BERNSTEIN LIEBHARD & LIFSHITZ, LLP
SANDY A. LIEBHARD
MICHAEL S. EGAN
10 East 40th Street
New York, NY 10016
Telephone: 212/779-1414

LAW OFFICES OF LAWRENCE G.
SOICHER
LAWRENCE G. SOICHER
342 Madison Avenue, 18th Floor
New York, NY 10173
Telephone: 212/883-8000

DYER & SHUMAN, LLP
ROBERT J. DYER III
KIP B. SHUMAN
801 East 17th Avenue
Denver, CO 80218-1417
Telephone: 303/861-3003

 Attorneys for Plaintiffs
 

1. This is a securities class action on behalf of purchasers of the securities of Quintus Corporation ("Quintus" or the "Company") between November 16, 1999 and November 15, 2000, inclusive (the "Class Period"), including those who acquired Quintus common stock pursuant to Quintus' false November 1999 Registration Statement seeking to pursue remedies under the Securities Exchange Act of 1934 (the "Exchange Act") and the Securities Act of 1933 (the "Securities Act").

2. The claims asserted herein arise under and pursuant to §§10(b) and 20(a) of the Exchange Act [15 U.S.C. §§78j(b) and 78t(a)] and Rule 10b-5 [17 C.F.R. §240.10b-5] promulgated thereunder by the Securities and Exchange Commission ("SEC"), and pursuant to §§11 and 15 of the Securities Act.

3. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §§1331 and 1337 and §27 of the Exchange Act [15 U.S.C. §78aa], and §22 of the Securities Act [15 U.S.C. §77v].

4. (a) Venue is proper in this District pursuant to §27 of the Exchange Act, and 28 U.S.C. §1391(b). Quintus maintains its principal place of business in this district and many of the acts and practices complained of herein occurred in substantial part in this District.

(b) Assignment of this action to the Oakland Division is appropriate as a substantial part of the acts or omissions identified herein occurred in Alameda County.

5. In connection with the acts alleged in this complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications and the facilities of the national securities markets.

6. (a) Plaintiff Eugene Fershteyn, as set forth in the accompanying certification, incorporated by reference herein, purchased the common stock of Quintus at artificially inflated prices during the Class Period and has been damaged thereby.

(b) Plaintiff John Shaw, as set forth in the accompanying certification, incorporated by reference herein, purchased the common stock of Quintus at artificially inflated prices during the Class Period and has been damaged thereby.

(c) Plaintiff Irving Ravens, as set forth in the accompanying certification, incorporated by reference herein, purchased the common stock of Quintus at artificially inflated prices during the Class Period and has been damaged thereby.

7. Defendant Quintus is a Delaware corporation with its principal executive offices located at 47212 Mission Falls Ct., Fremont, CA 94539. According to the Company, Quintus provides e-Customer Relationship Management or eCRM solutions to manage customer interactions, such as customer orders, inquiries and service requests, across multiple communication channels, including the Internet, e-mail and the telephone.

8. The individual defendants identified below (the "Individual Defendants"), served at all times material to the claims set forth herein, as senior officers and/or directors of Quintus in the positions set forth opposite their names:

Name                               Position

John Burke ("Burke")               President

Alan K. Anderson ("Anderson")      Chairman and Chief Executive Officer

Susan Salvesen ("Salvesen")        Chief Financial Officer

Paul H. Bartlett ("Bartlett")      Director

Andrew Busey ("Busey")             Director

Fredric W. Harman ("Harman")       Director

William Herman ("Herman")          Director

Alexander Rosen ("Rosen")          Director

Robert W. Shaw ("Shaw")            Director

Jeanne Wohlers ("Wohlers")         Director

9. Defendants Anderson, Bartlett, Busey, Harman, Herman, Rosen, Shaw and Wohlers (the "Director Defendants") and Salvesen signed the Registration Statement/Prospectus issued in connection with the Company's November 1999 public offering.

10. Because of defendants Burke, Anderson and Salvesen's positions with the Company, they had access to the adverse undisclosed information about its business, operations, products, operational trends, financial statements, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and/or Board of Directors meetings and committees thereof and via reports and other information provided to them in connection therewith.

11. It is appropriate to treat defendants Burke, Anderson and Salvesen as a group for pleading purposes and to presume that the false, misleading and incomplete information conveyed in the Company's public filings, press releases and other publications as alleged herein are the collective actions of the narrowly defined group of defendants identified above. Each of the above officers of Quintus, by virtue of their high-level positions with the Company, directly participated in the management of the Company, was directly involved in the day-to-day operations of the Company at the highest levels and was privy to confidential proprietary information concerning the Company and its business, operations, products, growth, financial statements, and financial condition, as alleged herein. Said defendants were involved in drafting, producing, reviewing and/or disseminating the false and misleading statements and information alleged herein, were aware, or recklessly disregarded, that the false and misleading statements were being issued regarding the Company, and approved or ratified these statements, in violation of the federal securities laws.

12. As officers and controlling persons of a publicly held company whose common stock was, and is, registered with the SEC pursuant to the Exchange Act, and was traded on the Nasdaq National Stock Exchange (the "Nasdaq"), and governed by the provisions of the federal securities laws, defendants Burke, Anderson and Salvesen each had a duty to promptly disseminate accurate and truthful information with respect to the Company's financial condition and performance, growth, operations, financial statements, business, products, markets, management, earnings and present and future business prospects, and to correct any previously issued statements that had become materially misleading or untrue, so that the market price of the Company's publicly traded securities would be based upon truthful and accurate information. Defendants Burke, Anderson and Salvesen's misrepresentations and omissions during the Class Period violated these specific requirements and obligations.

13. Defendants Burke, Anderson and Salvesen, because of their positions of control and authority as officers and/or directors of the Company, were able to and did control the content of the various SEC filings, press releases and other public statements pertaining to the Company during the Class Period. Each of these defendants was provided with copies of the documents alleged herein to be misleading prior to or shortly after their issuance and/or had the ability and/or opportunity to prevent their issuance or cause them to be corrected. Accordingly, each of these defendants is responsible for the accuracy of the public reports and releases detailed herein and is therefore primarily liable for the representations contained therein.

14. Defendant Donaldson Lufkin & Jenrette Securities Corporation ("DLJ"), the "Lead Underwriter defendant," is an investment banking firm which specializes, inter alia, in underwriting public offerings of securities. This firm served as lead underwriter of the Quintus offering and acted as a representative of the entire syndicate of investment banking firms (the "Defendant Underwriter Class"), including the Lead Underwriter, in helping the Company sell 4.5 million shares of Quintus stock to the public at an artificially inflated price, for which they received over $5.67 million in underwriting fees. In connection with the offering, the Lead Underwriter defendant had access to Quintus and its senior officers and thus had access to and/or obtained Quintus' internal corporate information, including the adverse information omitted and/or misrepresented, as alleged herein. Most, if not all, of the members of the Defendant Underwriter Class were also market-makers in Quintus stock and subsequent to the offering purchased and sold Quintus stock on a daily basis.

15. The Lead Underwriter defendant directly and through its agents and representatives, assisted Quintus and the Individual Defendants in planning the offering, and purportedly conducted an adequate and reasonable investigation into the business and operations of Quintus, an undertaking known as "due diligence" investigation. The due diligence investigation was required of the Lead Underwriter defendant in order to engage in the offering. Prior to the offering, in the course of the investigation, the Lead Underwriter defendant and its agents met with representatives, employees and agents of Quintus, including its senior officers and directors, and reached understandings as to: (i) the strategy to best accomplish the offering; (ii) the terms of the offering; (iii) the language to be used in the Registration Statement and Prospectus; and (iv) what disclosures about Quintus would be made in the Prospectus. As underwriters of the offering, each member of the Defendant Underwriter Class caused the Prospectus to be delivered to potential and actual purchasers of Quintus common stock in connection with the offers to sell and sales thereof.

16. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or otherwise acquired the securities of Quintus between November 16, 1999 and November 15, 2000, inclusive (the "Class Period") and who were damaged thereby. Excluded from the Class are defendants, the officers and directors of the Company, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which defendants have or had a controlling interest.

17. The members of the Class are so numerous that joinder of all members is impracticable. Throughout the Class Period, Quintus common shares were actively traded on the Nasdaq. While the exact number of Class members is unknown to plaintiffs at this time and can only be ascertained through appropriate discovery, plaintiffs believe that there are hundreds or thousands of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by Quintus or its transfer agent and may be notified of the pendency of this action by mail, using a form of notice similar to that customarily used in securities class actions.

18. Plaintiffs' claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by defendants' wrongful conduct in violation of federal law that is complained of herein.

19. Plaintiffs will fairly and adequately protect the interests of the members of the Class and have retained counsel competent and experienced in class and securities litigation.

20. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are:

(a) whether the federal securities laws were violated by defendants' acts as alleged herein;

(b) whether statements made by defendants to the investing public during the Class Period misrepresented material facts about the business, operations, and financial statements of Quintus; and

(c) to what extent the members of the Class have sustained damages and the proper measure of damages.

21. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this action as a class action.

22. According to the Company, Quintus provides e-Customer Relationship Management or eCRM solutions to manage customer interactions, such as customer orders, inquiries and service requests, and deliver consistent customer service across multiple communication channels, including the Internet, email and the telephone. The Company claims that its eContact software suite includes applications that address the needs of customer service representatives and agents in sales and service, consumer relations, technical support and human resources centers and a routing engine to manage customer interactions. These applications and the Company's routing engine are sold separately or together. eContact enables companies to handle high volumes of customer interactions and leverage opportunities to sell additional products and services to their customers.

23. On November 15, 2000, Quintus issued a press release stating, among other things, that the Board of Directors of Quintus announced that PricewaterhouseCoopers LLP had been engaged to investigate certain financial reporting matters, under the supervision of the Audit Committee of the Board of Directors. The following initial actions have been taken in connection with the investigation:

Quintus Corporation has delayed filing with the Securities and Exchange Commission its Form 10-Q for the quarter ended September 30, 2000, pending completion of the investigation of revenue and accounts receivable for that period, previously announced on October 17, 2000, as well as for earlier periods. Among the issues under review is Quintus' statement, on October 17, 2000, that it had collected a receivable from an outsourcing company. Subsequent to that announcement, it has become unclear whether funds received by Quintus, apparently in satisfaction of that receivable, were in fact paid by or on behalf of the outsourcing company. Quintus is reviewing the circumstances surrounding the transaction to determine an appropriate course of action.

Quintus' Board of Directors has placed Chairman and Chief Executive Officer Alan Anderson on administrative leave. The Board of Directors has designated Paul Bartlett, the company's Chief Operating Officer, as the acting Chief Executive Officer of the company. Mr. Bartlett and the company's Chief Financial Officer are assisting in the Audit Committee's investigation.

Materially False and Misleading Statements
Made in the Prospectus and During the Class Period

25. The Class Period begins on November 16, 1999. On or about this day, in connection with its $81 million IPO, defendants disseminated a Registration Statement and Prospectus which was false and misleading in that it contained in the following materially false statements:

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.

* * *

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

27. On November 17, 1999, immediately after the Registration Statement was made public, as Quintus' shares made their trading debut, the value of Quintus shares tripled. According to Bloomberg news service, the shares, originally priced at $18, rose $37 to $55 per share in trading volume of over 10.1 million shares. By the end of trading on the first day, the Company had achieved market capitalization of over $1.77 billion. In addition to the huge market capitalization of the Company, Bloomberg also reported that, as a result of the increase in the value of Quintus' shares, Quintus' 36-year-old CEO Alan Anderson's stake was now worth $62.9 million and the stake held by DLJ was then worth $651.3 million. According to Bloomberg, DLJ made its investment in Quintus in 1995. DLJ's gain on its investment would equal $622.8 million, based on an average share price for existing shareholders of $2.41.

28. On January 19, 2000, Quintus issued a press release published on Business Wire which purported to announce "record" revenues for fiscal Q3 2000. According to the press release:

Revenues for the quarter were $13.5 million, a 127% increase over revenues of $6.0 million in the third quarter of fiscal year 1999. On a pro forma basis, ... net loss for the quarter was $3.2 million or $(.12) per share, compared to $5.1 million or $(.26) per share, for the same period in fiscal 1999.

"We are very pleased with the results of this quarter. We recorded revenues, managed our costs, completed the acquisition of Acuity, and continued to see validation of the industry embracing Quintus eContact," said Alan Anderson, Chairman and CEO of Quintus Corporation. "We continue to see demand for our eContact suite from both brick and mortar companies and dot.com businesses. In addition, Ziptone, a leading provider of live, outsourced customer support services for e-commerce Web sites, and Ticketmaster, the worldwide leader in event ticketing, selected Quintus eContact as their platform of choice."

Mustang.com, based in Bakersfield, California, makes software that manages companies' e-mail. Quintus, which went public Nov. 16, said it's trying to manage customer orders and service requests and provide customer services over the telephone, the Internet and with e-mail.

"The Internet has changed everything about how customers are treating companies; customers are placing orders on their cell phones, on Web sites and via e-mail," said Alan Anderson, Quintus chairman and chief executive. "As they force companies to deploy more services, companies have got to be able to record the contact history."

The combined company will have 750 customers, including Microsoft Corp., Lucent Technologies Inc. and Sun Microsystem, Inc. The transaction is expected to close by next quarter.

Revenues for the quarter were $16.1 million, a 90% increase over revenues of $8.5 million in the fourth quarter of fiscal year 1999. On a pro forma basis, .... net loss from continuing operations for the quarter was $2.0 million or $(.06) per share, compared to $172,000 or $(.01) per share, for the same period in fiscal 1999.

For fiscal year 2000, revenues were $51.7 million compared to $30.3 million for the same period last year, an increase of 71%.... [N]et loss from continuing operations for the year was $4.6 million or $(.18) per share, compared to $7.2 million or $(.38) per share, for the same period in fiscal 1999.

* * *

"This has been an exciting year for Quintus. We announced two strategic acquisitions - Mustang.com and Acuity Corporation, completed our initial public offering, expanded our distribution channels, deployed the Quintus eContact Suite - one of the most comprehensive eCRM offerings available today, and we grew our revenues by over 70% year over year, exceeding $51 million in fiscal year 2000," said Alan Anderson, Chairman and CEO of Quintus Corporation.

"We are pleased to report our third consecutive quarter as a public company in which we have shown record revenues, exceeded analyst expectations and have narrowed our pro forma loss per share," said Alan Anderson, Chairman and CEO of Quintus Corporation. "During the past quarter we continued to expand our distribution channels, both direct and indirect. We have significantly strengthened our sales force this quarter and believe we are well positioned to continue to capitalize on the growth in the eCRM market."

The accompanying unaudited condensed consolidated financial statements have been prepared by Quintus Corporation (the "Quintus") and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of its financial position and results of operations for the interim periods. The statements have been prepared in accordance with the regulations of the Securities and Exchange Commission.

34. The statements made by defendants and reproduced herein in ¶¶25, 28-33 were materially false and misleading and known by defendants to be false and misleading at the time of their publication for the reasons stated herein in ¶¶38-40.

Quintus Announces that It Will "Revise"
Financial Statements for 1999

35. On November 15, 2000, Quintus issued a press release stating, among other things, that the Board of Directors of Quintus announced that PricewaterhouseCoopers LLP had been engaged to investigate certain financial reporting matters, under the supervision of the Audit Committee of the Board of Directors. The following initial actions were taken in connection with the investigation:

Quintus Corporation has delayed filing with the Securities and Exchange Commission its Form 10-Q for the quarter ended September 30, 2000, pending completion of the investigation of revenue and accounts receivable for that period, previously announced on October 17, 2000, as well as for earlier periods. Among the issues under review is Quintus' statement, on October 17, 2000, that it had collected a receivable from an outsourcing company. Subsequent to that announcement, it has become unclear whether funds received by Quintus, apparently in satisfaction of that receivable, were in fact paid by or on behalf of the outsourcing company. Quintus is reviewing the circumstances surrounding the transaction to determine an appropriate course of action.

Quintus' Board of Directors has placed Chairman and Chief Executive Officer Alan Anderson on administrative leave. The Board of Directors has designated Paul Bartlett, the company's Chief Operating Officer, as the acting Chief Executive Officer of the company. Mr. Bartlett and the company's Chief Financial Officer are assisting in the Audit Committee's investigation.

37. Following the Company's shocking disclosure and the punitive decline in the value of Quintus shares, by 12:38 Eastern Time, the Nasdaq halted trading of Quintus shares until such time as Quintus fully satisfied the Nasdaq's request for additional information.

Undisclosed Adverse Information

38. The market for Quintus' securities was open, well-developed and efficient at all relevant times. As a result of these materially false and misleading statements and failures to disclose, Quintus common stock traded at artificially inflated prices during the Class Period. The artificial inflation continued until the time Quintus admitted that it had falsely reported its revenues, income and earnings, and this admission was communicated to, and/or digested by, the securities markets. Plaintiffs and other members of the Class purchased or otherwise acquired Quintus securities relying upon the integrity of the market price of Quintus securities and market information relating to Quintus, and have been damaged thereby.

39. During the Class Period, defendants materially misled the investing public, thereby inflating the price of Quintus securities, by publicly issuing false and misleading statements and omitting to disclose material facts necessary in order to make defendants' statements, as set forth herein, not false and misleading. Said statements and omissions were materially false and misleading in that they failed to disclose material adverse information and misrepresented the truth about the Company, its business and operations, including, inter alia, that:

(a) the Company's financial statements were false and were not prepared in accordance with GAAP or in accordance with the federal securities laws and SEC regulations concerning fair reporting;

(b) the Company had violated GAAP and its own accounting policies by improperly recognizing income and earnings;

(c) the Company's seeming growth was the result of improper accounting entries;

(d) the Company's estimates, projections and opinions as to its expected revenues, earnings, income and the value of its stock were lacking a reasonable basis at all relevant times; and

(e) defendants concealed and failed to disclose that, at all times during the Class Period, Quintus lacked the necessary financial and operational controls to ensure that its financial statements were true and accurate, and not materially false and misleading.

40. At all relevant times, the material misrepresentations and omissions particularized in this Complaint were directly or proximately caused, or were a substantial contributing cause of, the damages sustained by plaintiffs and other members of the Class. As described herein, during the Class Period, defendants made or caused to be made a series of materially false or misleading statements about Quintus' business, prospects and operations. These material misstatements and omissions had the cause and effect of creating in the market an unrealistically positive assessment of Quintus and its business, prospects and operations, thus causing the Company's securities to be overvalued and artificially inflated at all relevant times. Defendants' materially false and misleading statements during the Class Period resulted in plaintiffs and other members of the Class purchasing the Company's securities at artificially inflated prices, thus causing the damages complained of herein.

41. Quintus reported financial results which were false and deceived members of the investing public who purchased Quintus securities based upon those representations.

42. During the Class Period, defendants materially misled the investing public, thereby inflating the price of Quintus securities by publicly issuing false and misleading statements and omitting to disclose material facts necessary to make defendants' statements, as set forth herein, not false and misleading. Said statements and omissions were materially false and misleading in that they failed to disclose material adverse information and misrepresented the truth about the Company, its financial performance, accounting, reporting and condition, including, inter alia:

(a) During the Class Period, the Company reported revenues, income and earnings per share that were materially overstated;

(b) The Company's financial statements did not present, in all material respects, the Company's true financial condition, and did not reflect all adjustments which were necessary for a fair statement of the interim and full year period presented; and

(c) Interim financial statements reported by the Company were not presented in conformity with GAAP or principles of fair reporting.

43. In addition, the defendants falsely and materially overstated the Company's net income and earnings per share for each of the quarterly periods during the Class Period. Moreover:

(a) Defendants failed to disclose the existence of known trends, events or uncertainties that they reasonably expected would have a material unfavorable impact on net revenues or income or that were reasonably likely to result in the Company's liquidity decreasing in a material way, in violation of Item 303 of Regulation S-K under the federal securities laws (17 C.F.R. §229.303), and that failure to disclose rendered the statements that were made during the Class Period materially false and misleading; and

(b) By failing to file financial statements with the SEC which conformed to the requirements of GAAP, such financial statements were presumptively misleading and inaccurate pursuant to Regulation S-X, 17 C.F.R. §210.4-01(a)(1).

44. As a result of its accounting improprieties, the Company's reported financial results (and all defendants) also violated at least the following provisions of GAAP for which each defendant is responsible:

(a) The principle that financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit and similar decisions was violated (FASB Statement of Concepts No. 1, ¶34);

(b) The principle that financial reporting should provide information about the economic resources of an enterprise, the claims to those resources, and the effects of transactions, events and circumstances that change resources and claims to those resources was violated (FASB Statement of Concepts No. 1, ¶40);

(c) The principle that financial reporting should provide information about how management of an enterprise has discharged its stewardship responsibility to owners (stockholders) for the use of enterprise resources entrusted to it was violated. To the extent that management offers securities of the enterprise to the public, it voluntarily accepts wider responsibilities for accountability to prospective investors and to the public in general (FASB Statement of Concepts No. 1, ¶50);

(d) The principle that financial reporting should provide information about an enterprise's financial performance during a period was violated. Investors and creditors often use information about the past to help in assessing the prospects of an enterprise. Thus, although investment and credit decisions reflect investors' expectations about future enterprise performance, those expectations are commonly based at least partly on evaluations of past enterprise performance (FASB Statement of Concepts No. 1, ¶42);

(e) The principle that financial reporting should be reliable in that it represents what it purports to represent was violated. That information should be reliable as well as relevant is a notion that is central to accounting (FASB Statement of Concepts No. 2, ¶¶58-59);

(f) The principle of completeness, which means that nothing is left out of the information that may be necessary to ensure that it validly represents underlying events and conditions, was violated (FASB Statement of Concepts No. 2, ¶79); and

(g) The principle that conservatism be used as a prudent reaction to uncertainty to try to ensure that uncertainties and risks inherent in business situations are adequately considered was violated. The best way to avoid injury to investors is to try to ensure that what is reported represents what it purports to represent (FASB Statement of Concepts No. 2, ¶¶95, 97).

45. As alleged herein, defendants acted with scienter in that defendants knew that public documents and statements issued or disseminated in the name of the Company were materially false and misleading, knew that such statements or documents would be issued or disseminated to the investing public and knowingly and substantially participated or acquiesced in the issuance or dissemination of such statements or documents as primary violations of the federal securities laws. As set forth elsewhere herein in detail, defendants, by virtue of their receipt of information reflecting the true facts regarding Quintus, their control over, and/or receipt and/or modification of Quintus's allegedly materially misleading misstatements and/or their associations with the Company which made them privy to confidential proprietary information concerning Quintus, participated in the fraudulent scheme alleged herein. In addition, defendants were motivated to commit the fraud as alleged herein because by artificially inflating the price of Quintus stock in February 2000, defendants were able to use over $290 million of their common stock as currency to purchase Mustang.com. In addition, by failing to disclose the impaired condition of the Company on October 25, 2000, only days before the Company announced its true financial condition, defendants were also able to raise $72 million by selling Siemans 8 million shares of stock valued at approximately $9 per share.

46. At all relevant times, the market for Quintus securities was an efficient market for the following reasons, among others:

(a) Quintus stock met the requirements for listing, and was listed and actively traded on the Nasdaq, a highly efficient and automated market;

(b) As a regulated issuer, Quintus filed periodic public reports with the SEC and the Nasdaq;

(c) Quintus regularly communicated with public investors via established market communication mechanisms, including through regular disseminations of press releases on the national circuits of major newswire services and through other wide-ranging public disclosures, such as communications with the financial press and other similar reporting services; and

(d) Quintus was followed by several securities analysts employed by major brokerage firms who wrote reports which were distributed to the sales force and certain customers of their respective brokerage firms. Each of these reports was publicly available and entered the public marketplace.

47. As a result of the foregoing, the market for Quintus securities promptly digested current information regarding Quintus from all publicly available sources and reflected such information in Quintus' stock price. Under these circumstances, all purchasers of Quintus securities during the Class Period suffered similar injury through their purchase of Quintus securities at artificially inflated prices and a presumption of reliance applies.

48. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false statements pleaded in this complaint. Many of the specific statements pleaded herein were not identified as "forward-looking statements" when made. To the extent there were any forward-looking statements, there were no meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the purportedly forward-looking statements. Alternatively, to the extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein, defendants are liable for those false forward-looking statements because at the time each of those forward-looking statements was made, the particular speaker knew that the particular forward-looking statement was false, and/or the forward-looking statement was authorized and/or approved by an executive officer of Quintus who knew that those statements were false when made.

49. Plaintiffs repeat and reallege each and every allegation contained above as if fully set forth herein.

50. During the Class Period, defendants Quintus, Burke, Anderson and Salveson carried out a plan, scheme and course of conduct which was intended to: (i) deceive the investing public, including plaintiffs and other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of Quintus securities; and (iii) cause plaintiffs and other members of the Class to purchase Quintus securities at artificially inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, the above-mentioned defendants, and each of them, took the actions set forth herein.

51. Defendants Quintus, Burke, Anderson and Salveson: (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary in order to make the statements made not misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit upon the purchasers of the Company's securities in an effort to maintain artificially high market prices for Quintus securities in violation of §10(b) of the Exchange Act and Rule 10b-5. The above-mentioned defendants are sued either as primary participants in the wrongful and illegal conduct charged herein or as controlling persons as alleged below.

52. In addition to the duties of full disclosure imposed on defendants as a result of their making, or participation in the making, of affirmative statements and reports to the investing public, defendants Quintus, Burke, Anderson and Salveson had a duty to promptly disseminate truthful information that would be material to investors in compliance with the integrated disclosure provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R. §§210.01, et seq.) and Regulation S-K (17 C.F.R. §§229.10, et seq.) and other SEC regulations, including accurate and truthful information with respect to the Company's operations, financial condition and earnings so that the market price of the Company's securities would be based on truthful, complete and accurate information.

53. Defendants Burke, Anderson and Salvesen, individually and in concert, directly and indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a continuous course of conduct to conceal adverse material information about the business, operations and future prospects of Quintus as specified herein.

54. Defendants Quintus, Burke, Anderson and Salvesen employed devices, schemes and artifices to defraud, while in possession of material adverse non-public information and engaged in acts, practices, and a course of conduct as alleged herein in an effort to assure investors of Quintus' value and performance and continued substantial growth, which included the making of, or the participation in the making of, untrue statements of material facts and omitting to state material facts necessary in order to make the statements made about Quintus and its business operations and future prospects, in the light of the circumstances under which they were made, not misleading, as set forth more particularly herein, and engaged in transactions, practices and a course of business which operated as a fraud and deceit upon the purchasers of Quintus securities during the Class Period.

55. Defendants Quintus, Burke, Anderson and Salvesen's primary liability, and controlling person liability, arises from the following facts: (i) these defendants were high-level executives and/or directors at the Company during the Class Period and members of the Company's management team or had control thereof; (ii) each of these defendants, by virtue of his/her responsibilities and activities as a senior officer and/or director of the Company was privy to and participated in the creation, development and reporting of the Company's internal budgets, plans, projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and familiarity with the other defendants and was advised of and had access to other members of the Company's management team, internal reports and other data and information about the Company's finances, operations, and sales at all relevant times; and (iv) each of these defendants was aware of the Company's dissemination of information to the investing public which they knew or recklessly disregarded was materially false and misleading.

56. Defendants Quintus, Burke, Andersen and Salvesen had actual knowledge of the misrepresentations and omissions of material facts set forth herein, or acted with deliberate disregard for the truth in that they failed to ascertain and to disclose such facts, even though such facts were available to them. Such defendants' material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of concealing Quintus' operating condition and future business prospects from the investing public and supporting the artificially inflated price of its securities. As demonstrated by these defendants' overstatements and misstatements of the Company's business, operations and earnings throughout the Class Period, these defendants, if they did not have actual knowledge of the misrepresentations and omissions alleged, were deliberate in failing to obtain such knowledge by intentionally refraining from taking those steps necessary to discover whether those statements were false or misleading.

57. As a result of the dissemination of the materially false and misleading information and failure to disclose material facts, as set forth above, the market price of Quintus securities was artificially inflated during the Class Period. In ignorance of the fact that market prices of Quintus' publicly traded securities were artificially inflated, and relying directly or indirectly on the false and misleading statements made by defendants Quintus, Burke, Anderson and Salvesen, or upon the integrity of the market in which the securities trade, and/or on the absence of material adverse information that was known to or recklessly disregarded by the defendants but not disclosed in public statements by these defendants during the Class Period, plaintiffs and the other members of the Class acquired Quintus securities during the Class Period at artificially high prices and were damaged thereby.

58. At the time of said misrepresentations and omissions, plaintiffs and other members of the Class were ignorant of their falsity, and believed them to be true. Had plaintiffs and the other members of the Class and the marketplace known of the true financial condition and business prospects of Quintus, which were not disclosed by defendants Quintus, Burke, Anderson and Salvesen, plaintiffs and other members of the Class would not have purchased or otherwise acquired their Quintus securities, or, if they had acquired such securities during the Class Period, they would not have done so at the artificially inflated prices which they paid.

59. By virtue of the foregoing, defendants Quintus, Burke, Anderson and Salvesen have violated §10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder.

60. As a direct and proximate result of defendants Quintus, Burke, Anderson and Salvesen's wrongful conduct, plaintiffs and the other members of the Class suffered damages in connection with their respective purchases and sales of the Company's securities during the Class Period.

61. Plaintiffs repeat and reallege each and every allegation contained above as if fully set forth herein.

62. Defendants Burke, Anderson and Salvesen acted as controlling persons of Quintus within the meaning of §20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions and their ownership and contractual rights, participation in and/or awareness of the Company's operations and/or intimate knowledge of the false financial statements filed by the Company with the SEC and disseminated to the investing public, these defendants had the power to influence and control and did influence and control, directly or indirectly, the decision-making of the Company, including the content and dissemination of the various statements which plaintiffs contend are false and misleading. Quintas controlled the Individual Defendants and each of its employees. The aforementioned defendants were provided with or had unlimited access to copies of the Company's reports, press releases, public filings and other statements alleged by plaintiffs to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements or cause the statements to be corrected.

63. In particular, each of these defendants had direct and supervisory involvement in the day-to-day operations of the Company and, therefore, is presumed to have had the power to control or influence the particular transactions giving rise to the securities violations as alleged herein, and exercised the same.

64. As set forth above, defendants Quintus, Burke, Anderson and Salvesen each violated §10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their positions as controlling persons, these defendants are liable pursuant to §20(a) of the Exchange Act. As a direct and proximate result of these defendants' wrongful conduct, plaintiffs and other members of the Class suffered damages in connection with their purchases of the Company's securities during the Class Period.

65. Plaintiffs repeat and reallege ¶¶22-27 and 38-40 as if fully reproduced hereunder and pursuant to the Claims herein, except all allegations of fraud or intentional misconduct.

66. This Claim for Relief is brought by plaintiffs pursuant to §11 of the Securities Act, 15 U.S.C. §77k, on behalf of the Class, against Quintus and the Director Defendants.

67. The Registration Statement and Prospectus issued in connection with the November 16, 1999 offering of 4.5 million shares of Quintus common stock priced at $18 per share, which raised total aggregate proceeds of $81 million, was inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading, and failed adequately to disclose material facts as described above. Specifically, the Registration Statement and Prospectus each failed to disclose the fact that the Company lacked significant and necessary internal controls such that it could not manage its operations and report its financial results in accordance with GAAP and SEC rules. These omissions, therefore, were a violation of SEC Regulation S-K, Item 303(a), which requires that all adverse conditions and trends which are having and will continue to have an adverse effect on the registrant's operating results must be disclosed.

68. The Company is the registrant for the offering. As the issuer of the IPO shares, Quintus is strictly liable to plaintiffs and the other members of the Class for the material misstatements in and omissions from the Registration Statement and Prospectus.

69. The Defendant Underwriter Class, guided by the Lead Underwriter defendant, sold stock in the offering as defined in §11(a)(5) of the Securities Act. The Defendant Underwriter Class was, therefore, responsible for the contents and dissemination of the Registration Statement and Prospectus.

70. As underwriters of the offering, each member of the Defendant Underwriter Class owed to the purchasers of the shares of Quintus, including plaintiffs and the other members of the Class, the duty to make a reasonable and diligent investigation of the statements contained in the Prospectus at the time it became effective, to ensure that said statements were true and that there was no omission to state a material fact required to be stated in order to make the statements contained therein not misleading. In the exercise of reasonable care, the Defendant Underwriter Class should have known of the material misstatements and omissions contained in the Prospectus as set forth herein. As such, the Defendant Underwriter Class is liable to plaintiffs and the other members of the Class.

71. None of the defendants named in this Claim made a reasonable investigation or possessed reasonable grounds for the belief that the statements contained in the Registration Statement and Prospectus were true, did not omit any material facts and were not misleading.

72. Each of the defendants named in this Claim issued, caused to be issued and participated in the issuance of materially false and misleading written statements to the investing public which were contained in the Registration Statement and Prospectus, which misrepresented or failed to disclose, inter alia, the adverse facts set forth above. By reasons of the conduct herein alleged, these defendants violated, and/or controlled a person who violated, §11 of the Securities Act.

73. Plaintiffs and the other members of the Class acquired shares pursuant and/or traceable to the IPO and issued pursuant to the Registration Statement and Prospectus.

74. Plaintiffs and the other members of the Class have sustained damages. The value of their shares has declined substantially subsequent to, and due to, defendants' violations.

75. At the times they purchased shares, plaintiffs and the other members of the Class were without knowledge of the facts concerning the wrongful conduct alleged herein and could not have reasonably discovered those facts prior to November 15, 2000. Less than one year has elapsed from the time that plaintiffs discovered or reasonably could have discovered the facts upon which this Complaint is based to the time that plaintiffs filed this Complaint. Less than three years have elapsed from the time that the securities upon which this Claim for Relief is brought were bona fide offered to the public to the time plaintiffs filed this Complaint.

76. Plaintiffs repeat and reallege ¶¶22-27 and 38-40 as if fully reproduced hereunder and pursuant to the Claims herein, except all allegations of fraud or intentional misconduct.

77. This Claim for Relief is brought pursuant to §15 of the Securities Act, 15 U.S.C. §77o, against defendants Burke, Anderson and Salvesen.

78. Defendants Burke, Anderson and Salvesen, by reason of their stock ownership, management position and/or membership on the Company's Board of Directors, were controlling persons of the Company and had the power and influence, and exercised the same, to cause Quintus to engage in the violations of law complained of herein.

79. Quintus controlled each of the Individual Defendants and is liable for their acts pursuant to §15 of the Securities Act.

WHEREFORE, plaintiffs pray for relief and judgment, as follows:

A. Determining that this action is a proper class action pursuant to Rule 23 of the Federal Rules of Civil Procedure;

B. Awarding compensatory damages in favor of plaintiffs and the other Class members against all defendants, jointly and severally, for all damages sustained as a result of defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;

C. Awarding plaintiffs and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and

D. Such other and further relief as the Court may deem just and proper.

Plaintiffs hereby demand a trial by jury.
 

DATED: November 16, 2000

MILBERG WEISS BERSHAD  HYNES & LERACH LLP PATRICK J. COUGHLIN           _________________________ PATRICK J. COUGHLIN 100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: 415/288-4545 MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH DARREN J. ROBBINS 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058 BERNSTEIN LIEBHARD & LIFSHITZ, LLP SANDY A. LIEBHARD MICHAEL S. EGAN 10 East 40th Street New York, NY 10016 Telephone: 212/779-1414 LAW OFFICES OF LAWRENCE G. SOICHER LAWRENCE G. SOICHER 342 Madison Avenue, 18th Floor New York, NY 10173 Telephone: 212/883-8000 DYER & SHUMAN, LLP ROBERT J. DYER III KIP B. SHUMAN 801 East 17th Avenue Denver, CO 80218-1417 Telephone: 303/861-3003 Attorneys for Plaintiffs