissible indemnification
of officers and employees to the maximum extent permitted by the Delaware
General Corporation Law. The Registrant's certificate of incorporation provides
that, pursuant to Delaware law, its directors shall not be liable for monetary
damages for breach of the directors' fiduciary duty as directors to Quintus and
its stockholders. This provision in the certificate of incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to Quintus
for acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant has
entered into indemnification agreements with its officers and directors, a form
of which is attached as Exhibit 10.1 hereto and incorporated herein by
reference. The indemnification agreements provide the Registrant's officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law. Reference is made to Section of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Registrant against certain liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since September 1, 1996, we have issued and sold the following securities:

1. On September 17, 1996, we issued and sold an aggregate of 2,595,422
shares of our Series C Preferred Stock to a group of five investors for an
aggregate purchase price of $4,957,256.02. On

II-1
128

December 18, 1996, we issued and sold 52,356 shares of our Series C Preferred
Stock to one investor for an aggregate purchase price of $99,999.96.

2. On November 10, 1997, we issued and sold an aggregate of 1,091,362
shares of our Series D Preferred Stock to a group of three investors for an
aggregate purchase price of $3,000,000.00. On that same date, in connection with
our acquisition of Nabnasset Corporation, we issued an additional aggregate of
363,634 shares of our Series D Preferred Stock to the same three investors in
exchange for the outstanding shares of Series A preferred stock of Nabnasset
Corporation.

3. On November 10, 1997, in connection with the acquisition of Nabnasset
Corporation, we assumed two warrants issued by Nabnasset on February 12, 1997.
These two warrants are exercisable for an aggregate of 8,466 shares of our
common stock.

4. On November 10, 1997, we issued and sold six warrants to purchase an
aggregate of 72,287 shares of our common stock to a group of six investors at a
per share exercise price of $4.54.

5. On November 10, 1997, in connection with our acquisition of Nabnasset,
we assumed a warrant issued by Nabnasset to its financial advisor on that same
date. The assumed warrant is exercisable for 76,047 shares of our common stock.
On March 9, 1998, Nabnasset's financial advisor transferred warrants to purchase
an aggregate of 18,252 shares of our common stock to a group of four investors.

6. On March 12, 1998, we issued and sold two warrants to purchase an
aggregate of 13,142 shares of our common stock to two investors at a per share
exercise price of $0.30.

7. On March 16, 1998, we issued and sold a warrant to purchase an aggregate
of 9,857 shares of our common stock to an investor at a per share exercise price
of $0.30.

8. On March 17, 1998, we issued and sold three warrants to purchase an
aggregate of 13,143 shares of our common stock to an investor at a per share
exercise price of $0.30.

9. On April 30, 1998, we issued and sold six warrants to purchase an
aggregate of 24,093 shares of our common stock to six investors at a per share
exercise price of $0.30.

10. On May 21, 1998, we issued and sold an aggregate of 2,538,335 shares of
our Series E Preferred Stock to a group of thirteen investors for an aggregate
purchase price of $10,534,090.25. On May 27, 1998, we issued and sold an
additional aggregate of 66,266 shares of our Series E Preferred Stock to a group
of three investors for an aggregate purchase price of $275,003.90.

11. On May 21, 1998, we issued and sold twelve warrants to purchase an
aggregate of 253,008 shares of our common stock to twelve investors at a per
share exercise price of $0.30.

12. On August 26, 1999, we issued and sold an aggregate of 1,363,334 shares
of our Series F Preferred Stock to a group of three investors for an aggregate
purchase price of $11,247,505.50.

13. On September 2, 1999, we issued and sold a warrant to purchase an
aggregate of 300,000 shares of our common stock at a per share exercise price of
$7.50.

14. From September 1, 1996 to August 31, 1996, we issued an aggregate of
2,617,339 shares of common stock to our employees, consultants and other service
providers pursuant to exercises of options under our 1995 Stock Option Plan
(Exhibit 10.2).

The sale of the above securities were deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act, as transactions by an issuer not involving any public
offering or transactions under compensation benefit plans and contracts relating
to compensation as provided under Rule 701, or Section 3(a)(10) of the
Securities Act as a security issued after a ruling by an authorized authority
upon the fairness of the transaction's terms and

II-2
129

conditions. With regard to the sales of securities exempted by Section 4(2) of
the Securities Act, the recipients of securities in each transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution and appropriate legends
were affixed to the share certificates issued in these transactions. All
recipients had adequate access, through their relationships with us, to
information about us.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------- -----------

1.1** Form of Underwriting Agreement.
2.1* Agreement and Plan of Reorganization by and among
Registrant, Acuity Corp., Ribeye Acquisition Corp. and
certain stockholders of Acuity Corp., dated September 10,
1999.
3.1* Certificate of Incorporation of Registrant, as amended to
date.
3.2* Form of Registrant's Restated Certificate of Incorporation
to be filed upon the closing of Registrant's acquisition of
Acuity Corp.
3.3* Form of Registrant's Restated Certificate of Incorporation
to be filed upon the closing of this offering.
3.4* Amended and Restated Bylaws of Registrant.
4.1* Reference is made to Exhibits 3.1, 3.2, 3.3, and 3.4.
4.2** Specimen Common Stock certificate.
4.3* Form of Registrant's Amended and Restated Investors Rights
Agreement to be adopted upon the closing of Registrant's
acquisition of Acuity Corp.
5.1** Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1* Form of Indemnification Agreement to be entered into between
Registrant and each of its directors and officers.
10.2* 1995 Stock Option Plan and form of stock purchase agreement
thereunder.
10.3* 1999 Stock Incentive Plan and forms of agreements
thereunder.
10.4* Employee Stock Purchase Plan.
10.5* 1999 Director Option Plan.
10.6* Light Industrial Lease between Registrant and Teachers
Insurance and Annuity Association of America, dated October
6, 1995.
10.7* Sublease Agreement between Pavilion Technologies, Inc. and
Acuity Corporation, dated December 19, 1996.
10.8+ Software Distribution Agreement dated May 5, 1997, between
Nabnasset Corporation and Lucent Technologies Inc.
10.9+ Distribution Agreement for ICR and SICR Programs dated April
26, 1999, between Registrant and GeoTel Communications
Corporation.
10.10+ Authorized OEM/Reseller Agreement dated December 22, 1998,
between Registrant and Brightware, Inc.
10.11* Employment agreement between Registrant and Alan Anderson,
dated May 23, 1995 and Notice of Grant of Stock Option.
10.12* Employment agreement between Registrant and John Burke,
dated June 11, 1999.
10.13* Loan and Security Agreement between Registrant and Silicon
Valley Bank, dated as of September 18, 1998.
16.1* Letter regarding change in certifying accountant.
21.1* Subsidiaries of Registrant.

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130

EXHIBIT
NUMBER DESCRIPTION
------- -----------

23.1 Consent of Deloitte & Touche LLP, Independent Auditor
23.2 Consent of Ernst & Young LLP Independent Auditors
23.3 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.4** Consent of Counsel. Reference is made to Exhibit 5.1.
24.1* Power of Attorney (see page II-7).
27.1* Financial Data Schedule.

- -------------------------

* Previously filed.

** To be filed by amendment.

+ Confidential treatment requested as to certain portions of these exhibits.

(b) FINANCIAL STATEMENT SCHEDULES

Schedule II--Valuation and Qualifying Accounts

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS

The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

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131

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fremont,
State of California, on this 23rd day of September, 1999.

QUINTUS CORPORATION

By: /s/ ALAN K. ANDERSON
------------------------------------
Alan K. Anderson
Chief Executive Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES
INDICATED:

SIGNATURE TITLE DATE

/s/ ALAN K. ANDERSON Chief Executive Officer September 23, 1999
- -------------------------------------------------------- (Principal Executive
Alan K. Anderson Officer) and Director

/s/ SUSAN SALVESEN Chief Financial Officer September 23, 1999
- -------------------------------------------------------- (Principal Financial
Susan Salvesen and Accounting Officer)
and Secretary

* Director September 23, 1999
- --------------------------------------------------------
Paul H. Bartlett

* Director September 23, 1999
- --------------------------------------------------------
Fredric W. Harman

* Director September 23, 1999
- --------------------------------------------------------
William Herman

* Director September 23, 1999
- --------------------------------------------------------
Alexander Rosen

* Director September 23, 1999
- --------------------------------------------------------
Robert W. Shaw

* Director September 23, 1999
- --------------------------------------------------------
Jeanne Wohlers

*By: /s/ ALAN K. ANDERSON
----------------------------------------
Alan K. Anderson
Attorney-in-Fact

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132

REPORT ON SCHEDULE OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
of Quintus Corporation:

We have audited the consolidated financial statements of Quintus
Corporation (the Company) as of and for the year ended March 31, 1999, and have
issued our report thereon dated June 18, 1999 (September 10, 1999 as to Note 15)
(included elsewhere in this registration statement). Our audit also included the
financial statement schedule of the Company for the year ended March 31, 1999,
listed in Item 16(b). The financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audit. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ Deloitte & Touche LLP

San Jose, California
June 18, 1999

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133

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Quintus Corporation

We have audited the consolidated financial statements of Quintus
Corporation as of March 31, 1998 and 1997, and for the years then ended, and
have issued our report thereon dated April 30, except for Note 12, as to which
the date is September 18, 1999 (included elsewhere in this Registration
Statement). Our audits also included the data for the two years ended March 31,
1998 included in the financial statement schedules listed in Item 16(b) of this
Registration Statement. These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

Palo Alto, California
April 30, 1998

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SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

BALANCE CHARGED BALANCE
AT TO COST AT
BEGINNING AND END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
--------- -------- ---------- -------

Year ended March 31, 1997
Allowance for doubtful accounts............. $569 $255 $(299) $525
==== ==== ===== ====
Year ended March 31, 1998
Allowance for doubtful accounts............. $525 $408 $ (85) $848
==== ==== ===== ====
Year ended March 31, 1999
Allowance for doubtful accounts............. $848 $235 $(354) $729
==== ==== ===== ====

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135

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

- -------------------------
* Previously filed.

** To be filed by amendment.

+ Confidential treatment requested as to certain portions of these exhibits.